Good morning, ladies and gentlemen. Welcome to the Fourth Quarter and Full Year 2021 Matador Resources Company Earnings Conference Call. My name is Kirby 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 through March 30, 2022, as discussed in the company's earnings press release issued yesterday. I will now turn the call over to Mr. Mac Schmitz, Capital Markets Coordinator for Matador. Mr. Schmitz, you may proceed.

Thank you, Kirby. Good morning, everyone, and thank you for joining us for Matador's fourth quarter and full year 2021 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 quarterly report on Form 10-Q. Finally, in addition with our earnings press release, I would like to remind everyone that you can find a slide presentation in connection with our fourth quarter and full year 2021 earnings release under the Investor Relations tab on our website. And with that, I would now like to turn the call over to Mr. Joe Foran, our Chairman and CEO. Joe?

Thank you, Mac, and thank all of you for listen in on this call and taking the time. I'd like to simply begin by noting this is our – actually our 10 anniversary from going public in February of 2012. And this is a good high watermark for us for this time. Last year, we considered the best year we ever had in all areas and in particular, just execution and the teamwork that we had between our various disciplines. I want to thank the staff, both in the office and the field for this good performance. And say, we certainly understand that it was a record setting year and that past performances or no guarantee of future performances, but we feel it's not a bad indicator to have, we like our chances going forward. And we think the outlook is the best that it's ever been. And hope that you'll see in the documents that we're sharing with you, how far that we've come in the last 10 years. As a measure you see in here, the production records, the reserve numbers, the free cash flow, all records being, but I'd also just like to note that if you bought on the IPO, you're up basically four times we came public at $12 and we're approaching $48 now. And if you had to be an original shareholder in this Matador, you were at $30. So you're up little over 15 times in that period. As I said, I know that past performance is no guarantor of future, but we like our chances and we'd rather be having that kind of progress than the other way around. As I said, with March Madness coming up, just because Duke and Kentucky and those are not guaranteed anything, it's certainly the way…

[Operator Instructions] And first question comes from the line of Neal Dingmann from Truist Securities. Neal, your line is now open.

Joe, congrats on nice quarter. Joe, my first question centers on sort of the financial upside, we'll continue to see from you all, just typically maybe for you or Dave, the guys just, it seems to me, a lot of investors are just looking for primarily cash flow growth. And I'm just wondering, I guess it's another way to tackle a sort of shareholder return. How do you all see the best way to achieve the shareholder growth? Is it some production growth? Is it buying back shares, all the above or when you all think about cash flow growth, what's the best way to deliver that?

Yes. Good morning, Neal. This is David. So thanks for the question. I think that Neal we've been pretty consistent in our response there. Certainly over the course of the past year, true to what we said we would do. We focused very laser like on paying down debt and on initiating a dividend and beginning to return capital to shareholders. And we were pleased. I know Joe and the board were very pleased to double the dividend in December of last year. And we've stayed consistent to that here in the first quarter. I'm sure that they will look through the course of this year to an appropriate point where they may choose to raise the dividend again. We certainly are going to stay focused on getting the rest of the debt paid off. We ended the year with about $100 million in borrowings outstanding on the RBL. We're going to pay down another $25 million here in the next few days. And so that'll leave us about $75 million to go. And I think we'll get, in short order, the rest of that paid down and then we'll have our bank facility paid down. We've talked about the potential later on in the year of perhaps looking at doing some kind of a bond restructuring and maybe paying down a little bit of the bonds, maybe putting a couple of towers in place. We'll see how that goes. I think that would be in the latter part of the year, if we did something like that. And certainly we've talked about continuing to look at for bolt-on opportunities and acquisitions of the sort that we have done in the last six months and may continue to do again. But only if we find, what we think are the right things. I think that the company continues to evaluate, the other vehicles for shareholder return, be increases to the base dividend or some sort of a special dividend if that should be appropriate later on in the year. But I think that for the moment, we feel like the best thing is for us to just to kind of maintain our optionality and flexibility. But certainly if things go the way that we anticipate if they will this year, you're quite correct. We'll have a significant amount of free cash with which we can work. So, Jon, I don't know if you have anything you'd like to add to that, but that's I think how we see it.

Well, I agree with everything that you've said, the one thing I would add is the operational group has made a concerted effort to try to find ways to drill better wells for less money. And that seems quaint. But it's the truth with some of the innovations that they've done in frac design, the administration of the fracs, the marketing of the oil and gas product, working with our key vendors to find better ways to do it. As an example, that when you cut down the number of days on a well, those are very sustainable achievements that lead to more cash flow that aren't tied to commodity prices. So I think they've been resourceful in getting this done and the oil and gas business is like making the train run on time. We can't do it all from here, but just appreciate the gains and experience and expertise our operating staff have and bringing about these better wells and working on with our vendors to find more efficient ways to develop these properties.

