Q4 2024 Matador Resources Co Earnings Call
Thank you for watching.
Lisa: Good morning, ladies and gentlemen. Welcome to the fourth quarter and full year 2024 Matador Resources Company earnings conference call. My name is Lisa and I'll be serving as the operator for today.
At this time, all participants are in a listen-only mode.
Lisa: 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 the 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.
Speaker Change: I will now turn the call over to Mr. Max Schmitz, Senior Vice President, Investor Relations for Matador. Mr. Schmitz, you may proceed.
Max Schmitz: Thank you, Lisa. Good morning, everyone, and thank you for joining us for Matador's fourth quarter and full year 2024 earnings conference call.
Max Schmitz: Some of the presenters today will reference certain non-GAAP financial measures regularly used by Matador Resources in measuring the company's financial performance.
Max Schmitz: 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.
Max Schmitz: As a reminder, certain statements included in this morning's presentation may be 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.
Max Schmitz: 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 any subsequent quarterly reports on Form 10-Q.
Max Schmitz: And with that, I would now like to turn the call over to Mr. Joe Foran, our founder, chairman and CEO. Joe?
Thank you, Meg.
Max Schmitz: And thank you all for listening today. I would like to begin by thanking everybody for the thought and effort they put into their notes.
what we consider most important.
when we take over a property.
Max Schmitz: like the Ameridev. It's a $2 billion deal. Obviously, it's going to have a big impact.
Max Schmitz: So, how do we treat that? And we really treat it like we do all of our other properties. For the past 40 years, as I've done this job as CEO, we've put an emphasis on year-to-year growth. We think that's important.
Max Schmitz: The most important number. You can look at other statistics, and I would say they're all important, but for us, the most important is year-over-year growth.
at the same time.
And from there...
Max Schmitz: We worked to incorporate it and assess what you can do. The AmeriDev properties were special because it's such great quality rock.
Max Schmitz: that gives us a lot of choice. Most times when people sell things, it's not their best rock, but in the Meredith case, it was really good rock. They had done a good job operating it, and we wanted to find those. What else could we do?
Max Schmitz: and we could have easily, we put a rig out there, our first rig went out there nine days after.
Max Schmitz: Acquiring the property, so we could have put more rigs out there and easily increased
Max Schmitz: the production in a sequential basis, but we thought it was more important
to set it up for long term.
Max Schmitz: by the year-over-year growth standard. And in that regard, for 40 years, in buying properties for Matador, in those 40 years, we've grown a little over 20% a year for 40 years.
Max Schmitz: And that's kind of the standard we have. And we feel the AmeriDev properties will meet that standard, particularly as we organize a drilling plan.
Max Schmitz: How exactly we want to develop it, between the development wells and the step-out wells. So we thought a little time on that should be done.
Now, we will have...
Hello.
Max Schmitz: We have, one of the ways of the efficiency is our batch drilling that we've done there. And that has saved us...
Max Schmitz: an estimated $30 to $50 million by drilling them in the batch mode and then bringing them on. But, it does have an effect on the sequential growth, is that
Max Schmitz: which is essentially a timing problem. It's not a reserve problem, it's a timing bill. And in the first quarter...
of last year, I meant fourth quarter of last year.
Max Schmitz: In the first half, we only put two wills online, because we had a big group coming up behind it. And so in the next...
Max Schmitz: Forty-five days or so, we'll probably bring on as 30 whales or more.
Max Schmitz: And you can see what I mean. It's a timing problem. If we had closed and taken over AmeriDev two weeks earlier, we wouldn't have this discussion.
of
Max Schmitz: of whether we have a sequential problem or a mess, as some of y'all described it. And so we ask that, you know, if you're uncertain about our timing on things, please give us a call. But the year-over-year...
Max Schmitz: matters, because I can report that we expect to have growth approximately 30% for the first quarter of this year compared to the first quarter of last year.
Max Schmitz: So, we're very excited about this. We're not seeing any dis-
Max Schmitz: Disappointments, but I want you to know that I don't want to tell you how to do your analysis.
Max Schmitz: Understandable, but some people want to do sequential. But in this case, I think you have to look at the year-on-year numbers. And when you look at the total reserve picture for us,
And that's what I think matters, as our shareholders...
and other leaders.
Max Schmitz: of Commodity Prices to wait until the fall when we've typically given a raise.
But wanted to express to you
are confident
SVPs and higher VPs.
