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Matador Details 1Q Bone Spring, Wolfcamp IPs; Rig Plans

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   |    Friday,May 08,2015

Matador Resources Company reported financial and operating results for the three months ended March 31, 2015.

Highlights:

• An increase of 53% year-over-year in oil production from 661,000 barrels for the three months ended March 31, 2014 to 1.01 million barrels for the three months ended March 31, 2015; oil production was flat sequentially from 1.02 million barrels produced in the three months ended December 31, 2014.
• Record natural gas production resulting in a 170% year-over-year increase from 2.5 billion cubic feet produced in the three months ended March 31, 2014 to 6.6 billion cubic feet for the three months ended March 31, 2015, and a sequential increase of 24% from 5.4 billion cubic feet produced in the three months ended December 31, 2014.
• Record average daily oil equivalent production resulting in a 98% year-over-year increase from 11,904 barrels of oil equivalent (“BOE”) per day, consisting of 7,344 barrels of oil per day and 27.4 million cubic feet of natural gas per day, for the three months ended March 31, 2014 to 23,513 BOE per day for the three months ended March 31, 2015, consisting of 11,206 barrels of oil per day and 73.8 million cubic feet of natural gas per day, and a sequential increase of 13% from 20,807 BOE per day, consisting of 11,062 barrels of oil per day and 58.5 million cubic feet of natural gas per day, for the three months ended December 31, 2014. During the first quarter of 2015, the number of drilling rigs in use declined from five rigs to two rigs.
• A 21% year-over-year decrease in oil and natural gas revenues from $78.9 million reported during the first quarter of 2014 to $62.5 million for the first quarter of 2015, and a sequential decrease of 33% from $93.1 million reported in the fourth quarter of 2014. Weighted average oil and natural gas prices realized in the first quarter of 2014 were $96.34 per barrel and $6.20 per thousand cubic feet, respectively, significantly higher than the weighted average oil and natural gas prices of $43.37 per barrel and $2.82 per thousand cubic feet, respectively, realized in the first quarter of 2015 and $69.09 per barrel and $4.24 per thousand cubic feet, respectively, realized in the fourth quarter of 2014. Capital expenditures for 2015 were reduced from $610 million in capital spending in 2014 to guidance of approximately $350 million (excluding capital expenditures associated with the HEYCO merger).
• An 11% year-over-year decrease in Adjusted EBITDA, a non-GAAP financial measure, from $56.3 million reported during the first quarter of 2014 to $50.1 million for the first quarter of 2015, and a sequential decrease of 29% from $70.3 million reported in the fourth quarter of 2014.

Additional Highlights:

• Record total proved oil and natural gas reserves of 79.3 million BOE at March 31, 2015, including 32.5 million barrels of oil and 280.5 billion cubic feet of natural gas, a sequential BOE increase of 15% in the first quarter of 2015 from 68.7 million BOE at December 31, 2014, including 24.2 million barrels of oil and 267.1 billion cubic feet of natural gas, and a year-over-year BOE increase of 45% from 54.6 million BOE, including 16.9 million barrels of oil and 225.9 billion cubic feet of natural gas, at March 31, 2014. The PV-10 of Matador’s total proved reserves, a non-GAAP financial measure, increased to $1.07 billion at March 31, 2015, as compared to $1.04 billion at December 31, 2014, an increase of 3%, and $739.8 million at March 31, 2014, an increase of 45%, despite significantly lower average oil and natural gas prices used to estimate total proved reserves at March 31, 2015. The average oil and natural gas prices used in preparing these estimates, as further adjusted for those factors affecting the oil and natural gas prices received at the wellhead, were $79.21 per barrel and $3.88 per million British Thermal Units (“MMBtu”), respectively, at March 31, 2015, as compared to $91.48 per barrel and $4.35 per MMBtu, respectively, at December 31, 2014, and $94.92 per barrel and $3.99 per MMBtu, respectively, at March 31, 2014.
• Announced the 24-hour initial potential test results from two new Delaware Basin completions, one in the Wolfcamp “A”/“X” sand in the northwest portion of the Wolf prospect in Loving County, Texas and one in the Third Bone Spring in the Ranger prospect in Lea County, New Mexico. The Billy Burt 90-TTT-B33 WF #202H, completed in the Wolfcamp “A”/“X” sand, flowed 1,028 BOE per day (66% oil), consisting of 683 barrels of oil per day and 2.1 million cubic feet of natural gas per day, at a flowing surface pressure of 3,025 pounds per square inch (“psi”) on a 26/64-inch choke. The Cimarron 16-19S-34E RN #134H, completed in the Third Bone Spring, flowed 804 BOE per day (94% oil), consisting of 754 barrels of oil per day and 303 thousand cubic feet of natural gas per day at a flowing surface pressure of 725 psi on a 26/64-inch choke.
• On February 27, 2015, Matador consummated the merger of its wholly owned subsidiary with Harvey E. Yates Company (“HEYCO”), adding 58,600 gross (18,200 net) acres to its growing acreage position in the Permian Basin. Mr. George M. Yates, Chairman & CEO of HEYCO Energy Group, Inc. (the former sole shareholder of HEYCO) was appointed to Matador’s Board of Directors on April 28, 2015.
• In April 2015, Matador issued $400 million of 6.875% senior unsecured notes due 2023 at par, raising net proceeds of approximately $392 million.
• In April 2015, Matador completed a public offering of 7.0 million shares of common stock, raising net proceeds of approximately $188 million.
• Increased full-year 2015 oil production guidance from 4.0 to 4.2 million barrels to 4.1 to 4.3 million barrels. Reaffirmed all other full-year 2015 guidance estimates as provided at its Analyst Day on February 5, 2015, and reaffirmed on March 2, 2015 and April 6, 2015, including (1) capital expenditures of $350 million (excluding capital expenditures associated with the HEYCO merger), (2) natural gas production of 24.0 to 26.0 billion cubic feet, (3) oil and natural gas revenues of $270 to $290 million and (4) Adjusted EBITDA of $200 to $220 million. Oil and natural gas revenues and Adjusted EBITDA guidance are based on estimated average realized oil and natural gas prices of $50.00 per barrel and $3.00 per thousand cubic feet for all of 2015.

