Matador Resources Company Price & Performance (MTDR)

Thank you for joining us for Matador's fourth quarter and full year twenty twenty four earnings conference Some of the presenters today will reference certain non GAAP financial measures regularly used by Matador Resources in measuring the company's financial performance. Reconciliations of such non GAAP financial measures with comparable financial measures calculated in accordance with GAAP are contained at the end of the company's earnings press release. As a reminder, certain statements included in this morning's presentation may be forward looking and reflect the company's current expectations or forecast of future events based on the information that is now available. Actual results and future events could differ materially from those anticipated in such statements. Additional information concerning factors that could cause actual results to differ materially is contained in the company's earnings release, and its most recent annual report on Form 10 ks, any subsequent quarterly reports on Form 10 Q. In addition to our earnings press release that we issued yesterday, I would like to remind everyone that you can find a slide presentation in connection with the fourth quarter and full year 2024 earnings release under our Investor Relations tab on our corporate website. And with that, I would now like to turn the call over to Mr.

Joe Foran, our our Founder, Chairman and CEO. Joe? Thank you, Meg, and thank you all for listening in today. Would like to begin by thanking everybody for the thought and effort they put into their notes. But I'd also like to start out by insizing what we consider most important take over a property, like the AmeriDev. It's a $2,000,000,000 deal Obviously, it's going to have a big impact. So how do we treat that? And we really treat it like we do all of our other properties. For past forty years, as I've done this job, CEO, we put an emphasis on year to year growth. We think that's the most important number. You can look at other statistics and and there are I would say they're all important. But for us, the most important is Year over year [indiscernible] At the same time, when we buy a property, the first thing we try to do is look for the efficiency gains that we can that we can do also a development plan that we can do and [indiscernible] And from there, We worked to incorporate it and assess what what you can do.

The AmeriDev properties were special because it sets great quality rock that gives us a lot [indiscernible] Most times when people sell things, it's not their best rock. But in Meredith case, it was really good rock. They had done a good job operating it. And we won to find those what else could we do? And we could easily we put a rig out there. Our first rig went out there nine days after acquiring the property, so we could have put more rigs out there and easily increased the production in a sequential basis. But we thought it was more important to set it up for long term, by the year to year over year growth standard. And in that regard, for forty years in buying properties for Matador, those forty years, we've grown a little over 20% a year for forty years. And that's kind of the standard we have. And we feel the AmeriDev properties will meet that standard, particularly as we organize a drilling plan how exactly we want to develop it, between the development wells and the step out wells. So we thought a little time on that. Should be done. Now We will have We have One of the ways of the efficiency is our batch drilling that we've done there.

And that has saved us an estimated $30,000,000 to $50,000,000 by drilling them in the batch mode and then bringing them on. But it does have an effect on the sequential growth is that which is essentially a timing [indiscernible] It's not a reserve problem, it's a timing deal. And in the first quarter, of last year, I mean fourth quarter of last year, in the first half, we only put two wells online because we had a big group coming up behind it. And so in the next forty five days or so, we'll probably bring on as 30 wells or four. And you can see what I mean, it's a timing problem. If we had closed and taken over AmeriDev two weeks earlier, wouldn't have this discussion of of whether we have a sequential problem or a miss as some of you all described it. And so if you're uncertain about our timing on things, please give us a call. But the year over year matters because I can report that we expect to have [indiscernible] Approximately 30% for the first quarter of this year compared to the first quarter last year, Second quarter is going to be about the same, 29% or 30%.

Third quarter again, 20% or more. And by the time we face the drilling program in the fourth quarter, we think that will be comparable numbers as well. So we're very excited about this. We're not seeing any this appointment but want you to know that, I don't want to tell you how to do your analysis it certainly understandable why some people want to do sequential. But in this case, I think you have to look at the year over year numbers and And when you look at the total reserve picture, For us, Year over year, from the fourth quarter of twenty twenty four to the [indiscernible] from the fourth quarter of twenty twenty three to the fourth quarter twenty twenty four, you see that we've grown our production from like 4,600,000 BOEs to over 6,000,000,000.

BOEs.

And And that's what I think matters has our shareholders increased their assets Yes.

