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 March 31, 2022
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 April 26, 2022, there were 118,125,452 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
MATADOR RESOURCES COMPANY
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2022
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)
| March 31, 2022 | December 31, 2021 | ||||||||||
| 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 | |||||||||||
| 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 | |||||||||||
| Income taxes payable | |||||||||||
| 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 | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term liabilities | |||||||||||
| Total long-term liabilities | |||||||||||
| Commitments and contingencies (Note 9) | |||||||||||
| Shareholders’ equity | |||||||||||
Common stock - $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings (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 March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenues | |||||||||||
| Oil and natural gas revenues | $ | $ | |||||||||
| Third-party midstream services revenues | |||||||||||
| Sales of purchased natural gas | |||||||||||
| Realized loss on derivatives | ( | ( | |||||||||
| Unrealized 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 | |||||||||||
| General and administrative | |||||||||||
| Total expenses | |||||||||||
| Operating income | |||||||||||
| Other income (expense) | |||||||||||
| Net loss on asset sales and impairment | ( | ||||||||||
| Interest expense | ( | ( | |||||||||
| Other expense | ( | ( | |||||||||
| Total other expense | ( | ( | |||||||||
| Income before income taxes | |||||||||||
| Income tax provision | |||||||||||
| Current | |||||||||||
| Deferred | |||||||||||
| Total income tax provision | |||||||||||
| Net income | |||||||||||
| Net income attributable to non-controlling interest in subsidiaries | ( | ( | |||||||||
| Net income attributable to Matador Resources Company shareholders | $ | $ | |||||||||
| Earnings 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 Months Ended March 31, 2022
| Total shareholders’ equity attributable to Matador Resources Company | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest in subsidiaries | Total shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional paid-in capital | Retained earnings (accumulated deficit) | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
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 March 31, 2022 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
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 Months Ended March 31, 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 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
6
Matador Resources Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
(In thousands)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||
| Unrealized loss on derivatives | |||||||||||
| Depletion, depreciation and amortization | |||||||||||
| Accretion of asset retirement obligations | |||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income tax provision | |||||||||||
| 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 | ( | ||||||||||
| Income taxes payable | |||||||||||
| 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 | |||||||||||
| Dividends paid | ( | ( | |||||||||
| Contributions related to formation of San Mateo | |||||||||||
| 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 financing activities | ( | ( | |||||||||
| Increase (decrease) 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.
7
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, 2021 filed with the SEC on February 28, 2022 (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 March 31, 2022. Amounts as of December 31, 2021 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.
8
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 months ended March 31, 2022 and 2021 (in thousands).
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenues from contracts with customers | $ | $ | |||||||||
| Realized loss on derivatives | ( | ( | |||||||||
| Unrealized loss on derivatives | ( | ( | |||||||||
| Total revenues | $ | $ | |||||||||
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| 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 both the three months ended March 31, 2022 and 2021, the cost center ceiling was higher than the capitalized costs of oil and natural gas properties, and, as a result, no
The Company capitalized approximately $13.2 million and $9.5 million of its general and administrative costs and approximately $3.5 million and $0.6 million of its interest expense for the three months ended March 31, 2022 and 2021, 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.
The following table sets forth the computation of diluted weighted average common shares outstanding for the three months ended March 31, 2022 and 2021 (in thousands).
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Weighted average common shares outstanding | |||||||||||
| Basic | |||||||||||
| Dilutive effect of options and restricted stock units | |||||||||||
| Diluted weighted average common shares outstanding | |||||||||||
9
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 3 — ASSET RETIREMENT OBLIGATIONS
The following table summarizes the changes in the Company’s asset retirement obligations for the three months ended March 31, 2022 (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 March 31, 2022.
NOTE 4 — DEBT
At March 31, 2022, the Company had (i) $1.05 billion of outstanding senior notes due 2026 (the “Notes”), (ii) $50.0 million in borrowings outstanding under its reserves-based revolving credit facility (the “Credit Agreement”) and (iii) approximately $45.8 million in outstanding letters of credit issued pursuant to the Credit Agreement. Between March 31, 2022 and April 26, 2022, the Company repaid the remaining $50.0 million of borrowings under the Credit Agreement. During the first quarter of 2022, the $7.5 million unsecured U.S. Small Business Administration loan was forgiven under the terms of the loan agreement and recorded as a gain on the extinguishment of debt within “Other expense” on the unaudited condensed consolidated statement of operations.
At March 31, 2022, San Mateo had $405.0 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 March 31, 2022 and April 26, 2022, San Mateo repaid $30.0 million of borrowings under the San Mateo Credit Facility.
