Q2 2019 Earnings Call

My name is Shirley and I'll be serving as your operator for today at this time all participants are in a listen only mode.

We will facilitate a question and answer session at the end of the company's remarks. As a reminder, this conference is being recorded for replay purposes and the replay will be available on the company's website through August 31st 2019 as discussed in the company's earnings press release issued yesterday.

I would now like to turn the call over to Mr., Max Smith capital markets coordinator for Matador Mr. Schmitz you May proceed.

Thank you sheree.

Good morning, everyone and thank you for joining us for Matador <unk> second quarter 2019 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 comparable financial measures calculated in accordance with GAAP are contained at the end of the company's earnings press release.

As a reminder, certain statements included in this morning's presentation, maybe forward looking and reflect the company's current expectations or forecasts of future events based on the information that is now available.

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

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

Finally in addition to our earnings press release, I would like to remind everyone on the call you can find a short slide presentation summarizing the highlights of our second quarter 2019 earnings release on our web site on the events and presentations page under the Investor Relations tab.

I would now like to turn the call over to Mr., Joe Foran, our chairman and CEO Joe.

Thank you back and good morning to everyone on the line and thank you for participating in todays call. We appreciate your time and interest in.

Matador very much and feel this has been a.

Very good.

Strong quarter for us and.

So we appreciate your attention I'd also like to introduce the Executive Committee, who are the ones with the staff.

Who are really responsible for these.

Exceptional results.

They are.

Matt Hairford, President, David Lancaster, Executive Vice President and Chief Financial Officer, Craig Adams.

A VP and Chief operating Officer, Lan Legal administration, Billy Goodwin, SVP, and Chief operating officer drilling completions and production van Singleton. He VP of land, Brad Robinson VP of reservoir Engineering, and Chief Technology Officer, Gregg Krug HBP.

Marketing and midstream strategy.

As outlined in our earnings release issued yesterday, we are very pleased with the execution and operating performance during the first half of 2019.

We had.

Many financial and operation.

Operational challenges and the staff really.

Rose to the occasion and I wish to personally knowledge the entire Matador staff for all their hard work and dedication it sounds corny, but it was truly a team effort the way everybody.

Put in a little.

Extra effort.

And applied to your skills.

To achieve in these results is.

Uh huh.

At really there is not.

I wish I had all the words to express my appreciation way everybody pitched, Dan and work together I know that's corny.

But is really.

Fun to see.

The team is really working with each other to achieve the sense.

Second.

I also would like to recognize midstream.

They are certainly coming of age.

With our most recent project in San Mateo.

Two as well as continuing to achieve stellar results.

In San Mateo one.

And.

And in particular.

We have done now this is our San Mateo two represents our fourth midstream project all have come in on time on budget and I'm pleased to say.

This most recent one is.

Working right now on track to be on time on budget.

We have great partner, there with five point and appreciate their help and cooperation.

And getting us to this point and look forward to reporting more on midstream in the next quarter.

Finally.

At the beginning of the year.

It was clear the market was interested.

And what kind of efficiencies.

For each company.

Going to have because.

I would say the number one thing when we were on the road is what kind of efficiency are you achieving and I think these results reflect the increasing capital efficiency that were joint.

As reflected in the.

That we were able to drill more wells, but actually.

Ranking in Capex with that was less than projected or in the budget add to there was a again a lot of cooperation one. Good example is working with.

How a burden on the.

On the sand using local sand.

Helped bring down cost without that apparent degradation.

To our production or reserves at the same time.

Part of the team effort was Patterson working with us on rig efficiency and upgrading some of our rigs to the.

With us and then the same thing on operational.

The cooperation between our midstream and production group so that when those wells are ready to come online.

Midstream was waiting there with the top and we're.

Services, we've been able to render to other third parties and give them the same type of.

Efficiency and finally, just within the organization.

I thought there was a really special effort by all the groups to work within our discipline, the geologists and engineers in the.

Various teams that we have the operational and just everything clay so.

You know we happened this time doesn't mean it happens next time, unless we get busy and get work, but really appreciate also all the kind words that we receive for you for their efforts this quarter and in place now we're going to continue to try to get better.

This next quarter and next half of the year and into 2020, and so we like our our chances and lift that like to open the call to questions.

Thank you ladies and gentlemen, if you have a question at this time.

Please press the Star then one key on your Touchtone 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 and so all have had a chance to ask a question after which we would welcome any additional questions family.

Our first question comes from Scott Hanold with RBC capital markets.

Hi, guys.

Hi, Scott.

Hey, Scott.

Hey, So I mean, you know seeing capex.

Where it was this quarter was was a very very good.

Well well below expectations and can you kind of give us some qualifications on some of the.

Savings, you're seeing and where we can ultimately maybe I'll look you're where you were at the end of 19, where we are today, but where could we be as we enter 2020 I don't know if there's a relative figure like.

