Q4 2021 Matador Resources Co Earnings Call
[music].
Good morning, ladies and gentlemen, welcome to the fourth quarter and full year 2021 Matador resources Company earnings Conference call.
My name is Kirby and I'll be serving as the operator for today at this.
Time, all participants are in a listen only mode.
We will facilitate a question and answer session at the end of the company's remarks.
As a reminder, this conference is being recorded for replay purposes, and the replay will be available on the company's web site through March 32022 as discussed in the company's earnings press release issued yesterday.
Now I'll turn the call over to Mr. Mac Schmitz capital markets coordinator for Matador. Mr. Schmitz you May proceed.
Thank you Kirby.
Morning, everybody and thank you for joining us for Matadors fourth quarter and full year 2021 earnings conference call.
Some of the presenters today will reference certain non-GAAP financial measures regularly used by Matador resources in measuring the company's financial performance reconciliations.
Reconciliations of such non-GAAP financial measures with comparable financial measures calculated in accordance with GAAP are contained at the end of the company's earnings press release.
As a reminder, certain statements included in this mornings presentation, maybe forward looking and reflect the company's current expectations or forecasts of future events based on information that is now available.
Actual results and future events could differ materially from those anticipated in such statements.
Additional information concerning factors that could cause actual results to differ materially is contained in the company's earnings release and its most recent annual report on Form 10-K , and quarterly report on Form 10-Q .
Finally in addition, with our earnings press release, I would like to remind everyone that you can find a slide presentation in connection with our fourth quarter and full year 2021 earnings release under the Investor Relations tab on our website and with that I would now like to turn the call over to Mr. Joe Foran, our chairman and CEO Joe.
You bet.
And thank all of you for <unk>.
Listen in on this call and taking the time I liked is simply began by noting this is our actually our 10 year anniversary from going public in February .
2012 and.
This is.
A good high watermark for us for this time last year, we considered the best year, we ever had.
All areas and in particular, just execution and the team work.
So we had between their various disciplines.
Want to.
Thank the staff both in the office and the field for this.
Good performance and say you know, we certainly understand.
That it was a record setting year in the past performances are no guarantee of future performance, but it's we feel it's not a bad indicator.
At the half.
The.
Yeah.
We like our chances going forward and we think the outlook is the best that it's ever been.
And helped.
I hope that you'll see in the documents that were sharing with you how far that we come in the last 10 years.
As a measure of you see in here the production records the reserve numbers.
You know the free cash flow all records D, but.
I'd also.
Just like to note that.
If you bought on the I P O Europe basically four times, we came public at $12 and where.
Approaching $48 now and if you had an original shareholder.
And this matador.
$3 So Europe .
Little over 15 times in that period.
As I said I would note that past performance is no guarantee tour, our future, but we like our chances and we'd rather be.
Having that kind of progress than the other way around as I say it with March madness coming that just because.
Duke in Kentucky, and those are.
Not guaranteed anything it's certainly the way to pick your bracket with teams that had been there.
And have.
We have showed some progress.
Again, I command command the.
The teams and the staff for their operational and financial progress. We've had we're looking at more free cash flow and more EBITDA than we ever have and some of the slides.
In my remarks, no sad in the pasture, sometimes tells a thousand.
Tells a thousand more.
Words, the forward look is very promising.
The BLM acreage that we bought has really come through and I know at the time. There was some question marks about whether we pay it.
Much for it but it is I think you'll see that it made a complete change for us in our capital efficiency and then we went from drilling 1% of our wells it too is longer than one mile to where we drilled 90, 899% of our wells that were a mile and a half.
For a longer.
In sum this year have been as long as 2.3 miles. So we're handling that change and that made such a difference in our overall capital efficiency.
A lot of shales don't pay out, but two to one three to one but in many of the wells that we drilled this year.
There'll be payouts as big as six to want so.
Glad that worked out.
Glad everything is.
His progress with the team continuing to get better and are young people gaining skills and experience in this and that and.
And the innovations that they brought here I have been very helpful. At the execution and commitment to get to the field to make things happen better have all come together to.
To make this year possible and not allow it.
Can't.
Look back we're going to discuss the fourth quarter, which was best quarter ever but.
After this call it'll be forgotten and we need to look forward to what's going to happen in the second third and fourth quarters of this year.
But very confident that they'll turn in another first rate performance and we appreciate.
Great you're interested in or now raised you get to your questions Kirby.
Yeah.
Ladies and gentlemen, as a reminder to ask a question you will need to press star one on your telephone.
Can we draw your question you May press the pound key.
And 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 a follow up until all have had a chance to ask a question.
After which we would welcome additional questions from you.
And first question comes from the line of Neal Dingmann from truly Securities. Neil Your line is now open.
Joe Congrats on a nice quarter, Joe My My My first question centers on sort of the financial upside we're continuing to see from your old specifically, maybe for you or Dave or the guys. Just it seems to me a lot of investors are just looking for.
Primary cash flow growth, but I'm just wondering you know I guess, it's another way to tackle sort of shareholder return how do you all see the best way to achieve the shareholder growth is it is it some production growth is it buying back shares all of the above or you know when you all think about cash flow growth, what's the best way to deliver that.
Yeah. Good morning, Neal This is David so yes. Thanks for the question I think that Oh, we've been we've been pretty consistent in our response there.
You know certainly over the course of the past year are.
True to what we said we would do we've focused our you know very laser like on the on paying down debt and on the initiating a dividend and are beginning to return capital to shareholders and we were pleased I know Joe and the board were very pleased to double the dividend and the interest you know in December of last year and.
