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spk04: good morning ladies and gentlemen welcome to the second quarter 2021 matador resources company earnings conference call my name is tina and i will be serving as your operator today at this time all participant lines 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 2021 as discussed in the company's earnings press release issued yesterday. I will now turn the call over to Mr. Max Schmitz, Capital Markets Coordinator for Matador. Mr. Schmitz, you may proceed.
spk08: Thank you, Tina, and good morning, everyone, and thank you for joining us for Matador's second quarter 2021 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 the most recent quarterly report on Form 10Q. Finally, in addition to our earnings press release issued yesterday, I would like to remind everyone that you can also find a slide presentation in connection with the second quarter 2021 earnings press release under the Investor Relations tab on our website. I would now like to turn the call over to Mr. Joe Foran, our Chairman and CEO. Joe?
spk05: Thank you, Mac. It's a pleasure to be here today to have this kind of report to pass on to you. Normally, I say two or three things in particular to highlight, but there's a lot here. I would think Matador's at an inflection point. It's been an exceptional quarter. Everything came together for us. Great effort by our staff. both here in the office and in the field. I think the results are sustainable because many involved improvements in the process and wells that will produce for years to come at record low cost. I invite you all to read the prepared remarks. They're a little long to read to you, but I hope that you'll take the time to look those over. We included some slides. that are on our website. And I'm going to go quickly through those, because that highlights what I'm trying to say, but also to share with you some of these accomplishments. And so if you'll look at slide A, you'll see that we had record EBITDA and free cash flow, and everything was above expectations. The production was higher. The costs were lower. And each group contributed to these results. Also exciting for me is that we repaid another $100 million on our debt. So our debt is cut in half. And we've gone at the last year at the height, we were nearly had a leverage ratio of three. That's now down to 1.8, and I like staying in the ones. So the balance sheet has strengthened, as we predicted, as we were able to bring the BLM properties online. The quarterly production was better than expected. These BLM wells, many of which are going to produce a million to two million barrels, apiece. We have more zones than we really had originally anticipated. And also most important and that is sustainable, we have moved our capital efficiency really forward so that now in 2018, we drilled one well that was over two miles or more. And this year, Every well we drill will be two miles or more, except one. So we've moved our efficiency from about 2% to 98%. And the other thing that we have a max comm room that follows our wells in real time as they're drilling horizontally. And they've increased our time in zone from 70% to 100%. So you can see what kind of difference that makes in both reserves and production to increase your productive footage by nearly a third. This effort to improve capital efficiency follows all aspects of our business. We try to be good operators who both watch revenue and expense and capital projects and and then the per unit cost. So everybody is in an effort to provide the shareholders, make the most use of the shareholders' capital that's been invested with us. We're already exceeding second quarter 2021 guidance, and that's enabled us to have some operational flexibility to bring some projects forward. and really start preparing for 2022. The next slide I have is on slide B, which shows the increasing contributions of our midstream asset. And not only does it have these important financial contributions, but it has operational enhancements to know that we will have our pipe out there when the wells are ready to come online. So from the environmental viewpoint, you're not trucking. You don't have the emissions problem. The pipes are ready, and they take away. And then the operational enhancement is that because San Mateo, the pipes were waiting when we were ready to turn on the Rodney Robinson wells and the Boris wells, and they were producing too much volumes for it to be trucked. Plus, your third party may or may not be there, but our production group made it clear that they'd be there with the pipes, and they were no matter what. The third thing is what I've already tested on is the barring outstanding, and you can see that immediately prior to the BLM deal, we We had a leverage ratio of 1.8. And then as we did that project, the debt, we borrowed the money, low interest rates, to do the projects on the BLM acreage. And it reached a high in the third quarter of 2020, a year ago, at $520 million. and we've reduced that now to 240 in outstanding borings back to the 1.8 ratio. So good planning by the financial group, good cost control by the operating group, and now those wells are delivering record production rates and will exceed the original estimates that we had on what the cumulative production would be. The next thing is we try to establish with you is the credibility that when we set a priority, we achieve it and give you markers so you can see whether we pass those milestones or not. And the 2021 priorities, deliver free cash flow, pay down debt, initiate dividend, continue capital efficiency improvements, the focus on the federal properties, grow San Mateo, have all been achieved and earned the San Mateo performance incentives