Matador Resources Co 10-Q for FY2021 Q3
Matador Resources Co (MTDR)
10-Q
2021-10-29
For: 2021-09-30
View Original
Added on
April 08, 2026
About this 10-Q
Matador Resources Co filed this 10-Q on October 29, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $472.35M
- up 132.2% from $203.39M a year earlier
- Net income
- $203.63M
- compared with a net loss of $276.06M a year earlier
- Diluted EPS
- $1.71
- compared with -$2.38 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________
FORM 10-Q
_________________________________________________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number 001-35410
_________________________________________________________
(Exact name of registrant as specified in its charter)
_________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
(972 ) 371-5200
(Registrant’s telephone number, including area code)
_________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of October 26, 2021, there were 117,335,598 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
MATADOR RESOURCES COMPANY
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
| Page | |||||
Part I — FINANCIAL INFORMATION
Item 1. Financial Statements — Unaudited
Matador Resources Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED
(In thousands, except par value and share data)
| September 30, 2021 | December 31, 2020 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Accounts receivable | |||||||||||
| Oil and natural gas revenues | |||||||||||
| Joint interest billings | |||||||||||
| Other | |||||||||||
| Derivative instruments | |||||||||||
| Lease and well equipment inventory | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, at cost | |||||||||||
| Oil and natural gas properties, full-cost method | |||||||||||
| Evaluated | |||||||||||
| Unproved and unevaluated | |||||||||||
| Midstream properties | |||||||||||
| Other property and equipment | |||||||||||
| Less accumulated depletion, depreciation and amortization | ( | ( | |||||||||
| Net property and equipment | |||||||||||
| Other assets | |||||||||||
| Derivative instruments | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Royalties payable | |||||||||||
| Amounts due to affiliates | |||||||||||
| Derivative instruments | |||||||||||
| Advances from joint interest owners | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities | |||||||||||
| Borrowings under Credit Agreement | |||||||||||
| Borrowings under San Mateo Credit Facility | |||||||||||
| Senior unsecured notes payable | |||||||||||
| Asset retirement obligations | |||||||||||
| Derivative instruments | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term liabilities | |||||||||||
| Total long-term liabilities | |||||||||||
| Commitments and contingencies (Note 9) | |||||||||||
| Shareholders’ equity | |||||||||||
Common stock - $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
Treasury stock, at cost, | ( | ( | |||||||||
| Total Matador Resources Company shareholders’ equity | |||||||||||
| Non-controlling interest in subsidiaries | |||||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these financial statements.
3
Matador Resources Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
(In thousands, except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Oil and natural gas revenues | $ | $ | $ | $ | |||||||||||||||||||
| Third-party midstream services revenues | |||||||||||||||||||||||
| Sales of purchased natural gas | |||||||||||||||||||||||
| Lease bonus - mineral acreage | |||||||||||||||||||||||
| Realized (loss) gain on derivatives | ( | ( | ( | ||||||||||||||||||||
| Unrealized gain (loss) on derivatives | ( | ( | ( | ||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Production taxes, transportation and processing | |||||||||||||||||||||||
| Lease operating | |||||||||||||||||||||||
| Plant and other midstream services operating | |||||||||||||||||||||||
| Purchased natural gas | |||||||||||||||||||||||
| Depletion, depreciation and amortization | |||||||||||||||||||||||
| Accretion of asset retirement obligations | |||||||||||||||||||||||
| Full-cost ceiling impairment | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Operating income (loss) | ( | ( | |||||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||
| Net loss on asset sales and impairment | ( | ( | ( | ||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other (expense) income | ( | ( | ( | ||||||||||||||||||||
| Total other expense | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) before income taxes | ( | ( | |||||||||||||||||||||
| Income tax provision (benefit) | |||||||||||||||||||||||
| Deferred | ( | ( | |||||||||||||||||||||
| Income tax (benefit) provision | ( | ( | |||||||||||||||||||||
| Net income (loss) | ( | ( | |||||||||||||||||||||
| Net income attributable to non-controlling interest in subsidiaries | ( | ( | ( | ( | |||||||||||||||||||
| Net income (loss) attributable to Matador Resources Company shareholders | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Earnings (loss) per common share | |||||||||||||||||||||||
| Basic | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Diluted | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
4
Matador Resources Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED
(In thousands)
For the Three and Nine Months Ended September 30, 2021
| Total shareholders’ equity attributable to Matador Resources Company | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest in subsidiaries | Total shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional paid-in capital | Accumulated deficit | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to employee stock compensation plan | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to directors’ and advisors’ compensation plan | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense related to equity-based awards including amounts capitalized | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised, net of options forfeited in net share settlements | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeited | — | — | ( | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contribution related to formation of San Mateo (see Note 6) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest owners of less-than-wholly-owned subsidiaries | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to employee stock compensation plan | ( | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to directors’ and advisors’ compensation plan | ( | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense related to equity-based awards including amounts capitalized | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised, net of options forfeited in net share settlements | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeited | — | — | ( | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contribution related to formation of San Mateo (see Note 6) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest owners of less-than-wholly-owned subsidiaries | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
5
Matador Resources Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED
(In thousands)
For the Three and Nine Months Ended September 30, 2021
| Total shareholders’ equity attributable to Matador Resources Company | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest in subsidiaries | Total shareholders’ equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional paid-in capital | Accumulated deficit | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to employee stock compensation plan | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense related to equity-based awards including amounts capitalized | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised, net of options forfeited in net share settlements | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeited | — | — | ( | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contribution related to formation of San Mateo, net of tax of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest owners of less-than-wholly-owned subsidiaries | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
6
Matador Resources Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED
(In thousands)
For the Three and Nine Months Ended September 30, 2020
| Total shareholders’ equity attributable to Matador Resources Company | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest in subsidiaries | Total shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional paid-in capital | Accumulated deficit | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to employee stock compensation plan | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to directors’ and advisors’ compensation plan | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense related to equity-based awards including amounts capitalized | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised, net of options forfeited in net share settlements | — | — | ( | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liability-based stock option awards settled in equity | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeited | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contribution related to formation of San Mateo, net of tax of $ | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contributions from non-controlling interest owners of less-than-wholly-owned subsidiaries, net of tax of $ | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest owners of less-than-wholly-owned subsidiaries | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to employee stock compensation plan | ( | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to directors’ and advisors’ compensation plan | ( | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense related to equity-based awards including amounts capitalized | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeited | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contributions from non-controlling interest owners of less-than-wholly-owned subsidiaries, net of tax of $ | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest owners of less-than-wholly-owned subsidiaries | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period net (loss) income | — | — | — | ( | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
7
Matador Resources Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED
(In thousands)
For the Three and Nine Months Ended September 30, 2020
| Total shareholders’ equity attributable to Matador Resources Company | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest in subsidiaries | Total shareholders’ equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional paid-in capital | Accumulated deficit | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense related to equity-based awards including amounts capitalized | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeited | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from non-controlling interest owners of less-than-wholly-owned subsidiaries | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest owners of less-than-wholly-owned subsidiaries | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current period net (loss) income | — | — | — | ( | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
8
Matador Resources Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
(In thousands)
| Nine Months Ended September 30, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Operating activities | |||||||||||||||||
| Net income (loss) | $ | $ | ( | ||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities | |||||||||||||||||
| Unrealized loss on derivatives | |||||||||||||||||
| Depletion, depreciation and amortization | |||||||||||||||||
| Accretion of asset retirement obligations | |||||||||||||||||
| Full-cost ceiling impairment | |||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||
| Deferred income tax provision (benefit) | ( | ||||||||||||||||
| Amortization of debt issuance cost | |||||||||||||||||
| Net loss on asset sales and impairment | |||||||||||||||||
| Changes in operating assets and liabilities | |||||||||||||||||
| Accounts receivable | ( | ||||||||||||||||
| Lease and well equipment inventory | ( | ( | |||||||||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||||||||
| Other long-term assets | |||||||||||||||||
| Accounts payable, accrued liabilities and other current liabilities | ( | ||||||||||||||||
| Royalties payable | ( | ||||||||||||||||
| Advances from joint interest owners | ( | ||||||||||||||||
| Other long-term liabilities | ( | ( | |||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| Investing activities | |||||||||||||||||
| Drilling, completion and equipping capital expenditures | ( | ( | |||||||||||||||
| Acquisition of oil and natural gas properties | ( | ( | |||||||||||||||
| Midstream capital expenditures | ( | ( | |||||||||||||||
| Expenditures for other property and equipment | ( | ( | |||||||||||||||
| Proceeds from sale of assets | |||||||||||||||||
| Net cash used in investing activities | ( | ( | |||||||||||||||
| Financing activities | |||||||||||||||||
| Repayments of borrowings under Credit Agreement | ( | ||||||||||||||||
| Borrowings under Credit Agreement | |||||||||||||||||
| Repayments of borrowings under San Mateo Credit Facility | ( | ||||||||||||||||
| Borrowings under San Mateo Credit Facility | |||||||||||||||||
| Cost to amend credit facilities | ( | ( | |||||||||||||||
| Proceeds from stock options exercised | |||||||||||||||||
| Dividends paid | ( | ||||||||||||||||
| Contributions related to formation of San Mateo | |||||||||||||||||
| Contributions from non-controlling interest owners of less-than-wholly-owned subsidiaries | |||||||||||||||||
| Distributions to non-controlling interest owners of less-than-wholly-owned subsidiaries | ( | ( | |||||||||||||||
| Taxes paid related to net share settlement of stock-based compensation | ( | ( | |||||||||||||||
| Other | ( | ||||||||||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||||||||
| Increase in cash and restricted cash | |||||||||||||||||
| Cash and restricted cash at beginning of period | |||||||||||||||||
| Cash and restricted cash at end of period | $ | $ | |||||||||||||||
| Supplemental disclosures of cash flow information (Note 10) | |||||||||||||||||
The accompanying notes are an integral part of these financial statements.
9
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED
NOTE 1 — NATURE OF OPERATIONS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements, Basis of Presentation, Consolidation and Significant Estimates
The interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) but do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 26, 2021 (the “Annual Report”). The Company consolidates certain subsidiaries and joint ventures that are less than wholly-owned and are not involved in oil and natural gas exploration, including San Mateo, and the net income and equity attributable to the non-controlling interest in these subsidiaries have been reported separately as required by Accounting Standards Codification, Consolidation (Topic 810). The Company proportionately consolidates certain joint ventures that are less than wholly-owned and are involved in oil and natural gas exploration. All intercompany accounts and transactions have been eliminated in consolidation. In management’s opinion, these interim unaudited condensed consolidated financial statements include all normal, recurring adjustments that are necessary for a fair presentation of the Company’s interim unaudited condensed consolidated financial statements as of September 30, 2021. Amounts as of December 31, 2020 are derived from the Company’s audited consolidated financial statements included in the Annual Report.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s interim unaudited condensed consolidated financial statements are based on a number of significant estimates, including oil and natural gas revenues, accrued assets and liabilities, stock-based compensation, valuation of derivative instruments, deferred tax assets and liabilities and oil and natural gas reserves. The estimates of oil and natural gas reserves quantities and future net cash flows are the basis for the calculations of depletion and impairment of oil and natural gas properties, as well as estimates of asset retirement obligations and certain tax accruals. While the Company believes its estimates are reasonable, changes in facts and assumptions or the discovery of new information may result in revised estimates. Actual results could differ from these estimates.
10
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Continued
Revenues
The following table summarizes the Company’s total revenues and revenues from contracts with customers on a disaggregated basis for the three and nine months ended September 30, 2021 and 2020 (in thousands).
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenues from contracts with customers | $ | $ | $ | $ | |||||||||||||||||||
| Lease bonus - mineral acreage | |||||||||||||||||||||||
| Realized (loss) gain on derivatives | ( | ( | ( | ||||||||||||||||||||
| Unrealized gain (loss) on derivatives | ( | ( | ( | ||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Oil revenues | $ | $ | $ | $ | |||||||||||||||||||
| Natural gas revenues | |||||||||||||||||||||||
| Third-party midstream services revenues | |||||||||||||||||||||||
| Sales of purchased natural gas | |||||||||||||||||||||||
| Total revenues from contracts with customers | $ | $ | $ | $ | |||||||||||||||||||
Property and Equipment
The Company uses the full-cost method of accounting for its investments in oil and natural gas properties. Under this method, the Company is required to perform a ceiling test each quarter that determines a limit, or ceiling, on the capitalized costs of oil and natural gas properties based primarily on the after-tax estimated future net cash flows from oil and natural gas properties using a 10 % discount rate and the arithmetic average of first-day-of-the-month oil and natural gas prices for the prior 12-month period. For the three and nine months ended September 30, 2021, the cost center ceiling was higher than the capitalized costs of oil and natural gas properties, and, as a result, no 189.1 million. As a result, the Company recorded an impairment charge of $251.2 million to its net capitalized costs and a deferred income tax benefit of $62.1 million at September 30, 2020. At June 30, 2020, the Company’s net capitalized costs less related deferred income taxes exceeded the full-cost ceiling by $243.9 million. As a result, the Company recorded an impairment charge of $324.0 million to its net capitalized costs and a deferred income tax benefit of $80.1 million at June 30, 2020. These charges are reflected in the Company’s interim condensed consolidated statements of operations for the three and nine months ended September 30, 2020.
The Company capitalized approximately $9.9 million and $7.6 million of its general and administrative costs and approximately $1.5 million and $2.0 million of its interest expense for the three months ended September 30, 2021 and 2020, respectively. The Company capitalized approximately $28.6 million and $23.9 million of its general and administrative costs and approximately $3.9 million and $5.2 million of its interest expense for the nine months ended September 30, 2021 and 2020, respectively.
Earnings Per Common Share
The Company reports basic earnings attributable to Matador shareholders per common share, which excludes the effect of potentially dilutive securities, and diluted earnings attributable to Matador shareholders per common share, which includes the effect of all potentially dilutive securities unless their impact is anti-dilutive.
11
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Continued
The following table sets forth the computation of diluted weighted average common shares outstanding for the three and nine months ended September 30, 2021 and 2020 (in thousands).
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Dilutive effect of options and restricted stock units | |||||||||||||||||||||||
| Diluted weighted average common shares outstanding | |||||||||||||||||||||||
A total of 1.3 million options to purchase shares of Matador’s common stock were excluded from the diluted weighted average common shares outstanding for the nine months ended September 30, 2021 because their effects were anti-dilutive. A total of 2.5 million options to purchase shares of Matador’s common stock were excluded from the diluted weighted average common shares outstanding for both the three and nine months ended September 30, 2020, respectively, because their effects were anti-dilutive. Additionally, 0.7 million and 0.6 million restricted shares, which are participating securities, were excluded from the calculations above for the three and nine months ended September 30, 2020, respectively, as the security holders do not have the obligation to share in the losses of the Company.
NOTE 3 — ASSET RETIREMENT OBLIGATIONS
The following table summarizes the changes in the Company’s asset retirement obligations for the nine months ended September 30, 2021 (in thousands).
| Beginning asset retirement obligations | $ | ||||
| Liabilities incurred during period | |||||
| Liabilities settled during period | ( | ||||
| Divestitures during period | ( | ||||
| Accretion expense | |||||
| Ending asset retirement obligations | |||||
Less: current asset retirement obligations(1) | ( | ||||
| Long-term asset retirement obligations | $ | ||||
_______________
(1)Included in accrued liabilities in the Company’s interim unaudited condensed consolidated balance sheet at September 30, 2021.
NOTE 4 — DEBT
At September 30, 2021, the Company had (i) $1.05 billion of outstanding senior notes due 2026 (the “Notes”), (ii) $120.0 million in borrowings outstanding under its reserves-based revolving credit facility (the “Credit Agreement”), (iii) approximately $45.8 million in outstanding letters of credit issued pursuant to the Credit Agreement and (iv) $7.5 million outstanding under an unsecured U.S. Small Business Administration loan. Between September 30, 2021 and October 26, 2021, the Company repaid $20.0 million of borrowings under the Credit Agreement.
