SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2023

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, 2022 filed with the SEC on March 1, 2023 (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 its midstream joint venture, San Mateo Midstream, LLC (collectively with its subsidiaries, “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 June 30, 2023. Amounts as of December 31, 2022 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, purchase price allocations 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 six months ended June 30, 2023 and 2022 (in thousands).


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues from contracts with customers	$	649,890	$	974,663	$	1,213,564	$	1,637,823

Realized (loss) gain on derivatives	(3,148)		(61,163)		521		(83,602)
Unrealized (loss) gain on derivatives	(8,659)		30,430		(15,726)		(44,599)
Total revenues	$	638,083	$	943,930	$	1,198,359	$	1,509,622


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Oil revenues	$	510,364	$	650,233	$	912,141	$	1,110,355
Natural gas revenues	77,553		242,536		178,685		408,929
Third-party midstream services revenues	30,075		21,886		56,586		39,192
Sales of purchased natural gas	31,898		60,008		66,152		79,347
Total revenues from contracts with customers	$	649,890	$	974,663	$	1,213,564	$	1,637,823

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 each of the three and six months ended June 30, 2023 and 2022, 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.

The Company capitalized approximately $14.5 million and $10.4 million of its general and administrative costs for the three months ended June 30, 2023 and 2022, respectively, and $27.1 million and $23.6 million of its general and administrative costs for the six months ended June 30, 2023 and 2022, respectively. The Company capitalized approximately $5.3 million and $0.8 million of its interest expense for the three months ended June 30, 2023 and 2022, respectively, and $8.7 million and $4.4 million of its interest expense for the six months ended June 30, 2023 and 2022, 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 six months ended June 30, 2023 and 2022 (in thousands).


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Weighted average common shares outstanding
Basic	119,183	118,103	119,109	118,027
Dilutive effect of options and restricted stock units	659	1,800	747	1,830
Diluted weighted average common shares outstanding	119,842	119,903	119,856	119,857