Good morning ladies and gentlemen. Welcome to the Second Quarter 2019 Matador Resources Company Earnings Conference Call. My name is Sheeree and I'll be serving as your 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 through August 31, 2019, as discussed in the company's earnings press release issued yesterday. I would now like to turn the call over to Mr. Mac Schmitz, Capital Markets Coordinator for Matador. Mr. Schmitz, you may proceed.

Thank you, Sheeree. Good morning, everyone. And thank you for joining us for Matador's second quarter 2019 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 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 reflects the company's current expectations or forecasts of future events based on the information that is now available. Actual results in 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 quarterly report on Form 10-Q. Finally, in addition to our earnings press release, I would like to remind everyone on the call that you can find a short slide presentation summarizing the highlights of our second quarter 2019 earnings release on our website, on the Events and Presentations page under the Investor Relations tab. I would now like to turn the call over to Mr. Joe Foran, our chairman and CEO. Joe?

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 feel this has been a very strong quarter for us and -- so we appreciate your attention. I'd also like to introduce the executive committee who are the ones with the staff who are really responsible for these exceptional results. They are Matt Hairford, President; David Lancaster, Executive Vice President and Chief Financial Officer; Craig Adams, EVP and Chief Operating Officer of Land, Legal and Administration; Billy Goodwin, EVP and Chief Operating Officer of Drilling, Completions and Production; Van Singleton, EVP of Land; Brad Robinson, EVP of Reservoir Engineering and Chief Technology Officer; Gregg Krug, EVP of Marketing and Midstream Strategy. As outlined in our earnings release issued yesterday, we're very pleased with the execution and operating performance during the first half of 2019. We had many financial and operational challenges and the staff really rose to the occasion. And I wish to personally acknowledge the entire Matador staff for all their hard work and dedication. It sounds corny but it was truly a team effort. The way everybody put in a little extra effort and applied their skills to achieving these results is -- and really, there's not -- I wish I had all the words to express my appreciation the way everybody pitched in and worked together. I know that's corny but it is really fun to see the teams really working with each other to achieve these hands. Second, also would like to recognize Midstream. They're certainly coming of age with our most recent project in San Mateo 2 as well as continuing to achieve stellar results in San Mateo 1. And in particular, we've done --…

Thank you. [Operator Instructions] Our first question comes from Scott Hanold with RBC Capital Markets.

So, I mean, seeing CapEx, where it was this quarter was very good. You know, well -- well below expectations and can you kind of give us some quantifications on some of the savings you're seeing and where we could ultimately -- maybe look through where you were at the end of 2019, where we are today but where can we be as we enter 2020? I don't know if there's a relative figure like $1 per foot completed or an average well cost of a typical lateral length or if you can give us some context of how that's progressed to today and where we expect it to go in 2020?

Yes. Hey, Scott. It's David. I think that we hit the -- we had put out in the investor deck this last quarter. So a slide that had talked to how we thought that 2019 could go in terms of our ability to improve our capital efficiency. And I think that we had said that kind of on $1 per foot basis, as I recall that we thought that would be down 13% or 14% over the course of this year. So far, I think we're probably a little bit ahead of that this year and I think that that had projected we'd be down another 10% to 12% again next year. Of course, that assume that there wasn't any inflation and service costs. Those would remain flat because we were trying to give an idea of what our own capital efficiencies could be. So I think that we're probably running a little ahead of our expectations. And I give a lot of credit, of course, to the Operations Group for their abilities to do that. I think that's been accomplished both on the drilling side and probably in particular on the stimulation side as well. And so it's been a really good effort to this point in the year. I do think it's important to note that we sort of -- a lot of what we've done in the first half of the year hasn't been as much associated with the longer laterals, although it probably was in the Eagle Ford but the Delaware we're just -- while we do some longer laterals at Wolf we're kind of just, I think, still in the beginning stages of that. So as we go through the second half of the year, we'll see that a little more. And then of course, as we go into 2020 I think that will even kick up more. So I think we're pretty optimistic that as that transition happens we'll continue to make progress in terms of dollars per foot.

Okay, that's good to hear. Appreciate that. Shifting to the Midstream for my follow up question and San Mateo, it looks like you all like to spend a little bit more to accommodate growing third party potential there. Can you give us a sense as you look into 2020 and maybe even 2021, where do you think that -- based on your own expectations of growth for Matador and what you're seeing in third party [indiscernible], how much spend is needed to continue to enhance that investment?

