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spk11: Good morning, ladies and gentlemen. Welcome to the third quarter 2023 Matador Resources Company Earnings Conference Call. My name is Lateef, 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 one year, as discussed in the company's earnings press release issued yesterday. I will now turn the call over to Mr. Max Schmitz, Vice President in Best Relations for Matador. Mr. Schmitz, you may proceed.
spk04: Thank you, Lateef, 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 the information that is now available. Actual results and future events could differ materially from those anticipated in 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, I would like to remind everyone on the call 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?
spk20: 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 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 that 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 performed but 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 HACO 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 thanks uh things plunged and in this deal besides 98 wells uh happening and the production from them we went 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 uh 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 paying out 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 announced the advanced deal 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 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 had 212 wells and then now in 2023 we've got 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 percent 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 80 cents. 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 a 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 want to answer or address any concerns that you might have. But again, I'm just stating that 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 that's happening, in whichever way it goes, we're confident we have a good plan to make progress. So with that, I'd open up the floor for questions. Lateef, we'll jump into Q&A. Thanks.
spk11: As a reminder, thank you. To ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the queue, press star 1-1 again. Ladies and gentlemen, due to time constraints, we ask that you please limit yourself to one question and one follow-up. Again, we ask that you limit yourself to one question and one follow-up until we've had a chance, everyone has had a chance to ask a question, after which we welcome additional questions from you. Please stand by while we compile the Q&A roster. Thanks for standing by. Our first question. comes from the line of Scott Henoit of RBC Capital Markets.
spk05: Yeah, thanks. Good morning. Congrats on hitting some record volumes this quarter. You know, Joe, you'd highlighted the importance of, you know, some of these acquisitions you've made over time and the value they, you know, 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?
spk20: Good question. Scott, the thing that I'd really point you to is at the first of the year, we were at $100,000, and we said at the end of the year, we were 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 had have been on the money and a little bit better, maybe. And You know, it's 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, you know, that it was good rock area, just like what we also had on the joining leases and was just about as perfect a 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, you know, that was the biggest acquisition we had 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.
spk05: 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?
spk20: Yeah, I think very reasonable. We just need a little more time, and then we can all feel, you know, that well-established decline curves and well-established production history And we, but it's looking really good. You know, everybody here is glad we did it. We do think it was another important milestone for Matador. So, you know, we've done transactions large and small and have enjoyed working with AmeriDev who was operating it and And they're private equity sponsors, so I think, you know, it's a win-win-win type of deal.
spk05: Okay. Well, I appreciate that. And as a follow-up question, you know, I know you gave some context last quarter on what you all think about 2024 and a 150-plus, you know, per day rate on production. And you obviously indicated you're now, you know, going to be adding that eighth rig in the first part of the year next year. And could you, you know, talk about what that means for that industry 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.
spk20: That's a really good question. I'm going to take that first and then we can come back to the other one. One is that if we add a new plan, it's about $200 million. Well, that's really a small, very small in comparison to the billion six that we paid for advance. So we have close to a billion available on our RBL. Cash flow is up. Production's increasing. So clearly, you know, 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 we'd like to get involved. We'll listen. But we think the economics are such we're very, very happy to keep it ourselves. As Greg 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?
spk02: No, I think you said it well. This is Greg Krug, EVP of Marketing and Midstream Strategy. Scott, 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 with the possible partner if that's the direction we want to go but that's the only way that that's going to work for us and but as again as Joe said that's 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 in a really good position to be able to take on that third party gas with the connector, as you mentioned earlier. You know, we're looking at being able to do that and also with the plant, the expansion as well. So we like our opportunities out there.
spk20: And, Ryan, I'm glad you mentioned the connectors because that will connect up the Pronto plant swinging around and coming through San Mateo and extend. We've got 550 miles of pipeline out there, and this will just give us that much more optionality. So Scott, I hope we've answered your question here, in particular that the economics on a 200 and having full control are inviting and the economics appear to be getting better, particularly as we're adding an eighth rig and going from there. So if you'll repeat your first question, I'll try to answer it quickly.
spk05: Yeah, I appreciate that. It was with that eighth rig. Where does that relative year 150 plus a day prior comment on 2024, how does that eighth rig kind of fit into that?