Our dollar per per foot completed or unit average well cost of a typical lateral length or if you give us some context of how thats progressed to today and where we expect it to go in 2020.

Yes, Hi, Scott its it's David.

You know I think that to.

We hit the.

We had we had put out.

In the.

In the investor deck last quarter or so.

A slide that you had talked to.

How we thought that to 20 not team could go in terms of.

Our ability to improve our capital efficiency and I think that.

We had we had said that kind of on a.

Dollar per foot basis, as I recall that we thought that would be down 13 or 14% over the course of this year.

So far I think we're probably a little bit.

Ahead of that you know this year and I think that that had projected we'd be down another 10% to 12% again next year of course that assume that.

You know that to that that's there wasn't any inflation in service costs, you know that those would remain flat because we are trying to given.

Idea of.

Of what our own capital efficiencies could be so I think that we're probably running a little ahead of our expectations and I give a lot of credit of course to the to the operations group for a for their abilities to do that I think thats been accomplished both on the drilling side and probably in particular on the on the on the stimulation side as well and so it's been a really good effort to this point in the year I do think it's important to note that you know we sort of.

A lot of what we've done in the first half of the year has it been.

As much as.

Associated with the longer laterals, although it probably was in the Eagle Ford but.

The Delaware, we're just what we do some longer laterals that will we're kind of just I think still in the beginning stages of that so as we go through the second half of the year, we'll see that a little more and then of course as we go into 2020 think that will even that weve been kicked up more so I think we're.

We're pretty optimistic that as that transition happens, we'll continue to make progress in terms of dollars per foot.

Okay. That's good to hear appreciate that.

Shifting to the midstream for my follow up question.

On San Mateo It looks like you all elected to spend a little bit more to to accommodate growing third party potential there.

Could you give us a sense as you look into 2020, and maybe even 2021, where do you think that.

Based on your own expectations of growth for Matador in what Youre seeing in third party volumes, how much spend is needed to continue to enhance that investment.

Scott This mad and it's a good question and I think the way I'll answer it just depends on the opportunities and we kind of have a really good handle on what Matador is going to do so we know what expansion we need to do on the current assets with third parties.

It's been a good thing is we are talking about increasing the capex for the back half of the year that's been demand related so the the thing that we take a lot of comfort in is that we have the the base asset we'd get the gas processing there in Eddy County, we've got.

The.

Salt water disposal facilities, you know, we're looking at for completing our 10th Salt water disposal wells. So we got a really nice footprint to expand on so that's kind of the way I think about that and just getting back to capital efficiency. You know this deal we've got with the five point for San Antonio two we do have the the carry that we will continue to get on the first 200 or first $250 million of build out of San Mateo too.

Okay. Thanks for that.

Thank you. Our next question comes from John Freeman with Raymond James.

Good morning, guys.

Hey, John .

Just.

Following up on Scott's questions on on San Mateo I'm, just trying to see if we could get.

Maybe a little more detail on the breakout of the additional expenditures because you mentioned. The addition to sort of these additional projects that you all are going to be working on.

We also entered into an agreement to to make a few.

Sort of.

Commercial STB D well permit some acreage that was sort of more.

Acquisition oriented just sort of the maybe the composition of that.

Hi, John its David.

Yes, I think that I think that would be correct in saying it was probably about half and half I think so you know the.

In terms of probably the additional capex.

We had to we just had we thought a special opportunity.

You know come up to be able to.

Acquire an existing commercial well and facility.

Up in what we call the greater Sevens area.

And that was something that we were probably going to drill anyway and there was also some.

Subsurface acreage associated with that and we're working to get that finished up and so that was a particularly I think good opportunity for us and.

And then I think for the the seller as well you know so.

So that worked out well and then of course, because the fact that the midstream business development team I think is just doing such a good job in terms of securing additional commitments and finding other third party customers.

We just made the decision that we wanted to pick up that business. It requires some times you know build that out a little extra part to get to them or put novel extra compression on our system to do it and I think thats. What we were just trying to that's what we are trying to convey.

That's very helpful. And then in addition to the completed well cost improvements Chastain, you had a pretty nice decrease in elouise. It.

You all mentioned was a good bit driven by the lower salt water disposal cost as you had more of those those volumes that got put move from truck to pipe and as I, just sort of trying to think about maybe the additional sort of running room you have on improving the costs on that front could you give me kind of rough numbers what percentage of your salt water is now on pipe versus truck.

John the.

The answer to that on the Rustler breaks side, you know, we got San Mateo over there. So we got almost all our water is on pop there with the goal to get to close to.

100% or get to 100% on over in Lee County, where we've just recently big begin adding these volumes on pipe work, probably at about 80% or so maybe a little better volumes and then towards the end of year, we're projecting that we're going to get again closer to the to the 90 or 95% on that so the team's done a really nice job and as we've talked about l. either theres just a couple of things I want to point out John number one.

