Participants

Mac Schmidt; Senior Vice President; Matador Resources Co

Joseph Foran; Chairman of the Board, Chief Executive Officer, Secretary; Matador Resources Co

Christopher Calvert; Co-Chief Operating Officer, Executive Vice President; Matador Resources Co

Glenn Stetson; Co;Executive Vice President -Production; Matador Resources Co

Tom Elson; Analyst; Matador Resources Co

Brian Willey; Chief Financial Officer, Executive Vice President, President - Midstream Operations; Matador Resources Co

Neal Dingmann; Analyst; Truist Securities

Zach Parham; Analyst; JPMorgan

Scott Hanold; Analyst; RBC Capital

Tim Rhee; Analyst; KeyBank

Kevin MacCurdy; Analyst; Pickering Energy Partners

Presentation

Operator

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.
(Operator Instructions)
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. Mac Schmidt, Senior Vice President, Investor Relations for Matador. Mr. Schmitz, you may proceed.

Mac Schmidt

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.
Reconciliations of such non-GAAP financial measures with comparable financial measures calculated in accordance with the 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 10K and any subsequent quarterly reports on Form 10Q.
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.

Joseph Foran

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 reemphasizing what we consider most important when we take over a property like the Ameredev.
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 put an emphasis on year to year growth. We think that's the most important number. You can look at other statistics and there are, I would say they're all important. But for us, the most important is year 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 worked to incorporate it and assess what you can do. The Ameredev 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 the Ameredev case, it was really good rock.
They've done a good job operating it, and we wanted to find those, what else could we do? and we could have easily, we 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 year to year 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 Matador 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 well. So, we got a little time on that, should be done.
Now, we will have, 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 $30millionto $50 million by drilling them in the batch mode and then bringing them on. But it does have an effect on the sequential growth is that 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 close and taken over Ameredev two weeks earlier, we wouldn't have this discussion.
Of whether we have a sequential problem or a myth as some of you all described it and so we ask that, 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 of approximately 30% for the first quarter of this year compared to the first quarter last year.
Second quarter is going to be about the same 29% or 30%. third quarter, 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 dis disappointments, but I want you to know that I don't want to tell you.
How to do, 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 [EUR] year numbers and when you look at the total reserve picture, for us.
Year over year from the fourth quarter of 2024 to the, 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 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 buying that has occurred. You had over 30 transactions by the senior management, that's SVPs and higher 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, 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. We're trying to drill wells and boost protection, but it was ever bit important and more so to look at containing the cost and making sure, what we wanted to do next. So saving $30million to $50 million should not be disregarded, but taking into account of whether you want to, emphasize year over year growth or a quarter to quarter growth and look at the timing when you're bringing on wealth.
So if two weeks is the difference, I would go with the year 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, Mac, but give you an idea of how we evaluate it and why we've emphasized year 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 year over year number is the most important.

Mac Schmidt

Lisa we're ready for to jump into the Q&A, ready for the first.

Question and Answer Session

Operator

Thank you.
(Operator Instructions)
Neal Dingmann, Truist Securities.

Neal Dingmann

Thanks. Good morning, Joe and team and Joe, I just want to say before I ask that question, I thought you all did a really nice job this time 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 and 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. Out nearly $300 million in IA 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.

Joseph Foran

Neal, that's really a good question. That's something we talked about nearly every day, some of those questions and I would simply say is that, as long as we are 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 in to the flow assurance problems.
So that's where we started. Greg Krug has been our leader in the company and has done a marvellous job. Our first year of operations, we had EBITA $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 CFO's happy that they know that we're going to have the cash flow, but he's also created a very profitable business and giving us some good options going for.
So it's hard to say because it's, we still feel early years and we're expanding our areas of interest, just like with the Ameredev over to that southeast corner of, southeastern New Mexico and, 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, Neal, this is great. I was going to kind of comment a little bit as far as, we are going to do, we are 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 are going to be looking at, and Joe alluded to the Ameredev 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 are 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.

Operator

Thank you one moment for the next question.

Joseph Foran

Thank you, Neil.

Operator

Zach Parham, JPMorgan.

Zach Parham

Yes, thanks for taking my question. Just wanted to ask on your DNC cost guide, you took it down to 880 per foot. That's down 3% year over year and your 2024 DNC cost came in quite a bit below the initial guide. Could you just give us a little colour 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.

Christopher Calvert

Yeah, hey, Zach, this is Chris Calvert. I think first off, thank you for the question. I think we would refer, excuse me, refer to slide D and the slide deck to kind of highlight the data that you're speaking to. I think it's safe to say when your full year '25 D&C per foot is below your full year 2024 D&C per foot, we're kind of at a leading edge.
I think from an efficiency standpoint, we've made great strides in optimizing Simul frac, increasing the use of Trimul frac, reducing days on well. Partnerships with vendors, strong partnerships with vendors to make sure that we're in win-win contracts from both the drilling and the completion side. So I think 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, we increase our Trimul frac Qs 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 D&C 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.

Operator

Thank you. One moment for the next question.
Scott Hanold, RBC Capital.

Scott Hanold

Thanks, 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 year to year. Could you address the capital side too, and I think you know there. 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, within the range of the roughly 14 to 17 that you all have for 2025?