At September 30, 2021, San Mateo had $357.5 million in borrowings outstanding under its revolving credit facility (the “San Mateo Credit Facility”) and approximately $9.0 million in outstanding letters of credit issued pursuant to the San Mateo Credit Facility. Between September 30, 2021 and October 26, 2021, San Mateo repaid $10.0 million of borrowings under the San Mateo Credit Facility.
12
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 4 — DEBT — Continued
Credit Agreements
MRC Energy Company
The borrowing base under the Credit Agreement is determined semi-annually as of May 1 and November 1 by the lenders based primarily on the estimated value of the Company’s proved oil and natural gas reserves at December 31 and June 30 of each year, respectively. The Company and the lenders may each request an unscheduled redetermination of the borrowing base once between scheduled redetermination dates. In April 2021, the lenders completed their review of the Company’s proved oil and natural gas reserves, and, as a result, the borrowing base was reaffirmed at $900.0 million. The Company elected to keep the borrowing commitment at $700.0 million, the maximum facility amount remained $1.5 billion and no material changes were made to the terms of the Credit Agreement. This April 2021 redetermination constituted the regularly scheduled May 1 redetermination. Borrowings under the Credit Agreement are limited to the lowest of the borrowing base, the maximum facility amount and the elected commitment (subject to compliance with the covenant noted below). The Credit Agreement matures October 31, 2023.
The Credit Agreement requires the Company to maintain a debt to EBITDA ratio, which is defined as debt outstanding (net of up to $50.0 million of cash or cash equivalents), divided by a rolling four quarter EBITDA calculation, of 4.0 or less. The Company believes that it was in compliance with the terms of the Credit Agreement at September 30, 2021.
San Mateo Midstream, LLC
The San Mateo Credit Facility is non-recourse with respect to Matador and its wholly-owned subsidiaries but is guaranteed by San Mateo’s subsidiaries and secured by substantially all of San Mateo’s assets, including real property. The San Mateo Credit Facility matures December 19, 2023 and was amended in June 2021 to increase the lender commitments under the revolving credit facility from $375.0 million to $450.0 million (subject to San Mateo’s compliance with the covenants noted below) and to increase the borrowing rate for a base rate loan or a Eurodollar loan under such facility by 0.50 %. The San Mateo Credit Facility includes an accordion feature, which, after the aforementioned amendment, provides for potential increases in lender commitments to up to $700.0 million.
The San Mateo Credit Facility requires San Mateo to maintain a debt to EBITDA ratio, which is defined as total consolidated funded indebtedness outstanding (as defined in the San Mateo Credit Facility) divided by a rolling four quarter EBITDA calculation, of 5.0 or less, subject to certain exceptions. The San Mateo Credit Facility also requires San Mateo to maintain an interest coverage ratio, which is defined as a rolling four quarter EBITDA calculation divided by San Mateo’s consolidated interest expense, of 2.5 or more. The San Mateo Credit Facility also restricts the ability of San Mateo to distribute cash to its members if San Mateo’s liquidity is less than 10 % of the lender commitments under the San Mateo Credit Facility. The Company believes that San Mateo was in compliance with the terms of the San Mateo Credit Facility at September 30, 2021.
Senior Unsecured Notes
At September 30, 2021, the Company had $1.05 billion of outstanding Notes, which have a 5.875 % coupon rate. The Notes mature September 15, 2026, and interest is payable on the Notes semi-annually in arrears on each March 15 and September 15. The Notes are guaranteed on a senior unsecured basis by certain subsidiaries of the Company.
NOTE 5 — INCOME TAXES
As a result of the full-cost ceiling impairments recorded in 2020, the Company recognized a valuation allowance against its net deferred tax assets for the three and nine months ended September 30, 2020. Due to a variety of factors, including the Company’s significant net income during the nine months ended September 30, 2021, the Company’s federal valuation allowance was reversed as of September 30, 2021 as the deferred tax assets were determined to be more likely than not to be utilized. As a portion of the Company’s state net operating loss carryforwards are not expected to be utilized, a valuation allowance will continue to be recognized until the state deferred tax assets are more likely than not to be utilized.
The Company recorded an income tax benefit of $6.7 million and an income tax provision of $1.5 million for the three and nine months ended September 30, 2021, respectively. The Company’s income tax position for the three and nine months ended September 30, 2021 differed from amounts computed by applying the U.S. federal statutory rate to the pre-tax income due primarily to the impact of reversing the Company’s federal valuation allowance as of September 30, 2021, as well as permanent differences between book and tax income and state taxes, primarily in New Mexico.
13
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
UNAUDITED - CONTINUED
NOTE 6 — EQUITY
Stock-based Compensation
During the nine months ended September 30, 2021, the Company granted awards to certain of its employees of 334,649 service-based restricted stock units to be settled in cash, which are liability instruments, and 366,500 performance-based stock units and 334,876 shares of restricted stock, which are equity instruments. The performance-based stock units vest in an amount between zero and 200 % of the target units granted based on the Company’s relative total shareholder return over the three-year period ending December 31, 2023, as compared to a designated peer group. The service-based restricted stock units to be settled in cash vest ratably over three years , and the equity instruments are eligible to vest after three years . The fair value of these awards was approximately $43.3 million on the grant date.
Common Stock Dividend
The Company’s Board of Directors (the “Board”) declared a quarterly cash dividend of $0.025 2.9 0.05 per share of common stock payable on December 1, 2021 to shareholders of record as of November 10, 2021.
San Mateo Distributions and Contributions
During the three months ended September 30, 2021 and 2020, San Mateo distributed $17.6 million and $11.2 million, respectively, to the Company and $16.9 million and $10.8 million, respectively, to a subsidiary of Five Point Energy LLC, the Company’s joint venture partner (“Five Point”). During the nine months ended September 30, 2021 and 2020, San Mateo distributed $47.7 million and $34.2 million, respectively, to the Company and $45.8 million and $32.8 million, respectively, to Five Point.
During the three and nine months ended September 30, 2021, there were no 36.8 million and Five Point contributed $31.9 million of cash to San Mateo. During the nine months ended September 30, 2020, the Company contributed $59.7 million and Five Point contributed $99.0 million of cash to San Mateo, of which $23.1 million was paid to carry Matador’s proportionate interest in San Mateo. The portion of the amount contributed by Five Point to carry Matador’s proportionate interest was recorded in “Additional paid-in capital” in the Company’s interim unaudited condensed consolidated balance sheets for the nine ended September 30, 2020, net of the $4.8 million deferred tax impact to Matador related to this equity contribution.
Performance Incentives
Five Point paid to the Company $6.0 million in performance incentives during the three months ended September 30, 2021. No performance incentives were paid by Five Point to the Company during the three months ended September 30, 2020. Five Point paid to the Company $37.6 million and $14.7 million in performance incentives during the nine months ended September 30, 2021 and 2020, respectively. These performance incentives are recorded when received, net of the $1.3 million and $3.1 million deferred tax impact to Matador during the nine months ended September 30, 2021 and 2020, respectively, in “Additional paid-in capital” in the Company’s interim unaudited condensed consolidated balance sheets. These performance incentives for the three and nine months ended September 30, 2021 and 2020 are also denoted as “Contributions related to formation of San Mateo” under “Financing activities” in the Company’s interim unaudited condensed consolidated statements of cash flows and changes in shareholders’ equity.
NOTE 7 — DERIVATIVE FINANCIAL INSTRUMENTS
14
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 7 — DERIVATIVE FINANCIAL INSTRUMENTS — Continued
at varying times during 2021 and 2022. The Company had no open contracts associated with natural gas liquids (“NGL”) prices at September 30, 2021.
The following is a summary of the Company’s open costless collar contracts for oil and natural gas at September 30, 2021.
| Commodity | Calculation Period | Notional Quantity (Bbl or MMBtu) | Weighted Average Price Floor ($/Bbl or $/MMBtu) | Weighted Average Price Ceiling ($/Bbl or $/MMBtu) | Fair Value of Asset (Liability) (thousands) | |||||||||||||||||||||||||||
| Oil | 10/01/2021 - 12/31/2021 | $ | $ | $ | ( | |||||||||||||||||||||||||||
| Natural Gas | 10/01/2021 - 12/31/2021 | $ | $ | ( | ||||||||||||||||||||||||||||
| Oil | 01/01/2022 - 12/31/2022 | $ | $ | ( | ||||||||||||||||||||||||||||
| Natural Gas | 01/01/2022 - 03/31/2022 | $ | $ | ( | ||||||||||||||||||||||||||||
| Total open costless collar contracts | $ | ( | ||||||||||||||||||||||||||||||
The following is a summary of the Company’s open swap contracts for oil at September 30, 2021.
| Commodity | Calculation Period | Notional Quantity (Bbl) | Fixed Price ($/Bbl) | Fair Value of Asset (Liability) (thousands) | ||||||||||||||||||||||
| Oil | 10/01/2021 - 12/31/2021 | $ | $ | ( | ||||||||||||||||||||||
| Total open swap contracts | $ | ( | ||||||||||||||||||||||||
The following is a summary of the Company’s open basis swap contracts for oil at September 30, 2021.
| Commodity | Calculation Period | Notional Quantity (Bbl) | Fixed Price ($/Bbl) | Fair Value of Asset (Liability) (thousands) | ||||||||||||||||||||||
| Oil Basis | 10/01/2021 - 12/31/2021 | $ | $ | |||||||||||||||||||||||
| Oil Basis | 01/01/2022 - 12/31/2022 | $ | ||||||||||||||||||||||||
| Total open basis swap contracts | $ | |||||||||||||||||||||||||
At September 30, 2021, the aggregate liability value for the Company’s open derivative financial instruments was $113.1 million.
The Company’s derivative financial instruments are subject to master netting arrangements, and the Company’s counterparties allow for cross-commodity master netting provided the settlement dates for the commodities are the same. The Company does not present different types of commodities with the same counterparty on a net basis in its interim unaudited condensed consolidated balance sheets.
15
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 7 — DERIVATIVE FINANCIAL INSTRUMENTS — Continued
The following table presents the gross asset and liability fair values of the Company’s commodity price derivative financial instruments and the location of these balances in the interim unaudited condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 (in thousands).
| Derivative Instruments | Gross amounts recognized | Gross amounts netted in the condensed consolidated balance sheets | Net amounts presented in the condensed consolidated balance sheets | |||||||||||||||||||||||
| September 30, 2021 | ||||||||||||||||||||||||||
| Current assets | $ | $ | ( | $ | ||||||||||||||||||||||
| Other assets | ( | |||||||||||||||||||||||||
| Current liabilities | ( | ( | ||||||||||||||||||||||||
| Long-term liabilities | ( | ( | ||||||||||||||||||||||||
| Total | $ | ( | $ | $ | ( | |||||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||||
| Current assets | $ | $ | ( | $ | ||||||||||||||||||||||
| Other assets | ( | |||||||||||||||||||||||||
| Current liabilities | ( | ( | ||||||||||||||||||||||||
| Long-term liabilities | ( | |||||||||||||||||||||||||
| Total | $ | ( | $ | $ | ( | |||||||||||||||||||||
The following table summarizes the location and aggregate gain (loss) of all derivative financial instruments recorded in the interim unaudited condensed consolidated statements of operations for the periods presented (in thousands). These derivative financial instruments are not designated as hedging instruments.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| Type of Instrument | Location in Condensed Consolidated Statement of Operations | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||
| Derivative Instrument | ||||||||||||||||||||||||||||||||
| Oil | Revenues: Realized (loss) gain on derivatives | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||
| Natural Gas | Revenues: Realized loss on derivatives | ( | ( | |||||||||||||||||||||||||||||
| Realized (loss) gain on derivatives | ( | ( | ( | |||||||||||||||||||||||||||||
| Oil | Revenues: Unrealized gain (loss) on derivatives | ( | ( | ( | ||||||||||||||||||||||||||||
| Natural Gas | Revenues: Unrealized loss on derivatives | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Unrealized gain (loss) on derivatives | ( | ( | ( | |||||||||||||||||||||||||||||
| Total | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||
16
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 8 — FAIR VALUE MEASUREMENTS
The Company measures and reports certain financial and non-financial assets and liabilities on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Fair value measurements are classified and disclosed in one of the following categories.
Level 1 Unadjusted quoted prices for identical, unrestricted assets or liabilities in active markets.
Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that are valued with industry standard models that consider various inputs, including: (i) quoted forward prices for commodities, (ii) time value of money and (iii) current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the derivative instrument and can be derived from observable data or supported by observable levels at which transactions are executed in the marketplace.
Level 3 Unobservable inputs that are not corroborated by market data that reflect a company’s own market assumptions.
Financial and non-financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The following tables summarize the valuation of the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis in accordance with the classifications provided above as of September 30, 2021 and December 31, 2020 (in thousands).
| Fair Value Measurements at September 30, 2021 using | ||||||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets (Liabilities) | ||||||||||||||||||||||||||
| Oil derivatives and basis swaps | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Natural gas derivatives | ( | ( | ||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Fair Value Measurements at December 31, 2020 using | ||||||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets (Liabilities) | ||||||||||||||||||||||||||
| Oil derivatives and basis swaps | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Natural gas derivatives | ||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
Additional disclosures related to derivative financial instruments are provided in Note 7.
Other Fair Value Measurements
At September 30, 2021 and December 31, 2020, the carrying values reported on the interim unaudited condensed consolidated balance sheets for accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, royalties payable, amounts due to affiliates, advances from joint interest owners and other current liabilities approximated their fair values due to their short-term maturities.
At September 30, 2021 and December 31, 2020, the carrying value of borrowings under the Credit Agreement and the San Mateo Credit Facility approximated their fair value as both are subject to short-term floating interest rates that reflect market rates available to the Company at the time and are classified at Level 2 in the fair value hierarchy.
17
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 8 — FAIR VALUE MEASUREMENTS — Continued
NOTE 9 — COMMITMENTS AND CONTINGENCIES
Processing, Transportation and Produced Water Disposal Commitments
Firm Commitments
From time to time, the Company enters into agreements with third parties whereby the Company commits to deliver anticipated natural gas and oil production and produced water from certain portions of its acreage for transportation, gathering, processing, fractionation, sales and disposal. The Company paid approximately $13.4 million and $12.0 million for deliveries under these agreements during the three months ended September 30, 2021 and 2020, respectively, and $41.1 million and $34.4 million for deliveries under these agreements during the nine months ended September 30, 2021 and 2020, respectively. Certain of these agreements contain minimum volume commitments. If the Company does not meet the minimum volume commitments under these agreements, it will be required to pay certain deficiency fees. If the Company ceased operations in the areas subject to these agreements at September 30, 2021, the total deficiencies required to be paid by the Company under these agreements would be approximately $583.0 million.
Future Commitments
The Company entered into a 10-year , fixed-fee natural gas transportation agreement whereby the Company committed to deliver a portion of the residue gas production at the tailgate of San Mateo’s cryogenic natural gas processing plant in Eddy County, New Mexico for transportation through the counterparty’s pipeline. The agreement begins when the counterparty’s pipeline is placed in service, which is anticipated to be in the fourth quarter of 2021. Should the pipeline be placed in service, the Company would owe the fees to transport the committed volume whether or not the committed volume is transported through the counterparty’s pipeline, and the minimum contractual obligation would be approximately $30.7 million.
San Mateo Commitments
The Company dedicated to San Mateo its current and certain future leasehold interests in the Rustler Breaks and Wolf asset areas and acreage in the southern portion of the Arrowhead asset area (the “Greater Stebbins Area”) and the Stateline asset area pursuant to 15-year , fixed-fee oil transportation, oil, natural gas and produced water gathering and produced water disposal agreements. In addition, the Company dedicated to San Mateo its current and certain future leasehold interests in the Rustler Breaks asset area and acreage in the Greater Stebbins Area and the Stateline asset area pursuant to 15-year , fixed-fee natural gas processing agreements (collectively with the transportation, gathering and produced water disposal agreements, the “Operational Agreements”). San Mateo provides the Company with firm service under each of the Operational Agreements in exchange for certain minimum volume commitments. The remaining minimum contractual obligation under the Operational Agreements at September 30, 2021 was approximately $399.9 million.
