Good morning, ladies and gentlemen. Welcome to the Fourth Quarter and Full Year 2022 Matador Resources Company Earnings Conference Call. My name is Gerald, and I'll be serving you as the operator for today. [Operator Instructions]. I will now turn the call over to Mr. Mac Schmitz, Vice President, Investor Relations for Matador. Mr. Schmitz, you may proceed.

Thank you, Gerald, and good morning, everyone, and thank you for joining us for Matador's fourth quarter and full year 2022 earnings conference call. Some of the presenters today will be referencing certain non-GAAP financial measures regularly used by Matador Resources in measuring the company's financial performance. Reconciliations of such non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP are contained at the end of the company's earnings press release. As a reminder, certain statements included in this morning's presentation may be forward-looking and reflect the company's current expectations or forecasts of future events based on information that is now available. Actual results and future events could differ materially from those anticipated in such statements. Additional information concerning factors that could cause actual results to differ materially is contained in the company's earnings release and its most recent Annual Report on Form 10-K. In addition to our earnings press release issued yesterday, I would like to take a moment to remind everyone that you can find a slide presentation in connection with the fourth quarter and full year 2022 earnings release under the Investor Relations tab on our corporate website. With that, I would now like to turn the call over to Mr. Joe Foran, our Chairman and CEO. Joe?

Thank you, Mac. It's pleasure to be here again and report to you our progress at Matador. And I'd like to begin with celebrating what happened in the fourth quarter of 2022 first, and then we'll get to the outlook for 2023 and 2024. But beginning with the fourth quarter is, we had over 100,000 BOEs per day, and we had records across -- performance records across our whole operating outlook, despite the bad weather or other complications, but 100,000 BOEs per day is a step forward and puts us at a different inflection point. We had notably free cash flow of 1.2 and $249 million just in the fourth quarter. Adjusted EBITDA for the year was $2.1 billion, and it was $460 million in the fourth quarter. This is important because when we went public, we weren't even $460 million. So you think about we weren't even $460 million in value, and we had more than that earned in one quarter alone. Now when I speak of quarters, we look at quarters here, but we prefer to look a little longer-term, six months to a year. In this instance, much of what we did in the fourth quarter was to help set us up for the end of 2023 and all of 2024. So that's coming together very well. And I think, it's important, we think long-term around here to look at more -- look at the quarter as much as you want, but we ask look longer too at one year, because some of the things that we're deferring on now sets us up for 2024. As an example, we've got 85 -- by the end of the year, we'll have 85 wells drilled in the Rodney Robinson and the Boros and Voni properties with we have right now eight that are flowing back, we'll have eight more next year -- this year, and then four at the end of the year. Is that right, Tom?

Yes, Joe. That's approximately correct.

All right. So, now remember, we bought that Rodney Robinson and the Boros leases over four years ago, and they are still contributing and if you add them all up, that's 89 wells and we still have more to go there. So, this -- what happened here at this reading the analyst reports, concerned about the Advance deal, it really is very similar and comparable to what happened at BLM. I mean, if you remember when we bought the BLM tracks, our stock was hammered much as it was this morning and look how that has turned out and analysts -- lot of the analysts wrote, that was bad deal we paid too much, but they just failed to look at the quality of the rock that was in the BLM and what we could do with it, because that was a transformation.We went from -- drilling 98% of our wells as 1 mile laterals to go into 98% of our wells being 2 mile laterals or more, and which has been a great improvement that set us up to do this Advance deal, which is 4x potentially the carefully the value of the BLM acreage. So, I think that little adjustment and absorb in there is to be expected. But we're very excited here, if you were to go around and meet with all the staff, you'd say we're really excited about what it will do and the program, and we included in those slides of map showing how it fits in with our acreage and it's adjacent. And this is some of the best rock in the whole basin. And we're making great wells on what we're drilling, we're going to have this. And then when we spend the extra CapEx to connect it to our pipeline systems,…

[Operator Instructions]. Our first question is from Scott Hanold of RBC Capital Markets.

Joe, I appreciate some of the commentaries upfront. The question I have is, you talked about setting up for 2024, it looks like you guys are going to have, I think, it's 62 drilled and uncompleted wells at the back half of this year, which, I believe, is a little bit in excess of what you normally carry. Can you give us a sense of somewhat -- how much of a tailwind does that provide you into 2024?