Joseph Wm. Foran, Matador’s Chairman and CEO, commented, "Three years ago when Matador went public, Matador was producing approximately 8,000 BOE per day, almost all of which was natural gas. In the first quarter of 2015, we averaged 23,513 BOE per day, almost half of which was oil. This growth was accomplished without our net debt to trailing 12-month Adjusted EBITDA ratio on the balance sheet ever exceeding 1.8x, and today, we are at 1.2x. Despite the challenging commodity price environment, the Matador staff and board of directors delivered another record production quarter at 2.1 million BOE, marking the first time we have produced more than two million BOE in a single quarter. Our average daily production rate topped 25,000 BOE per day for the first time in mid-March, and we have continued to produce above that level since then. Obviously, we continue to be very pleased with the well results we are achieving throughout our operating areas in the Permian, Eagle Ford and Haynesville, as well as the improvements we are making in reducing operating costs and capital expenditures.

"On February 27, 2015, we closed our merger with HEYCO and welcomed 29 new employees in Roswell, New Mexico to the Matador team. Today, we are nearing completion of two additional joint ventures associated with the HEYCO merger, which will add to our Delaware Basin leasehold. In addition, I am pleased to announce that Mr. George M. Yates, Chairman & CEO of HEYCO Energy Group, was officially appointed to Matador’s Board of Directors on April 28, 2015. Further, we now expect to drill our first horizontal well on the HEYCO acreage in the third quarter of 2015 and also plan to begin the workover and recompletion program on up to 30 existing vertical wells on these properties during the second quarter. We look forward to a long and productive working association with George and our new Roswell staff.

"Matador is currently running two rigs in the Permian Basin, one in Loving County, Texas and the other in Eddy County, New Mexico, but we are now considering adding a third rig in the Permian as early as late summer. The results of our two most recent wells in the Rustler Breaks area in Eddy County, New Mexico, with 24-hour IPs of 1,300 to 1,500 BOE per day, were particularly encouraging and have opened up two more potential completion targets in the Wolfcamp play in that area. We have recently completed drilling our first test of the Second Bone Spring in the Rustler Breaks area. We are also very pleased with the results announced today for the Cimarron 16-19S-34E RN #134H well, a Third Bone Spring test in the Ranger area in Lea County, New Mexico, which tested 804 BOE per day (94% oil), including 754 barrels of oil per day, at a flowing surface pressure of 725 psi on a 26/64-inch choke during its 24-hour initial potential test. We consider this to be a strong result for the Third Bone Spring, particularly considering that the Cimarron well is producing at over a 90% oil cut and that we drilled and completed this well for approximately $5.3 million. The performance of our wells in the Wolf prospect area in Loving County, Texas also continues to exceed expectations, and we are also pleased to announce the results for the Billy Burt 90-TTT-B33 WF #202H well, a Wolfcamp “A”/“X” sand test, which tested 1,028 BOE per day (63% oil), consisting of 683 barrels of oil per day and 2.1 million cubic feet of natural gas per day at a flowing surface pressure of 3,025 psi on a 26/64-inch choke. We have now moved to the development phase in our Wolf prospect and plan to keep one rig drilling there continuously for the foreseeable future.

"Finally, during the month of April, Matador successfully completed a $400 million notes offering as well as a $189 million equity offering providing us with approximately $500 million in liquidity to conduct our operations going forward while also continuing to protect the strength of the balance sheet for our shareholders and bondholders. In fact, our current liquidity approaches our market capitalization at the time we went public three years ago. Matador is proud of the progress we have made both financially and operationally since going public, and we are excited and eager for the opportunities that may lie ahead."

Operational Update

Matador was operating five drilling rigs, two rigs in the Eagle Ford and three rigs in the Permian Basin, at the beginning of 2015, but had reduced its operated drilling rigs to two by the end of the first quarter of 2015, with both operating in the Permian Basin. The Company is currently running two rigs in the Permian Basin, one in Loving County, Texas and the other in Eddy County, New Mexico and currently plans to operate at least two drilling rigs in the Permian Basin for the remainder of 2015. Matador may add a third drilling rig in the Permian Basin as early as late summer depending on commodity prices and improved well economics resulting from higher recoveries, realized savings from various operating efficiencies and cost savings from vendors.

