DALLAS–(BUSINESS WIRE)–Matador Resources Company (NYSE: MTDR) (“Matador” or the “Company”) today reported financial and operating results for the first quarter of 2019. A short slide presentation summarizing the highlights of Matador’s first quarter 2019 earnings release is also included on the Company’s website at www.matadorresources.com on the Events and Presentations page under the Investor Relations tab.
First Quarter 2019 Financial and Operational Highlights
- First quarter 2019 average daily oil equivalent production increased 8% sequentially to a record quarterly high for the Company of 59,900 barrels of oil equivalent (“BOE”) per day (58% oil) as compared to the fourth quarter of 2018. Average daily oil production increased 3% sequentially to 34,500 barrels per day, and average daily natural gas production increased 15% sequentially to 152.5 million cubic feet per day, each as compared to the fourth quarter of 2018.
- First quarter 2019 Delaware Basin average daily oil equivalent production increased 7% sequentially to a record quarterly high for the Company of 52,600 BOE per day (61% oil) as compared to the fourth quarter of 2018. Delaware Basin average daily oil production increased 2% sequentially to 32,000 barrels per day, and Delaware Basin average daily natural gas production increased 15% sequentially to 123.9 million cubic feet per day, each as compared to the fourth quarter of 2018.
- First quarter 2019 net loss (GAAP basis) was $16.9 million, or a loss of $0.15 per diluted common share, a sequential decrease from net income of $136.7 million in the fourth quarter of 2018, and a year-over-year decrease from net income of $59.9 million in the first quarter of 2018. On a GAAP basis, first quarter 2019 net income was negatively impacted by a non-cash unrealized loss on derivatives of $45.7 million, as oil prices rose throughout much of the first quarter. By comparison, the fourth quarter of 2018 and the first quarter of 2018 were positively impacted by non-cash unrealized gains on derivatives of $74.6 million and $10.4 million, respectively.
- First quarter 2019 adjusted net income (a non-GAAP financial measure) was $21.9 million, or $0.19 per diluted common share, a sequential decrease from $43.0 million in the fourth quarter of 2018, and a year-over-year decrease from $39.1 million in the first quarter of 2018.
- First quarter 2019 adjusted earnings before interest expense, income taxes, depletion, depreciation and amortization and certain other items (“Adjusted EBITDA,” a non-GAAP financial measure) was $124.8 million, a sequential decrease from $143.2 million in the fourth quarter of 2018, and a year-over-year increase from $117.3 million in the first quarter of 2018.
- In February 2019, Matador announced a second strategic midstream transaction with a subsidiary of Five Point Energy LLC (“Five Point”) to expand San Mateo’s (as defined below) natural gas gathering and processing, salt water gathering and disposal and oil gathering operations in the Delaware Basin (please see Matador’s February 25, 2019 press release for additional information). As part of this transaction, Five Point has committed to carry Matador for $125 million of the first $150 million in capital expenditures (i.e., Matador will pay $25 million and Five Point will pay $125 million). In addition, Five Point has also provided Matador the opportunity to earn deferred performance incentives of up to $150 million over the next five years (over and above those performance incentives associated with the 2017 formation of the San Mateo joint venture), plus additional performance incentives to bring in third-party customers.
- Matador incurred capital expenditures, excluding land and mineral acquisitions, of approximately $193 million, including $177 million for drilling, completing and equipping wells (“D/C/E”) and $16 million for midstream investments in the first quarter of 2019, which primarily represented Matador’s proportionate share of San Mateo’s first quarter capital expenditures. Matador’s D/C/E and midstream capital expenditures were below its estimates of $190 million and $22 million, respectively, for the first quarter of 2019. Matador estimates that approximately $10 million of the difference in D/C/E capital expenditures resulted from lower-than-expected well costs on certain wells in both the Delaware Basin and South Texas, primarily attributable to lower-than-expected completion costs, including from the use of increased quantities of regional sand in the Delaware Basin.
