Good morning, ladies and gentlemen. Welcome to the First Quarter 2024 Matador Resources Company Earnings Conference Call. My name is Daniel, and I will be your operator today. We will have a question-and-answer session after the company's remarks. This conference is being recorded for replay, and the replay will be available on the company's website for one year, as mentioned in the earnings press release issued yesterday. I will now turn the call over to Mr. Mac Schmitz, Senior Vice President of Investor Relations for Matador. Mr. Schmitz, you may proceed.

Thank you, Daniel, and good morning, everyone, and thank you for joining us for Matador's First Quarter 2024 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 and any subsequent quarterly report on Form 10-Q. In addition to this morning's earnings press release, I would like to remind everyone that you can find a slide presentation in connection with the first quarter 2024 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. We'll probably be brief and to the point. But obviously, the quarter is off to a good start. We're really pleased and confident that the next quarter will be even better. We now have the connectors in place and functioning. So, you have 595 miles of pipeline that works, enhanced by being in one system. By doing so, we've increased our flow assurance and at the same time, we improved our balance sheet by recent transactions. We amended the credit agreement to extend out to 2029 for 5 years and increased the committed amount from $1.325 billion to $1.5 billion with room to go up from there on the basis of our borrowing base. It's important to think for a moment that 19 different credit committees reviewed our financial strength and supported not only the $1.5 billion amount but indicated we could go higher than that. This we call the triple crown, which is supported by both our old and new bases and is in place and is available. We're pleased to report that we're going to turn on a record number of wells this quarter. There will be 43 gross operated wells and 36.2 net wells. I look forward to answering your questions today and also look forward to coming back in 90 days to indicate what we've done to improve the asset base of Matador. So, with that, I turn it back to you, Mac.

Great. Thanks, Joe. Daniel, we're ready for questions.

Our first question comes from Scott Hanold with RBC Capital Markets.

Look, brick-by-brick M&A has been a staple of your strategy, I think, since inception. I have sort of a couple of part kind of question. How do you see the current market opportunities in terms of price and quality out there right now? And as you go forward, can you talk about the mix, like how you see the economics of both organic and inorganic growth? Can you provide some color on what you think your financial capacity is to do more M&A at this point?

Let me take that in order. We're happy to go either way on growing organically, as we've mainly done or by acquisition depending on what the industry and the economy offer us. There are times when it's better to do one or the other, much like a football team has a passing game and a running game. We've now drilled 68 wells on the straight-line acreage, 62 currently producing. When we bought that, our stock took a big hit because people couldn't believe we paid that much for it, but with those wells, it actually worked out. The best approach is to have a wide variety of ways to grow, including midstream growth opportunities, which also enhance the value of production. Flow assurance is critical in the Delaware, and without it, you're going to have difficulties getting your products to market.

I appreciate the color. Joe, in particular, you mentioned flow assurance is important. Currently, Waha gas is under pressure and in the negative range, which might persist in the latter half of this year. Can you talk about your position? Is there any concern about not selling your gas or facing weak pricing on residue gas? Can you give us your view of those dynamics from Matador?

That's another good question, Scott. I’ll let Greg Krug, who's the Head of our Marketing and Midstream, take that. We've talked about this a lot, and I think Greg has done a terrific job creating diversity in our sales of our gas product. Gregg?

Thanks, Joe. Yes, Scott, we've tried to take a comprehensive look to ensure a diversified market portfolio where we're not overly exposed to one particular index. We have many options to hedge and ensure firm transport on takeaway pipelines to other regions like the Houston Ship Channel. We have a good spread of our exposure across different indices.

And just to add to that, at Waha, you have various ranges to work with. For NGLs, we get a nice uplift that depends on the particular wells, with some being rich with NGLs.

My follow-up concerns the growing production in the Permian where capacity is tight, especially since many players aren't increasing production much. Do you see a risk that you won't be able to sell your gas or encounter constraints?

No, we don't perceive that risk because we hold firm transport on these pipelines. Despite negative pricing at Waha, we've locked in a basis number for part of our gas where we're protected. We have adequate transport to exit the basin and are actively looking at increasing capacity out of the basin.