Max Schmitz: And so you have that, but even more important statistic to us and comforting to me personally is that over 95 percent.
of the staff.
Max Schmitz: are participating in the Employee Stock Purchase Plan. So everybody here, if they've been here at any time at all, has become a shareholder and an owner. And if you've ever attended our...
Our annual meetings, you'd meet
Max Schmitz: Many people, a good percentage of them, are shareholders. They've been shareholders for 40 years or more, going back to when we had the partnerships and the like. So, there's great confidence.
and making sure
Max Schmitz: of what we wanted to do next. So saving $30 to $50 million should not be disregarded, but taken into account of whether you want to...
Max Schmitz: emphasize year-over-year growth or quarter-to-quarter growth and look at the timing when you're bringing on wells. So if two weeks
Max Schmitz: is the difference, I would go with the year-over-year growth that I mentioned is going to be 20-30%.
Max Schmitz: So, with that, I'd like to open it up to questions.
Max Schmitz: Mac, but give you an idea of how we evaluate it, and why we've emphasized year-over-year growth, but we still think it's important to look at sequential, and that's why we provide you those numbers itself.
Max Schmitz: Our personal view is that year-over-year number is the most important.
Max Schmitz: Lisa, we're ready to jump into the queue and ready for the first question. Thank you.
Speaker Change: If you would like to ask a question, please press star 1-1 on your telephone.
Max Schmitz: You will then hear an automated message advising your hand is raised. If you would like to remove yourself from the queue, please press star 11 again. We also ask that you wait for your name and company to be announced before you proceed with the question. Ladies and gentlemen, due to time restraints, we ask that you please limit yourself to one question.
One moment while we compile the Q&A roster.
Speaker Change: Our first question for today will be coming from Neil Dugan of Truist Securities. Your line is open.
Neil Dugan: Thanks morning Joe and team and and Joe I just wanted to say before I ask my question I thought you all did a really nice job this time.
Neil Dugan: on the slides of really showing the capital efficiencies and other upside that you have, such as the midstream. So I guess that part takes me to my first question. And my first question, I'd like to focus on the midstream.
Neil Dugan: Specifically, you know, you all obviously have one of the larger now permitting infrastructure systems. I think you're talking about nearly 300 million in EBITDA alone. And I'm just wondering, based on this,
Neil Dugan: Should we assume that now that system is largely developed given the, you know, a bit lower capex of 120 to 180 this year?
Neil Dugan: And then secondly, you know, are there opportunities to, I don't know, maybe bring in a partner or do something to further demonstrate and maybe monetize the value of that system?
Neil Dugan: You know we're going to be looking to extend it because the reason we got into it in the first place is going back To when we were going public
Neil Dugan: was that there was real flow assurance problems and we didn't want to go public and immediately run into flow assurance problems. So that's where we started. Greg Krug has been our leader in the company and has done a marvelous job.
Speaker Change: Our first year of operations, we had EBITDA of $30 million. This year, we have $300 million. So he's made not only the reservoir engineers comfortable,
Speaker Change: by having that flow assurance and the cash flow, and our CFO's happy that they know that we're going to have the cash flow, but he's also created a very profitable business and given us some...
Speaker Change: Good options going forth so it's hard to say because it's
Speaker Change: You know, we still feel early years, and we're expanding our areas of interest, just like with the Meridaff.
over to that southeast corner of southeastern New Mexico.
Speaker Change: And, but we're looking at other opportunities, it's just a great.
area. I've worked it now 40 years.
Speaker Change: to keep expanding, but to do it in a conservative way.
Speaker Change: Yes, Neil, this is Greg Krug. I was going to kind of...
Speaker Change: comment a little bit as far as you know we're going to do we're going to be looking at whatever enhances our flow assurance.
Out there for both Matador and our third-party customers
Speaker Change: I think those are the projects that we're going to be looking at.
Speaker Change: You know, and Joe alluded to the Ameridev piece, you know, we...
Speaker Change: We actually, along with that acquisition, we have 180 miles of pipeline that came with that. That's not actually part of San Mateo.
Speaker Change: We're always looking for those opportunities to actually make the footprint of basically where our acreage positions are at. Those are the expansion type of projects we're looking for.
Thank you. One moment for the next question.
Thank you, Neil.
Speaker Change: And our next question will be coming from the line of Zach Parham of J.P. Morgan. Your line is open.
Zach Parham: Thanks for taking my question. I just wanted to ask on your D&C cost guide, you took it down to $880 per foot. That's down 3% year over year. And your 2024 D&C cost came in quite a bit below the initial guide.
