Matador Resources Company (NYSE:MTDR) Q4 2023 Earnings Call Transcript

Matador Resources Company (NYSE:MTDR) Q4 2023 Earnings Call Transcript February 21, 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 Fourth Quarter and Full Year 2023 Matador Resources Company Earnings Conference Call. My name is Tanya, 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 on the company’s website for 1 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, may begin.

Mac Schmitz: Thank you, Tanya, and good morning, everyone, and thank you for joining us for Matador’s fourth quarter and full year 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 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 our earnings press release issued yesterday, I would like to remind everybody that you can find a slide presentation in connection with the fourth quarter and full year 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 taking the time to listen in. This has been — last year was a very important year for us. And this year has taken on growing importance, too. The first thing that I’d like to mention is simply that it’s been a remarkable year in that production is up, revenues are up lease acreage is up 18%, inventory, of course, is up and our dividends are up. While costs are down, including LOE is down, drilling costs are down, G&A is down and the debt is down. So that’s the big picture now, but we’re trying to improve around all the edges on that. But that’s the basic story, things are headed in the right avenue. The second thing, I’d just like to point out that we’ve sort the advanced acreage and acquisition.

That’s the largest to date and it’s integrated very well. We always shout out to the professionalism. The Matador people were very professional in the hand off. It went very smoothly and we’re delighted by how efficient and how the production and the rock have exceeded expectations. So thanks to them. We’re trying to put those assets to full work, and we’ll be getting a report on that. And those were two of the main points that I wanted to get across to start the conversation, and now we’re ready for your questions.

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Q&A Session

Operator: [Operator Instructions]. First question is from Scott Hanold of RBC Capital Markets.

Scott Hanold: Up in the northern part of the Delaware, I mean, midstream constraint has been an industry issue. You guys alluded to some third-party tightness. Can you give a little more color on what that is and how much it impacts you in your solutions going forward?

Joe Foran: Well, Scott, that’s a really good question, and I’ll start it off and others around the table can fill in. But constraints is probably not the best word for it. It’s more about maintenance that the older systems they’re going to have a leak here or there. There’s going to be some part of the equipment that needs to be attended to. And they have every reason to get it repaired as quickly as they can because they’re not receiving revenues while it’s down for maintenance. And of course, we’re eager for them to get it repaired as quickly, but that’s just part of the business and operations that they’re going to have a few more. But we appreciate the way they’ve gotten after it. We appreciate their communications. We’ve been fortunate on our part of our midstream system.

We have not been down. But of course, we — our equipment is out of the later vintage. So everybody is working on the problem. And it didn’t matter of well productivity. It’s just these things go down, they need to be attended to. And — but we have fairly limited exposure there. But it has had the effect of about 5,500 barrels a day for this month. When you put that in perspective of the whole year, this is one quarter that we’re experiencing it. And if you put in the whole year, you’re talking about maybe 1% of our expected annual production, and we think we’ll make that up in the quarters to come fairly easily. We haven’t taken into account any acquisitions in our projected production or very little. So you have that upside and you have the other efficiencies that our production group seems to come up with each year.

Glenn Stetson: Scott, this is Glenn. I’ll just pile on to what Joe was saying in just the temporary nature of these this reduction in production for Q1. We do feel very confident that the issues will be resolved by the end of this quarter, and we’ll be — set ourselves up very nicely for the rest of the year. I do want to highlight that the connectors between the Pronto system and the advanced properties is very well underway. We have the permits in the right of way and the construction is very well underway there and same on the Pronto to the San Mateo Connector. And we did highlight in the release, but just to say that the uptime that we experience with San Mateo and Pronto is — we feel second to none and that communication that goes on between the teams is daily, and we have a lot of visibility into the operations, both on the maintenance side and what our development plans are. And those 2, really 3 businesses do go very well hand-in-hand with each other.

Scott Hanold: And as my follow-up question, you’ve had the advanced wells online for probably getting close to 6 months now. Can you give us a sense of how those wells are performing relative to your expectation? And with the next batch of advanced wells, which I think are the Dagger wells, remind us like any differences we should expect there? And if you had any color on the timing within the second quarter, you do expect to bring those on.

Tom Elsener: Sure, Scott. This is Tom Elsener. The first part of your question regarding the 21 Margarita wells we brought online back in August of 2023. We’ve been very pleased with those results, just as we’ve always said, those wells would come online with very high oil cuts, and I think we’ve certainly gotten that at average oil cuts of over 84%. They’ve gone very smoothly into integrating with the production facilities teams. And those wells are off to a great start. The next wells we’ve got the Dagger Lake South wells, as we said in the slide deck on Page 11, those wells are very close to the Margarita wells with very similar rock quality, going to have very high oil cuts just like the margaritas. And those wells will come online in the second quarter of 2024, similar to how we brought the Margaritas online in a staggered fashion.