spk20: Well, I think I turn it to Glenn. My view is the eighth 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? Yeah.
spk10: Hey, Scott, this is Glenn, Seth and EVP of production. Yeah, Joe hit it just right. We, you know, just to rewind a little bit too, you know, we did, when we picked up the advanced properties, we did operate a rig there for about a month and a half 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 8th rig. To your point, we did soft guide for 2024 at the $150,000. That was inclusive of an 8th rig, but the timing piece was what was abstract. Anyway, we are going to pick up that 8th rig in Q1 and look forward to... growing production to that 150 plus.
spk05: Okay, that's clear. Thank you.
spk11: Thank you. Our next question comes from the line of Gabe Doe of TD Cohen.
spk14: Thank you. Morning, Joe. Morning, everybody. Maybe we could go back to the midstream angle and maybe just following up on Scott's question. And Joe, you kind of alluded to this in the response, but just curious if the Marlin plant is at full capacity, how does this impact the way the current 21 wells are being flowed back and the next batch of advanced wells and how those will be flowed back? I guess you noted you could divert the gas and lay down some lines to San Mateo, but what would the timing of that be like, and how full is the San Mateo plant?
spk20: Well, that's a whole bunch of questions all in one sentence. What I'd simply tell you on that score is that it's not at full, firm, delivery capacity. What we are, it has room for a minimum production volume customers. Right now we're taking some gas, some part of that is gas on a interruptible basis. But we can extend it and that's again another reason that we see a market out there for more minimum production volume deals so that people are confident of their flow assurance. We think that can be attractive. So we're leaving ourselves a flexibility to take up that optional space or to bring in third parties on a firm basis. In the meantime... leaving us the option by keeping it on an interruptible basis. Greg, did I say that right?
spk02: Yeah, yeah. Yeah, it looks like, I mean, we have right now approximately $60 million going into that plant right now. But some of that, as Joe said, is on an interruptible basis. It's short-term contracts. So we do have room for additional contracts. capacity on a firm basis that we could push out the interruptible gas, or once those terms are up, we could push that out. And then we also have the connector, which we're anticipating having done by the first quarter of next year, which will give us additional capacity and the flexibility as far as bringing it over into the San Mateo system.
spk14: Okay. Okay, thanks, guys. That's helpful. And then my follow-up question would be on 24 CapEx. And maybe instead of asking about how the eighth rig impacts volume, I'm just curious how the eighth rig and, you know, some of the moving pieces on midstream, how does that translate to a budget for 24 relative to 2023?
spk19: Hey, Gabe. This is Brian Willey, Chief Financial Officer. Thanks for the question. We appreciate that. I think it's something that we are, you know, continuing to evaluate and look at as we look into the future into 2024. And, you know, Joe mentioned earlier the great production growth that we're set up for next year, being at the 145,000 BOE per day in the fourth quarter. And we also have 47 net wells in progress at the end of the year, which sets us up nicely to hit that 150,000 BOE or better next year. So the thing about the CapEx, it's pretty early. I mean, I think normally we go into those details in the first quarter. I would expect we'll do that in our February call. I mean, obviously we're in a volatile commodity environment and the world market as well with the tensions in the Middle East and otherwise. And so, you know, we don't want to get ahead of ourselves in our plan, and so there's still a lot of planning left to be done and golf to be played before we're able to talk about that in more detail. So I'd expect more detail on that early next year.
spk14: Okay, understood. Thanks, Brian. Thanks, everyone.
spk20: I would add just we've got a plan A, B, and C working for whatever scenario, whether Congress is unable to come together, if the war expands in the Mideast, you know, if peace comes or whatever, we're trying to build in all the different options. And so we're prepared. to go and have the flexibility to move within 30 days in a different direction if circumstances necessitate it.
spk19: Joe, you're exactly right. I think the optionality piece, the midstream that we've talked about for many years and having that be such an advantage for us, I think as we look at the future, I think Joe said it very well, having option A, B, C and just looking at the different opportunities ahead. And having that midstream piece that can help support the upstream side is critical as we look towards the future.
spk20: Yeah, I would say our key word around here is being nimble, being prepared to move as these things come to rest in one direction or another. Thanks, Jeff.
