Matador Resources(MTDR) - 2024 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements — Unaudited This section presents the unaudited condensed consolidated financial statements of Matador Resources Company and its subsidiaries for the period ended September 30, 2024, including balance sheets, income statements, statements of changes in shareholders' equity, and cash flows, along with detailed notes on accounting policies, business combinations, debt, equity, and segment information Condensed Consolidated Balance Sheets This section details the Company's financial position, including assets, liabilities, and shareholders' equity Table: Balance Sheet Summary | Metric | September 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :-------------------------------- | :------------------------------- | | ASSETS | | | | Total current assets | $847,186 | $715,872 | | Net property and equipment | $9,545,669 | $6,956,441 | | Total assets | $10,623,291 | $7,726,996 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Total current liabilities | $965,955 | $685,275 | | Total long-term liabilities | $4,561,126 | $2,914,033 | | Total shareholders' equity | $5,096,210 | $4,127,688 | | Total liabilities and shareholders' equity | $10,623,291 | $7,726,996 | - Total assets increased by approximately $2.89 billion (37.5%) from December 31, 2023, to September 30, 2024, primarily driven by an increase in net property and equipment[4] - Total liabilities increased by approximately $1.93 billion (49.5%) over the same period, with significant increases in both current and long-term liabilities[4] Condensed Consolidated Statements of Income This section presents the Company's financial performance, covering revenues, expenses, and net income Table: Income Statement Summary | Metric | Three Months Ended Sep 30, 2024 (in thousands) | Three Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2024 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | | :------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total revenues | $899,783 | $772,294 | $2,534,612 | $1,970,653 | | Total expenses | $507,727 | $432,284 | $1,459,983 | $1,126,942 | | Operating income | $392,056 | $340,010 | $1,074,629 | $843,711 | | Income before income taxes | $357,998 | $292,988 | $963,479 | $762,985 | | Total income tax provision | $85,321 | $14,589 | $230,085 | $128,567 | | Net income | $272,677 | $278,399 | $733,394 | $634,418 | | Net income attributable to Matador Resources Company shareholders | $248,291 | $263,739 | $670,789 | $591,535 | | Basic EPS | $1.99 | $2.21 | $5.45 | $4.97 | | Diluted EPS | $1.99 | $2.20 | $5.44 | $4.93 | - For the three months ended September 30, 2024, total revenues increased by 16.5% YoY, while net income attributable to shareholders decreased by 5.8% YoY, primarily due to a significantly higher income tax provision[5] - For the nine months ended September 30, 2024, total revenues increased by 28.6% YoY, and net income attributable to shareholders increased by 13.4% YoY[5] Condensed Consolidated Statements of Changes in Shareholders' Equity This section outlines changes in shareholders' equity from net income, dividends, and equity transactions Table: Changes in Shareholders' Equity Summary | Metric | Balance at Jan 1, 2024 (in thousands) | Balance at Sep 30, 2024 (in thousands) | | :------------------------------------------------ | :------------------------------------ | :----------------------------------- | | Common Stock Amount | $1,194 | $1,249 | | Additional paid-in capital | $2,133,172 | $2,498,678 | | Retained earnings | $1,776,541 | $2,373,732 | | Total shareholders' equity attributable to Matador Resources Company | $3,910,862 | $4,870,630 | | Non-controlling interest in subsidiaries | $216,826 | $225,580 | | Total shareholders' equity | $4,127,688 | $5,096,210 | - Total shareholders' equity increased by approximately $968.5 million from January 1, 2024, to September 30, 2024, driven by net income, equity offerings, and contributions related to San Mateo[6][8] - Dividends declared for the nine months ended September 30, 2024, totaled $73.6 million ($0.20 per share quarterly)[6][53] Condensed Consolidated Statements of Cash Flows This section presents cash flows from operating, investing, and financing activities Table: Cash Flows Summary | Metric | Nine Months Ended Sep 30, 2024 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $1,671,926 | $1,249,481 | | Net cash used in investing activities | $(3,280,718) | $(2,662,324) | | Net cash provided by financing activities | $1,579,517 | $927,687 | | Change in cash and restricted cash | $(29,275) | $(485,156) | | Cash and restricted cash at end of period | $77,023 | $62,174 | - Net cash provided by operating activities increased by $422.4 million (33.8%) for the nine months ended September 30, 2024, compared to the same period in 2023[12][117] - Net cash used in investing activities increased by $618.4 million (23.2%) due to significant acquisitions, including Ameredev ($1.83 billion) and other oil