Market Overview

Matador Resources Company Reports Second Quarter 2018 Results, Provides Operational Update and Increases 2018 Guidance Estimates

Share:

Matador Resources Company (NYSE:MTDR) ("Matador" or the "Company")
today reported financial and operating results for the second quarter of
2018. A short slide presentation summarizing the highlights of Matador's
second quarter 2018 earnings release is also included on the Company's
website at www.matadorresources.com
on the Presentations & Webcasts page under the Investors tab.

Second Quarter 2018 Financial and Operational Highlights

  • Second quarter 2018 average daily oil equivalent production increased
    17% sequentially to a record quarterly high for the Company of 52,900
    barrels of oil equivalent ("BOE") per day (56% oil) as compared to the
    first quarter of 2018. Average daily oil production increased 12%
    sequentially to 29,700 barrels per day and average daily natural gas
    production increased 23% sequentially to 139.2 million cubic feet of
    natural gas per day, each as compared to the first quarter of 2018.
  • Second quarter 2018 Delaware Basin average daily oil equivalent
    production increased 25% sequentially to a record quarterly high for
    the Company of 46,500 BOE per day (59% oil) as compared to the first
    quarter of 2018. Delaware Basin average daily oil production increased
    17% sequentially to 27,400 barrels per day and Delaware Basin average
    daily natural gas production increased 38% sequentially to 114.6
    million cubic feet per day, each as compared to the first quarter of
    2018.
  • Second quarter 2018 net income (GAAP basis) was $59.8 million, or
    $0.53 per diluted common share, essentially unchanged from $59.9
    million in the first quarter of 2018, and a year-over-year increase of
    110% from $28.5 million in the second quarter of 2017.
  • Second quarter 2018 adjusted net income (a non-GAAP financial measure)
    was $46.1 million, or $0.41 per diluted common share, a sequential
    increase of 18% from $39.1 million in the first quarter of 2018, and a
    year-over-year increase of 321% from $10.9 million in the second
    quarter of 2017.
  • Second quarter 2018 adjusted earnings before interest expense, income
    taxes, depletion, depreciation and amortization and certain other
    items ("Adjusted EBITDA," a non-GAAP financial measure) were $137.3
    million, a sequential increase of 17% from $117.3 million in the first
    quarter of 2018, and a year-over-year increase of 89% from $72.7
    million in the second quarter of 2017.
  • Matador's estimated total proved oil and natural gas reserves were a
    record 170.2 million BOE at June 30, 2018, consisting of 95.4 million
    barrels of oil and 448.2 billion cubic feet ("Bcf") of natural gas,
    with a record Standardized Measure of $1.6 billion (GAAP basis) and a
    record PV-10 (a non-GAAP financial measure) of $1.8 billion. Estimated
    total proved oil and natural gas reserves increased 11% from 152.8
    million BOE at December 31, 2017 and increased 27% year-over-year from
    134.4 million BOE at June 30, 2017.
  • In mid-June 2018, San Mateo Midstream, LLC ("San Mateo"), the
    Company's midstream joint venture, entered into its most significant
    third-party agreement to date—a long-term agreement with a significant
    third-party producer in Eddy County, New Mexico for the gathering and
    disposal of such producer's salt water (please see Matador's June 14,
    2018 press release for additional information).
  • The Bill Alexander State Com #111H (Bill Alexander #111H) well,
    Matador's second First Bone Spring test in its Antelope Ridge asset
    area, flowed 1,808 BOE per day (79% oil), or 407 BOE per day per
    thousand feet of completed lateral, during a 24-hour initial potential
    test. The Bill Alexander #111H well was a strong follow-up test of the
    First Bone Spring formation north of Matador's initial First Bone
    Spring completion in the Antelope Ridge area, the Marlan Downey
    9-23S-35E AR #111H well, which tested 1,491 BOE per day (82% oil) and
    has produced approximately 111,000 BOE in its first four months of
    production.
  • As initially reported on June 4, 2018, the SST 6 State #123H and #124H
    wells, Matador's first two Second Bone Spring wells drilled on its SST
    leasehold north of the Stebbins acreage in the Arrowhead asset area,
    tested 2,056 BOE per day (85% oil) and 1,845 BOE per day (86% oil),
    respectively, or approximately 488 and 438 BOE per day per thousand
    feet of completed lateral, respectively, during 24-hour initial
    potential tests. Matador continues to be very pleased and encouraged
    by the Second and Third Bone Spring results it has achieved in its
    Arrowhead asset area and on the Stebbins and SST leaseholds in
    particular.

Note: All references to
net income, adjusted net income and Adjusted EBITDA reported throughout
this earnings release are those values attributable to Matador Resources
Company shareholders after giving effect to any net income, net loss or
Adjusted EBITDA, respectively, attributable to third-party
non-controlling interests, including in San Mateo.
For a
definition of adjusted net income, adjusted earnings per diluted common
share, Adjusted EBITDA and PV-10 and reconciliations of such non-GAAP
financial metrics to their comparable GAAP metrics, please see
"Supplemental Non-GAAP Financial Measures" below.

Full-Year 2018 Updated Guidance

As a result of the Company's production and financial performance
exceeding its expectations for the first two quarters of 2018, effective
August 1, 2018, Matador increased its full-year 2018 guidance estimates
as provided in the table below.

Guidance Metric     Actual

2017 Results

    Original

2018 Guidance(1)

    Updated

2018 Guidance(2)

    % YoY

Change(3)

Total Oil Production 7.9 million Bbl 9.7 to 10.1 million Bbl 10.6 to 10.9 million Bbl + 37%
Total Natural Gas Production 38.2 Bcf 41.0 to 43.0 Bcf 46.0 to 47.0 Bcf + 22%
Total Oil Equivalent Production 14.2 million BOE 16.5 to 17.3 million BOE 18.3 to 18.7 million BOE + 30%
Adjusted EBITDA(4) $336 million $425 to $455 million $495 to $515 million + 50%
D/C/E CapEx(5) $493 million $530 to $570 million $620 to $650 million + 28%
Midstream CapEx(6) $60 million $70 to $90 million $70 to $90 million + 33%
 
(1)   As of and as provided on February 21, 2018.
(2) As of and as updated on August 1, 2018.
(3) Represents percentage change from 2017 actual results to the
midpoint of updated 2018 guidance as provided on August 1, 2018.
(4) Adjusted EBITDA is a non-GAAP financial measure. In the 2018 updated
guidance, Adjusted EBITDA was estimated using actual results for the
first and second quarters of 2018 and strip prices for oil and
natural gas as of mid-July 2018. The average unhedged realized oil
price used to estimate Adjusted EBITDA for the period July through
December 2018 was approximately $53.00 per barrel, which represents
an average West Texas Intermediate (WTI) oil price of approximately
$68.00 per barrel less an estimated Midland-Cushing price
differential, including trucking costs, of approximately $15.00 per
barrel. The average unhedged natural gas price used to estimate
Adjusted EBITDA for the period July through December 2018 was $3.29
per Mcf, which represents an average Henry Hub natural gas price of
$2.79 per Mcf, plus an estimated uplift of approximately $0.50 per
Mcf attributable to natural gas liquids (NGL) revenues, which are
included in the Company's estimated natural gas price.
(5) Capital expenditures associated with drilling, completing and
equipping wells.
(6) Reflects Matador's 51% share of 2018 estimated capital expenditures
for San Mateo.
 

