I have updated my forecast/valuation model for MTDR. It will be posted to the EPG website later today.
At the time of this post MTDR is trading for $60.78.
My current valuation increases by $1 to $83/share, but my valuation multiple is a conservative 4.5 X annualized operating CFPS. I say "conservative" because this one is an Aggressive Growth company that now generates a lot of free cash flow. Prior to 2022 they were outspending operating cash flow to rapidly build production and proven reserves. The aggressive strategy is now paying off for Matador. They now hold some of the best Tier One leasehold in the Delaware Basin.
Matador gives very conservative production guidance. They expect production to be down ~9,000 Boepd from Q4 to Q1 2024 because of 3rd party midstream processing limitations. They will have those issues resolved by early Q2 and I expect their production to rebound sharply in Q2 and then steadily increase into year-end. Over the next few months they will be completing ~30 DUC wells, which they acquired from Advanced Energy back in April, 2023.
Based on my forecast, Matador should generate about $800 million of free cash flow from operations this year.
Two respected analysts have updated their price targets to $73 and $84 since Matador released Q4 results on 2/20 and updated their 2024 guidance.
In my opinion, MTDR is one of the last remaining takeover targets in the Permian Basin. It has a clear path to production of more than 165,000 Boepd (~60% crude oil) by year-end 2024 and it has a lot of high-quality running room. I would love to see a MDTR + PR merger.
Matador Resources (MTDR) Valuation Update - Feb 21
Matador Resources (MTDR) Valuation Update - Feb 21
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Matador Resources (MTDR) Valuation Update - Feb 21
Note from Keith Kohl at The Energy Investor:
Matador Resources is an independent energy company that explores, acquires,
develops, and produces crude oil and natural gas resources in both the Delaware Basin
in southeast New Mexico (part of the greater Permian Basin) and the Eagle Ford shale
in Texas. The company holds approximately 460.1 million barrels of oil equivalent.
Recent News
Last year was more than just a record year for Matador Resources, it was a stepping
stone for even more profits in 2024.
When the company released its fourth quarter and full year 2023 earnings report last
week, we were expecting to see some strong numbers.
I believe Matador’s Founder, Chairman, and CEO, said it all during the conference
call:
“Matador achieved another record quarter in the fourth quarter of 2023, which was
another strong finish to yet another record year. Matador not only produced a record amount
of oil and natural gas through Armstrong well performance during the fourth quarter of 2023,
but also steadily decreased costs during the quarter, resulting in better-than-expected free cash
flow per share.”
This underscores precisely what we’ve been talking about throughout 2023 — future
success and growth for the U.S. oil sector isn’t going to come from drilling as many
holes as you can, but rather through making breakthroughs in lowering costs and well
efficiency.
Like I’ve been telling you for a while now, the oil game is no longer driven by a debt
fueled drilling frenzy. And the companies that have survived — and thrived — this
long will continue to do so through fiscal and operational discipline.
But hey, let’s look at the numbers…
During the fourth quarter, Matador’s production averaged 154,300 boepd, which far
exceeded previous projections.
This was mostly thanks to increased production from the wells in its Stateline asset
area and Rodney Robinson leasehold, the outperformance of the company’s Margarita
wells that were turned to sales in Q3, land acquisitions during the fourth quarter that
tacked on an additional 1,000 boepd, and higher-than-expected production from non-
operated assets.
The cost efficiencies made during the quarter also cannot be understated. During Q4,
Matador lowered its lease operating expenses by 5% compared to the third quarter of
2023, and was considerably lower than previous guidance. Management has said that
this was due to the increased use of recycled produced water for completion activities,
as well as a range of incremental improvements relating to its acquired wells.
At the end of 2023, the company was holding approximately 460.1 million barrels of
oil equivalent, representing a 29% year-over-year increase.
For the fourth quarter, the company’s record production led to approximately $618.3
million in net cash from its operations, with an adjusted free cash flow of $180
million. Matador also posted a net income of $254.5 million, or $2.12 per diluted share
— once again the company managed to outperform analyst expectations and beat the
earnings consensus on Wall Street for the last three quarters.
For the full year 2023, Matador’s production averaged 131,800 boepd, and the company
hauled in approximately $1.87 billion in net cash from its operating activities. Net
income for 2023 came in at $846 million, or $7.05 per diluted share.
Looking forward, we’re expecting to see another huge year out of this hidden Permian
gem.
Not only did Matador add an eighth drilling rig in late January, but the company
expects to spend $1.2 billion this year drilling and completing wells. We also expect to
see Matador continue making progress in lowering costs and boosting well efficiency.
Now, as you know, we’ve been paying close attention to Matador’s U-turn wells
(which we’ve come to call “horseshoe” wells).
Here’s what management has had to say regarding the latest on them (emphasis is my
own) :
“Matador also remains encouraged by the positive test of cost and production efficiency
of its first two ‘U-turn’ wells in Matador’s Wolf asset area in Loving County, Texas. We
achieved approximately $10 million in cost savings by drilling two ‘U-Turn’ two-mile lateral
wells as compared to four one-mile lateral wells in this section. Production testing indicates
all perforated depths are contributing to production and cumulative results are consistent
with traditional two-mile lateral wells. Following this encouraging test, we are exploring
the possibility of drilling up to 20 additional ‘U-Turn’ wells during 2024 and 2025. We
are excited about the prospects of implementing the ‘U-Turn’ design throughout our acreage
footprint.”