Neal, maybe I would just also add that. I think that I think the company has had a very good track record over the years of being good allocators of capital and good stewards of the capital. And I think our shareholders can count on us to continue to do going forward.

No, absolutely, David. I want to say, before my next question, just congrats to you and Matt obviously been great work with y'all. Just secondly, Joe, maybe for you or Matt seems to me, the market's still not giving you for whatever reason appropriate value on San Mateo. You guys have done just a tremendous job building that up, a lot of cash flow there. Great assets there, I'm just wondering on a go forward, is there anything else you can do, you think to have the market better recognize that, or maybe just any comments you have on San Mateo?

I'll go first to the cleanup. One of the other things that's really missing is the operational enhancements that San Mateo bring to us is that they're able to get there when we're ready to turn these wells on. So we're not waiting to turn on the lines and missing days of production. Second in this day of ESG, the environmental advantages that they bring that they're there to hook up. So you don't have trucks on the highway, haul in the oil or the water or the emissions problems, and that really improves our environmental profile. And then the options that having that the three pipe system on where you market your product also gives us an advantage. So Matt – I commend Matt and Matt Spicer and James Myers, the whole group over there have done a fantastic job, Gregg Krug, and working through this midstream and our partner Five Point. And again, just another good team effort where people working together to make better things happen. Matt?

Yes. Joe, I think you said it well, I'll just add to that Neal. I think for San Mateo, there's a couple of points here and Joe hit on one that's very important is how these two business lines work together. If you've got an EMP company that doesn't have a midstream company that's serving their needs, that's a problem and vice versa. So it's still, and we said this in other calls, it's still really nice to walk down the hall and say, we've got four wells at such and such asset that we want hooked up on whatever date and that happens. So there's just a tremendous amount of value there. I think what's happened over the course of time. We are kind of to the point now where, we got half a million, close to half a million BCF processing capacity. Our water volumes are up to where we could handle at least 370,000. And then the oil system is on that same acreage. So we're at a point now where for us to go out and spend additional capital, we can make sure that we can get a return on that investment prior to doing it. We've never been the building the company. So any of the capital expenditures that we have going forward will be certainly based on either minimum volume commitment for an acreage dedication. And the other thing I wanted to say was, Matt and Todd and business development team have done a really nice job going out and securing either minimum volume commitments to assure that we're going get a rate of return or an acreage dedication. And as the rig counts back up over 600, those acreage dedications become even more valuable because other operators come back to drill additional wells on the assets that they have dedicated. Those are volumes to San Mateo. So I think the business is in a really good spot right now.

Well said, Matt, Joe. Thanks again guys.

Thanks Neal.

Thanks Neal.

Next question comes from the line of Scott Hanold of RBC Capital Markets. Scott, your line is now open.

Thanks. Good morning. And David, Matt, on this, I guess 10th anniversary of going public, I mean, I'm going to congratulate you guys on your – what you've done for the company and hopefully you'll enjoy your retirement if Joe doesn't pull you back enough, right. But congrats.

Thank you, Scott.

I've got ankle bracelet on these.

They're not going very far, not far, not bad.

I guess, good to hear from some respects, but yes, I'm going to push a little bit more on the free cash flow – uses of free cash flow because based on our numbers, the quantum of free cash flow is going to be quite extraordinary this year for you all, this year and potentially next year. And I know you all have not necessarily specifically done what everybody else have done, just to be like everyone else, you've looked at things like moderated growth, if it gives better returns, bolt-on acquisitions, if it makes sense. I mean, we think you're going to have somewhere in excess of $1 billion this year of free cash flow. Like if that quantum of free cash flow actually occurs, can you give us your thoughts around like, how you think about your pecking order between variable dividends, buybacks, fixed dividend increases and potentially growth in bolt-on acquisitions. Just, I mean, there's a lot of things there, but the quantum could be quite large and we know that you all do things define what's best for shareholders.

Thank you, Scott. I'll try. And both Matt and David be large shareholders, that'll be listening in on these calls next year. They can let us know what their thoughts are. But the main one is I think it's unquestionable. We are aligned with all the shareholders, I'm the largest individual shareholder, David and Matt are very large shareholders. The staff are large shareholders, virtually everybody who worked for Matador owns some shares. And during the worst part of the pandemic, over 200 of the employees, which is 80% or so of the staff were buying shares. So we're very shareholder, long-term oriented. We're not trying to do some immediate whatever's fashionable today, but what's tried and true to build long-term value. And by that the main one is the financial discipline to restrain during a time of high prices from drilling what I consider somewhat marginal wells but focus – continue to focus on drilling eight plus location and developing more of that. So that's the first thing. The same thing is the fixed rate dividend we know works. And we will certainly continue down that path. David and I, and everybody on the executive team has debated from time-to-time, the efficacy of some of these other return to shareholder type mechanisms. I'm not particularly high on I have an open mind on everything and we have a saying we reserve the right to get smarter, but I'm not particularly high on the buybacks because you buy back stocks from somebody they go away. We'd rather invest that and build the value of Matador. The second one, the special dividend, you don't have a history, so people don't know when a special dividend might be is a weakness of that proposition. The variable dividend has some pros to it. We've looked at that, but I think at this time, raising the dividend, maybe the more optimal approach, but nothing's been decided we're going to get further into the year where we can see how things are going, because we know it could change overnight, but we're attuned to the shareholder because we're one of them and we're not – we make more from our shareholder returns than we do from our salaries. When the stock goes up, we make more than we do from the compensation in many of the staff, the key members and the executive committee, do the same. So very much, but don't want to do some because it's fashionable today and won't have lasting positive effects. So we're very open on this free cash flow. We've always said, we look for opportunities more than – first of year, we're going to dedicate so much to acquisitions. So we'll just see what opportunities may come our way. I think there are more of them coming up now than they were a few years ago. And we're looking at them but we're trying to be selective, so David, I’ll turn that to you.

