Matador Resources(MTDR) - 2021 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and related notes for Matador Resources Company Item 1. Financial Statements — Unaudited This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed notes on accounting policies, debt, and segment information Condensed Consolidated Balance Sheets This table provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------ | :---------------- | | Total current assets | $333,628 | $261,629 | | Net property and equipment | $3,462,030 | $3,367,769 | | Total assets | $3,834,549 | $3,687,280 | | Total current liabilities | $422,580 | $290,936 | | Total long-term liabilities | $1,709,843 | $1,883,319 | | Total shareholders' equity | $1,702,126 | $1,513,025 | | Total liabilities and shareholders' equity | $3,834,549 | $3,687,280 | - Total assets increased by $147.27 million (4.0%) from December 31, 2020, to June 30, 2021, primarily driven by an increase in net property and equipment[9] - Total current liabilities increased significantly by $131.64 million (45.2%) from December 31, 2020, to June 30, 2021, largely due to an increase in derivative instruments liabilities[9] Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss over specific reporting periods Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $357,427 | $62,920 | $624,272 | $434,505 | | Total expenses | $212,321 | $498,230 | $386,503 | $676,283 | | Operating income (loss) | $145,106 | $(435,310) | $237,769 | $(241,778) | | Net income (loss) attributable to Matador Resources Company shareholders | $105,905 | $(353,416) | $166,550 | $(227,687) | | Basic earnings (loss) per common share | $0.91 | $(3.04) | $1.43 | $(1.96) | | Diluted earnings (loss) per common share | $0.89 | $(3.04) | $1.40 | $(1.96) | - The Company reported a significant turnaround from a net loss in Q2 2020 to net income in Q2 2021, with total revenues increasing by 468% and operating income shifting from a substantial loss to a profit[10] - For the six months ended June 30, 2021, total revenues increased by 43.7% and net income attributable to shareholders improved from a loss of $227.7 million in 2020 to a profit of $166.6 million in 2021[10] Condensed Consolidated Statements of Changes in Shareholders' Equity This statement outlines the changes in the company's equity accounts, including net income, dividends, and other comprehensive income Changes in Shareholders' Equity (in thousands) | Metric | Balance at Jan 1, 2021 | Balance at June 30, 2021 | Balance at Jan 1, 2020 | Balance at June 30, 2020 | | :------------------------------------------------- | :--------------------- | :----------------------- | :--------------------- | :----------------------- | | Total Matador Resources Company shareholders' equity | $1,286,530 | $1,479,762 | $1,833,654 | $1,643,832 | | Non-controlling interest in subsidiaries | $226,495 | $222,364 | $135,798 | $174,669 | | Total shareholders' equity | $1,513,025 | $1,702,126 | $1,969,452 | $1,818,501 | - Total shareholders' equity increased by $189.1 million from January 1, 2021, to June 30, 2021, primarily due to current period net income[13] - Matador Resources Company shareholders' equity increased by $193.2 million in the first six months of 2021, driven by net income and contributions related to San Mateo[13] Condensed Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $427,595 | $210,385 | | Net cash used in investing activities | $(251,122) | $(458,761) | | Net cash (used in) provided by financing activities | $(188,648) | $226,756 | | Decrease in cash and restricted cash | $(12,175) | $(21,620) | | Cash and restricted cash at end of period | $79,208 | $43,508 | - Net cash provided by operating activities more than doubled to $427.6 million in the first six months of 2021 compared to $210.4 million in the same period of 2020[17] - Net cash used in investing activities decreased by $207.6 million, reflecting reduced capital expenditures for drilling, acquisitions, and midstream properties[17] - Financing activities shifted from providing $226.8 million in cash in 2020 to using $188.6 million in 2021, primarily due to net debt repayments and dividend payments[17] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures regarding the accounting policies, estimates, and specific financial statement line items NOTE 1 — NATURE OF OPERATIONS This note describes Matador Resources Company's primary business activities in oil and natural gas exploration, production, and midstream services - 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)[19] - The Company also operates