Q2 2022 Matador Resources Co Earnings Call

July 27, 2022

Yeah.

Uh huh.

Yeah.

Good morning.

I mean, one of the thank you.

For joining.

To the second quarter 2020 to Matador resources company.

Earnings Conference call My name is normal.

As the operator for today at this time all participants are in a listen only mode.

Well facilitate a question and answer session at the end of the company's remarks as well.

A reminder, this conference is being recorded for replay purposes, and the replay will be available on the company's website for one year as discussed in the company's earnings press release issued yesterday I would now turn the call over to Mr. Max Smith, Vice President Investor Relations for Matador. Mr. Smith, you May proceed.

Thank you Norma and good morning, everyone and thank you for joining us for Matadors second quarter 2022 earnings Conference call.

Some of 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 Companys 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 the information that is now available.

Actual results and future events could differ materially from those anticipated in such statements.

Additional information concerning factors that could cause actual results to differ materially is contained in the company's earnings release and its most recent annual report on Form 10-K, and quarterly report on Form 10-Q.

In addition to our earnings press release issued yesterday I would like to remind everyone that you can find a slide presentation in connection with the second quarter of 2022 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.

Thank you Barak.

I appreciate your help very much I just wanted to do a sound check they ever value to make sure we're not cutting out in the precast there Sam.

Indication that assemblies being cut out, but if you are please let the operator know.

We want to be sure, we're kind of loud and clear.

Ah.

Yes.

Where I would like to start is on this this is the best quarter that we've.

Had in company history.

Actually the first quarter was originally.

Last quarter, but this quarter has been even better.

And we're proud that it reflects the team effort here.

And we.

We feel we've gained strength at all areas.

Outlook.

Or it is good is strong and we like our chances.

Operationally the big difference makers is first is the capital efficiency that you'll note and a lot of our activities and second the strong relationships that we've had with our vendors and outside contractors. So we have not.

We've avoided a lot of the problems of the supply chain.

They've been there we've worked with him for many years all of these.

People Paterson borderlands and leverage.

Halliburton.

And.

We just appreciate it very much.

All of the different elements that go into the well and our contractors and our field people here at <unk>.

He rose and keeping things going and help them out and add to that capital efficiency.

Most of the capital efficiency comes from the conversion from drilling one mile laterals to two mile laterals and as Youll hear later on as we're making preparations to move to some three mile laterals.

That's been the big difference Mike here, even in this time.

Higher prices have met.

Extra measure of capital efficiency, and finally, the financial strength to Matador has.

Continued to grow through the years and we feel we've reached an inflection point as our production has climbed.

Over 100000 barrels of oil or gas equivalent per day.

Which puts us in <unk>.

Position of being the strongest time.

In our history from a financial or operating point of view.

During this time.

We've had.

A lot of debt pay down so that we've completely retired.

Our commercial bank lending.

We still have a borrowing base there.

We've paid all of that off and we've also paid down our bonds.

Debt.

And.

This is given this course more options and more cash flow.

Yeah.

And set us up for <unk>.

Different level.

That we won't have the risk profile that you have with that.

It's.

And the leverage ratio has declined from $2 nine in the third quarter of 2020.

Say two years ago.

To where from 2.9 to five so proud of that and.

And we are ready for your questions and what else. We can tell you about matador and the and our outlook and progress going forward.

Thank you.

Ladies and gentlemen.

To ask a question you will need to press star one one on your telephone 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 we have had a chance to ask a question after which we will welcome any additional questions from you.

One moment for your first question.

Okay.

Our first question comes from the line of Neal Dingmann.

With Cowen Your line is open.

Joe and team.

Good morning, Todd, Let me address maybe the what I call the attractive elephant in the room.

And that is my estimate I think you all can have negative net debt you mentioned that the great leverage.

Maybe you all could potentially have negative net debt next year and even in the off price and generate over $1 billion free cash flow. So I know you all have always talked about wanting to keep your options open and boosting the base dividend.

Obviously, the general question is what do you do with all the cash piling up.

Maybe Joe I'm thinking you answered one of the big dividend. So maybe that's a better question for her.

Yeah.

I'm, sorry, I didn't quite hear would you repeat that please.

Yes.

Okay.

With it.

Yes.

Can you hear me.

No it came across as garbled so.

Try again, let me try one more time, so my point was that.

By my estimate I guess, you talked about the debt I think youll could have negative net debt next year.

Depending again on prices potentially generate over 1 billion and a half of free cash flow. So again I know you guys have been very straightforward about keeping options open and boosting your base dividend, but anything you could address about what to do with the cash pile up in my last comment was Joe is that I would.

Thank you Nancy would probably love the big dividends. So maybe this would be a better question for her.

Okay.

Well.

It might.

Yeah.

But thats why you have a board of directors to the share there.

And our staff to get us in the right direction.

Provide us with some high class options, but.

Neil.

Again.

When you start you are currently is we did Matador 40 years ago first Matador, we started with $270000 and of course, we sell that for $398 million.

It was a good run.

But.

We sell that on Friday, and start a new Matador.

On a Monday 20 years ago.

And with $6 million, so when you're short with those who are pretty limited funds you've learned you learned to be very careful.

About how you spend it because theres no assurance there'll be further capital to use or deploy.

Uh huh.

We have ideas.

On what to do but we want to be.

Very careful if we're generating that much.

Cash flow next year and their prices are at.

We know that usage will come but one example of what we did.

Recently was the purchase of the summit midstream that deal came up all of a sudden.

We closed it within 36 days, so that's something that we couldnt forecast that came up but we had the option because we have the money in the bank.

They need to pull down anything on our line of credit and that was one reason, we got the opportunity because we have the wherewithal.

From a staffing point to do the.

Documents and the sale of the deal in little over a month and we had the money in the bank waiting to go.

I think you'll continue to see us.

Move forward with other acquisitions, either in midstream or bond.

Reduction bolt onto our acreage.

And.

And our geological group under <unk> leadership as lot of good ideas and where.

Optimistic it will have some prospects.

Rival.

The Rodney Robinson wells or the Stateline or.

Stebbins area. Some of these other areas that were.

Looking at closely so there are some really exciting opportunities there we do.

If that kind of cash flow comes in I think people can reasonably expect some.

Increase in.

And the dividend.

We've doubled the dividend three times in the last two years so.

Yes.

We like dividends as you know, we're all large shareholders here. So there is no opposition relate to dividends rather than we want to keep a strong financial position.

And then on the debt side.

I think we will.

Continue to retire the bonds.

Sure.

At some point.

And we'll probably keep some debt.

Just for the rating agencies to say that.

Sure.

Our careful about that.

Uh huh.

We can.

Not to be real budgeted people trying to plan out two years ahead, where we're going to spend money.

We found that it's been more efficient.

Has to be opportunistic and see what comes up at any given time.

And.

And it's much like as we get into discussing the seventh rig it's not like we began the year and say, we're going to do a seventh rig but circumstances came up that this is a very special rig as Billy will describe to you and it's a rate.

That if you're going to drill three miles is a reiki one out there and we.

Expect a high probability we'll drill a three mile lateral.

Sometime in.

Yeah.

Not too distant future within in the year it will take up some three mile opportunities any need this rig.

So we'll take that on in late September . So it's really here for this year only for 90 days will help us drill the Rodney Robinson and get those off because we have.

19 wells there right now, but when we start drilling these next eight.

Youre going to have to shut in probably three four so those 1915 of the 19, while you are drilling and completing those wells for safety sake, so having that extra rig to catch back up.

We will be good because one of our rigs.

We're going to use to drill a saltwater disposal, well, which will knock it off of the production line for about 60 days so.

These are banks that are well considered and because of the timing.

We thought we should move ahead and it helps to have money in the bank, but I can tell you starting off with 270000, which today is one frac stage. So it started six in the morning, it would be through back David.

We're pretty careful about this morning, because it's ours were large shareholders. It's our friends.

It's our families that have put up this money.

<unk>.

We like to be very careful and try to use it for good purpose. So I hope that's helpful to you nail and give you. Some examples of what we will try to do.

It does it does thank you Joe how great Great details and then maybe just a second on the capital spending that you all mentioned that.