We’re looking forward to seeing just how much of a game-changer these ‘U-Turn’
wells will prove to not just Matador, but to the rest of the Permian crowd once they
catch on.
Finally, we have news on Matador’s latest dividend. The Board recently declared
that the next cash dividend of $0.20 per share will be paid out on March 13, 2024. At
current share prices, this comes out to an annual yield of approximately 1.32%.
Matador Resources (NYSE: MTDR) is rated a “Buy” under $65
Matador Resources is an independent energy company that explores, acquires,
develops, and produces crude oil and natural gas resources in both the Delaware Basin
in southeast New Mexico (part of the greater Permian Basin) and the Eagle Ford shale
in Texas. The company holds approximately 460.1 million barrels of oil equivalent.
Recent News
Last year was more than just a record year for Matador Resources, it was a stepping
stone for even more profits in 2024.
When the company released its fourth quarter and full year 2023 earnings report last
week, we were expecting to see some strong numbers.
I believe Matador’s Founder, Chairman, and CEO, said it all during the conference
call:
“Matador achieved another record quarter in the fourth quarter of 2023, which was
another strong finish to yet another record year. Matador not only produced a record amount
of oil and natural gas through Armstrong well performance during the fourth quarter of 2023,
but also steadily decreased costs during the quarter, resulting in better-than-expected free cash
flow per share.”
This underscores precisely what we’ve been talking about throughout 2023 — future
success and growth for the U.S. oil sector isn’t going to come from drilling as many
holes as you can, but rather through making breakthroughs in lowering costs and well
efficiency.
Like I’ve been telling you for a while now, the oil game is no longer driven by a debt
fueled drilling frenzy. And the companies that have survived — and thrived — this
long will continue to do so through fiscal and operational discipline.
But hey, let’s look at the numbers…
During the fourth quarter, Matador’s production averaged 154,300 boepd, which far
exceeded previous projections.
This was mostly thanks to increased production from the wells in its Stateline asset
area and Rodney Robinson leasehold, the outperformance of the company’s Margarita
wells that were turned to sales in Q3, land acquisitions during the fourth quarter that
tacked on an additional 1,000 boepd, and higher-than-expected production from non-
operated assets.
The cost efficiencies made during the quarter also cannot be understated. During Q4,
Matador lowered its lease operating expenses by 5% compared to the third quarter of
2023, and was considerably lower than previous guidance. Management has said that
this was due to the increased use of recycled produced water for completion activities,
as well as a range of incremental improvements relating to its acquired wells.
At the end of 2023, the company was holding approximately 460.1 million barrels of
oil equivalent, representing a 29% year-over-year increase.
For the fourth quarter, the company’s record production led to approximately $618.3
million in net cash from its operations, with an adjusted free cash flow of $180
million. Matador also posted a net income of $254.5 million, or $2.12 per diluted share
— once again the company managed to outperform analyst expectations and beat the
earnings consensus on Wall Street for the last three quarters.
For the full year 2023, Matador’s production averaged 131,800 boepd, and the company
hauled in approximately $1.87 billion in net cash from its operating activities. Net
income for 2023 came in at $846 million, or $7.05 per diluted share.
Looking forward, we’re expecting to see another huge year out of this hidden Permian
gem.
Not only did Matador add an eighth drilling rig in late January, but the company
expects to spend $1.2 billion this year drilling and completing wells. We also expect to
see Matador continue making progress in lowering costs and boosting well efficiency.
Now, as you know, we’ve been paying close attention to Matador’s U-turn wells
(which we’ve come to call “horseshoe” wells).
Here’s what management has had to say regarding the latest on them (emphasis is my
own) :
“Matador also remains encouraged by the positive test of cost and production efficiency
of its first two ‘U-turn’ wells in Matador’s Wolf asset area in Loving County, Texas. We
achieved approximately $10 million in cost savings by drilling two ‘U-Turn’ two-mile lateral
wells as compared to four one-mile lateral wells in this section. Production testing indicates
all perforated depths are contributing to production and cumulative results are consistent
with traditional two-mile lateral wells. Following this encouraging test, we are exploring
the possibility of drilling up to 20 additional ‘U-Turn’ wells during 2024 and 2025. We
are excited about the prospects of implementing the ‘U-Turn’ design throughout our acreage
footprint.”
We’re looking forward to seeing just how much of a game-changer these ‘U-Turn’
wells will prove to not just Matador, but to the rest of the Permian crowd once they
catch on.
Finally, we have news on Matador’s latest dividend. The Board recently declared
that the next cash dividend of $0.20 per share will be paid out on March 13, 2024. At
current share prices, this comes out to an annual yield of approximately 1.32%.
Matador Resources (NYSE: MTDR) is rated a “Buy” under $65
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group