spk11: Thank you. Thanks, Gabe. Our next question comes from the line.
spk06: of zach parham of jp morgan hey guys thanks for taking my question um first could you just give us some updated thoughts on well productivity in general you know just looking at the state data well productivity seems down a bit verse 2022 on average and i know that data has its issues and the public data is a bit delayed but just curious if if that's what you're seeing internally or if productivity is kind of in line with your internal expectations.
spk09: Hey, Zach, this is Tom Elsener, EVP for Reservoir. You know, we're proud of our well results. I think, you know, as we've talked for quite some time, the northern Delaware Basin has been a great part of the basin for us. You know, the very high oil cuts and the low water cuts are things that we're really proud of. Many of the wells in the northern Delaware Basin, they don't have as much gas, and so some of them will come online with ESPs or other types of artificial lift. But I think over the years, I think we've done a really nice job of anticipating the way these wells would behave, and I think we've made great strides in our lateral links and our targeting. Certainly MaxCom and all of our operations team has had a great role to play in that. I think our reservoir engineering departments have done a really nice job in anticipating how these wells would perform. And so I think we've done a really nice job in that department.
spk20: I'll just add, second that, that I do think our reservoir group, led by Tanner, has done a real good job. And when we've had the outside consultant, Netherland and Sewell, they've been right on the money in our bank process. Engineers, the same thing. We've been 10% ahead. Everybody's been right on. All three groups have been right on the money, so we feel we have good confidence, and we're figuring out ways to improve that profile on the well. I feel like we're drilling better wells today than we were... even back then, and feel like we're completing them better, and that the max comm room has kept us more in zone. And I know that may be something people hadn't seen, but our visitors that come in seem to really like the room and can see how staying in zone longer, 10% more on a million-barrel well could mean 100,000 barrels. So we... We think there's – we're glad to see the improvements, and we're looking for more ways to do each well better by increments.
spk06: Got it. Thanks, guys. And then just one follow-up. On the cash flow statement for the quarter, there was $65 million in acquisitions. Could you give us a little color on maybe what was acquired and quantify the production impact from those acquisitions?
spk20: You know, you're getting probably into something that is difficult to break down. Some were small. Some were larger. It's just a whole mix of items in that, kind of a stew pot where things go in. But you want to take a hand at it, Bryce?
spk19: Sure, Joe. This is Brian. I'd say Joe said it very well. I think it's a mix of dozens of deals. And as we look at it, it's got non-op included. It's got operated wells and increasing our interest in those. It's new acreage. It's a broad mix. And so our land group just does a tremendous job. We've talked about this for many years, this brick-by-brick approach of building the company in this kind of organic growth. And so Shout out to Van and to John Filbert and Brian Ehrman and the rest of the team that does just such a good job in doing these deals and brick by brick continuing to build our position in the Delaware Basin. I think Joe reviewed this slide earlier that talked about the number of wells and how we've increased on that front. It also shows the acreage and how back in 2012 we had right around 6,000 acres and now we're over 150,000 net acres. It's just great to be able to increase and and see that growth over the years. And so great, great job to the land team. Got it. Thanks, guys.
spk11: Thank you. Our next question comes from the line of Neil Dingman of Truist.
spk07: Morning, Joe and team. Congrats on another nice quarter. Joe, my first question, maybe just a broad question on your comments a few minutes ago. I'm just wondering, What are you suggesting with your planned activity and decision to add an eighth rig and booth production next year change if prices fell for various reasons? Or maybe if I could ask another way, how do you all view the very limited maintenance capital and production plans by many other EMPs? I love what you all are doing to create value. I'm just curious to know how you all are thinking about it. Well,
spk20: You know, you've met the guys here, Bill, and they're all pretty strong-minded people, so I hesitate to say that my opinion reflects everybody else's. There's some pretty active discussion around what's the best way to go, but what I'd say is, you know, that the eighth rig, I think, is pretty firm. You know, we think that you know, if commodity prices change, you know, if it changes a buck or two, it's not even going to be material. And, you know, how much do they have to change where you'd even consider, because this rig's coming on to drill some specific wells that are important to our evaluating our overall acreage. And so I don't think we're... At this point, seriously thinking, well, we're going to take this rig on for a little bit, and then we may let it go. We're laddered in on our rig, so we have that optionality, but the economics of adding an eighth rig looks pretty darn good, and I can't see us doing it unless some black swan event. And I'd also like to thank Patterson. He's been a great partner in these endeavors with us. And, you know, we've worked together, and they've done so well in improving the cost structure that, you know, Chris and Patterson had worked out this year. I see the same thing happening if prices fall dramatically. Patterson has been really good, you know, to help us be more efficient on our drilling and the supplies. Chris, do you want to say that?