Drilling Activity Guidance

The full-year 2018 updated guidance estimates presented in the table
above assume that Matador will continue to operate six drilling rigs in
the Delaware Basin throughout the third and fourth quarters of 2018. At
August 1, 2018, Matador continues to evaluate adding a seventh operated
drilling rig during the fourth quarter of 2018, but the Company has not
made the decision to do so at this time. Should Matador elect to add a
seventh drilling rig during the fourth quarter of 2018, the Company
anticipates this additional rig will have no impact on its estimated
2018 oil and natural gas production and only a minor impact on its
anticipated capital expenditures for the remainder of 2018.

At August 1, 2018, Matador expects to complete and turn to sales a total
of 151 gross (74.1 net) operated and non-operated wells during 2018,
including 82 gross (66.5 net) operated wells and 69 gross (7.6 net)
non-operated wells, as shown in the tables below. These totals include
23 gross (6.1 net) additional wells as compared to Matador's original
guidance for 2018 as provided on February 21, 2018, which estimated that
80 gross (62.9 net) operated and 48 gross (5.1 net) non-operated wells
would be completed and turned to sales in 2018.

2018 Estimated Wells Turned to Sales – Original Guidance       2018 Estimated Wells Turned to Sales – Updated Guidance
  Gross   Net   Gross   Net
Operated 80 62.9 Operated 82 66.5
Non-Operated 48 5.1 Non-Operated 69 7.6
Total 128 68.0 Total 151 74.1
As of and as provided on February 21, 2018. As of and as updated on August 1, 2018.
 

The additional 3.6 net operated wells anticipated for full-year 2018 are
attributable to a slightly higher drilling and completions pace, as well
as additional working interests acquired or anticipated to be acquired
in certain operated wells during the course of the year. The additional
2.5 net non-operated wells anticipated for full-year 2018 are
attributable to a significantly higher-than-expected number of
non-operated well proposals received by Matador thus far in 2018. A
number of the non-operated well completions in 2018 are extended-length
laterals of 7,500 to 10,000 feet, with estimated drilling, completion
and equipping costs of $10 to $13 million.

Production Guidance

Overall, at August 1, 2018, Matador estimates that its full-year 2018
total production should increase by approximately 30% year-over-year to
18.5 million BOE, including an approximate 37% year-over-year increase
in oil production to 10.75 million barrels, both at the midpoint of the
Company's updated guidance, due to the drilling and completion of
additional operated and non-operated wells and better-than-expected
performance in the first half of 2018. Matador also estimates that its
Adjusted EBITDA should increase approximately 50% year-over-year to $505
million at the midpoint of updated guidance, which is an increase of $65
million from the midpoint of Matador's original guidance as provided on
February 21, 2018. Finally, largely attributable to the increased number
of operated and non-operated wells to be completed and turned to sales
for full-year 2018, Matador estimates that its capital expenditures for
drilling, completing and equipping wells should be between $620 and $650
million, an increase of $85 million at the midpoint of updated guidance,
with such increase being substantially funded by the additional cash
flows Matador now projects for full-year 2018. At August 1, 2018,
Matador's estimated 2018 capital expenditures for midstream activities
remain unchanged at $70 to $90 million, which represents 51% of San
Mateo's total estimated capital expenditures for 2018.

Given its strong financial position, including $143.5 million in cash
and restricted cash at June 30, 2018, no outstanding borrowings under
its credit facility at June 30 and August 1, 2018 and its anticipated
increase in cash flows for full-year 2018, Matador believes that it has
sufficient liquidity to execute its drilling and completion and
midstream activities for the remainder of 2018 and into 2019.

Third Quarter 2018 Production Estimates

Matador estimates its average daily oil production will increase
approximately 3% in the third quarter as compared to the second quarter
of 2018, and its average daily natural gas production will decrease
approximately 7% in the third quarter as compared to the second quarter
of 2018. For the reasons described more fully in the Production
Results
section of this earnings release, Matador anticipates that
its average daily natural gas production for 2018 most likely reached
its peak during the second quarter. Even so, Matador's anticipated
third-quarter 2018 average daily natural gas production should still be
an increase of approximately 15% as compared to the first quarter of
2018. In addition, of the remaining 41 gross operated wells estimated to
be completed and turned to sales in the second half of 2018, Matador
expects 15 and 26 gross wells to be completed and turned to sales in the
third and fourth quarters of 2018, respectively, primarily due to the
projected cadence of drilling and completion operations during the
second half of 2018.

Management Comments

Joseph Wm. Foran, Matador's Chairman and CEO, commented, "As highlighted
throughout this earnings release, the second quarter of 2018 was an
outstanding quarter for Matador—both operationally and financially—and
was the overall best quarter in the Company's history. (In fact, the
first and second quarters of 2018 were the two best quarters in the
Company's history.) As a result of these better-than-expected operating
and financial results for the first half of 2018, and the fact we are
ahead of our expected pace for turning wells to sales, we increased our
production, Adjusted EBITDA and capital expenditures guidance for
full-year 2018 effective August 1, 2018, as stated above.

"During the second quarter, our midstream team, San Mateo, entered into
a significant long-term agreement with a third-party producer in Eddy
County, New Mexico for the gathering and disposal of salt water. This
agreement—along with others—keeps San Mateo on track for achieving the
high end of its financial targets for 2018, including meeting an
annualized Adjusted EBITDA approaching $100 million in the fourth
quarter of 2018. On the marketing front, Matador also executed a firm
sales agreement with an affiliate of Kinder Morgan, Inc., securing firm
natural gas sales for a significant portion of our natural gas volumes
based on Houston Ship Channel pricing beginning on the in-service date
of the Gulf Coast Express Pipeline Project, which is expected to be
operational in October 2019. Despite recent concerns over oil and
natural gas takeaway from the Delaware Basin, we have not experienced
any pipeline-related interruptions to our oil, natural gas and NGL
production. We remain confident that the steps we have taken and the
agreements we have put in place thus far, as summarized in more detail
in this earnings release and in our prior press release on June 4, 2018,
should continue to provide flow assurance for our oil, natural gas and
NGL production going forward.

