Matador Resources Company Reports Second Quarter 2017 Results, Provides Operational Update and Increases 2017 Guidance Estimates

DALLAS–(BUSINESS WIRE)–Matador Resources Company (NYSE: MTDR) (“Matador” or the “Company”)
today reported financial and operating results for the second quarter of
2017. This release is divided into two parts—first, a “Summary and
Highlights” section that summarizes key production and financial results
for the three months ended June 30, 2017, and second, a section
providing additional details related to the Company’s second quarter
2017 results and a detailed operations update.

Part I – Summary and Highlights

Second Quarter 2017 Highlights

Sequential Results

• Average daily oil production increased 6% sequentially from
  approximately 18,300 barrels per day in the first quarter of 2017 to
  approximately 19,400 barrels per day in the second quarter of 2017. Matador’s
  second quarter 2017 average daily oil production was the best
  quarterly result in the Company’s history.
• Average daily natural gas production increased 19% sequentially from
  approximately 88.1 million cubic feet per day in the first quarter of
  2017 to approximately 105.0 million cubic feet per day in the second
  quarter of 2017. Matador’s second quarter
  2017 average daily natural gas production was the best quarterly
  result in the Company’s history.
• Average daily oil equivalent production increased 12% sequentially
  from approximately 33,000 barrels of oil equivalent (“BOE”) per day
  (56% oil) in the first quarter of 2017 to approximately 36,900 BOE per
  day (53% oil) in the second quarter of 2017. Matador’s
  second quarter 2017 average daily oil equivalent production (BOE
  basis) was the best quarterly result in the Company’s history.
• Delaware Basin average daily oil equivalent production increased 13%
  sequentially from approximately 24,500 BOE per day (consisting of
  15,700 barrels of oil per day and 53.1 million cubic feet of natural
  gas per day) in the first quarter of 2017 to approximately 27,600 BOE
  per day (consisting of 16,600 barrels of oil per day and 65.9 million
  cubic feet of natural gas per day) in the second quarter of 2017. The
  Delaware Basin contributed 86% of Matador’s daily oil production, 63%
  of daily natural gas production and 75% of daily oil equivalent
  production in the second quarter of 2017.
• Matador reported net income attributable to Matador Resources Company
  shareholders (GAAP basis) of $28.5 million, or earnings of $0.28
  per diluted common share, in the second quarter of 2017, a
  decrease of 35% sequentially, as compared to net income attributable
  to Matador Resources Company shareholders (GAAP basis) of $44.0
  million, or earnings of $0.44 per diluted common share, in the first
  quarter of 2017. This decrease in net income was primarily
  attributable to a decline in realized oil and natural gas prices of 9%
  and 14%, respectively, as well as changes in certain non-cash items,
  including a decrease in unrealized hedging gains, an increase in
  depletion, depreciation and amortization expenses and an increase in
  stock-based compensation expenses in the second quarter of 2017, as
  compared to the first quarter of 2017.
• Matador’s adjusted net income attributable to Matador Resources
  Company shareholders (a non-GAAP financial measure) decreased 37%
  sequentially from $17.4 million, or adjusted earnings of $0.17 per
  diluted common share, in the first quarter of 2017 to $10.9 million
  (non-GAAP), or adjusted earnings of $0.11 per diluted common share,
  in the second quarter of 2017, primarily attributable to a decline in
  realized oil and natural gas prices, as well as changes in certain
  non-cash items.
• Adjusted earnings before interest expense, income taxes, depletion,
  depreciation and amortization and certain other items attributable to
  Matador Resources Company shareholders (“Adjusted EBITDA,” a non-GAAP
  financial measure) increased 4% sequentially from $70.0 million in the
  first quarter of 2017 to $72.7 million in the second quarter of 2017.