Update specifically is the best way for us to think about that for maybe for Michael One is just to think about capex in terms of dollar per foot I know theres a lot of other things midstream and other things involved in that so I'm just wondering what's the best way of thinking of Capex and knowing you don't have a 'twenty three budget out there should we just kind of think on a dollar per foot and maybe add some.

Place into it or how should we think about sort of capex going forward known as you said I don't want to get into specific of 'twenty three budget, yet, but just kind of on a broader scale how to think about when you look at the budget.

Yes, Hi, Neil. This is this is Chris Calvert I think looking at it at a D&C cost per foot is a good way to look at it we came out.

With a $45 per foot in the fourth quarter of 2021, So we had projected about 1% to 15% increase versus our fourth quarter number and so with this revised capex. It did bump it up to about $8 90 per foot and so that is.

Highly related to timing.

Related to inflation that we are seeing the heavy hitting components of that.

It would be sand steel fuel and so while we are seeing inflation, we've seen it throughout the year.

Big jump in really the jump that youre seeing is really related to timing and when were bringing these wells online and so kind of like we've spoken in the past.

We.

Troll, we can control when it comes to stand still and fuel on.

On the sand side long standing solid relationships with our vendors line of sight for them to procure supplies for us. So we don't have interruptions to operations on the fuel side. The completions team has implemented dual fuel frac fleets and so for the remainder of the year, 100% of our wells will have dual fuel capabilities and that's typically saves.

About 100 to $150000 per well and then also just spending less time on wells and so for the drilling team. When we went back to Rustler breaks. We initially budgeted about 20 days to drill some of these wells in Rustler breaks we're drilling some of these now right around 10 days or so.

That time savings component has a dollar component to it and so we're spending less time on wells and then the completions team implementing Simon.

Remote frac that spending less time on wells and also saving about $250000 per well and so for all the heavy hitting cost components that we are seeing inflation on our operations team is doing a fantastic job on mitigating those inflationary pressures were sustainable efficiencies.

Yes, I would agree great great operating efficiencies guys. Thanks, Joe Thanks, Steve Thank you.

One moment for our next question.

Our next question comes from Scott Hanold with RBC capital markets. Your line is now open.

Thanks, Good morning all.

Yes.

Good morning.

Could you walk through the thoughts on adding seventh rig and how you see like that.

Getting shareholder value over time, and I think.

You all see some some strong value opportunity and investment into the business could you give us a sense of the types of returns you expect to see from from that rig and the wells that youll be drilling.

Sure. Scott. This is Tom I think that our teams are doing a wonderful job on the cost front as Chris Chris just mentioned, but when we're talking about adding an additional rig. The first thing. We're looking at is the rock we always want to make sure that we're drilling the best targets that we can drill net and the geoscience team with Max Com are doing a great job putting these wells.

Right in the target zone, we think that these wells can earn.

Four times four times their cost over the life of the wells.

And when you have two mile long laterals going through great rock with the.

At 87, five net revenue interest.

And when we have facilities in pads that are already built that's a good formula for adding value for the long term.

Great appreciate that and as my follow up question is sort of talking to obviously the trajectory of spending into next year, which I think is going to be very topical for a lot of companies.

Understanding it's early in the plans and explicitly laid out into.

Into next year, but can you give us a sense on where you see.

Lateral links going forward as well.

On page 29, you demonstrate how thats stepped up nicely through 2021 and held pretty constant through 2022, how do you see that progressing as you look at 'twenty three and beyond basic based on your opportunity set and plans to drill some more three some three mile laterals.

Sure.

Sure Scott, Yes, we're definitely big believers in these longer laterals and as Joe mentioned the teams are working towards getting getting further out to the two to three on Walmart.

We've executed very well at the two and a half following lateral length.

Our state line as you know and we're excited to push and push the boundaries out even further not every well we drill will be will be the long laterals. We will have some wells that we will need to drill that it'll be kind of stayed in between to two existing.

Wells, where we will drill some some shorter wells along the way, but we still think those wells will have excellent returns and we will certainly compete for capital.

Execution Ali I think that.

Chris and daily and all the ops teams have made some big improvements on some of the grease was wireline and some of the fit for purpose seven units really are kind of the tighter parts of executing these longer laterals and they really made these operations safer faster and more efficient and give us the type of competence to drill these long ago.

<unk>.

I appreciate that so it sounds like staying around 10000 feet on average is sort of a good sort of thought when you look at the relative mix going forward.

I think that's pretty reasonable we still have a ways to go before we finalize our plans for next year, but I think that's that's in the ballpark.

Appreciate it thanks.

Thank you.

One moment for our next question.

Yes.

And our next question comes from the line of John Freeman with Raymond James Your line is now open.

Good morning, guys.

Good morning, John .

Yeah first question I had you.

I'll have a slide in your presentation on slide 26.

That's quite helpful kind of shows how everything kind of breaks down on a positive and negative standpoint are you all.

Any guidance and obviously.

Hey, guys.

Positive through the first half of the year with the much better well performance.

Typically outside of those 11 volume.

And Rodney Robinson, and I'm trying to get a sense of.

On a go forward basis.

The better well performance you've had.

Is that in.

When you think about the additional wells youre going to be drilling going forward and burgers or others is there any additional upside from what you. All had originally planned at the start of the year in other words are you still using the same framework.

Our type curve assumptions that you had going into the year, despite the better well performance you've had.

Yeah. Good question John .

I think we just tried to we tried to put our projections down just down the middle of the fairway.

We we do pride ourselves on and looking at the Okay. It was very closely.

And we just want to be as accurate as accurate as we can.

As shown on that slide we did have outperformance in and many of our wells in the first half of the year end.

We're very happy with that.

Sometimes the wells or do better and sometimes are a little under but but overall I think we've done a nice job forecast in our wells and things like spacing and putting the wells in the right zone and good execution. Good fracs all contribute to these types of outperformance is.

Yes, John I'd like to add this is a good point.

Pointed out the efficiency of our <unk> Com group.

That said 24 seven.

Ruth that measures in real time.

Where that Wellbore is is this going horizontally and then before we head back.

Yeah.

Horizontal oil when out of zone, it might be a little while before it was recognized and then they had to call into geologists get them up in the middle of than that.

Talk around and they could go 200 feet outside of the zone because of the slip fault or some other normal operating procedure, while today down that time has been reduced to a matter of minutes.

A few minutes before you realize what's happened.

You can read drag so youre staying in zone, a larger percentage of the time and we estimate prior to having that room, we were in zone in.

In the 80%.

85% somewhere in that mid 80%, but now we are routinely drilling those wells at over 95% and there had been some wells we've been very close to a 100% of the time zone.

You have 1 million barrel, well or whatever size, where you want to talk about and Euro zone, 10% more of the time.

<unk> thousand barrels. So that's one part of the efficiency and then second Chris and net working as geologists and engineers in there. So they get very comfortable working with each other and then Chris and them and Cliff and Ned have been real good about collaborating.

On the Frac jobs, and what works and what doesn't and we think they've been very effective in that.

The tweaks I made to our frac programs and how they are doing it and in reducing the cost by doing remote fracs among other ideas.

<unk>.

And this has resulted in a lot of this outperformance in the second half of the year, we're still going to be trying out some new things and.

And we're still drilling in areas of good rock, but because we got a handle a little bit on the outperformance and got ahead of what our guidance was for the year, it's allowed us to accelerate the Rodney Robinson wells.

Eight more Rodney Robinson wells instead of waiting to the end of next year, we're accelerating them to <unk>.

End of this year.

And in doing so we have so many federal permits that are 87, and a half that we have federal permits they are due to expire at the end of next year well.

As uncertain as the current administrations.

Regulations are and other thoughts why take a chance out some happening to that or having.

The Mexico regulatory authorities not one of them drilled because they are close to the prairie chicken.

Area or parts of it or even in it.

And.

We just wanted to eliminate and get those wells online much like what we did this past year with Avanti wells down there and state line and.

And the board wells and.

We drilled.

Those accelerated the development and so we began the year.

With a lot of momentum that's carried this halfway point that's allowed us to.

Consider doing that again.