It still is a very big project for us. Those wells are 1.5-mile laterals as opposed to the 2.25 long Margaritas but still at a very high working interest. I believe it’s 21% growth in about 19 net wells and we’re feeling very strong about those results, and I can’t wait to get them online soon.

Operator: And our next question will be coming from Neal Dingmann of Truist. Neal, your line is open.

Neal Dingmann: My question is around your regional focus. I’m just wondering could you specifically talk about — it seemed like that Northern area, you had very strong activity. I’m just wondering in that — is that going to be the focus of this area? And could you talk about how this great area sort of compares to that very, very strong Roddy Robson Stateline.

Joe Foran: Neal, if you could repeat your question, you cut out in the middle of it. So if you restate the question, I feel better than trying to guess.

Neal Dingmann: Okay. Joe, what I’m getting at is, specifically, you suggested ’24 oil production is growing faster boosted, I think, by that Northern Lea County activity. And I’m just wondering, can I assume that post the natural gas connection that much of the visors activity will be in that Northern Lea area? I’m just wondering how do you all think this Northern Lea area compares to that very strong state line of Rodney Robinson?

Tom Elsener: Neal, this is Tom. I’ll take the first part of that and then Ned or Glen may want to chime in as well. But as we’ve kind of talked for quite some time, the bulk of this kind of advanced acreage that’s in the kind of like Lea County area is sandwiched between the Rodney Robinson acreage to the South and some of the Mallon acreage to the North and East. We’ve been very pleased with the results, not just from those two tracks, but also some of the other properties that we have been drilling in that same area. The oil cut on all of those are very high. They’re not exactly the same amongst all areas, but very strong oil cut, and we expect to continue to focus there. I will highlight that this is one of the areas where we’ve been very happy with the Third Bone Spring Carbonate interval, where we highlighted that one of our Third Bone Spring Carbonate well had IP-ed at approximately 2,600 BoE per day, and I believe at about 86% oil.

That’s the zone that we added to our inventory over the last year. And also, we’ve also added the Second Bone Spring Carbonate to our inventory this year based on the strength of several wells drilled in and around that area. I believe we have about 19 wells that we have an interest in that helped kind of donate that zone for us. But we’ve always been proud of that range area and also kind of the Antelope Bridge area. But I would hit that all of our assets are contributing all around the basin. And even we brought online 17 wells in the Arrowhead asset area in the last quarter that we’re very proud of and we’re also connected to the San Mateo system and also located generally speaking, where that Pronto, the San Mateo connector line is. Hopefully, that helps.

Joe Foran: I think, Neil, a good point at this time since come up as we got some questions last night from people asking about the connector lines would they be on or not. And I want to just say again, for the record that we have a very high confidence level that they’ll be on in the next quarter. Glenn, do you want to elaborate?

Glenn Stetson: Yes. Just as said, and Joe said, I mean, we’re very confident that those will be complete by the end of the first quarter and we’ll be ready to go there. And another advantage to that system is just by tying those two together is really taking advantage of all 520 million cubic feet a day of processing and gathering. So we’re excited it’s getting put in the ground right now and excited to put them in service.

Joe Foran: Well, all the permits are taken, all the surface use agreements are done, all the paperwork’s done. They’re out there working on it, two crews. So we’re in control of our fate. It’s just continue — they’ve already done a substantial amount of the work. So again, we have a high degree. It will be finished in the same way with the other connector that’s coming together nicely. And again, we’ll have — if we need to, to bring to expedite matters. We’ll have a couple of extra crews. So they won’t be waiting on us.

Neal Dingmann: [Indiscernible] Go ahead.

Glenn Stetson: At this point, it’s on us, and we’re very good at building pipeline so.

Neal Dingmann: That’s fantastic detail. And guys, my second question is land acquisition. Specifically, you all continue to be highly successful just bolting on assets like the — I think you mentioned about the — besides the assets that added about a thousand BoE per day that came with the latest additions? I’m just wondering, will this continue to be a priority going forward and do you see these opportunities?

