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Edited Transcript of MTDR earnings conference call or presentation 2-May-19 2:00pm GMT

Q1 2019 Matador Resources Co Earnings Call

Dallas May 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Matador Resources Co earnings conference call or presentation Thursday, May 2, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Billy E. Goodwin

Matador Resources Company - Executive VP and COO of Drilling, Completions & Production

* David E. Lancaster

Matador Resources Company - Executive VP & CFO

* Edmund L. Frost

Matador Resources Company - VP of Geoscience

* Joseph Wm. Foran

Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary

* Mac Schmitz

Matador Resources Company - Capital Markets Coordinator

* Matthew V. Hairford

Matador Resources Company - President

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Conference Call Participants

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* Gabriel J. Daoud

Cowen and Company, LLC, Research Division - Senior Analyst

* Irene Oiyin Haas

Imperial Capital, LLC, Research Division - MD & Senior Research Analyst

* John Christopher Freeman

Raymond James & Associates, Inc., Research Division - Research Analyst

* Neal David Dingmann

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Noel Augustus Parks

Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP’s

* Richard Merlin Tullis

Capital One Securities, Inc., Research Division - Senior Analyst of Oil & Gas Exploration and Production

* Sameer Hyderali Panjwani

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Exploration and Production Research

* Scott Michael Hanold

RBC Capital Markets, LLC, Research Division - Analyst

* Timothy A. Rezvan

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to the First Quarter 2019 Matador Resources Company Earnings Conference Call. My name is [Dalen] and I'll be serving as the operator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes and the replay will be available on the company's Website through May 31, 2019, as discussed in the company's earnings press release issued yesterday.

I will now turn the call over to Mr. Mac Schmitz, Capital Markets Coordinator for Matador. Mr. Schmitz, you may proceed.

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Mac Schmitz, Matador Resources Company - Capital Markets Coordinator [2]

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Thanks, Dalen. Good morning, everyone and thank you for joining us for Matador's First Quarter 2019 Earnings Conference Call. Some of the presenters today will reference certain non-GAAP financial measures regularly used by Matador Resources in measuring the company's financial performance. Reconciliations of such non-GAAP financial measures with comparable financial measures calculated in accordance with GAAP are contained at the end of the company's earnings press release.

As a reminder, certain statements included in this morning's presentation, may be forward-looking and reflect the company's current expectations or forecasts of future events based on the information that is now available. Actual results and future events could differ materially from those anticipated in such statements. Additional information concerning factors that could cause actual results to differ materially is contained in the company's earnings release and its most recent Annual Report on Form 10-K.

Finally in addition to our earnings press release and our 2019 operating plan and market guidance press release issued yesterday, I'd like to remind everyone that you can find a short slide presentation summarizing the highlights of our first quarter 2019 earnings release and a capital efficiency report on our Website on the Events and Presentations page under the Investors tab.

I would now like to turn the call over to Mr. Joe Foran, our Chairman and CEO. Joe?

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [3]

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Thank you, Mac, and good morning to everyone on the line and thank you for participating in today's call. We appreciate your time and interest in Matador very much and we especially appreciate the kind words that a number of you have had for us and compliments and we invite each of you to come see us in Dallas and meet the staffers, especially many of our young professionals who are making increasing contributions to the good reports like today.

Now, I'd like to introduce the executive committee who is joining me this morning along with other members of the management team and senior staff who are standing by for all your questions. They are Matt Hairford, President; David Lancaster, Executive Vice President and Chief Financial Officer; Craig Adams, the Executive Vice President and Chief Operating Officer of Land, Legal and Administration; Billy Goodwin, Executive Vice President and Chief Operating Officer of Drilling, Completions and Production; Van Singleton, Executive Vice President of Land; Brad Robinson, the Executive Vice President, Reservoir Engineering and Chief Technology Officer; and Gregg Krug, Executive Vice President, Marshes and Midstream Strategy.

As outlined in our earnings release issued yesterday, 2019 is off to a record start. We had many financial and operational achievements and I wanted to take a moment, and again, personally acknowledge the Matador staff for all of their hard work and dedication; not just the ones in the office but also our field staff who have really done, made efforts, to improve our capital efficiencies in the field. Just great work and a total team effort which leads me to 3 things; I like to point out before getting into questions. One is, if I hadn't emphasized it enough already that the teams are working and its contributions from every phase of our business that is making this work as well as it is. And I really do appreciate their efforts as matador has grown from 1.1 million barrels at the time we went public, barrels of oil approved reserves, over 100 million barrels of oil reserves and a comparable amount of gas reserves for a total of over 200 -- I mean, 2 million barrels of oil or gas equivalent, just a great work and -- and seeing all of this come to this has been very pleasing to the members of the executive staff and see the development.

We've delivered 19 straight quarters where we've met or exceeded guidance and our capital efficiency is -- outlook going forward is very promising. And with that, I'm happy to take your questions and turn it back to the operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes Scott Hanold from RBC Capital Markets.

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Scott Michael Hanold, RBC Capital Markets, LLC, Research Division - Analyst [2]

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In -- one of the things that stands out a little bit is your capital efficiency in the Permian seems to improve and I think at the same time, you're extending your lateral lengths quite a bit this year and I think into next year. Could you give us some color on some of the things that you're doing to see that? I mean, you know, that there's no tension between extending laterals and losing some efficiency. It looks like they're all kind of lining up but can you kind of talk through progression of that and what you all are seeing and doing to continue to execute to that extent?

