Q3 2020 Matador Resources Co Earnings Call
My name is Sarah and I'll be serving as the operator for today.
At this time, all participant lines, one of us and only mode.
We will facilitate a question and answer session at the end of the company's remarks.
As a reminder, this conference call is being recorded for replay purposes, and the replay will be available on the company's website through November Thirtyth 2000, it's money as discussed in the company's earnings press release issued yesterday.
I would now turn the call over to Mr., Mike Smith.
Capital markets coordinator for Matador Mr.
Mr. Smith you May proceed.
Thank you Sarah and good morning, everyone and thank you for joining us for matters third quarter 2020 earnings conference call.
The presenters today will reference certain non-GAAP financial measures regularly used by Matador resources in measuring the Companys financial performance.
Reconciliations of such non-GAAP financial measures with the 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, maybe forward looking and reflect the company's current expectations or forecasts 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 are contained in the company's earnings release and its most recent quarterly report on form 10-Q.
Finally in addition to our earnings release issued yesterday I would like to remind everyone that you can find a slide presentation in connection with the third quarter 2020 earnings release under the Investor Relations tab of our corporate website.
With that I would now like to turn the call over to Mr., Joe Foran, our chairman and CEO Joe.
Thank you, Matt and good morning to everyone and thank you for participating in todays call. We appreciate your time and interest in Matador very much similar to last quarter.
We have the five slides as Matt mentioned.
Had we want you to know that a will stay and answer any questions you have for as long as you all want to talk.
I have prepared remarks is part of the earnings release.
In the interest of time to give more time for questions and discussion.
I'm going to skip over that and go directly to the slides.
The slides are aimed at not just reporting on the quarter, but to give you a feel how well we've done.
With our goals and metrics for the year.
Only area. If you look at that Slide day in particular, you may remember.
Yeah. The very first of the year, we said that we had a series of wells to do that we were going to drill the six Rodney Robison wells in January and February and bring them online and then and April and May that we would have the right whales and engineer.
In July we had had the leatherneck wells.
And then in September we would have both the San Mateo expansion online and the operating and drill that first 13 wells in the Bourse area at State line, we've accomplished all of those <unk> those.
Projects.
And Karen.
On budget and then the drilling case better.
They have budget under budget.
So that happened. This way said, we also resolved to the improved the balance sheet, which we had we went down from six rigs to three rigs.
And took other stats, reducing capital cost GE and I and the L. lead you may remember that Matador was the very first company to take salary cuts and I took a 25% type chess board.
I told what I was doing it voluntarily to 25% pay cuts to them. We went all down the line the executive Vice President is to 20% rise our vice president of the yen and the staff at each of the staff to five we also rotated.
Junk engineers out into the field to taking place a lot of contract people, which are.
Led to a capital cost savings and GE in a savings and ER and then this is a year, we were really going to stress in 28 pain, we drilled 1% longer laterals in 29 came it was 29% and this year, it's in the high 80%.
And that is a very important step for us to move from one mile laterals, the two mile laterals because in doing so.
You really improved your capital efficiency as shown sell to step up into.
You know, we we say the the better performers a capital efficiency was essential.
Carried out that part of our business plan, we restructured our hedge portfolio in order to protect our balance sheet and our leverage ratio on.
On our bank covenants, the San Mateo has continued to improve and now that line is 43 miles across some of the best country in the Delaware.
We're anticipating.
You know strong.
Stronger.
Quarters back quarter, and that's worked out as well our marketing group is work hard.
Get the best possible process, and we've done a number of non core asset divestitures.
On more or less I brick by brick we have not one of the options was monetized said mineral interest or even part of our San Mateo.
Fortunately our performance was strong enough and other areas that we didn't need to.
Huh.
Turn to those options.
'cause it improved the balance sheet, we're on our way the.
The balance sheet will get better we're delighted that the banks have.
Oh approved reaffirmed.
Our bank line of credit and we thank RBC in South America, and the other lead banks in the group.
For their support and that means a lot to us and we really value that relationship.
Then as we mentioned in the San Mateo got it.
Blind and it's right away and it's all the various equipment done on.
On time and under budget.
It's operational.
And.
We're really appreciate the extra work that our field people dead on that and on production this year and really put in the extra time.
To make it all come together are very complex project and definitely a lower corner of slide eight you see the capital efficiencies a better.
Drilling and completion costs, which are.
Not quite but almost half of what they were.
As a year ago on slide they it just shows that.
Then our guide is for.
Our debt picture is will be better than we had originally projected and that will continue to work on that in 2021 as our most important.
As part of our very most important projects.
Slide see yes, roughly.
It reflects the drilling accomplishments that we appreciate bill even crescent.
And Glenn Cliff.
For getting that done.
That's been a major achievement and really improves the well economics. Many people ask why are you still keep three rigs rather in line not reduced the two or one or none.
And at these prices.
Over the years I've been out here 40 years and the wells you drill when oil is down will be the most profitable wells.
That you will have because.
When you earn an extra dollar revenue.
The royalty owner takes a big chunk of it the state takes a big chunk and you're left with.
55, or 65% something like that but when you lower costs that whole dollar couldn't go to your bottom line and not to express appreciation.
For our operations group.
You may hear more about this if he asked the question, but working with the relationships that we have with Patterson.
With halliburton or analysts slumber J or.
Any other Patterson international their Frac crews all that we really don't try our approach is not to try to beat them down so much on price, but ask them.
Where we can where and how we can improve efficiencies and they've been good and so there's a lot of the savings here are not from beating them down on price at all but the way they've worked with us which we very much appreciate how to be more efficient and so we're getting there.
Better, but they're getting better to get more work done in a single day and want them to know how much. We appreciate working with his hand in hand slide.
Slide they simply tells you where we've had some very substantial savings of $360 million.
More than we expected and where it came from and to.
And our expectancy that well.
Well.
I'll have further 328 year to date, but we still expect more savings in this fourth quarter and the final slide eight here just how it's all turning now.
But going back to fourth quarter 2016.
Which was a difficult challenge in time to you see the steady progress that we've.
Made on our production.
And and particularly in the Delaware.
That now with where were at their approach in 70000 be a lease.
And.
And are excited about the lineup for this fourth quarter.
EBITDA goes up and down with price.
But we.
We still manage.
Increases.
Relative.
To the progress that has been hard work.
