Matador Resources Company (NYSE:MTDR) Q1 2024 Earnings Call Transcript

Matador Resources Company (NYSE:MTDR) Q1 2024 Earnings Call Transcript April 24, 2024

Matador Resources Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen. Welcome to the First Quarter 2024 Matador Resources Company Earnings Conference Call. My name is Daniel, 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. And 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 will now turn the call over to Mr. Mac Schmitz, Senior Vice President, Investor Relations for Matador. Mr. Schmitz, you may proceed.

Mac Schmitz: Thank you, Daniel, and good morning, everyone, and thank you for joining us for Matador’s first quarter 2024 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 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 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 any subsequent quarterly reports on Form 10-Q. In addition to this morning’s earnings press release, I would like to remind everyone that you can find a slide presentation in connection with the first quarter 2024 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. We’ll try to be brief and to the point, but, obviously, the quarter is off to a good start. We’re really pleased and believe or confident that the next quarter will be even better. We now have the connectors in place and functioning. So you have 595 miles of pipeline. Their work is enhanced by being in one system. Second, we’ve — by doing so, we’ve increased our flow assurance and not only increased the flow assurance, at the same time, we improved our balance sheet by recently having three transactions. We amended the credit agreement to extend out to 2029, five years, and increase the committed amount from $1.325 billion to $1.5 billion with room to go up from there on the basis of our borrowing base.

And that’s important because, think about it for a moment that 19 different credit committees among our 19 banks said that we have the financial strength to do that. And then 19 different reservoir groups reviewed our assets and said they were in support of not only the amounts at $1.5 billion, but we could go higher than that. And this what we call the Triple Crown was — Triple Crown was supported by both our old and new banks and is in place and is available not that we plan to spend it immediately or anything else, but it indicates the financial strength that we can look for future quarters. And then the last thing, yes, I’m pleased to report that we’re going to turn on a record number of wells this quarter. There’ll be 43 gross operated wells and 36.2 net wells.

So I look forward to answering your questions today, but also look forward to coming back in 90 days and indicating what we’ve done to improve the asset base of Matador. So with that, I turn it back to you, Mac, and to whatever questions that are on the line.

Mac Schmitz: Great. Thanks. Thanks, Joe. Daniel, we’re ready for questions. Thank you.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Scott Hanold with RBC Capital Markets. Your line is open.

Scott Hanold: Hey, thanks. Good morning, all. Look, brick-by-brick M&A has been a staple of your strategy, I think, since the inception. And I’ve got sort of a couple-part kind of question, but, like, how do you see the current market opportunities in terms of price and quality out there right now? And as you go forward, can you talk about the mix, like, how you see the economics of both, organic and inorganic growth? And then finally, if you could give us some color on what you think your financial capacity is to do more M&A at this point?

Joe Foran: Well, let me take that in order. The first question is, we’re happy to go either way on either growing organically, as we’ve mainly done, in this Matador has grown primarily organically, but also we’re prepared to go by acquisition depending on whatever the industry and the economy is giving us, is that there are times when it’s better to do one or the other, much like a football team has a passing game and a running game. And if you look back, we have now, I think, something like 68 wells that have been drilled on the Stateline acreage.

Mac Schmitz: Yeah, 62 currently producing, and then six more in this quarter.

Joe Foran: All right. So 68 wells. But when we bought that, our stock took a big hit because people couldn’t believe we paid that much for it. But with 68 wells, you can see that it actually worked out. And that’s the kind of the disadvantage of an acquisition. You pay the upfront money, and people can think you’ve overpaid. And so it takes a matter of months or years to prove it out, just as we did in Stateline. Then, on the second hand, is you have these drilling opportunities, and so you want a balance of those. But again, that takes time, and you do that one at a time. So it’s an incremental deal over time. There are advantages to both. And the best way to approach them, I believe, is have a wide variety of ways to grow.

You could add midstream into that. Building out midstream is a growth opportunity, organic growth opportunity, but it enhances your product — the value of your production, because, today, what you need in the Delaware is flow assurance, and there’s a capacity limitation. And unless you have some flow assurance and work with the other pipelines, you’re going to have some difficulties getting your product to market. So I’d just point out that you need to be prepared to grow in any — in all these different ways because you never know what the economy is going to do or circumstances. And as another example, in the ice storm Uri, because we had our own midstream system, those guys — I really had respect because they were out there sleeping in their trucks and keeping the gas flowing.

That might not have occurred elsewhere, but because it was their gas as well as ours, they were out there sleeping in their trucks. And on that point, I’d just say, I think it’s helped that we have an employee share purchase plan, which we have over 90% participation. And they are professionals, they would have probably done that anyway, but it didn’t discourage them any to keep the gas flowing, because they’re all shareholders too. Now, your second question was about our financial strength to do this, is that right, Scott?

Scott Hanold: Yeah, yeah, just an idea of your capacity to do more at this point?

Joe Foran: Well, at the — and a good question. Thank you for asking. But recently we did what we called our Triple Crown was we refinanced our reserve-based lending agreement with those 19 banks that I mentioned. And we’ve increased it from $1.325 billion to $1.5 billion. But as we did that, we’ve paid down our RBL to where we only have approximately $25 million borrowed on the RBL. And we were able to do that because the RBL was signed on Friday, and on Monday, we did the stock offering for 5 million shares and that’s approximately $350 million. And so that enabled us to pay down all the RBL. So we have, now, today, basically $1.5 billion on the RBL available to do acquisitions. Then we went out and, on Tuesday, did a bond offering that was heavily oversubscribed and as was the stock offering.

And we picked up $900 million and those moneys aren’t due till 2032. So we’re sitting there with time on our hands. We can afford to be patient. But we’re actively looking to grow either way and/or a third way with midstream. So first Matador grew primarily by acquisitions. The second Matador has been primarily organic. But even acquisitions, we’re looking for acreage to go along with whatever production comes. So we’re not particularly interested in some that’s all production. We want a balance between the drill bit and actual production, so that you, in effect, have something that’s half organic, half production. So some balance on that. And we try to be creative and solve the problems and work with others. So we’re active in all those directions.

Scott Hanold: Great. I appreciate the color. And as my follow-up, Joe, you mentioned flow assurance is important. And right now, Waha gas is obviously under pressure and in the negative kind of arena, and it probably will persist in the back half of this year. Can you talk about your position? Is there any concern of not getting your gas sold or getting some weak pricing on the residue gas? Can you kind of give us your view of those dynamics for Matador?

Joe Foran: Well, that’s another good question, Scott. And I’ll let Gregg Krug answer that, who is the Head of our Marketing and Midstream. And this is something we’ve talked a lot about, put a lot of thought into. And I think Gregg has done a terrific job of creating diversity on our sales of our gas product. Gregg?

Gregg Krug: Yeah. Thanks, Joe. Yes, Scott. We’ve tried to take a very wide look at this as far as to try to get our diverse market portfolio out there, as far as where we’re not exposed to one particular index or the other. We’ve got a lot of different options here, anywhere from hedging to financial positions or gas transport on — firm transport, I should say, on takeaway pipelines to other regions like Houston Ship Channel, for instance. We’re looking at all those different options. And I think we’ve got a pretty good scatter of our exposure to all the different indices.

Joe Foran: And Gregg, just to add to that a little bit, is that even at Waha, you have a range that you can either go with or you have other choices. And the same thing is that with the NGLs that gives us a hedge on pricing.