in the Eagle Ford shale (South Texas) and Haynesville shale/Cotton Valley plays (Northwest Louisiana)[19] - Midstream operations are conducted through San Mateo Midstream, LLC, providing natural gas processing, oil transportation, and water gathering/disposal services to both company operations and third parties[19] NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and estimation methods used in preparing the interim financial statements - Interim financial statements are unaudited and prepared in accordance with SEC rules, consolidating certain less-than-wholly-owned subsidiaries and joint ventures[20] - Key estimates include oil and natural gas revenues, accrued assets/liabilities, stock-based compensation, derivative valuations, deferred taxes, and oil/natural gas reserves[21] Revenues from Contracts with Customers (in thousands) | Revenue Type | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Oil revenues | $315,114 | $94,174 | $528,393 | $263,759 | | Natural gas revenues | $96,960 | $24,593 | $199,914 | $52,922 | | Third-party midstream services revenues | $19,850 | $14,668 | $35,288 | $30,498 | | Sales of purchased natural gas | $10,918 | $13,981 | $15,428 | $24,525 | | Total revenues from contracts with customers | $442,842 | $147,416 | $779,023 | $371,704 | - The Company uses the full-cost method for oil and natural gas properties, performing a quarterly ceiling test. No impairment was necessary for Q2 2021, but a $324.0 million impairment was recorded in Q2 2020[25] NOTE 3 — ASSET RETIREMENT OBLIGATIONS This note details the changes in the company's obligations related to the future dismantling and restoration of its oil and gas properties Changes in Asset Retirement Obligations (in thousands) | Metric | Amount | | :----------------------------- | :----- | | Beginning asset retirement obligations | $38,542 | | Liabilities incurred during period | $635 | | Liabilities settled during period | $(240) | | Accretion expense | $1,011 | | Ending asset retirement obligations | $39,948 | - Asset retirement obligations increased from $38.5 million at the beginning of 2021 to $39.9 million by June 30, 2021, primarily due to accretion expense and newly incurred liabilities[32] NOTE 4 — DEBT This note provides information on the company's outstanding debt, including senior notes and credit facilities, and recent amendments - At June 30, 2021, Matador had $1.05 billion in senior notes, $240.0 million outstanding under its Credit Agreement, and $7.5 million under an SBA loan[33] - San Mateo had $352.5 million outstanding under its credit facility, which was amended in June 2021 to increase lender commitments from $375.0 million to $450.0 million[34][38] - The borrowing base under Matador's Credit Agreement was reaffirmed at $900.0 million in April 2021, with the Company electing to keep the borrowing commitment at $700.0 million[36] NOTE 5 — INCOME TAXES This note details the company's income tax provision, effective tax rates, and factors influencing tax liabilities - The Company recorded an income tax provision of $5.3 million for Q2 2021 and $8.2 million for the six months ended June 30, 2021, with an effective tax rate of 5% in both periods[41] - The low effective tax rate is due to recording a net deferred tax liability for state taxes (primarily New Mexico) and a valuation allowance against U.S. federal net deferred tax assets, recognized after 2020 full-cost ceiling impairments[41] - In contrast, Q2 2020 saw an income tax benefit of $109.8 million and an effective tax rate of 24%, influenced by permanent differences and state taxes[42] NOTE 6 — EQUITY This note provides details on shareholder equity, including dividends declared and distributions from non-controlling interests - Matador's Board declared a quarterly cash dividend of $0.025 per share for Q1 and Q2 2021, totaling $2.9 million each quarter, and declared another for Q3 2021[43] San Mateo Distributions (in thousands) | Period | To Matador | To Five Point | | :------------------------------- | :--------- | :------------ | | Three Months Ended June 30, 2021 | $15,300 | $14,700 | | Three Months Ended June 30, 2020 | $11,000 | $10,500 | | Six Months Ended June 30, 2021 | $30,100 | $28,900 | | Six Months Ended June 30, 2020 | $23,000 | $22,100 | - Five Point paid Matador $16.3 million in performance incentives in Q2 2021 and $31.6 million for the six months ended June 30, 2021, recorded in 'Additional paid-in capital'[46] NOTE 7 — DERIVATIVE FINANCIAL INSTRUMENTS This note describes the company's use of derivative instruments to manage commodity