You want these cost savings to to be sustainable and we feel like absolutely on saltwater disposal side that is I mean, when you get those.

Volumes off trucks in on the pipe.

That's a that's for the duration of the contract and so you know we're very very happy about that the other component of this and we mentioned is is workover costs. So the team has done a really nice job in reducing workover cost and in addition to that we go test for US it's actually looking at ways to.

To mitigate even having to do workovers, so lot of it ties back to artificial lift and how you install the artificial lift and how you make longer run times on SP better gas lift operations. So the team is really focused on not only doing better.

Execution on these workovers, but also eliminating a lot of them.

That's great congratulations on a really nice quarter guys.

Thanks, John .

Thank you. Our next question comes from Neal Dingmann with Suntrust.

Hi, Neil.

Hi, My question is on your slide there seems to be a lot of.

Talk these days, even more so than ever about on slide nine you guys always do a great job breaking that out in the different plays just maybe if you could talk facing a little bit.

Matt.

Joe or David anything guys.

You Havent changed us now in a while and.

Mike I'm getting at is.

There's some investors now seemed to question parts of that in the Permian and I'm. Just wondering if you could maybe talk about your spacing assumptions and going forward. How you believe in that.

Yes, Hi, Neal it's David.

I think that to I think that our our spacing assumptions remain.

Running pretty well unchanged, we I think have been pretty consistent in saying that.

That.

160 acre spacing and that.

That the the wells that we drill or are fairly consistently at that kind of spacing. We do have some locations in zones that are particularly sick like maybe the wolfcamp b, where we've got identified two or three different landing targets.

Where we have.

Where weve kind of space things on a on a kind of a wine rack 80, but again at any one plane or in any one sort of.

I think we feel like that Thats a.

That served us well to this point.

Clearly in the in our non Op program, we've we've had the opportunities.

At times to participate at a fairly small working interest in in some of the.

Some of the closer spacing test that some of our some of the other operators have done and.

And certainly we you know.

Are very interested in doing so.

You know I think.

I think one thing that Weve always said here at Matador is that the.

We reserve the right to get smarter and so.

We were always trying to we're always trying to figure out what the optimal way is to do things but.

At at this point I think we'll probably continue as you probably remember there were several years ago. When we drilled a few wells a little closer to that and work to.

We are particularly satisfied with the results and.

And some of our Eagle Ford experience.

I think it kind of made us a little more cautious coming into the Delaware. So for for all those reasons I think that to you know, we we've pretty well continued regardless of of the stratigraphic interval to keep ourselves space to add at least 160 acres any of this this is Matt just to add on to what David saying there.

We do reserve the right to get smarter and one of the things that we have the.

The pleasure of doing is participating into non op wells that have closer spacing and then what we would be comfortable drilling so it's nice to be able to to participate in those wells for.

Single digit percentage and be able to get the data and see how those react whether it's a one wrecked 80 acre spacing or maybe even something closer than that.

No. That's that's great to hear and maybe if I hit the other hot topic just onto our seems you you've held in better than some others and.

Again, David for your matter the guys just how you see that as far as.

When I'm looking at sort of I don't know west East from your Rustler breaks and maybe only down to some of the newer BLM, maybe if you could just comment.

You know if you have any thoughts of change in the GR, what you're thinking about it these days.

You know I think I think generally speaking.

Neil that to.

It's you know it's been pretty clear.

That different areas of the basin.

Just have different gas cuts associated with them and you know we've I think we've we've talked about that a lot and been been pretty transparent about it all along you know and even sometimes different the stratigraphic intervals within a particular asset area have different to.

Have different gaskets I.

You know you look at Antelope rich it seems like most of our wells tend to come in the low Eightys you know over there in terms of oil cut you look down it to Wolf and.

Things are more like 60 65, you know you go up to Rustler breaks and the.

From the Wolfcamp B those may be.

30, 40%, but you get up into the Wolfcamp X Y. That's it's you know 75% or more and then you go up into the analog bridge area and some of those wells are 90% plus you know so it's just a it's never been just one thing you know whats in the I think that we've.

We just I think it seems to be fairly consistent you know when I think we have a pretty good idea of where we drill some of these wells what the what to expect in terms of the.

The the oil and gas cuts from that particular wells, but.

One thing I always remember when we talk about this is several years ago when the you know.

Ned and the geologic team did one of the coolest things I thought that I'd ever seen at that time was you know they went out and got a bunch of coatings and then some geochemical analysis and the broader charted and basically spread it on the table and said that when we drill. These wells we had low bridge you know these ones at the bottom are going to be Gassier. As we go up it's going to get you know what's going to get progressively Oilier, you know and and that's exactly what happened and that's exactly what it was and I I just always had to give them a ton of credit for the the really good signs that William long before we actually start to.