and natural gas properties[12][117] - Net cash provided by financing activities increased by $651.8 million (70.3%) due to proceeds from senior unsecured notes offerings and equity offerings, partially offset by debt repayments and dividends[12][120] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies, estimates, and financial statement items NOTE 1 — NATURE OF OPERATIONS This note describes the Company's primary business activities in oil, natural gas, and midstream operations - Matador Resources Company is an independent energy company focused on oil and natural gas exploration, development, production, and acquisition in the U.S., primarily in the Delaware Basin (Wolfcamp and Bone Spring plays)[13] - The Company also conducts midstream operations through San Mateo Midstream, LLC and Pronto Midstream, LLC, providing natural gas processing, oil transportation, and water gathering/disposal services to both its own operations and third parties[13] NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines key accounting principles and methods used in preparing financial statements Interim Financial Statements, Basis of Presentation, Consolidation and Significant Estimates This section details interim financial statement preparation, consolidation, and key estimates - The interim financial statements are prepared in accordance with SEC rules and U.S. GAAP, consolidating less-than-wholly-owned subsidiaries not involved in oil and natural gas exploration (e.g., San Mateo) and proportionately consolidating those involved in exploration[14] - Significant estimates include oil and natural gas revenues, accrued assets/liabilities, stock-based compensation, derivative valuations, deferred taxes, purchase price allocations, and oil/natural gas reserves[14] Revenues This section details revenue recognition policies and disaggregation of revenue by source Table: Revenue Disaggregation | Revenue Type | Three Months Ended Sep 30, 2024 (in thousands) | Three Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2024 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Oil revenues | $698,391 | $588,370 | $2,002,454 | $1,500,511 | | Natural gas revenues | $71,764 | $113,157 | $247,520 | $291,842 | | Third-party midstream services revenues | $38,316 | $29,931 | $103,324 | $86,517 | | Sales of purchased natural gas | $51,666 | $40,329 | $147,377 | $106,481 | | Total revenues from contracts with customers | $860,137 | $771,787 | $2,500,675 | $1,985,351 | - Oil revenues increased significantly (19% for Q3, 33% for 9M YoY), while natural gas revenues decreased (37% for Q3, 15% for 9M YoY) due to lower natural gas prices[17] Property and Equipment This section describes accounting policies for property and equipment, including full-cost and impairment - The Company uses the full-cost method for oil and natural gas properties, performing a quarterly ceiling test based on discounted future net cash flows and 12-month average commodity prices; no impairment was necessary for the reported periods[18] Table: Capitalized Costs | Capitalized Costs (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | General and administrative costs | $15,000 | $14,400 | $47,200 | $41,400 | | Interest expense | $8,200 | $7,400 | $23,400 | $16,100 | Earnings Per Common Share This section explains the calculation of basic and diluted earnings per common share - The Company reports both basic and diluted earnings per common share, with diluted EPS including the effect of potentially dilutive securities[19] Table: Weighted Average Common Shares Outstanding | Metric (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic weighted average common shares outstanding | 124,814 | 119,147 | 123,107 | 119,121 | | Diluted weighted average common shares outstanding | 124,983 | 120,081 | 123,358 | 120,045 | Recent Accounting Pronouncements This section discusses recently issued accounting standards and their potential impact - The FASB issued ASU 2023-07 (Segment Reporting) effective for fiscal years beginning after December 15, 2023, and ASU 2023-09 (Income Taxes) effective for annual periods beginning after December 15, 2024; the Company is evaluating their impact[23] - The SEC adopted new climate-related disclosure rules on March 6, 2024, which are currently stayed pending judicial review; the Company is evaluating their potential impact[23] NOTE 3 — BUSINESS COMBINATIONS This note provides details on the Company's significant acquisition activities and financial impact Ameredev Acquisition This section details the Ameredev acquisition, its funding, and initial financial contributions - On September 18, 2024, Matador acquired Ameredev Stateline II, LLC for approximately $1.831 billion in cash, including oil and natural gas properties, undeveloped acreage, and a 19% stake in Piñon Midstream, LLC[24] - The acquisition was funded by cash on hand and borrowings under the Credit Agreement, which was amended to include a $250.0 million term loan and increase revolving credit commitments to $2.25 billion[24] - The