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Matador Resources Co (MTDR) Q4 2018 Earnings Conference Call Transcript

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Matador Resources Co  (NYSE: MTDR)
Q4 2018 Earnings Conference Call
Feb. 27, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to the Fourth Quarter and Full-Year 2018 Matador Resources Company Earnings Conference Call. My name is Carmen, and I will be serving as the operator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session at the end of the Company's remarks. As a reminder, this conference is being recorded for replay purposes and the replay will be available on the Company website through March 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.

Mac Schmitz -- Capital Markets Coordinator

Thank you, Carmen. Good morning, everyone, and thank you for joining us for Matador's fourth quarter and full-year 2018 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 recent annual report on Form 10-K.

Finally, in our earnings press release and our 2019 operating plan and market guidance press release issued yesterday, I would like to remind everyone that you can find short slide presentations, summarizing the highlights of these press releases on our website on the Events and Presentations page under the Investor Relations tab.

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

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

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 I'd like to introduce you to the executive committee who has joined me this morning along with our other VPs and other key staff members who are standing by to take all your questions, and we'll stand by as long as you all want.

These are Matt Hairford, President; David Lancaster, EVP and Chief Financial Officer; Craig Adams, EVP of Land, Legal and Administration; Billy Goodwin, EVP and Head of Operations; Van Singleton, Executive Vice President of Land; Brad Robinson, EVP Reservoir Engineering and Chief Technology Officer.

As outlined in our earnings yesterday, 2018 was the best year in Matador's history, and we are going to address any questions that you might have on the outspend as that seems to be a key issue on everybody's mind, but also want to commend the staff for what has really been an excellent year and the extra effort that so many have put in to making these good results come about. And as I said, we will address the outspend, but I'll take a few moments and talk about what we accomplished over these last two years.

We have doubled reserves and we have doubled production, and we have added 55,000 acres, which is approximately a 50% increase in our land position out in the Delaware, the most prolific area that's been primarily on a brick-by-brick method and engaging in various trades with other companies. And in addition, you've got your third midstream project. The first two have resulted in us receiving $330 million in hand. This third one, we think, is going to be another great deal where we're going to receive a carry and performance incentives. It's a good deal for both sides, in the sense that, we're not paid until we accomplish something, the construction of the pipeline and the processing plant. And we are not paying unless we deliver the volumes that we've indicated. But the way one and two have worked, much the same way, we have performed on that. So we are confident this will work out just as well.

So if -- and to put it on a proportionate basis down to the individual shareholder, two years ago you would've owned half a barrel of oil, and today you own a full barrel of oil, as well as 4 Mcf or 5 Mcf (ph), plus your proportionate share of the processing plant and your proportionate share of an acreage base. It's increased 50%, while maintaining a weighted average price of approximately $11,000. So I understand and appreciate the concern many of you have for the outspend, but our shareholders have gotten plenty of bang for their buck. And then, I also want to share each of you that this management group is very sensitive to and very aware of keeping them -- strong balance sheet and on the outspend, and making sure that it is selective and low risk and that we will invest in those things that have a compelling rate of return or to invest in.

And in that regard, we are still working all the numbers and double checking, but it appears to us at the first -- at the initial review that of the monies that we've spent this year, 85% of our capital expenditures have gone into projects or wells that -- whose rate of return is going to approach 50%. And of the remaining 15%, they are in projects going to have a weighted average of approximately 20%. So the money has been well-spent and we have continued to do various things as the pipeline's relation to a rig in the Eagle Ford, converting non-core assets, the cash to add to the balance sheet and even our past midstream deal is continuing to add performance incentives to us last year, this year and three years to come.

Now addressing the outspend, we are all proponents of being very careful with the money. We trade it like it's our own, because as you all know, our management group has a lot of skin in the game. All of our net worths are largely in the form of stock, and recently I bought another 200,000 shares. So we put our money where our mouth is, and we think this is the best thing for this stage of our growth. But we are moving cautiously in all areas and keeping a clean eye on the balance sheet. And yet, we are faced with some opportunities where you -- we believe and history suggests that, that we can earn a 50% rate of return. It's hard to pass those up when you won't get another chance at them, such as acreage in the unit that you're growing, some of these mineral properties that we've talked about, and the midstream. So we hope to continue to submit these results to you, so that you can see that we've been accurate in our projections, we've earned a good return and that we've been a good steward.

One final statistic I'd submit to you, and then we'll open it up for questions is that on the day we went public, we were making net to Matador 400 barrels or 500 barrels of oil a day. And today, with just our minerals alone, we are producing approximately 1,000 barrels a day. So we're making more from the minerals we have than the day we went public on working interest. So good growth, and it's been profitable growth. And our earnings per share and our cash flow per share has exceeded the industry consensus by a good margin. So what we're doing is trying to make money and add value and did in a reasonable appropriate way for this stage of growth in Matador.

So with that, let me open it -- up the floor to questions. Mac?

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question is from Scott Hanold with RBC Capital Markets.

Scott Hanold -- RBC Capital Markets -- Analyst

Good morning. Congratulations on the quarter.

Mac Schmitz -- Capital Markets Coordinator

Thanks, Scott.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Thanks, Scott.

Scott Hanold -- RBC Capital Markets -- Analyst

My first question is on the midstream agreement that you all signed earlier this week or released. Could you provide us some details on that such as some of the MVC targets, what kind of price is in that contract and play in the contract, and maybe you can give us a sense of maybe the timing and size of when those performance payments could hit?

