Feb. 20, 2024– Matador Resources Company (NYSE: MTDR) (“Matador” or the “Company”) today reported financial and operating results for the fourth quarter and full year 2023. A slide presentation summarizing the highlights of Matador’s fourth quarter and full year 2023 earnings release and 2024 operating plan is also included on the Company’s website at www.matadorresources.com on the Events and Presentations page under the Investor Relations tab.
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Matador Resources Wells Drilled 2023
Management Summary Comments
In summarizing the year, Joseph Wm. Foran, Matador’s Founder, Chairman and CEO, noted, “Matador achieved another record quarter in the fourth quarter of 2023, which was another strong finish to yet another record year. Matador not only produced a record amount of oil and natural gas through strong well performance during the fourth quarter of 2023 but also steadily decreased costs during the quarter, resulting in better-than-expected free cash flow per share. We used this higher free cash flow to repay borrowings under our credit facility, make profitable investments in our oil and natural gas properties and our midstream business and pay a steadily increasing fixed dividend to our shareholders.
“In 2024, we anticipate that Matador will set further records as we continue our long tradition of profitable growth at a measured pace while consistently increasing our reserves and improving our operational efficiencies in the Delaware Basin (see Slide A). Matador notably not only significantly exceeded production expectations during the fourth quarter of 2023 but also anticipates continued growth and capital efficiency gains throughout 2024. These efforts are expected to result in organic oil production gains of 10% year-over-year in the fourth quarter of 2024 when compared to the oil production reported in the fourth quarter of this last year (see Slide B and Slide C). This oil growth and individual well efficiency allows us to continue to reduce debt and strengthen our balance sheet. In fact, we believe our large and growing inventory of high-quality acreage in the core of the Delaware Basin combined with our very capable staff and board sets us up for years of continued and consistent success, especially when combined with our profitable midstream business that provides critical flow assurance for our oil and natural gas production (see Slide D). In other words, we like our chances going forward.
2023 Accomplishments
“Matador’s record fourth quarter 2023 average daily production of 154,300 barrels of oil and natural gas equivalent (‘BOE’) per day significantly exceeded our expectations of 145,250 BOE per day, primarily as a result of (i) increased production from wells in Matador’s Stateline asset area and Rodney Robinson leasehold, (ii) outperformance of our Margarita wells that were turned to sales in the third quarter of 2023, (iii) land acquisitions during the quarter that added approximately 1,000 BOE per day in excess of Matador’s expectations and (iv) higher-than-expected production from non-operated assets. In fact, Matador grew its production by over 50% in 2023 as our average daily production grew from approximately 100,000 BOE per day in early January 2023 to over 150,000 BOE per day in the fourth quarter of 2023 (see Slide E).
“In addition to increasing production, we also decreased our operating costs during the fourth quarter of 2023. For example, our lease operating expenses decreased 5% to $5.06 per BOE in the fourth quarter of 2023, as compared to $5.34 per BOE in the third quarter of 2023 and significantly outperformed our expected fourth quarter guidance range of $5.40 to $5.80 per BOE (see Slide F). This decrease was primarily due to increased use of recycled produced water for completion activities as well as a range of incremental improvements relating to the wells we acquired as part of our acquisition of Advance Energy Partners Holdings, LLC (‘Advance’). These improvements include artificial lift conversions, consolidation of production facilities and a reduction in future repairs, field supervision costs and maintenance costs.
“Our record quarterly production and increased efficiencies resulted in fourth quarter 2023 net income of $254.5 million as well as fourth quarter 2023 Adjusted EBITDA of $552.8 million. During this time, Matador also achieved record total proved oil and natural gas reserves of 460.1 million BOE at December 31, 2023, which is an increase of 29% as compared to 356.7 million BOE at December 31, 2022 despite average oil prices decreasing 17% from $90.15 in 2022 to $74.70 in 2023 and average natural gas prices decreasing 58% from $6.36 in 2022 to $2.64 in 2023 (see Slide G). The Standardized Measure and PV-10 of our total proved oil and natural gas reserves was $6.1 billion and $7.7 billion, respectively, using Securities and Exchange Commission (‘SEC’) pricing of $74.70 for oil and $2.64 for natural gas as of December 31, 2023. Notably, Matador’s natural gas reserves at December 31, 2023 exceeded one trillion cubic feet for the first time.
