Business Combinations and Divestitures

12 Months Ended

Dec. 31, 2023

Business Combination and Asset Acquisition [Abstract]

Business Combinations

Advance Acquisition

On April 12, 2023, a wholly-owned subsidiary of the Company completed the acquisition of Advance Energy Partners Holdings, LLC (“Advance”) from affiliates of EnCap Investments L.P., including certain oil and natural gas producing properties, undeveloped acreage and midstream assets located primarily in Lea County, New Mexico and Ward County, Texas (the “Initial Advance Acquisition”). The Initial Advance Acquisition had an effective date of January 1, 2023 and an aggregate purchase price consisting of (i) an amount in cash equal to approximately $1.60 billion (which amount was subject to certain customary post-closing adjustments) (the “Cash Consideration”) and (ii) potential additional cash consideration of $7.5 million for each month of 2023 in which the average oil price (as defined in the securities purchase agreement) exceeded $85 per barrel (all such payments for the 12 months in 2023, the “Contingent Consideration”). The Cash Consideration was paid upon the closing of the Initial Advance Acquisition and was funded by a combination of cash on hand and borrowings under the Credit Agreement. The Company made no payments related to the Contingent Consideration during the first, second, or third quarters of 2023. In the fourth quarter of 2023, the Company paid Contingent Consideration of $15.0 million, as the average oil price for the months of September and October 2023 exceeded $85 per barrel.

The Company recorded the Contingent Consideration at fair value on the date of the business combination and recorded the change in the fair value in future periods as “Other income (expense)” in its consolidated statements of income. The fair value of the Contingent Consideration was $21.2 million at April 12, 2023. The change in fair value of the Contingent Consideration included in “Other income (expense)” during the year ended December 31, 2023 was income of $6.2 million. The Company used the Monte Carlo simulation method to measure the fair value of the Contingent Consideration, which has unobservable inputs and is thus classified at Level 3 in the fair value hierarchy (see Note 13 for discussion of the fair value hierarchy).

On December 1, 2023, the Company acquired additional interests from affiliates of EnCap Investments L.P., including overriding royalty interests and royalty interests in certain oil and natural gas properties located primarily in Lea County, New Mexico, most of which were included in the Initial Advance Acquisition (the “Advance Royalty Acquisition”). The Advance Royalty Acquisition had an effective date of October 1, 2023 and an aggregate purchase price of approximately $81.0 million (which amount is subject to certain customary post-closing adjustments), and was funded by cash on hand.

The Initial Advance Acquisition and Advance Royalty Acquisition (collectively, the “Advance Acquisition”) were accounted for under the acquisition method of accounting as a business combination in accordance with Accounting Standards Codification Topic 805, Business Combinations (“ASC Topic 805”). Under ASC Topic 805, the purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values as of the respective acquisition dates, with any excess purchase price allocated to goodwill. The Advance Acquisition was treated as an asset acquisition for tax purposes, as the Company acquired 100% of the membership interests of Advance in the Initial Advance Acquisition, and acquired additional overriding royalty interests and royalty interests in the Advance Royalty Acquisition.

The preliminary allocation of the total purchase price for the Advance Acquisition is set forth below (in thousands). The Company anticipates that the allocation of the purchase price should be finalized during the second quarter of 2024 upon determination of the final purchase price adjustments.


Consideration given			Allocation
Cash			$1,676,132
Working capital adjustments			(4,161)
Fair value of Contingent Consideration at April 12, 2023			21,151
Total consideration given			$1,693,122
Allocation of purchase price
Current assets			$79,215
Oil and natural gas properties
Evaluated			1,418,668
Unproved and unevaluated			213,528
Midstream assets			63,644
Current liabilities			(73,607)
Asset retirement obligations			(8,326)
Net assets acquired			$1,693,122

The fair value measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair value of oil and gas properties and asset retirement obligations were measured using the discounted cash flow technique of valuation.

Significant inputs to the valuation of oil and gas properties include estimates of: (i) future production volumes, (ii) expected operating and development costs, (iii) future commodity prices, (iv) recent market comparable transactions for unproved acreage and (v) a market-based weighted average cost of capital rate. These inputs require significant judgments and estimates and are the most sensitive and subject to change.

The results of operations for the Advance Acquisition since the respective closing dates have been included in the Company’s consolidated financial statements for the year ended December 31, 2023. The oil and natural gas production from the Advance Acquisition increased the Company’s revenues and net income for the period from April 12, 2023 through December 31, 2023 by $398.9 million and $166.9 million, respectively.

Pro Forma Information

The following unaudited pro forma financial information represents a summary of the condensed consolidated results of operations for the year ended December 31, 2023 and 2022, assuming the Advance Acquisition had been completed as of January 1, 2022. The pro forma financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of the Company would have been had the Advance Acquisition occurred on the dates noted above, nor is it necessarily indicative of the future results of operations or consolidated financial position of the Company. Future results may vary significantly from the results reflected because of various factors.

The information below reflects certain nonrecurring pro forma adjustments that were directly related to the business combination based on currently available information and certain estimates and assumptions that the Company believes provide a reasonable basis for presenting the significant effects of the Advance Acquisition, including (i) the increase in depletion reflecting the relative fair values and production volumes attributable to the acquired properties and the revision to the depletion rate reflecting the reserve volumes acquired, (ii) adjustments to interest expense as a result of the incremental borrowings necessary to finance the Advance Acquisition and (iii) the estimated tax impacts of the pro-forma adjustments. The pro forma financial information does not reflect the benefits of projected synergies, potential cost savings or the costs that may be necessary to achieve such savings, opportunities to increase revenue generation or other factors that may result from the Advance Acquisition and, accordingly, does not attempt to predict or suggest future results. Management cannot identify the timing, nature and amount of such savings, costs or other factors, any of which could affect the future consolidated results of operations or consolidated financial position of the Company.


	Year Ended December 31,
		2023		2022
		Unaudited
		(In thousands, except per share data)
Total revenue		$	2,969,831	$	3,818,976
Net income attributable to Matador Resources Company shareholders		$	937,031	$	1,496,346

Earnings per share:
Basic		$	7.87	$	12.67
Diluted		$	7.81	$	12.46

Pronto Acquisition

On June 30, 2022, the Company acquired the Marlan Processing Plant, three compressor stations and approximately 45 miles of natural gas gathering pipelines in Lea and Eddy Counties, New Mexico as part of the acquisition (the “Pronto Acquisition”) of a wholly-owned subsidiary of Summit Midstream Partners, LP that was subsequently renamed Pronto. This acquisition was also accounted for as a business combination in accordance with ASC Topic 805. In addition, the Company assumed certain takeaway capacity on a Federal Energy Regulatory Commission regulated natural gas pipeline. As consideration for the business combination, the Company paid approximately $77.8 million in cash, subject to certain customary post-closing purchase price adjustments. The pro forma impact of this business combination to revenues and net income for 2022 would not be material to the Company’s 2022 revenues and net income as reported.

The allocation of the consideration given related to this business combination was as follows (in thousands), which the Company considered to be final as of December 31, 2022.


Consideration given	Allocation
Total cash consideration given	$	77,828


Allocation of purchase price
Cash acquired	$	2,012
Property, plant & equipment	74,100
Accounts receivable	6,093
Other assets	296

Accrued liabilities	(4,673)
Net assets acquired	$	77,828

Divestitures

During 2023 and 2022, the Company converted approximately $0.7 million and $46.5 million, respectively, of non-core assets to cash. These properties were primarily located in South Texas and Northwest Louisiana.