But this.
Teams the various departments really work really well together and I think.
Proud of these numbers as I am.
And the easier time selling prices for them.
Hi.
And then the last you can see the progress San Mateo is making and quickly ramping up now that we have this expansion and increase the capacity at our gas processing, our saltwater disposal and our old gathering and with that I'd like to.
Say once again, we like our chances very much going forward. It would now take your questions.
Thank you.
Ask the question you need to press Star then one on your telephone.
Withdraw your question please pass the powerful.
Due to time constraints, we ask that you. Please limit yourself to one question and one follow up again, we ask that you. Please limit yourself to one question and one follow up until all of has a chance to ask the question.
After which we will welcome additional questions from me.
Our first question comes from the line of Scott panel.
Panel with RBC capital markets. Your line is now open.
Thanks, Good morning, guys.
Joe you all had made a noticeable pivot.
To look at free cash flow going forward and maybe comment through 2021 can you just give us a sense of how is your mind changed given everything that's happened over the last year or so.
On the strategy of Matador and is that a sustainable change you think is going to occur and maybe around some of the moving parts are on that.
Yeah. Thank.
Thank you Scott.
You know, it's just really a question of what's most important under this.
No all the circumstances to create value.
And.
Last year at this time, a little earlier, we realize that one mile laterals.
Okay, they were profitable, but they weren't going to be as profitable.
Or is helpful. As a 10 mile lateral so we saw.
To get the pathway for US was first get to the hurdle, where we were capital efficiency.
No that saves money and makes better wells.
That have.
The two mile laterals have less declines.
They are more profitable.
Just a lot of value getting to be more capital efficient.
And to do that.
We saw the opportunity in the BLM lease we.
We paid up for it you know we took flak for it but we've already doubled our <unk>, we doubled our money on it and adding value to our asset base and we have a lot more wells to drill in a lot more.
Oil and gas the harvest so that that need to be to act on that.
And to get that project going.
And.
At least the first step in that completed put us in an entirely going from 1% longer laterals to upper Eightys almost 90% you can see what a difference that night now having done that.
And having gone into debt to acquire that that was temporary debt we weren't going to.
Do that.
Having accomplished that and the expansion of sand the tail, which is a no decline business that put us in a deal with lower declines.
On our oil wells and lower declines on our overall cash flow because.
San Mateo is cash flowing and now that we have the merger.
Bill do even better.
So they have had to be done.
First no.
Now that we've done that and free cash flow is an option.
Weve appreciate our bikes support all through this and it's time for them to give some back and improve our leverage ratio.
And they worked with US but is now their care and and once we do some of that then we can look at the options we have to.
Return.
Some or more to the shareholders.
That's non on there's no definite plan because first thing he has.
Get the banks.
Get the bank debt down.
And then we can consider other options.
The pivot as.
As you know you've known us for a long long time.
Early days and Matador, we we didn't have any debt.
Let it came along that to run the business as a public company a little leverage was helpful to the overall.
The overall growth so.
You know then in 40 years of the business, we've always paid.
Money back and we're proud of our.
Credit ratings and.
But it's timely.
To make it a little change and also you know listen to our shareholders.
Who.
You know, who we respect and think they have ideas and and their integration they've been in agreement with us to do.
This first achieve capital efficiency so you're.
You're monitoring.
But also take care of your other obligations and so were.
We're all on that line.
And I hope that answers your question, but if not give me a follow up Scott.
Yes, and just to confirm I mean this is in so this is a plan I mean, you talk to your 2021, but this is sort of like a go for plan at this point right. It's not necessarily just through 2020 point 2021.
No I mean, I think that the.
Historically, we like having our leverage ratio down there it closer to two or below.
And it's not.
That we have a debt problem, it's just under EBITDA all because of price.
When we went public you know all was at close to $100 and now we're working at $40, but next year or I mean, we're we're going to produce.
Maybe 15 million barrels I'll use that number they say easy to multiply.
If you had $5 extra price 45, that'd be 75 million. If you were lucky enough to get $50, I mean 15 million by that multiplication.
And that.
That gives you will.
A lot of firepower to get the debt down there to two or below but that's where we'd like to be.
But the first step is to think about what builds value and we thought the really most critical thing we'd get to where you could.
You know.
You could achieve this capital efficiency.
Would build the long term value.
David would you add to that on that.
No I don't think so I think Scott we do.
We do feel like that to that you know the.
The plan that we have going forward can you know can.
Can be sustainable and one that will.
Generate cash not only next year, but you know in the future as well so.
I think thats the path that we're we're trying to embark upon.
Okay, well I appreciate that clarification and as my follow up question on consolidation, obviously as you said the the energy space and particularly if you all are in a position where there are a lot of the smid cap counterpart car counterparts are going away.
Where do you fit into that conversation and obviously you're in an unique position where again you are from a smid cap perspective, there are not many close peers aligned with you did does it make sense for you to be part of the consolidation going forward.
Scott.
At this present time I don't see much of an advantage.
Look where we're achieving what everybody wants to have which as you.
Production's going Ah you know.
Cost are coming down.
We are starting to return thanks to the banks.
We have grown from a standing start you remember when we went public in 2012, we had no production in new Mexico, and now we're probably going to be.
We're currently in the top 10 in both gas and oil and as this consolidation happens, we'll probably lose up to five or six we're at seven.
I think currently so we're ahead of Debbie PX in some of these.
You know marathon some of these other much bigger companies.
So we think we're playing with him.
And then our numbers are returns are as strong as anybody.
Having said that we don't think we need a partner.
We.
Where we also recognize were a public company and we play a straight guy so if someone.
Were to make a.
You know serious offer we'd give it serious consideration, but in the meantime, Scott is that if you look at the ownership.
Matador and the executive group, we make far more from the from our stock knowing that with our ownership I'm the largest single shareholder.
But Matt David the whole group own.
Multiple most of their peers and other companies.
We make far more from our stock going up than we do from our salary.
So our primary interest is getting the price so.
The no premium deals don't have much we don't see the appeal.
The staff is complete.
You know the others don't have a midstream, which is again gives us a big advantage operationally and financially and.
That's built out pretty well in our our areas added.
But again we.
As you've heard US say, often we reserve the right to get smarter and if some opportunity is presented in front of us that.
Is good for our shareholders, we'll do it but.
We're shareholders to.
