Matador Resources Company (NYSE: MTDR) (“Matador” or the
“Company”), today reported financial and operating results for the
three months and year ended December 31, 2016. The release is
divided into two parts—first, a “Highlights” section that
summarizes key production and financial results for the fourth
quarter and year ended December 31, 2016, proved reserves at
December 31, 2016, significant well results in the fourth quarter
of 2016 and early first quarter of 2017 and Matador’s 2017 guidance
estimates and second, a section providing additional details
related to the Company’s fourth quarter and full year 2016
results.
Part I
Fourth Quarter 2016 Highlights:
- Net income (GAAP basis) of $104.2
million, or $1.09 per diluted common share, as compared to net
income of $11.9 million, or $0.13 per diluted common share, in the
third quarter of 2016 and a net loss of $230.4 million or $2.72 per
diluted common share in the fourth quarter of 2015. During the
fourth quarter of 2016, the Company recognized the remaining gain
of $104.1 million from the October 2015 sale of its natural gas
processing plant in Loving County, Texas.
- Adjusted net income, a non-GAAP
financial measure, of $7.2 million, or $0.08 per diluted common
share, as compared to adjusted net income of $5.4 million, or $0.06
per diluted common share, in the third quarter of 2016 and adjusted
net income of $2.4 million, or $0.03 per diluted common share, in
the fourth quarter of 2015.
- Adjusted earnings before interest
expense, income taxes, depletion, depreciation and amortization and
certain other items (“Adjusted EBITDA”), a non-GAAP financial
measure, of $54.5 million, an increase of 15% sequentially, as
compared to $47.3 million in the third quarter of 2016, and an
increase of 13% year-over-year, as compared to $48.3 million in the
fourth quarter of 2015.
- Record average daily total production
of approximately 30,000 barrels of oil equivalent (“BOE”) per day,
an increase of 2% sequentially, as compared to approximately 29,400
BOE per day in the third quarter of 2016, and an increase of 27%
year-over-year, as compared to approximately 23,600 BOE per day in
the fourth quarter of 2015.
- Record average daily oil production of
approximately 15,700 barrels of oil per day, an increase of 5%
sequentially, as compared to approximately 15,000 barrels of oil
per day in the third quarter of 2016, and an increase of 36%
year-over-year, as compared to approximately 11,500 barrels of oil
per day in the fourth quarter of 2015.
- Natural gas production of approximately
85.5 million cubic feet per day, a decrease of 1% sequentially, as
compared to approximately 86.5 million cubic feet per day in the
third quarter of 2016, and an increase of 19% year-over-year, as
compared to approximately 72.1 million cubic feet per day in the
fourth quarter of 2015.
- Delaware Basin total oil equivalent
production of approximately 20,700 BOE per day, an increase of 12%
sequentially, as compared to approximately 18,500 BOE per day in
the third quarter of 2016, and an increase of 138% (2.4-fold)
year-over-year, as compared to approximately 8,700 BOE per day in
the fourth quarter of 2015. In the fourth quarter of 2016, the
Delaware Basin accounted for 69% of Matador’s total oil equivalent
production.
Sequential and year-over-year quarterly comparisons of selected
financial and operating items are shown in the following table:
Three Months Ended December 31,
September 30, December 31, 2016
2016 2015 Net Production
Volumes:(1) Oil (MBbl)(2) 1,446 1,376 1,062 Natural gas (Bcf)(3)
7.9 8.0 6.6 Total oil equivalent (MBOE)(4) 2,757 2,703 2,167
Average Daily Production Volumes:(1) Oil (Bbl/d) 15,720 14,960
11,547 Natural gas (MMcf/d)(5) 85.5 86.5 72.1 Total oil equivalent
(BOE/d)(6) 29,965 29,381 23,556 Average Sales Prices: Oil, without
realized derivatives (per Bbl) $ 47.34 $ 42.57 $ 38.55 Oil, with
realized derivatives (per Bbl) $ 46.65 $ 43.18 $ 57.61 Natural gas,
without realized derivatives (per Mcf) $ 3.35 $ 3.08 $ 2.30 Natural
gas, with realized derivatives (per Mcf) $ 3.34 $ 3.08 $ 3.01
Revenues (millions): Oil and natural gas revenues $ 94.8 $ 83.1 $
56.2 Third-party midstream services revenues $ 2.3 $ 1.6 $ 0.5
(12)
Realized (loss) gain on derivatives $ (1.1 ) $ 0.9 $ 24.9 Operating
Expenses (per BOE): Production taxes, transportation and processing
$ 4.43 $ 4.58 $ 4.12 Lease operating $ 5.41 $ 5.40 $ 6.72
(13)
Plant and other midstream services operating $ 0.67 $ 0.54 $ 0.33
Depletion, depreciation and amortization $ 11.56 $ 11.10 $ 16.32
General and administrative(7) $ 5.65 $ 4.86 $ 5.34
Total(8) $ 27.72 $ 26.48 $ 32.83 Net income (loss)
(millions)(9) $ 104.2 $ 11.9 $ (230.4 ) Adjusted EBITDA
(millions)(10) $ 54.5 $ 47.3 $ 48.3 Earnings (loss) per share
(diluted) $ 1.09 $ 0.13 $ (2.72 ) Adjusted earnings per share
(diluted)(11) $ 0.08 $ 0.06 $ 0.03 (1) Production volumes
and proved reserves 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) Millions of cubic feet of natural gas per day. (6) Barrels
of oil equivalent per day, estimated using a conversion ratio of
one barrel of oil per six thousand cubic feet of natural gas. (7)
Includes approximately $1.23, $1.33 and $1.18 per BOE of non-cash,
stock-based compensation expenses in the fourth quarter of 2016,
the third quarter of 2016 and the fourth quarter of 2015,
respectively. (8) Total does not include the impact of full-cost
ceiling impairment charges or immaterial accretion expenses. (9)
Attributable to Matador Resources Company shareholders. (10)
Adjusted EBITDA is a non-GAAP financial measure. For a definition
of Adjusted EBITDA and a reconciliation of Adjusted EBITDA
(non-GAAP) to net income (loss) (GAAP) and net cash provided by
operating activities (GAAP), please see “Supplemental Non-GAAP
Financial Measures.” (11) Adjusted earnings (loss) per share is a
non-GAAP financial measure. For a definition of adjusted earnings
(loss) per share and a reconciliation of adjusted earnings (loss)
per share (non-GAAP) to earnings (loss) per share (GAAP), please
see “Supplemental Non-GAAP Financial Measures.” (12) Reclassified
from other income due to the midstream segment becoming a
reportable segment in the third quarter of 2016. (13) $0.33 per BOE
reclassified to plant and other midstream services operating
expenses due to the midstream segment becoming a reportable segment
in the third quarter of 2016.
Full Year 2016 Highlights - Year Ended December 31,
2016:
- A net loss (GAAP basis) of $97.4
million, or $1.07 per diluted common share, as compared to a net
loss of $679.8 million, or $8.34 per diluted common share, for the
year ended December 31, 2015.
- Adjusted net loss, a non-GAAP financial
measure, of $2.8 million, or $0.03 per diluted common share, as
compared to adjusted net income of $9.8 million, or $0.12 per
diluted common share, for the year ended December 31, 2015.
- Adjusted EBITDA, a non-GAAP financial
measure, of $157.9 million, a 29% year-over year decrease from
$223.2 million for the year ended December 31, 2015. This
decrease in Adjusted EBITDA was primarily attributable to a decline
in realized hedging gains from $77.1 million in 2015 to $9.3
million in 2016.
- Record oil production of 5.1 million
barrels in 2016, a 13% year-over-year increase from 4.5 million
barrels produced in 2015, and an increase of 54% from 3.3 million
barrels produced in 2014, despite a reduction in the Company’s
operated rig count from as many as five rigs at times in 2015 to
three rigs for almost all of 2016.
- Record natural gas production of 30.5
billion cubic feet in 2016, a 10% year-over-year increase from 27.7
billion cubic feet produced in 2015, and approximately double the
15.3 billion cubic feet produced in 2014.
- Record total production of 10.2 million
BOE, a 12% year-over-year increase from 9.1 million BOE produced in
2015, and an increase of 73% from 5.9 million BOE produced in
2014.
- Delaware Basin total oil equivalent
production of 5.8 million BOE (or 57% of Matador’s total oil
equivalent production), an increase of 145% (2.5-fold) from 2.4
million BOE (or 26% of Matador’s total oil equivalent production)
produced in 2015, and an increase of almost 9-fold from 0.7 million
BOE (or 11% of Matador’s total oil equivalent production) produced
in 2014.
Year-over-year twelve-month-period comparisons of selected
financial and operating items are shown in the following table:
Year Ended December 31,
December 31, December 31, 2016
2015 2014 Net Production
Volumes:(1) Oil (MBbl)(2) 5,096 4,492 3,320 Natural gas (Bcf)(3)
30.5 27.7 15.3 Total oil equivalent (MBOE)(4) 10,180 9,109 5,870
Average Daily Production Volumes:(1) Oil (Bbl/d) 13,924 12,306
9,095 Natural gas (MMcf/d)(5) 83.3 75.9 41.9 Total oil equivalent
(BOE/d)(6) 27,813 24,955 16,082 Average Sales Prices: Oil, without
realized derivatives (per Bbl) $ 41.19 $ 45.27 $ 87.37 Oil, with
realized derivatives (per Bbl) $ 42.34 $ 59.13 $ 88.94 Natural gas,
without realized derivatives (per Mcf) $ 2.66 $ 2.71 $ 5.08 Natural
gas, with realized derivatives (per Mcf) $ 2.78 $ 3.24 $ 5.06
Revenues (millions): Oil and natural gas revenues $ 291.2 $ 278.3 $
367.7 Third-party midstream services revenues $ 5.2 $ 1.9
(12)
$ 1.2
(12)
Realized gain on derivatives $ 9.3 $ 77.1 $ 5.0 Operating Expenses
(per BOE): Production taxes, transportation and processing $ 4.23 $
3.91
(13)
$ 5.65 Lease operating $ 5.52 $ 6.01
(14)
$ 8.51
(14)
Plant and other midstream services operating $ 0.53 $ 0.38 $ 0.24
Depletion, depreciation and amortization $ 11.99 $ 19.63 $ 22.95
General and administrative(7) $ 5.41 $ 5.50 $ 5.48
Total(8) $ 27.68 $ 35.43 $ 42.83 Net (loss) income
(millions)(9) $ (97.4 ) $ (679.8 ) $ 110.8 Adjusted EBITDA
(millions)(10) $ 157.9 $ 223.2 $ 262.9 Earnings (loss) per share
(diluted) $ (1.07 ) $ (8.34 ) $ 1.56 Adjusted (loss) earnings per
share (diluted)(11) $ (0.03 ) $ 0.12 $ 1.07 (1) Production
volumes and proved reserves 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) Millions of cubic feet of natural gas per day.
(6) Barrels of oil equivalent per day, estimated using a conversion
ratio of one barrel of oil per six thousand cubic feet of natural
gas. (7) Includes approximately $1.23, $1.04 and $0.94 per BOE of
non-cash, stock-based compensation for the years ended December 31,
2016, 2015 and 2014, respectively. (8) Total does not include the
impact of full-cost ceiling impairment charges or immaterial
accretion expenses. (9) Attributable to Matador Resources Company
shareholders. (10) Adjusted EBITDA is a non-GAAP financial measure.
For a definition of Adjusted EBITDA and a reconciliation of
Adjusted EBITDA (non-GAAP) to net income (loss) (GAAP) and net cash
provided by operating activities (GAAP), please see “Supplemental
Non-GAAP Financial Measures.” (11) Adjusted earnings (loss) per
share is a non-GAAP financial measure. For a definition of adjusted
earnings (loss) per share and a reconciliation of adjusted earnings
(loss) per share (non-GAAP) to earnings (loss) per share (GAAP),
please see “Supplemental Non-GAAP Financial Measures.” (12)
Reclassified from other income due to the midstream segment
becoming a reportable segment in the third quarter of 2016. (13)
$0.01 per BOE reclassified to third-party midstream services
revenues due to the midstream segment becoming a reportable segment
in the third quarter of 2016. (14) $0.38 and $0.24 per BOE
reclassified to plant and other midstream services operating
expenses for the years ended December 31, 2015 and 2014,
respectively, due to the midstream segment becoming a reportable
segment in the third quarter of 2016.
