Matador Resources (NYSE: MTDR) reported Q2 EPS of ($0.03), $0.13 better than the analyst estimate of ($0.16). Revenue for the quarter came in at $62.92 million versus the consensus estimate of $165.41 million.

Joseph Wm. Foran, Matador’s Chairman and CEO, commented, “On both our website and the webcast planned for tomorrow’s earnings conference call is a set of eight slides identified as ‘Chairman’s Remarks’ (Slides A through H) to add color and detail to my remarks. We invite you to review these slides in conjunction with my comments below.

“The second quarter of 2020 was challenging and chaotic, but, ultimately, the results for the second quarter were better than expected for Matador, as noted in the summary provided in Slide A. The Board and I would like to thank and commend the Matador team for their continued strong execution and professionalism despite the recent challenges of the novel coronavirus and the abrupt decline in oil prices. Consistent with our updated plans for 2020 as provided in early March, we reduced our operated drilling program from five rigs to three rigs during the second quarter, and we continued our focus on capital discipline and operating cost control to further reduce our outspend. As a result, despite the challenges we faced in the second quarter of 2020, Matador delivered record-high oil production, along with record-low unit operating expenses and drilling and completion costs per lateral foot, which should help us to attain free cash flow status by the end of the year. We were heartened by the promising results.

“Throughout the second quarter of 2020, capital efficiency, operating cost control and increasing the number of our A+ locations were key objectives. Our operations group once again led the way in this effort by achieving better-than-anticipated capital costs and operating expenses. Our capital expenditures for drilling, completing and equipping wells in the second quarter were $19 million less than our original estimates for the quarter, and we estimate that $10 million of these savings were attributable to improved operational efficiencies and lower-than-expected drilling and completion costs. Drilling and completion costs for all operated horizontal wells completed and turned to sales in the second quarter of 2020 averaged $881 per completed lateral foot, an all-time low for Matador, as illustrated in Slide B. On the five Ray State wells completed and turned to sales in the second quarter of 2020, all two-mile laterals, we did even better, averaging drilling and completion costs between $750 and $850 per completed lateral foot.

“Operating expenses in the second quarter of 2020 were also at all-time lows for Matador. Lease operating expenses on a unit-of-production basis declined to $3.92 per BOE in the second quarter, resulting primarily from our continued efforts to reduce costs in the field. General and administrative expenses on a unit-of-production basis were $2.21 per BOE, also an all-time low for Matador, as the salary and other cost reductions voluntarily implemented in the first quarter of 2020 were more fully realized during the second quarter (see Slide C).

“During the second quarter of 2020, we achieved the second of four important production milestones we set for Matador in 2020 when the five Ray State wells in the eastern portion of the Rustler Breaks asset area were turned to sales in May and early June, slightly earlier than we had planned (see Slide D). As recently reported in a separate press release, the 24-hour initial potential aggregate test results for the five Ray State wells were approximately 7,600 barrels of oil per day and 29.5 million cubic feet of natural gas per day, and these wells have continued to perform very well. After an average of about 55 days on production, these five wells have already produced in aggregate over 500,000 BOE. The six Rodney Robinson wells also continue to exceed expectations, having already produced in aggregate more than 1.2 million BOE in just over 100 days on production. The early outperformance of the Rodney Robinson and the Ray State wells in the second quarter of 2020 contributed to Matador reporting record oil production in the quarter, even though 10 to 15% of our potential production was shut-in or curtailed during the months of May and June. Matador believes it has hundreds more of these ‘A+ caliber’ wells in its drilling inventory (see Slide E).

“Looking to the third quarter, we are very excited by the outlook for Matador as illustrated in Slide F. First, we expect to achieve the third and fourth of our key production milestones for 2020 as earlier projected. In late July and August, the five Leatherneck wells in the Greater Stebbins Area, all two-mile laterals, should be turned to sales. Then in September and early October, we expect to turn to sales the first 13 Boros wells, also all two-mile laterals, in the Stateline asset area. Second, the San Mateo II expansion in Eddy County, New Mexico should also be completed in the third quarter of 2020, including the addition of an incremental 200 million cubic feet per day of designed natural gas processing capacity and the large-diameter pipelines connecting the Stateline asset area and the Greater Stebbins Area to San Mateo’s Black River Processing Plant in Eddy County, New Mexico. These projects reflect the vision, planning, execution and hard work of the Matador and San Mateo teams to achieve the goals Matador set as part of the Bureau of Land Management lease acquisition two years ago in terms of production and reserves growth, midstream expansion and improved capital efficiency.

“Financially, we were pleased with the recent upgrades by Moody’s Investors Service to our corporate credit rating, senior unsecured notes and rating outlook. We have continued to protect our balance sheet and liquidity and ended the second quarter with outstanding borrowings that were $10 million less than anticipated and a leverage ratio of 2.5x, just as we expected and still well below our reserves-based loan covenant of 4.0x, as shown in Slide G. We expect to generate free cash flow in the fourth quarter of 2020, and we plan to use the excess cash to reduce the debt outstanding under our revolving credit facility. In addition, we continue to be pleased with the growth of our financial and operating results compared to our industry peers (see Slide H).

“The Board, the staff and I look back on the second quarter of 2020 as yet another time when we came together, kept our focus, executed on our revised operating plan and delivered strong results for our shareholders and bondholders in a difficult operating environment. We remain confident the outlook for Matador is very bright, and we look forward not only to completing 2020 on a high note but also to the years to come.”

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