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [3]

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I'll take the first shot at it and Matt may want to make some comments also. But, I think that, you know -- I think as we've explained in the past that, you know, initially we felt like it was a more prudent thing for us to particularly try to get our resource held by production that it was a little better for us to start out with some of the one-mile laterals. It's not that I think we had an aversion to the longer laterals, it just was the more prudent thing to us, for us, to do given the particulars of our land situation and I think we've executed on that very well.

But you know, over the past year, certainly, it's been a real focus for our teams to begin to put together more longer and longer lateral opportunities for the company so that we could take advantage of some of these capital efficiencies and I think that as is reflected in the, in what we've put out, whereas just under 10% of our laterals were greater than a mile last year, we'll get up to about 30% this year but we'll get well over 80% next year, I think we're currently projecting about 85% which is probably even a little higher than what we talked about 2 months ago because as we continue to kind of flush out our plans or 2020, we've even seen more opportunities to go to the longer laterals. You know, and that's not only just in some of the acreage that we added in the BLM [lease] where we always knew we were going to be able to do that. But, it's also just across all the asset areas. I mean, we're routinely now drilling laterals in the mile and a half range in the Wolf asset area. We're drilling more 2-mile laterals in the Rustler Breaks asset area. We're going to begin, you know, drilling a mile and a half to 2 mile laterals all the time up in the greater Stebbins area here before very long and so I think you're just going to start to see it popping up all over the, you know, all over the area and by the time we get to next year, clearly the vast majority of our wells are going to be in this a mile and a half to 2 mile width.

I think about 70% now we think will be at least 2 mile. And I think we, you know -- we feel very confident in our ability to do that. The wells that we've done so far have gone very well. I think in terms of targeting we feel very confident with a -- as we said in previous calls, we've gotten seismic over most of our acreage these days and we're kind of using that now to better inform our steering so I think the further we steer, you know, with the -- the longer we drill these wells and the further that we're steering I think having the seismic is particularly important.

As you know, we have the 24/7 MAXCOM room that is really making a big difference in terms of the, you know, our ability to stay [right] within the very narrow intervals that we've targeted and want to stay in and I think that the drilling completion guys are just doing a marvelous job of continuing to reduce the daily rates and the costs and be able to drill these wells faster and on the completion side, you know, I think the guys have done a terrific job in terms of being able to get these wells completed all the way out to their maximum lengths and get them cleaned up and we're actually even sort of, in some cases, making our jobs a little bigger in terms of fluid size and profit size. In some ways, profit volumes but not really having to sacrifice in terms of the cost efficiencies.

So I think that we're -- I think we're on the right path and I think that you'll really begin to see that kick in as the year unfolds and into next year and so we're quite excited about the path that we're on here.

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [4]

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One other thing, Matt before you jump in, I just also wanted to commend our completion group. They did their first 100% frac with recycled water which saved hundreds of thousands of dollars on that. That looks like another promising area to improve and be that much more careful efficient. It was innovative and we appreciate them doing it and look forward to doing more and I think the opportunity to drill even more 2-mile laterals is more likely to increase as the year goes along. Matt?

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Matthew V. Hairford, Matador Resources Company - President [5]

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Yes, Scott, I'll jump in here too. I think we're very excited about the capital efficiencies we've achieved and already moving towards getting even more and more capital efficient. On top of what David and Joe have said here, one of the things that we're putting into our program is combining the longer laterals with [batch] drilling, so that kind of hits all the different things and just an example, our Howard Posner wells, as we drill down in Wolf, they were longer laterals. The guys, as Joe said, did 100% recycle on the water. We used in basin sand, we were zipper-fracs, so, that's a very, very efficient way for us to do that. It works for us, it works for the service companies too. You know, we get -- we think we get a better price because we're more efficient and we want to continue to do that and I'll still a little of Billy's thunder here; in preparation for the 85% that David's talking about, that will be longer laterals in the future, we're very, very happy with the rigs we have with Patterson and we're working hand-in-hand and in partnership with them to even improve the efficiencies of those rigs.

So with the longer laterals, additional hydraulic horsepower in the form of maybe a third month pump as well as the additional rotating capabilities with the higher torque, higher horsepower top drives that we've talked about, we're talking with Patterson about making those improvements so Billy and his guys can go even faster.

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [6]

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And the last thing, I know we're maybe overwhelming you. But, Scott, in our Website, you know, we have the earnings release and capital efficiency. We have a couple of slides that show the growing capital efficiency and we'd really encourage people to take a look at that, a picture tells a thousand words and you can see how we're driving down costs, we're increasing the number of longer laterals and taking other steps to keep things going in the right direction.

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Scott Michael Hanold, RBC Capital Markets, LLC, Research Division - Analyst [7]

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No, I appreciate it. It's all good color. And so it sounds like the savings you all have, are starting to see, are sustainable and could get a little bit better, and I know you were, you know, a good 10% below your budget this quarter. You know, can you talk through -- you know, and I know you -- there were some puts and takes in that but what should we expect over the next 2 to 3 quarters, can some of those savings continue to keep you at or below your budget as we progress through the year?

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [8]

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Yes, Scott, we continue to think we'll improve on that. We'll -- we mentioned the areas that we're working on. We don't have a specific number, not ready to raise it from what we've said before but believe they are sustainable and with -- and that the percentage improvement is more likely to go up than down. But, we'd like to wait till next quarter to give you a further report. But, we mentioned a lot of those areas; drilling them faster, in basin sand, you know, your central facilities, your recycled water. You know, there's better equipment on the rig. The zipper-fracs, the batch drilling; all of those things are showing promise of improving the capital cost and improving the capital -- achieving the capital efficiencies that I think the market is seeking.