"Finally, our land team continues to add to and block up our leasehold
and minerals position in the Delaware Basin, primarily by making
opportunistic acquisitions at attractive prices and by executing
strategic acreage trades with other operators. From January 1 through
August 1, 2018, Matador acquired, or had under contract, approximately
16,000 net acres of leasehold and minerals in the Delaware Basin,
including approximately 3,400 net mineral acres located in and around
our existing asset areas. We expect to continue building our leasehold
and mineral position in the Delaware Basin ‘one brick at a time,' which
is a low cost approach we believe has served Matador and our
shareholders well over the past several years."

Sequential and year-over-year quarterly comparisons of selected
financial and operating items are shown in the following table:

    Three Months Ended
June 30,
2018
   

March 31,
2018

    June 30,
2017
Net Production Volumes:(1)
Oil (MBbl)(2) 2,706 2,382 1,767
Natural gas (Bcf)(3) 12.7 10.2 9.6
Total oil equivalent (MBOE)(4) 4,817 4,075 3,360
Average Daily Production Volumes:(1)
Oil (Bbl/d) 29,740 26,465 19,423
Natural gas (MMcf/d)(5) 139.2 112.9 105.0
Total oil equivalent (BOE/d)(6) 52,937 45,273 36,922
Average Sales Prices:
Oil, without realized derivatives (per Bbl) $ 61.44 $ 62.20 $ 46.01
Oil, with realized derivatives (per Bbl) $ 60.52 $ 60.40 $ 46.34
Natural gas, without realized derivatives (per Mcf) $ 3.38 $ 3.33 $ 3.40
Natural gas, with realized derivatives (per Mcf) $ 3.38 $ 3.33 $ 3.39
Revenues (millions):
Oil and natural gas revenues $ 209.0 $ 182.0 $ 113.8
Third-party midstream services revenues $ 3.4 $ 3.1 $ 2.1
Realized (loss) gain on derivatives $ (2.5 ) $ (4.3 ) $ 0.6
Operating Expenses (per BOE):
Production taxes, transportation and processing $ 4.17 $ 4.37 $ 3.83
Lease operating $ 5.19 $ 5.44 $ 4.77
Plant and other midstream services operating $ 1.18 $ 1.04 $ 0.88
Depletion, depreciation and amortization $ 13.87 $ 13.59 $ 12.28
General and administrative(7) $ 4.02   $ 4.40   $ 5.11
Total(8) $ 28.43   $ 28.84   $ 26.87
Net income (millions)(9) $ 59.8 $ 59.9 $ 28.5
Earnings per common share (diluted)(9) $ 0.53 $ 0.55 $ 0.28
Adjusted net income (millions)(9)(10) $ 46.1 $ 39.1 $ 10.9
Adjusted earnings per common share (diluted)(9)(11) $ 0.41 $ 0.36 $ 0.11
Adjusted EBITDA (millions)(9)(12) $ 137.3 $ 117.3 $ 72.7
(1)   Production volumes 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 $0.99, $1.03 and $2.09 per BOE of non-cash,
stock-based compensation expense in the second quarter of 2018, the
first quarter of 2018 and the second quarter of 2017, 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 is a non-GAAP financial measure. For a
definition of adjusted net income and a reconciliation of adjusted
net income (non-GAAP) to net income (GAAP), please see "Supplemental
Non-GAAP Financial Measures."
(11) Adjusted earnings per diluted common share is a non-GAAP financial
measure. For a definition of adjusted earnings per diluted common
share and a reconciliation of adjusted earnings per diluted common
share (non-GAAP) to earnings per diluted common 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 (GAAP) and net cash provided by operating activities
(GAAP), please see "Supplemental Non-GAAP Financial Measures."
 

Significant Well Results

The following table highlights the 24-hour initial potential ("IP") test
results from certain of Matador's operated wells completed and turned to
sales in the Delaware Basin during the second quarter of 2018. Matador
continues to be pleased with its well results across all of its acreage
position in the Delaware Basin and particularly with a number of
better-than-expected well results during the second quarter of 2018.

    Completion     24-hr IP     Oil    
Asset Area/Well Name Interval (BOE/d) (%) Comments
Antelope Ridge, Lea County, NM
Bill Alexander State Com #111H First Bone Spring 1,808 79 % Second encouraging First Bone Spring test in Antelope Ridge.
Arrowhead, Eddy County, NM
SST 6 State #123H Second Bone Spring 2,056 85 % First two Second Bone Spring wells drilled on SST leasehold north of
Stebbins acreage. Both wells flowed at approximately 500 psi during
IP tests.
SST 6 State #124H Second Bone Spring 1,845 86 %
Rustler Breaks, Eddy County, NM
Jimmy Kone 05-24S-28E RB #215H Wolfcamp A-Lower 1,546 78 % Another strong Wolfcamp A-Lower test in Rustler Breaks.
Joe Coleman 13-23S-27E RB #201H Wolfcamp A-XY 1,702 80 % Consistent Wolfcamp A-XY well results continue in northwest Rustler
Breaks.
Wolf, Loving County, TX
Wolf 80-TTT-B33 WF #205H Wolfcamp A-XY 2,153 57 % Strong 24-hour IP tests from Wolfcamp A-XY wells completed in the
south-central portion of the Wolf asset area. Both wells flowed at
approximately 3,200 psi during IP tests.
Wolf 80-TTT-B33 WF #207H Wolfcamp A-XY 2,104 59 %
 

Twin Lakes Asset Area, Lea County, New Mexico

Matador has recently completed drilling its second test of the Wolfcamp
D interval on the western portion of its Twin Lakes asset area. This
well, the Northeast Kemnitz #233H well, was drilled to a similar
Wolfcamp D target as that tested by Cimarex Energy Co. on its recent
State LF 32 5 #2H well, which tested 977 BOE per day (84% oil) on pump.
Matador should begin completing the Northeast Kemnitz #233H well in
early September and expects to report initial test results from that
well as part of its third quarter 2018 earnings release.

Overall, industry activity continues to increase in the Twin Lakes asset
area. At August 1, 2018, Matador was also participating with Continental
Resources, Inc. in its Reed 24 25 B State #1H (Reed State #1H) well
located approximately four miles northwest of Matador's D. Culbertson
#234H well. The Reed State #1H well is planned as a two-mile lateral
testing a shallower carbonate target in the Wolfcamp B interval, as
compared to the deeper Wolfcamp D targets tested in the Twin Lakes asset
area thus far by Matador and Cimarex Energy Co. At August 1, 2018,
drilling operations were in progress on the Reed State #1H well. Matador
owns an approximate 13% working interest in this well.

