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Edited Transcript of MTDR.N earnings conference call or presentation 24-Feb-21 3:00pm GMT

·41 min read

Q4 2020 Matador Resources Co Earnings Call Dallas Feb 25, 2021 (Thomson StreetEvents) -- Edited Transcript of Matador Resources Co earnings conference call or presentation Wednesday, February 24, 2021 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * David E. Lancaster Matador Resources Company - Executive VP & CFO * 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 ================================================================================ Conference Call Participants ================================================================================ * Gail Amanda Nicholson Dodds Stephens Inc., Research Division - MD & Analyst * Michael Stephen Scialla Stifel, Nicolaus & Company, Incorporated, Research Division - MD * Neal David Dingmann Truist Securities, Inc., Research Division - MD * Richard Merlin Tullis Capital One Securities, Inc., Research Division - Senior Analyst of Oil & Gas Exploration and Production * Scott Michael Hanold RBC Capital Markets, Research Division - MD of Energy Research & Analyst * Zachary Parham JPMorgan Chase & Co, Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen. Welcome to the fourth quarter and Full Year 2020 Matador Resources Company Earnings Conference Call. My name is Liz, 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 March 31, 2021, 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. -------------------------------------------------------------------------------- Mac Schmitz, Matador Resources Company - Capital Markets Coordinator [2] -------------------------------------------------------------------------------- Thank you, Liz. Good morning, everyone, and thank you for joining us for Matador's Fourth Quarter and Full Year 2020 Earnings Conference Call. Some of the presenters today will reference certain non-GAAP financial measures regularly used by Matador Resources in measuring the company's financial performance. Reconciliations of such non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP are contained at the end of the company's earnings press release. As a reminder, certain statements included in this morning's presentation may be forward-looking and reflect the company's current expectations or forecasts of future events based on the information that is now available. Actual results and future events could differ materially from those anticipated in 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 recently quarterly report on Form 10-Q. Finally, in addition to our earnings press release, I would like to remind everyone that you can find a slide presentation in connection with the fourth quarter and full year 2020 earnings release under the Investor Relations tab on our website. I would now like to turn the call over to Mr. Joe Foran, our Chairman and CEO. Joe? -------------------------------------------------------------------------------- Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [3] -------------------------------------------------------------------------------- Thank you, Mac, very much, and thank you for joining us for Matador's Fourth quarter and Full Year earnings conference call. In addition to our earnings press release, I would like to remind everyone that you can find a slide presentation in connection with the fourth quarter and full year earnings release under the Investor Relations tab on our website. We appreciate you participating in today's call, and we appreciate your time and interest in Matador very much. Similar to last quarter, we've prepared that set of slides and to give you background and color to what we're going to present today. I'm going to turn the call back over to the operator to take your questions in a moment, but there were 3 or 4 points that I wanted to particularly make. First is I wanted to commend our staff and Board for the way they've worked together and achieved these results. Everybody on each of the teams has done their part, and it's been a total effort with everybody helping out in all the different ways that they can. Much of our success is related to performances and well results that have been better than expected. This applies particularly to the wells that we've been drilling, the operational results and commodity prices. I would add that the experiences of everybody working together this year to overcome the problems of COVID and prices and the like has led to improvements in our processes, improvements in our results in the field, the innovations and that the asset groups that we've had have done not only what we've expected, but we found new ways to add value to Matador. San Mateo has also been an important part of this whole effort, reaching new highs this quarter in EBITDA and then their contributions to Matador, for example, having the pipes ready as we turned on wells that helps both environment, it keeps trucks off the road. And most important is that during the ice storm, we were still sending product down the pipelines to be handled and it saves us a lot of money on trucking and other expenses. So we appreciate the extra effort there. And then for me, what has been one of the most exciting developments is that Matador has gotten to a position where it can comfortably issue a dividend policy and start paying back to our shareholders, many of whom have been with Matador since inception of Matador. This was made possible by the free cash flow that we've generated in the fourth quarter and the debt reduction that we did with that money. So we've done [a gap] where we've achieved debt reduction, a dividend policy, reinstated the pay cuts that people took during the COVID and price crisis has yet kept our promise and outlook and the development of these 8-plus locations, which have been the key to our success in the past couple of years, the improvements in capital efficiency, and an outlook that we think has us on the right track for further debt reductions, a strong dividend policy and of course, strong operating results with these 8-plus locations. And with that, let me open the floor for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) First question is from Neal Dingmann