Matador Resources Company - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 was operationally strong with 33% YoY total production growth to 198,631 BOE/d and diluted EPS of $1.92; Matador also authorized a $400M share repurchase and lowered 2025 D/C/E capex by $100M to enhance flexibility.
• Versus S&P Global consensus, Adjusted EPS beat ($1.99 vs $1.78*), and Adjusted EBITDA was above expectations ($644M vs $630M*); revenue comparisons are definition-sensitive (company total revenue $1.014B vs consensus $0.957B*, while oil & gas + third‑party midstream revenues were ~$943M).
• 2025 guidance was trimmed modestly on volumes (-2% at midpoint) while capex was lowered (-7%); management highlighted optionality to add/drop rigs and prioritized capital returns (dividend maintained at $0.3125).
• Near-term catalyst: expected record Q2 production (206–208 MBOE/d) as 40 wells turned to sales late in Q1 ramp through Q2; medium-term midstream upside as Marlan plant expansion lifts processing capacity to 720 MMcf/d in Q2.

What Went Well and What Went Wrong

• What Went Well

  • Production and cost execution: Q1 production exceeded guidance (total +1% to 198,631 BOE/d; oil +1% to 115,030 bpd), realized prices improved sequentially (oil +2%, gas +31%), and D&C cost/ft fell 3% vs FY24 to $880/ft.
  • Capital returns/optionality: $400M share repurchase authorization and capex cut of $100M; dividend maintained at $0.3125; liquidity of $1.8B provides flexibility.
  • Integration and well performance: 40 operated wells turned to sales (vs 12 in Q1’24), including first 3‑mile laterals; 11 Ameredev wells averaged >1,450 BOE/d IP and added ~12 MMBOE to PDP reserves.
  • Quote: “We think it’s a good buying opportunity…we wanted to emphasize how we have an alignment of interest with our shareholders…authorized a repurchase of shares” — CEO Joe Foran.

• What Went Wrong

  • Activity/pacing: Guidance trimmed on volumes (-2% midpoint) as rig count moves from 9→8 mid‑year; Q3 production expected below Q2 before slight Q4 uptick.
  • LOE seasonality: LOE/BOE rose sequentially to $5.96 (winterization), offset by lower G&A/BOE; still within full‑year range.
  • Midstream constraints/weather: Q1 faced severe weather and third‑party midstream constraints (management cited shut‑ins/maintenance) though volumes still exceeded guidance.

Transcript

Operator (participant)

Good morning, ladies and gentlemen. Welcome to the First Quarter 2025 Matador Resources Company earnings conference call. My name is Tanya, and I'll be serving as your operator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session at the end of the company's remarks. As a reminder, this conference is being recorded for replay purposes, and the replay will be available on the company's website for one year, as discussed in the company's earnings press release issued yesterday. I will now turn the call over to Mr. Mac Schmitz, Senior Vice President, Investor Relations for Matador. Mr. Schmitz, you may proceed.

Mac Schmitz (SVP of Investor Relations)

Thank you, Latanya. Good morning, everyone, and thank you for joining us for Matador's First Quarter 2025 Earnings Conference Call. Some of the presenters today will reference certain non-GAAP financial measures regularly used by Matador Resources in measuring the company's financial performance. Reconciliations of such non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP are contained at the end of the company's earnings press release. As a reminder, certain statements included in this morning's presentation may be forward-looking and reflect the company's current expectations or forecasts of future events based on the information that is now available. Actual results and future events could differ materially from those anticipated in such statements.

Additional information concerning factors that could cause actual results to differ materially are contained in the company's earnings release and its most recent annual report on Form 10-K and in the subsequent quarterly reports on Form 10-Q. In addition to our earnings press release issued yesterday, I would like to remind everyone that you can find a slide presentation in connection with the First Quarter 2025 earnings release under the Investor Relations tab on our corporate website. Finally, as a reminder, I would like to invite all of you to join us for our first-ever town hall conference call on Monday, April 28th, at 3:30 P.M. Central Time. Please send any questions that you have in advance by email to [email protected] no later than 3:00 P.M. Central Time on Friday, April 25th. The live conference call will be available under the Investor Relations tab on our corporate website.

With that, I would now like to turn the call over to Mr. Joe Foran, our Founder, Chairman, and CEO. Joe?