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Operator [9]

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Our next question comes from Gabe Daoud from Cowen.

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Gabriel J. Daoud, Cowen and Company, LLC, Research Division - Senior Analyst [10]

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Nice capital efficiency update. Was just curious if you guys can maybe -- maybe just switch gears a little bit and hit on San Mateo. I think 1Q EBITDA around $21 million would be a little bit lower on a run rate basis to kind of hit that full year number. Just curious if you think that steps up significantly from here through the rest of the year. Just wondering, again, any kind of color there would be helpful.

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [11]

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It's David. Well, I think actually the -- you know, the EBITDA that we had for San Mateo this first quarter was pretty well right in line with what our expectations were. You know, not surprisingly, you know, we've kind of got it modeled on a ramp and I think as we had said in previous calls that -- that sort of at the midpoint of our guidance we had about $90 million, you know, estimated for this year for San Mateo so I think we still are very comfortable with kind of what our projections have been for San Mateo and we felt like the first quarter was right in line.

And I think, you know, as both Matador's production and third-party volumes. you know, pick up during the course of the year, you know, that that -- that you'll continue to see that -- continue to see that improve through the year. So, I guess the bottom line was San Mateo really came in right on top of what we were expecting so I think we thought it was a good quarter.

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Gabriel J. Daoud, Cowen and Company, LLC, Research Division - Senior Analyst [12]

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Awesome, thanks, David. That's helpful. And then just a follow-up on the -- on the asset sale front, can you maybe just give us an update there on remaining initiatives potentially with like the Eagle Ford, San Mateo 1 and/or Haynesville, just any updates there?

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [13]

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Sure. You know, I think that we're pleased with the progress that we've made so far and really quite optimistic that we'll continue to make progress as the year goes on. I think that we've said that our intention has been primarily where the Eagle Ford and Haynesville assets are concerned that we felt like we would probably have a little more success in selling off the assets, you know, kind of pieces at a time because, you know, we don't know that there's anyone out there that's interested in the assets across the [play] that there may be but we certainly know that there are a number of people that are interested in particular assets that we have and often, you know, it's those may be the offsetting operators, you know, in those areas and so I think that we've -- we're encouraged by the number of inquiries that we still are continuing to get about [some] of our Eagle Ford properties. I know that Van and Jon Filbert and their teams, you know, are in constant communications with folks that have expressed interest and so as we -- I think Joe said in his quote in the earnings release, you know, we're continuing to look to make satisfactory transactions and optimistic that we can but certainly we're not, you know, we're not going to give it away but if we can come up with acceptable business deals we'll continue to do that. And I'm optimistic that we will.

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [14]

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You know Gabe, another area that still remains fertile to make a win/win deal is these trades with other operators that we're doing. I mean, they get, you know, they have -- they have interest in their units that we trade for interest that they have in our units and that improves both sides of the transaction and that's been an active area for us and that we feel real good about. Our mineral transactions have also been good. We're -- I think we have currently about 1500 BOE off our minerals, a thousand barrels of oil. Of that, 2-thirds of that is oil that has been growing and we believe some minerals that have brought in several millions of dollars. So, very encouraged. You know, the bits and the pieces they add up and so it's active and we will hope to continue to -- every time you do a deal, the next time you deal with that party it seems easier. So, a number of those are in the works and we hope to increase that as the year goes along. Matt?

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Matthew V. Hairford, Matador Resources Company - President [15]

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Joe, I just want to underscore what you started with your comment there and how it relates to capital efficiency. These trades a lot of times are set up for us to be able to drill longer laterals and so Van and Jon and the team have done a really nice job in converting one-mile lateral potentials to a mile and a half and 2 mile just by making these trades that you're talking about.

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Operator [16]

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(Operator Instructions) Our next question comes from Neal Dingmann from SunTrust.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [17]

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Giving me that warning Joe, I'll try to keep mine brief. My question is really what you talked about earlier about the efficiencies and you guys really are just -- [know will be] running ahead and based on that, what's your thoughts if you continue to run ahead, so far ahead in these efficiencies. Would you cut activity and keep the spending, you know, down or how do you think of it? It's obviously a nice sort of quandary to have. You guys see me running ahead more than most out there. I'm just wondering if that continues to be the case, how you'd think about activity and capex, etc., for going into the end of the year?

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [18]

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Neal, that's a great question and that's one where, you know, we're focusing a lot on discussing what's best is that we approach the what's best question from what creates the most value for our shareholders, for share values. So, the first thing is to look at the opportunity and the opportunity set and say what will that do for us? And -- but second, we're also thinking about the money and being more selective in what we do and trying to thread the needle of increasing value without overspending. And so probably the assets we like acquiring the best are those acreage that are in our current tracks where we're about ready to drill where we bolster our working interest or work a trade of some sort. Those opportunities take priority because if you don't buy that acreage it comes up available in your units; you won't ever get it, you won't ever see it. So you've got the -- you either do it or not. We're more selective and just -- in -- in pursuing trends and we just don't buy acreage to pursue trends. It's got to be related to a prospect of some sort and then just balancing that we've -- we've told the market, you include it that we are, you know, we're determined to narrow the gap over time and to do it in a pragmatic value-creating way and that we think we achieved that this quarter and the same practices that helped us achieve it this quarter, we intended to continue to follow and do what we say. It's just like selling parts of the Haynesville and Eagle Ford. We said we'd do that and we have.