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

I'm going to start off, and there is a confidentiality agreement, so I have to be careful about what we talked about on this. But what I can tell you, the payments, of course are, as I said, are based on performance. It's carrying our construction cost upfront for the $25 million, and David will go into details. I like his -- the way he's described it. But the other thing I wanted to emphasize is multi-year, so we're going to earn money from that this year. We're going to deprive the construction some of its discretion cost. But in future years, as we make these performance incentives, we're going to continue to receive additional monies combined with the monies from the San Mateo, one that will make a significant impact on our operations and we'll -- to help provide better rates of return. David?

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Yeah. Hi, Scott. Good morning. It's David. Just to -- just to add to what Joe said, certainly he is correct there, that we do have confidentiality in the agreements that keeps us for being able to disclose what the actual rates and MVCs are. We can certainly tell you confidently that the rates that were negotiated are market rates and we feel very comfortable with that.

Second, we feel very comfortable with the -- with the volume commitments. I think that given the -- both our projections for the Stateline and the Stebbins Area, we feel very comfortable in our ability to meet or even exceed those projections. So over the next several years, I don't think that's really a concern at all. With regard to the performance incentives, as we noted in the release, there are, in addition to the capital carry which Joe talked about, which basically means of the first $150 million of capital that's going to be spent on the San Mateo expansion, Matador will pay $25 million and Five Point has agreed to pay $125 million. So certainly this expansion in San Mateo is something that is very capital advantaged for Matador, particularly in 2019 here. When we exceed the $150 million, we will be on a heads-up basis with them and there will be additional capital expended in 2020 to get to where we want to be with the expansion.

In addition, you know the $150 million in performance incentives, we would think we'd probably begin to be realized toward the end of next year as we -- as we meet certain -- certain hurdles that have been set up in the, you know, the agreements. We don't -- we don't really expect the plant, as we noted, to be even in service until about the midpoint of 2020. So, but -- that's OK, because that coincides very well with the -- with when we'll start to see first production off the Stateline acreage as we forecast things now. But I think that it's very exciting to know that we have that additional $150 million in incentives, not to mention, there are still about $45 million, really $60 million that haven't been realized at this point. I think as we pointed out in the note, we earned the performance incentives under San Mateo one for last year and that additional approximately $15 million will be paid to Matador in the next few days by Five Points. So that's a real plus. There is another $45 million under that agreement too. So really, we have about $200 million in future performance incentives that we can see in addition to the capital carry in return for doing this deal with Five Point and dedicating the acreage that we did.

So we think it's very much a win-win for both sides. We think it -- it gives us a chance to really, I think, have a very integrated strategy for both our E&P assets and our midstream assets over the next several years, and I didn't have a whole lot to do with it. So I'll just commend Joe, Matt Spicer, the entire midstream team, Brian Willey, Michael Frenzel and all, should get everybody just like on the Oscars, but (multiple speakers). But I just will say that, I think the team and our partners Five Point, did a marvelous job in putting the deal together. And with that I'll shut up and let you talk.

Scott Hanold -- RBC Capital Markets -- Analyst

That's great color, David. Thank you. And my second -- my -- for a minute there I thought you'd done the contract all by yourself for a minute.

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

I am a reasonably quick study.

Scott Hanold -- RBC Capital Markets -- Analyst

For my follow-up, you all talk about moving to a larger pad development. Could you talk about how -- so maybe a little bit about like -- remind us where were -- you were in '18 what that's going to go to on average, like in that pad development in '19? And as far as like the progression of kind of production growth, will that create a little bit of lumpiness that we just need to be aware of?

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Yeah. So, the answer to that last part is yes, and I think as we tried to write into the release, we think that our production will go a little slower in the first two quarters, then you'll see a pretty big bump in the third quarter and then a little bit flatter into the fourth quarter. And frankly, Scott, I think that's the way it's going to be for the next two years or three years as we go forward. As we pointed out in the release last year, there was about 9% of our wells that were longer laterals by 2020. We think that we will be drilling 70% that are greater than a mile. So it's quite -- it's quite a year of transition for us. I would say in 2018 certainly, it's not like we weren't doing any multi-pad drilling, we certainly were. It was very common that we have been doing two wells -- two wells a pad, sometimes three wells a pad, but there were a few ones here and there, as we were working to hold particular leases. I think as you go forward into this year, there's just a larger percentage of wells that are going to be threes and we're going to start with some fours, and once we get to -- once we get to 2020, that's just going to -- that's going to continue to increase.

So I think as we said in the release, we see the first -- the first wells we drill on Stateline will all be four well pads. There be two of them running at the same time. So as a result of that, Scott, you know as we start to do those kind of things and it will just result in the -- both the capital expenditures and the production in particular, it will be a little bit lumpier going forward. And -- but we'll do our best to try to keep everybody informed as to how we see that going forward.

Scott Hanold -- RBC Capital Markets -- Analyst

Okay, got it. (multiple speakers).

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

I'm sorry I'll just jump in here, Scott and just kind of build on what David is saying in regards to this pad drilling and drilling these longer laterals. I think the interesting thing is, the result is going to be that we're going to be able to drill more lateral fleet per rig day throughout the year. So it's definitely moving in the right direction for efficiencies. And Billy and his team, they are very, very good, getting better and better at things. And so if we start drilling these longer laterals, they are going to be picking better bids, they are going to be picking better (inaudible), they are going be drilling faster. So I think it's definitely -- it's definitely a step in the right direction for efficiencies.