spk15: Yeah, yeah. Hi, Neal. This is Chris Calvert, EVP, Co-Chief Operating Officer. You know, I think Joe said it well. Obviously, the value that we place on the relationship with Patterson is something that is extremely important to us. You know, the the idea of the eighth rig, we were talking about the right time to add that in. I think the foundation under that decision, or a lot of that foundation, is execution and how can this rig come help us execute our plan not only for 2024, but also to continue to drill wells in a faster way, in a more cost-efficient manner. And so you look at the relationship with Patterson that goes back decades, It is something that has been built of an understanding of we know what our expectations are. Patterson knows. And it comes with a high-tech super spec rig. It comes with a very competent, exceptional crew. It comes with these things that really allow us to continue to execute in a way of reducing drilling days, of reducing well costs and things like that. And so the optionality obviously is very important to us. but it's also the understanding that we know what we're going to expect, and that's a high-tech, super-spec rig. It's going to be able to drill wells like U-turns, longer laterals, things like that, that allow us to continue to improve on the operational front.
spk20: One other I'd add to Chris is that with Patterson, we have a long history, going back 40 years, that when Patterson drilled my first well out there, and subsequently either Patterson or U-turn, Their predecessors have been the guys that have drilled the wells. And what we've always done, if you look at our history, is that when times get tough and prices really go down, we don't stop drilling. That's the times that we feel we make most progress. So I don't wish for bad prices by any means, but Patterson knows just because prices go down, we're not going to start dropping rigs like they ever fly us Each time we take on a rig, we've got a planned sequence of wells for them to drill that fit their equipment and their location. And so I think you'll see us, even if prices go down, we're going to keep rigs running, and that's the times that we feel we make the most progress, Chris. Yeah, yeah.
spk15: 100%. That is something that we are very proud of. When we've seen some of these, you know, pricing environments where oil dips down in, say, COVID times, we did make some of those best operational achievements, whether it was state line wells, you know, lateral length extensions into two and two plus mile laterals, simulfrac. All these things were a function of the work that was done during a down cycle in the commodity price. And so if we didn't have that maintained level of activity, you know, we wouldn't be talking about some of the operational prowesses that we have today.
spk07: No, that'll make sense. We'll let the details. And then, Joe, maybe a question for you or Brian, just to run my second question. You know, noting that you don't have 24 specific guidance, but you mentioned potential higher production. And I'm just wondering, given the higher production, but in the release, you guys talked about the better than expected DC and E capital expenditures and midstream expenditures. I'm just wondering, are you able to give some, you know, maybe goalposts or some just broader issues around what maybe the spend might look like next year if you add that A3?
spk20: Well, I'll just say, Neal, in February we've announced that we'll be giving you this detail, and if it comes together earlier, we'll be happy to share it with you.
spk07: Okay, okay. I was just curious, given how good the D, C, and E sounds like it's continuing to go on.
spk11: Thank you. Please stand by for our next question, which comes from the line of Tim Rezan of KeyBank Capital Markets.
spk08: Good morning, folks. I wanted to circle back on gas processing one more time and try to sort of tie a bow on the issue for 2024 because it's a big debate point in the marketplace. You're ending the year with 47 wells in progress. You've committed to eight rigs. And we don't expect to see a new plant operational before 2025. So as you build out your drill schedule, what level of confidence do you have that every single well you're going to bring online, you will have either in-house or third-party processing? Just trying to understand, will that be a constraint on the program next year?
