DALLAS--(BUSINESS WIRE)--Matador Resources Company (NYSE: MTDR) (“Matador” or the “Company”) today reported financial and operating results for the third quarter of 2020. A short slide presentation summarizing the highlights of Matador’s third quarter 2020 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.

Third Quarter 2020 Management Summary Comments

Joseph Wm. Foran, Matador’s Chairman and CEO, commented, “On both our website and for the webcast planned for tomorrow’s earnings conference call is a set of five slides identified as ‘Chairman’s Remarks’ (Slides A through E) to add color and detail to my remarks. We invite you to review these slides in conjunction with my comments below, which are intended to provide context for the quarter compared to Matador’s goals for the year.

“Matador completed and turned to sales earlier this year the first six Rodney Robinson wells in the western portion of our Antelope Ridge asset area and the first five Ray wells in our Rustler Breaks asset area, all of which were two-mile laterals. Turning these wells to production represented the first two of five operational ‘milestones’ that Matador identified as essential to our success in 2020, as noted in Slide A. These wells have all continued to perform above expectations. The Rodney Robinson wells have produced in aggregate approximately 2.1 million BOE in just over six months of production, and the Ray wells have produced in aggregate approximately 1.2 million BOE in approximately five months of production.

“The third quarter of 2020 was another positive quarter for Matador, highlighted by the completion of three more significant and long-anticipated operational milestones. First, Matador completed and turned to sales the first 13 Boros wells in our Stateline asset area in southeastern Eddy County, New Mexico with better-than-anticipated results and lower-than-estimated capital expenditures. Second, San Mateo, our midstream affiliate, completed and placed in service an expansion of the Black River Processing Plant and approximately 43 miles of large-diameter natural gas and oil pipelines in Eddy County, both on time and on budget. The successful completion of these two significant projects reflects the vision, execution and determination of the Matador and San Mateo teams to achieve the goals Matador set as part of the Bureau of Land Management lease acquisition two years ago in terms of improved capital efficiency, production and reserves growth and midstream expansion (see Slide A). Third, over the summer, Matador also successfully completed the fifth and the final of its operational milestones when we turned to sales the five Leatherneck wells in the Greater Stebbins Area. Today, the oil, natural gas and water production from both the Stateline asset area and the Greater Stebbins Area, as well as the Wolf and Rustler Breaks asset areas, is being gathered by San Mateo via its 335 miles of midstream pipeline infrastructure. As a result of these accomplishments, we expect Matador’s oil, natural gas and total production and San Mateo’s revenues to reach record levels during the fourth quarter of 2020.

“The Board and I would like to congratulate and commend the Matador and San Mateo teams for their strong execution and professionalism to complete these operational milestones as planned. Despite the recent challenges of the novel coronavirus and the abrupt decline in oil prices experienced since early March, the Matador and San Mateo teams have kept their ‘eyes on the ball.’ In doing so, they have delivered multiple important projects in 2020 that are providing significant value for Matador and its stakeholders.

“Consistent with our revised plans for 2020 as provided in early March, we operated three drilling rigs during the third quarter, and we continued to achieve record-low unit operating expenses and drilling and completion costs per lateral foot. As a consequence of our increasing production and various cost reductions, our ability to be free cash flow positive is clearly in sight. In fact, we fully expect to generate free cash flow in the fourth quarter of 2020 and in 2021 at current strip prices for oil and natural gas (see Slide B).

“During the third quarter of 2020, our operations team once again led the way in our ongoing efforts to improve capital efficiency and operating costs, achieving better-than-anticipated capital expenditures and operating expenses. Drilling and completion costs for all operated horizontal wells completed and turned to sales in the third quarter of 2020 averaged $790 per completed lateral foot, an all-time low for Matador (see Slide C). Operating expenses in the third quarter of 2020 were also at or near all-time lows for Matador. Lease operating expenses on a unit-of-production basis declined 11% sequentially to $3.48 per BOE in the third quarter, an all-time low for Matador, resulting primarily from our continued efforts to reduce costs in the field, including 98% of our produced water now being gathered via pipeline. General and administrative expenses on a unit-of-production basis were $2.25 per BOE in the third quarter, similar to Matador’s all-time low of $2.21 per BOE achieved in the second quarter of 2020, as the salary and other cost reductions voluntarily implemented early in 2020 continued to be realized in the third quarter (see Slide D).