Scott, this is Matt. And it's a good question. And I think the way I'll answer that, it just depends on the opportunities. And we kind of have a really good handle on what Matador is going to do. So we know what expansion we need to do on the current assets. The third parties, it's been a good thing as we're talking about increasing the CapEx for the back half of the year. That's been demand related. So the thing that we take a lot of comfort in is that we have the base asset. We've got the gas processing there in Eddie County. We've got the saltwater disposal facilities. We're looking at for completing our 10th saltwater disposal well, so we got a really nice footprint to expand on. So that's kind of the way I think about that and just getting back to capital efficiency this deal we've got with Five Point for San Mateo 2. We do have the carry that we'll continue to get on. The first 200 -- first $150 million of build-out of San Mateo 2.

Okay, thanks for that.

Thank you. Our next question comes from John Freeman with Raymond James.

Good morning, guys. Just following up on Scott's questions on San Mateo, I'm just trying to see if we could get maybe a little bit more detail on the breakout of the additional expenditures because you mentioned in addition to sort of these additional projects that y'all are going to be working on. You also entered into an agreement to make a few sort of commercial SWD well, a permit, some acreage that were sort of more acquisition oriented. Just sort of the -- maybe the composition of that.

Hi John, it's David. I think I would be correct in saying it was probably about half and half. I think so. The -- in terms of probably the additional CapEx. We had a -- we just had -- we thought a special opportunity come up to be able to acquire an existing commercial well and facility up in what we call the Greater Stebbins area. And that was something that we were probably going to drill anyway. And there was also some surface acreage associated with that and we're working to get that finished up and so that was a particularly I think good opportunity for us and I think for the seller as well. So that worked out well. And then of course, because the fact that the Midstream business development team, I think is just doing such a good job in terms of securing additional commitments and finding other third party customers that we just made the decision that we want to pick up that business. It requires sometimes building out little extra pot to get to them or putting on a little extra compression on our system to do it. And I think that's what we were just trying to -- that's what we were trying to convey.

That's very helpful. And then in addition to the completed well cost improvement [you all seen] [ph] you had a pretty nice decrease in LOE that you all mentioned was a good bit driven by the lower saltwater disposal cost. If you had more of those volumes that got put -- moved from truck to pipe. And as I just sort of try to think about maybe the additional sort of running room you have on improving the cost on the upfront, could you give me kind of rough numbers of what percentage of your saltwater is now on pipe versus truck?

John, we answered that on the [indiscernible] side. We got San Mateo over there. So we got almost all our water is on pop there with the goal to -- to get to close to 100% or get to 100%. On -- over in Lee County, where we've just recently begun adding these volumes on [pod 4] [ph] probably about 80% or so maybe a little better with the volumes and then towards the end of the year, we're projecting that we're going to get again closer to the 90% or 95% on that. So the team's done a really nice job. And as we talked about LOE there's just a couple of things I want to point out. Number 1, you want these cost savings to be sustainable and we feel like absolutely on the saltwater disposal side, that is -- I mean when you get those volumes off trucks and on the pipe that's for the duration of the contract. And so we're very happy about that. The other component of this that we mentioned is workover cost. So the team has done a really nice job in reducing workover cost. And in addition to that, we've got a task force that’s actually looking at ways to mitigate even having to do workovers so a lot of it ties back to the artificial lift and how you install the artificial lift and how you make longer run times on ESP, better gas lift operations. So the team is really focused on not only doing better execution on these workovers but also eliminating a lot of them.

That's great. Congratulations on a really nice quarter, guys.

Thank you. Our next question comes from Neal Dingmann with SunTrust.

Morning, guys and it's nice to be able to tell somebody nice quarter these days so congrats. My question is on your slide where there seemed to be a lot of talk these days even more so than ever about on Slide 9 you guys always do a great job breaking that out into different plays. Just maybe if you could talk to spacing a little bit. Matt, Joe or David, any of the guys, you haven't changed this now in a while and where I'm getting at is there's -- some investors now seem to question parts of that in the Permian. And I'm just wondering if you could maybe talk about your spacing assumptions and going forward how you have belief in that.

