Matador Resources Company

Good morning, ladies and gentlemen. Welcome to the fourth quarter and full year, 2024 Matador Resources Company Earnings Conference Call. My name is Lisa, and I'll be serving as the operator for today. At this time, while participants are on the 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 the 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 Schmidt, Senior Vice President Investor Relations for Matador. Mr. Schmidt, you may proceed.

Thank you, Lisa. Good morning, everyone, and thank you for joining us for Matador's fourth quarter and full year, 2024 Earnings Conference Call. Some of the presenters today will reference certain non-GAAP financial measures regularly used by Matador resources in measuring the company's financial performance. Reconciliation 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 in future events could differ materially from those anticipated in such statements. Additional information concerning factors that could cause actual results to differ materially is contained in the company's earnings release and its most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q. In addition to our earnings press release that we issued yesterday, I would like to remind everyone that you can find a slide presentation in connection with the fourth quarter and full year, 2024 earnings release under our 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? Thank

you, Mac. And thank you all for listening in today. I would like to begin by thanking everybody for the thought and effort they put into their notes. But I'd also like to start out by re-emphasizing what we consider most important when we take over a property like the AmeriDev. It's a $2 billion deal. Obviously, it's going to have a big impact. So how do we treat that? And we really treat it like we do all of our other properties. For the past 40 years, as I've done this job as CEO, we've put an emphasis on -to-year growth. We think that's the most important number. You can look at other statistics. And I would say they're all important. But for us, the most important is -over-year growth. At the same time, when we buy a property, the first thing we try to do is look for the efficiency gains that we can do. Also, a development plan that we can do. And from there, we work to incorporate it and assess what you can do. The AmeriDev properties were special because it's such great quality rock that gives us a lot of choice. Most times when people sell things, it's not their best rock. But in the AmeriDev case, it was really good rock. They had done a good job operating it. And we wanted to find those. What else could we do? And we could have easily put a rig out there. Our first rig went out there nine days after acquiring the property. So we could have put more rigs out there and easily increased the production in a sequential basis. But we thought it was more important to set it up for long term by the -over-year growth standard. And in that regard, for 40 years in buying properties for Matador, in those 40 years, we've grown a little over 20% a year for 40 years. And that's kind of the standard we have. And we feel the AmeriDev properties will meet that standard, particularly as we organize a drilling plan, how exactly we want to develop it between the development wells and the step-out wells. So we thought a little time on that should be done. Now, we have one of the ways of the efficiency is our batch drilling that we've done there. And that has saved us an estimated $30 to $50 million by drilling them in the batch mode and then bringing them on. But it does have an effect on the sequential growth, which is essentially a timing problem. It's not a reserve problem, it's a timing deal. And in the first quarter of last year, I mean, fourth quarter of last year, in the first half, we only put two wells online because we had a big group coming up behind it. And so in the next 45 days or so, we'll probably bring on as 30 wells or more. And you can see what I mean. It's a timing problem. If we had closed and taken over AmeriDev two weeks earlier, we wouldn't have this discussion of whether we have a sequential problem or a miss, as some of you all described it. And so we ask that, you know, if you're uncertain about our timing on things, please give us a call. But the year over year matters because I can report that we expect to have growth approximately 30% for the first quarter of this year compared to the first quarter of last year. Second quarter is going to be about the same, between 9% or 30%. Third quarter, you know, again, 20% or more. And by the time we face the drilling program in the fourth quarter, we think that'll be comparable numbers as well. So we're very excited about this. We're not seeing any disappointments. But I want you to know that I don't want to tell you how to do, you know, your analysis. It's certainly understandable why some people want to do sequential. But in this case, I think you have to look at the -over-year numbers. And when you look at the total reserve picture

for

us, year over year, from the fourth quarter of 2023 to the fourth quarter of 2024, you see that we've grown our production from like 4.6 million BOEs to over 6 billion BOEs. And that's what I think matters. Has our shareholders increased their assets? Yeah, and that's why we felt so comfortable raising our dividend. Could we have done more?

