Equity

9 Months Ended

Sep. 30, 2020

Equity [Abstract]

EQUITY

EQUITY

Stock-based Compensation

During the nine months ended September 30, 2020, the Company granted awards to certain of its employees of 868,710 service-based restricted stock units to be settled in cash, which are liability instruments, and 641,210 performance-based stock units and 227,500 shares of restricted stock, which are equity instruments. The performance-based stock units vest in an amount between zero and 200% of the target units granted based on the Company’s relative total shareholder return over the three-year period ending December 31, 2022, as compared to a designated peer group. The service-based restricted stock units to be settled in cash vest ratably over three years, and the equity instruments are eligible to vest after three years. The fair value of these awards was approximately $7.7 million on the grant date.

San Mateo II

On February 25, 2019, the Company announced the formation of San Mateo II, a strategic joint venture with a subsidiary of Five Point Energy LLC (“Five Point”) designed to expand the Company’s midstream operations in the Delaware Basin, specifically in Eddy County, New Mexico. San Mateo II is owned 51% by the Company and 49% by Five Point. In addition, Five Point committed to pay $125 million of the first $150 million of capital expenditures incurred by San Mateo II to develop facilities in the Stebbins area and surrounding leaseholds in the southern portion of the Arrowhead asset area (the “Greater Stebbins Area”) and the Stateline asset area. As of June 30, 2020, the $150 million threshold for capital expenditures had been reached, and future capital expenditures are the responsibility of Matador and Five Point based on each company’s proportionate interest in San Mateo II. During the three months ended September 30, 2020, the Company contributed $36.8 million and Five Point contributed $31.9 million of cash. During the nine months ended September 30, 2020, the Company contributed $59.7 million and Five Point contributed $99.0 million of cash, of which $23.1 million was paid to carry Matador’s proportionate interest in San Mateo II. The portion of the amount contributed by Five Point to carry Matador’s proportionate interest was recorded in “Additional paid-in capital” in the Company’s interim unaudited condensed consolidated balance sheets for the nine months ended September 30, 2020, net of the $4.8 million deferred tax impact to Matador related to this equity contribution. During the three and nine months ended September 30, 2019, the Company contributed $4.5 million and $6.0 million of cash and Five Point contributed $22.5 million and $34.0 million of cash, respectively, in addition to the

$1.0 million of property the Company contributed during the first quarter of 2019 related to the formation of San Mateo II. The Company also has the ability to earn up to $150.0 million in deferred performance incentives over the next several years, plus additional performance incentives for securing volumes from third-party customers.

Performance Incentives

In connection with the formation of San Mateo I in 2017, the Company has the ability to earn a total of $73.5 million in performance incentives to be paid by Five Point over a five-year period, which in October 2020 was extended by an additional year. The Company earned, and Five Point paid to the Company, $14.7 million in performance incentives during each of the nine months ended September 30, 2020, 2019 and 2018. The Company may earn up to an additional $29.4 million in performance incentives prior to February 1, 2023. These performance incentives are recorded, net of the $3.1 million deferred tax impact to Matador, in “Additional paid-in capital” in the Company’s interim unaudited condensed consolidated balance sheet when received. These performance incentives for the nine months ended September 30, 2020 and 2019 are also denoted as “Contributions related to formation of San Mateo I” under “Financing activities” in the Company’s interim unaudited condensed consolidated statements of cash flows and changes in shareholders’ equity.