Yes, hi, Neal. It's David. I think that our spacing assumptions remain pretty well unchanged. We, I think, have been pretty consistent in saying that our inventory, for the most part was based on 160 acre spacing and that the wells that we drill are fairly consistently at that kind of spacing. We do have some locations in zones that are particularly thick like maybe the Wolf Camp B where we have identified two or three different landing targets, where we've kind of spaced things on a kind of a wine rack 80. But again, at any one plain or in any one sort of stratigraphic location, we're still at 160 acres apart. I think we feel like that that's -- that served us well to this point. Clearly, in our non-op program, we've had the opportunities at times to participate in a fairly small working interest in some of the closer spacing tests that some of our -- some of the other operators have done and certainly we are very interested in doing so. I think one thing that we've always said here at Matador is that we reserve the right to get smarter. And so we're always trying to figure out what the optimal way is to do things, but at this point, I think, we'll probably continue. You probably remember that several years ago when we drilled a few wells a little closer to that and weren't particularly satisfied with the results. And some of our Eagle Ford experience I think had kind of made us a little more cautious coming into the Delaware. So for all those reasons, I think that we've pretty well continued regardless of the stratigraphic interval to keep ourselves spaced to at least 160 acres.

Neal, this is Matt. Just to add on to what David is saying there. We do reserve the right to get smarter. And one of the things that we have the pleasure of doing is participating into non-off wells that have closer slicing and then what we would be comfortable drilling. So it's nice to be able to participate in those wells for single-digit percentage and be able to get the data and see how those react, whether it's a Whine Rack baker spacing or maybe even something closer than that.

Now, that's great to hear. Maybe if I hit the other hot topic just on GOR; it seems you've held in better than some others. And again, day before your matter, the guy is just -- how you see that as far as when I'm looking sort of I don't know, West, East from your Rustler Breaks and maybe I'll lay down some of the newer BLM. Maybe if you could just comment if you have any thoughts of change in the GR or what you're thinking about it these days?

I think generally speaking Neal, that it's been pretty clear that different areas of the basin just have different gas cuts associated with them and we think we've talked about that a lot and been pretty transparent about it all along. And even sometimes different the stratigraphic intervals within a particular asset area have different gas cuts. I -- if you look at Oak Ridge, it seems like most of our wells tend to come in the low 80s over there in terms of Orca. You look down at the wharf and things are more like 60, 65. You go up to regular breaks and from the Wolfcamp B those may be 30%, 40%, which get up into the Wolfcamp XY and it's 75% or more and then you go up to the Antelope Ridge area and some of those wells are 90% plus. So it's just that it's never been just one thing, it's in -- I think that we've -- we just -- I think it seems to be fairly consistent when -- I think we have a pretty good idea of when we drill some of these wells, what to expect in terms of the oil and gas cuts from the particular wells. But one thing I always remember, we talked about this several years ago, that the geologic team did one of the coolest things I thought that I'd ever seen at that time. Was -- you know, they went out and got a bunch of cuttings and did some geochemical analysis and brought a chart in and basically spread it on the table and said, now when we drill these wells [indiscernible]; these ones at the bottom are going to be gas hearings, as we go up it's going to get progressively earlier and that's exactly what happened, that's exactly what it was and I just always had to give them a ton of credit for the really good science that went in long before we actually stuck the first drill in the ground. And so I hope that's helpful but again, you know it's just not -- it's just an area where things just change across the basin and I think we've adapted to all of them.

Yes, that's helpful. Go ahead man.

This is Brad. I just want to add to what David said and you because you mentioned the BLM specifically. And that acreage is in more or less the deepest part of the basin and as you get deeper, the pressure gets higher, which is a good thing because it adds more energy to drive the hole out. And with that, comes more gas in the oil. So we do expect to see different GORs around the basin as David mentioned but that can be a real big thing in terms of driving the oil out of rock.

Very good. Thanks so much guys.

Thank you. Our next question comes from Sameer Panjwani with Tudor, Pickering, Holt.

Good morning. So I know it's still a bit early to talk about 2020 but just given that continued capital efficiency improvements you've seen both on the low cost side and cycle times along with the potentially negative macro oil -- oil macro backdrop going into next year. Could you just sharing updated thoughts on activity levels heading into next year and also how you think about the strategic goals for capital allocation?