Yeah,

I think that we could have easily done some more. But it's probably more prudent given the volatility of commodity prices than to wait until the fall when we've typically given a raise, but wanted to express to you our confidence. And second is to note the insider buy that has occurred. You had over 30 transactions by the senior management. That's SVPs and higher, and VPs. And so you have that. But even more important statistic to us and comforting to me personally is that over 95% of the staff are participating in the employee stock purchase plan. So everybody here, if they've been here at any time at all, has become a shareholder and an owner. And if you've ever attended our annual meetings, you'd meet many people, a good percentage of them are shareholders. They've been shareholders for 40 years or more, going back to when we had the partnerships and the like. So there's great confidence, and we thought it was most prudent not to rush in with trying to drill wells and boost the protection. But it was ever a bit important and more so to look at containing the cost and making sure of what we wanted to do next. So saving 30 to 50 million should not be disregarded, but taken into account of whether you want to emphasize -over-year growth or -to-quarter growth and look at the timing when you're bringing on wells. So if two weeks is the difference, I would go with the -over-year growth that I mentioned is going to be 20 to 30%. So with that, I'd like to open it up to questions, Mack, but give you an idea of how we evaluate it and why we've emphasized -over-year growth. But we still think it's important to look at sequential, and that's why we provide you those numbers itself. But our personal view is that -over-year number is the most important.

Lisa, we're ready to jump into the queue and ready for the first question.

Thank you. If you would like to ask a question, please press -one-one on your telephone. You will then hear an automated message advising your hand is raised. If you would like to remove yourself from the queue, please press -one-one again. We also ask that you wait for your name and company to be announced before you proceed with the question. Ladies and gentlemen, due to time restraints, we ask that you please limit yourself to one question. One moment while we compile the Q&A roster. Our first question for today will be coming from Neil Deegan of True Security, as your line is open.

Thanks. Morning, Joe and team. And, Joe, I just wanted to say before I ask my question, I thought you all did a really nice job this time, but on the slides of really showing the capital efficiencies and other upside that you have, such as the midstream. So I guess that part takes me to my first question. My first question, I'd like to focus on the midstream. Specifically, you all obviously have one of the larger now permanent infrastructure systems. I think you're talking about nearly $300 million in EBITDA alone. And I'm just wondering, based on this, should we assume that now that system is largely developed given the a bit lower capex of 120 to 180 this year? And then secondly, are there opportunities to, I don't know, maybe bring in a partner or do something to further demonstrate and maybe monetize the value of that system?

Neil, that's really a good question. That's something we talk about nearly every day, some of those questions. And I'd simply say is that as long as we're active out there in that basin, we're going to be looking to extend it because the reason we got into it in the first place is going back to when we were going public was that there was real flow assurance problems. And we didn't want to go public and immediately run into flow assurance problems. So that's where we started. Greg Krug has been our leader in the company and has done a marvelous job. Our first year of operations, we had EBITDA of $30 million. This year we have $300 million. So he's made not only the reservoir engineers comfortable by having that flow assurance and the cash flow, and our CFOs happy that they know that we're going to have the cash flow, but he's also created a very profitable business and given us some good options going forward. So it's hard to say because we still feel early years and we're expanding our areas of interest just like with the AmeriDev over to that southeast corner of southeastern New Mexico. But we're looking at other opportunities. It's just a great area. I've worked it now 40 years to keep expanding, but to do it in a conservative way.

Yes, Neil, this is Greg Krug. I was going to kind of comment a little bit as far as, you know, we're going to be looking at whatever enhances our flow assurance out there for both Matador and our third-party customers. I think those are the projects that we're going to be looking at. And Joe alluded to the AmeriDev piece. We actually, along with that acquisition, we have 180 miles of pipeline that came with that. That's not actually part of San Mateo. So we're always looking for those opportunities to actually make the footprint of basically where our acreage positions are at. Those are the expansion type of projects we're looking for.

Thank you. One moment for the next question.

Thank you, Neil.

And our next question will be coming from the line of Zach Parham of JPMorgan. Your line is open.

Hey, guys, thanks for taking my question. I just wanted to ask on your DNC cost guide, you took it down to $800 maybe per foot. That's down 3% -over-year. And your 2024 DNC cost came in quite a bit below the initial guide. Could you just give us a little color on where your leading edge DNC costs are today and maybe talk about your ability to continue to drive those DNC costs lower going forward?