Joseph Foran

Well, good question, and breaking that down, 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 are having in reducing the operating expenses are going to pay off that capital in pretty short order and that's as I said, I don't want to take away from, the way people may use sequential comparisons. We just think that it's the year over year is a more important number and illustrating, it's hard to give you on the capital expenditures and say, well, this is really going to cut expenses ahead of time, we don't do that until this call, but we use a lot of that CapEx early CapEx to improve the operating expenses and Glen, 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.

Glenn Stetson

That's right, Scott, this is Glenn Stetson. I would just say, yeah, echo what Joe said is we got on the Ameredev properties and immediately got to work and accelerated the completions of those 11 wells, the Fire Thorn and Pimento wells, and along with that we did some facility upgrades to accommodate that new production and also to 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 or about $1.2 million barrels of produced water for the fracturing operations on those 11 wells. So, I think, synergies across the board, that resulted in the a really nice quarter.

Joseph Foran

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, I would say they didn't, they maintain the 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.

Operator

Thank you one moment for the next question.
Tim Rhee, KeyBank

Tim Rhee

Hey, good morning, folks and 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, with leverage at one time and coming down pretty steadily. So, 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.

Joseph Foran

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 only sold them the Haynesville formation down there and we reserved all the uphold rights which these properties are. We had been drilling Cotton Valley wells to that point and so we're very experienced in that, but, 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 HPP, so there wasn't that 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 $5 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 A much better commodity prices with the oil out there in New Mexico.
So it's one of economics, but now that you have yes 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 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.

Tom Elson

Sure, Tim, this is Tom Elson, our EVP for reservoir engineering. We feel very confident in the Cotton Valley and as Joe mentioned, we had drilled a well, over, about 15 years ago and I actually, I'd actually give Joe 66 BCS gas you are on that on that 1 mile well.
I know today, our operations equation teams would go in there and be capable of drilling a 2 mile well or 2.5 or even further perhaps, and I know they would only increase the pro and concentrations and the frac fluids and the stage intensities and Improve the targeting and you know all the different things we've learned over the last, 15 years, I think would go into significantly higher gas URs 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 wanted to at some point, several 100 ft of hay over there in the Cotton Valley and all the gas infrastructure from the Hainesville is already in place and so I think it's something that we like to have in our toolbox.

Operator

Kevin MacCurdy, Pickering Energy Partners.

Kevin MacCurdy

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

Joseph Foran

That's a great question, Kevin, and 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 I talk about I kind of feel this and I think we do that.
It's really exciting, because There are a lot of opportunities here and we want, we talk about profit growth and measured pace, so we don't want to try 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 have been in. We have over a $3 billion line of credit with our banks, of which we have only committed to $2.5 billion and so there's plenty of dry powder there. We don't want to try, and that's why we say instead of trying to grow 1% a year, that's why we say proper growth at a measured pace. So, it depends on all the considerations and but.
We have 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 earning 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 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 would be in. 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. Lateralle has grown to where we're over we're now doing over 10,000 ft per well on. Completions, the EURs are better, this rock that we acquired from both advanced and Ameredev is leading to 10% better recoveries. So, I mean it's a multitude of opportunities and trying to manage it to.
So 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 op opportunities, but we also know that you can suddenly have things like.
COVID or, Depression, gas prices have been 0 at Wahall 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 of what we want to do with this extra money, but we all agree, and it's a corny expression. I admit proper 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 win, it's a little less turbulent, but we're also ready because we've made, 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 or, our owners, and it's measured, on what is going to improve, the stock price and really grateful to those shareholders who have been in here since1983 when we got when we got started.
So and they keep coming up with good ideas and I look across there, Ned and his group of geologists, I mean, they come in with some good looking ideas and Tom's. Team of, he leads the teams in these various areas. They're always thinking of things and the land group, John and them, this brick by brick approach has generated a lot of opportunities and helped get us into areas that we didn't have and, so I have to tell you, we 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 efficiency.
I don't want to be silly, but Mac 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 are going to try 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 $0.10 and now we're at $1.25.
We would have 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've 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 $0.10 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 y'all coming to visit, and once you know everybody on the call, if y'all come see us, we'll have lunch or breakfast, and you'll get to meet.
The staff will take all the questions that you've got. So, with that, Brian Herman, or Brian Willie, as two of our leaders, if y'all. The only thing else we should say, please jump in now.

Brian Willey

Joe, this is Brian. I think all very well said. I'll just, we're excited about 2025 and to be approaching a billion dollars in cash flow is is a great accomplishment. Joe mentioned at the beginning about growth and folks on growth, and that's true from a production standpoint and that's true from a free cash flow perspective and so we're excited to be able to do that and be in a position where we can return value to our shareholders.

Joseph Foran

Brian Urman, I think you said it well, I think, we're really. Excited about the results for 2024 and even more. Excited about the opportunities that are in front of us for 2025. So, I guess. Generally, really excited about what we have in front of us.
Right. and Rob, is our Chief Accounting Officer and kind of a 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 him how once again, we had no questions.

Mac Schmidt

That's right, yeah, no, I think, for the last 10 years we've been audited by KPMG, really proud of the, 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 any way we can.

Joseph Foran

But follow the rules, always, right, but anyway, that's those are my closing remarks, but again, if you have questions have been answered, give a call to Mac. We'll get something 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 relationships and trying to make trades that please both sides. Back to you, Lisa.

Operator

Thank you, ladies and gentlemen, thank you for your participation today. This concludes today's program you may all disconnect.