That's a.
Thank you that we have a big ownership so we.
Were motivated we just hadn't seen the deals any deals that would.
It would be a good fit culturally or.
Financially.
Or from our property asset base.
And.
And we think we have a really good path ahead of us.
Now that we've we've proved up Stateline Rodney.
Other deals and have the midstream does that.
And Matt would you add anything to that I think you said it well do a thing for.
From our perspective, I think the notion just we're continuing to create value we're not opportunity pool, we're opportunity rich. So we've got a lot of things that we can do that.
That being said about you said if the right deal comes along and it's accretive to what we're doing we certainly would be willing to look into it and do what's best for the shareholders.
Appreciate the color thanks, guys.
Thank you. Our next question comes from the line of sale Nicholson with Stephens. Your line is now open.
Good morning.
Really strong borrower wow.
That came online when you look at Europe look.
Formats.
Well versus your prior expectation.
Thing is compare and then also specifically on the lower Wolfcamp B, well look a little bit gassier than your normal Wolfcamp B Mick talk about what you saw there.
Yeah, sure Hi, Gail it's David.
Well first of all I think clearly.
We're very.
We're very pleased with all the wells that we turned to sales this quarter.
In particular, the Liberals wells I think as we mentioned in the release the yet.
The uniformly came out to you know better than the than we anticipated we knew they were going to be very good wells. We knew when we bought that two years ago. It was going to be a.
Excellent area and.
These I think these first wells have certainly have certainly borne that out.
The big way with regard specifically to the the Wolfcamp B first of all I think we're very pleased with the results of both the Wolfcamp B wells the.
Upper Wolfcamp B I.
I believe had around 37%, okay, which honestly is quiet, yes very closely in line with the sort of what our Wolfcamp B wells had been at Rustler breaks. So I think that was a that was certainly in line with expectation and then even though the the the lower b well is a little bit gassier.
Those wells have extremely high pressure that was making 15 barrels a day and I mean 15 million cubic feet of natural gas per day, and a whole bunch of oil and the gas itself is very liquids rich so you're probably talking to 13 1400 be to you you know gas there so I think that.
You know, it's a it's a very strong natural gas will along with a lot a lot of liquids content from a from the midstream standpoint.
You know, it's even though.
Yes Stephen.
It's even more exciting. So you know I think that I think we were very pleased with the with all the results. You know you probably got a you probably got a thousand foot of Wolfcamp b there at the state line and so you know we've we've tested the two intervals and I can guarantee you that to Ned Frost to sitting at my route this more.
Turning probably has got two or three more just in the Wolfcamp b itself that you know that that we might consider.
You know testing before this is all over so I think I think what we've demonstrated is the be continues to be a very important target for us and we're excited about the opportunities to develop it going forward I will just add I think there was one of the notes out. This morning that to you know that it was pointing to the fact that we weren't drilling any b.
On the body side right now and.
I thought I might just to take a moment and just say has nothing to do with the results that we got all the boys side, we actually started drilling those volumes will back if you go back in May.
Hey, and part of our.
Part of our appraisal program was rather than testing the b on the body side, we chose to test the first bone spring on the bond side. So I think right now everything is going.
Very much according to plan or better with the you know what the state wide development.
I will say I.
I could not have foreseen that we would be able to bring those wells in under $800. A foot you know so I think that not only the results.
From a well performance standpoint, but from a capital efficiency standpoint, and a big shout out to everybody.
Matador, particularly on the you know the.
Drilling completions operation side. The production you know aspect of that project, which was a very big scale for you know for Matador and it was just pulled off without a hitch and I really want to complement our teams for everything they did to get that you know pulled together when we said it would be done yes, Sir yes, along those lines.
To give you a feel is our completion group.
Had 750 separate fracs, so for 24 hours a day for two months they were apt here fracking those wells and no hitches.
Unbelievable great performance, but they have just think of that magnitude of 700 and safety Fracs 24, seven for two months.
And the same thing at that our production group and our guys in the field. Jason then Doug for coordinating the three pop system getting to the Rodney Robinson's because you couldn't produce them. If you weren't on pop that you couldn't get trucks at that road that would have handled it so coordinating having all three.
Ops gas water and all there at the same time getting them online, bringing them on the logistic great feat in that and that's why I mentioned too.
Uh huh.
You know that.
Our group probably moved up.
Steps getting to the point, where they can do a project of this scale proven that they could gives.
Gives us a lot more options to do and number of zones here gives us a lot of options that were still in the appraisal.
Phase of both projects and that's exciting unit sale so.
Thank you for the question.
Thank you for all that color.
Thank you.
We appreciate everything that goes then.
Hi, Mike.
[music].
Okay, I'll give you a huge.
Financial benefit and I feel like sometimes the market does not appreciate the kind of turning up free cash generation in the cemetery.
Side as well as the incentive benefit can you just kind of talk through 21, and how you see on that.
I kind of underpinning and helping that retasked generation outside of the commodity price environment.
Yeah. Gail. This is this is Matt good morning.
Try to walk you through a little bit of that and thank you for the question. We're really excited about say immaterial and how it contributes to the free cash flow discussion for Matador in the aggregate. So if we just contemplate that and as Joe said, we use simple numbers here, if a cemetery throws off $130 million in EBITDA next.
Sure.
We'll get past that so we'll get about 65 million.
We anticipate there will be maybe 5 million that will go towards interest expense, so that gets us down to 60 million.
We also think that the maintenance capex for for San Antonio for the year will probably be around 40 million. So we will be responsible for half of that so.
So you take 20 million off of that gets you down to 40 million when you add in the incentives like you mentioned, we were going to get the 15 million for let's say material. One we think theres probably going to be 15, maybe 20 million for Sumit too. So you add all that up you end up with about 70, maybe $75 million in free cash flow that goes into it will throw off.
Off in 2021, so and that's a with the current volume. So if we were able to add additional third party volumes it will get even better than that so we were very excited about that.
The free cash flow story was number two.
And Matt you're exactly right, it's not fully appreciated how do these in tandem drilling the wells expanding the plan works for a win win situation because we've gotten a drilling incentives.
Both for San Mateo, one San Antonio two even though its merge.
And you provide.
The oil gas and water.
Midstream business to San Mateo, so they prosper as well and I think you're exactly right that it's an underappreciated.
Asset add to them.
That again will.
