Financial and Operational Highlights < Q2 oil and gas production beat my forecast.
Oil, Natural Gas and Oil Equivalent Production
Second quarter 2020 average daily oil equivalent production increased 3% sequentially to 73,300 barrels of oil equivalent ("BOE") per day (59% oil), as compared to 71,200 BOE per day in the first quarter of 2020, and increased 20% year-over-year, as compared to 61,300 BOE per day in the second quarter of 2019. The 3% sequential increase in average daily oil equivalent production was better than the 4 to 6% decline projected for the quarter, despite the Company having 10 to 15% of its potential production shut-in or curtailed during the months of May and June 2020.
Despite the shut-ins and curtailments, second quarter 2020 average daily oil production increased 6% sequentially to a record quarterly high for the Company of 43,100 barrels of oil per day, as compared to 40,600 barrels of oil per day in the first quarter of 2020, and increased 17% year-over-year, as compared to 36,800 barrels of oil per day in the second quarter of 2019.
The 6% sequential increase in average daily oil production was better than the Company’s projections for the quarter and was primarily attributable to:
> better-than-expected initial performance from the six recently completed Rodney Robinson wells in the Antelope Ridge asset area, despite four of these wells being curtailed at restricted flow rates during most of the second quarter;
> better-than-expected initial performance from the five Ray State wells turned to sales in the Rustler Breaks asset area earlier than anticipated in May and June 2020; and
> small increases in net revenue interests on several operated wells resulting from recent acreage trades in the Delaware Basin, which added approximately 1,200 barrels of oil per day to the
Company’s oil production for the second quarter of 2020.
Second quarter 2020 average daily natural gas production decreased 1% sequentially to 181.4 million cubic feet of natural gas per day, as compared to 183.2 million cubic feet per day in the first quarter of 2020, but increased 23% year-over-year, as compared to 147.1 million cubic feet per day in the second quarter of 2019. This 1% sequential decrease in average daily natural gas production was less than expected based on the Company’s projections for the quarter.
This outperformance was primarily due to:
> continued cleanup and increasing production from the two recent Avalon completions on the Rodney Robinson tract;
> improved natural gas takeaway from several wells in the Antelope Ridge asset area;
> lower-than-expected declines from the Company’s Haynesville shale production during the second quarter of 2020; and
> small increases in net revenue interests on several operated wells resulting from acreage trades as noted above, which added approximately 7 million cubic feet of natural gas per day to the Company’s natural gas production for the second quarter of 2020.
Net Income, Earnings Per Share and Adjusted EBITDA < Most important stat is that operating cash flow for Q2 was $101.4 million, beating my forecast by over $17 million.
Second quarter 2020 net loss (GAAP basis) was $353.4 million, or a net loss of $3.04 per diluted common share, a decrease from net income of $125.7 million in the first quarter of 2020 and a year-over-year decrease from net income of $36.8 million in the second quarter of 2019. The decreases in sequential and year-over-year net income were primarily attributable to a non-cash full-cost ceiling impairment of $324.0 million recorded in the second quarter of 2020 resulting primarily from the recent sharp declines in oil prices as compared to the prior periods. The decrease in net income was also impacted by a non-cash, unrealized loss on derivatives of $132.7 million in the second quarter of 2020, as compared to a non-cash, unrealized gain on derivatives of $136.4 million in the first quarter of 2020 and a non-cash, unrealized gain on derivatives of $6.2 million in the second quarter of 2019.
Adjusted net loss below compares to my forecast of $4.9 million, $0.04 per share.
Second quarter 2020 adjusted net loss (a non-GAAP financial measure) was $3.1 million, or an adjusted net loss of $0.03 per diluted common share, a sequential decrease from adjusted net income of $23.1 million in the first quarter of 2020, and a year-over-year decrease from adjusted net income of $34.6 million in the second quarter of 2019. The decreases in sequential and year-over year adjusted net income were primarily attributable to significantly lower second quarter 2020 realized oil and natural gas prices of $24.03 per barrel and $1.49 per thousand cubic feet, respectively, that were 48% and 12% below first quarter 2020 realized oil and natural gas prices of $45.87 per barrel and $1.70 per thousand cubic feet, respectively, and 57% and 9% below second quarter 2019 realized oil and natural gas prices of $56.51 per barrel and $1.64 per thousand cubic feet, respectively.
Second quarter 2020 adjusted earnings before interest expense, income taxes, depletion, depreciation and amortization and certain other items ("Adjusted EBITDA," a non-GAAP financial measure) were $107.6 million, a sequential decrease from $140.6 million in the first quarter of 2020, and a year-over-year decrease from $144.1 million in the second quarter of 2019. The decreases in sequential and year-over-year Adjusted EBITDA were primarily attributable to lower oil and natural gas prices realized in the second quarter of 2020, which was partially offset by increased oil equivalent production in the second quarter of 2020, as compared to the prior periods.
Third-Party Midstream Services Revenues
Third-party midstream services revenues were $14.7 million in the second quarter of 2020, a 7% sequential decrease from $15.8 million in the first quarter of 2020, but a 2% year-over-year increase from $14.4 million in the second quarter of 2019. The sequential decrease in third-party midstream services revenues was in line with the Company’s expectations for the second quarter.
