Matador Resources (MTDR) Update - Dec 7

[dan_s]

I just finished updating my forecast/valuation model and profile for Matador. The company will be moving back to our Sweet 16 Growth Portfolio on January 1, 2022.

At the time of this post, MTDR is trading at $41. My current valuation is $58.

TipRanks: "Since 10-26-2021 5 ranked analysts set 12-month price targets for MTDR that range from $44.00 to $65.00. The average price target among the analysts is $55.60."

Matador's production will be down from Q3 to Q4 because they need to temporarily shut-in some wells to complete 11 new high-rate horizontal wells in Q4. I expect the company's 2021 exit rate to be near 92,000 Boepd (~56% crude oil). In addition to ~12% YOY production growth in 2022, Matador will have a lot more unhedged production next year that should increase operating cash flow from $1.0 Billion in 2021 to over $1.4 Billion in 2022. A D&C capital program of $0.7 Billion should fund a 5-6 rig drilling program. This company has a lot of running room in West Texas.

When you look at the forecast model keep in mind that Matador reports natural gas and NGLs on a combined basis, which explains why their realized natural gas price in Q3 2021 was $6.05/mcfe. Their Delaware Basin wells do produce a lot of NGLs, so my 2022 forecast assumes a realized ngas price of $6.00/mcfe, which is probably too low.

There is upside to my valuation if oil prices rebound to over $80/bbl and/or if Matador's production guidance for 2022 meets or exceeds my production forecast of 95,000 Boepd. Their most recent Delaware Basin wells have been coming online at more than pre-drill estimates.