Provide value for years to come up again.
Put almost immaterial what I'm really looking for is the midstream companies.
An anchor tenant that's going to do what they say, they're going to do and we've got that with Matador. So.
When we did the expansion the only volumes we contemplated in economics were.
Matador volume so that project works, if we don't give any third party on the.
Matador side of the wells that we're drilling in the state line and opened Stephens area, and even erosive reflux or or wells that we would drill with or without a drilling soon and so like Joe said, it's just a really nice way to work at both business units together.
It's a great asset I really appreciate the color. Thank you so much.
Thank you good to go.
Thank you. Our next question comes on the line of Gabe Daoud with Cowen. Your line is now open.
Hey, good morning, guys. Thanks for all the color so far.
Wanted to start a little bit on on Capex and.
I understand there's timing differences between accrual and cash capex, but I kind of look at the financials.
Through Threeq you it looks like there's maybe about $140 million difference between cash and accrual if I look at total upstream capital and then 100% of a cemetery capex. So I guess Im just curious if we should expect to see that reverse in Fourq you are moving forward.
Well you know.
Hey, this is David.
Look you know.
All I can say is that the.
The the as you know the Capex numbers that we.
That we report each quarter.
Our the accrued capex and that's whether that cash is actually.
Gone out the door or not.
You know we're required to report it but we do report it on on accrual basis and so.
Every every operation you know that's been completed by the end of the quarter is included in that to accrued Capex number you're very correct that because we consolidated same to tayo that the the cash flow.
You always reflects 100% of the San Mateo capital spend the cash flow statement does and.
In this past year medical is being responsible for less than 50% of that because of the fact that we still had some portion of the carried interest that we had negotiated so really in 2019 and 2020 outdoor had much less than its ownership I think if you went back and looked at the total capital spend.
For the San Mateo two expansion, but we probably ended up with a you know paying about a third of the of the expansion costs, maybe 35% and we ended up with 51% ownership in the expansion of course, if you have I think you know core.
Quarters, where you've had higher accrued capex that make show up then.
In the in the next quarter and then it rolls itself off as you you know is.
As you go through so there's always going to be a little bit of a disconnect between the.
Rule in the.
And the cash flow Capex as we have.
I think the other thing too to.
Point out as we've rolled from six rigs to three rigs just the general both capital spend and cash flow spend you know that you will see will will go down and continue to stay on as we go forward.
Thanks, David but that's helpful. That's it.
Just as a follow up maybe trying to get a little more detail on 21 I think.
I asked this last quarter too, but I guess, just curious if we should still expect.
Mid single digit oil growth number.
Year over year at capital, that's about 100 million or so less than 2020, and and those that program still deliver free cash flow at $40 oil.
You know look I think that we we do expect that with the three rig program that we'll be able to generate mid single digit.
Production growth you know oil gas total I think they'll all be fairly similar for.
You know for 2021, obviously, we haven't finalized our plan or put out guidance, but that's the way that that's the way that is looking to us I.
I think that we you know we would expect to see.
Quite a bit less in the way of Capex for next year.
100 million plus or minus is probably not it is probably not a bad you know a bad number.
We'll even do a little better than that but a lot of that I think is going to depend on just to just pricing going forward. The degree of non op activity that you know that we may have but I think that's in the ballpark and yes, we certainly believe that add to that.
At $40 oil, we have the ability to generate free cash flow next year in aggregate for the company. So.
You know that's a that's the way that we're still looking at things gave and the.
I would I would presume that you're you know you're modeling in rest of it's probably probably showed the same so clearly if we get a little bit better oil price will will will be able to do a little better even with the cash flow, but but I think we're you know we feel very very confident in our ability to generate to.
Free cash going forward.
Even down to levels of $40.
Great. Thanks, so much David very helpful.
Thank you.
I can come from the line of Jeff Grampp with North.
Northland capital market. Your line is now open.
Good morning, guys.
Good morning, David on Jan one.
Question for you, Dave or maybe anyone wants to hop on it here on the on the topic of leverage.
You'd mentioned kind of historically two times better than kind of what you guys have operated at obviously with prices that.
Mark to get at how big of a focus is it to get back to that historical leverage target. It sounded like maybe asset sales weren't super interesting.
In this type of environment. So how do you guys really look to balance may be opportunistically looking at selling.
Reading.
Deleveraging versus maybe being more opportunistic on asset sales.
Little bit.
Our leverage than you have historically.
But.
To sell something maybe you guys don't want to.
Touching.
[music].
Well, Jeff you know this is a complex.
Well now a very complex business and you've got the balance.
So sizes lifeline applying now maybe.
You've got different factors to consider one is.
As is.
Is the overall thing is are we creating value and we believe we are is that right.
You have now reserves that have grown from.
Yeah, 250 million barrels of oil or gas equivalent that's almost from a standing start when Lee.
Went public so you've had growth of there were.
Where.
That's going to be moderated a little bit at the same.
Time, you're trying to build for the future. We got a lot of pushback. When we went public we didn't quote.
20 years inventory, you know and we.
We thought we had a reasonable amount but.
But as time goes along we bolster that and so you know we've got plenty of eight plus locations and.
And I'd like to note that.
During this time, we have also built up a plan b in case there's problems.
With the federal acreage that we have 26%. So we have hundreds of eight plus locations that are not federal.
Leases last year, we drilled 58 wells. So you know that's.
Plenty of years.
Supply.
And ER and then the same thing on people you don't want to get too. Many people you don't want to have too few people and then the addition of the midstream is that was something that most people didnt do.
But when we moved out to the Delaware.
The infrastructure was old and we pro somebody that has an EPS from gas. He says I can but you won't like it is kinda leaky now you know you really need to replace the pop. So we did and that first project we sold.
And leave.
For for.
Pretty good sound them money, we've been pretty much playing with house money.
Ever since as we built that out and we saw the operational advantages.
Of that.
That pot getting there one are well was ready to come on so we weren't flaring you know that was good for E.S.G. If this adds no go.
Good afternoon Nomics and.
I see and financially it's been great because we ended up with.
I think it was 175 million in carries.
On our.
Midstream and that was just like.
Cash infusion, but you didn't dilute your stock unity, we thought that was the right thing to do.
And not to do the project is we were drilling in those areas that have that.
Wouldn't have been the right timing and that's why you want a strong balance sheet as we head go in.