The first.

It's just an area where.

Things just things just change across the basin and I think we've adapted to all of them.

Yeah No. That's helpful. Just go ahead and this is this is Brad I just wanted to add to what David said and you because you mentioned the BLM specifically in and that that acreage is in more or less the deepest part of the basin and and as you get deeper the pressure gets higher which is a good thing because it adds more energy.

To drive the all out and and with that comes more gas in the oil. So we do expect to see different deal was around the basin as David mentioned.

But that can be a real good thing in terms of driving y'all added rock.

Thank you. Our next question comes from Sameer Panjwani with Tudor Pickering Holt.

Hey, guys good morning.

So I know, it's still a bit early to talk about 2020, but just given the continued capital efficiency improvements you're seeing both on the well cost side and cycle times, along with the potentially negative macro oil oil macro environment backdrop going into next year.

Could you just share your updated thoughts on activity levels heading into next year and also how you think about the strategic goals for capital allocation.

Samir let me take the first shot at it and Matt David and others can.

You know chime in and give their perspective too that's a very.

First part is we're just getting started on these various efficiencies that I mentioned earlier, particularly the capital efficiency. So we're very early on coming to realize I'm in there on the.

The plans and we are taking more and more advantage of it but we're just really getting started on that.

The rig efficiency of drill in the two mile the longer.

Laterals.

Otherwise our bench in several other ways, we are increasing the.

Effectiveness of here the working together the various groups the regs.

And so we're going to continue that we see that as a big part of the future.

Of Matador and the industry is is is continuing to improve on efficiencies drilling wells faster trying to frac them faster.

More and more common place and we're trying to stay with that trend and.

That 2020.

The next house to point out on 2020 is we're we're making do with six rigs and not seven rigs now that market for a long time seem to be very worried about us, adding a seventh rig.

We try to do what we say we're getting it in so we didn't want to say we were definitely taken a rake.

We definitely weren't taking a rig and tail Lee.

Could save more clearly.

What the lay of the land was and so.

It's now clear that we don't need it to reach our targets, we've drilled some oil wells faster.

And so we've been reaching our targets with last day give credit to the operation group and beliefs.

We're not going there and that hopefully you and others are.

You know our now more comfortable with the 2020 outlook that that isn't going to be necessary.

We will say we won't.

Add at some point in the future a seventh rig, but just don't see any need for it in the foreseeable future or on the horizon.

Have I left something out some mayor.

Matt Yes, Joe just just to build on what you're saying there I think Samir one of the the real nice things that's happened this year and going on into 2020 or these efficiencies you know we feel like we were talking about adding a seventh rig and Billy and his team have done. So good with six rigs you know, we're we're getting more and more things done with that and as you talk about Matador and how we think about things. We we put a lot of value on Optionality and we've talked about it just about every quarter, but we're going to maintain that optionality with with our rigs. We've got three rigs on longer term contracts. We've got three rigs that are shorter term contracts with our.

The agreement with Halliburton burden on the Frac pricing you know we've got a lot of Optionality in that and then just as we talked about going into 2020, we were.

Indicating 85, 90% of these laterals that are going to be a mile and a half or two mile to the operations team has done a really nice job in preparing for that.

We've got to.

Paterson rigs, we're very happy with our Patterson rigs, we're very happy with the upgrades that Weve made the same rig and so in anticipation of a drilling two mile laterals more and more two mile laterals and even at the state line, two and a half mile laterals.

The ability and his team have gone in and had some modifications done to to the high Tech rigs, we already have and adding a third mud pump and I'll ask him to speak about this here in just a second but.

Hi, tore talk draws and our guys do you know or or drilling engineers on these bits. They just continue to push the envelope, we just go faster and faster and faster so.

Billy you might want to talk about the add ons to the rigs, Okay, Hi, Samir This Billy Goodwin and.

Yes look like are ones was saying, we kind of stepped into the one and a half mile than two mile laterals and let's give you. This time on the drilling and completion side to kind of look at different techniques to different equipment and get ready for.

Going to 80% two mile laterals next year and.

In doing so you know we found things are really workforce and helped us get more efficient and some of the things that we see that.

Really look good and healthy for us as having the three pumps and higher torque top drive and.

We think we get things done a lot better their shape more days off in the.

Get a lot quicker on that end and.

The guys have engineers working in the Max calm room with the geologists you know what we're doing it were.

You have a stated target on a lot of these wells, 100% of the time and in the preferred target 90% of the times, we keep getting better there too as well.

So we're getting better you know faster say than saving on the Capex and drilling better wells at the same time. So we look forward to continue with that and also says we started up the MACOM room we've.

Set approximately 50 records since we started the last year. So it's a.

Been a great deal for us.

Yeah I just.

