Good morning, ladies and gentlemen. Welcome to the Second Quarter 2023 Matador Resources Company Earnings Conference Call. My name is Olivia, and I’ll 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’s website for one year as discussed in the company’s earnings press release issued yesterday. I will now turn the call over to Mr. Mac Schmitz, Vice President, Investor Relations for Matador. Mr. Schmitz, you may proceed.

Thank you, Olivia. Good morning, everyone, and thank you for joining us for Matador’s second quarter 2023 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 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 in any subsequent quarterly reports on Form 10-Q. In addition to our earnings press release issued yesterday, I would like to remind everyone that you can find a slide presentation in connection with the second quarter 2023 earnings release under the Investor Relations tab on our corporate website. And with that, I would now like to turn the call over to Mr. Joe Foran, our Founder, Chairman, and CEO. Joe?

Thank you, Mac. And welcome to the call to all out there and I want to tell you how much we appreciate you all taking the time to call in and listen and will provide you with the opportunity to ask questions. I would simply like to begin with the fact that Matador is in very good health and we feel we have a very good plan that is underway and producing favorable results. In particular, I'd like to emphasize that it's pretty simple math. We are expecting 40% growth through 2023 and how do we get to that? We began the year at 101,000 barrels of oil or gas equivalent. It will end the year at over 140,000 barrels of oil or gas equivalent per day. In addition, we have added significantly 98 million barrels of oil or gas equivalent just since the end of last year. So for the first six months of this year, it's 98 million barrels, which is a far better indicator of our performance and our outlook than a 1% or 2% difference in production expectancy in the third quarter. The reason for this production difference is primarily related to three incidents. First, we are upgrading our advanced facilities to make them more efficient. We've had to shut in those facilities, which amounts to approximately 1,500 barrels of oil or gas equivalent. Second, we've had to shut in our state line production due to offset fracs from other operators that are joining us, accounting for 1,150 barrels of oil or gas equivalent. Lastly, the Nina Cortell was forced to shut in because of a fire from the midstream company, which led to an additional 850 barrels shut in. So, in total, that's 3,500 barrels a day. But again, it's far more significant that we're adding 98 million barrels of oil or gas equivalent than having 3,500 barrels that were shut in, which was just about a 1% difference in production rates. Now, looking into the third quarter, the outlook is very strong, and we continue to see production growing. Moving into next year, we're growing more confident that we will meet the mark of 150,000 barrels of oil or gas equivalent. The real value comes from those production rates and the growth, which we believe are crucial for investment decisions. Our strategic plan this year has focused on increasing production, reducing debt, and lowering the cost of drilling and operations, and we are achieving that. Production is up, debt is down by $140 million, and our operating expenses have decreased. We expect better results in the third quarter than in the second quarter. Overall, we believe the outlook is very strong based on these metrics. Brian, have I left anything out?

No, Joe, I think you did a good summary there. I will say that it's exciting to be able to do a $1.6 billion acquisition this year and still maintain our leverage ratio at one times or less. We expect that this will continue going forward, and we're excited about 2024, with 46 net wells in progress, and as Joe said, we are growing more confident about reaching 150,000 BOE per day. That's hardly said, and we're thrilled to achieve that next year, and it could even be better.

All right, and the other factor that I think should give you comfort is that we are truly performing better than expected, not only due to the reserve adds but also because we expect in the second half of the year to accomplish as much with seven rigs as we did with eight. This reflects our drilling and completion crews reducing days on well and becoming more efficient, with production rates not just holding steady but actually growing. To reiterate, full-year production growth from ‘22 to ‘23 is projected to be 21%, with 24% growth for oil, and that 2023 exit rate represents a 40% production growth. We have looked at things more on a full-year basis rather than quarter-to-quarter. I’d say we focus on the final quarter scores rather than first-quarter results.

Olivia, we will jump into questions. Thank you.

Thank you. Our first question comes from Scott Hanold of RBC Capital Markets. Your line is open.

Yeah. Thanks for the color. I'm just kind of curious now that you've had the Advance assets for a while and there is probably still more to learn. Specifically with the first tranche of 21 wells that you all are going to bring on, I know you are planning to do it in a little bit of a staged fashion since you can't just turn on a bunch of flush wells all at once, but can you provide context on how big the batches are when they come on? Is it around three to four wells a week, and then you need another week before you bring the next batch on? Is that generally the process you expect through August and early September?