Midstream and Marketing Highlights

  • As mentioned earlier in this release, in mid-June 2018, San Mateo
    entered into a significant long-term agreement with a third-party
    producer in Eddy County, New Mexico relating to the gathering and
    disposal of such producer's salt water. The agreement includes the
    dedication of over 65 wells, which are located within five miles of
    San Mateo's existing salt water gathering system in Eddy County, New
    Mexico. In addition, San Mateo commissioned the drilling of its fourth
    and fifth commercial salt water disposal wells in Eddy County, New
    Mexico, both of which were in progress at August 1, 2018. Upon
    completion of these additional salt water disposal wells, San Mateo
    expects to have total designed salt water disposal capacity in excess
    of 230,000 barrels per day in Eddy County, New Mexico and Loving
    County, Texas (please see San Mateo's June 14, 2018 press release for
    additional information).
  • In July 2018, Matador entered into an agreement with another Delaware
    Basin midstream company to purchase such company's natural gas on an
    interruptible basis, and such natural gas is expected to be processed
    at San Mateo's Black River cryogenic natural gas processing plant in
    Eddy County, New Mexico (the "Black River Processing Plant"). When
    this agreement and the related interconnects become fully operable
    later in 2018, San Mateo anticipates that this agreement may result in
    20,000 to 50,000 million British Thermal Units ("MMBtu") per day (or
    possibly more at certain times) in additional natural gas volumes
    being processed at the Black River Processing Plant.
  • Also as mentioned earlier in this release, in May 2018, Matador
    executed a firm sales agreement with an affiliate of Kinder Morgan,
    Inc. beginning on the in-service date of the Gulf Coast Express
    Pipeline Project (the "GCX Project"). This agreement secures firm
    natural gas sales for an average of approximately 110,000 to 115,000
    MMBtu per day at a price based upon Houston Ship Channel pricing. The
    GCX Project is expected to be operational in October 2019 and is
    expected to transport natural gas from the Permian Basin to Agua
    Dulce, Texas, near the Texas Gulf Coast. The GCX Project's proximity
    to the Gulf Coast and Gulf Coast natural gas pricing, including
    Houston Ship Channel, are attractive because of the access to
    industrial users like refineries and petrochemical facilities,
    utilities, liquefied natural gas (LNG) exports and Mexican markets
    (please see Matador's June 4, 2018 press release for additional
    information).
  • In May 2018, San Mateo completed its expanded oil gathering system in
    the Wolf asset area in Loving County, Texas and substantially all of
    Matador's oil production from the Wolf asset area is now on pipe and
    being sold as part of the Company's strategic relationship with Plains
    All-American Pipeline, L.P. (NYSE:PAA) ("Plains"). At August 1, 2018,
    San Mateo's expanded oil gathering system in the Rustler Breaks asset
    area in Eddy County, New Mexico was also substantially complete. This
    Eddy County gathering system and an associated San Mateo oil gathering
    facility are planned to be connected to an extension of Plains'
    existing pipeline to be built northward from the Texas state line to
    the Rustler Breaks asset area. San Mateo anticipates that the Plains
    connection to its Eddy County gathering system will be completed in
    mid-to-late October 2018.

Delaware Basin Acreage Acquisitions

Matador continues to improve and block up its acreage position in its
various asset areas throughout the Delaware Basin and expects to
continue to do so throughout the remainder of 2018. As a result of these
efforts, from January 1 through August 1, 2018, Matador acquired or had
under contract approximately 16,000 net leasehold and mineral acres in
and around its existing acreage positions in the Delaware Basin,
including approximately 3,400 net mineral acres. From January 1 through
August 1, 2018, Matador had incurred net capital expenditures of
approximately $155 million to acquire approximately 9,500 net acres of
these leasehold and mineral interests. (A map showing the location of
those leasehold and mineral acres acquired between January 1 and August
1, 2018 is provided with the slide presentation accompanying this
earnings release.) Matador expects to incur net capital expenditures of
approximately $32 million to acquire the additional approximately 6,500
net acres in leasehold and mineral interests that were under contract as
of August 1, 2018 during the third and fourth quarters of 2018; the
purchase price for such additional acquisitions is expected to be funded
with a portion of the proceeds of Matador's May 2018 equity offering.

During the second quarter of 2018, Matador also divested of
approximately 400 net undeveloped acres of its Eagle Ford leasehold
position in South Texas for total consideration of approximately $8
million.

Proved Reserves, Standardized Measure and PV-10

The following table summarizes Matador's estimated total proved oil and
natural gas reserves at June 30, 2018, December 31, 2017 and June 30,
2017.

    June 30,     December 31,     June 30,
2018 2017 2017
Estimated proved reserves:(1)(2)
Oil (MBbl)(3) 95,448 86,743 74,954
Natural Gas (Bcf)(4)   448.2     396.2     356.5  
Total (MBOE)(5)   170,155     152,771     134,373  
Estimated proved developed reserves:
Oil (MBbl)(3) 45,030 36,966 28,454
Natural Gas (Bcf)(4)   224.3     190.1     159.7  
Total (MBOE)(5)   82,415     68,651     55,075  
Percent developed 48.4 % 44.9 % 41.0 %
Estimated proved undeveloped reserves:
Oil (MBbl)(3) 50,418 49,777 46,500
Natural Gas (Bcf)(4)   223.9     206.1     196.8  
Total (MBOE)(5)   87,740     84,120     79,298  
Standardized Measure (in millions) $ 1,613.3 $ 1,258.6 $ 1,001.9
PV-10(6) (in millions) $ 1,765.9 $ 1,333.4 $ 1,086.9
(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 2017 through June 2018 were $54.15 per Bbl for oil and $2.92
per MMBtu for natural gas, for the period from January 2017 through
December 2017 were $47.79 per Bbl for oil and $2.98 per MMBtu for
natural gas and for the period from July 2016 through June 2017 were
$45.42 per Bbl for oil and $3.01 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 a record 170.2 million BOE (56% oil, 48%
proved developed, 87% Delaware Basin) at June 30, 2018,

consisting of 95.4 million barrels of oil and 448.2 billion cubic feet
of natural gas (both also all-time highs), with a record Standardized
Measure of $1.6 billion (GAAP basis) and a record PV-10 (a non-GAAP
financial measure) of $1.8 billion. Estimated total proved oil and
natural gas reserves increased 11% from 152.8 million BOE, (57% oil, 45%
proved developed, 84% Delaware Basin) at December 31, 2017 and increased
27% from 134.4 million BOE, (56% oil, 41% proved developed, 80% Delaware
Basin) at June 30, 2017.