Additional Highlights:
- Total proved oil and natural gas
reserves of 105.8 million BOE (consisting of 57.0 million barrels
of oil and 292.6 billion cubic feet of natural gas) at
December 31, 2016, a 24% year-over-year BOE increase from 85.1
million BOE (consisting of 45.6 million barrels of oil and 236.9
billion cubic feet of natural gas) at December 31, 2015, and a
25% year-over-year increase in Matador’s proved oil reserves at
December 31, 2016, as compared to proved oil reserves of 45.6
million barrels at December 31, 2015.
- On February 17, 2017, Matador announced
the formation of San Mateo Midstream, LLC (“San Mateo” or the
“Joint Venture”), a strategic joint venture with a subsidiary of
Five Point Capital Partners LLC (“Five Point”) to operate and
expand Matador’s midstream assets in the Delaware Basin in Eddy
County, New Mexico and Loving County, Texas (the “Midstream
Assets”). Matador received $171.5 million in connection with the
formation of the Joint Venture and may earn up to an additional
$73.5 million in performance incentives over the next five years.
Matador continues to operate the Midstream Assets and retains
operational control of the Joint Venture. Matador and Five Point
own 51% and 49% of the Joint Venture, respectively.
Significant well results referenced in this earnings release
include the following:
- As released on February 2, 2017, the
Mallon 27 Federal Com #1H, #2H and #3H wells, three Third Bone
Spring completions in the northern Ranger asset area in Lea County,
New Mexico, each flowed between 2,400 and 2,800 BOE per day (91%
oil) during 24-hour initial potential tests. These were among the
best wells drilled by Matador to date in the Delaware Basin and
confirm the potential of its northern Delaware Basin acreage
position.
- The Airstrip State Com 31-18S-35E RN
#201H well, Matador’s first Wolfcamp A-Lower completion in the
northern Ranger asset area in Lea County, New Mexico, tested 926
BOE per day (97% oil) during a 24-hour initial potential test.
Matador is very pleased with the early results from this initial
Wolfcamp A-Lower test in the northern portion of its acreage,
which, to Matador’s knowledge, is the northernmost horizontal test
of the Wolfcamp A-Lower interval in the Delaware Basin.
- The Tom Walters 12-23S-27E RB #203H
well, a Wolfcamp A-XY completion in the Rustler Breaks asset area
in Eddy County, New Mexico, flowed 1,554 BOE per day (74% oil)
during a 24-hour initial potential test. This well is located in
the far northwestern portion of that acreage position and confirms
the prospectivity of the Wolfcamp A-XY across the Rustler Breaks
asset area.
- The Totum E 18-TTT-C24 NL #211H well, a
Wolfcamp A-Lower completion in the Jackson Trust asset area in
Loving County, Texas, flowed 2,247 BOE per day (72% oil) during a
24-hour initial potential test. This well marks the best result
achieved by Matador to date in the Wolfcamp A-Lower in either its
Wolf or Jackson Trust asset areas.
2017 Guidance Estimates:
- Matador today announced its full year
2017 guidance estimates. These guidance estimates assume four
drilling rigs operating in the Delaware Basin in the first quarter
of 2017, with a fifth drilling rig added in the Delaware Basin in
the second quarter of 2017. In 2017, Matador expects to continue to
focus its capital expenditures on the Delaware Basin. Matador has
allocated substantially all of its estimated 2017 capital
expenditures to the Delaware Basin, with the exception of amounts
allocated to limited operations in the Eagle Ford and Haynesville
shales to maintain and extend leases and to participate in those
non-operated well opportunities where, in both cases, economic
returns are expected to be comparable to Matador’s Delaware Basin
wells.
Full year 2017 guidance estimates are as
follows:
(1) Oil production of 6.7 to 7.0 million
barrels, an increase of 34% at the midpoint of 2017 guidance, as
compared to 5.1 million barrels produced in 2016;
(2) Natural gas production of 33.0 to 35.0
billion cubic feet, an increase of 11% at the midpoint of 2017
guidance, as compared to 30.5 billion cubic feet produced in
2016;
(3) Total oil equivalent production of 12.2
to 12.8 million BOE, an increase of 23% at the midpoint of 2017
guidance, as compared to 10.2 million BOE produced in 2016;
(4) Drilling and completions capital
expenditures (including equipping wells for production) of $370 to
$390 million, including estimated capital expenditures associated
with non-operated well opportunities;
(5) Midstream capital expenditures of $56 to
$64 million, which represents Matador’s 51% share of an estimated
2017 capital expenditure budget of $110 to $125 million for San
Mateo;
(6) Adjusted EBITDA, a non-GAAP financial
measure, of $245 to $265 million, an increase of 61% at the
midpoint of 2017 guidance, as compared to Adjusted EBITDA of $157.9
million in 2016. Adjusted EBITDA guidance is based on estimated
average realized prices of $51.72 per barrel for oil (West Texas
Intermediate average oil price of $54.22 per barrel for oil, less
$2.50 per barrel of estimated price differentials, using the
forward strip for oil prices as of late February 2017) and $3.11
per thousand cubic feet for natural gas (NYMEX Henry Hub average
natural gas price using the forward strip for natural gas prices as
of late February 2017 and assuming regional price differentials and
uplifts from natural gas processing roughly offset). These 2017
estimates reflect Matador’s reduced ownership in the Midstream
Assets from 100% to 51% upon the formation of San Mateo and a
corresponding projected reduction of about $15 to $20 million in
Adjusted EBITDA. In addition, at these oil and natural gas prices,
Matador estimates a realized loss on derivatives of about $11
million in 2017.
As a result of the completion of the Mallon wells in late
December 2016, as well as several additional wells that have been
placed on production in early January 2017, Matador’s year-to-date
oil production has increased by just over 10% sequentially, while
its natural gas production has remained relatively flat, as
compared to the fourth quarter of 2016. From January 1 through
mid-February 2017, Matador has averaged oil production of
approximately 17,500 barrels per day and natural gas production of
approximately 85 million cubic feet per day, or a total oil
equivalent production of approximately 31,500 BOE per day. At
February 22, 2017, Matador estimates that its first quarter 2017
average oil equivalent production will be about 32,000 BOE per day
(55% oil).
In 2017, Matador projects more multi-well pad drilling on its
Delaware Basin assets than in previous years, which may cause the
cadence of its production growth to be somewhat uneven from quarter
to quarter. For the year as a whole, Matador estimates its oil
production will increase by approximately 30% and its natural gas
production will increase by approximately 12%, respectively, from
the fourth quarter of 2016 to the fourth quarter of 2017, at the
midpoint of 2017 guidance. The Company will provide additional
details on its estimated 2017 production growth and capital
spending plans during its upcoming Analyst Day on Thursday, March
23, 2017 in Dallas, Texas.
A short slide presentation summarizing the highlights of
Matador’s fourth quarter and full year 2016 earnings release is
also included on the Company’s website at
www.matadorresources.com on the Presentations &
Webcasts page under the Investors tab.
Management Comments
Joseph Wm. Foran, Matador’s Chairman and CEO, commented, “The
entire Matador staff and board are to be commended for overcoming
the challenging commodity price environment we faced in 2016. Our
oil, natural gas and total oil equivalent production in 2016 were
all record annual results for the Company and at the high end of
our 2016 production guidance, despite raising our estimates for
natural gas and total oil equivalent production on two occasions
during 2016. Our proved oil and natural gas reserves increased 24%
year-over-year and were also at an all-time high.
“We focused our efforts almost entirely on our Delaware Basin
assets in 2016. Matador’s Delaware Basin oil equivalent production
grew by 2.5-fold in 2016, as compared to 2015, topping 20,000 BOE
per day for the first time in the fourth quarter of 2016. At
December 31, 2016, our Delaware Basin proved reserves comprised 75%
of our total proved oil and natural gas reserves, as compared to
56% at December 31, 2015. Well results throughout our Delaware
Basin acreage position have continued to meet or exceed our
expectations.
“This year is already off to a fast start. We began 2017
operating four drilling rigs in our various Delaware Basin asset
areas and have recently announced plans to add a fifth drilling rig
to our Delaware Basin program early in the second quarter. Last
Friday, February 17, we were excited to announce the formation of a
strategic joint venture, San Mateo Midstream, LLC, for our Delaware
Basin midstream assets. Matador owns 51% of the joint venture and
will operate these midstream assets, and we are pleased to have
Five Point Capital Partners LLC, a high quality and experienced
midstream equity partner, to help us build this business. San Mateo
will provide firm capacity service to Matador at market rates while
also providing similar services to third-party customers in and
around our Rustler Breaks and Wolf asset areas.
“Matador began 2017 with over $200 million in cash on hand and
no outstanding borrowings under our credit facility as a result of
our successful equity and bond offerings last December. The
additional $172 million of cash received as initial consideration
from the San Mateo transaction puts Matador in a very strong and
well-funded financial and capital position to execute our drilling
and midstream programs throughout 2017. We will, of course,
continue to strategically add to and improve our acreage position
in the Delaware Basin, which is now over 100,000 net acres.
“Please know that we look forward to sharing more details on our
recent results and plans going forward with shareholders and
industry analysts at our upcoming Analyst Day to be held here in
Dallas on March 23. We hope you will join us.”
Part II
Operating and Financial Results - Fourth Quarter and Year
Ended December 31, 2016
Production and Revenues
Fourth Quarter 2016
Average daily oil equivalent production increased 2%
sequentially from 29,381 BOE per day (51% oil) in the third quarter
of 2016 to 29,965 BOE per day (52% oil) in the fourth quarter of
2016, and increased 27% year-over-year from 23,556 BOE per day (49%
oil) in the fourth quarter of 2015. Matador’s
fourth quarter 2016 total oil equivalent production of
approximately 2.8 million BOE was the best quarterly result in the
Company’s history.
Average daily oil production increased 5% sequentially from
14,960 barrels per day in the third quarter of 2016 to 15,720
barrels per day in the fourth quarter of 2016, and increased 36%
year-over-year from 11,547 barrels per day in the fourth quarter of
2015. Matador’s fourth quarter 2016 oil
production of approximately 1.45 million barrels was the best
quarterly result in the Company’s history.
Average daily natural gas production decreased by 1%
sequentially from 86.5 million cubic feet per day in the third
quarter of 2016 to 85.5 million cubic feet per day in the fourth
quarter of 2016, and increased 19% year-over-year from 72.1 million
cubic feet per day in the fourth quarter of 2015.
Matador’s Delaware Basin average oil
equivalent production was 20,670 BOE per day (69% of total oil
equivalent production) in the fourth quarter of 2016, consisting of
12,828 barrels of oil per day (82% of total oil production) and
47.0 million cubic feet of natural gas per day (55% of total
natural gas production). Matador’s Delaware Basin oil
equivalent production increased 12% sequentially, as compared to
18,498 BOE per day in the third quarter of 2016, and increased 137%
(2.4-fold) year-over-year, as compared to 8,720 BOE per day in the
fourth quarter of 2015.
Oil and natural gas revenues increased 14% sequentially from
$83.1 million in the third quarter of 2016 to $94.8 million in the
fourth quarter of 2016, and increased 69% year-over-year from $56.2
million in the fourth quarter of 2015. Oil revenues increased 17%
sequentially from $58.6 million in the third quarter of 2016 to
$68.5 million in the fourth quarter of 2016, and increased 67%
year-over-year from $40.9 million in the fourth quarter of 2015.
Natural gas revenues increased 8% sequentially from $24.5 million
in the third quarter of 2016 to $26.3 million in the fourth quarter
of 2016, and increased 72% year-over year from $15.3 million in the
fourth quarter of 2015. Weighted average realized oil prices
increased 11% sequentially from $42.57 per barrel realized in the
third quarter of 2016 to $47.34 per barrel realized in the fourth
quarter of 2016, and increased 23% year-over-year from $38.55 per
barrel realized in the fourth quarter of 2015. Weighted average
realized natural gas prices increased 9% sequentially from $3.08
per thousand cubic feet in the third quarter of 2016 to $3.35 per
thousand cubic feet in the fourth quarter of 2016, and increased
46% year-over-year from $2.30 per thousand cubic feet realized in
the fourth quarter of 2015.
Total realized revenues, including realized hedging gains and
losses and third-party midstream services revenues, increased 12%
sequentially from $85.5 million in the third quarter of 2016 to
$95.9 million in the fourth quarter of 2016, and increased 18%
year-over-year from $81.6 million in the fourth quarter of 2015.
