Matador Resources Company Announces Plans to Reduce Drilling Activity and Provides Operational Update

Business Wire 30-Jan-2019 4:33 PM

Matador Resources Company (NYSE:MTDR) ("Matador" or the "Company") today provided an update to its 2019 operational plans. Matador plans to focus on continuing its profitable exploration and production activities in the Delaware Basin and continuing to grow the value of its midstream business, while also giving due consideration to the changing financial circumstances in the industry. Accordingly, Matador plans to reduce its operated drilling program by releasing its South Texas rig upon the completion of the Company's South Texas drilling program in February 2019. To further narrow any potential 2019 spending gap, Matador expects to divest portions of its non-core assets, particularly in its Haynesville and in parts of its South Texas positions, as well as to consider monetizing other assets, such as certain mineral, royalty and midstream interests, as value-creating opportunities arise. Matador is also working to implement practices to improve capital efficiency in its 2019 operations, including potential reductions in service costs, additional multi-well pad drilling, increasing the number of longer laterals (greater than one mile) and increased use of in-basin sand in its fracturing operations.

In early October 2018, when oil and natural gas prices were higher, Matador commenced a short-term drilling program in South Texas to drill up to 10 wells, primarily in the Eagle Ford shale, to take advantage of the higher oil and natural gas prices in South Texas, to conduct at least one test of the Austin Chalk formation and to validate and to hold by production almost all of its remaining undeveloped Eagle Ford acreage. This South Texas program was a follow-on to the Company's successful 2017 five-well Eagle Ford shale program, which resulted in a project-level rate of return of over 60% and included three of the top six oil producing wells Matador has drilled to date in the Eagle Ford shale. At January 30, 2019, Matador had completed drilling operations on seven of these newly drilled wells, including six Eagle Ford shale wells and one Austin Chalk well. The Company plans to drill two additional Eagle Ford shale wells prior to concluding its South Texas drilling program in mid-February 2019. At that time, Matador intends to release this rig and does not plan to move this rig to the Delaware Basin. One of the Eagle Ford shale wells in the current program was completed and turned to production during the fourth quarter of 2018, and the remaining eight wells are expected to be completed and turned to sales late in the first quarter or early in the second quarter of 2019.

Joseph Wm. Foran, Matador's Chairman and CEO, commented, "During 2019, we plan to continue our focus of executing on the highest rate of return opportunities across our Delaware properties and midstream operations, which served us well in 2018, while still continuing to be mindful of our balance sheet as we have always done. With this in mind, Matador plans to reduce activity and has built considerable flexibility into its operated drilling program, with several rigs on short-term contracts for six months or less, enabling us to further reduce our drilling activity quickly in 2019 should economic circumstances dictate. Matador is confident it has more than sufficient liquidity to accomplish its 2019 financial and operating plans but still is very appreciative of the consistent support our bank group has shown—during these challenging times—by increasing our borrowing base during the fourth quarter of 2018 from $725 million to $850 million. Matador has often made some of its most significant strides during uncertain times by protecting its balance sheet and continuing to seek operational progress at a measured, profitable pace, and we anticipate that 2019 will be no different."

Matador operated six drilling rigs in the Delaware Basin during the fourth quarter of 2018, although one of these rigs was drilling a sixth salt water disposal well in the Rustler Breaks asset area in Eddy County, New Mexico on behalf of the Company's midstream joint venture affiliate, San Mateo Midstream, LLC ("San Mateo"), beginning in December 2018 and continuing throughout most of January 2019. Assuming no significant change to oil and natural gas prices from current levels, Matador expects to keep these six drilling rigs in the Delaware Basin for the remainder of 2019. Matador plans to formally disclose its 2019 operating plans and market guidance along with its upcoming earnings release for the fourth quarter and full-year 2018, which is expected to be issued in late February.

Recent Well Results

Matador also announced today the results from several wells recently completed and turned to sales. The following table highlights the 24-hour initial potential ("IP") test results from each of these wells.

(1) 24-hr IP per 1,000 feet of completed lateral length.