Joe, I think you answered very well. I think the only thing I might add Scott again is just to reiterate the fact that I think that we're just sort of entering this phase, right. We still want to get the rest of the RBL paid off, right. We're just about there. And I think that and it won't take us much longer. We'll get that behind us. And then I hope your model's right. So I mean that'll be a very high class problem for the company to begin to think about. I would just say, having been a part of the company for so many years and having had the pleasure of working with Joe and seeing how the board functions, that I'm very confident that they're going to make the right decisions in terms of what's best for both the shareholders and the long-term value of our company. And so I think other than that, I think Joe laid things out very well.

Appreciate that color. And as a follow up, can we talk a little bit on the operation side? I mean, obviously, the Stateline has been a big focus area for the last year or two and perform quite outstandingly. You will move into some of the other areas, we'll call it more the legacy matter areas or the areas pre-Stateline, but can you talk about like, what you think about that mix shifting back to those other areas and the potential impact on returns if any at all?

Scott, I'm going to take the first part and Matt or Billy or Tom can follow up. But the first thing is when we really started the development, you had the pandemic hit and you had the Russian, Saudi oil price war and what that those circumstances called for was doing something to scale. And we had cut back the three rigs in a lot of what was happening and where it made a compelling case was on the Rodney Robinson and the Stateline area, because you could do things to scale off of one pad and so that was more efficient for that time. We still like the other areas, the lazy areas, a lot of them had the same or as good or better returns. They just didn't lend themselves to doing the big pad drilling with number of wells at one time. And so we focused on that. We also – it was necessary to get those going to earn some of the incentives on the midstream project. And that was what made the most economic sense at the time. But Tom and Billy and Matt are eager to get back to some of those other areas where the returns have been just as robust. It just, they didn't have scale at the time that the Stateline and Rodney Robinson had. Tom?

That's right. Joe, we've – the team's been working very hard on these other assets while we've been focusing down Stateline and learning so much from being able to drill 50 wells down at Stateline and just over and over and getting better, getting faster, getting more efficient, and we're taking those learnings out through the other parts of the basin and the teams are already off to a great start breaking drilling records, getting well ready to produce in the San Mateo back in Rustler Breaks. We can't say how excited we are to get to work on Ranger and Antelope Ridge and back in Rustler Breaks and Wolf this year, we're very excited to be back drilling two mile laterals in Antelope Ridge and really kind of before Rodney Robinson, most of the projects we've been doing in Antelope Ridge were one mile. And so we're very, very proud of the progress we've made and the number of targets keeps getting higher and better and Ned and his team are always looking at new and better places to land wells. And so we're just very excited to get back to these other areas.

Tom, you said that well too. I just want to go back to what you said about drilling 50 wells in one spot. If you want to put together a recipe to figure out how to be efficient, that's how you do it. You do the same type well over and over in the same type place. And you learn which bottom hole assemblies work, which bits it is, the motors, MWDs. Just the longest run we've had out there in the field, which is a record is a little over 13,000 feet. And so that's two, two and a half miles. So you can't drill any farther than what we've already drilled there. So you take those learnings to the new place. And then the other thing is by doing this, by coming back to Stateline periodically, we are able to optimize our production facilities so that we can flow wells back to a certain level. And then let them trail off a little bit, come back and drill another set. So we're not leaving forever. We're just going back to drill some of these assets that we're very excited to be operating on.

Appreciate that.