You know we've stayed consistent to that here in the first quarter.
I'm sure that they will you know they will.
Look through the course of this year to an appropriate point, where they may choose to raise the dividend again.
We certainly are going to stay focused on getting the rest of the debt paid off.
We ended the year with about $100 million in borrowings outstanding on the RV Gil.
Pay down another 25 million here in the next few days and so that leaves about 75 million to go and I think we'll get you know in short order. The rest of that you know pay down and then we will have R. R.
Our bank facility paid down we've talked about the potential later on in the year of.
Perhaps looking at doing some kind of a bond restructuring and maybe paying down a little bit of the bonds, maybe putting a couple of towers in place, we'll see how that goes I think that would be in the latter part of the year. If if we did something like that and you know certainly we've talked about continuing to look at for look for bolt on opportunities and acquisitions.
<unk> of the sort that we have done in the last six months and.
And may continue to do again, but only if we find you know what we think are the right things I think that you know the company continues to evaluate.
The other.
Vehicles for shareholder return.
The increases to the base dividend or some sort of a special dividend if that would if that should be appropriate later on in the year, but I think that for the moment, we feel like the best thing is for us to just to kind of maintain our optionality and flexibility and.
But certainly if if things go the way that we.
Anticipate that they will this year.
You're quite correct, we will have a you know with <unk>.
The amount of free cash flow with which we can.
With which we can work so Joe I don't know if you have anything you'd like to add to that but but that's I think how we see it as well.
Agree with everything that you've said one thing I would add is the operational group.
I had a concerted effort to try to find ways to drill better wells for less money and that seems quite a but it's the truth with some of the innovations that they've done and Frac design.
The administration of the Fracs, the marketing of the oil and gas product working with our.
Key vendors to find better ways to do it.
As an example.
When do you cut down the number of days on a well those are very sustainable achievements. It lead to more cash flow that arent tied to commodity prices. So I think they've been resourceful and getting this done.
And the oil and gas business things like making the train run on time, we can't do it all from here, but just appreciating the gain to the experience and expertise.
Our operating staff have in bringing about these better wells and working on.
With our vendors to find more efficient way.
<unk> two as well.
To develop these properties.
Maybe I would just also add that I think that too that I think the company has had a very good track record over the years of being a good allocators of capital and good stewards of the capital and I think our I think our shareholders can count on us to continue to do that going forward.
No absolutely David I wanted to say Goodbye next question, just congrats to you and Matt obviously been great working with you all.
Just secondly, Joe maybe for you or Matt.
It seems to me the market still not giving you for whatever reason appropriate value on San Mateo you guys have done just a tremendous job building that up a lot of cash flow, they're great assets. There I'm just wondering on a go forward. You know is there anything else you can do do you think they have the market better recognize that are or maybe maybe just any comments you have on San Mateo.
Well, Matt I'll go first and he claimed at one of the other things that's really missing is the operational enhancements at San Mateo brings to us is that.
They're able to get there when we're ready to turn these wells on so we're not waiting to turn on the lines in Michigan days at production second in this day of ESG, the environmental advantages that they bring that they're there to hook up. So you don't have trucks on the highway hold them at all or the water.
Are the emissions problems and that really improves our environmental profile and then the options that have a net.
The three pipe system on where your market. Your product are also gives us an advantage so Matt acumen math, Matt Spicer and James Meyers that now the whole group out there has done a fantastic job Gregg Krug and working through this.
Midstream and our partner five point and again just a good another good team effort.
People working together like better things happen, Matt, Yes, Joe. Thank you said it well I'll just add to that Neil I think for for San Mateo There Theres a couple of points here and Joe hit on what is very important is how these two business lines work together.
Got an E&P company that doesn't have a midstream company, that's serving their needs. That's a problem in and vice versa. So it's it's still and we said this in other calls is still really not used to walk down the hall.
We've got four wells at such and such.
We weren't hooked up on whatever data and that happens. So there's just a tremendous amount of value there.
I think what's happened over the course of time, you were kind of to the point now where you know its we got half a million dollars closer to half a million bcf processing capacity or our water volumes are up to where we could handle at least 370000 and so and then the whole system is on the same acreage. So we're at a point now where.
For us to go out and see.
And additional capital we can make sure that we can get a return on that investment prior to doing it.
You know we've never been the building and then they will come company. So any of the capital expenditures that we have going forward will be certainly based on either a minimum volume commitment for an acreage dedication and the other thing I wanted to say was you know Matt.
Pat and Todd and business development team has done a really nice job going out and securing either minimum volume commitments.
Sure they were going to get a rate of return or an acreage dedication and as rig counts back up over 600 of those acreage dedications become even more valuable because other operators come back to drill additional wells on the assets that they have dedicated those volumes to the same materials. So I think that the business is in a really good spot right now.
Well said, Matt Jill Thanks again guys.
Thanks, Neal and thanks Neil.
Next question comes from the line of Scott Hanold of RBC capital markets. Scot. Your line is now open.
Thanks, Good morning.
David Matt you know on this I guess 10th anniversary of going public I mean, I'm going to congratulate you guys on your what you've done for the company and and you know hopefully you'll enjoy your.
Retirement, if if Joe if Joe doesn't pull you back enough.
Right.
Yes.
Congrats.
Thank you Scott.
Scott I'm not.
I think Cobra isolate all of Asia.
Goldberg.
Florida.
Good to hear from them in some respect, but yeah, I'm going to push a little bit more on.