Matador is particularly pleased and excited by the initial test results from its Verna Rae Federal Com #204H (Verna Rae #204H) well in the Ranger asset area about three miles southwest of the Company's Mallon wells. The Verna Rae #204H well, Matador's best Wolfcamp A-XY test to date in its Ranger asset area, flowed 1,586 BOE per day (90% oil), including 1,426 barrels of oil per day and just under 1.0 million cubic feet of natural gas per day, during a 24-hour IP test. Matador believes the Verna Rae #204H well, along with recent Wolfcamp wells drilled by Matador and other operators in this area, demonstrates the potential prospectivity of the Wolfcamp formation moving north in the Delaware Basin.

Matador is also pleased by the results of its Verna Rae Federal Com #133H and #134H (Verna Rae #133H and #134H) wells, both Third Bone Spring wells drilled and completed as part of a three-well pad including the Verna Rae #204H well. The Verna Rae #133H well flowed 1,127 BOE per day (90% oil), including 1,018 barrels of oil per day and 0.7 million cubic feet of natural gas per day, and the Verna Rae #134H well flowed 1,303 BOE per day, including 1,209 barrels of oil per day (93% oil) and 0.6 million cubic feet of natural gas per day, respectively, during 24-hour IP tests.

Matador is very pleased with its continued success in the Rustler Breaks asset area as well. The Garrett Fed Com #122H (Garrett #122H) well, a recent Second Bone Spring completion in the Rustler Breaks asset area, flowed 2,411 BOE per day (84% oil) during a 24-hour IP test. Matador is encouraged by the Garrett #122H well result, the Company's best Second Bone Spring completion in this area to date, and expects to further delineate the Second Bone Spring formation moving to the northwest in its Rustler Breaks asset area using two-mile laterals beginning in the latter part of 2019 or early 2020. Matador further plans to conduct its first test of the First Bone Spring formation in the Rustler Breaks asset area on the Garrett leasehold beginning in the second quarter of 2019. Matador also reported another successful Wolfcamp B-Blair well result on the Garrett leasehold. The Garrett Fed Com #222H (Garrett #222H) well flowed 2,825 BOE per day (42% oil) during a 24-hour initial potential test, which was a strong follow-up test to the previously reported Garrett Fed Com #221H (Garrett #221H) well, which flowed 2,240 BOE per day (45% oil) during a 24-hour IP test.

In the western portion of Matador's Twin Lakes asset area, the Northeast Kemnitz #233H (Kemnitz #233H) well, a Wolfcamp D test, produced 675 BOE per day (84% oil) on electric submersible pump ("ESP") during a 24-hour IP test. Following early flush production, the Kemnitz #233H well has exhibited a shallower production decline than most Wolfcamp wells, similar to what Matador has observed from the performance of other Wolfcamp D wells in the area. The early performance of the Kemnitz #233H well has been very similar to that of the D. Culbertson State #234H well, which was drilled on the eastern side of the Twin Lakes asset area in 2017. The D. Culbertson State #234H well produced 600 BOE per day (82% oil) during a 24-hour IP test on ESP. At December 31, 2018, Matador estimated an ultimate recovery of approximately 400,000 BOE from the D. Culbertson State #234H well. Oil production from this well has been essentially flat, averaging about 110 barrels of oil per day over the past 18 months, resulting in several upward revisions to its estimated ultimate recovery.

Matador recently began drilling a vertical Morrow test on its Kemnitz acreage in the Twin Lakes asset area. While the primary objective of this vertical test is the Morrow formation below the Wolfcamp D, Matador may also use this opportunity to test additional intervals above and below the Wolfcamp D, including one or more carbonate intervals in the Wolfcamp B and D, to assess the relative prospectivity of the various targets in the Twin Lakes asset area. As Matador has noted in prior releases, this part of Lea County, New Mexico is a very prolific oil and natural gas producing area, having produced over 1.3 billion barrels of oil and 2.2 trillion cubic feet of natural gas from multiple horizons. Matador previously completed a successful vertical test of the Strawn formation in the eastern portion of its Twin Lakes acreage in 2016. This well, the Olivine State 05-16S-37E TL #1 (Olivine State #1) well, has an estimated ultimate recovery of approximately 250,000 BOE (80% oil). Matador estimates that vertical Strawn wells—like the Olivine State #1 well—can be drilled and completed for between $2.5 and $3.0 million in this area, resulting in strong investment returns. Matador has previously booked and maintains proved undeveloped reserves associated with a number of Strawn locations in the eastern Twin Lakes asset area. The Company is evaluating the potential for additional vertical well drilling in the Twin Lakes asset area in the future, although with a secondary focus to its primary asset areas in the northern Delaware Basin.