Scott, this is Tom. Yes, just to paint little color on that. That -- those 49 net wells that are going to be in progress at the end of the year, that's almost double the number of net wells that we had at the same period last year. So it's quite a big influence on the calendar year going forward. We're very excited about these wells, some of which are the wells that Advance is drilling currently in Southern Ranger Northern end of the bridge. So there should be very high oil cut and very low water cut. So we just can't wait to get these online.

Right. So, in theory, that should help some of the capital efficiency, I guess, next year, right? And -- because I would assume you'd work that down to normal levels. Is that a fair way to look at it?

Yes sir.

Okay. And as my follow-up question, is on the Midstream, the other point that you touch base with Joe and that there is some capital spent to connect all those pieces. Can you give us a little bit of color on what the plan is to try to specifically accomplish with that capital? And is it possible to connect like San Mateo to Pronto? I know one is in a JV, and one is obviously fully owned, but is there a way to integrate those two together in the benefits of doing that?

Scott, this is Brian Willey, who serve as the CFO and also the President of Midstream here, it's good to hear from you. Yes, so look, we're really excited about the opportunities at Pronto and connecting those systems. And to your question, yes, we do plan to connect the San Mateo system and the Pronto system. You're right, so one is a JV and one is wholly-owned. But we do plan to connect those two systems and also on the process side, we plan to go down and get the wells that are in the Advance area, and also some other wells for Matador that are and Lea County. And so, there's good opportunities for us there, both for Matador and for third-party. And so, we're really excited about the chance we have to be able to do that this year and to spend that capital. And we've made good investments in the past. I think, as we build our Midstream business, I think, it's always been a good investment for us. And we've had lots of opportunities with third-parties and repeat customers and we expect that same thing on the Pronto side. This is what we have on the San Mateo side, as we build both those businesses together. So, we're looking-forward to it, it would be a great opportunity for us.

We are now setting a question from Neal Dingmann of Truist.

Maybe just a little follow-on Scott's on that future production specifically, certainly not expecting a '24 guide, but I'm just hoping maybe you can give a little bit more color on your view of either this year's exit rate or maybe asked another way, I mean, it definitely seems like you could have some really strong -- even maybe call it stronger than normal production growth through the end of the year into '24, I'm just wondering if you can give any sort of sense of that versus other years?

Well, the first thing I'd say is, we're at a point in time and especially this year, I'd be wary of looking at things just on a quarter basis, that you got to look a little longer rather than limited to an arbitrary deadline of this quarter or this year, but either we'll play it as the operations dictates exactly how we're going to do it. And so, we're not trying to have a target for the fourth quarter of this year or the first quarter of next year, but whatever is operationally make sense. Tom, you want to take that question again?

Sure. Just add a little bit of color, in our slide deck, we have a slide that kind of shows our production growth by quarter. And as Joe mentioned, we don't want to emphasize every quarterly as opposed to the long-term kind of yearly rates, but you can see there in the fourth quarter, we get to about 143,000 BOE per day.

Yes, now that makes sense. Okay, definitely like the ramp there. And then my second question is just on some of the frac shut-ins you all spoke about in the press release. Specifically, I'm just wondering is around that, Joe, you mentioned about the Rodney Robinson being around so long. So, is that the reason or should we think about that area has been the primary sort of typical area for shut-ins? Or is this really just a typical part of overall operations going forward as you continue to have your development plan?

Yes. Neal, one thing, I want to make a point on the production side. It's affected a lot when you have these facilities in multiple wells, if the offset operator is undertaking fracking operations, too, because you got to shut-in your wells, and sometimes that has bigger impact than weather and you don't control it either. You get a call saying, we're going to frac and then you've got to make those adjustments. So, that might delay or you may get a call and you accelerate something for that reason. So, that's one other adjustment I wanted to note that we've had to work around and I think our staff has done a good job. Now, the second part of your question, demand repeating it to me, because I've -- I was saying here the first question, since you were saying that second question. Neal, are you still there?

Gerald, did Neal drop off?

Unfortunately, I think, he did. Would you like me to proceed to the next question?