with Truist Securities. -------------------------------------------------------------------------------- Neal David Dingmann, Truist Securities, Inc., Research Division - MD [2] -------------------------------------------------------------------------------- Joe, could you and David talk about now with the fourth rig added maybe just give us a bit of color now how you think about sort of maintenance capital starting in that March period going forward? And maybe how that pertains to how you're viewing free cash flow for the year? -------------------------------------------------------------------------------- David E. Lancaster, Matador Resources Company - Executive VP & CFO [3] -------------------------------------------------------------------------------- Yes. Neal, this is David. And thank you for starting with that question. I won the pool. And so, Neal, I hope that -- in all seriousness, I hope that we did a good job of laying out our decision to pick up the rig in March. As you know, we began the year running 3 rigs and had every intention of staying with the 3 rigs there throughout 2021. About a month ago after the inauguration of President Biden, as you're aware, the Department of the Interior came out with an order that limited the approval of the local offices to grant permits or sundries or other approvals that are necessary for the development of federal oil and gas leases. It's a pause. It's a 60-day pause. And the good news was it didn't limit any of the activities on existing federal leases, and we've continued our operations there without any hiccups since that time. I think we remain optimistic that the BLM will return to more normal activity after this pause is over. But the fact is we just can't be sure. And I think as most of our investors know, our properties at the Stateline in the Stebbins area and of the Rodney Robinson, these are important properties to Matador. They have many of the A+ locations on them that Joe just referred to. And we felt like that it was important for us to ensure that we preserve the value in those properties for the company and its shareholders. So as a result, we considered and began talking about picking up the fourth rig. It's not a decision that we took lightly. We thought about it very carefully. We wanted to be sure that in picking up the fourth rig that we could continue to deliver free cash flow in 2021, and we believe we can. We wanted to be sure that we could pay the dividend that Joe just mentioned, and we can. We want to be sure that we'd still be able to pay down debt during the course of the year, and we could. And we'll be able to do that. We've already paid down some just this January, and we'll continue to pay down debt as we go through the year. I think as we've been consistently saying all along is we also wouldn't have done it if we didn't feel like that we could pay for it and fund it without having to borrow additional money. So the properties are important to us. They carry a lot of value. They also carry the ability not only for Matador, they're also valuable to San Mateo. They enable us to earn incentives from Five Point that I think -- which is pretty unique. We think this year that we may earn upwards of $35 million in incentives, which is just additional cash flow that comes from our partner in San Mateo. And the wells are going to all have very strong returns. So look, I think for all those reasons, having considered it, we felt like that it was the right thing for Matador to do. And so as a result, we have looked to contract another rig coming in March. It's going to be on a short term contract. If things change, we have a lot of optionality with how we'll go forward with our program as we always do at Matador. But for now, I think we feel like we've made the right decision. -------------------------------------------------------------------------------- Neal David Dingmann, Truist Securities, Inc., Research Division - MD [4] -------------------------------------------------------------------------------- Go ahead, Matt. -------------------------------------------------------------------------------- Matthew V. Hairford, Matador Resources Company - President [5] -------------------------------------------------------------------------------- The (inaudible) that we'll say in there in regards to the rigs, we've got this rig contracted for 3 months. And so we have -- as we always do, first off, the rig we've got coming is, is one of our rigs that we had running last year, Patterson has been a great partner for us. And the relationship continues to be strong. So this is a rig that we know that's coming back to us. It's on a short term contract. We've got it for about 3 months. And so we'll have another chance in June to make another decision if we want to keep that rig we can. Again, in August, we'll have yet another option on a rig. So we could go from 4 rigs to 3 rigs to 2 rigs by the end of August if we choose to do that. And we'll make that decision as we go along based on the conditions that are present at that time. -------------------------------------------------------------------------------- Neal David Dingmann, Truist Securities, Inc., Research Division - MD [6] -------------------------------------------------------------------------------- Dave, I may just ask one follow-up. It sounds like you are confident in still the free cash flow with the program. And I'm just wondering how much, David, for you -- are you assuming from San Mateo? I mean you already had $21 million in free cash flow last quarter. And it seems to me as you all continue to fully -- more than fully ramp there and you have more third-party coming on. There's obviously -- I'm just wondering kind of in your expectations, how much are you assuming from sort of the free cash flow side from San Mateo? -------------------------------------------------------------------------------- David E. Lancaster, Matador Resources Company - Executive VP & CFO [7] -------------------------------------------------------------------------------- Yes, I think, very -- again, as we've talked for a while, Neal, the expectation for cash flow from free cash Matador share from San Mateo is probably going to be about $35 million this year. So you take that and the incentives, and that's about $70 million of cash that's attributable to San Mateo as a business. San Mateo, 100% will probably generate about $70 million in free cash flow. Our part of that will be about $35 million, and then we expect to pick up the other $35 million in incentives from Five Point, of which $15 million of it is earned, and I expect will be paid with just in the next week or 2. So it usually comes in early March. So I think that that's all something that we can certainly count on. And I think the incentives, it's important for me to point out again that the incentives come straight from Five Point. They don't come from San Mateo, so it doesn't impact San Mateo's cash flow or revenues at all. That is all money that's paid directly from Five Point, and that's just another source of cash for the company. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Next question comes from Michael Scialla with Stifel. -------------------------------------------------------------------------------- Michael Stephen Scialla, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [9] -------------------------------------------------------------------------------- Maybe just a follow-on to the conversation on the fourth rig. What would you need to see out of the administration in order to let that fourth rig go in June when the contract comes up? -------------------------------------------------------------------------------- David E. Lancaster, Matador Resources Company - Executive VP & CFO [10] -------------------------------------------------------------------------------- I think, Mike, that you would want to see a certainty of it sort of a return to normalcy, if you will. I mean we'd like to see them go back to issuing permits, issuing extensions to existing permits, granting sundries. I think if we begin to see those kinds of things coming through on a regular basis and on a timely basis, similar to what we were seeing prior to the pause being initiated, that there might be reason to consider changing course a little bit. But I think we'd have to feel like we're seeing those things happen and the things are continuing to move along at a pace that's fairly commensurate to what we saw before the pause. -------------------------------------------------------------------------------- Michael Stephen Scialla, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [11] -------------------------------------------------------------------------------- Got it. And you noted in your budget, it includes 10% inflation starting in the second quarter. I just want to see if you've seen any indications of service cost inflation yet? And if so, where? And in that budget, have you built any additional capital efficiency improvements into it? -------------------------------------------------------------------------------- Matthew V. Hairford, Matador Resources Company - President [12] -------------------------------------------------------------------------------- Yes, Mike. This is Matt. And thanks for the question. We -- right now, we're not seeing a whole lot of cost inflation. We have built it into the budget. I think one of the good things for us on the -- particularly on the completion side, 40% of the wells that we're going to drill as well this year, we're going to complete in this first quarter in this lower pricing environment. So the kind of the way we typically think about our vendors is we're looking for vendors that help us create value. And so we had anticipated that some of the vendors couldn't continue to work at the processing that they have for the last couple of quarters and do want to make sure that they're able to do their business effectively so that we can become more capital efficient as we go through these things. So I will say in addition to that, we're continuing to have more efficiencies on the drilling completion and production side. I mean we're drilling these wells faster and faster and faster on the drilling side, on the completion side with the way we're developing these acreages, a lot of these are 4-well pads. And so we're moving into the simul frac operations, which is much more cost efficient, get the wells completed faster even on the production side. The production team has started on their flowback operations. We've kind of eliminated the flowback crews. We've got a couple of separators that we rent, and we do all that stuff internally in-house with our production guys. So we will be anticipating some service cost inflation, but I also think the efficiencies will probably make up a lot of that difference. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Next question comes from Richard Tullis with Capital One Securities. -------------------------------------------------------------------------------- Richard Merlin Tullis, Capital One Securities, Inc., Research Division - Senior Analyst of Oil & Gas Exploration and Production [14] -------------------------------------------------------------------------------- Maybe start with you, Joe or David. How many of the 50 gross operated wells planned for 2021 will be located on federal acreage? And does adding the fourth rig change any of the planned wells for the other 3 rigs for '21. -------------------------------------------------------------------------------- David E. Lancaster, Matador Resources Company - Executive VP & CFO [15] -------------------------------------------------------------------------------- I believe that all but 2 of the wells that we're drilling in this plan are on federal acreage. We are drilling 2 wells in our Wolf asset area. One that's drilled and one that will be finished just in the next few days. But those are, I believe, the only two that don't have some federal component. You have wells like the Rodney Robinson and the Stateline, which are 100% fed. And then we have others like those up in the Stebbins area that tend to have a federal component to them and that they pass through federal acreage or maybe they start on federal acreage. But frankly, most all of the wells that we contemplate are going to be on federal acreage. How did that change things? I think that prior to a couple of months ago, we were putting together our plan, we probably would have drilled a few more