Matador Resources to Raise Fresh Capital - Analyst Blog

Dallas, TX-based Matador Resources Co. MTDR has commenced an underwritten public offering of 7,500,000 common shares.

The oil and natural gas explorer plans to use the net proceeds from this offering to partially fund its 2014 capital budget for operating an additional rig in the Permian Basin, to pay for targeted acquisitions, as well as for corporate purposes. Any leftover amount will be targeted towards repaying the debts under the company's revolving credit facility.

Matador Resources, which recently reported upbeat first quarter results on strong production, is an independent exploration and production company engaged in the acquisition, finding, and development of unconventional onshore oil and gas properties. The company's operations are concentrated primarily in the Eagle Ford in South Texas, and Permian Basin in Southeast New Mexico and West Texas.

With a multi-year drilling inventory located in some of the industry's best plays, balanced oil/gas portfolio and accretive acquisitions, Matador Resources' asset portfolio is primed for high production growth and peer-leading returns.

However, as is the case with other independent exploration and production firms, Matador Resources' results are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the partnership's revenues, earnings and cash flow.

Moreover, having already climbed some 40% year-to-date, any further upside for Matador shares looks unlikely.

As a result, Matador currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

However, some better-ranked domestic upstream energy stocks include Ultra Petroleum Corp. UPL, Encana Corp. ECA and Clayton Williams Energy Inc. CWEI. All the firms hold a Zacks Rank #1 (Strong Buy).