Scott Hanold -- RBC Capital Markets -- Analyst

Okay, that's all great. Appreciate the color. Thanks.

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Thanks, Scott.

Operator

Thank you. Our next question is from Neal Dingmann with SunTrust . Please go ahead. Your line is open.

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Good morning gentlemen, and Dave we will try get you in there with the Oscars again. My question guys, you did a fantastic job really breaking out the minerals, and Joe your comment is well taken as far as how much production, just the minerals and all these net royalties. And my question around that is, how do you all think of the return benefit of these, the uplift they provide on returns on wells versus the tremendous amount of cash you could obviously get if you decided to monetize those near-term? I mean, obviously, it's a sort of nice quandary to have.

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Hey, Neal. It's David. I don't know -- I don't know how specific or how quantitative I can be on that. I mean, certainly, we know that having the mineral interest does result in improvement to the returns. One thing I can say is, I know that when we were doing the BLM deal back in -- back in the fall, that we felt like pretty much fully about a third of what the -- the price paid that you can afford to pay a significant amount more. And so, if you paid 60,000 acre, probably 20,000 of that was attributable to the advanced growth accounting. So, that kind of gives you an idea of the significance that we -- that we felt like that it had. And -- seems like there was one other thing I was going to say, but I kind of lost the train of thought there. So that's what I'll say. And if you've got -- if you've got another point maybe I will think it, while you ask the other question.

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Sure. My second one,, just on slide 9. How do you all think about total locations and spacing, specifically you all continue to forecast, I think a couple of the -- looking at this slide 9, a couple of Wolfcamp A and a couple of Wolfcamp B landing targets. And I guess my question is, do you still believe about the four wells per section in the Wolfcamp A-XY and four wells per section in the Wolfcamp A-Lower as being the most economical way to develop those plays? So really just on spacing there guys.

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Yeah, I think Neal that, we've -- we've I think been on the conservative side of this argument sort of right from the beginning. I think we -- our location counts that we published are all based on 160 acres, except for the occasional interval like the Wolfcamp B, which is extremely thick and where we've found two or three benches that we already know work in those intervals. And even at that, we've only -- we've only put those wells in its 80-acre spacing kind of wide-racked (ph) or staggered. So I think we continue to be -- to be comfortable with the spacing assumptions that we have, and I would expect that we will stay with that for the -- for the foreseeable future.

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Very good. Thank you all. Great details.

Bradley M. Robinson -- Executive Vice President of Reservoir Engineering and Chief Technology Officer

Hi Neal, this is Brad. I would just -- to your first question, and David is right, it varies the higher net royalty interest, but bear in mind the -- having the higher net royalty interest from the BLM track, essentially increases your production 17%. And so, obviously that's like having 17% better wells everywhere you drill. So it's going to definitely increase your rates of return and economics on those wells.

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

A great add. Thanks, Brad.

Operator

Thank you. Our next question is from Irene Haas with Imperial Capital. Your line is open.

Irene Haas -- Imperial Capital -- Analyst

Hello. Good morning. How are you doing?

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Hey, Irene. How are you?

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Hi, Irene.

Irene Haas -- Imperial Capital -- Analyst

Good. I'm happy to see that you have utilized some materials revolver, which is about $250 million right now with $220 million drawn, and what needs to happen for this to be increased and what's your net share of the actual borrowing? Is it half of that?

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Yes, Irene. Again, this is David. So the -- the facility, the way that it works, the initial commitment under the facility by the lenders was $250 million, but it has, what's called an accordion feature associated with, which enables us to go back to the lenders and enables them to raise their commitments to up to $400 million. It's -- it's not exactly a borrowing base kind of a -- but it's sort of a similar concept to that. But I think as long as we go back to them and they feel good about where we going with San Mateo, it would be pretty easy to get that additional -- that additional commitment from the lender group. I will say, we are very excited by the fact that, that all the lenders under our revolver are -- E&P revolver were participants in the midstream revolver. So I think it just goes to show that the entire bank group was very solid being behind what we're doing with San Mateo. It is true that the total borrowing was $220 million and that's what you'll see on the financial statements, because of the way that we consolidate San Mateo. Of that, a -- roughly half of that ultimately was then distributed to Matador. However, the note itself is actually non-recourse to Matador.

Irene Haas -- Imperial Capital -- Analyst

Okay, that's super helpful. I have one more follow-up question. Any plans for asset sale in the upstream? You talk about Eagle Ford and Haynesville and that's all I have for you today.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Irene, as we've said for a long time, at first Matador, we sold out to Tom Brown, and the second Matador, we sold a good part of our Haynesville to Chesapeake. And then we've done now three midstream deals. So, when the price is right, we sell and we've announced for several years here, that the Eagle Ford and the Haynesville were available if people paid. We weren't under any pressure to sale. It's been good cash flow, good returns, but we didn't open. And in the Eagle Ford, it's seems like it's been more successful to sell in bits and pieces, because some people are interested in La Salle County and some people wanted to be over there to the east, in the (inaudible) Karnes County. So we are open and -- but we're not selling it for CDP, it's got to be plus the full value, including the undeveloped acreage. Last year, drilling five wells, we doubled the production. So, there is still gas in the tank down there. And we're also drilling one Austin Chalk well, as an exploration project down there. So it has good potential and we'd like to make a deal, but we want it to be good for both sides. That answer your question?