Like to add a little bit what Billy said is 50 records and it's not just in one category, but it's across the whole drilling spectrum and a lot of it in all around our.

Our properties around the basin. So it isn't just in one area with one set of engineers, but its across all areas all across that activity.

Also this Max Camarena would invite everybody to come see it because I think you have to kind of see it depreciated.

To fully appreciate it it runs 24, seven and one of the things that we have in there one of the attributes of it as you have both engineers and geologist in there working together 24, seven and they have a rig I mean, they have a rotation where they're not always work in knots or all these days, but thats that cooperation.

And they're learning from each other so you take young engineers young geologists and there's a great exchange and you're not liking people up at night.

And taking those delays because as fast as your drill and you could be several hundred feet, but they're making the decisions. They are learning how to work together to make decisions and to what Billy says stay in zone, not just in zone, but didn't preferred part easily withstand horizon.

Parts of that horizon are better than others and being able to stay in zone and track it in real time.

As is really delivered and then advantage to us and.

It takes a lot of extra work on Billy's part a niche part two working that Haskins schedule Bose.

Paypal and Tim.

And.

Austin right in the state Rogers have all contribute Clark Collier.

And.

That's been a big.

Big boost but it's taken a little bit of that extra work that I mentioned earlier and Matt David now real proud of it.

We really are severe and just to continue on that that line or discussion.

So to get to the point, where you've got the mile and a half to two and a half mile laterals. There was a lot of work that has to happen on the land and legal side and those guys have done a really nice job in making trades and putting joint operating agreements together and working with other operators and then putting it together that's why you see the the hockey stick for us on the number of longer laterals to go from 9% last year to 90% next year, it's because of a lot of very hard and effective land and leave work too.

That's really great color and I really appreciate the comprehensive answer there.

I guess onto my second question on the mineral side of things looks like you remain active and continuing to acquire interest and bill in the portfolio. So I'm. Just wondering if you started to look at the ideal structure for that business towards making a determination of whether you'd like to keep it internally to further enhance your economics and capital efficiency or if it can be a source of proceeds at some point down the road.

Samir I would say year, thank as lot like ours we.

We talk about it nearly every day, we just don't know yet which is the best route to go and it depends on a number of variables.

And it's actively studied and you know almost.

On a regular basis, where invokana right to get smarter and move this direction or that direction to try to get to what we think is the optimal.

Situation. So we think we have some valuable assets there that can enhance.

You know the company's value.

We're just not sure, which one will deliver the most value over the long term, we don't want to do some short term once they long term sustainable.

And something that tab.

Enhances what we're already doing and so we're making progress just still early in the process.

Okay fair enough. Thank you.

Thank you.

Thank you. Our next question comes from Irene Haas with Imperial capital.

Hello, I just wanted to congratulate you guys on hitting and exceeding your goes quarter after quarter 20, plus seven.

Especially against a really challenging macro is really quite an achievement.

Thanks Terry.

And my question actually is David can give me a little update on this.

Performance incentive that you have for Submittal, one and two.

19 and 20.

Do you have a schedule for that.

Well I think.

As you know.

Irene we have.

We earned the performance incentive.

In 2018, and 2017 and 2018 from from five point and so those were both paid in the first quarter of 2018 in the first quarter of 2019, so the $14.7 million in San Mateo, one incentives were paid and I believe and the company anticipates that it's on track to earn the the 2019 incentives.

Which would be paid in the first quarter of 2020 with regard to San Mateo one so.

That would be another 14.7, if we're successful and as we expect to be if you look at the San Mateo to incentives there a little bit different.

And.

They do require us to.

There.

They are drilling base they require us to you know to to drill certain wells I believe there is a a threshold of about 20 wells that we drilled before those incentives begin to kick in.

And.

And so it may be towards the end of.

2020 or early in 2021 before we begin to realize those incentives.

Those will actually be paid on a quarterly basis. So.

I would I would think that by the.

You know, we'd probably estimate by the first quarter of 21 for sure that we would be.

In a in a period of time in which we would be earning.

In some of those incentives each quarter.

Going forward until they were exhausted.

Great and if you don't mind.

One quick question is that you did some divestiture during.

This quarter and I think earlier, you said you expect to sell about 50 million monthly so should we expect similar divestiture in the second half and also.

It's 2019 guidance is is that net of divestitures thats all I have.

Well with regard to to what we'll be able to get done in the second half of the year.

Certainly.

We're optimistic that that will be able to.

You know to to do some additional deals I think the.

The land guys.

Have been very proactive in the in the first half of the year in terms of making making some of these deals happen.

And we're certainly.

Optimistic that we'll be able to do some more in the second half of the year.

Usually Irene you know in terms of the.

Our forecast, we typically assume that to.

It belongs to us until we know different <unk>. So.

I don't.

So you know at this point.

Our guidance would include.