Ameredev Acquisition contributed $16.5 million to revenues and $5.5 million to net income for the period from September 18 to September 30, 2024[26] Pro Forma Information This section presents pro forma financial data, assuming the Ameredev Acquisition occurred earlier Table: Pro Forma Financials | Metric | Three Months Ended Sep 30, 2024 (pro forma, in thousands) | Three Months Ended Sep 30, 2023 (pro forma, in thousands) | Nine Months Ended Sep 30, 2024 (pro forma, in thousands) | Nine Months Ended Sep 30, 2023 (pro forma, in thousands) | | :------------------------------------------------ | :-------------------------------------------------------- | :-------------------------------------------------------- | :------------------------------------------------------- | :------------------------------------------------------- | | Total revenue | $997,535 | $941,900 | $2,808,101 | $2,448,270 | | Net income attributable to Matador Resources Company shareholders | $241,882 | $268,370 | $655,453 | $606,432 | | Basic EPS | $1.94 | $2.25 | $5.32 | $5.09 | | Diluted EPS | $1.94 | $2.23 | $5.31 | $5.05 | - Pro forma financial information assumes the Ameredev Acquisition occurred on January 1, 2023, and includes adjustments for depletion, interest expense, and tax impacts, but excludes potential synergies or cost savings[27][29] Q1 2024 Acquisition This section details the Q1 2024 acquisition of oil and natural gas properties in New Mexico - On February 15, 2024, Matador acquired oil and natural gas properties and undeveloped acreage in Lea County, New Mexico, for approximately $155.1 million in cash, effective October 1, 2023[31] Table: Q1 2024 Acquisition Purchase Price Allocation | Allocation of purchase price (in thousands) | | :------------------------------------ | | Current assets: $3,358 | | Evaluated oil and natural gas properties: $45,778 | | Unproved and unevaluated oil and natural gas properties: $107,072 | | Asset retirement obligations: $(1,154) | | Net assets acquired: $155,054 | - The pro forma impact of this acquisition on revenues and net income for 2024 and 2023 is not considered material[34] Advance Acquisition This section details the 2023 Advance Acquisition, including its purchase price allocation - The Advance Acquisition, completed in 2023, included an initial acquisition of properties and midstream assets for $1.60 billion cash and potential contingent consideration, and a subsequent royalty interest acquisition for $81.0 million[35][36] Table: Advance Acquisition Purchase Price Allocation | Final Allocation of Purchase Price (in thousands) | | :------------------------------------ | | Cash consideration: $1,676,132 | | Working capital adjustments: $(4,060) | | Fair value of Contingent Consideration: $21,151 | | Total consideration given: $1,693,223 | | Current assets: $79,287 | | Evaluated oil and natural gas properties: $1,418,668 | | Unproved and unevaluated oil and natural gas properties: $213,835 | | Midstream assets: $63,644 | | Current liabilities: $(73,885) | | Asset retirement obligations: $(8,326) | | Net assets acquired: $1,693,223 | NOTE 4 — ASSET RETIREMENT OBLIGATIONS This note provides information on asset retirement obligations and changes during the period Table: Asset Retirement Obligations Rollforward | Metric (in thousands) | Nine Months Ended Sep 30, 2024 | | :------------------------------------ | :----------------------------- | | Beginning asset retirement obligations | $92,090 | | Liabilities incurred during period | $5,511 | | Liabilities settled during period | $(725) | | Revisions in estimated cash flows | $16,351 | | Acquisitions during period | $7,487 | | Divestitures during period | $(334) | | Accretion expense | $4,259 | | Ending asset retirement obligations | $124,639 | | Long-term asset retirement obligations | $119,392 | - Asset retirement obligations increased from $92.1 million at the beginning of 2024 to $124.6 million by September 30, 2024, primarily due to revisions in estimated cash flows and acquisitions[41] NOTE 5 — DEBT This note details the Company's credit agreements, senior unsecured notes, and debt maturity schedules Credit Agreements This section outlines the terms and status of the Company's revolving credit facility and term loan - The Credit Agreement's borrowing base was reaffirmed at $2.50 billion in March 2024, with elected borrowing commitments increased to $2.25 billion and maturity extended to March 22, 2029[43] - In September 2024, the Credit Agreement was amended to include a $250.0 million term loan to fund the Ameredev Acquisition, which was subsequently repaid using proceeds from the 2033 Notes[43] - San Mateo's Credit Facility is non-recourse to Matador, with $526.0 million outstanding at September 30, 2024, and lender commitments of $535.0 million, maturing December 9, 2026[43] Senior Unsecured Notes This section details the Company's outstanding senior unsecured notes, including issuances and repurchases - In April 2024, the Company repurchased $556.3 million