Irene Haas -- Imperial Capital -- Analyst

Yes, yes, this is perfect. Thank you.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Thank you.

Operator

Thank you. Our next question comes from Gabe Daoud with Cowen and Company. Your line is open.

Gabriel Daoud -- Cowen & Company LLC -- Analyst

Hey, good morning guys.

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Hey, Gabe.

Gabriel Daoud -- Cowen & Company LLC -- Analyst

Hey. Maybe just starting with San Mateo, you did some operating test for quarter (inaudible) gather and process announced, which were a little bit below than what I was thinking and below the capacity of 260 million cubic feet a day. So just thinking, how does that number change as you move throughout 2019? And then, I guess similar question on the water disposal side. I think, initially you anticipated disposing about 200,000 barrels a day on exit basis. And so how does that number change throughout the year, just obviously trying to get a sense of what San Mateo EBITDA looks like for 2019 relative to previous expectations?

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Yes. This David, Gabe. So as far as the throughput volumes, really pretty much when you looked at all the throughput volumes on San Mateo, everything just doubled pretty much year-over-year. When you are talking gathering, processing, water disposal. of course, all gathering went up quite a bit more than double, but in the event, I -- we felt like it was a very successful year as far as those things went. You know, the plant itself as we've said, is actually 80% plus of its volumes that are currently subscribed.

We had one large commercial producer that we expect to continue to increase the volumes that it's going to be delivering over the next several months, but they've just sort of been in a ramp-up mode. And the same thing a little bit on the water side. The large customer we have has been -- has been sort of gradually just increasing their volumes all along. I was myself pretty excited by some of the things that we were able to put into the release with regard to even how in the first month of the year, things have popped up. I mean, the processing volumes, the gathering volumes, particularly the oil gathering volumes, now that we have everything online through with Plains, of the Rustler Breaks and Wolf.

So, I think you can certainly see those things are trending in the right direction. I think that our -- what we've actually said was we thought we might get up to pretty close to 200,000 barrels a day of water in the first quarter of this year as opposed to an exit rate. I have to go back and look at that for sure, but you know we're -- we certainly are above 150,000 barrels a day at this point. And I think on the -- on the spot basis, we've been -- we've been pretty close to that 200,000 barrels a day number here in the first quarter. So I think we feel like things are all trending in the right direction.

Matthew V. Hairford -- President and Chair of the Operating Committee

Hey Gabe, this is Matt. I'll just build on what David said. I think everything he said is exactly right. I think the thing that I like is, on a go-forward basis, we've got this midstream business to a point where the initial footprint is very nice and it's in a good spot, it's very good volumes. And so for us to add even doing this expansion, we're talking about San Mateo, that's adding another 200 million cubic feet there, and that again is a need-based opportunity-rich. So, not only for Matador volumes, but as we build that system out up in the Stebbins and down in the Stateline, that gives us lots of opportunities to add third-party volumes. And then as far as the disposal deal goes, we're going to get our system built out there at Rustler Breaks and we'll be building out the same system at Stateline and Stebbins where as more volumes become available, we can drill additional saltwater disposal wells to handle that capacity issue too.

Gabriel Daoud -- Cowen & Company LLC -- Analyst

Thanks guys, that's great color. Definitely some impressive operating types on the midstream side. And just I guess, follow-up, maybe Joe, a high-level question. Just -- obviously investors are kind of focused on rating at outspends and you hit on this in the remarks, but just curious if you can just give us a sense of -- or obviously how you think the appropriate way to run a smooth (inaudible) company is and ultimately, what's the right level of outspend? When ultimately do you think that should convert to like free cash flow generation and what's the appropriate timeline for that? Just any color around like high-level thoughts on how to run the business would be helpful? Thank you.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

All right. Well, Gabe, this is something we talk about nearly every day. What is the right level and should we spend this dollar or save this dollar or whatever, but it's a very good question. It's a very strategic question. We talk about it all the time, not only internally, but with our Board, with our shareholders and we welcome your thoughts and questions on it, is that it's evolving and it's complex and that you have a number of circumstances; what is the commodity price, what is the outlook for that commodity price and then how good is the opportunity. Obviously, if it's a middle interest in a track that we operate, that adds to the return and significantly, that's a easier question.

If it's a midstream deal that's once every couple of years type question, and you want to be sure that it is good for you, we couldn't have done that if we hadn't done the BLM. So when we got the pushback, which was understandable on the BLM, why did we do that, there's two factors that really went into it, that we haven't been able to say and tell then. One is that we were able to book $286 million in PUDs off of that $410 million purchase 75%, and the rest of it we feel like we got back in the value of the midstream deal because without Stateline down there, and it wouldn't have carried the day. I mean to me that was vital because that's great rock and we've already -- we are very indicating. We think they're going to be at least nine producing zones down there.

So that's some of the best rock in the country to tie into our processing, which helped attract -- made Five Point comfortable and us comfortable that we could deliver the volumes and perform as great as both of us hope, because it was tied to incentives and performance. And so doing that deal was an outspend, but look where it has put us, it's really enhanced and we will grow our 2-mile laterals from 10% in 2018 to 30% in 2019, and maybe as much as 70% in 2020 year.