Hey Scott. This is Glenn Stetson. That's exactly right. So, it's a 21-well batch, and the way that it works in practice is that there are multiple pads with four, five, and six wells per pad. We will commission the facility for all 21 wells, and the process will essentially involve turning on a well every couple of days. Starting in mid-August, it will run through the end of September before all 21 wells are contributing meaningfully. One thing I want to mention is that when we took over these Advance properties, they had a different setup with effectively one facility per pad. We are currently consolidating a number of those facilities at the Hat Mesa properties in New Mexico, reducing from 14 facilities to five, and in West Texas from five to one. By operating six facilities instead of 19, we gain efficiencies, resulting in lower supervision costs and lower operating expenses.

I appreciate that color. Transitioning to your commentary on 2024, it seems like you have very strong and improving guidance towards that 150 target. Can you elaborate on whether you can achieve that goal with those seven rigs, or do you anticipate bringing on an eighth? Additionally, any thoughts on cost savings as well? What is your high-level budget expected for 2024?

Hey, Scott, this is Chris Calvert. I’ll address the operational components of your question first. Our decision to move from 8 rigs to 7 involved three important factors: First, it allows us to meet our goals for 2023 regarding the number of tools we will deploy. Second, it provides us flexibility to reduce our debt. Third, it is prudent to be patient in this declining service cost environment before adding that rig. If we achieve those goals with just seven rigs, it makes sense to wait a bit before deploying an eighth rig. Our budget for 2024 will be discussed in greater detail during our February discussion. However, we are optimistic about the runway we see ahead. Achieving our goals revolves around the efficiencies received during drilling, completion, and production, including reducing days on drilling by eliminating casing strings and maximizing bottom hole assembly run times.

I appreciate the color. Thank you.

Thank you. And our next question comes from the line of Neal Dingmann of Truist Securities. Your line is open.

Good morning, Joe and team. Nice quarter. Joe, starting with slide 6, I see fantastic growth. I know it's early for ’24 guidance, but could you philosophically discuss your thoughts on growth as we look ahead? Specifically, with what Chris said regarding the eight rig, how should we consider growth versus shareholder returns?

Thanks, Neal. That's a good question and one we discuss nearly every day: what is the strategic plan for 2024? Regarding rigs, we know we will have seven and also expect to add that eighth rig later in the year. We will continue with our brick-by-brick acquisition strategy and expect that our growth will primarily come from the drill bit while making selective acquisitions to enhance our interests in certain properties. We're also factoring in commodity price influences and how that relates to our plans. We focus on profitable growth rather than just getting bigger and want to ensure quality rather than merely scale. Overall, the team has done an excellent job enhancing our operations and securing better resources.

Thank you, Joe. That makes a lot of sense. I look forward to more details. As a follow-up, regarding slide 9, you've aptly titled it about synergistic Midstream assets. Could you elaborate on how you plan to leverage those assets for growth and possibly introduce third-party business?

That’s a great question. The two assets we have are often overlooked. One of them is San Mateo, our Midstream operation. When we meet with people, they focus on production and overlook Midstream, which is an increasingly valuable asset. We have also received repeat business from our customers who want to increase their gas flow through our system, and I commend our team for making that profitable. The second overlooked asset is in Northwest Louisiana, where we hold rights to Cotton Valley. This area is beginning to experience increased drilling activity, leading us to consider new expansions. We plan to connect our Pronto and San Mateo systems soon and are in discussions about potential increases in capacity.

Thank you, Joe.

Thank you for your questions. Our next question comes from the line of Kevin MacCurdy of Pickering Energy Partners. Your line is open.

Good morning, Matador team. You've detailed your progress on debt repayment, which long-term investors appreciate. Can you share how you're balancing growth, debt repayment, and shareholder return in your long-term capital allocation strategy given the current prices?

Kevin, that's a very good question. I wish I could give you a specific answer. It's a step-by-step process. The initial step was valuing the integration of Advance and understanding its potential. Our Board, who are active shareholders, also emphasizes dividends. We believe in increasing dividends but want to do it responsibly. We raised it from a nickel to 20 cents in the last couple of years. We expect to review this in our third-quarter Board Meeting to see if we can increase it further, based on market conditions and our outlook. There’s a delicate balance between growing production, delivering returns to our shareholders, and managing capital effectively. At present, our bond ratings have improved as our bonds have been over-subscribed, indicating our strong market standing, which we intend to leverage for future opportunities.

