Matador Resources Company Announces Midstream Transaction Expanding San Mateo's Operations in the Delaware Basin

Business Wire 25-Feb-2019 6:45 AM

Matador Resources Company (NYSE:MTDR) ("Matador" or the "Company") today announced a second strategic midstream transaction ("San Mateo II") with a subsidiary of Five Point Energy LLC ("Five Point") to expand San Mateo's natural gas gathering and processing, salt water gathering and disposal and oil gathering operations in the Delaware Basin to be owned in the same proportions as San Mateo I—51% by Matador and 49% by Five Point. As part of the expansion, an additional cryogenic natural gas processing plant will be constructed in close proximity to the existing Black River cryogenic natural gas processing plant near Carlsbad, New Mexico in Matador's Rustler Breaks asset area (the "Black River Processing Plant").

The existing Black River Processing Plant was placed into service in August 2016 with a designed inlet capacity of 60 million cubic feet of natural gas per day. In February 2017, San Mateo I was formed as a joint venture owned 51% by Matador and 49% by Five Point. The Black River Processing Plant was then expanded to a designed inlet capacity of 260 million cubic feet of natural gas per day in April 2018. Today, this plant is already almost fully subscribed. This new transaction is the next step to almost doubling that capacity to meet growing natural gas processing demand in the area. With this new transaction, San Mateo plans to expand its natural gas pipeline system to run from the Black River Processing Plant north to Matador's Stebbins leasehold area and south to Matador's new Stateline asset area that was acquired in connection with the Bureau of Land Management ("BLM") New Mexico Oil and Gas Lease Sale in September 2018. The additional salt water gathering and disposal and oil gathering facilities will be variously located across Matador's Eddy County, New Mexico acreage, additional portions of which will be dedicated to San Mateo.

To facilitate this transaction and add economies of scale, Matador dedicated to San Mateo acreage under 15-year, fixed-fee contracts in the Stebbins and surrounding acreage in the Arrowhead asset area (the "Greater Stebbins Area") as well as Matador's Stateline asset area—totaling approximately 25,500 gross acres. In exchange for this acreage dedication to San Mateo and certain minimum volume commitments in connection therewith, Matador received:

• A capital carry to fund the expansion of the Black River Processing Plant and the construction of the gathering and salt water disposal ("SWD") systems related to San Mateo's expansion into the Stateline asset area and the Greater Stebbins Area (the "Midstream Assets"), which has the effect that Matador will only pay $25 million of the first $150 million in capital expenditures related to this expansion;
• Firm capacity service at market rates for natural gas gathering and processing, salt water gathering and disposal and oil gathering in the Stateline asset area and the Greater Stebbins Area;
• Deferred performance incentives of up to $150 million over the next five years as Matador executes its operational plans in and around the Stateline asset area and the Greater Stebbins Area;
• Additional deferred performance incentives for Matador, as Manager of San Mateo, to bring in additional third-party customers; and
• Operational control over the Midstream Assets.

The specific Midstream Assets that San Mateo initially plans to construct and install in connection with this transaction include:

• An additional cryogenic natural gas processing plant to serve as an expansion of the Black River Processing Plant near Carlsbad, New Mexico to increase the current designed inlet capacity of 260 million cubic feet of natural gas per day to a total designed inlet capacity of 460 million cubic feet of natural gas per day. This expansion is expected to be operational in mid-2020;
• At least two SWD wells and related commercial SWD facilities, one in the Greater Stebbins Area and one in the Stateline asset area; and
• Related oil, natural gas and salt water gathering systems in both the Greater Stebbins Area and the Stateline asset area, including a large-diameter natural gas pipeline that is expected to run from the expanded Black River Processing Plant north to Matador's Greater Stebbins Area and south to Matador's Stateline asset area.

Matador intends to provide its 2019 operational and financial outlook and initial 2019 guidance, including additional details surrounding the development plan for the Midstream Assets and San Mateo, in conjunction with its fourth quarter and full-year 2018 earnings release scheduled for Tuesday, February 26, 2019. Notably, the capital carry included in this transaction and expected cash flows from San Mateo's existing operations should cover most of Matador's expected 2019 capital obligations for San Mateo.

