Matador Resources (MTDR) Q1 Results - April 30
Posted: Thu Apr 30, 2020 1:47 pm
Financial and Operational Highlights for Q1 2020 with my comments in blue.
Oil Equivalent Production
First quarter 2020 average daily oil equivalent production decreased 4% sequentially to 71,200 barrels of oil equivalent (“BOE”) per day (57% oil), as compared to 73,700 BOE per day in the fourth quarter of 2019, and increased 19% year-over-year, as compared to 59,900 BOE per day in the first quarter of 2019. The 4% sequential decline in average daily oil equivalent production was better than expected as the Company had originally projected a sequential decline of 5 to 7% in the first quarter of 2020.
Net Income, Earnings Per Share and Adjusted EBITDA
First quarter 2020 net income (GAAP basis) was $125.7 million, or $1.08 per diluted common share, a five-fold sequential increase from net income of $24.0 million in the fourth quarter of 2019 and a significant year-over-year increase from a net loss of $16.9 million in the first quarter of 2019, due primarily to a $136.4 million non-cash, unrealized gain on derivatives in the first quarter of 2020, as compared to a non-cash, unrealized loss on derivatives of $24.0 million in the fourth quarter of 2019 and a non-cash, unrealized loss on derivatives of $45.7 million in the first quarter of 2019.
First quarter 2020 adjusted net income (a non-GAAP financial measure) was $23.1 million, or $0.20 per diluted common share (compares to my forecast of $7.9 million or $0.07 per share), a 50% sequential decrease from $46.1 million in the fourth quarter of 2019, and a 5% year-over-year increase from $21.9 million in the first quarter of 2019. The sequential decline in adjusted net income was primarily attributable to lower first quarter 2020 realized oil and natural gas prices of $45.87 per barrel and $1.70 per thousand cubic feet, respectively, that were 19% and 26% below fourth quarter 2019 realized oil and natural gas prices of $56.36 per barrel and $2.31 per thousand cubic feet, respectively.
First 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 $140.6 million, a 22% sequential decrease from $181.0 million in the fourth quarter of 2019, and a 13% year-over-year increase from $124.8 million in the first quarter of 2019. The sequential decline in Adjusted EBITDA was also primarily attributable to lower oil and natural gas prices realized in the first quarter of 2020, as compared to the fourth quarter of 2019.
Third-Party Midstream Services Revenues
Third-party midstream services revenues were $15.8 million in the first quarter of 2020, a 10% sequential decrease from $17.7 million in the fourth quarter of 2019, and a 34% year-over-year increase from $11.8 million in the first quarter of 2019. The sequential decline in third-party midstream services revenues was in line with the Company’s expectations and was primarily attributable to a decrease in third-party natural gas gathering and processing revenues in the first quarter of 2020 as market conditions have changed.
Record Low Operating and General and Administrative Unit Costs
Lease operating expenses (“LOE”) in the first quarter of 2020 were $4.77 per BOE, an 8% sequential increase from $4.43 per BOE in the fourth quarter of 2019, but a 17% year-over-year decrease from $5.78 per BOE in the first quarter of 2019. This result was the lowest first quarter LOE per BOE since Matador became a public company and was approximately 20% less than average first quarter LOE per BOE in recent years.
General and administrative expenses (“G&A”) per BOE in the first quarter of 2020 were $2.51 per BOE, a 21% sequential decrease from $3.17 per BOE in the fourth quarter of 2019, and a 26% year-over-year decrease from $3.39 per BOE in the first quarter of 2019. This result was the lowest G&A per BOE in the Company’s history and should trend lower as the aforementioned G&A cost reductions take effect as the year progresses.
Lower Capital Expenditures and Improved Capital Efficiency
Matador incurred capital expenditures for drilling, completing and equipping wells (“D/C/E capital expenditures”) of approximately $169 million in the first quarter of 2020, or 13% below the Company’s estimate for D/C/E capital expenditures of $194 million. Matador estimates that $15 million of these savings were attributable to improved operational efficiencies and lower-than-expected drilling and completion costs in the Delaware Basin.
Drilling and completion costs for all operated horizontal wells completed and turned to sales in the first quarter of 2020 averaged just over $1,000 per completed lateral foot, a decrease of 13% from average drilling and completion costs of $1,165 per completed lateral foot achieved in full year 2019.
Increased and Improved Hedging Positions
Since the beginning of the second quarter of 2020, Matador has restructured portions of its then-existing 2020 West Texas Intermediate (“WTI”) oil hedges, providing additional revenue protection should oil prices remain at currently depressed levels for the remainder of 2020 or should further market disruptions occur. At April 29, 2020, Matador had approximately 10.3 million barrels of oil, or approximately 90% of its anticipated oil production (including all of its anticipated oil production in April through June 2020), hedged for the period April through December 2020 based on the midpoint of its updated 2020 production guidance detailed below. These hedges are at weighted average oil prices of approximately $38.00 to $39.00 per barrel for the period from April through December 2020. The Company also recently began adding new WTI oil hedges for 2021, as well as natural gas hedges for late 2020 and early 2021.