Year-Over-Year Results

• Matador’s net income (loss) attributable to Matador Resources Company
  shareholders (GAAP basis) increased from a net loss (GAAP basis) of
  $105.9 million, or a loss of $1.15 per diluted common share, in the
  second quarter of 2016 to net income (GAAP basis) of $28.5 million, or
  earnings of $0.28 per diluted common share, in the second quarter of
  2017.
• Matador’s adjusted net income (loss) attributable to Matador Resources
  Company shareholders (a non-GAAP financial measure) increased from an
  adjusted net loss (non-GAAP) of $1.3 million, or an adjusted loss of
  $0.01 per diluted common share, in the second quarter of 2016 to
  adjusted net income (non-GAAP) of $10.9 million, or adjusted earnings
  of $0.11 per diluted common share, in the second quarter of 2017.
• Matador’s Adjusted EBITDA attributable to Matador Resources Company
  shareholders (a non-GAAP financial measure) increased 87%
  year-over-year from $38.9 million in the second quarter of 2016 to
  $72.7 million in the second quarter of 2017.
• Year-over-year, from the second quarter of 2016 to the second quarter
  of 2017:
  • Average daily oil production increased 44% from approximately
    13,500 barrels per day to approximately 19,400 barrels per day;
  • Average daily natural gas production increased 21% from
    approximately 87.0 million cubic feet per day to approximately
    105.0 million cubic feet per day; and
  • Average daily oil equivalent production increased 32% from
    approximately 28,000 BOE per day to approximately 36,900 BOE per
    day.

Proved Reserves at June 30, 2017

• Oil, natural gas and total proved reserves at
  June 30, 2017 were each all-time highs for Matador.
  Matador’s total proved oil and natural gas reserves increased
  27% in the first six months of 2017 from 105.8 million BOE (consisting
  of 57.0 million barrels of oil and 292.6 billion cubic feet of natural
  gas) at December 31, 2016 to 134.4 million BOE (consisting of
  75.0 million barrels of oil and 356.5 billion cubic feet of natural
  gas) at June 30, 2017. At June 30, 2017, approximately 56% of
  Matador’s total proved oil and natural gas reserves were oil and
  approximately 41% were proved developed reserves. At June 30, 2017,
  the Delaware Basin accounted for approximately 80% of the Company’s
  total proved oil and natural gas reserves.

Acreage and 3-D Seismic Acquisitions

• During the second quarter of 2017 and through August 2, 2017, Matador
  acquired approximately 8,300 net acres in the Delaware Basin, mostly
  in and around its existing acreage positions. Matador incurred capital
  expenditures of approximately $28 million during this period to
  acquire not only this additional acreage, but also new 3-D seismic
  data across portions of its Wolf asset area.

Significant Well Results

Significant well results included in this earnings release include the
following:

• The D. Culbertson 26-15S-36E TL State #234H (D. Culbertson #234H)
  well, Matador’s first Wolfcamp D horizontal well located on the
  eastern side of its Twin Lakes asset area in northern Lea County, New
  Mexico, tested approximately 600 BOE per day (82% oil) during a
  24-hour initial potential test, including 493 barrels of oil per day
  and 640 thousand cubic feet of natural gas per day, from a completed
  lateral length of approximately 4,400 feet. Matador is pleased and
  encouraged with the initial results from this discovery well, which
  the Company believes confirms its exploration concept and validates
  the prospectivity of the Wolfcamp D in the Twin Lakes asset area. To
  Matador’s knowledge, this discovery well is the northernmost
  horizontal test of the Wolfcamp formation in New Mexico, and this well
  demonstrates the potential for horizontal exploitation and development
  of the Wolfcamp formation far to the north of the most active areas of
  current drilling in the Wolfcamp play in the Delaware Basin. Overall,
  the D. Culbertson #234H well provides Matador with a solid first step
  in the Company’s understanding of the Wolfcamp D formation in this
  area, and Matador looks forward to the further delineation, testing
  and commercialization of its Twin Lakes asset area. More specifically,
  given the encouraging results from the D. Culbertson #234H well,
  Matador also looks forward to the next step in the delineation of this
  play, which is to drill a second Wolfcamp D test on the western
  portion of its Twin Lakes acreage position later this fall. Further,
  Matador acquired approximately 800 net acres near the D. Culbertson
  #234H well at the July 2017 State of New Mexico lease sale.
• The Stebbins 20 Federal #123H well, Matador’s first operated Second
  Bone Spring completion in its Arrowhead asset area in Eddy County, New
  Mexico, tested 1,010 BOE per day (82% oil) during a 24-hour initial
  potential test. This well has shown minimal production decline, having
  produced approximately 61,000 BOE in its first two months on
  production.
• The Guitar 10-24S-28E RB #205H well, Matador’s first Wolfcamp A-Lower
  test in the Rustler Breaks asset area in Eddy County, New Mexico,
  flowed 1,155 BOE per day (75% oil) during a 24-hour initial potential
  test. This test validates the Wolfcamp A-Lower as another completion
  target in the Rustler Breaks asset area.
• The Joe Coleman 13-23S-27E RB #206H and the Kathy Coleman 14-23S-27E
  RB #206H wells, both Wolfcamp A-XY completions in the northwestern
  portion of the Rustler Breaks asset area in Eddy County, New Mexico,
  flowed 1,840 BOE per day (75% oil) and 1,755 BOE per day (75% oil),
  respectively, during 24-hour initial potential tests. These are two of
  the best Wolfcamp A-XY wells that Matador has drilled in the Rustler
  Breaks asset area and, along with the Tom Walters 12-23S-27E RB #203H
  well completed in the first quarter of 2017, continue to confirm the
  prospectivity of the Wolfcamp A-XY interval across the Rustler Breaks
  asset area.
• The Falls City #1H and #2H wells, two Eagle Ford completions in
  northern Karnes County, Texas, flowed 1,597 BOE per day (91% oil) and
  1,641 BOE per day (90% oil), respectively, during 24-hour initial
  potential tests. These two wells were turned to sales late in the
  second quarter of 2017.
• The Martin Ranch C #11H well and the Martin MAK D #49H and D #50H
  wells, three Eagle Ford completions in La Salle County, Texas, flowed
  1,079 BOE per day (94% oil), 1,318 BOE per day (92% oil) and 1,223 BOE
  per day (91% oil), respectively, during 24-hour initial potential
  tests. These three wells, one of which was drilled in record time,
  were turned to sales early in the third quarter of 2017 and did not
  contribute to second quarter production volumes. Matador is very
  pleased with the production and operational results of its five-well
  operated Eagle Ford drilling program, which is now complete for 2017.
  As a result of this five-well program, all of Matador’s Falls City and
  Martin Ranch acreage is now held by production, which results in
  Matador’s Eagle Ford acreage position being almost entirely held by
  production or not burdened by any lease expirations in the near future.

2017 Updated Guidance Estimates, Including
Increased Production Estimates

• As of August 2, 2017, Matador provided updated 2017 guidance
  estimates, including increased production estimates. These updated
  guidance estimates assume five operated drilling rigs operating in the
  Delaware Basin throughout the third and fourth quarters of 2017.
  Matador expects to continue to focus the remainder of its capital
  expenditures in the Delaware Basin for the rest of 2017, with the
  exception of small amounts of capital to maintain or extend leases or
  to participate in non-operated well opportunities that may become
  available in the Eagle Ford and Haynesville shales.

  Full-year
  2017 guidance estimates, as updated on August 2, 2017, are as follows.

Third Quarter 2017 Production Growth Estimates

As noted in both Matador’s prior earnings releases and its Analyst Day
presentation on March 23, 2017, the Company has planned for more
multi-well pad drilling on its Delaware Basin acreage in 2017 than in
previous years, which will continue to cause the cadence of its
production growth to be somewhat uneven from quarter to quarter.
Matador’s sequential production growth was higher than projected in the
second quarter of 2017 due to several wells in the Company’s Rustler
Breaks asset area that exceeded its expectations for both oil and
natural gas production and to the better-than-expected results
associated with three non-operated Haynesville shale wells completed in
the second quarter (along with flush production from offsetting
Haynesville shale shut-in wells returned to production following the
completion operations on the new wells), which resulted in much
higher-than-expected natural gas production in the second quarter. In
the third quarter, oil production growth should benefit from early
production attributable to Matador’s five-well drilling program in the
Eagle Ford shale, as two of those wells were turned to sales late in the
second quarter and three were turned to sales early in the third quarter
of 2017; however, the Company has a number of shut-in periods scheduled
for producing wells in the Rustler Breaks, Wolf and Arrowhead asset
areas in the third quarter, as new offsetting wells are completed in
these areas. Given the stronger-than-expected growth in natural gas
production observed in the second quarter of 2017, natural gas
production for 2017 is likely to peak in the third quarter as initial
production from the recently completed Haynesville shale wells and the
flush production from the associated offset wells decline in the second
half of 2017.