as well as the employee proactive hedging strategy. We did all those priorities. On the milestones, as you can see, we've done the first three. The next Boris Wells, we'll get them turned to sales and we still have the greater to finish, but it's underway. In the left corner, you see the capital efficiency, what I was talking about, cutting the cost in almost half, and the San Mateo Ibadal growth. And then the capital efficiency, what I also mentioned, that we've improved capital efficiency as measured by the length of your lateral feet drilled in your various wells from 1% in 2018 to 98% today. Going forward, we've tried to provide you with some guidance. The outperformance in the first half of the year has allowed us to accelerate the Vonney well completions. It sets us up better. for 2022, so we get a full year of production from these wells. We feel very excited. As good as we're doing here, we'll do even better next year, and we like our chances. With that, I'd like to turn it back and open the floor for questions. One last, if I have not recognized one of the groups, I'd sure like to make sure I did a universal shout out. because it was really exciting the way that every group from the field to the office and within the office, each department did its part in achieving these results. So, Tina, first to you for the first question.
spk04: Thank you. Ladies and gentlemen, due to the time restraints, we ask that you will please limit yourself to one question and one follow-up. Again, we ask that you please limit yourself to one question and a follow-up until all questions have been answered. After which, we would welcome any questions from you. From the question, I'm sorry, first question is from Scott Hanold with RBC.
spk12: Joe, you had indicated that the operational change really sets up for a good 2022. Can you all provide a little bit of color, like what pulling forward these wells? We can kind of see what happens in 2021 based on your guidance, but can you talk through what that might look like in 2022 at a high level? Based on our numbers, it looks like you all should be able to get firmly above
spk07: hundred a day you know in in 2022 at this point yeah good morning Scott this is this is David you know I think that you know I think that we expect to you know to see to see quite a bit of improvement next year you know as a result of what we're doing here I mean when you think about it as Joe mentioned you know, not only will we turn these Boros and Stevens wells, you know, on in the fourth quarter, some of which will have to shut in, the Boros wells, some of them for a little bit, but we'll also have this, you know, the pull-through from turning these Vonney wells to sales now probably in February as opposed to April, May as we were originally planning. So that in and of itself, you know, should help us out quite a bit in terms of, you know, our expectations for 2022. I don't know that I want to comment on whether we're going to be at 100,000 BOE a day at this point. I think it's a little early. I think we'll want to wait and see how these wells come in, what they do, if there are any other modifications that we might make between then and now. Look, I think that we're very optimistic about how 2022 is going to look, and, you know, I certainly think that the first quarter of 2022 will start off very well for us.
spk12: Okay, fair enough. And, you know, maybe a little bit on, you know, your federal acreage. Obviously, you all have you know, secured a number of permits, and I think you have some extensions that, you know, we're looking to get in addition to some sundries. Can you give us an update where we're at there?
spk07: Yeah, sure. First of all, I think we feel like that things are going very well, you know, with the BLM and the office there in Carlsbad, and we certainly, you know, thank all of our colleagues there in that office for their for their help in pushing through the various approvals that we need. I think as we mentioned on the call last time, we have focused more in recent months on getting approvals of the sundries, which are sort of the amendments to the existing permits. And a lot of that is because it's allowed us to make some modifications to the drilling or completion designs that we really that we'd originally proposed for those wells. As an example, one that I cite often is the fact that at State Line, we had permitted all those wells for four strings of casing. Pretty early in the process, our drilling team determined that those wells could be completed or drilled and then completed with just three strings of casing. But in order to achieve that, we had to go back and get a sundry or an amendment to the permit. Those have all been granted, and we've been really focused, Scott, on kind of getting those just sort of ahead of the sputting of new wells, and that's all gone great. I don't think we've missed a beat there, so I think that's all proceeded very well. You are correct. We did have an extension that was pending, and I'm pleased to say that we got it. So we have received the first extension, and I feel like that that process looks like that it's working well, and we'll continue. We've got more in the hopper, and we'll continue to pursue that as well. So all in all, I think that our team is very pleased with the way things are going, and again, appreciate the help of the BLM, certainly appreciate the help of our own staff to continue to do what we need to do to make sure we've got the permits that we need. I think we're all gratified that in this first seven months of the year that really we haven't faced any significant impediments at all to our ability to drill, complete, operate our wells, and things continue to move forward just fine. Great. Thank you.