So that's kind of what you mean -- that was announced and we anticipated there would be some pushback. But I think it's clearly paying off. So we kind of look at it on a case-by-case, trying to be very selective and at the same time, we cut back our released rig in the Eagle Ford after drilling just those wells. We've validated virtually all the acreage. So we didn't keep on even though that was going to produce good rates of return. It's HBP now, we'll take our time, see if we can make a deal. And so goes (inaudible) and I've got to commend our operating staff for helping to stretch the dollar and some of the saints in of Billy's group on the drilling and completion side, are going to nearly double the footage drilled for the same amount of CapEx.

So it's the deal that you take up and I'd rather not have an outspend and we're watching the net debt to EBITDA number very carefully, and we appreciate the support from our bond group. The bonds are trading above par. We appreciate the support we've had from the bank group is that they've made clear they would be happy to increase the borrowing base if necessary. We're not even -- or about 10% drawn or a little, maybe slightly more on the borrowing base. And even though we're making some great strides as I said, that you've got to hit -- we feel we're a growth company. And if we cut back our growth below 10% that we had set forth, so when we meet with our shareholder group, I think people understand why we're doing it and I think they know that we have is so much skin in the game, friends and relatives if this then work out. I don't have anywhere to live. So does Matt, Matt has his mother and mother-in-law in it. And so, trust me, we are looking at that and trying to make every bullet count. And it's a very good strategic question and there have been a tickle in the industry that have destroyed value, we admit that and hold this to a high standard. But so far, we feel the money that has been spent has resulted in added value for the shareholders.

Gabriel Daoud -- Cowen & Company LLC -- Analyst

Thanks so much. So that's really good color. Thanks everyone.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Thank you, Gabe. Good question.

Operator

Thank you. And our next question comes from Jeff Grampp with Northland Capital. Please go ahead. Your line is open.

Jeff Grampp -- Northland Capital Markets -- Analyst

Good morning, guys.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Hi, Jeff.

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Hi, Jeff.

Jeff Grampp -- Northland Capital Markets -- Analyst

I had a question on the drilling inventory. I guess, kind of two part of the question. Was curious if you guys could maybe from a high level talk about kind of, if you had to split the inventory up in the, say PV-10 breakeven at 50 or 40 or pick your number, but what would you say of your inventory? Would you put in that kind of Tier 1 type of quality? And then, I guess just conceptually given the depth of the inventory, you're also interested in maybe peeling off some of the lower return, maybe less strategic assets in any kind of divestiture program, or any opportunistic things on that side as well? Thanks.

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Yeah. You know I think one thing that's difficult in answering your question, Jeff, is if I get too much into the detail of what I think is Tier 1 and Tier 2 and then that we want to fill up all the Tier 2, I may disadvantage ourselves in terms of what we can get for it. I'm not sure that I want somebody else to decide what they think on some of these things, but I will just say look, that -- I think that some of it depends on area as well. So I think that there are intervals that are going to work well on Stateline that don't work in -- that don't work maybe at the Arrowhead and there's the worst well in Arrowhead that may not work as good (ph) than Wolf. So I would say, for the most part, in particular areas, the second Bone Spring in the third Bone Spring, for example, I think it's absolutely Tier 1 up in Ranger and Arrowhead. It may be somewhat less so in a different interval, it might require a little bit different strategy in a different -- one of the asset areas. But overall, I think that most of plays will work in those areas where they will work and where we've assigned locations to them. I think that we feel like the returns will be pretty good.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

One other thing Jeff, that I'd just remind, is that things change. These stones (ph) are discovered in different areas that change completely the economics. There was a time early as we were opting out, putting together the Rustler Breaks. If people didn't want to give us any value on the Rustler Breaks, they didn't think it worked and we didn't even get our cost, but Matt and his group was right, and that's turned out to be a good deal. Similarly as you learn to drill these wells faster for example, you can change the economics on them. So that, like down the Eagle Ford, some of the lateral wells we drill that weren't necessarily in its prime era (ph), actually had better rates of return because, Billy and his group had bought drilling cost and kept days on wells from 20 days to six days, which changes the economics. And then the same thing, commodity price can shift from area to area to have a big effect. And sand cost, I mean there are just a lot of factors that go into it. And so you're -- constantly, it's just like a football poll or the national poll. People are -- some teams are going up and some are coming down, and sometimes our teams should put together some good creative deals that really enhance the economics.

So to make the list, in there we just put everything down there that would earn a 11% rate of return, it's got -- we got us different criteria in that and that we are trying in good faith not to put any on the location list that we don't think that we've actually got, are interested in drilling either this year or over the next couple of years. So when we first were going public, we got a lot of pushback as we had six or seven years of inventory. And now, maybe it's 20 years or more, 20 years, 25 years easily, because in the Stateline prospect, even though we've booked a lot of PUDs, Brad feels that's a tiny part of what's the oil there, that vast majority of oil hadn't even been put in there as a location.

So, but when we first went public, we got pushed back for not having enough inventory and now we're kind of giving some pushback because we have 20 years of inventory. And we ought to hit maybe -- some of that might not be real rate of return. We try to be very consistent. You can't make the list unless it's some that we would consider drilling today or in the next couple of years. So we could really tough that up, but there is no sense in gild in the lily if 20 years of inventory is not enough, then likely 30 years isn't going to help our costs. But there is a fixed standard and that's what I want you to take from this to answer, that not everything makes a list, even though it's technically viable and could earn some return. It's got to be some that we are serious about drilling.