The free cash flow uses of free cash flow because you know based on our numbers the quantum of free cash flow is going to be quite extraordinary. This year for you all that this year and potentially next year and I know you all have not necessarily you know specifically done with everybody else as you know have done.
Just to be like everyone else you've looked at things like you know moderated growth. If it gives better returns bolt on acquisitions. If it makes sense I mean, we think youre going to have somewhere in excess of $1 billion. This year free cash flow I give you that quantum of free cash flow actually you know occurs can you give us your thoughts around like.
How you think about your packing order between you know variable dividends buybacks fixed.
Fixed dividend increases and potentially you know growth and bolt on acquisitions, just I mean, there's a lot of things there, but you know the quantum could be quite large and we know that you all do things defined what's best for shareholders.
Thank you Scott I'll try and do both.
Matt and David being large shareholders.
That'll be listen in on these calls next year. Thank you, let us know what their thoughts are too but the main one is is I think it's unquestionable, we're aligned with all of the shareholders. You know I'm the largest individual shareholder date doesn't matter very large shareholders.
The staff are large shareholders that virtually everybody worked for matador own some shares and during the worst part of the pandemic, we over 200 of the employees, which is <unk>.
80% or so of the staff.
We're buying shares so we're very shareholder long term or you gave it we're not trying to do some immediate whatever's fashionable today, but what's tried and true to build long term value.
And and by that the main one is the financial discipline to restrain during a time of high prices from drilling what I consider somewhat marginal wells are but focus continue to focus on on drilling to eight plus locations.
And and work at developing more of that so that's the first thing the same thing he is.
The fixed rate David D and we know works.
And we will certainly continue down that path.
David and I and everybody on the exact D. T. His debated from time to time are the efficacy of some of the these other return to shareholder top mechanisms.
Particularly how odd.
I have an open mind on everything and you know we have the same we reserve the right to get smarter, but I'm not particularly high.
The buybacks.
You know because you buy back stock from somebody they go away.
We'd rather.
You know invest that and build the value of Matador.
The second one the special dividend you know you don't have a history. So people don't know when a special dividend might be.
Is the weakness of that proposition the variable dividend has some.
Pros to it.
We've looked at that but as you.
You know I think at this time, the raising the dividend may be the more optimal approach, but nothing has been decided we're going to get further into the year.
Where we can see how things are going because we know that could change overnight.
But we're attuned to the shareholder because we're one of them and we're not we make more from our shareholder returns than we did from our salaries when the stock goes up we might make more than we do from the compensation and many of the and many of the <unk>.
Staff the key members of the Executive Committee do the same so very much but they'll want to do something because it's fashionable today and won't have.
Lasting positive effects. So we're very open on this free cash flow. We've always said, we look for opportunities.
More than a <unk>.
The first of year, we're going to dedicate so much the acquisitions. So we'll just see what opportunities.
May come our way.
I think.
I think there are more of them come of that now than they were a few years ago.
And we're looking at them, but we're trying to be selective so.
You really have to either I think you've answered it very well I think the only thing I might add Scott again, just to reiterate the fact that.
You know I think that where we're just sort of we're just sort of entering this phase right. We're still we still want to get the rest of the RBS paid off right. We're just about to you know, we're just about there and I think that and you know it wont take us much longer we'll get that behind US and then you know.
I hope your models right, so I mean that that.
That'll be that'll be a very high class problem, you know for the company to to begin to think about.
I would just say you know having been a part of the company for so many years and haven't had the pleasure of working with the Joe and seeing how the board functions that I'm very confident that they're going to make.
To make the right decisions in terms of what's best for both the shareholders and the long term value of our company and so.
You know that but I think other than that I think Joe laid things out very well.
I appreciate it I appreciate that color and.
As a follow up.
Can we talk a little bit on the operation side I mean, obviously you know the Stateline is been a big focus area for the last a year or two and you performed quite outstandingly you you will move into you know some of the other areas we'll call. It more of the legacy matters are the there is pre <unk>.
Stateline, but can you talk about like.
What you'd think about that mix shifting back to those other areas and the potential impact on returns if any at all.
You know Scott I'm going to take the first part and Matt or Billy or Tom.
You can follow up but the first thing is when we really started the development and you had the pandemic hit and you had the Russian Saudi oil price war and what that those circumstances called for was.
Doing something of this scale.
And we are we've cut back the three rigs and a lot of what was happening.
And where.
Yes.
It made a compelling case was on the Rodney Robinson in the Stateline area, because you could do things the scale off of one pad and so that that was more efficient for that time, we still like the other areas. The lacey areas a lot of them have the same or as good or.
Better.
Returns they just didn't lend themselves to doing the big pad drilling with number of wells at one time.
And.
So we focused on that we also it was necessary to get those going to earn the some of the incentives on the midstream project and it just that was what made the most economic sense at the time, but Tom and Billy and and Matt are eager to get back.
So some of those other areas, where the returns have been just as robust it just.
They.
Didn't have the scale.
At the time that the Stateline and Rodney Robinson had com.
Joe.
The teams have been working very hard on these other assets, while we've been focusing down stateline and learning so much from being able to drill 50 wells done in Stateline.
Over and over and over getting getting better getting faster and getting more efficient.
And we're taking those learnings.
Parts of the basin and the teams are already off to a great start breaking drilling records getting wells ready to produce in the statement back in Rustler breaks.
We we can't we can't say how excited we are to get to work on on Ranger in Antelope Ridge and back in Rustler breaks and Wolf. This year, we're very excited to be back drilling two mile laterals and in Antelope Ridge, and really kind of a four Rodney Robinson most of the projects we've been doing it for one mall.