spk04: Your next question comes from Neil Dingman with Trust Securities. No, your line is open.
spk02: Sorry about that, guys. Couldn't help but notice, guys, just the upside we're seeing on San Mateo. You guys have been laying that out now for quite some time, really coming to fruition. I'm just wondering what, you know, again, you're talking about $70 million already in EBITDA potential this year. I'm just wondering what type of growth could we see there? Could that go commensurate with what you might see in the upside. I mean, just any details, David, you or Matador, the guys could talk about that.
spk06: Yeah, Neil, this is Matt. Good morning. Thanks for the question. You know, where we stand right now, Neil, we've kind of, you know, we've built the bigger components of our midstream business there. We're kind of in the add-on stage, if you will. So I think one of the things that we're looking forward to is continuing to service Matador, certainly as the tenant, anchor tenant. But also adding these third-party volumes. And so as we've done that, and we've been successful this year in all three pipes. We've added oil. We've added water. We've added gas. So we're to the point where if we get a customer that comes along with enough volumes that we need to add to that system, it's not like we have to have a big investment to go that direction. We can go ahead and say it's water. We can go ahead and drill a saltwater disposal well, additional saltwater disposal well. If it's just connecting a wall and pipe, it's a pretty quick build to get that done. I think we'll keep our eyes on that, and if we do end up landing a big fish, certainly something that we would do is make sure that we have some sort of commitment from that customer that would assure us that we would get our assets paid for.
spk05: Yeah, I'd like to, Neil, add to that is that Matt and his group and Greg and Matt Spicer have done a really good job of attracting quality third-party business to us from companies that are A-rated, You know, the big companies, and if you see their client list, there's not one company that dominates it. It's a whole bunch of very long-time operators out there and just a quality list. So that takes also a lot of the risk out of the project, and we're happy to expand. And then I've got to commend them. Nearly all the companies on that list are now repeat customers. have done more than one project with us. So that's a good sign of the service, and very pleased and very pleased with the way that Five Point has worked with us. They've been a good partner, and we feel like we've made a good team.
spk06: Yeah, Joe, just one thing. You've known us long enough, and you saw us put our acreage position together in the basin. As David says, brick by brick, and we're taking the same approach with San Mateo. And what Joe has said, we've gone out and And no deal is too small for us. You know, we want to make sure that the deals we do, we make money on, which we do. But we've been able to build this business by brick just like we did the EMP side.
spk02: No, very well seen. And then just to follow up, maybe a little bit on Scott's, but I'm just taking a little bit different approach on really like what you guys are doing, moving the operations on to completion. And I'm just wondering, maybe, Matt, for you or Billy, I'm just wondering more, Sort of qualitatively, you know, I'm sure that gets you excited from an operations standpoint. I'm just wondering, you know, by moving that and having more of a constant sort of operation, could you just walk us through, you know, what gets you more excited about moving the program? I know David touched on this a little bit, but would sure love to hear, you know, more on just, you know, what you think kind of just maybe qualitative improvements and what this will do. Not through this year, but even in the next year.