Jeff Grampp -- Northland Capital Markets -- Analyst

All right.

Matthew V. Hairford -- President and Chair of the Operating Committee

Jeff, this Matt. I would love to underscore what Joe was saying there, and I think one thing that does factor into this is the notion that the Land team has done such a fantastic job of putting this position together for a weighted price of $11,000 an acre. And then the Technical team, they continue to figure out things, and make things work and different things work and we've got additional tools. We as long as -- as well as others are using seismic in a lot of our exploration efforts and that's been really beneficial. So I think as time goes along, if you're talking 20 years, that acreage is not going to change but the ability to make money on that acreage may. So I'm kind of like Joe and David, I'm not sure that I would consider any of the turnkey (ph).

Jeff Grampp -- Northland Capital Markets -- Analyst

Got it. (multiple speakers)

Matthew V. Hairford -- President and Chair of the Operating Committee

Go ahead Jeff.

Jeff Grampp -- Northland Capital Markets -- Analyst

All right. Really helpful comments. For my follow-up, I was curious on that the release reference that you guys are incorporating in-basin sand a little bit more in '19 and maybe some additional downside to CapEx if you utilize that more. Was just kind of curious what you guys need to see to pull that lever, is it any particular, I guess usage by zone or area that you're waiting for some additional results on before getting more aggressive there, or just kind of what are the check boxes that you guys need to see to get more aggressive with these in-basin sand?

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Yeah, I think that -- OK, go head, Matt.

Matthew V. Hairford -- President and Chair of the Operating Committee

Sorry, Dave. This is Matt. And I think it's kind of a continuation of what we've been talking about in the prior quarters. We are getting more and more confident that in-basin sand is going to work in most of our reservoirs. So that being said, we can't save a bunch of money. We, again, want to just make sure that we understand long-term effects. So we've got a number of wells that we have completed that we've used in-basin sand, including a couple of the most recent ones down at Wolf, the 206 and 208 wells that have done very, very well and continue to do well. So I think as we progress through the year, our confidence will increase and I think our use of in-basin sand will increase. I'm not sure that we're going to get to 100% utilization by the end of the year, but we very well may.

Jeff Grampp -- Northland Capital Markets -- Analyst

Great, thanks for the time guys, and nice quarter.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Yeah, thanks, Jeff.

Operator

Thank you. Our next question is from Drew Lipke with Stephens. Please go ahead. Your line is open.

Drew Lipke -- Stephens Inc. -- Analyst

Yeah, good morning and thank you for taking the questions.

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Sure.

Drew Lipke -- Stephens Inc. -- Analyst

Just maybe circling back to the outspend and the greater investor focus on the eventual path to sustainable free cash flow. When you look at your current compensation incentives, I believe the target incentives are largely based on absolute production growth, the net acreage growth, cash operating cost, EBITDA and total shareholder returns. Has there been any consideration to changing incentive targets to maybe address the progression to sustainable free cash flow?

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Drew, that's a good question. Our compensation committee has been steady in that and I'm not -- they don't -- it will come out in our Q.

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

In the proxy.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

In the proxy statement and you will see that uptick in the substantial salary cut. I think you'll see some trimming of all the officers and the compensation committee has broadened its criteria for looking at these to make a better appreciation for the quality of earnings and we -- part of that message is to let people know we've heard what they've said. And then we make more money from our stock growing up than we do for compensation. And I clearly want to send a message, I'm no saint, as you know, but I clearly want to send a message that, look, we care about the stock value and it going up and not trying to pay my compensation. We don't look at any one statistic, but try to use them all, just like in a football game. You take the statistics in time of possession as an important number, but it doesn't determine the winner, same thing, first (inaudible) all of those, but when you look at all those statistics, you get a better sense on the quality of the performance.

And that's where we're really heading, is trying to make sure that it's the best we can make it. We have a very strong compensation team with strong individuals on it and we are always -- through are all substantial stakeholders and we're all trying to make sure it's right. But I appreciate the executive teams' investments in Matador, I appreciate their willingness to take a little haircut, I'm willing to do it too for the long-term good. There was no -- there was no problem with it. I think it was the right move to make to make it clear that we pay for performance around here. And when performance is good, we were awarded and when it didn't, we take less.

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

I might just add one thing, Drew. And that is that I think what you certainly will see, I think that the numbers you're quoting are based on the last -- the statistics are based on the last proxy statement, which of course, they would be. That's all you would have to go on, but I think what you will find when this proxy statement is released is that actually there were more shareholder-focused type of criteria in the 2018 (ph) plant and that there will be even more as you move into 2019. So I think that the Board of the compensation committee in particular has definitely moved in that direction over the last several years and we are -- and I think you'll see that as the next proxies come out.

Drew Lipke -- Stephens Inc. -- Analyst

That's helpful. Thanks for that. And then just as a follow-up, with the six-rig program in the Delaware throughout '19 and then dropping the rig in the Eagle Ford, is there any color you can give us on maybe corporate decline rates and how we should think about 2020 production growth and rig additions as we look to 2020?

