SEC Filing | Matador Resources Company

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mtdr-20210630

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 June 30, 2021


☐			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

_________________________________________________________

Matador Resources Company

(Exact name of registrant as specified in its charter)

_________________________________________________________


Texas			27-4662601
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

5400 LBJ Freeway, Suite 1500 Dallas, Texas			75240
(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

Common Stock, par value $0.01 per share

MTDR

New York Stock Exchange

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.

Large accelerated filer

☒

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 July 27, 2021, there were 116,982,758 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

Table of Contents

MATADOR RESOURCES COMPANY

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2021

TABLE OF CONTENTS


			Page
PART I — FINANCIAL INFORMATION			3
Item 1. Financial Statements — Unaudited			3
Condensed Consolidated Balance Sheets at June 30, 2021 and December 31, 2020			3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020			4
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020			5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020			7
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			42
PART II — OTHER INFORMATION			43
Item 1. Legal Proceedings			43
Item 1A. Risk Factors			43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			43

Item 6. Exhibits			44
SIGNATURES			45

Table of Contents

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)


	June 30, 2021		December 31, 2020
ASSETS
Current assets
Cash	$	44,632	$	57,916

Restricted cash	34,576		33,467
Accounts receivable
Oil and natural gas revenues	154,077		85,098
Joint interest billings	42,130		34,823
Other	19,826		17,212
Derivative instruments	6,171		6,727


Lease and well equipment inventory	11,657		10,584
Prepaid expenses and other current assets	20,559		15,802
Total current assets	333,628		261,629
Property and equipment, at cost
Oil and natural gas properties, full-cost method
Evaluated	5,514,224		5,295,931
Unproved and unevaluated	926,492		902,133
Midstream properties	859,189		841,695
Other property and equipment	29,983		29,561
Less accumulated depletion, depreciation and amortization	(3,867,858)		(3,701,551)
Net property and equipment	3,462,030		3,367,769
Other assets
Derivative instruments	2,424		2,570

Other long-term assets	36,467		55,312

Total assets	$	3,834,549	$	3,687,280
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	13,573	$	13,982
Accrued liabilities	151,051		119,158
Royalties payable	82,256		66,049

Amounts due to affiliates	15,823		4,934
Derivative instruments	127,687		45,186
Advances from joint interest owners	6,208		4,191




Other current liabilities	25,982		37,436
Total current liabilities	422,580		290,936
Long-term liabilities
Borrowings under Credit Agreement	240,000		440,000
Borrowings under San Mateo Credit Facility	352,500		334,000
Senior unsecured notes payable	1,041,789		1,040,998
Asset retirement obligations	39,737		37,919
Derivative instruments	3,024		—

Deferred income taxes	7,847		—

Other long-term liabilities	24,946		30,402
Total long-term liabilities	1,709,843		1,883,319
Commitments and contingencies (Note 9)
Shareholders’ equity

Common stock - $0.01 par value, 160,000,000 shares authorized; 117,123,379 and 116,847,003 shares issued; and 116,992,831 and 116,844,768 shares outstanding, respectively	1,171		1,169
Additional paid-in capital	2,061,815		2,027,069
Accumulated deficit	(580,981)		(741,705)
Treasury stock, at cost, 130,548 and 2,235 shares, respectively	(2,243)		(3)
Total Matador Resources Company shareholders’ equity	1,479,762		1,286,530
Non-controlling interest in subsidiaries	222,364		226,495
Total shareholders’ equity	1,702,126		1,513,025
Total liabilities and shareholders’ equity	$	3,834,549	$	3,687,280

The accompanying notes are an integral part of these financial statements.

Table of Contents

Matador Resources Company and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED

(In thousands, except per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues
Oil and natural gas revenues	$	412,074	$	118,767	$	728,307	$	316,681
Third-party midstream services revenues	19,850		14,668		35,288		30,498
Sales of purchased natural gas	10,918		13,981		15,428		24,525
Lease bonus - mineral acreage	—		4,062		—		4,062
Realized (loss) gain on derivatives	(42,611)		44,110		(68,524)		54,977
Unrealized (loss) gain on derivatives	(42,804)		(132,668)		(86,227)		3,762
Total revenues	357,427		62,920		624,272		434,505
Expenses
Production taxes, transportation and processing	43,843		18,797		78,017		40,513
Lease operating	28,752		26,162		54,691		57,072
Plant and other midstream services operating	13,746		9,780		27,409		19,744
Purchased natural gas	9,628		10,922		12,483		18,980
Depletion, depreciation and amortization	91,444		93,350		166,307		184,057
Accretion of asset retirement obligations	511		495		1,011		971
Full-cost ceiling impairment	—		324,001		—		324,001
General and administrative	24,397		14,723		46,585		30,945
Total expenses	212,321		498,230		386,503		676,283
Operating income (loss)	145,106		(435,310)		237,769		(241,778)
Other income (expense)
Net loss on asset sales and impairment	—		(2,632)		—		(2,632)
Interest expense	(17,940)		(18,297)		(37,590)		(38,109)