Just following on to what Matt was saying there, we get better and better on what we're doing there. And while geology and reservoirs looking at different zones there, finding more as we're drilling these wells and getting that opportunity and lands blocking up the land around it, everybody's busy doing their thing. Like the drilling guys, they went in there to Stateline and started out and had to run a fourth casing string in there. And you heard us talking the past about cutting out a casing string, how that save you $300,000 to $500,000 for each point where you do that. And starting out, they went in and drilled the first three or four wells and had to set that extra string, but they worked that and figured it out. And then we followed up with over 40 wells without having to run that string. So saved a lot of money there. And those are the kind of things we'll do as we get into these other areas and start working with them. And on top of that, Joe mentioned earlier working with our vendors there and they keep us going and we work with them to do these things. And B&L Pipeco and Patterson and Universal and Halliburton, they work really well with us to save a lot of these dollars here. So we have more to keep drilling new zones there. And along with that, the drilling side and Matt mentioned bit technology and BHAs and cutting out trips and that saves like a $1,000 now or $100,000, excuse me, little more. And then the completion guys, they get in there, get after it, and they've done the remote frac. And we've talked about that here today, I think, and I know it's in the release there and that's saving $250,000 well. Also the remote frac, we mentioned that that was six wells, so that saved us $1.5 million right there. And then they started looking at the dual fuel and that's already moved up to where we're thinking maybe we saved $20,000 or $30,000 a well, we're saving $60,000 a well, and now looking at adding fuel gas to that, and that'll save us $100,000 a well. So these are just some of the things we'll be doing as we move to these different areas and start figuring them out. And it's going to make us a lot of money, a lot more money for us and the shareholders and good all around. And I guess, Glenn, you want to jump on the production part of that?

Yes, I think on the – excuse me, Scott this is Glenn Stetson on the LOE side and the production side, we are forecasting the growth have you seen in 2022 and a slight growth to LOE. But we are as the same as drilling and completions working on ways to be more efficient, getting more water and oil on pipe, more sites on grid power, reducing compression, where we can, and all those things kind of add up to maybe we're forecasting a 6% increase to LOE for 2022 over 2021 but working on ways to mitigate that in every way.

Great. I appreciate all that color guys. Thank you.

Thank you, Scott.

Thanks, Scott.

Thanks Scott.

Next question comes from the line of Zach Parham from JPMorgan. Zack, your line is now open.

Hey guys. Thanks for taking my question. First I guess, could you talk about the decision to add the rig on the acquired acreage. Does that have to do with HBP requirements or just the returns up there you see from drilling or those compelling maybe talk about how you expect those returns to fit into the portfolio?

Yes. Hi Zach, it's David. So first of all, I'd say that of course, we wouldn't have bought it in the first place if we weren't quite excited by the opportunity that we have. And we think that it's a great area, great rock. We like the high oil cut. We like the lower water cut in a lot of those wells up in that area. It sort of is in an area that's between the Rodney and it's a little north of the Rodney's, a little west of the Mallon. So it's a nice area for rock there in the Delaware basin. So we're very excited about that. I think we feel like that the returns are going to fit in very well. As we mentioned in the release this past year, we drilled four wells in Ranger, not too far away on a track, we call it Uncle Chess and we've delivered four very strong wells. I think the two we turned on in mid-2021 have already paid out, so we're very enthusiastic about this area. I think that it also just so happened that there's a number of federal permits that are available and ready to go. And didn't seem like there was any sense to wait around and not get right on those. And so we've moved to rig out there and we're going to get busy and looking forward to it.

Got it. Thanks for that color. I guess, just one follow up on the operational side, we've heard a lot of talk in the industry about Simul-Frac and in the slide deck, you mentioned using remote Simul-Frac, could you talk a little bit about how that's done from an operational perspective?

Yes. Hi Zach, this is Chris Calvert. That's a great question. I think the process on this is very similar to Simul-Frac, you have a set of wells that you are stimulating two wells at the same time. It's kind of zipper frac 2.0, if you will, you have one frac crew that's treating two wells at the same time, while you have two wireline crews that are working on two other wells on the same pad. On remote frac however, what that does is that opens up the opportunity to Simul-Frac wells. It wouldn't otherwise set themselves up for the Simul-Frac process. Be it an odd number pad layout, or just wells on nearby pads. It could be stimulated at the same time. So with remote frac, what the group did, set up the Simul-Frac crew on one pad and then basically ran hardline seven-inch steel from one pad to the next. So we had two wireline crews or excuse me, one wireline crew on one pad, one wireline crew on a second pad. One Simul-Frac crew on one pad. And then we were treating two wells and two pads on two separate pads at the same time. And so it really allows for Simul-Frac on multiple pads throughout our assets.

Zach, this is David again. Look, I just – I cannot add anything to the great description that Chris just added to Simul-Frac and remote-frac. But I will say this is one where I got to give props to the completions team, for their learning about this technology and adopting it very quickly and I don’t think hardly anybody else is doing that or has been doing that out in the basin. And it fit very well on a couple of recent opportunities that we’ve had. And I just think it’s a testament to the way that that our company and our technical teams really stay on top of what the latest innovations are out there and take advantage of it. A lot of things that Billy was enumerating in his comments to Scott’s question there, I think reflect that, where it’s on the drilling side or the completion side or the production side have to compliment all our teams for their use of technology. I’ve always said that I think we’re a team that punches above its weight for its size. And I truly believe that. And so I just – pardon me a little bit for that advertisement. But I’d just like to – I really do mean it and not only the folks here in the office, but the guys in the field we have a first rate team of technical people. Yes. I’m going to pile on a bit here. Chris is too humble to mention the numbers, but what they actually did there in 33 days they pumped 407 frac stages. And so we estimate that saves about 20 days, which saves the money that that Billy and Chris were talking about. But in addition to that, it reduces the number of days you have to shut in offset wells by 20 days. And then it also gets these wells that we’re completing to sales 20 days earlier. So it works both on the revenue side and on the cost side. So it’s a really good deal for us.