We said we'd drop the rig in the Eagle Ford and we have. And we said that we'd be more selective in what we do and we have and that perhaps most importantly that we saw ways to improve our capital efficiency and we have. And we think they did that in the right step; first, get the acreage validated and held by production so you have more time and leverage to convert those one mile into 2 miles and we have. So we're, I think, doing the right things and it's lively discussions around here about exactly how to do that but we're -- I think getting it done and threading that needle this first quarter and we believe it's sustainable and we'll continue to do it, you know, through the year but I don't want to paint myself in a corner and say we're not going to take advantage of a special situation either to acquire acreage and units or areas where we can convert one mile to a 2 mile. You've got to sometimes spend a little money to do that but you're going to have a value increase.

And -- and finally I just -- but we're monitoring everything very closely. And finally, on this, on these issues, of this is that we're very pleased that we think our shareholders have gotten a lot of value for what outstand -- that we've had in terms of not just production growth but profitable growth and that you see that we doubled earnings last year and we had an earnings [beat] in this quarter. Did that answer your question? I hope it did.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [19]

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It did and then my second question, Joe, that was a great answer. And just on my follow-up, I love that Slide 5 you all are showing your great ownership. You know, my thoughts, look, if your stock continues to be this cheap, Joe, are you going to encourage all of your guys there to keep selling all their Tesla and Facebook stock and buy some more Matador?

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [20]

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I hope our staff has good sense enough not to buy Tesla.

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [21]

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There's not many electric cars in the garage.

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [22]

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They -- I do want to commend the board and the staff and the executive staff. As you've noticed, nobody has sold shares, we've been buyers. Nobody sold a chair among any of our directors or staff and we think it's a great opportunity when you move in 6 years from one million barrels of oil to over 100 billion barrels. I think that's a lot of value and that our right of change is, I think, one of the best in the business and we've grown our acreage position to 135,000 acres in what we believe, and evidently other companies believe, is the best basin in the country.

That's a great achievement, I think, over the last few years and we acknowledge, we hear the market, want to be sure that you're addressing and moving towards free cash flow, and we are, and it's -- you know, by next year, I think it will be increasing clear how we're doing it. But, we've made a lot of progress already. It's just that at this point in our lifecycle we have a great opportunity set and our guys are turning up some other great opportunities and I want to tell them, you know, ignore them because this is how you add value. So I appreciate our shareholders who appreciate that and new ones because they can see that 36 years, Neal, I've never had a layoff. So, in 36 years we've been financially disciplined to the point we never had to call good people in and let them go.

So financial discipline coming up, not through private equity, but through friends and neighbors, I can assure you that we care a lot about financial discipline. We practice it, 36-year record, and started with $270,000 to, you know, $2.5 billion market cap, I think is -- hopefully speaks for itself but we care about it and we feel we're on a good road and path to achieve it in a way that doesn't damage the value of the individual Matador share. So, we spent a lot of focus on it. I think the plan is good. I think that if you look over the last few quarters, the movement has been steady and methodical to achieving this free cash flow standard.

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Operator [23]

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Our next question comes from Tim Rezvan of Oppenheimer.

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Timothy A. Rezvan, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [24]

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Gabe hit on some of mine, so I just have one for you. You mentioned the well result in Antelope Ridge and the Charles Ling pad. You know, very strong 24-hour IP's on 5,000 foot laterals. You mentioned these were drilled and completed simultaneously. You know, it's a horizon and an area that people understand pretty well. So, I was wondering if you could talk about kind of what the purpose was of this pad or any learning's or how we can think about you all applying this as you move to kind of pad drilling going forward especially on the state line area.

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Matthew V. Hairford, Matador Resources Company - President [25]

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Tim, this is Matt and I think you kind of just dovetailed into what we've been talking about here this morning. It's a -- to be able to do these 4 wells all at the same time is a very efficient way to do it. I think the well results are very nice. They're very good wells. We expected them to be and they are. One of the other things that we just touched on a little bit is we've actually increased the amount of fluid that we've pumped on these wells. We've gone upwards of 60 barrels per foot. We kept the profit about the same so it's a really nice test for us to try a number of different things that all relate to efficiency.

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Timothy A. Rezvan, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [26]

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Okay, and just to follow-up, when you say drilled and completed simultaneously, did you have multiple rigs on that pad and is that just you apply zipper-fracs?

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Matthew V. Hairford, Matador Resources Company - President [27]

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Just zipper-fracs. Yes, they were all done at one -- with one rig.

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Operator [28]

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Our next question comes from Noel Parks from Coker and Palmer

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Noel Augustus Parks, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP’s [29]

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You know, you've talked a lot about the tradeoffs and strategically, as you mentioned, threading the needle to [fuel] growth or spending and when we're looking at the progress you're making on lateral length, is it fair to say that given 5-year inventory right now that the focus is more on, say for the next year, on productivity across -- you know, within the wells on that inventory as opposed to, you know, different ways either [adding formations] or extending the footprint of expanding the inventory just in terms of total location?

