Executive Summary / Key Takeaways

• Integrated Model Drives Resilient Growth: Matador Resources' unique strategy of integrating its exploration and production (E&P) activities with robust midstream operations provides critical flow assurance and a stable, fee-based revenue stream, enabling consistent profitable growth even amidst commodity price volatility.
• Operational Excellence and Technological Moat: The company's relentless focus on efficiency, driven by advanced technologies like MAXCOM, SimulFrac, and Trimul-Frac, has consistently reduced drilling and completion costs per foot, positioning Matador as a leading-edge innovator and high-margin operator in the Delaware Basin.
• Strategic Acquisitions Bolster Inventory and Future Output: Recent transformative acquisitions, particularly Ameredev, have significantly expanded Matador's high-quality acreage and well inventory, underpinning management's confidence in achieving substantial year-over-year production growth and long-term value creation.
• Disciplined Capital Allocation and Shareholder Returns: Matador maintains a strong balance sheet and financial flexibility, evidenced by debt reduction and a commitment to a steadily increasing fixed dividend, complemented by a new $400 million share repurchase program, signaling management's belief in the stock's intrinsic value.
• Adaptability Amidst Industry Headwinds: Despite broader industry challenges like commodity price fluctuations, inflation, and evolving regulatory landscapes, Matador's flexible operational plans and strategic hedging position it to capitalize on opportunistic growth while mitigating risks.

The Integrated Advantage in a Dynamic Energy Landscape

Matador Resources Company (MTDR) stands as an independent energy producer, primarily focused on the prolific oil and liquids-rich Wolfcamp and Bone Spring plays in the Delaware Basin of Southeast New Mexico and West Texas. Since its inception in 2003, starting with a modest $270,000, Matador has pursued a consistent strategy of "profitable growth at a measured pace," aiming for sustained year-over-year expansion. This disciplined approach has seen the company grow its assets to over $11 billion, with daily production soaring from approximately 3,300 barrels at its 2012 IPO to over 95,000 barrels today.

A cornerstone of Matador's differentiated strategy is its integrated E&P and midstream business model, primarily through its joint venture, San Mateo Midstream, LLC. This integration was a direct response to historical industry "takeaway problems," ensuring critical "flow assurance" for Matador's production. The midstream segment provides essential natural gas processing, oil transportation, and water gathering and disposal services, not only for Matador's own operations but also for third parties. This fee-based revenue stream offers a degree of stability often lacking in pure-play E&P companies, with San Mateo's EBITDA growing impressively from $30 million in its first year to $300 million. This integrated approach positions Matador uniquely against many of its peers, who often rely on third-party midstream providers, potentially exposing them to bottlenecks or higher costs.

The broader energy landscape is characterized by significant volatility, influenced by global economic activity, geopolitical events, and evolving supply-demand dynamics. Oil prices, for instance, saw a 21% decrease in Q2 2025 compared to Q2 2024, while natural gas prices experienced a 35% increase in sales of purchased natural gas during the same period. Price differentials, such as the Waha-Henry Hub natural gas basis, have also been highly volatile, averaging $2.30 per MMBtu for the first six months of 2025. However, Matador's strategic hedging, including natural gas basis differential swaps, generated a net gain of approximately $9.70 million in the first half of 2025, partially offsetting market fluctuations. The industry also faces inflationary pressures in oilfield services, supply chain disruptions, and regulatory shifts, including the recent One Big Beautiful Bill Act (OBBBA) which impacts tax provisions.

Technological Edge and Operational Prowess

Matador's competitive strength is deeply rooted in its commitment to technological innovation and operational excellence. The company prides itself on being a "leading edge innovator in operational efficiencies" and "one of the highest margin operators in the Delaware Basin." This is achieved through a continuous drive to reduce drilling and completion (D&C) costs per lateral foot, which saw an 8% reduction from initial estimates to $930 per foot in 2024.

At the heart of this efficiency is the MAXCOM operations center, established in 2018. This 24/7 facility has been instrumental in achieving over 300 drilling records by optimizing well times and improving targeting. The center's ability to monitor and direct drilling operations in real-time contributes significantly to reducing "days on well," with management noting that "each time you save a day, it's about $100,000." This direct impact on cost savings is a clear competitive advantage.

Matador has also pioneered and scaled advanced completion techniques. Its pilot testing of Trimul-Frac in 2021, and subsequent increased utilization, has yielded substantial benefits. For instance, the six-well Dagger Lake South pad, utilizing Trimul-Frac, resulted in approximately $350,000 in savings per well and a 50% reduction in completion time on the well. The company has successfully converted over 90 wells that were not initially candidates for Simul-Frac or Trimul-Frac into these efficient completion processes, leading to total savings exceeding $20 million. Furthermore, the adoption of remote frac operations is becoming a larger part of the portfolio, allowing Matador to tie together non-Simul/Trimul-Frac wells for additional savings of $250,000 to $350,000 per well.

In drilling, Matador's U-Turn technologies have demonstrated significant improvements, reducing drill time on five U-Turn wells by 30% compared to 2023. These efficiencies are not achieved by simply "playing one vendor against the other" but through "win-win contracts" and strong partnerships with service providers like Patterson, fostering collaboration that benefits both parties.

Beyond drilling and completions, Matador showcases its commitment to cost efficiency and environmental stewardship through its produced water management. The company actively recycles produced water for hydraulic fracturing operations, significantly reducing fresh water usage. This practice contributed to $1 million per month in OpEx savings on the newly acquired Ameredev properties and has helped keep Matador's emissions down to less than 2%. This integrated approach to water management provides both economic and environmental benefits, further strengthening its operational moat.