of 2026 Notes via a tender offer and redeemed the remaining $142.9 million, incurring a $3.0 million loss[44] - The Company issued $900.0 million of 6.50% senior unsecured notes due 2032 in April 2024 and $750.0 million of 6.25% senior unsecured notes due 2033 in September 2024[45][47] Table: Senior Unsecured Notes Outstanding | Senior Unsecured Notes (in thousands) | Outstanding at Sep 30, 2024 | | :------------------------------------ | :-------------------------- | | 2028 Notes (6.875% coupon) | $500,000 | | 2032 Notes (6.50% coupon) | $900,000 | | 2033 Notes (6.25% coupon) | $750,000 | | Total Senior Unsecured Notes | $2,150,000 | Debt Maturities This section provides a schedule of the Company's debt maturity obligations - San Mateo Credit Facility matures December 9, 2026 ($526.0 million outstanding)[49] - Credit Agreement matures March 22, 2029 ($955.0 million outstanding)[49] - Senior unsecured notes mature in 2028 ($500.0 million), 2032 ($900.0 million), and 2033 ($750.0 million)[49] NOTE 6 — INCOME TAXES This note provides details on the Company's income tax provision and effective tax rates Table: Income Tax Provision | Income Tax Provision (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :---------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Current | $(21,096) | $8,958 | $26,280 | $8,958 | | Deferred | $106,417 | $5,631 | $203,805 | $119,609 | | Total income tax provision | $85,321 | $14,589 | $230,085 | $128,567 | - The effective income tax rate for both the three and nine months ended September 30, 2024, was 26%, primarily due to permanent differences and state taxes[50] - The effective tax rate for the three and nine months ended September 30, 2023, was 5% and 18% respectively, significantly impacted by $65.1 million in research and experimental expenditure tax credits recognized in Q3 2023[50] NOTE 7 — EQUITY This note details changes in the Company's equity, including offerings, stock-based compensation, and dividends Equity Offering This section details the Company's public offering of common shares and use of proceeds - In March 2024, the Company completed a public offering of 5,250,000 common shares, generating net proceeds of approximately $342.1 million for general corporate purposes, including acquisitions and debt repayment[51] Stock-based Compensation This section describes the types and fair value of stock-based compensation granted - During the nine months ended September 30, 2024, the Company granted 140,200 cash-settled restricted stock units, 176,000 performance-based stock units, and 119,950 service-based restricted stock shares, with a fair value of approximately $26.4 million[52] Common Stock Dividend This section details the Company's common stock dividend policy and declared payments - The Board declared quarterly cash dividends of $0.20 per share for Q1, Q2, and Q3 2024, totaling $73.7 million[53] - Effective October 16, 2024, the quarterly dividend policy was amended to increase the dividend to $0.25 per share for future payments[53] San Mateo Distributions and Contributions This section outlines distributions and contributions related to the San Mateo Midstream joint venture Table: San Mateo Distributions and Contributions | Metric (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | San Mateo distributions to Company | $23,700 | $17,300 | $75,900 | $63,600 | | San Mateo distributions to Five Point | $22,800 | $16,700 | $73,000 | $61,100 | | Company contributions to San Mateo | $0 | $0 | $19,900 | $25,500 | | Five Point contributions to San Mateo | $0 | $0 | $19,100 | $24,500 | Performance Incentives This section describes performance incentives received from Five Point related to San Mateo Table: Performance Incentives from Five Point | Performance Incentives (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Five Point paid to Company | $12,300 | $9,000 | $22,500 | $23,700 | - These incentives are recorded when received, net of deferred tax impact, in 'Additional paid-in capital' and as 'Contributions related to formation of San Mateo' in cash flows[56] NOTE 8 — DERIVATIVE FINANCIAL INSTRUMENTS This note details the Company's use of derivative instruments to manage commodity price risk - At September 30, 2024, the Company had open costless collar contracts for oil price volatility and natural gas basis differential swap contracts for natural gas price volatility[57] Table: Open Derivative Contracts Fair Value | Derivative Instrument | Calculation Period | Notional Quantity | Weighted Average Price Floor/Fixed Price | Weighted Average Price Ceiling | Fair Value of Asset (Liability) at Sep 30, 2024 (in thousands) | | :------------------------------------ | :----------------- | :---------------- | :--------------------------------------- | :----------------------------- | :------------------------------------------------------------- | | Oil Costless Collar | 10/01/2024 - 6/30/2025 | 12,285,000 Bbl | $60.00/Bbl | $86.26/Bbl | $20,898 | | Natural Gas Basis Differential Swap | 10/01/2024 - 