Well, Sameer, let me take the first shot at it. And Matt and David now there's can chime in and give their perspective too. But the very first part is we're just getting started on these various efficiencies that I mentioned earlier, particularly the capital efficiency. So we're very early on coming to realize -- I mean they're on the plans and we are taking more and more advantage ever but we're just really getting started on the rig efficiency of drilling the two mile, the longer laterals. Otherwise our benches in several other ways were increasing the effectiveness of here, the working together of the various groups, the rigs. And so we're going to continue that. We see that is a big part of the future of Matador and the industry is continuing to improve on efficiency, drilling the wells faster, trying to freckle faster, the pad drilling, all those sort of things are becoming more and more commonplace and we're trying to stay with that trend and make it happen. That 2020 -- the next house pointed out in 2020 is we're making a sixth rig and not a seventh rig. The market for a long time seems to be very worried about us adding a seventh rig. We try to do what we say we're going to do and so we didn't want to say we were definitely tackling the rig. We definitely weren't tackling the until we could see more clearly what the lay of the land was. And so it's now clear that we don't need it to reach our targets. We've drilled some oil wells faster and so we've been reaching our targets with less. They give credit to the operation group and Billy's people and so we're not going there and hopefully, you and others are now more comfortable with the 2020 outlook with that income be necessary. We won't say we won't. And at some point the future is 73 but just don't see any need for it in the foreseeable future or on the horizon. Have I left something out Sameer, Matt?

Yes. It's just a bit of what you say in there. I think Sameer want the real nice things that's happened this year and going on into 2020 are these efficiencies. We feel like we were talking about adding a seventh rig and Billy and his team have done so good with six rigs. We're getting more and more things done with that. And as you talk about Matador and how we think about things, we put a lot of value on optionality. And we talk about it just about every quarter but we're going to maintain that optionality with our rigs. We've got three rigs on longer term contracts, we've got three rigs that are shorter term contracts. With our agreement with Halliburton on the frac pricing, we've got a lot of optionality in that and then just as we talk about going into 2020, we were indicating 85% and 90% of these laterals that are going to be a mile and a half or two miles. The operations team has done a really nice job in preparing for that. We've got the Patterson rigs, we're very happy with our Patterson rigs. We're very happy with the upgrades that we've made to the same rigs and so in anticipation of drilling two-mile laterals, more and more two-mile laterals and even at the state line, two and a half mile laterals. Billy and his team have gone in and have some modifications done to the high-tech rigs we already have and adding a third well [indiscernible] ask him to speak about this here just a second but hard talk type drives and our guys are drilling engineers on these boots, they just continue to push the envelope and we just go faster and faster and faster. So Billy, you might want to talk about that answer to the rigs.

Okay. Hi Sameer. This is Bill Goodwin and I like -- like Matt was saying, we kind of stepped in into the one and a half mile and two-mile laterals and let's give it a start on the drilling and completions. You'll kind of look at different techniques, different equipment and get really -- going to 80% two-mile laterals next year and in doing so, we've found studies that really work for us and helped us get more efficient and some of the things we've seen that really look good and help for us as having the three parts and hard toward top grab and we think we get things done a lot better there, shave more days off and get a lot quicker on that end and the guys and engineers working in the MAXCOM room with a geologist while we're doing it, we're stating target on a lot of these wells 100% of the time and the preferred target 90% of the time so we keep getting better there too as well. So we're getting better, faster, saving on the CapEx and drilling better wells at the same time. So we look forward to continue with that and also since we started the MAXCOM room, we've set approximately 50 records since we started that last year. So it's been a great deal for us.

Yes. I'd just like to add a little bit what Billy said is, 50 records and it's not just in one category but it's across the whole drilling spectrum and lot of and all around are our properties around the basin so it isn't just in one area with one set of engineers but it's across all areas, all across the activity. Also there's MAXCOM room, would invite everybody to come see it because I think you have to kind of see it to appreciate it, to fully appreciate it. It runs 24/7 and one of the things that we have in there, one of the attributes of it, is that you have both the engineers and geologists and they're working together 24/7 and they have a rig -- I mean, they have a rotation where they're not always working out always days but that's at cooperation and they're learning from each other. So you take young engineers, young geologists and there's great exchange and you're not waking people up at night and taking those delays because as fast as you drill and you could be several hundred feet but they're making decisions, they're learning how to work together, to make decisions and to what Billy says, stay in zone. Not just in zone but in preferred part usually within horizon, some parts of that horizon are better than others. And being able to stay in zone and track it in real time is really deleverage and advantage to us. And it takes a lot of extra work on Billy's part and that's part to working in the Haskins [ph] schedule, those people and him. And Austin Wright and Steve Rogers have all contributed, Clark Collier and that's been a big, big boost but it's taken a little bit of extra work that I mentioned earlier. And Matt and David now are real proud of it.