Third-party midstream services revenues increased 44% sequentially
from $1.6 million in the third quarter of 2016 to $2.3 million in
the fourth quarter of 2016, and increased almost five-fold
year-over-year from $0.5 million in the fourth quarter of 2015.
Realized hedging losses were $1.1 million in the fourth quarter of
2016, as compared to realized hedging gains of $0.9 million in the
third quarter of 2016 and $24.9 million in the fourth quarter of
2015.
Year Ended December 31, 2016
Average daily oil equivalent production increased 11% from
24,955 BOE per day (49% oil) for the year ended December 31, 2015
to 27,813 BOE per day (50% oil) for the year ended December 31,
2016. Matador achieved these increased production results despite
reducing its operated rig count from five rigs at certain times in
2015 to three rigs for almost all of 2016, as well as a 29%
decrease in capital expenditures to drill, complete and equip its
wells during 2016, as compared to 2015. Matador’s 2016 total oil equivalent production of
approximately 10.2 million BOE was the best annual result in the
Company’s history and was at the high end of the Company’s 2016 oil
equivalent production guidance, which was raised on two occasions
during 2016.
Average daily oil production increased 13% from 12,306 barrels
per day for the year ended December 31, 2015 to 13,924 barrels per
day for the year ended December 31, 2016. Matador’s 2016 total oil production of approximately 5.1
million barrels was the best annual result in the Company’s history
and was at the high end of the Company’s 2016 oil production
guidance.
Average daily natural gas production increased 10% from 75.9
million cubic feet per day for the year ended December 31, 2015 to
83.3 million cubic feet per day for the year ended December 31,
2016. Matador’s 2016 total natural gas
production of approximately 30.5 billion cubic feet was the best
annual result in the Company’s history and was at the high end of
the Company’s 2016 natural gas production guidance, which was
raised on two occasions during 2016.
Matador’s Delaware Basin average oil
equivalent production was 15,941 BOE per day (57% of total oil
equivalent production) for the year ended December 31, 2016,
consisting of 10,395 barrels of oil per day (75% of total oil
production) and 33.3 million cubic feet of natural gas per day (40%
of total natural gas production). Matador’s Delaware Basin
average oil equivalent production increased approximately 145%
(2.5-fold), as compared to 6,518 BOE per day (26% of total oil
equivalent production) for the year ended December 31, 2015,
consisting of 4,648 barrels of oil per day (38% of total oil
production) and 11.2 million cubic feet of natural gas per day (15%
of total natural gas production).
Oil and natural gas revenues increased 5% from $278.3 million
for the year ended December 31, 2015 to $291.2 million for the year
ended December 31, 2016. Oil revenues increased 3% from $203.4
million for the year ended December 31, 2015 to $209.9 million for
the year ended December 31, 2016. Natural gas revenues increased 8%
from $75.0 million for the year ended December 31, 2015 to $81.2
million for the year ended December 31, 2016.
The 3% increase in oil revenues in 2016 was primarily
attributable to the 13% increase in oil production during 2016, as
compared to 2015, which partially mitigated a lower weighted
average oil price of $41.19 per barrel realized in 2016, as
compared to $45.27 per barrel realized in 2015. The 8% increase in
natural gas revenues in 2016 was attributable to the 10% increase
in natural gas production in 2016, as compared to 2015, which
offset a slightly lower weighted average natural gas price of $2.66
per thousand cubic feet realized in 2016, as compared to $2.71 per
thousand cubic feet realized in 2015.
Total realized revenues, including hedging gains and third-party
midstream services revenues, decreased 14% from $357.3 million for
the year ended December 31, 2015 to $305.7 million for the year
ended December 31, 2016. Third-party midstream services revenues
increased almost three-fold from $1.9 million for the year ended
December 31, 2015 to $5.2 million for the year ended December 31,
2016. Realized hedging gains of $77.1 million for the year ended
December 31, 2015 were significantly larger than the realized
hedging gains of $9.3 million for the year ended December 31, 2016.
This significant decrease in realized hedging gains in 2016
resulted in the decrease in total realized revenues in 2016, as
compared to 2015.
Net Income (Loss) and Earnings (Loss) Per
Share
For the fourth quarter of 2016, Matador reported net income of
approximately $104.2 million and earnings of $1.09 per diluted
common share on a GAAP basis, as compared to net income of
approximately $11.9 million, or $0.13 per diluted common share, in
the third quarter of 2016, and as compared to a net loss of
approximately $230.4 million and a loss of $2.72 per diluted common
share in the fourth quarter of 2015. During the fourth quarter of
2016, the Company recognized the remaining gain of $104.1 million
from the October 2015 sale of its natural gas processing plant in
Loving County, Texas. Portions of the fourth quarter 2016 net
income (GAAP basis) were attributable to non-cash items, and
excluding those items from the net income, as well as excluding the
remaining gain on the processing plant sale, resulted in adjusted
net income, a non-GAAP financial measure, of approximately $7.2
million, or $0.08 per diluted common share.
Matador’s net income for the fourth quarter of 2016 was
favorably impacted by (1) higher oil production, (2) higher
realized oil and natural gas prices, as compared to the third
quarter of 2016, (3) a non-cash gain on 2015 asset sales of $104.1
million recognized in the fourth quarter of 2016, (4) third-party
midstream services revenue of $2.3 million and (5) no full-cost
ceiling impairment in the fourth quarter of 2016. Matador’s net
income for the fourth quarter of 2016 was unfavorably impacted by
(1) a realized loss on derivatives of $1.1 million and (2) a
non-cash, unrealized loss on derivatives of $11.0 million.
For the year ended December 31, 2016, Matador reported a net
loss of approximately $97.4 million and a loss of $1.07 per diluted
common share on a GAAP basis, as compared to a net loss of
approximately $679.8 million and a loss of $8.34 per diluted common
share for the year ended December 31, 2015. Portions of the full
year 2016 net loss (GAAP basis) were attributable to non-cash
items, and excluding those items from the net loss, as well as
excluding the remaining gain on the processing plant sale, resulted
in an adjusted net loss of approximately $2.8 million or $0.03 per
diluted common share.
Matador’s net loss for the year ended December 31, 2016 was
favorably impacted by (1) higher oil and natural gas production, as
compared to the year ended December 31, 2015, (2) a realized gain
on derivatives of $9.3 million, (3) a non-cash gain on 2015 asset
sales of $107.3 million recognized in 2016 and (4) improvements in
total operating expenses. Matador’s net loss for the year ended
December 31, 2016 was unfavorably impacted by (1) lower realized
oil and natural gas prices, as compared to the year ended December
31, 2015, (2) a non-cash, unrealized loss on derivatives of $41.2
million and (3) a non-cash, full-cost ceiling impairment of $158.6
million, exclusive of tax effect, realized in the first and second
quarters of 2016.
For a reconciliation of adjusted net income (non-GAAP) and
adjusted earnings (loss) per diluted common share (non-GAAP) to net
income (GAAP) and earnings (loss) per common share (GAAP), please
see “Supplemental Non-GAAP Financial Measures” below.
Adjusted EBITDA
Adjusted EBITDA, a non-GAAP financial measure, increased 15%
sequentially from $47.3 million in the third quarter of 2016 to
$54.5 million in the fourth quarter of 2016, and increased 13%
year-over-year from $48.3 million in the fourth quarter of 2015.
The sequential increase in Adjusted EBITDA was primarily
attributable to the increase in oil production and the increase in
oil and natural gas prices realized during the fourth quarter of
2016, as compared to the third quarter of 2016. The year-over-year
increase in Adjusted EBITDA was primarily attributable to the
significant increases in both oil and natural gas production and
oil and natural gas prices realized in the fourth quarter of 2016,
as compared to the fourth quarter of 2015, which offset and
mitigated a significant decrease of $26.0 million in realized
hedging gains between the comparable periods.
Adjusted EBITDA, a non-GAAP financial measure, decreased 29%
from $223.2 million for the year ended December 31, 2015 to $157.9
million for the year ended December 31, 2016. This decrease was
attributable in part to lower oil and natural gas prices realized
for the year ended December 31, 2016, as compared to the year ended
December 31, 2016, but was primarily attributable to the
significant decrease of $67.8 million in realized hedging gains
between the comparable periods.
For a definition of Adjusted EBITDA and a reconciliation of
Adjusted EBITDA (non-GAAP) to net income (GAAP) and net cash
provided by operating activities (GAAP), please see “Supplemental
Non-GAAP Financial Measures” below.
Operating Expenses
Production taxes, transportation and
processing
Production taxes, transportation and processing expenses on a
unit-of production basis decreased 3% sequentially from $4.58 per
BOE in the third quarter of 2016 to $4.43 per BOE in the fourth
quarter of 2016, and increased 7% year-over-year from $4.12 per BOE
in the fourth quarter of 2015. Total production taxes increased
during the fourth quarter of 2016 as a result of higher oil and
natural gas revenues, as compared to both the third quarter of 2016
and the fourth quarter of 2015. Transportation and processing
expenses on a unit-of-production basis were lower in the fourth
quarter of 2016 as a result of lower natural gas processing
expenses, due to the late August 2016 start-up of the Black River
cryogenic natural gas processing plant in the Rustler Breaks asset
area constructed by the Company’s midstream affiliate.
Production taxes, transportation and processing expenses on a
unit-of-production basis increased 8% from $3.91 per BOE for the
year ended December 31, 2015 to $4.23 per BOE for the year ended
December 31, 2016. This increase in production taxes,
transportation and processing expenses was attributable to higher
production taxes resulting from the 5% increase in oil and natural
gas revenues for the year ended December 31, 2016, as compared to
the year ended December 31, 2015, as well as higher natural gas
transportation and processing expenses resulting from both an
increase in total natural gas production, as well as an increase in
Matador’s natural gas production in the Delaware Basin.
Lease operating expenses
(“LOE”)
Lease operating expenses on a unit-of-production basis of $5.41
per BOE in the fourth quarter of 2016 were essentially flat
sequentially, as compared to $5.40 per BOE in the third quarter of
2016, but decreased 19% year-over-year from $6.72 per BOE in the
fourth quarter of 2015. Lease operating expenses decreased 8% on a
unit-of-production basis from $6.01 per BOE for the year ended
December 31, 2015 to $5.52 per BOE for the year ended December 31,
2016. The decreases achieved in lease operating expenses on a
unit-of-production basis were primarily attributable to several key
factors, including (1) decreased supervisory costs as a number of
third-party contractors became full-time employees during the
second quarter of 2016, (2) decreased salt water disposal and
chemical costs associated with the Company’s Eagle Ford operations
and (3) increased oil equivalent production as compared to 2015.
Lease operating expenses exclude the operating expenses associated
with Matador’s natural gas processing plant and other midstream
operations, which are now shown separately in the Company’s
consolidated statement of operations.
Plant and other midstream services
operating expenses
Plant and other midstream services operating expenses on a
unit-of-production basis increased 24% sequentially from $0.54 per
BOE in the third quarter of 2016 to $0.67 per BOE in the fourth
quarter of 2016, and increased 103% from $0.33 in the fourth
quarter of 2015. This sequential increase is primarily attributable
to the fourth quarter of 2016 being the first full quarter of
operations at the Black River cryogenic natural gas processing
plant constructed in the Company’s Rustler Breaks asset area. The
year-over-year increase was primarily attributable to additional
operating expenses associated with new salt water disposal wells
drilled in the fourth quarters of 2015 and 2016 in the Wolf asset
area. In all periods prior to the third quarter of 2016, these
plant and other midstream operating services expenses had been
reported primarily as part of the Company’s lease operating
expenses.
Plant and other midstream services operating expenses on a
unit-of-production basis increased 39% from $0.38 per BOE
for the year ended December 31, 2015 to $0.53 per BOE for the year
ended December 31, 2016. This increase was primarily attributable
to the addition of natural gas transportation and processing and
salt water disposal facilities in the Company’s Wolf and Rustler
Breaks asset areas in 2016, as compared to 2015.