“Financially, we continued to protect our balance sheet and liquidity and ended the third quarter of 2020 with outstanding borrowings under our reserves-based credit facility that were $25 million less than anticipated and a leverage ratio of 2.8x, which was also below our expectations and still well below our reserves-based loan covenant of 4.0x (see Slide B). Further, we are pleased to report that late last week, as part of the fall 2020 redetermination process, Matador’s lenders reaffirmed the Company’s borrowing base under its reserves-based credit facility at $900 million. Matador’s elected commitment under the credit facility also remained constant at $700 million, and there were no changes made to the terms of the credit facility. The entire Matador team extends its thanks to our lending group for their continued support, and we look forward to reducing the borrowings outstanding under our reserves-based credit facility as we begin to generate free cash flow in the fourth quarter of 2020 and beyond.

“Finally, we are pleased to announce that effective as of October 1, 2020, Matador and its joint venture partner, Five Point Energy LLC, completed the successful merger of San Mateo I and San Mateo II into a single entity, San Mateo Midstream, LLC. The Matador, Five Point and San Mateo teams are pleased to complete the merger and the San Mateo expansion projects noted above. With the merger completed, we now look forward to the ongoing free cash flow that San Mateo should generate in future periods and to continuing to attract new customers to San Mateo’s premier three-pipe midstream offering in Eddy County, New Mexico.

“Having achieved the completion of these significant projects and the third quarter 2020 operating and financial results summarized throughout this release, the Board, the staff and I believe that Matador has reached an important and positive inflection point (see Slide E). We plan to continue our strategy of growing our exploration and production and midstream businesses in tandem and remain confident the outlook for Matador is very bright. And, as I often say, we like our chances very much going forward.”

Financial and Operational Highlights

Oil, Natural Gas and Oil Equivalent Production

As summarized in the table below, Matador’s third quarter 2020 average daily oil, natural gas and total oil equivalent production all exceeded expectations. The majority of the production outperformance resulted from stronger-than-expected initial results from the 13 Boros wells in the Stateline asset area that were turned to sales in September 2020, as well as positive results from other wells completed and turned to sales during the third quarter.

Net Income, Earnings Per Share and Adjusted EBITDA

• Third quarter 2020 net loss (GAAP basis) was $276.1 million, or a net loss of $2.38 per diluted common share, an improvement from a net loss of $353.4 million in the second quarter of 2020, and a year-over-year decrease from net income of $44.0 million in the third quarter of 2019. The third quarter 2020 net loss (GAAP basis) was primarily attributable to a non-cash full-cost ceiling impairment of $251.2 million recorded in the third quarter, resulting primarily from the recent sharp declines in oil prices as compared to the prior periods. The changes in net (loss) income between periods was also impacted by a non-cash, unrealized loss on derivatives of $13.0 million in the third quarter of 2020, as compared to a non-cash, unrealized loss on derivatives of $132.7 million in the second quarter of 2020 and a non-cash, unrealized gain on derivatives of $9.8 million in the third quarter of 2019.

• Third quarter 2020 adjusted net income (a non-GAAP financial measure) was $11.6 million, or adjusted net income of $0.10 per diluted common share, a sequential increase from an adjusted net loss of $3.1 million in the second quarter of 2020, and a year-over-year decrease from adjusted net income of $37.9 million in the third quarter of 2019. The sequential increase in adjusted net income was primarily attributable to significantly better third quarter 2020 realized oil and natural gas prices of $38.67 per barrel and $2.27 per thousand cubic feet, respectively, that were 61% and 52% above second quarter 2020 realized oil and natural gas prices of $24.03 per barrel and $1.49 per thousand cubic feet, respectively. The year-over-year decrease in adjusted net income was primarily attributable to the 29% decline in realized oil prices from $54.19 per barrel in the third quarter of 2019 to $38.67 per barrel in the third quarter of 2020, which was mitigated by increased production and decreased per-unit operating costs between the periods.

• Third quarter 2020 adjusted earnings before interest expense, income taxes, depletion, depreciation and amortization and certain other items (“Adjusted EBITDA,” a non-GAAP financial measure) were $121.0 million, a sequential increase from $107.6 million in the second quarter of 2020, and a year-over-year decrease from $160.8 million in the third quarter of 2019. The changes in sequential and year-over-year Adjusted EBITDA were primarily attributable to the changes in oil and natural gas prices realized between the comparable periods, which were mitigated by increased production and decreased per-unit operating costs, particularly on a year-over-year basis. Matador expects Adjusted EBITDA in the fourth quarter of 2020 to be between $128 and $134 million, based upon its estimates for production growth in the fourth quarter and assuming strip prices for oil and natural gas as of late October 2020.