The Company has now completed its planned operated drilling and completion activities in the Eagle Ford shale for 2015. Matador expects to continue to participate in several non-operated Haynesville shale wells drilled by a subsidiary of Chesapeake Energy Corporation and other non-operating partners during the remainder of 2015. These non-operated Haynesville wells are expected to require less than 5% of the Company’s 2015 capital budget.

Permian Basin - Southeast New Mexico and West Texas

During the first quarter of 2015, Matador completed and began producing oil and natural gas from five gross (3.5 net) wells in the Permian Basin, including four gross (3.4 net) operated wells and one gross (0.1 net) non-operated well. Matador completed two operated wells in its Wolf prospect area in Loving County, Texas—the Barnett 90-TTT-B01-WF #201H and the Barnett 90-TTT-B01-WF #205H wells—and two operated wells in its Rustler Breaks prospect area in Eddy County, New Mexico—the Guitar 10-24S-28E RB #202H and the Tiger 14-24S-28E RB #224H wells. The Barnett 90-TTT-B01-WF #201H and the Barnett 90-TTT-B01-WF #205H wells began producing in February, and the Guitar 10-24S-28E RB #202H and the Tiger 14-24S-28E RB #224H wells were completed and began producing in late March. As a result, these four wells did not contribute fully to production volumes for the first quarter of 2015.

Nonetheless, Matador’s Permian Basin production has increased significantly in the past year. The Company’s total Permian Basin production for the first quarter of 2015 was 3,546 BOE per day, consisting of 2,467 barrels of oil per day and 6.5 million cubic feet of natural gas per day, more than triple its Permian Basin total production of 1,066 BOE per day, consisting of 904 barrels of oil per day and 1.0 million cubic feet of natural gas per day, in the first quarter of 2014. The Permian Basin contributed approximately 22% of Matador’s daily oil production and approximately 9% of its daily natural gas production in the first quarter of 2015, as compared to only about 12% of its daily oil production and approximately 4% of its daily natural gas production in the first quarter of 2014.

Wolf Prospect Area

Matador is pleased to announce the 24-hour initial potential test results from the Billy Burt 90-TTT-B33 WF #202H well in the Wolf prospect area in Loving County, Texas. The Billy Burt lease is the farthest northwest tract in the Company’s Wolf prospect area. The Billy Burt 90-TTT-B33 WF #202H well is the first of two heel-to-heel horizontal wells drilled in batch mode and completed back-to-back. Both wells were completed in the Wolfcamp “A”/“X” sand at the top of the Wolfcamp formation; this is the zone that most of the Company’s horizontal completions in the Wolf prospect have tested thus far. The Billy Burt 90-TTT-B33 WF #202H well was drilled and completed in the Wolfcamp “A”/“X” sand at approximately 10,850 feet true vertical depth and has a completed lateral length of 5,879 feet. Matador completed this well with 20 frac stages including 181,000 barrels of fluid and 12 million pounds of sand. During its 24-hour initial potential test, the Billy Burt 90-TTT-B33 WF #202H well flowed 1,028 BOE per day (66% oil), consisting of 683 barrels of oil per day and 2.1 million cubic feet of natural gas per day, at 3,025 psi on a 26/64-inch choke. The second well, the Billy Burt 90-TTT-B33 WF #203H well, was drilled and completed in the Wolfcamp “A”/“X” sand at approximately 10,750 feet true vertical depth and has a completed lateral length of 7,378 feet. Matador completed this well with 25 frac stages including 222,000 barrels of fluid and 15 million pounds of sand. The Billy Burt 90-TTT-B33 WF #203H well has begun to flow back after its fracture treatment, but is still cleaning up. Early results are encouraging, but given the longer lateral and the much larger fracture treatment pumped on this well, Matador anticipates this well may be slower to clean up than previous wells in the Wolf prospect area. The Company expects to conduct a 24-hour initial potential test on this well soon and will release the results in a future operational update.

Matador is currently running one rig on its Wolf prospect in Loving County, Texas and plans to continue running one rig in this area for the remainder of 2015. This rig is currently drilling a pair of Wolfcamp “A”/“X” and “Y” sand wells in batch mode on Matador’s Johnson leasehold. Matador is very pleased to announce that the first of these two Johnson wells was drilled from surface to total depth in only 23 days. This is almost twice as fast as the average of 43 days for previous wells drilled in the Wolf prospect area and reflects the significant operational efficiencies being achieved in Matador’s drilling operations, including using the two new custom-built, state-of-the-art drilling rigs designed specifically for its Permian Basin operations, along with many other operational improvements. The Company estimates that this increased drilling efficiency may result in cost savings of approximately $1.5 to $2.0 million per well compared to early Wolfcamp wells drilled in the Wolf prospect area. In addition, Matador plans to use recycled produced water for the first time during the upcoming fracture treatments on these two Johnson wells, and anticipates an average savings of over $300,000 per well on the Johnson lease, thus reducing Matador’s stimulation costs further. If successful, the Company will look to use more recycled produced water in its future operations in this area and on its other Permian Basin prospects.