And that's why we felt so comfortable raising our dividend. Could we have done more? Yes. I think that we could have easily done some more. It's probably more prudent given the volume [indiscernible] of commodity prices to wait until the fall when we typically given a raise, but wanted to express to you our confidence. And second, is to note the insider buy that has occurred. You've had over 30 transactions by the senior management. That's SVPs and and hiring VPs and so you have that, but even more important statistic to us in comforting To me, personally is that over 95% of the staff are participating in the employee stock purchase plan. So everybody here they've been here at any time at all has become a shareholder And if you've ever attended our our annual meetings, you'd meet Many people, a good percentage of them are shareholders They've been shareholders for forty years or more.

Going back to when we had the partnerships and the like. So great confidence and we thought it was most prudent not to rush in We're trying to drill wells and boost production but it has ever been important and more so to look at containing the cost And in making sure What we wanted [indiscernible] next. So saving $30,000,000 to $50,000,000 should not be disregarded, but taking into account of whether you want to emphasize year over year growth or quarter to quarter growth and look at the Tommy when you're bringing on wells. So if two weeks is the difference I would go with the year over year growth that I mentioned is going to be 20% to 30%. So with that, I'd like to open it up to questions. Mac, but give you an idea of how we evaluate it. And why we've emphasized year over year growth, but we still think it's important to look at sequential and that's why we provide you those numbers itself. But But Our personal view is that year over year number is the most important. Lisa, we're ready for the jump into the queue and ready for the first question.

Thank you.

Thank you.

Our first question for today will be coming from Neil Gregon Thanks. Good morning, Joe and team. And Joe, I just want to say before my question, I thought you all did a really nice job this time on the slides of really showing the capital efficiencies and other upside that you have such as the midstream. So I guess that part takes me to my first question. And my first question, I'd like to focus on the midstream Specifically, you all obviously have one of the larger now Permian infrastructure systems. I think you're talking about nearly $300,000,000 in EBITDA alone. And I'm just wondering based on this, should we assume that now that system is largely developed given the a bit lower CapEx of $120,000,000 to $180,000,000 this year And then secondly, are there opportunities to I don't know, maybe bring in a partner or do something to further demonstrate and maybe monetize the value of that system. Neal, that's really a good question. It's something we talked about nearly every day some of those questions. And I'd simply say is that as long as we're active out there in that basin, We're going to be looking to extend it because the reason we got into it in the first place is going back to when we were going public.

Was that there was real flow assurance problems.

And we didn't want to go public and immediately run-in to flow assurance. Problems. So that's where we started, Greg Krug.

Has been our leader in the company and has done a marvelous job Our first year of operations, we had EBITDA of $30,000,000 This year, we have $300,000,000 So he's made not only the the reservoir engineer is comfortable. [indiscernible] having that flow assurance and the cash flow in our CFO is happy that they know that we're going to have the cash flow but he's also created a very profitable business and given us some Good options going forward. So it's hard to say because it's we still feel early years and our areas of interest just like with the EmeraDev, over to that [indiscernible] of Southeastern New Mexico. And but we're looking at other area. I've worked at now forty years to keep expanding but to do it in a conservative way.

Yes. Neil, this is Greg Krug. I was going to Calm me a little bit. As far as we're going to do going to be looking at [indiscernible] enhances our flow assurance. Out there for both Matador and our third party customers. I think those are the projects that we're going to be looking at.

And Joe alluded to the AmeriDav piece, Along with that, acquisition, we have 180 miles of pipeline that came with that. That's not not actually part of San Mateo. So always looking for those opportunities to actually make the The footprint of basically where our acreage positions are at.

Those are the expansion type of of projects we're looking for.

Thank you. One moment for the next question.

Thank you, Neil.

And our next question will be coming from the line of Zach Parram of JPMorgan. Your line is open.

Guys. Thanks for taking my question.

Just wanted to ask on your D and C cost guide. You took it down to $880 per foot.

That's down 3% year over year. Your 2024 D and C costs came in quite a bit below the initial guide. Could you just give us a little color on where you're leading edge D and C costs are today and maybe talk about your ability to continue to drive those D and C costs lower going forward?