Note: All references to net income (loss), adjusted net income and Adjusted EBITDA reported throughout this earnings release are those values attributable to Matador Resources Company shareholders after giving effect to any net income, net loss or Adjusted EBITDA, respectively, attributable to third-party non-controlling interests, including in San Mateo Midstream, LLC (“San Mateo I”) and San Mateo Midstream II, LLC (“San Mateo II,” and, together with San Mateo I, “San Mateo”). For a definition of adjusted net income (loss), adjusted earnings per diluted common share and Adjusted EBITDA and reconciliations of such non-GAAP financial metrics to their comparable GAAP metrics, please see “Supplemental Non-GAAP Financial Measures” below.
Sequential and year-over-year quarterly comparisons of selected financial and operating items are shown in the following table:
|Three Months Ended|
|March 31, 2019||December 31, 2018||March 31, 2018|
|Net Production Volumes:(1)|
|Natural gas (Bcf)(3)||13.7||12.2||10.2|
|Total oil equivalent (MBOE)(4)||5,395||5,109||4,075|
|Average Daily Production Volumes:(1)|
|Natural gas (MMcf/d)(6)||152.5||132.3||112.9|
|Total oil equivalent (BOE/d)(7)||59,941||55,536||45,273|
|Average Sales Prices:|
|Oil, without realized derivatives (per Bbl)||$||49.64||$||49.09||$||62.20|
|Oil, with realized derivatives (per Bbl)||$||50.72||$||50.75||$||60.40|
|Natural gas, without realized derivatives (per Mcf)(8)||$||2.85||$||3.47||$||3.33|
|Natural gas, with realized derivatives (per Mcf)||$||2.84||$||3.35||$||3.33|
|Oil and natural gas revenues||$||193.3||$||193.5||$||182.0|
|Third-party midstream services revenues||$||11.8||$||8.6||$||3.1|
|Realized gain (loss) on derivatives||$||3.3||$||3.7||$||(4.3||)|
|Operating Expenses (per BOE):|
|Production taxes, transportation and processing||$||3.65||$||3.53||$||4.37|
|Plant and other midstream services operating||$||1.73||$||1.45||$||1.04|
|Depletion, depreciation and amortization||$||14.25||$||14.19||$||13.59|
|General and administrative(9)||$||3.39||$||2.66||$||4.40|
|Net sales of purchased natural gas(11)||$||0.6||$||0.4||$||—|
|Lease bonus – mineral acreage||$||—||$||2.5||$||—|
|Net (loss) income (millions)(12)||$||(16.9||)||$||136.7||$||59.9|
|(Loss) earnings per common share (diluted)(12)||$||(0.15||)||$||1.17||$||0.55|
|Adjusted net income (millions)(12)(13)||$||21.9||$||43.0||$||39.1|
|Adjusted earnings per common share (diluted)(12)(14)||$||0.19||$||0.37||$||0.36|
|Adjusted EBITDA (millions)(12)(15)||$||124.8||$||143.2||$||117.3|
(1) Production volumes reported in two streams: oil and natural gas, including both dry and liquids-rich natural gas.
(2) One thousand barrels of oil.
(3) One billion cubic feet of natural gas.
(4) One thousand barrels of oil equivalent, estimated using a conversion ratio of one barrel of oil per six thousand cubic feet of natural gas.
(5) Barrels of oil per day.
(6) Millions of cubic feet of natural gas per day.
(7) Barrels of oil equivalent per day, estimated using a conversion ratio of one barrel of oil per six thousand cubic feet of natural gas.
(8) Per thousand cubic feet of natural gas.
(9) Includes approximately $0.85, $0.67 and $1.03 per BOE of non-cash, stock-based compensation expense in the first quarter of 2019, the fourth quarter of 2018 and the first quarter of 2018, respectively.
(10) Total does not include the impact of purchased natural gas or immaterial accretion expenses.
(11) Net sales of purchased natural gas refers to residue natural gas and natural gas liquids that are purchased from a customer, primarily by San Mateo, and subsequently resold. Such amounts reflect revenues from sales of purchased natural gas of $11.2 million, $7.1 million and zero less expenses of $10.6 million, $6.6 million and zero in the first quarter of 2019, the fourth quarter of 2018 and the first quarter of 2018, respectively.
(12) Attributable to Matador Resources Company shareholders.
