Q4 2019 Earnings Call
Good morning, ladies and gentlemen, and welcome to the fourth quarter and for year 2019, Matador Resources Company earnings Conference call.
My name is to Wanda and I'll be serving as the operator for today.
At this time all participants on in listen only mode.
We will facilitate a question and answer session at the end up the company's <unk>.
As a reminder, this conference is being recorded for replay purposes. The replay will be available on the company's website through March 31st 2020 as discussed in the Companys earnings press release issued yesterday.
Well now turn the call over to Mr. next [laughter] capital markets coordinator for Matador.
Yes, you May proceed.
Thank you Twanda you good morning, everyone and thank you for joining us from outdoors fourth quarter and full year 2019 earnings conference call.
So many presenters today, we'll reference certain non-GAAP financial measures regularly use an editor resources in measuring the Companys financial performance.
Reconciliations of such non-GAAP financial measures with the comparable financial measures calculated in accordance gap or contained at the end of the company's earnings press release.
As a reminder, certain statements included in this mornings presentation, maybe forward looking and reflect the company's current expectations or forecast of future events based on information that is now available.
<unk> results in future events could differ materially from those anticipated in such statements additional.
Termination concerning factors that could cause actual results to differ materially is contained in the company's earnings release and its most recent quarterly report on form 10-Q.
Finally in addition to our earnings press release, I would like to remind everyone that you can find a short slide presentation summarizing the highlights of our fourth quarter and full year 2019 earnings release on our website under events and presentations page under the Investor Relations tab.
With that I would now like to turn the call over to Mr., Joe for in our Chairman and CEO, Joe. Thank you back and good morning to everyone on the line and thank you for participating in today's call. We appreciate your time and interest in Matador very much.
I'm going to forego the usual introduction of the executive committee or are in the running with me today.
And other.
You know significant people that matador, but that.
In order to make a couple of points and then we'll have more time for questions.
And I liked the began to simply by thinking.
This day Uh huh.
Shareholders.
Oh, what they're helping to support we can report to you that Leif.
Very simply had the best quarter.
We've ever had and fourth quarter and we've had the best year, we've ever had in 2019, despite the head headlines and now two months in that 2020.
I can say that 2020 is shaping up to be even better.
And a 2021.
As I've noted for the first time looks like a will reach the free cash flow and continue the achievements in the field and what the midstream and that 2021 will be the next best yet several points I just want to Mike.
It's not an idle.
Claims it.
2020, it's got the good and 2021 will be clear that we're reaching that free cash flow point.
Subject to the opportunities.
And you can market.
This year.
By a number of catalyst.
First in late March in early April, we'll be bringing the Rodney Robinson.
Six Rodney Robinson wells online in or Antelope rich.
That will be a very important and I think very.
Productive wells.
And.
In June well have the right and leather Nick.
June and July the Ryan Leatherneck wells coming online will be the second important catalyst and then you get to sit timber.
And will be have arc.
Big Bertha so to speak or from the state line Wells a will have.
13 of them.
Coming online or in September and getting began to see the full impact as well as our same its second Sam a tail project and plant.
We'll be.
Ready to go in September it's currently online on how many it's on time on budget.
And which will enable us to start processing, a half a billion cubic feet of gas per day doubling our capacity.
So.
Naturally we're all very excited about that and this is the result of a two year.
Strategic plan.
They are based on the longer laterals.
And associated operating.
And capital efficiencies.
From these longer laterals.
And.
It's obvious that you save money, but you also pick up extra.
Productive zones.
And these your delivery.
Superior results and.
It was a turning point.
When we were able to secure.
The leases and block up the acreage and the other parts. So that we could do these two mile a greater than one mile laterals next year, 84%.
Of our drilling will be.
Well still have laterals longer than one mile 74% of which will be the longer two miles or in.
A few cases, two and a half miles. So you'll you can mark your calendars, if we attain those goals that I've mentioned.
You will see it'll become even clearer that the free cash flow is around the corner subject to those opportunities.
Ah, we just didn't want to announce that.
Specific terms until we could.
Felt a very very confident that we could do what we said we were getting a date and.
That's an important part of our operating strategy is to do what we say, we're gonna do I know that sounds corny, but it means something.
And when you look at our.
Steady rise in our production or exit rights think about and 26 team, which we won most difficult years.
We exited you now with the growth at 29965 barrels oil a day and today.
We exited <unk> in December at 73749 barrels all day and when you consider the on the day, we went public.
Back there in February of 2012, we were only making 400 barrels a day so in seven years.
[music].
We feel we've come a long way from 400 barrels a day to over 73000 barrels a day.
And we have.
Further progress inside.
Chad out to all of our different groups it Matador.
For turn and exceptional jobs from operations to marketing and midstream to the accounting grapes.
To delay and groups to their brick by brick strategy is all resulted in this consistency that we think we've delivered for shareholders.
We met or exceeded industry.
Guidance, a projected guidance now 22 straight quarters.
We don't see taking stopping that.
Which leads me to my.
Final point.
That these leases that allow us to drill these longer laterals.
Have helped us reach a different level in our midstream rate going forward.
His help.
Uh huh.
Has helped build a thriving business out there.
And then now allows us to look at consider noncore assets.
ER and.
Making transactions on that that would allow us to further accelerate our growth and perhaps start a mineral business much like what we've done with Sam the tail.
And the JV partner.
This.
Strategic plan.
That Lee.
Put in place and they have carried out.
Leads us to how we go to sustain our growth and you'll see the.
The seats being planted to go into new asset areas continue that.
The the.
The better execution.
And.
And continuing to work or some of the best rock.
In the Delaware and so were.
Yeah very.
Very excited.
And still operate under the notion.
Again, it sounds Connie.