Speaker Change: Could you just give us a little color on where your leading edge D&C costs are today and maybe talk about your ability to continue to drive those D&C costs lower going forward?
Speaker Change: You know, I think it's safe to say when your full year 25 DNC per foot is below your full year 2024 DNC per foot, we're kind of at a leading edge, I think, from an efficiency standpoint.
Speaker Change: We've made great strides in optimizing simulfrac, increasing the use of trimulfrac, reducing days on well, strong partnerships with vendors to make sure that we're in win-win contracts from both the drilling and the completion side.
Speaker Change: You know, depending what you consider leading edge, I would say full year 25, 3% below full year 24, I think that is a leading edge. And I think that is done via the competence and the great job that the operations team here has done.
Speaker Change: And so I think looking into 2025, if you noticed in the release.
Speaker Change: You know, we increase our trimorphic use from 16 wells to 40, and so I think when you look at...
Speaker Change: The cost of savings associated with that, that all contributes to that leading edge D&C cost per foot going down. And so I think it is something we're excited about.
Speaker Change: We should be proud of that. I think we are a leading edge innovator in operational efficiencies. I think that flows through to one of the highest margin operators in the Delaware Basin. I think that's something that we're also extremely proud of on slide K. And so I think we do appreciate you noticing that, and it's something that we work hard to continue to push forward on.
Thank you. One moment for the next question.
Speaker Change: Our next question is coming from the line of Scott Howland of RBC Capital Markets. Your line is open.
Speaker Change: Thanks. You know, hey, Joe, you gave a sort of good overview of why you see some of the ebbs and flows in production and in the focus on sort of year-to-year. Could you address the capital side, too? And I think, you know, there...
Speaker Change: You know, when you look at fourth quarter, it came in a little bit higher, and I think first quarter set up a little bit higher. And so when you look at capital, how do you think that's going to ebb and flow, and what are some of the puts and takes within the range of the roughly 1.4 to 1.7 that you all have for 2025?
Speaker Change: You know, I would say this, is when we take over a property as we did here, the first thing we look at, where can we deploy some capital that would, in the short term, that would improve the operating expenses, for example.
Speaker Change: over the long term. So the savings that we're having in reducing the operating expenses are going to pay off that capital in pretty short order and that's, you know, as I said, I don't want to take away from
Speaker Change: The way people may use sequential comparisons, we just think that year over year is a more important number. And in illustrating, it's hard to give you the...
Speaker Change: Early Cap X to improve the operating expenses. And, Glenn, you might give a little more detail on that so that it saves us more time.
Speaker Change: over time to do it up front rather than to be in the property for 90 days.
then undertake it.
Speaker Change: That's right. Scott, this is Glenn. Glenn Stetson. I would just say, yeah, I echo what Joe said, is we got on the emeriti of properties and immediately got to work and accelerated the completions of those 11 wells, the Firethorn and Pimento wells. And along with that, we did some facility upgrades.
Speaker Change: to accommodate that new production and also to bring you know bring the facilities up to Matador standards and in doing so we were able to
Reduce our OpEx.
Speaker Change: As Joe pointed out, to the tune of $2 million a month, and so those savings are significant.
Speaker Change: and realize them even quicker than we had anticipated. And one anecdote that plays into both the CAPEX side and the operating side is that on those 11 wells, we recycled over 1 point, or about 1.2 million barrels of produced water for the fracturing operations on those 11 wells. So I think, you know, synergies across the board that resulted in, you know, a really nice quarter.
Speaker Change: equipment and operations, and they didn't have a short-term approach. So, shout-out to Reece, and we look forward to having the chance to work with him again.
Thank you. One moment for the next question.
Speaker Change: And our next question is coming from the line of Tim Reznick of Key Bank. Your line is open.
Speaker Change: Good morning folks and thanks for taking my question. I wanted to ask what drove the decision to kind of put a bigger spotlight on the Cotton Valley assets? Are you seeing kind of inbound inquiries on that?
Speaker Change: because it doesn't seem to really be a need to sort of sell that now, you know, with leverage at one times and coming down pretty steadily. So, you know, should we think about that as you hanging a shingle like a for sale sign on that Cotton Valley asset? Just any color would be helpful.
Speaker Change: Yeah, well thank you. The Cotton Valley assets, we've had them.
