Matador Resources Company (NYSE: MTDR) (“Matador” or the
“Company”) today reported financial and operating results for the
second quarter of 2017. This release is divided into two
parts—first, a “Summary and Highlights” section that summarizes key
production and financial results for the three months ended June
30, 2017, and second, a section providing additional details
related to the Company’s second quarter 2017 results and a detailed
operations update.
Part I - Summary and
Highlights
Second Quarter 2017 Highlights
Sequential Results
- Average daily oil production increased
6% sequentially from approximately 18,300 barrels per day in the
first quarter of 2017 to approximately 19,400 barrels per day in
the second quarter of 2017. Matador’s
second quarter 2017 average daily oil production was the best
quarterly result in the Company’s history.
- Average daily natural gas production
increased 19% sequentially from approximately 88.1 million cubic
feet per day in the first quarter of 2017 to approximately 105.0
million cubic feet per day in the second quarter of 2017.
Matador’s second quarter 2017 average
daily natural gas production was the best quarterly result in the
Company’s history.
- Average daily oil equivalent production
increased 12% sequentially from approximately 33,000 barrels of oil
equivalent (“BOE”) per day (56% oil) in the first quarter of 2017
to approximately 36,900 BOE per day (53% oil) in the second quarter
of 2017. Matador’s second quarter 2017
average daily oil equivalent production (BOE basis) was the best
quarterly result in the Company’s history.
- Delaware Basin average daily oil
equivalent production increased 13% sequentially from approximately
24,500 BOE per day (consisting of 15,700 barrels of oil per day and
53.1 million cubic feet of natural gas per day) in the first
quarter of 2017 to approximately 27,600 BOE per day (consisting of
16,600 barrels of oil per day and 65.9 million cubic feet of
natural gas per day) in the second quarter of 2017. The Delaware
Basin contributed 86% of Matador’s daily oil production, 63% of
daily natural gas production and 75% of daily oil equivalent
production in the second quarter of 2017.
- Matador reported net income
attributable to Matador Resources Company shareholders (GAAP basis)
of $28.5 million, or earnings of $0.28 per diluted common
share, in the second quarter of 2017, a decrease of 35%
sequentially, as compared to net income attributable to Matador
Resources Company shareholders (GAAP basis) of $44.0 million, or
earnings of $0.44 per diluted common share, in the first quarter of
2017. This decrease in net income was primarily attributable to a
decline in realized oil and natural gas prices of 9% and 14%,
respectively, as well as changes in certain non-cash items,
including a decrease in unrealized hedging gains, an increase in
depletion, depreciation and amortization expenses and an increase
in stock-based compensation expenses in the second quarter of 2017,
as compared to the first quarter of 2017.
- Matador’s adjusted net income
attributable to Matador Resources Company shareholders (a non-GAAP
financial measure) decreased 37% sequentially from $17.4 million,
or adjusted earnings of $0.17 per diluted common share, in the
first quarter of 2017 to $10.9 million (non-GAAP), or adjusted
earnings of $0.11 per diluted common share, in the second
quarter of 2017, primarily attributable to a decline in realized
oil and natural gas prices, as well as changes in certain non-cash
items.
- Adjusted earnings before interest
expense, income taxes, depletion, depreciation and amortization and
certain other items attributable to Matador Resources Company
shareholders (“Adjusted EBITDA,” a non-GAAP financial measure)
increased 4% sequentially from $70.0 million in the first quarter
of 2017 to $72.7 million in the second quarter of 2017.
Year-Over-Year Results
- Matador’s net income (loss)
attributable to Matador Resources Company shareholders (GAAP basis)
increased from a net loss (GAAP basis) of $105.9 million, or a loss
of $1.15 per diluted common share, in the second quarter of 2016 to
net income (GAAP basis) of $28.5 million, or earnings of $0.28 per
diluted common share, in the second quarter of 2017.
- Matador’s adjusted net income (loss)
attributable to Matador Resources Company shareholders (a non-GAAP
financial measure) increased from an adjusted net loss (non-GAAP)
of $1.3 million, or an adjusted loss of $0.01 per diluted common
share, in the second quarter of 2016 to adjusted net income
(non-GAAP) of $10.9 million, or adjusted earnings of $0.11 per
diluted common share, in the second quarter of 2017.
- Matador’s Adjusted EBITDA attributable
to Matador Resources Company shareholders (a non-GAAP financial
measure) increased 87% year-over-year from $38.9 million in the
second quarter of 2016 to $72.7 million in the second quarter of
2017.
- Year-over-year, from the second quarter
of 2016 to the second quarter of 2017:
- Average daily oil production increased
44% from approximately 13,500 barrels per day to approximately
19,400 barrels per day;
- Average daily natural gas production
increased 21% from approximately 87.0 million cubic feet per day to
approximately 105.0 million cubic feet per day; and
- Average daily oil equivalent production
increased 32% from approximately 28,000 BOE per day to
approximately 36,900 BOE per day.
Proved Reserves at June 30,
2017
- Oil, natural
gas and total proved reserves at June 30, 2017 were each all-time
highs for Matador. Matador’s total proved oil and
natural gas reserves increased 27% in the first six months of
2017 from 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 to 134.4 million BOE (consisting of 75.0 million
barrels of oil and 356.5 billion cubic feet of natural gas) at June
30, 2017. At June 30, 2017, approximately 56% of Matador’s total
proved oil and natural gas reserves were oil and approximately 41%
were proved developed reserves. At June 30, 2017, the Delaware
Basin accounted for approximately 80% of the Company’s total proved
oil and natural gas reserves.
Acreage and 3-D Seismic
Acquisitions
- During the second quarter of 2017 and
through August 2, 2017, Matador acquired approximately 8,300 net
acres in the Delaware Basin, mostly in and around its existing
acreage positions. Matador incurred capital expenditures of
approximately $28 million during this period to acquire not only
this additional acreage, but also new 3-D seismic data across
portions of its Wolf asset area.
Significant Well Results
Significant well results included in this earnings release
include the following:
- The D. Culbertson 26-15S-36E TL State
#234H (D. Culbertson #234H) well, Matador’s first Wolfcamp D
horizontal well located on the eastern side of its Twin Lakes asset
area in northern Lea County, New Mexico, tested approximately 600
BOE per day (82% oil) during a 24-hour initial potential test,
including 493 barrels of oil per day and 640 thousand cubic feet of
natural gas per day, from a completed lateral length of
approximately 4,400 feet. Matador is pleased and encouraged with
the initial results from this discovery well, which the Company
believes confirms its exploration concept and validates the
prospectivity of the Wolfcamp D in the Twin Lakes asset area. To
Matador’s knowledge, this discovery well is the northernmost
horizontal test of the Wolfcamp formation in New Mexico, and this
well demonstrates the potential for horizontal exploitation and
development of the Wolfcamp formation far to the north of the most
active areas of current drilling in the Wolfcamp play in the
Delaware Basin. Overall, the D. Culbertson #234H well provides
Matador with a solid first step in the Company’s understanding of
the Wolfcamp D formation in this area, and Matador looks forward to
the further delineation, testing and commercialization of its Twin
Lakes asset area. More specifically, given the encouraging results
from the D. Culbertson #234H well, Matador also looks forward to
the next step in the delineation of this play, which is to drill a
second Wolfcamp D test on the western portion of its Twin Lakes
acreage position later this fall. Further, Matador acquired
approximately 800 net acres near the D. Culbertson #234H well at
the July 2017 State of New Mexico lease sale.
- The Stebbins 20 Federal #123H well,
Matador’s first operated Second Bone Spring completion in its
Arrowhead asset area in Eddy County, New Mexico, tested 1,010 BOE
per day (82% oil) during a 24-hour initial potential test. This
well has shown minimal production decline, having produced
approximately 61,000 BOE in its first two months on
production.
- The Guitar 10-24S-28E RB #205H well,
Matador’s first Wolfcamp A-Lower test in the Rustler Breaks asset
area in Eddy County, New Mexico, flowed 1,155 BOE per day (75% oil)
during a 24-hour initial potential test. This test validates the
Wolfcamp A-Lower as another completion target in the Rustler Breaks
asset area.
- The Joe Coleman 13-23S-27E RB #206H and
the Kathy Coleman 14-23S-27E RB #206H wells, both Wolfcamp A-XY
completions in the northwestern portion of the Rustler Breaks asset
area in Eddy County, New Mexico, flowed 1,840 BOE per day (75% oil)
and 1,755 BOE per day (75% oil), respectively, during 24-hour
initial potential tests. These are two of the best Wolfcamp A-XY
wells that Matador has drilled in the Rustler Breaks asset area
and, along with the Tom Walters 12-23S-27E RB #203H well completed
in the first quarter of 2017, continue to confirm the prospectivity
of the Wolfcamp A-XY interval across the Rustler Breaks asset
area.
- The Falls City #1H and #2H wells, two
Eagle Ford completions in northern Karnes County, Texas, flowed
1,597 BOE per day (91% oil) and 1,641 BOE per day (90% oil),
respectively, during 24-hour initial potential tests. These two
wells were turned to sales late in the second quarter of 2017.
- The Martin Ranch C #11H well and the
Martin MAK D #49H and D #50H wells, three Eagle Ford completions in
La Salle County, Texas, flowed 1,079 BOE per day (94% oil), 1,318
BOE per day (92% oil) and 1,223 BOE per day (91% oil),
respectively, during 24-hour initial potential tests. These three
wells, one of which was drilled in record time, were turned to
sales early in the third quarter of 2017 and did not contribute to
second quarter production volumes. Matador is very pleased with the
production and operational results of its five-well operated Eagle
Ford drilling program, which is now complete for 2017. As a result
of this five-well program, all of Matador’s Falls City and Martin
Ranch acreage is now held by production, which results in Matador’s
Eagle Ford acreage position being almost entirely held by
production or not burdened by any lease expirations in the near
future.
2017 Updated Guidance Estimates, Including
Increased Production Estimates
- As of August 2, 2017, Matador provided
updated 2017 guidance estimates, including increased production
estimates. These updated guidance estimates assume five operated
drilling rigs operating in the Delaware Basin throughout the third
and fourth quarters of 2017. Matador expects to continue to focus
the remainder of its capital expenditures in the Delaware Basin for
the rest of 2017, with the exception of small amounts of capital to
maintain or extend leases or to participate in non-operated well
opportunities that may become available in the Eagle Ford and
Haynesville shales.Full-year 2017 guidance estimates, as updated on
August 2, 2017, are as follows.