“The Advance acquisition was important to us but was only one of approximately 200 acquisitions and trades we completed during 2023. These transactions and their associated midstream systems were located throughout Matador’s asset areas and continue to build and connect Matador’s core Delaware Basin acreage (see Slide H and Slide I). As a result, Matador now ranks as the number eight producer by total production in New Mexico according to Enverus data (see Slide D and Slide I).
“Matador’s midstream businesses also made great strides throughout 2023. San Mateo Midstream, LLC (‘San Mateo’), our midstream joint venture, achieved its second-best annual net income of $131.2 million and record Adjusted EBITDA of $200.2 million during 2023. These record results include 26% year-over-year growth in third-party revenue as San Mateo continues to expand its relationships with existing customers and obtain business from new third-party customers (see Slide J). In addition to the success at San Mateo, Pronto Midstream, LLC (‘Pronto’), our wholly-owned midstream subsidiary, set a single day record of 64 million cubic feet of natural gas processed at its Marlan cryogenic natural gas processing plant (the ‘Marlan Processing Plant’). This processing record for the Marlan Processing Plant was achieved in large part because of Matador’s operated wells in Northern Lea County, New Mexico, including natural gas from the Margarita wells that were acquired in the Advance transaction, and repeat business from third-party customers. In the fourth quarter of 2023, the Marlan Processing Plant processed approximately 12 million cubic feet of natural gas per day of Matador’s production from Lea County, New Mexico, which allowed for the associated oil production of approximately 9,000 barrels of oil per day.
“We appreciate the planning, teamwork and concerted effort and communication by and between our various staff members, partners, consultants, vendors, shareholders and other stakeholders who helped make 2023 the best year in Matador’s 40-year history. It was a great leap forward by a hard-working and thoughtful team of professionals.
2024 Outlook: More of the Same
“While we celebrate our 2023 accomplishments, we remain focused on continued growth, profitability and increased efficiencies in 2024. Matador anticipates another record year in 2024 with an 18% increase in our expected total average production of 156,000 BOE per day in full-year 2024, as compared to total average production of 131,800 BOE per day in full-year 2023 (see Slide K). Notably, our oil production is increasing at a faster pace than our total production as we produce more wells in Northern Lea County in connection with the 152,000 net acres of our existing leasehold position and the various other acquisitions we have made in 2023. In 2024, our oil production is expected to increase 23% to 93,000 barrels of oil per day in full-year 2024, as compared to an average of 75,500 barrels of oil per day in full-year 2023.
“Matador expects to achieve record production in 2024 despite the expectation that it will experience temporary midstream constraints from time to time from third-party midstream providers primarily in Lea County, New Mexico during the first quarter of 2024. It is difficult to estimate the amount of these temporary third-party midstream production constraints. During January 2024, these constraints are estimated to have resulted in approximately 5,500 BOE per day (3,850 barrels of oil per day) of less production. These third-party midstream constraints have continued into February and are even expected to continue into March. Our estimates of our first quarter 2024 production of 145,000 to 146,500 BOE per day take into account the impact of these temporary third-party midstream constraints.
“Notably, Matador’s midstream systems (San Mateo and Pronto) have operated without any material downtime and have not contributed to these constrained volumes, which is evidence of the importance of operating our own midstream assets. The completion of the natural gas pipeline connections between Pronto and San Mateo and between Pronto and our Advance acreage as well as certain other firm service gas gathering and processing agreements are expected to resolve these temporary midstream constraints by the end of the first quarter of 2024. As a result, we expect our second quarter 2024 production to increase back above our fourth quarter 2023 production of 154,300 BOE per day and then to continue to grow above that amount throughout the rest of the year.