Up there in the Rodney Robinson so.

I guess the point in time trying to make is one of the things that we tried to do an effective manner.

Is make these judgments.

And shift strategies, a little bit we call it trying to be a little more nimble and that as opportunities arise to go for them.

Just like what we did on pronto.

By another leases and.

Yeah.

And we think that has to be part of our.

Our effective Miss is that we still are small enough, where we made together and make a.

More effective plan going forward. So I hope that answered your question if not I'll get one of these other young guys on the line and they.

They gave you their perspective.

Yes, you covered it well.

I just.

Follow up question on this on the seventh rig with shell.

Characterizes.

Special rig and it will allow you all to ultimately do some some three mile lateral just just so I understand though.

Initial eight wells that are getting accelerated.

None of those are planned to be three mile laterals right. That's something you would plan to do.

After the conclusion of these eight wells is that is that right.

That's right. There are 19 wells currently on the Rodney Robinson. These will add eight but why are you growing the eight youre going to have shed.

75% since we're ahead of the curve right now they say my time to do it.

Billy can tell why this rig is particularly suited for three mile but they won't be on these first wells will broadcast the crew and make sure that we're all comfortable with the crude Billy.

Hey, John This is disability and just like Joe was saying, we don't want to bring a new rig in and jump right on three mile well with it we want to.

Good everyone working together and <unk>.

Make sure we got everything in line and.

Further we will be drilling some three mile wells and we ran one of these rig like this one we just picked up before.

And it was available and it was.

Got to get taken by other people rigs are getting gobbled up these high spec.

Hi Tech rigs like we like to run and.

All of our all of our rigs would be able to drill three mile laterals, but this one in particular will be better and has more setback for your drill pipe for the five units or four and a half whichever we use.

And the deeper laterals or be a lot of lot of drill pumps back there.

It helps us out there in the sub structures world rigged up really well for handling your wellhead.

Save his time there.

Rig would have a high torque top drive and all the other things we require as well so it's a good rig and it is definitely.

Capable drove three mile laterals, and we're glad to have it coming in to support our drilling program.

I appreciate it thanks guys.

Thanks, Sean.

Thank you.

And one moment for our next question. Please.

Our next question comes from the line of Gabe Daoud with Cowen Sir Your line is now open.

Thanks, Good morning, everybody.

I was hoping maybe we could just go back to the seventh rig was curious if you could maybe help us think about how that impacts volume growth for 2023.

<unk> mentioned that it obviously accelerates those completion for late <unk> early <unk>. So just curious if you could maybe quantify the volume impact on 2023.

Although the best I can I do want to mention one more thing a couple of things about the seventh rig is first remember take into account that we've announced we're going to drill another saltwater disposal well with one of the other rig so while it's that's out two months drilling the saltwater disposal well.

Which we really need to give us.

Safety measure that we have someplace go with our water.

Uh huh.

That will cut back production, a little bit and there is some timing questions that may affect the <unk>.

The time, and we're uncertain of whether the drop in price.

Or the threats of a recession will.

Decrease the number of nonoperating well proposals. We received this past year I think we had 105 such proposals that resulted in eight net wells to us.

So if thats reduced in half because.

Prices are down or something else that is going to have an impact saltwater disposal. So we're optimistic very optimistic that our production will be more next year.

It's not bird in hand.

Yes, as I've tried to explain in those two situations.

So we definitely felt this rig was needed but.

And maybe we would've taken it at first of the year.

But it was offered to us at the end of September and as Billy pointed it out.

We didn't pick it up now we would never have a chance at it you know other people have it and they would take it and just not release. It so that was some of that.

Just like the summit deal.

We didn't take it when we did.

It had gone to somebody else and we will offset opportunity. So that's something that excites me about having the additional cash not that I'm looking to spend there and I hope no one's ever thought of me has been quick to span.

But.

It helps here.

On your execution.

To have the right equipment at the right time.

<unk> situation.

So.

The seventh rig.

You know effectively as we drill the salt water disposal, we have six rigs.

We didn't have that 700, <unk> would be down to five rigs and we certainly wouldn't be able to maintain.

The production that we have so.

It wasn't a hard decision at all to pick up the rig.

The real decision is had we optimized.

The pacing of our rigs in the pacing of our production did that answer your question.

Thanks, Joe Yeah, that's helpful.

And then maybe if I could just follow up with me.

Think about asset.

Allocating the rigs across the Delaware.

That's our base or maybe for the remainder of 'twenty, two but specifically into 'twenty three just how should we think about.

Returning to Stateline, just just curious if that's still part of the <unk>.

Plan here to return to those two units.

Enjoy the remainder of the wells that you have permitted and then also on that note was just curious if you're seeing any differences in and getting a permit approvals.

Got it.

Hey, Gabe this is Tom.

We're still very excited about our stateline acreage in fact, we have a we have a rig drilling right.

Got that one right right now.

Have 50 wells producing at Stateline and so we're mindful of.

Making sure we have good good takeaway for our oil gas and water and that's where San Mateo has has done an excellent job for us and all all three phases.

As far as kind of the rigs allocations, we have excellent targets all around the basin.

As we acquired some acreage at the end of last year up in our Ranger area, where we're very proud to be putting money to work drilling wells up there and the kind of in the original part where the bone spring formation kind of got going.

Many years ago, we've also been pushing the Wolfcamp play further north of both <unk> and Ranger and also crossover in Arrowhead area.

As we mentioned, we're getting that salt water disposal, well drilled now so that we can have a.

We can drill some more wells in the greater.

Greater Stebbins area.

And parts of next year.

The teams have been drilling great wells in Wolf and Rustler breaks and obviously you heard about Rodney but also all across other parts of Antelope Ridge.

<unk> been drilling some some really good two mile third bone spring second bone spring laterals. So it's it's.

Sort of a high class problem to have so many good opportunities to put put these good wells.

Good wells going.

Well definitely thanks, Tom Thanks, a lot guys.

Okay.

Yes.

Alright, one moment for our next question.

Our next question comes from.

The line of Zach Parham.

J P. Morgan your line is now open.

Hey, guys. Thanks for taking my question.

I guess first maybe just on the balance sheet you all bought back the $158 million in bonds during the quarter and into July .

Could you just talk about your balance sheet goals I know, Joe you mentioned earlier on the call and not wanting to go to zero debt, but do you have a target debt level you'd like to get to.

Uh huh.

That's a good question.

<unk>.

We don't we tend to do very little targeting.

That we're going to target. So many wells are targeted so much dead or is that or target production levels.

We try to let things unfold.

And as we said we.

Time for profitable growth at a measured pace.

Not growth for the sake of growth but.

What comes.

More naturally from your drilling completion efforts or your acquisitions.

And that's what we're trying to stress or the opportunistic nature of a lot of our decisions and trying to leave ourselves with a lot of flexibility.

We.

Really havent targeted we know we wanted to pay this down and continue to pay down.

The debt as it comes up and we felt the opportunity where people were eager to or willing to sell at a discount.

No.

Two years ago, our bonds fell down there to a very low level. So probably most of these people bought at that low level and they were 30 or 40.

For sure and so they've got a lot of game titanium its win for them win for us.

Because we were never in default or ever in financial trouble with our banks and in fact.

At that time, we had already been approved.

No change about 13 different credit committees.

That was just where the market went into disarray.

Because of other problems unrelated to us so.

That was an opportune time for people to buy.

I think that's helped us buy in this situation and retire more of the debt then.

Would have otherwise.

<unk>.

We just haven't been in.

Trouble and now we have this cash and we believe.

Paying down debt is a better alternative for our shareholders than merely buying back stock when you buy back stock the person whose sales are stock often leaves doesn't come back.

Buying back debt is a more enduring benefit.

And improves the financial strength of the company and it's.

Opportunities and so the company has strengthened.

With the debt buyback where.

At.

If youre buying back.

Stock faster.

That's a short term.

Benefit May Hill.

And on the dividends.

Were steady in the market and looking to see if there is a program that really resonates with the long term shareholder if you look at.

Rather than 13, absent look who own stock in Matador youre going to say, they're almost all long only funds.

Funds and then we think that gives us a certain amount of stability.

And we.