(1) Oil production
of 7.1 to 7.3 million barrels (increased from 6.9 to 7.2 million
barrels), an increase of 41% at the midpoint of updated 2017
guidance, as compared to 5.1 million barrels produced in 2016;
(2) Natural gas production of 35.0 to 37.0 billion cubic
feet (increased from 33.0 to 35.0 million cubic feet), an increase
of 18% at the midpoint of updated 2017 guidance, as compared to
30.5 billion cubic feet produced in 2016; (3) Total oil
equivalent production of 12.9 to 13.5 million BOE (increased from
12.4 to 13.0 million BOE), an increase of 30% 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 $400 to $420 million (unchanged
from May 3, 2017), including capital expenditures associated with
non-operated well opportunities; (5) Midstream capital
expenditures of $56 to $64 million (unchanged from May 3, 2017),
which represents Matador’s 51% share of an estimated capital
expenditure budget of $110 to $125 million for San Mateo Midstream,
LLC (“San Mateo”), the Company’s midstream joint venture; and
(6)
Adjusted EBITDA (a non-GAAP financial
measure) of $260 to $280 million (increased from $255 to $275
million), an increase of 71% at the midpoint of updated 2017
guidance, as compared to 2016 Adjusted EBITDA of $157.9 million.
Updated Adjusted EBITDA guidance is based on estimated average
realized prices for the second half of 2017 of $44.00 per barrel
for oil (West Texas Intermediate average oil price of $46.50 per
barrel per oil, less $2.50 per barrel of estimated price
differentials, using the forward strip for oil prices as of late
July 2017, and including year-to-date results) and $2.96 per
thousand cubic feet for natural gas (NYMEX Henry Hub average
natural gas price using the forward strip for natural gas as of
late July 2017 and assuming regional price differentials and
uplifts from natural gas processing roughly offset, and including
year-to-date results). These 2017 estimates reflect Matador’s 51%
ownership in San Mateo.
Third Quarter 2017 Production Growth
Estimates
As noted in both Matador’s prior earnings releases and its
Analyst Day presentation on March 23, 2017, the Company has planned
for more multi-well pad drilling on its Delaware Basin acreage in
2017 than in previous years, which will continue to cause the
cadence of its production growth to be somewhat uneven from quarter
to quarter. Matador’s sequential production growth was higher than
projected in the second quarter of 2017 due to several wells in the
Company’s Rustler Breaks asset area that exceeded its expectations
for both oil and natural gas production and to the
better-than-expected results associated with three non-operated
Haynesville shale wells completed in the second quarter (along with
flush production from offsetting Haynesville shale shut-in wells
returned to production following the completion operations on the
new wells), which resulted in much higher-than-expected natural gas
production in the second quarter. In the third quarter, oil
production growth should benefit from early production attributable
to Matador’s five-well drilling program in the Eagle Ford shale, as
two of those wells were turned to sales late in the second quarter
and three were turned to sales early in the third quarter of 2017;
however, the Company has a number of shut-in periods scheduled for
producing wells in the Rustler Breaks, Wolf and Arrowhead asset
areas in the third quarter, as new offsetting wells are completed
in these areas. Given the stronger-than-expected growth in natural
gas production observed in the second quarter of 2017, natural gas
production for 2017 is likely to peak in the third quarter as
initial production from the recently completed Haynesville shale
wells and the flush production from the associated offset wells
decline in the second half of 2017.
As to the third quarter of 2017
specifically, Matador estimates that its oil production will
increase by 5 to 7% and that its natural gas production will
increase by 2 to 4%, resulting in sequential total oil equivalent
production (BOE basis) growth of 4 to 6% from the second quarter of
2017.
Sequential and year-over-year quarterly comparisons of selected
financial and operating items are shown in the following table:
Three Months Ended
June 30,2017
March 31,2017
June 30,2016
Net Production Volumes:(1) Oil (MBbl)(2) 1,767 1,649 1,230 Natural
gas (Bcf)(3) 9.6 7.9 7.9 Total oil equivalent (MBOE)(4) 3,360 2,970
2,550 Average Daily Production Volumes:(1) Oil (Bbl/d) 19,423
18,323 13,516 Natural gas (MMcf/d)(5) 105.0 88.1 87.0 Total oil
equivalent (BOE/d)(6) 36,922 32,999 28,022 Average Sales Prices:
Oil, without realized derivatives (per Bbl) $ 46.01 $ 50.72 $ 42.84
Oil, with realized derivatives (per Bbl) $ 46.34 $ 49.73 $ 43.29
Natural gas, without realized derivatives (per Mcf) $ 3.40 $ 3.94 $
2.10 Natural gas, with realized derivatives (per Mcf) $ 3.39 $ 3.86
$ 2.34 Revenues (millions): Oil and natural gas revenues $ 113.8 $
114.8 $ 69.3 Third-party midstream services revenues $ 2.1 $ 1.6 $
0.9
(13)
Realized gain (loss) on derivatives $ 0.6 $ (2.2 ) $ 2.5 Operating
Expenses (per BOE): Production taxes, transportation and processing
$ 3.83 $ 3.98 $ 4.14 Lease operating $ 4.77 $ 5.31 $ 4.78
(14)
Plant and other midstream services operating $ 0.88 $ 0.79 $ 0.42
Depletion, depreciation and amortization $ 12.28 $ 11.45 $ 12.25
General and administrative(7) $ 5.11 $ 5.50 $ 5.18
Total(8) $ 26.87 $ 27.03 $ 26.77 Net income (loss)
(millions)(9) $ 28.5 $ 44.0 $ (105.9 ) Earnings (loss) per common
share (diluted)(9) $ 0.28 $ 0.44 $ (1.15 ) Adjusted net income
(loss) (millions)(9)(10) $ 10.9 $ 17.4 $ (1.3 ) Adjusted earnings
(loss) per common share (diluted)(9)(11) $ 0.11 $ 0.17 $ (0.01 )
Adjusted EBITDA (millions)(9)(12) $ 72.7
$ 70.0 $ 38.9 (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 $2.09, $1.40 and $1.30
per BOE of non-cash, stock-based compensation expense in the second
quarter of 2017, first quarter of 2017 and the second quarter of
2016, 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 net income (loss) is a non-GAAP
financial measure. For a definition of adjusted net income (loss)
and a reconciliation of adjusted net income (loss) (non-GAAP) to
net income (loss) (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) 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.” (13) Reclassified from other income due to the midstream
segment becoming a reportable segment in the third quarter of 2016.
(14) $0.42 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.
A short presentation summarizing the highlights of Matador’s
second quarter 2017 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, “Not
only was Matador’s average daily oil equivalent production (BOE
basis) in the second quarter of 2017 the best quarterly result in
the Company’s history, but our financial results also continued to
be very strong. The Board, the management group and I would all
like to express our appreciation to the entire Matador staff for
its strong execution. It was a great team effort. As a result of
this strong operating performance in the first half of 2017,
Matador is pleased today to raise its production and Adjusted
EBITDA guidance for the remainder of 2017, while keeping our
capital spending estimates unchanged, as we continue to execute our
2017 business plan and prepare for 2018 and beyond.
“The northern Delaware Basin continues to be the main focus of
our exploration and production activities, and we continue to be
very pleased with the results we are achieving in each of our key
asset areas across the basin. Our Delaware Basin average daily oil
equivalent production increased 13% sequentially from the first
quarter of 2017 and 90% from the second quarter of 2016. In the
second quarter of 2017, our average daily oil equivalent production
from the Delaware Basin was 27,600 BOE per day, comprising
approximately 75% of the Company’s average daily oil equivalent
production. In addition, our total proved reserves increased 27% in
the first six months of 2017 from 105.8 million BOE at December 31,
2016 to 134.4 million BOE at June 30, 2017, and the Delaware Basin
comprises 80% of our total proved reserves. This increase in total
proved reserves reflects not only the success of our drilling and
completions operations, but also our success in acquiring
additional acreage in and around areas actively being drilled in
the Delaware Basin. Detailed information is contained herein on
various successful wells we have recently drilled and
completed—both exploratory and development—in this area. In this
regard, our asset teams were pleased to report meaningful wells and
successful tests of new formations in all of our key asset areas in
the Delaware Basin.
“Of particular interest this quarter was our first exploratory
test of the Wolfcamp D formation in the Twin Lakes asset area, the
D. Culbertson #234H well, in northern Lea County, New Mexico.
Matador is pleased and encouraged by the initial results from this
discovery well, which we believe confirms our exploration concept
and validates the prospectivity of the Twin Lakes asset area. The
drilling and completion of the D. Culbertson #234H well provides a
solid first step in our understanding of the Wolfcamp D formation
in this area, and we expect further improvements as we gain
additional knowledge and experience from this well and future tests
of the Wolfcamp D formation and as we seek to delineate our Twin
Lakes acreage position from east to west.
“We are also very pleased with the better-than-expected results
of our five-well drilling program in the Eagle Ford shale in Karnes
and La Salle Counties in South Texas. Each of these wells, which
were completed and turned to sales from mid-June to early July,
flowed between 1,100 and 1,700 BOE per day (91% oil on average) on
choke sizes of 20 to 22/64-inch during 24-hour initial potential
tests, and early performance from these wells is comparable to or
better than some of Matador’s best Eagle Ford wells. Despite a
two-year hiatus in Eagle Ford drilling, our operations teams
drilled and completed these five wells very efficiently and
demonstrated the ability to complete as many as ten fracturing
stages in a single day. Further, we believe that we were successful
in transferring our most recent stimulation techniques in the
Delaware Basin to the completion of these new Eagle Ford wells. The
initial production from these newly completed wells has almost
doubled Matador’s average daily oil equivalent production from the
Eagle Ford shale, as compared to its second quarter 2017 Eagle Ford
production levels.
“As in previous quarters, we continued to strategically add to
and improve our acreage position in the Delaware Basin at
attractive prices during the second quarter of 2017. This
additional acreage was acquired primarily in and near our existing
asset areas in the Delaware Basin in Lea and Eddy Counties, New
Mexico and Loving County, Texas. We also executed several key
acreage trades with other operators during the second quarter of
2017, which improved our ability to operate in certain areas while
actually increasing our operated well locations in others.
“Matador ended the second quarter with approximately $131
million in cash on hand and no borrowings under our credit
facility, which, along with our anticipated cash flows, puts
Matador in a very strong and well-funded capital position to
execute our drilling and midstream programs throughout the
remainder of 2017. Matador currently expects to continue operating
five rigs drilling oil and natural gas wells in the Delaware Basin
throughout the remainder of 2017, although we have considerable
operational flexibility to modify our drilling program based upon
fluctuations in commodity prices and other factors. We look forward
to delivering strong results again in the second half of 2017 as we
begin to solidify our plans for 2018.”