2024 Operations Outlook and Innovations
“As we announced in October 2023, we added an eighth drilling rig in late January 2024. Matador anticipates drilling, completing and equipping (‘D/C/E’) capital expenditures of $1.20 billion during 2024, which is similar to our D/C/E capital expenditures of $1.16 billion in 2023. We expect similar D/C/E capital expenditures in 2024 as compared to 2023 because of increased efficiencies and lower working interests in the wells we turn to sales in 2024 as compared to 2023. After the success and continued outperformance of the 21 Margarita wells that we acquired in the Advance transaction, we are excited to turn to sales the additional 21 ‘DUC’ wells that we acquired in the Advance transaction on our Dagger Lake South lease. We expect to turn these wells to sales during the second quarter of 2024. The Dagger Lake South wells have lateral lengths of 1.5 miles as compared to the 2.25-mile lateral lengths of the Margarita wells. Similar to the Margarita wells, we expect the Dagger Lake South wells to have an oil to natural gas ratio of over 80%.
“Notably, Matador expects to achieve record production during 2024 while also decreasing costs. We anticipate 6% lower drilling and completion costs for operated wells turned to sales in 2024 of $995 to $1,025 per completed lateral foot, as compared to $1,075 per completed lateral foot in 2023. After successfully implementing ‘Simul-Frac’ operations in 2021, we are currently testing our first ‘Trimul-Frac’ operation, which will allow us to complete three wells simultaneously in a six well batch. Matador estimates that ‘Simul-Frac’ and ‘Trimul-Frac’ operations save approximately $250,000 and $350,000, respectively, per well as compared to traditional zipper fracturing operations. Total savings from these operations exceed $35 million since 2021 (see Slide L).
“Matador also remains encouraged by the positive test of cost and production efficiency of its first two ‘U-Turn’ wells in Matador’s Wolf asset area in Loving County, Texas. We achieved approximately $10 million in cost savings by drilling two ‘U-Turn’ two-mile lateral wells as compared to four one-mile lateral wells in this section. Production testing indicates all perforated depths are contributing to production and cumulative results are consistent with traditional straight two-mile lateral wells. Following this encouraging test, we are exploring the possibility of drilling up to 20 additional ‘U-Turn’ wells during 2024 and 2025. We are excited about the prospects of implementing the ‘U-Turn’ design throughout our acreage footprint (see Slide M).
“The opportunities to expand our midstream footprint in the Delaware Basin to support Matador’s operations and provide services to third-party customers look favorable due in large part to the trust, relationships and repeat business of third-party friends and customers (see Slide N). The natural gas pipelines connecting Pronto’s system to both the San Mateo system and the acreage acquired in the Advance transaction remain on track to be completed by the end of the first quarter of 2024.
“Matador continues to move forward with the 200 million cubic feet per day expansion of the Marlan Processing Plant, which is expected to be completed in the first half of 2025. We plan to fund 100% of this expansion with our cash flows and availability under our credit facility, although we continue to evaluate potential partners in Pronto that would share in these capital expenditures and strategic opportunities. Matador generally expects its midstream projects to have a rate of return of 20% or more with a payback period of less than five years, but most importantly such midstream projects provide added flow assurance for Matador and its third-party customers in the Delaware Basin.
Today, San Mateo and Pronto have over 540 miles of oil, natural gas and water pipelines, 520 million cubic feet per day of designed natural gas processing capacity and 17 saltwater disposal wells with approximately 510,000 barrels per day of designed produced water disposal capacity.
Expression of Thanks and Appreciation
“Many thanks are due to our Board, management, office and field staffs, friends and shareholders who have worked together to establish Matador as one of the top ten oil and natural gas producers in New Mexico. We are particularly appreciative of the staff work, bank support and disciplined approach of our Board and Executive Team that has allowed us to continue to expand our exploration and production programs under challenging conditions as well as to expand our strategic opportunities to include an increasingly important midstream system. We believe this support has enabled us to outperform the price of oil, the S&P Oil and Gas Exploration & Production Select Industry Index, or XOP Index, the Russell 2000 Index and the S&P 500 Index since our initial public offering in February 2012 (see Slide O). We are excited about the opportunities ahead for Matador and thank you for your continued support and friendship.”