So we're very very proud of the progress we've made in the number of targets.
It is getting higher and better and Matt and his team are always looking at new and better places to land wells and so we're just very excited to get back into other areas.
Yeah.
Tom you said that well too I just wanted to go back to what you said about drilling 50 wells and once blood. If you want to put together a recipe to figure out that'd be efficient.
That's how you do it you do the same type will over and over in the same place and you learn you learn which bottom hole assemblies work, which fits it is the motors BMW DS. We've just the longest run we've had out there in the field, which is a record is a little over 13000 feet.
So you know that's two two and a half miles so you can't drill any of ours.
While we've already drilled there so you take those learnings to the new place and then the other thing is by doing this part, but coming back to state law periodically we were able to optimize our production facilities. So that we can blow wheels back to a certain level and then let them trail off a little bit come back and drill another site. So that we're not leaving forever. We're just going back to drill some of these assets.
We're very excited to be the operating room.
So just hold on to.
Matt was saying there you know, we get we get better and better that what we're doing there.
While geology and reservoir is looking at you know.
Different zones are finding more as we're drilling these wells and.
Getting that opportunity Atlanta blocking up the land around it everybody's busy doing their thing.
Like the drilling guys I went in there to Stateline and started out and had to run a fourth casing string in there and you've heard us talk in the past about cutting out a casing string of let's say three to $500000.
For each of each point, where you do that and starting out they went in and drilled the first three or four wells and had to set that extra string but too.
Worked at and figured it out and then where.
We followed up with over 40 wells without having to run that string so saved a lot of money there and those are those are the kinds of things we will do as we get into these other areas.
Start working with them and.
On top of that Joe mentioned earlier, working with our vendors there and you know we like he was going and we work with them to do these things in the.
Then ill pop co and Patterson and Universal and Halliburton.
Worked really well with us to.
A lot of these dollars are so we have more to.
Keep drilling needs, new new zones, there and.
Along with that you know the drilling side.
Matt mentioned the bid.
Technology and V H as in cutting out.
Trips and let's say like a thousand dollars now are $100000 excuse me.
A little more.
And then.
The completion guys you know they they.
Get in there and get after it and they've done the remote frac and we've talked about that here today, I think and I know it was in the in the release there and.
Let's say, even $250000, a well and also the remote Frac. We mentioned that that was six wells, so that saves US a million and a half dollars are out there and then.
Started looking at the dual fuel and.
That's already you know moved up to where we're thinking maybe we saved 20 or $30000 of well, we're saving $60000 of oil now looking at until guests to that and.
So to save US $100000 of World. So these are just some of the things we'll be doing as we move to these different areas.
Figure them out and it's gonna, it's gonna make there's a lot of money a lot more.
Monarch for us and the shareholders.
Good all around and I guess, where do you want to jump on the production part of it.
Yeah, I think on the on that [noise] excuse me Scott This is Glenn Stetson.
On the on the low side and the production side, we are forecasting the growth have you as you've seen in 2022, and a slight growth to a low.
But we are as the.
The same is drilling and completions working on ways to be more efficient.
More water and oil on pipe.
More sites on grid power, reducing compression, where we can and all those things kind of add up to.
Maybe we're forecasting a 6% increase too.
L O for for 2022 over 2021 and.
But working on ways to mitigate that in every way.
Great I appreciate all that color guys. Thank you.
Thank you Scott Thanks, guys.
Next question comes from the line of Zack <unk> of JP Morgan Zach Your line is now open.
Hey, guys. Thanks for taking my question first I guess could you talk about the decision to add the rig on the acquired acreage does that have to do with H B P requirements or just the returns up there you see from drilling are those compelling.
Maybe talk about how you expect those returns to fit into the portfolio.
Yeah, Hi, Zach it's David.
So first of all I'd say that are you know.
Of course, we wouldn't have bought it in the first place if we weren't quite there.
Excited by the opportunity that we have and we.
We think that it's a it's a great area great rock.
We like the high oil cut, but we like the a the lower water cut in a lot of those wells up in that area. You know what sort of is in an area. That's a between the Rodney and it's a little north of the Rodney is old west of the the mallon. So it's a it's a nice area.
For for rock there in the Delaware Basin, So where are you know, we're we're very excited about that.
I think we feel like that the returns are going to fit in very well as we mentioned in the release.
This past year, we drilled four wells in Ranger not too far away on a attract we called uncle chess and we've delivered four very strong wells.
I think the two we've turned on in mid 2021 have already paid out you know so.
So we're you know we're very enthusiastic about this area.
I think that it also just so happened that are you know there's a there's a number of federal permits that are available and ready to go and didn't seem like there was any sense to wait around and and not get right on those and so we've we've moved rig out there and we're gonna get busy and I'm looking forward to it.
Got it thanks for that color I guess, just one follow up on the operational side, we've heard a lot of talk in the industry about sample for ACH and in the slide deck, you mentioned using remote sample Frac could you talk a little bit about how that's done from an operational perspective.
Yeah, Hi, Zach. This is this is Chris Calvert.
That's a great question you know I think the process on this is very similar to Simon do you have a set of wells that you are stimulating two wells at the same time, it's kind of zipper Frac 2.0. If you will you have one frac crew that is treating two wells at the same time, while you have two wireline crews that are working on two other wells on the same pad on remote frac.
But what that does is that opens up the opportunity to simulcast <unk> wells it wouldn't otherwise set themselves up for the simulcast process be it an odd number of pad layout or just wells on nearby pads. It could be that can be stimulated at the same time, so with with remote frac, what what the what the group did.