Part II - Detailed Financial Results
and Operations Update
Operating and Financial Results — Second Quarter 2017
Production and Revenues
Average daily oil equivalent production increased 12%
sequentially from 32,999 BOE per day (56% oil) in the first quarter
of 2017 to 36,922 BOE per day (53% oil) in the second quarter of
2017, and increased 32% year-over-year from 28,022 BOE per day (48%
oil) in the second quarter of 2016. Matador’s increased oil
production in the second quarter of 2017 exceeded the Company’s
expectations resulting from better-than-expected initial results
from several of the Company’s new wells in the Delaware Basin, and
particularly in the Rustler Breaks asset area. Matador’s second quarter 2017 average daily oil
equivalent production was the best quarterly result in the
Company’s history.
Average daily oil production increased 6% sequentially from
18,323 barrels per day in the first quarter of 2017 to 19,423
barrels per day in the second quarter of 2017, and increased 44%
year-over-year from 13,516 barrels per day in the second quarter of
2016. Matador’s second quarter 2017
average daily oil production was the best quarterly result in the
Company’s history.
Average daily natural gas production increased 19% sequentially
from 88.1 million cubic feet per day in the first quarter of 2017
to 105.0 million cubic feet per day in the second quarter of 2017,
and increased 21% year-over-year from 87.0 million cubic feet per
day in the second quarter of 2016. Matador’s increased natural gas
production in the second quarter of 2017 was attributable not only
to strong well results from the Delaware Basin, but also to the
higher-than-expected initial contributions from three previously
drilled Haynesville shale wells that were completed and turned to
sales by an affiliate of Chesapeake Energy Corporation
(“Chesapeake”) in the second quarter of 2017 (along with flush
production from offsetting Haynesville shale shut-in wells returned
to production following the completion operations on the new
wells). Matador’s second quarter 2017
average daily natural gas production was the best quarterly result
in the Company’s history.
Matador’s Delaware Basin average daily oil equivalent production
was 27,622 BOE per day (75% of total oil equivalent production) in
the second quarter of 2017, consisting of 16,645 barrels of oil per
day (86% of total oil production) and 65.9 million cubic feet of
natural gas per day (63% of total natural gas production).
Matador’s Delaware Basin oil equivalent production increased 13%
sequentially, as compared to 24,535 BOE per day in the first
quarter of 2017, and increased 90% year-over-year, as compared to
14,525 BOE per day in the second quarter of 2016.
Oil and natural gas revenues were largely unchanged from $114.8
million in the first quarter of 2017, as compared to $113.8 million
in the second quarter of 2017, but increased 64% year-over-year
from $69.3 million in the second quarter of 2016. The increase in
oil and natural gas production noted above helped to offset
declining oil and natural gas prices during the second quarter of
2017, resulting in almost no change in oil and natural gas revenues
between the first and second quarters of 2017. Realized oil prices
decreased 9% from $50.72 per barrel in the first quarter of 2017 to
$46.01 per barrel in the second quarter of 2017, but increased 7%
from $42.84 per barrel in the second quarter of 2016. Realized
natural gas prices decreased 14% from $3.94 per thousand cubic feet
in the first quarter of 2017 to $3.40 per thousand cubic feet in
the second quarter of 2017, but increased 62% from $2.10 per
thousand cubic feet in the second quarter of 2016. Realized oil
prices declined in the second quarter of 2017 as a result of both
lower West Texas Intermediate oil prices, as well as somewhat
higher oil price differentials, which were $2.13 per barrel in the
second quarter, as compared to $1.06 per barrel in the first
quarter of 2017. Realized natural gas prices were lower in the
second quarter of 2017 as a result of both lower natural gas
liquids (“NGL”) prices, particularly the heavier components
reflecting lower oil prices, and somewhat wider basis differentials
in the Delaware Basin. Including its NGL revenues in the realized
average natural gas price, Matador reported an uplift of $0.32 per
thousand cubic feet above the NYMEX Henry Hub average natural gas
prices in the second quarter of 2017, as opposed to $0.92 per
thousand cubic feet in the first quarter of 2017.
Third-party midstream services revenues increased 35%
sequentially from $1.6 million in the first quarter of 2017 to $2.1
million in the second quarter of 2017, and increased 129%
year-over-year from $0.9 million in the second quarter of 2016. The
sequential and year-over-year increases primarily reflect increased
third-party natural gas processing and transportation revenues in
the second quarter of 2017, as compared to the first quarter of
2017 and the second quarter of 2016. Third-party midstream services
revenues are those revenues from midstream operations related to
third parties, including working interest owners in
Matador-operated wells; all revenues from Matador-owned production
are eliminated in consolidation. Overall, including those midstream
revenues attributable to Matador’s operations, total midstream
services revenues increased 18% sequentially from the first quarter
of 2017 and increased 228% from the second quarter of 2016.
Total realized revenues, including realized hedging gains and
losses and third-party midstream services revenues, increased 2%
sequentially from $114.2 million in the first quarter of 2017 to
$116.4 million in the second quarter of 2017, and increased 60%
year-over-year from $72.7 million in the second quarter of 2016.
Realized hedging gains from oil and natural gas hedges were $0.6
million in the second quarter of 2017, as compared to realized
hedging losses of $2.2 million in the first quarter of 2017 and
realized hedging gains of $2.5 million in the second quarter of
2016.
Net Income (Loss) and Earnings (Loss) Per
Share
For the second quarter of 2017, Matador reported net income
attributable to Matador Resources Company shareholders of
approximately $28.5 million, or earnings of $0.28 per diluted
common share on a GAAP basis, a decrease of 35% sequentially, as
compared to net income attributable to Matador Resources Company
shareholders of approximately $44.0 million, or earnings of $0.44
per diluted common share, in the first quarter of 2017, and as
compared to a net loss attributable to Matador Resources Company
shareholders of $105.9 million, or a loss of $1.15 per diluted
common share, in the second quarter of 2016. The decrease in net
income in the second quarter of 2017 was primarily attributable to
a decline in realized oil and natural gas prices of 9% and 14%,
respectively, as well as changes in certain non-cash items,
including a decrease in unrealized hedging gains, an increase in
depletion, depreciation and amortization expenses and an increase
in stock-based compensation expenses in the second quarter of 2017,
as compared to the first quarter of 2017.
Portions of the second quarter 2017 net income attributable to
Matador Resources Company shareholders (GAAP basis) were specific
non-cash or non-recurring items (including approximately $13.2
million in non-cash unrealized gain on derivatives and
approximately $1.5 million in non-recurring stock-based
compensation expenses attributable to a change in the vesting
schedule applicable to equity awards granted to the Company’s
directors). Excluding those items from net income resulted in
adjusted net income attributable to Matador Resources Company
shareholders (a non-GAAP financial measure) of approximately $10.9
million, or adjusted earnings of $0.11 per diluted common share, as
compared to adjusted net income attributable to Matador Resources
Company shareholders of approximately $0.17 per diluted common
share in the first quarter of 2017, and an adjusted net loss
attributable to Matador Resources Company shareholders of
approximately $0.01 per diluted common share in the second quarter
of 2016.
Matador’s net income for the second quarter of 2017 was
favorably impacted by (1) increased oil and natural gas production,
(2) a realized gain on derivatives of $0.6 million, (3) a non-cash,
unrealized gain on derivatives of $13.2 million, (4) no full-cost
ceiling impairment in the quarter and (5) no income tax expense.
Matador’s net income for the second quarter of 2017 was unfavorably
impacted by (1) lower realized oil and natural gas prices, (2) a
decrease in unrealized hedging gains, (3) increased non-cash
expenses, including increased depletion, depreciation and
amortization expenses and (4) increased non-cash stock-based
compensation expenses, including, in particular, a one-time,
non-recurring general and administrative expense of approximately
$1.5 million attributable to a change in the vesting schedule
applicable to equity awards granted to the Company’s directors.
For a reconciliation of adjusted net income (non-GAAP) and
adjusted earnings (loss) per diluted common share (non-GAAP) to net
income (loss) (GAAP) and earnings (loss) per diluted common share
(GAAP), please see “Supplemental Non-GAAP Financial Measures”
below.
Adjusted EBITDA
Adjusted EBITDA attributable to Matador Resources Company
shareholders, a non-GAAP financial measure, increased 4%
sequentially from $70.0 million in the first quarter of 2017 to
$72.7 million in the second quarter of 2017, and increased 87%
year-over-year from $38.9 million in the second quarter of 2016.
The sequential increase in Adjusted EBITDA was primarily
attributable to the increases in both oil and natural gas
production, which offset declines in realized oil and natural gas
prices during the second quarter of 2017. The year-over-year
increase in Adjusted EBITDA was primarily attributable to both the
increases in oil and natural gas production and the increases in
realized oil and natural gas prices between the second quarters of
2017 and 2016.
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” below.
Operating Expenses
Production taxes, transportation and
processing
Production taxes, transportation and processing expenses on a
unit-of-production basis decreased 4% sequentially from $3.98 per
BOE in the first quarter of 2017 to $3.83 per BOE in the second
quarter of 2017, and decreased 7% year-over-year from $4.14 per BOE
in the second quarter of 2016. Production taxes remained relatively
unchanged in the second quarter of 2017, as compared to the first
quarter of 2017, resulting from almost no change in oil and natural
gas revenues between the quarters, although year-over-year,
production taxes increased 80%, primarily as a result of the 64%
year-over-year increase in oil and natural gas revenues.
Year-over-year, Matador realized a decrease in transportation and
processing expenses, primarily as a result of the start-up in late
August 2016 of the cryogenic natural gas processing plant in the
Rustler Breaks asset area (the “Black River Processing Plant”). On
a unit-of-production basis, these second quarter 2017 expenses also
benefited from significantly higher daily oil equivalent production
of 12% and 32%, respectively, as compared to the first quarter of
2017 and the second quarter of 2016.
Lease operating expenses
(“LOE”)
Significantly, lease operating expenses on a unit-of-production
basis decreased 10% sequentially from $5.31 per BOE in the first
quarter of 2017 to $4.77 per BOE in the second quarter of 2017, and
were essentially unchanged year-over-year from $4.78 per BOE in the
second quarter of 2016. The sequential decrease in lease operating
expenses on a unit-of-production basis was primarily attributable
to higher daily oil equivalent production in the second quarter of
2017, as compared to the first quarter of 2017, but also resulted
from lower workover expenses in the second quarter of 2017.