Joe Foran (Founder, Chairman, and CEO)

Thank you, Mac. As we've often done in the past, I'd like to begin by emphasizing some of the themes that we expressed in our earnings release. The first one is that we've been here before in challenging times, and we've come out of it each time stronger than we went in. We have confidence in the plans that we've submitted to you today. We feel we have the right tools in the toolbox that give us the flexibility and the optionality to make the plans work and advance Matador's interest and value, regardless of the atmosphere or how much it changes throughout the year.

Second is to call to the attention that not only have we tried to make the prudent decisions, but can really point to the operational excellence of our field people and our operating staff, is that we've had growth in the revenues to the point that we were able to repay $190 million of our debt. We have record gas processing. The Marlan plant is coming online. Between the Marlan plant and Black River, we'll have processing capacity of 720 million, which is quite a bit better than the original Black River plant that was only 60 million. That provides us a large amount of flow assurance, which is critical these times to get all of it you can to market. Finally, the point three is that we wanted to emphasize how we have an alignment of interest with our shareholders.

That's one of the reasons that we have the board authorized a repurchase of shares to be sure people knew of that alignment. Second is to point out what we did in the first quarter with we being the management leadership team, that we had over 31 transactions. Virtually everybody on the management team bought shares. We had over 100 other employees buying stock, where other companies were not as aggressive. Our guys, like our leadership team, recognize a good deal when they see it. We felt it was important to offer the opportunity to have a repurchase of shares. At this price, we think it's a good buying opportunity and a good entry point. We welcome your questions. Finally, there's been some concern about production. Is it going up or is it going down?

We slowed down a little bit on our production, but it wasn't because the wells were performing well. They've done better than they expected. What you had was you had some shut-ins due to maintenance. In light of that, the maintenance and force majeure events, in light of that, we were off by 1% or 2%, which we could have easily made that up. It was better to move slowly but surely to be sure to provide growth for this year, reduce expenses, and to wait for the processing to come online so we receive the full economic benefit of our production. We'll have growth at the end of the year. Remind everybody that if we're 1% down now, by the end of the year, we'll be up 17%.

Mac Schmitz (SVP of Investor Relations)

Latanya, with that, we'd like to take a few questions.

Operator (participant)

Certainly. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you please limit yourself to one question until all have had a chance to ask a question, after which we will welcome additional follow-up questions from you. First question will be from Tim Rezvan of KeyBanc Capital Markets. Your line is now open.

Tim Rezvan (Managing Director)

Good morning, folks, and thank you for taking my question. I'd like to start on the midstream. Obviously, there's been a lot of volatility in the broader markets that may be impacting the decision on that. You did use the phrase IPO in your fourth quarter earnings deck. We didn't see that in this deck. Can you talk maybe about what you're thinking about with the path forward on the midstream side, given you've been pretty candid that you're looking to kind of realize value from that segment? Thank you.

Gregg Krug (EVP of Marketing and Midstream Strategy)

Yeah. This is Gregg Krug, the EVP of Marketing and Midstream Strategy. Yeah. We're looking at all these options as far as possibility of IPOs and various other things. We're looking at opportunities to grow our business. If we think about kind of where we started, we started at 60 million a day at the Black River plant. As Joe mentioned, once we get this plant up and going, which is going to be this quarter, we should be up at 720 million a day of capacity. We like our growth that we're seeing now, and we see opportunities to go further. We've got a lot of inquiries on third-party gas that we're chasing. We think there's lots of opportunities there. As far as, yeah, your question on IPO, yeah, that is always a possibility, and we're investigating all those opportunities.

Operator (participant)

Our next question will be coming from Zach Parham of JPMorgan. Your line is open, Zach.

Zach Parham (Executive Director)

Thanks for taking my question. Just given the changes in the operational plans, I wanted to talk about how you're thinking about longer term. I mean, historically, Matador has been a growth company. With this guidance update, your second half implied volumes are roughly in line with 4Q oil at more of a maintenance level. In the current environment, how are you thinking about the longer-term outlook for the company? In the current commodity price environment, would you continue at maintenance levels, or would you anticipate growing again at some point?