Setup to sign more Frac crew on on one pad and then basically ran hard lines seven inch steel from one pad to the next so we had two wireline crews or excuse me one wireline crew on one pad one wireline crew on our second pad.
One sign will Frac crew on one pad and then we were treating two wells and two pads on two separate pads at the same time.
And so it really allows for simultaneous on multiple pads throughout our assets.
Hey, Jack This is David again look I, just I cannot add anything to the great description that Chris just added two sizable frac and remote Brett, but I will say this is one where are.
You know I Gotta give props to the completions team you know for there are you know for their learning about this technology and adopting it you know very quickly and I don't think hardly anybody else was doing that or has been doing that out in the in the basin and its fit very well on a couple of recent opportunities that we've had in <unk>.
Yeah, I just think it's a it's a it's a testament to the way that our that our company.
And our technical teams really stay on top of what the latest innovations are out there and and take advantage of it and a lot of things that Billy was enumerating in his comments to Scotts question. There I think reflect that you know where its on the drilling side or the completion side or the production side I have to compliment all of our teams are you know for.
You know for there.
For their use of technology I've always said that I think we were team that punches above its weight for its size and I truly believe that and so I just you know.
Pardon me, a little bit for that advertisement, but I'd just like to you know.
I really do mean, it and you know not only the folks here in the office, but the guys in the field. We have a we haven't you know a first rate team of technical people.
Zach This is Matt I mean, I'm going to pile on good here, just Christmas too humble to dimension the numbers, but what they actually did there and 33 days they pumped four hundreds and seven frac stages, and so we estimate that saves about 20 days, which saves the money that they're building and Chris were talking about that in addition to that it reduces the memory.
So you'd have to shut in offset wells by like 20 days and then it.
It also gets these wells that we're completing two to sales 20 days earlier. So it works both on the revenue side and on the cost side. So it's a really good deal for us.
I'd like to pile on.
We followed all recognized cleanup.
Joe.
All I'm doing this and this is what out of town that they believe that then try and urgency. This group of young people have gained experience and expertise they are coming to Billy and Matt more often to propose something like this I didn't think of it none of us thought of it and cliff and crashed came up said the way I'll give this a try.
Madden daily pressure tested the idea that said lets give as a trial and you can imagine how much extra production you can get out of that 20 days not counting the cost savings.
Little differences like that there is.
All sorts of ideas that they've had they've gone through Billy and his technical grade opinion, and what a difference, they're making and thank you all and the guys in the field.
Are really having to scramble to keep up with their ideas.
We don't want to forget well run operation to the my ex Com.
Okay.
They do a great job in not only help us drill faster and the faster we go the more we need people.
All day long all night long middle to not making those decisions keeping assume the preferred rock and.
And that makes it so much money you know it's hard to quantify.
We know what's important to stay in the best rock.
The news team is all about.
That's what we're doing so that's a big thing and then on top of that we have are Max ops.
And Max probe programs to bring engineers in and they get out like we're in a lot of has like we've been talking about and they're out there getting the experience and we have you know.
Extra engineering help out there you know location in the field and the Max Com run so all good things yeah, Billy some of these.
The Max Com runs 24, seven we also have a measurement right.
It does add a control room, we have measurement gas in the field that have all been in addition, since we went public 10 years ago Asia. Just examples of the many improvements that have occurred.
Kind of like the old Volkswagen ads it might look the same from the outside that you remember they'd say under the Hood, there's 1000 improvements to the loves wagon back end side.
At 10 year anniversary, it's I think it's important to recognize how far we've come.
Even though we may look to say that the exacting level, there's been plenty of policy changes.
Got it thanks, guys that's great color. Thanks.
One last thing I got this.
Is that when we went out to the Permian If you remember our history, we were in the Haynesville like that great gas, but wanted an oil leg went down to the Eagle Ford to prove up the three horizontals in the fracking you'd get to it all molecule through the shale then we went out to.
The Mexico.
And that was going to be our third leg of the stool and how much.
We went out there with a view that there were three or four zones.
We were interested in and they had handmade zone different zones are you producing travel right now.
I think where we're in the 18.
<unk> zone range right now, we kind of joke about geologists there lumper's them Theyre splitters, you know, whether we want to be granular, we Wanna amalgamate those but I think a conservative numbers north of 18 right now so.
The teams have done a really good job of bringing new targets forward and bring in bringing new and exciting and profitable zones.
You know Bailey and Chris and the operations group and Max Com make it look easy, but I want to.
I'll tell you it's really not this is still a complicated base and theirs.
You know over the course of a two and a half mile lateral theres a lot of variability in these guys keep putting these wells down as fast as possible and saying you know and and zone almost all the time and you know we couldn't be happier with how the teams executing so it's really a combination of great rock.
And you know great operational execution, and it's just fun to watch right now.
Thank you Dan.
Back to you all.
Zach or.
Next question.
Next question comes from the line of John Freeman of Raymond James John Your line is now open.
Hi, guys.
Graduations on the 10 year anniversary of that again, echoing <unk> earlier comments, congratulations to David pulse on a terrific careers.
The first question I had I just wanted to follow up a little bit on the prior discussion on a final factor just quickly so if last year.
You mentioned that you did 23 final fracs, what's what's the plan in the budget. This year, how many sinal Fracs are you all planning.
You know this is David John .
I don't know exactly how many but there are so I think that I think that'll be at least a third of our.
Of our locations will be.