Depletion, Depreciation and Amortization
(“DD&A”)
Depletion, depreciation and amortization expenses on a
unit-of-production basis increased 4% sequentially from $11.10 per
BOE in the third quarter of 2016 to $11.56 per BOE in the fourth
quarter of 2016, and decreased 29% year-over-year from $16.32 per
BOE in the fourth quarter of 2015. The slight sequential increase
was attributable, in part, to increased depreciation expenses
associated with new midstream assets constructed and placed into
service in 2016. The year-over-year decrease in DD&A expenses
on a unit-of-production basis resulted primarily from (1) the
increase in Matador’s total proved reserves between the respective
periods, (2) the decreased costs on a unit-of-production basis
associated with wells drilled in 2016, as compared to prior periods
and (3) the decrease in unamortized property costs resulting from
full-cost ceiling impairments in 2015 and the first two quarters of
2016.
Depletion, depreciation and amortization expenses on a
unit-of-production basis decreased 39% from $19.63 per BOE for the
year ended December 31, 2015 to $11.99 per BOE for the year ended
December 31, 2016. This decrease in DD&A expenses on a
unit-of-production basis resulted primarily from (1) the increase
in Matador’s total proved reserves between the respective periods,
(2) the decreased costs on a unit-of-production basis associated
with wells drilled in 2016, as compared to prior periods and (3)
the decrease in unamortized property costs resulting from full-cost
ceiling impairments in 2015 and the first two quarters of 2016. The
increase in total proved oil and natural gas reserves was primarily
attributable to Matador’s continued delineation and development of
its acreage position in the Delaware Basin.
Full-cost ceiling impairment
Matador recorded a full-cost ceiling impairment of $158.6
million, exclusive of tax effect, at December 31, 2016, as
reflected in the Company’s consolidated statement of operations for
the year ended December 31, 2016. These full-cost ceiling
impairment charges for the year ended December 31, 2016 were
realized in the first two quarters of 2016. Since that time, oil
and natural gas prices have improved and as a result, no full-cost
ceiling impairment charges were recorded in the third and fourth
quarters of 2016.
General and administrative
(“G&A”)
General and administrative expenses on a unit-of-production
basis increased 16% from $4.86 per BOE in the third quarter of 2016
to $5.65 per BOE in the fourth quarter of 2016, and increased 6%
from $5.34 per BOE in the fourth quarter of 2015. This increase in
G&A expenses was primarily attributable to increased payroll
and other expenses associated with additional employees joining
Matador to support the Company’s increased land, geoscience,
drilling, completion, production, midstream, accounting and
administrative functions as a result of the continued growth of the
Company. These increases on a unit-of-production basis were
partially offset by increases in oil and natural gas production
between the respective periods, as highlighted previously.
General and administrative expenses on a unit-of-production
basis decreased 2% from $5.50 per BOE for the year ended December
31, 2015 to $5.41 per BOE for the year ended December 31, 2016.
This decrease in G&A expenses on a unit-of-production basis was
primarily attributable to the 12% increase in total equivalent oil
production in 2016 as compared to 2015, which more than offset
increases in G&A expenses associated with additional employees
joining the Company and increased stock-based compensation expenses
in 2016.
Proved Reserves, Standardized Measure and PV-10
The following table summarizes Matador’s estimated total proved
oil and natural gas reserves at December 31, 2016, 2015 and
2014.
At December 31, 2016
2015 2014
Estimated proved reserves:(1)(2) Oil (MBbl)(3) 56,977 45,644 24,184
Natural Gas (Bcf)(4) 292.6 236.9
267.1 Total (MBOE)(5) 105,752 85,127
68,693 Estimated proved developed reserves:
Oil (MBbl)(3) 22,604 17,129 14,053 Natural Gas (Bcf)(4)
126.8 101.4 102.8 Total
(MBOE)(5) 43,731 34,037 31,185
Percent developed 41.4 % 40.0 % 45.4 % Estimated proved
undeveloped reserves: Oil (MBbl)(3) 34,372 28,515 10,131 Natural
Gas (Bcf)(4) 165.9 135.5 164.3
Total (MBOE)(5) 62,021 51,090
37,508 Standardized Measure (in millions) $ 575.0 $
529.2 $ 913.3 PV-10(6) (in millions) $ 581.5 $ 541.6 $ 1,043.4
(1) Numbers in table may not total due to rounding. (2)
Matador’s estimated proved reserves, Standardized Measure and PV-10
were determined using index prices for oil and natural gas, without
giving effect to derivative transactions, and were held constant
throughout the life of the properties. The unweighted arithmetic
averages of the first-day-of-the-month prices for the period from
January through December 2016 were $39.25 per Bbl for oil and $2.48
per MMBtu for natural gas, for the period from January through
December 2015 were $46.79 per Bbl for oil and $2.59 per MMBtu for
natural gas and for the period from January through December 2014
were $91.48 per Bbl for oil and $4.35 per MMBtu for natural gas.
These prices were adjusted by property for quality, energy content,
regional price differentials, transportation fees, marketing
deductions and other factors affecting the price received at the
wellhead. Matador reports its proved reserves in two streams, oil
and natural gas, and the economic value of the natural gas liquids
associated with the natural gas is included in the estimated
wellhead price on those properties where the natural gas liquids
are extracted and sold. (3) One thousand barrels of oil. (4) One
billion cubic feet of natural gas. (5) One thousand barrels of oil
equivalent, estimated using a conversion ratio of one barrel of oil
per six thousand cubic feet of natural gas. (6) PV-10 is a non-GAAP
financial measure. For a reconciliation of PV-10 (non-GAAP) to
Standardized Measure (GAAP), please see “Supplemental Non-GAAP
Financial Measures”.
Matador’s estimated total proved oil and natural gas reserves
were 105.8 million BOE at December 31, 2016, consisting of
57.0 million barrels of oil and 292.6 billion cubic feet of natural
gas, with a Standardized Measure of $575.0 million and a PV-10, a
non-GAAP financial measure, of $581.5 million, as compared to
estimated total proved oil and natural gas reserves of 85.1 million
BOE at December 31, 2015, consisting of 45.6 million barrels
of oil and 236.9 billion cubic feet of natural gas with a
Standardized Measure of $529.2 million and a PV-10, a non-GAAP
financial measure, of $541.6 million. Total proved reserves of
105.8 million BOE at December 31, 2016 represent a 24%
year-over-year increase, as compared to 85.1 million at
December 31, 2015, and a 54% increase, as compared to 68.7
million BOE at December 31, 2014. At December 31, 2016,
Matador’s proved oil and natural gas reserves were 41% proved
developed reserves, as compared to 40% and 45% at December 31,
2015 and 2014, respectively.
Accounting for total oil equivalent production of 10.2 million
BOE, Matador’s proved reserves grew by 30.8 million BOE in 2016,
approximately three times its 2016 annual production. Further,
Matador added 42.0 million BOE in proved reserves attributable to
extensions and discoveries in 2016, just over four times its 2016
annual production of 10.2 million BOE. Matador incurred
approximately 11.2 million BOE in net downward revisions to its
proved reserves during 2016 primarily as a result of the
reclassification of proved undeveloped reserves, primarily in the
Eagle Ford and the Haynesville shales, to contingent resources
solely due to the lower oil and natural gas prices used to estimate
proved reserves at December 31, 2016, as compared to December 31,
2015. The Company anticipates that these contingent resources will
be reclassified to proved undeveloped reserves in future periods
should the oil and natural gas prices used to estimate proved
reserves improve from the prices at December 31, 2016.
Nevertheless, the Company’s proved reserves to production ratio at
December 31, 2016 was 10.4, an increase of 11% from 9.4 at December
31, 2015.
Proved oil reserves increased 25% to 57.0 million barrels at
December 31, 2016, as compared to 45.6 million barrels at
December 31, 2015, and increased 136% (2.4-fold), as compared
to 24.2 million barrels at December 31, 2014. Accounting for
Matador’s 2016 oil production of approximately 5.1 million barrels,
Matador increased its proved oil reserves by 16.4 million barrels
in 2016 or approximately 3.2 times its 2016 annual production,
despite the decline in the oil price used to estimate proved oil
reserves at December 31, 2016 of $39.25 per barrel, as
compared to $46.79 per barrel at December 31, 2015. The
increase in year-over-year proved oil reserves resulted from
Matador’s ongoing delineation and development operations in the
Delaware Basin, which offset declining production and reserves from
the Eagle Ford and Haynesville shales where Matador has
significantly reduced its operated activity since late 2014 and
early 2015. Proved oil reserves comprised 54% of the Company’s
total proved reserves at December 31, 2016, as compared to 54%
and 35% at December 31, 2015 and 2014, respectively.
Proved natural gas reserves increased 24% to 292.6 billion cubic
feet at December 31, 2016, as compared to 236.9 billion cubic
feet at December 31, 2015, despite the decline in natural gas
price used to estimate proved natural gas reserves at December 31,
2016 of $2.48 per MMBtu, as compared to $2.59 per MMBtu at December
31, 2015. The increase in year-over-year natural gas reserves
resulted from the Company’s ongoing delineation and development
operations in the Delaware Basin. Proved natural gas reserves
comprised 46% of the Company’s total proved reserves at
December 31, 2016, as compared to 46% and 65% at
December 31, 2015 and 2014, respectively.
Matador’s proved oil and natural gas reserves attributable to
the Delaware Basin increased 68% from 47.1 million BOE at
December 31, 2015 to 79.4 million BOE at December 31,
2016. Matador’s Delaware Basin proved oil and natural gas reserves
increased 49% and 107%, respectively, from 31.4 million barrels and
94.4 billion cubic feet at December 31, 2015 to 46.9 million
barrels and 195.1 billion cubic feet at December 31, 2016.
Matador’s Delaware Basin proved reserves comprised 75% of the
Company’s total proved oil and natural gas reserves at
December 31, 2016, including 82% of its proved oil reserves
and 67% of its proved natural gas reserves.
For a reconciliation of PV-10 (non-GAAP) to Standardized Measure
(GAAP), please see “Supplemental Non-GAAP Financial Measures”
below.
Operations Update
Delaware Basin - Southeast New Mexico and West Texas
Throughout 2016, Matador focused its efforts on the continued
exploration, delineation and development of its Delaware Basin
acreage in Loving County, Texas and Lea and Eddy Counties, New
Mexico. Matador began the fourth quarter of 2016 operating three
drilling rigs in the Delaware Basin as it had done throughout 2016.
Matador contracted a fourth drilling rig in late August 2016 to
drill its first salt water disposal well in the Rustler Breaks
asset area. After this well was drilled, Matador moved this rig to
its Wolf asset area to drill a third salt water disposal well
there. Following the drilling of these two salt water disposal
wells, Matador moved this rig back to its Rustler Breaks asset area
in late November to drill oil and natural gas wells there.
At December 31, 2016 and at February 22, 2017, Matador continues
to operate four drilling rigs in the Delaware Basin, including two
rigs in its Rustler Breaks asset area, one rig in its Wolf asset
area and one rig in its Ranger/Arrowhead and Twin Lakes asset
areas. At February 22, 2017, Matador intends to operate four rigs
in these asset areas throughout the remainder of 2017. As announced
on February 17, 2017, Matador expects to add a fifth drilling rig
in the Delaware Basin beginning early in the second quarter.
Thereafter, the Company expects this fifth rig to operate in the
Rustler Breaks asset area throughout the remainder of 2017.
During the fourth quarter of 2016, Matador completed and placed
on production a total of 13 gross (6.6 net) wells in the Delaware
Basin, including eight gross (6.3 net) operated wells and five
gross (0.3 net) non-operated wells. Of the operated wells, Matador
completed and placed on production two gross (1.8 net) wells in its
Wolf asset area, three gross (2.3 net) wells in its Rustler Breaks
asset area and three gross (2.1 net) wells in its Ranger asset
area.
During the year ended December 31, 2016, Matador completed and
began producing oil and natural gas from 55 gross (37.0 net) wells
in the Delaware Basin, including 38 gross (33.6 net) operated
horizontal wells, two gross (2.0 net) operated vertical wells and
15 gross (1.4 net) non-operated horizontal wells. Matador (or the
operator in the case of non-operated wells) completed and placed on
production 18 gross (15.4 net) wells in the Wolf asset area, 29
gross (17.3 net) wells in the Rustler Breaks asset area, seven
gross (3.4 net) wells in the Ranger and Arrowhead asset areas and
one gross (1.0 net) well in the Twin Lakes asset area.
Matador’s operations staff made significant improvements in
drilling times, completion and stimulation practices and overall
drilling and completion costs while achieving strong well results
throughout 2016—in essence, drilling “better wells for less money.”