But I think it works of haven't profitable growth.
At a measured pace and put in first the notion let's create some value for shareholders and even if it.
Makes it a little more difficult for us in the short term, but the long term value of good rock.
Good people.
And.
And a good operating plan is that strategy has been working for us and respected contained David that I'll leave it yeah.
Oh no true I think you I think you covered it you know I think its a.
You know were we continued to be very excited about the the plane. We put in place last year I think I think everybody can see that we've executed very well against the plan probably get are little farther along at this point than we thought we group, but I think things that we had laid out for for our investors. It. This time of year ago that would be drilling in the rod Robin scenario.
By the fall in that would be if the state line by the ended the year, who have all come to pass and I think I think all of US. Your you know on the team are very very excited about the your head and the things that we have to accomplish and we've said we were going to build these two businesses within the MP business and the Ministry business side.
Yes, I didn't I think that's a that's exactly what we're doing and we're looking forward to to achieving the the milestones that we've laid out in particularly you know when the wouldn't expansions San Mateo in the state line production come on at the latter part of the year. So that's what we're that's what we're focused on and and to look at looking forward to accomplishing that.
All right, so well take the questions operator.
Thank you.
Ladies and gentlemen to ask the question do we need to press Star then one on your telephone.
To withdraw your question first up alky.
Again, it's all wants to ask the question.
Due to the constraints, we ask that you. Please limit yourself to one question and one follow up again, we ask that you limit yourself to one [laughter] and one follow up until all have had a chance to ask the question after Weve, which welcome addition of questioning.
Our first question comes from Scott handling with RBC capital markets.
Your line is open.
Thanks, Good morning.
And Scott one Scott good appreciated the all the up the it's a pretty constructive, especially sitting a free cash flow timeline can can you give us a little bit of color. As you know look into you know that a period of potentially hitting that in mid 2021.
How do you look at decisions you know to to that point like do you see yourselves you maintaining a free cash flow neutral position from that point or would you ever.
You know move into the strategy of no more of your maintaining activity and in generating free cash flow for you know other options.
Hey, Scott it's David.
Yeah. That's interesting question I think and in some ways I would say up maybe the best answer I can give you kind of one step at a time I think that we are and have been for the last a year you know looking toward how we would best to get get best get to that point, where we felt like we could achieve and and.
And continue to generate you know free cash flow into the future I think that that you know we feel like we're solidly on that path and that and that next year could you know can can be an inflection point for us, but you know, but I think that that's what we're going to focus on over the next to you.
12, 18 months and as we get is we get closer or we can the you know we can give some additional thought to a you know to how we want to to use some of that cash flow I think as you know we don't see ourselves as an opportunity constrained company. So I think that we always feel that there are good ways for us to put.
To put money to work you know.
This you know the current environment is we've been a little constrained either in terms of the of the capital and what we could do so we've really focused on you know this the six rig player I don't think we have any immediate plans thinking through the next year to.
To increase the rig count I think we feel like we can achieve these goals.
With the with staying with the six rig count that we have and and you know I think if you look at a than what we did in 2019 in terms of the improvements in the capital and operating efficiency I think we already feel like will make more strides in you know in that way in 20.
2020, and knows we traveled through the year I think we'll we'll have an ever better outlook for you know for 2021, but Oh, yeah, I think things look pretty promising and and we're you know we're excited about the but you know about the days ahead.
Appreciate that color and you you all have a pretty impressive entry to exit growth rate that really sets you up a pretty good for 2021 and you know in that context, David where you said you know you're you're generally speaking you're you're maintaining six rigs you know into next year's kind of a high level.
Perspective.
In either where do you think led growth looks like in 2021, obviously you made the point that you think its can be stronger than 2020, but can you provide us a little bit of context on on what that might look like.
Well I forgot Alan I'll say this.
Yeah.
It is a lot of it depends what is the perhaps the all in 2021, you know what is the American economy doing 2021.
And what has changed a battery industry over these next two years like when you know something that's.
You know, there's great change going on around the world and we got looks though circumstances and that's why why we're looking at it from a number of different perspectives. It's important to take one step at a time, we know we're doing that it's not that we're going to not think about anything until 2021.
But its just.
It's a lot of uncertainty and there's no sense and make an announcement Oh, yeah. We're gonna do this do that.
That's.
Yeah, I almost two years away at a lot can happen in two years, we will have a more definition clearer.
Plans are announcements on that as your 2021.
Approaches, but those are under study right now and Ted I do think we'll maintain the six rig program, that's working pretty well for us and lead.
But we're optimistic about the opportunity so.
We'll have more on that as year goes along so give us a little time to see how circumstances shape Oh.
I appreciate that will do and Doug congratulations.
Thanks, Scott we we appreciate it.
Thank you.
Our next question comes from a lot of John Freeman with Raymond James Your line.
Good morning, guys.
Hi, good morning, John.
Good morning, So I'm just when I when I think about you know just you've had a terrific track record of Oh, beating your your production guidance over the years and I'm, just trying to get a sense of.
When we think about such a dramatic step up from only 8% of the wells last year that were.
Hi, two mile or longer laterals versus a 74% this year.
I'm just sort of how we should think about how you incorporate kinda the uplift from the two mile laterals in your production guidance given you know the limited dataset and 19 from those type of wells and just your typical conservatism just anyway to kind of thinking about how you go about budgeting with such a dramatic change in <unk>.
And the wells.
Yeah, Hi, John It's David well I think that I think what we've done of course is is done a lot of a lot of looking at it not only the few wells. The to you know that we've drilled but also wells that have been drilled by others you know.
Throughout the basin to get to you know to get an idea as to what the expectations would be I think that Oh, we have generally are of a mind that from the standpoint of Oh you are but.
It's.