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 2022, the lenders completed their review of the Company’s proved oil and natural gas reserves, and, as a result, the borrowing base was increased to $2.0 billion, the borrowing commitment was increased to $775.0 million and the maximum facility amount remained $1.5 billion. In addition, the terms of the Credit Agreement were amended to increase the sublimit for issuances of letters of credit under the Credit Agreement from $50 million to $100 million and replace the London Interbank Offered Rate (“LIBOR”) interest rate benchmark with an Adjusted Term SOFR (as defined in the Credit Agreement) interest rate benchmark. After giving effect to the amendment to the Credit Agreement, the applicable interest rate margin for borrowings under the Credit Agreement ranges from 1.75 % to 2.75 % per annum for borrowings bearing interest with reference to the Adjusted Term SOFR and from 0.75 % to 1.75 % per annum for borrowings bearing interest with reference to the Alternate Base Rate (as defined in the Credit Agreement), in each case depending on the level of borrowings under the Credit Agreement. In addition, the Adjusted Term SOFR includes a credit spread adjustment of 0.10 % per annum for all interest periods. This April 2022 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, 2026.
The Credit Agreement requires the Company to maintain (i) a current ratio, which is defined as (x) total consolidated current assets plus the unused availability under the Credit Agreement divided by (y) total consolidated current liabilities less current maturities under the Credit Agreement, of not less than 1.0 to 1.0 at the end of each fiscal quarter and (ii) a debt to
10
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 4 — DEBT — Continued
EBITDA ratio, which is defined as debt outstanding (net of up to $75.0 million of cash or cash equivalents), divided by a rolling four quarter EBITDA calculation, of 3.5 to 1.0 or less. The Company believes that it was in compliance with the terms of the Credit Agreement at March 31, 2022.
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 lender commitments under the revolving credit facility were $450.0 million at March 31, 2022 (subject to San Mateo’s compliance with the covenants noted below). The San Mateo Credit Facility includes an accordion feature, which 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 March 31, 2022.
Senior Unsecured Notes
At March 31, 2022, 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
NOTE 6 — EQUITY
Stock-based Compensation
During the three months ended March 31, 2022, the Company granted awards to certain of its employees of 222,938 service-based restricted stock units to be settled in cash, which are liability instruments, and 230,251 performance-based stock units and 205,156 service-based 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, 2024, as compared to a designated peer group. The service-based restricted stock and restricted stock units vest over a three-year period. The fair value of these awards was approximately $31.4 million on the grant date.
Common Stock Dividend
During the three months ended March 31, 2022, the Company’s Board of Directors (the “Board”) declared a quarterly cash dividend of $0.05 per share of common stock. The dividend, which totaled $5.9 million, was paid on March 14, 2022. In April 2022, the Board declared a quarterly cash dividend of $0.05 per share of common stock payable on June 3, 2022 to shareholders of record as of May 18, 2022.
11
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 6 — EQUITY — Continued
San Mateo Distributions and Contributions
During the three months ended March 31, 2022 and 2021, San Mateo distributed $19.1 million and $14.8 million, respectively, to the Company and $18.4 million and $14.2 million, respectively, to a subsidiary of Five Point Energy LLC (“Five Point”), the Company’s joint venture partner in San Mateo. During the three months ended March 31, 2022 and 2021, there were no contributions to San Mateo by either the Company or Five Point.
Performance Incentives
Five Point paid to the Company $22.8 million and $15.4 million in performance incentives during the three months ended March 31, 2022 and 2021, respectively. These performance incentives are recorded when received, net of the $4.8 million deferred tax impact to Matador for the three months ended March 31, 2022, in “Additional paid-in capital” in the Company’s interim unaudited condensed consolidated balance sheets. These performance incentives for the three months ended March 31, 2022 and 2021 are also denoted as “Contributions related to formation of San Mateo” under “Financing activities” in the Company’s interim unaudited condensed consolidated statements of cash flows and changes in shareholders’ equity.
NOTE 7 — DERIVATIVE FINANCIAL INSTRUMENTS
At March 31, 2022, the Company had various costless collar and swap contracts open and in place to mitigate its exposure to oil and natural gas price volatility, each with a specific term (calculation period), notional quantity (volume hedged) and price floor and ceiling for the collars and fixed price for the swaps. At March 31, 2022, each contract was set to expire at varying times during 2022. The Company had no open contracts associated with natural gas liquids (“NGL”) prices at March 31, 2022.