We just had our annual meeting we had over 90% of the shares represented over 200 people there.

And both are all overwhelmingly.

95% or better on what we're doing so we feel they they support us in the view to keep strengthening the company first financially.

Rewarding the shareholders, but be sure you can do it can sustain it.

And keep drilling.

And given us the discretion to drill those wells that we think we should.

And cadence to this profitable growth at a measured pace mantra.

So we haven't had.

Calls from shareholders, saying.

Cut back or speed up.

Keep doing what Youre doing is what <unk>.

Is the message that we've been getting it seems to be working effectively.

You know we.

10 years ago, we're celebrating our 10th anniversary 10 years ago, We went public at 12 today our prices over in the 50, so given all of the ups and downs, we think that's been a reward.

You know positive reward for our shareholders to be up four to four five times, what we originally when we went public.

Uh huh.

Like a record I like the decisions, we've been making I think we're setting ourselves up.

With plenty of eight plus locations.

To drill.

<unk>.

We've tried to make sure that with the <unk>.

Money that we spent it's being spent.

Yeah.

On the very best Cal.

Caliber of wells and not diluting ourselves into or you.

Youre doing the B plus or a minus I mean these are.

You know that our.

Caliber of wells and not diluting ourselves into where you are.

Youre doing a b plus or minus I mean these are.

You know that our production.

Production is not because we say, it's so much more money, but it's just been better rock with better execution.

And getting more capital efficient.

And.

Hi.

I am, hoping Tom and Chris and Cliff and Matt and Billy and Josh all of them will keep.

Keep up that practice, so we don't have.

Our set.

Set plan I keep telling that keep finding this jose plus rock as well.

And we will keep going ahead, and making those bigger returns most shales returned about a two to one.

And the ones that we've been drawn as Tom pointed out had been afforded one and thats why the production by 20% and not because we spent a lot more.

Money, but I think where we spent money Chris and bill they have made sure that we've gotten our money's worth.

Having the best caliber ridge.

Yeah.

Really strong vendors, who have done what they've set for us and.

And.

And great execution from people being out on the rigs Billy what am I missing there.

Joe that's a big part of it there was a.

Starting with the <unk>.

Plus rock location to merge up with are they plus staff.

No.

But also the vendor relationships that something we hadn't touched on we've talked about the people a lot of them that we work with and others.

We.

Stay together through the good times and the bad and we always keep operations going.

And keep our people out there and keep them going in.

Uh huh.

Situations like now where it's hard to get.

Sand and rigs in cases, and all the different things we are.

We stay out in front of that.

And the relationships.

A big difference.

Keeping outflows operation go.

Yes, it's just it meshes all of US have worked together for a number of years together.

And.

You know we think we're on a.

On a good plan.

And looking for those extra opportunities in.

Enhanced returns.

It's a simple plan, it's just executing requires.

More effort on part of everybody but.

Trying to get a little more efficient all the time and keep finding ways to improve.

I am proud of our operations group they've set.

179, 779 records for drilling out there in the last two or three years.

Got it thanks, guys I appreciate that color just one follow up I know you all don't have a 2023 guide out there yet, but with the seventh rig running later this quarter.

The oil price kind of in the mid <unk> for next year should our assumption would be that at the strip that seventh rig will continue running at the 'twenty three and beyond.

Yes, Zach I would do that we can make money at $80.

A barrel of oil.

Yeah.

And our gas production is we're 60 40, 60% oil and 40% gas in our gas prices have been.

Very strong.

As these past months.

So.

And remember we have two assets that really get overlooked one is the value of the midstream and second is that we've got two or 300 Bcf of reserves behind pipe in the Haynesville. When we did the deal with Chesapeake we reserved all of our Cotton Valley rights. So we put a rig over there don't want too.

Right now because we feel it's better to grow by tortoise than a hair.

We tend to plug along.

And.

As I said, we feel growth from.

The size, we were when we went.

Public I'm, not even going back to ancient times when I first started but when we went public.

Two or 300 million and today were 6 billion or more so we don't think our pace of growth.

<unk> has.

Has been too slow.

We just.

Keep looking let it be determined not by targeted growth, but the number of really good locations that we know we can make money on and let it be determined.

By that.

Also wanted to mention just as a point of reference on the rigs we've ladder demand. So we can let rigs.

Rigs go in a matter of you know 90 to days to six months, we could go down by probably about half.

They are all staggered out there with.

With the contracts expiring and being renewed every six months or so so.

And.

That gives us flexibility in the pace that we're having with our rigs or.

Or on an acquisition so.

Sure.

Place, it's been a cooperative.

Cooperative effort.

And just just just a point of clarification, just the cotton valley would be would be in addition.

We don't have those kind of booked as reserves right now so that would be on top of what we've what we've already got.

Got it thanks guys.

Thank you.

Thanks Jay.

One moment for our next question.

And our next question comes from the line of Michael <unk> with Stifel. Your line is now open.

Hi, Good morning, everybody, Joe you talked a lot. This morning about how being nimble and maintaining optionality has really been key to the company's ability to create value.

You mentioned last quarter, you were evaluating a variable dividend looking at how Thats gone for some of your competitors, who allocated a lot of cases more than half of their future free cash flow to a dividend most in the form of a variable so it might read too much into your comments to say, maybe a variable it doesn't really make sense for you or I guess.

Just any updated thoughts on how you're viewing the concept a variable dividend.

No Monika. Thank you are.

You are reading it.

It's an open open mind that.

Nobody's rolled it out and nobody has rolled it in but it's.

Being steady.

Sure.

We're looking at it and trying to see what what makes sense, where is it worth I mean, where does it not work so.

The main thing we think the most important part of the dividend is being sure it can be sustained.

No you don't.

You know even on a variable dividend.

It could be say at a high enough, where you would put out enough money to cover the variable dividend and then starts to limit your options or prevent you from.

Then what would otherwise created a lot of value, we think the existing shareholders come first.

<unk>.

The long term.

Dividend.

People seem to like they'd rather know they have it and it'll grow from year to year.

Over a long period of time, rather than trying to.

Accelerate.

Dividend payments and then not have enough.

A few years down the line so it's an open deal.

Uh huh.

And again I want to SaaS, we liked dividends and if you look at.

Largest.

Individual shareholder.

They have some of those big dividends, but it's better.

That matador continues to grow and strengthen itself financially and operationally.

Now that you have more over a longer period of time, but we are.

Open to any idea if it.

Adds value to the shareholders.

And were steady in the variable.

You know the thing them probably had the lowest chance on is trying to do a buyback.

Uh huh.

At this time, because I just think.

We've got better uses for the money than just buying back some stock would rather.

Use it to help the company.

Grow more prosperous and.

More reserves.

More assets more midstream.

More quality acreage, we think that.

Uh huh.

That enhances whether matador shareholder.

And.

Put out hemi.

Take our reserves are approaching $300 million.

Barrels of.

All our gas equivalent.

And divide that.

By the number of shares in each share has a lot of value behind it.

And and that allows us to grow to.

As we have to be more on the top.

20 companies by market cap I understand.

And that's a long way from where we started and Mike you were there when we started.

Yes, no no, arguing with your success just wanted to get a read on how you're viewing that concept and we look forward to see how that unfolds I guess my second question is just a modeling question.

Yeah.

Looking at next year on.

Cash taxes based on where strip prices are right now would you expect to be a partial cash taxpayer this year or would it be a higher percentage.

23.

I'm, a little I'm going to let Rob go first I have two people raise my.

So Rob our Chief Accounting Officer will go first as they finish the audit.

Go ahead, you're talking in my talk Okay. Perfect. This is Rob <unk>. So, yes, I think you're right there'll be a higher percentage of our of our net income will be paid in cash taxes next year as we roll through all of our net operating loss carry forwards on a tax basis, so probably approaching closer to the 15% to 20% of our net income.

Some range, which would be.

$100 million well this year for 2021.

Forecasting it would be about 100 million if youre talking specifically about 2023 that would be the 15% to 20% range that I was talking about Michael.

Michael Yes, so that can range $100 million here, a couple of hundred million dollars, depending on how commodity prices shake out to.

Could be could be higher if commodity prices are higher.