I’d like to pile on too. We’re following on recognized Cliff Humphreys on doing this. And this is what I’m talking about that Billy and I have been trying since this group of young people have gained experience and expertise, they’re coming to Billy and Matt more often to propose something like this. I didn’t think of it. None of us thought of it. And Cliff and Chris came up and said, we ought give this a try. Matt and Billy pressure tested the idea and said, let’s give it a try. And you can imagine how much extra production you get out of that 20 days, not counting the cost savings and little differences like that. There’s all sorts of ideas that they’ve had. They have gone through Billy and his technical group and what a difference they’re making. And thank you all and the guys in the field who are really having to scramble to keep up with their ideas.

We don’t want to forget while we’re on operations here in the Maxcom room. They do a great job and not only help us drill faster and the faster we go, the more we need people all day long, all night long, middle of the night, making those decisions, keeping us in the preferred rock. And that makes us so much money. It’s hard to quantify, but we know it’s important to stay in the best rock and his team’s all about that. And that’s what we’re doing. So that’s a big thing. And then on top of that, we have our max ops and max pro programs too. We bring engineers in and they get out like wearing a lot of hats, like we’ve been talking about and they’re out there getting experience and we have extra engineering help out there, location and in the field and in the Maxcom room. So all good things.

Yes. Billy, some of these the Maxcom rooms, 24/7, we also have a measurement room that does that our control room. We have measurement guys in the field that have all been in addition, since we went public 10 years ago, these are just examples of the many improvements that have occurred. Kind of like the old Volkswagen ads, it may look the same on the outside, but you remember, they’d say under the hood, there’s 1000 improvements to the Volkswagen Bug. And so at 10 year anniversary, I think it’s important to recognize how far we’ve come. Even though we may look the same at the executive level, there’s been plenty of positive changes.

Got it. Thanks guys. That’s great color.

One last thing, while I got this, is that when we went out to the Permian, if you remember our history, we were in the Hazel like that great gas, but won an oil leg, went down to the Eagleford to prove up that through horizontals and the fracking, you get the oil molecule through the shell. Then we went out to New Mexico and that was going to be our third leg of the stool and how much. And we went out there with a view that there were three or four zones that we were interested in and hemi zone, different zones are you producing from right now? I think we’re in the 18 unique zone range right now, we kind of joke about geologists, their lumpers and their splitters, whether we want to be granular or we want to amalgamate those. But I think a conservative number is north 18 right now. So, the teams have done a really good job of bringing new targets forward and bringing new and exciting and profitable zones. Billy and Chris and the operations group and Maxcom make it look easy. But I want to tell you, it’s really not, this is still a complicated basin. There’s over the course of a two and a half mile lateral, there’s a lot of variability and these guys keep putting these 2.5 mile of lateral, there’s a lot of variability and these guys keep putting these wells down as fast as possible saying, in zone almost all the time. And we couldn’t be happier with how the team’s executing. So it’s really a combination of great rock and, you know, great operational execution and it’s fun to watch right now. Thank you, Dan. Back to you Zach for the next question.

Next question comes from the line of John Freeman of Raymond James. John, your line is now open.

Hi guys. Congratulations on the tenure anniversary and again, earlier comments congrats to Matt, David Billy on a terrific career. The first question I had I just want to follow up a little bit on the prior discussion on Simul-Frac just quickly. So if last year y’all mention that you did 23 Simul-Fracs, what’s the plan in the budget for this year? How many Simul-Frac are y’all planning?

This is David, John. I don’t know exactly how many that there are. So I think that – I think that’ll be at least a third of our locations will be eligible for Simul-Frac. But I can tell you, as we go through the course of the year, we’re going to be looking to do things like Simul-Frac and remote-frac and any other flavor of frac that we can do to continue to be more efficient. And I expect we’ll be talking about some other kind of frac six months from now that you guys have come up with. But I think today it’ll probably be at least a third of the locations we’ll be able to do it on.

Okay. And then just to make sure that I understand what’s kind of already embedded in, in the guidance on. When y’all mention on that, that Slide 9, the one that highlights the remote Simul-Frac? When y’all say I know it’s not just the Simul-Frac, but there’s some other things as well. When y’all highlight that y’all could reduce drilling and completion costs by 5% or more in 2022, that’s not currently in the budget, right? That’s 5% more savings relative to the budget y’all got out there.