price risk and their fair value - At June 30, 2021, Matador held various costless collar and swap contracts for oil and natural gas to mitigate price volatility, expiring at varying times in 2021 and 2022[47] Summary of Open Costless Collar Contracts at June 30, 2021 (in thousands) | Commodity | Calculation Period | Notional Quantity | Weighted Average Price Floor | Weighted Average Price Ceiling | Fair Value of Asset (Liability) | | :---------- | :----------------- | :---------------- | :--------------------------- | :----------------------------- | :------------------------------ | | Oil | 07/01/2021 - 12/31/2021 | 4,740,000 Bbl | $42.06 | $55.15 | $(80,256) | | Natural Gas | 07/01/2021 - 12/31/2021 | 21,200,000 MMBtu | $2.45 | $3.68 | $(5,148) | | Oil | 01/01/2022 - 12/31/2022 | 2,040,000 Bbl | $50.00 | $67.85 | $(7,766) | | Natural Gas | 01/01/2022 - 03/31/2022 | 3,000,000 MMBtu | $2.60 | $4.22 | $(952) | | Total | | | | | $(94,122) | - The aggregate liability value for open derivative financial instruments was $122.1 million at June 30, 2021, reflecting a significant unrealized loss[52] NOTE 8 — FAIR VALUE MEASUREMENTS This note explains the methodologies and categorization of fair value measurements for financial assets and liabilities - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[60] Fair Value Measurements at June 30, 2021 (in thousands) | Description | Level 1 | Level 2 | Level 3 | Total | | :-------------------------- | :------ | :------ | :------ | :------ | | Oil derivatives and basis swaps | $— | $(116,016) | $— | $(116,016) | | Natural gas derivatives | $— | $(6,100) | $— | $(6,100) | | Total | $— | $(122,116) | $— | $(122,116) | - The fair value of the Notes was $1.08 billion at June 30, 2021, based on Level 1 quoted market prices, while Credit Agreement and San Mateo Credit Facility carrying values approximated fair value (Level 2)[65][67] NOTE 9 — COMMITMENTS AND CONTINGENCIES This note discloses the company's contractual obligations, potential deficiency fees, and ongoing legal proceedings - The Company has firm commitments for processing, transportation, and produced water disposal, with potential deficiency fees of approximately $601.8 million if minimum volumes are not met[68] - A 10-year fixed-fee natural gas transportation agreement, anticipated to begin in Q4 2021, has a minimum contractual obligation of approximately $30.7 million[69] - San Mateo has 15-year fixed-fee Operational Agreements with Matador, with a remaining minimum contractual obligation of approximately $430.0 million at June 30, 2021[70] - Management believes that current legal proceedings will not have a material adverse impact on the Company's financial condition, results of operations, or cash flows[71] NOTE 10 — SUPPLEMENTAL DISCLOSURES This note provides additional details on accrued liabilities and supplemental cash flow information Accrued Liabilities (in thousands) | Accrued Liability Type | June 30, 2021 | December 31, 2020 | | :--------------------------------------- | :------------ | :---------------- | | Accrued evaluated and unproved property costs | $61,813 | $44,012 | | Accrued midstream properties costs | $4,957 | $12,776 | | Accrued lease operating expenses | $30,833 | $24,276 | | Accrued interest on debt | $18,385 | $18,315 | | Total accrued liabilities | $151,051 | $119,158 | - Total accrued liabilities increased by $31.9 million (26.8%) from December 31, 2020, to June 30, 2021, primarily due to higher accrued property costs and other liabilities[74] Supplemental Cash Flow Information (in thousands) | Item | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------------- | :----------------------------- | :----------------------------- | | Cash paid for interest expense, net of capitalized amounts | $37,517 | $38,387 | | Increase in liabilities for drilling, completion and equipping capital expenditures | $16,072 | $6,813 | | (Decrease) increase in liabilities for midstream properties capital expenditures | $(7,634) | $9,203 | NOTE 11 — SEGMENT INFORMATION This note presents financial data for the company's distinct operating segments: exploration and production, and midstream - 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] Segment Operating Income (in thousands) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Exploration and Production | $130,712 | $(441,723) | $222,040 | $(255,361) | | Midstream | $37,155 | $18,822 | $58,452 | $40,309 | | Corporate | $(22,761) | $(12,409) | $(42,723) | $(26,726) | | Consolidated Company | $145,106 | $(435,310) | $237,769 | $(241,778) | - The