The reserves estimates presented for each period 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 2018, Matador continued to focus on the
exploration, delineation and development of the Company's Delaware Basin
acreage position in Loving County, Texas and Lea and Eddy Counties, New
Mexico. Matador began 2018 operating six drilling rigs in the Delaware
Basin and continued to operate six drilling rigs throughout the second
quarter of 2018. Matador currently expects to continue operating six
drilling rigs in the Delaware Basin throughout 2018, including three
rigs in the Rustler Breaks asset area, one rig in the Wolf and Jackson
Trust asset areas, one rig in the Arrowhead, Ranger and Twin Lakes asset
areas and one rig in the Antelope Ridge asset area. Depending on
commodity prices and basis differentials, capital and operating costs,
opportunities in asset areas like Arrowhead and Antelope Ridge,
liquidity and other factors, Matador may consider adding a seventh rig
during the fourth quarter of 2018, although the Company had not made the
decision to do so at August 1, 2018.

Production Results

Average daily oil equivalent production increased 17% sequentially from
45,300 BOE per day (58% oil) in the first quarter of 2018 to 52,900 BOE
per day (56% oil) in the second quarter of 2018, a record quarterly high
for Matador.

Average daily oil production increased 12% sequentially from 26,500
barrels per day in the first quarter of 2018 to 29,700 barrels per day
in the second quarter of 2018, also a record quarterly high, and well
above the Company's expectations that oil production would average
approximately 27,400 barrels per day at the midpoint of its estimated
range for the second quarter. This better-than-expected oil production
in the second quarter was attributable, in part, to strong initial well
results from the SST 6 State #123H and #124H wells in the Arrowhead
asset area and the Bill Alexander #111H well in the Antelope Ridge asset
area, all of which exhibited early well performance above the Company's
expectations.

Average daily natural gas production increased 23% sequentially from
112.9 million cubic feet per day in the first quarter of 2018 to 139.2
million cubic feet per day in the second quarter of 2018, much higher
than the Company's expectations for approximately 117.0 million cubic
feet per day at the midpoint of its estimated range for the second
quarter. The significant increase in natural gas production in the
second quarter of 2018 resulted not only from strong well results, but
also from the timing and nature of the new wells being completed and
turned to sales. Near the end of the first quarter of 2018 and early in
the second quarter of 2018, four new Wolfcamp B-Blair wells were
completed and turned to sales in the Rustler Breaks asset area; thus,
each of these wells was producing at near-peak rates during all or
substantially all of the second quarter. Matador also deepened and
recompleted a vertical Morrow well, the Norris-Thornton #2 well, in the
Rustler Breaks asset area in the latter half of the first quarter, and
this well produced at an essentially constant rate of about 3 million
cubic feet of natural gas per day throughout the second quarter. In
addition, the Wolf 80-TTT-B33 WF #205H and Wolf 80-TTT-B33 WF #207H
wells in the Wolf asset area were completed and turned to sales in early
May. The better-than-expected results from these wells also contributed
to the higher natural gas volumes reported for the second quarter of
2018.

Matador anticipates that its oil production will continue to grow in the
third and fourth quarters of 2018, but that its natural gas production
will decline from the 139.2 million cubic feet per day achieved in the
second quarter of 2018. Even so, Matador's natural gas production in the
third and fourth quarters of 2018 is anticipated to be 12% to 15% above
its first quarter 2018 natural gas production of 112.9 million cubic
feet per day. As a result, the Company anticipates the oil percentage of
its total oil and natural gas production should increase to between 58%
to 60% oil in subsequent quarters, as originally projected for 2018 and
as observed in the first quarter of 2018 (58% oil).

Realized Commodity Prices

Matador's weighted average realized oil price, excluding derivatives,
decreased 1% sequentially from $62.20 per barrel in the first quarter of
2018 to $61.44 per barrel in the second quarter of 2018. Average oil
price differentials relative to the West Texas Intermediate benchmark
widened from ($0.66) per barrel in the first quarter of 2018 to ($6.47)
per barrel in the second quarter of 2018, inclusive of trucking costs.
The oil price differentials in the Delaware Basin increased throughout
the second quarter from approximately ($3.00) per barrel in April 2018
to approximately ($12.00) per barrel in June 2018. At August 1, 2018,
Matador expects the oil price differentials associated with its Delaware
Basin oil production to widen further in the third quarter of 2018,
approaching ($17.00) per barrel by the latter part of the quarter,
including trucking costs. As of June 30, 2018, Matador had oil basis
hedges in place to mitigate its exposure to these widening oil price
differentials on approximately 50% of its anticipated Delaware Basin oil
production for the second half of 2018, limiting Matador's differential
for this production to a weighted average price of ($1.02) per barrel.

Matador's weighted average realized natural gas price, excluding
derivatives, increased 2% sequentially from $3.33 per thousand cubic
feet in the first quarter of 2018 to $3.38 per thousand cubic feet in
the second quarter of 2018. Matador realized a primarily NGL-related
uplift of $0.55 per thousand cubic feet above the average NYMEX Henry
Hub natural gas price in the second quarter of 2018, as compared to
$0.48 per thousand cubic feet in the first quarter of 2018. Matador's
realized price for its Delaware Basin natural gas production is exposed
to the Waha-Henry Hub basis differentials, and these differentials were
wider in the second quarter as compared to the first quarter of 2018.
Matador's weighted average realized natural gas price was positively
impacted, however, by higher prices received for its NGL production in
the second quarter of 2018. Matador is a
two-stream reporter, and the revenues associated with its NGL production
are included in the weighted average realized natural gas price
.

Operating Expenses

On a unit-of-production basis:

  • Production taxes, transportation and processing expenses decreased 5%
    sequentially from $4.37 per BOE in the first quarter of 2018 to $4.17
    per BOE in the second quarter of 2018, resulting from lower natural
    gas processing expenses primarily as a result of the Black River
    Processing Plant expansion coming on-line late in the first quarter of
    2018, which were partially offset by higher production taxes
    associated with the 15% sequential increase in oil and natural gas
    revenues.
  • Lease operating expenses per BOE decreased 5% from $5.44 per BOE in
    the first quarter of 2018 to $5.19 per BOE in the second quarter of
    2018. Matador anticipates that its lease operating expenses on a
    unit-of-production basis should be in the $5.00 to $5.25 per BOE range
    for the remainder of 2018, primarily as a result of cost inflation
    associated with operating expenses resulting from the rise in oil
    prices during the first half of 2018.
  • General and administrative expenses per BOE decreased 9% sequentially
    from $4.40 per BOE to $4.02 per BOE, better than the Company's
    expectations and primarily attributable to the significant increase in
    quarterly oil and natural gas production.
  • Depletion, depreciation and amortization expenses per BOE increased 2%
    sequentially from $13.59 per BOE in the first quarter of 2018 to
    $13.87 per BOE in the second quarter of 2018, primarily attributable
    to a small increase in anticipated future development costs associated
    with the Company's proved undeveloped reserves at June 30, 2018.