12/31/2025 | 13,710,000 MMBtu | $(0.59)/MMBtu | N/A | $7,135 | | Total open contracts | | | | | $28,033 | Table: Derivative Gain (Loss) Summary | Derivative Gain (Loss) (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Realized gain (loss) on derivatives | $4,528 | $(6,975) | $8,573 | $(6,454) | | Unrealized gain (loss) on derivatives | $35,118 | $7,482 | $25,364 | $(8,244) | | Total | $39,646 | $507 | $33,937 | $(14,698) | NOTE 9 — FAIR VALUE MEASUREMENTS This note explains the Company's fair value measurement hierarchy for financial assets and liabilities - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[63][66] Table: Financial Assets/Liabilities at Fair Value (Level 2) | Financial Assets/Liabilities at Fair Value (in thousands) | Level 1 | Level 2 | Level 3 | Total | | :---------------------------------------- | :------ | :------ | :------ | :------ | | Oil costless collars | $0 | $20,898 | $0 | $20,898 | | Natural gas basis differential swaps | $0 | $7,135 | $0 | $7,135 | | Total | $0 | $28,033 | $0 | $28,033 | - The fair values of Credit Agreement and San Mateo Credit Facility borrowings approximate their carrying values (Level 2), while senior unsecured notes are valued based on quoted market prices (Level 1)[68] NOTE 10 — COMMITMENTS AND CONTINGENCIES This note outlines the Company's contractual commitments and potential contingent liabilities Processing, Transportation and Produced Water Disposal Commitments This section details firm commitments for midstream services with third parties - The Company has firm commitments with third parties for transportation, gathering, processing, and disposal of oil, natural gas, and produced water[70] - Payments under these agreements were $18.6 million (Q3 2024) and $50.2 million (9M 2024) If minimum volume commitments are not met, potential deficiency fees could be approximately $617.5 million[70] San Mateo Commitments This section outlines contractual obligations related to dedicated leasehold interests with San Mateo - The Company has dedicated leasehold interests to San Mateo for 15-year, fixed-fee operational agreements, with a remaining minimum contractual obligation of approximately $131.7 million at September 30, 2024[71] Legal Proceedings This section updates on ongoing legal proceedings and management's assessment of their impact - Management believes it is remote that current legal proceedings will have a material adverse impact on the Company's financial condition, results of operations, or cash flows[71] NOTE 11 — SUPPLEMENTAL DISCLOSURES This note provides additional financial details, including accrued liabilities and cash flow information Accrued Liabilities This section details the composition and changes in the Company's accrued liabilities Table: Accrued Liabilities Details | Accrued Liabilities (in thousands) | September 30, 2024 | December 31, 2023 | | :--------------------------------- | :----------------- | :---------------- | | Accrued evaluated and unproved and unevaluated property costs | $191,173 | $144,443 | | Accrued midstream properties costs | $21,422 | $55,195 | | Accrued lease operating expenses | $86,564 | $62,005 | | Accrued interest on debt | $50,585 | $22,857 | | Total accrued liabilities | $474,238 | $365,848 | - Total accrued liabilities increased by $108.4 million (29.6%) from December 31, 2023, to September 30, 2024, primarily due to higher property costs, lease operating expenses, and interest on debt[74] Supplemental Cash Flow Information This section provides additional details on non-cash investing, financing, and cash paid for taxes and interest Table: Supplemental Cash Flow Information | Supplemental Cash Flow (in thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Cash paid for income taxes | $34,283 | $1,677 | | Cash paid for interest expense, net of amounts capitalized | $84,406 | $77,396 | | Increase in liabilities for drilling, completion and equipping capital expenditures | $65,925 | $63,299 | | (Decrease) increase in liabilities for midstream properties capital expenditures | $(33,773) | $11,556 | - Cash paid for income taxes significantly increased from $1.7 million in 2023 to $34.3 million in 2024 for the nine-month period[76] NOTE 12 — SEGMENT INFORMATION This note provides financial information disaggregated by the Company's operating segments - The Company operates in two segments: exploration and production (oil and natural gas resources) and midstream (natural gas processing, oil transportation, water gathering/disposal)[78] Table: Segment Financials | Segment Financials (Three Months Ended Sep 30, 2024, in thousands) | Exploration and Production | Midstream | Corporate | Consolidations and Eliminations | Consolidated Company | | :------------------------------------------------- | :------------------------- | :-------- | :-------- | :------------------------------ | :------------------- | | Oil and natural gas revenues | $765,181 | $4,974 | $0 | $0 | $770,155 | | Midstream services revenues | $0 | $120,056 | $0 | $(81,740) | $38,316 | | Operating income | $346,109 | $71,357 | $(25,410) | $0 | $392,056 | | Total assets | $8,899,141 | $1,653,821 | $70,329 | $0 | $10,623,291 | | Capital expenditures | $1,915,453 | $295,650 | $3,186 | $0 | $2,214,289 | Table: Segment Financials | Segment Financials (Nine Months Ended Sep 30, 2024, in thousands) | Exploration and Production | Midstream | Corporate | Consolidations and Eliminations | Consolidated Company | | :------------------------------------------------ | :------------------------- | :-------- | :-------- | :------------------------------ | :------------------- | | Oil and natural gas revenues | $2,238,873 | $11,679 | $0 | $(578) | $2,249,974 | | Midstream services revenues | $0 | $324,248 | $0 | $(220,924) | $103,324 | | Operating income | $970,833 | $180,010 | $(76,214) | $0 | $1,074,629 | | Total assets | $8,899,141 | $1,653,821 | $70,329 | $0 | $10,623,291 | | Capital expenditures | $2,939,236 | $433,587 | $3,957 | $0 | $3,376,780 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the three and nine months ended September 30, 2024, compared to the prior year. It covers key financial highlights, operational updates, capital expenditure plans, liquidity, debt management, and an outlook on market trends and risks Overview This section summarizes Matador's business, operational focus, and midstream activities - Matador is an independent energy company focused on oil and natural gas in the Delaware Basin, with additional operations in the Eagle Ford and Haynesville/Cotton Valley plays[91] - The Company also conducts midstream operations through San Mateo and Pronto, supporting its E&P activities and providing services to third parties[91] Third Quarter Highlights This section summarizes key operational and financial achievements for the third quarter Table: Key Operational and Financial Metrics | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total oil equivalent production (MBOE) | 15,800 | 12,400 | 44,000 | 33,900 | | Average daily oil equivalent production (BOE/d) | 171,480 | 135,096 | 160,555 | 124,248 | | Average daily oil production (Bbl/d) | 100,315 | 77,529 | N/A | N/A | | Average daily natural gas production (MMcf/d) | 427.0 | 345.4 | N/A | N/A | | Net income attributable to Matador shareholders (in thousands) | $248,300 | $263,700 | $670,800 | $591,500 | | Diluted EPS | $1.99 | $2.20 | $5.44 | $4.93 | | Adjusted EBITDA (in thousands) | $574,500 | $508,300 | $1,660,000 | $1,300,000 | - Q3 2024 average daily oil production increased 29% YoY, and natural gas production increased 24% YoY[92] - The Ameredev Acquisition was completed on September 18, 2024, for approximately $1.831 billion, funded by cash and Credit Agreement borrowings, with an expected $110.0-$120.0 million from the sale of Piñon Midstream[92] Operations Update This section updates on drilling activities, production performance, and midstream expansion projects - Matador operated nine drilling rigs post-Ameredev Acquisition, covering approximately 196,200 net acres, with flexibility to adjust rig count based on commodity prices[94] - Delaware Basin average daily oil equivalent production in Q3 2024 was 167,000 BOE/d, a 28% increase YoY, contributing 99% of oil and 95% of natural gas production[94] - Pronto Midstream is expanding its Marlan Processing Plant with an additional 200 MMcf/d capacity plant, including a nitrogen rejection unit[94] 2024 Capital Expenditure Budget This section outlines planned capital expenditures for drilling, completion, equipping, and midstream - Estimated D/C/E capital expenditures for 2024 increased to $1.15-$1.35 billion, including Ameredev acreage[95] - Estimated midstream capital expenditures for 2024 remain $200.0-$250.0 million, including San Mateo's share and Pronto's Marlan Processing Plant expansion[95] Capital Resources Update This section details recent changes in capital structure, including dividends, credit facilities, and debt/equity - The Board increased the quarterly cash dividend to $0.25 per share, payable December 6, 2024[96] - The Credit Agreement's borrowing base was reaffirmed at $2.50 billion, elected commitments increased to $2.25 billion, and maturity extended to March 22, 2029[96][97] - The Company completed a $342.1 million equity offering, repurchased $699.2 million of 2026 Notes, and issued $900.0 million of 2032 Notes and $750.0 million of 2033 Notes to fund acquisitions and repay debt[96][97] Critical Accounting Policies This section confirms consistency of critical accounting policies and estimates - There have been no changes to the Company's critical accounting policies and estimates since the Annual Report on Form 10-K for the year ended December 31, 2023[98] Recent Accounting Pronouncements This section refers to detailed discussion of recent accounting pronouncements in the financial statements - Refer to Note 2 of the interim unaudited condensed consolidated financial statements for a description of recent accounting pronouncements[99] Results of Operations This section analyzes financial