Matador Resources Company (NYSE:MTDR) Q3 2023 Earnings Call Transcript

Matador Resources Company (NYSE:MTDR) Q3 2023 Earnings Call Transcript October 25, 2023

Operator: Good morning, ladies and gentlemen. Welcome to the Third Quarter 2023 Matador Resources Company Earnings Conference Call. My name is Latif, and I’ll be serving as the operator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session at the end of the company’s remarks. As a reminder, this conference is being recorded for replay purposes and the replay will be available in the company’s website for one year as discussed in the company’s earnings press release issued yesterday. I will now turn the call over to Mr. Mac Schmitz, Vice President, Investor Relations for Matador. Mr. Schmitz, you may proceed. Mr. Schmitz, your line is open sir.

Mac Schmitz: Thank you, Latif and good morning, everyone, and thank you for joining us for Matador’s third quarter 2023 earnings conference call. Some of the presenters today will reference certain non-GAAP financial measures regularly used by Matador Resources in measuring the company’s financial performance. Reconciliations of such non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP are contained at the end of the company’s earnings press release. As a reminder, certain statements included in this morning’s presentation may be forward-looking and reflect the company’s current expectations or forecasts of future events based on information that is now available. Actual results and future events could differ materially from those anticipated in such statements.

Additional information concerning factors that could cause actual results to differ materially is contained in the company’s earnings release and its most recent Annual Report on Form 10-K in any subsequent quarterly reports 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 third quarter 2023 earnings release under the Investor Relations tab on our corporate website. And with that, I would now like to turn the call over to Mr. Joe Foran, our Founder, Chairman and CEO. Joe?

Joe Foran: Thank you, Mac and thank you all for listening in. It’s a pleasure to be here today and a pleasure to give you this report. In very simplest terms, we said at the beginning of the year that we began the year at 100,000 BOE equivalent, and we’re going to finish the year at 140,000. I was wrong. It’s going to be 145,000. And we’re pleased to report in addition to production being up, our debt is down, costs are down, and we think our opportunities are also up that the plans that we put into place are proceeding as expected or better than expected and we’re excited to report this to you and look for your questions, but we feel we’ve ended the year 2023 with more inventory, more options, and the outlook for 2024 is even better.

As strong as this year is, I repeat 2024 is better. I would point to you, I had two slides in the materials, which shows — first one shows our performance over the last five years against our peers as selected and we’ve done — we’ve done performed, we feel like we’ve outperformed them. And the second one is more interesting is our performance since the IPO. The team has made great strides. I give them the credit. People are really working well together. They’ve come up with good ideas and Matador has continued to grow. When we went public, we were about $300 million and today the market cap is somewhere around $7.5 billion. But it should get better as the year goes along. We’ve given projections, but they are confident they will all be realized.

I think on slide B, some that struck me as we prepared this was that three times we have announced what were very meaningful deals to us. The first one was the HEYCO deal and immediately announcing it, we thought anticipating it would go up but things went down, which was a big surprise to us. And then when we bought the BLM leases, again, we thought the market would easily recognize the potential of these wells. We have now drilled close to 90 wells on these leases, but instead of going up, things plunged. And in this deal, besides 98 wells happening and the production from them, we — it enabled us to go from 98% of our wells being one mile laterals to 98% of our wells being two miles or more. And you see the dramatic effect of that. Right after that, as things started to stabilize, we ran into COVID, and things plunged again.

But as we turned on the state line wells, and these wells were paid now in less than a year, at some even paid out at $20 a barrel, you can see where that’s taken us to much higher levels. Now, we had — and again, but the third time was the charm. We had announced the advance bill and instead of going up, it went down again. So, but since then, things have been going good for us, as you can see, as we’ve increased the production, as I mentioned, first of the year, 100,000, and at the end of the year, pretty simple math, 145,000. We’re headed in the right direction. Now, just again, a brief history of our Delaware position, we started when we went public in 2012. At that time, we had six wells. This is slide C. Five years later, in 2017, we’ve got 212 and now in 2023 we have 751 wells.

And our market cap has increased and all the other important categories have too, including the dividend. And it’s with pleasure. We like dividends here. I would like to emphasize that. We’re all large shareholders, and over 95% of our employees are participating in the employees’ purchase plan of our stock. So I appreciate the vote of confidence from the staff. We’re going to try to deliver, but again, pleased that we’ve had four raises of the dividend, and now we’re at $0.85. The other progress as you get into it, so we’ve got production up. Our costs are down. We think our inventory selection is better than ever, and debt is down, $200 million. So we’re at $500 million. We have almost $1 billion in availability under our RBL with our bank group.

So we think we’re ready for the opportunities that will come along this year. And but want to answer or address any concerns that you might have. But again, I’m just stating simply that I think you can count on us to perform even better in 2024 than in 2023. And we’re making plans accordingly because you have a lot of volatility and uncertainty that we’re trying to be ready for everything, not only on the operations side, but in the — in the world and in Congress and all the other things has happened in whichever way it goes, we’re confident we have a good plan to make progress. So with that, I’ll open up the floor for questions.

Mac Schmitz: Lateef, we’ll jump into Q&A. Thanks.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Scott Hanold of RBC Capital Markets.