Other income (expense)	14		473		(661)		1,793
Total other expense	(17,926)		(20,456)		(38,251)		(38,948)
Income (loss) before income taxes	127,180		(455,766)		199,518		(280,726)
Income tax provision (benefit)

Deferred	5,349		(109,823)		8,189		(69,866)
Income tax provision (benefit)	5,349		(109,823)		8,189		(69,866)
Net income (loss)	121,831		(345,943)		191,329		(210,860)
Net income attributable to non-controlling interest in subsidiaries	(15,926)		(7,473)		(24,779)		(16,827)
Net income (loss) attributable to Matador Resources Company shareholders	$	105,905	$	(353,416)	$	166,550	$	(227,687)
Earnings (loss) per common share
Basic	$	0.91	$	(3.04)	$	1.43	$	(1.96)
Diluted	$	0.89	$	(3.04)	$	1.40	$	(1.96)
Weighted average common shares outstanding
Basic	116,801		116,071		116,804		115,977
Diluted	118,993		116,071		118,617		115,977

The accompanying notes are an integral part of these financial statements.

Table of Contents

Matador Resources Company and Subsidiaries

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

(In thousands)

For the Three and Six Months Ended June 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	116,847	$	1,169		$	2,027,069	$	(741,705)	2	$	(3)	$	1,286,530	$	226,495	$	1,513,025
Dividends declared ($0.025 per share)	—	—			—		(2,913)		—	—		(2,913)		—		(2,913)
Issuance of common stock pursuant to employee stock compensation plan	3	—			—		—		—	—		—		—		—



Issuance of common stock pursuant to directors’ and advisors’ compensation plan	9	—			—		—		—	—		—		—		—
Stock-based compensation expense related to equity-based awards including amounts capitalized	—	—			1,477		—		—	—		1,477		—		1,477
Stock options exercised, net of options forfeited in net share settlements	13	—			—		—		—	—		—		—		—



Restricted stock forfeited	—	—			(219)		—		90	(1,501)		(1,720)		—		(1,720)


Contribution related to formation of San Mateo (see Note 6)	—	—			15,376		—		—	—		15,376		—		15,376


Distributions to non-controlling interest owners of less-than-wholly-owned subsidiaries	—	—			—		—		—	—		—		(14,210)		(14,210)

Current period net income	—	—			—		60,645		—	—		60,645		8,853		69,498
Balance at March 31, 2021	116,872	1,169			2,043,703		(683,973)		92	(1,504)		1,359,395		221,138		1,580,533
Dividends declared ($0.025 per share)	—	—			—		(2,913)		—	—		(2,913)		—		(2,913)
Issuance of common stock pursuant to employee stock compensation plan	138	1			(1)		—		—	—		—		—		—



Issuance of common stock pursuant to directors’ and advisors’ compensation plan	73	1			(1)		—		—	—		—		—		—
Stock-based compensation expense related to equity-based awards including amounts capitalized	—	—			2,289		—		—	—		2,289		—		2,289
Stock options exercised, net of options forfeited in net share settlements	40	—			—		—		—	—		—		—		—



Restricted stock forfeited	—	—			(425)		—		38	(739)		(1,164)		—		(1,164)

Contribution related to formation of San Mateo (see Note 6)	—	—			16,250		—		—	—		16,250		—		16,250


Distributions to non-controlling interest owners of less-than-wholly-owned subsidiaries	—	—			—		—		—	—		—		(14,700)		(14,700)


Current period net income	—	—			—		105,905		—	—		105,905		15,926		121,831
Balance at June 30, 2021	117,123	$	1,171		$	2,061,815	$	(580,981)	130	$	(2,243)	$	1,479,762	$	222,364	$	1,702,126

The accompanying notes are an integral part of these financial statements.

Table of Contents

Matador Resources Company and Subsidiaries

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

(In thousands)

For the Three and Six Months Ended June 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	116,644	$	1,166		$	1,981,014	$	(148,500)	1	$	(26)	$	1,833,654	$	135,798	$	1,969,452
Issuance of common stock pursuant to employee stock compensation plan	3	—			—		—		—	—		—		—		—



Issuance of common stock pursuant to directors’ and advisors’ compensation plan	2	—			—		—		—	—		—		—		—
Stock-based compensation expense related to equity-based awards including amounts capitalized	—	—			5,066		—		—	—		5,066		—		5,066
Stock options exercised, net of options forfeited in net share settlements	—	—			(24)		—		—	—		(24)		—		(24)
Liability-based stock option awards settled in equity	22	1			297		—		—	—		298		—		298