Further, as both oil and natural gas prices have increased in
recent months, the projected economic returns from these wells have
improved significantly. New drilling assembly and bit technologies
have resulted in an overall faster rate of penetration while
drilling build sections, landing curves and drilling lateral
sections. In the fourth quarter of 2016, Matador drilled its
fastest Third Bone Spring well in the Ranger area, the Cimarron
State 16-19S-34E RN #133H well (Cimarron State #133H), in 14.5 days
from spud to total depth. Likewise, in the Rustler Breaks area,
Matador drilled its fastest Wolfcamp B well, the Jimmy Kone
5-24S-28E RB #223H well (Jimmy Kone #223H), in 15.2 days from spud
to total depth. These wells also set improved drilling cost
benchmarks. Both the Cimarron State #133H well and the Jimmy Kone
#223H well were completed during the first quarter of 2017.
In addition, during 2016, Matador’s asset teams continued to
identify and delineate new landing targets in the Bone Spring and
Wolfcamp intervals throughout its Delaware Basin asset areas. The
best examples of this during 2016 were the tests of the “Blair
Shale,” the lowermost landing target in the Wolfcamp B interval in
Matador’s Rustler Breaks asset area, many of which have resulted in
24-hour initial potential test results in excess of 2,000 BOE per
day and estimated ultimate recoveries in excess of 1,000,000
BOE.
During 2017, as noted above, Matador expects to operate as many
as five rigs in the Delaware Basin. Matador projects that it will
complete and place on production 88 gross (55.5 net) wells in the
Delaware Basin, including 66 gross (52.3 net) operated wells and 22
gross (3.2 net) non-operated wells, the vast majority of which are
expected to be horizontal wells. Additional details regarding the
number of wells and the formations to be drilled and completed in
each asset area are included in the discussions of each asset area
below.
Ranger Asset Area - Lea County, New Mexico
and Arrowhead Asset Area - Eddy County, New Mexico
During the fourth quarter of 2016, Matador completed and placed
on production three gross (2.1 net) wells in the northern portion
of its Ranger asset area. These three wells were the Mallon 27
Federal Com #1H, #2H and #3H wells, all of which were completed in
the Third Bone Spring sand. These wells were the first operated
wells that Matador had drilled on the acreage acquired in its 2015
merger with the Harvey E. Yates Company (“HEYCO”). For the year
ended December 31, 2016, Matador completed and placed on production
seven gross (3.4 net) wells in the Ranger and Arrowhead asset
areas, including three gross (0.2 net) non-operated wells.
The 24-hour initial potential test results from the Mallon wells
are summarized in the table below. These results were previously
released on February 2, 2017, but are included in this earnings
release for completeness, as these well results were a key
highlight of the fourth quarter of 2016.
Initial Potential Oil Gas
BOE % Oil
FCP(1)
Choke Well Interval (Bbl/d)
(Mcf/d)
(BOE/d) (psi) (inch) Mallon 27 Federal Com #1H Third Bone Spring
2,500 1,680 2,780 90 1,327 34/64 Mallon 27 Federal Com #2H Third
Bone Spring 2,427 1,387 2,658 91 1,414 34/64 Mallon 27 Federal Com
#3H Third Bone Spring 2,245 1,035 2,418 93 1,482 32/64
(1) Flowing
casing pressure.
Total 7,172
4,102 7,856 91 %
In aggregate, these three wells flowed 7,856 BOE per day,
consisting of 7,172 barrels of oil per day and 4.1 million cubic
feet of natural gas per day (91% oil). Each of the three Mallon
wells are 7,300-foot horizontal laterals, and each has a completed
lateral length of approximately 7,000 feet. Each well was completed
with a 29-stage fracture treatment, including approximately 40
barrels of fluid and 3,000 pounds of primarily 20/40 white sand per
completed lateral foot. These were the largest fracture treatments
pumped to date by Matador in a Bone Spring completion.
Since these initial potential tests, the wells were placed on
production on smaller 22/64-inch chokes to allow Matador to
increase the size of its production facilities on this lease and to
allow the wells to continue to flow at higher surface pressures.
Since that time, these wells have averaged producing between 900
and 1,200 barrels of oil per day on the reduced chokes. After only
2.5 months of production, these wells have each produced between
110,000 and 130,000 BOE, and the oil cut on each well has continued
to be approximately 91%. Although it is very early in the life of
these wells, Matador estimates that ultimate recoveries from each
of these wells could be in excess of 1,000,000 BOE.
Following the drilling of the Mallon wells, Matador drilled and
completed the Airstrip State Com 31-18S-35E RN #201H (Airstrip
#201H) well, which was completed and placed on production in late
January 2017. This well was Matador’s first Wolfcamp A test in its
Ranger asset area. Matador is pleased to announce today the early
test results from this well, which is still continuing to clean up
after its fracture treatment, including the 24-hour initial
potential test result shown in the table below.
Initial Potential Oil Gas
BOE % Oil FCP(1)
Choke Well Interval (Bbl/d)
(Mcf/d)
(BOE/d) (psi) (inch) Airstrip State Com 31-18S-35E RN #201H
Wolfcamp A-Lower 889 223 926 97 On ESP(2) N/A
(1) Flowing casing pressure. (2)
Electrical submersible pump.
The Airstrip #201H well had a completed lateral length of
approximately 4,100 feet and was stimulated with approximately 40
barrels of fluid and 3,300 pounds of primarily 30/50 white sand per
completed lateral foot. As shown in the table above, the Airstrip
#201H well tested 926 BOE per day (97% oil) during a 24-hour
initial potential test, consisting of 889 barrels of oil per day
and 223 thousand cubic feet of natural gas per day. As expected,
the Wolfcamp A in this area is not as highly over-pressured as in
the Wolf and Rustler Breaks asset areas, but does have a much
higher oil cut—in this case, testing 97% oil. Similar to many Bone
Spring wells in the area, the higher oil cut and lower natural gas
volumes necessitate the installation of artificial lift earlier in
the life of these wells, and anticipating this need, Matador chose
to begin lifting this well with an electrical submersible pump
(“ESP”). In addition, the Airstrip #201H well is making much less
water than Matador’s Wolfcamp A completions to the south.
Matador is very pleased and encouraged by the results of its
first Wolfcamp A test in the northern portion of its acreage. To
the Company’s knowledge, the nearest horizontal test of the
Wolfcamp A in the northern Delaware Basin is about 11 miles to the
south, and the next closest horizontal test is about 29 miles to
the southwest. Thus, the Airstrip #201H test marks a significant
step-out from known Wolfcamp A horizontal production. In addition,
early performance of this well is very similar to two of Matador’s
early Second Bone Spring wells in the Ranger area, the Ranger 33
State Com #1H and the Pickard State #1H, which were also placed on
artificial lift (in those cases, gas lift) shortly after
completion. Both of those wells have performed very well, with the
Ranger 33 State Com #1H having produced approximately 285,000 BOE
(91% oil cut) in just over three years of production and the
Pickard State #1H having also produced approximately 285,000 BOE
(86% oil) in about 2.5 years of production. Matador will continue
to monitor the early performance of the Airstrip #201H, but given
the positive early performance, the Company is actively evaluating
other locations for its next test of the Wolfcamp A, both the
Wolfcamp A-XY and the Wolfcamp A-Lower intervals, across its
northern Ranger and Arrowhead acreage position.
At February 22, 2017, Matador plans to operate one rig in its
northern Ranger/Arrowhead and Twin Lakes asset areas throughout
2017. Late in the first quarter of 2017, this rig will move north
into Matador’s Twin Lakes asset area to drill the Company’s first
Wolfcamp D test there. Matador expects to complete and place on
production 14 gross (10.5 net) operated wells in its Ranger and
Arrowhead asset areas in 2017, consisting primarily of Second and
Third Bone Spring wells.
Rustler Breaks Asset Area - Eddy County,
New Mexico
Matador began operating a second drilling rig in its Rustler
Breaks asset area late in the fourth quarter of 2016 and continues
to operate two rigs in this area at February 22, 2017. During the
fourth quarter of 2016, Matador completed and placed on production
four gross (2.5 net) horizontal wells in the Rustler Breaks asset
area, including three gross (2.4 net) operated wells and one gross
(0.1 net) non-operated well. Of the three gross operated wells, one
was a Wolfcamp A-XY completion and two were lower Wolfcamp B
(Blair) completions. The one gross (0.1 net) non-operated well was
also a Wolfcamp B (Blair) completion. For the year ended December
31, 2016, Matador completed and placed on production 29 gross (17.3
net) wells in the Rustler Breaks asset area, including 17 gross
(15.1 net) operated horizontal wells, one gross (1.0 net) operated
vertical well and 11 gross (1.2 net) non-operated horizontal
wells.
Matador is pleased to announce today the 24-hour initial
potential test results from the three operated wells completed and
placed on production in the Rustler Breaks asset area during the
fourth quarter of 2016 and the 24-hour initial potential test
result from the Tom Walters 12-23S-27E RB #203H well (Tom Walters
#203H), which was completed and placed on production in early
January 2017. These test results are summarized in the table
below.
Initial Potential Oil Gas
BOE % Oil FCP(1)
Choke Well Interval (Bbl/d)
(Mcf/d)
(BOE/d) (psi) (inch) Dr. Scrivner Federal 01-24S-28E RB #208H
Wolfcamp A-XY 1,136 2,277 1,515 75 2,435 32/64 Dr. Scrivner Federal
01-24S-28E RB #228H Wolfcamp B (Blair) 801 10,615 2,570 31 3,807
32/64 Anne Com 15-24S-28E RB #221H Wolfcamp B (Blair) 953 8,471
2,364 40 3,067 36/64 Tom Walters 12-23S-27E RB #203H Wolfcamp A-XY
1,145 2,454 1,554 74 1,889 34/64
(1) Flowing casing pressure.
Total 4,035 23,817
8,003 50 %
Matador continues to be very pleased with its well results in
the Rustler Breaks asset area, which consistently demonstrate the
value of its Rustler Breaks acreage position. The 24-hour initial
potential test result for the Dr. Scrivner Federal 01-24S-28E RB
#208H well (Dr. Scrivner #208H) at 1,515 BOE per day (75% oil) is
among the best test results reported for Wolfcamp A-XY completions
in this area. Likewise, the 24-hour initial potential test results
from the Dr. Scrivner Federal 01-24S-28E RB #228H (Dr. Scrivner
#228H) and the Anne Com 15-24S-28E RB #221H (Anne Com #221H) wells
are among the best results yet reported for Wolfcamp B (Blair)
completions in this area. In fact, the Dr. Scrivner #228H well had
the highest 24-hour initial potential test result of any well
drilled and completed by Matador in the Rustler Breaks area to
date. All three of these wells had completed lateral lengths of
approximately 4,300 feet and were stimulated with 22 stages,
pumping 40 barrels of fluid and approximately 3,000 pounds of
primarily 30/50 white sand per completed lateral foot.
Matador is especially pleased with the results of the Tom
Walters #203H well, which was completed in the Wolfcamp A-XY and
had a 24-hour initial potential test result of 1,554 BOE per day
(74% oil); this is also among the best test results reported for
Wolfcamp A-XY completions in this area. Of particular significance,
the Tom Walters well is located in the far northwestern portion of
Matador’s Rustler Breaks asset area and close to the previously
completed Scott Walker 36-22S-27E RB #204H well (Scott Walker
#204H). Upon its completion, the Scott Walker #204H well, also a
Wolfcamp A-XY completion, tested 504 BOE per day (70% oil), much
less than other Wolfcamp A-XY completions to the south and
southeast in the Rustler Breaks asset area. The Scott Walker #204H
had a completed lateral length of approximately 4,100 feet, while
the completed lateral length in the Tom Walters #203H was
approximately 4,600 feet.
After the Scott Walker #204H well was completed and tested,
Matador attributed the lower initial potential of that well, in
part, to the smaller stimulation treatment pumped on the well,
consisting of 14 stages, pumping 30 barrels of fluid and 2,000
pounds of primarily 30/50 white sand per completed lateral foot.
The Tom Walters #203H well, by contrast, was stimulated with 24
stages, pumping 40 barrels of fluid and approximately 3,000 pounds
of primarily 30/50 white sand per completed lateral foot.
Matador believes that the 24-hour initial
potential test results and early performance of the Tom Walters
#203H well confirm that the Wolfcamp A-XY remains a highly
prospective completion target in the northwest portion of its
Rustler Breaks asset area.