Plant and other midstream services
operating expenses
Matador’s plant and other midstream services operating expenses
increased 11% sequentially from $0.79 per BOE in the first quarter
of 2017 to $0.88 per BOE in the second quarter of 2017, and
increased 110% year-over-year from $0.42 per BOE in the second
quarter of 2016. The increase in plant and other midstream services
operating expenses is attributable to additional salt water
disposal wells placed in service in the Wolf and Rustler Breaks
asset areas during the first quarter of 2017, as well as to the
overall increase in the scope of the Company’s midstream operations
in the Delaware Basin since the second quarter of 2016. Matador’s
plant and other midstream services operating expenses of $0.88 per
BOE were in line with the Company’s projections of $0.90 per BOE
for full-year 2017; year-to-date, these expenses have averaged
$0.83 per BOE.
Depletion, depreciation and amortization
(“DD&A”)
Depletion, depreciation and amortization expenses on a
unit-of-production basis increased 7% sequentially from $11.45 per
BOE in the first quarter of 2017 to $12.28 per BOE in the second
quarter of 2017, and remained essentially unchanged from $12.25 per
BOE in the second quarter of 2016. The increase in DD&A
expenses resulted from increased drilling and completion costs,
primarily stimulation treatment costs, associated with the
Company’s 2017 Delaware Basin drilling program. At June 30, 2017,
DD&A expenses on a unit-of-production basis were below the
Company’s full-year DD&A projection of $12.75 per BOE. The
Company anticipates small quarterly increases in DD&A expenses
on a unit-of-production basis for the remainder of 2017.
Full-cost ceiling impairment
Matador recorded no full-cost ceiling impairment for the second
quarter of 2017, as reflected on the Company’s interim unaudited
condensed consolidated statement of operations for the three months
ended June 30, 2017.
General and administrative
(“G&A”)
General and administrative expenses on a unit-of-production
basis decreased 7% from $5.50 per BOE in the first quarter of 2017
to $5.11 per BOE in the second quarter of 2017. Year-over-year
general and administrative expenses remained relatively unchanged
from $5.18 per BOE in the second quarter of 2016. During the second
quarter of 2017, general and administrative expenses included a
one-time, non-recurring charge of approximately $1.5 million, which
was attributable to a change in the vesting schedule applicable to
equity awards granted to the Company’s directors. General and
administrative expenses for the second quarter of 2017 also
included total non-cash, stock-based compensation expenses of $2.09
per BOE, as compared to $1.40 per BOE in the first quarter of 2017
and $1.30 per BOE in the second quarter of 2016. Excluding the
non-cash, stock-based compensation expenses, cash-based general and
administrative expenses decreased 26% to $3.02 per BOE in the
second quarter of 2017 from $4.10 per BOE in the first quarter of
2017, and decreased 22% from $3.88 per BOE in the second quarter of
2016.
Proved Reserves, Standardized Measure and PV-10
The following table summarizes Matador’s estimated total proved
oil and natural gas reserves at June 30, 2017,
December 31, 2016 and June 30, 2016.
June 30, 2017
December 31,2016
June 30, 2016
Estimated proved reserves:(1)(2) Oil (MBbl)(3) 74,954 56,977 52,337
Natural Gas (Bcf)(4) 356.5 292.6
258.7 Total (MBOE)(5) 134,373 105,752
95,457 Estimated proved developed reserves:
Oil (MBbl)(3) 28,454 22,604 19,913 Natural Gas (Bcf)(4)
159.7 126.8 114.4 Total
(MBOE)(5) 55,075 43,731 38,978
Percent developed 41.0 % 41.4 % 40.8 % Estimated proved
undeveloped reserves: Oil (MBbl)(3) 46,500 34,373 32,424 Natural
Gas (Bcf)(4) 196.8 165.9 144.3
Total (MBOE)(5) 79,298 62,021
56,479 Standardized Measure (in millions) $ 1,001.9 $
575.0 $ 468.3 PV-10(6) (in millions) $ 1,086.9
$ 581.5 $ 473.2 (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
July 2016 through June 2017 were $45.42 per Bbl for oil and $3.01
per MMBtu for natural gas, for the period from January 2016 through
December 2016 were $39.25 per Bbl for oil and $2.48 per MMBtu for
natural gas and for the period from July 2015 through June 2016
were $39.63 per Bbl for oil and $2.24 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 natural gas 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” below.
Matador’s estimated total proved oil
and natural gas reserves were 134.4 million BOE at June 30,
2017, an all-time high, consisting of 75.0 million
barrels of oil and 356.5 billion cubic feet of natural gas (both
also all-time highs), with a Standardized Measure of $1.0 billion
(GAAP basis) and a PV-10, a non-GAAP financial measure, of $1.1
billion, an increase of 27% from estimated total proved oil and
natural gas reserves of 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 of $581.5 million. The 74% increase in
Standardized Measure and 87% increase in PV-10 at June 30, 2017, as
compared to December 31, 2016, were primarily attributable both to
the increase in total proved reserves and the increase in oil and
natural gas prices used to determine Standardized Measure and
PV-10. At June 30, 2017, the 12-month arithmetic averages of oil
and natural gas prices used to estimate proved reserves were $45.42
per barrel and $3.01 per MMBtu, respectively, as compared to $39.25
per barrel and $2.48 per MMBtu, respectively, at December 31,
2016.
Proved oil reserves increased 32% from 57.0 million barrels at
December 31, 2016 to 75.0 million barrels at June 30,
2017, and increased 43% from 52.3 million barrels at June 30,
2016. At June 30, 2017, approximately 56% of the Company’s
total proved reserves were oil and 44% were natural gas.
Approximately 41% of the Company’s total proved reserves were
proved developed reserves at June 30, 2017, as compared to 41% at
both December 31 and June 30, 2016.
The reserves estimates at all dates presented in the table above
were prepared by the Company’s internal engineering staff and
audited by an independent reservoir engineering firm, Netherland,
Sewell & Associates, Inc. These reserves estimates were
prepared in accordance with the SEC’s rules for oil and natural gas
reserves reporting and do not include any unproved reserves
classified as probable or possible that might exist on Matador’s
properties.
For a reconciliation of PV-10 (non-GAAP) to Standardized Measure
(GAAP), please see “Supplemental Non-GAAP Financial Measures”
below.
Operations Update
Drilling and Completion Activities
During the second quarter of 2017, Matador continued its focus
on the exploration, delineation and development of the Company’s
Delaware Basin acreage in Loving County, Texas and Lea and Eddy
Counties, New Mexico. Matador began 2017 operating four drilling
rigs in the Delaware Basin and continued to do so throughout the
first quarter. In late April 2017, Matador added a fifth drilling
rig in the Delaware Basin and expects to operate five rigs in the
Delaware Basin throughout the remainder of 2017, including three
rigs in its Rustler Breaks and Antelope Ridge asset areas, one rig
in its Wolf and Jackson Trust asset areas and one rig in its
Ranger/Arrowhead and Twin Lakes asset areas. Matador still expects
to direct over 90% of its estimated 2017 capital expenditures to
drilling and completion and midstream operations in the Delaware
Basin.
In July 2017, Matador took delivery of a sixth drilling rig on a
temporary basis for the purpose of drilling a second salt water
disposal well in the Rustler Breaks asset area for its midstream
affiliate, San Mateo. The salt water disposal well will not be
ready to spud until early August 2017 and, in the interim, Matador
is using this rig to drill an additional oil and natural gas well
in its Rustler Breaks asset area. At August 2, 2017, Matador had no
plans to use this sixth rig to drill additional oil and natural gas
wells for the remainder of 2017.
Matador also finished drilling its five-well program in the
Eagle Ford shale in South Texas during the second quarter of 2017.
Two of these wells, the Falls City #1H and #2H wells, were
completed and turned to sales in mid-June 2017. The other three
wells, the Martin Ranch C #11H well and the Martin MAK D #49H and D
#50H wells, were completed and turned to sales in early July, and
thus, did not contribute to second quarter 2017 production volumes.
The rig used to drill these five wells was released in May, and
Matador has no additional operated drilling activities planned in
the Eagle Ford shale for the remainder of 2017.
Matador has built significant optionality into its drilling
program. Three of its rigs are on longer-term contracts, with
average remaining terms of approximately 18 months. The other three
rigs, including the sixth rig to be used for drilling the second
salt water disposal well at Rustler Breaks, are all on short-term
contracts with obligations ranging from two months to six months.
This affords Matador the opportunity to easily and quickly modify
its drilling program as management may determine necessary based on
changing commodity prices and other factors.
During the second quarter of 2017, Matador completed and turned
to sales a total of 31 gross (17.6 net) horizontal wells in its
various operating areas, including 18 gross (15.5 net) operated
wells and 13 gross (2.1 net) non-operated wells, as summarized in
the table below.
Operated Non-Operated
Total Operating Area Gross Net Gross
Net Gross Net Delaware Basin 16 13.5 5 0.7 21 14.2
Eagle Ford Shale 2 2.0 3 0.8 5 2.8 Haynesville Shale
0 0.0 5 0.6
5 0.6
Total 18
15.5 13 2.1
31 17.6
In particular, during the second quarter of 2017, Matador
completed and turned to sales 21 gross (14.2 net) horizontal wells
in its various asset areas in the Delaware Basin, including 16
gross (13.5 net) operated and five gross (0.7 net) non-operated
wells, as summarized in the table below.
Operated Non-Operated
Total Operating Area Gross Net Gross
Net Gross Net Rustler Breaks 9 7.6 4 0.6 13 8.2 Wolf
5 4.2 0 0.0 5 4.2 Ranger 0 0.0 1 0.1 1 0.1 Arrowhead 1 0.7 0 0.0 1
0.7 Twin Lakes 1 1.0 0
0.0 1 1.0
Total
16 13.5
5 0.7 21
14.2
At August 2, 2017, Matador was on track with its projected 2017
drilling and completions program as outlined in its March 2017
Analyst Day presentation. At August 2, 2017, Matador had completed
and turned to sales the eight gross (5.8 net) operated and
non-operated wells anticipated for 2017 in the Eagle Ford shale, as
well as the five gross (0.6 net) non-operated wells anticipated for
2017 in the Haynesville shale. While the Company may participate in
additional non-operated well opportunities in both of these areas
during the remainder of 2017, any additional capital expenditures
are anticipated to be minimal.
Delaware Basin - Southeast New Mexico and West Texas
Twin Lakes Asset Area - Lea County, New
Mexico
Matador is pleased to announce the 24-hour initial potential
test result from the D. Culbertson 26-15S-36E TL State #234H (D.
Culbertson #234H) well, its first horizontal test of the Wolfcamp D
formation in the eastern portion of its Twin Lakes asset area, as
summarized in the table below.
Initial Potential Oil Gas
BOE % Oil FCP(1)
Choke Well Interval (Bbl/d) (Mcf/d) (BOE/d) (psi) (inch) D.