spk05: Neil, I'm going to start off and the others will back clean up on this. But one of the first things is that on the Boris Wells, there was, I think, 800 or more frack stages. They got them all done without any material downtime. All done. And then on the Vonnie wells, I think there was 750, some in that order, 1,500. So you had 1,500 frack stages that were done without any material downtime. All the costs aside, we wanted those same guys continue to work for us so that instead of releasing them so somebody else can get the benefit of their skills and their ability to get many fracks done in a day, we've elected to keep them, which has brought about lower cost, greater efficiency. And when you think of 1,500 frack stages done, pulled off right, that says a lot about the crew. We feel like they're the varsity, and we don't want to give them up to some less proven people that was important to me, but I'll let Matt or Billy or David say what was important to them.
spk06: Yeah, I think, Joe, you've hit on a lot of things. The efficiencies you get doing operations like this are meaningful. You've got a couple of FRAC crews out there. You get these different efficiencies related to having both crews running at the same time, but really what you get is a constant area where you can improve. It's like a some type of sports team. You practice for a reason. You practice to get better. And so if we just look back, you know, if you look back in 2018, you know, our cycle times to complete these wells, to frack them and get them drilled out, get them ready for flow back, was about 45 days. And so in the first half of this year, we've reduced that down to 24 days, which is a 19-day improvement. So there's 19 days that you don't have to pay supervision, you don't have to pay rental, you don't have to pay these other things. On the other side of it, there's 19 days there that you don't have to shut in offset wells. So, you know, you get the efficiency not only on the cost side but on the production side of things. And so that's one metric we look at. And, you know, we just recently did our first simulfrac, and we did really well there. We were well over 2,000 feet of completed lateral length per day. If you compare that back to 2018, that's about 900. So you can see we've more than doubled that with our first simulfrac. And so we anticipate that probably 60% of these wells that we'll drill and complete in the back half of 2021 will be Simulfrac wells. And so we've calculated, and actually with our first experience with the Simulfrac, we saved about $250,000 per well. So that's about 6% of the completion cost just on the Simulfrac. And so on our four-well pad, that's $1 million per well that we're saving on that. So there's some real savings, some real efficiencies that we'll see. going forward. I don't know, Bill, if you have something to... Well, those are all real good.
spk01: I mean, I've piled on and mentioned things we talked about, you know, and David was talking about eliminating casing strings, and that improves our cycle time. We get oil faster, but also, you know, depending on which string it is, that saves us another half a million to a million dollars, so that's a good thing, too, you know, and... like you mentioned with a million dollar saving with the simulfrac that's a big deal but even the wells where we're doing the zipper fracs we're getting better at those too and getting more footage per day and improving all the way around there and you know we also talked about you know on the production side you know doing great things there and you know getting all everything on pipe you know everything on water and oil on pipe and That's helping us out there, too, taking trucks off the road. We all know increasing costs and fuel and things like that. So eliminating all that, just doing better all around.
spk02: Well, Matt, it sounds like we better start taking about a million bucks off the well costs going forward, so we'd love to hear that.
spk07: Neil, I didn't think I was going to have to step in, but maybe. We've calculated on this completed lateral length per foot, we've calculated that every 300 foot that we get better is about $75,000 per well, so those efficiencies are meaningful.
spk05: And hats off to Universal and Halliburton who have been working with us and just doing a really good job and standing behind their work.
spk02: Great comment. Thanks, Joe.
spk05: Thanks, Neal.
spk04: Okay, our next question is from John Freeman with Raymond James.
spk00: Good morning, guys.
spk05: Hey, John. John.
spk00: And I wanted to follow up just at the end there on what Neil was asking, just to get a better idea of sort of what's built into that second half 21 sort of cost per foot guidance. Obviously, you know, y'all have been just running dramatically ahead of schedule, you know, the first half of the year with averaging the $655 a foot and realizing y'all, you know, you took down the guidance that was $730 a foot to $695. And I'm just trying to get a sense of, you know, sort of the gives and takes of, you know, I know that the greater Stebbins area typically goes well. It's a little more expensive. But then, you know, what Matt mentioned on the simulfracs and the cost reductions there, just trying to get a sense, you know, as Neil was kind of alluding to, kind of what's baked into the second half, you know, cost per foot numbers. How much of this is just marketing to mark, you know, what happened in the first half of the year and kind of leaving the second half, you know, the same?