Legal Proceedings
The Company is a party to several legal proceedings encountered in the ordinary course of its business. While the ultimate outcome and impact on the Company cannot be predicted with certainty, in the opinion of management, it is remote that these legal proceedings will have a material adverse impact on the Company’s financial condition, results of operations or cash flows.
18
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 10 — SUPPLEMENTAL DISCLOSURES
Accrued Liabilities
The following table summarizes the Company’s current accrued liabilities at September 30, 2021 and December 31, 2020 (in thousands).
| September 30, 2021 | December 31, 2020 | ||||||||||
| Accrued evaluated and unproved and unevaluated property costs | $ | $ | |||||||||
| Accrued midstream properties costs | |||||||||||
| Accrued lease operating expenses | |||||||||||
| Accrued interest on debt | |||||||||||
| Accrued asset retirement obligations | |||||||||||
| Accrued partners’ share of joint interest charges | |||||||||||
| Accrued payable related to purchased natural gas | |||||||||||
| Other | |||||||||||
| Total accrued liabilities | $ | $ | |||||||||
Supplemental Cash Flow Information
The following table provides supplemental disclosures of cash flow information for the nine months ended September 30, 2021 and 2020 (in thousands).
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash paid for interest expense, net of amounts capitalized | $ | $ | |||||||||
| Increase (decrease) in asset retirement obligations related to mineral properties | $ | $ | ( | ||||||||
| Increase in asset retirement obligations related to midstream properties | $ | $ | |||||||||
| Increase (decrease) in liabilities for drilling, completion and equipping capital expenditures | $ | $ | ( | ||||||||
| Increase (decrease) in liabilities for acquisition of oil and natural gas properties | $ | $ | ( | ||||||||
| Increase (decrease) in liabilities for midstream properties capital expenditures | $ | $ | ( | ||||||||
| Stock-based compensation expense recognized as a liability | $ | $ | |||||||||
| Transfer of inventory to oil and natural gas properties | $ | ( | $ | ( | |||||||
The following table provides a reconciliation of cash and restricted cash recorded in the interim unaudited condensed consolidated balance sheets to cash and restricted cash as presented on the interim unaudited condensed consolidated statements of cash flows (in thousands).
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash and restricted cash | $ | $ | |||||||||
19
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 11 — SEGMENT INFORMATION
The Company operates in two business segments: (i) exploration and production and (ii) midstream. The exploration and production segment is engaged in the exploration, development, production and acquisition of oil and natural gas resources in the United States and is currently focused primarily on the oil and liquids-rich portion of the Wolfcamp and Bone Spring plays in the Delaware Basin in Southeast New Mexico and West Texas. The Company also operates in the Eagle Ford shale play in South Texas and the Haynesville shale and Cotton Valley plays in Northwest Louisiana. The midstream segment conducts midstream operations in support of the Company’s exploration, development and production operations and provides natural gas processing, oil transportation services, oil, natural gas and produced water gathering services and produced water disposal services to third parties. Substantially all of the Company’s midstream operations in the Rustler Breaks, Wolf and Stateline asset areas and the Greater Stebbins Area in the Delaware Basin, which comprise most of the Company’s midstream operations, are conducted through San Mateo. San Mateo and its subsidiaries are not guarantors of the Notes.
The following tables present selected financial information for the periods presented regarding the Company’s business segments on a stand-alone basis, corporate expenses that are not allocated to a segment and the consolidation and elimination entries necessary to arrive at the financial information for the Company on a consolidated basis (in thousands). On a consolidated basis, midstream services revenues consist primarily of those revenues from midstream operations related to third parties, including working interest owners in the Company’s operated wells. All midstream services revenues associated with Company-owned production are eliminated in consolidation. In evaluating the operating results of the exploration and production and midstream segments, the Company does not allocate certain expenses to the individual segments, including general and administrative expenses. Such expenses are reflected in the column labeled “Corporate.”
| Exploration and Production | Consolidations and Eliminations | Consolidated Company | |||||||||||||||||||||||||||
| Midstream | Corporate | ||||||||||||||||||||||||||||
| Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
| Oil and natural gas revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Midstream services revenues | ( | ||||||||||||||||||||||||||||
| Sales of purchased natural gas | |||||||||||||||||||||||||||||
| Realized loss on derivatives | ( | ( | |||||||||||||||||||||||||||
| Unrealized gain on derivatives | |||||||||||||||||||||||||||||
Expenses(1) | ( | ||||||||||||||||||||||||||||
Operating income(2) | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Capital expenditures(3) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
_____________________
(1)Includes depletion, depreciation and amortization expenses of $80.6 million and $7.8 million for the exploration and production and midstream segments, respectively. Also includes corporate depletion, depreciation and amortization expenses of $0.6 million.
(2)Includes $14.4 million in net income attributable to non-controlling interest in subsidiaries related to the midstream segment.
(3)Includes $17.2 million attributable to land and seismic acquisition expenditures related to the exploration and production segment and $14.2 million in capital expenditures attributable to non-controlling interest in subsidiaries related to the midstream segment.
20
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 11 — SEGMENT INFORMATION — Continued
| Exploration and Production | Consolidations and Eliminations | Consolidated Company | |||||||||||||||||||||||||||
| Midstream | Corporate | ||||||||||||||||||||||||||||
| Three Months Ended September 30, 2020 | |||||||||||||||||||||||||||||
| Oil and natural gas revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Midstream services revenues | ( | ||||||||||||||||||||||||||||
| Sales of purchased natural gas | |||||||||||||||||||||||||||||
| Realized loss on derivatives | ( | ( | |||||||||||||||||||||||||||
| Unrealized loss on derivatives | ( | ( | |||||||||||||||||||||||||||
Expenses(1) | ( | ||||||||||||||||||||||||||||
Operating (loss) income(2) | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Capital expenditures(3) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
_____________________
(1)Includes depletion, depreciation and amortization expenses of $81.3 million and $6.0 million for the exploration and production and midstream segments, respectively. Includes full-cost ceiling impairment of $251.2 million for the exploration and production segment. Also includes corporate depletion, depreciation and amortization expenses of $0.7 million.
(2)Includes $10.0 million in net income attributable to non-controlling interest in subsidiaries related to the midstream segment.
(3)Includes $13.7 million attributable to land and seismic acquisition expenditures related to the exploration and production segment and $26.6 million in capital expenditures attributable to non-controlling interest in subsidiaries related to the midstream segment.
| Exploration and Production | Consolidations and Eliminations | Consolidated Company | |||||||||||||||||||||||||||
| Midstream | Corporate | ||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
| Oil and natural gas revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Midstream services revenues | ( | ||||||||||||||||||||||||||||
| Sales of purchased natural gas | |||||||||||||||||||||||||||||
| Realized loss on derivatives | ( | ( | |||||||||||||||||||||||||||
| Unrealized loss on derivatives | ( | ( | |||||||||||||||||||||||||||
Expenses(1) | ( | ||||||||||||||||||||||||||||
Operating income(2) | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Capital expenditures(3) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
_____________________
(1)Includes depletion, depreciation and amortization expenses of $230.0 million and $23.4 million for the exploration and production and midstream segments, respectively. Also includes corporate depletion, depreciation and amortization expenses of $2.0 million.
(2)Includes $39.2 million in net income attributable to non-controlling interest in subsidiaries related to the midstream segment.
(3)Includes $32.8 million attributable to land and seismic acquisition expenditures related to the exploration and production segment and $22.4 million in capital expenditures attributable to non-controlling interest in subsidiaries related to the midstream segment.
21
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 11 — SEGMENT INFORMATION — Continued
| Exploration and Production | Consolidations and Eliminations | Consolidated Company | ||||||||||||||||||||||||||||||
| Midstream | Corporate | |||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||
| Oil and natural gas revenues | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Midstream services revenues | ( | |||||||||||||||||||||||||||||||
| Sales of purchased natural gas | ||||||||||||||||||||||||||||||||
| Lease bonus - mineral acreage | ||||||||||||||||||||||||||||||||
| Realized gain on derivatives | ||||||||||||||||||||||||||||||||
| Unrealized loss on derivatives | ( | ( | ||||||||||||||||||||||||||||||
Expenses(1) | ( | |||||||||||||||||||||||||||||||
Operating (loss) income(2) | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Capital expenditures(3) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
_____________________
(1)Includes depletion, depreciation and amortization expenses of $254.2 million and $15.8 million for the exploration and production and midstream segments, respectively. Includes full-cost ceiling impairment of $575.2 million for the exploration and production segment. Also includes corporate depletion, depreciation and amortization expenses of $2.1 million.
(2)Includes $26.8 million in net income attributable to non-controlling interest in subsidiaries related to the midstream segment.
(3)Includes $63.0 million attributable to land and seismic acquisition expenditures related to the exploration and production segment and $106.0 million in capital expenditures attributable to non-controlling interest in subsidiaries related to the midstream segment.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes thereto contained herein and the consolidated financial statements and related notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”) filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2021, along with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report. The Annual Report is accessible on the SEC’s website at www.sec.gov and on our website at www.matadorresources.com. Our discussion and analysis includes forward-looking information that involves risks and uncertainties and should be read in conjunction with the “Risk Factors” section of the Annual Report and the section entitled “Cautionary Note Regarding Forward-Looking Statements” below for information about the risks and uncertainties that could cause our actual results to be materially different than our forward-looking statements.
In this Quarterly Report on Form 10-Q (this “Quarterly Report”), (i) references to “we,” “our” or the “Company” refer to Matador Resources Company and its subsidiaries as a whole (unless the context indicates otherwise), (ii) references to “Matador” refer solely to Matador Resources Company and (iii) references to “San Mateo” refer to San Mateo Midstream, LLC, collectively with its subsidiaries. For certain oil and natural gas terms used in this Quarterly Report, please see the “Glossary of Oil and Natural Gas Terms” included with the Annual Report.
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this Quarterly Report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Additionally, forward-looking statements may be made orally or in press releases, conferences, reports, on our website or otherwise, in the future by us or on our behalf. Such statements are generally identifiable by the terminology used such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecasted,” “hypothetical,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “would” or other similar words, although not all forward-looking statements contain such identifying words.
By their very nature, forward-looking statements require us to make assumptions that may not materialize or that may not be accurate. Forward-looking statements are subject to known and unknown risks and uncertainties and other factors that may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Such factors include, among others: general economic conditions; our ability to execute our business plan, including whether our drilling program is successful; changes in oil, natural gas and natural gas liquids prices and the demand for oil, natural gas and natural gas liquids; our ability to replace reserves and efficiently develop current reserves; costs of operations; delays and other difficulties related to producing oil, natural gas and natural gas liquids; delays and other difficulties related to regulatory and governmental approvals and restrictions; availability of sufficient capital to execute our business plan, including from future cash flows, available borrowing capacity under our revolving credit facilities and otherwise; our ability to make acquisitions on economically acceptable terms; our ability to integrate acquisitions; weather and environmental conditions; the impact of the worldwide spread of the novel coronavirus (“COVID-19”) on oil and natural gas demand, oil and natural gas prices and our business; the operating results of San Mateo’s Black River cryogenic natural gas processing plant; the timing and operating results of the buildout by San Mateo of oil, natural gas and water gathering and transportation systems and the drilling of any additional salt water disposal wells; and the other factors discussed below and elsewhere in this Quarterly Report and in other documents that we file with or furnish to the SEC, all of which are difficult to predict. Forward-looking statements may include statements about:
•our business strategy;
•our estimated future reserves and the present value thereof, including whether or not a full-cost ceiling impairment could be realized;
•our cash flows and liquidity;
•the amount, timing and payment of dividends, if any;
•our financial strategy, budget, projections and operating results;
•the supply and demand of oil, natural gas and natural gas liquids;
•oil, natural gas and natural gas liquids prices, including our realized prices thereof;
•the timing and amount of future production of oil and natural gas;
•the availability of drilling, completion and production equipment;
•the availability of oil storage capacity;
•the availability of oil field labor;
•the amount, nature and timing of capital expenditures, including future exploration and development costs;
•the availability and terms of capital;
•our drilling of wells;
23
•our ability to negotiate and consummate acquisition and divestiture opportunities;
•government regulation and taxation of the oil and natural gas industry;
•our marketing of oil and natural gas;
•our exploitation projects or property acquisitions;
•the integration of acquisitions with our business;
•our ability and the ability of San Mateo to construct and operate midstream facilities, including the operation of its Black River cryogenic natural gas processing plant and the drilling of additional salt water disposal wells;
•the ability of San Mateo to attract third-party volumes;
•our costs and timing of exploiting and developing our properties and conducting other operations;
•general economic conditions;
•competition in the oil and natural gas industry, including in both the exploration and production and midstream segments;
•the effectiveness of our risk management and hedging activities;
•our technology;
•environmental liabilities;
•counterparty credit risk;
•regulatory risk;
•developments in oil-producing and natural gas-producing countries;
•the impact of COVID-19 on the oil and natural gas industry and our business;
•our future operating results; and
•our plans, objectives, expectations and intentions contained in this Quarterly Report or in our other filings with the SEC that are not historical.
Although we believe that the expectations conveyed by the forward-looking statements in this Quarterly Report are reasonable based on information available to us on the date hereof, no assurances can be given as to future results, levels of activity, achievements or financial condition.
You should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described above, as well as others not now anticipated. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors. The foregoing statements are not exclusive and further information concerning us, including factors that potentially could materially affect our financial results, may emerge from time to time. We undertake no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements, except as required by law, including the securities laws of the United States and the rules and regulations of the SEC.
Overview
We are an independent energy company founded in July 2003 engaged in the exploration, development, production and acquisition of oil and natural gas resources in the United States, with an emphasis on oil and natural gas shale and other unconventional plays. Our current operations are focused primarily on the oil and liquids-rich portion of the Wolfcamp and Bone Spring plays in the Delaware Basin in Southeast New Mexico and West Texas. We also operate in the Eagle Ford shale play in South Texas and the Haynesville shale and Cotton Valley plays in Northwest Louisiana. Additionally, we conduct midstream operations, primarily through San Mateo, in support of our exploration, development and production operations and provide natural gas processing, oil transportation services, oil, natural gas and produced water gathering services and produced water disposal services to third parties.
Third Quarter Highlights
For the three months ended September 30, 2021, our total oil equivalent production was 8.3 million BOE, and our average daily oil equivalent production was 90,000 BOE per day, of which 50,700 Bbl per day, or 56%, was oil and 235.7 MMcf per day, or 44%, was natural gas. Our average daily oil production of 50,700 Bbl per day for the three months ended September 30, 2021 increased 20% year-over-year from 42,300 Bbl per day for the three months ended September 30, 2020. Our average daily natural gas production of 235.7 MMcf per day for the three months ended September 30, 2021 increased 28% year-over-year from 183.9 MMcf per day for the three months ended September 30, 2020.
For the third quarter of 2021, we reported net income attributable to Matador shareholders of $203.6 million, or $1.71 per diluted common share, on a generally accepted accounting principles in the United States (“GAAP”) basis, as compared to a net loss attributable to Matador shareholders of $276.1 million, or ($2.38) per diluted common share, for the third quarter of 2020. For the third quarter of 2021, our Adjusted EBITDA attributable to Matador shareholders (“Adjusted EBITDA”), a non-GAAP financial measure, was $293.8 million, as compared to Adjusted EBITDA of $121.0 million during the third quarter of 2020.
24
For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to our net income (loss) and net cash provided by operating activities, see “—Liquidity and Capital Resources—Non-GAAP Financial Measures.” For more information regarding our financial results for the three months ended September 30, 2021, see “—Results of Operations” below.
For the nine months ended September 30, 2021, we reported net income attributable to Matador shareholders of $370.2 million, or $3.12 per diluted common share, on a GAAP basis, as compared to a net loss attributable to Matador shareholders of $503.8 million, or ($4.34) per diluted common share, for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, our Adjusted EBITDA, a non-GAAP financial measure, was $752.9 million, as compared to Adjusted EBITDA of $369.2 million during the nine months ended September 30, 2020. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to our net income (loss) and net cash provided by operating activities, see “—Liquidity and Capital Resources—Non-GAAP Financial Measures.” For more information regarding our financial results for the nine months ended September 30, 2021, see “—Results of Operations” below.