Got it. Thank you helpful guys I appreciate it.

Appreciate you Mike Thanks.

Thank you.

And just MLC Q&A portion of this morning's conference call I'd like to hand, the conference back over to management for closing remarks.

Uh huh.

Well, thank you to everybody that listened and we appreciate the questions were really good I think that really fair.

Tim.

I appreciate it I wanted to extend once again, our invitation to come in and visit this say the Max Com room 24, 7% same thing we have a measurement room, there's 24, 7%.

On that measure and automates.

And they do a really great job.

Verifying that we're getting paid for all of the hydrocarbons that were.

Producing would love for you I'll have to say those would love to visit with you for you to see.

<unk> made a lot of our young people, who are have very important jobs here and and and knocking it out of the park and say that depth.

That we've moved to I think that's been one of the base advantages of being public. These 10 years is it helped us attract some really good people who.

I've really been helping build.

This company.

And.

So come see us and we're always available on the phone from phone calls call.

Call US one of us will get back with you and try to help you with there.

With your questions and.

Continue to work with you and we appreciate the time you all have taken to try to get to know our business and get to know us so with that I'll sign off but my phone line is always open to you.

Thank you for participating in today's conference ladies and in today's conference. You May now disconnect everyone have a wonderful day.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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Good morning.

I wanted to thank you for joining to the second quarter 2020 to Matador resources company.

Earnings Conference call. My name is normal I'll be serving as the operator for today at this time all participants are in a listen only mode.

Well 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 website for one year as discussed in the company's earnings press release issued yesterday I would now turn the call over to Mr. Max Smith, Vice President Investor Relations for Matt.

Mr. Smith you May proceed.

Thank you Norma and good morning, everyone and thank you for joining us for Matadors second quarter of 2022 earnings Conference call.

Some of 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 mornings presentation, maybe forward looking and reflect the companys 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.

Thank you back.

I appreciate your help very much I just wanted to do a sound check they ever valued make sure we're not cutting out in the precast there are some.

Indication that someone's being cut out but if you are please let the operator know in one.

Want to be sure were coming in.

Loud and clear.

Uh huh.

The.

Where I'd like to start is on this this is the best quarter that we've had in company history.

Actually the first quarter was originally <unk>.

Last quarter, but this quarter has been even better.

And we're proud that it reflects the team effort here.

And we.

We feel we've gained strength in all areas and the outlook.

For it is good is strong.

We like our chances.

We've avoided a lot of the problems of the supply chain.

So they've been there we've worked with him for many years all of these.

People Patterson Borland and leverage.

Halliburton.

Uh huh.

And we just appreciate it very much.

All of the different elements that go into the well and our contractors and our field people who are the unserved.

He rose and keeping things going and help them out and add to that capital efficiency.

Most of the capital efficiency comes from the conversion from drilling one mile laterals to two mile laterals and as Youll hear later on as we are making preparations to move to some three mile laterals.

Laterals.

Yes.

That's been the big difference maker, even in this time.

Our prices haven't met.

Extra measure of capital efficiency and finally, the financial strength to Matador has continued to grow through the years and we feel we've reached a new inflection point as our production has climbed.

Over 100000 barrels of oil or gas equivalent per day.

Puts us in.

Position of being the strongest time.

In our history from a financial or operating point of view.

During this time.

We've had.

A lot of debt pay down so that we've completely retired our commercial bank lending.

We still have a borrowing base there, but we've paid all of that off and we've also paid down our bonds.

Debt.

And.

This is given this course more options more cash flow.

Yeah.

And set us up for <unk>.

Different level there.

That we won't have the risk profile that you have with that.

It's.

And the leverage ratio has declined from $2 nine in the third quarter of 2020.

Say two years ago.

To where from 2.9 to five so proud of that and.

And we are ready for your questions and what else. We can tell you about matador.

And our outlook and progress.

Forward.

Thank you.

Ladies and gentlemen.

Okay.

One moment for your first question.

Our first question comes from the line of Neal Dingmann.

With Cowen Your line is open.

Morning, Joe and team.

Good morning, let me address maybe the what I call the attractive element.

And that is <unk>.

I think you all can have negative net debt you mentioned that the great leverage.

My estimate you all could potentially have negative net debt next year.

In the off price and generate over $1 billion free cash flow. So I know you all have always talked about wanting to keep your options open and boosting the base dividend.

Obviously, the general question is what do you do with all the cash piling up.

Maybe Joe I'm thinking Nance with one of the Big <unk>.

Dividends and maybe its better question for her.

I'm, sorry, I didn't quite hear would you repeat that please.

Okay.

With it.

Can you hear me.

No it came across as garbled so.

Again, let me try one more time.

My point was.

By my estimate I guess, you talked about the debt I think youll could have negative net debt next year.

<unk> for her.

[laughter] well.

It might.

[laughter], but thats why you have a board of directors to the share there.

Susan.

And then in our staff to goes in the right direction.

Provide us with some high class options, but.

Neil we again.

When you start you are currently is we did matador.

40 years ago first Matador, we started with $270000 and of course, we sell that for $398 million, which was a good run.

But.

We sell that on Friday, and start a new Matador on a Monday 20 years ago.

And with $6 million. So when you start with those who are pretty limited funds you've learned you learned to be very careful.

About how you spend it because there is no assurance there'll be further capital to use or deploy.

<unk>.

We have ideas.

On what to do but we wanted to be.

Very careful if we're generating that much.

Cash flow next year and their prices are at.

We know what the uses will come but one example of what we did.

Recently was the purchase of the summit midstream that deal came up all of a sudden.

We closed it within 36 days.

So that's something that we couldnt have forecast they came up but we had the option because we have the money in the bank, we didn't need to pull down anything on our line of credit.

And that was one reason, we got the opportunity because we have the wherewithal.

From a staffing point to do the.

Documents and the sale of the deal in little over a month and we had the money in the bank waiting to go.

I think you'll continue to see us.

You know.

Move forward with other acquisitions, either in midstream or bond.

Production bolt onto our acreage.

And <unk>.

And our geological group under <unk> leadership, as a lot of good ideas and where.

Optimistic it will have some prospects.

Rival.

The Rodney Robinson wells or the state line or.

Stebbins area. Some of these other areas that were <unk>.

Looking at closely so there is some really exciting opportunities there we do.

If that.

That kind of cash flow comes in I think people can reasonably expect some.

Increase.

And the dividend.

We've doubled the dividend three times in the last two years so.

Yes.

We like dividends as you know, we're all large shareholders here. So there is no opposition relate to dividends rather than we want to keep a strong financial position.

And then on the debt side.

I think we will.

Continue to retire the bonds.

Yes.

At some point.

And we'll probably keep some debt.

Just for the rating agencies to say that.

Sure.

Our careful about that.

Uh huh.

We turn.

Not to be real budgeted people trying to plan out two years ahead, where we're going to spend money.

We found that it's been more efficient.

There has to be opportunistic and see what comes up at any given time.

And.

That if you're going to drill three miles is a reiki one out there and we.

Expect the earnings a high probability we'll drill a three mile lateral.

Sometime in the.

Not too distant future you know within in the year, we will take up some three mile opportunities any need this rig.

So we'll take that on in late September . So it's really here for this year only for 90 days will help us drill the Rodney Robinson.

And get those off because we have nine.

19 wells there right now, but when we start drilling these next eight.

Youre going to have to shut in probably three fourths of those 1915 of the 19, while you are drilling and completing those wells for safety sake, so and that extra rig to catch back up.

We will be good because one of our rigs.

We're going to use to drill a saltwater disposal, well, which will knock it off of the production line for about 60 days so.

These are banks that are well considered and because of the timing.

We thought we should move ahead and it helps to have money in the bank that I can tell you starting off with 270000, which today is one frac stage. So it started six in the morning, it would be through <unk>.

We're pretty careful about this morning, because it's ours were large shareholders. It's our friends.

It's our families that have put up this money.

<unk>.

We like to be very careful and try to use it for good purpose. So I hope that's helpful to you nail and give you. Some examples of what we will try to do.