The following is a summary of the Company’s open costless collar contracts for oil and natural gas at March 31, 2022.
| Commodity | Calculation Period | Notional Quantity (Bbl or MMBtu) | Weighted Average Price Floor ($/Bbl or $/MMBtu) | Weighted Average Price Ceiling ($/Bbl or $/MMBtu) | Fair Value of Asset (Liability) (thousands) | |||||||||||||||||||||||||||
| Oil | 04/01/2022 - 12/31/2022 | $ | $ | $ | ( | |||||||||||||||||||||||||||
| Natural Gas | 04/01/2022 - 12/31/2022 | $ | $ | ( | ||||||||||||||||||||||||||||
| Total open costless collar contracts | $ | ( | ||||||||||||||||||||||||||||||
The following is a summary of the Company’s open basis swap contracts for oil at March 31, 2022.
| Commodity | Calculation Period | Notional Quantity (Bbl) | Fixed Price ($/Bbl) | Fair Value of Asset (Liability) (thousands) | ||||||||||||||||||||||
| Oil Basis | 04/01/2022 - 12/31/2022 | $ | $ | |||||||||||||||||||||||
| Total open basis swap contracts | $ | |||||||||||||||||||||||||
At March 31, 2022, the aggregate liability value for the Company’s open derivative financial instruments was $89.9 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.
12
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 March 31, 2022 and December 31, 2021 (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 | |||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||
| Current assets | $ | $ | ( | $ | ||||||||||||||||
| Current liabilities | ( | ( | ||||||||||||||||||
| Total | $ | ( | $ | $ | ( | |||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Current assets | $ | $ | ( | $ | ||||||||||||||||
| Current 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).
| Three Months Ended March 31, | ||||||||||||||||||||
| Type of Instrument | Location in Condensed Consolidated Statement of Operations | 2022 | 2021 | |||||||||||||||||
| Derivative Instrument | ||||||||||||||||||||
| Oil | Revenues: Realized loss on derivatives | $ | ( | $ | ( | |||||||||||||||
| Natural Gas | Revenues: Realized (loss) gain on derivatives | ( | ||||||||||||||||||
| Realized loss on derivatives | ( | ( | ||||||||||||||||||
| Oil | Revenues: Unrealized loss on derivatives | ( | ( | |||||||||||||||||
| Natural Gas | Revenues: Unrealized loss on derivatives | ( | ( | |||||||||||||||||
| Unrealized loss on derivatives | ( | ( | ||||||||||||||||||
| Total | $ | ( | $ | ( | ||||||||||||||||
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.
13
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 8 — FAIR VALUE MEASUREMENTS — Continued
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 March 31, 2022 and December 31, 2021 (in thousands).
Fair Value Measurements at March 31, 2022 using | ||||||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets (Liabilities) | ||||||||||||||||||||||||||
| Oil derivatives and basis swaps | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Natural gas derivatives | ( | ( | ||||||||||||||||||||||||
| Contingent consideration related to business combination | ( | ( | ||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
Fair Value Measurements at December 31, 2021 using | ||||||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets (Liabilities) | ||||||||||||||||||||||||||
| Oil derivatives and basis swaps | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Natural gas derivatives | ( | ( | ||||||||||||||||||||||||
| Contingent consideration related to business combination | ( | ( | ||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
Additional disclosures related to derivative financial instruments are provided in Note 7.
Other Fair Value Measurements
At March 31, 2022 and December 31, 2021, 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, income taxes payable and other current liabilities approximated their fair values due to their short-term maturities.
At March 31, 2022 and December 31, 2021, 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.
At March 31, 2022 and December 31, 2021, the fair value of the Notes was $1.07 billion and $1.08 billion, respectively, based on quoted market prices, which represent Level 1 inputs in the fair value hierarchy.
14
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — 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 $11.0 million and $12.6 million for deliveries under these agreements during the three months ended March 31, 2022 and 2021, 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 March 31, 2022, the total deficiencies required to be paid by the Company under these agreements would be approximately $552.1 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 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 March 31, 2022 was approximately $351.7 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.
NOTE 10 — SUPPLEMENTAL DISCLOSURES
Accrued Liabilities
The following table summarizes the Company’s current accrued liabilities at March 31, 2022 and December 31, 2021 (in thousands).
| March 31, 2022 | December 31, 2021 | ||||||||||
| 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 | $ | $ | |||||||||
15
Matador Resources Company and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
UNAUDITED — CONTINUED
NOTE 10 — SUPPLEMENTAL DISCLOSURES — Continued
Supplemental Cash Flow Information
The following table provides supplemental disclosures of cash flow information for the three months ended March 31, 2022 and 2021 (in thousands).
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash paid for interest expense, net of amounts capitalized | $ | $ | |||||||||
| (Decrease) increase in asset retirement obligations related to mineral properties | $ | ( | $ | ||||||||
| (Decrease) increase in liabilities for drilling, completion and equipping capital expenditures | $ | ( | $ | ||||||||
| (Decrease) increase 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).
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash | $ | $ | |||||||||
| Restricted cash | |||||||||||