Matador also continues to make steady progress with its midstream projects in the Loving County area. The first salt water disposal well drilled by a joint venture that Matador controls was placed in service in January 2015 and is currently injecting about 13,500 barrels of salt water per day. This well resulted in significant water disposal savings to Matador during the first quarter of 2015, as reflected in the Company’s improved lease operating expenses. The joint venture entity is planning to drill a second salt water disposal well in this area shortly and should begin disposing of third-party salt water through the existing facility very soon. Matador is also making steady progress on the construction of its cryogenic natural gas processing plant located near its Wolf producing properties capable of processing 30 to 35 million cubic feet of natural gas per day, which is scheduled to be on line in early August.

Rustler Breaks Prospect Area

As announced on April 6, 2015, in the Rustler Breaks prospect area in Eddy County, New Mexico, the Guitar 10-24S-28E RB #202H and the Tiger 14-24S-28E RB #224H wells tested two new horizons within the Wolfcamp formation. The Guitar 10-24S-28E RB #202H well was drilled and completed in the Wolfcamp “A”/“X-Y” sand at the top of the Wolfcamp “A” formation at approximately 9,550 feet true vertical depth. This well has a completed lateral length of 4,232 feet, and Matador completed the well with 18 frac stages, including approximately 164,000 barrels of fluid and 8.3 million pounds of sand. During its 24-hour initial potential test, the Guitar 10-24S-28E RB #202H well flowed 1,273 BOE per day (79% oil), consisting of 1,008 barrels of oil per day and 1.6 million cubic feet of natural gas per day, at 2,190 psi on a 26/64-inch choke. To Matador’s knowledge, this was one of the first wells to test the Wolfcamp “A”/“X-Y” sand horizontally in southern Eddy County, New Mexico. This interval is the stratigraphic equivalent of the highly productive Wolfcamp “A”/“X-Y” intervals being completed in the Wolf prospect in Loving County, Texas. In its first 1.5 months of production, including the initial cleanup phase, this well has produced 38,000 BOE (78% oil), consisting of 30,000 barrels of oil and 51 million cubic feet of natural gas, and was recently producing 700 barrels of oil per day and 1.3 million cubic feet of natural gas per day at 1,800 psi flowing surface pressure on a 24/64-inch choke. Early production from this well is following the Company’s 700,000 BOE type curve established for the “A”/“X-Y” sands in the Rustler Breaks area.

The Tiger 14-24S-28E RB #224H well was drilled and completed in the lower portion of the Wolfcamp “B” formation at approximately 10,500 feet true vertical depth. This Wolfcamp “B” target is approximately 300 feet lower stratigraphically than the zone from which the Rustler Breaks 12-24S-27E RB #224H well (formerly the Rustler Breaks 12-24-27 #1H), the Company’s initial Wolfcamp “B” well in the Rustler Breaks prospect area, is producing. The Tiger 14-24S-28E RB #224H well has a completed lateral length of 4,376 feet, and Matador completed the well with 21 frac stages, including approximately 170,000 barrels of fluid and 8.8 million pounds of sand. During its 24-hour initial potential test, the well flowed 1,525 BOE per day (43% oil), consisting of 650 barrels of oil per day and 5.3 million cubic feet of natural gas per day, at 3,900 psi on a 26/64-inch choke. This successful test of the lower portion of the Wolfcamp “B” was also encouraging because Matador believes that the upper and lower portions of the Wolfcamp “B” may be even more effectively developed in a staggered “W”-type pattern on 80-acre spacing. In about one month of production, including its initial cleanup phase, the Tiger 14-24S-28E RB #224H well has produced about 48,000 BOE (45% oil), consisting of just over 21,000 barrels of oil and 159 million cubic feet of natural gas, and was recently still producing 650 barrels of oil per day and 4.7 million cubic feet of natural gas per day at 3,300 psi on a 24/64-inch choke. Early production from this well is following Matador’s 1,000,000 BOE type curve established for the Wolfcamp “B” in the Rustler Breaks area.

The initial Wolfcamp “B” well drilled in the Rustler Breaks area, the Rustler Breaks 12-24S-27E RB #224H well, also continues to perform very well. After approximately one year of production, this well has produced 170,000 BOE (42% oil), consisting of 72,000 barrels of oil and almost 600 million cubic feet of natural gas, and was recently producing 125 barrels of oil per day and 1.2 million cubic feet of natural gas per day. Matador’s current estimated ultimate recovery for this well is about 650,000 BOE, although the well is currently tracking above the Company’s 700,000 BOE type curve established for the Wolfcamp “B” in the Rustler Breaks area.

Matador is currently running one rig in the Rustler Breaks prospect area in Eddy County, New Mexico and plans to continue running one rig in Eddy and Lea Counties, New Mexico for the remainder of 2015. This rig has recently completed drilling Matador’s first test of the Second Bone Spring sand in the Rustler Breaks area.

