SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements, Basis of Presentation, Consolidation and Significant Estimates

The interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) but do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 26, 2021 (the “Annual Report”). The Company consolidates certain subsidiaries and joint ventures that are less than wholly-owned and are not involved in oil and natural gas exploration, including San Mateo, and the net income and equity attributable to the non-controlling interest in these subsidiaries have been reported separately as required by Accounting Standards Codification, Consolidation (Topic 810). The Company proportionately consolidates certain joint ventures that are less than wholly-owned and are involved in oil and natural gas exploration. All intercompany accounts and transactions have been eliminated in consolidation. In management’s opinion, these interim unaudited condensed consolidated financial statements include all normal, recurring adjustments that are necessary for a fair presentation of the Company’s interim unaudited condensed consolidated financial statements as of September 30, 2021. Amounts as of December 31, 2020 are derived from the Company’s audited consolidated financial statements included in the Annual Report.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s interim unaudited condensed consolidated financial statements are based on a number of significant estimates, including oil and natural gas revenues, accrued assets and liabilities, stock-based compensation, valuation of derivative instruments, deferred tax assets and liabilities and oil and natural gas reserves. The estimates of oil and natural gas reserves quantities and future net cash flows are the basis for the calculations of depletion and impairment of oil and natural gas properties, as well as estimates of asset retirement obligations and certain tax accruals. While the Company believes its estimates are reasonable, changes in facts and assumptions or the discovery of new information may result in revised estimates. Actual results could differ from these estimates.

Revenues

The following table summarizes the Company’s total revenues and revenues from contracts with customers on a disaggregated basis for the three and nine months ended September 30, 2021 and 2020 (in thousands).


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues from contracts with customers	$	520,721	$	221,825	$	1,299,744	$	593,529
Lease bonus - mineral acreage	—		—		—		4,062
Realized (loss) gain on derivatives	(57,419)		(5,406)		(125,943)		49,571
Unrealized gain (loss) on derivatives	9,049		(13,033)		(77,178)		(9,271)
Total revenues	$	472,351	$	203,386	$	1,096,623	$	637,891


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Oil revenues	$	325,560	$	150,620	$	853,953	$	414,379
Natural gas revenues	135,905		38,484		335,819		91,406
Third-party midstream services revenues	20,486		19,363		55,774		49,861
Sales of purchased natural gas	38,770		13,358		54,198		37,883
Total revenues from contracts with customers	$	520,721	$	221,825	$	1,299,744	$	593,529

Property and Equipment

The Company uses the full-cost method of accounting for its investments in oil and natural gas properties. Under this method, the Company is required to perform a ceiling test each quarter that determines a limit, or ceiling, on the capitalized costs of oil and natural gas properties based primarily on the after-tax estimated future net cash flows from oil and natural gas properties using a 10% discount rate and the arithmetic average of first-day-of-the-month oil and natural gas prices for the prior 12-month period. For the three and nine months ended September 30, 2021, the cost center ceiling was higher than the capitalized costs of oil and natural gas properties, and, as a result, no impairment charge was necessary. At September 30, 2020, the Company’s net capitalized costs less related deferred income taxes exceeded the full-cost ceiling by $189.1 million. As a result, the Company recorded an impairment charge of $251.2 million to its net capitalized costs and a deferred income tax benefit of $62.1 million at September 30, 2020. At June 30, 2020, the Company’s net capitalized costs less related deferred income taxes exceeded the full-cost ceiling by $243.9 million. As a result, the Company recorded an impairment charge of $324.0 million to its net capitalized costs and a deferred income tax benefit of $80.1 million at June 30, 2020. These charges are reflected in the Company’s interim condensed consolidated statements of operations for the three and nine months ended September 30, 2020.

The Company capitalized approximately $9.9 million and $7.6 million of its general and administrative costs and approximately $1.5 million and $2.0 million of its interest expense for the three months ended September 30, 2021 and 2020, respectively. The Company capitalized approximately $28.6 million and $23.9 million of its general and administrative costs and approximately $3.9 million and $5.2 million of its interest expense for the nine months ended September 30, 2021 and 2020, respectively.

Earnings Per Common Share

The Company reports basic earnings attributable to Matador shareholders per common share, which excludes the effect of potentially dilutive securities, and diluted earnings attributable to Matador shareholders per common share, which includes the effect of all potentially dilutive securities unless their impact is anti-dilutive.

The following table sets forth the computation of diluted weighted average common shares outstanding for the three and nine months ended September 30, 2021 and 2020 (in thousands).


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Weighted average common shares outstanding
Basic	117,008	116,155	116,872	116,036
Dilutive effect of options and restricted stock units	2,189	—	1,916	—
Diluted weighted average common shares outstanding	119,197	116,155	118,788	116,036

A total of 1.3 million options to purchase shares of Matador’s common stock were excluded from the diluted weighted average common shares outstanding for the nine months ended September 30, 2021 because their effects were anti-dilutive. A total of 2.5 million options to purchase shares of Matador’s common stock were excluded from the diluted weighted average common shares outstanding for both the three and nine months ended September 30, 2020, respectively, because their effects were anti-dilutive. Additionally, 0.7 million and 0.6 million restricted shares, which are participating securities, were excluded from the calculations above for the three and nine months ended September 30, 2020, respectively, as the security holders do not have the obligation to share in the losses of the Company.