BLM Leases Issued

Matador is also pleased to announce the Bureau of Land Management ("BLM") has formally issued the federal leases for all tracts covering the 8,400 gross/net acres that the Company acquired in the BLM's September 2018 lease auction (the "BLM Acquisition"). As a result, Matador has begun actively pursuing drilling permits on a number of these tracts, including particularly the approximately 2,800 gross/net acres in the Stateline area and the approximately 1,200 gross/net acres in the western portion of Antelope Ridge. Matador is excited to begin drilling operations on these Stateline and western Antelope Ridge properties, which it expects to do as early as the fourth quarter of 2019 or the first quarter of 2020. As noted in its press release on September 12, 2018, Matador believes portions of the BLM Acquisition include some of the most prospective acreage in the Delaware Basin, with the potential to develop seven to nine different formations in certain tracts. In addition, a large portion of the acquired acreage should be conducive to drilling longer laterals of up to two miles or more, using centralized facilities and multi-well pad development, all of which should improve capital efficiency, well returns and project economics. Further, portions of this acreage may also result in additional midstream opportunities.

Completion of Rustler Breaks Pipeline System and Plains Interconnect

On December 19, 2018, Matador announced that a wholly-owned subsidiary of San Mateo had placed into service its crude oil gathering and transportation system in the Rustler Breaks asset area in Eddy County, New Mexico (the "Rustler Breaks Pipeline System"). The Rustler Breaks Pipeline System includes approximately 17 miles of 10-inch diameter crude oil gathering and transportation pipelines from origin points in Eddy County, New Mexico to an interconnect with Plains Pipeline, L.P. As previously announced on January 22, 2018, San Mateo and a subsidiary of Plains All American Pipeline, L.P. (NYSE:PAA) ("Plains") have entered into a strategic relationship to gather and transport crude oil for upstream producers in Eddy County, New Mexico. The completion of the Rustler Breaks Pipeline System was an important step in this strategic relationship, as oil has begun flowing from the wellhead in Matador's Rustler Breaks asset area in Eddy County, New Mexico to Midland, Texas. With the Rustler Breaks Pipeline System in service, Matador expects to improve its oil price realizations in the Rustler Breaks asset area by as much as $1.00 to $1.50 per barrel through the elimination of higher priced trucking costs. Matador currently has on pipe almost all of its oil production from the Wolf and Rustler Breaks asset areas, which comprised approximately 70% of the Company's Delaware Basin oil production in the fourth quarter of 2018. Additionally, the Rustler Breaks Pipeline System is sufficient to support growing volumes from Matador and other producers in the area without significant additional capital investment.

San Mateo Credit Facility

In late December 2018, San Mateo entered into a new $250 million credit facility led by The Bank of Nova Scotia and including all participants in Matador's existing revolving credit facility. The San Mateo credit facility includes an accordion feature, which could expand commitments of the lenders to up to $400 million. The new credit facility is non-recourse to Matador and resembles a similar pricing structure to Matador's revolving credit facility.

Joseph Wm. Foran, Matador's Chairman and CEO, commented, "The close of the new San Mateo credit facility is a significant achievement for our midstream team and highlights the growth San Mateo has experienced and the confidence our bank group has in the future success of San Mateo. We believe San Mateo is in the early innings of value creation for Matador shareholders and multiple opportunities to expand the San Mateo platform still exist. We look forward to providing more details on future midstream opportunities in the near future. We also want to thank our bank group, led by Scotiabank, for their support of our newly instituted midstream credit facility."