Restricted stock forfeited	—	—			—		—		106	(1,267)		(1,267)		—		(1,267)


Contribution related to formation of San Mateo, net of tax of $3.1 million (see Note 6)	—	—			11,613		—		—	—		11,613		—		11,613

Contributions from non-controlling interest owners of less-than-wholly-owned subsidiaries, net of tax of $4.3 million (see Note 6)	—	—			16,280		—		—	—		16,280		29,394		45,674
Distributions to non-controlling interest owners of less-than-wholly-owned subsidiaries	—	—			—		—		—	—		—		(11,515)		(11,515)
Current period net income	—	—			—		125,729		—	—		125,729		9,354		135,083
Balance at March 31, 2020	116,671	1,167			2,014,246		(22,771)		107	(1,293)		1,991,349		163,031		2,154,380
Issuance of common stock pursuant to employee stock compensation plan	230	2			(2)		—		—	—		—		—		—



Issuance of common stock pursuant to directors’ and advisors’ compensation plan	83	1			(1)		—		—	—		—		—		—
Stock-based compensation expense related to equity-based awards including amounts capitalized	—	—			4,103		—		—	—		4,103		—		4,103




Restricted stock forfeited	—	—			—		—		33	(156)		(156)		—		(156)



Contributions from non-controlling interest owners of less-than-wholly-owned subsidiaries, net of tax of $0.5 million (see Note 6)	—	—			1,952		—		—	—		1,952		14,700		16,652
Distributions to non-controlling interest owners of less-than-wholly-owned subsidiaries	—	—			—		—		—	—		—		(10,535)		(10,535)
Current period net (loss) income	—	—			—		(353,416)		—	—		(353,416)		7,473		(345,943)
Balance at June 30, 2020	116,984	$	1,170		$	2,020,298	$	(376,187)	140	$	(1,449)	$	1,643,832	$	174,669	$	1,818,501

The accompanying notes are an integral part of these financial statements.

Table of Contents

Matador Resources Company and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(In thousands)


	Six Months Ended June 30,
	2021		2020
Operating activities
Net income (loss)	$	191,329	$	(210,860)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Unrealized loss (gain) on derivatives	86,227		(3,762)
Depletion, depreciation and amortization	166,307		184,057
Accretion of asset retirement obligations	1,011		971
Full-cost ceiling impairment	—		324,001
Stock-based compensation expense	2,650		7,080

Deferred income tax provision (benefit)	8,189		(69,866)
Amortization of debt issuance cost	1,655		1,399
Net loss on asset sales and impairment	—		2,632

Changes in operating assets and liabilities
Accounts receivable	(78,900)		46,628
Lease and well equipment inventory	(437)		(868)
Prepaid expenses and other current assets	(4,483)		(1,610)
Other long-term assets	91		1,806
Accounts payable, accrued liabilities and other current liabilities	34,345		(52,351)
Royalties payable	16,207		(24,198)
Advances from joint interest owners	2,017		5,094



Other long-term liabilities	1,387		232
Net cash provided by operating activities	427,595		210,385
Investing activities
Drilling, completion and equipping capital expenditures	(210,725)		(283,362)
Acquisition of oil and natural gas properties	(15,356)		(51,736)
Midstream capital expenditures	(25,092)		(123,338)
Expenditures for other property and equipment	(245)		(1,381)
Proceeds from sale of assets	296		1,056






Net cash used in investing activities	(251,122)		(458,761)
Financing activities
Repayments of borrowings under Credit Agreement	(240,000)		—
Borrowings under Credit Agreement	40,000		130,000
Repayments of borrowings under San Mateo Credit Facility	(34,000)		—
Borrowings under San Mateo Credit Facility	52,500		32,000
Cost to amend credit facilities	(830)		(660)






Dividends paid	(5,826)		—
Contributions related to formation of San Mateo	31,626		14,700
Contributions from non-controlling interest owners of less-than-wholly-owned subsidiaries	—		67,172
Distributions to non-controlling interest owners of less-than-wholly-owned subsidiaries	(28,910)		(22,050)
Taxes paid related to net share settlement of stock-based compensation	(2,884)		(1,493)

Other	(324)		7,087
Net cash (used in) provided by financing activities	(188,648)		226,756
Decrease in cash and restricted cash	(12,175)		(21,620)
Cash and restricted cash at beginning of period	91,383		65,128
Cash and restricted cash at end of period	$	79,208	$	43,508

Supplemental disclosures of cash flow information (Note 10)

The accompanying notes are an integral part of these financial statements.