exploration and production segment saw a significant rebound, moving from a substantial operating loss in 2020 to strong operating income in 2021, while the midstream segment consistently generated positive operating income[79][81][83][84] 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 performance, liquidity, and capital resources, highlighting operational updates and market trends Cautionary Note Regarding Forward-Looking Statements This note advises readers that the report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially - The report contains forward-looking statements, identifiable by terms like 'anticipate,' 'believe,' 'expect,' and 'plan,' which are subject to risks and uncertainties[89] - Factors that could cause actual results to differ materially include general economic conditions, commodity price changes, drilling program success, regulatory approvals, capital availability, and the impact of COVID-19[90] - Readers are cautioned not to place undue reliance on forward-looking statements, as actual results may differ, and the Company undertakes no obligation to update them[94] Overview This section provides a general description of Matador Resources Company's business, focusing on its core oil and natural gas exploration 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.[95] - Current operations are primarily in the oil and liquids-rich Wolfcamp and Bone Spring plays in the Delaware Basin (Southeast New Mexico and West Texas)[95] - The Company also conducts midstream operations through San Mateo, supporting its E&P activities and providing services to third parties[95] Second Quarter Highlights This section summarizes key operational and financial achievements for the second quarter, including production volumes and profitability metrics Second Quarter Production and Financial Highlights | Metric | Q2 2021 | Q2 2020 | YoY Change | | :------------------------------------------------- | :------ | :------ | :--------- | | Total oil equivalent production (BOE) | 8.5 MM | 6.7 MM | +27% | | Average daily oil equivalent production (BOE/d) | 93,200 | 73,302 | +27% | | Average daily oil production (Bbl/d) | 53,400 | 43,100 | +24% | | Average daily natural gas production (MMcf/d) | 239.1 | 181.4 | +32% | | Net income attributable to Matador shareholders (GAAP) | $105.9 MM | $(353.4) MM | N/A | | Diluted EPS (GAAP) | $0.89 | $(3.04) | N/A | | Adjusted EBITDA attributable to Matador shareholders | $261.0 MM | $107.6 MM | +142% | - Matador achieved a significant financial turnaround in Q2 2021, reporting net income of $105.9 million compared to a net loss of $353.4 million in Q2 2020[97] - Adjusted EBITDA more than doubled year-over-year, reaching $261.0 million in Q2 2021, reflecting improved operational performance and commodity prices[97] Operations Update This section provides an update on drilling activities, wells turned to sales, and production increases in the Delaware Basin - Matador operated four drilling rigs in the Delaware Basin during Q2 2021, with two rigs drilling Voni wells in the Stateline asset area and two drilling in the Greater Stebbins Area[100] - A total of 24 gross (15.6 net) wells were turned to sales in the Delaware Basin during Q2 2021, including 15 gross (14.6 net) operated wells[101] - Delaware Basin production increased significantly, with average daily oil equivalent production rising 33% year-over-year to 87,500 BOE per day in Q2 2021[102] 2021 Capital Expenditure Budget This section details the company's capital expenditure plans for 2021, including drilling, completion, equipping, and midstream investments - The 2021 estimated D/C/E capital expenditures remained $525 million to $575 million, with plans to accelerate 11 Voni well completions into Q4 2021 without increasing the full-year budget[104] - Anticipated 2021 midstream capital expenditures were increased from $20 million-$30 million to $35 million-$45 million to accommodate new opportunities for San Mateo and accelerate infrastructure installation[105] - The increase in midstream capex is primarily for new opportunities in Eddy County, New Mexico, and to prepare for additional volumes from accelerated Voni completions[105] Capital Resources Update This section provides an update on the company's liquidity, debt repayments, and credit facility amendments - Matador declared quarterly cash dividends of $0.025 per share for Q1 and Q2 2021, with another declared for Q3 2021[106] - Net repayments of $100.0 million were made on the Credit Agreement in both Q1 and Q2 2021, reducing outstanding borrowings