Hedging Positions

During the fourth quarter of 2018, Matador entered into additional oil and natural gas hedges for 2019. At January 1, 2019, Matador had just over 5.0 million barrels of its anticipated 2019 oil production hedged at a weighted average floor price of approximately $55 per barrel and a weighted average ceiling price of approximately $75 per barrel. In addition, at January 1, 2019, the Company had 7.2 Bcf of its anticipated natural gas production hedged at a weighted average floor price of $2.50 per MMBtu and a weighted average ceiling price of approximately $3.30 per MMBtu.

About Matador Resources Company

Matador is an independent energy company engaged in the exploration, development, production and acquisition of oil and natural gas resources in the United States, with an emphasis on oil and natural gas shale and other unconventional plays. Its current operations are focused primarily on the oil and liquids-rich portion of the Wolfcamp and Bone Spring plays in the Delaware Basin in Southeast New Mexico and West Texas. Matador also operates in the Eagle Ford shale play in South Texas and the Haynesville shale and Cotton Valley plays in Northwest Louisiana and East Texas. Additionally, Matador conducts midstream operations, primarily through its midstream joint venture, San Mateo, in support of its exploration, development and production operations and provides natural gas processing, oil transportation services, natural gas, oil and salt water gathering services and salt water disposal services to third parties.

For more information, visit Matador Resources Company at www.matadorresources.com.

About San Mateo Midstream, LLC

San Mateo Midstream, LLC is a strategic joint venture formed in February 2017 by a subsidiary of Matador Resources Company (NYSE:MTDR) and a subsidiary of Five Point Energy LLC. San Mateo provides an all-inclusive approach to midstream services for the three main product streams produced by oil and natural gas activities, including salt water gathering and disposal services, natural gas gathering, compression, treating and processing services, and oil gathering, transportation and blending services. San Mateo owns and operates oil, natural gas and water gathering and transportation systems in Eddy County, New Mexico and Loving County, Texas, the Black River Processing Plant in Eddy County, New Mexico with a designed inlet capacity of 260 million cubic feet of natural gas per day and eight commercial salt water disposal wells in Eddy County, New Mexico and Loving County, Texas. San Mateo serves as one of the primary midstream solutions for multiple customers across the northern Delaware Basin, including its anchor customer, Matador Resources Company.

For more information, visit San Mateo Midstream, LLC at www.sanmateomidstream.com.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. "Forward-looking statements" are statements related to future, not past, events. Forward-looking statements are based on current expectations and include any statement that does not directly relate to a current or historical fact. In this context, forward-looking statements often address expected future business and financial performance, and often contain words such as "could," "believe," "would," "anticipate," "intend," "estimate," "expect," "may," "should," "continue," "plan," "predict," "potential," "project," "hypothetical," "forecasted" and similar expressions that are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Such forward-looking statements include, but are not limited to, statements about guidance, projected or forecasted financial and operating results, results in certain basins, objectives, project timing, expectations and intentions and other statements that are not historical facts. Actual results and future events could differ materially from those anticipated in such statements, and such forward-looking statements may not prove to be accurate. These forward-looking statements involve certain risks and uncertainties, including, but not limited to, the following risks related to financial and operational performance: general economic conditions; the Company's ability to execute its business plan, including whether its drilling program is successful; changes in oil, natural gas and natural gas liquids prices and the demand for oil, natural gas and natural gas liquids; its ability to replace reserves and efficiently develop current reserves; costs of operations; delays and other difficulties related to producing oil, natural gas and natural gas liquids; delays and other difficulties related to regulatory and governmental approvals and restrictions; its ability to make acquisitions on economically acceptable terms; its ability to integrate acquisitions; availability of sufficient capital to execute its business plan, including from future cash flows, increases in its borrowing base and otherwise; weather and environmental conditions; the operating results of the Company's midstream joint venture's expansion of the Black River cryogenic processing plant; the timing and operating results of the buildout by the Company's midstream joint venture of oil, natural gas and water gathering and transportation systems and the drilling of any additional salt water disposal wells; and other important factors which could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. For further discussions of risks and uncertainties, you should refer to Matador's filings with the Securities and Exchange Commission ("SEC"), including the "Risk Factors" section of Matador's most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. Matador undertakes no obligation to update these forward-looking statements to reflect events or circumstances occurring after the date of this press release, except as required by law, including the securities laws of the United States and the rules and regulations of the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement.

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