Highlights
Fourth Quarter 2023 Operational and Financial Highlights
(for comparisons to prior year, please see the remainder of this press release)
- Record quarterly average production of 154,300 BOE per day (88,700 barrels of oil per day)
- Net cash provided by operating activities of $618.3 million
- Adjusted free cash flow of $180.5 million
- Net income of $254.5 million, or $2.12 per diluted common share
- Adjusted net income of $238.4 million, or $1.99 per diluted common share
- Adjusted EBITDA of $552.8 million
- San Mateo net income of $43.7 million
- San Mateo Adjusted EBITDA of $61.6 million
Full Year 2023 Operational and Financial Highlights
(for comparisons to prior year, please see the remainder of this press release)
- Record annual average production of 131,800 BOE per day (75,500 barrels of oil per day)
- Net cash provided by operating activities of $1.87 billion
- Adjusted free cash flow of $460.0 million
- Net income of $846.1 million, or $7.05 per diluted common share
- Adjusted net income of $811.7 million, or $6.77 per diluted common share
- Adjusted EBITDA of $1.85 billion
- San Mateo net income of $131.2 million
- San Mateo Adjusted EBITDA of $200.2 million
2024 Guidance Highlights
- Oil production guidance of 91,000 to 95,000 barrels per day
- Natural gas production guidance of 370.0 to 386.0 million cubic feet per day
- Total production guidance of 153,000 to 159,000 BOE per day
- Drilling, completing and equipping capital expenditures of $1.10 to 1.30 billion
- Midstream capital expenditures of $200 to 250 million
Note: All references to Matador’s net income, adjusted net income, Adjusted EBITDA and adjusted free cash flow reported throughout this earnings release are those values attributable to Matador Resources Company shareholders after giving effect to any net income, adjusted net income, Adjusted EBITDA or adjusted free cash flow, respectively, attributable to third-party non-controlling interests, including in San Mateo Midstream, LLC (“San Mateo”). Matador owns 51% of San Mateo. For a definition of adjusted net income, adjusted earnings per diluted common share, Adjusted EBITDA, adjusted free cash flow and PV-10 and reconciliations of such non-GAAP financial metrics to their comparable GAAP metrics, please see “Supplemental Non-GAAP Financial Measures” below.
Operational and Financial Update
Record Fourth Quarter 2023 Oil, Natural Gas and Total Oil Equivalent Production
Matador’s average daily oil and natural gas production was 154,261 BOE per day in the fourth quarter of 2023, which was the highest in Matador’s history. The production in the fourth quarter of 2023 was a 14% sequential increase from 135,096 BOE in the third quarter of 2023 and a 38% year-over-year increase from 111,735 BOE per day in the fourth quarter of 2022. Matador’s average production of 154,261 BOE per day in the fourth quarter of 2023 was a 6% increase as compared to the midpoint of Matador’s expected production guidance of 145,250 BOE per day for the fourth quarter of 2023. The primary drivers behind this outperformance were (i) increased production from wells in Matador’s Stateline asset area and Rodney Robinson leasehold, (ii) outperformance of Matador’s Margarita wells that were turned to sales in the third quarter of 2023, (iii) land acquisitions during the quarter that added approximately 1,000 BOE per day in excess of Matador’s expectations and (iv) higher-than-expected production from non-operated assets.
During the fourth quarter of 2023, Matador turned to sales a record 39 gross (29.5 net) operated horizontal wells with an average completed lateral length of 9,300 feet. The table below provides a summary of our operated and non-operated activity in the fourth quarter of 2023. Matador had 1.3 net additional operated wells turned to sales in the fourth quarter of 2023 than it had previously planned.