Yes, that is correct, John. So we have not built that into the budget. We’re just saying that those are some things that we think that we may do as we work on mitigating some of the cost increases. But the budget number does not include that.

If you look back historically, John, with what the operations team has done, it’s like quarter after quarter, they find ways to drill these wells faster, complete the more efficiently and save money. And so I think going forward, the expectation would be that we’re just going to continue to mash on those guys and I think they’ll be able to deliver.

Yes, there’s no track record on beating guidance is pretty phenomenal. The other question I had on San Mateo, I know last year it was a priority. And again, this year y’all listed a priority on focus on adding more third-party customers. Can you just remind us what percent of a San Mateo right now is third-party?

John, it’s – I’ll make a comment here and then I’ll ask Brian to add some comments to. We typically strive for round of third, maybe as high as 40% at times, but I think right now we’re kind of in that 30%, 33% range. And that feels pretty good to us. We do have a situation now where as we’ve talked about before, we’re large enough, we have enough volumes, particularly at the plan and well, actually all three pipes, we’ve got volumes to bring on third-party customers. Maybe if you look at in the future several years ahead, those volumes are spoken for, but that gives us a chance to bring them on in the short-term, and then add these projects that we’ve talked about to generate a rate of return. So, Brian, is that accurate?

Yes, Matt, this is Brian. Exactly right. I think that’s accurate. Those number are close to ride. And I think we’re really pleased with third-party opportunities we’ve had in 2021. And we were able to add a number of customers, not just new customers, but one of the things that we’re we pride ourselves on is we were able to add some additional volumes from existing customers. And so shout out to those guys in the field that are providing great service and to the BD team that continue those relationships. And so we look forward in 2022 to continuing to build those relationships and have additional contracts with third-parties. We already have some that we’ve signed up and look forward to continue to do that now. And I think those numbers, Matt said it right, and hopefully in the future, those numbers continue to increase as we continue to build a third-party opportunities.

Sounds good, guys. Appreciate all the answers.

Thank you, John.

Next question comes from the line of Subash Chandra of Benchmark. Subash your line is now open.

Thank you. Good morning, everybody. First question is on acquisition. So trying to, I guess, handicap your appetite. You talked in-depth about the benefits of scale, and then we saw tuck-in deals, like this, which is easily covered by your liquidity and free cash flows. But what do you think you need a transformative deal if it comes along and the metrics are okay?

Now, Subash, we’ll look at whatever somebody generally suggests, but now we don’t need one. We’ve entered a different inflection point now then back when we were $300 million, we’re over a $5 billion company, approaching $6 billion and that we’ll look at things, but we’re at a pretty good size where we have scale with our vendors and we’re growing at a good pace. You don’t want to grow so fast that you don’t have the people to populate it or your systems. And so we don’t prefer the company to company because it can be distracting. As David often says, we want to be a better company, not just a bigger company. So that’s why we’re as selective as we are in what we do to make sure that it fits and we have the people that can attend to it. And we have a large inventory right now. So if you’re going to make an acquisition, you would like to get right on it. And that would involve another rig and we don’t want to upset the capital expenditure plan. And I wouldn’t say that has a high probability. Our first one is these continued bolt-on that we did last year. Those opportunities, we could just fit right into the drilling program. We had the people, it was seamless. And to the extent we can find those, that’s probably what we look for first. First Matador Group, mainly by acquisition and exploitation, this Matador has primarily grown through organically and it’s been a way to grow. We feel like it’s earned a higher rate of return. And it’s been something that’s been easier to fit into our capital plans and the capital efficiency. So I don’t want to say never to something, but it’s not likely what is most likely is it will continue as we’ve done in the past few years, do it optimistically on acreage bolt-on because we know that area and it has less risk easier to absorb. And we think it’s really more capital efficient. I don’t think just because you get bigger, you’re necessarily better. And most of the opportunities presented to us would dilute some of our quality. So we’re going to continue to be selective. But we are also working with other companies on trading acreage. This has been a period of time where the majors have traded acreage for people to get to the longer laterals. So we trade a section for another section. So we get a 2 mile later and they get a 2 mile lateral and we think that makes a lot of sense and they’re small but efficient and good economics. Does that help? Matt, you want to say something?

Just want to build on what you were saying about bigger and better. And I think for us, the focus absolutely always has been on better. And I think at this point we’re to the size that that I think we’ve got the scale that we’re talking about. And as part of our strategy, we’ve built this company was to establish relationships with good vendors. And we’ve done that with Patterson, both on the drilling side and with Universal on the pressure pumping. We’ve been partners for a very long time and we’ve been partners in good times and partners in not so good times. And we just made it work. And same with Halliburton, Schlumberger, B&L that Billy mentioned earlier. These are all great relationships for which we have scaled. When we start talking about the way others do it, which there’s nothing wrong with that. Ours is a little different. When times get bad, we talk to our vendors and say, look, we’re not run you in the ground. The last thing we want is, for you guys not to be here, we want you to help us create value. And they’ve done that throughout the good times and the bad. So, the focus absolutely is on better.