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [30]

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You know -- hi Noel, it's David. I think that it will always be a little bit of both but, you know, our exploration staff, goescience staff, does an, I think, excellent job in terms of identifying targets and often new targets, you know, that we want to test. I think, just [a side], as an example I think we drilled quite a number of First Bone Spring, you know, wells over the past year and have drilled those in various places around the basin and have been, you know, pleased with those results and I think that 2 years ago that's probably not a target that we were thinking or talking much about. So I think that we'll continue to look for -- I know that Ned and the staff are frequently identifying new zones, new targets that they would like to go after. I think we just try to balance that, you know, with the kind of development efforts that we have in place and certainly, you know, we're going to be very focused on development and longer laterals and more [batch] drilling as we've been saying and so I don't -- I think you'll still continue to see a little bit of that exploration mix in what we're doing but we clearly have a strong focus on development and longer laterals, more multi-well batches and that will only become more apparent as we go through this year into next.

Did that get your answer or -- Did we lose you? I guess I'll turn it back to you.

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Operator [31]

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Our next question comes from John Freeman from Raymond James.

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John Christopher Freeman, Raymond James & Associates, Inc., Research Division - Research Analyst [32]

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One of the -- you know, you noted that one of the main drivers of the lower well costs in the quarter was in part due to the increased use of the in basin sand. I know that in 4Q about 50% of your Delaware completions were utilizing the regional sand. Where did that stand in 1Q and sort of where do you anticipate that being by year-end?

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Matthew V. Hairford, Matador Resources Company - President [33]

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Yes, John, this is Matt. We are moving more and more towards the in basin sand. In fact, in Q1 just about 100% of those wells were basin sand. So, as we talked in the past, it's the way we do things; we're very methodical about how we make changes and so we're -- we've gone through all the processes that we've talked about in the past and getting very comfortable with in basin sand in most of the formations. There may be a formation or 2 that we're still looking at and we will continue to look at these things going into the future. Like I said, tend to be, very methodical but we're happy with the results we're seeing so far.

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [34]

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Yes, Matt, in particular on your methodical study, while you've done it, you know, zone by zone is make sure there's no degradation in any of those and we're getting increasingly comfortable that there isn't any degradation and there's a price advantage but we're still monitoring it.

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Matthew V. Hairford, Matador Resources Company - President [35]

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Right, we'll continue to monitor. These things, the IP's, it really won't make any difference, a 30-day, 60-day probably not but we'll continue to watch these things for years to make sure that we don't have the degradation that Joe's talking about and we don't see it.

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John Christopher Freeman, Raymond James & Associates, Inc., Research Division - Research Analyst [36]

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Great, and then just my follow-up question, I just want to make sure that I'm thinking about the second quarter natural gas production guidance the right way. So the 7% to 9% decrease, which you'll say partly is just due to the normal sort of declines from the larger than expected gas production that you got in Q1 and then some is due to a possible shut ins given sort of the gas price dynamic at the moment. Is there any way to sort of quantify how much of that is due to the possible shut-ins like how much is built into that guidance?

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [37]

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Yes, John, hi, it's David. You know, I don't know that I know just right off the top of my head how much that is. I think that it may be sort of a half and half kind of thing. I think part of it was that we had a number of fairly big wells that are wells that came in at higher than expected gas production in the quarter that we called out like the David Edelstein well which was our first 2 mile lateral at Rustler Breaks and in the Wolfcamp B, you know, which is traditionally a higher gas producing zone. If I recall correctly, I think that in its earliest days it was making 10 to 12 million a day. So it was clearly a contributor to that, the Howard Posner wells that we called out in the report at Wolf contributed to that.

And then we did have a couple of just really nice wells that were not [op] in the Elm Grove part of our Haynesville asset that Chesapeake operates and they drilled a couple of really nice wells that really exceeded our expectations in terms of their early gas flow rates. So, you know, those things will trend off.

As I recall, we don't have much in the way of any Wolfcamp B completions, you know, kind of on the schedule here in the second quarter so that happens to us from time to time. We kind of have these little spikes in gas production. We had one last year in the second quarter for, you know, predominantly the same reasons and I think we'll see it again this year; we already expect in the late part of the third quarter and into the fourth quarter because there's 2 additional non-op wells that are scheduled to be drilled by Chesapeake in an area we call our LA wildlife area where we actually will have about a 40%, 45% working interest in those wells and we expect those will also be very good, you know, natural gas wells.

So I think you'll see that it spikes back up again in the third and fourth quarter and with regard to the temporary shut-in's, you know, we did have a few days in April where we did shut-in some of our higher GOR wells on a temporary basis. I believe that I'm correct in saying that all of the wells are now back and flowing and there might be one or 2 that are still temporarily shut-in but you know, I think that we're just sort of (inaudible) that situation. I think if we don't see gas prices, you know, doing anything different than they are right now, that we would plan to, you know, pretty well keep the wells on and producing. But, we just -- we were just trying to do our best to estimate how that might impact our second quarter production.

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [38]

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John, a couple of other factors just I agree with everything that David was saying, but a couple of factors that helped mitigate the gas situation was, one, about 20% of our gas came from the Haynesville and the Eagle Ford which were unaffected by Waha and second is in our processing we did an uplift on NGL's and then when you process about 20% of the process gas ends up in NGL's and with that uplift, we have takeaway from our plant by BP that's done a good job. They take them to Bellevue and they're responsible for the transportation and the fractionization.

So those 2 factors have mitigated and have helped us but it's a day-to-day but we're not -- not [flaring] primarily because of the processing effect and the other mitigations that we've got going. We also belong -- we'll participate in the Gulf Coast Express, so by October the vast majority of our gas will be either on pipeline or be in the Haynesville and the Eagle Ford and on the Gulf Coast Express where we have firm transportation.