performance, focusing on revenue and expense trends Revenues This section analyzes revenue performance, influenced by commodity prices and production volumes Table: Total Revenues by Type | Revenue Type (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Oil and natural gas revenues | $770,155 | $701,527 | $2,249,974 | $1,792,353 | | Third-party midstream services revenues | $38,316 | $29,931 | $103,324 | $86,517 | | Sales of purchased natural gas | $51,666 | $40,329 | $147,377 | $106,481 | | Realized gain (loss) on derivatives | $4,528 | $(6,975) | $8,573 | $(6,454) | | Unrealized gain (loss) on derivatives | $35,118 | $7,482 | $25,364 | $(8,244) | | Total revenues | $899,783 | $772,294 | $2,534,612 | $1,970,653 | - Oil revenues increased by 19% (QoQ) and 33% (YoY) due to higher production, despite an 8% decrease in realized oil prices (QoQ)[100][102] - Natural gas revenues decreased by 37% (QoQ) and 15% (YoY) due to a 49% (QoQ) and 33% (YoY) decrease in realized natural gas prices, partially offset by increased production[100][102] - Third-party midstream services revenues increased by 28% (QoQ) and 19% (YoY), driven by higher produced water disposal and natural gas gathering/processing revenues[102] Expenses This section analyzes operating and non-operating expenses, highlighting key drivers and changes Table: Key Expenses | Expense Type (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Production taxes, transportation and processing | $72,737 | $71,697 | $219,702 | $189,174 | | Lease operating | $86,808 | $66,395 | $242,133 | $171,845 | | Plant and other midstream services operating | $43,695 | $30,808 | $120,576 | $92,510 | | Depletion, depreciation and amortization | $242,821 | $192,794 | $681,066 | $496,633 | | General and administrative | $28,787 | $31,731 | $86,353 | $80,879 | | Interest expense | $(36,169) | $(35,408) | $(111,717) | $(85,813) | | Total income tax provision | $85,321 | $14,589 | $230,085 | $128,567 | - Lease operating expenses increased by 31% (QoQ) and 41% (YoY) due to more operated wells and operating cost inflation[107][108] - Depletion, depreciation, and amortization expenses increased by 26% (QoQ) and 37% (YoY), primarily due to increased production and the Advance Acquisition[107][109] - Interest expense increased due to higher average debt outstanding, including new senior notes, and costs associated with debt refinancing[107][111] Liquidity and Capital Resources This section discusses cash flow generation, investment activities, financing, and financial flexibility Net Cash Provided by Operating Activities This section analyzes cash generated from core business operations - Net cash provided by operating activities increased by $422.4 million to $1.67 billion for the nine months ended September 30, 2024, primarily due to higher oil and natural gas production and realized oil prices[117] Net Cash Used in Investing Activities This section analyzes cash deployed in acquisitions and capital expenditures - Net cash used in investing activities increased by $618.4 million (23.2%) to $3.28 billion, driven by the Ameredev Acquisition ($1.83 billion) and increased capital expenditures for oil and natural gas properties and midstream assets[117] Net Cash Provided by Financing Activities This section analyzes cash flows from debt and equity transactions - Net cash provided by financing activities increased by $651.8 million (70.3%) to $1.58 billion, primarily from proceeds of the 2032 Notes ($900.0 million), 2033 Notes ($750.0 million), and 2024 Equity Offering ($344.7 million)[120] - These inflows were partially offset by the repurchase of 2026 Notes ($699.2 million), dividends paid ($73.6 million), and debt issuance/amendment costs[120] Non-GAAP Financial Measures This section provides reconciliation and discussion of non-GAAP financial measures - Adjusted EBITDA, a non-GAAP measure, is used by management and external users to evaluate operating performance by excluding non-cash items and financing methods[120] Table: Adjusted EBITDA Attributable to Matador Resources Company Shareholders | Metric (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Adjusted EBITDA attributable to Matador Resources Company shareholders | $574,484 | $508,275 | $1,657,927 | $1,296,750 | - Adjusted EBITDA increased by $66.2 million (13.0%) QoQ and $361.2 million (27.9%) YoY, primarily due to higher oil and natural gas production and realized oil prices[126] Off-Balance Sheet Arrangements This section describes material off-balance sheet commitments and their potential financial impact - The Company's material off-balance sheet arrangements include non-operated drilling commitments, firm gathering/transportation/processing/disposal commitments, and contractual obligations sensitive to commodity prices or interest rates[127] Obligations and Commitments This section details contractual cash obligations and commitments over various maturity periods Table: Contractual Cash Obligations | Contractual Obligations (in