Operations Update
In August 2021, we began operating a fifth drilling rig on behalf of San Mateo for the purpose of drilling an additional salt water disposal well in the southern portion of the Arrowhead asset area (the “Greater Stebbins Area”) in Eddy County, New Mexico. Drilling operations on this salt water disposal well were completed in late September 2021, and this well was undergoing completion operations at October 26, 2021. We contracted this fifth operated drilling rig for a term of six months. As a result, in early October 2021, following the conclusion of drilling operations on the salt water disposal well, we moved this rig to our Rodney Robinson leasehold in the western portion of the Antelope Ridge asset area in Lea County, New Mexico.
At October 26, 2021, we were operating five drilling rigs throughout our various Delaware Basin asset areas. Two of these rigs were drilling the next nine wells on the Rodney Robinson leasehold. One of these rigs was concluding drilling operations on the next group of 11 Voni wells in the Stateline asset area, and another was concluding drilling operations on the second of two Uncle Ches wells in the Ranger asset area. The fifth rig recently began drilling three Barnett Trust wells in the Wolf asset area.
We turned to sales a total of 21 gross (17.2 net) wells in the Delaware Basin during the third quarter of 2021, including 17 gross (16.5 net) operated wells and four gross (0.7 net) non-operated wells. During the third quarter of 2021, we turned to sales 13 gross (13.0 net) operated wells in the Stateline asset area: two were Wolfcamp B completions, four were Third Bone Spring Carbonate completions, two were Second Bone Spring completions, two were First Bone Spring completions and three were Avalon completions. In the Arrowhead asset area, we turned to sales four gross (3.5 net) operated wells, all of which were Second Bone Spring completions. We also participated in two gross (0.2 net) non-operated wells turned to sales in the Antelope Ridge asset area, one gross (0.2 net) non-operated well in the Arrowhead asset area and one gross (0.3 net) non-operated well in the Ranger asset area.
Our average daily oil equivalent production in the Delaware Basin for the third quarter of 2021 was 84,000 BOE per day, consisting of 49,200 Bbl of oil per day and 209.1 MMcf of natural gas per day, a 27% increase from 66,400 BOE per day, consisting of 40,400 Bbl of oil per day and 155.7 MMcf of natural gas per day, in the third quarter of 2020. The Delaware Basin contributed approximately 97% of our daily oil production and approximately 89% of our daily natural gas production in the third quarter of 2021, as compared to approximately 95% of our daily oil production and approximately 85% of our daily natural gas production in the third quarter of 2020.
During the third quarter of 2021, we did not complete and turn to sales any operated wells or participate in any non-operated wells on our leasehold properties in the Eagle Ford shale play in South Texas or in the Haynesville shale and Cotton Valley plays in Northwest Louisiana.
2021 Capital Expenditure Budget
On October 26, 2021, we narrowed the range of our 2021 estimated capital expenditures for D/C/E capital expenditures to $535 to $565 million from $525 to $575 million, as originally estimated. As a result of savings on our operated D/C/E capital expenditures in the first nine months of 2021, a faster drilling and completions pace and an anticipated decrease in non-operated D/C/E capital expenditures in the second half of 2021, we intend to advance the next 11 Voni well completions in the Stateline asset area forward into the fourth quarter of 2021 and operate a fifth drilling rig in the fourth quarter of 2021, as previously disclosed, and expect to be able to do so without increasing the midpoint of our estimates for D/C/E capital expenditures for full year 2021. At October 26, 2021, our anticipated 2021 midstream capital expenditures remained $35 to $45 million, which primarily reflect our proportionate share of San Mateo’s estimated 2021 capital expenditures.
25
Capital Resources Update
Our Board of Directors (the “Board”) declared a quarterly cash dividend of $0.025 per share of common stock in each of the first three quarters of 2021, which were paid on March 31, 2021, June 3, 2021 and September 3, 2021, respectively. In October 2021, the Board amended our dividend policy to increase our quarterly dividend and declared a quarterly cash dividend of $0.05 per share of common stock payable on December 1, 2021 to shareholders of record as of November 10, 2021.
During the third quarter of 2021, we repaid $120.0 million in borrowings under our third amended and restated credit agreement (the “Credit Agreement”). During each of the first and second quarters of 2021, we repaid $100.0 million in borrowings under the Credit Agreement. As a result, the outstanding borrowings under our Credit Agreement at September 30, 2021 were $120.0 million. Between September 30, 2021 and October 26, 2021, we repaid $20.0 million of borrowings under the Credit Agreement.
Critical Accounting Policies
There have been no changes to our critical accounting policies and estimates from those set forth in the Annual Report.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that are expected to have a material impact on our financial statements.
Results of Operations
Revenues
The following table summarizes our unaudited revenues and production data for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Operating Data | |||||||||||||||||||||||
Revenues (in thousands)(1) | |||||||||||||||||||||||
| Oil | $ | 325,560 | $ | 150,620 | $ | 853,953 | $ | 414,379 | |||||||||||||||
| Natural gas | 135,905 | 38,484 | 335,819 | 91,406 | |||||||||||||||||||
| Total oil and natural gas revenues | 461,465 | 189,104 | 1,189,772 | 505,785 | |||||||||||||||||||
| Third-party midstream services revenues | 20,486 | 19,363 | 55,774 | 49,861 | |||||||||||||||||||
| Sales of purchased natural gas | 38,770 | 13,358 | 54,198 | 37,883 | |||||||||||||||||||
| Lease bonus - mineral acreage | — | — | — | 4,062 | |||||||||||||||||||
| Realized (loss) gain on derivatives | (57,419) | (5,406) | (125,943) | 49,571 | |||||||||||||||||||
| Unrealized gain (loss) on derivatives | 9,049 | (13,033) | (77,178) | (9,271) | |||||||||||||||||||
| Total revenues | $ | 472,351 | $ | 203,386 | $ | 1,096,623 | $ | 637,891 | |||||||||||||||
Net Production Volumes(1) | |||||||||||||||||||||||
Oil (MBbl)(2) | 4,669 | 3,895 | 13,263 | 11,512 | |||||||||||||||||||
Natural gas (Bcf)(3) | 21.7 | 16.9 | 61.0 | 50.1 | |||||||||||||||||||
Total oil equivalent (MBOE)(4) | 8,283 | 6,715 | 23,423 | 19,861 | |||||||||||||||||||
Average daily production (BOE/d)(5) | 90,033 | 72,989 | 85,801 | 72,486 | |||||||||||||||||||
| Average Sales Prices | |||||||||||||||||||||||
| Oil, without realized derivatives (per Bbl) | $ | 69.73 | $ | 38.67 | $ | 64.39 | $ | 36.00 | |||||||||||||||
| Oil, with realized derivatives (per Bbl) | $ | 58.43 | $ | 37.28 | $ | 55.23 | $ | 40.30 | |||||||||||||||
| Natural gas, without realized derivatives (per Mcf) | $ | 6.27 | $ | 2.27 | $ | 5.51 | $ | 1.82 | |||||||||||||||
| Natural gas, with realized derivatives (per Mcf) | $ | 6.05 | $ | 2.27 | $ | 5.43 | $ | 1.82 | |||||||||||||||
_________________
(1)We report our production volumes in two streams: oil and natural gas, including both dry and liquids-rich natural gas. Revenues associated with natural gas liquids are included with our natural gas revenues.
(2)One thousand Bbl of oil.
(3)One billion cubic feet of natural gas.
(4)One thousand Bbl of oil equivalent, estimated using a conversion ratio of one Bbl of oil per six Mcf of natural gas.
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(5)Barrels of oil equivalent per day, estimated using a conversion ratio of one Bbl of oil per six Mcf of natural gas.
Three Months Ended September 30, 2021 as Compared to Three Months Ended September 30, 2020
Oil and natural gas revenues. Our oil and natural gas revenues increased $272.4 million, or 144%, to $461.5 million for the three months ended September 30, 2021, as compared to $189.1 million for the three months ended September 30, 2020. Our oil revenues increased $174.9 million, or 116%, to $325.6 million for the three months ended September 30, 2021, as compared to $150.6 million for the three months ended September 30, 2020. This increase in oil revenues resulted from an 80% increase in the weighted average oil price realized for the three months ended September 30, 2021 to $69.73 per Bbl, as compared to $38.67 per Bbl for the three months ended September 30, 2020, and from a 20% increase in our oil production to 4.7 million Bbl for the three months ended September 30, 2021, as compared to 3.9 million Bbl for the three months ended September 30, 2020. Our natural gas revenues increased $97.4 million, or 253%, to $135.9 million for the three months ended September 30, 2021, as compared to $38.5 million for the three months ended September 30, 2020. The increase in natural gas revenues resulted from an almost three-fold increase in the weighted average natural gas price realized for the three months ended September 30, 2021 to $6.27 per Mcf, as compared to a weighted average natural gas price of $2.27 per Mcf realized for the three months ended September 30, 2020, and from a 28% increase in our natural gas production to 21.7 Bcf for the three months ended September 30, 2021, as compared to 16.9 Bcf for the three months ended September 30, 2020.
Third-party midstream services revenues. Our third-party midstream services revenues increased $1.1 million, or 6%, to $20.5 million for the three months ended September 30, 2021, as compared to $19.4 million for the three months ended September 30, 2020. Third-party midstream services revenues are those revenues from midstream operations related to third parties, including working interest owners in our operated wells. This increase was primarily attributable to an increase in our third-party natural gas gathering, transportation and processing revenues to $10.5 million for the three months ended September 30, 2021, as compared to $9.4 million for the three months ended September 30, 2020.
Sales of purchased natural gas. Our sales of purchased natural gas increased $25.4 million, or 190%, to $38.8 million for the three months ended September 30, 2021, as compared to $13.4 million for the three months ended September 30, 2020. This increase was the result of both an increase in purchased natural gas volumes sold and the natural gas price realized during the three months ended September 30, 2021. Sales of purchased natural gas reflect those natural gas purchase transactions that we periodically enter into with third parties whereby we purchase natural gas and (i) subsequently sell the natural gas to other purchasers or (ii) process the natural gas at San Mateo’s cryogenic natural gas processing plant in Eddy County, New Mexico (the “Black River Processing Plant”) and subsequently sell the residue gas and natural gas liquids (“NGL”) to other purchasers. These revenues, and the expenses related to these transactions included in “Purchased natural gas,” are presented on a gross basis in our interim unaudited condensed consolidated statements of operations.
Realized (loss) gain on derivatives. Our realized net loss on derivatives was $57.4 million for the three months ended September 30, 2021, as compared to a realized net loss of $5.4 million for the three months ended September 30, 2020. We realized a net loss of $52.8 million related to our oil costless collar and oil and oil basis swap contracts for the three months ended September 30, 2021, resulting primarily from oil prices that were above the ceiling prices of certain of our oil costless collar contracts and above the strike prices of certain of our oil and oil basis swap contracts. We realized a net loss of $4.6 million related to our natural gas costless collar contracts for the three months ended September 30, 2021, resulting primarily from natural gas prices that were above the ceiling prices of certain of our natural gas costless collar contracts. We realized an average loss on our oil derivatives of approximately $11.30 per Bbl produced during the three months ended September 30, 2021, as compared to an average loss of approximately $1.39 per Bbl produced during the three months ended September 30, 2020. We realized an average loss on our natural gas derivatives of approximately $0.22 per Mcf produced during the three months ended September 30, 2021.
Unrealized gain (loss) on derivatives. Our unrealized net gain on derivatives was $9.0 million for the three months ended September 30, 2021, as compared to an unrealized net loss of $13.0 million for the three months ended September 30, 2020. During the three months ended September 30, 2021, the aggregate net fair value of our open oil and natural gas derivative contracts changed to a net liability of $113.1 million from a net liability of $122.1 million at June 30, 2021, resulting in an unrealized gain on derivatives of $9.0 million for the three months ended September 30, 2021. During the three months ended September 30, 2020, the aggregate net fair value of our open oil and natural gas derivative contracts decreased to a net liability of $13.2 million from a net liability of $0.1 million at June 30, 2020, resulting in an unrealized loss on derivatives of $13.0 million for the three months ended September 30, 2020.
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Nine Months Ended September 30, 2021 as Compared to Nine Months Ended September 30, 2020
Oil and natural gas revenues. Our oil and natural gas revenues increased $684.0 million, or 135%, to $1.2 billion for the nine months ended September 30, 2021, as compared to $505.8 million for the nine months ended September 30, 2020. Our oil revenues increased $439.6 million, or 106%, to $854.0 million for the nine months ended September 30, 2021, as compared to $414.4 million for the nine months ended September 30, 2020. This increase in oil revenues resulted from a 79% increase in the weighted average oil price realized for the nine months ended September 30, 2021 to $64.39 per Bbl, as compared to $36.00 per Bbl for the nine months ended September 30, 2020, and from a 15% increase in our oil production to 13.3 million Bbl for the nine months ended September 30, 2021, as compared to 11.5 million Bbl for the nine months ended September 30, 2020. Our natural gas revenues increased by $244.4 million, or 267%, to $335.8 million for the nine months ended September 30, 2021, as compared to $91.4 million for the nine months ended September 30, 2020. The increase in natural gas revenues resulted from a more than three-fold increase in the weighted average natural gas price realized for the nine months ended September 30, 2021 to $5.51 per Mcf, as compared to a weighted average natural gas price of $1.82 per Mcf for the nine months ended September 30, 2020, and from a 22% increase in our natural gas production to 61.0 Bcf for the nine months ended September 30, 2021, as compared to 50.1 Bcf for the nine months ended September 30, 2020.
Third-party midstream services revenues. Our third-party midstream services revenues increased $5.9 million, or 12%, to $55.8 million for the nine months ended September 30, 2021, as compared to $49.9 million for the nine months ended September 30, 2020. This increase was primarily attributable to an increase in our third-party natural gas gathering, transportation and processing revenues to $27.6 million for the nine months ended September 30, 2021, as compared to $22.8 million for the nine months ended September 30, 2020 and an increase in our third-party oil gathering and transportation revenues to $7.8 million for the nine months ended September 30, 2021, as compared to $6.8 million for the nine months ended September 30, 2020.
Sales of purchased natural gas. Our sales of purchased natural gas increased $16.3 million, or 43%, to $54.2 million for the nine months ended September 30, 2021, as compared to $37.9 million for the nine months ended September 30, 2020. This increase was the result of both an increase in natural gas volumes sold and the natural gas price realized during the nine months ended September 30, 2021.
Lease bonus - mineral acreage. We did not lease any of our mineral acreage to third parties during the nine months ended September 30, 2021. Our lease bonus - mineral acreage revenues were $4.1 million for the nine months ended September 30, 2020.
Realized (loss) gain on derivatives. Our realized net loss on derivatives was $125.9 million for the nine months ended September 30, 2021, as compared to a realized net gain of $49.6 million for the nine months ended September 30, 2020. We realized a net loss of $121.5 million related to our oil costless collar and oil and oil basis swap contracts for the nine months ended September 30, 2021, resulting primarily from oil prices that were above the ceiling prices of certain of our oil costless collar contracts and above the strike prices of certain of our oil and oil basis swap contracts. We realized a net loss of $4.5 million related to our natural gas costless collar contracts for the nine months ended September 30, 2021, resulting primarily from natural gas prices that were above the ceiling prices of certain of our natural gas costless collar contracts. We realized an average loss on our oil derivatives of approximately $9.16 per Bbl produced during the nine months ended September 30, 2021, as compared to an average gain of $4.30 per Bbl produced during the nine months ended September 30, 2020. We realized an average loss on our natural gas derivatives of approximately $0.08 per Mcf produced during the nine months ended September 30, 2021.
Unrealized (loss) gain on derivatives. Our unrealized net loss on derivatives was $77.2 million for the nine months ended September 30, 2021, as compared to an unrealized net loss of $9.3 million for the nine months ended September 30, 2020. During the period from December 31, 2020 through September 30, 2021, the aggregate net fair value of our open oil and natural gas derivative contracts decreased to a net liability of $113.1 million from a net liability of $35.9 million, resulting in an unrealized loss on derivatives of $77.2 million for the nine months ended September 30, 2021. During the period from December 31, 2019 through September 30, 2020, the aggregate net fair value of our open oil and natural gas derivative contracts decreased to a net liability of $13.2 million from a net liability of $3.9 million, resulting in an unrealized loss on derivatives of $9.3 million for the nine months ended September 30, 2020.