At this time of.
Low commodity prices that can.
Tied you over or even out some of the slopes and.
I feel there's been way too much focus.
Oh.
On.
Dan again, I don't think we have a debt problem the amount of debt compared to the amount and value of our assets I think it's yes, and the other adult problem. During this period of low prices and weve been careful to protect ourselves on the hedging so that we don't trip a bank covenant and that.
We doubt we'll get to the other side.
And.
So.
You know, it's it's important but we're not going to cut off our nose to spite or face or you know.
To do something that doesn't make long term sense.
Were large shareholders, we're playing for the long game.
We believe this will deliver.
More value to people over time.
That have these reserves at a low cost because your margin your profit margins going to be that much bigger.
You know I know a lot of people that's all they want to talk about but we've been through things when we first went public.
There was an investment banker after investment bank came in here and we had no debt at that time and so you got to take on debt. If you don't take on debt at this time ill never be any cheaper than it is now well I'm glad we didnt do it we saved it for a time, where we wanted to move forward.
The cheap capital efficiency.
That we have with the drilling of the BLM leases and others and building out the plan and so you will see.
Yes.
Having to our cash flow continued.
To grow and as it grows we're going to allocate more to repayment of debt and the shareholder concerns and.
And yet.
Not hurt the long time.
Viability.
Matador and that I think that's reflected.
And the banks actions.
As I approved us.
In February and increased our commitment.
[music].
On that loan.
Guess unanimously in February and this time they approved this without any change so hemi oil companies can point to no change in their bank agreement and we just got a great group and everybody's working they fully understand what we're trying to accomplish and we have accomplished it.
So we've done what we said we're going to do they have confidence in us.
And the staff has the same site last open period I think 200.
The staff of 302 thirds bought stock so the people that know the company best and device you know they get it all into every aspect of it all have confidence and I think the market has just not fully.
Fully why did the value of the midstream or the importance of the capital efficiency going from 1% two years ago to 90% or so.
So I I think time will tell we had 26 quarters where weve.
Met or exceeded guidance, so we're not missing on our numbers.
We're steadily achieving it in and think we we write a little more.
Confidence that these are the right.
The right moves to make and that we're headed on a good path.
And.
And so that's why we're happy to get out and talk to people.
And showing that we are accomplishing what we said and if we keep doing that this is going to work out to some big values and if you look at the assets behind each share of stock.
I'm not going to try to go into it you can take our reserves and divide the number of shares and say that everybody has a couple of barrels behind.
Each share of stock in multiple Mcs and then to boot you got 43 miles of.
Big path going through some of the best areas and and plant efficient plants. So I like our chances and it's been a collaborative effort by everybody here, So I hope that.
Gives you some further color behind.
Our strategy, which is is working we said we'd do this and.
January and it all came about just as we said and planned and I give a lot of credit to the whole staff for pitch in as I have.
I appreciate that Jeff.
The answer.
For my follow up on the one thats on San Mateo and merger of the two.
There are there any financial or operational field level type of benefits of merging those entities or is that just kind of streamline kind of back office internal process.
How should we think about that maybe.
Yes.
Value proposition or what have you.
You know, Jeff, but I think the this is Matt more we by the way you know the merger for Us really.
These things are.
I have more synergies you know so if if we were to keep those two separate we would have to operate them as a separate you know we couldn't combine the the plants right now we've got to you know 160 million train one to 61 200. So we can move gas from say immaterial, one over to San Mateo too and it just creates a lot of synergies there.
Additionally, it allows us.
You know to contribute more the assets to the borrowing base. So you know maybe some advantages there, but mostly just the.
Creates a lot of synergy.
Got it thanks.
Thanks.
Thank you. Our next question comes from the line of Neal Dingmann with truly your line is now open.
Morning, all hooked, Joe, but he's doing well Joe My first question for you. The team has talked a lot on San Mateo and certainly seems like it's now past that you know if you want to call. It a critical inflection point understanding now that its passes you all haven't given detailed guidance yet for next year, but certainly seem to be nice nicely free.
Cash flowing.
It has been this benefit or this you know having salmon tail like it is now does this give you more optionality for the upstream or do you all think about perhaps maybe asking that another way would you ask would you think about changing any part of the upstream strategy now that you have San Mateo really that that.
Backstop, if you will.
Uh huh.
That's a good question.
Neil that.
Yes, the way, we think about it is that the NP.
Drives what we do.
And we don't drill wells to accommodate San Mateo.
We drill the best wells.
You know the most profitable wells we can.
And if they fall into an area.
San Mateo salmon tail hooked up but.
We started San Mateo not.
Going into unknown areas, but that path always went to places where we were drilling and we weren't satisfied with the midstream offerings in that area. There either one enough of them there as I mentioned in the first instance, some is I'll hop Oh leaky path and.
We preferred bring it up to a higher standard and it.
And a lot of those areas and that we also felt that particularly with the gas processing you ever going to get more the Ngls and they have a favorable price to died at a favorable price.
Back then and it gave us more options where to send the gas by the central and all by the central delivery points and.
You know and Interconnects and so what we try to do is build as many options into mass doors business plan as we can.
And and you have a lot more options when you have a capital efficient 18, p. process in a capital efficient midstream to work hand in hand, we've been accused of drilling wells just to.
Help save a tail in nine pay nothing has been further from the truth and to our partners credit and I've never leaned on EPS to drill more wells in a certain area that it's done on a capital efficient basis, where does it make most sense and.
As we go forward it gives us an option.
In areas like Antelope bridge, if we want to build some over there I'm sure we could.
And we know how to operate but right now it's.
We we plan.
To have first plane on that cash flow is get the debt down some so.
Matt.
I Miss you know Neil I was just going to Edward Jones said, you know the way we've approached the midstream business. If you'll remember we started very small and you know our first project was a 35 million a day CRO French plant down in loving County, that's a joe's talking but that was because we didn't have a great option to process, our gas and so we've built a small.
We plan for an expansion and you know obviously, we sold to Enlink can mean, we've built a 60 million a day plant.
But the Black River plant and so both those volumes relative to the expected volumes for Matador. So when we started it to Black River plant. We thought we had about 30 million a day and so we built to 60 million that plant, which gave us some room to add some third party volumes and we've just done that at each step. So we went from 60 to 60, we had about EPS.
