Matador Resources Shows Spark but the Stock Is Still Languishing

Matador Resources has done well operationally despite a hostile oil pricing environment this year, but the overall negativity means that the stock has remained subdued. Matador stock is down 4% this year, and the company’s impressive performance last quarter was not enough to pull it out of its rut.

Let’s take a closer look at what happened with Matador in the fiscal second quarter and if investors should continue holding the stock in the hope of a turnaround.

Matador Is on the Right Track

Matador increased its average daily oil production to 36,767 barrels as compared to 29,740 barrels per day in the year-ago period.

The weakness in oil pricing has not dampened Matador Resources management as the company increased its average daily oil production to 36,767 barrels as compared to 29,740 barrels per day in the year-ago period. This represents an increase of almost 40% as compared to the prior-year period.

Including the natural gas output, Matador’s total oil equivalent production for the quarter came in at 61,290 barrels of oil equivalent per day. This, again, was an increase of nearly 16% from the prior-year period’s output of 52,937 barrels of oil equivalent per day.

However, the subdued pricing meant that Matador’s revenue increased only slightly year over year to $211 million as compared to $209 million a year ago. Matador witnessed an average realized oil price of just over $56 per barrel in the second quarter, down from $61 per barrel in the prior-year period.

The company’s natural gas price realization also fell to $1.64 per Mcf as compared to $3.36 per Mcf a year ago. So, it was not surprising to see why investors didn’t appreciate the results as they should have. After all, Matador beat Wall Street estimates on both top and bottom lines.

A Closer Look at the Problem

Matador’s adjusted net income fell as a result of the weak energy prices. The company delivered an adjusted net income of $34.6 million as compared to the year-ago period’s figure of $46.1 million. However, the important thing to note was that Matador’s adjusted EBITDA actually increased from $137.3 million a year ago to $144.1 million this time.

This improvement can be attributed to Matador’s excellent cost control during the quarter. Its total operating expenses per barrel of oil equivalent fell just slightly to $28.02, driven by a nice decline in the lease operating expenses.

Emboldened by its efficient production, Matador has decided to boost its output this year. The company plans to produce between 13.3 and 13.45 million barrels of oil this year as compared to the earlier range of 12.9 to 13.3 million barrels. Meanwhile, it expects its adjusted EBITDA to increase to a range of $540 million to $560 million as compared to the earlier range of $520 million to $550 million.

This indicates that Matador is well on track to realize the capital efficiencies it was planning to deliver this year. According to the company’s CFO:

I think that we had put out in the investor deck this last quarter, so a slide that had talked to how we thought that 2019 could go in terms of our ability to improve our capital efficiency. And I think that we have said that kind of on a dollar per foot basis, as I recall, that we thought that would be down 13 or 14% over the course of this year. So far, I think we’re probably a little bit ahead of that this year. And I think that that had projected we’d be down another 10 to 12% again next year.

So Matador Resources remains a top stock pick even in a weak oil pricing environment thanks to its resilient characteristics.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects.

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