Fourth Quarter 2023 Operating Expenses
Matador expected increased lease operating expenses in the fourth quarter of 2023 as a result of closing the Advance acquisition in April 2023 and continued integration of the acquired assets. Fortunately, Matador was able to offset certain anticipated expense increases through savings from the greater use of recycled produced water for completion activities as well as a range of improvements relating to the wells acquired in the Advance transaction. These improvements include artificial lift conversions, consolidation of production facilities and a reduction in future repairs, field supervision costs and maintenance costs. These actions to offset the expected increase in lease operating expenses resulted in total lease operating expenses of $5.06 per BOE for the fourth quarter of 2023, which is a 5% sequential decrease from $5.34 per BOE in the third quarter of 2023, and a 10% decrease from the midpoint of Matador’s expected fourth quarter 2023 guidance range of $5.40 to $5.80 per BOE.
Matador’s general and administrative (“G&A”) expenses decreased 18% sequentially from $2.55 per BOE in the third quarter of 2023 to $2.08 per BOE in the fourth quarter of 2023. This decrease is due in part to the value of employee stock awards that are settled in cash, which are remeasured at each quarterly reporting period according to accounting rules. These cash-settled stock award amounts decreased due to the fact that Matador’s share price decreased 4% from $59.48 at the end of the third quarter of 2023 to $56.86 at end of the fourth quarter of 2023. Matador’s fourth quarter 2023 G&A expenses were at the low end of Matador’s expected fourth quarter 2023 range of $2.00 to $3.00 per BOE.
During the fourth quarter of 2023, Matador’s plant and other midstream services operating expenses, which include the costs to operate San Mateo’s and Pronto’s assets, were $2.56 per BOE, a 3% sequential increase from $2.48 per BOE in the third quarter of 2023. The fourth quarter 2023 plant and other midstream services operating expenses were consistent with Matador’s expected fourth quarter 2023 range of $2.25 to $2.75 per BOE.
Fourth Quarter 2023 Capital Expenditures
For the fourth quarter of 2023, Matador’s D/C/E capital expenditures of $261.4 million and midstream capital expenditures of $86.2 million were consistent with expectations and guidance. The midstream capital expenditures during the fourth quarter included the first payments related to the expansion of Pronto’s Marlan Processing Plant.
Midstream Update
San Mateo’s operations in the fourth quarter of 2023 were highlighted by record operating and financial results. These strong results primarily reflect better-than-expected volumes delivered by Matador and third-party customers into the San Mateo system. San Mateo’s net income of $43.7 million and Adjusted EBITDA of $61.6 million were each records for San Mateo and better than expected.
Operationally, San Mateo’s natural gas gathering and processing volumes and produced water handling volumes in the fourth quarter of 2023 were all-time quarterly highs. The table below sets forth San Mateo’s throughput volumes, as compared to the third quarter of 2023 and the fourth quarter of 2022. The volumes in the table do not include the full quantity of volumes that would have otherwise been delivered by certain San Mateo customers subject to minimum volume commitments (although partial deliveries were made), but for which San Mateo recognized revenues.
Pronto achieved record quarterly average throughput at the Marlan Processing Plant of 54.4 million cubic feet of natural gas per day. Pronto is moving forward with the expansion of the Marlan Processing Plant as well as its other projects to connect to Matador operated wells and other wells operated by third-party customers. Matador does not expect significant net income or Adjusted EBITDA from Pronto’s operations until the second half of 2025 when such expansion and construction operations are expected to be fully complete and operational.
2024 Production Estimates and Cadence
Oil, Natural Gas and Oil Equivalent Production Growth and Anticipated Cadence
Matador expects full-year 2024 production of 91,000 to 95,000 barrels of oil per day and 370 to 386 million cubic feet of natural gas per day, resulting in 153,000 to 159,000 BOE per day, which would be an increase of 18% as compared to our record 2023 production of 131,800 BOE per day (75,500 barrels of oil per day).
First Quarter 2024 Estimated Oil, Natural Gas and Total Oil Equivalent Production
As noted in the table below, Matador anticipates its average daily oil equivalent production of 154,261 BOE per day in the fourth quarter of 2023 to decrease to a midpoint of approximately 145,750 BOE per day in the first quarter of 2024 and then to increase again quarter by quarter to an exit rate of a range of 160,000 BOE per day to 162,000 BOE per day in the fourth quarter of 2024.