Volumes committed and you know we're now we're.
Fortunately now so we're to a point, where we can bring third party volumes on but before we have to do any additional big capital expenditure, so you'd add another train or to drill no salt water disposal will whatever that might be.
We will be able to go get those volumes contracted.
Like we all know how many VC commitment. We're you know we've got assurance that they will be there will be profitable. So we're in a spot where we can.
Not have to build something and hopefully grow.
No great details and then Joe just one follow up you comments earlier rig question you talked about even the benefits of drilling in sort of times like today would when prices are relatively weak I'm, just wondering for you or David or Matt I mean, I just again curious how you think about that given you definitely don't have.
Any obligations, we know that you guys are in a great great placed on the leases so I'm just thinking.
Cases, especially as they fall down again this morning.
Why again, maybe just if you could give more color and thats why not go to zero rigs and just perhaps complete a few docs or do something that until prices improve versus keeping those three rigs that you all have.
I've talked about.
Well first h. well, we're drilling we're going to make money from.
There isn't anything that I think that we've drilled this year that isn't gonna pay itself out and then number of these cases.
Payout.
In a big way.
And.
Second thing you.
If you were to stop then your appraisal program that we're in currently would come to stop and you really wouldn't know what you have.
And.
And the and the third and this may is one of the most important is if you stop drilling altogether, you're good drillers. Your good technical people you're good geologists are you going to hang around they're going to go find somebody who is drilling and got work for them.
So if you want to keep your organization together and we feel we've got a lot of eight players here.
We want to keep on work in particularly when they are working in making money for US you know if we were drilling.
Losing money.
But you solve this year I mean this quarter.
Our earnings adjusted earnings per share was was a profit.
And the value add it didn't reserves.
Was tremendous I think Brad could tell you that we're adding volumes there clearly there.
That as prices recover and they will recover lost supply and demand work that when they recover the value of Matador is going to go up.
250 million in reserves goes up a dollar in value you have 110 and 16 million shares.
Even if you cut that in half.
It goes up the share value will go up a dollar so there's a lot of upside.
To be in Matador and is as prices recover activity recovers, which means more opportunity.
For the midstream because they are already there.
You don't have to wait for somebody to build a line were already there we have a history and we're developing relations with other producers out there and trying to give them good service and.
And and build on that so that they deal with somebody they know as opposed to somebody new coming.
How many and that isn't a proven quality.
So.
My I've been out here 40 years.
And I found that if you stop you got nowhere I mean that.
You you just fade away.
You got to keep going.
I want to do it in a very controlled pace is Matt likes to say profitable growth at a measured pace, but if you just stop you're not keeping up on the new activity not having the best rigs you're not building that relationship with vendors because it's a lot of advantage to be working through these bad.
I'm sure vendors remember, yes, yes.
Yes, you were one that stayed out there and we are climbing in the rankings.
In new Mexico for being a large producers so.
That gives you an advantage and land owners know that you're drilling it and it all works to the good I mean.
You don't see a.
You know.
You know businesses, just shutting down and they when they reopen that they work better you've lost people, which is a rebuilding effort and that's always the hardest bike is finding really good people and we just feel like we've got a really strong staff is working hard together and trying to get better.
Every day and this is the right pace.
For Us math, Joe we've made a tremendous amount of progress Neil during these last several months I mean, we initially at the beginning of the year, we put the plan together to drill these morals Wilson and the operations team actually drilled about 10 days faster per well than we had anticipated driving those costs down under $800.
And so there's just a ton of these efficiencies that we wouldn't be able to realize if we if we weren't in the game. We've gone from multiple bottomhole assemblies to drill the lateral to as to where we've gone over 12000 foot with a single bit single motor and see single MWD. So there's just a ton of progress and and even at these reduced rig.
You know, we're looking at probably $50000 per day for for rig days and so you know if all goes back to upfront costs go back up to where they once where you're looking about double that so certainly want to be realizing these efficiencies sooner than later so move process do go back up that you're you're not long ago.
Great.
All right then last thing Neil I, just want to emphasize the importance of people.
That for all the capital and all the technology. This business requires it Oh ultimately is a judgment business and it comes down to people and that and we really have a real lack a strong group of people that can take us to.
A much bigger can they David like say, we hit above our way.
But the projects we've done.
You know I think compare well with with any company of any size and just the fact that we're growing to say the number five producer in new Mexico. It didn't that we've gone out and bought our production from some other company, it's organic and its controlled it we could go down to two rigs.
Rigs if we wanted to.
And you know we'd consider it if prices were down there in the Twentys I mean, it's not like we're married to three but for this process at this time the.
The three is the is the right is the right number.
And you know they will just have to trust that the market begins to see to the value of the components and the the value of going ahead as Matt said, you don't want to lose the ability to drill these wells faster.
That's a big part of the capital savings so.
Continuing ahead has.
Increased assets and increase cash flow and there really hasn't been a downside I think Seth.
The debt may not have gone down as fast as some.
One.
But the EBIT dollars going up.
And little better price.
I think is.
Is likely to happen.
You know and.
As competition has reduced prices prices will go up.
David anything to that is that no yeah.
I don't think I have anything to add what you said I think you covered it well okay.
Joe Thanks, Neil.
I just say, thanks, again, and congrats you guys keep it all year.
Sort of timelines out there and that that's one of the few that continue to do that.
Thanks, Phil Thanks, Neil.
Thank you. Our next question comes from the line of John Freeman with Raymond James Your line is now open.
Good morning, guys.
Right.
Yes. The first question had sort of a an interesting dynamic where it looks like during the third quarter. You said there will be some of the savings were related to some of the non op activity.
Nextel slipped from the third quarter to fourth quarter and at the same time, you know you mentioned that the additional 10 million in Capex that you all expect.
We expect to incur in the fourth quarter and some of that non op activity. That's supposed to happen early 21 gets moved.
Forward to to foreign to you and I guess I'm curious just given the weakness we've seen in oil prices here in the last couple of weeks.
Yes theres.
I guess, how strong conviction, there's about non-GAAP number is is going to be there like EPS is stuff that was supposed to be incurring late in fourq, which is still maybe up in the air given the commodity price just any color on on how we should think about that potentially that that moving to the right now is what I'm talking.
This time.
Yeah, Hey, John It's David.
Well I think that that there's a.
