Summary
Matador reported good Q2 results. Q2 production was above expectation. Q2 production looks to be the peak production in2025. After late 2025 production can resume growth. The balance sheet is in a reasonable shape, but needs some improvement. Matador is a profitable company with a low PE. Q2 profits were above expectation due to higher production and lower costs. The shareholder returns are moderate, but can increase over time.
Out of 84 oil and gas companies in my oil and gas ranking, Matador ranks in the top 25 at a high 14th position.
Production
• Matador has a long history of production growth. Matador has seen a strong reserves replacement (2019-2024 RRR = 1.68), which enables a continued growth of production.
• Q2 production (209 K BoE/d) was above the guidance (206-208 K BoE/d). I had expected a production of 206 K BoE/d.
• Q2 production (209 K BoE/d) was well above Q1 (198.8 K BoE/d). This was due to the commissioning a series of wells previously drilled in Q1.
• Growth was realized both in oil and gas. Q2 production consisted of 58.8% oil and 41.2% gas.
• Q3 production outlook (198.5-201 K BoE/d) is below Q2. This is due to uneven well development numbers over the year.
• The 2025 production outlook was increased from 198-202 K BoE/d to 200-2025 K BoE/d. I am expecting 204 K BoE/d.
• Based on the Q3 and the 2025 outlook, Q2 seems to be the peak production in 2025.
• After 2025 I expect production to resume growth. Matador had in 2024 proven reserves of 611.5 M BoE, equivalent to 8.3 years of 2025 production. Combined with a high RRR (1.68 over period 2019-2024), I believe that the Matador production can grow to 228-230 K BoE/d in 2029.
- Matador Q2 production.jpg (63.17 KiB) Viewed 58 times
• Matador has an acceptable, but not yet a strong balance sheet.
• Q2 equity ratio (=equity/balance sheet total) was a reasonable 50.8% in Q2, similar to the 50.9% in Q1.
• The long-term debt increased with $ 113 M from $ 3,175 M (Q1) to $ 3.286 M (Q2).
• The Q2 debt/EBITDA ratio, on an annual basis, is a highish 1.30
• The balance sheet only allows moderate shareholder returns.
Profitability
• Matador is a profitable company.
• Q2 profit (eps=$ 1.53) was below Q1 (eps=$ 1.99), mostly due to lower oil prices.
• As a positive, transportation, lease, and operating costs were lower than anticipated.
• Realized oil prices ($ 64.34/bbl) were as per expectation, but realized natural gas prices ($ 2.05/MM Btu) were disappointing.
• The Q2 eps ($ 1.53) was above my expectation ($ 1.24).
• With WTI at $ 60-65/bbl, I expect a 2025 eps of $ 6.22-6.67 (PE = medium/low 7.6-8.2).
• After 2025 the eps will increase and can reach $ 7.09-8.11 (PE=6.3-7.2) in 2029.
- Matador Q2 profit.jpg (53.59 KiB) Viewed 58 times
• Matador pays a quarterly dividend of $ 0.3125 or $ 1.25 on an annual basis.
• Dividends are equivalent to moderate shareholder returns of 2.4%.
• In early 2025 Matador announced an intention to buy back shares for $ 400 M.
• Matador did not buy back shares in Q1, but bought back in Q2 a limited amount of 1.1 M shares for $ 44.4 M.
• I assume further share buybacks are dependent on the realization of the intended sale of $ 400 M of non-core assets. Of the intended sales, so far only $ 30 M has been realized through the sale of Eagleford assets. Q2 results contained no new announcements
• The $ 400 M share buybacks (if they happen in 2025) can add 7.8% to this. If buybacks continue at the Q2 rates the contribution will be limited to 2.1%.
• After 2025, with a gradually improving balance sheet, shareholder returns increase and reach 9-10% in 2029.
- Matador Q2 returns.jpg (29.96 KiB) Viewed 58 times
Conclusions
Matador reported good Q2 results. Q2 production was above expectation. Q2 production looks to be the peak production for 2025. After 2025 production growth can resume. The balance sheet is in a reasonable shape, but it can do with some improvement. Matador is a profitable company with a low PE. Q2 profits were above expectation due to higher production and lower costs. The shareholder returns are moderate, but can increase over time.
Out of 84 oil and gas companies in my oil and gas ranking, Matador ranks in the top 25 at a good 14th position.