Oil Equivalent Production
First quarter 2020 average daily oil equivalent production decreased 4% sequentially to 71,200 barrels of oil equivalent (“BOE”) per day (57% oil), as compared to 73,700 BOE per day in the fourth quarter of 2019, and increased 19% year-over-year, as compared to 59,900 BOE per day in the first quarter of 2019. The 4% sequential decline in average daily oil equivalent production was better than expected as the Company had originally projected a sequential decline of 5 to 7% in the first quarter of 2020.
Net Income, Earnings Per Share and Adjusted EBITDA
First quarter 2020 net income (GAAP basis) was $125.7 million, or $1.08 per diluted common share, a five-fold sequential increase from net income of $24.0 million in the fourth quarter of 2019 and a significant year-over-year increase from a net loss of $16.9 million in the first quarter of 2019, due primarily to a $136.4 million non-cash, unrealized gain on derivatives in the first quarter of 2020, as compared to a non-cash, unrealized loss on derivatives of $24.0 million in the fourth quarter of 2019 and a non-cash, unrealized loss on derivatives of $45.7 million in the first quarter of 2019.
First quarter 2020 adjusted net income (a non-GAAP financial measure) was $23.1 million, or $0.20 per diluted common share (compares to my forecast of $7.9 million or $0.07 per share), a 50% sequential decrease from $46.1 million in the fourth quarter of 2019, and a 5% year-over-year increase from $21.9 million in the first quarter of 2019. The sequential decline in adjusted net income was primarily attributable to lower first quarter 2020 realized oil and natural gas prices of $45.87 per barrel and $1.70 per thousand cubic feet, respectively, that were 19% and 26% below fourth quarter 2019 realized oil and natural gas prices of $56.36 per barrel and $2.31 per thousand cubic feet, respectively.
First 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 $140.6 million, a 22% sequential decrease from $181.0 million in the fourth quarter of 2019, and a 13% year-over-year increase from $124.8 million in the first quarter of 2019. The sequential decline in Adjusted EBITDA was also primarily attributable to lower oil and natural gas prices realized in the first quarter of 2020, as compared to the fourth quarter of 2019.
Third-Party Midstream Services Revenues
Third-party midstream services revenues were $15.8 million in the first quarter of 2020, a 10% sequential decrease from $17.7 million in the fourth quarter of 2019, and a 34% year-over-year increase from $11.8 million in the first quarter of 2019. The sequential decline in third-party midstream services revenues was in line with the Company’s expectations and was primarily attributable to a decrease in third-party natural gas gathering and processing revenues in the first quarter of 2020 as market conditions have changed.
Record Low Operating and General and Administrative Unit Costs
Lease operating expenses (“LOE”) in the first quarter of 2020 were $4.77 per BOE, an 8% sequential increase from $4.43 per BOE in the fourth quarter of 2019, but a 17% year-over-year decrease from $5.78 per BOE in the first quarter of 2019. This result was the lowest first quarter LOE per BOE since Matador became a public company and was approximately 20% less than average first quarter LOE per BOE in recent years.
General and administrative expenses (“G&A”) per BOE in the first quarter of 2020 were $2.51 per BOE, a 21% sequential decrease from $3.17 per BOE in the fourth quarter of 2019, and a 26% year-over-year decrease from $3.39 per BOE in the first quarter of 2019. This result was the lowest G&A per BOE in the Company’s history and should trend lower as the aforementioned G&A cost reductions take effect as the year progresses.
Lower Capital Expenditures and Improved Capital Efficiency
Matador incurred capital expenditures for drilling, completing and equipping wells (“D/C/E capital expenditures”) of approximately $169 million in the first quarter of 2020, or 13% below the Company’s estimate for D/C/E capital expenditures of $194 million. Matador estimates that $15 million of these savings were attributable to improved operational efficiencies and lower-than-expected drilling and completion costs in the Delaware Basin.
Drilling and completion costs for all operated horizontal wells completed and turned to sales in the first quarter of 2020 averaged just over $1,000 per completed lateral foot, a decrease of 13% from average drilling and completion costs of $1,165 per completed lateral foot achieved in full year 2019.
Increased and Improved Hedging Positions
Since the beginning of the second quarter of 2020, Matador has restructured portions of its then-existing 2020 West Texas Intermediate (“WTI”) oil hedges, providing additional revenue protection should oil prices remain at currently depressed levels for the remainder of 2020 or should further market disruptions occur. At April 29, 2020, Matador had approximately 10.3 million barrels of oil, or approximately 90% of its anticipated oil production (including all of its anticipated oil production in April through June 2020), hedged for the period April through December 2020 based on the midpoint of its updated 2020 production guidance detailed below. These hedges are at weighted average oil prices of approximately $38.00 to $39.00 per barrel for the period from April through December 2020. The Company also recently began adding new WTI oil hedges for 2021, as well as natural gas hedges for late 2020 and early 2021.