There is a pretty good chunk of it is already spoken for you know in the in the fourth quarter.
Some of it related to the fact that you know some of our partners have decided to go ahead and Frac wells towards the end of the year that they get originally indicated they might postpone into the first quarter of 2021 or beyond I would venture to say that probably reflects the fact that as we've been talking.
Time to get done to Frac wells cost had been the costs have been low and so I think that they may have chosen to accelerate some of those completions into the fourth quarter.
Some of the wells you know that we've you know that are going to take a portion of those costs are just wells, where you know maybe partners have decided to start the drilling of the wells you know before the end of the year, but still don't expect them to come on until the until the fourth quarter. So there may be a little of it that that might get further.
They are delayed but I think it's reasonable to expect that to that most of that is going to be incurred as a as we've indicated.
Okay.
And then just a follow up question you all did a good job of updating us on where you stand on that.
The federal drilling permits, which all done a remarkable job getting as many of those approved and received.
Sorry, you all expect to have almost another 100, a prisoner simple before year end and I guess.
I'm trying to get a sense of like how much we should think of just the nature of these these permits where you know basically they're good for two years and you have to you know get them renewed for another two years, how much of the federal permits that you all crudes and received.
If it's kind of drives a lot of it the drilling activity you see all the next two years I mean, youre fortunate that obviously it lines up a lot with where some of your better very best acreage and so it's probably where a lot of drilling activity would have been skewed to anyway, but just if you can just sort of speak to kind of how much we need to focus on call. These federal permits and how much.
It's kind of driver.
He was here in the next two years.
Well I think John.
The the the plans that we have had.
We have and have had art to run a couple of the rigs that the state line and the other rig will run you know in the.
In the Stebbins area in Rustler breaks and in in Rodney Robinson.
You know all the wells with the state line required federal permits.
Of which we have received I think the table in the in the earnings release says that Weve received all but one on the boroughs and body wells and I was told this morning that we actually got it. This morning. So so we've actually received all the permits you know.
We have them all in hand for every well that we would be looking to drill over the next several years and the you know in the Stateline asset area. We also have many of those already in hand that we'd be looking to drill.
Robby Robin soon I think broadly run. So there is only three or four that are still left outstanding at this point.
Many are in hand up into Stebbins area.
Occasionally we'll need one and the rest of the breaks area and I think you know so over the next couple of years I think we are you know we're certainly.
Look we've got we've got more permits that we'll probably drill over the next couple of years, but over the next couple of years. We're you know these things are pretty much already in hand for anything that we currently have on the schedule. So I think we feel very good about that.
Thanks, David I appreciate it.
Thank you. Thank you.
Thank you. Our next question comes from the line of Noel asked what Oh, sorry, I'm AMR. Your line is now open.
Good morning.
No barring no.
I just had a couple of questions.
Wanted to talk about service cost you touched on on them.
That but last.
Last quarter I remember you, saying that you had pretty much locked in a lot of your completion cost from the left to the year.
And as you look.
Look into into next year, and I guess, maybe even further ahead heading towards 2022.
Just curious what your.
Assumptions are for.
For what cost.
For what you expect the vendor component to be of service costs.
Sure No. This this is Matt.
We continue to see favorable service cost pricing.
Typically through up to the rest of this year, we're looking into the first quarter. So in the next year and are seeing comparable prices I do think that.
Our expectation is as long as this rig count as.
Somewhere where it is somewhere between probably 250 350, we think that there's probably a lot of consistency in the service cost.
That being said, we tend to treat or vendors little differently.
We.
We do like low prices, but what we're really looking for is a vendor that's going to help us create value. So you know we don't always take the cheapest bid what we're looking for someone who is going to come in and help us be more efficient because you know that the more efficient they become a more efficient we become and so I think that that stays consistent with us and being able to.
To go visit with our vendors about pricing you know in the.
Past, we've been able to.
Two.
Just have a conversation with our vendors you know even even when the prices go up you know our vendors have come to us.
Not quite to market. So we will agree to pay for fuel or something like that or the times, we'd go revenue. So.
Getting bids for.
Were cheaper work and they've been willing to reduce it so there's lots of back and forth that goes with this and the other thing that we want to move into the skin stand behind their work you know, we want someone's going to be there and.
It will be willing to take responsibility and worked with US is back and forth. So I think our approach. So I guess, there's a little bit different than maybe some companies.
Great Thanks, and one other.
Item that you talked about last quarter I think was.
At Leatherneck and in the release you did.
Indicate that the the costs were better than expected and the production results were better than expected I do recall that you are I think doing your first wolfcamp b tests. There I just wondered if you had any any sense of.
How about was performing.
Yes, Hi, Neal it's David.
Look I think that to I think we are satisfied with the way. The you know the well has performed a I would say that to.
You know, it's still you know it's still early and we're still we're still looking at it but but.
I look at I think we're we're we're pleased with the you know what the result of that well and I.
I think.
It's a it's interesting as a wolfcamp b.
In that.
It's a probably has a little bit higher oil cut than some of the the wolfcamp b is that weve seen so but.
Yeah, No no worries.
Great and I just had one housekeeping question I I couldn't help but notice in the hedges that on the gas side for first quarter 2022.
You had a holler, where the 260 floor I.
And a four dollar 20 cents ceiling, which given the strip seemed like a real.
Really sort of wide.
Margin you had there.
I was just curious if you could talk anything about that and I was just wondering if there were net cost that settlement with those or something.
No that was just a just simply a a an opportunity that we had to.
So to add to our hedging position I believe if I'm correct to that.
But you know we had the opportunity to add some hedges.
Like from the early after the first quarter of 2021 on into the first quarter in 2022 and it just you know that was a.
That was a hedge that we put on throughout that that period. It just you know improved the kind.
Kind of weighted average price for the three quarters in the 2021 and then we just have that little sliver that you know is currently sticking out there and in 2022.
Actually we thought it was a was quite a good quite a good hedge you know we were we've been working pretty hard to make sure that we locked in at least a 250 floor. If we could across these hedges and that was the case, where they just got a lot of upside you know to go along with it. So we could have you know we could have looked for a narrower margin, but that was just to.
Case, where we like to you know, we'd like to hedge and and it helped us to continue.
Continued to.
To fill out some of the hedging we wanted to do for Q2 through Q4, and also to get a little bit better price by adding on Q1 of 2022, So it's really nothing more than that.