wells in Rustler Breaks or perhaps in the Antelope Ridge area that were not directly associated with federal properties, and we probably would have drilled a few more wells down in our Wolf asset. So we certainly have modified things a little bit to focus more heavily on the federal properties. -------------------------------------------------------------------------------- Richard Merlin Tullis, Capital One Securities, Inc., Research Division - Senior Analyst of Oil & Gas Exploration and Production [16] -------------------------------------------------------------------------------- That's helpful, David. And just a follow-up. As Joe mentioned, you initiated the dividend policy. How do you see the dividend potentially growing, say, over the next 2 years? Say, I'll give you the oil price environment, say, $55 oil price environment in a 4-rig scenario. -------------------------------------------------------------------------------- Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [17] -------------------------------------------------------------------------------- Richard, I'll take first steal and David can then clean up. But it's just too early to tell. We've initiated this dividend policy. We feel, of course, we're confident it's sustainable. But we don't know how it will work or the effect on our shareholder group. And so we'll take -- we'll go into it cautiously and see how well it works, see what the cash flow is, see what the needs of the business are and go from there, and how fast it can grow. Certainly, at the $55, we see growth in it, but want to again move cautiously because we're on a path we haven't been before. First, Matador always had a dividend. It was much smaller, and that was private. So getting used to this, we want to sure iron out any of the problems on the payment and make sure everybody gets paid and then we can look and plan to increase it over time but want to begin conservatively and not have missteps. So we're very excited about it. Our [lazy] shareholders and other shareholders had called in to say how much they like it, how much they appreciate it. And so we see it as a win-win type of arrangement. And we're looking forward to -- and the staff. But we have, as you know, large ownership among our management group and staff, and they're eagerly looking forward to the checks too. And we'll see how it works, but we'll have more at the next conference and each one after that. We'll let you know how it's going. -------------------------------------------------------------------------------- David E. Lancaster, Matador Resources Company - Executive VP & CFO [18] -------------------------------------------------------------------------------- Thanks, Joe. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Our next question comes from Gail Nicholson with Stephens. -------------------------------------------------------------------------------- Gail Amanda Nicholson Dodds, Stephens Inc., Research Division - MD & Analyst [20] -------------------------------------------------------------------------------- Every quarter, the team gets more efficient. Looking at the guide for 4Q, it looks to be considerably higher than what the market was anticipating. And I think that's predominantly driven by better efficiencies versus that fourth rig more helping the 2022 volume outlook. Can you just talk about how those [sign-offs] and other efficiencies that you guys are implementing really kind of speeds up that process and able to get wells on quicker? -------------------------------------------------------------------------------- David E. Lancaster, Matador Resources Company - Executive VP & CFO [21] -------------------------------------------------------------------------------- So Gail, what we've decided to do and like to do, we think, is absolutely the right way to conduct our business. And you'll notice the lumpy nature of the production. We've gone to these multi-well pads where we're drilling 2, 3, 4, sometimes 5 wells per pad. And so you end up with a lot of drilling efficiencies there. You've got fewer rig moves. And Billy and his team have put these rigs together where we can very efficiently drill these wells one whole section at a time and just get these things drilled a lot faster. Additionally, coming in with frac crews, they've got -- initially, we started to fracking a well, we do wireline work and then do the fracking and do wireline work and then we moved to what we were calling the zipper design, where we've got 2 wells that we're fracking on one and doing wireline work on the other. And now we're moving more towards the -- what we call simul frac wells, where we've got 1 frac crew that's completing 4 wells at a time. They'll be fracking on 2 of them with the same frac fleet and doing wireline work on the other with wireline crews. And so Chris Calvert, who's one of our heads of operations, he says, there's very little wide space in that operation. So we're able to complete more lateral footage per day, which ends up saving us a couple of hundred thousand dollars per well on a 4-well pad. So just moving on into the production side of things. Glenn and his team have done a really nice job of making sure that we've got water and oil pipe on location as well as gas. So that we're flowing directly from the wellhead through a couple of sand knockouts into our production facilities. We're selling gas, we're disposing water and we're selling oil on pipe right off the bat. So all those things just get the wells on faster and much more -- with much more capital efficiency. -------------------------------------------------------------------------------- Gail Amanda Nicholson Dodds, Stephens Inc., Research Division - MD & Analyst [22] -------------------------------------------------------------------------------- Great. And then just looking with the number of wells that are in progress at year-end, which is a healthy number, do you think that kind of makes the 2022 volume outlook less lumpy on a quarterly basis? Or should we anticipate that lumpiness continue? -------------------------------------------------------------------------------- David E. Lancaster, Matador Resources Company - Executive VP & CFO [23] -------------------------------------------------------------------------------- Yes, Gail. I really do think that probably even again in '22, we'll still see the lumpiness. And I just think that's just a bit of an artifact of the -- or not just a natural kind of outgrowth of the way that we've chosen to develop these properties. When we're drilling these 12-, 13-well sort of batches at a time and putting all these wells on production at the same time, it just is going to cause us to continue to sort of have the ups and downs in production. I think the good news is it may be up and down from quarter to quarter. But 6 months to 6 months or year-over-year, it tends to be up and to the right most all the time. And so I think that's the positive thing. But I would expect that this will continue for some time. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- (Operator Instructions) Next question comes from Zach Parham with JPMorgan. -------------------------------------------------------------------------------- Zachary Parham, JPMorgan Chase & Co, Research Division - Research Analyst [25] -------------------------------------------------------------------------------- Could you talk a little bit about the permitting process in New Mexico and what you've seen recently. I know you all talked about getting to around 300 permits by year-end on federal acreage, but it didn't seem like the permitting process really moved forward, like even in November and December of last year. So just any color there on what happened. -------------------------------------------------------------------------------- David E. Lancaster, Matador Resources Company - Executive VP & CFO [26] -------------------------------------------------------------------------------- Yes, sure, Zach. Happy to answer that question. I think that we did, I think, have 3 new permits that were approved in the fourth quarter. But I think it was more -- that was more an outcome of -- or a result of sort of what we did. We had a number of sundries on existing wells or wells that were due to come up particularly in the Stateline area, in Stebbins that we wanted to kind of get through the system. And these are impacted things like -- maybe we had a little change we needed to make to the surface location or perhaps the downhole interval that we're wanting to complete. One important thing was as we've drilled our wells at the Stateline, particularly, and Rodney Robinson and other places, we've learned our drilling team has done a great job of being able to drill with just 3 casing strings as opposed to 4. And I think a number of the sundries that we requested in that period of time to do with just reducing the number of casing strings. And we were routinely receiving those approvals. And I think about that is it saves us several hundred thousand dollars a well. So it keeps enabling us to drive down the well cost on these wells. But I think that's really what caused just the number of new permits to slow down a little bit for us in the fourth quarter was that we ask them, there's -- you kind of have your own queue with the BLM a little bit, and we were asking them to move these other sundries on existing permits up in the queue so that we could continue moving ahead with existing operations and do them more efficiently, and that probably delayed getting more of the permits through the system in the fourth quarter than what we originally estimated. -------------------------------------------------------------------------------- Zachary Parham, JPMorgan Chase & Co, Research Division - Research Analyst [27] -------------------------------------------------------------------------------- Got it. That's good color. And then just one follow-up on the dividend, kind of how you think about that going forward. I mean how do you compare growing the dividend with debt reduction? Do you have a target debt level or leverage level you'd like to get to? -------------------------------------------------------------------------------- Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [28] -------------------------------------------------------------------------------- No. It's a balance between the 2 is that the debt reduction has the first priority to work with our banks on that. We've been helped by the better-than-expected performance of our wells has increased our borrowing base. But yet we want to lower that, and we were very pleased that our leverage ratio over the year dropped down to less than 3 points. It was the end of the year 2.9. Customarily, we would like to be down there to the 2 points. And no, it doesn't happen -- won't happen overnight, but we expect to try to aim for a steady reduction through the year. There will be a little lumpiness because our production is going to be a little lumpy. And the dividend will then have priority. And -- but again, we'll -- once you start dipped in, you don't want to cut it. So we'll be cautious there, but we hope to grow it, just as we grow our production and our revenues and profitability. We have a saying -- or 2 sayings around here. One is that we want profitable growth at a measured pace. And that same applies to playing down the debt. We want it measured and the dividend growth, we want it, but it will be measured the same way with production. And then the second thing, we always try to reserve the right to get smarter. So if circumstances change, we'll change, and we'll try to be nimble in responding to whether it's winter storms or price wars or COVID or whatever. And I really think our staff did a really good job of navigating through all those things and the end of the year stronger than it began. And if I may, while I'm still on your question, just point out to the slides that I put in there, the 2021 priorities and milestones. I think this will address some of your questions, but it has our priorities, what we want to achieve during the year. We had this for last year. We achieved all of them, and we expect to do the same this year. And then I tried to provide over in the upper right corner, some significant milestones that are objective. We either achieve them or we don't just as we gave out last year. And that the first thing is turning the Rodney Robinson well, 4 new Rodney Robinson wells to sales, then you got the Voni, which