thousands) | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | | :------------------------------------- | :---- | :--------------- | :---------- | :---------- | :---------------- | | Borrowings, including letters of credit | $1,542,908 | $0 | $535,000 | $1,007,908 | $0 | | Senior unsecured notes | $2,150,000 | $0 | $0 | $500,000 | $1,650,000 | | Office leases | $6,964 | $4,409 | $2,555 | $0 | $0 | | Non-operated drilling commitments | $50,507 | $50,507 | $0 | $0 | $0 | | Drilling rig contracts | $22,967 | $22,967 | $0 | $0 | $0 | | Asset retirement obligations | $124,639 | $5,247 | $6,351 | $2,063 | $110,978 | | Transportation, gathering, processing and disposal agreements with non-affiliates | $617,478 | $112,243 | $202,501 | $146,051 | $156,683 | | Transportation, gathering, processing and disposal agreements with San Mateo | $131,747 | $17,939 | $113,808 | $0 | $0 | | Midstream contracts | $107,785 | $107,785 | $0 | $0 | $0 | | Total contractual cash obligations | $4,754,995 | $321,097 | $860,215 | $1,656,022 | $1,917,661 | - Total contractual cash obligations amount to approximately $4.75 billion, with significant portions related to senior unsecured notes and borrowings maturing beyond three years[128] - The Company has substantial commitments for transportation, gathering, processing, and disposal, both with non-affiliates and San Mateo, totaling over $749 million[128][129] General Outlook and Trends This section discusses economic, political, and market factors influencing the Company's business - Business success is highly dependent on economic, political, and regulatory developments, as well as commodity price volatility, which significantly influences revenues, profitability, and capital access[130] - Oil prices were lower in Q3 2024 ($75.27/Bbl WTI average) compared to Q3 2023 ($82.22/Bbl), and natural gas prices were also lower ($2.23/MMBtu Henry Hub average in Q3 2024 vs. $2.66/MMBtu in Q3 2023)[130][131] - The Company uses derivative financial instruments to mitigate commodity price risk, with natural gas basis differential swap contracts in place for anticipated production through 2025[131] - The Company faces risks from inflation in oilfield services costs, supply chain disruptions, and evolving environmental regulations (e.g., SEC climate rules, EPA methane rules, BLM waste prevention rule)[132] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's exposure to market risks, primarily commodity price volatility, and its strategies for mitigation through derivative financial instruments - The Company is exposed to market risk from fluctuating oil, natural gas, and NGL prices and uses derivative financial instruments (costless collars, three-way collars, swap contracts) to partially reduce this price risk[133][134] - Derivative instruments are recorded at fair value, determined using purchase and sale information for similarly traded securities, with counterparty credit standing considered[134] - At September 30, 2024, the Company had open costless collar contracts for oil price volatility and natural gas basis differential swap contracts[134] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2024[135] - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2024[136] PART II — OTHER INFORMATION Item 1. Legal Proceedings This section states the Company is involved in ordinary legal proceedings, with no material adverse impact expected - The Company is a party to several legal proceedings in the ordinary course of business[138] - Management believes it is remote that these legal proceedings will have a material adverse impact on the Company's financial condition, results of operations, or cash flows[138] Item 1A. Risk Factors This section refers to the comprehensive discussion of risks and uncertainties in the Annual Report - For a discussion of risks and uncertainties, refer to 'Item 1A. Risk Factors' in the Annual Report[139] Item 2. Repurchase of Equity by the Company or Affiliates This section details common stock re-acquisition from employees to cover tax liabilities from restricted stock vesting - During the quarter ended September 30, 2024, the Company re-acquired 631 shares of common stock from employees at an average price of $55.55 per share[141] - These re-acquisitions were made to satisfy employees' tax liabilities in connection with the vesting of restricted stock, not under a public repurchase plan[140][141] Item 5. Other Information This section confirms no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers - No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2024[142] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including agreements, certificates, indentures, and certifications - The exhibits include Securities Purchase Agreements, Amended and Restated Certificate of Formation, Bylaws, Indentures for senior unsecured notes, and certifications (302 and 906)[144] - Financial information is also provided in Inline XBRL format as Exhibit 101[144] SIGNATURES This section contains the required signatures for the financial report