to $240.0 million at June 30, 2021[107] - San Mateo's credit facility was amended in June 2021, increasing lender commitments from $375.0 million to $450.0 million and raising the borrowing rate by 0.50%[109] Critical Accounting Policies This section confirms no changes to the company's critical accounting policies and estimates from the prior annual report - There have been no changes to the Company's critical accounting policies and estimates from those outlined in the Annual Report on Form 10-K for the year ended December 31, 2020[110] Recent Accounting Pronouncements This section states that no recent accounting pronouncements are expected to materially impact the company's financial statements - No recent accounting pronouncements are expected to have a material impact on the Company's financial statements[111] Results of Operations This section analyzes the company's financial performance, focusing on revenue drivers, expense trends, and profitability changes Revenues This section analyzes the company's revenue streams, including oil, natural gas, and midstream services, and the impact of commodity prices and derivatives Revenues and Production Data (in thousands, except per Bbl/Mcf) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total oil and natural gas revenues | $412,074 | $118,767 | $728,307 | $316,681 | | Third-party midstream services revenues | $19,850 | $14,668 | $35,288 | $30,498 | | Realized (loss) gain on derivatives | $(42,611) | $44,110 | $(68,524) | $54,977 | | Unrealized (loss) gain on derivatives | $(42,804) | $(132,668) | $(86,227) | $3,762 | | Total revenues | $357,427 | $62,920 | $624,272 | $434,505 | | Oil production (MBbl) | 4,855 | 3,920 | 8,594 | 7,617 | | Natural gas production (Bcf) | 21.8 | 16.5 | 39.3 | 33.2 | | Average oil price, without derivatives (per Bbl) | $64.90 | $24.03 | $61.49 | $34.63 | | Average natural gas price, without derivatives (per Mcf) | $4.46 | $1.49 | $5.09 | $1.60 | - Oil and natural gas revenues increased by 247% in Q2 2021 and 130% for the six months ended June 30, 2021, primarily due to higher commodity prices and increased production volumes[114][120] - Realized losses on derivatives were $42.6 million in Q2 2021 and $68.5 million for the six months, as oil prices exceeded ceiling/strike prices of hedging contracts[118][124] Expenses This section analyzes the company's operating expenses, including production taxes, lease operating, midstream, DDA, and general and administrative costs Operating Expenses (in thousands, except per BOE) | Expense Type | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Production taxes, transportation and processing | $43,843 | $18,797 | $78,017 | $40,513 | | Lease operating | $28,752 | $26,162 | $54,691 | $57,072 | | Plant and other midstream services operating | $13,746 | $9,780 | $27,409 | $19,744 | | Depletion, depreciation and amortization | $91,444 | $93,350 | $166,307 | $184,057 | | Full-cost ceiling impairment | $— | $324,001 | $— | $324,001 | | General and administrative | $24,397 | $14,723 | $46,585 | $30,945 | | Total expenses | $212,321 | $498,230 | $386,503 | $676,283 | | Operating income (loss) | $145,106 | $(435,310) | $237,769 | $(241,778) | - Total expenses decreased significantly in Q2 2021 and for the six months ended June 30, 2021, primarily due to the absence of the $324.0 million full-cost ceiling impairment recorded in 2020[127][133][141] - General and administrative expenses increased by 66% in Q2 2021 and 51% for the six months, largely due to higher stock-based compensation expense and reinstatement of employee compensation[134][142] - Lease operating expenses per BOE decreased by 14% in Q2 2021 and 17% for the six months, driven by increased production and efficiencies from pipeline connections for produced water[130][138] Liquidity and Capital Resources This section discusses the company's ability to generate and manage cash, fund operations, and meet financial obligations, including debt and capital expenditures - Matador expects to fund 2021 capital expenditures primarily through cash on hand, operating cash flows, and performance incentives from San Mateo[145] - At June 30, 2021, the Company had $44.6 million in cash and $34.6 million in restricted cash (associated with San Mateo)[146] - Net cash provided by operating activities increased by $217.2 million to $427.6 million for the six months ended June 30, 2021, driven by higher commodity prices and production[160] - Net cash used in investing activities decreased by $207.6 million to $251.1 million, reflecting reduced capital