will be some of the best wells we've ever drilled. And we've drilled some of those wells. They're 2.3 miles in the same amount of time that we did 2-mile laterals. So again, that's your capital efficiency, better methods out there. And then you have 4 greater Stebbins wells. You have 9 more wells to turn in the year. And we have 13 more Boros Stateline wells. Well, all -- you add that up, 98% are 2 miles or more. We only have 1 well that's going to be less than 2 miles. So we'll enjoy great capital efficiency. And year-to-date so far, the costs have been much like 2020 as Billy -- somebody pointed out that 40% of our completions are going to occur in the first quarter. So we will have a very large part of the year done next month in terms of CapEx at those lower prices. And so that's something that you can watch and if we achieve them then you know we're on track and if something that happens and we're off track. And the capital efficiency I meant has grown from 9% in 2018 to 29% in 2019 to this year was close to 70% or 80%, 83%, and now we're up in the 98%. And the last thing is, again, mentioned what a good job San Mateo is achieved and steady growth from 2019 to present. So that's a mitigator on decline and theoretically, a no decline business. So all these seem to be working for good. Our Board is very active, and we have some lead director, Tim Parker, and it really has helped us to grow these areas in parallel, the debt reduction, the capital dividend, the capital efficiency, the EBITDA, San Mateo. And so right now, it looks like everything is clicking. We have our challenges, but I think we can deal with them in 2021, and the outlook is very positive to all of us here. And I hope that's helpful to you. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- The next question comes from Scott Hanold with RBC. -------------------------------------------------------------------------------- Scott Michael Hanold, RBC Capital Markets, Research Division - MD of Energy Research & Analyst [30] -------------------------------------------------------------------------------- I was curious on -- with adding the fourth rig, and obviously, the San Mateo system has certainly been enhanced over the course of the last year. Are -- when you think about San Mateo and the higher level of activity and growth, I mean, is there some capacity expansions needed? Or do you think San Mateo is pretty well set up where it needs to be here over the course of the next, say, 1 to 2 years? -------------------------------------------------------------------------------- Matthew V. Hairford, Matador Resources Company - President [31] -------------------------------------------------------------------------------- Yes, Scott, this is Matt. And I think we're in pretty good shape. We've added the 200 million. So we're 460 million cubic feet of processing capacity there at the Black River processing plant. And I think that when we put all that together, we were contemplating a 6-rig program. So we've got plenty, I think, the challenge for the team is going to be adding third-party volumes. And I think Matt and Corey and others on the San Mateo team are out actively doing that. I will say that with the increased activity up at Stebbins, we have a saltwater disposal permit that we had gotten from the state, and we were kind of sitting on that waiting until we really needed to. I think we're going to go ahead and drill that. And that's built into the $20 million or $30 million in CapEx. So really for us, the San Mateo right now, we've kind of transitioned from a company that's building things to a company that's operating things and adding third-party volumes. So that being said, if we were -- happen to land a big fish out there that might require some additional capital, it would be something that we would have some sort of guarantee that would return -- to give us a good return on our investment before we would do that, and that would be additive to what we've got projected now. -------------------------------------------------------------------------------- David E. Lancaster, Matador Resources Company - Executive VP & CFO [32] -------------------------------------------------------------------------------- And Scott, this is David. Just if you would permit me, I want to take just a moment and give a shout out to our San Mateo team, production team and San Mateo team, I think they did a marvelous job over the last 10 days of keeping those facilities up and going and keeping us producing. I think that we'd heard that there was only 5% of the plants that were up and going in New Mexico during the all the cold weather and San Mateo was one of them. So never was San Mateo more important to Matador than over the last 10 days. And I just want to give them a shout-out for their excellent performance over the last 10 days. -------------------------------------------------------------------------------- Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [33] -------------------------------------------------------------------------------- Scott, this is Joe. I want to jump on, given your question, to give a shout-out to our field staff on the production side is that these guys work 14-day shifts. They're on 14 days, off 14 days. And again, they work through the night, they work through the morning, keeping the production going. And just great work, great teamwork, great effort by all of them, and we appreciate that very much. And that's what's helped make this quarter and why we can give you the promising outlook for the first quarter. And the maintenance, what Matt was talking about, the other factor is kind of a longer range is that if the federal government does really restrict pipelines, building the pipelines on the surface out there, it makes the pipes we already have in the ground that much more valuable. So that's an interesting development to watch. We don't know how that will turn out. I hope that the bill in will continue to work with everybody. It's a very professional staff out there. And we really appreciate them continuing to work with people and there's been government shut down. They persevered through a lot, the bad weather, the COVID, shutting down the government offices. So I think there deserving for