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Well, I think that we would -- it's probably a little early to talk, I think, about specifics on 2020 and what we think that production growth could be. Production growth in 2020 is going to be, I think heavily influenced by some of the new areas that we're drilling, but we acquired in the BLM acreage for example, in the western part of Antelope Ridge in the Stateline area, particularly as you go through the latter part of that year. Also, it's going to be pretty heavily influenced by the results that we're seeing from some of the longer laterals. We're going to be drilling up in the Stebbins area over the next several years. So I'm very optimistic about what our growth profile will be going into 2020. But it's probably -- I think we feel like it's just still a little early, particularly since we are going to be drilling in some -- in some newer areas. Probably would prefer to have a few of those wells under our belt before we come out with a lot -- a lot more with regard to what we expect in 2020. But we certainly would expect to have continued growth in 2020.

Drew Lipke -- Stephens Inc. -- Analyst

All right. Thanks a lot.

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Yeah.

Operator

Thank you. Our next question is from Kevin MacCurdy with Heikkinen Energy. Please go ahead.

Kevin MacCurdy -- Heikkinen Energy Advisors, LLC -- Analyst

Hey, guys. You referenced a $500 million value for the midstream business. I was wondering if that value is based on a forecast of EBITDA or maybe some color on what method you used to -- to come up with that number?

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Yeah. Hi, Kevin. This is David. Well, I think historically, you know that we based that on having a kind of the 10 multiple on EBITDA that was plus or minus $100 million on an annualized basis. I don't know whether 10 is our multiple or 12 is our multiple of what it is, but I think when we -- when we put that out there before, that's been pretty much what it's based on, and I think that our expectations for 2019 put us squarely in that range. And of course, that's only just what we have going now. It doesn't include how we expect the value to grow over the next couple of years as we build out the additional assets associated with the expansion that we announced on Monday.

Kevin MacCurdy -- Heikkinen Energy Advisors, LLC -- Analyst

Great. So it doesn't include San Mateo too yet?

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

It does not, no.

Kevin MacCurdy -- Heikkinen Energy Advisors, LLC -- Analyst

Okay, thanks for that. And on asset sales, you highlighted that you have $50 million to $55 million in sales that could be clarified in the near term. I wonder if you could put that $50 million in broad context compared to your goals for the year?

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Well, it's not -- I want to make clear that the $50 million, $55 million is not all sales in the Eagle Ford or the Haynesville. There are other categories there where we have obligations as under contract. We mentioned some of the performance incentives on San Mateo One. Those have been paid. And then, there have been some sales and the like. So as far as what we feel today is that we're real pleased with the interest that we have received over the last few months. The interest has been real good. We've talked to some people, there are a number of properties that are undergoing negotiations, but we're not really going much beyond that simply for the confidentiality that's occurred. But when you add all that up a little bit here a little bit there, that's what it's come to and there's more to come. So we're real pleased with the job that Land is doing and the evaluation work and we'll have a further update at the next conference call.

Kevin MacCurdy -- Heikkinen Energy Advisors, LLC -- Analyst

Great, thanks for that color, Joe.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Thank you.

Operator

Thank you. And our next question is from Sameer Panjwani with Tudor Pickering Holt. Please go ahead, your line is open.

Sameer Panjwani -- Tudor Pickering Holt -- Analyst

Good morning, guys.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Hi, Sameer.

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Hi Sameer.

Sameer Panjwani -- Tudor Pickering Holt -- Analyst

So first off, I think there were some earlier commentary regarding lateral lengths expansion. So can you share the average lateral length for the 2019 program and how that compares to 2018?

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Yeah, I think that -- I think in rough terms that last year, the vast majority of everything was pretty much 1-mile laterals. So I think we had a kind of an average of about -- about 4,700 feet is what I recall. I think -- I think this year that number grows to around 6,000 feet and I think by next year, we think it could approach 8,000 feet.

Sameer Panjwani -- Tudor Pickering Holt -- Analyst

Okay, great. And then you also mentioned some timing issues with midstream throughput that led to San Mateo EBITDA coming in below expectations for 2018. So is it possible to quantify what you're expecting for San Mateo's EBITDA in Q1 relative to Q4?

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Well, I think that your point's well taken. We reported about $62 million for San Mateo EBITDA for the year. I think the -- the range we had hoped to hit was somewhere between $65 million and $75 million, but again, I think a lot of that had to do with just timing on a couple of things. One, in particular being, we thought we were going to be hooked up to the Plains Interconnect there at Rustler Breaks probably in the September timeframe and it ended up being more or less December. So that -- you know that -- but it's a great thing now, I'll tell you, so -- and as I mentioned earlier, I think we've taken our oil gathering for about 10,000 barrels a day in the fourth quarter, up to I think it's 26,000 barrels a day in January. So all the metrics are up in January. I don't know if I have a good handle on the -- I will say the fourth quarter if you looked at the slide, we did just under $20 million in the fourth quarter alone. And I know by the time we got to December, that number I think was about $8 million in the quarter, I mean in month. So I would think, Sameer we will probably be somewhere in the -- in the $20 million maybe, maybe $22 million something like that for the quarter, but I think that's a pretty good estimate of where it will come out. And I think we would see that hopefully ramping as we go through the year.

Sameer Panjwani -- Tudor Pickering Holt -- Analyst

Okay, appreciate that color. And lastly, I'm just trying to think about how far along you are in the midstream development life cycle, and correct me if I'm wrong, but I think Antelope Ridge and Ranger are the two key areas that are yet to be committed to San Mateo. So how should we expect the midstream buildout into those areas in 2020 or beyond? And in that context, how large do you think San Mateo can get to in terms of gross EBITDA and how large do you think it needs to be in order to become a sustainable stand-alone business?