It does it does thank you Joe a great great details and then maybe just a second on the capital spending that you all mentioned the update specifically is the best way for us to think about that for maybe for Michael One of you. All is just to think about capex in terms of dollar per foot I know theres a lot of other things midstream and other things involved in that so I'm just wondering what's the.

The best way of thinking of Capex and knowing you don't have a 'twenty three buds out there should we just kind of think on a dollar per foot and maybe add some inflation to it or how should we think about sort of capex going forward known as you said I don't want to get into specific of 'twenty three budget, yet, but just kind of on a broader scale how to think about when you look at the budget.

Yes, Hi, Neil. This is this is Chris Calvert I think looking at it at a D&C cost per foot.

Good way to look at it we came out.

With a $45 per foot in the fourth quarter of 2021, and so we had projected about 1% to 15% increase versus our fourth quarter number and so with this revised capex. It did bump it up to about $8 90 per foot and so that is.

Highly related to timing highly related to inflation that we are seeing you know in the heavy hitting components of that.

Would be sand steel fuel and so while we are seeing inflation, we've seen it throughout the year that big jump in really the jump that youre seeing is really related to timing and when were bringing these wells online and so kind of like we've spoken in the past.

We control what we can control when it comes to stand steel and fuel on the sand side long standing solid relationships with our vendors line of sight for them to procure supplies for us. So we don't have interruptions to operations on the fuel side. The completions team has implemented dual fuel frac fleets and so.

For the remainder of the year, 100% of our wells will have dual fuel capabilities and that's typically saves about 100 to $150000 per well and then also just spending less time on wells and so for the drilling team. When we went back to Rustler breaks. We initially initially budgeted about 20 days to drill some of these wells in Rustler breaks.

Some of these now right around 10 days or so.

That time savings component has a dollar component to it and so we're spending less time on wells and then the completions team implementing Simon.

Yes, I would agree great great operating efficiencies guys. Thanks, Joe Thanks, Steve Thank you.

Yes.

One moment for our next question.

Our next question comes from Scott Hanold with RBC capital markets. Your line is now open.

Thanks, Good morning all.

Yeah.

Good morning could you walk us through the thoughts on adding seventh rig and how you see like that creating shareholder value over time and I think.

You all see some some strong value opportunity and investment into the business could you give us a sense of the types of returns you expect to see from from that rig and the wells you'll be drilling.

Sure. Scott. This is Tom I think that our teams are doing a wonderful job on the cost front as Chris Christmas mentioned, but when we're talking about adding an additional rig. The first thing. We're looking at is is the rock we always want to make sure that we're drilling the best targets that we can drill net and the geoscience team with Max Com are doing a great job putting these wells.

Right in the target zone, we think these wells can earn.

Four times four times their cost over the life of the wells.

And when you have two mile long laterals going through great rock with the.

And 87, five net revenue interest.

And when we have facilities in pads that are already built that's a good formula for adding value for the long term.

Great appreciate that and as my follow up question is sort of talking to obviously the trajectory of spending into next year, which I think is going to be very topical for a lot of companies.

Understanding it's early in the plans and explicitly laid out into.

Into next year, but can you give us a sense on where you see.

Lateral links going forward as well.

Yes.

Sure Scott, Yes, we're definitely big believers in these longer laterals and as Joe mentioned the teams are are working towards getting getting further out to the three of them all mark.

We've executed very well at the two and a half following lateral length.

On a straight line as you know and we're excited to push and push the boundaries out even even further not every well we drill will be will be the long laterals. We will have some wells that will need to drill that it'll be kind of stayed in between to two existing.

Wells, where we'll drill some some shorter wells along the way, but we still think those wells will have excellent returns and we will certainly compete for capital.

Execution Ali I think that.

Chris and daily and all the ops teams have made some big improvements on the some of the grease was wireline and some of the fit for purpose snubbing units really are kind of the tighter parts of executing these longer laterals and they really made these operations safer faster and more efficient and give us the type of competence to drill these long ago.

<unk>.

I appreciate that so so it sounds like staying around 10000 feet on average is sort of a good sort of thought when you look at the relative mix going forward.

I think that's pretty reasonable we still have a ways to go before we finalize our plans for next year, but I think that's that's in the ballpark.

I appreciate it thanks.

Thank you.

One moment for our next question.

And our next question comes from the line of John Freeman with Raymond James Your line is now open.

Good morning, guys.

Good morning, John .

Yeah first question I had you.

I'll have a slide in your presentation on slide 26.

That's quite helpful kind of shows how everything kind of breaks down on a positive and negative standpoint on yours.

Any guidance and obviously.

Hey, guys.

Positive through the first half of the year with the much better well performance.

Typically your final dose 11 volume.

And Rodney Robinson, and I'm trying to get a sense of.

On a go forward basis.

The better well performance.

Ed.

Is that in.

When you think about the additional wells youre going to be drilling going forward and burgers or others is there any additional upside from what you. All had originally planned at this time of year in other words are you still using the same framework.

Our type curve assumptions that you've been drilling under the year, despite the better well performance you've had.

Yeah. Good question John .

I think we just try to we try to put our projections down just down the middle of the fairway.

We do pride ourselves on and looking at the wells very closely.

And we just want to be as accurate as accurate as we can.

As shown on that slide we did have outperformance in many of our wells in the first half of the year end.

We're very happy with that.

Sometimes the wells or do better and sometimes they're a little under but but overall I think we've done a nice job forecasting our wells and things like spacing and putting the wells in the right zone and good execution. Good fracs all contribute to these types of outperformance is yes.

Yes, John I'd like to add this is a good point.

Pointed out the efficiency of our match Com group.

It's at 24, 7% growth that measures in real time.

Where that Wellbore is is this going horizontally and then before we had back.

Sure.

<unk>.

Horizontal oil when out of zone, it might be a little while before it was recognized and then they had to call into geologists get them up in the middle of and that they have to talk around and they could go 200 feet outside of the zone.

Because of the slip fault or some other normal operating procedure. While today now that time has been reduced to a matter of minutes.

10 minutes before you realize what's happened.

You can read drag so youre staying in zone.

Larger percentage of the time and we estimate prior to having that room, we were in zone in the 80%.

85% somewhere in that mid 80%, but now we are routinely drilling those wells at over 95% and there had been some wells we've been very close to a 100% of the time zone, well you have a million barrel well or whatever size, where you want to talk about and Euro zone 10.

<unk> more of the time, that's a 100000 barrels. So that's one part of the efficiency and then second Chris and net working as geologists and engineers in there. So they get very comfortable working with each other and then Chris and them and Cliff in NAND had been real good.

About collaborating on the Frac jobs and.

What works and what doesn't and we think they've been very effective in that.

The tweaks I made to our frac programs and how they're doing it and in reducing the cost by doing remote fracs among other ideas and.

And this has resulted in a lot of this outperformance in the second half of the year, we're still going to be trying out some new things and.

Eight more Rodney Robinson wells instead of waiting to the end of next year, we're accelerating them too.

At the end of this year.

And in doing so we have so many federal permits or 87, five that we have federal permits.

They are due to expire at the end of next year, well as uncertain as the current administrations.

Regulations are and the other thought why take a chance.

Happening to that or having.

The Mexico regulatory authorities not one of them drilled because they are close to the prairie chicken area or parts of it or even in it.

We just wanted to eliminate and get those wells online much like what we did this past year with Avanti wells down there in Stateline.

Boris Wells and.

We drilled.

Those accelerated the development and so we began the year.

With a lot of momentum there.

Kerry this halfway point that's allowed us to.

Consider doing that again.

They're in the Rodney Robinson so.

I guess the point in time trying to make is one of the things that we tried to do in a effective manner.

Is make these judgments.

Uh huh.

And shift strategies, a little bit we call it trying to be a little more nimble and.

And that as opportunities arise to go form.

Just like what we did on pronto.

By another leases and.

And we think that has to be part of our.

Uh huh.

Our effective Miss.

Is that we still are small enough where we made.

Together and maker.

More effective plan going forward. So I hope that answered your question if not I'll get one of these other young guys on the line and.

They gave you their perspective.

You covered it well.

And just my follow up question on this on the seventh rig with shell.

Characterizes.