Hey, Zach. This is Chris Calvert. I think first off, thank you for the question. I think we'd refer excuse me refer to Slide D in the slide deck to kind of highlight the data that you're speaking to. I think it's safe to say when your full year 2025 D and C foot is below your full year 2024 D and C per foot, we're kind of at a leading edge. I think from an efficiency standpoint, we've made great strides in optimizing simul frac increasing the use of Trimul frac, reducing days on well, partnerships with vendors, strong partnerships with vendors to make sure that we're in win win contracts from both the drilling and the completion side. So I think depending on what you consider leading edge, I would say full year 2025 three percent below full year 2024, I think that is a leading edge. And I think that is done via the competence and the great job that the operations team here done. And so I think looking into 2025, if you noticed in the release, we increased our trimal frac use from 16 wells to 40. And so I think when you look at the cost of savings associated with that, that all contributes to that leading edge D and C cost per foot going down.

So I think it is something we're excited about. We should be proud of that. Think we are a leading edge innovator in operational efficiencies. I think that flows through to one of the highest margin operators in the Delaware Basin. I think that's something that we're also extremely proud of on Slide K. And so I think we do appreciate you noticing that and it's something that we work hard continue to push forward on.

Thank you. One moment for the next question. And our next question is coming from the line of Scott Hanold of RBC Capital Markets. Your line is open.

Thanks. Hey, Joe, you gave a sort of good overview why you see some of the ebbs and flows in production and the focus on sort of year over year. Could you address the capital side too? And I think there when you look at fourth quarter, it came in a little bit higher and I think first quarter set up a little bit higher. And so when you look at capital, like how do you think that's going to ebb and flow And what are some of the puts and takes within the range of the roughly 1.4 to 1.7 that you all have for 2025?

Well, good question. And breaking that down, I would say this is when we take over a property as we did here, the first thing we look at where can we deploy some capital That would in the short term that would improve the operating expenses, for example, over the long term. So the savings that we're having in reducing the operating expense are going to pay off pay off that capital in pretty short order. And That's as I said, I don't want to take away from comparisons We just think [indiscernible] the year over year is a more important number. And illustrating it's hard to give you the on the capital expenditures and say, well, this is really going to cut [indiscernible] We don't do that until this call, but we used a lot of that CapEx early CapEx to improve the operating expenses and Glenn, you might give a little more detail on that.

So that saves us more over time to do it upfront rather than to be in the property for ninety days and then undertake it. That's right. Scott, this is Glenn. Glenn Setson, I would just say yes, echo what Joe said is, as we got on the Emeritus properties, and immediately got to work and accelerated the completions of those 11 wells, the Firethorn and Pimento wells.

And along with that, we did some facility upgrades to accommodate that new production and also to bring bring the facilities up to Matador standards. And in doing so, we were able to reduce our OpEx, as Joe pointed out, to the tune of $2,000,000 a month. And so those significant those savings are significant. And realize them even quick [indiscernible] the CapEx side and the operating side is that on those 11 wells, we recycled over one point or about 1,200,000 barrels of produced water for the fracturing operations on those 11 wells.

I think synergies across the board that resulted in a really nice quarter Well, and also I want to shout out to Reese and his group for the very profession [indiscernible] they operate those properties when they had them up for sale. And then afterwards as we closed the deal as they were very professional, very cooperative, and I would say they didn't paying the high level [indiscernible] equipment and operations and they didn't have a short term approach. So shout out to Reese and we look forward to having a chance to work with him again.

And our next question is coming from the line of Tim Rezvan of KeyBanc. Your line is open.

Hey, good morning, folks. Thanks for taking my question. I wanted to ask what drove the decision to kind of put a bigger spotlight on the Cotton Valley assets. Are you seeing kind of inbound inquiries on that Because it doesn't seem to really be a need to sort of sell that now with leverage at one times and coming down pretty steadily. So So should we think about that as you hanging a shingle like a for sale sign on that Cotton Valley asset Just any color would be helpful.

Yes. Well, thank you. The Cotton Valley assets we've had on a long time. When we did the deal with Chesapeake years ago, we solely sold them the Haynesville formation down there and we reserved all the uphole rights with these properties are. We had been drilling Cotton Valley wells to that point And so very experienced in that.