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Expenses
The following table summarizes our unaudited operating expenses and other income (expense) for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands, except expenses per BOE) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Production taxes, transportation and processing | $ | 48,896 | $ | 25,840 | $ | 126,913 | $ | 66,353 | |||||||||||||||
Lease operating | 27,433 | 23,392 | 82,124 | 80,464 | |||||||||||||||||||
| Plant and other midstream services operating | 17,043 | 9,385 | 44,452 | 29,129 | |||||||||||||||||||
| Purchased natural gas | 34,581 | 11,144 | 47,064 | 30,124 | |||||||||||||||||||
| Depletion, depreciation and amortization | 89,061 | 88,025 | 255,368 | 272,082 | |||||||||||||||||||
| Accretion of asset retirement obligations | 518 | 478 | 1,529 | 1,449 | |||||||||||||||||||
| Full-cost ceiling impairment | — | 251,163 | — | 575,164 | |||||||||||||||||||
| General and administrative | 24,633 | 15,100 | 71,218 | 46,045 | |||||||||||||||||||
| Total expenses | 242,165 | 424,527 | 628,668 | 1,100,810 | |||||||||||||||||||
| Operating income (loss) | 230,186 | (221,141) | 467,955 | (462,919) | |||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||
| Net loss on asset sales and impairment | (251) | — | (251) | (2,632) | |||||||||||||||||||
| Interest expense | (17,989) | (18,231) | (55,579) | (56,340) | |||||||||||||||||||
| Other (expense) income | (585) | (238) | (1,246) | 1,555 | |||||||||||||||||||
| Total other expense | (18,825) | (18,469) | (57,076) | (57,417) | |||||||||||||||||||
| Income (loss) before income taxes | 211,361 | (239,610) | 410,879 | (520,336) | |||||||||||||||||||
| Income tax (benefit) provision | (6,701) | 26,497 | 1,488 | (43,369) | |||||||||||||||||||
| Net income attributable to non-controlling interest in subsidiaries | (14,434) | (9,957) | (39,213) | (26,784) | |||||||||||||||||||
| Net income (loss) attributable to Matador Resources Company shareholders | $ | 203,628 | $ | (276,064) | $ | 370,178 | $ | (503,751) | |||||||||||||||
| Expenses per BOE | |||||||||||||||||||||||
| Production taxes, transportation and processing | $ | 5.90 | $ | 3.85 | $ | 5.42 | $ | 3.34 | |||||||||||||||
| Lease operating | $ | 3.31 | $ | 3.48 | $ | 3.51 | $ | 4.05 | |||||||||||||||
| Plant and other midstream services operating | $ | 2.06 | $ | 1.40 | $ | 1.90 | $ | 1.47 | |||||||||||||||
| Depletion, depreciation and amortization | $ | 10.75 | $ | 13.11 | $ | 10.90 | $ | 13.70 | |||||||||||||||
| General and administrative | $ | 2.97 | $ | 2.25 | $ | 3.04 | $ | 2.32 | |||||||||||||||
Three Months Ended September 30, 2021 as Compared to Three Months Ended September 30, 2020
Production taxes, transportation and processing. Our production taxes and transportation and processing expenses increased $23.1 million, or 89%, to $48.9 million for the three months ended September 30, 2021, as compared to $25.8 million for the three months ended September 30, 2020. On a unit-of-production basis, our production taxes and transportation and processing expenses increased 53% to $5.90 per BOE for the three months ended September 30, 2021, as compared to $3.85 per BOE for the three months ended September 30, 2020. These increases were primarily due to (i) a $21.2 million increase in production taxes to $34.8 million for the three months ended September 30, 2021, as compared to $13.5 million for the three months ended September 30, 2020, primarily due to the significant increase in the weighted average oil and natural gas prices realized between the two periods, and (ii) a $1.8 million increase in transportation and processing expenses to $14.1 million for the three months ended September 30, 2021, as compared to $12.3 million for the three months ended September 30, 2020, primarily due to the 28% increase in our natural gas production of 21.7 Bcf for the three months ended September 30, 2021, as compared to 16.9 Bcf for the three months ended September 30, 2020.
Lease operating. Our lease operating expenses increased $4.0 million, or 17%, to $27.4 million for the three months ended September 30, 2021, as compared to $23.4 million for the three months ended September 30, 2020. This increase was primarily attributable to increases in expenses associated with servicing an increased number of operated and non-operated wells at September 30, 2021, as compared to September 30, 2020. Our lease operating expenses on a unit-of-production basis
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decreased 5% to $3.31 per BOE for the three months ended September 30, 2021, as compared to $3.48 per BOE for the three months ended September 30, 2020, primarily due to the 23% increase in our total oil equivalent production for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020.
Plant and other midstream services operating. Our plant and other midstream services operating expenses increased $7.7 million, or 82%, to $17.0 million for the three months ended September 30, 2021, as compared to $9.4 million for the three months ended September 30, 2020. This increase was primarily attributable to (i) increased expenses associated with our expanded commercial produced water disposal operations of $7.9 million for the three months ended September 30, 2021, as compared to $4.9 million for the three months ended September 30, 2020, (ii) increased expenses associated with our expanded pipeline operations of $5.4 million for the three months ended September 30, 2021, as compared to $2.3 million for the three months ended September 30, 2020, and (iii) increased expenses associated with operating the expanded Black River Processing Plant of $3.8 million for the three months ended September 30, 2021, as compared to $2.3 million for the three months ended September 30, 2020.
Depletion, depreciation and amortization. Our depletion, depreciation and amortization expenses increased $1.0 million, or 1%, to $89.1 million for the three months ended September 30, 2021, as compared to $88.0 million for the three months ended September 30, 2020. The increase in our depletion, depreciation and amortization expenses was partially attributable to a $1.8 million increase in depreciation expenses attributable to our midstream segment to $7.8 million for the three months ended September 30, 2021, as compared to $6.0 million for the three months ended September 30, 2020. On a unit-of-production basis, our depletion, depreciation and amortization expenses decreased 18% to $10.75 per BOE for the three months ended September 30, 2021, as compared to $13.11 per BOE for the three months ended September 30, 2020. This decrease was attributable to the increase in our estimated total proved oil and natural gas reserves, as well as the decrease in unamortized property costs resulting from the full-cost ceiling impairments recorded in 2020.
Full-cost ceiling impairment. No impairment to the net carrying value of our oil and natural gas properties and no corresponding charge resulting from a full-cost ceiling impairment were recorded for the three months ended September 30, 2021. At September 30, 2020, the net capitalized costs of our oil and natural gas properties less related deferred income taxes exceeded the full-cost ceiling by $189.1 million. As a result, we recorded an impairment charge of $251.2 million to the net capitalized costs of our oil and natural gas properties and a deferred income tax benefit of $62.1 million. This full-cost ceiling impairment of $251.2 million is reflected in our interim unaudited condensed consolidated statement of operations for the three months ended September 30, 2020.
General and administrative. Our general and administrative expenses increased $9.5 million, or 63%, to $24.6 million for the three months ended September 30, 2021, as compared to $15.1 million for the three months ended September 30, 2020. Our general and administrative expenses increased 32% on a unit-of-production basis to $2.97 per BOE for the three months ended September 30, 2021, as compared to $2.25 per BOE for the three months ended September 30, 2020. These increases were largely attributable to employee compensation costs, including a $3.7 million increase in stock-based compensation expense primarily associated with our cash-settled stock awards, the values of which are remeasured at each reporting period. The share price of our common stock increased from $36.01 at June 30, 2021 to $38.04 at September 30, 2021. The remainder of the increase for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, resulted primarily from the reinstatement of employee compensation beginning in March 2021, which had been previously reduced beginning in March 2020 in response to the significantly lower oil and natural gas price environment at that time.
Interest expense. For the three months ended September 30, 2021, we incurred total interest expense of $19.5 million. We capitalized $1.5 million of our interest expense on certain qualifying projects for the three months ended September 30, 2021 and expensed the remaining $18.0 million to operations. For the three months ended September 30, 2020, we incurred total interest expense of $20.2 million. We capitalized $2.0 million of our interest expense on certain qualifying projects for the three months ended September 30, 2020 and expensed the remaining $18.2 million to operations.
Income tax (benefit) provision. As a result of the full-cost ceiling impairments recorded during 2020, we recognized a valuation allowance against our federal net deferred tax assets as of September 30, 2020. Due to a variety of factors, including our significant net income during 2021, our federal valuation allowance was reversed as of September 30, 2021. Our income tax benefit was $6.7 million for the three months ended September 30, 2021, which differed from amounts computed by applying the U.S. federal statutory rate to the pre-tax income due primarily to the impact of reversing our federal valuation allowance as of September 30, 2021, as well as permanent differences between book and tax income and state taxes, primarily in New Mexico. We recorded an income tax provision of $26.5 million for the three months ended September 30, 2020. Our income tax provision differed from amounts computed by applying the U.S. federal statutory rate to our net loss due to the valuation allowance recognized at September 30, 2020.
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Nine Months Ended September 30, 2021 as Compared to Nine Months Ended September 30, 2020
Production taxes, transportation and processing. Our production taxes and transportation and processing expenses increased $60.6 million, or 91%, to $126.9 million for the nine months ended September 30, 2021, as compared to $66.4 million for the nine months ended September 30, 2020. On a unit-of-production basis, our production taxes and transportation and processing expenses increased 62% to $5.42 per BOE for the nine months ended September 30, 2021, as compared to $3.34 per BOE for the nine months ended September 30, 2020. These increases were primarily due to (i) a $53.4 million increase in production taxes to $89.6 million for the nine months ended September 30, 2021, as compared to $36.2 million for the nine months ended September 30, 2020, primarily due to the significant increase in the weighted average oil and natural gas prices realized between the two periods, and (ii) a $7.2 million increase in transportation and processing expenses to $37.3 million for the nine months ended September 30, 2021, as compared to $30.1 million for the nine months ended September 30, 2020, primarily due to the 22% increase in our natural gas production to 61.0 Bcf for the nine months ended September 30, 2021, as compared to 50.1 Bcf for the nine months ended September 30, 2020.
Lease operating. Our lease operating expenses increased $1.7 million, or 2%, to $82.1 million for the nine months ended September 30, 2021, as compared to $80.5 million for the nine months ended September 30, 2020. This increase was largely attributable to an increase in workovers and chemical expenses of $4.6 million, which were attributable to servicing an increased number of operated wells at September 30, 2021, as compared to September 30, 2020. These increases were partially offset by (i) a decrease in produced water trucking and disposal expenses of $1.4 million as more of our operated wells have been connected to produced water pipelines, (ii) a decrease in repairs and maintenance and equipment rentals of $1.1 million and (iii) a decrease in compressor rental charges of $1.3 million. Our lease operating expenses on a unit-of-production basis decreased 13% to $3.51 per BOE for the nine months ended September 30, 2021, as compared to $4.05 per BOE for the nine months ended September 30, 2020, primarily due to the 18% increase in our total oil equivalent production for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.
Plant and other midstream services operating. Our plant and other midstream services operating expenses increased $15.3 million, or 53%, to $44.5 million for the nine months ended September 30, 2021, as compared to $29.1 million for the nine months ended September 30, 2020. This increase was primarily attributable to (i) increased expenses associated with our expanded commercial produced water disposal operations of $22.2 million for the nine months ended September 30, 2021, as compared to $15.3 million for the nine months ended September 30, 2020, (ii) increased expenses associated with our expanded pipeline operations of $12.3 million for the nine months ended September 30, 2021, as compared to $6.3 million for the nine months ended September 30, 2020, and (iii) increased expenses associated with operating the expanded Black River Processing Plant of $10.0 million for the nine months ended September 30, 2021, as compared to $7.5 million for the nine months ended September 30, 2020.
Depletion, depreciation and amortization. Our depletion, depreciation and amortization expenses decreased $16.7 million, or 6%, to $255.4 million for the nine months ended September 30, 2021, as compared to $272.1 million for the nine months ended September 30, 2020. On a unit-of-production basis, our depletion, depreciation and amortization expenses decreased 20% to $10.90 per BOE for the nine months ended September 30, 2021, as compared to $13.70 per BOE for the nine months ended September 30, 2020. These decreases were attributable to the increase in our estimated total proved oil and natural gas reserves, as well as the decrease in unamortized property costs resulting from the full-cost ceiling impairments recorded in 2020. The decrease in our depletion, depreciation and amortization expenses was partially offset by a $7.6 million increase in depreciation expenses attributable to our midstream segment to $23.4 million for the nine months ended September 30, 2021 as compared to $15.8 million for the nine months ended September 30, 2020.
Full-cost ceiling impairment. No impairment to the net carrying value of our oil and natural gas properties and no corresponding charge resulting from a full-cost ceiling impairment were recorded for the nine months ended September 30, 2021. At September 30, 2020, the net capitalized costs of our oil and natural gas properties less related deferred income taxes exceeded the full-cost ceiling by $189.1 million. At June 30, 2020, the net capitalized costs of our oil and natural gas properties less related deferred income taxes exceeded the full-cost ceiling by $243.9 million. As a result, we recorded an impairment charge of $575.2 million to the net capitalized costs of our oil and natural gas properties and a deferred income tax benefit of $142.2 million. This full-cost ceiling impairment of $575.2 million is reflected in our interim unaudited condensed consolidated statement of operations for the nine months ended September 30, 2020.
General and administrative. Our general and administrative expenses increased $25.2 million, or 55%, to $71.2 million for the nine months ended September 30, 2021, as compared to $46.0 million for the nine months ended September 30, 2020. Our general and administrative expenses increased 31% on a unit-of-production basis to $3.04 per BOE for the nine months ended September 30, 2021, as compared to $2.32 per BOE for the nine months ended September 30, 2020. These increases were largely attributable to employee compensation costs, including a $14.7 million increase in stock-based compensation expense primarily associated with our cash-settled stock awards, the values of which are remeasured at each reporting period. The share price of our common stock increased more than three-fold from $12.06 at December 31, 2020 to $38.04 at
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September 30, 2021. The remainder of the increase for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, resulted primarily from the reinstatement of employee compensation beginning in March 2021, which had been previously reduced beginning in March 2020 in response to the significantly lower oil and natural gas price environment at that time.
Interest expense. For the nine months ended September 30, 2021, we incurred total interest expense of $59.5 million. We capitalized $3.9 million of our interest expense on certain qualifying projects for the nine months ended September 30, 2021 and expensed the remaining $55.6 million to operations. For the nine months ended September 30, 2020, we incurred total interest expense of $61.5 million. We capitalized $5.2 million of our interest expense on certain qualifying projects for the nine months ended September 30, 2020 and expensed the remaining $56.3 million to operations.
Income tax (benefit) provision. As a result of the full-cost ceiling impairments recorded during 2020, we recognized a valuation allowance against our federal net deferred tax assets as of September 30, 2020. Due to a variety of factors, including our significant net income during 2021, our federal valuation allowance was reversed as of September 30, 2021. Our income tax provision was $1.5 million for the nine months ended September 30, 2021. Our income tax provision for the nine months ended September 30, 2021 differed from amounts computed by applying the U.S. federal statutory rate to the pre-tax income due primarily to the impact of reversing our federal valuation allowance as of September 30, 2021, as well as permanent differences between book and tax income and state taxes, primarily in New Mexico. We recorded an income tax benefit of $43.4 million for the nine months ended September 30, 2020. Our income tax benefit differed from amounts computed by applying the U.S. federal statutory rate to our net loss due to the valuation allowance recognized at September 30, 2020.