spk10: Hi, Tim. This is Glenn Stetson, EBP Production. I would say very confident. We have, you know, the way that these two businesses have worked together, we're only three businesses now with Pronto, you know, between the midstream and the upstream side of the business, you know, we are constantly talking to each other about our development plans and looking for, you know, looking into the future to make sure that we have adequate capacity. So, and there's obviously multiple variables that that account for that, you know, the gathering is one, the processing is another, and then, you know, how do we get gas out of the basin? And so we, you know, we pride ourselves in having optionality. We pride ourselves on having multiple options when it comes to getting our gas out of the basin and having different options for gathering and processing. And so we have redundancy in a lot of cases at some of our more prolific facilities where we can, you know, we actually have options for our gas. And so Greg and Joe highlighted it earlier, you know, as we look into 2024, something that, you know, will provide some more capacity for us is this connection down to the advanced properties and Southern Ranger, and then over to, you know, from Pronto to San Mateo to swing gas there. So we are, you know, we are aware of all the activity that's going on in the basin and, again, are, you know, preparing ourselves for as many different scenarios as possible. But, again, the strategic nature of having your midstream businesses that are provide flow assurance for the upstream business I think is unique to Matador. And certainly, you know, as somebody who's really in charge of production, it gives me a lot of comfort and, again, confidence in our ability to execute on, you know, the plans that we put out.
spk08: I appreciate the comprehensive answer to the question. And then as a follow-up, I remember in the past as it related to 2023, management had talked about it as a, you know, pass the ball around year in terms of, you know, rigs being spread across your footprint. How do you think about rig allocation in 2024, you know, given the really high oil cuts in Ranger, but, you know, possible, you know, gathering things up there? Thank you.
spk09: Okay. Hey, Tim. This is Tom Elstner again. You know, the I guess the way we think about it is, you know, all the different acid areas have contributed, you know, in a very meaningful way. You know, we've certainly, you know, the Ranger Wells, as we've talked about a little bit today, it seems very proud of. You know, we have a big batch of wells coming online in Arrowhead here in the fourth quarter, and we've been in Antelope Ridge, you know, for many, many years. These new Horseshoe Wells under the Wolf area, our teams are very proud of those. Russell Breaks has been making some great strides in creating two-mile laterals out of some of the shallower targets and reusing some of the same drilling pads and infrastructure over the last several years. And so I do think we'll probably spread the ball around, but it's too early really to get into those details today. But certainly all of our teams are contributing in a very meaningful way.
spk20: Yeah, and I just would add that I understand you'd like to have all these numbers in detail today, but it's not in our best interest to do so with all the volatility and the options are. We'll have them for you. It's just the timing, it didn't fall on today. We may have them by the end of the year, but as things come together, but you want to see, is Congress going to come to an agreement? You'd like to think they are, but you'd rather not. see it happening in the same thing. You'd like to see them resolve the problems in the Mideast, but until they're resolved a little bit or a truce or something, you're not sure what's going to happen, and we're better off to do those things that we know we're going to do and plan to do them and plan to have growth, plan to meet the targets that we've already announced to you, like the 150,000 targets, But going beyond that is probably not prudent and get fixed to a plan that circumstances may necessitate a change. So the outlook is very positive, and that as good as 2023 is, we feel 2024 is going to be even better and 2025 is shaping up. So I wouldn't get lost in the forest for the trees and realize that, whatever's happening, we've got plenty of optionality and that we're going to have production growth, we're going to continue to reduce debt, and we're going to have plenty of free cash flow to use as the year suggests its best use. So I just encourage all of you, to look at the picture and look at our record for performance and see that we've made a lot of great strides in good times and in bad times, and we'll be ready for whichever environment that we have. I think those that do so will see this as a good buying opportunity and things are headed in the right direction. our leverage ratio is less than one. So there's plenty of financial strength between whatever decision that we make on rigs. And you talk about prices falling out, but you could have vendor costs come down dramatically. So you even improve on what we did this year. So I think the team has proven itself and given us some time and opportunity to show how we'll make the most of these uncertain times.
spk08: Thank you.
spk11: Thank you. Our next question comes from the line of Leo Mariani of Roth MKM.