Any of those any of those volumes.

To that potentially could be could be divested over the second half of the year, but I didn't know exactly what those are you know so.

So until we do until that's more definite they would be included.

Thank you so much.

Thank you. Our next question comes from Jeff Grampp with Northland capital.

Good morning, guys.

They do yes.

Was curious.

First off on the operational side. These these Rodney Robinson wells that you guys referred to in the release on the Western analog bridge can you guys just give a sense kind of strategically how you're approaching the six wells in terms of.

Kind of that the zones that you plan to do and will you mentioned two three well pads is the plan to do kind of complete all six before flowing any back or would you do kind of three and three or just hoping a little bit more color on your approach there.

I believe that to Jeff I'm correct that.

First of all we do plan to.

Assuming the approval and the receipt of the permits from the BLM.

We will we will play into to move a couple of rigs onto those onto the Rodney Robinson tracks, we plan to drill.

Three wells.

With each rig initially so it will be a six well package.

I believe I'm correct that there'll be some completions in the bone spring and some completions in the Wolfcamp and.

And.

So we'll drill three separate stratigraphic intervals.

With.

With each rig.

Yes, all six wells, we'll get we'll get drilled before we begin completion operations.

They'll all be then completed before we turn any of them to sales and so right now if we were.

Able to stay on track and get started on them you know a kind of.

Early in the fall then we would anticipate that probably first production would come from them I would say probably late in the first quarter of 2020.

Alright, great Great. Appreciate those details and my follow up just on the land side, you guys mentioned doing some acreage trades around the the seventh area, obviously had that nice wolfcamp well that you guys updated us on can you guys give us a sense kind of with that with the recent trade.

How sizeable the block is that free on and can you remind us the average and arrive if I recall it was a little bit above kind of the standard 75%.

Yes, I think.

I think I'm corrected it's in the kind of 20 503000 acre sort of range currently and the.

And you know we have the I think hopefully the potential would continue to improve that but I think thats, where we are right now.

There will be multiple drilling targets that will have there there's at least a.

Immediately a couple of second and third the second bone spring the third bone spring and the Wolfcamp, a X Y but I would imagine you know the team will have other targets that they want to complete their.

As Tom as time goes on.

And.

The other thing too is that you know.

Because of the good land work that's going on.

It's really sort of taken a.

Taking a nice block for us that maybe a year ago or 18 months ago. At this time, we were thinking was going to be mostly one mile laterals and it's turned it into a project that is going to be.

Pretty much mile and a half in two mile laterals, you know going forward. We've just begun drilling our first a two mile laterals in the bone spring second bone spring there and you know we have a.

Our first Wolfcamp X y longer laterals scheduled there.

Getting going before the end of the year so.

You know what.

Lot to look forward to I think in that particular block and it's one where I think we feel like we can.

That we can keep the rig going for quite some time as we develop it out.

Jeff if I can jump in here.

Just a little bit as they're down the land war.

As yet it's our practice, we want to do deals, but we want to do deals that build relationships. So that where you know that Asia when land deals.

They get some of this acreage we had to give up some of our favorite tracks as you know from the wells that have been released here in the fall I've been namen since ASER, a state and local tracks after a number of our early shareholders and its a.

And is.

You know as satisfied or play he may be it by trade that allows you to do longer lateral when you call up the person.

Who's track was tried it and test.

[laughter] said, we're not going to be drilling as well.

I can say that he's been traded the X Y Z company in order to block something that I've gotten a little pushback. So if he sees the names moved around the basin.

Black that I've felt I know how.

Major league players failed and they get called in and tell their trading and these guys have candidly about that but it's really an encouraging sign in the industry to have increased cooperation on sharing retention ponds or cooperate with information or on these trades and the realignment of it is is to help.

Mike win win deal and build that relationship. So we hope to keep that up and sure.

I'm glad that we think thats a those are all healthy trends and will help us all.

Do better with that.

To get to 10 miles.

That when that happens both sides with.

Thanks, Joe.

Both Jeff This is Matt one of the other things that we've been talking about it just related to efficiency and.

It's it's putting this block together, we're we've got a rig we can just parked there its drilling mile and a half and two mile laterals.

The other thing that block. This size allows you to do in regards to parent child relationships. As you can kind of just marched your way down through the asset and so instead of having years, where you come back and drill subsequent will you're looking at weeks or months. So it's a very efficient way to.

Develop a large walk like that.

Yes, very good point, Matt and Joe to your point that nothing wrong with an eye sacrifice button once in a while so.

[laughter].

Yes, I'm going to use that because one free [laughter], Kevin Gravy was it professional basketball player from.

And Ted I called him up pace.

His.

Designate well got traded two or three to access.

And he says it's OK you understand it warriors traded him to.

The Milwaukee Bucks.

Bullet straight into the Bucks and so he said he's used to it but [laughter] not all event that.