Culbertson 26-15S-36E TL State #234H Wolfcamp D 493 640 600 82% On
ESP N/A (1) Flowing casing pressure.
The D. Culbertson #234H well tested 600 BOE per day (82% oil)
during a 24-hour initial potential test on ESP, including 493
barrels of oil per day and 640 thousand cubic feet of natural gas
per day, from a completed lateral length of approximately 4,400
feet. To Matador’s knowledge, this is the northernmost horizontal
test of the Wolfcamp formation in New Mexico. Matador is very
pleased with the initial results from this discovery well, which
the Company believes confirms the Company’s exploration concept and
validates the prospectivity of the Wolfcamp D in the Twin Lakes
asset area. This well demonstrates the potential for horizontal
exploitation and development of the Wolfcamp formation far to the
north of the most currently active areas of the Wolfcamp play in
the Delaware Basin. The drilling and completion of the D.
Culbertson #234H well provides a solid first step in our
understanding of the Wolfcamp D formation in this area, and we
expect further improvements as we gain additional knowledge and
experience from this well and future tests of the Wolfcamp D
formation and as we seek to delineate our Twin Lakes acreage
position from east to west.
The D. Culbertson #234H well confirmed a number of expectations
that the Company had for the Wolfcamp D in its Twin Lakes area,
based on its analysis of offset well data and core data taken in
Matador’s Olivine State 5-16S-37E TL #1 (Olivine #1) well, as
follows:
- The Wolfcamp D, which has been the
source rock, along with the deeper Woodford shale, for upwards of
1.3 billion barrels of oil and 2.2 trillion cubic feet of natural
gas produced from multiple fields in the Twin Lakes area, was found
to be capable of producing oil and natural gas in meaningful
quantities from a horizontal wellbore;
- The Wolfcamp D had an initial pressure
gradient of approximately 0.6 psi per foot. As expected, the
Wolfcamp D formation was over-pressured, but not as over-pressured
as observed in the Wolfcamp formation in the southern parts of the
play, where the initial formation pressure gradient approaches 0.8
psi per foot;
- The D. Culbertson #234H well tested at
an oil cut of 82%, which was within the expected range of 80 to
90%;
- The D. Culbertson #234H well has
produced at a water-to-oil ratio of approximately one barrel of
water or less per barrel of oil produced, which was anticipated but
is much lower than the water-to-oil ratio of over three barrels of
water per barrel of oil produced in the southern parts of the
Wolfcamp play; and
- As a result of the higher oil cut and
somewhat lower reservoir pressure gradient, the D. Culbertson #234H
well required, as anticipated, the early installation of artificial
lift, and in this case, Matador chose to use an ESP.
The D. Culbertson #234H well drilled faster than anticipated.
The well was drilled in approximately 23 days from spud to a total
depth of 16,132 feet. The landing target chosen for this initial
test was a higher porosity, highly organic section of the Wolfcamp
D about 20 to 30 feet in thickness. The entire horizontal lateral
length of this well was drilled fully within the identified target
interval. Completion operations on the D. Culbertson #234H well
were more challenging than anticipated, but Matador’s completion
team successfully pumped 25 fracture stages with between five to
eight perforation clusters per stage spaced at 24 to 35 feet per
stage, pumping approximately 233,000 barrels of fluid and
approximately 12.3 million pounds of primarily 30/50 sand. Stages
typically ranged from 40 to 60 barrels of fracturing fluid carrying
2,500 to 3,500 pounds of 30/50 sand per completed lateral foot.
Matador will continue to observe the performance of the D.
Culbertson #234H well as the Company prepares for its second test
of the Wolfcamp D formation in the western portion of its Twin
Lakes acreage, the Northeast Kemnitz State #11H well, which is
expected to begin late in the third quarter or early in the fourth
quarter of 2017. The Wolfcamp D interval is about 800 feet thick in
the western portion of the Twin Lakes asset area (as compared to
about 400 feet thick at the D. Culbertson #234H location), and
Matador plans to continue a methodical approach to this exploratory
effort. Matador expects to drill a pilot hole to gather detailed
well logs to identify the landing target prior to initiating the
horizontal lateral. In addition, Matador expects to run cased-hole
logs and to conduct several fracture initiation pressure tests in
at least one existing vertical well drilled through the Wolfcamp D
near the second well’s location to further help with identifying
the landing target and designing the fracture treatments for this
well.
Of further note, Cimarex Energy Co. (“Cimarex”) recently
proposed, and Matador has agreed to participate as a working
interest owner in, a second test of Cimarex’s acreage position
offsetting Matador’s western Twin Lakes acreage. Cimarex is
proposing to drill a two-mile lateral test in an upper section of
the Wolfcamp D. Given the results from its initial test of the
Wolfcamp D in the D. Culbertson #234H well, Matador also sees the
potential for longer laterals to optimize well productivity in the
Twin Lakes area, and the Company’s acreage in several areas lends
itself very well to future development with longer laterals.
Matador also acquired approximately 800 net acres near the D.
Culbertson #234H well at the July 2017 State of New Mexico lease
sale.
Rustler Breaks Asset Area - Eddy County,
New Mexico
Matador operated three drilling rigs in its Rustler Breaks asset
area during most of the second quarter of 2017, beginning in late
April. During the second quarter of 2017, the Company completed and
turned to sales 13 gross (8.2 net) horizontal wells in this area,
including nine gross (7.6 net) operated wells and four gross (0.6
net) non-operated wells. The nine operated wells included five
Wolfcamp A-XY completions, one Wolfcamp A-Lower completion and
three Wolfcamp B-Blair completions. All nine wells had completed
lateral lengths between 4,300 and 4,600 feet. The 24-hour initial
potential test results from all nine wells 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) Joe
Coleman 13-23S-27E RB #206H Wolfcamp A-XY 1,381 2,756 1,840 75%
1,950 30/64” Kathy Coleman 14-23S-27E RB #206H Wolfcamp A-XY 1,316
2,634 1,755 75% 2,000 30/64” Guitar 10-24S-28E RB #201H Wolfcamp
A-XY 1,165 2,122 1,518 77% 2,320 32/64” Warren 25-23S-27E RB #203H
Wolfcamp A-XY 751 1,189 949 79% 1,250 30/64” Warren Fed Com
25-23S-27E RB #206H Wolfcamp A-XY 700 1,337 923 76% 1,280 34/64”
Guitar 10-24S-28E RB #205H Wolfcamp A-Lower 870 1,708 1,155 75%
1,590 32/64” Paul 25-24S-28E RB #225H Wolfcamp B-Blair 986 8,568
2,414 41% 3,300 32/64” Guitar 10-24S-28E RB #221H Wolfcamp B-Blair
643 6,386 1,707 38% 3,600 24/64” B. Banker 33-23S-28E RB #206H
Wolfcamp B-Blair 611 7,154 1,803 34% 2,250 36/64” (1)
Flowing casing pressure.
Overall, the well results achieved in the Rustler Breaks asset
area in the second quarter of 2017 continued to meet or exceed the
Company’s expectations. Of particular note in the second quarter
were the results from the Guitar 10-24S-28E RB #205H (Guitar #205H)
well, a Wolfcamp A-Lower completion, and the Joe Coleman 13-23S-27E
RB #206H (Joe Coleman #206H) and Kathy Coleman 14-23S-27E RB #206H
(Kathy Coleman #206H) wells, both Wolfcamp A-XY completions, each
of which is described more fully below. The Wolfcamp B-Blair
completions also continued to deliver strong results in the second
quarter of 2017 and contributed to the Company’s 19% increase in
natural gas production during the second quarter of 2017.
The Guitar #205H well was Matador’s first Wolfcamp A-Lower
completion in the Rustler Breaks asset area, and this well flowed
1,155 BOE per day (75% oil) during a 24-hour initial potential test
from a completed lateral length of approximately 4,300 feet. This
lower, more organic section of the Wolfcamp A is located about 150
to 200 feet below the Wolfcamp A-XY interval. Matador has
successfully tested and produced the Wolfcamp A-Lower target in its
Wolf and Jackson Trust asset areas in Loving County, Texas. Matador
is pleased with these initial results from the Guitar #205H, which
validates the Wolfcamp A-Lower as another completion target in the
Rustler Breaks asset area. Matador plans to drill additional
Wolfcamp A-Lower wells at Rustler Breaks going forward.
The Joe Coleman #206H and the Kathy Coleman #206H wells were
both Wolfcamp A-XY completions located in the northwestern portion
of the Rustler Breaks asset area, close to the Tom Walters
12-23S-27E RB #203H (Tom Walters #203H) well discussed in the
Company’s prior earnings releases. Both of these wells are among
the best Wolfcamp A-XY wells drilled in the Rustler Breaks asset
area, with early performance comparable to that of the Tom Walters
#203H well. As of late July 2017, in approximately two months of
production, the Joe Coleman #206H and Kathy Coleman #206H wells
have produced approximately 92,000 BOE (74% oil) and 90,000 BOE
(73% oil), respectively, and both wells are tracking 15 to 20%
above the Company’s 900,000 BOE Wolfcamp A-XY type curve for the
Rustler Breaks asset area. As of late July 2017, the Tom Walters
#203H well had produced approximately 180,000 BOE (74% oil) in its
first six months of production, including about 15 days of shut-in
time, and is also tracking above the Company’s 900,000 BOE Wolfcamp
A-XY type curve for this area. Both the Joe Coleman #206H and the
Kathy Coleman #206H wells, as well as the Tom Walters #203H well,
further confirm the potential for the Wolfcamp A-XY interval
throughout the Rustler Breaks acreage position.
As of late July 2017, Matador’s two best Wolfcamp A-XY wells in
the Rustler Breaks asset area, the Dr. Scrivner Federal 01-24S-28E
RB #208H and the Paul 25-24S-28E RB #221H wells, had produced,
approximately 254,000 BOE (73% oil) in just over eight months of
production and approximately 316,000 BOE (71% oil) in approximately
14 months of production, respectively. Both of these wells are
tracking well above the Company’s 900,000 BOE Wolfcamp A-XY type
curve for this area. Matador attributes the strong results from
many of its recent Wolfcamp A-XY wells to the larger fracture
treatments, consisting of approximately 40 barrels of fluid and
3,000 pounds of primarily 30/50 mesh sand per completed lateral
foot, including the use of diverting agents, that it has pumped
consistently in the Wolfcamp A-XY completions in the Rustler Breaks
asset area since mid-2016.
At August 2, 2017, Matador planned to operate three drilling
rigs at Rustler Breaks throughout the remainder of 2017, although
it may elect to move one of these rigs to its Antelope Ridge asset
area late in the third quarter or early in the fourth quarter of
2017 to begin testing recently acquired acreage in that area.