Thanks, guys. Appreciate it. The second question is on, permitting lease sales back in the headlines because the litigation on the social capital cost to carbon issue. And so have you seen any disruptions in the Permian? It might have more to do with future lease sales and it might have to do with permits? But what are you seeing on the ground there?

Yes. Subash, it’s David and Tom, if you want to chime in. But I think the simplest and most distinct answer is no. So, we have not encountered any problems or any concerns. I think our team has a good working relationship, works very hard with folks out in Carlsbad. They’re very helpful. They’ve been very good through the last several years with all the pandemic and working at home and everything. Those folks have been very good to help us along and to respond to our needs. And I hope us to them as well. And we really – I think that that process has proceeded just fine and we have what we need to prosecute our current drilling plans and we’ll continue to work forward. But like I say, I think the Christmas answer to the question is no, we’re doing good.

Yes. I think the BLM has been very professional and with the restrictions that they’ve had on the pandemic has been really remarkable getting out and being responsive, returning phone calls when you’re communicating with them. And yet making sure to look after the bill ends, it is been very fair. Whatever additional information or request they made of us, we feel they’ve been very reasonable. Tom?

All that’s correct. David and Joe both said it correctly, and I think we even got a few kind of final signatures we needed yesterday afternoon. So banks continued to advance and we’ve gotten a whole bunch of approved and extension, so we’re ready to go for 2022.

And certainly appreciate – if I failed to say it certainly appreciate the efforts of those on our team, our land team that have worked very hard over the last couple years to keep the pipeline full. We’re very grateful for all their efforts.

Thanks, guys.

Next question comes from the line of Michael Scialla of Stifel. Michael, your line is now open.

Yes. Hi guys. And I’d like to echo everybody else and offering my congratulations to Matt and David on their great careers and as Scott said, good luck trying to hide from Joe during your retirement.

We’re not even going to try to hide Mike.

Probably suggest some sort of restraining order personally, but I just wanted ask on Slide 14, you showed you’ve got about a quarter this year’s production heads with basis swaps. I’m just wondering if you do on anything there for next year and any concern about takeaway capacity out of the basin for next year on the gas side?

Of course, the basis swaps – this is David Mike. The basis swaps that we have in place are for oil and we put most of those hedges in two or three years ago, as I recall. And so with regard to oil, no, we haven’t added any additional ones going forward. With regard to gas, I don’t believe we had any basis swaps in place, don’t think we ever have had. We certainly are aware of some of the concerns that are being expressed about the takeaway at Waha. And I can assure you that Gregg Krug and Anton and our marketing group is already very proactively looking at how we will meet that challenge if and when it does manifest itself. So I do feel like that – I feel confident that we’re out in front of it and working to try to mitigate any impact that it may going forward.

I guess, without trying to front run anything you’re doing there, it’s firm transportation consideration there.

Well, we have had for the last several years. We were one of the first people to get on GCX, right? So we’ve had quite a bit of our guests with firm transportation to the Gulf. And I think we’re – the guys have done a very good job over the years of finding other alternative markets so that to kind of diversify us away from Waha. We go to other parts of the country at different times of the year. And so that’s been and I think that currently they’re looking at other avenues to continue to diversify the takeaway away from Waha. So like I say, I have my hat’s off to them for being conscious of what’s going on and being kind of proactive and ahead of the game and I feel confident in our abilities to mitigate that problem.

Good. And then I just wanted to follow-up a little bit more on the recent acquisitions. Can you talk about how you see the full cycle returns on those acquisitions and you gave a PB10 number for the proved reserves you acquired. Can you give any sort of split on how much of the proved reserves are developed versus undeveloped?

I think Mike, that it was probably from a – from the PB10 side, of course it was a little heavier weighted toward developed, PDP is supposed to undeveloped. In terms of volumes, it may have been a little like 50-50 or so. But of course, we only booked a very small amount of what we would anticipate to be future reserves, as current – we tend to be fairly conservative in our reserves bookings anyway, and this was no exception. And so while we did book a few puds to some of the existing producing wells, it’s not a case to where we putted up the whole thing. I mean, there will still be, as we mentioned in the release, quite a lot of future value to be added as a result of the drilling activities that we undertake.

And in terms of the kind of full cycle returns on acquisitions versus maybe just drilling more of your legacy inventory?