Be eligible for sizable frac, but I can tell you as we go through the course of the year, we're going to be looking to do things like sample Frac and remote Frac Ed you know of any other flavor of Frac that we can do to you know to AR to continue to you know to be more efficient and I expect we'll be talking about some other.
It kind of happened Frac you know six months from now that you guys have come up with but I think today, it'll probably be you know at least a third of the locations, we will be able to do it all.
Okay, and then just to make sure that I understand what's kind of already embedded in the guidance on when you all mentioned on that slide nine highlights the third.
Final Frac when you all say.
I know, it's not just the final factor for some other things as well, but I'll highlight for you all can reduce drilling and completion costs by 5% or more in 'twenty two.
That's not currently in the budget, that's 5% or more savings relative to the budget you all got out there. Yes that is correct. John So you know we have not we have not built that into the budget. We're just saying that to you now.
Those are some things that we think that we may do as we work on you know work on mitigating some of the cost increases, so, but but but the budget number does not include that.
Thank you.
But if.
If you look back historically, John with what the operations team has done instead of quarter after quarter. They find ways to drill these wells faster completing more efficiently and save money and so I think going forward the expectation would be that would you give.
We continue to match on those guys and I think there'll be able to deliver.
Yeah, there's no doubt helps track record I'm, beating guidance.
Phenomenal.
But the other question I had on.
On San Mateo I know last year, it was a priority and again this year.
Our priority and focus on adding more.
More third party customers can you just remind us what what percent of San Mateo right now is a third party.
You know John it's.
I'll make a comment here and then I'll ask Brian to add some comments too we typically strive for around a third you know maybe as high as 40% at times, but I think right now we're kind of in that 30%, 33% range and it feels pretty good to US. We we do have is the situation now where you know because.
As we've talked about before where we're large enough. We have enough volumes, you know, particularly with the plan and well actually all three blocks, we've got volumes to bring on third party customers.
Maybe if you look out into the future. Several years ahead of those volumes are spoken for but that gives us a chance to bring them on in the short term and then add these projects that we've talked about to generate a rate of return. So Brian is that is that accurate.
This is Brian in exactly right and I think that's accurate those numbers or are close to right and I think we're really pleased with the third party opportunities. We've had in 2021 and we were able to add the number of customers not just new customers, but one of the things that we pride ourselves on is we were able to add some additional volumes from existing customers and so it's a shout out.
Those guys in the field are providing great service and end to the BD team to continue those relationships and so we look forward into 2022 to continuing to build those relationships and have additional contracts with third parties. We already have some that we signed up in and look forward to continue to do that now and I think those numbers, Matt said right and hopefully in the future to those numbers.
To increase as we continue to build a third party opportunities.
Sounds good guys appreciate all the answers.
Thank you John .
Next question comes from the line of Sebastian Congress benchmark.
Your line is now open.
Okay got it thank you and good morning, everybody.
First question.
Morning.
On acquisitions, so I'm trying to I guess handicap. Your appetite you you talked in depth about the benefits of scale and then we saw a tuck in deals like this which.
It is easily covered by your liquidity and free cash flows.
But.
Do you think you need a transformative deal if it comes along and the metrics are okay.
Now said Bosch I mean, we'll look at.
You know whatever somebody.
Generally suggest.
But now we don't need one leaf entered in different inflection point now that its back when we were 300 million you know were over a $5 billion Kelly.
Approaching 6 billion and that.
You know, we'll look at things, but we're at a pretty.
Good size, where we have scale with our vendors and.
And we're growing at a good pace you don't want to grow so fast that you don't have the people.
That populate it.
Or your systems and so we don't prefer the company to company because it.
It can be distracting as David often says we wanted to be a better company not just a bigger company. So that's why we're as selective as we are and what we do.
That makes sure that it fits and we have the people they can attend to it.
And we have a large inventory right now.
So if you are going to make an acquisition you would like to get right on it and.
You know that wouldn't involve another rig and we don't want to upset the capital expenditure.
Plan and.
I wouldn't say that has a high probability you know our first one is the east continued bolt on that we did last year.
Those opportunities we could just fit right into the drilling program. We have the people are.
It was seamless and to the extent lean find those that's probably what we'd look for first this matter first Matador group, mainly by acquisition and exploitation. This matador has primarily round through organically and it's been a good way to grow it.
Like it's earned a higher rate of return.
And it's been something that's been easier to fit into our capital plans and capital efficiency.
So I don't.
Yeah, I don't want to say never.
At something but it's not likely that what is most likely is it will continue as we've done.
In the past few years.
Do it opportunistically on acreage, it's bolt on because we know that area, yes, and it has less risk.
Asia to absorb.
And we.
And we think it's really more capital efficient.
Just because you get bigger.
You're necessarily better and most of that.
<unk> presented to us would delayed some of our quality sell well.
We're going to continue to be selective and but we are also working with other companies on trading acreage. You know this has been a period of time or the majors have traded acreage for people to get to the longer laterals. So we tried a section.
Or another section so we get a two mile lateral and they get a two mile lateral and we think that makes a lot of sense in there, they're small, but efficient and and and good economics, but does that help that I would just add one site. So I just want to build on what you were saying about bigger and better.
I think for US the focus absolutely always has been on better.
And I think at this point, where do the Sars that that I think we've got the scale at which you were talking about it and it's part of our strategy as we built this company was to establish relationships with good vendors and we've done that with Patterson vocal on the drilling side and with universal in the pressure pumping. We've we've been partners for a very long time, we've been partners in good.
<unk> and partners.
Not so good times and we've just made it work in starting with Halliburton and Schlumberger.
