Company Overview and History
Matador Resources Company (MTDR) has long been a stalwart in the oil and gas industry, weathering the ups and downs with a steadfast commitment to operational excellence and disciplined capital allocation. As the company celebrates over four decades of growth, its track record of value creation has established it as a trusted player in the dynamic energy sector.
Founded in 1983 with just $270,000 in seed capital, Matador has grown to become a respected independent exploration and production company with a diverse asset base primarily focused on the prolific Delaware Basin in West Texas and Southeast New Mexico. Under the visionary leadership of Founder, Chairman and CEO Joseph Wm. Foran, the company has expertly navigated the often tumultuous energy landscape, delivering consistent returns for its shareholders.
Strategic Growth and Acquisitions
Matador's journey to becoming a leading independent energy company has been marked by strategic acquisitions and a shift towards unconventional resource plays. In 2008, the company made a significant acquisition of oil and gas properties in the Haynesville Shale play in Louisiana, expanding its asset base and production profile. This move marked an important milestone in Matador's history as it began to shift its focus towards unconventional resource plays.
A pivotal moment came in 2013 when Matador entered the Delaware Basin in West Texas and New Mexico, which would become its primary area of operations. The company quickly assembled a large acreage position in this prolific oil and gas basin through a series of acquisitions and leasing efforts. Matador's technical team successfully applied horizontal drilling and completion techniques to unlock the substantial resources in the Wolfcamp and Bone Spring formations.
In the years that followed, Matador ramped up its drilling and completion activities in the Delaware Basin, driving rapid growth in production and reserves. The company continued to make strategic acquisitions, including the purchase of Advance Energy Partners Holdings, LLC in 2023, further expanding its footprint in the basin. Recognizing the importance of infrastructure, Matador made strategic investments in midstream assets through its joint venture, San Mateo Midstream, LLC, ensuring reliable takeaway capacity for its production.
Financials
Matador's commitment to operational efficiency is evident in its financial performance. In 2023, the company reported net income of $846.07 million, with revenue reaching $2.82 billion and operating cash flow of $1.87 billion. Its free cash flow for the year stood at $318.02 million, underscoring the company's ability to generate substantial cash even in challenging market conditions.
The company's strong performance continued into 2024, with the most recent quarter (Q3 2024) showing impressive results. Revenue reached $899.78 million, representing a year-over-year growth of 16.5%. Net income for the quarter was $272.68 million, while operating cash flow and free cash flow stood at $610.44 million and $185.83 million, respectively. The increase in revenue, net income, operating cash flow, and free cash flow was primarily attributable to higher oil and natural gas production and higher realized oil prices, partially offset by lower natural gas prices.
Liquidity and Capital Structure
The company's balance sheet demonstrates a prudent approach to leverage, with a net debt-to-EBITDA ratio of 0.34x as of the end of 2023. This conservative capital structure has provided Matador with the financial flexibility to capitalize on strategic growth opportunities, such as the recent Ameredev acquisition, while maintaining a strong investment-grade credit profile.
As of September 30, 2024, Matador's debt-to-equity ratio stood at 0.4229, indicating a balanced approach to financing its operations. The company held $23.28 million in cash and had access to substantial credit facilities. Matador had $955 million in borrowings outstanding under its $2.25 billion revolving credit facility and approximately $52.90 million in outstanding letters of credit. Additionally, San Mateo, the company's midstream joint venture, had $526 million in borrowings outstanding under its $535 million revolving credit facility and approximately $9 million in outstanding letters of credit.
The company's current ratio of 0.877 and quick ratio of 0.842 as of September 30, 2024, indicate a solid short-term liquidity position, although slightly below the ideal 1.0 threshold.
Operational Excellence and Risk Management
Matador's diversified asset base, which includes holdings in the Eagle Ford shale and Haynesville shale plays in addition to its core Delaware Basin operations, has enabled the company to navigate commodity price volatility with agility. The company's hedging program has further shielded its cash flows from the impact of fluctuating oil and natural gas prices, demonstrating its proactive risk management approach.
The company's commitment to technological innovation has also been a key driver of its success. Matador has consistently invested in advanced drilling and completion techniques, such as its proprietary U-Turn lateral technology, which has delivered enhanced well performance and improved capital efficiency. This focus on operational excellence has allowed the company to maintain its position as one of the most efficient operators in the Delaware Basin.
Business Segments
Matador operates through two main business segments: Exploration and Production, and Midstream.
The Exploration and Production segment focuses on the exploration, development, production, and acquisition of oil and natural gas resources in the United States. For the three months ended September 30, 2024, this segment generated oil and natural gas revenues of $765.18 million and an operating income of $346.11 million. For the nine months ended September 30, 2024, the segment reported oil and natural gas revenues of $2.24 billion and an operating income of $970.83 million. As of September 30, 2024, the total assets for this segment were $8.90 billion, with capital expenditures of $1.92 billion and $2.94 billion for the three and nine months ended September 30, 2024, respectively.
The Midstream segment conducts operations in support of Matador's exploration, development, and production activities. It provides natural gas processing, oil transportation services, oil, natural gas and produced water gathering services, and produced water disposal services to third parties. For the three months ended September 30, 2024, the midstream segment had midstream services revenues of $120.06 million and an operating income of $71.36 million. For the nine months ended September 30, 2024, it reported midstream services revenues of $324.25 million and an operating income of $180.01 million. As of September 30, 2024, the total assets for the midstream segment were $1.65 billion, with capital expenditures of $295.65 million and $433.59 million for the three and nine months ended September 30, 2024, respectively.
Future Outlook
Looking ahead, Matador has provided guidance for 2024 and 2025 that reflects its confidence in the continued strong performance of its asset base. The company expects to increase its total production to over 200,000 BOE per day in 2025, driven by the contributions from its recent acquisitions and continued development of its core acreage.
For 2025, Matador plans to run 9 rigs for the full year, compared to only having 9 rigs for half of 2024. The company's 2025 capital expenditures are expected to be slightly higher than the $1.25 billion spent in 2024, with detailed plans to be finalized and announced in February. On the midstream side, Matador anticipates maintenance capital expenditures of $50-75 million per year going forward, a significant reduction from the $225 million spent in 2024 as they complete a new plant.
The company has also reported positive developments regarding its tax situation. Matador has been able to reduce its estimate of cash taxes as a percentage of pre-tax income for 2024 and expects to not be subject to the corporate alternative minimum tax in 2025.
Conclusion
Despite the headwinds faced by the industry, Matador has demonstrated its resilience time and again. With a seasoned management team, a disciplined approach to capital allocation, and a relentless focus on operational excellence, the company is well-positioned to continue creating value for its shareholders in the years to come. Matador's strong financial performance, strategic acquisitions, and forward-looking guidance underscore its commitment to growth and efficiency in the dynamic energy sector.
The company's ability to navigate the industry's challenges has not gone unnoticed. Matador's commitment to environmental, social, and governance (ESG) practices has earned it recognition from leading industry organizations, further solidifying its reputation as a responsible and forward-thinking energy producer. As Matador continues to execute its growth strategy, investors can look forward to the company's detailed 2025 plan, which will provide further insights into its capital allocation and production targets in the evolving energy landscape.