expenditures across midstream, D/C/E, and property acquisitions[162] - Financing activities shifted to a net use of $188.6 million, primarily due to $200.0 million in Credit Agreement repayments and dividend payments[163] Guarantor Financial Information This section provides summarized financial information for Matador and its guarantor subsidiaries, detailing their role in securing senior unsecured notes - Certain 100%-owned subsidiaries of Matador (Guarantor Subsidiaries) jointly and severally guarantee the Company's senior unsecured notes[165] - Matador is a parent holding company with no independent assets or operations, and there are no significant restrictions on obtaining funds from Guarantor Subsidiaries[165] - San Mateo and its subsidiaries are not guarantors of the Notes[165] Summarized Financial Information of Matador and Guarantor Subsidiaries (in thousands) | Metric | June 30, 2021 | | :---------------------- | :------------ | | Current assets | $283,398 | | Net property and equipment | $2,696,347 | | Other long-term assets | $51,775 | | Current liabilities | $429,891 | | Long-term debt | $1,281,789 | | Other long-term liabilities | $71,598 | Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures, such as Adjusted EBITDA, used by management to assess performance - Adjusted EBITDA is defined as earnings before interest, taxes, DDA, accretion, impairments, unrealized derivative gains/losses, non-cash items, and asset sales/impairment gains/losses[169] - Management uses Adjusted EBITDA to evaluate operating performance and compare results without regard to financing methods or capital structure[170] Adjusted EBITDA Reconciliation to Net Income (Loss) (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to Matador Resources Company shareholders | $105,905 | $(353,416) | $166,550 | $(227,687) | | Consolidated Adjusted EBITDA | $281,674 | $118,963 | $493,303 | $272,362 | | Adjusted EBITDA attributable to Matador Resources Company shareholders | $260,966 | $107,594 | $459,081 | $248,170 | - Adjusted EBITDA attributable to Matador shareholders increased by 142% in Q2 2021 and 85% for the six months, driven by higher oil and natural gas production and prices[175][176] Off-Balance Sheet Arrangements This section discloses material off-balance sheet arrangements, including drilling commitments and firm gathering/transportation agreements - Material off-balance sheet arrangements include non-operated drilling commitments, firm gathering/transportation/processing/disposal commitments, and contractual obligations with uncertain settlement amounts (e.g., derivative contracts)[177] - The Company has no other transactions or relationships with unconsolidated entities or persons likely to materially affect liquidity or capital resources[177] Obligations and Commitments This section details the company's material contractual obligations and commitments, including borrowings, notes, leases, and transportation agreements Material Contractual Obligations and Commitments at June 30, 2021 (in thousands) | Contractual Obligations | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | | :--------------------------------------- | :----------- | :--------------- | :----------- | :----------- | :---------------- | | Borrowings, including letters of credit | $654,773 | $— | $654,773 | $— | $— | | Senior unsecured notes | $1,050,000 | $— | $— | $— | $1,050,000 | | Office leases | $20,501 | $4,050 | $8,441 | $8,010 | $— | | Non-operated drilling and other capital commitments | $44,788 | $25,263 | $19,525 | $— | $— | | Drilling rig contracts | $14,654 | $14,654 | $— | $— | $— | | Asset retirement obligations | $39,948 | $211 | $5,160 | $1,501 | $33,076 | | Transportation, gathering, processing and disposal agreements with non-affiliates | $632,458 | $70,167 | $149,531 | $150,593 | $262,167 | | Transportation, gathering, processing and disposal agreements with San Mateo | $429,978 | $10,394 | $129,378 | $182,740 | $107,466 | | Total contractual cash obligations | $2,887,100 | $124,739 | $966,808 | $342,844 | $1,452,709 | - Total contractual cash obligations amounted to $2.89 billion at June 30, 2021, with significant portions due in 1-3 years (borrowings) and more than 5 years (senior unsecured notes)[179] - Interest expense on the Credit Agreement and San Mateo Credit Facility is estimated at $3.9 million and $8.4 million annually, respectively, until maturity[179] General Outlook and Trends This section discusses market trends, including commodity price movements, inflation in service costs, and regulatory changes impacting