Billy mentioned earlier these are all great relationships for which we have scale.
When we start talking about.
The way others do it which there's nothing wrong with that ours is a little different lead times get bad we talked to our vendors and say look we're not wanting to run your on the ground and the last thing. We want is for you guys not to be here, we want you to help us create value and they've done that through the good times and bad. So you know the the focus actually lose on better.
Alright, thanks for that guys for sure.
Second question is on permitting lease sales back in the headlines.
Until the litigation on the social capital cost of carbon issue and so.
Have you seen any disruptions.
In the Permian.
It might have more to do with future lease sales then it might.
It might have to do with permits but.
What are you seeing on the ground there.
Yeah, Sebastian David and Tom if you want to chime in but.
I think the simplest and most of the think the answer is no. So you know we have not to we have not encountered any you know any any problems or any concerns.
I think our team has a has a good working relationship works very hard with folks out in Carlsbad there.
They're very helpful. They've been very good through the last several years with all of the pandemic and working at home and everything.
Those folks have been very good to help us along and into you know respond to our needs and I hope us to them as well and.
We've really you know I think that that process has proceeded just fine and we have a we have what we need to.
Prosecute our current drilling plans and are and will continue to work forward, but like I say I think the Christmas answered. The question there's no we're doing good.
Yeah, I think it'd be a lamp.
It's been very professional and with the restrictions that they've had on the pandemic as.
It's been really remarkable getting out and being responsive returning phone calls when you communicate with them and have.
And.
Yes, making sure to look after the Bill aims yeah, it's been very fair whatever additional information or a place that neither of US we feel they've been very reasonable Tom data all of that correct I mean, David and Joe both said it correctly.
I think we even got a few kind of final signatures, we needed yesterday afternoon. So things continue to advance and we've gotten a whole bunch of.
Sundries approved an extension so were.
We're ready to go for 2022.
And certainly appreciate I failed to say, it's certainly appreciate the efforts of those on our team our land team that to if they.
They worked very hard over the last couple of years to keep the pipeline full and we're very grateful for all their efforts.
Thanks, guys.
Next question comes from the line of Michael CLO Stifel. Michael Your line is now open.
Yes, hi, guys and I'd like to Echo everybody else and offer my congratulations too.
David on the great careers that Scott said, good luck trying to hide from Joe during your retirement.
[laughter], we're not even going to try to hide market [laughter].
Suggests sort of a restraining order personally.
[laughter] just wanted to say.
Ask on on.
On Slide 14, you show you've got about a quarter of this year as production hedge with visa swaps.
Wondering if you've done anything there for next year.
Any concern about takeaway capacity out of the basin for next year on the gas side.
Of course the basis swaps. This is David Mike the basis swaps that we have in place are for oil and.
We put most of those hedges in two or three years ago as I recall and so with regard to oil no. We haven't added any additional ones you know going forward with regard to gas I don't believe we have any basis swaps in place don't think we ever have had we certainly are oh.
Aware of some of the concerns that are being expressed about the takeaway at wahoo and I can assure you that Gregg Krug and Anton and.
Our marketing group is is already very proactively looking at to you.
You know, how we will how we will meet that challenge if and when it does manifest itself you know so I do feel like that you know I feel confident that were that were out in front of it and working to try to you know to try to mitigate any impact that it may happen going forward.
I guess without trying to front run anything youre doing there.
The firm transportation the consideration there.
Well you know we have had for the last several years you know we were one of the first people to get on <unk> right. So we've had quite a bit of our guests you know with firm transportation to the Gulf and and I think where you know the.
The guys have done a very good job over the years of finding other alternative markets. So that too to kind of diversify us away from a you know from Wahaha. You know we have a we go to other parts of the country at different times of the year and so that's been helpful.
I think that are currently there you know they're looking at other avenues to continue to diversify the takeaway away from away from wall. So.
Like I say my hats off to them for being you know.
For being conscious of what's going on and being kind of proactive and ahead of the game and I feel I feel confident in our abilities to mitigate that problem.
Good and then I just wanted to follow.
A follow up a little bit more on the recent acquisition.
Can you talk about how you see the full cycle returns on those acquisitions and you gave a PV 10 number for the proved reserves you acquired can you give any sort of split on how much of the proved reserves are developed versus undeveloped.
You know.
I think.
Mike that are that are that it was probably.
From a from.
The PV 10 side of course, it was a little heavier weighted toward developed you know PDP as opposed to undeveloped in terms of volumes.
It may have been a little more more like 50, 50, or so but but of course you know we've only.
Oh.
A very small amount of what we would anticipate to be a future reserves you know as as as current pets. You know I mean, you know where we tend to be fairly conservative in our reserves bookings anyway, and this was no exception and so while we did book a few pubs to some of the existing producing wells.
You know, it's not a case, where we put it up the whole thing I mean, there will still be as we've mentioned in the release quite a lot of future value to be added as a result of the drilling activities that we undertake.
And in terms of the kind of full cycle returns on acquisitions versus maybe.
Just drilling them.
More of your legacy inventory.
Well, you know I think that.
I think this is an area that's going to have very strong returns, Mike and that's going to that's going to compete favorably for capital with the with others of our you know of our legacy area. So I'm you know.
I'm confident that we're gonna be pleased with the with the long term returns that we received but you know that we are that we get out there I think we pay to you know.
A very good price for the acreage you know relative to our.
Two what we have done in that area. Previously you know I think we've always had for a company that for a company that came in and you know sort of 10 years ago nine years ago and started building its position I think as we used to talk about we felt like we had one of the lowest entry points on a dollar per acre basis.