Matador’s drilling success at Rustler Breaks has resulted in
natural gas volumes that exceed the 60 million cubic feet per day
capacity of the Black River Processing Plant operated by San Mateo.
San Mateo’s expansion of the Black River Processing Plant to
provide an incremental 200 million cubic feet per day of natural
gas processing capacity is expected to be operational late in the
first quarter of 2018. In the meantime, Matador has secured and is
using third-party options for its excess natural gas processing
needs.
Ranger and Arrowhead Asset Areas – Lea
County, New Mexico and Eddy County, New Mexico
Matador operated one drilling rig in its Ranger and Arrowhead
asset areas during most of the second quarter of 2017. During the
second quarter of 2017, the Company completed and turned to sales
two gross (0.8 net) horizontal wells in these areas, including one
gross (0.7 net) operated well and one gross (0.1 net) non-operated
well. The operated well was a Second Bone Spring test in the
Arrowhead asset area, the Stebbins 20 Federal #123H (Stebbins 20
#123H), and the non-operated well was also a Second Bone Spring
test in the Ranger asset area. During the second quarter of 2017,
Matador had several additional operated wells in progress in the
Ranger and Arrowhead asset areas that should be completed and
turned to sales during the third quarter. The 24-hour initial
potential test result from the Stebbins 20 #123H well is summarized
in the table below.
Initial Potential Oil Gas
BOE % Oil FCP(1)
Choke Well Interval (Bbl/d) (Mcf/d) (BOE/d) (psi) (inch)
Stebbins 20 Federal #123H Second Bone Spring 825 1,111 1,010 82% On
ESP N/A (1) Flowing casing pressure.
The Stebbins 20 #123H well was Matador’s first operated well in
the Arrowhead asset area. This Second Bone Spring test had a
completed lateral length of approximately 4,300 feet and was
completed with 15 fracture stages carrying a total of approximately
150,000 barrels of fracturing fluid and approximately 8.5 million
pounds of primarily 20/40 mesh sand (or about 2,000 pounds of sand
per completed lateral foot). Early performance from the Stebbins 20
#123H well has exceeded expectations, and the well has shown
minimal decline, producing approximately 61,000 BOE, or almost
1,000 BOE per day, in just over two months of production as of late
July 2017. After its first two months of production, the Stebbins
20 #123H well is tracking ahead of Matador’s 700,000 BOE Second
Bone Spring type curve for the Ranger and Arrowhead asset
areas.
Matador also completed a second well on the initial Stebbins pad
in early July 2017, the Stebbins 20 Federal #133H (Stebbins 20
#133H) well, which is a Third Bone Spring completion. At August 2,
2017, an ESP had just been installed on this well, and Matador
expects to conduct the 24-hour initial potential test on this well
once the ESP is fully operational.
Matador is very pleased with the initial results from the
Stebbins 20 #123H well and looks forward to the initial results
from the Stebbins 20 #133H well. With continued encouraging
results, the Stebbins acreage block could become a focus for future
drilling activity in Matador’s Arrowhead asset area. The Company
has recently received 14 federal permits for drilling additional
wells on this acreage block over the next few years, and this
acreage block also lends itself to laterals longer than one
mile.
As noted above, Matador also participated in one non-operated
well in its Ranger asset area in the second quarter of 2017. This
well, the COG Operating (Concho Resources Inc.) Geronimo Federal
Com #11H well, a Second Bone Spring test, had a 24-hour initial
potential test rate of 1,630 BOE per day (91% oil). Matador owns an
approximate 11% working interest in this well, which is located
about nine miles west of its Mallon wells and offsets other Matador
acreage in the Ranger asset area.
Wolf and Jackson Trust Asset Areas -
Loving County, Texas
Matador operated one drilling rig in its Wolf asset area during
the second quarter of 2017. During the second quarter of 2017, the
Company completed and turned to sales five gross (4.2 net) operated
horizontal wells in this area, including four wells completed in
the Second Bone Spring and one well completed in the Wolfcamp A-XY.
The 24-hour initial potential test results from each of these five
wells 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)
Arno 78-TTT-B33 WF #121H Second Bone Spring 341 2,934 830 41% 1,480
40/64” Arno 78-TTT-B33 WF #122H Second Bone Spring 255 3,043 762
33% 1,525 40/64” Dorothy White 82-TTT-B33 WF #124H Second Bone
Spring 427 3,022 931 46% 1,671 40/64” Dorothy White 82-TTT-B33 WF
#127H Second Bone Spring 375 1,953 700 54% 950 44/64” Arno
78-TTT-B33 WF #202H Wolfcamp A-XY 310 7,172 1,505 21% 3,150 36/64”
(1) Flowing casing pressure.
The Arno 78-TTT-B33 WF #121H (Arno #121H), Arno 78-TTT-B33 WF
#122H (Arno #122H) and Arno 78-TTT-B33 WF #202H (Arno #202H) wells
are located in the southernmost portion of the Wolf asset area, and
all three wells were drilled in batch mode from the same pad. The
results from the Arno #121H and #122H wells confirmed the
prospectivity of the Second Bone Spring target across the entire
Wolf asset area from the Billy Burt leasehold in the north through
the Dorothy White leasehold in the center to the Arno leasehold to
the south. As expected, and as has been observed in the Wolfcamp A
formation as well, the Second Bone Spring exhibited a somewhat
higher natural gas percentage at the Arno leasehold. Having
confirmed the prospectivity of the Second Bone Spring target across
the entire Wolf asset area, Matador expects to return its focus in
the Wolf asset area to drilling and completing the Wolfcamp A-XY
and additional new targets, such as the Avalon and the Wolfcamp B,
for the remainder of 2017. Many of these wells will also be longer
laterals, with most between 6,000 and 8,000 feet in length.
Test results and early performance from the Arno #202H, a
Wolfcamp A-XY completion, were similar to those from the original
Wolfcamp A-XY test drilled on the Arno leasehold, the Arno
78-TTT-B33 WF #201H (Arno #201H) well. As of late July 2017, the
Arno #201H well had produced 425,000 BOE (30% oil) in approximately
29 months of production, and Matador estimates the ultimate
recovery from this well at approximately 1 million BOE.
During the second quarter of 2017, Matador began drilling its
first tests of the Avalon and Wolfcamp B formations in the Wolf
asset area, the Barnett 90-TTT-B01 WF #104H (Barnett #104H) and
Barnett 90-TTT-B01 WF #224H (Barnett #224H) wells, respectively. As
of August 2, 2017, the Barnett #104H and #224H wells had been
drilled and completed, and the fracturing plugs between stages were
being drilled out prior to flowback. The Wolfcamp B formation has
been tested successfully by other operators nearby in Loving and
Reeves Counties, Texas, and Matador is optimistic about the
prospectivity of the Wolfcamp B on its Wolf acreage. Although the
nearest recent Avalon tests are approximately 10 miles away from
Matador’s Wolf asset area, Matador was very encouraged by the
results it observed in the Avalon from the whole core and detailed
suite of well logs taken in a nearby pilot hole on the Barnett
leasehold in 2016. The Avalon formation is over 800 feet thick in
the Wolf asset area, and the interval being tested in the Barnett
#104H well is the first of two potential landing targets in the
Avalon identified by Matador’s geoscience team. Hydrocarbon shows
during the drilling of the lateral section of the Avalon in the
Barnett #104H well were also very encouraging.
Finally, Matador is pleased to note that its land team acquired
approximately 1,100 gross (760 net) acres in the Wolf asset area
through a trade with another operator, leasing activities and
working interest acquisitions. Matador estimates that this trade
along with the new leases will provide up to 32 additional
Matador-operated drilling locations in the Wolf asset area.
Further, these acquisitions have enhanced the Company’s ability to
drill longer laterals in several portions of the Wolf asset area.
Matador expects to continue making similar trades and acquiring new
leasehold and working interests where possible going forward, not
only in its Wolf asset area, but also throughout its entire
Delaware Basin acreage position.
Eagle Ford Shale - South Texas
During the second quarter of 2017, Matador drilled and completed
five wells in the Eagle Ford shale in South Texas. Two of these
wells, the Falls City #1H and #2H wells, both located in Karnes
County, were turned to sales in mid-June 2017. The other three
wells, the Martin Ranch C #11H well and the Martin MAK D #49H and D
#50H wells, all located in La Salle County, were turned to sales in
early July 2017. Matador has a 100% working interest in each of
these wells. The completion of these five wells concluded Matador’s
operated drilling program in the Eagle Ford shale for 2017. The
24-hour initial potential test results from all five of these Eagle
Ford shale wells 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)
Falls City #1H Eagle Ford 1,457 841 1,597 91% 2,700 20/64” Falls
City #2H Eagle Ford 1,480 968 1,641 90% 2,755 20/64” Martin Ranch C
#11H Eagle Ford 1,015 370 1,079 94% 2,040 22/64” Martin MAK D #49H
Eagle Ford 1,198 696 1,318 92% 1,790 22/64” Martin MAK D #50H Eagle
Ford 1,116 623 1,223 91% 1,760 22/64”
Total 6,266 3,498
6,858 91% (1) Flowing
casing pressure.
Matador was very pleased with the initial results from this
five-well drilling program. While it is still early, production
from each of these wells is tracking ahead of Matador’s best Eagle
Ford well in each county, the Sickenius A #1H in Karnes County and
the Martin Ranch A #1H in La Salle County. Further, although these
newly completed Eagle Ford wells had minimal impact on the
Company’s second quarter 2017 production, the initial production
from these wells has almost doubled Matador’s average daily oil
equivalent production from the Eagle Ford shale, as compared to its
second quarter 2017 Eagle Ford production levels.
The Falls City #1H and #2H wells had completed lateral lengths
of approximately 5,900 and 5,400 feet, respectively, while the
Martin Ranch and Martin MAK wells had completed lateral lengths of
approximately 4,800 feet each. Matador had originally planned to
drill up to 7,600-foot laterals on the two Falls City wells, but
modified its plans to drill in front of, as opposed to drilling
through, a large normal fault traversing the Falls City leasehold.
Matador also appreciated the close coordination provided by
Patterson-UTI Drilling Company with regard to these wells,
mobilizing an inactive rig out of its South Texas yard and enabling
Matador to drill these five Eagle Ford wells very efficiently,
including a record drilling time for one of the Eagle Ford wells on
the Martin Ranch leasehold.
