There are not many companies in the oil and gas exploration industry that have provided positive returns in 2015. The industry has seen carnage and sentiments remain depressed. However, Matador Resources (MTDR, Financial) has been an exception this year with the stock higher marginally by 1.1%. Here are the key factors that have resulted in strong performance for the company and the factors that will continue to deliver growth and performance in 2016 and beyond.
Growth in challenging times
Matador Resources is on course to deliver strong production growth in 2015 as compared to 2014, and the company’s robust production growth partially offsets decline in revenue and EBITDA due to lower oil and gas prices.
For 2015, Matador Resources expects oil production at 12,192boepd as compared to 9,095boepd in 2014. The company’s natural gas production is expected to surge to 75.3Mmcf/day in 2015 as compared to 41.9Mmcf/day in 2014.
As a result of robust production growth, the company expects to clock revenue of $295 million for FY15 as compared to $368 million in FY14. For 2015, the EBITDA is likely to be $225 million as compared to $263 million in 2014.
The company’s revenue and EBITDA decline has been offset to a large extent by production growth and hedging. The results are good considering the broad industry scenario, and this explains the resilience shown by the stock.
Conservative financial profile
Another important factor that has resulted in Matador Resources remaining resilient is the company’s robust balance sheet profile. This factor will continue to deliver strong stock action in 2016.
To put things into perspective, Matador Resources sold midstream assets in October for a consideration of $143 million, and this helped the company reduce leverage to 1.0 from 1.6 in the first quarter. There are two important points to note here. First, the company has enough liquidity to execute drilling plans through 2016 after the asset sale. Second, the company intends to keep leverage in check and targets leverage of less than 2.0.
A conservative financial strategy is needed in the current scenario, and Matador Resources has done well on that front. The company’s credit health is expected to remain strong through 2016.
Product mix and long-term outlook
Matador Resources has significantly changed its product-mix since IPO in 2011, and this is another reason to be positive on the stock. In 2011, the company’s proved reserves consisted of 4% oil, and the company had 7,500 net Permian aces.
As of Sept. 30, the company’s proved reserve mix consisted of 49% oil, and the company now has 90,700 net acres at the Permian. There has been a clear change toward the positive considering the company’s proved reserves for oil and natural gas. In addition, the company has significantly boosted Permian reserves, which holds immense long-term potential. It is important to mention here that Matador Resources now holds among the largest acreage positions in the Delaware Basin when considering mid-cap and small-cap companies.
In terms of the drilling inventory, Matador Resources has 1,362 identified net drilling locations, and this provides strong drilling visibility for the coming years. As of December, Matador Resources had three operational rigs, but the number of rigs is likely to increase in the later part of 2016 if oil prices gradually trend higher.
Conclusion
Matador Resources has done exceptionally well in 2015 amid challenging industry conditions, and the company is expected to remain a strong performer even in 2016. With the company fully funded for investments in the next 12 months, the focus will remain on increasing production in the core assets and maintaining decent EBITDA levels.
In addition, the company is expected to continue looking for attractive acreages in the core operating area, and this is likely to provide a continued boost to the company’s proved reserves. Overall, Matador Resources is a quality energy stock and can be considered at current levels for long-term investments.
Disclosure: No positions in the stock