Financial Performance and Strategic Capital Allocation

Matador's recent financial performance underscores its strategic effectiveness. For the second quarter of 2025, the company reported total revenues of $895.3 million, up from $847.1 million in Q2 2024. Oil and natural gas revenues increased by 5% to $815.8 million, driven by a 29% increase in oil production and a 33% increase in natural gas production, despite a 21% decrease in realized oil prices. Third-party midstream services revenues saw a 29% increase to $42.0 million, reflecting higher natural gas gathering and processing, and oil transportation volumes.

While net income attributable to Matador shareholders decreased to $150.2 million in Q2 2025 from $228.8 million in Q2 2024, primarily due to increased depletion, depreciation, and amortization, higher lease operating expenses, and increased interest expense, Adjusted EBITDA, a key non-GAAP measure, increased by $16.2 million to $594.2 million. This growth in Adjusted EBITDA was primarily attributable to increased oil and natural gas production and higher realized natural gas prices, partially offset by lower realized oil prices. For the first six months of 2025, Adjusted EBITDA increased by $155.0 million to $1.24 billion.

Matador maintains a robust liquidity position and a disciplined approach to capital allocation. The company's primary uses of capital include E&P activities and midstream investments, funded by cash on hand, operating cash flows, and performance incentives. As of June 30, 2025, Matador had $390 million in borrowings outstanding under its Credit Agreement, which was reaffirmed at $3.25 billion in May 2025, with elected commitments of $2.25 billion. The San Mateo Credit Facility also saw an increase in lender commitments from $800 million to $850 million in June 2025, with an accordion feature up to $1.05 billion. The company consistently meets its financial covenants, including a current ratio of not less than 1.00 and a debt to EBITDA ratio of 3.50 or less.

Shareholder returns are a key focus, with the Board declaring quarterly cash dividends of $0.31 per share for Q1, Q2, and Q3 2025. This fixed dividend policy, which has seen the dividend grow from $0.10 to $1.25 per share, is preferred by management as it is funded by free cash flow and benefits long-term shareholders. In April 2025, the Board authorized a $400 million share repurchase program, under which Matador repurchased 1.10 million shares for $44.2 million in Q2 2025. This program provides additional capital allocation flexibility and signals management's belief that the stock represents a "good buying opportunity."

Strategic Outlook and Competitive Dynamics

Matador's outlook for 2025 and beyond is rooted in its proven strategy and operational flexibility. The company began 2025 with nine drilling rigs in the Delaware Basin but plans to operate eight rigs by August 1, 2025, demonstrating its ability to adjust activity based on commodity prices. Estimated 2025 Drilling, Completion, and Equipping (DCE) capital expenditures remain between $1.18 billion and $1.37 billion. Midstream capital expenditures are projected at $120 million to $180 million, including Matador's proportionate share of the Marlan Processing Plant Expansion, which came online in Q2 2025 and will boost total processing capacity to 720 MMcf/day.

Management anticipates significant year-over-year production growth, projecting a 17% increase in oil production by year-end 2025 from the Q1 2025 base. While Q3 production is expected to be slightly lower than Q2, Q4 is projected to be higher, with the second quarter of 2025 already marked as a "record quarter." The company expects to achieve over 200,000 BOE per day in 2025. This growth is underpinned by a substantial inventory of 2,000 locations, with an average expected rate of return exceeding 50%.

In the competitive landscape, Matador differentiates itself through its integrated E&P and midstream model. While larger E&P players like EOG Resources (EOG), Devon Energy (DVN), ConocoPhillips (COP), and Occidental Petroleum (OXY) may possess greater scale and, in some cases, lower operating costs per barrel (e.g., EOG's known efficiency), Matador's midstream assets provide a unique advantage. This integration ensures flow assurance, reduces reliance on third parties, and allows for meticulous planning of "cube development" projects, as demonstrated by the Dagger Lake South pad. Matador's technological prowess in drilling and completions also positions it as a cost leader, with its D&C per foot costs often lower than industry averages.

Matador's strategic acquisitions, such as Ameredev, are crucial for long-term growth, providing access to "great quality rock" that integrates seamlessly with existing assets. These acquisitions, along with a "brick-by-brick" approach to land and mineral interests, continually replenish the company's inventory. Furthermore, Matador holds a "significant gas bank" in the Cotton Valley, with 200-300 Bcf of opportunities, in addition to 1.4 Tcf of gas reserves in the Delaware Basin, providing optionality to pivot towards increased gas production if market conditions warrant, particularly with growing demand from AI and LNG terminals.

Conclusion

Matador Resources Company presents a compelling investment thesis built on a foundation of integrated operations, technological leadership, and disciplined capital management. The company's ability to consistently deliver "profitable growth at a measured pace" is a testament to its operational excellence and strategic foresight. By leveraging its proprietary MAXCOM system and advanced completion techniques like Trimul-Frac, Matador has achieved significant cost efficiencies and enhanced production capabilities, positioning itself as a high-margin operator in the competitive Delaware Basin.

Despite the inherent volatility of commodity markets and broader industry challenges, Matador's robust balance sheet, strategic hedging, and flexible capital allocation framework—including a growing fixed dividend and a share repurchase program—provide resilience and optionality. The successful integration of recent acquisitions, coupled with a deep inventory of high-return drilling locations and a strategically vital midstream segment, ensures a clear path for continued value creation. For discerning investors, Matador offers a unique blend of operational prowess, financial discipline, and strategic adaptability, making it a compelling consideration in the dynamic energy sector.