Matador completed these five wells using a new Eagle Ford
Generation 8 stimulation design incorporating features from its
fracture treatments in the Delaware Basin, including more fracture
stages, tighter perforation cluster spacing and the use of
diverting agents. Each of these wells was completed with seven
perforation clusters per stage at 20-foot cluster spacing, with
each stage consisting of 38 barrels of fluid and 2,000 pounds of
primarily 30/50 mesh sand per completed lateral foot. Each of the
Martin Ranch and Martin MAK wells was treated with 34 fracturing
stages, while the longer Falls City #1H and #2H wells were treated
with 42 and 39 fracturing stages, respectively. Diverting agents
were used in each stage of all five treatments. Simultaneous
fracturing operations were used to treat both sets of wells, which
resulted in as many as ten treatment stages being pumped in a
single day.
Haynesville Shale - Northwest Louisiana and East Texas
During the second quarter of 2017, Matador participated as a
non-operator in the completion of five gross (0.6 net) Haynesville
shale wells, and all five of these wells were turned to sales
during the second quarter. Of particular importance were the three
gross (0.6 net) wells that were completed and turned to sales on
the Blount leasehold operated by Chesapeake in the Company’s Elm
Grove asset area. Chesapeake drilled these three wells in late
2015, but delayed completion until early 2017. All three of the
Blount wells were completed using over 5,000 pounds of proppant per
foot of completed lateral, and each well had a completed lateral
length of about 4,700 feet.
All three Blount wells were turned to sales with initial flow
rates of between 16 and 18 million cubic feet of natural gas per
day at flowing casing pressures in excess of 7,000 psi, and these
wells have yet to exhibit much decline from their initial flow
rates. In addition, the Company also benefited in the second
quarter of 2017 from the flush production of several offsetting
Haynesville shale wells that were returned to sales after being
temporarily shut in while the Blount wells were completed. These
results contributed to an increase of 14% in Matador’s
Haynesville/Cotton Valley natural gas production in Northwest
Louisiana and East Texas from approximately 29.2 million cubic feet
per day in the first quarter of 2017 to approximately 33.2 million
cubic feet per day in the second quarter of 2017.
At August 2, 2017, Matador did not plan to conduct any operated
drilling operations, nor did it expect to participate in any
significant additional non-operated drilling and completion
operations, in the Haynesville shale during the remainder of 2017.
Matador may, from time to time, participate in non-operated well
proposals with estimated economic returns comparable to its
Delaware Basin drilling program, including the participation in one
or more re-fracturing operations proposed on Haynesville wells in
which the Company has a small working interest. Capital commitments
to such projects are expected to be minimal in comparison to the
Company’s 2017 total estimated capital expenditures.
Midstream Update
During the second quarter of 2017, Matador’s San Mateo midstream
joint venture initiated the expansion of the Black River Processing
Plant to add an incremental 200 million cubic feet per day to the
existing 60 million cubic feet per day of cryogenic natural gas
processing capacity. At August 2, 2017, the expansion project was
proceeding on schedule, and the incremental natural gas processing
capacity is expected to become operational late in the first
quarter of 2018.
At August 2, 2017, San Mateo was moving forward with its plans
to drill an additional salt water disposal well in the Rustler
Breaks asset area and to build out additional oil, natural gas and
salt water gathering systems in the Wolf and Rustler Breaks asset
areas. This second salt water disposal well in the Rustler Breaks
asset area is expected to spud in early August. This well (and
potentially others in the near future) is needed to handle
Matador’s salt water disposal needs in the Rustler Breaks asset
area, as well as other newly-contracted third-party salt water
disposal volumes in the area. San Mateo recently entered into a
salt water disposal agreement with another operator in the Rustler
Breaks area to dispose of up to 12,000 barrels of salt water per
day.
Matador incurred approximately $12 million in capital
expenditures related to these projects during the second quarter of
2017 and has incurred approximately $22 million through June 30,
2017, or approximately 37% of its anticipated 2017 midstream
capital expenditures. Midstream capital expenditures are about $4
million ahead of the Company’s expectations at June 30, 2017, due
primarily to certain midstream projects being initiated sooner than
originally anticipated. Matador is very pleased with the first few
months of operations and with the direction of the San Mateo joint
venture following its inception in February 2017.
Delaware Basin Acreage Update
At August 2, 2017, Matador held 189,500 gross (108,000 net)
acres in the Permian Basin, primarily in the Delaware Basin in Lea
and Eddy Counties, New Mexico and Loving County, Texas, as shown in
the table below.
Matador’s Permian Basin Acreage at August 2, 2017
(approximate):
Asset
Area
Gross Acres Net Acres Ranger (Lea County, NM) 28,900
16,800 Arrowhead (Eddy County, NM) 52,300 19,700 Rustler Breaks
(Eddy County, NM) 35,300 18,900 Antelope Ridge (Lea County, NM)
11,600 8,100 Wolf and Jackson Trust (Loving County, TX) 13,600
9,100 Twin Lakes (Lea County, NM) 46,300 34,200 Other 1,500 1,200
Total 189,500 108,000
During the second quarter of 2017 and through August 2, 2017,
Matador acquired approximately 8,300 net acres in the Delaware
Basin, mostly in and around its existing acreage positions,
including new leasing activities, acquisition of small interests
from mineral and working interest owners in Matador’s operated
wells and acreage trades or term assignments with other operators.
Matador closed over 20 such transactions in the period from April 1
through August 2, 2017. As an example, recent acreage acquisitions
and the aforementioned trade in the Wolf asset area added
approximately 760 net acres in this area, but more importantly, the
Company estimates this acreage will provide up to 32 additional
Matador-operated drilling locations, as well as additional proved
undeveloped reserves. Matador incurred capital expenditures of
approximately $28 million during this period to acquire this
additional acreage throughout the Delaware Basin, as well as for
new 3-D seismic data across portions of its Wolf asset area.
Capital Spending Update
As provided in its 2017 capital spending guidance estimates, as
updated during its Analyst Day presentation on March 23, 2017 and
affirmed on August 2, 2017, Matador anticipates that it will incur
capital expenditures of (1) $400 to $420 million for drilling,
completing and equipping operated and non-operated wells in 2017,
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. The Company’s estimated
2017 capital expenditures for drilling, completing and equipping
its wells account for a 10 to 15% increase in expected total 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
(including the five wells drilled and completed in 2017) 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.
During the second quarter of 2017, Matador’s capital spending in
these categories was approximately $148 million, including
approximately $136 million for drilling and completion operations
and approximately $12 million for midstream operations. Capital
spending for drilling, completing and equipping wells of $136
million was in line with expectations for the second quarter (after
being below expectations in the first quarter) as a result of the
timing of completion operations as certain wells scheduled to be
completed late in the first quarter were actually completed early
in the second quarter. The midstream expenditures were somewhat
higher than anticipated in the second quarter, but this outcome is
again a result of timing, with certain 2017 proposed midstream
initiatives getting underway earlier than originally anticipated.
As of June 30, 2017, Matador had incurred approximately $241
million, or about 51%, of its anticipated 2017 projected capital
expenditures. Matador’s capital spending at June 30, 2017 is on
target with its projected capital expenditures of $242 million for
the first six months of 2017, as provided in its March 23, 2017
Analyst Day presentation.
Matador intends to continue acquiring acreage and mineral
interests, principally in the Delaware Basin, throughout 2017.
These expenditures are opportunity specific and per-acre prices can
vary significantly based on the opportunity. 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, as it has done in the Delaware Basin Acreage Update
in this earnings release.
Liquidity Update
At June 30, 2017, the borrowing base under Matador’s revolving
credit facility was $450 million based on the lenders’ review of
the Company’s proved oil and natural gas reserves at December 31,
2016, with the Company maintaining its “elected borrowing
commitment” at $400 million. At June 30, 2017, Matador had cash on
hand totaling approximately $131 million, not including
approximately $15 million of restricted cash (most of which is
associated with San Mateo), no outstanding borrowings under the
Company’s revolving credit facility and approximately $0.8 million
in outstanding letters of credit. At August 2, 2017, the Company
continued to have no outstanding borrowings under its credit
facility, other than approximately $0.8 million in outstanding
letters of credit.
At August 2, 2017, Matador remained in a strong financial
position and is well funded to execute the remainder of its 2017
drilling program and midstream operations, primarily using cash on
hand and anticipated cash flows from operations, but can call upon
its fully undrawn line of credit should additional capital be
needed. Currently, Matador does not have a separate line of credit
for its midstream operations.
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 August 2, 2017, Matador had the following hedges in
place, in the form of costless collars, for the remainder of
2017.
- Approximately 2.1 million barrels of
oil at a weighted average floor price of $45 per barrel and a
weighted average ceiling price of $56 per barrel.
- Approximately 10.5 billion cubic feet
of natural gas at a weighted average floor price of $2.51 per MMBtu
and a weighted average ceiling price of $3.60 per MMBtu.
Matador estimates that it now has approximately 65% of its
anticipated oil production and approximately 70% of its anticipated
natural gas production hedged for the remainder of 2017 based on
the midpoint of its updated production guidance.
At August 2, 2017, Matador had the following hedges in
place, in the form of costless collars, for 2018.
- Approximately 1.9 million barrels of
oil at a weighted average floor price of $44 per barrel and a
weighted average ceiling price of $63 per barrel.
- Approximately 16.8 billion cubic feet
of natural gas at a weighted average floor price of $2.58 per MMBtu
and a weighted average ceiling price of $3.67 per MMBtu.
Conference Call Information
The Company will host a live conference call on Thursday, August
3, 2017, at 9:00 a.m. Central Time to review its second quarter
2017 financial results and operational highlights. To access the
conference call, domestic participants should dial (855) 875-8781
and international participants should dial (720) 634-2925. The
conference ID and passcode is 59566181. The 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 be available on the Company’s website at www.matadorresources.com on the Presentations
& Webcasts page under the Investors tab through August 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.