our whole industry to get a little credit despite the adversity. The industry is doing very well out there in the Delaware. -------------------------------------------------------------------------------- Matthew V. Hairford, Matador Resources Company - President [34] -------------------------------------------------------------------------------- And I might just follow on a little bit here, too. I mean you were talking about the production guys and -- talking about the San Mateo guys, and it takes the entire team, really, I mean the San Mateo guys would tell you it takes gas for us to run the plant. The production guys will say, we've got to have a plant that's up and running to make that work and the marketing guys are on the back end of this finding homes for all this and making sure that we don't over-nominate or under-nominate. It's a difficult thing to do during these trying times. At the same time, the drilling guys, they set a record in the lateral during this time. I mean it's freezing cold out there and they're setting records, the completion guys. We were able to source sand in a very difficult time to keep 2 of our frac crews running. I mean a lot of the sand mines had their natural gas cut off. And so that's how they draw the sand, and we were able to find a little here, find a little there and keep things going. So lots of -- lots and lots of effort by the entire team. -------------------------------------------------------------------------------- Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [35] -------------------------------------------------------------------------------- And the (inaudible) the marketing guys who kept finding markets as refineries were shutting down and ways to move the oil. So go ahead, Scott. Didn't mean to use all your airtime for... -------------------------------------------------------------------------------- Scott Michael Hanold, RBC Capital Markets, Research Division - MD of Energy Research & Analyst [36] -------------------------------------------------------------------------------- Maybe just to play off sort of a comment that Matt and David had in terms of like the uptime of the system when certainly, things were rough out there. I mean certainly that's going to help your ability to probably market to get third-party volumes. But there was some increased, obviously, non-op activity you're expecting this year. Is there a line of sight for some of that to come into the system? Or is that not quite in the right ZIP code? -------------------------------------------------------------------------------- Matthew V. Hairford, Matador Resources Company - President [37] -------------------------------------------------------------------------------- Yes, Scott, some of it may. Some of it may not. It's just depending on whether that acreage has been dedicated to us or it's been dedicated to somebody else or whether it's undedicated. So I assure you the San Mateo team is looking at the rig count, and they're looking at where these rigs are located. And if there's something coming up, they're going to their offices and visiting with them. -------------------------------------------------------------------------------- Scott Michael Hanold, RBC Capital Markets, Research Division - MD of Energy Research & Analyst [38] -------------------------------------------------------------------------------- Okay. Absolutely. And just at a high level with adding that fourth rig, what is your all perspective on the risks of needing that rig? I know there's some flexibility with the rig, but can you talk about like how you sense that this may unfold here? -------------------------------------------------------------------------------- Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [39] -------------------------------------------------------------------------------- Yes. That's crystal ball that's kind of cloudy. Honestly, you just don't know what right now what the administration is going to do. And we should know in the next 30 to 60 days, are they going to resume granting the permits and the sundries is in a routine manner, so when you see that happening, then you'll know. And -- but the other thing, I want to emphasize that a lot of this is we have a lot of opportunities. It's pretty clear, we're in some pretty good areas when we drilled 98% of our wells, 2 miles or longer. And these are 8-plus locations. And so will take stock. We don't want to lose any of those locations because that's value lost to Matador, that we're not in this to grow for the sake of growth, but that profitable growth at that measured pace. And if it isn't working out or prices decline or other obstacles come in, as Matt pointed out, we could give up this rig in June. We have another rig that's term is expiring in August. So we can go down from 4 rigs to 2 rigs very quickly or we could stay where we are. So that was another advantage. We had a lot of flexibility. This fourth rig gave us that flexibility. It was a rig that we knew that was state of the art with a crew that was really strong and we thought that was better than waiting to see what might be available in 90 days or 6 months. And this was a bird in the hand. And I think anybody that had the facts that we did would have done the same thing. We are not a "one size fits all" company, as you know. And we are not a company that, that turns on one element. We really try to look at things broadly from all the different angles. That's why we work in teams, and we have that deal about reserving the right to get smarter. So as the year goes along, we invite you or any other analyst or any other shareholder to call us and ask us what we're thinking. And as the year evolves, we'll be trying to keep you all up to date and run things as transparent as we can. We added a segment for non-op properties. We -- you don't know for sure that, that will happen, but we thought we should play it conservative. And the same thing on CapEx. We overestimated our CapEx for fourth quarter. And for last year, we came in better than expected. I'm hoping Billy and his group will come in better than expected again. But we'll wait and see. But either way, we want everybody on notice. So this is what looks best to us today in the foreseeable