Speaker Change: A long time, when we did the deal with Chesapeake years ago, we solely sold them the Hainesville formation down there and we reserved all the uphole rights, which these properties are. We have been drilling Cotton Valley.
Speaker Change: Wells to that point and so we're very experienced in that but
You know, when we went out to New Mexico...
Speaker Change: It was HBPed by that deeper production, so there was no urgency, and shortly after that sale, gas prices declined.
It was better to be in oil.
Speaker Change: horizontal drilling in that cotton valley that has yielded wells that are in the order of five billion.
Kibbe-Klee, The Gas, which...
If you have stable prices...
Speaker Change: You can make money, but that's the second key, is the ups and downs of gas prices.
Speaker Change: has discouraged that while you've had a much better commodity process with the oil out there in New Mexico. So it's one of economics.
But now that you have
Gas seems to be rallying. You have these data centers.
Speaker Change: You have the liquids that can be taken out. It's starting to be more attractive. But we're not in any way trying to sell them. That's not the reason. It just shows you that we have another card to play at the appropriate time.
We have also a very high net revenue interest.
Because when we did the deal with Chesapeake, we reserved
Speaker Change: All the overrides that had been earned or acquired, so it's a, it's a prime, we see it as a prime property, but let me turn it over to Ned or Tom, how y'all feel about it, who plan our drilling program.
Speaker Change: Sure, Tim. This is Tom Ellison, our EVP for Reservoir Engineering. We feel very confident in the Cotton Valley, and as Joe mentioned,
Speaker Change: You know, we had drilled a well, you know, over, you know, about 15 years ago, and I'd actually, I'd actually give Joe six, six BCF gas UR on that, on that one-mile well. And I know today, you know, our operations and collisions teams would go in there and be capable of drilling a, you know, two-mile well or two-and-a-half or even further, perhaps.
Speaker Change: We're very proud of it. There's a lot of vertical production in that area, but there's other horizontal wells also.
Speaker Change: I agree with Joe. It's another card to play if we want it to at some point. You know, several hundred feet of pay over there in the Cotton Valley, and all the gas infrastructure from the Hainesville is already in place. And so I think it's something that we like to have in our toolbox.
Thank you. Thank you.
Speaker Change: Thank you and our last call for today will be coming from Kevin McCurdy of Pickering Energy. Your line is open.
Speaker Change: Hey, good morning, Joe. I wanted to ask your thoughts on uses of cash here. You forecast around a billion dollars free cash flow in 2025, and you have a lot of unlaxed value in midstream as your deck shows.
Speaker Change: Your leverage is pretty low. Are there other considerations for use of cash here above the above the dividend?
That's a great question, Kevin, and you know that
Speaker Change: There's a lot of ways to answer that. There's a lot of opportunities.
Speaker Change: And when we get around a table like we are now and guys talk about, I kind of feel this and I think we can do that, it's really exciting because
The strongest financial position we've been in, we have a
over a $3 billion line of credit with our banks,
two-and-a-half billion.
Speaker Change: And so there's plenty of dry powder there. We don't want to...
Speaker Change: And that's why we say, instead of trying to grow X percent a year, that's why we say profitable growth at a measured pace. So it depends on all the considerations. And, but we're, you know, we've got...
All these opportunities in New Mexico.
Speaker Change: They're growing with the drill bit, and we're keeping pace with nine rigs running on the drill bit.
Speaker Change: that earn in a 50% rate of return. We have these opportunities on the midstream, which is a fee-based business instead of a commodity-based business. It gives a little more stability.
Speaker Change: You know that we just don't want to get greedy and don't want to go too fast, but don't want to go too slow and so we're
We'll be end
Speaker Change: The efficiency gains that we're getting are leading to higher returns. Just drilling one vertical, these horseshoe wells are an example of the efficiency that we're doing. Lateral length has grown to where we're now doing over 10,000 feet.
Prewell on the completions.
I'd say it's kind of like
Speaker Change: football coach. He's got a really good running back and he's got a really good passing quarterback. So does he call more plays for the running back or the passer or you know a double reverse to the wide receiver? I don't know but we all discuss it.
Speaker Change: And, again, the fact that we are all shareholders, and particularly among management, that we're steadily buying should give you an idea that...
Speaker Change: We're resolving that internally in a way that's best for the company and best for the shareholders that we're all stakeholders and and really excited by the opportunities, but we also know that you can suddenly have things like
I'm out.
You know, COVID, or, you know.