Yes, go on.

I would just say something to elaborate on that. This is Glenn Stetson, EVP of Production. Just as Joe mentioned, in this case, we have 19 existing Rodney wells, where the addition of the eight Rodney wells required us to shut-in 17 of the existing producers to be able to conduct hydraulic fracturing operations on the new wells. And so, it is just kind of a nature of this key development as we come in and fully develop these assets that we go in and shut-in the existing producers to protect them. And so, similarly at Stateline, when we're going to complete these eight new wells at Stateline, there's a similar operation. And so, we do forecast that and account for it. And so really, then it just comes down to the timing of it. And so, we shut-in, we started hydraulic fracturing operations on the eight new Rodney wells right at the beginning of the year. So we shut all those wells in, and as Tom mentioned or Joe, that we're beginning flowback operations on those eight new wells and so, all the existing producers come along with it. So, it really is a timing thing and the fact that these wells are so productive and have high working interest and high NRI. So, it does have an impact, but really just a timing thing.

The other side is to note that when you do this, it doesn't impair either the proved reserves of any individual wells when you shut them in and -- or any effect on the future production. And so, it's become more of a part of the operation in any long-term effects.

Our next question comes from Leo Mariani of Roth.

I wanted to dive a little bit more into the production guidance here for 2023. I understand that a lot of what you guys are doing is setting up for 2024 and it sounds like you're going to have some high growth to start the year next year. But if I just kind of look at some of the high-level math here, it looks like you added around 25,000 BOE per day from the Advance deals. I guess, if I assume that closes sometime early in the second quarter of '23 per your guidance and kind of back out those volumes in '23, and just kind of looking what that leaves me, it looks to me like your base production in '23 is kind of flattish with '22 per your guidance, despite having kind of a couple of more turn-in lines on the base property. So, I just wanted to kind of understand that a little bit more. If I look at last year, you guys added 70 net wells. You grew production 20% and now, it looks like outside of the Advance deal, you're adding a few more than 70 wells this year, but it looks like the base production is closer to flattish, if I back-out Advance. So, can just help me kind of understand that a little bit? I guess, I would have thought it would have been a little better.

Well, Leo, I can understand that, because you're not taking into account that when we're doing the Advance deal, we are shifting some of our staff resources and rigs, and other ways that we would have production. If we weren't doing the Advance deal, it wouldn't be flattish. You would have -- our staff will be fully operated on drilling some of our inventory, which the quality of the rock in our inventory is outstanding and we got over a decade worth of inventory. So when we've been on the road, we've gotten inventory questions, and we have plenty and we could've -- we would be addressing that instead of Advance, and connecting up the pipeline our Midstream system. So, we rate, again, but I think it's important to look the quality of rock that we're obtaining. And if we don't obtain it now, we will never have a chance to add on adjacent to our acreage that kind of quality rock. So, it would be like calling a football coach, hey, your running back only gained 50 yards this game, because you're through five touch down passes. If the passes weren't working, you would've used the running game more. And we're in that situation. Fortunately, we got Advance, so have a choice to do in Advance or some of our own properties. Our properties are HBP, where we're going to work in the Advance, particularly where they have DUCs, because that will accelerate production coming off of that. And so, looking at our asset base and our options, it made sense to focus more on Advance and bringing in less of our inventory. But if we didn't have Advance, you'd see growth much better than the 3% that you're talking about, and -- but you take out a couple of rigs, puts your focus on the new properties and taking advantage of that opportunity to connect up your pipeline, we think that's a better program.

Okay. I appreciate that color. And then just around the Midstream, obviously your Midstream CapEx is up a fair bit this year in '23. You guys kind of explained what you're doing there. So that was helpful. But just as we look into, say next year, do you expect to have Midstream expense still kind of be elevated on the capital or do you think it kind of comes down a bit? Is -- a lot of this is more, I'll just call it near-term kind of one-time spending on the Midstream?

Leo, this is Brian Willey again, and I'm President of Midstream here, and thanks for the question. I think that we haven't said a lot about 2024 and relates to capital expenditures there. So, I don't know that we're prepared to go into a lot of detail about what that would look like. We're excited for 2023, we will want to take advantage in 2024 if there are opportunities. And so, as we go forward throughout the year, if there's third-party opportunities, we're opportunistic at Matador that we want to continue to take advantage of those. And so, we'll evaluate those as the year progresses and as we get closer to 2024.

