Energy Prospectus

“The fourth quarter of 2021 was another excellent quarter for Matador yielding strong production and financial results that contributed significantly to our record results for full year 2021. During the fourth quarter, Matador achieved better-than-expected oil, natural gas and total oil equivalent production and record oil and natural gas revenues, net income and Adjusted EBITDA (see Slide B). San Mateo also finished 2021 on a high note, including better-than-expected financial results (see Slide C).

“Net cash provided by operating activities in the fourth quarter was $334.5 million, a 15% sequential increase, leading to fourth quarter 2021 adjusted free cash flow of $119.3 million. < Beat my operating cash flow forecast for Q4 of $293.7 million.

This adjusted free cash flow included $11.0 million in performance incentives received by Matador from our midstream joint venture partner, Five Point Energy LLC, for the 11 Boros wells turned to sales and connected to San Mateo during the second half of 2021. Matador repaid $20 million in borrowings outstanding under its reserves based revolving credit facility in the fourth quarter of 2021 and reduced the borrowings outstanding under its reserves-based revolving credit facility to $100 million at December 31, 2021 from $440 million at year-end 2020. Matador expects to repay another $25 million in borrowings outstanding by the end of February 2022, and as a result of these repayments, Matador expects to reduce the borrowings outstanding under the reserves-based revolving credit facility to $75 million, a reduction of $400 million, when compared to $475 million at the end of the third quarter of 2020. Matador’s leverage ratio under the reserves-based revolving credit facility declined to 1.1x at year-end 2021, a significant reduction from 2.9x at year-end 2020, and, again, marking Matador’s lowest leverage ratio since mid-2014.

Fourth quarter 2021 adjusted net income (a non-GAAP financial measure) was $151.2 million, or adjusted net income of $1.26 per diluted common share, a sequential increase from adjusted net income of $148.6 million in the third quarter of 2021, and a significant year-over-year increase from adjusted net income of $32.3 million in the fourth quarter of 2020. < Adjusted Net Income compares to my forecast of $146.8 million.

MTDR closed at $43.71 on Feb 23

I have updated my forecast/valuation for Q4 2021 results and the company's detailed guidance.
Matador is one of the most aggressive growth companies in our three model portfolios. They increased production by 13.6% in 2020, 14.6% in 2021 and they are adding a sixth drilling rig with the goal of increasing production by 18% to 20% in 2022. This company "under-promises and over-delivers" so I have a high level of confidence in my forecast that is based on the mid-point of their production guidance.

Only ~25% of the oil and ~60% of their natural gas is hedged for 2022, ALL WITH COLLARS THAT HAVE CEILING ARE NEAR OR ABOVE THE OIL AND GAS PRICES USED IN MY FORECAST MODELS.

Based on my forecast model, Matador should generate close to $1.6 billion of operating cash flow this year. This compares to the high end of their capex budget, which is $770 million. So, Matador should generate over $800 million of free cash flow this year.

My valuation increases by $5 to $67/share.

Today three highly respected analysts submitted updated price targets to TipRanks:
> Michael Scialla at Stifel Nicolaus rates MTDR a Buy with a price target of $58.00
> Scott Hanold at RBC Capital rates MTDR a Buy with a price target of $57.00
> Gabriele Sorbara at Siebert Williams Shank & Co rates MTDR a Buy with a price target of $61.00