Speaker Change: Depression, you know, gas prices have been zero at Waha, where we've had to pay money to take our gas. So you want to be careful on that. There's a lot of...
matters to take into consideration.
Speaker Change: But we think we have, the staff has matured together, we've all grown up together.
Our discussions are lively.
Speaker Change: of what we want to do with this extra money, but we all agree, and it's a corny expression, I admit, profitable growth at a measured pace, but it seems to fit us that if we can keep up for 40 years...
I've been in business, I started out with $270,000.
Speaker Change: And now we have $11 billion in assets, and that's just growing 20% a year for 40 years. And we're more of a tortoise than a hare maybe. But we went public back in 2012 at $12 a share.
Speaker Change: And today we're approaching $60, so it's growth over a very turbulent time.
and we're looking forward to win.
Speaker Change: It's a little less turbulent, but we're also ready because we want to be ready with lots of dry powder because we've made...
Speaker Change: more progress in difficult times when others are sidelined by the opportunities that come up. So this is a room full of people that
You know, our owners, and it's measured on what?
Speaker Change: is going to improve the stock price and really grateful to those shareholders who have been in here since.
1983 when we got...
when we got started so
Speaker Change: And they keep coming up with good ideas, and I look across there at Ned, Ned and his group of geologists. Man, they come in with some good-looking ideas, and Tom's...
He leads the teams in these various areas.
Speaker Change: They're always thinking of things, and the land group, you know, John and them, this brick-by-brick approach has generated a lot of opportunities and helped get us into areas that we didn't have. And so I...
Speaker Change: I like our chances, I guess, is what I want to say, and everybody's looking for capital efficiency.
Thank you. Thank you.
Speaker Change: You know, I don't want to be silly, but Mac generally brings donuts to our prep session prior to his call, and I can tell he's trying to be more capital efficient because there's not as many as there was.
Speaker Change: in the early days, so we're going to try to get him. But the dividend, and let me just take a moment on the dividend, is that we like this steadily increasing dividend.
Speaker Change: Over time, and you can see we started out with 10 cents, and now we're at $1.25.
Speaker Change: We would have had a stronger dividend growth if things were a little less turbulent.
and we do not see ourselves...
Speaker Change: buying back stock. We think that favors the short-termers and not the people been in a while.
But, we like it.
Speaker Change: You want to be known as a company that year after year increases its dividend and now
Speaker Change: It has moved from $0.10 to $1.25 and we have many
Speaker Change: You know, and hear what they have to say, and we'd like y'all coming to visit and want you to know everybody on the call, if y'all come see us, we'll have lunch or breakfast and you'll get to meet.
Speaker Change: The staff will take all the questions that you've got. So with that, Brian Ehrman, or Brian Willey, as two of our leaders, if...
Hope to see you soon. Hope to see you all.
Speaker Change: Anything else we should say? Please jump in now. This is Brian. I think all very well said.
Speaker Change: We're excited about 2025 and to be approaching a billion dollars in cash flow is a great accomplishment. Jill mentioned at the beginning about growth and the folks on growth and that's true from a production standpoint and that's true from a free cash flow perspective. So we're excited to be able to do that and be in a position where we can return value to our shareholders.
Ron Ehrman
Speaker Change: No, I think you guys said it well. I think you're really excited about the results for 2020.
Speaker Change: and even more excited about the opportunities that are in front of us at 2045. So, you know, we're really excited about what we have in front of us.
Speaker Change: Right, and Rob is our Chief Accountant Officer and kind of a guy who wears many other hats around here. He has done a real good job of finding research projects.
Speaker Change: and managing the tax position to make contributions that don't show up in these kind of calls. But Rob has kept us on pace in the audit. I'm proud of the audit. Tell them how, once again, we had no questions.
Speaker Change: That's right. I think for the last 10 years we've been audited by KPMG. We're really proud of the
Speaker Change: of the, of my team and what we've been able to do to really provide a very high quality financial close and definitely feel audited by the KPMG team and are really, you know, excited about.
Speaker Change: Looking forward to 2025 and, as Brian said, all the opportunities there and continue to look for ways to chip away at the cash tax position any way we can.
But follow the rules.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host
Speaker Change: Those are my closing remarks, but again, if you have questions that haven't been answered, give a call to Mac. We'll get something set up and have a visit. But the land guys deserve a lot of credit. Those guys, all the land men and women are out there trying to make.
Speaker Change: deals all the time and really proud of the way they build in relationships and trying to make trades that please both sides.
Back to you, Lisa.
Thank you.