spk06: Yeah, John, this is Matt. I'll I'll take the first stab at this. I think Dave would probably have some comments, too. But kind of what we've looked at, we anticipated cost increases. We went throughout the first half of the year. We really didn't see a whole lot of those. The back half of the year, we are seeing some of those. And a lot of it's dependent on crew price relative to what the price of diesel is. So on the drilling side, we're seeing cost increases, say, as much as 20% on the pre-drill stuff, building location, moving in rigs. Anything that involves a lot of use of diesel, we're seeing those costs. So probably if you roll everything into it on a drilling completion basis, you may have 4%, 5%, 6% cost increase on the drilling side. On the completion side, you see the same thing. You see obviously these freight crews run a lot of diesel, so that cost is up. The cost to transport sand is up. Sand itself, the froth in it is up. 35% or so, but it's a pretty small portion of the completion cost. So we're probably looking at 5% or 6% on the completion side. So that's kind of built into that 695 number that you've got. But then we also anticipate that the operations team, they're going to be able to become more and more efficient as we go along. So I think we feel pretty good about that 695 number.
spk07: And John, I might just add to the second part of your question. I do think that the that the reduction there does, does reflect a bit of a mark to market or a mark to the first half of the year, you know, and that we had, we had done better. And so, you know, that's a, that's sort of enabled us to, to lower the, you know, the rest of the, you know, the full year down a little bit. I don't know that we've made a lot of, you know, a lot of change one way or the other in our expectations for the rest of the year for the reasons that Matt said, you know, the original estimates we had for, 10% inflation in the third and fourth quarters of the year are still there in what we have budgeted. To the extent that we can do better than that or mitigate some of these costs, we might do better here in the second half of the year. But those original assumptions are still reflected in our numbers for the rest of the year.
spk00: That's helpful. I appreciate the context. And then my follow-up question, obviously, you know, historically you've all been pretty active on the hedging front. And, you know, now that we've got, you know, the balance sheet's got, you know, it's below two times leverage and pretty good line of sight on being able to reduce that a good bit further over the next 12 months. You know, there's been some of your peers have sort of talked about it as the balance sheet. kind of across the industry. Some companies maybe being less inclined to hedge as much as they used to. I'm just curious if y'all's balance sheet strength, if it continues to improve, if in any way that might impact y'all's hedging strategy going forward, or if you think it'll still be sort of the same as it's been historically.
spk07: Well, John, this is David again. I think the way we view it is... I think we always feel like we've been fairly opportunistic and tried to make the right calls with regard to hedging. It's unusual for us to go into a year, I can't think of one recently where we haven't had some hedging headed into a year, but sometimes that'll be on the order of 30% or something like that. And then we may dial that up a little bit during the course of the year if we think it's appropriate. I think you can see reflected in the slide deck that we put out along with the presentation that we did just recently begin to add to our hedging position for 2022. I think we've got about 10% of our oil hedged and we added some additional hedges on natural gas through the winter months. You know, we'll continue to look. We're pretty optimistic on where the commodity is going to be. And certainly, as you know, things are backward dated on the strip. So that always kind of impacts your decision. But we monitor it very closely. And I think that as we go forward, it wouldn't surprise me if we added a little more going into the year.
spk00: I appreciate it. Thanks, guys. Well done.
spk05: Thanks, John.
spk04: Our next question is from Gabe Dowd with Cohen.
spk11: Hey, good morning, everyone. Hey, guys. Hey, guys. Hopefully we can maybe just go back to San Mateo for a minute. Just curious. if this incremental business from third-party, just kind of how that impacts volumes this year and next year. And then I know there's a little bit of a CapEx raise associated with that, but curious if that requires any additional build-out beyond what's already been communicated.