All of the Wolfcamp A-XY wells completed and placed on
production at Rustler Breaks in 2016 were stimulated using the
Company’s latest Generation 3 Wolfcamp stimulation design,
consisting of approximately 40 barrels of fluid and 3,000 pounds of
primarily 30/50 white sand per completed lateral foot. Similarly,
Matador pumped this Generation 3 Wolfcamp treatment design on its
Wolfcamp B (Blair) completions in the third and fourth quarters of
2016. Prior to this, most of the Company’s Wolfcamp A and B
completions used approximately 30 to 40 barrels of fluid and 2,000
pounds of primarily 30/50 white sand per completed lateral foot.
Matador also continued to pump diverting agents in most of its
stimulation treatments during the third and fourth quarters of
2016. As a result of the success of its recent wells, the Company
plans to continue using this Generation 3 stimulation design,
including the use of diverting agents, in its upcoming Wolfcamp
wells in the Rustler Breaks asset area.
As noted earlier, Matador is operating two drilling rigs in its
Rustler Breaks asset area at February 22, 2017, and plans to begin
operating a third drilling rig at Rustler Breaks early in the
second quarter of 2017. As a result, Matador estimates that it will
complete and place on production 52 gross (32.5 net) horizontal
wells in the Rustler Breaks asset area during 2017, including 36
gross (29.7 net) operated wells and 16 gross (2.8 net) non-operated
wells. Of the 36 gross (29.7 net) operated wells to be completed
and placed on production in its Rustler Breaks asset area in 2017,
Matador estimates that 20 gross (16.1 net) wells will be Wolfcamp
A-XY completions, 14 gross (12.0 net) wells will be Wolfcamp B
completions and two gross (1.6 net) wells will be Second Bone
Spring completions.
Wolf and Jackson Trust Asset Areas -
Loving County, Texas
Matador operated one drilling rig in its Wolf and Jackson Trust
asset areas during the fourth quarter of 2016 and continues to
operate one rig in its Wolf asset area at February 22, 2017. During
the fourth quarter of 2016, Matador completed and placed on
production two gross (1.8 net) operated horizontal wells in its
Wolf asset area. One of these wells was a Wolfcamp A-Lower
completion (below the Wolfcamp X and Y intervals) and one was a
Second Bone Spring completion. For the year ended December 31,
2016, Matador completed and placed on production 18 gross (15.4
net) horizontal wells in the Wolf asset area, including 17 gross
(15.4 net) operated horizontal wells and one gross non-operated
horizontal well with a working interest of less than 1%.
Matador is pleased to announce today the 24-hour initial
potential test results from both of the wells completed and placed
on production in the Wolf asset area during the fourth quarter of
2016, as well as two additional wells—one in the Wolf asset area
and another in the Jackson Trust asset area that were completed and
placed on production in early January 2017. These test results are
summarized in the table below.
Initial Potential Oil Gas
BOE % Oil FCP(1)
Choke Well Interval (Bbl/d)
(Mcf/d)
(BOE/d) (psi) (inch) Barnett 90-TTT-B01 WF #217H Wolfcamp A-Lower
578 3,508 1,163 50 2,635 32/64 Barnett 90-TTT-B01 WF #124H Second
Bone Spring 733 2,122 1,087 67 1,375 38/64 Dick Jay 92-TTT-B01 WF
#121H Second Bone Spring 649 1,375 878 74 920 38/64 Totum E
18-TTT-C24 NL #211H Wolfcamp A-Lower 1,610 3,824 2,247 72 3,564
28/64
(1) Flowing casing pressure.
Total
3,570 10,829 5,375
66 %
The test result from the Totum E 18-TTT-C24 NL #211H (Totum
#211H), a Wolfcamp A-Lower completion in the Jackson Trust asset
area was particularly significant. The
24-hour initial potential test of 2,247 BOE per day (72% oil) on
the Totum #211H well was the highest 24-hour initial potential test
for any Wolfcamp A-Lower well completed by Matador in either its
Wolf or Jackson Trust asset areas. This test result was
approximately three times better and at a much higher flowing
casing pressure than the 24-hour initial potential test result
achieved on Matador’s first Wolfcamp A-Lower test in the Jackson
Trust asset area, the Jackson Trust C 12-TTT-C24 NL #221H well
(Jackson Trust #221H). Matador attributes this significant
improvement in well performance in the Totum #211H to both the
selection of an improved landing target in the Wolfcamp A-Lower and
an improved stimulation design.
In the Totum #211H, Matador’s geoscience team relied on
additional well log and seismic data to identify a landing target
approximately 120 feet lower in the Wolfcamp A-Lower interval that
appeared to have better reservoir quality than the landing target
drilled in the Jackson Trust #211H. Following completion, this well
flowed at much higher rates and at a much higher flowing casing
pressure as noted above, suggesting a higher quality reservoir
interval was contacted. Second, Matador completed this well using a
different stimulation design for the Wolfcamp A-Lower. The Totum
#211H was stimulated with 36 fracture stages, including
approximately 50 barrels of slickwater and 1,900 pounds of
primarily 40/70 mesh white sand per completed lateral foot. In
addition, the fracture cluster spacing was reduced to 20 feet on
this well. This treatment design was intended to create more
hydraulic fractures near the wellbore and to reduce the height of
the fractures created—i.e., to create a higher density of induced
fractures near the wellbore. Matador plans to continue to develop
and improve its fracture treatment designs throughout the various
Wolfcamp completion targets in each of its asset areas.
The test result from the Wolfcamp A-Lower completion (below the
Wolfcamp X and Y intervals) in the Barnett 90-TTT-B01 #217H well
(Barnett #217H) in the Wolf asset area was consistent with the
results observed from the Dick Jay 92-TTT-B33 WF #212H well (Dick
Jay #212H) drilled and completed in the Wolfcamp A-Lower earlier in
2016. Early production performance from both of these wells exceeds
that of Wolfcamp A-Lower wells that Matador completed and placed on
production in 2015. The Dick Jay #212H well is tracking the
Company’s 700,000 BOE type curve for Wolfcamp A-Lower wells in the
Wolf asset area, and early performance from the Barnett #217H well
is tracking above that of the Dick Jay #212H well. The Barnett
#217H well was stimulated with a fracture treatment similar to that
pumped on the Totum #211H.
The results from the Barnett 90-TTT-B01 WF #124H well (Barnett
#124H) and the Dick Jay 92-TTT-B01 WF #121H, both Second Bone
Spring completions, continued the trend of significant improvement
in Second Bone Spring well results in the Wolf asset area in 2016.
Overall, Matador completed and placed on production six gross
Second Bone Spring wells in 2016 and early 2017, and based on their
performance to date, the Company estimates an average ultimate
recovery of approximately 650,000 BOE from each of these wells,
significantly better than for the two Second Bone Spring wells
completed and placed on production in the Wolf asset area in 2015.
Matador attributes the improvement in well performance and
estimated ultimate recovery from these Second Bone Spring wells
primarily to the increased stimulation treatments pumped on these
wells. The Second Bone Spring wells in 2016 were completed with
approximately 40 barrels of fluid and 2,000 pounds of sand of
completed lateral foot, as compared to 20 barrels of fluid and
about 1,300 pounds of sand per completed lateral foot in Matador’s
Second Bone Spring tests in 2015. In addition, Matador has begun to
test artificial lift in several of these wells as the flowing
surface pressures decline. Early results are encouraging and
suggest that the estimated ultimate recoveries from several of
these 2016 Second Bone Spring completions may continue to increase
over time.
As noted in its third quarter 2016 earnings release, while
drilling the Barnett #217H well, Matador initially drilled a
vertical pilot hole through the Wolfcamp B interval and took 630
feet of whole core in the Wolfcamp A-Lower and the Wolfcamp B
formations. The Company also cut rotary sidewall cores and measured
gas isotopes from the Avalon through the Wolfcamp B intervals. In
addition, Matador ran a complete suite of openhole well logs from
the Avalon through the Wolfcamp B formations. As a result of its
review and interpretation of these well data, Matador has
identified several new targets to test in the Wolf asset area,
including portions of the Avalon and the Wolfcamp B. The Company
expects to test both of these intervals in the second quarter of
2017.
Matador plans to operate one rig in its Wolf and Jackson Trust
asset areas throughout 2017. The Company estimates that it will
complete and place on production 15 gross (11.1 net) operated
horizontal wells in these asset areas in 2017. Matador estimates
five gross (3.3 net) wells will be Wolfcamp A-XY completions, three
gross (1.5 net) wells will be Wolfcamp A-Lower completions and five
gross (4.3 net) wells will be Second Bone Spring completions. The
Company is also planning one gross (1.0 net) test of the Avalon
shale and one gross (1.0 net) test of the Wolfcamp B interval in
the Wolf asset area in 2017.
Twin Lakes Asset Area - Lea County, New
Mexico
Matador expects to drill its first horizontal well testing the
Wolfcamp D in its Twin Lakes asset area beginning late in the first
quarter of 2017. This well will be completed and placed on
production during the second quarter of 2017, and the Company
anticipates having initial results to report from this well
sometime this summer.
Midstream Update
As discussed above, on February 17, 2017, Matador announced the
formation of San Mateo, a strategic joint venture between Matador
and a subsidiary of Five Point, an experienced midstream capital
partner, to operate and expand Matador’s midstream assets in the
Delaware Basin in Eddy County, New Mexico and Loving County, Texas.
Matador received $171.5 million in connection with the formation of
the Joint Venture and may earn up to an additional $73.5 million in
performance incentives over the next five years. Matador continues
to operate the Midstream Assets and retains operational control of
the Joint Venture. Matador and Five Point own 51% and 49% of the
Joint Venture, respectively. The implied value of the Midstream
Assets and the associated gathering, processing and disposal
agreements entered into with Matador was approximately $500 million
at closing, after taking into account the performance
initiatives.
San Mateo will continue to provide firm capacity service to
Matador at market rates, while also being a leading service
provider to third party customers in and around Matador’s Rustler
Breaks and Wolf asset areas. San Mateo expects to expand the Black
River cryogenic natural gas processing plant in Matador’s Rustler
Breaks asset area from its current inlet capacity of 60 million
cubic feet of natural gas per day to as much as 260 million cubic
feet of natural gas per day. This expansion is expected to begin
immediately and may be operational as early as the first quarter of
2018; it will serve both Matador and third party customers. San
Mateo also plans to accelerate the build-out of oil, natural gas
and water gathering lines throughout both the Rustler Breaks and
Wolf asset areas, as well as to drill and complete at least one
additional salt water disposal well in the Rustler Breaks asset
area in 2017.
Included in the Midstream Assets contributed by the Joint
Venture are the following:
- The Black River cryogenic natural gas
processing plant in the Rustler Breaks asset area in Eddy County,
New Mexico;
- One salt water disposal well and a
related commercial salt water disposal facility in the Rustler
Breaks asset area;
- Three salt water disposal wells and
related commercial salt water disposal facilities in the Wolf asset
area in Loving County, Texas; and
- All related oil, natural gas and water
gathering systems and pipelines in both the Rustler Breaks and Wolf
asset areas.
Matador retained all of its ownership in its midstream assets in
South Texas and North Louisiana, which are not part of the Joint
Venture.
At formation, the parties to the Joint Venture committed to
contribute up to an additional $150 million in aggregate capital to
expand the Joint Venture’s midstream operations and asset base. At
February 22, 2017, Matador estimates that San Mateo will incur
capital expenditures of approximately $110 to $125 million in 2017,
with Matador’s share being approximately $56 to $64 million. The
majority of these 2017 capital expenditures will be incurred for
the expansion of the Black River cryogenic processing plant, the
build-out of additional oil, natural gas and water gathering
systems in the Rustler Breaks and Wolf asset areas and the
development of additional salt water disposal capacity in the
Rustler Breaks asset area.
Delaware Basin Acreage Update
At February 22, 2017, Matador held approximately 177,600 gross
(101,400 net) acres in the Permian Basin, primarily in the Delaware
Basin in Lea and Eddy Counties, New Mexico and Loving County, Texas
shown in the table below.