Liquidity and Capital Resources
Our primary use of capital has been, and we expect will continue to be during the remainder of 2021 and for the foreseeable future, for the acquisition, exploration and development of oil and natural gas properties and for midstream investments. Excluding any possible significant acquisitions, we expect to fund our capital expenditures for the remainder of 2021 primarily through a combination of cash on hand, operating cash flows and performance incentives paid to us by a subsidiary of Five Point Energy LLC, our joint venture partner, in connection with San Mateo. If capital expenditures were to exceed our operating cash flows during the remainder of 2021, we expect to fund any such excess capital expenditures through borrowings under the Credit Agreement or San Mateo’s revolving credit facility (the “San Mateo Credit Facility”) (assuming availability under such facilities) or through other capital sources, including borrowings under additional credit arrangements, the sale or joint venture of midstream assets, oil and natural gas producing assets, leasehold interests or mineral interests and potential issuances of equity, debt or convertible securities, none of which may be available on satisfactory terms or at all. Our future success in growing proved reserves and production will be highly dependent on our ability to generate operating cash flows and access outside sources of capital.
At September 30, 2021, we had cash totaling $73.1 million and restricted cash totaling $34.7 million, which was primarily associated with San Mateo. By contractual agreement, the cash in the accounts held by our less-than-wholly-owned subsidiaries is not to be commingled with our other cash and is to be used only to fund the capital expenditures and operations of these less-than-wholly-owned subsidiaries. During the third quarter of 2021, we repaid $120.0 million in borrowings under the Credit Agreement. In addition, during each of the first and second quarters of 2021, we repaid $100.0 million in borrowings under the Credit Agreement. Between September 30, 2021 and October 26, 2021, we repaid $20.0 million of borrowings under the Credit Agreement. During the third quarter of 2021, we borrowed $5.0 million under the San Mateo Credit Facility. Between September 30, 2021 and October 26, 2021, we repaid $10.0 million of borrowings under the San Mateo Credit Facility.
The Board declared quarterly cash dividends of $0.025 per share of common stock, which were paid on March 31, 2021, June 3, 2021 and September 3, 2021. In October 2021, the Board amended our dividend policy to increase our quarterly dividend and declared a quarterly cash dividend of $0.05 per share of common stock payable on December 1, 2021 to shareholders of record as of November 10, 2021.
At September 30, 2021, we had (i) $1.05 billion of outstanding 5.875% senior notes due September 2026 (the “Notes”), (ii) $120.0 million in borrowings outstanding under the Credit Agreement, (iii) approximately $45.8 million in outstanding letters of credit issued pursuant to the Credit Agreement and (iv) $7.5 million outstanding under an unsecured U.S. Small Business Administration (“SBA”) loan. In April 2021, the lenders under our Credit Agreement completed their review of our proved oil and natural gas reserves, and, as a result, the borrowing base was reaffirmed at $900.0 million. We elected to keep the borrowing commitment at $700.0 million, the maximum facility amount remained $1.5 billion and no material changes were made to the terms of the Credit Agreement. This April 2021 redetermination constituted the regularly scheduled May 1 redetermination. Borrowings under the Credit Agreement are limited to the lowest of the borrowing base, the maximum facility amount and the elected commitment (subject to compliance with the covenant noted below). The Credit Agreement matures in October 2023. The Credit Agreement requires the Company to maintain a debt to EBITDA ratio, which is defined as debt
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outstanding (net of up to $50.0 million of cash or cash equivalents), divided by a rolling four quarter EBITDA calculation, of 4.0 or less. We believe that we were in compliance with the terms of the Credit Agreement at September 30, 2021.
At September 30, 2021, San Mateo had $357.5 million in borrowings outstanding under the San Mateo Credit Facility and approximately $9.0 million in outstanding letters of credit issued pursuant to the San Mateo Credit Facility. Between September 30, 2021 and October 26, 2021, San Mateo repaid $10.0 million of borrowings under the San Mateo Credit Facility. The San Mateo Credit Facility matures December 19, 2023 and was amended in June 2021 to increase the lender commitments under that facility from $375 million to $450 million (subject to San Mateo’s compliance with the covenants noted below) and to increase the borrowing rate for a base rate loan or a Eurodollar loan under such facility by 0.50%. The San Mateo Credit Facility includes an accordion feature, which, after the aforementioned amendment, provides for potential increases in lender commitments to up to $700.0 million. The San Mateo Credit Facility is guaranteed by San Mateo’s subsidiaries, secured by substantially all of San Mateo’s assets, including real property, and is non-recourse with respect to Matador and its wholly-owned subsidiaries. The San Mateo Credit Facility requires San Mateo to maintain a debt to EBITDA ratio, which is defined as total consolidated funded indebtedness outstanding (as defined in the San Mateo Credit Facility) divided by a rolling four quarter EBITDA calculation, of 5.0 or less, subject to certain exceptions. The San Mateo Credit Facility also requires San Mateo to maintain an interest coverage ratio, which is defined as a rolling four quarter EBITDA calculation divided by San Mateo’s consolidated interest expense for such period, of 2.5 or more. The San Mateo Credit Facility also restricts the ability of San Mateo to distribute cash to its members if San Mateo’s liquidity is less than 10% of the lender commitments under the San Mateo Credit Facility. We believe that San Mateo was in compliance with the terms of the San Mateo Credit Facility at September 30, 2021.
On April 13, 2020, we executed a promissory note evidencing an unsecured loan in the amount of approximately $7.5 million as part of the Paycheck Protection Program. For a discussion of such loan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in the Annual Report.
During the nine months ended September 30, 2021 and through October 26, 2021, the oil and natural gas industry experienced continued improvement in commodity prices as compared to 2020, primarily resulting from (i) improvements in oil demand as the impact from COVID-19 has begun to abate, (ii) actions taken by the Organization of Petroleum Exporting Countries, Russia and certain other oil-exporting countries (“OPEC+”) to reduce the worldwide supply of oil through coordinated production cuts and (iii) changes in supply dynamics, particularly with respect to natural gas. As a result, West Texas Intermediate (“WTI”) oil prices have increased from $48.52 per barrel at December 31, 2020 to as high as $74.45 per barrel in late September 2021 and have increased to above $80 per barrel in October 2021. Prices for natural gas and NGLs were also much higher during the nine months ended September 30, 2021 and through October 26, 2021 as compared to 2020. While oil and natural gas prices have improved significantly in 2021, the general outlook for the oil and natural gas industry for the remainder of the year remains unclear, and we can provide no assurances that commodity prices will remain at current levels. In fact, commodity prices may decline from their current levels. The economic disruptions associated with COVID-19 and the volatility in oil and natural gas prices have also impacted our ability to access the capital markets on reasonably similar terms as were available prior to 2020.
In August 2021, we began operating a fifth drilling rig on behalf of San Mateo for the purpose of drilling an additional salt water disposal well in the Greater Stebbins Area. Drilling operations on this salt water disposal well were completed in late September 2021, and this well was undergoing completion operations at October 26, 2021. We contracted this fifth operated drilling rig for a term of six months. As a result, in early October 2021, following the conclusion of drilling operations on the salt water disposal well, we moved this rig to our Rodney Robinson leasehold in the western portion of the Antelope Ridge asset area in Lea County, New Mexico.
At October 26, 2021, we were operating five drilling rigs throughout our various Delaware Basin asset areas. Two of these rigs were drilling the next nine wells on the Rodney Robinson leasehold. One of these rigs was concluding drilling operations on the next group of 11 Voni wells in the Stateline asset area, and another was concluding drilling operations on the second of two Uncle Ches wells in the Ranger asset area. The fifth rig recently began drilling three Barnett Trust wells in the Wolf asset area.
On October 26, 2021, we narrowed the range of our 2021 estimated capital expenditures for D/C/E capital expenditures to $535 to $565 million from $525 to $575 million, as originally estimated. As a result of savings on our operated D/C/E capital expenditures in the first nine months of 2021, a faster drilling and completions pace and an anticipated decrease in non-operated D/C/E capital expenditures in the second half of 2021, we intend to advance the next 11 Voni well completions in the Stateline asset area forward into the fourth quarter of 2021 and operate a fifth drilling rig in the fourth quarter of 2021, as previously disclosed, and expect to be able to do so without increasing the midpoint of our estimates for D/C/E capital expenditures for full year 2021. At October 26, 2021, our anticipated 2021 midstream capital expenditures remained $35 to $45 million, which primarily reflect our proportionate share of San Mateo’s estimated 2021 capital expenditures.
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Substantially all of these 2021 estimated capital expenditures are expected to be allocated to (i) the further delineation and development of our leasehold position, (ii) the construction, installation and maintenance of midstream assets and (iii) our participation in certain non-operated well opportunities in the Delaware Basin, with the exception of amounts allocated to limited operations in our South Texas and Haynesville shale positions to maintain and extend leases and to participate in certain non-operated well opportunities. Our 2021 Delaware Basin operated drilling program is expected to continue to focus on the continued development of our various asset areas throughout the Delaware Basin, with a continued emphasis on drilling and completing a higher percentage of longer horizontal wells in 2021, including 98% with anticipated completed lateral lengths of two miles or greater. We have built significant optionality into our drilling program, which should generally allow us to increase or decrease the number of rigs we operate as necessary based on changing commodity prices and other factors.
We may divest portions of our non-core assets, particularly in the Eagle Ford shale in South Texas and the Haynesville shale and Cotton Valley plays in Northwest Louisiana, as well as consider monetizing other assets, such as certain mineral, royalty and midstream interests, as value-creating opportunities arise. In addition, we intend to continue evaluating the opportunistic acquisition of acreage and mineral interests, principally in the Delaware Basin, during the remainder of 2021 and in 2022. These monetizations, divestitures and capital expenditures are opportunity-specific, and purchase price multiples and per-acre prices can vary significantly based on the asset or prospect. As a result, it is difficult to estimate these monetizations, divestitures and capital expenditures with any degree of certainty; therefore, we have not provided estimated proceeds related to monetizations or divestitures or estimated capital expenditures related to acreage and mineral acquisitions for 2021.
Our 2021 capital expenditures may be adjusted as business conditions warrant and the amount, timing and allocation of such expenditures is largely discretionary and within our control. The aggregate amount of capital we will expend may fluctuate materially based on market conditions, the actual costs to drill, complete and place on production operated or non-operated wells, our drilling results, the actual costs and scope of our midstream activities, the ability of our joint venture partners to meet their capital obligations, other opportunities that may become available to us and our ability to obtain capital. When oil or natural gas prices decline, or costs increase significantly, we have the flexibility to defer a significant portion of our capital expenditures until later periods to conserve cash or to focus on projects that we believe have the highest expected returns and potential to generate near-term cash flows. We routinely monitor and adjust our capital expenditures in response to changes in prices, availability of financing, drilling, completion and acquisition costs, industry conditions, the timing of regulatory approvals, the availability of rigs, success or lack of success in our exploration and development activities, contractual obligations, drilling plans for properties we do not operate and other factors both within and outside our control.
Exploration and development activities are subject to a number of risks and uncertainties, which could cause these activities to be less successful than we anticipate. A significant portion of our anticipated cash flows from operations for the remainder of 2021 is expected to come from producing wells and development activities on currently proved properties in the Wolfcamp and Bone Spring plays in the Delaware Basin, the Eagle Ford shale in South Texas and the Haynesville shale in Northwest Louisiana. Our existing wells may not produce at the levels we are forecasting and our exploration and development activities in these areas may not be as successful as we anticipate. Additionally, our anticipated cash flows from operations are based upon current expectations of oil and natural gas prices for the remainder of 2021 and the hedges we currently have in place. For further discussion of our expectations of such commodity prices, see “—General Outlook and Trends” below. We use commodity derivative financial instruments at times to mitigate our exposure to fluctuations in oil, natural gas and NGL prices and to partially offset reductions in our cash flows from operations resulting from declines in commodity prices. See Note 7 to the interim unaudited condensed consolidated financial statements in this Quarterly Report for a summary of our open derivative financial instruments.
Our unaudited cash flows for the nine months ended September 30, 2021 and 2020 are presented below:
| Nine Months Ended September 30, | |||||||||||
| (In thousands) | 2021 | 2020 | |||||||||
| Net cash provided by operating activities | $ | 718,826 | $ | 319,959 | |||||||
| Net cash used in investing activities | (383,678) | (661,155) | |||||||||
| Net cash (used in) provided by financing activities | (318,740) | 343,971 | |||||||||
| Net change in cash and restricted cash | $ | 16,408 | $ | 2,775 | |||||||
Adjusted EBITDA attributable to Matador Resources Company shareholders(1) | $ | 752,906 | $ | 369,158 | |||||||
__________________
(1)Adjusted EBITDA is a non-GAAP financial measure. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to our net income (loss) and net cash provided by operating activities, see “—Non-GAAP Financial Measures” below.
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Cash Flows Provided by Operating Activities
Net cash provided by operating activities increased $398.9 million to $718.8 million for the nine months ended September 30, 2021 from $320.0 million for the nine months ended September 30, 2020. Excluding changes in operating assets and liabilities, net cash provided by operating activities increased $400.4 million to $753.3 million for the nine months ended September 30, 2021 from $352.8 million for the nine months ended September 30, 2020, primarily attributable to significantly higher realized oil and natural gas prices and higher oil and natural gas production for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. Changes in our operating assets and liabilities between the two periods resulted in a net decrease of approximately $1.6 million in net cash provided by operating activities for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.
Our operating cash flows are sensitive to a number of variables, including changes in our production and the volatility of oil and natural gas prices between reporting periods. Regional and worldwide economic activity, the actions of OPEC+ and other large state-owned oil producers, weather, infrastructure capacity to reach markets and other variable factors significantly impact the prices of oil and natural gas. For example, the effects of COVID-19 and the corresponding decline in oil demand significantly impacted the prices we received for our oil production in recent periods, particularly during 2020. These factors are beyond our control and are difficult to predict. We use commodity derivative financial instruments at times to mitigate our exposure to fluctuations in oil, natural gas and NGL prices.
Cash Flows Used in Investing Activities
Net cash used in investing activities decreased $277.5 million to $383.7 million for the nine months ended September 30, 2021 from $661.2 million for the nine months ended September 30, 2020. This decrease in net cash used in investing activities was primarily due to (i) a decrease of $83.1 million in D/C/E capital expenditures, (ii) a decrease of $157.7 million in midstream capital expenditures and (iii) a decrease of $35.7 million in expenditures related to acquisition of oil and natural gas properties for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. Cash used for D/C/E capital expenditures for the nine months ended September 30, 2021 and 2020 was primarily attributable to our operated and non-operated drilling and completion activities in the Delaware Basin. Cash used for midstream capital expenditures for the nine months ended September 30, 2020 was primarily attributable to the expansion of the Black River Processing Plant and midstream facilities in the Greater Stebbins Area and the Stateline asset area, which were completed in 2020.
Cash Flows (Used in) Provided by Financing Activities
Net cash used in financing activities was $318.7 million for the nine months ended September 30, 2021, a decrease from net cash provided by financing activities of $344.0 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, our primary uses of cash related to financing activities were for the net repayment of $320.0 million in borrowings under our Credit Agreement and the payment of our first three quarterly dividends. These payments were partially offset by net borrowings under the San Mateo Credit Facility of $23.5 million. During the nine months ended September 30, 2020, our primary sources of cash from financing activities included borrowings under our Credit Agreement of $220.0 million, borrowings under the San Mateo Credit Facility of $38.4 million and net contributions related to the formation of San Mateo and from non-controlling interest owners in less-than-wholly-owned subsidiaries of $80.9 million.
See Note 4 to the interim unaudited condensed consolidated financial statements in this Quarterly Report for a summary of our debt, including the Credit Agreement, the San Mateo Credit Facility and the Notes.
Guarantor Financial Information
The Notes are jointly and severally guaranteed by certain subsidiaries of Matador (the “Guarantor Subsidiaries”) on a full and unconditional basis (except for customary release provisions). At September 30, 2021, the Guarantor Subsidiaries were 100% owned by Matador. Matador is a parent holding company and has no independent assets or operations, and there are no significant restrictions on the ability of Matador to obtain funds from the Guarantor Subsidiaries by dividend or loan. San Mateo and its subsidiaries are not guarantors of the Notes.