Ranger Prospect Area

Matador is also pleased to announce the results of the Cimarron 16-19S-34E RN #134H well, a Third Bone Spring test, in the Company’s Ranger prospect area. The Cimarron 16-19S-34E RN #134H well was drilled and completed in the Third Bone Spring formation at approximately 10,730 feet true vertical depth. This well has a completed lateral length of 4,051 feet, and Matador completed the well with 11 frac stages, including approximately 84,000 barrels of fluid and 5.4 million pounds of sand. During its 24-hour initial potential test, the Cimarron 16-19S-34E RN #134H well flowed 804 BOE per day (94% oil), consisting of 754 barrels of oil per day and 303 thousand cubic feet of natural gas per day, at 725 psi on a 26/64-inch choke. The Company considers this to be a strong test of the Third Bone Spring, which illustrates the potential for this interval of the Bone Spring as a viable completion target throughout the Ranger prospect area, including portions of the recently added HEYCO acreage. In addition to the successful initial potential test on this well, Matador drilled and completed this well for approximately $5.3 million, significantly less than expected. This result further illustrates the operational efficiencies Matador is realizing as it gains more experience drilling and completing wells in the Permian Basin.

Matador has also recently completed an offsetting well to its initial well in the Ranger prospect area, the Ranger State 33-20S-35E RN #121H well (formerly the Ranger 33 State Com #1H), in a lower bench of the Second Bone Spring sand. This offset well, the Ranger State 33-20S-35E RN #122H, has started to flow back after its stimulation treatment, but Matador has not yet conducted an initial potential test on this well. Similar to the Ranger State 33-20S-35E RN #121H well, this well is expected to clean up slowly, and Matador has installed gas lift on this well early in order to assist with the well’s cleanup. This approach is similar to the Company’s approach on the Ranger State 33-20S-35E RN #121H and the Pickard State 20-18S-34E RN #121H (formerly the Pickard State 20-18-34 #1H) wells, which were both completed in the Second Bone Spring as well.

The Ranger State 33-20S-35E RN #121H (Second Bone Spring) and the Pickard State 20-18S-34E RN #121H (Second Bone Spring) wells have both continued to perform very well. After about 17 months of production, the Ranger State 33-20S-35E RN #121H well has produced 197,000 BOE (91% oil), consisting of 179,000 barrels of oil and 105 million cubic feet of natural gas, and prior to being shut in for the offsetting well’s completion operations, this well was producing 250 barrels of oil per day and 200 thousand cubic feet of natural gas per day. Matador’s estimated ultimate recovery for this well is approximately 650,000 BOE. After just over nine months of production, the Pickard State 20-18S-34E RN #121H well has produced 100,000 BOE (93% oil), consisting of 93,000 barrels of oil and 43 million cubic feet of natural gas, and was recently producing about 250 barrels of oil per day and 120 thousand cubic feet of natural gas per day. The performance of the Pickard State 20-18S-34E RN #121H well has improved in recent months, and this well is now tracking a 600,000 BOE type curve established for the Second Bone Spring in the Ranger area.

Eagle Ford Shale - South Texas

During the first quarter of 2015, Matador completed and began producing oil and natural gas from 14 gross (14.0 net) Eagle Ford wells, all of which were operated wells. Since that time, the Company has completed and placed on production three gross (3.0 net) additional Eagle Ford wells. Matador has now completed its planned operated Eagle Ford drilling and completion operations for 2015. At December 31, 2014, over 95% of the Company’s Eagle Ford acreage was either held by production or not burdened by lease expirations until 2016 or later.

As announced on April 6, 2015, during the last two weeks of March 2015, the Company placed on production eight gross (8.0 net) Eagle Ford wells on its Bishop-Brogan properties located adjacent to the Company’s Danysh/Pawelek leases on its central acreage in Karnes County, Texas. These eight wells were developed using the batch drilling method in groups of four wells each on approximately 40-acre spacing and were completed with Matador’s Generation 7 fracture treatment. The eight wells had average initial production rates of 902 BOE per day (88% oil) on 14/64-inch chokes at an average flowing casing pressure of 3,105 psi, making them some of the best wells Matador has drilled in the Eagle Ford shale play. The combination of operational efficiencies from batch development and other drilling improvements and service cost reductions resulted in an average well cost of approximately $5.3 million for these Bishop-Brogan wells, which was almost 20% below original estimates and resulted in aggregate savings of about $9 million compared to the costs originally budgeted for these eight wells. Matador intends to use many of these improved drilling and completion practices in its Wolf, Ranger, Rustler Breaks and Twin Lakes prospect areas as it continues the delineation and development efforts in its Permian Basin operations.

While drilling and completing its last three Eagle Ford wells for 2015 in La Salle County, Texas—two wells on Martin Ranch and one well on its Pena lease, Matador achieved its all-time lowest well costs in this area. The two Martin Ranch wells were drilled and completed for approximately $5.2 million, and the Pena well in the northwest portion of the county, where the Eagle Ford is somewhat shallower, was drilled and completed for under $4.5 million. These costs compared to more typical costs of $6.0 to $6.5 million for Eagle Ford wells drilled on Matador’s western acreage in 2014. These well costs reflect both Matador’s continued operational improvements in drilling and completing Eagle Ford wells, as well as reductions in service costs, particularly for completion and stimulation operations, realized throughout the early months of 2015.