We really are Sameer and just to continue on that line of discussion, to get to the point where you've got a mile and a half to two and a half mile laterals. There's a lot of work that has to happen on the land and legal side and those guys have done a really nice job in making trades, including joint operating agreements together and working with other operators and putting it together. That's why you see the hockey stick for us on the number of longer laterals to go from 9% last year to 90% next year. It's because of a lot of very hard and effective land and league work too.

That's really great color and I really appreciate the comprehensive answer there. I guess on to my second question. On the mineral side of things, looks like you remain active in continuing to acquire interests in building the portfolio. So I’m just wondering if you've started to look at the ideal structure for that business towards making a determination of whether you'd like to keep it internally to further enhance your economics and capital efficiency or if it could be a source of proceeds at some point down the road.

Sameer, I would say you're thinking is a lot like ours. We talk about it early every day. We just don't know yet which is the best rode to go and it depends on a number of variables and it's actively studied in almost on a regular basis we're invoking our right to get smarter and move this direction or that direction to try to get what we think is the optimal situation. So we think we have some valuable assets there that can enhance the company's values. We're just not sure which one will deliver the most value over the long-term. We going to do some short-term, want to be long-term sustainable and something that enhances what we're already doing. And so we're making progress, just still early in the process.

Okay, fair enough. Thank you.

Thank you. Our next question comes from Irene Haas with Imperial Capital.

Hello. I just want to congratulate you guys on hitting and exceeding your goals quarter after quarter, 24/7, especially against a really challenging macro. It's really quite an achievement. And my question actually, if David can give me a little update on these performance incentives that you have for San Mateo 1 and 2 for 2019 and 2020 and do you have a schedule for that?

Well, I think that is -- as you know Irene, we earned the performance incentives in 2018 and 2017 and 2018 from five point. And so those were both paid in the first quarter of 2018 and then the first quarter of 2019. So the $13.7 million in San Mateo won incentives were paid. And I believe that the company anticipates that is on track to earn the 2019 incentives, which would be paid in the first quarter of 2020 with regard to San Mateo 1. So that would be another 14.7 if we're successful and as we expect to be. If you look at the San Mateo 2, incentives there are a little bit different and they do require us to their drilling base, they require us to drill certain wells. I believe there is a threshold of about 20 wells that we drilled before those incentives begin to kick in. And so it may be toward the end of 2020 or early in 2021 before we begin to realize those incentives. Those will actually be paid on a quarterly basis so I would think that by the -- we'd probably estimate by the first quarter of 2021 for sure that we would in a period of time in which we would be earning some of those incentives each quarter going forward until they were exhausted.

Great. And if you don't mind, well, quick question is that, you did some divestiture during this quarter and I think earlier you said you expect to sell about $50 million roughly. So should we expect some more divestiture in the second half? And also your 2019 guidance is that net of divestitures? That's all I have.

Well, with regard to what we'll be able to get done in the second half of the year. Certainly, we're optimistic that we'll be able to do some additional deals. I think the land guys have been very proactive in that -- in the first half of the year in terms of making some of these deals happen and we're certainly optimistic that we'll be able to do some more in the second half of the year. Usually, Irene, in terms of our forecast, we typically assume that it belongs to us until we know different. So I don't -- so at this point, our guidance would include any of those volumes that potentially could be divested over the second half of the year. But I don't know exactly what those are. So until we do, until that's more definite they would be included.

Thank you so much.

Thank you. Our next question comes from Jeff Grant [ph] with Northland Capital.

Good morning guys. I was curious first on the operational side. These [indiscernible] wells that you guys referred to in the release on the Western Antelope Ridge. Can you guys just give us a sense kind of strategically how you're approaching the six wells in terms of kind of the zones that you plan to do and well, you mentioned two or three well pads. Is the plan to do kind of complete all six before flowing any back or would you do kind of three and three or just hoping it? A little bit more color on your approach there.