(13) Adjusted net income is a non-GAAP financial measure. For a definition of adjusted net income and a reconciliation of adjusted net income (non-GAAP) to net (loss) income (GAAP), please see “Supplemental Non-GAAP Financial Measures.”
(14) Adjusted earnings per diluted common share is a non-GAAP financial measure. For a definition of adjusted earnings per diluted common share and a reconciliation of adjusted earnings per diluted common share (non-GAAP) to earnings (loss) per diluted common share (GAAP), please see “Supplemental Non-GAAP Financial Measures.”
(15) Adjusted EBITDA is a non-GAAP financial measure. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA (non-GAAP) to net (loss) income (GAAP) and net cash provided by operating activities (GAAP), please see “Supplemental Non-GAAP Financial Measures.”
Joseph Wm. Foran, Matador’s Chairman and CEO, commented, “The first quarter of 2019 was another well executed quarter for Matador, evidenced by strong operational and financial results and highlighted by the announcement of a second strategic midstream transaction with our joint venture partner, Five Point, to expand San Mateo’s natural gas gathering and processing, salt water gathering and disposal and oil gathering operations in the Delaware Basin. Notably, our asset teams continued to deliver strong well results across each of our asset areas in the Delaware Basin during the first quarter, and as a result, our Delaware Basin average daily oil equivalent production exceeded 50,000 BOE per day for the first time, reaching 52,600 BOE per day. Matador’s total oil, natural gas and oil equivalent production were all at record highs in the first quarter, with our average daily oil equivalent production at just under 60,000 BOE per day. In addition, during the first quarter of 2019, Matador announced a 28% increase in its Delaware Basin inventory to approximately 2,300 net operated drilling locations at December 31, 2018, and, consistent with our prior estimates, these estimated future drilling locations were based almost entirely on a 160-acre well spacing pattern to mitigate potential “parent-child” well interference problems.
“We continued to make progress with our various capital discipline and capital efficiency initiatives during the first quarter of 2019, as we seek to more closely balance capital spending with cash flows and other sources of capital. As previously reported, we completed our nine-well South Texas drilling program during the first quarter and released the related rig in early February. Five of these wells were completed and turned to sales as of the end of the first quarter, and the remaining four wells have been or are expected to be turned to sales during the second quarter. As noted above, we entered into a capital efficient transaction for the expansion of San Mateo, whereby Matador expects to receive a $50 million capital carry from Five Point. We are also working to implement practices to improve the capital efficiency of our drilling and completion operations and are pleased to report that capital expenditures associated with drilling, completing and equipping certain of our operated wells in the Delaware Basin and South Texas were approximately $10 million less during the first quarter than we had originally estimated, primarily attributable to lower-than-expected stimulation costs, including from the use of increased quantities of regional sand in our stimulation operations.
“As promised, we also continued working to narrow any spending gap for 2019 by converting certain non-cash assets to cash and by divesting portions of our non-core assets, particularly in South Texas and in the Haynesville shale. As reported in our fourth quarter 2018 earnings release on February 26, 2019, our initial efforts were expected to result in approximately $50 to $55 million in cash to Matador’s balance sheet from a number of transactions closed or under contract to close, not including the $50 million in capital carry we expect from Five Point as part of the San Mateo expansion. Today, we are pleased to report that we have closed or have under contract to sell and have received or expect to receive shortly the proceeds from most of these initial efforts, which include specifically, among others, (i) $14.7 million in performance incentives received from Five Point in March 2019 attributable to the formation of San Mateo I and (ii) approximately $18 million attributable to the sale of portions of our Eagle Ford and Haynesville properties. We continue to receive offers from other operators on our various properties in South Texas and Northwest Louisiana and East Texas, and we expect to report progress in future periods toward divesting additional portions of these assets as we identify and complete satisfactory transactions.