Scott Hanold: Yes. Thanks. Good morning. Congrats on hitting some record volumes this quarter. Joe, you had highlighted the importance of some of these acquisitions you’ve made over time and the value they continue to add to Matador. And with respect to, I guess, the most recent one in advance, I mean, you all have been bringing in some of those first batch of wells, I think, starting sometime late August, early September. Could you give any kind of context on where you’re at with that and some of the initial performance just in terms of your expectation and any kind of tangible data you can provide?

Joe Foran : Good question, Scott. The thing that I’d really point you to is that the first of the year, we were at 100,000. And we said end of the year, we’re going to go to 40,000, 140,000. And so here we are at 145,000. Obviously, the projections that Tom and the rest of our group has have been on the money and a little bit better maybe. And we’re early times yet, but it looks promising to come in as expected or maybe a little bit better than expected. But we’ve been active in that area prior to the acquisition. So we knew that it was good rock area, just like what we also had on the adjoining leases and was just about as perfect to fit on an acquisition as we’ve had. So no surprises, no big surprises. It’s pretty much as projected, which is nice, has been real nice and has fit in with our midstream.

So that was the biggest acquisition we’ve ever done. There’s always a little bit of wariness when you go into something of that magnitude, but it appears to be working out.

Scott Hanold: Okay. And I would assume that at some point, as you get more of those wells online, we’ll kind of see the typical kind of update on well performance. Is that a reasonable assumption?

Joe Foran: Yes, that’s I think very reasonable. We just need a little more time and then we all feel that a well-established decline curves and well-established production history. And we — but it’s looking really good. Everybody here is as glad we did it. We do think it was another important milestone for Matador. So we’ve done transactions large and small, and have enjoyed working with Merida [ph] who was operating and they’re private equity sponsors. So I think it’s a win-win-win type of deal.

Scott Hanold: Okay. I appreciate that. And as a follow-up question, I know you gave some context last quarter on what you all think about 2024 and a 150 plus per day rate on production. And you obviously indicated you’re now going to be adding that eighth rig in the first part of the year next year? And could you talk about what that means for that production number you provided? And any color on midstream CapEx if you have it? And really specifically, where we’re at with potentially finding a partner for Pronto and whether you think you need to?

Joe Foran: That’s a really good question. I’m going to take that first and then we can come back to the other one is one is that, if we add a new plant, it’s about $200 million. Well, that’s really a small — very small in comparison to the $1.6 billion that we paid for Advance. So we have close to $1 billion available on our RBL. Cash flow was up. Production is increasing, so clearly, if we had a partner, it’s because of some enhancement that they bring to the deal. But if it didn’t win, win, we’re going to just go ahead and do it ourselves. It’s a good opportunity for somebody, but what we’re bringing to the table is the production and the staff, the experienced field staff to handle it. It’s a proven deal. We’ve operated San Mateo in good fashion with a growing EBITDA group.

Pronto is come on strong the same way and it’s close to capacity. We have some short-term capacity that we can switch to where we’re assured some firm capacity if that’s what we want to do. So there’s optionality there. We think this plant — we’re moving along with it as if we’re — it’s just going to be us, we will look to somebody would like to get involved, we’ll listen, but we think the economics are such, we’re very, very happy to keep it ourselves. So as Gregg and I were talking about it unless it’s win-win, we’re just not very interested. Greg, do you want to add anything to that?

Gregg Krug: No. I think you said it well. This is Gregg Krug, EVP of Marketing and Midstream Strategy. Scott, I think that’s – I think Joe hit it on the head when it comes to what we’re looking for. We’re looking for a win-win situation here with a possible partner if that’s the direction we want to go. But that’s the only way that’s going to work for us. And — but as — again, as Joe said, that is something we could do this on our own, and we feel comfortable being able to do so. And we definitely like the growth potential out there with the amount of gas and the drilling that we’re doing and also the third party. I think there’s a lot of opportunity out there for third party. And we definitely are — we feel a really good position to be able to take on that third-party gas with the connector, as you’ve mentioned earlier, we’re looking at being able to do that and also with the plant expansion as well. So we like our opportunities out there.

Joe Foran: I’m glad you mentioned the connectors, because that will connect up the Pronto plant swing around and coming through San Mateo. In the extent we’ve got 550 miles of pipeline out there, and this will just give us that much more optionality. So Scott, I hopefully have answered your question here, in particular, that the economics on a 200 having full control are inviting and the economics appear to getting better, particularly as we’re adding an extra rig and going from there. So if you’ll repeat your first question, I’ll try to answer it quickly.

Scott Hanold: Yeah, yeah. No. I appreciate that. And it was with that 8th rig, where does that — relative to your 150 plus a day prior comment on 2024, how does that 8th rig fit into that?

Joe Foran: Well, I think I turn it to Glenn. My view is the 8th rig is being reflected in the 150,000 number, and that’s part of the reason why we’re confident that we’ll increase it from present to add to our numbers and more in year 2025. Glenn?

Glenn Stetson: Yeah. Hey, Scott, this is Glenn Stetson, EVP of Production. Yeah, and Joe hit it just right. Just to rewind a little bit too, when we picked up the advanced properties, we did operate a rig there for about a 1.5 month or two months before we dropped it to the seventh rig. And so really, just what’s new in this release is timing on that eighth rig. And so to your point, we did soft guide for 2024 at the 150,000. That was inclusive of an eighth rig, but the timing piece was what was abstract. So anyway, we are going to pick up that eighth rig in Q1 and look forward to growing production to that 150 plus.

Scott Hanold: Okay. That’s clear. Thank you.