Yes. I believe that, Jeff, I'm correct that first of all, we do plan to -- assuming the approval and the receipt of the permits from the BLM, we will. We will plan to move a couple of rigs onto those -- onto the Rodney Robinson [ph] tracks. We plan to drill three wells with each rig initially. So it will be a six well package. I believe I'm correct that there'll be some completions in the bones and some completions in the Wolfcamp and so we'll drill three separate stratigraphic intervals with each rig. Yes, all six wells will get drilled before we begin completion operations. They'll all be then completed before we turn any of them to sales. And so right now, if we're able to stay on track and get started on them, kind of early in the fall, then we would anticipate that probably first production would come from them, I would say probably late in the first quarter of 2020.

All right, great. I appreciate those details. And my follow up just on the land side. You guys mentioned doing some acreage trades around the seventh area. Obviously had that nice Wolfcamp well that you guys update as a son. Can you guys give us a sense kind of with the recent trades, how sizable the block is that for you all? And can you remind us the average NRI if I recall, it was a little bit above kind of the standard 75%?

Yes, I think I'm correct that it's in the kind of 2,500 to 3,000-acre sort of range currently. And, we have that I think hopefully, the potential to continue to improve that but I think that's where we are right now. There will be multiple drilling targets that we'll have there. There's at least, immediately a couple of second and third -- the second Bone Spring, the third Bone Spring, and the Wolf Camp AXY. But I would imagine the team will have other targets that they want to complete there as time goes on. And the other thing too, is that because of the good land work that's going on, it's really sort of taken a nice block for us that maybe a year ago or 18 months ago at this time, we were thinking was going to be mostly 1 mile laterals and it's turned it into a project that is going to be pretty much a mile and a half and 2 mile laterals going forward. We've just begun drilling our first two-mile laterals and the Bone Spring -- second Bone Spring there. And we have our first Wolf Camp AXY longer laterals scheduled there getting going before the end of the year. So a lot to look forward to I think, in that particular block and it's one where I think we feel like we can -- that we can keep it going for quite some time as we develop it out.

Jeff, if I can jump in here just a little bit. Is that on the land work is -- again, it's our practice. We want to do deals but we want to do deals to build relationships. So that we're -- that these are win-win deals. To get some of this acreage, we had to give up some of our favorite tracks. As you know, from the wells that are been released here and you follow have been naming since these are site-local tracks after a number of our early shareholders. And it's a -- and as satisfied or place you may by trading. It allows you to do longer lateral. When you call up the person whose track was traded and now we're not going to be drilling is well. He can say that he's been traded to XYZ Company in order to block some of the map. I've gotten a little pushback. And so if you see some names moved around the basin back there I've felt -- I know how major league players feel when they get called in and told their trading business and these guys have kidded me about that. But it's really an encouraging sign in the industry to have increased cooperation on sharing retention ponds or cooperate with information or on these trades. And the real aim of it is to help Mike win-win deal and build the relationship. So we hope to keep that up. Ensure -- glad we think those are all healthy trends and will help us all do better without -- to get the 2 miles that -- when that happens, both sides win.

Yes. Thanks too, Joe. By the way Jeff, this is Matt. One of the other things that we've been talking about it just related to the efficiency and it's putting this block together where we've got a rig, we can just park there. Its drill a mile and a half and two-mile laterals. And the other thing that a block this size allows you to do in regards to parent-child relationships is you can kind of just march your way down through the asset and so instead of having years where you come back and drill a subsequent well, you're looking at weeks or months. So it's a very efficient way to develop a large block like that.

Yes. A very good point, Matt. And, Joe, to your point nothing wrong with a nice sacrifice but once in a while.

Yes. I'm going to use that because one friend, Kevin Grevey was a professional basketball player from AMT [ph]. I called him up. He -- his dismayed well got traded to 3 taxes. And he says it's okay, you understand it. Lawyers traded him to the Milwaukee Bucks. I mean the bullet straight into the box. And so he said he's used to it but not all of them. But there's a good atmosphere out there. When times like this happened the service providers and everybody else are looking for some strategic relationships and efforts and they're open to ideas that help everyone so I'm -- as tough as it is sometimes on processes or pipelines, it's good that everybody seems to be of a greater degree of cooperation. And so every cloud has a silver lining and we appreciate the way that happened and appreciate the way our staff is meeting some of these challenges. So I don't want to go on. But we --overall, the trends are a net positive.