Yeah, hey, Zach, this is Chris Calvert. I think, first off, thank you for the question. I think we'd refer to slide D in the slide deck to kind of highlight the data that you're speaking to. You know, I think it's safe to say when your full year 25 DNC per foot is below your full year 2024 DNC per foot, we're kind of at a leading edge. I think from an efficiency standpoint, we've made great strides in optimizing simulfrac, increasing the use of trimulfrac, reducing days on well, partnerships with vendors, strong partnerships with vendors to make sure that we're in win-win contracts for both the drilling and the completion side. So I think, you know, depending on what you consider leading edge, I would say full year 25, 3% below full year 24, I think that is a leading edge. And I think that is done via the competence and the great job that the operations team here has done. And so I think looking into 2025, if you noticed in the release, you know, we increased our trimulfrac use from 16 wells to 40. And so I think when you look at the cost of savings associated with that, that all contributes to that leading edge DNC cost per foot going down. And so I think it is something we're excited about. We should be proud of that. I think we are a leading edge innovator in operational efficiencies. I think that flows through to one of the highest margin operators in the Delaware basin. I think that's something that we're also extremely proud of on slide K. And so I think we do appreciate you noticing that, and it's something that we work hard to continue to push forward on.

Thank you. One moment for the next question. Our next question is coming from the line of Scott Hounen of RBC Capital Markets. I hope that your line is open.

Thanks. You know, hey, Joe, you gave a sort of good overview of why you see some of the ebbs and flows in production and the focus on sort of -on-year. Could you address the capital side too? And I think, you know, when you look at fourth quarter, it came in a little bit higher and I think first quarter set up a little bit higher. And so when you look at capital, like how do you think that's going to ebb and flow? And what are some of the puts and takes, you know, within the range of the roughly 1, 4 to 1, 7 that you all have for 2025? Well,

good question. And breaking that down, you know, I would say this is when we take over a property as we did here, the first thing we look at, where can we deploy some capital that would, in the short term, that would improve the operating expenses, for example, over the long term. So the savings that we're having in reducing the operating expenses are going to pay off, pay off that capital in pretty short order. And that's, you know, as I said, I don't want to take away from the way people may use sequential comparisons. We just think that it's a year over year is a more important number. And illustrating, it's hard to give you the, you know, on the capital expenditures and say, well, this is really going to cut expenses ahead of time. You know, we don't do that until this call, but we use the law that CAPEX, early CAPEX, to improve the operating expenses. And Glenn, you might give a little more detail on that. So that saves us more over time to do it up front rather than to be in the property for 90 days and then undertake it.

That's right. Scott, this is Glenn. Glenn Stetson. I would just say, yeah, I echo what Joe said is we got on the emerita of properties and immediately got to work and accelerated the completions of those 11 wells, the Firethorn and Pimento wells. And along with that, we did some facility upgrades to accommodate that new production and also to bring, you know, bring the facilities up to matador standards. And in doing so, we were able to reduce our OPEX, as Joe pointed out, to the tune of $2 million a month. And so those savings are significant and realize them even quicker than we had anticipated. And one anecdote that plays into both the CAPEX side and the operating side is that on those 11 wells, we recycled over 1 point or about 1.2 million barrels of produced water for the fracturing operations on those 11 wells. So I think, you know, synergies across the board that resulted in, you know, a really nice quarter. Well,

and

also

I want to shout out to Reese and his group for the very professional way they operate those properties when they had them up for sale. And then afterwards, as we closed the deal, as they were very professional, very cooperative, and, you know, I would say they did, they maintained a high level of equipment and operations and they didn't have a short-term approach. So shout out to Reese and we look forward to having the chance to work with him again.

Thank you. One moment for the next question. And our next question is coming from the line of Tim Risen of KeyBank. Your line is open.

Good morning, folks. Thanks for taking my question. I wanted to ask what drove the decision to kind of put a bigger spotlight on the Cotton Valley assets? Are you seeing kind of inbound inquiries on that? Because it doesn't seem to really be a need to sort of sell that now, you know, with leverage at one time and coming down pretty steadily. So, you know, should we think about that as you hanging a shingle, like a for-sale sign on that Cotton Valley asset? Just any color would be helpful.