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Matthew V. Hairford, Matador Resources Company - President [39]

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That's a nice tie-in with the Midstream business to have the processing plant and to have the residue capacity and the NGL capacity that Joe's talking about for not only transportation but the fractionization as well. So, it's a very nice thing for us to have.

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Operator [40]

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Our next question comes from Sameer Panjwani from Tudor, Pickering, Holt.

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Sameer Hyderali Panjwani, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Exploration and Production Research [41]

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So first off on the lateral length side of things, is it possible for you to quantify the existing opportunity set of a mile and a half to 2-mile laterals and is it fair to assume that extending laterals is now a key goal for the land team as you shift to larger development projects.

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [42]

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Yes, this is David. Yes, I think that to take the last part of the question, it absolutely is a goal of the asset teams and the land department to try to make every well that we can a mile and a half to 2 mile lateral going forward. I would dare say that there are many proposals that we're sending out to perspective partners, anything anymore, that are for single mile laterals. I'm sure there's still a few, obviously we've estimated that we still might have as many as 10% or 15% of them next year but it's certainly decreasing at a rapid pace and I think that when we have the call in February I think we had talked about, we were estimating about 70% of our laterals in 2020 could be greater than a mile. Just in this past quarter the efforts of the teams and the land department, as we kind of look out into our 2020 schedule, I think has made us confident that we can get to 85%, you know, so we've even been able to kind of progress that just in the last several months. But I'm very confident that the teams are approaching, you know, every opportunity that they can to make these wells longer laterals.

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Sameer Hyderali Panjwani, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Exploration and Production Research [43]

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Okay, and on the first part of the question, the existing kind of opportunity side of the mile and a half to 2-mile laterals?

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [44]

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Well, I'm not -- I'm not entirely sure what you mean by that. Can you be a little more specific or what you're trying to ask me there?

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Sameer Hyderali Panjwani, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Exploration and Production Research [45]

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Well, I guess I'm trying to understand how sustainable an over 8,000-foot average lateral is kind of going forward. You know, how many wells in your inventory do you think you have at that lateral length as to your acreage position since [yesterday]?

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [46]

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Well, I think that -- so just to be specific, you know, when I think we've been clear in the past, sort of the 2600 or so net wells that we have, 2500, I guess it is in our inventory, 4500 gross or something to that effect, that was all based on one mile lateral kind of estimates and so you know, but I think for all of those locations, you know, it is our -- it's our plan to try to convert as many of those into 2 mile laterals; sometimes that may be combining a couple of those locations into a 2 mile lateral. Sometimes it may be extending one of those existing ones into being a 2 mile lateral but I think that, you know, as we've mentioned before, as we've gotten more and more of our acreage held by production in a single zone, that's given us then the luxury of time to go back and look at putting together different units that would make for longer laterals in, you know, in other zones that we intend to come back and drill over the years.

And so I guess I feel like that -- that you know, this will be sustainable for us going forward and it's not just a -- it's not just going to be a one-year or 18-month kind of flash in the pan. I think that it will be something that we'll be able to sustain on and perhaps even improve on as we go forward.

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Matthew V. Hairford, Matador Resources Company - President [47]

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Sameer, this is Matt, just to tag on to what David is saying there, you know, a lot of these wells that are now mile and a half or 2 mile laterals once weren't and so the team is doing a fantastic job of moving those in the direction where they now are; one and a half or 2 mile laterals. And particularly the way this works is let's say you've got -- you're combining 2 sections there in New Mexico. The hardest one to get to a mile and a half or 2 mile is the first one. So, once you get that down in subsequent wells, you come back and drill regardless of which formation they're in, are usually already addressed by a joint operating agreement or a trade [advantage team] made. So, it's easy to move forward faster.

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [48]

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Sameer, there is one other thing while you're on this (inaudible) sustainability. The other part, or what runs in parallel to the sustainability of converging these into one and a half or 2-mile laterals is the fact that when we were naming our potential locations, that we were spacing them on 160 acres. We didn't do that closer 80 that's gotten some, you know, that has resulted in some people having underproduction, you know, the original Wall Street article commended us, we were one of the few companies that -- who's actual production exceeded projections. And part -- and one of the main reasons for that was the fact that we had always been conservative in our spacing and spacing them out. So, sustainability is not only having the ability to have a number of one and a half, 2-mile laterals but also the ability to convert by trades or acreage acquisitions, one-mile laterals and then buying the adjoining property in some fashion so that you can convert or force pull into 2 miles. And we've been working at that well and then, you know, again, a MAXCOM program where you stay in zone better and pick up the lease line acreage on the curve so you don't have 2 curves, you have one curve and pick up the lease line. All lends itself to the sustainability and the additional reserves by staying in the zone more.

So, I like our chances is what I'm trying to say is that we're making steady progress on that and continue to like our chances going forward.

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [49]

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And I'll just make one last just quick comment, you know Sameer, and that is that it may be that we find that the number of locations actually could increase because the fact that some horizons in some areas that are maybe a little skinny at one mile laterals actually may have much better returns. You know, if we can get to the longer lateral. So that will be something that we will visit there as well.