Great. Thanks, a lot.
Right.
Thank you. Our next question comes from the line of Michael.
Sal with Stifel. Your line is now open.
Hi, Good morning, guys just wanted to ask on here.
Capital efficiency slide see.
A lot of competitors have been showing similar slides I think your savings have been probably more.
Significant than most it looks like more than 40% on a per foot basis over the last two years.
Is that 790 per foot number a good number to baseline for for next year.
And curious too if that number is a fair comparison to the 1500 per foot number or even higher slightly for 2018 have you have you changed anything in the design of the wells other than obviously lateral lengths longer but anything else that.
Has changed over the last two years and the design of the wells.
You know Mark does this smell takes less for the question first you know we've been able to I mean in some instances on some of the wells eliminate of an intermediate casing string. So are those cost or are built in there too but on the whole I think it's pretty comparative the you know the 1500.
Two years ago, the 1200 last year and the goal. This year was for 900, and we've driven it down below 800. So you know I'm not going to bid against the goes to.
They're going to have.
You know were reversible and go back to them up even to the $900 members. So I think that somewhere probably between the seven nine and we talked about an 850 probably is.
Good number.
I think we're certainly very.
We're very pleased Mike I am you know what I think everybody here is over the course of the last couple of years as we moved to these longer laterals I think that to the teams have executed on them very well.
You know we have our Max column room that to I think is has been you know where we have 24 seven monitoring of every well that we're drilling I think that we've got the geologists and engineers you know watching every well being drilled every day I think that's a you know we've just seen continuous improvement in terms of you know the execution on on on.
On the drilling side and that particularly.
In terms of you know staying right in the zones that we you know that we want to be in.
Throughout the entirety of the laterals, whether they've been one mile two and now you know approaching two and a half mile laterals, you know with at Bonnie So Theres Theres a lot positive there along the way over the last few years you know they eclipsed you know our own internal records almost a 100 times you know for you know for for.
The improved drilling efficiency, which I think is is quite a great achievement and so as a result, you know I think theres a lot of there's a lot of operational efficiency, but that's come into that as Matt mentioned earlier, you know using one bottom hole assembly to drill you know over two miles, that's pretty pretty amazing and Oh sorry.
I think there's just a lot of ways in which things have improved I'm also you know.
Very pleased about the fact that we.
We we these these costs have not come on the backs of trying to reduce the quality or the quantity of our stimulation jobs either you know so we've continued I think to advance the you know and improve on the on the completion side.
Pumping less sand, we're not something you'd hope less fluid I mean, you know we're a pump it at a higher injection rate would usually requires little more horsepower to do and so there was a lot of improvements I think that we've made we certainly haven't skipped or saved. It's you know it's always easy to cut costs by just cutting the you know the quality of the work that you're doing but we havent done that.
At all and I can assure you that the way that we are calculating reporting those numbers has not changed a bit you know so so that's all very consistent across the last three years.
That's good to hear.
Joe You mentioned no it's not really the time to be considering the market is not there to be considering selling down your.
Our interests are selling quite out selling.
Some of your assets, but wanted to see if you could maybe talk little bit about.
No. Your Haynesville is there much there left to be developed a realized operators.
In chapter 11, now, but how do you see that maybe the returns.
In that play competing with the say the Permian and then any.
Any say on your.
Your mineral interest to sort of frame up the potential size of a package who wants that.
Oh my.
Market returns to where that could be sold.
Yeah. Thank you for your question, Michael We've actually sold a few.
Peace in the Haynesville here and there.
It's not the major properties, but we have done some is again when we get a serious offer we give it serious consideration that the one of the angles of the Haynesville is when we made the deal with Chesapeake we reserved all of the Cotton Valley rides, So, there's probably 200 billion or more in gas and the.
Cotton valley behind pipe.
That we could access if and when we want it to so it's a nice gas bank to have it and cost. The same thing is it's held by production.
And then on the Haynesville itself that I'll give tests take some credit they've done a good job drilling those wells and cost.
And last year, they drilled a couple of wells that had very high rates and we're glad you know we kept it.
And they came and producing 40 million a day and we had 49% so that worked out.
Well for us, it's a different gas market up there, which blends with.
What we have coming out of the Permian.
And we think that's advantageous and if gas prices become the order of the day is a good return there.
That'd be a good area for us to expand our our footprint.
And then we had some decent offers but none that.
I want to make us give up that gas bank that we have there in the cotton valley.
And we have drilled the cotton valley and that it.
You know we had.
Good results.
And you can certainly launch a drilling program there is gas prices get up and then if they're sustainable at a higher price.
And.
And they are in the Eagle Ford, we sold off a number of properties.
Different people.
Down there and that's been on kind of attract metric basis. So.
We're open.
Or two that were just not in.
In a hurry and don't want to do a garage sale, where you just package them all up and sell them at a discount to somebody because their cash flow and well Oh.
The us add it's a higher oil price, it's a higher gas price down there on the coast. So.
There are reasons to keep them.
But.
Yeah.
Weird place strike gain you know I sell first Matador and we sell some of our interest in the haynesville to chest pain.
And we've sold interest from time to time, we sold our gas first gas plant the enlink. So we'll do it.
When the when the prices are right, but we just try to avoid the fire sales and.
Let him let him cash flow.
And that is that strategy has worked out pretty well for us down to just rush into one.
One thing or another and.
So.
I hope that answers. Your question if not then I've got a whole room full of people eager to.
To respond Mike.
No that was perfect. Thanks, yeah.
Thank you have a follow up.
Yeah.
Thank you, ladies and gentlemen, Doug.
Unfortunately, that's my last conference call I'd like to turn the call over to management for any closing remarks.
Uh huh.
This is Joe again, I just want to thank all of you for participating we really appreciate it and I thought there were some very good questions and if you want to follow up or have further visits we are available and we're proud of the quarter, we have and as good as it was we think it will be better next quarter.
And things are coming together for us that we're going to emerge from.
From this Kobe, Ed and low price still stronger than what we win then we were when we went into it.
You know that.
You know that.
Yeah. This is a great business, we think it has plenty of room to grow.
And we appreciate the support.
That we've received and that but once you know were available and we like these discussions.
So thank you didnt come see us.
Ladies and gentlemen, thank you for your participation today. This concludes the program you may now disconnect.
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