Record Low Operating and General and Administrative Unit Costs
Lease operating expenses ("LOE") in the second quarter of 2020 were $3.92 per BOE, an 18% sequential decrease from $4.77 per BOE in the first quarter of 2020, and a 17% year-over-year decrease from $4.72 per BOE in the second quarter of 2019. This result was the lowest quarterly LOE per BOE since Matador became a public company. The record low LOE per BOE in the second quarter of 2020 resulted primarily from (1) the Company’s ongoing efforts to reduce costs and improve the efficiency of its operations, (2) lower service costs and (3) lower operating expenses attributable to production curtailments and shut-ins on certain higher-cost wells during the second quarter.
General and administrative expenses ("G&A") in the second quarter of 2020 were $2.21 per BOE, a 12% sequential decrease from $2.51 per BOE in the first quarter of 2020, and a 38% year-over-year decrease from $3.56 per BOE in the second quarter of 2019. This result was the lowest quarterly G&A per BOE since Matador became a public company and resulted primarily from the G&A cost reductions initially implemented in the first quarter of 2020, which were more fully realized during the second quarter of 2020.
Lower Capital Expenditures and Improved Capital Efficiency
Matador incurred capital expenditures for drilling, completing and equipping wells ("D/C/E capital expenditures") of approximately $123 million in the second quarter of 2020, or 13% below the Company’s estimate of $142 million for D/C/E capital expenditures during the quarter. Matador estimates that $10 million of these savings were directly attributable to improved operational efficiencies and lower-than-expected drilling and completion costs in the Delaware Basin. The remainder of these cost savings primarily resulted from the timing of operations and are expected to be incurred in the third quarter of 2020.
Drilling and completion costs for all operated horizontal wells completed and turned to sales in the second quarter of 2020 averaged $881 per completed lateral foot, a sequential decrease of 13% from average drilling and completion costs of $1,016 per completed lateral foot in the first quarter of 2020, and a decrease of 24% from average drilling and completion costs of $1,165 per completed lateral foot achieved in full year 2019. Drilling and completion costs of $881 per completed lateral foot were the lowest quarterly drilling and completion costs per completed lateral foot in the Company’s history.
Hedging Positions
Matador’s realized gain on derivatives was $44.1 million in the second quarter of 2020, or an average of $11.25 per barrel of oil produced, resulting in part from the restructuring of portions of Matador’s then-existing 2020 West Texas Intermediate ("WTI") oil hedges in early April 2020. At July 28, 2020, Matador had approximately 6.1 million barrels of oil, or approximately 75 to 80% of its anticipated oil production, hedged for the period July through December 2020 based on the midpoint of its 2020 production guidance, as updated below. Matador also continued to add WTI oil hedges and natural gas hedges for 2021 during the second quarter of 2020.
Full Year 2020 Production Guidance Updated
As shown in the table below, at July 28, 2020, Matador further updated its full year 2020 production guidance as previously updated on April 29, 2020. The Company made no changes to its full year 2020 guidance for capital expenditures to drill, complete and equip wells of $440 to $500 million, nor to its full year 2020 guidance for Matador’s portion of San Mateo’s capital expenditures of $85 to $105 million.
I will update my forecast/valuation model for MTDR this afternoon and post it to the EPG website.
Matador Resources (MTDR) Q2 Results - July 28
Matador Resources (MTDR) Q2 Results - July 28
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Matador Resources (MTDR) Q2 Results - July 28
Third Quarter 2020 Oil, Natural Gas and Oil Equivalent Production
At July 28, 2020, Matador expects its third quarter 2020 average daily oil equivalent production to decline 5 to 6% sequentially, as compared to its second quarter 2020 production of approximately 73,300 BOE per day. Average daily oil equivalent production should then increase significantly in the fourth quarter of 2020 when the first full quarter of production is realized from the Leatherneck wells and most of the Boros wells.
As Matador has noted in prior releases, the cadence of quarterly production and cash flow has become more “lumpy” as larger groups of wells are being completed and turned to sales at any given time, especially with the reduction from six to three operated drilling rigs in the Delaware Basin. For example, from the time the Ray State wells were turned to sales in late May and early June until the Leatherneck wells are turned to sales in late July and August, no other new wells are planned to be turned to sales, which is expected to contribute to declining production volumes in the third quarter. In addition, Matador expects to have approximately 1,500 BOE per day and 2,500 BOE per day of its potential production shut-in during the months of July and August, respectively, attributable to completion operations offsetting currently producing wells. Further, second quarter 2020 production results were enhanced by approximately 2,500 BOE per day resulting from net revenue interest changes attributable to recent acreage trades with other operators in the Delaware Basin.
As a result, average daily oil production in the third quarter of 2020 is expected to decline 5 to 7%, as compared to 43,100 barrels per day in the second quarter, and average daily natural gas production in the third quarter is expected to decline by 4 to 6%, as compared to 181.4 million cubic feet per day in the second quarter of 2020. Matador does expect its oil and natural gas production to begin increasing in September as ten of the 13 Boros wells are expected to be turned to sales, although a number of those wells are expected to be turned to sales in mid-to-late September and should not have much impact on third quarter production volumes.