As to the third quarter of 2017 specifically,
Matador estimates that its oil production will increase by 5 to 7% and
that its natural gas production will increase by 2 to 4%, resulting in
sequential total oil equivalent production (BOE basis) growth of 4 to 6%
from the second quarter of 2017.

Sequential and year-over-year quarterly comparisons of selected
financial and operating items are shown in the following table:

A short presentation summarizing the highlights of Matador’s second
quarter 2017 earnings release is also included on the Company’s website
at www.matadorresources.com
on the Presentations & Webcasts page under the Investors tab.

Management Comments

Joseph Wm. Foran, Matador’s Chairman and CEO, commented, “Not only was
Matador’s average daily oil equivalent production (BOE basis) in the
second quarter of 2017 the best quarterly result in the Company’s
history, but our financial results also continued to be very strong. The
Board, the management group and I would all like to express our
appreciation to the entire Matador staff for its strong execution. It
was a great team effort. As a result of this strong operating
performance in the first half of 2017, Matador is pleased today to raise
its production and Adjusted EBITDA guidance for the remainder of 2017,
while keeping our capital spending estimates unchanged, as we continue
to execute our 2017 business plan and prepare for 2018 and beyond.

“The northern Delaware Basin continues to be the main focus of our
exploration and production activities, and we continue to be very
pleased with the results we are achieving in each of our key asset areas
across the basin. Our Delaware Basin average daily oil equivalent
production increased 13% sequentially from the first quarter of 2017 and
90% from the second quarter of 2016. In the second quarter of 2017, our
average daily oil equivalent production from the Delaware Basin was
27,600 BOE per day, comprising approximately 75% of the Company’s
average daily oil equivalent production. In addition, our total proved
reserves increased 27% in the first six months of 2017 from 105.8
million BOE at December 31, 2016 to 134.4 million BOE at June 30, 2017,
and the Delaware Basin comprises 80% of our total proved reserves. This
increase in total proved reserves reflects not only the success of our
drilling and completions operations, but also our success in acquiring
additional acreage in and around areas actively being drilled in the
Delaware Basin. Detailed information is contained herein on various
successful wells we have recently drilled and completed—both exploratory
and development—in this area. In this regard, our asset teams were
pleased to report meaningful wells and successful tests of new
formations in all of our key asset areas in the Delaware Basin.

“Of particular interest this quarter was our first exploratory test of
the Wolfcamp D formation in the Twin Lakes asset area, the D. Culbertson
#234H well, in northern Lea County, New Mexico. Matador is pleased and
encouraged by the initial results from this discovery well, which we
believe confirms our exploration concept and validates the prospectivity
of the Twin Lakes asset area. The drilling and completion of the D.
Culbertson #234H well provides a solid first step in our understanding
of the Wolfcamp D formation in this area, and we expect further
improvements as we gain additional knowledge and experience from this
well and future tests of the Wolfcamp D formation and as we seek to
delineate our Twin Lakes acreage position from east to west.

“We are also very pleased with the better-than-expected results of our
five-well drilling program in the Eagle Ford shale in Karnes and La
Salle Counties in South Texas. Each of these wells, which were completed
and turned to sales from mid-June to early July, flowed between 1,100
and 1,700 BOE per day (91% oil on average) on choke sizes of 20 to
22/64-inch during 24-hour initial potential tests, and early performance
from these wells is comparable to or better than some of Matador’s best
Eagle Ford wells. Despite a two-year hiatus in Eagle Ford drilling, our
operations teams drilled and completed these five wells very efficiently
and demonstrated the ability to complete as many as ten fracturing
stages in a single day. Further, we believe that we were successful in
transferring our most recent stimulation techniques in the Delaware
Basin to the completion of these new Eagle Ford wells.

Contacts

Matador Resources Company
Mac Schmitz, 972-371-5225
Capital
Markets Coordinator
[email protected]

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