spk06: Yeah, Gabe, the things that we have in hand now are in the budget. That was the increase you saw in the CapEx for San Mateo. Things that are out there that we may get, obviously we can't budget for that yet. So I think for the volumes that we have locked up right now, that will be taken care of with the CapEx we have in there. If we're able to have some success, and we hope we do have that success in the back half of the year, that would probably be incremental to that. So we just don't know what that is at this current time. Okay.
spk11: Thanks, Matt. That's helpful. And then Just a follow-up, Joe. I guess I was just curious if you could give us your latest and greatest thoughts on M&A and just consolidation generally and if there's anything interesting that you guys may be looking at from an asset package standpoint or even if it's just a corporate transaction. Just any thoughts on the landscape and color there would be helpful. Thanks, guys.
spk05: Okay. I'd just say like this is that We are a public company, and as a public company, we try to play a straight game. If someone makes us a serious offer or inquiry, we try to take it very seriously. In the past, Matador has done a number of transactions public to public. We sold first Matador to a public company, and then this Matador, we did a deal with Chesapeake on part of our Hainesville position. that enabled us to go to the Eagleford. We established that you could produce oil from the smaller poor throats of the shales, and we took profits from that and moved out to Delaware, which has been good to us. And we've also been active in the private markets. You know, we did a deal with Hayco, and Hayco is still our partner or still part of our business. fabric. People that work for Hayco still work for us. George Yates is still a real good friend and valued shareholder. So, you know, we're open to that and particularly, you know, any what I'd call small, private, old, particularly old school oil and gas family company doing deals with where there's a cultural fit and outlook fit and we have criteria we wanted to be sure that it's a good deal for the shareholders as you know that David Matt and I and the other members of our executive team are large shareholders and we make more money by the shares going up a dollar or two than we do from our salary compensation so that's our primary deal is this good for the shareholders because again we didn't come up through private equity we came up through friends and family and that's you know that's primary for is is it a good deal for the shareholders and not necessarily we're just a good deal for the management but we in the end we ask ourselves we think we're optimistic here as we are in hedging but in the end we ask does this make us not just bigger but better. And that's why we've continued most often with just bolt-on acreage acquisitions that bolt on to our existing positions so that we have less risk there because we know that area and it's small and easy to digest and doesn't require meshing of systems you know, computer systems or, you know, or cultures or people. And we found that to be pretty effective. So we're open to deals. You know, we're particularly, as I said, with companies, we're not as interested or we don't see the the appeal of private equity companies may create a hangover or a public-to-public. We're enjoying good growth right now with this existing effort at bolt-ons and dealing with people we know, but we're open to it. We want everybody to know we play a straight game, but fortunately, our Our teams have been able to produce plenty of A-plus locations, and that's what we're going after, and that we have a very rich inventory of that, 20 years plus, that affords us a lot of choice and have the need to stretch out for some big deal with some big public.
spk11: Did that help? Yeah, no, that's great, Joe. Thanks so much for the call. Thanks, everyone. Okay.
spk05: All right. Next question.
spk04: Your next question is from Michael Scalosio with Stiefel.
spk09: Yeah, good morning, everybody. Hey, Mike. Hi, Mike. Joe, you walked us through the debt reduction over the past three quarters, and you said you're comfortable in the sub-two times leverage range. I just want to see how you're thinking about further debt reduction from here versus maybe potentially increasing the dividend. I know you just recently implemented the dividend, but is there a debt level or leverage target you want to achieve before you consider ramping that up?
spk05: Well, you know, Mike, there's always a lot of variables in what you're trying to achieve. and we are certainly in favor of further debt reduction. Exactly the pace is dependent on a lot of circumstances, but I think a shareholder will safely see further debt reduction as we go along. And we fully expect and hope to increase the dividend over time, and certainly can't say what... exactly when and where we'll increase it by how much, but it's something that if prices remain steady or operations results remain steady, all those different factors, we expect another increase in the dividend before too long. We want a reputation for raising the dividend from time to time as results, operations and results can justify. So the first priority is debt reduction and then of course the second one is to keep increasing the dividend. Not sure about the pace, but it's certainly that we'll study going forward at each of our board meetings here on in. I think it comes up every time and we look at it and we want to be prudent And again, I point out how much ME shares that our executive group owned and a dividend increase is important to all of us in the company because our shareholder in the company goes deep. You know, we have 250 or so shareholders in the company now between that and our field staff. So you can be sure it'll Any thoughts of dividend increase get a lot of hard study here.