“We are encouraged by the recent increase in oil prices and have taken advantage of this uptick in prices to increase our oil hedging position such that approximately 70% of our anticipated oil production is now hedged for the remainder of 2019. Of course, should oil prices remain at their current levels or increase further, the additional cash flows we may receive above our original expectations for 2019 should also help to narrow any spending gap. In addition, we look forward to the improvements in capital efficiency we expect to achieve as Matador begins to drill more one and a half to two mile laterals during the remainder of 2019 and into 2020. As a result of our continuing land efforts to make small acreage acquisitions and execute strategic acreage trades, Matador now expects that approximately 85% of the wells we plan to complete and turn to sales in 2020 will have lateral lengths greater than one mile. Please review the short slide presentation accompanying this earnings release for additional information on our continuing efforts to improve capital efficiency throughout 2019 and 2020.
“We remain confident in the plan we provided to investors on February 26, 2019 to methodically grow the per share value of Matador by drilling better wells, improving our capital efficiencies and coordinating our highly complementary exploration, production and midstream activities. In this manner, we are committed to continuing to build value for Matador shareholders.”
First Quarter 2019 Capital Expenditures
During the first quarter of 2019, Matador incurred capital expenditures, excluding land and mineral acquisitions, of approximately $193 million, including $177 million for D/C/E capital expenditures and $16 million for midstream investments, which was approximately $19 million below the Company’s first quarter estimates of $212 million for D/C/E and midstream capital expenditures.
D/C/E capital expenditures associated with Matador’s operated and non-operated wells were approximately $13 million below the Company’s estimate of $190 million for the first quarter of 2019. Approximately $10 million of this difference resulted from well costs that came in below the Company’s estimates on certain wells in both the Delaware Basin and in South Texas. These lower well costs were primarily attributable to lower-than-expected completion costs, including from the use of increased quantities of regional sand in the Company’s stimulation operations in the Delaware Basin. These savings were partially offset by approximately $5 million in increased D/C/E capital expenditures resulting from Matador acquiring additional working interests in certain wells drilled and/or completed in the first quarter. The remaining $8 million of the difference in D/C/E capital expenditures was primarily attributable to certain non-operated wells that were expected to be in progress during the first quarter of 2019 but are now expected to be deferred into the second or third quarters of 2019. Matador is encouraged by the $10 million savings in D/C/E capital expenditures attributable to lower well costs in the first quarter of 2019 and hopes these results may prove to be sustainable in the second through fourth quarters of 2019, although the Company is making no adjustment at this time to its full year 2019 D/C/E capital expenditure guidance as provided on February 26, 2019.
Midstream capital expenditures of approximately $16 million, which primarily represented Matador’s proportionate share of San Mateo’s first quarter capital expenditures, was $6 million below the Company’s estimates of $22 million for the first quarter of 2019. These lower-than-expected midstream capital expenditures primarily resulted from the initiation of certain projects, mostly associated with San Mateo I, being deferred from late in the first quarter into the second quarter of 2019.
Significant Well Results
The following table highlights the 24-hour initial potential (“IP”) test results from certain of Matador’s operated wells recently completed and turned to sales in the Delaware Basin. Matador continues to be pleased with its well results across its acreage position in the Delaware Basin and particularly with a number of better-than-expected well results during the first quarter of 2019.
|Completion||24-hr IP||BOE/d /||Oil|
|Asset Area/Well Name||Interval||(BOE/d)||1,000 ft.(1)||(%)||Comments|
|Antelope Ridge, Lea County, NM|
|Charles Ling Fed Com #211H||
|2,788||578||77%||Excellent well results from Charles Ling Wolfcamp A-Lower completions in Antelope Ridge—all wells drilled and completed simultaneously in the same horizon.|
|Charles Ling Fed Com #212H||
|Charles Ling Fed Com #213H||
|Charles Ling Fed Com #214H||
|Wolf, Loving County, TX|
|Howard Posner 83-TTT-B33 WF #203H||Wolfcamp
|2,382||318||58%||Two additional excellent Wolfcamp A-XY wells completed in the Wolf asset area.|
|Howard Posner 83-TTT-B33 WF #204H||Wolfcamp
|South Texas, La Salle County, TX|
|Lloyd Hurt C #12H||Eagle Ford||1,201||138||85%||Solid Eagle Ford shale well results in South Texas—Matador’s two highest reported 24-hr IP rates for wells completed to date in far northwest La Salle County.|
|Lloyd Hurt D #13H||Eagle Ford||968||109||85%|
(1) 24-hour IP per 1,000 feet of completed lateral length.
