Matador Resources Company

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.

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?

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.