Joseph Wm. Foran, Chairman and Chief Executive Officer of Matador, said, "We are very pleased and excited to announce yet another transaction with Five Point. This transaction represents another significant step forward for Matador and the midstream team and the accomplishment of one of our strategic goals for 2019 and was made possible in part by Matador's acquisition of its BLM properties at the September 2018 BLM Lease Sale. We expect that San Mateo will continue to provide first class service to Matador and other producers along San Mateo's pipeline systems in Eddy County, New Mexico and Loving County, Texas in some of the prime producing areas of the Delaware Basin. We obviously are pleased with the progress of our existing joint venture with Five Point, and this transaction is a further testament to the existing joint venture's success and positive outlook. San Mateo's ability to offer midstream services across all three production streams—crude oil, natural gas and water—makes it one of the important midstream companies in the northern Delaware Basin. Five Point's financial and operational expertise has accelerated and heightened this success.

"The Board and I congratulate the respective staffers and deal teams who worked on this transaction for the significant value they have created thus far for Matador shareholders and for our joint venture partner Five Point by structuring the deal as they have. We believe this most recent transaction further enhances the value by (i) the dedications of what we expect to be exceptionally productive acreage in the Stateline asset area and the Greater Stebbins Area, (ii) the natural synergies in operations of the expanded plant and the connected pipeline systems and (iii) further developing third-party customers in the area. We look forward to discussing San Mateo's 2019 plans in further detail as part of Matador's upcoming earnings release and subsequent earnings call later this week."

Matt Morrow, Chief Operating Officer and Managing Partner of Five Point, said, "We are delighted to continue our very successful partnership with the Matador team, who we believe to be one of the pre-eminent operators in North America. Collectively, we have built a world-class infrastructure business that is meeting the increasing needs of E&Ps in the Delaware Basin."

Please direct any commercial inquiries about the Black River Processing Plant and related gathering and processing services provided in Eddy County, New Mexico or San Mateo's other services, including salt water gathering and disposal services and oil gathering, transportation and blending services, to: Corey Lothamer, San Mateo's Vice President of Business Development, at (972) 371-5203 or info@sanmateomidstream.com.

About the Transaction

San Mateo Midstream II, LLC ("San Mateo II") is a new strategic joint venture that has been formed between a wholly-owned subsidiary of Matador and a subsidiary of Five Point to build and operate the Midstream Assets. San Mateo II is similar in structure to San Mateo Midstream, LLC ("San Mateo I", and together with San Mateo II, "San Mateo"), the existing joint venture of Matador and Five Point, which provides midstream services to Matador and other customers in the Wolf and Rustler Breaks asset areas. As noted above, in connection with the formation of San Mateo II, Matador may earn up to $150 million in deferred performance incentives over the next five years in addition to performance incentives for adding third-party customers. Matador will operate the Midstream Assets and control operations of San Mateo II. At closing, Matador and Five Point owned 51% and 49% of San Mateo II, respectively.

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 Five Point Energy

Five Point Energy is a leading private equity firm focused on the midstream energy sector. The firm was founded by industry veterans who have had successful careers investing in, building and running midstream companies. Five Point's strategy is to acquire and develop in-basin assets, provide value-added growth capital, and build world-class midstream companies with premier management teams and industry-leading E&P partners. The firm is focused on providing in-basin crude oil, natural gas, liquids and water management midstream solutions to E&P companies in the Permian Basin, Eagle Ford, Mid-Continent and Rockies. Based in Houston, Five Point Energy manages more than $2.5 billion of capital across multiple investment funds.

For more information, please visit www.fivepointenergy.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. 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; San Mateo II's ability to build out additional midstream assets in the Delaware Basin, including a natural gas processing plant, oil, natural gas and salt water gathering lines, and salt water disposal wells; changes in oil, natural gas and natural gas liquids prices and the demand for oil, natural gas and natural gas liquids; the Company's 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 Black River cryogenic natural gas processing plant; the timing and operating results of the buildout by the Company's midstream joint venture of oil, natural gas and salt 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 (the "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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