Third Quarter 2020 Drilling and Completion Activity
As noted above, Matador expects to operate just three drilling rigs in the Delaware Basin during the third quarter of 2020, with two of these rigs operating in the Stateline asset area. Matador has completed and expects to turn to sales five Leatherneck wells in the Stebbins area and surrounding leaseholds in the southern portion of the Arrowhead asset area (the “Greater Stebbins Area”) in late July and August of 2020. The Leatherneck wells are all two-mile laterals, including two Third Bone Spring completions, two Wolfcamp A-XY completions and one Wolfcamp B completion. To Matador’s knowledge, this is the first horizontal test of the Wolfcamp B formation by an operator in this area of the Delaware Basin. Then, in September 2020, Matador expects to begin turning to sales the 13 Boros wells, all two-mile laterals, drilled and currently being completed in the Stateline asset area, including one Avalon, two Second Bone Spring, four Wolfcamp A-XY, four Wolfcamp A-Lower and two Wolfcamp B completions. These wells are expected to be turned to sales in a staggered fashion of three to four wells at a time throughout September and into early October.
Matador also expects to complete and turn to sales five additional operated wells in the Rustler Breaks asset area and two additional operated wells in the Wolf asset area in the second half of 2020. Matador expects that all wells completed and turned to sales throughout the remainder of 2020 will be two-mile laterals, with the exception of the two wells in the Wolf asset area, which are 1.5-mile laterals. Matador expects to turn to sales 19 gross (17.0 net) operated wells in the third quarter of 2020 and six gross (4.3 net) operated wells in the fourth quarter of 2020.
At July 28, 2020, Matador expects its third quarter 2020 average daily oil equivalent production to decline 5 to 6% sequentially, as compared to its second quarter 2020 production of approximately 73,300 BOE per day. Average daily oil equivalent production should then increase significantly in the fourth quarter of 2020 when the first full quarter of production is realized from the Leatherneck wells and most of the Boros wells.
As Matador has noted in prior releases, the cadence of quarterly production and cash flow has become more “lumpy” as larger groups of wells are being completed and turned to sales at any given time, especially with the reduction from six to three operated drilling rigs in the Delaware Basin. For example, from the time the Ray State wells were turned to sales in late May and early June until the Leatherneck wells are turned to sales in late July and August, no other new wells are planned to be turned to sales, which is expected to contribute to declining production volumes in the third quarter. In addition, Matador expects to have approximately 1,500 BOE per day and 2,500 BOE per day of its potential production shut-in during the months of July and August, respectively, attributable to completion operations offsetting currently producing wells. Further, second quarter 2020 production results were enhanced by approximately 2,500 BOE per day resulting from net revenue interest changes attributable to recent acreage trades with other operators in the Delaware Basin.
As a result, average daily oil production in the third quarter of 2020 is expected to decline 5 to 7%, as compared to 43,100 barrels per day in the second quarter, and average daily natural gas production in the third quarter is expected to decline by 4 to 6%, as compared to 181.4 million cubic feet per day in the second quarter of 2020. Matador does expect its oil and natural gas production to begin increasing in September as ten of the 13 Boros wells are expected to be turned to sales, although a number of those wells are expected to be turned to sales in mid-to-late September and should not have much impact on third quarter production volumes.
Third Quarter 2020 Drilling and Completion Activity
As noted above, Matador expects to operate just three drilling rigs in the Delaware Basin during the third quarter of 2020, with two of these rigs operating in the Stateline asset area. Matador has completed and expects to turn to sales five Leatherneck wells in the Stebbins area and surrounding leaseholds in the southern portion of the Arrowhead asset area (the “Greater Stebbins Area”) in late July and August of 2020. The Leatherneck wells are all two-mile laterals, including two Third Bone Spring completions, two Wolfcamp A-XY completions and one Wolfcamp B completion. To Matador’s knowledge, this is the first horizontal test of the Wolfcamp B formation by an operator in this area of the Delaware Basin. Then, in September 2020, Matador expects to begin turning to sales the 13 Boros wells, all two-mile laterals, drilled and currently being completed in the Stateline asset area, including one Avalon, two Second Bone Spring, four Wolfcamp A-XY, four Wolfcamp A-Lower and two Wolfcamp B completions. These wells are expected to be turned to sales in a staggered fashion of three to four wells at a time throughout September and into early October.
Matador also expects to complete and turn to sales five additional operated wells in the Rustler Breaks asset area and two additional operated wells in the Wolf asset area in the second half of 2020. Matador expects that all wells completed and turned to sales throughout the remainder of 2020 will be two-mile laterals, with the exception of the two wells in the Wolf asset area, which are 1.5-mile laterals. Matador expects to turn to sales 19 gross (17.0 net) operated wells in the third quarter of 2020 and six gross (4.3 net) operated wells in the fourth quarter of 2020.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group