Yes, I'd say, I think it's good answer, Brian, is we are very opportunistic driven that we didn't know we were going to buying Pronto, but it was offered to us in April, I believe, in May, and of course, we did it. That was too good of a deal to turn down and it just fit in very well with our other assets. And so, as we go into these next years, whether it's an acquisition of oil properties or Midstream or a federal sale like BLM, the BLM measure, we're going to try to take advantage of it and that's why we build up our financial statement to be able to take advantage of those opportunities. And -- so we try not to do a five year plan and stick to it rigidly, but go where the opportunity lies.

Our next question comes from Gabe Daoud of Cowen.

Guys, I was just curious with the 49 net wells exiting the year, as you kind of beat expectations on cycle times, what's the likelihood that some of these wells could even come on or be pulled forward by the end of this year?

Gabe, this is Tom. To Joe's point about trying to keep our options open, we do expect these wells to be kind of end of 2024, but if the drilling guys go faster and the completions guys go faster, I think there's always a chance that they could cycle them forward, bringing on a little bit sooner, but it's just too early to tell at this point in the year.

And then maybe just a question on LOE. It looks like 1Q kind of turning the year low and then kind of increases on the back of Advance. Could you maybe just talk a little bit about what's driving the increase on the LOE side as a result of Advance? And is there the potential for that to be worked lower overtime?

Gabe, this is Glenn Stetson, EVP of Production. We did highlight a little bit of this in the slide deck. But ultimately, the increase that we've seen is primarily -- that we're forecasting is primarily due to us drilling a number of wells in Lea County, specifically, attributive them to the Advance acquisition as well. And so, part of that is a function of the fact that San Mateo isn't servicing those properties, but that is another reason why we're excited about Pronto coming and hooking up to the Advance properties and a lot of the properties in our Ranger asset area. And so, we do think that as we go forward, that those are -- that's certainly a metric that we can improve upon with the expense of Pronto and folding in the Advance properties into Matador.

Our next question comes from John Freeman of Raymond James.

I just wanted to follow-up on Leo's question on the Midstream CapEx and obviously understand that '24 is little ways off. But I think, just to sort of maybe help us, so that we can kind of I guess not be caught by surprise, maybe when we're trying to fit our model for '24 on Midstream. Just if there certain things that you feel like are still going to need to be done versus one-off projects that may be or may or may not pursue for various reasons? Just trying to get a ballpark idea of the Midstream spend, is it a number that is meaningfully lower next year, is it similar to '22? Or just -- I think, just anything would kind of help us kind of frame our model just where we sit today when you all look out. Again, I realize that '24 is a ways off, but it would certainly kind of help us have a better idea?

Well, John, this is Joe and I'd say, I'd like to help you up. I'll give Brian the opportunity to comment a little bit. But again, it's just hard to predict, its third-party business that we will get during that time, which will build-out to them. It's also probably highly likely that we will connect that our three system, so that there is only a -- as you see on that map, not much distance between connect points between the San Mateo and Pronto, and Pronto and the Advance system. So, that's more likely, it could be done. Can't see what would stop that. As far as third-party, that's hard to know. Certainly, easy to say, we connect if they're right along our round. And again, depends on the terms of the terms or as such, we would build a long way. But that doesn't happen very often. I -- if you will give us, say, another quarter or so, we'll have more definition for you, six months or -- and again, I invite all of you analysts to come here to Dallas and meet with us one time or another, and we'll try to have everybody here and you can have unlimited time to ask your questions, and we'll meet you. But it's a fair question you've asked. And over in Lea County, there is a number of options that we might do, but it's just hard to -- I don't want to give you a number. You have to understand that there may be others that would hold us to that number and wouldn't understand that it's -- plans are still in the formation stage.

Joe, I appreciate how candid you're being.

