Energy Prospectus

Matador reported strong Q2 results:

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. < This compares to my forecast of 47,000 BOE/day.

• 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. < This compares to my forecast of $0.37 EPS.

• 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.

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.

Total Oil Production 7.9 million Bbl 9.7 to 10.1 million Bbl increased to 10.6 to 10.9 million Bbl + 37%
Total Natural Gas Production 38.2 Bcf 41.0 to 43.0 Bcf increased to 46.0 to 47.0 Bcf + 22%

On August 3, 2018 two Wall Street analysts updated their valuations/price targets for Matador:
> Irene Haas at Imperial Capital rates it a BUY with a price target of $45
> Jeff Grampp at Northland Securities rates it a BUY with a price target of $39

I have updated my forecast/valuation model for MTDR for their outstanding Q2 results and increased production guidance. My valuation increases by $1.00 to $42.00/share. The only reason that I am not valuing it a lot higher is because this company does have a lot of exposure to the Midland Basin oil prices. Just keep in mind that the Permian pipeline takeaway problem is short-term and oil price should move quickly toward WTI in the second half of 2019. Plus, Matador can shift more focus to their Eagle Ford leasehold development.

Per Matador's press release:
"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."