Joe Foran (Founder, Chairman, and CEO)

Thank you, Zach. That's a good question. The answer is yes. We're very open to and want to have reason to grow again. It's not that we're downsizing now because, as I mentioned, we're going to have 17% growth in oil production by year-end. This is primarily a timing matter. Is this a temporary thing on oil prices, or is this a new world we live in? We're going to do what's profitable. We've never been a growth for growth's sake. It's always been our motto here has been profitable growth at a measured pace.

If you mean what you say about a measured pace, that means when prices get a little lower, you're a little more, you take a few more moments to think about what you're doing and do not rush into things and to manage your contracts with your vendors so you have optionality and flexibility to either add or to take down. You build relationships with them that give you that kind of flexibility and optionality. We very much intend to grow. We are shareholders, too. Nobody here wants to own stock unless there is going to be increases in value over time. I think we are very well positioned for it because you may say, "Well, your production was a little bit off this quarter." Yeah, but we paid down $190 million in debt. That leaves us with a lot of optionality there.

We want to speed up CapEx expenses as the year goes along. We want to make an acquisition. Either way, we've got the tools in the toolbox, including the share repurchase, to make Matador more value quarter by quarter. What we don't want to do is to do it blindly or to rush in in a time of turbulence. We're going to do it slow and steady, but that profitable growth at a measured pace is governing our approach. We have lots 10-15 years of inventory, so there's no shortage of inventory. Everywhere we drill these wells, they're going to have a high net rate of return. It's just optimizing those locations and our field staff and our midstream business to consistently generate growth and profitability.

If you look at our last since we went public, you see over and over again, we have generated profits per quarter, and we had a profit this quarter. I do not know how many straight quarters that makes for it, but it has been very consistent that we have not had a losing quarter. That is because of the professional approach of our office staff, our field staff, and that they have great properties to work with. The two big acquisitions we made in the last couple of years, both of which were about $2 billion, they have been integrated very smoothly, and the performance has been better than expected. We are pretty excited. That is why you saw as much buying from insiders as you did, and you can expect it again this quarter. For me, I have never sold a share.

I've had kids in college, for that matter. I'm not trying to be flippant, but we all have things like that. This has been where the value is generated, rising from we started with $270,000, and we feel we have over $11 billion in assets now. This group collectively has made good decisions all along. We've encountered these times numerous times, and we've always come out ahead. If you may, and you can, Zach, you've been around long enough to remember those. Each time we've come out, whether it's been COVID or the BLM leases that people were worried about that we paid too much for, but we're paying now at $20 a barrel oil in six months. Just consistently, that's the nature of this business, trying to be ready for whatever the circumstances are being thrown at you.

I feel this group has really done a good job. We are all very confident in the plans and the way execution. This second quarter, by turning on 40 wells, people were concerned about timing on those wells. We turned on 40 wells. This second quarter should be a record quarter.

Van Singleton (Co-President of Land, Acquisitions and Divestitures and Planning)

Hey, this is Van Singleton. Just wanted to add one thing to what Joe was saying, that in the first quarter, we not only replaced the reserves that were produced, but we added to them. I think you see that over our history is that not only do we have a 10-15 year runway of really good locations right now, but every year we continue to replace those and grow the reserves. I think what you see right now is, as we've said before, there's never really one smoking gun decision that makes all this happen. It's hundreds of small decisions. We all work together as a team across the company to figure out what's the best thing to do at the right time.

By preserving our optionality and balance sheet, we're going to be able to set ourselves up for more profitable growth in the near future.

Operator (participant)

Thank you. Our next question will be coming from Gabe Daoud of TD Cowen. Your line is open, Gabe.

Gabe Daoud (Managing Director and Energy Equity Research Analyst)

Thanks, Latanya. Hey, everyone. Good morning. Thanks for the time. I was hoping, Joe, maybe we could circle back to your comments around stock representing a good entry point. Is it fair to assume then you're maybe getting after it on the buyback relatively soon? Just how do you prioritize the buyback against potential inorganic opportunities this year? As you've also noted, volatility presents typically good opportunities for attractive bolt-ons like you guys did with HEYCO maybe about 10 years ago. Thanks, guys.