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Sameer Hyderali Panjwani, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Exploration and Production Research [50]

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Okay, those are all really good points; appreciate the detailed color. For my second question, you guys continue to be active in testing the Wolfcamp zones at Ranger and Arrowhead over the past few quarters; the X-Y specifically, but I don't think we've gotten an update on these wells. I think previously you've talked about some land work that's been outstanding. So, just trying to get a sense of how close you are to completing that land work before we can get some more color on the results?

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [51]

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Yes, it's David again. You know, I think pretty close now. So, I think that you know, we've been close to getting -- we're pretty close to getting all of the various trades and things that we've been working on, you know, put together and certainly we're back to drilling at 7's and I think that we've got at least another, you know, Wolfcamp well planned here for the very near future and so I think it's a -- I know there's a lot of curiosity about it. I don't think it will be long before we're able to talk a little bit more about that Sameer.

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Sameer Hyderali Panjwani, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Exploration and Production Research [52]

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Okay, so the next quarter, call it a good guess?

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [53]

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Well, you know, I don't ever want to say -- I don't want to talk myself down. I've probably cried wolf too much already so I'll just say, as soon as they let me tell you, I will. How's that for a deal?

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Sameer Hyderali Panjwani, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Exploration and Production Research [54]

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Yes, well I had to take the shot so appreciate it guys.

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [55]

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Fair enough.

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Operator [56]

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I show our next question comes from Irene Haas from Imperial Capital.

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Irene Oiyin Haas, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [57]

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Question to follow-up on the earlier oil production cadence. Just wanted to make sure, is the 2019 guidance still good with oil growing at 18% and gas growing at 18%

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [58]

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Yes Irene, we're -- well, we didn't make any updates, you know, to our -- to our guidance for this quarter so I think you can assume that that's a yes. So, we just didn't -- we didn't feel like -- we thought it was too early in the year to make any changes. You know, we've only been out with that for a couple of months I guess but that first quarter was a little bit better than what we thought but it still looks pretty good to us.

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Irene Oiyin Haas, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [59]

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Okay, that's great. And the second question, the state line area, when will you guys start drilling in that really nice chunk of land?

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [60]

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Well, our plan is we had talked about, when we put our guidance release out, was to begin activity there right around the first of 2020 and we are, you know, we're on task and on plan right now to be able to do that. You know, we have submitted for approval now some of the first permits, you know, to the BLM. We've had all our onsite visits with the BLM. We feel like that they're on-board with what the teams have laid out in terms of how we'd like to go forward with the development of those properties and same with the track in western Antelope Ridge which we're hoping to be able to start drilling on this fall. So I think everything appears to be on track, Irene, and if that's the case, hopefully, we'll be drilling there by the first of the year.

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Irene Oiyin Haas, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [61]

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And if I may follow-up on that, and presumably, you would have all your infrastructures set up close to the time that you guys start completing?

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David E. Lancaster, Matador Resources Company - Executive VP & CFO [62]

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Well, I think certainly that's what our plan is and you know, we -- what -- as we have said, we would expect to run 2 rigs there; one on the eastern side and one of the western side. On the eastern side, we're planning 2-mile laterals. On the western side we're planning 2 and a half mile laterals and, you know, it will take us, of course, we're going to drill those at least, to begin with 4 wells on each pad, perhaps even 5, and so it will take us several months to get all of that done. So I don't think you would expect to see first production, you know, from those pads until sometime probably in the third quarter of 2020 but -- so between now and then, certainly we'll be out there getting the roads and the [pods] and the facilities and all in place and, of course, you know, we'll be extending the large truck line down from the Black River Processing Plant in the Rustler Breaks area down to that state line acreage so that as soon as we turn those wells on the gas will be flowing back to the new plant that Matt Spicer and his team are starting to build and that is on track to be finished by the summer of 2020.

So, I think all of those things are moving together on plan and hopefully, by the time we're doing the second or third quarter conference call in 2020, we'll be talking all about that.

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Operator [63]

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Our last question comes from Richard Tullis from Capital One Securities.

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Richard Merlin Tullis, Capital One Securities, Inc., Research Division - Senior Analyst of Oil & Gas Exploration and Production [64]

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And I guess the question to start off with Matt, we've heard from offset operator recently reported some really strong Second Bone Spring wells in that southern Lea and Eddy border counter, county, area. You know, I know that Matador's already drilled some solid Second Bone Spring wells, but have you been able to pick up anything from that operator, Matt, that you might be able to use in your own operations including plan drilling down in the state line area?

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Matthew V. Hairford, Matador Resources Company - President [65]

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Yes, sure, sure Richard. And thanks of the question. It's one of the things that we focus on. We've got a non-op team that looks at all of the non-op proposals, all of the well results, what people are doing, how they're doing them, and we'll look at the good stuff, we look at stuff that's maybe not so good and try to learn from all of that but, you know, Richard, this stuff continues to evolve. One of the things that we -- Ned and his team do along with the MAXCOM guys is look at where these wells are steered, what zones they're producing out of, what the results are, how the completions are put together, what type of artificial list. So there's just a number of things that we have a lot of insight into, to non-op partners as well as just looking at public stuff like you're talking about and understanding how people are thinking about things and we approach the -- one of the other things that Ned and his team are very actively doing is continuing to work on the 3D seismic. We've had a lot of success identifying targets, steering with 3D seismic and really making a lot of progress in those -- Ned?