Matador’s Permian Basin Acreage at February 22, 2017
(approximate): Asset
Area Gross Acres Net Acres Ranger (Lea
County, NM) 37,800 24,900 Arrowhead (Eddy County, NM) 50,100 18,400
Rustler Breaks (Eddy County, NM) 31,900 17,800 Wolf and Jackson
Trust (Loving County, TX) 13,500 8,400 Twin Lakes (Lea County, NM)
42,900 30,800 Other 1,400 1,100 Total 177,600 101,400
During 2016, Matador acquired additional mineral ownership
throughout the Delaware Basin. At February 22, 2017, Matador’s
total mineral ownership is approximately 7,900 gross (2,800 net)
mineral acres, and approximately 46% of these mineral acres were
being leased by Matador, 21% were leased to other operators and 33%
were unleased.
From January 1 through February 22, 2017, Matador acquired
approximately 13,900 gross (8,200 net) leasehold acres and
approximately 1,000 BOE per day of related production from various
lessors and other operators, mostly in and around its existing
acreage in the Delaware Basin. Some of this acreage, and a portion
of the production, includes properties identified at the time of
Matador’s December 2016 equity and debt offerings. These
transactions were pending at the time of those offerings and closed
subsequent to December 31, 2016. Matador has incurred capital
expenditures of approximately $111 million since January 1, 2017 to
acquire these leasehold interests and the related production.
Liquidity Update
At December 31, 2016, the borrowing base under the
Company’s revolving credit facility was $400.0 million, based on
the lenders’ review of Matador’s proved oil and natural gas
reserves as of June 30, 2016. At December 31, 2016, Matador
had cash on hand totaling approximately $212.9 million and no
outstanding borrowings under the Company’s revolving credit
facility and approximately $0.8 million in outstanding letters of
credit. At February 22, 2017, the Company continues to have no
outstanding borrowings and approximately $0.8 million in
outstanding letters of credit under its revolving credit
facility.
2017 Capital Spending
As provided in its 2017 guidance estimates announced today,
Matador estimates that it will incur capital expenditures of (1)
$370 to $390 million for drilling, completing and equipping
operated and non-operated wells primarily in the Delaware Basin and
(2) $56 to $64 million for its share of various midstream projects
undertaken by San Mateo, representing 51% of an estimated 2017
joint venture capital expenditure budget of $110 to $125 million,
as described in the Midstream Update of this earnings release.
Matador expects to operate four drilling rigs in the Delaware Basin
in the first quarter of 2017, adding a fifth drilling rig in the
Delaware Basin in the second quarter of 2017. The Company’s
estimated 2017 capital expenditures for drilling, completing and
equipping its wells account for a 10 to 15% increase in expected
well costs attributable to higher anticipated oilfield service
costs and in particular, stimulation costs, in 2017 as compared to
2016. Matador has allocated substantially all of its estimated 2017
capital expenditures to the Delaware Basin, with the exception of
amounts allocated to limited operations in the Eagle Ford and
Haynesville shales to maintain and extend leases and to participate
in those non-operated well opportunities where, in both cases,
economic returns are expected to be comparable to Matador’s
Delaware Basin wells. Accordingly, Matador projects that it will
drill and place on production 91 gross (56.2 net) wells in 2017,
including 66 gross (52.3 net) operated wells and including 25 gross
(3.9 net) non-operated wells, almost all in the Delaware Basin.
Matador intends to continue acquiring acreage and mineral
interests, principally in the Delaware Basin, during 2017. These
expenditures are opportunity-specific and per-acre prices can vary
significantly based on the prospect. As a result, it is difficult
to estimate these 2017 capital expenditures with any degree of
certainty; therefore, Matador has not provided estimated capital
expenditures related to acreage and mineral acquisitions for 2017.
Matador will provide periodic updates regarding completed
acquisitions.
Hedging Positions
From time to time, Matador uses derivative financial instruments
to mitigate its exposure to commodity price risk associated with
oil, natural gas and natural gas liquids prices and to protect its
cash flows and borrowing capacity.
At February 22, 2017, Matador has the following hedges in place,
in the form of costless collars, for the remainder of 2017.
- Approximately 4.4 million barrels of
oil at a weighted average floor price of $45 per barrel and a
weighted average ceiling price of approximately $56 per
barrel.
- Approximately 15.1 billion cubic feet
of natural gas at a weighted average floor price of $2.39 per MMBtu
and a weighted average ceiling price of $3.58 per MMBtu.
Matador estimates that it has approximately 70% of its
anticipated oil production and approximately 50% of its anticipated
natural gas production hedged for the remainder of 2017 based on
the midpoint of its production guidance as provided in this
earnings release.
At February 22, 2017, Matador has the following hedges in place,
in the form of costless collars, for 2018.
- Approximately 0.7 million barrels of
oil at a weighted average floor price of $44 per barrel and a
weighted average ceiling price of $64 per barrel.
Conference Call Information
The Company will host a live conference call on Thursday,
February 23, 2017, at 9:00 a.m. Central Time to discuss its fourth
quarter and full year 2016 financial and operational results. To
access the live conference call, domestic participants should dial
(855) 875-8781 and international participants should dial (720)
634-2925. The participant passcode is 56817823. The live conference
call will also be available through the Company’s website at
www.matadorresources.com on the Presentations & Webcasts page
under the Investors tab. The replay for the event will also be
available on the Company’s website at www.matadorresources.com on
the Presentations & Webcasts page under the Investors tab
through Friday, March 31, 2017.
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 and East Texas.
Additionally, Matador conducts midstream operations primarily
through its midstream joint venture, San Mateo Midstream,
LLC, in support of its exploration, development and production
operations and provides natural gas processing, natural gas, oil
and salt water gathering services and salt water disposal services
to third parties on a limited basis.
For more information, visit Matador Resources Company at
www.matadorresources.com.
Forward-Looking Statements
This press release includes “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. “Forward-looking statements” are statements related to
future, not past, events. Forward-looking statements are based on
current expectations and include any statement that does not
directly relate to a current or historical fact. In this context,
forward-looking statements often address expected future business
and financial performance, and often contain words such as “could,”
“believe,” “would,” “anticipate,” “intend,” “estimate,” “expect,”
“may,” “should,” “continue,” “plan,” “predict,” “potential,”
“project,” “hypothetical,” “forecasted” and similar expressions
that are intended to identify forward-looking statements, although
not all forward-looking statements contain such identifying words.
Actual results and future events could differ materially from those
anticipated in such statements, and such forward-looking statements
may not prove to be accurate. These forward-looking statements
involve certain risks and uncertainties, including, but not limited
to, the following risks related to financial and operational
performance: general economic conditions; the Company’s ability to
execute its business plan, including whether its drilling program
is successful; the ability of the Company’s midstream joint venture
to expand the Black River cryogenic processing plant, the timing of
such expansion and the operating results thereof; the timing and
operating results of the buildout by the Company’s midstream joint
venture of oil, natural gas and water gathering systems and the
drilling of any additional salt water disposal wells; changes in
oil, natural gas and natural gas liquids prices and the demand for
oil, natural gas and natural gas liquids; its ability to replace
reserves and efficiently develop current reserves; costs of
operations; delays and other difficulties related to producing oil,
natural gas and natural gas liquids; its ability to make
acquisitions on economically acceptable terms; its ability to
integrate acquisitions; availability of sufficient capital to
execute its business plan, including from future cash flows,
increases in its borrowing base and otherwise; weather and
environmental conditions; and other important factors which could
cause actual results to differ materially from those anticipated or
implied in the forward-looking statements. For further discussions
of risks and uncertainties, you should refer to Matador’s filings
with the Securities and Exchange Commission (“SEC”), including the
“Risk Factors” section of Matador’s most recent Annual Report on
Form 10-K and any subsequent Quarterly Reports on Form 10-Q.
Matador undertakes no obligation and does not intend to update
these forward-looking statements to reflect events or circumstances
occurring after the date of this press release, except as required
by law, including the securities laws of the United States and the
rules and regulations of the SEC. You are cautioned not to place
undue reliance on these forward-looking statements, which speak
only as of the date of this press release. All forward-looking
statements are qualified in their entirety by this cautionary
statement.
Matador Resources Company and
Subsidiaries CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In thousands, except par value and share data)
December 31,
2016 2015 ASSETS Current assets Cash $
212,884 $ 16,732 Restricted cash 1,258 44,357 Accounts receivable
Oil and natural gas revenues 34,154 16,616 Joint interest billings
19,347 16,999 Other 5,167 10,794 Derivative instruments — 16,284
Lease and well equipment inventory 3,045 2,022 Prepaid expenses and
other assets 3,327 3,203 Total current
assets 279,182 127,007 Property and equipment, at cost Oil and
natural gas properties, full-cost method Evaluated 2,408,305
2,122,174 Unproved and unevaluated 479,736 387,504 Other property
and equipment 160,795 86,387 Less accumulated depletion,
depreciation and amortization (1,864,311 ) (1,583,659
) Net property and equipment 1,184,525 1,012,406 Other assets
958 1,448 Total assets $ 1,464,665
$ 1,140,861 LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities Accounts payable $ 4,674 $ 10,966 Accrued
liabilities 101,460 92,369 Royalties payable 23,988 16,493 Amounts
due to affiliates 8,651 5,670 Derivative instruments 24,203 —
Advances from joint interest owners 1,700 700 Deferred gain on
plant sale — 4,830 Amounts due to joint ventures 4,251 2,793 Income
taxes payable — 2,848 Other current liabilities 578
161 Total current liabilities 169,505 136,830
Long-term liabilities Senior unsecured notes payable 573,924
391,254 Asset retirement obligations 19,725 15,166 Derivative
instruments 751 — Amounts due to joint ventures 1,771 3,956
Deferred gain on plant sale — 102,506 Other long-term liabilities
7,544 2,190 Total long-term liabilities
603,715 515,072 Shareholders’ equity Common stock — $0.01 par
value, 120,000,000 shares authorized; 99,518,764 and 85,567,021
shares issued; and 99,511,931 and 85,564,435 shares outstanding,
respectively 995 856 Additional paid-in capital 1,325,481 1,026,077
Accumulated deficit (636,351 ) (538,930 ) Total
Matador Resources Company shareholders’ equity 690,125 488,003
Non-controlling interest in subsidiaries 1,320
956 Total shareholders’ equity 691,445
488,959 Total liabilities and shareholders’ equity $
1,464,665 $ 1,140,861
Matador Resources Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED (In
thousands, except per share data)
For the Years Ended December
31, 2016 2015
2014 Revenues Oil and natural gas revenues $ 291,156 $
278,340 $ 367,712 Third-party midstream services revenues 5,218
1,864 1,213 Realized gain on derivatives 9,286 77,094 5,022
Unrealized (loss) gain on derivatives (41,238 )
(39,265 ) 58,302 Total revenues 264,422 318,033
432,249 Expenses Production taxes, transportation and processing
43,046 35,650 33,172 Lease operating 56,202 54,704 49,945 Plant and
other midstream services operating 5,389 3,489 1,408 Depletion,
depreciation and amortization 122,048 178,847 134,737 Accretion of
asset retirement obligations 1,182 734 504 Full-cost ceiling
impairment 158,633 801,166 — General and administrative
55,089 50,105 32,152 Total
expenses 441,589 1,124,695
251,918 Operating (loss) income (177,167 ) (806,662 )
180,331 Other income (expense) Net gain on asset sales and
inventory impairment 107,277 908 — Interest expense (28,199 )
(21,754 ) (5,334 ) Other (expense) income (4 ) 616
132 Total other income (expense) 79,074
(20,230 ) (5,202 ) (Loss) income before income
taxes (98,093 ) (826,892 ) 175,129 Income tax provision (benefit)
Current (1,036 ) 2,959 133 Deferred — (150,327
) 64,242 Total income tax (benefit) provision
(1,036 ) (147,368 ) 64,375 Net (loss) income
(97,057 ) (679,524 ) 110,754 Net (income) loss attributable to
non-controlling interest in subsidiaries (364 ) (261
) 17 Net (loss) income attributable toMatador
Resources Company shareholders $ (97,421 ) $ (679,785 ) $ 110,771
Earnings (loss) per common share Basic $ (1.07 ) $ (8.34 ) $
1.58 Diluted $ (1.07 ) $ (8.34 ) $ 1.56 Weighted
average common shares outstanding Basic 91,273
81,537 70,229 Diluted 91,273
81,537 70,906
Matador Resources Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (In
thousands)
For the Years Ended December 31, 2016
2015 2014 Operating
activities Net (loss) income $ (97,057 ) $ (679,524 ) $ 110,754
Adjustments to reconcile net (loss) income to net cash provided by
operating activities Unrealized loss (gain) on derivatives 41,238
39,265 (58,302 ) Depletion, depreciation and amortization 122,048
178,847 134,737 Accretion of asset retirement obligations 1,182 734
504 Full-cost ceiling impairment 158,633 801,166 — Stock-based
compensation expense 12,362 9,450 5,524 Deferred income tax
(benefit) provision — (150,327 ) 64,242 Amortization of debt
issuance cost 1,148 852 — Net gain on asset sales and inventory
impairment (107,277 ) (908 ) — Changes in operating assets and
liabilities Accounts receivable (14,259 ) 3,633 (13,318 ) Lease and
well equipment inventory (700 ) (180 ) (211 ) Prepaid expenses (124
) (544 ) (783 ) Other assets 490 (552 ) 1,212 Accounts payable,
accrued liabilities and other current liabilities 6,611 1,375 607
Royalties payable 7,495 1,654 6,663 Advances from joint interest
owners 1,000 700 — Income taxes payable (2,848 ) 2,405 39 Other
long-term liabilities 4,144 489
(187 ) Net cash provided by operating activities 134,086 208,535
251,481 Investing activities Proceeds from sale of assets 5,173
139,836 79 Oil and natural gas properties capital expenditures
(379,067 ) (432,715 ) (560,849 ) Expenditures for other property
and equipment (74,845 ) (64,499 ) (9,152 ) Business combination,
net of cash acquired — (24,028 ) — Restricted cash 43,098 (43,098 )
— Restricted cash in less-than-wholly-owned subsidiaries 1
(650 ) (609 ) Net cash used in investing
activities (405,640 ) (425,154 ) (570,531 ) Financing activities
Repayments of borrowings (120,000 ) (476,982 ) (180,000 )
Borrowings under Credit Agreement 120,000 125,000 320,000 Proceeds
from issuance of common stock 288,510 188,720 181,875 Proceeds from
issuance of senior unsecured notes 184,625 400,000 — Cost to issue
equity (847 ) (1,158 ) (590 ) Cost to issue senior unsecured notes
(2,734 ) (9,598 ) — Proceeds from stock options exercised 100 10 43
Capital commitments from non-controlling interest owners of
less-than-wholly-owned subsidiaries — 562 150 Taxes paid related to
net share settlement of stock-based compensation (1,948 )
(1,610 ) (308 ) Net cash provided by financing
activities 467,706 224,944
321,170 Increase in cash 196,152 8,325 2,120 Cash at
beginning of year 16,732 8,407
6,287 Cash at end of year $ 212,884 $ 16,732 $
8,407
Supplemental Non-GAAP Financial Measures
Adjusted EBITDA
This press release includes the non-GAAP financial measure of
Adjusted EBITDA. Adjusted EBITDA is a supplemental non-GAAP
financial measure that is used by management and external users of
the Company’s consolidated financial statements, such as industry
analysts, investors, lenders and rating agencies. “GAAP” means
Generally Accepted Accounting Principles in the United States of
America. The Company believes Adjusted EBITDA helps it evaluate its
operating performance and compare its results of operations from
period to period without regard to its financing methods or capital
structure. The Company defines Adjusted EBITDA as earnings before
interest expense, income taxes, depletion, depreciation and
amortization, accretion of asset retirement obligations, property
impairments, unrealized derivative gains and losses, certain other
non-cash items and non-cash stock-based compensation expense, and
net gain or loss on asset sales and inventory impairment. Adjusted
EBITDA is not a measure of net income (loss) or net cash provided
by operating activities as determined by GAAP.
