Executive Summary / Key Takeaways

• Matador Resources Company is strategically positioned in the prolific Delaware Basin, leveraging its high-quality acreage and integrated midstream assets to drive profitable growth.
• Operational efficiencies, including advanced drilling and completion techniques like Trimul-Frac and the MAXCOM center, are significantly reducing costs and improving cycle times, enhancing capital efficiency.
• The company's midstream segment, anchored by the San Mateo joint venture and the expanding Marlan plant, provides critical flow assurance and a stable fee-based revenue stream, differentiating Matador from many peers.
• Recent financial performance demonstrates strong operational cash flow generation, supporting debt reduction efforts and a commitment to shareholder returns through a growing fixed dividend and a new share repurchase program.
• Despite adjusting its 2025 drilling plan slightly for market optionality, Matador projects significant year-over-year production growth, underpinned by its deep inventory and the successful integration of recent acquisitions like Ameredev.

A Foundation Built on Profitable Growth

Matador Resources Company, an independent energy producer, has forged its identity over four decades with a consistent strategy: achieving profitable growth at a measured pace. Founded in 1983, the company has expanded significantly from its modest beginnings, primarily focusing on oil and natural gas resources in the United States. Today, its operations are heavily concentrated in the highly prospective Delaware Basin, spanning Southeast New Mexico and West Texas, complemented by a presence in the Haynesville shale and Cotton Valley plays in Northwest Louisiana. This strategic focus on premier oil and liquids-rich acreage forms the bedrock of its investment thesis.

The competitive landscape for U.S. E&P companies is dynamic, marked by intense competition for acreage, capital, and talent. Matador competes directly with larger independents like EOG Resources (EOG), Devon Energy (DVN), and Diamondback Energy (FANG), as well as integrated majors like ConocoPhillips (COP), all vying for dominance in key shale plays. While lacking the sheer scale of some rivals, Matador distinguishes itself through an integrated business model that includes a significant midstream segment. This allows for greater control over infrastructure, providing crucial flow assurance and operational flexibility that many peers, reliant solely on third-party services, may lack. The company's strategic acquisitions, such as Ameredev and Advance, have been instrumental in consolidating its position in core areas, adding high-quality inventory and generating significant synergies.

Operational Excellence and Technological Edge

A key differentiator for Matador lies in its relentless pursuit of operational efficiency, heavily supported by technological innovation. The company employs advanced drilling and completion techniques that translate directly into reduced costs and faster cycle times. Practices like batch drilling, Simul-Frac, and Trimul-Frac are central to this effort. Trimul-Frac, for instance, has demonstrated the ability to reduce completion time on a well by approximately 50%. Furthermore, the adoption of remote frac operations offers tangible cost savings, estimated at $250,000 to $350,000 per well.

Matador also leverages specialized drilling technologies like U-Turn wells, which have shown significant reductions in drill time, decreasing by 30% on specific wells compared to prior performance and by as much as 50% on individual wells. Overseeing these operations is the MAXCOM center, a 24/7 hub that has contributed to setting over 300 drilling records since its inception in 2018. These technological and process improvements are not merely incremental; they are foundational to achieving the company's target drilling and completion cost of $880 per foot, a figure management aims to drive lower. For investors, this focus on efficiency means improved capital allocation, higher returns on invested capital, and enhanced resilience in volatile commodity price environments, contributing directly to the company's profitability goals.

Integrated Midstream Advantage

Integral to Matador's strategy and a significant competitive advantage is its midstream segment, primarily operated through the San Mateo Midstream joint venture and wholly-owned assets like the Pronto plant. This segment was initially developed to address flow assurance concerns, ensuring that produced oil, natural gas, and water could reliably reach markets or disposal sites. This proved particularly valuable during events like severe weather, where Matador's infrastructure maintained operations while others faced shut-ins.

The midstream business has grown substantially, providing natural gas processing, oil transportation, and gathering/disposal services not only for Matador's production but also for third parties. The recent expansion of the Marlan cryogenic natural gas processing plant, expected online in the second quarter of 2025, will add 200 MMcf per day of processing capacity, bringing the combined capacity of the Marlan and Black River plants to 720 MMcf per day. This expansion supports increased production volumes and enhances the segment's profitability. Management highlights the strategic value of these assets, estimating their worth at over $1.5 billion, and is open to exploring options to further realize this value, including potential monetization. The fee-based nature of the midstream business provides a degree of revenue stability, complementing the commodity price exposure of the E&P segment and contributing to overall financial resilience.

Financial Performance and Capital Allocation

Matador's financial performance in the first quarter of 2025 reflects the impact of increased production volumes and favorable natural gas prices, despite lower realized oil prices compared to the prior year period. Total revenues reached $1.01 billion for the three months ended March 31, 2025, compared to $787.7 million in the same period of 2024. Net income attributable to Matador shareholders was $240.1 million, or $1.92 per diluted share, up from $193.7 million, or $1.61 per diluted share, in the first quarter of 2024. Adjusted EBITDA, a key metric for evaluating operational performance, increased significantly to $644.2 million from $505.4 million year-over-year.