This is Brian Willey. Joe articulated that well. We are in a unique position where we can grow production, increase shareholder value, and reduce debt simultaneously. As we look ahead to the rest of this year and then into 2024, the increased production will lead to higher cash flows, enabling us to accelerate debt repayment while continuing to deliver returns to shareholders and pursue new opportunities.

Tom?

Joe, Brian has made great points. The key word is being nimble and opportunistic. Our production teams are seeking ways to combine operations, demonstrating our commitment to continuous improvement.

If you rewind a year ago, our Pronto acquisition was another unique opportunity. This last quarter was productive for Pronto, having directly hooked up multiple wells, and we expect to see the plant's throughput increase significantly.

Thanks for that answer. Regarding Pronto, can you provide more details on the options and timeline for expanding a new plant?

Yeah, this is Glenn again. We believe our current plant will be fully utilized by year-end. Plans are in place to expand that system with a new 200 million cubic feet per day plant. Currently, this is in the planning stages.

Thank you. I appreciate your insights as always.

I echo what Glenn said. We anticipate that building a new plant will integrate well with our drilling program and cater to third-party gas demand, which has been noticeable in recent trends.

Thank you. Our next question comes from the line of Zach Parham of JPMorgan. Your line is open.

Thanks for taking my question. On CapEx, you reduced your DNC cost per foot to $1,100. What was it in Q2, and how do you foresee it trending into the latter half of this year?

To answer your question, in January, we guided a full year of $1,124 per lateral foot. We have revised that down to $1,100. In Q1, our cost was around $1,014 per lateral foot. For Q2, it floated around $1,156. As expected, Q2 became our high watermark for the year. Moving forward, we anticipate seeing immediate cost savings gained from our increased capital efficiencies working with a more competitive service environment.

Important to note, while we aim to reduce costs, we want to maintain quality. We have quality vendors with quality products, and we plan to continue to work with them.

One final question – could you elaborate on how the production issues discussed persist into Q4?

Some of the state line shut-ins associated with offset fracs will continue into Q4. Those numbers are factored into our exit rate at 143,000 BOE. We will have an impact from those shut-ins.

Glenn is right; the state line shut-ins essentially total around 2,000 BOE per day. Our projections would be higher without these shut-ins. We are confident in the exit rate we have and remain optimistic about ramping production back up as these shut-ins are temporary.

The Nina Cortell should resume with no issues; the facilities will be finished in time.

Great. Thank you, guys. I really appreciate the insights.

Thank you. Our next question comes from the line of Subash Chandra of Benchmark Company. Your line is open.

Thank you. Joe, regarding 2024, are you comfortable with the 150 guidance? Can we take the 4Q number to gauge our expectations for oil cut as the properties mature?

While Glenn adds to this, we expect to exit the year with about 60% oil and as we move into 2024, that should increase to between 62% and 64%.

Correct, Joe. By year-end, we anticipate a 60/40 split between oil and gas. The mix may fluctuate based on activity levels, especially in the Haynesville.

Thanks for your insights.

What’s vital to note is how much we value our midstream assets. It’s essential to identify the size of potential gas plants and plan based on production rates. We want to see consortium confirmations before proceeding to protect the company's balance sheet as well.

I see the Advance production is better than expected. Can you quantify that as we progress into Q3 and Q4?

We've been very happy with Advance production thus far, it has exceeded our forecasts by a few percent. We're optimistically working to enhance production through ESP replacements and other improvements.

In regard to debt paydown, can you discuss when you expect to eliminate the revolver?

It remains a priority for us and highly focuses on oil prices and the opportunities that arise. If market conditions are favorable, we anticipate being close to fully paying off the revolver by the end of next year.

Thank you all for your valuable questions. We've had remarkable success with our strategies, meeting or exceeding industry guidance for 36 consecutive quarters. Despite minor setbacks, our reserve additions and production growth, combined with decreasing costs and debt, position us strongly. We greatly appreciate your interest and look forward to supporting your investments with robust decision-making and maintaining our commitment to innovation and efficiency.

Thank you for your participation today. This concludes today's program. You may now disconnect.