Energy Prospectus

At the time of this post MTDR was trading at $69.80.

TipRanks: "In the last 3 months, 9 ranked analysts set 12-month price targets for MTDR. The average price target among the analysts is $77.67. The nine price targets range from $67 to $95."

Matador's Q3 results were strong, beating my forecast. I have updated my current valuation by $11 to $93.

Matador has been moved into the "Elite Eight", replacing Continental Resources (CLR) that will be going private.
> My valuation is based on 5X annualized operating cash flow for 2022 & 2023 (I double weight 2022 CFPS).
> 5X CFPS is a conservative multiple for this Aggressive Growth company that is generating a lot of free cash flow (over $1.2 billion FCF per my model).
> Matador should be able to fund double digit production growth entirely with operating cash flow.
2020A: 13.6% production growth despite the impact of the pandemic
2021A: 14.6% production growth
2022E: 21.0% production growth based on their Q4 guidance
2023E: 12.3% production growth based on my forecast, which is probably too low.

> Matador's balance sheet is in good shape with no near-term debt problems. They will continue to payoff debt with FCF.
> Matador has a relatively low amount of common stock outstanding (118.2 million), so I expect them to keep raising their dividend and/or make more strategic acquisitions with FCF.
> They have a lot of high-quality drilling locations in the Permian Basin (lots of "running room").
> They also have a very profitable mid-stream business.

Truists Financial's price target is $96.00

Matador Resources Company (MTDR)
3Q22 Beat and Improved 2022 Guide as Capex Remains Notably Positive

Matador beat 3Q22 estimates across the board with EPS, EBITDA, and FCF all coming in
better than expected as higher volumes and lower spend from DE outweighed lower than
our/street pricing estimates resulting in notably higher revenues. Minimal cash taxes in the
quarter also added another ~$20mm to FCF versus our forecasts. Capital guidance was
reiterated, citing strong efficiencies including the recently added seventh rig while FY22
volumes were raised yet again though 4Q22 guidance is in-line with consensus. All-in-all,
the release was largely positive with MTDR’s differentiated strategy of prioritizing operations/
value creation over shareholder returns currently showing success. We remain focused on
what management intends to do with FCF as net debt potentially hits negative levels.

Financial/Operational Updates
• Strong Delaware Basin well results drove production levels higher than expected by the
company/us/street
• Seventh rig picked up in 3Q22 helping drive efficiencies to offset some inflation
• D&C costs per foot in the quarter increased q/q, however the FY22 average target of
$890/ft remained unchanged
• Cash taxes were remarkably lower than expected, coming in <$1mm versus our ~$19mm
estimate, driving part of the FCF beat
• San Mateo water handling volumes hit an all-time high, growing 3% q/q, however total
segment EBITDA dropped on the back of lower other throughput volumes

Guidance Updates
• FY22 capex was held flat at $815-895mm versus Truist Securities & Street estimates of
$857mm/$879mm
• FY22 production guidance was raised by 1% (gas volumes raised more than oil) to 104
mboepd versus Truist Securities & Street estimates of 103/104 mboepd
• 4Q22 capex guidance of $238mm versus Truist Securities & Street estimates of $216mm/
$214mm
• 4Q22 production guidance of 107.7 mboepd versus Truist Securities & Street estimates
of 107/108 mboepd
• Production tax/P&T expense was guided lower, while midstream expense was guided
higher, but the net effect was a lower overall cost profile

Raymond James' price target is $78.00

Pronto midstream integration highlights yet another quarter of outperformance.
MTDR’s 3Q22 performance was solid — the company again posted beats up and down
the board, surpassing RJE/Street on natural gas (by ~3%), overall production (by ~1%/2%,
respectively) and EBITDA (by ~7%/~4%, respectively). Capital spend was much the same
— 3Q capex of ~$257M beat RJE/Street by ~7%/8%, respectively, highlighting MTDR’s
continued focus on capital efficiency. Switching to midstream, MTDR posted quarterly
records on third-party midstream services revenue ($24.7M) and average water handling
(358 Mbbl/d). Furthermore, MTDR successfully integrated the company’s Pronto acquisition
by quarter’s end, giving San Mateo ~45 miles of additional pipeline, 3 compression stations
and ~50 MMcf/d added natural gas takeaway capacity to Waha, notable given the Permian’s
rising gas differentials.