Haynesville Shale - Northwest Louisiana and East Texas

Matador continues to be pleased with the performance of various Haynesville shale wells being completed and placed on production by Chesapeake in the Company’s Elm Grove properties in Northwest Louisiana this year. Chesapeake placed seven gross (1.2 net) additional Haynesville shale wells on production in the first quarter of 2015. These wells had initial production rates ranging from 12 to 15 million cubic feet of natural gas per day (gross) at flowing tubing pressures of 6,000 to 8,000 psi. Further, Chesapeake has drilled and completed these wells for an average of $7 to $8 million, below the Company’s expectations. Along with the 14 gross (3.3 net) Haynesville wells Chesapeake placed on production in 2014, these new wells have contributed to a significant increase in Matador’s natural gas production rate from approximately 58 million cubic feet of natural gas per day in the fourth quarter of 2014 to approximately 80 million cubic feet of natural gas per day in the last two weeks of March 2015. Matador’s average daily natural gas production from the Haynesville increased more than five-fold year-over-year from about 9.5 million cubic feet per day in the first quarter of 2014 to 50.6 million cubic feet per day in the first quarter of 2015. Chesapeake is currently in the process of drilling five gross (1.1 net) wells using two drilling rigs on the Company’s Elm Grove properties in southern Caddo Parish. The Company anticipates that these wells will significantly contribute to total production in the second half of 2015.

Production and Revenues

Quarterly production results for the first quarter of 2015 were the best in Matador’s history. Average daily oil equivalent production almost doubled from 11,904 BOE per day (62% oil by volume) in the first quarter of 2014 to 23,513 BOE per day (48% oil by volume) during the first quarter of 2015. Total oil production increased 53% from 661,000 barrels of oil, or 7,344 barrels of oil per day, during the first quarter of 2014 to 1.01 million barrels of oil, or 11,206 barrels of oil per day, during the first quarter of 2015. This increase in oil production was primarily a result of ongoing development activities in the Eagle Ford shale, as well as increased oil production from the Company’s better-than-expected initial well performance in the Permian Basin. Oil production was about 14% higher than projected for the first quarter of 2015 as a result of several new Eagle Ford wells coming on production at better initial flow rates than expected and due to offsetting wells being returned to production sooner than anticipated following the completion of these wells. Eagle Ford oil production increased approximately 36% year-over-year from 579,000 barrels, or 6,430 barrels of oil per day, produced in the first quarter of 2014 to 785,000 barrels, or about 8,719 barrels of oil per day, produced in the first quarter of 2015. In addition, Matador’s Permian Basin oil production almost tripled year-over-year from approximately 81,300 barrels, or 904 barrels of oil per day, in the first quarter of 2014 to about 222,000 barrels, or 2,467 barrels of oil per day, in the first quarter of 2015.

Total natural gas production increased 170% from 2.5 billion cubic feet of natural gas, or 27.4 million cubic feet of natural gas per day, during the first quarter of 2014 to 6.6 billion cubic feet of natural gas, or 73.8 million cubic feet of natural gas per day, during the first quarter of 2015. This increase in natural gas production was primarily attributable to the increased natural gas production resulting from new, non-operated Haynesville shale wells completed and placed on production on Matador’s Elm Grove properties in Northwest Louisiana during the latter half of 2014 and into 2015, but also includes increased natural gas production associated with Matador’s operations in the Permian Basin, particularly in the Wolf prospect area. Matador’s Haynesville natural gas production increased from 855 million cubic feet of natural gas, or about 9.5 million cubic feet of natural gas per day, in the first quarter of 2014 to 4.6 billion cubic feet of natural gas, or approximately 50.6 million cubic feet of natural gas per day, in the first quarter of 2015.

Oil and natural gas revenues decreased 21% from $78.9 million in the first quarter of 2014 to $62.5 million in the first quarter of 2015. Despite the 53% increase in oil production from 661,000 barrels in the first quarter of 2014 to 1.01 million barrels in the first quarter of 2015, oil revenues decreased 31% from $63.7 million in the first quarter of 2014 to $43.7 million in the first quarter of 2015. This lower oil revenue was attributable to a sharp decline of 55% in the weighted average oil price realized by the Company from $96.34 per barrel in the first quarter of 2014 to $43.37 per barrel realized in the first quarter of 2015. Despite a similar 55% decrease in the weighted average natural gas price realized from $6.20 per thousand cubic feet in the first quarter of 2014 to $2.82 per thousand cubic feet in the first quarter of 2015, natural gas revenues increased 23% from $15.3 million during the first quarter of 2014 to $18.7 million during the first quarter of 2015 due to the 170% increase in natural gas production from 2.5 billion cubic feet in the first quarter of 2014 to 6.6 billion cubic feet in the first quarter of 2015.

Matador’s oil and natural gas hedges helped to mitigate the decline in oil and natural gas revenues during the first quarter of 2015. Total realized revenues, including realized hedging gains and losses, but excluding unrealized, non-cash, hedging gains and losses, increased 5% year-over-year from $77.1 million in the first quarter of 2014 to $81.0 million in the first quarter of 2015. Realized hedging gains, primarily from oil and natural gas hedges, were $18.5 million in the first quarter of 2015, as compared to a realized hedging loss of $1.8 million in the first quarter of 2014.