spk09: Very good. Thanks for that. David, you said it's too early to give guidance on 22. You're not ready to commit to say production is going to go above 100,000 BOE a day, but is it fair to say with the 11 Vonnie wells coming on in February that first quarter production should be up pretty sharply from fourth quarter and Given that, are you still planning to maintain the four rigs next year, or are there any plans or any way you'd do anything differently?
spk05: I'm just going to say one or two sentences, and then, Dave, you take over. I'd just say our plans are always flexible, and we think that has to be one of our strengths, that when circumstances change, we'll change, and it's not that we're – Once we set a course, we're never going to alter it or amend it or tweak it or whatever. We think about that all the time. What knobs can we change to make the value go up more? So we're a value proposition rather than this is the way it is and we're not going to change. And I'm excited about the opportunities and choices we have. David?
spk07: Yeah, Mike, I think if things go as we would expect, that it's fair to assume that we'll see a nice up quarter in the first quarter of 2022. So I think that that is a reasonable assumption. Very good. Thank you, guys.
spk05: Thanks, Mike.
spk04: Your next question is from Jake Roberts with Tudor Pickering and Holtz.
spk10: Good morning. Good morning. I'm just curious, looking at the CapEx guide for the remainder of the year, if you could provide some commentary on the non-op side of things and maybe particularly confidence that we won't see that move higher into year end.
spk07: Yeah, good morning. This is David again. Well, you know, again, I think what we tried to do is just update our shareholders on our expectations with regard to non-op activity here at the end of the year. We, as I think we pointed out in the release, have had a couple of our operating partners that have decided to make some modifications to their own programs and have deferred activity from the latter part of 2021 into 2022. I think that we expect that these non-operated wells will get drilled, and I fully expect that Matador will participate in those opportunities. We have already committed to do so, frankly. This is just some minor changes in operations, but the fact is I don't think they're going to happen in 21 now. I think they're more likely to happen in 22. So it just felt like to us that it was the right thing to do to participate you know, to update our shareholders and the market on that. It's really nothing more than that. And, you know, just as we change our plans from time to time, they change theirs, and we don't really control that. But I will say that I think that our non-op team does a very good job of having relationships with our partners and staying close to our partners so that we have – you know, that we have a little, I think we have a good insight into what their plans are going forward. So really that's all that's reflected today.
spk10: Great, thank you. And maybe as a second one, just curious on your thoughts on the Haynesville asset in terms of, you know, obviously the gas prices are significantly improved. I'm just curious in terms of maybe activity or even circling back to the M&A discussion earlier, just your thoughts on Louisiana in general.
spk05: Well, I'd just say the Hanes Weller makes some great wells, and it's been very good to us. And in particular, in our deal with Chesapeake, we were able to reserve the difference between 75% and the existing NRIs. So in a number of cases, we're up there with 90% NRIs that make wells all that much more profitable. The other aspect of it that's, say, little known, but I thank you for asking it, is when we did deal with Chesapeake, we reserved all the uphold rights, the Cotton Valley. And we probably have some in the neighborhood of 200 billion cubic feet of reserves in the Cotton Valley. We have no plans to drill it this time because gas prices have been, until this year, kind of down and we've had enough opportunities in the Delaware and the Eagleford and in the Hainesville that that wasn't necessary. But it's HVP waiting to be developed and makes for a very nice gas bank. So we'd probably continue to put more emphasis on selling brick by brick our Eagleford assets as opposed to our painful assets, but again, serious offer gets serious consideration.