spk16: Hey, guys. Wanted to touch base on a couple of numbers here. You guys are guiding to kind of higher fourth quarter LOE. Just wanted to get a sense what was sort of driving that. I'm thinking maybe that you guys are trying to finish with some of your midstream connections and kind of finish replumbing some of the advanced properties. So just wanted to get a sense if that kind of comes down when that work is finished. And on cash taxes, y'all talked to 1% of pre-tax income in 2023. Wanted to get a sense if you guys had a ballpark estimate on that for 24th.
spk10: Hey, Leo, this is Glenn. I'll take the first one. I'll let Rob take the second one on cash taxes. So on LOE, yeah, we did guide slightly higher for Q4. Really, Leo, the bulk of the work that we did in order to integrate the advanced assets is mostly complete. We do expect to see those efficiencies really going into 2024. Really, Lee County in general has some higher OPEX, you know, because it's effectively where, you know, kind of San Mateo isn't. And then also the fact that really Advance had some higher LOE costs. So we have really seen those, the LOE on a per unit basis has flattened and, you know, we'll see how things shake out with commodity prices and oil field service costs into 2024, but feel really good about 2023 and really last quarter changing that guidance and reducing it from the 525 to 575 on a per unit basis down to the 5 to 550. Anyhow, we have seen after taking over advance, realizing those savings enough that even last quarter we were able to reduce our projections and kept those the same for Q4.
spk04: And Leo, this is Rob Macklick. I'm the EBP and Chief Accounting Officer. So two things kind of moved in our favor since the last quarter. One of those, we estimated higher 2023 revenue, both because of production and price. and we had lower operating and capital cost estimates for the year. So that led to a little bit higher estimated taxable income and thus our estimate of about a 1% cash tax payment that we'll make for the year. We're obviously doing everything we can to plan for that and to work on our deductions that we can to minimize our income tax payments for 2024. There are a few things that we're still analyzing and studying in addition to the plans for the year. We're also waiting for IRS guidance on the corporate alternative minimum tax, which would be a 15% book tax. But we think there are several things in the guidance that we're waiting for that we're going to be able to do better than that.
spk16: Okay, that's helpful, guys. And I was also hoping to see if you guys could follow up a little bit on M&A. There's obviously been some significant deals done in the Permian here in 2023. You guys obviously did one of those, you know, with the advanced deal. How are you kind of thinking about it going forward? Do you think the focus is kind of more ground game, you know, kind of brick-by-brick approach here, or do you think that there may be some larger deals that Matador could eventually be involved in?
spk20: Well, this is Joe, and I'd emphasize that it's like being in a football game. Are you going to run more or are you going to pass more? It all depends on the opportunities and how things go. We try to make sure we have enough of a ground game every year that we're going to hit our growth and potential You know, production increase, free cash flow increase, pay down debt, do all those essentials. And on the acquisition side, you know, we tend to just be opportunistic. We don't do a lot, but you can see in our history that when we've done deals, they've been accretive to what we're trying to do and has enhanced the ground game. We're more of an acquirer than we are a seller, and so we're very open to buying something, but we want it to make sense. We're not trying to get bigger as much as we're trying to get better and to acquire interest in our existing wells from people or something like that has a fit to our acreage positions or our midstream. And so we're always open for deals. Van, can you comment? You're our lead guy on this.
spk17: Yeah, Joe, I think what you're saying is right, and I think you guys have heard this from us for a decade or so. that we're always on the lookout for good deals. We're going to make sure that we keep the balance sheet strong, and when opportunities present themselves that we feel like are going to give our acreage position enhancement, whether it be in existing units or expanding into new units, we're going to take a hard look at it, and if the deal's right, we'll do it. But I think Joe's right. We're buyers, and we're always looking.
spk18: Thanks. Thank you.
spk11: Our next question comes from the line of Trafford Lamar of Raymond James.
spk12: Hi, guys. Thanks for taking my questions. The first one I have circles around the horseshoe whales. How did the cycle times in these whales compare to your more standard two-mile laterals? Just any color on that would be great.