Yes. Now 100% agree and appreciate all the thoughts and the time, guys.

Thank you.

Thank you. Our next question comes from Tim Rezvan with Oppenheimer.

Good morning, folks. Thanks for taking my question. I want to circle back to San Mateo quickly. I notice the strong 2Q results yet 9% sequential EBITDA growth. The guide for 2019 of $90 million looks increasingly attainable. And then you have additional kind of projects in the works. So how should we think about from modeling point of view kind of earnings growth for that segment? Is at 9% ramp and attainable level? Or has growth been more lumpy as projects get tied in? Or how do we think about longer term growth there?

Tim, I'm going to say something, but I think, Matt and they will have some thoughts. I just don't think we have enough data points to draw a real firm bowl line on how much growth is going to occur. I think there's scenarios where it could be less or it could be more. And I just think we need a few more data points before staking our reputation. We want to do what we say we're going to do and I just don't we know yet. Matt?

I agree with that. And Tim, it's been a great quarter. First quarter was good. Second quarter is even better. As we move forward I guess I'm going to tell you, you want a balance of your anchor tenant, which is Matador. You've got great visibility into what they're going to do. And particularly for us, I mean, I'm proud to say we do what we say we're going to do. So you really have your finger on that pulse. The third-party stuff is a little more difficult. I mean, people can start and stop. And there can be commitments that you think are coming on Monday and they don't show up till Wednesday or maybe months down the line. So there's a lot more -- I hesitate to use the word ambiguity but that there is more of degrees of freedom. Thank you, David. That's exactly right. So it's good news. I mean, I think the quarter we've had is great and it's indicative a lot of hard work for the San Mateo guys and they're continuing to as we say, push on that rock.

Yes. I don't really have a lot to add, Tim. I think that we continue to feel good about the guidance that we've given through the year. And I think things are progressing as we would have thought. I don't -- I'd be reluctant to say it's going to be up 9% every quarter per se but nevertheless, I think it was a very strong quarter for San Mateo. Highlighted not only by some mass increases in third party revenues but a shout out to that team too. They did some nice work on their off costs too during the quarter and they definitely made some improvements there. And it showed up in the bottom line this quarter. So we're hopeful that we can see that continue but I think they just had a particularly nice quarter.

Matt and I am not trying to put words in your mouth but I think we all see based on what you've been talking about that the $90 million is we're increasingly confident will be attainable.

I think so, Joe. And this is Matt Spicer [ph], I'm not here to hit the nail on the head. I think we've got a really nice mix of blue-chip quality customers out there. And we have a really nice mix of contracts. Some of them are firm; some of them have interoperable agreements. And when some of that interoperable stuff shows up it looks real nice and sometimes it doesn't. So we have to be careful on what we're going to estimate but I think we had a great quarter.

Okay, thanks for the details. And just as a follow-up. You provided longer term performance on the sevens well up in Arrowhead. We've seen in strong well results from that area and Ranger but in a tough market to really kind of add capital for delineation, how do you think over the medium term about kind of proving up the value of that acreage? And if you're running 6 risk is there any opportunity that you could possibly allocate more capital up to the north to really sort of prove up that resource?

Yes, Tim, all that you say is true and possible and it's just how you put the jigsaw puzzle together. But one aspect I'd really like to stress is that we keep track of how much we spend on each well and how much revenue week get. And there's a little bit of counter intuitiveness that you're -- you make more money about drilling wells in this low-cost environment than you do in oil sometimes is $100 a barrel. And the reason for that is that the 25% of the revenue generally goes to the royalty and another 5% to 10% to the governments for severance tax and others but when you say the dollar in cost, that goes all the way to the bottom line. And when prices go up to $100, cost go up and there's a balance there that you want to keep going -- keep your groups and teams together and getting better with new technology and new areas. But you don't want to go too fast or too slow. And we feel we're on a good pace. We're gaining either efficiency on the drilling and on the whole processes and -- but yes, you could allocate more up there that you'd make money if you did but you were making money on these other areas. And they're just a lot of variables that make it more of a calculus than a single variable deal. You just -- you got to take a lot into consideration. Matt?