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The following tables present summarized financial information of Matador (as issuer of the Notes) and the Guarantor Subsidiaries on a combined basis after elimination of (i) intercompany transactions and balances between the parent and the Guarantor Subsidiaries and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor. This financial information is presented in accordance with the amended requirements of Rule 3-10 of Regulation S-X. The following financial information may not necessarily be indicative of results of operations or financial position had the Guarantor Subsidiaries operated as independent entities.
| (In thousands) | September 30, 2021 | |||||||
| Summarized Balance Sheet | ||||||||
| Assets | ||||||||
| Current assets | $ | 341,858 | ||||||
| Net property and equipment | $ | 2,747,595 | ||||||
| Other long-term assets | $ | 64,901 | ||||||
| Liabilities | ||||||||
| Current liabilities | $ | 455,923 | ||||||
| Long-term debt | $ | 1,162,184 | ||||||
| Other long-term liabilities | $ | 81,037 | ||||||
| Three Months Ended | Nine Months Ended | |||||||||||||
| (In thousands) | September 30, 2021 | September 30, 2021 | ||||||||||||
| Summarized Statement of Operations | ||||||||||||||
| Revenues | $ | 437,923 | $ | 1,015,565 | ||||||||||
| Expenses | 241,250 | 635,739 | ||||||||||||
| Operating income | $ | 196,673 | $ | 379,826 | ||||||||||
| Other expense | (18,113) | (52,321) | ||||||||||||
| Tax benefit (provision) | 6,701 | (1,488) | ||||||||||||
| Net income | $ | 185,261 | $ | 326,017 | ||||||||||
Non-GAAP Financial Measures
We define Adjusted EBITDA as earnings before interest expense, income taxes, depletion, depreciation and amortization, accretion of asset retirement obligations, property impairments, unrealized derivative gains and losses, certain other non-cash items and non-cash stock-based compensation expense and net gain or loss on asset sales and impairment. Adjusted EBITDA is not a measure of net income or cash flows as determined by GAAP. Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies.
Management believes Adjusted EBITDA is necessary because it allows us to evaluate our operating performance and compare the results of operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above from net income in calculating Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which certain assets were acquired.
Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income or cash flows from operating activities as determined in accordance with GAAP or as a primary indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components of understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure. Our Adjusted EBITDA may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDA in the same manner.
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The following table presents our calculation of Adjusted EBITDA and the reconciliation of Adjusted EBITDA to the GAAP financial measures of net income and net cash provided by operating activities, respectively.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Unaudited Adjusted EBITDA Reconciliation to Net Income (Loss) | |||||||||||||||||||||||
| Net income (loss) attributable to Matador Resources Company shareholders | $ | 203,628 | $ | (276,064) | $ | 370,178 | $ | (503,751) | |||||||||||||||
| Net income attributable to non-controlling interest in subsidiaries | 14,434 | 9,957 | 39,213 | 26,784 | |||||||||||||||||||
| Net income (loss) | 218,062 | (266,107) | 409,391 | (476,967) | |||||||||||||||||||
| Interest expense | 17,989 | 18,231 | 55,579 | 56,340 | |||||||||||||||||||
| Total income tax (benefit) provision | (6,701) | 26,497 | 1,488 | (43,369) | |||||||||||||||||||
| Depletion, depreciation and amortization | 89,061 | 88,025 | 255,368 | 272,082 | |||||||||||||||||||
| Accretion of asset retirement obligations | 518 | 478 | 1,529 | 1,449 | |||||||||||||||||||
| Full-cost ceiling impairment | — | 251,163 | — | 575,164 | |||||||||||||||||||
| Unrealized (gain) loss on derivatives | (9,049) | 13,033 | 77,178 | 9,271 | |||||||||||||||||||
| Non-cash stock-based compensation expense | 2,967 | 3,369 | 5,617 | 10,449 | |||||||||||||||||||
| Net loss on asset sales and impairment | 251 | — | 251 | 2,632 | |||||||||||||||||||
| Consolidated Adjusted EBITDA | 313,098 | 134,689 | 806,401 | 407,051 | |||||||||||||||||||
| Adjusted EBITDA attributable to non-controlling interest in subsidiaries | (19,273) | (13,701) | (53,495) | (37,893) | |||||||||||||||||||
| Adjusted EBITDA attributable to Matador Resources Company shareholders | $ | 293,825 | $ | 120,988 | $ | 752,906 | $ | 369,158 | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Unaudited Adjusted EBITDA Reconciliation to Net Cash Provided by Operating Activities | |||||||||||||||||||||||
| Net cash provided by operating activities | $ | 291,231 | $ | 109,574 | $ | 718,826 | $ | 319,959 | |||||||||||||||
| Net change in operating assets and liabilities | 4,666 | 7,599 | 34,439 | 32,866 | |||||||||||||||||||
| Interest expense, net of non-cash portion | 17,201 | 17,516 | 53,136 | 54,226 | |||||||||||||||||||
| Adjusted EBITDA attributable to non-controlling interest in subsidiaries | (19,273) | (13,701) | (53,495) | (37,893) | |||||||||||||||||||
| Adjusted EBITDA attributable to Matador Resources Company shareholders | $ | 293,825 | $ | 120,988 | $ | 752,906 | $ | 369,158 | |||||||||||||||
For the three months ended September 30, 2021, we reported net income attributable to Matador shareholders of $203.6 million, as compared to a net loss attributable to Matador shareholders of $276.1 million for the three months ended September 30, 2020. This change in net income attributable to Matador shareholders primarily resulted from (i) the $251.2 million full-cost ceiling impairment recorded for the three months ended September 30, 2020, as compared to no such impairment for the three months ended September 30, 2021, (ii) higher oil and natural gas production and higher realized oil and natural gas prices for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, (iii) a tax benefit of $6.7 million for the three months ended September 30, 2021, as compared to a tax expense of $26.5 million three months ended September 30, 2020, and (iv) an unrealized gain on derivatives of $9.0 million for the three months ended September 30, 2021, as compared to an unrealized loss on derivatives of $13.0 million for the three months ended September 30, 2020.
For the nine months ended September 30, 2021, we reported net income attributable to Matador shareholders of $370.2 million, as compared to a net loss attributable to Matador shareholders of $503.8 million for the nine months ended September 30, 2020. This change in net income attributable to Matador shareholders primarily resulted from the $575.2 million full-cost ceiling impairment recorded for the nine months ended September 30, 2020, as compared to no such impairment in the nine months ended September 30, 2021, and was also the result of higher oil and natural gas production and higher realized oil and natural gas prices for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. This increase was partially offset by (i) an unrealized loss on derivatives of $77.2 million for the nine months ended September
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30, 2021, as compared to an unrealized loss on derivatives of $9.3 million for the nine months ended September 30, 2020 and (ii) a tax provision of $1.5 million for the nine months ended September 30, 2021, as compared to a tax benefit of $43.4 million for the nine months ended September 30, 2020.
Adjusted EBITDA, a non-GAAP financial measure, increased $172.8 million to $293.8 million for the three months ended September 30, 2021, as compared to $121.0 million for the three months ended September 30, 2020. This increase is primarily attributable to higher oil and natural gas production and higher realized oil and natural gas prices for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020.
Adjusted EBITDA, a non-GAAP financial measure, increased $383.7 million to $752.9 million for the nine months ended September 30, 2021, as compared to $369.2 million for the nine months ended September 30, 2020. This increase is primarily attributable to higher oil and natural gas production and higher realized oil and natural gas prices for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.
Off-Balance Sheet Arrangements
From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to material off-balance sheet obligations. As of September 30, 2021, the material off-balance sheet arrangements and transactions that we have entered into include (i) non-operated drilling commitments, (ii) firm gathering, transportation, processing, fractionation, sales and disposal commitments and (iii) contractual obligations for which the ultimate settlement amounts are not fixed and determinable, such as derivative contracts that are sensitive to future changes in commodity prices or interest rates, gathering, treating, transportation and disposal commitments on uncertain volumes of future throughput, open delivery commitments and indemnification obligations following certain divestitures. Other than the off-balance sheet arrangements described above, the Company has no transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect our liquidity or availability of or requirements for capital resources. See “—Obligations and Commitments” below and Note 9 to the interim unaudited condensed consolidated financial statements in this Quarterly Report for more information regarding our off-balance sheet arrangements. Such information is incorporated herein by reference.
Obligations and Commitments
We had the following material contractual obligations and commitments at September 30, 2021.
| Payments Due by Period | |||||||||||||||||||||||||||||
| (In thousands) | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | ||||||||||||||||||||||||
| Contractual Obligations | |||||||||||||||||||||||||||||
Borrowings, including letters of credit(1) | $ | 539,773 | $ | — | $ | 539,773 | $ | — | $ | — | |||||||||||||||||||
Senior unsecured notes(2) | 1,050,000 | — | — | 1,050,000 | — | ||||||||||||||||||||||||
| Office leases | 19,498 | 4,099 | 8,478 | 6,921 | — | ||||||||||||||||||||||||
Non-operated drilling and other capital commitments(3) | 43,713 | 24,188 | 19,525 | — | — | ||||||||||||||||||||||||
Drilling rig contracts(4) | 10,187 | 10,187 | — | — | — | ||||||||||||||||||||||||
Asset retirement obligations(5) | 40,332 | 231 | 5,102 | 1,520 | 33,479 | ||||||||||||||||||||||||
Transportation, gathering, processing and disposal agreements with non-affiliates(6) | 613,697 | 70,011 | 142,543 | 142,141 | 259,002 | ||||||||||||||||||||||||
Transportation, gathering, processing and disposal agreements with San Mateo(7) | 399,894 | 1,082 | 108,606 | 182,740 | 107,466 | ||||||||||||||||||||||||
| Total contractual cash obligations | $ | 2,717,094 | $ | 109,798 | $ | 824,027 | $ | 1,383,322 | $ | 399,947 | |||||||||||||||||||
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(1)The amounts included in the table above represent principal maturities only. At September 30, 2021, we had $120.0 million in borrowings outstanding under the Credit Agreement, approximately $45.8 million in outstanding letters of credit issued pursuant to the Credit Agreement and $7.5 million in borrowings outstanding under the SBA loan. The Credit Agreement matures in October 2023. At September 30, 2021, San Mateo had $357.5 million of borrowings outstanding under the San Mateo Credit Facility and approximately $9.0 million in outstanding letters of credit issued pursuant to the San Mateo Credit Facility. The San Mateo Credit Facility matures in December 2023. Assuming the amounts outstanding and interest rates of 1.34% and 2.09%, for the Credit Agreement and the San Mateo Credit Facility, respectively, at September 30, 2021, the interest expense for such facilities is expected to be approximately $1.6 million and $7.6 million each year until maturity.
(2)The amounts included in the table above represent principal maturities only. Interest expense on the $1.05 billion of Notes that were outstanding as of September 30, 2021 is expected to be approximately $61.7 million each year until maturity.
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(3)At September 30, 2021, we had outstanding commitments to drill and complete and to participate in the drilling and completion of various operated and non-operated wells.
(4)We do not own or operate our own drilling rigs, but instead we enter into contracts with third parties for such drilling rigs.
(5)The amounts included in the table above represent discounted cash flow estimates for future asset retirement obligations at September 30, 2021.
(6)From time to time, we enter into agreements with third parties whereby we commit to deliver anticipated natural gas and oil production and produced water from certain portions of our acreage for transportation, gathering, processing, fractionation, sales and disposal. Certain of these agreements contain minimum volume commitments. If we do not meet the minimum volume commitments under these agreements, we would be required to pay certain deficiency fees. See Note 9 to the interim unaudited condensed consolidated financial statements in this Quarterly Report for more information about these contractual commitments.
(7)We dedicated to San Mateo our current and certain future leasehold interests in the Rustler Breaks and Wolf asset areas and acreage in the Greater Stebbins Area and Stateline asset area pursuant to 15-year, fixed-fee oil transportation, oil, natural gas and produced water gathering and produced water disposal agreements. In addition, we dedicated to San Mateo our current and certain future leasehold interests in the Rustler Breaks asset area and acreage in the Greater Stebbins Area and Stateline asset area pursuant to 15-year, fixed-fee natural gas processing agreements. See Note 9 to the interim unaudited condensed consolidated financial statements in this Quarterly Report for more information about these contractual commitments.
General Outlook and Trends
During the first quarter and through April 2020, the oil and natural gas industry witnessed an abrupt and significant decline in oil prices resulting from two primary factors: (i) the precipitous decline in global oil demand resulting from the worldwide spread of COVID-19 and (ii) the increase in global oil supply resulting from actions of OPEC+. The sudden decline in oil prices began to improve later in the second quarter of 2020 and generally continued throughout the remainder of 2020. During the nine months ended September 30, 2021 and through October 26, 2021, the oil and natural gas industry experienced continued improvement in commodity prices as compared to 2020, primarily resulting from (x) improvements in oil demand as the impact from COVID-19 has begun to abate, (y) actions taken by OPEC+ to reduce the worldwide supply of oil through coordinated production cuts and (z) changes in supply dynamics, particularly with respect to natural gas. While oil and natural gas prices have improved significantly in 2021, the general outlook for the oil and natural gas industry for the remainder of the year remains unclear, and we can provide no assurances that commodity prices will remain at current levels. In fact, commodity prices may decline from their current levels. See “Risk Factors—Risks Related to our Financial Condition—Our success is dependent on the prices of oil and natural gas. Low oil and natural gas prices and the continued volatility in these prices may adversely affect our financial condition and our ability to meet our capital expenditure requirements and financial obligations” in the Annual Report. The economic disruptions associated with COVID-19 and the volatility in oil and natural gas prices have also impacted our ability to access the capital markets on reasonably similar terms as were available prior to 2020.
For the three months ended September 30, 2021, oil prices averaged $70.52 per Bbl, ranging from a low of $62.32 per Bbl in mid-August to a high of $75.45 per Bbl in late September, based upon the WTI oil futures contract price for the earliest delivery date. We realized a weighted average oil price of $69.73 per Bbl ($58.43 per Bbl including realized losses from oil derivatives) for our oil production for the three months ended September 30, 2021, as compared to $38.67 per Bbl ($37.28 per Bbl including realized losses from oil derivatives) for our oil production for the three months ended September 30, 2020. At October 26, 2021, the WTI oil futures contract for the earliest delivery date had increased from the average price for the third quarter of 2021 of $70.52 per Bbl, settling at $84.65 per Bbl, which was a significant increase as compared to $38.56 per Bbl at October 26, 2020.
Natural gas prices were also higher in the third quarter of 2021, as compared to the third quarter of 2020. For the three months ended September 30, 2021, natural gas prices averaged $4.32 per MMBtu, ranging from a low of $3.60 per MMBtu in early July to a high of $5.87 per MMBtu in late September, based upon the NYMEX Henry Hub natural gas futures contract price for the earliest delivery date. We realized a weighted average natural gas price of $6.27 per Mcf ($6.05 per Mcf including realized losses from natural gas derivatives) for our natural gas production (including revenues attributable to NGLs) for the three months ended September 30, 2021, as compared to $2.27 per Mcf (with no realized gains or losses from natural gas derivatives) for our natural gas production (including revenues attributable to NGLs) for the three months ended September 30, 2020. While most of our natural gas production is typically sold at prices established at the beginning of each month by the various markets where we sell our natural gas production, certain volumes of our natural gas production are sold at daily market prices. NGL prices, and especially propane prices, were also strong in the third quarter of 2021, which further contributed to our third quarter weighted average realized natural gas price. At October 26, 2021, the NYMEX Henry Hub natural gas futures contract price for the earliest delivery date had increased from the average price for the third quarter of 2021 of $4.32 per MMBtu, settling at $5.88 per MMBtu, which was also a significant increase as compared to $3.02 per MMBtu at October 26, 2020.
The prices we receive for oil, natural gas and NGLs heavily influence our revenues, profitability, cash flow available for capital expenditures, access to capital and future rate of growth. Oil, natural gas and NGL prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil, natural gas and NGLs have been volatile, and these markets will likely continue to be volatile in the future. Declines in oil, natural gas or NGL prices not only reduce our revenues, but could also reduce the amount of oil, natural gas and NGLs we can produce economically and, as
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a result, could have an adverse effect on our financial condition, results of operations, cash flows and reserves and our ability to comply with the leverage ratio covenant under our Credit Agreement.