Special rig and that would allow you all to ultimately do some some three mile lateral just just so I understand though.

Initial eight wells that are getting accelerated.

None of those are planned to be three mile laterals right. That's something you would plan to do.

After the conclusion of these eight wells is that does that right.

That's right. There are 19 wells currently on the Rodney Robinson. These will add eight but why are you growing the IH youre going to have shut in.

75% since we're ahead of the curve right now they say my time to do it.

Billy can tell why this rig is particularly suited for three mile but they won't be on these first wells will broadcast the crew and make sure that we're all comfortable with the crude Billy.

Hey, John this is disability.

Just like Joe was saying, we don't want to bring a new rig in and jump right on three mile well with it.

Good everyone working together and.

Make sure we got everything in line.

Further we will be drilling some three mile wells and we ran one of these rigs like this one we just picked up before.

And it was available and it was about to get taken by other people rigs are getting gobbled up these high spec.

But.

Hi Tech rigs like we like to run and.

And the deeper laterals or be a lot of lot of drill pipe stack by cooler.

And it helps us out there in the sub structures world rigged up really well for handling your wellhead.

Save as toddler and.

This rig would have a high torque top drive.

All the other things that we require as well so it's a good rig in.

Definitely.

Capable drilling three mile laterals, and we're glad to have it coming in to support our drilling program.

I appreciate it thanks guys.

Thanks, John .

Thank you.

And one moment for our next question. Please.

Our next question comes from the line of Gabe Daoud with Cowen Sir Your line is now open.

Thanks, Good morning, everybody.

Jim I was hoping maybe we could just go back to the seventh rig was curious if you could maybe help us think about how that impacts volume growth for 2023.

<unk> mentioned that it obviously accelerates those completion fully <unk>.

<unk>. So just curious if you could maybe quantify the volume impact on 2023.

Which we really need to give us.

Safety measure, we have someplace go with our water.

Uh huh.

That will cut back production, a little bit and there is some timing questions that may affect the <unk>.

Time, and we're uncertain.

Whether the drop in price.

Or the threats of a recession will.

Decrease the number of non operating well proposals. We received this past year I think we had 105 such proposals that resulted in eight net wells to us.

So if thats reduced in half because.

Prices are down or something else, that's going to have an impact.

Saltwater disposal. So we're optimistic very optimistic that our production will be more next year, but it's not burden hand.

Yes, as I've tried to explain in those two situations.

So we definitely felt this rig was needed but.

And maybe we would've taken it at first of the year.

But it was offered to us at the end of September and as Bill pointed out.

We didn't pick it up now we would never have a chance at it you know other people have it and they would take it and just not release. It so that was some of that.

Just like the summit deal.

We didn't take it when we did.

It had gone to somebody else and we will offset opportunity. So that's something that excites me about having the additional cash not that I am looking to spend it and I hope no one's ever thought of me has been quick to span.

But it helps here.

On your execution.

I have the right equipment at the right time.

<unk> situation.

<unk>.

So.

The seventh rig.

Effectively as we drill the salt water disposal, we have fixed rate and we didn't have that seventh rig would be down to five rigs and we certainly wouldn't be able to maintain.

The production that we have so.

It wasn't a hard decision at all.

Pick up the rig.

The real decision is had we optimize.

The pacing of our rigs in the pacing of our production did that answer your question.

Thanks, Joe Yeah, that's helpful.

And then maybe if I could just follow up with me.

Think about asset.

Allocating the rigs across the Delaware.

That's the base or maybe for the remainder of 'twenty, two but specifically into 'twenty three just how should we think about.

Returning to Stateline, just just curious if that's still part of the plan here to return to those two units.

The remainder of the wells that you have permitted and then also on that note was just curious if you're seeing any differences in getting permit approvals.

Guys.

Hey, Jay this is Tom.

We're still very excited about our stateline acreage in fact, we have a we have a rig drilling right.

Right right now.

50 wells producing at Stateline and so we're mindful of.

Making sure we have good good takeaway for our oil gas and water and Thats, where San Mateo has has done an excellent job for us and all all three phases.

As far as kind of the rigs allocations, we have excellent targets all all around the basin.

As we as we acquired some acreage at the end of last year up in our Ranger area, we're very proud to be putting money to work drilling wells up there and the kind of in the original part where the bone spring formation kind of got going.

Many years ago, we have also been pushing the Wolfcamp play further north of both both in Ranger and also crossover in Arrowhead area.

As we mentioned, we're getting that salt water disposal, well drilled now so that we can have.

We can drill some more wells in the greater Stebbins area.

And in parts of next year.

The teams have been drilling great wells in Wolf and Rustler breaks and obviously you hear about Rodney but also all across other parts of Antelope Ridge.

We've been drilling some some really good two mile third bone spring second bone spring laterals. So it's.

It's kind of a high class problem to have so many good opportunities to put put.

But these good wells.

Because it did wells gun.

Well definitely thanks, Tom Thanks, a lot guys.

Thanks, guys.

Alright, one moment for our next question.

Our next question comes from.

Your line of Zach <unk> with J P. Morgan Your line is now open.

Hey, guys. Thanks for taking my question.

I guess first maybe just on the balance sheet you all bought back the $158 million in bonds during the quarter and into July .

Maybe could you just talk about your balance sheet goals.

Joe You mentioned earlier on the call and not wanting to go to zero debt, but do you have a target debt level you'd like to get to.

Uh huh.

That's a good question Zack we.

We tend to do very little targeting.

We're going to target. So many wells are targeted so much data or is that or target production levels.

We try to let things unfold.

As we said we aim for profitable growth at a measured pace and not growth for the <unk>.

<unk> growth, but.

What comes.

More naturally from your drilling completion efforts or your acquisitions.

And that's why we're proud Australia, so the opportunistic nature of a lot of our decisions and trying to leave ourselves with a lot of flexibility.

We.

We really haven't targeted we know we wanted to pay this down and continue to pay down.

The debt as it comes up and we felt the opportunity where people were eager to or willing to sell at a discount.

<unk>.

Two years ago, our bonds fell down there to a very low level. So probably most of these people bought at that low level and they were 30 or 40.

And so they've got a lot of game titanium its win for them win for us.

Because we were never in default or never and financial trouble with our banks and in fact.

At that time, we had already been approved.

With no change about 13 different credit committees.

That was just where the market went into disarray.

Because of other problems unrelated to us.

No.

You know that was an opportune time for people to buy.

I think thats helped us by this situation.

And retire more of the death and.

Would have otherwise.

We just haven't been in.

Trouble and now we have this cash and we believe.

Paying down debt is a better alternative for our shareholders than merely buying back stock when you buy back stock the person whose sales are stock often leaves doesn't come back we're buying back debt is a more enduring benefit.

And improves the financial strength of the company and its.

Opportunities and so the company has strengthened.

With the debt buyback where.

It.

If youre buying back.

Stock.

It's a short term.

Benefit May Hill.

And on the dividends.

Were steady in the market and looking to see if there is a program that really resonates with the long term shareholder if you look at.

Gather than 13, absent look who own stock in Matador youre going to say, they're almost all long only funds.

So we think it gives us a certain amount of stability.

And we.

We just had our annual meeting we had over 90% of the shares represented over 200 people there.

And both are all overwhelmingly.

95% or better on what we're doing so we feel they they support us in the view to keep strengthening the company first financially.

Rewarding the shareholders, but be sure you can do it can sustain it.

And keep drilling.

And given us is the discretion to drill those wells that we think we should.

Cadence to this profitable growth at a measured pace mantra.

So we haven't had.

Calls from shareholders, saying.

Cut back or speed up.

Keep doing what Youre doing is what <unk>.

Is the message that we've been getting it seems to be working effectively.

Yeah.

10 years ago, we're celebrating our 10th anniversary 10 years ago, We went public at 12 today our prices over in the 50, so given all of the ups and downs, we think that's been a reward.

You know positive reward for our shareholders to be up four to four five times, what we originally when we went public.

Hi.

Like a record I like the decisions, we've been making I think we're setting ourselves up.

With plenty of eight plus locations.

To drill.

And.

We've tried to make sure that with the.

Money that we spent it's being spent.

On the very best.