Adjusted EBITDA

Adjusted EBITDA, a non-GAAP financial measure, decreased 11% from $56.3 million during the first quarter of 2014 to $50.1 million in the first quarter of 2015. This decrease was primarily attributable to the sharp decline in commodity prices during the first quarter of 2015 (weighted average realized oil and natural gas prices of $43.37 per barrel and $2.82 per thousand cubic feet, respectively), as compared to the first quarter of 2014 (weighted average realized oil and natural gas prices of $96.34 per barrel and $6.20 per thousand cubic feet, respectively), as discussed in the previous section.

Net Income and Earnings (Loss) Per Share

For the first quarter of 2015, Matador reported a net loss of approximately $50.2 million and a loss of $0.68 per diluted common share (GAAP), as compared to net income of approximately $16.4 million and earnings of $0.25 per diluted common share in the first quarter of 2014.

As adjusted for certain items (non-GAAP), including a non-cash, unrealized loss on derivatives of $8.6 million, a non-cash, full cost-ceiling impairment of $42.8 million, net of tax effect, and one-time, non-recurring transaction costs associated with the HEYCO merger (and included in G&A expenses) of $2.2 million, Matador reported adjusted net income of approximately $0.9 million and adjusted earnings of $0.01 per diluted common share in the first quarter of 2015.

Matador’s net loss per diluted common share for the first quarter of 2015 was unfavorably impacted by (1) lower realized commodity prices, (2) an unrealized loss on derivatives of $8.6 million, (3) a full-cost ceiling impairment of $42.8 million, net of tax effect, and (4) higher general and administrative costs recorded in the first quarter of 2015 as compared to the first quarter of 2014 attributable to non-recurring due diligence expenses associated with the HEYCO merger and non-cash stock compensation expenses associated with the increase in Matador’s per share stock price. Matador’s net loss per diluted common share for the first quarter of 2015 was favorably impacted and mitigated by (1) significantly higher oil and natural gas production, (2) $18.5 million in realized hedging gains and (3) improvements in lease operating expenses and production taxes and marketing expenses on a unit-of-production basis realized in the first quarter of 2015 as compared to the first quarter of 2014.

Quarterly Production and Financial Results

Three Months Ended March 31, 2015 as Compared to Three Months Ended December 31, 2014

• Oil production remained relatively flat, going from 1.02 million barrels, or 11,062 barrels of oil per day, in the fourth quarter of 2014 to 1.01 million barrels, or 11,206 barrels of oil per day, in the first quarter of 2015.
• Natural gas production increased 24% from 5.4 billion cubic feet, or 58.5 million cubic feet per day, in the fourth quarter of 2014 to 6.6 billion cubic feet, or 73.8 million cubic feet per day, in the first quarter of 2015. This increased natural gas production was primarily attributable to the increased natural gas production resulting from new, non-operated Haynesville shale wells completed and placed on production on Matador’s Elm Grove properties in Northwest Louisiana during the latter half of 2014 and into 2015, but also includes increased natural gas production associated with Matador’s well operations in the Permian Basin, particularly in the Wolf prospect area.
• Total oil equivalent production increased 11% from 1.9 million BOE, or 20,807 BOE per day, in the fourth quarter of 2014 to 2.1 million BOE, or 23,513 BOE per day, in the first quarter of 2015. During the first quarter of 2015, total quarterly oil equivalent production exceeded two million BOE for the first time in Matador’s history.
• Oil and natural gas revenues decreased 33% from $93.1 million in the fourth quarter of 2014 to $62.5 million in the first quarter of 2015. This decrease in oil and natural gas revenues was attributable to the sharp decline in the weighted average oil and natural gas prices realized by the Company from $69.09 per barrel and $4.24 per thousand cubic feet, respectively, in the fourth quarter of 2014 to weighted average oil and natural gas prices of $43.37 per barrel and $2.82 per thousand cubic feet, respectively, realized in the first quarter of 2015.
• Adjusted EBITDA decreased 29% from $70.3 million reported in the fourth quarter of 2014 to $50.1 million in the first quarter of 2015. This decrease in Adjusted EBITDA resulted primarily from the decline in commodity prices as noted above.

Capital Expenditures

Matador had initially projected to achieve service cost reductions of 15 to 20% throughout most of 2015, and these cost savings were reflected in its capital expenditures estimate of $350 million (excluding capital expenditures associated with the HEYCO merger) for 2015. As indicated in the preceding Operations Update, however, Matador has observed cost savings of 30 to 40% or more on certain services in recent months. As a result of these service cost reductions as well as significant efficiencies and cost-saving measures being achieved in the Company’s drilling, completion and production operations, recent well costs (and lease operating costs) have started to come in below original estimates. Nevertheless, at this time, Matador has elected to maintain its capital budget guidance at $350 million (excluding capital expenditures associated with the HEYCO merger) for 2015. As noted above, the Company is considering adding a third drilling rig to its Delaware Basin operations as early as late summer 2015, which would absorb some of these capital savings. Further, as Matador continues to improve its drilling efficiency in the Delaware Basin, it is likely that additional wells may be drilled with the two existing drilling rigs and subsequently completed that were not anticipated as part of the original budget estimates for 2015.