Oh per foot or however, you want to look at it that the those those things seem to be pretty close to linear I think and so you know we feel like we'll see that from New York standpoint, I think we've said in the past that that you know we have typically seen and think that it bears out when you look at others.
Wells as well, but you probably tend to have a little less of a you know lists but initial rate. It's certainly not that's not a two X kind of initial rate and then probably tends to you know to to be a little flatter as they use a you know as these wells begin to clean up and I think that's certainly been the case like you take the judge.
Heart Wells for example that we did in the third quarter and Antelope bridge or that's absolutely what happened there. Those wells you know maintained a you know a fairly you know a fairly flat or low decline you know for for the first you know for five months six months of their life, you know effect I think even the second bone spring well.
Imply into little bit you know is it continued to to clean up so I think that that's that's the way that weve that we've approached it is to try to is to try to to forecast. The you know the wells in these areas like the Robbie Robinson or the state line you know in that way.
And.
And we'll see we'll see what happens in as we have more Ah you know more actionable information from our own wells will modify things accordingly, if we need to but that's that's probably the best to the best answer I can give you in terms of how we've approached it yeah. John This is Matt I'll just tag onto what David said there in regards to.
The scheduling for 2020.
These longer laterals, while we didn't know what percentage basis drill.
Most of the wells were shorter laterals in the past we have you know at present well north of 20.
Two mile laterals that we have drilled and cased and and got another 10 or so in progress and then we've since it successfully completed about half of those him and knock on wood. We're we're having some good success there I think one of the things that.
We did in preparation for for these two mile laterals, it's really paid off as these rig modifications that believe his team did you know, including the like talk talk drugs in the big pumps in the high torque drilling systems really started to pay off we've got a.
One example is here just recently, we drilled well over 4000 foot lateral and 124 hour period. So I think the team is off to a really good start you know the Mexican theme is it rolling in there too in that 4000 foot. This close actually closer to 4100 foot that we drilled that went 24 period, 100% that was done in zone.
So you know the drilling team continues to make greater efficiencies.
Crisco equivalent freeze on completion, so they're doing the same thing there we've got built into the plan these efficiencies for drilling reasonable or drilling and completing these multi well pads and so let's take the teams is really off to good start on these longer laterals.
Thanks [laughter] false.
Way.
Really go ahead also in the you know the Mikes comment Patrick Walsh and geology.
Using the big data technology, working with our non <unk> group you know we've also.
And watching others go a little two mile laterals laterals or partners at all so we've been able to see the good and bad and what's going on there and they've been able to use that to also fell close from London to those same little bumps along with being a large screens with over 22 mile laterals as long as well.
John This is Brad I'll.
I'll just add one piece did your conversations about the up lift that you referred to that we have on regular basis would Netherland Sewell, our reserves auditors and and so we look at that very carefully we look at as David mentioned, an analysis of all the surrounding wells. We're doing statistics you are.
Distributions and things like that in and we come to agreement with our reserves auditors on what those up lists as they vary as you can imagine you know bone springs is different than the Wolfcamp, a which is different than the wolfcamp b and.
And so we looked at very carefully.
Thanks for all that in filling in just a follow up question I. Appreciate the the commentary details are provided on on the U.S.G. front and in the release and with what's going on with the additional investments at San Mateo is a large diameter.
Oil part Thatll be operationally summer can you give us a ballpark idea of the how much oil will be on pipe at the end of the year relative to that 55% that's transparency of pipe at the end of 19.
[noise] I don't know if I know the exact number John or I think that certainly we would expect that you know right now essentially everything that comes from Rustler breaks and from an from Wolfe you know is on its own pipe we've got to.
You know this will you know all the thing all everything from statewide will be on pot everything it stebbins at that point, you know will be on pipe from the greater Sevens area.
I believe that would only leave maybe you know a little bit of our production, which is a fairly small volume up in the you know up in the arrowhead area and or that you know that would be maybe still being trucked in there might be some in you know in rustler breaks, although we're working on you know options to get.
More of that on pipe as well I think that I think it'd be fair to say that to that we could probably be you know between 70 and 75% of of at all on pipe or by the by the end of year.
John This med Tech one other thing it's important there's the the amount of water that will have on par.
So we've got these big drilling activities at Stephens, and Stateline and Rodney Robinson and other places we've got everything set up or we can foot. Most if not all that water on pipe. So we'll be well north of 90% for 2020 that will have on water on pipe as well.
And I think we're you know looking forward into 2021, John or those numbers should you know should increase as well. So I think we we feel that said we'd have the potential to be better than 90% on pop you know, but you don't get 2021.
Thanks, everyone congrats on the quarter.
Thanks, John.
The one other thing I've just mentioned level on that she has see topic is we've always had an active D.S.G. program its getting renewed focus and sportswear trying to continue just step it up I'd also like just to note that Billy and his operations group.
We have.
Have loved zero.
Zero lost time accidents is 27 team and no employee injuries had been recorded since 2014.
So kudos to Billy and his group.
Thank you.
A question comes on the line of Neal Dingmann of Suntrust. Your line is.
[noise], putting Joan team fill my first question centers on your Stateline area. It sounds like the plan now is to drill even more initial wells in the play before completing all of them. Shortly it I'm. Just wondering is this increase plan a result of new confidence you all have into play with the increased multi zone development or is there anything else we can read into this.
I think that this is David the Neil Good morning, I think that what.
But what we've decided as a team what the technical team that that works at State line. You know had had put forward for consideration was the fact that Ah Ah we feel strongly that that it would be best to you know to drill the wolfcamp, a X y and the Wolfcamp, a lower sort of the greater wolfcamp.
Hey formation and to sort of co develop that if you will you know get to I think we have more concerns about to if we have any you know with regard to drainage impacts or shut in impacts are things as we go you know horizontally across this play as opposed to or this acreage as opposed to vertically and so.