operations - Oil prices improved significantly in H1 2021, with WTI averaging $66.17 per Bbl in Q2 2021 and reaching $71.65 per Bbl by July 27, 2021, compared to $41.60 per Bbl in July 2020[183][184] - Natural gas prices also increased, with NYMEX Henry Hub averaging $2.98 per MMBtu in Q2 2021 and settling at $3.97 per MMBtu by July 27, 2021, up from $1.73 per MMBtu in July 2020[185][186] - The Company expects similar or greater losses from oil derivative contracts in H2 2021 if oil prices remain high, as prices are above hedging contract ceilings/strike prices[189] - Inflation in oilfield service costs (diesel, steel, labor, trucking) is being experienced due to rising commodity prices, with a 10% increase budgeted for H2 2021[198] - New Mexico adopted a rule in 2021 limiting natural gas flaring and requiring upstream/midstream operators to achieve a 98% natural gas capture rate by the end of 2026[199] - Biden Federal Lease Orders paused new oil and natural gas leases on public lands, which could impact future drilling and completion plans on federal properties[200] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily commodity price fluctuations, and its strategies for mitigation - Matador is exposed to market risk from fluctuating oil, natural gas, and NGL prices and uses derivative financial instruments to partially reduce this price risk[206] - The Company typically employs costless collars, three-way collars, and swap contracts to manage commodity price risks, providing downside protection while sometimes allowing for upside participation[207] - All derivative financial instruments are recorded at fair value, determined using purchase and sale information for similarly traded securities, with counterparties including major banks[208] 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 - The Company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2021, ensuring timely and accurate reporting under the Exchange Act[210] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2021[211] PART II — OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and equity sales Item 1. Legal Proceedings This section states that the Company is involved in routine legal proceedings, but management believes these will not have a material adverse impact - The Company is a party to several legal proceedings in the ordinary course of business[214] - Management believes these legal proceedings are remote to have a material adverse impact on the Company's financial condition, results of operations, or cash flows[214] - There have been no material changes regarding the legal proceeding with the Environmental Protection Agency and the New Mexico Environment Department[215] Item 1A. Risk Factors This section refers to the comprehensive discussion of risks and uncertainties in the Company's Annual Report on Form 10-K, confirming no material changes - The Company is subject to various risks and uncertainties, as discussed in 'Item 1A. Risk Factors' of its Annual Report[216] - There have been no material changes to the risk factors disclosed in the Annual Report[216] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports the Company's re-acquisition of common stock shares from employees during Q2 2021 to satisfy tax liabilities related to restricted stock vesting - During Q2 2021, the Company re-acquired 29,105 shares of common stock from employees[218] - The re-acquisitions were made to satisfy employees' tax liabilities in connection with the vesting of restricted stock[217][218] - The average price paid per share for these re-acquisitions was $28.28[218] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, credit agreements, certifications, and XBRL financial information - The exhibits include amendments to the Certificate of Formation and Bylaws of Matador Resources Company[220] - Key agreements such as the Fifteenth Amendment to the Third Amended and Restated Credit Agreement are filed[220] - Certifications from the Principal Executive Officer and Principal Financial Officer (Sarbanes-Oxley Act Sections 302 and 906) are included, along with Inline XBRL financial data[220] SIGNATURES This section contains the official signatures of the Company's Chairman and CEO, and EVP and CFO, certifying the filing of the Quarterly Report on Form 10-Q - The report is signed by Joseph Wm. Foran, Chairman and Chief Executive Officer, and David E. Lancaster, Executive Vice President and Chief Financial Officer[224] - The signatures confirm the due authorization and filing of the Quarterly Report on Form 10-Q as of July 30, 2021[223][224]