I agree, Joe. And I think that you get a nice mix like what you said to Tim on Mrs. Stevens, with the Wolf Camp well. We've been talking for quite some time now but we're going to just keep moving Wolf Camp farther north and farther north and farther north. And we've done that and you're able to do that while mixing in the second and third Bone Spring wells that have a great rate of return. So as we learn more and more about these reservoirs, we're going to -- the donation becomes a little bit easier, I guess, is what I should say.

I might just add one comment on that, Tim. I do think that -- I mean a lot of that acreage that we have up there, not all but a lot of it, came through our merger with Heiko [ph] a number of years ago. And so a lot of it is HPP, which is positive. Then in addition, I think that -- I think the teams are really doing a very nice job now up in that area of kind of using this time also to now that we understand a little bit better, to really, again, reformulate units and do trades and things like we've done in Stebbins. Some of that's going on in other places too to try to reformulate these units into longer laterals because I think we feel like that's going to be very important to the -- not only development there but all across our acreage position. But I know there's a lot of good work going on up there and kind of taking this time to get that in place.

Well, and again, following up among all the variables. One is just the notion that we'd like to be hidden away for doubles, triples and homers, all the time. But occasionally, as Jeff said earlier in the conference, you got to sometimes lay down that sacrifice but or been single to confirm that delineation process and to give geology time to process new information on wells in the 3D seismic that we have. We -- last year was a hard decision. With all the concern about capital spending that we authorized paying a pretty good sum of money for 3D seismic that would have been easy to abstain from but it's been a good move. Ned recommended it, we honored his request. And he's made it pay off but there's still more work to do. So there's little timing, incorporating this new information and this new data into our overall understanding of these areas. And so that's, again, just an example that there's -- generally, it's more complex decisions, then first appears as you start taking everything into account.

Sure, that all makes sense. Thanks for the details, folks.

Well, thanks, Tim.

Thank you. And our final question will come from Gabe Daoud with Cowen.

Hey, good morning, Joe, David, Matt, everyone. Thanks, excuse me. And just a quick one, back to 2020. I guess if we -- if we're thinking about a flat activity pro -- a flat rate program into next year, as we think about the impact on capital relative to 2019.

Let me dig real quick and then jump in there. Gabe, just because we've hidden the rigs flat, it doesn't mean we're keeping the amount of footage drilled flat. Is that -- that's just -- the big point that Bill and his group have achieved is they've drilled more footage with the same number of rigs. And that's partly the rigs getting better equipped, the crews understanding these areas better and our guys finding ways to save a hour here, a hour there, new technology in the form of beeps and these things all combined. We give Billy a hard time. He came in and said he just going to get the same amount of footage with the same amount of rigs. He's built up high expectations for us and we think we can achieve that. And the other thing is, is that as you move in and you're able to get a higher percentage of your working interest, then you increase your recoveries, even with the same number rigs and then the final note is as you move to -- from 30%, I think this year is we're expecting 2 miles to 80% or 90% next year, you're going to have a big boost in recoveries because you're going to be able to drill a two-mile lateral faster and have better recovery. So I just wanted to kind of put that in perspective and then turn to my good thinking colleague, David for the patient test [ph].

Obviously, Joe, in this case, I believe I can improve upon your answer. So I'll decline too. So I think you said what I would have said so -- and probably better.

Let's get that on a recording. Gabe, I hope that helped.

Yes. Now that's helpful. Okay, I guess that's it for me, guys. Well, thanks a lot.

Thank you, Gabe.

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

Thank you. The biggest closing remarks that I have is to invite all of you on the call to come by and see us sometime larger, small, shareholder or even prospecting. Just come by, we'd like to meet you in person. We'd like to show you around for through the Max Cameron. And I think you can see what a difference that makes and meet a few of the management and some of the staff that are really doing such a good job making things happen. Our business is complex enough that we feel it's not so much grand strategy but execution and making the train run on time. So we enjoy having you come by and meet everybody in person and hope that you all will take yourself on that. So the light is always on so to speak. Come see us. And thank you for your time and attention. And one last big shout out to the staff and to the executive team. It's really been late time and we appreciate all the many kind words that y'all have had and we think our best years and quarters and months are still ahead of us. So thanks and come see us.

Ladies and gentlemen, thank you for your participation in today's call. This concludes the program. You may all disconnect and have a wonderful day.