spk15: Yeah, hi, Trafford. This is Chris Calvert, again, EVP Co-COO. You know, I think cycle times, when we look at these, I want to always remind people, these were part of a larger nine-well batch, these two horseshoe wells. But, you know, from a reference point, for example, looking back to a previous, you know, you know, one of these horseshoes actually beat that record by about 20% from a spud to TD. So, you know, when you think about just cycle times, it's hard to put a number on it because it's highly dependent on the quantity of wells within the batch. But from just drilling times, completion times, you know, they're very comparable to a straight two-mile lateral. You know, I think we kind of like to joke the drill bed doesn't necessarily know it's drilling a U-turn. It just you know, with the new technologies, whether it's new bit technologies, new motor technologies, we continue to go out and perform, whether it's a U-turn well like we did on this or other two miles, two and a half, and even 2.7s that we're looking to put online here in the next year. It's just always about continuing to drill fast and reduce those cycle times.
spk12: Perfect. Appreciate that, Chris. And then just a quick one here just to clarify. Have you all already signed the contract and secured the additional eighth rig for 1Q24, or is that happening later this quarter?
spk15: This is Chris again. It's likely to happen here in the short term, here in the next week or two, a few weeks, whatever it could be. Once again, leaning into and valuing the relationship with Patterson, it is right now we have an understanding that we will be adding a rig in the first quarter of next year. you know, obviously highly predicated on the super spec capabilities of that rig to make sure it's drilling wells in a manner that we've grown used to. And so that's kind of the storyline there. Great. Appreciate it. Thanks, guys.
spk11: Thank you. Our next question comes from the line of Kevin McCurdy of Pickering Energy Partners.
spk03: Hey, good morning, Joe and team. Just one question for me today. We noticed, realized oil prices have gone back to being above WTI, both through actuals in third quarter and the guidance for fourth quarter. I wonder if you could talk about what you're seeing there that has improved over the first couple of quarters earlier this year.
spk19: Yeah, this is Brian, and I think Greg can feel free to chime in as well. But I think just looking at the price, I think part of it's the role as we've looked at this historically and just how the price is calculated and the realized pricing. And so that's something that we saw an impact from looking at second quarter to third quarter and even first quarter to second quarter. And so I think as we look forward going into the future, I think that's a big piece of it is just how the role plays an effect in the realized pricing. Also, I'll just say I think one of the big benefits we have is that a lot of the marketing teams have done a very good job in getting much of our oil on pipe. And so I think that's really significant because we are able to save a cost there and be able to incur those savings, thereby getting a higher realized price. But, Greg, I don't know if you had anything else you wanted to add.
spk02: Well, yeah, I think as far as the amount of oil on pipe, it also helps versus being truck. it's a lot more efficient. It helps operations as well streamline that. That's a big benefit to be able to have as much oil on pipe as we do.
spk20: I just add that yesterday we put out our sustainability report. I give credit to the team that pulled that together. I think it's in good shape. It makes for good nighttime reading, and it's good reference material. So, you know, take a look at that. And we've worked hard to put more and more on Pipe and to reduce our admissions by 44%. Sure.
spk01: This is Shelly Appel, Director and former ESG Coordinator. And I will say that In 2022, we had 89% of our operated produced oil on pipe. And to Joe's point, we're very, very pleased that from 2019 to 2022, we reduced our greenhouse gas intensity by 44%. So almost cutting it in half over that four-year period.
spk11: Thank you. Our next question comes from Oliver Wong of TPH and Company.
spk13: Good morning, all, and thanks for taking my questions. My first question, just with respect to the Arrowhead area, I know there's a significant portion of your Q4 program in New Mexico coming from there. I assume these wells should be online in pretty short order, but was just trying to get a better understanding on plans for getting those wells online. Is the thinking there something similar to kind of the staggered nature we saw out of the margarita wells in that advanced area last quarter?
spk09: This is Oliver. Thanks for the question. This is Tom Elstner again. You know, as we usually do with large batches of wells, we typically would bring them online in some sort of staggered fashion. Some of the wells could use artificial lift at varying times. But, you know, again, this is something we've historically done, you know, all throughout the basin, whether that's, you know, State Line or Rodney or any other kind of large batches of wells. We're very excited for these wells. This is an area that, you know, we've been building up to for many years, getting these targets ready, making sure that, you know, San Mateo and the team are up there. And so I know, you know, Glenn and the team are excited to get these wells up and running.