Well, I think that – I think this is an area that’s going to have very strong returns, Mike, and that’s going to compete favorably for capital with others of our legacy areas. So I’m confident that we’re going to be pleased with the long term returns that we get out there. I think we paid a very good price for the acreage relative to what we have done in that area previously. I think we’ve always had for a company that for a company that came in and sort of 10 years ago or nine years ago, and started building its position, I think as we used to talk about, we felt like we had one of the lowest entry points on a dollar per acre basis of almost anybody out there, unless you were just sort of a legacy company that was sitting on a lot of PDP acreage. But for someone to be an entran into the shell, I think our brick by brick approach, has been very cost effective in terms of the – what we had to pay to acquire the position that we did. And I think that’s a tribute to just a lot of good work by our land team. And our philosophy that, no acre should be left behind. They don’t. If it’s something that – if it’s something we want, they go get it. And I remember – sorry if I’m waxing a little nostalgic. But I remember in the beginning, people, looking at our map and going, gosh, it seems like that’s a little scattered, don’t you think? And I’m like, nope, sure don’t. And think it’s in a lot of good spots and just watch it all get drilled up. And if you were sitting here this morning, like I am looking at a map across the wall of that much of HPP, I think people would be shocked to see how much of that we have either operated into development or participated in really good non-op wells over the years because the rock was good. And so I couldn’t be more complimentary of our land staff and the asset that they put together and our geologic team that helped to direct us there in the first place. So it’s been a great team effort and these guys, they know how to do it, and they do.

Thanks for the detail, David.

Thanks, Mike.

Next question comes from the line of David Heikkinen of Pickering Energy. David, your line is now open.

Thanks for taking the question. Just thinking back a year ago, y’all went from three rigs to the four rigs, and now you’re at six. It kind of got ahead of what we’re hearing is an ever tightening service environment by picking up the sixth rig, some operators talking about four to six months to secure tubulars and the like. So how long ago did you start working on, the plan to add the sixth rig and you kind of talk through the pinch points in process of, you’ve really highlighted your service providers, working with you, like where the tight points were and kind of where you would think about kind of the limits in the services space today if we’re thinking about other operators adding activity?

Well, David this is Matt. I think the short answer to that is, is what we talked about earlier. It it’s about relationships. And so when we’re talking to Patterson, we’ve got optionality on both sides of this thing. We’ve got contracts that that we stagger in, if we want it to go down a rig, it makes it easy to go down a rig. And then we have this ongoing conversation with Patterson, Andy Hendrickson and I, Billy and Joe are all friends. And so, if we think we might want to be adding a rig, we call them and say, hey, we might add one. And when there’s 250 rigs running in the country, that’s not hard. But to your point when the high tech rigs starts getting more and more hard to find, then Patterson tells us, don’t worry, we’ve got a rig for you. And that’s kind of the way we do it in regards to the pipe, pinch point there, same kind of thing. Forster Smith is our representative at B&L. And we sit down and we talk about what we’re doing for the next three months, for the next six months, for the next year. And we act accordingly. Same thing with the services with Chris and Cliff, Billy, when they’re contracting these frac crews, we look at what the drill schedule is for at least a year out. And that’s how we kind of put that stuff together.

Yes. So really, when you think about the doubling of activity year-over-year, you’ve been working on this like rolling three month, six month, 12 month, almost, maybe even two year plan to gear up to this six rig program that as I think about it. So there are these pinch points that are emerging, but you just kind of this rolling activity level that allowed you to, to add the six.

I think from a planning standpoint, David, that that we try to – we try to think far enough ahead in terms of, we scenario plan as you might expect, and it’s like if this is – if conditions are this way and the opportunity might present itself, what do we need to do to be ready for that? And likewise, if things go the other way, how do we need to plan our business, so that we can react quickly in that in way too, if you know. So I think we try to think through as much of it as we can so that we’re prepared as much as we can be.

Just pretty much David, every bit of our business, we try to build a lot of optionality into. We typically have lots of different directions. We can go depending on what the environment is.

That’s definitely helpful. And congratulations, David, Matt, Billy, and Van. And I was thinking about it, I don’t think you can make retirement look too good for Joe to step out, but do your best.

Thanks, Dave.

Thanks, David.

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

My only closing remarks is that really thank all of y’all for participating in this. Want to say again, our standing invitation, please come see us if you’re in the area and have breakfast or lunch or some sort of meeting, we’d like for you to get to know more of these young people who are really making a difference in our business. And they were turning to more all the time for guidance and direction and recommendations on what we ought to be doing. And thank them and everybody else for the – and really thank you on the questions. We believe going public has made us a better company and that every quarter and never so often, we’re in front of you, we’re talking to you, you’re asking us questions, keeping us sharp. I often tell the story on the IPO where’d we get the idea for midstream. It was on the IPO. When we kept being asked about how we were getting our gas out the Eagleford, we weren’t having a problem. But by the questions we knew others were and we went back and we recruited Greg to rejoin – there he is, he was missing from his thought. He’s trying to get out, but that’s an example of getting with y’all. Y’all made us a better company. And they’re not only in ideas, but having to report every quarter, he has inspired us to do longer range planning, getting good people. I found it’s easier to get people to come to work with us, because they know how we’re doing. It’s more transparent. So we were excited by the 10 years and we look forward to the next 10 years, but really do appreciate y’all hope and hope y’all come to see us.

Thank you so much. And ladies and gentlemen, thank you for your participation today. This concludes the program. Have a great day.