But When we went out to New Mexico, It is HBP by that deeper production, so there is no urgency And shortly after that sale, gas prices [indiscernible] and it was better to be in [indiscernible] primarily than the gas. And so it's all HBP. So there wasn't [indiscernible] And you were developing at that time, people were drilling the vertical wells, but now there has been horizontal drilling in that Cotton Valley that has yielded [indiscernible] wells that are In the quarter of $5,000,000,000 cubic feet of gas, which if you have stable prices, you can make money. But that's the second key is the ups and downs of gas prices has discouraged that, why you've had much better commodity prices with the oil out there in New Mexico. So it's one of economics. But now that you have [indiscernible] Seems to be rallying You have these data centers you have the liquids that can be taken out it's starting to be more attractive. But we're not in any way trying to sell them. That's not the reason. It just shows you that we have another card to play at the appropriate time. We have Also, a very high net revenue interest Because when we did the deal with Chesapeake, we reserved all the overrides that had been earned or acquired.

So it's a it's a prom we see it as a prime property, but let me turn it over to Ned or Tom how you all feel about it? Who plan our drilling program. Sure, Tim.

This is Tom Nelson, our EVP for Reservoir Engineering. We feel very confident in the Cotton Valley. And as Joe mentioned, we had drilled a well over about fifteen years ago and [indiscernible] actually give Joe six Bcf gas you are on that one mile well. And I know today, our operations and operations teams would go in there and be capable of drilling a two mile well or 2.5 or even further perhaps. And I know they would mix and only increase the proppant concentration and the frac fluids and the stage intensities and prove the targeting and all the different things we've learned over the last fifteen years, I think, would go into significantly higher gas EURs than that. I think We're very proud of it. There's a lot of vertical production in that area, but there's other horizontal wells also. And I agree with Joe, it's another card to play if we wanted to at some point Several hundred feet of pay over there in the Cotton Valley and all the gas infrastructure from the Haynesville is already in place. And so I think it's it's something that it's like to have in our toolbox.

Thank you. And our last call for today will be coming from Kevin McCurdy of Pickering Energy. Your line is open.

Hey, good morning, Joe. I wanted to ask your thoughts on uses of cash here You forecast around $1,000,000,000 free cash flow in 2025 and you have a lot of unlocked value in midstream as your deck shows. Your leverage is pretty low. Are there other considerations for use of cash here above the dividend?

That's a great question. Kevin, and that There's a lot of ways to answer answer that. There's a lot of opportunities. And when we get around the table like we are now and guys talk about, well, I kind of feel this and I think we do that. It's really exciting Because there are a lot of opportunities here and we want we talk about profitable growth in measured pace. So we don't want to try to expand too fast or too slow. It's a Goldilocks. Type of arrangement. And we look at the ideas that we have. We have ten to fifteen years of inventory We have a balance sheet That even after doing the $2,000,000,000 deal, It's the strongest financial position we've been in. We have over a $3,000,000,000 line of credit with our banks of which we've only committed to 2.5 period. [indiscernible] so there's plenty of dry powder there. We don't want to try to And that's why we say instead of trying to grow X percent a year, that's why we we say profitable growth at a measured pace. So it depends on all the considerations. And But we're we've got all these opportunities in New Mexico they are growing with the drill bit and we're keeping pace with nine rigs running on the drill bit earn in a 50% right of return We have these opportunities on the midstream which is a fee based business instead of a commodity based business.

Gives us a little more stability to our future earnings outlook, Louisiana you know that we just don't want to get greedy and don't want to go too fast, but don't want to go too slow. And so we're the efficiency gains that we're getting are leading to higher returns, just drilling one vertical, these horseshoe wells, example of the efficiency that we're doing, Lateral Link is has grown to where we're over we're now doing over 10,000 feet per well on the completions. The EURs are better. Rock that we we acquired from both Advance and Ameriadeth is leading to 10% better recoveries. So I mean, it's a multitude of [indiscernible] to So it's kind of like a football coach. He's got a really good running back and he's got a really good passing quarterback. So does he call more plays for the running back or the passer or double reverse to the wide receiver? I don't know. But we all discuss it. And And again, the fact that we are all shareholders And particularly among management that were steadily buying should give you an idea that we're resolving that internally in a way that's best for the company and best for the shareholders that we're all stakeholders and really excited opportunities [indiscernible] we also know that you can suddenly have things like COVID or Depression, gas prices have been zero at Waha where we've had to pay money to take our gas.