Such forward-looking statements include, but are not limited to,
statements about guidance, projected or forecasted financial and
operating results, results in certain basins, objectives, project
timing, expectations and intentions and other statements that are
not historical facts. 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 CONDENSED CONSOLIDATED BALANCE SHEETS -
UNAUDITED (In thousands, except par value and share data)
June 30, 2017
December 31, 2016 ASSETS Current assets Cash $
131,466 $ 212,884 Restricted cash 15,040 1,258 Accounts receivable
Oil and natural gas revenues 39,621 34,154 Joint interest billings
37,387 19,347 Other 7,303 5,167 Derivative instruments 7,067 —
Lease and well equipment inventory 2,957 3,045 Prepaid expenses and
other assets 5,946 3,327 Total current
assets 246,787 279,182 Property and equipment, at cost Oil and
natural gas properties, full-cost method Evaluated 2,694,766
2,408,305 Unproved and unevaluated 567,009 479,736 Other property
and equipment 204,299 160,795 Less accumulated depletion,
depreciation and amortization (1,939,570 ) (1,864,311
) Net property and equipment 1,526,504 1,184,525 Other assets
Derivative instruments 2,992 — Other assets 793
958 Total other assets 3,785 958
Total assets $ 1,777,076 $ 1,464,665
LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts
payable $ 7,371 $ 4,674 Accrued liabilities 151,336 101,460
Royalties payable 35,423 23,988 Amounts due to affiliates 5,865
8,651 Derivative instruments 1,192 24,203 Advances from joint
interest owners 5,468 1,700 Amounts due to joint ventures 4,873
4,251 Other current liabilities 656 578
Total current liabilities 212,184 169,505 Long-term liabilities
Senior unsecured notes payable 573,988 573,924 Asset retirement
obligations 22,391 19,725 Derivative instruments — 751 Amounts due
to joint ventures — 1,771 Other long-term liabilities 6,142
7,544 Total long-term liabilities 602,521
603,715 Shareholders’ equity Common stock - $0.01 par value,
160,000,000 and 120,000,000 shares authorized; 100,399,756 and
99,518,764 shares issued; and 100,324,852 and 99,511,931 shares
outstanding, respectively 1,004 995 Additional paid-in capital
1,453,341 1,325,481 Accumulated deficit (563,858 ) (636,351 )
Treasury stock, at cost, 74,904 and 6,833 shares, respectively
(745 ) — Total Matador Resources Company
shareholders’ equity 889,742 690,125 Non-controlling interest in
subsidiaries 72,629 1,320 Total
shareholders’ equity 962,371 691,445
Total liabilities and shareholders’ equity $ 1,777,076 $
1,464,665 Matador
Resources Company and Subsidiaries CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS - UNAUDITED (In thousands, except
per share data)
Three Months Ended June 30, Six
Months Ended June 30, 2017
2016 2017 2016 Revenues Oil and
natural gas revenues $ 113,764 $ 69,336 $ 228,611 $ 113,262
Third-party midstream services revenues 2,099 918 3,654 1,391
Realized gain (loss) on derivatives 558 2,465 (1,661 ) 9,528
Unrealized gain (loss) on derivatives 13,190
(26,625 ) 33,821 (33,464 ) Total revenues
129,611 46,094 264,425 90,717 Expenses Production taxes,
transportation and processing 12,875 10,556 24,682 18,459 Lease
operating 16,040 12,183 31,797 26,695 Plant and other midstream
services operating 2,942 1,061 5,283 2,088 Depletion, depreciation
and amortization 41,274 31,248 75,266 60,170 Accretion of asset
retirement obligations 314 289 614 552 Full-cost ceiling impairment
— 78,171 — 158,633 General and administrative 17,177
13,197 33,515 26,360
Total expenses 90,622 146,705
171,157 292,957 Operating income (loss) 38,989
(100,611 ) 93,268 (202,240 ) Other income (expense) Net gain on
asset sales and inventory impairment — 1,002 7 2,067 Interest
expense (9,224 ) (6,167 ) (17,679 ) (13,365 ) Other income
1,922 29 1,991 124
Total other expense (7,302 ) (5,136 ) (15,681
) (11,174 ) Net income (loss) 31,687 (105,747 ) 77,587
(213,414 ) Net income attributable to non-controlling interest in
subsidiaries (3,178 ) (106 ) (5,094 )
(93 ) Net income (loss) attributable to Matador Resources Company
shareholders $ 28,509 $ (105,853 ) $ 72,493 $
(213,507 ) Earnings (loss) per common share Basic $ 0.28 $
(1.15 ) $ 0.72 $ (2.40 ) Diluted $ 0.28 $ (1.15 ) $
0.72 $ (2.40 ) Weighted average common shares outstanding
Basic 100,211 92,346 100,005
88,826 Diluted 100,227
92,346 100,455 88,826
Matador Resources Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Six Months Ended June 30, 2017
2016 Operating activities Net income (loss) $
77,587 $ (213,414 ) Adjustments to reconcile net income (loss) to
net cash provided by operating activities Unrealized (gain) loss on
derivatives (33,821 ) 33,464 Depletion, depreciation and
amortization 75,266 60,170 Accretion of asset retirement
obligations 614 552 Full-cost ceiling impairment — 158,633
Stock-based compensation expense 11,192 5,553 Amortization of debt
issuance cost 64 592 Net gain on asset sales and inventory
impairment (7 ) (2,067 ) Changes in operating assets and
liabilities Accounts receivable (25,642 ) (2,751 ) Lease and well
equipment inventory (140 ) (514 ) Prepaid expenses (2,619 ) 186
Other assets 165 520 Accounts payable, accrued liabilities and
other current liabilities 4,442 2,451 Royalties payable 11,435 153
Advances from joint interest owners 3,768 5,083 Income taxes
payable — (2,848 ) Other long-term liabilities (1,062 )
3,837 Net cash provided by operating activities
121,242 49,600 Investing activities Oil and natural gas properties
capital expenditures (328,929 ) (162,381 ) Expenditures for other
property and equipment (41,743 ) (47,548 ) Proceeds from sale of
assets 977 — Restricted cash — 43,437 Restricted cash in
less-than-wholly-owned subsidiaries (13,783 ) 460
Net cash used in investing activities (383,478 ) (166,032 )
Financing activities Proceeds from issuance of common stock —
142,350 Cost to issue equity — (768 ) Proceeds from stock options
exercised 2,201 — Contributions related to formation of Joint
Venture 171,500 — Contributions from non-controlling interest
owners of less-than-wholly-owned subsidiaries 14,700 —
Distributions to non-controlling interest owners of
less-than-wholly-owned subsidiaries (1,960 ) — Taxes paid related
to net share settlement of stock-based compensation (2,970 ) (1,009
) Purchase of non-controlling interest of less-than-wholly-owned
subsidiary (2,653 ) — Net cash provided by
financing activities 180,818 140,573
(Decrease) increase in cash (81,418 ) 24,141 Cash at beginning of
period 212,884 16,732 Cash at end of
period $ 131,466 $ 40,873
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 the forward-looking Adjusted EBITDA numbers included in
this press release 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.
Three Months Ended Year
Ended (In thousands)
June 30, 2017
March 31, 2017 June 30, 2016
December 31, 2016 Unaudited Adjusted EBITDA
Reconciliation to Net Income (Loss): Net income (loss)
attributable to Matador Resources Company shareholders $ 28,509 $
43,984 $ (105,853 ) $ (97,421 ) Net income attributable to
non-controlling interest in subsidiaries 3,178
1,916 106 364 Net income (loss)
31,687 45,900 (105,747 ) (97,057 ) Interest expense 9,224 8,455
6,167 28,199 Total income tax provision (benefit) — — — (1,036 )
Depletion, depreciation and amortization 41,274 33,992 31,248
122,048 Accretion of asset retirement obligations 314 300 289 1,182
Full-cost ceiling impairment — — 78,171 158,633 Unrealized (gain)
loss on derivatives (13,190 ) (20,631 ) 26,625 41,238 Stock-based
compensation expense 7,026 4,166 3,310 12,362 Net gain on asset
sales and inventory impairment — (7 )
(1,002 ) (107,277 ) Consolidated Adjusted EBITDA 76,335
72,175 39,061 158,292 Adjusted EBITDA attributable to
non-controlling interest in subsidiaries (3,683 )
(2,216 ) (115 ) (400 ) Adjusted EBITDA attributable
to Matador Resources Company shareholders $ 72,652 $ 69,959
$ 38,946 $ 157,892
Three
Months Ended Year Ended (In thousands)
June 30,
2017 March 31, 2017 June 30, 2016 December 31,
2016 Unaudited Adjusted EBITDA Reconciliation to Net Cash
Provided by Operating Activities: Net cash provided by
operating activities $ 59,933 $ 61,309 $ 31,242 $ 134,086 Net
change in operating assets and liabilities 7,198 2,455 1,944 (1,809
) Interest expense, net of non-cash portion 9,204 8,411 5,875
27,051 Current income tax provision (benefit) — — — (1,036 )
Adjusted EBITDA attributable to non-controlling interest in
subsidiaries (3,683 ) (2,216 ) (115 )
(400 ) Adjusted EBITDA attributable to Matador Resources Company
shareholders $ 72,652 $ 69,959 $ 38,946 $
157,892
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 non-recurring
transaction costs for certain acquisitions or other non-recurring
expense items, along with the related tax effect 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 industry 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 June 30, 2017
March 31, 2017 June 30, 2016 (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 $ 28,509 $ 43,984 $ (105,853 ) Total
income tax provision — — —
Income (loss) attributable to Matador Resources Company
shareholders before taxes 28,509 43,984 (105,853 ) Less
non-recurring and unrealized charges to income (loss) before taxes:
Full-cost ceiling impairment — — 78,171 Unrealized (gain) loss on
derivatives (13,190 ) (20,631 ) 26,625 Net gain on asset sales and
inventory impairment — (7 ) (1,002 ) Non-recurring transaction
costs associated with the formation of San Mateo Joint Venture —
3,458 — Non-recurring expenses related to stock-based compensation
(1) 1,515 — — Adjusted
income (loss) attributable to Matador Resources Company
shareholders before taxes 16,834 26,804 (2,059 ) Income tax
provision (benefit) (2) 5,892 9,381
(721 ) Adjusted net income (loss) attributable to Matador
Resources Company shareholders (non-GAAP) $ 10,942 $ 17,423
$ (1,338 ) Basic weighted average shares outstanding,
without participating securities 98,994 98,603 92,346 Dilutive
effect of participating securities 1,217 1,196
— Weighted average shares outstanding,
including participating securities - basic 100,211 99,799 92,346
Dilutive effect of options and restricted stock units 16
499 — Weighted average common
shares outstanding - diluted 100,227 100,298
92,346 Adjusted earnings (loss) per share
attributable to Matador Resources Company shareholders (non-GAAP)
Basic $ 0.11 $ 0.17 $ (0.01 ) Diluted $ 0.11 $
0.17 $ (0.01 ) (1) Non-recurring, non-cash expense
attributable to a change in the vesting schedule applicable to
equity awards granted to the Company’s directors. (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.
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 adding the discounted future income
taxes associated with such reserves to the Standardized
Measure.
(in millions)
AtJune 31, 2017
AtDecember 31, 2016
AtJune 30, 2016
Standardized Measure $ 1,001.9 $ 575.0 $ 468.3 Discounted future
income taxes 85.0 6.5 4.9 PV-10 $ 1,086.9 $
581.5 $ 473.2
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version on businesswire.com: http://www.businesswire.com/news/home/20170802006441/en/
Matador Resources CompanyMac Schmitz, 972-371-5225Capital
Markets Coordinatorinvestors@matadorresources.com
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