spk10: Yeah, Oliver, this is Glenn. I just add that the 17 wells are going to come in at different times, and they're actually on different development units and delivered to different facilities. And so a little bit different than the advanced situation where you had 21 wells going to one facility. But just what Tom said was – is exactly accurate. We'll bring them on, you know, a few at a time. And then, you know, they're all delivering to San Mateo oil, gas, and water. So we'll help bolster volumes there.
spk13: Awesome. That's helpful. And just for a second question, I know in the past you all have called out activity or even certain paths that might require incremental downtime or shut-ins. So I'm just kind of thinking about this next batch of 20 or so wells in the advanced area in early 2024. Are we going to need to see some of the recently online margarita wells either being curtailed or shut in when those come online on the backdrop of, I guess, tighter infrastructure? Not sure if the next set of wells is far enough in proximity within Ranger to where such impacts might be deemed relatively minimal, but really just trying to understand that dynamic as well as we enter next year.
spk10: Oliver, this is Glenn again. The short answer is no. The Dagger Lake South development of the additional 21 wells are not in proximity to the Margarita wells. And so the nature of shutting in wells for offset frac protection won't be a situation on this particular development.
spk13: Awesome. Thanks for the time.
spk11: 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 any closing remarks.
spk20: Well, thanks to everyone for their time and attention in this, and I would like to emphasize the fundamentals of Said it once already, we started the year at 100,000 barrels. We're going to end the year not just at 140, but 145,000 barrels. That's a 40-45% growth. And meanwhile, we reduced the debt over $200 million from this while we were keeping those rigs busy and bringing those wells online. In addition, Glenn reduced... LOE expenses. Through time, we reduced our drilling costs per foot in a time of rising service costs, and we've continued to build out the midstream opportunities, improved ESG. So I think it's been a really good year to this point and a really good quarter, and as you know the stock is off during trading I admit but it's a buying opportunity and I've never sold a single share of my stock during the 12 years that we've been public and so have most of the other officers and if you look at it we're buyers of stock and not sellers and which and have great participation from our staff. I think anybody who buys at this point is going to be real pleased with the final year's outcome, and I can understand you would like to have us have numbers exact as we think things are going to be, but that's not the long-term right thing to do, nor is it prudent in a time of such volatility. We can tell you that we're going to be profitable, We're going to keep that leverage ratio less than one unless some spectacular opportunity shows itself. But every moment is to keep the balance sheet strong, production growing, costs coming down, and continued good execution. We think midstream enhances our opportunity because it assures us of flow assurance And as I often said to people on the road, that if you're going to be a cotton farmer in Dawson County, you need to own part of the cotton gin. The midstream furnishes that same deal. If you want to get your cotton processed properly, own part of the cotton gin. And we think that midstream has come in to deliver efficiencies and predictability to what we're doing. what we're doing. So we haven't missed on anything. We just had to add in detail for you, and that's coming, but we can't do it with full confidence until things settle down a little bit. Take another look at the fundamentals and come see us. We invite all of you, if you want a more thorough discussion and more time with our senior people, come see us. set you up and make sure you leave with all your questions answered that we're allowed to under the SEC rules. We play a straight game, but we're happy to go in further detail on your questions if you can make it here. And we'd like to get to know y'all better, but I think you can see that we have strength in areas. Our properties are getting better, our people are getting better, and you know, the outlook continues to get better. So that's what I'd like to end on with a personal invitation to come see us. Who I didn't get to speak today is Ned, our head of our geoscience group, and the outlook for them on working with the acreage that we have, the number of locations and the inventory continues to grow, you know, 10, 15, 20 years out that we see that coming, and they're work and staying in zone all contribute to these good results. So we wouldn't have raised dividends if we thought our future was weak and we wouldn't have gotten the increase in our reserve-based loans that we did from the banks unless they saw that we had plenty of reserves and inventory and we're headed in the right direction financially. So With that, I'd like to thank you again for your time and attention and tell you we look forward to getting with you the next time. We'll have more detail, but we're going to still maintain our flexibility and options because at our size, we think one of our strengths is trying to be nimble enough to take advantage of opportunities as they come up rather than trying to give a five-year outlook. Too much change occurs and... What served us well is being able to adapt to the changing circumstances. So come see us. This is a great team and great properties, and we'll go into greater depth. Thanks.
spk11: Ladies and gentlemen, thank you for your participation today.
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