So you want to be careful on that. There's a lot of manners to take into consideration the staff has matured together. We've all grown up together. Our discussions are lively. What we want to do with this extra money, but we all agree and it's a corny expression I admit, profitable growth in a measured pace but it seems to fit us that if we can keep up for forty years, I've been in business. I started out with $270,000 and now we have 11,000,000,000 in assets that's just growing 20% a year for forty years and we're more of a tortoise than a hare maybe [indiscernible] we went public back in 2012 [indiscernible] $12 a share And today, we're approaching $60 So its growth over a very turbulent time And we're looking forward to win It's a little less turbulent but we're also ready because we've made we want to be ready with lots of dry powder because we've made more progress in difficult times when others are sidelined by the opportunities that come up. So this is a roomful of people that [indiscernible] our owners And it's measured on what is going to improve the stock price.

And and really grateful to those shareholders who have been in here since 1983 when we got when we got started. So And they keep coming up with good ideas. And I look across there, Ned, Ned and his group of geologists, I mean, they come into some good looking ideas and Tom's team of he has he leads the teams in these various areas. They're always thinking of things. And the land group John and them, this brick by brick approach has generated a lot of opportunities and helped get us into areas that We didn't have and so I have to tell you, we got a lot of work to do but it's also work that we think will be rewarding the other shareholders and to us. And I like our chances. I guess, is where I want to say and everybody is looking for capital efficiencies. I don't want to be silly but Mike generally brings donuts for our prep session prior to this call. And I can tell he's trying to be more capital efficient because there's not as many as there was. In the early days. So we're trying to get him, but the dividend and let me just take a moment on the dividend.

Is that We like this steadily increasing dividend over time. And you can see we started out with $0.1 and now we're at $1.25 We would have a stronger dividend growth If things were a little less turbulent, and do not see ourselves buying back stock. We think that favors the short termers and not a while.

But we like it. We want to be known as a company that year after year increases in dividend and now [indiscernible] has moved from $0.1 to $1.25 and we have many probably more individual shareholders and most companies do. [indiscernible] the individuals and they come to our annual meeting and express that view and we invite all of you to attend our annual meeting and And hear what they have to say. And we'd like you all coming to visit. And once you know everybody on the call, if you all come see us, we'll have lunch or breakfast and you'll get to meet The staff will take all the questions that you've got. So with that, Brian, Erman or Brian Willie, [indiscernible] Anything else we should say, please jump in now. No, Joe, this is Brian. I think all very well said. I'll just we're excited about 2025 and the approaching $1,000,000,000 in cash flow is a great accomplishment. Joe mentioned at the beginning about growth and focus on growth and that's true from a production standpoint and that's true from the free cash flow perspective. And so we're excited to be able to do that and be in a position where we can return value to our to our shareholders.

Brian Erman? No, I think as you guys said it well, I think really excited about the results for 2024 and even more excited about the opportunities that are in front of us, the 2023 science. So I'm really, really excited about what we have in front And Rob, Chief Accounting Officer and kind of a guy who wears many other hats around here has done a real good job of finding research projects managing the tax position to make contributions at don't show up in these kind of calls, but Rob has kept us on [indiscernible] and the audit, I'm proud of the audit. Tell them how once again we had no questions. Yes. No, I think for the last ten years, we've been audited by KPMG, really proud of the of the of my team and what we've been able to do to really provide a very high quality financial close and and definitely feel audited by the KPMG team and and are really excited about looking forward to 2025 and as Brian said all the opportunities there and continue to look for for ways to chip away at the cash tax position any way we can.

But follow the rules. Always. Always. All right. But anyway, that's those are my closing remarks. But Again, it's if you have questions have been answered, give a call to Mac. We'll get some set up and have a visit But the land guys deserve a lot of credit. Those guys, all the land Men and women are out there trying to make deals all the time and really proud of the way they've built in relationships and trying to make trades at Back to you, Lisa.

Thank you. Ladies and gentlemen, thank you for your participation today. This concludes today's program. You may all disconnect.