And John, this is Brian Willey. And I'll just add on a little bit that, just as a reminder, San Mateo is on 51:49. So when we have capital projects at San Mateo, which we have a number of great ones, including building out our water system and some other opportunities for third-parties. We only pay 51% of those capital expenditures. However, over on Pronto, it's a 100% owned, and so we pay 100% of those capital expenditures. And so, that's just something that you're thinking through kind of into the future and otherwise, that -- as we expand into Lea County, those capital expenditures on the Midstream side are 100% Matador's, and not 51% like they are in San Mateo.

I appreciate it guys. And then just a follow-up question. As sort of baking in the 10% kind of the cost inflation versus 4Q '22 levels, obviously, just given the kind of pullback we've had in commodity prices, rig count, frac counts, down from kind of the November levels, we're starting to hear a lot more about service cost inflation maybe losing some momentum. And just trying to get a sense of maybe, as you all stand right now kind of you look at the rigs you got, the frac crews you're running, sort of the opportunity when things are kind of getting repriced kind of, I guess, how much maybe conservatism is built-in to that number? Just any additional details to kind of leading-edge service pricing would be helpful.

Yes, John, this is Chris Calvert, EVP and Co-COO. I think, to speak to the 10% to 20% inflation, we do pricings in a little bit conservatively. We would rather come to you guys and say that we beat these numbers versus a miss. And so, while we think that might be a little conservative towards the market, really has recently pulled back to. We still think that's a fairly good estimate for us. Now to answer your question, we are happy with our rig fleets that we have with us, our frac crews that we have with us. It does feel like maybe there is a little bit of softening in the market. You had maybe some slowdowns in other basins. But really that brings competition to the Permian. We are in the best rock, we're in the best part of the Permian Basin. And so, we do see that inflation, there are some upward pressures on certain components of our operations, but you're right, there has been a little bit of slowdown. And so, kind of like Brian said, we will speak more to this as the year progresses. But one thing that I do always like to mention, Simul-Frac, Remote Simul-Frac drilling wells faster, this is the fifth anniversary of our MaxCom room being in service. None of those efficiencies are priced in to these numbers that we released last night. And so, we do expect operationally to continued capital efficiencies going forward, whether that's increased use of Simul-Frac, dual-fuel technologies. So that's really kind of the story to inflation of where we see it going in 2023.

John, I have one other personal footnote to put to it, is that, as someone who started Matador -- first Matador, $270,000, I am very sensitive, that every dollar spent on capital expands. And the only part of anybody's commentary on our quarters when they accuse us of being capital inefficient. That really hurt when you start a $270,000, every nickel and dime counts, and we started the second Matador at $6 million and now it's over but we still watch our money and sharpen our pencils. And so, if there is any follow-up on the capital efficiency, blame me. But this staff really works hard to work with the vendors on the most economical way to do things and try to do things in a planned fashion that emphasizes it, and as I mentioned earlier, the BLM was done with a view of improving our capital efficiency. And then, we got knocked around for spending that kind of money, but now you've drilled -- we've drilled 78 wells or so, nobody is saying that and you've seen the results, So, we hope there is a direct correlation between our reserves, which are now 350 million barrels, and our gas is nearly at 1 trillion cubic-feet that we had been capital efficient. And so, we're trying -- and once you know, there's a 100% effort to be capital efficient and we're always open to suggestions if there is a better way to do it.

We'll be accepting our last question from Tim Rezvan of KeyBanc Capital Markets.

I'd like to start on your plans to drill in on the northern part of your acreage this year. It looks like about 42% of your net turn-in lines are in Ranger and Arrowhead. I think, the stock price reaction today reflects concerns on overall efficiency and productivity. So, as you have a little less Stateline, and a little more Northern activity this year, can you talk about your expectations in the North? And if you view those wells as more development or exploratory in nature?