As of <unk> of.
Almost anybody out there unless you were just sort of a legacy company that we're sitting on a lot of our PDP acreage you know so but for someone to be a you know an entrant into the shale I think our brick by brick approach you know has been very.
Cost effective you know in terms of the you know what we had to pay to acquire the position that we did and I think that's a tribute to just a lot of good work by our land team and you know and and our philosophy that you know.
You know no acre should be left behind.
I mean, you know we just are they they don't you know I mean, if it's something that if it's something we watch will they go get it you know and I remember you know sorry, if I'm waxing, a little Estelle Jake but I remember at the beginning people you know looking at our map and go and you know gosh. It seems like that's a little scattered you know don't you think about black nope sure dough and.
It's been a lot of a lot of good spots and just watch it all get drilled up and you know if you. If you were sitting here. This morning like I am looking at the math across the wall without much of H B P. You know I think I think people would be shocked to see how much of that we'd give either operate it into development or participated in really good non op wells over the years because there.
Rock was good and so I couldn't couldn't be more complimentary of you know our land staff in the U N.
Asset that they've put together.
Our geologic team that helps the direct is there in the first place. So it's been a it's been a great team effort and.
No.
These guys you know they know how to they know how to do it and they do.
Thanks for the detail David.
Thanks, Mike.
Next question comes from the line of David Heikkinen Pickering Energy David Your line is now open.
I mean, you all and thanks for taking the question just thinking back a year ago. You. All went from three rigs to four rigs and now you're at six kind of got ahead of what we're hearing is an ever tightening service environment by picking up the six rig.
Some operators talking about four to six months to secure tubular and alike. So how long ago did you start working on the plan to add a sixth rig and you kind of talk through the pinch points in that process of you you've really highlighted your service providers working with you like where where the tight points were and kind of where you would.
Think about.
The limits in the services space today.
If we're thinking of other operators, adding activity.
Well, David this is Matt and.
I think the short answer to that is what we talked about earlier, it's about relationships and so when we're talking to Patterson you know we've got Optionality on both sides of this thing we've got to contracts that we stagger, even if we wanted to go down a rig it makes it easier to go down a rig and then we have this ongoing conversation.
With Patterson.
Andy Hendricks.
Billy and Joe are all friends and so you know if we think we might want to be adding a rig we call them and say hey, we must we wanted to add one and.
When there's 250 rigs running in country, that's not that's not hard but to your point when the high tech rigs start.
I'm getting more and more hard to hard to fine then Patterson until just don't work, we've got a rig for you and that's kind of the way we do it in regards to the pipe you know a pinch point there same kind of thing we've forced or Smith as a representative of being ill and we sit down and we talk about what we're doing for the next three months for the next six months for the next year.
We react accordingly, same thing with the services with Chris and Cliff Billy when their contracts can be Shrek crews, we looked at what the through the drill schedule is for at least a year out and that's how we kind of put this stuff together.
Yeah, So really when you think about the doubling of activity year over year.
<unk> been working on this like rolling three months six months 12 months, almost maybe even two year plan.
To gear up to the six rig program, but.
As I think about it so.
There are these pinch points that are emerging but do you just kind of this rolling activity level that are then.
That allowed you to to add the six.
You know I think from a planning standpoint, David that we try to.
You know we tried to think far enough ahead in terms of you know I mean, we scenario plan as you might expect you know and it's like if this is a you know if conditions are this way and if the opportunity presents itself you know what do we need to do to be ready for that and likewise, if things go the other way how do we need to.
Do you know how do we need to play in our business.
That we can react quickly and that too and in that way to you know so I think we try to you know we try to think through as much of it as we can so that where we are prepared as much as we can be is it just pretty much David every bit of our business. We try to build a lot of optionality into I mean, it just we would typically have.
Lots of different directions, we can go depending on what the environment is.
That's definitely helpful and congratulations David Matt 1 billion van and I was thinking about it I don't think you can make retirement look too good for Joe to step out but.
Do your best.
[laughter], but.
Thanks, David.
[laughter].
That's funny.
Yeah.
Yeah.
Thank you ladies and gentlemen, this ends to any portion of this morning's conference call I'd like to turn the call over to management for any closing remarks.
Only closing remarks is to really thank all of you all for participating and ask one say again, our standing invitation to please come see us if youre in the area and have breakfast or lunch or some sort of maintenance of life for you to get to know more of these young people who are.
Really making a difference in our our business and they were turning to more all the time for our guidance and direction and recommendations on what we ought to be doing and.
Thank thank them and everybody else for the and really think.
Got you on the question suite, we believe going public has made us a better company and that every quarter it never sell often wear.
We're in front of you or talking to you you're asking those questions you know keeping a sharp I often tell the story on the I P. L word we get the idea for midstream there was on the I P. O. When we kept being asked about how we were getting their gas.
Out of the Eagle Ford, we weren't having a problem, but by the questions. We knew the others War and we went back and re recruiting Jack Greg.
Pet rejoins there he is.
He was missing from his thought.
I'm just trying to get out but that's an example of getting with you. All you all have made us a better company and yet you know, they're not only that does but having to report every quarter has inspired us to do longer range planning.
You know getting good people you have found it's easier to get people to come to work with us because they know how were doing its more transparent. So we are excited by the 10 years and we.
We look forward to the next 10 years, but really.
Did I appreciate you all and hope you all come to see us.
Yeah.
Thank you so much ladies and gentlemen, thank you for your participation today. This concludes the program.
Great.