Liquidity Update

At March 31, 2015, the borrowing base under the Company’s revolving credit facility was $450.0 million. At March 31, 2015, Matador had cash on hand totaling approximately $6.1 million, $410.0 million of outstanding long-term borrowings, $12.0 million in short-term borrowings assumed in the HEYCO merger and approximately $0.6 million in outstanding letters of credit. During the three months ended March 31, 2015, these borrowings bore interest at an average effective interest rate of 2.9% per annum.

On April 6, 2015, the Company received notice that the borrowing base under Matador’s revolving credit facility would be unanimously reaffirmed at $450.0 million and the conforming borrowing base would be unanimously reaffirmed at $375.0 million by its lenders, based on the lenders’ review of the Company’s proved oil and natural gas reserves at December 31, 2014. Matador’s borrowing base does not yet reflect any contributions from the reserves acquired as part of the HEYCO merger, as these reserves were not included as part of Matador’s total proved reserves at December 31, 2014 and have not yet been reviewed by the Company’s lending group.

On April 14, 2015, Matador issued $400 million of 6.875% senior unsecured notes due 2023 at par value, receiving net proceeds of approximately $392 million. With the closing of its senior unsecured notes offering, Matador’s borrowing base became the conforming borrowing base in accordance with the terms of the credit facility, and the lenders reaffirmed the conforming borrowing base at $375.0 million. Using the proceeds from the senior unsecured notes offering, the Company repaid $380.0 million in outstanding borrowings under its credit facility, as well as the approximately $12.0 million in debt assumed as part of the HEYCO merger.

On April 21, 2015, Matador successfully completed a public offering of 7,000,000 shares of its common stock, receiving net proceeds of approximately $188 million. Matador used a portion of the net proceeds from this offering to repay all remaining outstanding borrowings under its credit facility. At May 6, 2015, the Company had no borrowings outstanding under its credit facility and approximately $0.6 million in outstanding letters of credit issued pursuant to the credit facility. At May 6, 2015, Matador had approximately $100 million in cash on hand and almost $500 million in liquidity with which to conduct its future operations.

Matador intends to use the remaining net proceeds from its equity offering to fund portions of its future capital expenditures, including the possible addition of a third drilling rig in the Permian Basin in the next six to nine months (and perhaps as early as late summer), for targeted acquisitions of additional acreage in the Permian Basin, as well as in the Eagle Ford and the Haynesville shale, and for other general working capital needs. Pending such uses, Matador intends to invest the funds in short-term marketable securities.

Hedging Positions

From time to time, Matador uses derivative financial instruments to mitigate its exposure to commodity price risk associated with oil, natural gas and natural gas liquids prices and to protect its cash flows and borrowing capacity. As a result of the recent increase in oil prices during the month of April 2015, Matador added to its oil hedges for both the remainder of 2015 and into 2016, all in the form of costless collars.

At May 6, 2015, Matador had the following hedges in place, in the form of costless collars and swaps, for the remainder of 2015.

• Approximately 2.2 million barrels of oil at a weighted average floor price of $67 per barrel and a weighted average ceiling price of $85 per barrel.
• Approximately 9.9 billion cubic feet of natural gas at a weighted average floor price of $3.28 per MMBtu and a weighted average ceiling price of $3.96 per MMBtu.
• Approximately 2.5 million gallons of natural gas liquids at a weighted average price of $1.02 per gallon.

Matador estimates that it now has approximately 80% of its anticipated oil production and approximately 70% of its anticipated natural gas production hedged for the remainder of 2015 based on the midpoint of its production guidance.

At May 6, 2015, Matador had the following hedges in place, in the form of costless collars and swaps, for 2016.

• Approximately 1.6 million barrels of oil at a weighted average floor price of $47 per barrel and a weighted average ceiling price of $75 per barrel.
• Approximately 2.4 billion cubic feet of natural gas at a weighted average floor price of $2.75 per MMBtu and a weighted average ceiling price of $3.50 per MMBtu.

2015 Guidance

At May 6, 2015, Matador increased its full-year 2015 oil production guidance from 4.0 to 4.2 million barrels to 4.1 to 4.3 million barrels. Matador reaffirmed all other full-year 2015 guidance estimates as provided at its Analyst Day presentation on February 5, 2015 and subsequently reaffirmed on March 2, 2015 and April 6, 2015, including (1) capital expenditures of $350 million (excluding capital expenditures associated with the HEYCO merger), (2) total natural gas production of 24.0 to 26.0 billion cubic feet, (3) oil and natural gas revenues of $270 to $290 million and (4) Adjusted EBITDA of $200 to $220 million. Oil and natural gas revenues and Adjusted EBITDA guidance are based on an estimated weighted average realized oil price of $50.00 per barrel of oil and an estimated weighted average realized natural gas price of $3.00 per thousand cubic feet for all of 2015.