One moment for our next question. Our next question comes from Tim Rezvan with KeyBanc Capital Markets. Your line is open.

Good morning, everybody. I just wanted to follow up on what Scott discussed regarding M&A, specifically on the bolt-on side. The cash rate for the tender and equity issuance was much greater than what you spent on bolt-ons in the last few quarters. Can you provide any guidance on what you think the bolt-on budget may look like this year?

Tim, I appreciate your question, but it's difficult to pin down specific numbers. Acquisitions are opportunistic and primarily serve to enhance our existing working interests. We focus on our drilling activity where we control the leases and operate the wells, and we look optimistically at acquisition opportunities. We believe Matador can grow by drilling and pursuing acquisitions where needed. We've positioned ourselves through our triple crown of RBL, stock offerings, and bond offerings to take advantage of both growth paths.

If I could follow up on the midstream side, it sounds like things are going well for Marlin for the middle of 2025. How do you view long-term large-scale projects versus the current needs?

Tim, I think that's a buying opportunity for shareholders who feel we're undervalued. We believe the market will recognize our midstream value magnitude in time. Our midstream operations were created out of necessity and have become utilities for our drilling operations. We've seen significant emissions reductions by utilizing our pipeline instead of flaring, leading to a more sustainable operation. While we consider offers seriously, we also see plenty of utility in our current systems.

For the next quarter, Joe, I'd like to get your thoughts on oilfield service bundling versus debundling. I've noticed costs are increasing, so how do you view this for your partnerships?

I appreciate our service providers; they’ve done an excellent job being efficient and reliable. I’ll let Chris discuss how we bundle services.

Hi Neal, it’s Chris Calvert. We consider bundling an advantage, especially with our primary service provider Patterson, which allows us to simplify two of our largest cost centers. We also prioritize optionality by sourcing sand from various providers and self-sourcing when beneficial. There are clear advantages to bundling, but we also aim to maintain our flexibility.

That makes sense. On the midstream, do you anticipate more third-party going through your connectors?

Yes, we’re developing third-party relationships consistently. We aim to treat them equally and build reliable partnerships. I’ll let Greg expand on that.

We absolutely do not play favorites regarding Matador gas over third-party. It's critical for our credibility that we provide equitable service. We'd like to give everyone the same attention and have found our commitment during times of difficulty, like Winter Storm Uri, to be appreciated by our third-party partners.

You mentioned higher oil volumes at Stateline; however, I noticed there haven't been any new wells there since 2Q last year. Can you shed light on what’s driving this outperformance?

A lot of the performance has been attributed to our midstream team; they've designed a unique system for Stateline, allowing them to appropriately match pipeline pressures. With that, we can significantly improve production input and recover well from offset activities. So we’ve drilled 6 additional wells that will come online in the second and third quarters as well.

Zach, you're right; we raised full-year guidance to the high end. We expect continued improvement through the third quarter based upon our recent successes, but we haven’t updated guidance for the fourth quarter yet.

Can you provide insight into the CapEx trajectory? Do you expect it to decline in the second half of the year?

That's a great question. Our estimates are tied to commodity prices. A rise in prices necessitates increased investment, while a decline suggests we may need to spend more. However, I’ll let Brian provide up-to-the-minute details.

We're excited to raise production guidance without an increase to CapEx guidance. We incurred savings during Q1, which we expect to impact the midpoint of guidance positively through Q3 and Q4 due to the execution by our teams.

I know you feel there’s hidden value in stock; do you believe Matador is poised to take action to highlight that to shareholders?

We're always looking for opportunities. Most of our team believes the stock is underpriced, including myself. I've seen a notable increase in value over the past years. We're well positioned to make informed decisions and are always open to serious offers. Our operational successes in drilling and midstream should eventually get recognized in the market.

Thank you all for tuning in. We really appreciate everyone's hard work and invite you to join us at our annual meeting on June 13. We'd love to foster further dialogue and collaboration. Thank you.

Thank you for your participation today. We genuinely appreciate your time. We look forward to welcoming you all at our annual meeting and hope for more open discussions in the future.