The increase in oil and natural gas revenues was primarily driven by a 34% increase in oil production and a 27% increase in natural gas production, coupled with a 20% increase in realized natural gas prices. Operating expenses saw increases commensurate with higher activity and production volumes, including a 40% rise in lease operating expenses due to a greater number of operated wells (including those from the Ameredev acquisition) and a 34% increase in midstream operating expenses due to higher throughput. Depletion, depreciation, and amortization expenses also rose 33%, reflecting the 31% increase in production volumes. Despite higher total general and administrative expenses, they decreased by 13% on a unit-of-production basis, demonstrating efficiency gains as production scaled. Interest expense increased due to higher senior notes outstanding, partially offset by capitalized interest on qualifying projects.

The company maintains a focus on balance sheet strength and liquidity. As of March 31, 2025, Matador had $14.5 million in cash and $63.0 million in restricted cash. Total long-term debt stood at $3.18 billion.

Management actively manages its debt, including significant repayments under its Credit Agreement and the San Mateo Credit Facility post-quarter end. The company believes it is in compliance with the financial covenants under its credit facilities, which require maintaining specific current and debt-to-EBITDA ratios.

Capital allocation priorities remain centered on high-return drilling and completion activities in the Delaware Basin and strategic midstream investments. For 2025, estimated drilling, completing, and equipping capital expenditures are in the range of $1.18 to $1.37 billion, a slight decrease from prior guidance reflecting a planned reduction to eight drilling rigs by mid-year and adjustments to the completions schedule.

Estimated midstream capital expenditures remain at $120 to $180 million, including the Marlan plant expansion. These investments are expected to be funded primarily through operating cash flows, with flexibility to utilize credit facilities or other capital sources for potential acquisitions or if cash flows fall short. Management forecasts approaching $1 billion in free cash flow for 2025, providing significant financial optionality.

Outlook and Shareholder Returns

Matador's outlook for 2025 is characterized by expected production growth and a commitment to returning value to shareholders. Despite a slight dip in production in the first quarter due to temporary operational factors, management projects year-over-year oil production growth of approximately 17% by the end of 2025. The second quarter of 2025 is anticipated to be a record quarter for production, driven by bringing approximately 40 wells online. While production may see a slight decrease in the third quarter before increasing again in the fourth, the overall trajectory points towards significant growth compared to 2024, with expectations of exceeding 200,000 BOE per day in 2025.

The company's strategic initiatives, including the successful integration of the Ameredev acquisition, which is performing better than expected and contributing high-quality inventory, underpin this growth outlook. The Ameredev assets, including 11 wells turned online with an average initial production of 1,450 BOE per day, are proving highly productive. The deep inventory of high-return drilling locations in the Delaware Basin provides a runway of ten to fifteen years for continued development.

Matador is also committed to shareholder returns. The board has declared a quarterly cash dividend of $0.31 per share, reflecting a consistent increase over time and management's preference for a fixed, growing dividend as a means of returning value to long-term shareholders. Additionally, the board authorized a $400 million share repurchase program in April 2025, signaling management's belief that the current stock price represents a compelling buying opportunity and demonstrating alignment with shareholders. The company has already begun repurchasing shares under this program.

Risks and Mitigants

Investing in Matador Resources is subject to inherent risks within the energy sector. Commodity price volatility remains a significant factor, influenced by global supply and demand dynamics, geopolitical events, and economic conditions. Declines in oil and natural gas prices could negatively impact revenues, profitability, cash flows, and the economic viability of certain drilling locations. Price differentials, particularly the Waha-Henry Hub natural gas basis differential, also pose a risk to realized prices.

Operational risks include natural production declines, the success rate of drilling and completion activities, potential cost inflation for oilfield services, and supply chain disruptions. Regulatory changes, such as new environmental regulations or tax policies, could increase operating costs and compliance burdens.

Matador employs several strategies to mitigate these risks. Commodity derivative instruments are used to hedge against price fluctuations, providing a degree of revenue stability. The company's integrated midstream assets offer crucial flow assurance, reducing reliance on potentially constrained third-party infrastructure. Operational flexibility, including the ability to adjust drilling activity based on market conditions, helps manage capital expenditures. A strong balance sheet and access to credit facilities provide financial resilience. Furthermore, the focus on operational efficiencies and cost control helps maintain profitability even in challenging price environments.

Conclusion

Matador Resources Company presents a compelling investment case grounded in its strategic focus on the high-quality Delaware Basin, its differentiated integrated midstream business, and its commitment to operational excellence. The company's history of profitable growth, coupled with its deep inventory of high-return drilling locations and the successful integration of recent acquisitions, positions it for continued production growth in the coming years.

Despite the inherent volatility of commodity markets and operational challenges, Matador's strategic flexibility, technological advantages driving cost efficiencies, and robust midstream infrastructure provide a competitive edge. The company's strong financial position supports ongoing investment in its core assets while enabling meaningful returns to shareholders through dividends and share repurchases. Matador's story is one of disciplined execution, strategic adaptation, and a clear focus on creating long-term value, making it a noteworthy consideration for investors seeking exposure to the U.S. E&P sector.