Joe Foran (Founder, Chairman, and CEO)

Yeah. Gabe, I may need you to repeat part of your question, but let me try to answer as best I can. The first thing is what's nice about where we are today is if in our release, we mentioned five or six things that we did when we saw the fall, enough turbulence and chaos, and what does this mean, and what direction are prices going, up or down, and what's the world situation, is that we started taking steps from our experience. What do we need to be in to give us maximum flexibility and optionality on how our plan goes? You saw we paid down debt. You know that we took these other steps to pay down debt. We had oil hedges implemented, oil hedges to protect us on price. We sold non-core assets.

In the Eagle Ford, sold all of the rest of our position there and sold part of our Pronto plant to our joint venture partner on San Mateo. We worked with our 19 banks, and they authorized a bigger RBL for us, reserve-based loan. Now we're in a position to go either way. It's not that we're forced to go either go the route of acquisitions or drilling or share buybacks. I think we'll have to see which of those creates the most value for us. It's nice to have all three options to go with.

Van Singleton (Co-President of Land, Acquisitions and Divestitures and Planning)

This is Van again, Van Singleton. I think also to add to that, Joe is just the dividend. Six times in four years, we've increased it. I think we want to preserve our optionality to continue to increase that at the appropriate times going forward.

Joe Foran (Founder, Chairman, and CEO)

Yeah. We want to be known as that company that pays a regular dividend and tries to increase it year to year. That is another thing. The alignment, a lot of this comes from that alignment that other companies have not been as quick to buy their shares back or to buy them for themselves. We have, if you look at companies, I think ours is our ownership between officers and directors is 6.5%, 6%, somewhere going towards 7%.

Operator (participant)

Our next question will be coming from Leo Mariani of Roth. Your line is open, Leo.

Leo Mariani (Managing Director and Senior Research Analyst)

Hey, guys. I wanted to just ask a little about the kind of activity reductions here. If I'm looking at your slides right, it looks like you guys ended up cutting some of the activity on the new Ameredev asset and also at Antelope Ridge, but actually increased activity a little bit in West Texas. I was just kind of curious about that from a turn-in line perspective, if there was something maybe was kind of driving you to put a little bit more CapEx in West Texas in favor of some of these other areas. Then just on your production, obviously, it's like you said, record second quarter, but just want to get a sense. Should that be kind of peak production for the year? Does production roll off a little bit with the activity cut to the second half?

Tom Elsener (EVP of Reservoir Engineering)

Hey, Leo. This is Tom Elsener, EVP of Reservoir Engineering. I'll probably take the first part of that, and then I'll probably pass the second part over to Glenn Stetson. Just in the normal course of funneling the operations from a nine-rig program down to an eight-rig program, there's just some shifting of the timing of the wells around all that. I know Chris and the team are optimizing the completion schedule. I think it's just shifting some wells around between different buckets, maybe carrying over some wells in different quarters. We're proud of all of our assets. Certainly, West Texas has been a big part of us for a very long time. We're real happy with the returns of all the wells, and things are going better than expected.

Glenn Stetson (EVP of Production)

Yeah. Hey, Leo, this is Glenn. I just wanted to pile on to what Tom was saying on the Ameredev properties is that we highlighted in the release the 11 wells that we turned online that had an average IP of 1,450 BOE per day. All combined was around 15,000 BOE/D altogether. We are really happy with those results, and I think confirms the prospectivity of the eastern side of that acreage position. On your second question there, I would just say that, yeah, Q3 will be lower than Q2, as you said. Q4 is projected to be slightly higher than Q3, but could change depending on the timing of these capital-efficient batches that we are doing.

Operator (participant)

Thank you. Our next question will come from Kevin MacCurdy of Pickering Energy Partners. Kevin, your line is open.

Kevin MacCurdy (Managing Director)

Hey, good morning. Thanks for taking my question. I, for one, appreciate the leadership you're showing here by reducing activity amidst the macro uncertainty.

Joe Foran (Founder, Chairman, and CEO)

Thank you. We appreciate that a lot. I would like to say is that the fourth quarter may not go down, but we have the optionality to ramp up production in that area or to keep it as is. We did not want to promise something that we were not certain of delivering. We can deliver, feel very certain about that, but do not want to do that unless the oil price is optional or is optimal. There is plenty of time left to bring that around if the incentive of higher commodity prices are there.

Kevin MacCurdy (Managing Director)

My question is on the criteria for the buyback. Just conceptually, how would you think about the number of shares you're going to be buying back? Will you be looking at certain valuation metrics, and will it be governed by kind of a percentage of cash flow on a quarterly or an annual basis?