Although we always knew we were going to drill the first nine wells or the team you know came to us and suggested that we ought to bring a couple of the other rigs down in drill out to the remaining.
The Wolfcamp, a X y and a lower locations, which was four additional locations on the on the boroughs wells and complete all those at the same time that seem like a quite a great ideas to us and so that's a that's what we incorporated into the plan and so you know, it's just an effort for us to it it's just.
Consistent with our philosophy about how to develop a this asset area or in the most in the most prudent way possible to make us. The most money possible you know and this is what we thought to make a lot of since and so as a result, that's what we're going to do and that's why you saw the increase in the initial well count from borrowers.
Being 13 instead of nine in September.
Very good and then my second question folks on San Mateo Youre, suggesting the release that the facilities expansion of last year's initial footprint should be completed by late summer I know John was kind of losing the part of this I'm. Just wondering after this point you know Joe do you all foreseeing materially amount of third party business. In addition to obviously matador benefiting.
From this.
Well, yes.
Neil The third party is very important and.
The team has done a good job of developing relationships.
With that.
Quality companies out there.
Two.
Provide third party services and that's worked very well I mean, we feel like we really have some very strong.
Companies that are long term and.
And are they kind of people you really want to work with.
And that and importantly can pay their bills are they the second thing and Belden that relations with with him. What is pleased to asses that virtually all of them have increased their business with us is that time of the first contract. So.
All those relationships into San Mateo had been expanding which I think bodes well go and future but.
Guys been hitting the streets and continuing to develop their relationships and look for additional business and that's why the plants grown from its original output taking care of what we had in rustler breaks that sometimes can be a half a billion.
Cubic feet of gas today and that the marketing groups been working hard to develop options and interconnect Oh, its add cat and working that deals with other companies that are down strain. So it's really worked and then a shout out to our partner Fivepoint has really contributed to this.
And help like everything work and we appreciate their point of view than the suggestions I made operationally and financially and and think that has also accelerated the growth.
Any other Smith.
Just to add what Joe said, there I think one of things that we take a lot of comfort students. When we do these expansions for.
Going all the way back to when we first started in midstream business they've always been opportunity based you know we've never done the building they will come model.
It was saying the tail to what we've done here is is expanded this business based on volumes that Matador and will provide and that makes the economics work, but if you're looking at a map we're going to all the 50 miles to the north in about 25 miles to the south with as it moves this expansion and along those pad theres a lot of great rock lot of good operator.
If you're going to drill goodwill. So I think the the challenge for the same material team and I think they're going to.
Responded this Jones <unk> very well is to add some third party volumes, along that path, which will most economics even better.
Thanks, guys look forward all the activity.
Thank you Didnt right. Thanks Neil.
Thank you.
Our next question comes from the line up.
Thanks, Ronny with Tudor Pickering Holt your line is open.
Good morning, guys. So last quarter, you highlighted getting below 1000 sort of DNC in analog bridge and just wanted to see if you had an update a number for.
Leading edge cost I'm, just trying to see how to maybe frame potential downside to the 2020 expectation 10 25 a foot.
Well again I think it touched me, it's David or I think that to you know the or.
The 10 25 that we put out there.
He is already you know.
Down you know three or 4% I think from a from what we had in the you know in the you know in the fourth quarter or it does reflect you know some what we think will be some additional efficiencies and cost savings in the ER in you know in 2020, So I think that to you know when you think about that number.
Being a little over $1000, but I think you have to think of it also in terms of a kind of where where the wells come from you know if you're a if you're a wolfcamp well, you're probably a little more expensive on the cost per foot basis. Then if your second bone spring well I think that to a couple of the wells will be highlighted last week is getting or last quarter excuse me as getting below.
So you know.
$1000 in foot were the second and third bone spring.
Wells and so I think that <unk>, we'll see a little bit of and maybe just kind of put all that together it averages out to a little over $1000, but there certainly will be I think wells that we drilled in the in the bone spring that will be below $1000, but on the flip side will probably be wells in the wolfcamp it'll be a little higher than that but.
We will continue to work diligently I know throughout the course of your two to try to bring those that you know those costs down further.
Okay. Okay. That's helpful. And then send material things definitely look to be progressing well operationally, but once you get updated thoughts on how you think about the value of this high side I know you've talked about.
Double digit multiple overtime here, but what we've seen from recent transactions is somewhere closer to like a mid to high single digits. So wanted to see I've hit any updated thoughts there.
[laughter] Samir I'm sorry. This is Joe could you kind of rephrase. The question just fell a little slower I was trying to write it down this we win.
Yeah sure so on San Mateo I think you guys I've talked about.
10 times or maybe higher on the multiple side you know in an eventual monetization.
What we've seen more recently in the market has been not mid to high single digit EBITDA multiple.
Our Permian assets and so wanted to see if you guys had any updated thoughts on potential valuation or the thought process. There had evolved to given what we see in the market recently.
Yeah, Hey, it's fair.
I think that to you, though we I'd say two things number one.
I think that yeah, I think we still probably 10 to Ah you know to value the asset as Robin you know about a 10 times multiple that I think they're still transactions that go for that they're probably been some that have been less there's probably been some that had been more one things for certain I don't think that we're that.
Today, we're looking to monetize or you know San Mateo, So that's going to be a discussion probably for down the road and I don't know what the market you know will be at that point, so, but I think again, what we're most focused on for you know 2020 is to complete the build out of the expansion but.
We started a year ago, which is going very well going on time on budget and I'm confident that we're going to have some very valuable new assets in the ground or column you know the latter part of this year, including a you know two large trunk lines.
200 million dollar a 200 million today expansion.