There's a good atmosphere out there when it times like this happen.

The service providers and everybody else are looking for.

Some strategic relationships and efforts and they are open to ideas it that help everyone. So on.

You know as tough as it is sometimes on.

Prices or four pipelines, it's good that air by.

Seems to be of greater.

Degree of cooperation and debt.

So Eric cloud has a silver lining and.

And we appreciate the way that's happening and and appreciate why our staff has made and some of these challenges. So I don't want to go on but.

We will.

You know overall the trends are a net positive.

Yes, no 100% agree and I appreciate all the top and the time guys.

Thank you Jeff.

Thank you. Our next question comes from Tim Rezvan with Oppenheimer.

Hi, good morning folks. Thanks for taking my question I wanted to circle back to San Mateo quickly.

I noticed strong Twoq results, you had 9% sequential EBITDA growth that the guide for 2019 of 90 million looks increasingly attainable and then you have additional kind of projects in the works. So how should we think about from a modeling point of view kind of earnings growth for that segment is at 9% ramp.

An attainable.

Level or is it has growth and more lumpy as projects get tied in or how do we think about longer term growth there.

Tim I'm going to say something that I think.

Matt add to they will have some thoughts I just don't think we have enough data points to draw real firm Bowl line on how much growth is going to occur I think their scenarios, where it could be last or it could be more and I. Just think we need a few more data points before.

You know.

Staking our reputation.

We want to do what we say, we're going to do and I just don't think we know yet Matt.

I completely agree with that and Tim you know, it's it's been a great quarter first quarter was good second quarters, even better.

As we move forward in San Mateo you.

You want to balance of your anchor tenant, which is matador you've got.

Great visibility into what they're going to do and particularly for US I mean im proud to say, we do what we say we're going to do so.

You really have your finger on that pulls the third party stuff is a little more difficult I mean people can start and stop and there can be.

Commitments that.

You think are coming on.

Monday, and they don't show up the wins. They are you know maybe months down the line. So there's a lot more.

I would hesitate to use the word ambiguity, but that there is more of a greenfield freedom.

Great. Thank you David that's exactly right. So it's good news I mean I think the.

You know the the quarter, we've had is great and it's indicative of a lot of hard work for the for the same until you guys and they're continuing to.

So as we say push on that wrong.

They.

Yeah, I don't really have a lot to add Tim I think that to you know we continue to feel good about the about the guidance that weve given for the year.

And.

I think things are are progressing.

As we would have thought.

I don't know I'd be reluctant to say, it's going to be up 9% every quarter per se, but.

But nevertheless, I think it was a very strong quarter for San Mateo highlighted not only by some nice increases in third party revenues, but.

Shout out to that team too they they did some nice work on the op costs two during the you know during the quarter and they definitely made some some improvements there and it showed up in the bottom line this quarter. So.

We're hopeful that we can see that continue you know but.

I think they they just had a particularly nice quarter.

Matt.

And I'm not trying to put words in your math, but I think we all say based on what you've been talking about that that 90 million is.

His were increasingly confident we'll be attainable.

So Joe.

This is Matt Spicer, Matt Hairford hit the nail on the head.

You know I think we've got a really nice mix.

Blue chip quality customers out there and we have a really nice mix of contracts you know some of them are from some of them have interrupt or agreements and when some of that interoperable stuff shows you know shows up it looks real nice and and sometimes it doesn't so.

We have to be careful on what we are going to estimate, but I think right a great quarter.

Okay.

Thanks for the details and just as a follow up.

You provided longer term performance on the stebbins well up in Arrowhead.

We've seen a strong well results from from that area and Ranger, but in in a in a tough market to really kind of.

Add capital.

Four delineation.

How do you think over the medium term is that kind of proving up the value of that acreage and if you're running six rigs is there the opportunity that you could possibly allocate more capital to the north to really sort of prove up that resource.

Yes.

Tam all that to say is is true possible and that's just how you could just dig saw puzzle together, but one aspect that really really like to stress.

Is that we keep track of how much we spend on each well and how much revenue weak yet and there is a little bit a counter intuitive yes that.

Your you make more money about drilling wells in this low cost environment.

They need to win all sometimes is a $100 a barrel and the reason for that is that.

That.

25%.

Of the revenue generally goes to the roll to younger and another 5% to 10%.

To that.

Governments.

For severance tax and others, but when you say the dollar in cost that goes all the way to the bottom line and when prices go up to 100 costs go up.

And there's a balance there that you want to.

Hi, Keith go once keep your groups and teams together and getting better with new technology and new areas.

But you don't want to go too fast or too slow and we feel we're on a good pace we're gaining.

He though.

Efficiency on the drilling and.

On the whole processes and tab.

But yes, you could allocate more up there that.

You'd make money if you did but you were making money on these other areas and they are just a lot of variables.