Caliber of wells and not diluting ourselves into.

Youre doing the B plus or minus I mean these are.

You know that our.

Caliber of wells and not diluting ourselves into where you youre doing the b plus or minus I mean these are.

You know that our.

Production is not lots because we say, it's so much more money, but it's just been better rock with better execution.

And getting more capital efficient ambition.

And.

I'm, hoping Tom and Chris and Cliff, and Matt and Billy and Josh all of them will keep.

Keep up that practice, so we don't have.

Our set.

That plan.

Keep telling that keep finding this jose plus rock as well.

And we'll keep going ahead, and making those bigger returns most shales returned about a two to one.

And the ones that we've been drilling as Tom pointed out had been afforded one and thats why the production's about 20% and not because we spent a lot more.

Money, but I think where we spent money Chris and bill They have made sure that we've got in our money's worth by having the best caliber Ridge.

Yeah.

Really strong vendors, who have done what they've set for us and.

And great execution from people being out on the rigs really what am I missing there.

Joe that's a big part of it there was a.

Starting with the <unk>.

Rock and location.

<unk> was are they plus staff.

No.

But also the vendor relationships, that's something we haven't touched on we've talked about the people a lot of them that we work with and others.

We.

Stay together through the good times and bad and we always keep operations going women.

We keep our people out there and keep them going.

You get in situations like now where it's hard to get.

Sand and rigs in cases, and all the different things we are.

We stay out in front of that.

And the relationships.

A big difference.

Keeping <unk> plus operation go.

Yes, it's just it meshes all of US have worked together for a number of years together.

And.

We think we're on a.

On a good plan.

And.

And looking for those extra opportunities that will enhance returns.

It's a simple plan it's just.

Executing requires.

No more effort on part of everybody but.

Trying to get a little more efficient all the time and keep finding ways to improve.

I am proud of our operations group they've set.

179, 779 records for drilling out there in the last two or three years.

Got it thanks, guys I appreciate that color just one follow up I know you all don't have a 2023 guide out there yet, but with the seventh rig running later this quarter.

The oil price kind of in the mid <unk> for next year should our assumption would be that at the strip that seventh rig will continue running at the 'twenty three and beyond.

Yes, Zach I would do that we can make money at $80.

A barrel of oil.

Yeah.

Our gas production is we're 60 40, 60% haul and 40% gas in our gas prices have been.

Very strong this past these past months.

So.

Now because we feel it's better to grow by tortoise than a hair.

Sure.

We tend to plug along.

And.

As I said, we feel growth from.

The SaaS, we were when we went.

Public I'm, not even going back to ancient times when I first started but when we went public we were two years or 300.

And then today, where 6 billion or more so we don't think our pace of growth.

Has.

Has been too slow.

We just.

Email keep looking let it be determined not by targeted growth Bob number of really good locations that we know we can make money on and let it be determined.

By that.

I want to mention just as a point of reference on the rigs we've ladder demand. So we can lead.

Rigs go in a matter of you know.

92 days to six months, we could go down by probably about half because they are all staggered out there with.

With the contracts expiring and being renewed every six months or so so.

And.

That gives us flexibility in the pace that we're having with our rigs or.

Or on an acquisition so.

Place, it's been a cooperative.

Barclays effort.

Uh huh.

And just just just a point of clarification, just the cotton valley would be would be in addition.

Don't have those cars booked as reserves right now that would be on top of what we've what we've already got.

Got it thanks guys.

Thank you.

Thanks Jay.

One moment for our next question.

And our next question comes from the line of Michael <unk> with Stifel. Your line is now open.

Hi, good morning.

Joe you talked a lot this morning about how being nimble and maintaining optionality has really been key to the company's ability to create value.

You mentioned last quarter, you were evaluating a variable dividend looking at how Thats gone for some of your competitors, who allocated a lot of cases more than half of their future free cash flow to a dividend most in the form of a variable. So am I reading too much into your comments to say, maybe a variable it doesn't really make sense for you or I guess.

Just any updated thoughts on how you're viewing the concept a variable dividend.

No Monika. Thank you are.

You are reading it.

It's an open open mind that.

Nobody's rolled it out and nobody's rolled it in but it's.

Being steady.

Sure.

We're looking at it and trying to see what what makes sense, where is it worth I mean, where does it not work so.

The main thing we think the most important part of the dividend is being sure it can be sustained.

No you don't.

You know even on a variable dividend.

It can be say at a high enough, where you would put out enough money to cover the variable dividend and then starts to limit your options or prevent you from.

Then what was otherwise create a lot of value, we think the existing shareholders come first.

<unk>.

The long term.

Dividend.

People seem to like they'd rather now they have it grow from year to year.

Over a long periods of time, rather than trying to.

Accelerate.

Dividend payments and then not have enough.

A few years down the line so it's an open deal.

And again I want to SaaS, we like dividends and if you look at.

Largest.

Individual shareholder I Havent asked it.

They have some of those big dividends, but it's better.

That matador continues to grow and strengthen itself financially and operationally.

Now that you have more over a longer period of time, but we're open to any idea if it.

Adds value to the shareholders.

And we are steady in the variable.

But finding them probably had the lowest chance on is trying to do a buyback.

Uh huh.

At this time, because I just think.

We've got better uses for the money than just buying back some stock with weather.

Use it to help the company.

Sure.

Grow more prosperous.

<unk>.

More reserves.

More assets more midstream.

More quality acreage, we think there.

Uh huh.

That enhances whether matador shareholder has.

Put out Hemi, you take our reserves are approaching $300 million.

Barrels of.

All our gas equivalent.

And the bad debt.

You know by the number of shares in each share has a lot of value behind it.

And that allows us to grow to.

As we have to be in one of the top.

20 companies by market cap I understand.

And that's a long way from where we started and Mike you were there when we started.

Yes, no no, arguing with your success just wanted to get a read on how you're viewing that concept and we'll look forward to see how that unfolds I guess my second question is just a modeling question.

Yes.

Hmm.

Looking at next year.

On cash taxes based on where strip prices are right now would you expect to be a partial cash taxpayer this year or would it be a higher percentage.

The 23.

I'm well.

I'm going to let Rob go first I have two people raise here.

She is my list.

So Rob our Chief Accounting Officer will go first as they finish the audit.

Go ahead, you're talking in my talk Okay. Perfect. This is Rob Macklin. So, yes, I think you're right there'll be a higher percentage of our of our net income will be paid in cash taxes next year as we roll through all of our net operating loss carry forwards on a tax basis, so probably approaching closer to 15% to 20% of our net income.

<unk>.

Which would be.

100 million this year for 2021, we're forecasting it to be about $100 million, if youre talking specifically about 2023 that would be the 15% to 20% range that I was talking about.

Michael Yes, so that could range $100 million in a couple of hundred million dollars, depending on how commodity prices shake out.

Could be could be higher if commodity prices are higher.

Got it. Thank you helpful guys I appreciate it.

Appreciate you Mike Thanks.

Thank you.

And just MSC Q&A portion of this morning's conference call I'd like to hand, the conference back over to management for closing remarks.

Uh huh.

Well, thank you to everybody that listened and we appreciate the questions were really good I think a really fair.

Tim.

I appreciate it I wanted to expand once again, our invitation to come in and visit this.

Say, the Max Com room 24, 7% same thing we have a measurement room, there's 24, 7%.

On that measure and automates.

And they do a really great job.

Verifying that we're getting paid for all the hydrocarbons that were.

Producers would love for you I'll have to say those would love to visit with you for you to see.

Made a lot of our young people, who are have very important jobs here and and and knocking it out of the park and say that depth.

That we've moved to I think that's been one of the base advantages of being public. These 10 years is it's helped us attract some really good people who are.

I've really been helping build.

This company.

And.

So come see us and we're always available on the phone from phone calls.

Call US one of us will get back with you and try to help you with there.

With your questions and.

Continue to work with you and we appreciate the time you all have taken to try to get to know our business and get to know us so with that I'll sign off but my phone line is always open to you.

Thank you for participating in today's conference ladies and in today's conference. You May now disconnect everyone have a wonderful day.

Q2 2022 Matador Resources Co Earnings Call

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