In capacity to our processing capabilities and additional local oil gas and water gathering as well as a very nice oil transportation pipeline coming from the Stephens area, you know down to our existing rustler breaks infrastructure. So I think there's a lot of very valuable.
Assets being created you know by San Mateo, and and Ah that they're going to contribute greatly you know to the to the to the future of Matador and at some point.
If we look to monetize those assets are I think that will be more of a discussion as to what multiples are at that point. So I'm not a yeah seems a little premature for us to be overly concerned about that at this point, yes. Amir. This is Matt I think were assigned to tell you I got my San Mateo head on and I think were a bit unique and.
In that space in regards to number one we we've got assets as David is saying that that or New York salt water disposal wells or new the facilities or knew the plants new the it's all this stuff is just a few years old at best and I think secondly, this this third party base that the the team has built up in this 30, 40% range on same into one.
As a nice spot for us to be in and I guess, it's just a little bit earlier, I think we'll add third party to send it to two as well.
I think also the strength of the the anchor tenant you know same until I take a lot of comfort that as Matador and it Matador continues to execute on your plan and way that they said that they're going to execute and they're going to drill the wells. It provides volume so I think that absolutely those for a warrant a little bit better multiple.
Great appreciate the color. Thank you.
The last thing Samir I'd, just say they didn't valuating. The multiple there's other factors about is the acreage dedicated or is it interruptible. It you know what is the nature of that commitment and and then let other options do you have the on the interconnect can do you have an outlet for the.
Ngls and those are all factors at weigh in on that multiples. So it's more complex question, but right now we feel.
Where is well positioned as any and the last thing is just the <unk> the operational advantaged demanded door of having the Pops radio hooked up so you're not flaring.
When you're ready to bring the wells on and the different options.
Afford so.
You know he.
You have to wait and see a multiples vary according the special factors and but I think hopefully.
Anybody considers this they got to appreciate that this has been built in the right way and they're getting quality.
Assets and and it and we'll wait again, we're opportunistic and look like for an opportunistic.
Time by thank David and Matt said, it very well.
Makes sense. Thanks.
Thanks Amir.
Thank you.
Our next question comes on the line of Jeff.
Northland capital markets. Your line is okay.
Morning, guys.
Hey, good.
I was wondering kind of sticking on some of the more complementary assets.
With Matador minerals kind of royalty side I think the relief mentioned potential sale or joint venture type of structure was just kind of wondering if that's still I guess a potential golar objective for you guys. That's actively being evaluated or is that a more kind of passive approach, you're just I guess, hoping to kind of characterize how you kind of.
View any potential transactions for for the minerals business for 2020.
Yeah, Jeff Yes.
You know, we have a saying around here, we always reserved the right to get smarter.
But presently its aktiv consideration, because we see an opportunity.
If we could find as strategic JV partner.
To start a business much like what we've done in the mid stream because we know these areas. We've got the data we operated wells we control the Drillships will send them it looks like it they did opportunity for for a JV and.
Much like we did with five point and where you have a partner and you have a go forward and the notion is to build a mineral business and to.
To be.
But we're open to other ideas, but we have a set of minerals.
We could sell them part of that and then go forward and.
By these areas, we know we're going to drill and that there is good rock and the add to that while getting a more accelerated red or right of return from our eight NP minerals are more long term and get a bigger.
Multiple so we see that as a basis for a win win and things have worked out real well and midstream on that.
Ah so you'd have a similar type structure now we're open to other ways to do it.
But we were thinking or if we could do that that that that would be attractive and Ah.
We've we've gotta go forward.
Plan that puts us in some of the best rock and we'd like to add to what we have and take advantage of what we have to address.
To mitigate the AD spend plan as well as to generate more cash flow David I don't know if I said that.
That's a generalized I'd say, that's a general idea, but open to other ways to do it Matt.
No I think you said it well do I think it's a it's an asset that has a lot of optionality to it but you can so part of a key part of it. There's a just remember transactions that you can do is and I think we just as we typically do we're gonna look for the rock transaction with the right people.
That answer your question, Yeah, that's perfect that sounds good looking forward to it and then obviously pretty volatile start to the year here and now you guys are never ones to have any jerk reaction, but just talk kind of sensitivity I guess in terms of activity levels in 2020, and you know.
If if oil that.
The 45 or pick a number that for a sustained period just talk about I guess your all's comfort level with either keeping the six rigs or what that sensitivity could be if you wanted to kind of pair back at all.
Jeff That's a very fair question. The first thing always start out on the question like that is itself, it's not a single variable.
What is the price all you got to look at all so what you get for that are that cost the cost come down proportionately.
And that has a big determination because you can make money.
It a lot less than 50 as long as cost come down proportionately and look at your opportunities.
That with the volatility that's another reason why we hedge to try to protect ourselves and about 45% approximately maybe a little more is hedged on the oil side. So you know, we we think we're pretty you know well protected.
For 2020, and we'll see where it goes from there.
[music].
So we have we had in as far as the rigs go we have six rigs, but you know these are on short term contracts and that we have a couple of rigs Billy.
That is that.
Correct me, if I'm wrong, they could be released on 60 or 90 days [laughter] Air Force came to worse.
That's right.
We came some of or rig you no longer term basis, and some of them shorter no depends on what we're doing with degrees you know like I mentioned earlier, we will you know beefed up some of the rigs will be war quit woman is we're going through doing that.
Keep changing it will determine the rigs, but third party toward top drives.
Well was drilled more efficiently, we better to two mile laterals.
And the last thing Jeff is it consistently through time I've been doing this 36 years and consistently through time you make your best rates of return your most money from wells drilled in these more turbulent difficult.
Times, because it all goes up $1.25 sensor that generally goes to the landowner and only 75% goes to your bottom line on other hand forever dollar cost savings you get the whole dollar go into your bottom line. So when you look back.