Record-Low Lease Operating and Near Record-Low General and Administrative Unit Costs

• Lease operating expenses (“LOE”) in the third quarter of 2020 were a Matador-record low of $3.48 per BOE, an 11% sequential decrease from $3.92 per BOE in the second quarter of 2020, and a 25% year-over-year decrease from $4.64 per BOE in the third quarter of 2019. This record low LOE per BOE in the third quarter resulted primarily from (1) the Company’s ongoing efforts to reduce costs and improve the efficiency of its operations, (2) additional produced water being transported to disposal facilities by pipeline, including via San Mateo’s gathering systems, thereby reducing trucking costs and (3) lower service costs.

• General and administrative expenses (“G&A”) in the third quarter of 2020 were $2.25 per BOE, a 2% sequential increase from $2.21 per BOE in the second quarter of 2020, and a 29% year-over-year decrease from $3.18 per BOE in the third quarter of 2019. Matador’s G&A expenses continue to be positively impacted primarily from the G&A cost reductions initially implemented in the first quarter of 2020.

Record-Low Drilling and Completion Costs Below $800 Per Completed Lateral Foot

• Drilling and completion costs for all operated horizontal wells completed and turned to sales in the third quarter of 2020 averaged $790 per completed lateral foot, a sequential decrease of 10% from average drilling and completion costs of $881 per completed lateral foot in the second quarter of 2020, and a decrease of 32% from average drilling and completion costs of $1,165 per completed lateral foot achieved in full year 2019. Drilling and completion costs of $790 per completed lateral foot were the lowest quarterly drilling and completion costs per completed lateral foot in Matador’s history.

• Matador incurred capital expenditures for drilling, completing and equipping wells (“D/C/E capital expenditures”) of approximately $95 million in the third quarter of 2020, or 19% below the Company’s estimate of $117 million for D/C/E capital expenditures during the quarter. Matador estimates that approximately $10 million of these savings were directly attributable to improved operational efficiencies and lower-than-expected drilling and completion costs in the Delaware Basin. The remainder of these cost savings primarily resulted from the timing of both operated and non-operated drilling and completion activities, and most of these costs are currently expected to be incurred in the fourth quarter of 2020.

Borrowing Base Reaffirmed and Total Borrowings Below Expectations

• In October 2020, as part of the fall 2020 redetermination process, Matador’s lenders reaffirmed the Company’s borrowing base under its reserves-based credit facility at $900 million. Matador’s elected commitment also remained constant at $700 million, and no changes were made to the terms of the Company’s reserves-based credit facility. The $900 million borrowing base and the $700 million elected commitment should provide Matador with more-than-sufficient liquidity for conducting its current and future operations for the remainder of 2020 and going forward in 2021.

• At September 30, 2020, total borrowings outstanding under Matador’s reserves-based credit facility were $475 million, $25 million less than the Company’s expectations for the end of the third quarter. These lower-than-anticipated borrowings were primarily attributable to Matador’s continued capital and operating cost efficiencies during the third quarter. Matador currently expects to generate positive free cash flow in the fourth quarter of 2020 and plans to use this free cash flow to reduce borrowings under its reserves-based credit facility.

Note: All references to Matador’s net income (loss), adjusted net income (loss) 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”). Matador owns 51% of San Mateo. For a definition of adjusted net income (loss), adjusted earnings (loss) 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:

Full Year 2020 Production Guidance Updated

As shown in the table below, at October 27, 2020, Matador further updated its full year 2020 production guidance as previously updated on July 28, 2020. The Company also updated its full year 2020 guidance for capital expenditures to drill, complete and equip wells and for Matador’s portion of San Mateo’s capital expenditures.

Fourth Quarter 2020 Updated Completions and Production Cadence

Fourth Quarter 2020 Drilling and Completion Activity

Matador expects to operate three drilling rigs in the Delaware Basin during the fourth quarter of 2020, with two of these rigs operating in the Stateline asset area. The third rig is currently drilling four additional wells on the Rodney Robinson tract in the western portion of Matador’s Antelope Ridge asset area, which the Company does not expect to turn to sales until late in the first quarter of 2021. In addition, Matador expects to complete and turn to sales five gross (2.7 net) operated wells in the fourth quarter of 2020, all of which will be two-mile laterals in the Rustler Breaks asset area.

Matador expects to incur an additional $10 million in D/C/E capital expenditures above its previous estimates in the fourth quarter of 2020, resulting from its participation in a number of non-operated wells in the Delaware Basin that were previously anticipated to be drilled and/or completed in early 2021. Further, Matador expects to incur another $5 to $7 million of incremental D/C/E capital expenditures in the fourth quarter previously attributed to anticipated 2021 operations, resulting from accelerated operations on the Voni wells in the Stateline asset area. As a result of the cost s

Mac Schmitz
Capital Markets Coordinator
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