Wells Completed and Turned to Sales

During the second quarter of 2018, Matador completed and turned to sales
a total of 36 gross (19.5 net) wells in its various operating areas, all
of which were horizontal wells. This total was comprised of 24 gross
(18.5 net) operated wells and 12 gross (1.0 net) non-operated wells.
These results were above the Company's forecast of 24 gross (17.2 net)
operated wells and 11 gross (1.2 net) non-operated wells for the second
quarter of 2018.

Essentially all of the Company's operated and non-operated drilling and
completions activity in the second quarter of 2018 was undertaken in the
Delaware Basin, as summarized in the table below.

    Operated     Non-Operated     Total     Gross Operated
Asset/Operating Area Gross     Net Gross     Net Gross     Net Well Completion Intervals
Rustler Breaks 16 12.9 7 0.7 23 13.6 1-2BS, 9-WC A-XY, 2-WC A-Lower,

4-WC B-Blair

Arrowhead 4 2.4 - - 4 2.4 3-2BS, 1-3BS
Ranger - - - - - - No Ranger completions in Q2 2018
Wolf/Jackson Trust 3 2.7 - - 3 2.7 3-WC A-XY
Twin Lakes - - - - - - No Twin Lakes completions in Q2 2018
Antelope Ridge 1 0.5 2 0.1 3 0.6 1-1BS
Delaware Basin 24 18.5 9 0.8 33 19.3 Six separate intervals tested in Q2 2018
Eagle Ford Shale - - - - - - No Eagle Ford activity in Q2 2018
Haynesville Shale     -     -     3     0.2     3     0.2      
Total     24     18.5     12     1.0     36     19.5      

Note: WC = Wolfcamp; BS = Bone Spring. For example, 1-2BS indicates one
Second Bone Spring completion and 9-WC A-XY indicates nine Wolfcamp A-XY
completions in the second quarter of 2018.

Second Quarter 2018 Capital Expenditures and Liquidity

During the second quarter of 2018, Matador incurred capital
expenditures, excluding land and mineral acquisitions, of $182.8
million, including $166.1 million for drilling, completing and equipping
wells and $16.7 million for midstream investments, which primarily
represented 51% of San Mateo's second quarter capital expenditures of
$32.7 million. These capital expenditures were in-line with the
Company's forecasted capital expenditures of $174.0 million in the
second quarter, including $151.0 million for drilling, completing and
equipping wells and $23.0 million for midstream investments. The small
variation in capital expenditures for drilling, completing and equipping
wells in the second quarter of 2018, as compared to Matador's forecasts,
was primarily attributable to the timing of well completions. During the
second quarter of 2018, Matador completed and turned to sales 36 gross
(19.5 net) operated and non-operated wells (as noted in the table
above), which was an additional 1.1 net wells above the Company's second
quarter forecast. In addition, the Company completed two gross (1.7 net)
additional wells for which almost all of the capital costs were incurred
in the second quarter, but which were not turned to sales until the
first week of July. This somewhat accelerated drilling and completion
pace in the second quarter of 2018 was partially attributable to having
all three operated rigs in the Rustler Breaks asset area drilling oil
and natural gas wells throughout most of the second quarter until
mid-June when one of the three operated drilling rigs began drilling a
salt water disposal well on behalf of San Mateo.

At June 30, 2018, the Company had approximately $143.5 million in cash
and restricted cash, no borrowings outstanding under its credit facility
(borrowing base of $725 million, with lenders' borrowing commitment at
$400 million) and approximately $3.0 million in outstanding letters of
credit. Matador's net debt to Adjusted EBITDA (trailing twelve months)
ratio was approximately 1.0x at June 30, 2018, as compared to 1.4x at
March 31, 2018.

Hedging Positions

As of June 30, 2018, Matador had approximately 50% of its anticipated
oil production and approximately 35% of its anticipated natural gas
production hedged for the second half of 2018 based on the midpoint of
its updated 2018 production guidance. In addition, Matador had various
Midland-Cushing oil basis swaps in place for approximately 2.6 million
barrels of oil, or approximately 50% of its anticipated Delaware Basin
oil production, for the second half of 2018.

The following is a summary of the Company's open derivative financial
instruments for the second half of 2018 as of June 30, 2018.

           
Weighted Average Weighted Average
Price Floor Price Ceiling Volume Hedged
($/Bbl or $/MMBtu) ($/Bbl or $/MMBtu) (Bbl or MMBtu)
2-Way Costless Collars
Oil (WTI) $44.27 $60.29 1,440,000
Oil (LLS) $45.00 $63.05 360,000
Natural Gas $2.58 $3.67 8,400,000
               
 
Weighted Average Weighted Average Weighted Average Volume
Price Floor Price (Short Call) Price (Long Call) Hedged
($/Bbl) ($/Bbl) ($/Bbl) (Bbl)
3-Way Costless Collars
Oil (WTI) $50.08 $63.50 $66.68 960,000
       
 
Weighted Average Price Volume Hedged
($/Bbl) (Bbl)
Oil Basis Swaps
Midland-Cushing Oil Basis Differential ($1.02) 2,610,000
 
 

The following is a summary of the Company's open derivative financial
instruments for 2019 as of June 30, 2018.

    Weighted Average     Weighted Average    
Price Floor Price Ceiling Volume Hedged
($/Bbl) ($/Bbl) (Bbl)
2-Way Costless Collars
Oil (WTI) $50.00 $64.75 2,400,000
 
 

Conference Call Information

The Company will host a live conference call on Thursday, August 2,
2018, at 9:00 a.m. Central Time to review its second quarter 2018
financial and operational results. 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 1978358. 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, 2018.

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, in support of
its exploration, development and production operations and provides
natural gas processing, oil transportation services, natural gas, oil
and salt water gathering services and salt water disposal services to
third parties.