Brian Wiley (EVP and CFO)

Yeah. Hey, Kevin. This is Brian Willey, Executive Vice President, Chief Financial Officer. Appreciate the question. It's not a single metric or single variable that we're looking at. I think it's a mix. As Joe mentioned earlier, we really have a lot of great options in front of us, whether that's using our cash for debt repayment, for the share repurchases, making opportunistic land acquisitions that Joe mentioned that we've often made in these times when there have been challenging times, expansion of the midstream business. We could also add back the rig as Joe mentioned earlier, and/or increase the dividend. There are a lot of opportunities for us to use our cash flow. What we'll do is we'll evaluate those and look at what is best for Matador in the long term and its shareholders. As Joe mentioned earlier, we're all very large shareholders.

As we look at it, we want to provide the most value for us and our shareholders over the long term.

Operator (participant)

Our last question will come from the line of John Freeman of Raymond James. Your line is open, John.

John Freeman (Managing Director)

Thank you. Good morning. I saw that y'all stepped up the hedging activity quite a bit, both on oil and gas. The other thing that sort of jumped out was y'all were willing to lock in meaningfully wider gas diffs in 2026. Just interested in what y'all are seeing on the marketing side that drove that decision.

Gregg Krug (EVP of Marketing and Midstream Strategy)

Yeah. This is Gregg Krug again. We're constantly looking at those hedges, and we just saw that we felt like there was an opportunity to layer on some. We just felt like 26 had some vulnerability there because of the capacity issues that we're seeing. We wanted just some additional protection. That was the driver behind that, is we felt like that we needed to have that extra protection insurance policy, so to speak.

Operator (participant)

Thank you, ladies and gentlemen. This ends the Q&A portion of this morning's conference call. I'd like to turn the call back to management for closing remarks.

Joe Foran (Founder, Chairman, and CEO)

Thank you very much. To those that asked questions, if you have further inquiries, do not hesitate to call us. We will be happy to visit with you. Once again, we want to invite all of you to come see us sometime and meet our people in person, as well as see some of what we think are the most latest tools in the toolbox, including the MAXCOM room that goes 24/7, or our measurement room that does the same thing, that has generated a lot of value.

Also to emphasize to you, because I don't want anybody to feel, "Oh, we're throwing in the towel towards the end of the year or worried by it." No, we think matters will straighten out over these next couple of quarters, and it'll be clear what needs to be done in the fourth quarter to make optimal our year for our shareholders. Brian Willey made a lot of mention of the tools, including increasing the dividend as a way of returning value to the shareholders. There is no shortage of rigs or vendors out there that we can get the work done in a first-class way. I am very optimistic about the year. It's going to get better from here. We've said second quarter is going to be a record quarter.

Third quarter will be strong, but we may be making those concrete plans for the fourth quarter and for 2026. As I said, we've done this for 40 years, rising from $270,000 to the present deal. This is a group that's had to react to very rapid change in the business. When we came in, you had Kelly Drive type rigs, and now you've got Top Drive, and you're drilling three-mile laterals. That was unforeseen, but that's working out well for us. There are a lot of knobs to play with, particularly when the outside factors of world prices, world governments, you just you got to be ready to shift as the atmosphere changes. I think this is the group that is doing it now, and we have alternatives. We see a lot of options in the past.

That's what led to certain breakthroughs. Y'all mentioned the Yates transaction, but also the BLM when we bought those properties. And oil was you had COVID. Those made a difference. You go back to getting people that we start out. Big help was when Mesa and then our slide deck, we show some of those big events in the past have come back to help us. They generally occurred in times where commodity prices were down. Right now, I feel the field is really open, and we've got more tools than we've ever had to use and to add value. I think it's a great time to get in. You'll see buying from us, but you'll also now see the company ready to put money on the line and buy back shares.

If people can't see the value opportunities we've been creating, we'll buy their stock back. We'll start with this amount, $400 million, and we're not doing it all at once, but gradually and in a controlled fashion, and be happy to buy back whoever wants to sell at a price that we think is a bargain for our shareholders. That's my last of my comments. I promise unless you want to call in or come see us.

Operator (participant)

Ladies and gentlemen, thank you for your participation today.