future. -------------------------------------------------------------------------------- Scott Michael Hanold, RBC Capital Markets, Research Division - MD of Energy Research & Analyst [40] -------------------------------------------------------------------------------- All right. Good. And maybe if I could key off that with one other question. And obviously, you all had some nice [pacesetter] well costs coming into the fourth quarter at 6.25 per foot in the fourth quarter, and I know you're targeting a little over 700 in 2021. And when you look at that number is -- was the 6.25 just sort of a trough kind of pacesetter well? Or is the difference between that in 2021, really, this sort of inferred inflation you think that may occur and I'm not sure if you're starting to see some of that at this point coming through different components. -------------------------------------------------------------------------------- Matthew V. Hairford, Matador Resources Company - President [41] -------------------------------------------------------------------------------- Yes, Scott, this is Matt. It's a good question. I think the wells that we drilled in Q3 that are in that really low number, some of these longer laterals we're able to be very efficient and we're going to continue to do that. But we do have the 10% baked in there for inflation, and we're drilling wells in different areas. So some of the costs may be higher in different areas than they were down on the Boros and the Voni. So it's a little bit of both. But I think the [7 30] number is a pretty good number. And certainly, where we started a couple of years ago, it's a very good number. And I will say that just from capital efficiency, one thing I think is interesting that here in the last couple of years by gaining these efficiencies and drilling these longer laterals, so the lateral footage that we're drilling for a rig year has almost doubled. And so you're drilling a lot of this footage and you're completing more of the footage that you're drilling. -------------------------------------------------------------------------------- Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [42] -------------------------------------------------------------------------------- Yes. I want to jump in here, Scott. We're getting some shout-outs, but we need to give a shout-out to our MAXCOM room. We have Billy proposed a MAXCOM room. We were all unsure how it might work. It goes 24/7. It assists our directional drilling. And what they did at the time we implemented it, we were staying in zone about 70% of the time. Now we're staying in zone over 95% of the time. And so you can just manage that proportionate increase in reserves add so much extra value at. Staying in zone also saves you tens of millions of dollars in drilling costs, not having to back up and redrill or one of the other problems that you would have. And so that's a bunch of young guys that have come in and they've really worked and coordinated with the drilling guys. And -- but that's been a big boost to our better-than-expected performance. And I didn't want this go by without some recognition of them. David? -------------------------------------------------------------------------------- David E. Lancaster, Matador Resources Company - Executive VP & CFO [43] -------------------------------------------------------------------------------- Well, Scott, I just want to add just a little bit of color to what Matt said. One thing to keep in mind is that we have 19 wells being completed right now in the first quarter. And so you're looking at probably close to 40% of all the net wells we're going to put on production in 2021 are in the process of being completed right now, 13 Rodney wells, 4 at Rustler Breaks and 2 up in the Ranger asset area. The good news about those is they're all -- they were drilled and all will be completed under what I would call 2020 pricing. And so we're going to get some of the sort of the trough level pricing on those completions. Now as we go forward, we're expecting there may be some inflation as we talked about. But I think this first batch of wells that we're going to get is going to really help out the average for the year, which is why we're confident that we're going to come in, in that kind of 7 30-type range that we've been talking about. In addition, I might point out that the 6 25 were all wells up in Rustler Breaks, which is one of the shallowest areas that we drill. And so that probably contributed a little bit to that as well. Somebody just handed me a note that I said that there were 4 wells at Rustler Breaks and I meant 4 wells at Rodney Robinson. So there's 13 Vonis, 4 wells at Rodney Robinson and 2 wells up in the Ranger area. But the 6 of those, the Rodneys and the Rangers are going to be on production late March and then the Voni wells will start coming on in April. But I think the cost per foot, the completed cost per feet on those Voni wells is going to look really, really strong. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- Ladies and gentlemen, this ends the Q&A portion of this morning's conference call. I'd like to turn the call over to management for any closing remarks. -------------------------------------------------------------------------------- Joseph Wm. Foran, Matador Resources Company - Founder, Chairman of the Board, CEO & Secretary [45] -------------------------------------------------------------------------------- Thank you very much. We appreciate the questions. We again want to invite you to call us whenever you have other questions or suggestions. We'd like to engage with you and also extend the invitation whenever as we work -- finish working our way through COVID, to come see us in person. Your views and your relationship, friendship, it means a lot to us. We're very excited. We think we're continuing to come of age and appreciate all your support and interest through the years. And on behalf of all the staff that's here, thank you all for hanging with the company and the historic cold, people are all in here and getting things done, working together, and that has made it a total team effort. Thanks. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for your participation today. This concludes the program.