Over time.
Or your most proper wells are generally drilled in these more difficult times now that doesn't mean.
You just load up.
We would double our rig Cal.
But it does mean, we don't panic and overreact to.
Short term period at low prices a we just moved ahead cautiously and at a measured pace.
At keeping our balance sheet in mind.
To be sure we don't get over their skis, but it's important to keep going forward or and also with your staffing if we were to cut our rigs in half.
You know <unk>, yeah, a lot of our best people would lead and so what.
Has been working for US this strategy that I mentioned at the first of the conversation was to keep going one we thought six race was a rightsized for our cash flow and it saves be working out that way because you know that line of sight is now visible to the free cash flow and that by staying with approach.
Graham.
And drill into good wells that we hadn't had the growth our cash flow is continuing to grow and we're now in a position to see free cash flow and if we make a deal on a couple of our.
Assets, either the minerals or.
Having appropriate offer for some in the Eagle Ford or the Haynesville.
Will be even better off those assets in the Eagle Ford been very good to us.
Really got a started that's all it but now there there are relatively small part of the whole time.
And we could continue to benefit from the cash flow and the opportunity, but it also would be at an attractive deal. If I were starting over those would be the kind of assets I'd love to have say good cash flow. Good return there some upside.
And Ah.
You know, it's a little simpler down there and honest complex a you go down and hit the Eagle Ford and turn right really well.
Which you know they've gotten the drilling last time, we drilled one we did they didnt six day, so it's a great opportunity but.
Probably oh.
It it would be something that.
We could make a good deal on and someone else could benefit to just be a better fit out David there's no I think it I think him, but well Joe.
Uh Huh, please record that [laughter] fitting me later [laughter] I wrote everywhere.
[laughter] right yeah.
Thank you.
Our next question comes on the line up.
<unk>.
Hey, good morning, everyone Uh huh.
Good.
Hey, Joe additive and Oh, it was hoping we can maybe just.
Yes on San Mateo, the 200 million today.
Expansion, how quickly do you think that plant fills up.
I guess I'm, just trying to get a sense of what 2021 run rate cemetery, EBITDA would be and capex for for that year as well.
Ah well look at <unk>, it's not going to be a it's not going to be immediately you full I mean, obviously as we drilled the first as we drilled the first a set of wells said to you know its state line or that will fill a a nice portion of it and then when we put the body wells on.
In the spring of 2021 that will continue doing you know to increase it OSL think there will probably be some additional third party volumes to get added to the system and so so will you know it will continue to you know to ramp up familiar. So are you know I I don't have in front of me exactly what are you know expect.
Station fours when that when that plant comes a you know completely full but but certainly we expect the volumes to a one.
Think as you noted in the release.
In the fourth quarter. The you know we were they would days when the processing plant was already running at the above 95% capacity. So so we think that it's certainly something we're gonna be you'd from day, one and we'll continue to we'll just continue to add to it is our is our volumes increasing as I say I'm sure there'll be additional.
Third parties that that come along or other ways a are destined to be awfully clever in terms of finding ways to it but maybe even process. The third party customers our gas of other midstream companies things like that so I think but there's a lot of optionality for us to begin filling that plant up.
Okay. That's helpful or and then I guess is as a follow up the capital program. This year, obviously a lot of.
And stuff going on at both Matador, and San Mateo, but on a ball and I guess, if commodities do rebound somewhat of a midpoint by the current stood you obviously looking at aspects of this year you highlighted asset sales I was curious if you could maybe quantify through us itself how much of that outspend. You do you think you cover is it maybe 50% as it seems.
So just trying to get a sense of well just balance sheet professional as you as you move through 2020.
Well I think I think gave that.
You know [laughter] I don't want to south flip, but it's sort of like depends on what somebody off versus you know for it for some of these assets you know I think that Oh, you know that to we could go anywhere from you know covering a you know a small percentage to substantially all depending on what a you know what sort of deals that we were able to.
Bacon and and a.
Going down the road I mean that I thinks it's a you know that both of the minerals ended the Eagle Ford or you know offer the overall offer the possibility to ER to cover a substantial part of the of the outspend and and I think that that's something that to you know we would be we would be very.
Interested in doing but but we want to just be sure that we get or what we consider to be the proper value. You know for those of you know for those assets, but we certainly are mindful of you know the need to you know keep the keep the balance sheet front of mind and the incident, it's important to us it's something that.
You talked about all the time and I think we did an excellent job of it last year in terms of I think lot of folks at this time a year ago. When the thought we'd had been in the high choose to wait to none and we managed to hold that down to 2.3 through a lot of initiatives that we did including filling some portions of the you know.
Of the Eagle Ford in the Haynesville last year. So we we are very much you know going to continue to keep that front a month and continued to do what we need to do in order to manage the balance sheet and protect the balance sheet. We know what's important we know we have to do it so as to you know as to exactly what all that brings.
You know.
I think that we'll see as we go along.
Yeah, Hi guide yet thank God, just keep in mind is that our bank renewed our line of credit at 900 million. We currently have 225 million drawn so that that that means we're not gonna have any for sales or anything like that.
And that we have flexibility on the timing. So the important thing is not to sell to cheaper expected much.
You know that the you know and consider the other alternatives to what the price at all.
Yeah that if he had had a little better price of all last year.
Is what you had at 28 pain, we wouldn't I haven't that span.
Largely you know very small one that was pretty much are different. So again in your question you you Gotta taking into account what is gonna be the old price and they will trend down the nail trend up you know the political risk at the mid East I don't think is necessarily factor.
Dan So.
We plan to work on it diligently.
But.
You know we also with the.