That make it more of a calculus that no single variable deal you just you got to take a lot into consideration Matt.

No I agree Joe and I think that.

You get a nice mix like what you said to Tim on this stuff as well the wolfcamp well, we've been talking for quite some time now that we're going to just keep moving wolfcamp farther north and farther north while the north and and we've done that and you're able to do that while mixing in the second and third bone spring wells that have a great rate of return so.

As we learn more and more about these reservoirs, we're going to the delineation becomes a little bit easier I guess is what I should say.

I might just add one comment on that Tim.

I do think that.

You know that.

And lot of that acreage that we have if they're not all but a lot of it.

Came through our.

Through our merger with HEYCO, a number of years ago, and so a lot of it is you know is HBP, which is a which is positive.

Then in addition, I think that to I think the teams are really doing a very nice job now up in that area of kind of using this time also to now that we understand that a little bit better to really again.

Reformulate units and do trades and things like we've done in Stebbins. Some of that is going on in other places to to try to reformulate. These units into longer laterals, you know because I think we feel like that's going to be very important to the you know not only development there, but all across our acreage position, but but I know there's a lot of good work going on up there and kind of taking this time to to get that in place well and they can fall in that among all the variables one.

Is is just the notion that yeah, we'd like the hidden away for doubles triples and homers.

All the time, but occasionally as Jeff said earlier in the conference you got to know sometimes lay down to sacrifice back or a bunch single to confirm the delineation process and to give geology time to process new information on wells and the three D seismic that we have.

We last year was a hard decision.

With all that concerned about capital spending that we authorized.

Pay in a pretty good sum of money.

For three D seismic that would have been easy to abstain from.

But it's been a good move NAD recommended that we honored his request and he's made it paid off but there is still more work to do so there's a little timing incorporating this new information in this new data.

Into our overall understanding of these areas and so.

That's again, just an example of that.

There's generally it's more complex decision than first appears as you start taking everything into account.

Sure.

That all makes sense. Thanks for thanks for the detail folks.

Well thanks, Tim.

Thank you and our final question will come from Gabe Daoud with Cowen.

Hey, Good morning, Joe David Mann, everyone.

Thanks for squeezing me in just a quick one back to 2020 I guess if we.

Thanks for taking about a flat.

Activity Pro a flat rig program into into next year, how should we think about the impact on capital relative to 2019.

Well I'll, let me be real quick and then jump in there gate.

Just because we're hitting the rigs flat that maybe we're keeping the amount of footage drilled flat is that just the big point that Billy and his group have achieved is they've drilled more footage with the same number of rigs and that's partly the rigs getting better equipped the cruise.

Understanding these areas better and our gas finding ways to save the hour here at where their new technology in the form of bets and these things all combined that we.

Yes, we can bid Billy hard time. He came in said he just got to get the same amount of food each with the same amount of rigs.

Where we ace he's built up high expectations for us and.

We we think we can that change that Adam tab.

The other thing is is that as you move and then you're able to get a higher percentage of your.

Working interest then you increase your.

Recoveries, even with the same number of rigs and then the final node as you move to from 30 per Se and I think this year is where it's baked in two miles to 80 or 90% next year, you're going to have a big boost in recoveries, because you're going to be able to drill a two mile lateral faster and have better recovery. So I just wanted to.

Kind of try to put that in perspective, and then current to.

My good friend and colleague David for that patient Tetchy. Obviously, so in this case I don't believe I can improve upon your answer so I'll be glad to so I think I think you said, what I would have said, so and probably better so let's get that out or recorded.

[laughter].

Well I think it is recorded.

[laughter] Gabe I hope that helped.

Yeah, No that's helpful.

Okay, I guess thats it from me guys. Thanks, a lot.

Thanks, a lot nike's gay.

Thank you ladies and gentlemen, this ends the Q and a portion of this morning's conference call I'd like to turn the call over to management for any closing remarks.

Thank you at the biggest closing remarks that I have is to invite all of you.

On the call to come by and say a sometime.

Larger small shareholder or even prospect D. These come by we'd like to meet you in person, but like to show you ran to the Max Cameron and I think he would say what a difference that makes it Nate.

A few of the management and some of the staff that are really doing such a good job, making things happen in our business is complex enough that we feel it's not so much grand strategy, but execution and making that train. We're at on time, So we enjoy hadn't come by and.

And late everybody in person.

And.

And hope that you all take it take us up on that so.

The latter is always on so to speak come see us.

And thank you for your time and attention and one last big Shadow.

The.

The staff and because the executive team, it's really been at night time, and we appreciate all the many kind words that you all have had in.

And we thank our best years in quarters and months you are still ahead of us so thanks and come see us.

Ladies and gentlemen, thank you for your participation in today's call. This concludes the program you may all disconnect and have a wonderful day.