Table of Contents

Matador Resources Company and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

UNAUDITED

NOTE 1 — NATURE OF OPERATIONS

Matador Resources Company, a Texas corporation (“Matador” and, collectively with its subsidiaries, the “Company”), is an independent energy company 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. The Company’s 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. The Company also operates in the Eagle Ford shale play in South Texas and the Haynesville shale and Cotton Valley plays in Northwest Louisiana. Additionally, the Company conducts midstream operations, primarily through its midstream joint venture, San Mateo Midstream, LLC (collectively with its subsidiaries, “San Mateo”), 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.

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 June 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.

Table of Contents

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 six months ended June 30, 2021 and 2020 (in thousands).


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues from contracts with customers	$	442,842	$	147,416	$	779,023	$	371,704
Lease bonus - mineral acreage	—		4,062		—		4,062
Realized (loss) gain on derivatives	(42,611)		44,110		(68,524)		54,977
Unrealized (loss) gain on derivatives	(42,804)		(132,668)		(86,227)		3,762
Total revenues	$	357,427	$	62,920	$	624,272	$	434,505


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Oil revenues	$	315,114	$	94,174	$	528,393	$	263,759
Natural gas revenues	96,960		24,593		199,914		52,922
Third-party midstream services revenues	19,850		14,668		35,288		30,498
Sales of purchased natural gas	10,918		13,981		15,428		24,525
Total revenues from contracts with customers	$	442,842	$	147,416	$	779,023	$	371,704

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 six months ended June 30, 2021, the cost center ceiling was higher than the capitalized costs of oil and natural gas properties, and, as a result, no impairment charge was necessary. 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 six months ended June 30, 2020.

The Company capitalized approximately $9.2 million and $8.1 million of its general and administrative costs and approximately $1.9 million and $1.8 million of its interest expense for the three months ended June 30, 2021 and 2020, respectively. The Company capitalized approximately $18.7 million and $16.3 million of its general and administrative costs and approximately $2.5 million and $3.2 million of its interest expense for the six months ended June 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.

Table of Contents

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 six months ended June 30, 2021 and 2020 (in thousands).


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Weighted average common shares outstanding
Basic	116,801	116,071	116,804	115,977
Dilutive effect of options and restricted stock units	2,192	—	1,813	—
Diluted weighted average common shares outstanding	118,993	116,071	118,617	115,977

A total of 0.5 million and 1.5 million options to purchase shares of Matador’s common stock were excluded from the diluted weighted average common shares outstanding for the three and six months ended June 30, 2021, respectively, because their effects were anti-dilutive. A total of 2.5 million and 2.6 million options to purchase shares of Matador’s common stock were excluded from the diluted weighted average common shares outstanding for the three and six months ended June 30, 2020, respectively, because their effects were anti-dilutive. Additionally, 0.5 million and 0.6 million restricted shares, which are participating securities, were excluded from the calculations above for the three and six months ended June 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 six months ended June 30, 2021 (in thousands).


Beginning asset retirement obligations	$	38,542
Liabilities incurred during period	635
Liabilities settled during period	(240)


Accretion expense	1,011
Ending asset retirement obligations	39,948
Less: current asset retirement obligations(1)	(211)
Long-term asset retirement obligations	$	39,737

_______________

(1)Included in accrued liabilities in the Company’s interim unaudited condensed consolidated balance sheet at June 30, 2021.

NOTE 4 — DEBT

At June 30, 2021, the Company had (i) $1.05 billion of outstanding senior notes due 2026 (the “Notes”), (ii) $240.0 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.

At June 30, 2021, San Mateo had $352.5 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 June 30, 2021 and July 27, 2021, San Mateo repaid $25.0 million of borrowings under the San Mateo Credit Facility.

Table of Contents

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 June 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 June 30, 2021.

Senior Unsecured Notes

At June 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

The Company recorded an income tax provision of $5.3 million and $8.2 million for the three and six months ended June 30, 2021, respectively, which resulted in an effective tax rate of 5% in each period. The effective tax rate differed from amounts computed by applying the U.S. federal statutory rate to the pre-tax income due primarily to recording a net deferred tax liability for state taxes, primarily in New Mexico, and continuing to recognize a valuation allowance against its U.S. federal net deferred tax assets. 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 year ended December 31, 2020. The valuation allowance will continue to be recognized until the future deferred tax benefits are more likely than not to become utilized.

The Company’s effective tax rates for the three and six months ended June 30, 2020 were 24% and 23%, respectively. The Company’s total income tax provision for the three and six months ended June 30, 2020 differed from amounts computed by applying the U.S. federal statutory tax rates to pre-tax income due to the impact of permanent differences between book and tax income, as well as state taxes, primarily in New Mexico.

Table of Contents

Matador Resources Company and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

UNAUDITED — CONTINUED

NOTE 6 — EQUITY

Common Stock Dividend

The Company’s Board of Directors (the “Board”) declared a quarterly cash dividend of $0.025 per share of common stock in both the first and second quarters of 2021. The dividend, which totaled $