Bradley M. Robinson -- Executive Vice President of Reservoir Engineering and Chief Technology Officer

Well, maybe -- maybe we can answer those questions in reverse. First of all, I think it is a sustainable stand-alone business pretty much today. I think if you look at -- let's just go with the $22 million annualized, you'd be talking about $90 million of the EBITDA associated with San Mateo One, the existing San Mateo, and we --I believe, are anticipating that we will have investments of about $80 million on that for the year, $80 million, $85 million. So to me, what we would expect to earn from San Mateo pretty well accounts for what we would be investing in San Mateo. So I feel like that San Mateo as it is, is and continues -- continue to be a sustainable business. We have elected along with Five Point you know to invest on additional round of capital to even further enhance the value of San Mateo and I think that's going to -- I think that's going to work out for us every bit as well if not better than the investment that we made in the San Mateo One. So you are correct, that we do not have Antelope Ridge or Ranger currently dedicated nor Twin Lakes. So it's -- and really it's not even all of Arrowhead. It's a -- it's a portion of Arrowhead in the western part of Arrowhead, but it is certainly Wolf, Rustler Breaks, the Stateline acreage and a good chunk of Arrowhead that's now -- that's now dedicated.

So there will be -- we will be continuing to looking for solutions as to what we want to do in Antelope Ridge or Ranger. Those might be -- those may not be San Mateo solutions, but I think that's to come. We've got plenty to focus on with the expansion that we've just announced. How big can San Mateo get, I don't know, Sameer. I mean, how big can we dream, I mean it's -- I feel like that -- it's already bigger than I thought it'd be when Matt, Gregg came in and said here's what we were going to do. So clearly, they've been able to go beyond what I expected. So -- and every time I come in, I'm like, oh wow that's awesome. So I don't know how -- how big it can get. So -- but you've also got to remember I was here when we drilled the first well in Matador, so if you had told me that Dave that Matador would be producing 55,000 BOE a day, I'd probably would've gone, I don't know. But -- so I don't know how big is big.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Sameer, this is Joe. I'd just like to add on this. Over in Antelope Ridge in particular, there are some real nice options other than just basically building the pipe for us, and that we're interested in. So, if you're in a capital-constrained deal, some of those options look really good that where we don't have to gather such -- invest so much capital upfront. So we want to thoroughly look at those and overall determine what's best. But Gregg is good about generating some things and we're real serious, and those are some things that could happen quicker instead of waiting until 2020 and make things happen there real interesting to us and appealing.

So you know there's a lot going on. And I don't want to get into. We're going to run the same play every time, but look at some of these other ways that are maybe even more capital-efficient. Gregg, is that -- have we covered it?

G. Gregg Krug -- Senior Vice President of Marketing and Midstream

Yeah, absolutely, Joe. I think that covers it. One thing about the Antelope Ridge area is you have a lot of optionality over there. So -- and that's kind of the name of the game and on the E&P side is to have options. And we're evaluating all those options such as that.

Sameer Panjwani -- Tudor Pickering Holt -- Analyst

Okay, great. Thanks guys. Appreciate the detailed answers.

Operator

Thank you. And ladies and gentlemen, this ends our Q&A portion of today's conference. I would like to turn the call over to management for any closing remarks.

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Thank you all. I thought this is one of our more productive earnings call. I really appreciate your questions. I thought there some really good ones. We look forward to meeting operational and financial challenges of the coming year and to keep positioning Matador for further growth and value, and prosperity achieving our goals and balance sheet strength this year and beyond. I do want to emphasize the slide presentation. There are some very good slides on that, that really give you not just the last quarter, but a whole trend multi-year of where we're headed, which I think you can see.

And finally, we really would like to have you visit us, all the people on the call, come visit us, so we meet in person and take all your questions and let you meet some of the people, because our business is much like yours. It comes down to people and judgment, and we'd like for you to meet this team. Over the years, since being public were on the big advantages. It's helped us attract some really outstanding people, who are growing in their roles and helping us meet these results. So please come see us. That's not a (inaudible) thing. We really mean it and we will even buy lunch if you come. So with that, we'll sign off and hope to you see somewhere soon.

Operator

And ladies and gentlemen, thank you for your participation today. This concludes the program.

Duration: 64 minutes

Call participants:

Mac Schmitz -- Capital Markets Coordinator

Joseph Wm. Foran -- Founder, Chairman of the Board, Chief Executive Officer and Secretary

Scott Hanold -- RBC Capital Markets -- Analyst

David E. Lancaster -- Executive Vice President, Chief Financial Officer and Assistant Secretary

Neal Dingmann -- SunTrust Robinson Humphrey -- Analyst

Bradley M. Robinson -- Executive Vice President of Reservoir Engineering and Chief Technology Officer

Irene Haas -- Imperial Capital -- Analyst

Gabriel Daoud -- Cowen & Company LLC -- Analyst

Matthew V. Hairford -- President and Chair of the Operating Committee

Jeff Grampp -- Northland Capital Markets -- Analyst

Drew Lipke -- Stephens Inc. -- Analyst

Kevin MacCurdy -- Heikkinen Energy Advisors, LLC -- Analyst

Sameer Panjwani -- Tudor Pickering Holt -- Analyst

G. Gregg Krug -- Senior Vice President of Marketing and Midstream

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