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; 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; delays and other
difficulties related to regulatory and governmental approvals and
restrictions; 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; the operating results of the Company's
midstream joint venture's expansion of the Black River cryogenic
processing plant; the timing and operating results of the buildout by
the Company's midstream joint venture of oil, natural gas and water
gathering and transportation systems and the drilling of any additional
salt water disposal wells; 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 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
 
    June 30,     December 31,

(In thousands, except par value and share data)

  2018     2017  
ASSETS
Current assets
Cash $ 122,450 $ 96,505
Restricted cash 21,063 5,977
Accounts receivable
Oil and natural gas revenues 74,771 65,962
Joint interest billings 71,041 67,225
Other 4,726 8,031
Derivative instruments 5,875 1,190
Lease and well equipment inventory 12,557 5,993
Prepaid expenses and other assets   8,454     6,287  
Total current assets 320,937 257,170
Property and equipment, at cost
Oil and natural gas properties, full-cost method
Evaluated 3,338,515 3,004,770
Unproved and unevaluated 692,544 637,396
Midstream and other property and equipment 360,971 281,096
Less accumulated depletion, depreciation and amortization   (2,164,013 )   (2,041,806 )
Net property and equipment 2,228,017 1,881,456
Other assets   6,893     7,064  
Total assets $ 2,555,847   $ 2,145,690  
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 25,278 $ 11,757
Accrued liabilities 133,365 174,348
Royalties payable 69,751 61,358
Amounts due to affiliates 8,108 10,302
Derivative instruments 4,016 16,429
Advances from joint interest owners 18,814 2,789
Amounts due to joint ventures 3,373 4,873
Other current liabilities   893     750  
Total current liabilities 263,598 282,606
Long-term liabilities
Senior unsecured notes payable 574,164 574,073
Asset retirement obligations 26,890 25,080
Derivative instruments 5,253
Other long-term liabilities   6,194     6,385  
Total long-term liabilities 612,501 605,538
Shareholders' equity
Common stock - $0.01 par value, 160,000,000 shares authorized;
116,461,171 and 108,513,597 shares issued; and 116,357,739 and
108,510,160 shares outstanding, respectively
1,165 1,085
Additional paid-in capital 1,916,821 1,666,024
Accumulated deficit (390,784 ) (510,484 )
Treasury stock, at cost, 103,432 and 3,437 shares, respectively   (2,670 )   (69 )
Total Matador Resources Company shareholders' equity 1,524,532 1,156,556
Non-controlling interest in subsidiaries   155,216     100,990  
Total shareholders' equity   1,679,748     1,257,546  
Total liabilities and shareholders' equity $ 2,555,847   $ 2,145,690  
 
 
Matador Resources Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
 
    Three Months Ended     Six Months Ended

(In thousands, except per share data)

June 30, June 30,
  2018         2017     2018         2017  
Revenues
Oil and natural gas revenues $ 209,019 $ 113,764 $ 390,973 $ 228,611
Third-party midstream services revenues 3,407 2,099 6,475 3,654
Realized (loss) gain on derivatives (2,488 ) 558 (6,746 ) (1,661 )
Unrealized gain on derivatives   1,429     13,190     11,845     33,821  
Total revenues 211,367 129,611 402,547 264,425
Expenses
Production taxes, transportation and processing 20,110 12,875 37,901 24,682
Lease operating 25,006 16,040 47,154 31,797
Plant and other midstream services operating 5,676 2,942 9,896 5,283
Depletion, depreciation and amortization 66,838 41,274 122,207 75,266
Accretion of asset retirement obligations 375 314 739 614
General and administrative   19,369     17,177     37,295     33,515  
Total expenses   137,374     90,622     255,192     171,157  
Operating income 73,993 38,989 147,355 93,268
Other income (expense)
Net gain on asset sales and inventory impairment 7
Interest expense (8,004 ) (9,224 ) (16,495 ) (17,679 )
Other (expense) income   (352 )   1,922     (299 )   1,991  
Total other expense   (8,356 )   (7,302 )   (16,794 )   (15,681 )
Net income 65,637 31,687 130,561 77,587
Net income attributable to non-controlling interest in subsidiaries   (5,831 )   (3,178 )   (10,861 )   (5,094 )
Net income attributable to Matador Resources Company shareholders $ 59,806   $ 28,509   $ 119,700   $ 72,493  
Earnings per common share
Basic $ 0.53   $ 0.28   $ 1.08   $ 0.72  
Diluted $ 0.53   $ 0.28   $ 1.08   $ 0.72  
Weighted average common shares outstanding
Basic   112,706     100,211     110,809     100,005  
Diluted   113,056     100,227     111,280     100,455  
 
 
Matador Resources Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
 
    Six Months Ended

(In thousands)

June 30,
  2018         2017  
Operating activities
Net income $ 130,561 $ 77,587
Adjustments to reconcile net income to net cash provided by
operating activities
Unrealized gain on derivatives (11,845 ) (33,821 )
Depletion, depreciation and amortization 122,207 75,266
Accretion of asset retirement obligations 739 614
Stock-based compensation expense 8,945 11,192
Amortization of debt issuance cost 411 64
Net gain on asset sales and inventory impairment (7 )
Changes in operating assets and liabilities
Accounts receivable (9,321 ) (25,642 )
Lease and well equipment inventory (8,611 ) (140 )
Prepaid expenses (2,167 ) (2,619 )
Other assets (149 ) 165
Accounts payable, accrued liabilities and other current liabilities (883 ) 4,442
Royalties payable 8,393 11,435
Advances from joint interest owners 16,025 3,768
Other long-term liabilities   (97 )   (1,062 )
Net cash provided by operating activities 254,208 121,242
Investing activities
Oil and natural gas properties capital expenditures (421,595 ) (328,929 )
Expenditures for midstream and other property and equipment (79,560 ) (41,743 )
Proceeds from sale of assets   7,593     977  
Net cash used in investing activities (493,562 ) (369,695 )
Financing activities
Repayments of borrowings (45,000 )
Borrowings under Credit Agreement 45,000
Proceeds from issuance of common stock 226,612
Cost to issue equity (73 )
Proceeds from stock options exercised 464 2,201
Contributions related to formation of Joint Venture 14,700 171,500
Contributions from non-controlling interest owners of
less-than-wholly-owned subsidiaries
53,900 14,700
Distributions to non-controlling interest owners of
less-than-wholly-owned subsidiaries
(10,535 ) (1,960 )
Taxes paid related to net share settlement of stock-based
compensation
(4,683 ) (2,970 )
Purchase of non-controlling interest of less-than-wholly-owned
subsidiary
      (2,653 )
Net cash provided by financing activities   280,385     180,818  
Increase (decrease) in cash and restricted cash 41,031 (67,635 )
Cash and restricted cash at beginning of period   102,482     214,142  
Cash and restricted cash at end of period $ 143,513   $ 146,507  
 
 

Supplemental Non-GAAP Financial Measures

Adjusted EBITDA

This press release includes the non-GAAP financial measure of Adjusted
EBITDA. Adjusted EBITDA is a supplemental non-GAAP financial measure
that is used by management and external users of the Company's
consolidated financial statements, such as industry analysts, investors,
lenders and rating agencies. "GAAP" means Generally Accepted Accounting
Principles in the United States of America. The Company believes
Adjusted EBITDA helps it evaluate its operating performance and compare
its results of operations from period to period without regard to its
financing methods or capital structure. The Company defines Adjusted
EBITDA as earnings before interest expense, income taxes, depletion,
depreciation and amortization, accretion of asset retirement
obligations, property impairments, unrealized derivative gains and
losses, certain other non-cash items and non-cash stock-based
compensation expense, and net gain or loss on asset sales and inventory
impairment. Adjusted EBITDA is not a measure of net income (loss) or net
cash provided by operating activities as determined by GAAP.