Backing it we have from our bikes and we don't feel we have to do it and we feel we have even other options from that and our and our group has we have the drilling incentives from Sam and tail coming up you've got we've sold bits and pieces.
The Eagle Ford and the Haynesville this past year, no not call lot of attention to that.
But we for it you know we've recovered different money and different.
Different ways and and to the extent that that if there is a level price you're gonna have better cost.
And their savings on cost as we mentioned.
On capital efficiency or just the cost themselves.
The fact that infrastructures built out there on the road to the tank batteries and that the pads. So you know there's not just one way to close that gap add that March 18, I think our group did a really good job remarks me the Gulf Coast expresses operating which.
We maybe earning as much as a dollar more from that from transportation or rather trade offs. So.
That's what I would say out you know I know you you have to screen in half year.
Your deal but.
There's.
We should be an algorithm for these little little ways that you.
You know you chip away, but they add up over the course of the year.
And that's why we're one of the reasons why we faced with 2.3 instead of a 2.8 or 2.9.
On the leverage ratio so good job.
Ah tall, the staffing and not only increasing revenues, but watching the.
The cost side.
Definitely thanks, a lot Joan David.
Thank you. Thank you.
Thank you.
Our next question comes from the line of Gail Nicholson with Stephens. Your line is open.
Good morning, Thanks for taking my questions I'm never leave you guys talk about they were going to be cost savings from using some existing infrastructure.
It's about how many wells in 2020 are utilizing existing infrastructure and how you think that changes overtime.
Yeah, I guess, it's David I think that you can you can pretty much a you've pretty much thinks that.
The the wells, we drill at Wolf and you know the Jackson trust or you're going to benefit from mostly existing infrastructure things that we do at Rustler breaks or you know we're already building out infrastructure in the stebbins areas. So there's going to be from this Ah you know a infrastructure. There that you know we'll be able to take advantage of a in anything that we do in ammo bridge.
It's not Rodney Robinson, probably will be able to take advantage of you know existing infrastructure certainly the the new areas like Robbie Robinson, there's going to be do you know infrastructure built their stake line, there's going to be new infrastructure built there. So it's a bit of a mix.
Hi, good alleges that the this is Matt I would just add to that to its it's all kind of part of the as David said earlier in the discussion that building. These two businesses up to go to the same time, each and every one of these little legs that we had to to San Mateo to go out to get one of these new facilities.
Something that we can use not only to extend the matador reach there are the same until reached a matador, but also for third parties.
Great and then just a housekeeping aspect.
50 to 60 million incentive for next year. If that's just for Sam attached to our does that include an incremental 14.7 million in incentives with them and tail one.
Oh, yes, still it's both so it would be the the 14.7 from San Mateo, one plus additional incentives, we would expect to earn from San Mateo too.
And do you think told me what got that 50 to 60 million run rate is that a good number to use to then yeah. You know at least for the next several years, maybe at the San Mateo wind out that role rolls off after achieving the phone out there.
Well I certainly think said to you know I mean, we'll have 21 and 22 I think that would be a you know that would that plus or minus $50 million is probably pretty good estimate I think that but once you get into you know 23 and beyond the San Mateo one incentives will have been you know satisfied and we'll have rolled off.
And so maybe that number becomes more 35 or something about you know that ballpark, but by that time of course everything that we're drilling in stebbins and state line is and and there's another 85 associated with that where there will likely be other wells drilled in I think it's reasonable to Ah you know to expect it.
You know the steps that you know those are those wells will come into that to one thing I would say you know just to keep in mind as you kind of our modeling that out it will be started with folks. It's it's predicated on wells get turned in line you know so when they begin to produce and so it's gonna be subject to a little bit of the same lumpiness of the production you know I mean.
The you'll you'll see that to.
Now the nice thing about this we get those paid or on the San Mateo to side on importantly bases as opposed to annually or so once we sort of clear. This initial threshold just start earning those incentives, which we think will be toward the end of the year ER and start earning them into 2021, we will get then they'll get a paid on a quarterly basis.
But it won't necessarily be that it's going to be you know a 10 million per quarter. It may be you know 15 million in one quarter and 5 million. The next and 50 million to that so it'll have a little bit of lumpiness to it too.
Great. Thank you.
Thank you.
Our next question comes from the line Max Orson with Scott with Scotia, Howard Weil Silanis also.
Hi, Good morning General Thanks for squeezing me in here I think a base and all the questions that you might have to start rolling a separate call just for San Mateo still [laughter] they'd probably like you do the [laughter].
So on the lateral length side, you're you're 2020 program calls for a 53% increase over your 2019 average.
I don't think or be able to continue to increase at 53% moving forward, but wondering if.
Speak to your ability to either maintain that average or kind of continue to increase your lateral links in 2021 and beyond.
This is Matt no.
I'll take the way we're thinking about this now is because this is the new path for US forward I think going into 21 22. These these two mile and two and half mile laterals or are gonna be even more and more the norm. So I don't know that you ever get to 100%, but but I think to the notion that we would be in that the 85% range or for.
Longer a lot longer than one marlin and 75% or greater for tomorrow, I think is pretty much what we're looking at going forward.
Okay, great, Thanks, and whatnot, but just kind of a housekeeping one I'm sorry, if I Miss that's the following up on a few of the mineral questions.
About how many royalty acres do you guys. Currently out I think that last number you guys references maybe about 11200 net royalty acres has that changed.
Changed at all since then.
No I think that Matt this David or it's a that's still right in the ballpark. So Oh I think that's still a good number.
Okay, great. Thank you guys so much.
Thank you Matt.
Thank you.
Our next question comes from a lot of Richard Tullis with capital One Securities. Your line is open.
Thanks, Good morning, two quick ones for me, Joe and David.