In the Antelope Ridge asset area, Matador was particularly pleased with the results of its Charles Ling wells, four Wolfcamp A-Lower wells completed and turned to sales in the last few days of the first quarter of 2019 in the western portion of the asset area. The four Charles Ling wells (Charles Ling Fed Com #211H, #212H, #213H and #214H) flowed at an average of 2,932 BOE per day (75% oil), including 2,187 barrels of oil per day and 4.5 million cubic feet of natural gas per day, during 24-hour IP tests from completed lateral lengths of approximately 4,600 to 4,800 feet. These four wells were all successful additional tests of the Wolfcamp A-Lower formation, further evidencing the prospectivity of this interval across much of the Company’s acreage in the Antelope Ridge asset area. Matador owns a working interest of approximately 60 to 65% in these Charles Ling wells.
Matador also continues to experience success with the longer laterals (greater than one mile) it has drilled recently in the Wolf asset area. The Howard Posner 83-TTT-B33 WF #203H and #204H (Howard Posner #203H and #204H) wells, both Wolfcamp A-XY completions, tested 2,382 BOE per day (58% oil) and 1,813 BOE per day (60% oil), respectively, during 24-hour IP tests. Both the Howard Posner #203H and #204H wells had completed lateral lengths of approximately 7,500 feet.
In South Texas, Matador was also pleased with the results of its Lloyd Hurt C #12H and D #13H wells drilled and completed in northwest La Salle County, Texas. The Lloyd Hurt C #12H and D #13H wells, which targeted the Eagle Ford shale, flowed an average of 1,085 BOE per day (85% oil), including 923 barrels of oil per day and 1.0 million cubic feet of natural gas per day, during 24-hour IP tests from completed lateral lengths of approximately 8,800 feet. These wells mark the two best 24-hour IP test results from any wells that Matador has completed to date in its far northwest La Salle County acreage. Matador also completed and turned to sales its Lloyd Hurt AC-C #26H well, the Company’s first Austin Chalk test in La Salle County, in late March 2019. This well is still cleaning up and improving following stimulation, and the Company continues to be encouraged by its early performance. Matador expects to provide further details on the results of this well at a later date.
Drilling and Completion Activities
During the first quarter of 2019, Matador continued to focus primarily on the exploration, delineation and development of its Delaware Basin acreage position in Loving County, Texas and Lea and Eddy Counties, New Mexico. Matador began 2019 operating six drilling rigs in the Delaware Basin, and the Company operated six drilling rigs there as of May 1, 2019. During the first quarter, these six operated drilling rigs were deployed across the Company’s Delaware Basin asset areas, but with an increased focus on the Antelope Ridge asset area in early 2019. Matador expects to continue operating these six drilling rigs in the Delaware Basin throughout the remainder of 2019, with four rigs operating between the Rustler Breaks and Antelope Ridge asset areas, one rig operating in the Wolf and Jackson Trust asset areas and one rig operating in the Arrowhead, Ranger and Twin Lakes asset areas, although this rig, in particular, is expected to operate in the Stebbins area and surrounding leaseholds (the “Greater Stebbins Area”) in the southern portion of the Arrowhead asset area for most of the remainder of 2019. While Matador anticipates operating six drilling rigs for the remainder of 2019, the Company may consider adjusting its drilling program based upon commodity prices and other economic circumstances.
As previously reported, in October 2018, the Company added a seventh operated drilling rig to its drilling program on a short-term contract in South Texas to drill up to ten wells, primarily in the Eagle Ford shale, to take advantage of higher oil and natural gas prices in South Texas, to conduct at least one exploratory test of the Austin Chalk formation and to validate and hold by production almost all of its remaining undeveloped acreage in South Texas. This rig operated in South Texas throughout the fourth quarter of 2018 and into early 2019. In response to declining oil prices in the fourth quarter of 2018 and into early 2019, and in an effort to more closely align the Company’s 2019 projected capital expenditures and cash flows, when drilling operations were finalized on the ninth well in early February 2019, this rig was released and was not moved to the Delaware Basin as the Company had previously anticipated.
Capital Markets Coordinator