Adjusted EBITDA should not be considered an alternative to, or more
meaningful than, net income (loss) or net cash provided by operating
activities as determined in accordance with GAAP or as an indicator of
the Company's operating performance or liquidity. Certain items excluded
from Adjusted EBITDA are significant components of understanding and
assessing a company's financial performance, such as a company's cost of
capital and tax structure. Adjusted EBITDA may not be comparable to
similarly titled measures of another company because all companies may
not calculate Adjusted EBITDA in the same manner. The following table
presents the calculation of Adjusted EBITDA and the reconciliation of
Adjusted EBITDA to the GAAP financial measures of net income (loss) and
net cash provided by operating activities, respectively, that are of a
historical nature. Where references are pro forma, forward-looking,
preliminary or prospective in nature, and not based on historical fact,
the table does not provide a reconciliation. The Company could not
provide such reconciliation without undue hardship because such Adjusted
EBITDA numbers are estimations, approximations and/or ranges. In
addition, it would be difficult for the Company to present a detailed
reconciliation on account of many unknown variables for the reconciling
items, including future income taxes, full-cost ceiling impairments,
unrealized gains or losses on derivatives and gains or losses on asset
sales and inventory impairments. For the same reasons, the Company is
unable to address the probable significance of the unavailable
information, which could be material to future results.

   
Three Months Ended
(In thousands) June 30, 2018     March 31, 2018     June 30, 2017
Unaudited Adjusted EBITDA Reconciliation to Net Income:
Net income attributable to Matador Resources Company shareholders $ 59,806 $ 59,894 $ 28,509
Net income attributable to non-controlling interest in subsidiaries   5,831     5,030     3,178  
Net income 65,637 64,924 31,687
Interest expense 8,004 8,491 9,224
Depletion, depreciation and amortization 66,838 55,369 41,274
Accretion of asset retirement obligations 375 364 314
Unrealized gain on derivatives (1,429 ) (10,416 ) (13,190 )
Stock-based compensation expense   4,766     4,179     7,026  
Consolidated Adjusted EBITDA 144,191 122,911 76,335
Adjusted EBITDA attributable to non-controlling interest in
subsidiaries
  (6,853 )   (5,657 )   (3,683 )
Adjusted EBITDA attributable to Matador Resources Company
shareholders
$ 137,338   $ 117,254   $ 72,652  
   
 
Three Months Ended
(In thousands) June 30, 2018     March 31, 2018     June 30, 2017
Unaudited Adjusted EBITDA Reconciliation to Net Cash Provided by
Operating Activities:
Net cash provided by operating activities $ 118,059 $ 136,149 $ 59,933
Net change in operating assets and liabilities 18,174 (21,364 ) 7,198
Interest expense, net of non-cash portion 7,958 8,126 9,204
Adjusted EBITDA attributable to non-controlling interest in
subsidiaries
  (6,853 )   (5,657 )   (3,683 )
Adjusted EBITDA attributable to Matador Resources Company
shareholders
$ 137,338   $ 117,254   $ 72,652  
 
 

Adjusted Net Income and Adjusted Earnings Per
Diluted Common Share

This press release includes the non-GAAP financial measures of adjusted
net income and adjusted earnings per diluted common share. These
non-GAAP items are measured as net income 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
and adjusted earnings 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 and adjusted earnings per
diluted common share to their most directly comparable GAAP measure of
net income attributable to Matador Resources Company shareholders.

   
Three Months Ended
June 30, 2018     March 31, 2018     June 30, 2017
(In thousands, except per share data)
Unaudited Adjusted Net Income and Adjusted Earnings Per Share
Reconciliation to Net Income:
Net income attributable to Matador Resources Company shareholders $ 59,806 $ 59,894 $ 28,509
Less non-recurring and unrealized charges to income before taxes:
Unrealized gain on derivatives (1,429 ) (10,416 ) (13,190 )
Non-recurring expenses related to stock-based compensation(1)           1,515  
Adjusted income attributable to Matador Resources Company
shareholders before taxes
58,377 49,478 16,834
Income tax provision(2)   12,259     10,390     5,892  
Adjusted net income attributable to Matador Resources Company
shareholders (non-GAAP)
$ 46,118   $ 39,088   $ 10,942  
 
Weighted average shares outstanding, including participating
securities - basic
112,706 108,913 100,211
Dilutive effect of options and restricted stock units   350     499     16  
Weighted average common shares outstanding - diluted   113,056     109,412     100,227  
Adjusted earnings per share attributable to Matador Resources
Company shareholders (non-GAAP)
Basic $ 0.41   $ 0.36   $ 0.11  
Diluted $ 0.41   $ 0.36   $ 0.11  

(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 in effect for the
period.

 
 

PV-10

PV-10 is a non-GAAP financial measure and generally differs from
Standardized Measure, the most directly comparable GAAP financial
measure, because it does not include the effects of income taxes on
future net revenues. PV-10 is not an estimate of the fair market value
of the Company's properties. Matador and others in the industry use
PV-10 as a measure to compare the relative size and value of proved
reserves held by companies and of the potential return on investment
related to the companies' properties without regard to the specific tax
characteristics of such entities. PV-10 may be reconciled to the
Standardized Measure of discounted future net cash flows at such dates
by adding the discounted future income taxes associated with such
reserves to the Standardized Measure.

           
At At At

(in millions)

June 30, 2018 December 31, 2017 June 30, 2017
Standardized Measure $ 1,613.3 $ 1,258.6 $ 1,001.9
Discounted future income taxes   152.6   74.8   85.0
PV-10 $ 1,765.9 $ 1,333.4 $ 1,086.9
 
 

View Comments and Join the Discussion!