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Investing.com -- Fitch Ratings has raised the Long-Term Issuer Default Ratings (IDRs) of Matador Resources (NYSE:MTDR) Company and MRC Energy Company, collectively known as Matador, from ’BB-’ to ’BB’. The rating upgrade also applies to Matador Resources Company’s senior unsecured notes and MRC’s senior secured reserve-based credit facility, which have been elevated to ’BB’ and ’BBB-’ respectively. The Rating Outlook remains Stable.
The upgrade reflects Matador’s successful execution of debt reduction initiatives following acquisitions, the company’s substantial, oil-focused Delaware asset base, Fitch’s anticipation of positive Free Cash Flow (FCF) generation throughout the forecast period, sub-1.5x midcycle EBITDA leverage, and ample liquidity. Fitch expects low single-digit production growth and continued FCF generation while maintaining low leverage, which is reflected in the Stable Outlook.
Matador’s post-acquisition debt reduction is viewed favorably by Fitch, which forecasts EBITDA leverage to remain consistently below 1.5x throughout the forecast period. The company has lowered its gross debt by over $700 million since the completion of the Ameredev transaction in Q3 2024 and has decreased its reserve-based lending (RBL) borrowing to $405 million as of Q1 2025. Fitch anticipates further RBL reduction in 2025 due to positive FCF expectations and expects management to maintain ample financial flexibility in the near and medium term.
Matador’s eight-rig drilling program is expected to generate low single-digit growth in the near term and lead to a production of approximately 200,000 barrels of oil equivalent per day (mboed) in 2025. In April, management announced a reduction in its rig count from nine to eight by mid-2025, which is expected to reduce capital expenditures by about $100 million in 2025.
As of Q1 2025, Matador’s asset profile includes approximately 198,700 net acres in the core of the Delaware Basin, in addition to smaller non-core acreage positions in the Haynesville and Cotton Valley. The high-quality asset profile is expected to support the company’s FCF-focused strategy and lead to continued improvements in drilling and completions costs per foot and efficiency gains.
Fitch anticipates post-dividend FCF of approximately $300 million to $400 million in 2025 under the eight-rig drilling program starting mid-2025. The company is expected to maintain its $1.25/share fixed dividend, with potential for measured increases in the near and medium term. Excess cash is likely to be allocated among further debt reduction, modest dividend increases, share repurchases, and potential bolt-on M&A activity.
Matador’s midstream joint venture assets at San Mateo provide operational benefits through reduced transportation costs, flow assurance, lower marketing fees, and performance incentives from partner Five Point Energy LLC. During Q1 2025, management strengthened its 2H25 hedge book through the addition of oil collars, which Fitch views positively.
In Q1 2025, Matador’s production averaged 199 mboed, which is comparable to SM Energy (NYSE:SM) Company, but smaller than Crescent Energy Company, Civitas Resources, Inc., and Permian Resources, Corp. The company’s continued cost reduction efforts and high oil mix have resulted in peer-leading Fitch-calculated unhedged netbacks of $35.4/boe in 2024.
Fitch’s key assumptions include West Texas Intermediate oil prices of $60/bbl in 2025, 2026, and 2027 and $57/bbl in 2028 and thereafter, Henry Hub natural gas prices of $3.25/mcf in 2025, $3.00/mcf in 2026, and $2.75/mcf in 2027 and thereafter, 2025 production of 200 mboed with a low single-digit increase thereafter, 2025 total capex of $1.5 billion and relatively flat thereafter, prioritization of FCF toward the reduction of RBL, measured increases in the fixed dividend, and no material M&A activity.
Factors that could lead to a negative rating action or downgrade include a change in financial policy that reduces financial flexibility, inability to extend economic inventory life that leads to expectations for weakened unit economics, and midcycle EBITDA leverage sustained above 2.5x. Factors that could lead to a positive rating action or upgrade include increased size and scale evidenced by average daily production approaching 250 mboed with similar oil mix, maintenance of economic inventory life while maintaining competitive unit economics, and midcycle EBITDA leverage sustained below 2.0x.
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