Adjusted EBITDA should not be considered an alternative to, or
more meaningful than, net income (loss) or net cash provided by
operating activities as determined in accordance with GAAP or as an
indicator of the Company’s operating performance or liquidity.
Certain items excluded from Adjusted EBITDA are significant
components of understanding and assessing a company’s financial
performance, such as a company’s cost of capital and tax structure.
Adjusted EBITDA may not be comparable to similarly titled measures
of another company because all companies may not calculate Adjusted
EBITDA in the same manner. The following table presents the
calculation of Adjusted EBITDA and the reconciliation of Adjusted
EBITDA to the GAAP financial measures of net income (loss) and net
cash provided by operating activities, respectively, that are of a
historical nature. Where references are pro forma, forward-looking,
preliminary or prospective in nature, and not based on historical
fact, the table does not provide a reconciliation. The Company
could not provide such reconciliation without undue hardship
because such Adjusted EBITDA numbers are estimations,
approximations and/or ranges. In addition, it would be difficult
for the Company to present a detailed reconciliation on account of
many unknown variables for the reconciling items, including future
income taxes, full-cost ceiling impairments, unrealized gains or
losses on derivatives and gains or losses on asset sales and
inventory impairments. For the same reasons, we are unable to
address the probable significance of the unavailable information,
which could be material to future results.
Year Ended
December 31, Three Months Ended (In thousands)
2016 2015 2014
December 31, 2016 September 30,
2016 December 31, 2015
Unaudited Adjusted EBITDA Reconciliation to Net (Loss)
Income: Net (loss) income attributable to Matador Resources
Company shareholders $ (97,421 ) $ (679,785 ) $ 110,771 $ 104,154 $
11,931 $ (230,401 ) Interest expense 28,199 21,754 5,334 7,955
6,880 6,586 Total income tax (benefit) provision (1,036 ) (147,368
) 64,375 105 (1,141 ) 1,677 Depletion, depreciation and
amortization 122,048 178,847 134,737 31,863 30,015 35,370 Accretion
of asset retirement obligations 1,182 734 504 354 276 307 Full-cost
ceiling impairment 158,633 801,166 — — — 219,292 Unrealized loss
(gain) on derivatives 41,238 39,265 (58,302 ) 10,977 (3,203 )
13,909 Stock-based compensation expense 12,362 9,450 5,524 3,224
3,584 2,564 Net gain on asset sales and inventory impairment
(107,277 ) (908 ) — (104,137 )
(1,073 ) (1,005 ) Adjusted EBITDA $ 157,928 $ 223,155
$ 262,943 $ 54,495 $ 47,269 $ 48,299
Year Ended December 31, Three Months
Ended (In thousands)
2016 2015 2014
December 31, 2016 September 30, 2016
December 31, 2015 Unaudited Adjusted EBITDA
Reconciliation to Net Cash Provided by Operating Activities:
Net cash provided by operating activities $ 134,086 $ 208,535 $
251,481 $ 37,624 $ 46,862 $ 22,611 Net change in operating assets
and liabilities (1,809 ) (8,980 ) 5,978 9,215 (4,909 ) 16,254
Interest expense, net of non-cash portion 27,051 20,902 5,334 7,706
6,573 6,285 Current income tax (benefit) provision (1,036 ) 2,959
133 105 (1,141 ) 3,254 Net (income) loss attributable to
non-controlling interest in subsidiaries (364 ) (261
) 17 (155 ) (116 ) (105 )
Adjusted EBITDA $ 157,928 $ 223,155 $ 262,943
$ 54,495 $ 47,269 $ 48,299
Adjusted Net Income (Loss) and Adjusted
Earnings (Loss) Per Diluted Common Share
This press release includes the non-GAAP financial measures of
adjusted net income (loss) and adjusted earnings (loss) per diluted
common share. These non-GAAP items are measured as net income
(loss) attributable to Matador Resources Company shareholders,
adjusted for dollar and per share impact of certain items,
including unrealized gains or losses on derivatives, the impact of
full cost-ceiling impairment charges, if any, and nonrecurring
gains or losses or transaction costs for certain acquisitions and
divestitures along with the related tax effects for all periods.
This non-GAAP financial information is provided as additional
information for investors and is not in accordance with, or an
alternative to, GAAP financial measures. Additionally, these
non-GAAP financial measures may be different than similar measures
used by other companies. The Company believes the presentation of
adjusted net income (loss) and adjusted earnings (loss) per diluted
common share provides useful information to investors, as it
provides them an additional relevant comparison of the Company’s
performance across periods and to the performance of the Company’s
peers. In addition, these non-GAAP financial measures reflect
adjustments for items of income and expense that are often excluded
by securities analysts and other users of the Company’s financial
statements in evaluating the Company’s performance. The table below
reconciles adjusted net income (loss) and adjusted earnings (loss)
per diluted common share to their most directly comparable GAAP
measure of net income (loss) attributable to Matador Resources
Company shareholders.
Three Months Ended
Year Ended December 31, 2016 September 30,
2016 December 31, 2015
December 31, 2016
December 31, 2015
December 31, 2014
(In thousands, except per share data)
Unaudited Adjusted Net
Income (Loss) and Adjusted Earnings (Loss) Per Share Reconciliation
to Net Income (Loss): Net income (loss) attributable to Matador
Resources Company shareholders $ 104,154 $ 11,931 $ (230,401 ) $
(97,421 ) $ (679,785 ) $ 110,771 Total income tax provision
(benefit) 105 (1,141 ) 1,677
(1,036 ) (147,368 ) 64,375 Income
(loss) attributable to Matador Resources Company shareholders
before taxes 104,259 10,790 (228,724 ) (98,457 ) (827,153 ) 175,146
Less non-recurring and unrealized charges to income (loss) before
taxes: Full-cost ceiling impairment — — 219,292 158,633 801,166 —
Unrealized loss (gain) on derivatives 10,977 (3,203 ) 13,909 41,238
39,265 (58,302 ) Net gain on asset sales and inventory impairment
(104,137 ) (1,073 ) (1,005 ) (107,277 ) (908 ) — Non-recurring
transaction costs associated with the HEYCO merger —
— — — 2,510
— Adjusted income (loss) attributable to Matador
Resources Company shareholders before taxes 11,099 6,514 3,472
(5,863 ) 14,880 116,844 Income tax expense (benefit) 3,885
(1)
1,139
(2)
1,111
(3)
(3,088 )
(2)
5,119
(3)
40,895
(3)
Adjusted net income (loss) attributable to Matador Resources
Company shareholders (non-GAAP) $ 7,214 $ 5,375 $
2,361 $ (2,775 ) $ 9,761 $ 75,949 Basic
weighted average shares outstanding, without participating
securities 93,928 92,397 84,705 91,273 81,537 69,567 Dilutive
effect of participating securities 1,043 987
849 — 769
662 Weighted average shares outstanding, including
participating securities - basic 94,971 93,384 85,554 91,273 82,306
70,229 Dilutive effect of options, restricted stock units and
preferred shares 691 340 461
— 544 677 Weighted
average common shares outstanding - diluted 95,662
93,724 86,015 91,273
82,850 70,906 Adjusted earnings (loss)
per share attributable to Matador Resources Company shareholders
(non-GAAP) Basic $ 0.08 $ 0.06 $ 0.03 $ (0.03
) $ 0.12 $ 1.08 Diluted $ 0.08 $ 0.06 $
0.03 $ (0.03 ) $ 0.12 $ 1.07
______________________
(1) Estimated using federal statutory tax rate of 35%, which
differs from the actual effective tax rate due to a full valuation
allowance recognized against the deferred tax benefit. (2)
Estimated using federal statutory tax rate of 35%, which differs
from the actual effective tax rate due to a full valuation
allowance recognized against the deferred tax benefit, including a
2016 income tax refund of approximately $1.1 million. (3) Estimated
using actual tax rate for the period.
PV-10
PV-10 is a non-GAAP financial measure and generally differs from
Standardized Measure, the most directly comparable GAAP financial
measure, because it does not include the effects of income taxes on
future net revenues. PV-10 is not an estimate of the fair market
value of the Company’s properties. Matador and others in the
industry use PV-10 as a measure to compare the relative size and
value of proved reserves held by companies and of the potential
return on investment related to the companies’ properties without
regard to the specific tax characteristics of such entities. PV-10
may be reconciled to the Standardized Measure of discounted future
net cash flows at such dates by reducing PV-10 by the discounted
future income taxes associated with such reserves.
(in millions)
At December 31,2016 At December 31,2015
At December 31,2014 PV-10 $ 581.5 $ 541.6 $ 1,043.4
Discounted future income taxes (6.5 ) (12.4 )
(130.1 ) Standardized Measure $ 575.0 $ 529.2 $ 913.3
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170222006650/en/
Matador Resources CompanyMac Schmitz, 972-371-5225Capital
Markets Coordinatorinvestors@matadorresources.com
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