Yeah, well, thank you. The Cotton Valley assets, we've had them a long time. When we did the deal with Chesapeake years ago, we solely sold them the Hanesville formation down there and we reserved all the up-hole rights with these properties are. We had been drilling Cotton Valley wells to that point, and so we're very experienced in that. But, you know, when we went out to New Mexico, it was HBP by that deeper production, so there was no urgency. And shortly after that sale, gas prices declined. And it was better to be in oil primarily than the gas. And so it's all HBP, so there wasn't a hurry. And you were developing, at that time, people were drilling the vertical wells. But now there has been horizontal drilling in that Cotton Valley that has yielded wells that are in the order of five billion cubic feet of gas, which if you have stable prices, you can make money. But that's the second key, is the ups and downs of gas prices has discouraged that while you've had much better commodity prices with the oil out there in New Mexico. So it's one of economics. But now that you have gas seems to be rallying, you have these data centers, you have the liquids that can be taken out. It's starting to be more attractive, but we're not in any way trying to sell them. That's not the reason. It just shows you that we have another card to play at the appropriate time. And we have also a very high net revenue interest because when we did the deal with Chesapeake, we reserved all the overrides that had been earned or acquired. So it's a prime, we see it as a prime property, but let me turn it over to Ned or Tom, how you all feel about it, who plan our drilling program.

Sure, Tim. This is Tom Elson, our EVP for Reswar engineering. We feel very confident in the Cotton Valley. As Joe mentioned, we had drilled a well about 15 years ago. I'd actually give Joe 6 BCS gas you are on that one-mile well. I know today our operations and collisions teams would go in there and be capable of drilling a two-mile well or two and a half or even further perhaps. I know they would definitely increase the prop and concentrations and the frac fluids and the stage intensities and improve the targeting. All the different things we've learned over the last 15 years I think would go into significantly higher gas EWRs than that. I think we're very proud of it. There's a lot of vertical production in that area, but there's other horizontal wells also. And I agree with Joe, it's another card to play if we want it to at some point. Several hundred feet of pay over there in the Cotton Valley and all the gas infrastructure from the Hainesville is already in place. So I think it's something that we like to have in our toolbox.

Thank you. And our last call for today will be coming from Kevin McCurdy of Pickering Energy. Your line is open.

Hey, good morning Joe. I wanted to ask your thoughts on uses of cash here. You forecast around $1 billion free cash flow in 2025, and you have a lot of unlaxed value in the midstream as your deck shows. Your leverage is pretty low. Are there other considerations for use of cash here above the dividend?

That's a great question, Kevin. And you know that there's a lot of ways to answer that. There's a lot of opportunities. And when we get around the table like we are now, and guys talk about, well, I kind of feel this, and I think we can do that, it's really exciting because there are a lot of opportunities here. And we talk about profitable growth at a measured pace. So we don't want to try to expand too fast or too slow. It's a Goldilocks type of arrangement. And we look at the ideas that we have. We have 10 to 15 years of inventory. We have a balance sheet that even after doing a $2 billion deal, it's the strongest financial position we've been in. We have over a $3 billion line of credit with our banks, of which we've only committed to $2.5 billion. And so there's plenty of dry powder there. We don't want to try to – and that's why we say instead of trying to grow X percent a year, that's why we say profitable growth at a measured pace. So it depends on all the considerations. But we've got all these opportunities in New Mexico. They're growing with the drill bit, and we're keeping pace with nine rigs running on the drill bit that earn in a 50% rate of return. We have these opportunities on the midstream, which is a fee-based business instead of a commodity-based business. It gives a little more stability to our future earnings outlook. We have Louisiana, and you know that we just don't want to get greedy and don't want to go too fast, but don't want to go too slow. And so we're – the efficiency gains that we're getting are leading to higher returns. Just drilling one vertical, these horseshoe wells are an example of the efficiency that we're doing. Lateral length has grown to where we're over – we're now doing over 10,000 feet per well on the completions. The EURs are better. You know, this rock that we acquired from both advance and a mere death is leading to 10% better recoveries. So I mean, it's a multitude of opportunities, and trying to manage it to – say it's kind of like a football coach. He's got a really good running back, and he's got a really good passing quarterback. So does he call more plays for the running back or the passer or a double reverse to the wide receiver? I don't know, but we all discuss it. And again, the fact that we are all shareholders, and particularly among management that we're steadily buying should give you an idea that we're resolving that internally in a way that's best for the company and best for the shareholders, that we're all stakeholders and really excited by the opportunities. But we also know that you can subtly have things like, you know, COVID or, you know, depression. You know, gas prices have been zero at Waha, where we've had to pay money to take our gas. So you want to be careful on that. There's a lot of matters to take into consideration, but we think we have – the staff has matured together. We've all grown up together. Our discussions are lively on what we want to do with this extra money, but we all agree – and it's a corny expression, I admit, probable growth at a measured pace, but it seems to fit us that if we can keep up for 40 years. I've been in business. I started out with $270,000, and now we have $11 billion in assets, and that's just growing 20% a year for 40 years. And we're more of a tortoise than a hare, maybe, but we went public back in 2012 at $12 a share, and today we're approaching $60. So it's growth over a very turbulent time, and we're looking forward to when it's a little less turbulent, but we're also ready because we want to be ready with lots of dry powder because we've made more progress in difficult times when others are sidelined by the opportunities that come up. So this is a room full of people that are owners, and it's measured on what is going to improve the stock price. And we're really grateful to those shareholders who have been in here since 1983 when we got started. And they keep coming up with good ideas, and I look across here at Ned, Ned and his group of geologists, they come in with some good-looking ideas, and Tom's team, he leads the teams in these various areas. They're always thinking of things. And the land group, John and them, this -by-brick approach has generated a lot of opportunities and helped get us into areas that we didn't have. So I have to tell you, we've got a lot of work to do, but it's also work that we think will be rewarding to the other shareholders and to us. And I like our chances, I guess is what I want to say. And everybody's looking for capital efficiencies. I don't want to be silly, but Matt generally brings donuts for our prep session prior to this call. And I can tell he's trying to be more capital efficient because there's not as many as there was