[noise] looking at the 2020 production guidance roughly what level of contingencies for downtime you know just the move to longer laterals et cetera, you have factored into the to the guidance is is it more you know.
Contingent season than what you've done in the past or kind of similar.
You know Richard it's David I think that it's probably I would say, it's probably reasonably consistent with what we've had in the past I will say that you know that it may tend to be a little bit higher from just from the standpoint that we do have been somebody gets with these bigger pads and more.
Well, there's a lot of Oh, there's lot of wells being completed but to save time and and and you know we one thing I can tell you for sure is that it's all been very.
It's been very meticulously thought out and and Oh in terms of how that's going to work and how those are scheduled you know we don't typically just say yeah. We think it's gonna be you know a you know X percent and then the and just model that flat across the across the board it's model very much with <unk>.
You know with a tightening component as well so our teams you know our teams are charged with and do a good job I think of actually you know figuring out is they have the wells coming on in operations in their area of what has to be shut in trying to anticipate what a you know what other operators in the year, you're gonna be doing and so we do try to.
From put a little more science to it I think that you know, it's usually about 2% to 3% and I would imagine that's about where it is on average for this year, but that doesn't mean that it's it's it's just linearity that you know probably changes from quarter to quarter.
That's helpful. Thank you and just lastly.
David earlier in the call new asset areas were mentioned I just wanted to verify that that comment is related to that to the company's existing acreage portfolio is that correct.
Yes, it absolutely is an ideal so I mean, no Richard the Oh, I think when when Joe mentioned, a the the new assets. He was referring to in particular the work we're doing on the Robbie Robinson area. The work, we're doing down at stake line and certainly we feel like that to there are other areas of our existing Delaware portfolio that.
Offer a lot of future potential you know for Matador, but when we're talking about new assets or you know you didn't need we anticipate that we're announcing we're about to go into Utah or something like that you know so we're a [laughter] you know we're talking about just being right where we are there yeah. Richard This is Joe and Uh Huh.
I want to emphasize yeah, we got a very full flight, where we are right now and we're really talking about new asset areas, we're really talking about different zones. There more zones opening up all the time you know when we went out there we thought we had about three sounds yeah, five six years ago, and I think we're producing from.
16, or 17 different zones, and the final point that I really want to make on that some as we haven't talked about the Max common but that's been a very important part of our success is that the and the mass calm Ryan we have all in real time room run 24, seven by engineers in July.
I'll just here, it's affirm that runs 24, seven that's looking real time, what each of our rigs or do it and within each <unk> target zone. There generally a preferred so that you want to stay in the middle of that preferred sound, because you'll get more reserves better permeability.
And if you can do that you'll have more productive see if you were to drill out of town or even now that preferred so whatever if you drill have all zone, you might be getting nothing back where as if you stay in the preferred sound that's more than even the rest of this out so that's generally up.
Smaller target 15 to 30 feet, but if you stay in there you're gonna have a better.
Then expected well if you drill out of town you may not yet something down the old days.
They got might suspect after on the rig he was out of south but by the time. He calls it could then you know several hours.
And then you gotta redirected back into south and Youve loss at that much of the production.
Productive interval in the well we cut that down so we're saving money and add reserves on every well we drill been drilled it since day one.
Bad debt, we would like to invite all that he had to come and get to know us what have lunch or dinner and take you down there and you can see a niche dramatic.
What they are accomplishing.
On there and one reason why these relating to better wells and.
And you know just to those to the operations group, the engineers and geologists working on that but they're deliberate and their results. Billy do you want to add to that user joke, that's exactly right a mismatch calm and big data you know that's that's something that was needed you know back in the eighties Ninetys, you're just trying to.
Stay somewhere in a particular formation.
And.
Even though you know 2000, you're trying to drill a thousand put a day and you've narrowed it down a little bit to a part of the formation, but now were drilled 200 or you know.
100, U 200 fluid and now you know with 4000 foot day using lateral they were keeping that in a small or target formation and I mean, there's no way you can do it without nice Tom and you know all the different software big data, they're using its amazing they just keep getting better and better and working with a supervisor.
Does that service to fine you know different ways to make it better watching all the offset wells and it's all real time, it's not like it used to be like you're getting data from you know bow wells and pulling it up after you've already drilled there I mean, they're watching out from there compared to the other wells that they drill next to it and other operators group.
All of them I mean, it's just getting after yeah. So we're not the only company was such a run but it is something that adds to your efficiency.
You know saves money and.
Adds to your reserve life, and we see it make a great difference and once you sell to say it and that's why these results as we've been able to generally report better than expected.
Drilling results in cost because this is contributed and it has our geologists and engineers working together.
To make it more tightly integrated.
You know operational effort.
Bob.
For the team concept that we try to emphasize is around here. So Richard <unk>. Since you are the last got to ask questions that I was hoping somebody had asked me that so I just thought I'd jump in on the into your question period and put in that plug for operation people.
Happy to happy to lend to hand, Joe appreciate all the comment I think yeah. Thank you Billy [laughter].
Thanks, Thanks Richard.
Thank you ladies and gentlemen, this into Q1 a portion of this one is conference call I like to turn the call it over to management for any closing remarks.
I think I made them [laughter], but it's been a great team effort as Ben you know, it's fun to have your best quarter.
Fund to have your best year, you know would like to simplify that laugh a little bit and they have a few at the other.
Difficulties, but things are going well here I'm proud of the effort and death, you know looking forward to what we can deliver value that we can deliver for you in 2020, and 2021 and and tab plays that we can say with confidence that.
But at this time next year, a we think the free cash flow standard will be clearly same and very close to where.
We will be as a company.
Ladies and gentlemen, right talk talk to you later.
Ladies and gentlemen, thank you for your participation today. This concludes the program.
[music].