From time to time, we use derivative financial instruments to mitigate our exposure to commodity price risk associated with oil, natural gas and NGL prices. Even so, decisions as to whether, at what price and what production volumes to hedge are difficult and depend on market conditions and our forecast of future production and oil, natural gas and NGL prices, and we may not always employ the optimal hedging strategy. This, in turn, may affect the liquidity that can be accessed through the borrowing base under the Credit Agreement and through the capital markets. During the first nine months of 2021, we incurred realized losses on our oil derivative contracts of approximately $121.5 million, including $52.8 million in the third quarter of 2021, primarily as a result of oil prices that were above the ceiling prices of certain of our oil costless collar contracts and above the strike price of certain of our oil swap and oil basis swap contracts. We also incurred losses on our natural gas derivative contracts of approximately $4.6 million during the third quarter of 2021 as a result of natural gas prices that were above the ceiling prices of certain of our natural gas costless collar contracts. Should oil and natural gas prices remain at or near their current levels for the remainder of 2021, we would expect to have similar or greater losses during the fourth quarter of 2021, until these derivative contracts have expired. At October 26, 2021, we have derivative contracts in place for approximately 2.0 million Bbl of our anticipated full year 2022 oil production and approximately 8.3 Bcf of our anticipated first quarter 2022 natural gas production.
The prices we receive for oil and natural gas production often reflect a discount to the relevant benchmark prices, such as the WTI oil price or the NYMEX Henry Hub natural gas price. The difference between the benchmark price and the price we receive is called a differential. At September 30, 2021, most of our oil production from the Delaware Basin was sold based on prices established in Midland, Texas, and a significant portion of our natural gas production from the Delaware Basin was sold based on Houston Ship Channel pricing, while the remainder of our Delaware Basin natural gas production was sold primarily based on prices established at the Waha hub in far West Texas.
The Midland-Cushing (Oklahoma) oil price differential has been highly volatile in recent years, but began 2020 slightly positive to the WTI oil price and remained positive through much of the first quarter of 2020. With the abrupt decline in oil prices during the first quarter of 2020, however, the Midland-Cushing (Oklahoma) oil price differential experienced significant volatility in April 2020, reaching ($6.00) per Bbl before becoming positive in the second quarter and improving through the rest of 2020 and into 2021. At October 26, 2021, this oil price differential was approximately $0.50 per Bbl. At October 26, 2021, we had derivative contracts in place to mitigate our exposure to this Midland-Cushing (Oklahoma) oil price differential on a portion of our anticipated oil production for the remainder of 2021 and 2022.
Certain volumes of our Delaware Basin natural gas production are exposed to the Waha-Henry Hub basis differential, which has also been highly volatile in recent years, including in April 2019 when natural gas was sold at the Waha hub for negative prices as high as ($7.00) to ($9.00) per MMBtu. In early 2020, the Waha basis differential remained significant at about ($1.20) per MMBtu and continued to deteriorate. Natural gas prices at the Waha hub were negative on certain days in April 2020. The Waha basis differential narrowed during the remainder of the second quarter of 2020. During the third quarter of 2020 and, in particular, at the beginning of October 2020, the Waha basis differential widened significantly again, including several days when natural gas was being sold at the Waha hub for negative prices, due to seasonal pipeline maintenance and other factors that reduced capacity out of the Waha hub. These capacity issues have been largely resolved and the Waha basis differential improved during the remainder of 2020 and throughout the first three quarters of 2021. At October 26, 2021, this natural gas price differential was approximately ($0.30) per Bbl.
A significant portion of our Delaware Basin natural gas production, however, is typically sold at Houston Ship Channel pricing and is not exposed to Waha pricing. During 2020 and most of the first nine months of 2021, we typically realized a premium to natural gas sold at the Waha hub despite higher transportation charges incurred to transport the natural gas to the Gulf Coast. At certain times, we may also sell a portion of our natural gas production to other markets to improve our realized natural gas pricing.
Although the natural gas price differentials have recently at times been positive or close to zero, these price differentials could deteriorate in future periods. Should we experience future periods of negative pricing for natural gas as we have in previous periods, we may temporarily shut in certain high gas-oil ratio wells and take other actions to mitigate the impact on our realized natural gas prices and results. In addition, we have no derivative contracts in place to mitigate our exposure to these natural gas price differentials during the remainder of 2021 or for future periods.
During times of low oil prices, we may elect to shut in or curtail certain volumes of our oil production temporarily rather than sell the oil at depressed prices. As most of our natural gas production in the Delaware Basin is associated with oil production, portions of our natural gas production may also be curtailed or shut in. Furthermore, portions of our Delaware Basin production in the first quarter of 2021 were impacted by the historically prolonged cold weather conditions in New Mexico and Texas in February due to Winter Storm Uri, although we were able to produce and sell the majority of our oil and natural gas
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during this period. We experienced minimal impact to our production volumes due to insufficient storage capacity or damage to refineries downstream of our operations as a result of Winter Storm Uri.
At October 26, 2021, we had not experienced material pipeline-related interruptions to our oil, natural gas or NGL production. In certain recent periods, shortages of NGL fractionation capacity were experienced by certain operators in the Delaware Basin. Although we did not encounter such fractionation capacity problems, we can provide no assurances that such problems will not arise. If we do experience any interruptions with takeaway capacity or NGL fractionation, our oil and natural gas revenues, business, financial condition, results of operations and cash flows could be adversely affected.
As a result of the recent increases in oil and natural gas prices, we have begun to experience inflation in the costs of certain oilfield services, including diesel, steel, labor, trucking and completion costs, among others. Should oil and natural gas prices remain at their current levels or increase further, we expect to be subject to additional service cost inflation in future periods, which may increase our costs to drill, complete, equip and operate wells. We budgeted a 10% increase in oilfield service costs for the second half of 2021 in preparing our full-year D/C/E and midstream capital expenditures for 2021. Should we experience service cost inflation above 10% during the fourth quarter of 2021, we may be required to increase our 2021 estimated capital expenditure budget, although we have not done so at October 26, 2021.
Our oil and natural gas exploration, development, production, midstream and related operations are subject to extensive federal, state and local laws, rules and regulations. The regulatory burden on the oil and natural gas industry increases our cost of doing business and affects our profitability. Because these laws, rules and regulations are frequently amended or reinterpreted and new laws, rules and regulations are proposed or promulgated, we are unable to predict the future cost or impact of complying with the laws, rules and regulations to which we are, or will become, subject. For example, although such bills have not passed, in recent years, separate bills have been introduced in the New Mexico legislature proposing to add a surtax on natural gas processors and proposing to place a moratorium on, ban or otherwise restrict hydraulic fracturing, including prohibiting the injection of fresh water in such operations. In 2019, New Mexico’s governor also signed an executive order requiring a regulatory framework to ensure reductions of methane emissions. Following that executive order, the governing New Mexico regulatory bodies and New Mexico legislature have proposed various rules, regulations and bills regarding the reduction of natural gas waste and the control of emissions. In 2021, New Mexico adopted a rule that limits the ability of upstream and midstream operators to flare natural gas (which may cause unplanned shut-ins of our production) and requires upstream and midstream operators to reduce natural gas waste by a fixed amount each year and achieve a 98% natural gas capture rate by the end of 2026. See “Risk Factors—Risks Related to Laws and Regulations” in our Annual Report. These and other laws, rules and regulations, including any federal legislation, regulations or orders intended to limit or restrict oil and natural gas operations on federal lands, if enacted, could have an adverse impact on our business, financial condition, results of operations and cash flows.
In January 2021, the Biden administration issued (i) an order signed by the acting Secretary of the Interior dated January 20, 2021 providing for a 60-day pause limiting the authority of local offices of the Bureau of Land Management to issue new leases and grant federal drilling permits and certain extensions, sundries, rights-of-way and other necessary approvals for the development of federal oil and natural gas leases; and (ii) an executive order signed by President Biden instructing the Department of the Interior to pause new oil and natural gas leases on public lands pending completion of a comprehensive review and consideration of federal oil and natural gas permitting and leasing practices (together, the “Biden Federal Lease Orders”). The pause relating to federal oil and natural gas leases in these orders did not restrict our activities on existing valid leases. As such, we have continued our operations on federal properties. However, we can provide no assurances that federal regulations will not be adopted that limit our ability to develop our federal properties. Should such actions be taken, they would almost certainly impact our drilling and completion plans and could materially impact our production volumes, revenues, reserves, cash flows and availability under our Credit Agreement. See “Risk Factors—Risks Related to Laws and Regulations—Approximately 28% of our leasehold and mineral acres in the Delaware Basin is located on federal lands, which are subject to administrative permitting requirements and potential federal legislation, regulation and orders that may limit or restrict oil and natural gas operations on federal lands” in our Annual Report.
In addition, certain segments of the investor community have expressed negative sentiment towards investing in the oil and natural gas industry, equity returns in the sector versus other industry sectors in recent years have led to lower oil and natural gas representation in certain key equity market indices and some investors, including certain pension funds, university endowments and family foundations, have stated policies to reduce or eliminate their investments in the oil and natural gas sector based on social and environmental considerations.
Like other oil and natural gas producing companies, our properties are subject to natural production declines. By their nature, our oil and natural gas wells will experience rapid initial production declines. We attempt to overcome these production declines by drilling to develop and identify additional reserves, by exploring for new sources of reserves and, at times, by acquisitions. During times of severe oil, natural gas and NGL price declines, however, drilling additional oil or natural gas wells may not be economic, and we may find it necessary to reduce capital expenditures and curtail drilling operations in order
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to preserve liquidity. A material reduction in capital expenditures and drilling activities could materially impact our production volumes, revenues, reserves, cash flows and our availability under our Credit Agreement. See “Risk Factors—Risks Related to our Financial Condition—Our exploration, development, exploitation and midstream projects require substantial capital expenditures that may exceed our cash flows from operations and potential borrowings, and we may be unable to obtain needed capital on satisfactory terms, which could adversely affect our future growth” in the Annual Report.
We strive to focus our efforts on increasing oil and natural gas reserves and production while controlling costs at a level that is appropriate for long-term operations. Our ability to find and develop sufficient quantities of oil and natural gas reserves at economical costs is critical to our long-term success. Future finding and development costs are subject to changes in the costs of acquiring, drilling and completing our prospects.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Except as set forth below, there have been no material changes to the sources and effects of our market risk since December 31, 2020, which are disclosed in Part II, Item 7A of the Annual Report and incorporated herein by reference.
Commodity price exposure. We are exposed to market risk as the prices of oil, natural gas and NGLs fluctuate as a result of changes in supply and demand and other factors. To partially reduce price risk caused by these market fluctuations, we have entered into derivative financial instruments in the past and expect to enter into derivative financial instruments in the future to cover a significant portion of our anticipated future production.
We typically use costless (or zero-cost) collars, three-way collars and/or swap contracts to manage risks related to changes in oil, natural gas and NGL prices. Costless collars provide us with downside price protection through the purchase of a put option that is financed through the sale of a call option. Because the call option proceeds are used to offset the cost of the put option, these arrangements are initially “costless” to us. Three-way costless collars also provide us with downside price protection through the purchase of a put option, but they also allow us to participate in price upside through the purchase of a call option. The purchase of both the put option and call option are financed through the sale of a call option. Because the proceeds from the call option sale are used to offset the cost of the purchased put and call options, these arrangements are also initially “costless” to us. In the case of a costless collar, the put option or options and the call option have different fixed price components. In a swap contract, a floating price is exchanged for a fixed price over a specified period, providing downside price protection.
We record all derivative financial instruments at fair value. The fair value of our derivative financial instruments is determined using purchase and sale information available for similarly traded securities. At September 30, 2021, The Bank of Nova Scotia, BMO Harris Financing (Bank of Montreal), Truist Bank (or affiliates thereof), PNC Bank and the Royal Bank of Canada were the counterparties for all of our derivative instruments. We have considered the credit standing of the counterparties in determining the fair value of our derivative financial instruments. See Note 7 to the interim unaudited condensed consolidated financial statements in this Quarterly Report for a summary of our open derivative financial instruments. Such information is incorporated herein by reference.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report, we evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2021 to ensure that (i) information required to be disclosed in the reports it files and submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed under the Exchange Act is accumulated and communicated to the Company’s management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls during the three months ended September 30, 2021 that have materially affected or are reasonably likely to have a material effect on our internal control over financial reporting.
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Part II — OTHER INFORMATION
Item 1. Legal Proceedings
We are party to several legal proceedings encountered in the ordinary course of business. While the ultimate outcome and impact on us cannot be predicted with certainty, in the opinion of management, it is remote that these legal proceedings will have a material adverse impact on our financial condition, results of operations or cash flows.
For information on our legal proceeding with the Environmental Protection Agency and the New Mexico Environment Department, see “Item 3. Legal Proceedings” in the Annual Report. There have been no material changes regarding such legal proceeding.
Item 1A. Risk Factors
We are subject to various risks and uncertainties in the course of our business. For a discussion of such risks and uncertainties, please see “Item 1A. Risk Factors” in the Annual Report. There have been no material changes to the risk factors we have disclosed in the Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended September 30, 2021, the Company re-acquired shares of common stock from certain employees in order to satisfy the employees’ tax liability in connection with the vesting of restricted stock.
| Period | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs | ||||||||||||||||||||||
| July 1, 2021 to July 31, 2021 | 616 | $ | 33.00 | — | — | |||||||||||||||||||||
| August 1, 2021 to August 31, 2021 | 790 | $ | 29.25 | — | — | |||||||||||||||||||||
| September 1, 2021 to September 30, 2021 | 397 | $ | 28.29 | — | — | |||||||||||||||||||||
| Total | 1,803 | $ | 30.32 | — | — | |||||||||||||||||||||
_________________
(1)The shares were not re-acquired pursuant to any repurchase plan or program. The Company re-acquired shares of common stock from certain employees in order to satisfy the employees’ tax liability in connection with the vesting of restricted stock.
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Item 6. Exhibits
| Exhibit Number | Description | ||||||||||
| 3.1 | |||||||||||
| 3.2 | |||||||||||
| 3.3 | |||||||||||
| 3.4 | |||||||||||
| 31.1 | |||||||||||
| 31.2 | |||||||||||
| 32.1 | |||||||||||
| 32.2 | |||||||||||
| 101 | The following financial information from Matador Resources Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets - Unaudited, (ii) the Condensed Consolidated Statements of Operations - Unaudited, (iii) the Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited, (iv) the Condensed Consolidated Statements of Cash Flows - Unaudited and (v) the Notes to Condensed Consolidated Financial Statements - Unaudited (submitted electronically herewith). | ||||||||||
| 104 | Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101). | ||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MATADOR RESOURCES COMPANY | |||||||||||
| Date: October 29, 2021 | By: | /s/ Joseph Wm. Foran | |||||||||
| Joseph Wm. Foran | |||||||||||
| Chairman and Chief Executive Officer | |||||||||||
| Date: October 29, 2021 | By: | /s/ David E. Lancaster | |||||||||
| David E. Lancaster | |||||||||||
| Executive Vice President and Chief Financial Officer | |||||||||||
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Exhibit 31.1
CERTIFICATION
I, Joseph Wm. Foran, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Matador Resources Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| October 29, 2021 | /s/ Joseph Wm. Foran | |||||||
| Joseph Wm. Foran | ||||||||
| Chairman and Chief Executive Officer (Principal Executive Officer) | ||||||||
Exhibit 31.2
CERTIFICATION
I, David E. Lancaster, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Matador Resources Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| October 29, 2021 | /s/ David E. Lancaster | |||||||
| David E. Lancaster Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Matador Resources Company (the “Company”) on Form 10-Q for the period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Joseph Wm. Foran, hereby certify in my capacity as Chairman and Chief Executive Officer of the Company, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| October 29, 2021 | /s/ Joseph Wm. Foran | |||||||
| Joseph Wm. Foran | ||||||||
| Chairman and Chief Executive Officer (Principal Executive Officer) | ||||||||
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Matador Resources Company (the “Company”) on Form 10-Q for the period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, David E. Lancaster, hereby certify in my capacity as Executive Vice President and Chief Financial Officer of the Company, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| October 29, 2021 | /s/ David E. Lancaster | |||||||
| David E. Lancaster | ||||||||
| Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||||