Matador Resources – mixed Q1 results

[Petroleum economist]

Matador is a mid-size US oil company, producing oil and gas from the Delaware basin in Texas and New Mexico.

Summary
Matador reported mixed Q1 results. Q1 production was slightly above expectation and looks to peak in Q2. After 2025 production can continue to grow. The balance sheet is in a reasonable shape. Matador is a profitable company with a low PE. Q1 profits were lower than expected due to higher costs. The shareholder returns are moderate but can increase over time.

Out of 85 oil and gas companies in my oil and gas ranking, Matador ranks in the top 25 at a good 13th position.

Production
• Q1 production (198.9 K BoE/d) was above the guidance of 195-197 K BoE/d. I had expected a production of 197 K BoE/d. Production was slightly down versus Q4 (201 K BoE/d).
• The increase in Q1 production was mostly realized in gas. Q1 production consisted of 57.9% oil and 42.1% gas.
• Q2 production outlook is 206-208 K BoE/d. The increase is due to the commissioning of a series of wells in late Q1. Based on the 2025 outlook, Q2 seems to be the peak production in 2025.
• Matador lowered the 2025 production outlook with 2% from 202-208 K BoE/d to 198-202 K BoE/d, reducing 2025 capex with $ 100 M in the process.
• After 2025 I expect production to grow.
• Matador had in 2024 proven reserves of 611.5 M BoE, equivalent to 8.3 years of 2025 production. Combined with a high RRR (1.68 over period 2019-2024), I believe that the Matador production can grow to 226-228 K BoE/d in 2029.

Balance sheet
• Matador has an acceptable balance sheet.
• The equity ratio (=equity/balance sheet total) was a reasonable 50.9% in Q1, slightly above the 50.3% in late 2024.
• The long-term debt decreased from $ 3,325 M (late 2024) to $ 3,175 M (Q1).
• The debt/EBITDA ratio in Q1 is a reasonable 1.18.
• The balance sheet allows moderate shareholder returns.

Profitability
• Matador is a profitable company.
• Q1 profits (eps=$ 1.99) was below my expectation as realized gas prices were lower than expected and costs (transportation, lease and operating) were higher than expected.
• With WTI at $ 60-65/bbl, I expect 2025 eps to reach $ 6.00-6.90 (PE is a low 5.9-6.8).
• After 2025 the eps can remain more or less flat and may reach $ 5.80-7.20 (PE=5.7-7.0) in 2029.

Shareholder returns
• Matador pays a quarterly dividend of $ 0.3125 or $ 1.25 on an annual basis.
• Matador did not buy back any shares in Q1.
• Matador announced the intention to buy back shares for $ 400 M, although no time frame was set.
• The balance sheet does not allow such buybacks. Therefore, I assume the share buybacks are dependent on the realization of the intended sale of $ 400 M of non-core assets.
• The dividends are equivalent to moderate shareholder returns of 3.2%. The $ 400 M share buybacks (if they happen in 2025) can add 7.8% to this.
• After 2025, with a gradually improving balance sheet, shareholder returns can increase and reach 7-10% in 2029.

Conclusions
Matador reported mixed Q1 results. Q1 production was slightly above expectation and looks to peak in Q2. After 2025 production can continue to grow. The balance sheet is in a reasonable shape. Matador is a profitable company with a low PE. Q1 profits were lower than expected due to higher costs. The shareholder returns are moderate but can increase over time.

Out of 85 oil and gas companies in my oil and gas ranking, Matador ranks in the top 25 at a good 13th position.

[dan_s]

I have been following Matador for over ten years. The CEO likes to "Under-Promise and Over-Deliver" on production guidance. I use the high end of their guidance in my forecast, and they still beat it almost every quarter.

This one is a "Drill Baby Drill" company.