spk10: Thanks, Jay. I appreciate the time.
spk05: Yeah, thanks, Jay.
spk04: And our final question comes from Gail Nicholson with Stevens.
spk03: Good morning, everybody. You know, your free cash flow profile is very attractive, and you've had, you know, really good progress paying down the revolver. I was just kind of curious on the 2016 year notes. I think they become callable in September, and do you guys have any thoughts about that in regards to retiring those versus potentially, like, pushing out the maturities at a lower interest rate?
spk07: Hey, Gail. It's David. Well, I don't know that we have any immediate plans to, you know, to do that, but, you But it certainly is something that I think we, you know, it's an option. It's something that, you know, that we have considered and have talked about. We haven't made any immediate plans to do so. I don't think I'd be doing my job if I wasn't bringing up those kind of alternatives or opportunities, you know, to the company and to the board for consideration. But we haven't, you know, made any immediate plans.
spk03: Okay, great. And then just looking at LOE, you know, another nice reduction quarter over quarter. Can you just talk about the inflationary environment surrounding LOE in the back half of 22 and then what workover activity looks like in the back half of 22 versus the first half of 21?
spk06: Yeah, Gail, this is Matt. LOE, this is another very good quarter for us in regards to going forward. as cost increases. A lot of the things that we talked about on the drilling and completion that were affected by the price of fuel, you know, LOE is subject to the same thing, the work overage use of fuel just to deliver the chemicals used fuel. So we are seeing some increases on that side. I think the next quarter we've got, you know, the production will be down a little bit, so that will make it a little more difficult. But I really like the way the team is approaching things. You know, we've got through the winter months and and did what I think really well. And, you know, summer has its own challenges too, but the Glen Stetson and his team, and particularly guys in the field, they get out in front of things. They don't wait until things happen to start reacting. So I think we'll see some good cost control in regards to LOE. And I think the second part was the work over pace. Was that right, Gail?
spk03: Yes, sir.
spk06: Yeah. So, you know, most of the work over work we have comes along with the when we're ready to change from one form of artificial lift to another, and that's usually baked into the plan. The other part are when we have rod jobs that need to be done, we'll have a rod part and rig up on that and fix that, or maybe an ESP that goes down and go and fix that. So those are kind of, you know, you just kind of have to do some windage there to know you've got, say, 130 rod pump wells and you're going to have you know, so many failures a year. So that's just kind of the way we build that in. As far as any, you know, major workovers on the existing horizontal wells, most of our wells are known enough. We're not contemplating any of that activity.
spk03: Okay, great. Thank you.
spk05: Thanks, Gail. Thanks, Gail. Thanks, Gail.
spk04: Thank you, ladies and gentlemen. This ends the Q&A portion of this morning's conference call. I'd like to turn the call over to management for closing remarks.
spk05: Thank you, Tina. Again, we appreciate everybody listening in, taking the time, and in particular, I'd also once again thank the staff. I think everybody really put in the extra effort, and you can see the results. I would... just like to end by saying more formally, we got more questions on the first half of 2021 and the first half of 2022. But I believe not only the second half of 2021 will be exciting for us, but also all of 2022 will be exciting as we work to continue to generate additional free cash flow, lower cost, reduce debt, pay dividends to our shareholders, and grow the value of our oil and natural gas and midstream assets. We're pleased with the growth in our capital efficiency and the improvement in our unit cost amounts and the continued building of our inventory of A-plus locations. We believe all this creates a stronger value creation for Matador stakeholders in the remainder of this year and in the years to come. As many of you know, I started First Matador back in 1983 with 270,000 inches. It's hard to believe I pinched myself when I say we're now approaching $4 billion in value, even though we sold first Matador and started over in 2003. So it's been quite a ride, very exciting, but we still think our best years are yet to come. And with that, I've signed off. Thanks again, and feel free to come see us or give us a call at any time.
spk04: Ladies and gentlemen, thank you for your participation today. This concludes the program.
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