in

the early days. So we're going to try to get him. But the dividend, and let me just take a moment on the dividend, is that we like this steadily increasing dividend over time. And you can see we started out with 10 cents, and now we're at $1.25. We would have had a stronger dividend growth if things were a little less turbulent. And we do not see ourselves buying back stock. We think that favors the short-termers and not the people who have been in a while. But we like it. We want to be known as a company that year after year increases its dividend. And now it has moved from 10 cents to $1.25. And we have many, probably more individual shareholders than most companies do. And the individuals like it. And they come to our annual meeting and express that view. And we invite all of you to attend our annual meeting and hear what they have to say. And we'd like you all coming to visit. We want you to know everybody on the call, if you all come see us, we'll have lunch or breakfast, and you'll get to meet the staff. We'll take all the questions that you've got. So with that, Brian Erman or Brian Willie, as two of our leaders, if you all know

anything else

we should say, please jump in now.

No, Joe, this is Brian, I think all very well said. We're excited about 2025 and the approaching $1 billion in cash flow is a great accomplishment. Joe mentioned at the beginning about growth and the focus on growth. And that's true from a production standpoint and that's true from a pre-cash flow perspective. So we're excited to be able to do that and be in a position where we can return value to our shareholders. Brian Erman?

No, I think you guys said it well. I think you're really excited about the results for 2024 and even more excited about the opportunities that are in front of us in 2025. So I'm generally really excited about what we have in front of us.

Right. And Rob is our Chief of Cannon Officer and kind of the guy who wears many other hats around here, has done a real good job of finding research projects and managing the tax position to make contributions that don't show up in these kind of calls. But Rob has kept us on pace in the audit. I'm proud of the audit. Tell them how once again we had no questions.

That's right. Yeah, no, I think for the last 10 years we've been audited by KPMG. We're really proud of my team and what we've been able to do to really provide a very high quality financial close and definitely feel audited by the KPMG team and are really excited about looking forward to 2025. And as Brian said, all the opportunities there and continue to look for ways to chip away at the cash tax position anyway. We can. But follow the rules.

Always. Always. All right. But anyway, those are my closing remarks. But again, if you have questions that have been answered, give a call to MAC. We'll get some set up and have a visit. But the land guys deserve a lot of credit. Those guys, all the land men and women are out there trying to make deals all the time and really proud of the way they build in relationships and trying to make trades that please both sides. Back

to you, Lisa. Thank you. Ladies and gentlemen, thank you for your participation today. This concludes today's program. You may all disconnect.