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Edmund L. Frost, Matador Resources Company - VP of Geoscience [66]

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Yes, I'll follow in on that, the 3D is great at helping us accelerate that learning curve and we're able to see what the offset operators are targeting and really be able to kind of relate that to the rock on our own acreage and I think that's been very beneficial for kind of accelerating our results in places like Antelope Ridge. I mean, the recent [ling] wells were targeted and [steered] on the seismic and then you know, you hand off a well bore that takes after the right rock to the completions guys and they're doing a great job with that. So it's really kind of firing on all cylinders here. So, we are definitely looking at offset operators and trying to relate that back to our own acreage.

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Richard Merlin Tullis, Capital One Securities, Inc., Research Division - Senior Analyst of Oil & Gas Exploration and Production [67]

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That's helpful. And then just lastly for Joe, maybe just a big picture question to close out the call. You know, as Matador moves closer to a Delaware basin pure play, I just wanted to get your view on the competitive landscape in the Delaware going forward with a very large company significantly ramping up activity and playing a larger role. Joe, do you see any risk for the small and medium-sized companies to be able to consistently execute operationally going forward?

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [68]

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Thank you, Richard, that's really a thoughtful question and I appreciate you asking it and giving us -- the first thing is, I think, the move of Chevron and Exxon into the basin and other bigger companies ramping up, is first, a very bullish sign on oil prices. Second, I think it reaffirms what we've always thought that the Delaware basin is the best basin in the country. They wouldn't be moving in there at that kind of level if they didn't think it was really good country. So I think that enhances our 135,000 acres out there and just makes it that much more valuable.

The other thing that we've discussed a lot internally and with our vendors is they've been through ups and downs out there and we're -- I think we're 6 or 7 in size and production and rigs is that those companies we have a long history with Patterson where they or their predecessors had drilled every well that I've drilled. I -- I don't -- they're doing a great job for us and I don't see them likely to come in here and say, you know, this 36-year relationship they -- they're going to dedicate everything to Exxon or Chevron. They want some diversity in their clientele too.

The other thing that I think it also means that other vendors that are not yet in the basin are in it as much as they'd like to be or going to move because that's where the business is. So, yes, they're going to want some of Exxon and Chevron's business but Exxon and Chevron don't want to put all their eggs in one basket. They're going to spread their business among different vendors and those vendors are going to look to pick up business from other companies like ours.

So I see it as a -- as a good thing, just like in cities, you're better off to have a lot of construction projects going on than no construction projects. So, you know, that brings in the workers and really facilitates, I think, a lot of progress and a lot of innovation. So, I see that as really pretty positive and you know, if you're in the top ten you're, I think, in a pretty good spot to take advantage of that there's actually more competition for services and it will help you in the long-run to have more good frac crews and more good drillers and more good, you know, labor out there and field services.

So, you know, it doesn't worry me. Our guys compete a lot but it's a different kind of competition between us and say Exxon and Chevron. Our guys are drilling these wells faster. We're innovating after every well and after every completion job and where their practice is more to try to turn it into manufacturing and we're more like a custom home. They're building a bunch of track homes, we're being somewhat the custom builder but we're doing it faster and quicker and for less money but we're still -- we're both doing batch drilling, we're both recycling water. So I don't think that they're doing anything that we're not doing, we just have the advantage of -- that we're able to innovate and change after every well and our rate of change is higher than theirs.

So I think it's a positive. I haven't seen any negative impacts. Have you Matt?

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Matthew V. Hairford, Matador Resources Company - President [69]

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No, I agree with what you're saying, Joe. I think if anything it helps in that endeavor with the service companies and you're right, they -- nobody really wants to put all their eggs in one basket but they do want to work with a qualified partner, you know, and I think we fit that bill. I think that relationships we've established with our partners over the years, Patterson being one, Halliburton another that's got our frac work right now.

I think they enjoy working with us. I think they enjoy the innovation that we bring to the table and I think that will continue. So, I see it more as a positive.

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [70]

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Billy is our head of operations out there. Billy, whato

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Billy E. Goodwin, Matador Resources Company - Executive VP and COO of Drilling, Completions & Production [71]

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No, I agree. It's -- we're all working together and [big] with each other and pay attention to what each other is doing and for us, you know, we stay out in the lead and develop new technology. We're not waiting for anyone else to tell us what to do and find the best way to do it. You know, we've got a lot of guys that go meet with the scientists that design new [vents] and new motors and our geology group getting out there and getting all of the seismic [in there]. I mean, everybody's working together and we're doing really good things and having the majors come in and hopefully help bring more people in to help us, that's all good.

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Operator [72]

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Thank you. Ladies and gentlemen, this concludes the Q&A portion of this morning? conference call. I'd like to turn the call over to management for any closing remarks.

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Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [73]

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Thank you very much. I thought the -- I want to thank everybody for their, again, time and attention and their questions. We really want to sincerely invite you to come see us. We'll give you the time that hopefully will make it worth it. We'll help for you to meet and see the depth of our staff and have more time to answer your specific questions.

We really welcome those visits and appreciate your interest and, you know, and I want to emphasize that we're on a good path right now towards narrowing any spending gap, yet at the same time, we're moving forward with [powerful] growth and profitable production that -- and building up the inventory of the longer laterals and other capital efficient projects. So it's been a good plan so far, we want to continue to enhance it and look forward to sharing with you the details of our progress either here or at conferences. And so please feel free to call David anytime or come see us and we'll get together and make sure you get a complete review of what we're doing. So, thanks again. Good to talk to you, look forward to our next visit.

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Operator [74]

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Thank you, ladies and gentlemen, for attending today's conference, this concludes the program. You may all disconnect. Good day.