Matador expects to achieve record production in 2024 despite the expectation that it will experience temporary midstream constraints from time to time from third-party midstream providers primarily occurring in Lea County, New Mexico during the first quarter of 2024. It is difficult to estimate the amount of these temporary third-party midstream production constraints. During January 2024, these constraints are estimated to have resulted in approximately 5,500 BOE per day (3,850 barrels of oil per day) less production. These third-party midstream constraints have continued into February and are even expected to continue into March. Matador’s estimates of its first quarter 2024 production of 145,000 to 146,500 BOE per day take into account the impact of these temporary third-party midstream constraints.
Notably, Matador’s midstream systems (San Mateo and Pronto) have operated without any material downtime and have not contributed to these constrained volumes, which is evidence of the importance of Matador operating its own midstream assets. The completion of the natural gas pipeline connections between Pronto and San Mateo and between Pronto and Matador’s Advance acreage as well as certain other firm service gas gathering and processing agreements are expected to resolve these temporary midstream constraints by the end of the first quarter of 2024. As a result, Matador expects its second quarter 2024 production to increase back above its fourth quarter 2023 production of 154,300 BOE per day and then to continue to grow above that amount throughout the rest of the year.
Delaware Basin Production Growth
Matador estimates total oil equivalent production of 55.7 million BOE (61% oil) from the Delaware Basin, or 152,200 BOE per day, at the midpoint of 2024 guidance, a year-over-year increase of 20% from 2023. The Company anticipates its total oil and natural gas production from the Delaware Basin should increase 24% and 15%, respectively, year-over-year, at the midpoint of 2024 production guidance.
First Quarter 2024 Estimated Capital Expenditures
Matador began 2024 operating seven drilling rigs in the Delaware Basin and added an eighth drilling rig in late January 2024. At February 20, 2024, Matador expects D/C/E capital expenditures for the first quarter of 2024 will be approximately $350 to $420 million, which is a 48% increase as compared to $261 million for the fourth quarter of 2023, primarily due to completion costs associated with the 21 Dagger Lake South wells expected to be turned to sales in the second quarter of 2024 and expected higher non-operated well capital expenditures relative to the remainder of the year. Matador expects its proportionate share of midstream capital expenditures to be approximately $70 to $90 million in the first quarter of 2024, as compared to $86 million in the fourth quarter of 2023.
2024 Estimated Cash Taxes
Matador expects to make cash tax payments of approximately 5 to 10% of pre-tax book net income for the year ended December 31, 2024 at current commodity prices, as compared to cash tax payments of approximately 1% of pre-tax book net income for the year ended December 31, 2023. The Company’s cash tax payments will be dependent upon a variety of factors that will impact taxable income, including oil and natural gas prices, allowable deductions and any legislative changes thereon, and any tax credits generated that would offset tax liabilities in 2024.
Environmental, Social and Governance (“ESG”) Update
Matador is committed to creating long-term value for its stakeholders in a responsible manner by pursuing sound growth and earnings objectives and exercising prudence in the use of its assets and resources. In October 2023, Matador was pleased to issue its annual Sustainability Report on Matador’s ongoing ESG-related initiatives. This report highlights Matador’s continued progress and improvements in its operating practices, including quantitative sustainability metrics aligned with standards developed by the Sustainability Accounting Standards Board (“SASB”), and should provide Matador’s stakeholders and interested parties with a standardized platform for evaluating the Company’s recent performance and future progress.
About Matador Resources Company
Matador is an independent energy company engaged in the exploration, development, production and acquisition of oil and natural gas resources in the United States, with an emphasis on oil and natural gas shale and other unconventional plays. Its current operations are focused primarily on the oil and liquids-rich portion of the Wolfcamp and Bone Spring plays in the Delaware Basin in Southeast New Mexico and West Texas. Matador also operates in the Eagle Ford shale play in South Texas and the Haynesville shale and Cotton Valley plays in Northwest Louisiana. Additionally, Matador conducts midstream operations in support of its exploration, development and production operations and provides natural gas processing, oil transportation services, oil, natural gas and produced water gathering services and produced water disposal services to third parties.
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