This is Tom Elsener, EVP of Reservoir Engineering. I'm going to start and I'm going to pass off to Ned here in a minute. But this is an area where we drilled the Rodney Robinson wells four, five years ago. And those wells in the Third Bone Spring Sand and each of those three wells has now produced over 1 million barrels of oil. In this area, where the Advance acreage and Southern Ranger and Northern Bridge, as a place where we've been drilling of quite a bit. And so, we're quite familiar with the area, so I wouldn't classify it as much exploration, it's more development. That being said, there is still some very exciting wells that I know, Ned and his team are excited to try out at some point. But this is an area between Rodney Robinson as well and we've drilled First Bone Spring at Avalon, and Second Bone Spring Sand and Third Bone Spring Sand and Wolfcamp A-XY, and we've got some Second Bone Carb and some Third Bone Spring Carb and Wolfcamp Bs coming online here in the first quarter. So, I think, we're -- Ned and his team have done a marvelous job exploring for a lot of different targets here, but today, we feel very comfortable with the productivity of these wells. They're known to have high oil cuts and not produce a lot of water. So, we'll be working that LOE down. That being said, these wells, they don't have quite the flashy high pressures of some of the places down for the South, but they have nice steady decline rates that will provide good long-term value. And with that, I'll pass it over to Ned.

Tim, this is Ned Frost, EVP at Geoscience. I think, Tom did a really nice job of kind of framing that. I mean, we've said it before, we kind of joke that the Advance acreage is a nice acreage block between Mallon and Rodney Robinson, and this is really an area of the basin that we've been focused on for a long time, very high quality, well results, again, tip our hat to Advance for developing a lot of quality benches on that asset and bringing a lot of value forward. We think that there is still a lot to do in this area that will be accretive to Matador and will generate long-term value for Matador's shareholders. We're very optimistic on this area. And you had also asked about Arrowhead. Arrowhead, we took a little bit of a break from. We're excited to get back there, and I think, you will see our rigs kind of spread across all our asset areas this year. And I think, in many ways, that's a testimony to the high-quality projects that we're capable of bringing forward across our entire acreage footprint. So, I think, there is a great amount of stuff to get after this year and as we always do, we're always looking for that next exploration target to go after. So, I'd continue to watch this space and I'm sure, we'll have some more to bring forward in the future.

And as my follow-up, I'd like to add on a little bit to I guess John's question on cost inflation earlier. You put out that number, $1,125 per foot, obviously, it's calendar year average. But is there some sort of implied reduction you believe over the course of the year? I know you recognize it's conservative, but there is line of sight on steel prices softening and you could see rig count reductions. But just kind of curious how we could expect that to trend or what you've assumed for the year?

Yes, Tim, this is Chris Calvert again. I think, from an expectation standpoint, obviously our goal operationally is to go out and beat our estimates. We look to continuously improve upon operations whether that's drilling wells faster or increasing Simul-Frac percentage, things like that. And so, while it's difficult to say, to give you some sort of guard rails on 2023, I guess, we would just -- I simply look to past performance to where every year that we've gone out, whether we started Simul-Frac in 2021. We've increased the number of wells that we've done that on in 2021 then in 2022. And so while it's hard to give you an estimate on where we think we could beat, I think that we look to our past performance from an operating group and say that we always execute at an extremely high level. We continuously improve upon the areas that we know are our capital efficient areas whether that's redesigning casing strings, dual-fuel usage, things like that. And so while it's hard to give you any sort of a guard rail, I would look to just continuously improve on the statistics that we put forward last year, and that's things such as increasing Simul-Frac. That still do have a very nice dollar savings when we do those procedures.

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.

This is Joe, the Founder and Chairman and CEO, and I'd first like to thank you for your interest in Matador, and extend once again our invitation to come by and see us and we'll have more extensive visit. The second thing I want to know is that, we try to look longer-term than just a quarter. I think, we had a great quarter in the fourth quarter of 2022, but we're not trying to rest on our laurels, but make plans, not just for the first quarter of this year to be good, but the whole year to be good. And to set it up in such a way that we'll get better and progress in value, but set it up again for 2024. We've seen that for some time that, that was really going to be a good year for us, and -- but we also think the rest of 2023 will be very productive. So on cost inflation, I do think that's we're getting a better handle on it, and I want to be conservative. I maybe overly conservative on that and overly conservative on production. But if we weren't doing the Advance, we'd have a lot bigger growth than 3%. And I think you all trust us with our history that we will be back more along the historic curve. And with the Midstream, that's strategic. And again, when you have different units that have been involved, it just takes a little more time and planning. But I think you're going to see -- companies with Midstream have a real advantage, because there is some capacity limits and you got to get your water disposed up. And if you own it and control it, you just have some advantages of getting your product to market or…

Ladies and gentlemen, thank you for your participation today. This concludes today's program.