Joe Foran: Yes. Neal, thank you for asking that question is, yes, the answer is yes. Last year, of course, Advance was our biggest deal ever and has drawn a lot of attention but our land group, our business development group did another 200 transactions. Most of them are — some of them were very, very small. Some of them were a little larger. But they’re out there, our land men, in particular out there all the time making deals, what the deals last couple of years have grown increasingly. It’s just a rationalization of assets between companies. We — you trade out of your non-op for somebody else’s non-occupant that you operate. And so things like that are a little orphans out by themselves. So I think those will come along.

Companies are being very cooperative with each other. And these are small transactions that don’t have that kind of by themselves a big material impact. But in the aggregate, they add up and they make your operations that much more efficient. So there’s a real rationale to do that. And then at the same time, some of the bigger outfits are wanting to concentrate their assets in one area or another. So those opportunities come up. And then you have private equity has always got a few things coming out. So I think it will continue and Van’s group may want to say a word, but he has them out there on the road a lot. And — and they’ve — they’re building relationships and just trying to do things that make sense for both sides.

Unidentified Company Representative: Yes. This is Ben. I’ll echo what Joe just said and add a little bit that we try to make these win-win deals for both sides. I think we’ve got a long track record of our brick-by-brick approach. I think you can expect to see that to continue. We’re off to a great start so far this year and have a pretty favorable outlook for the rest of the year. But also want to give a shout out to our counterparts that we do these deals too. It takes both sides to make it a win-win. And as Joe mentioned earlier, the professionalism that we saw on the other side for the advanced deal, I think we see that on the smaller deals, too. And relationships, as you know, are important to us, and we want to be able to say that we did what we said we’re going to do.

And I think you could just, as I said, expect to see more of the same going forward. That’s our bread and butter. And we’re constantly evaluating different deals and trying to keep our pipeline full.

Joe Foran: Well, that’s been the other key Neal is at Van and his group, hadn’t done one deal and then just stopped to let the pipeline run dry. They just managed to keep deals floating on the pipeline, some of fall out for one reason or another. But by keeping deals in the pipeline all the time, there’s that brick-by-brick approach. It happens each month. And it’s been effective, and we like our chances. We like our ability of our land men to build those relationships and make those deals.

Operator: Our next question will be coming from Tim Rezvan of KeyBanc Capital Markets. Your line is open.

Tim Rezvan: I wanted to circle back on the 21 Dagger Lake wells. You provided some comments on them earlier. They clearly look like they’re going to underpin what’s going to be a pretty big steep production ramp in the back half of the year. So they’re obviously pivotal to the guide you have out there. Can you give us a specificity on exactly what’s happening there? Have you started completions? Or what is sort of the schedule over the next couple of months to get those online with expectations.

Christopher Calvert: Tim, this is Chris Calvert, EVP Co-COO. It’s a great question. If you look at Slide 11 in our deck, we have a pretty good summary slide on the advanced integration. But as far as timing on these 21 Dagger Lake South wells, everything is going as planned. It’s a very similar story to the to the Pronto connector down to some of this acreage. It’s kind of business as usual on the operations fronts. We messaged that we are pilot testing — or excuse me, our Trimul-Frac, that’s actually going on this Dagger Lake South project. And so we’re very excited about Trimul-Frac in and of itself, but just more specific to your question, operations are moving forward as planned. And we’re pushing forward for that kind of Q2 turn-in line date but everything operationally seems to be going according to plan.

Glenn Stetson: And Tim, this is Glenn Stetson. I just wanted to highlight that when we bought the advanced properties, they had built out a water gathering system and they had to dispose a well there too. And so we’ll be tying into that on the water side. And then on the gas side, as I mentioned, that gas is planned to go to Pronto with the connector. So we’re all set up there from a takeaway standpoint.

Tim Rezvan: And then I know you staggered those TILs, do you have any timing you can provide on when that will happen. Like in April or June? Just trying to understand.

Tom Elsener: Yes, Tim, this is Tom again. Very similar to how we did things on the Margarita side. We’ll probably have a little bit of a compressed ramp-up compared to Margarita, since many of these facilities are a little bit further along in the integration process. But probably mid- to late Q2 is probably my guess. And these forecasts, they do tend to change, but I agree with Chris, things are going very well, and we have great confidence in the second quarter.

Operator: Our next question will be coming from Leo Mariani.

Leo Mariani: So just kind of wanted to kind of get a little bit more color on the midstream. I think you guys obviously seem very confident the issues will sort of be behind you at the end of the first quarter here. So once everything is kind of connected in terms of advanced to Pronto and Pronto to San Mateo, do you feel like this gives you a lot more redundancies in the system, you’re not as dependent upon third parties. And then could you also just address kind of where you stand on potential partner conversations for the new $200 million to your plan.