Matador Resources Company Announces Firm Natural Gas Sales Agreement at Gulf Coast Pricing, Recent Well Results and Credit Rating Upgrade

DALLAS--()--Matador Resources Company (NYSE: MTDR) (“Matador” or the “Company”) today announced:

(i) it has successfully executed a firm natural gas sales agreement based on Texas Gulf Coast pricing effective upon completion of the Gulf Coast Express Pipeline Project,

(ii) its midstream affiliate, San Mateo Midstream, LLC, has completed its expanded oil gathering system in the Wolf asset area in Loving County, Texas,

(iii) the results from several notable strong new wells Matador recently completed and turned to sales in both the Arrowhead and Wolf asset areas and

(iv) S&P Global Ratings has raised both its corporate credit rating on Matador to “B+” and its issue-level rating on Matador’s senior unsecured notes to “BB-”.

Matador Enhances its Delaware Basin Natural Gas Takeaway Position and Flow Assurance

Matador is pleased to announce it has successfully executed a firm sales agreement (the “Firm Sales Agreement”) with an affiliate of Kinder Morgan, Inc. (“Kinder Morgan”) beginning on the in-service date of the Gulf Coast Express Pipeline Project (the “GCX Project”). This agreement secures firm natural gas sales for an average of approximately 110,000 to 115,000 million British Thermal Units (“MMBtu”) per day at a price based upon Houston Ship Channel pricing. The GCX Project is expected to be in service in October 2019 and is expected to transport natural gas from the Permian Basin to Agua Dulce, Texas near the Texas Gulf Coast. The GCX Project’s proximity to the Gulf Coast and Gulf Coast natural gas pricing, including Houston Ship Channel, are attractive because of the access to industrial users like refineries and petrochemical facilities, utilities, liquefied natural gas (LNG) exports and Mexican markets.

During the first quarter and early in the second quarter of 2018, Matador also entered into agreements with third-party natural gas transportation companies, including most recently with El Paso Natural Gas Company, L.L.C., to secure firm takeaway capacity for all of its anticipated natural gas volumes in both the Wolf and Rustler Breaks asset areas, which represented approximately 93% of Matador’s Delaware Basin natural gas production of 82.8 million cubic feet of natural gas per day in the first quarter of 2018. These agreements should also ensure firm takeaway capacity for anticipated Matador and other producers’ natural gas volumes at the tailgate of San Mateo’s Black River Processing Plant in the Rustler Breaks asset area. As a result, Matador believes it already had sufficient firm capacity and flow assurance for its existing and anticipated natural gas production volumes prior to entering into the Firm Sales Agreement. The Firm Sales Agreement provides further flow assurance and significantly reduces Matador’s exposure to the Waha basis differential, which has widened significantly in the last year.

The Firm Sales Agreement is the latest of several recent accomplishments by Matador’s operational, marketing and midstream teams that have significantly enhanced Matador’s takeaway position at favorable rates for Matador’s oil, natural gas and natural gas liquids (“NGLs”) throughout its various asset areas in the Delaware Basin and increased shareholder value. Other recent notable achievements include:

  • In late March 2018, Matador’s midstream affiliate, San Mateo Midstream, LLC (“San Mateo”), completed on time and on budget the expansion of its Black River cryogenic natural gas processing plant in Eddy County, New Mexico (the “Black River Processing Plant”), adding an incremental designed inlet capacity of 200 million cubic feet of natural gas per day and bringing the total designed inlet capacity of the Black River Processing Plant to 260 million cubic feet of natural gas per day. The expanded Black River Processing Plant supports Matador’s exploration and development activities in the Delaware Basin and, with the expanded capacity, San Mateo can now offer natural gas processing services to other producers as well. Please see San Mateo’s and Matador’s April 19, 2018 press releases for additional details.
  • In March 2018, San Mateo completed an NGL pipeline connection at the tailgate of the Black River Processing Plant to the NGL pipeline owned by EPIC Y-Grade Pipeline, LP. The NGL connection ensures Matador and other San Mateo customers’ firm NGL takeaway out of the Delaware Basin. As compared to trucking the NGLs out of the area, this NGL connection should also allow Matador and other San Mateo customers to achieve increased NGL recoveries and improved pricing realizations through lower transportation and fractionation costs, among other benefits. Please see San Mateo’s and Matador’s April 19, 2018 press releases for additional details.
  • On January 22, 2018, San Mateo and Matador announced a strategic relationship between a subsidiary of San Mateo and a subsidiary of Plains All American Pipeline, L.P. (NYSE: PAA) (“Plains”) to gather and transport crude oil for Matador and additional customers in Eddy County, New Mexico. Subsidiaries of San Mateo and Plains have agreed to work together through a joint tariff arrangement and related transactions to offer producers located within a joint development area of approximately 400,000 acres in Eddy County, New Mexico crude oil transportation services from the wellhead to Midland, Texas with access to other end markets. Please see below, as well as San Mateo’s and Matador’s January 22, 2018 press releases for additional details regarding this strategic relationship and the oil transportation and gathering systems related thereto.
  • Matador has further mitigated the exposure of its Delaware Basin oil production to the Midland-Cushing oil basis differential, which has widened in the last several months, by entering into oil basis swaps. At June 1, 2018, Matador had approximately 55% of its anticipated Delaware Basin oil production hedged for the remainder of 2018 based on its production guidance as of and as provided on February 21, 2018, limiting Matador’s differential for this production at a weighted-average price of ($1.02) per barrel.

In addition to its Midland-Cushing oil basis hedges, Matador continues to seek other opportunities to address the widening Midland-Cushing oil price differentials. In the second quarter through May 2018, however, Matador had not yet realized double-digit oil price differentials. In April 2018, for example, Matador received an average unhedged realized oil price of $63.41 per barrel for its oil production company-wide and an average unhedged realized oil price of $63.11 per barrel for its Delaware Basin oil production, inclusive of pipeline transportation or trucking costs. On an unhedged basis, the oil price differentials in April were ($2.92) per barrel and ($3.22) per barrel for Matador’s company-wide and Delaware Basin oil production, respectively, as compared to an average NYMEX West Texas Intermediate price of $66.33 per barrel in April 2018. Midland-Cushing basis swaps contributed an additional $1.6 million to Matador’s oil revenues in April. In May 2018, Matador estimates that the average unhedged realized oil price for its Delaware Basin oil production widened to approximately ($7.50) per barrel, inclusive of pipeline transportation or trucking costs, as compared to the average NYMEX West Texas Intermediate price, but these wider oil differentials were further mitigated by Matador’s Midland-Cushing basis swaps. Further, the strategic relationship between San Mateo and Plains should also afford Matador important options, including the option to buy back its oil production from the Rustler Breaks and Wolf asset areas at Midland should a preferred downstream market be identified. Finally, Matador currently sells its oil production from the Eagle Ford shale based on Louisiana Light Sweet (LLS) pricing, which currently comprises approximately 10% of its company-wide oil production. Should these widening oil differentials persist in the Delaware Basin, Matador would also have the option of shifting a portion of its drilling activities from the Delaware Basin to its largely held-by-production properties in the Eagle Ford shale where oil pricing is currently more favorable.

San Mateo Completes Expanded Oil Gathering System in the Wolf Asset Area

Matador is also pleased to announce that San Mateo completed its expanded oil gathering system in the Wolf asset area in Loving County, Texas in May 2018. Because substantially all of Matador’s oil production from the Wolf asset area is now on pipe, the Company has simultaneously improved its realized pricing relative to trucking barrels of oil and enhanced flow assurance through the reduction of operational and shut-in risks—for example, interruptions from ice storms in the winter months or insufficient trucking capacity. In addition, Matador’s crude oil purchase agreement allows for optionality in getting its crude oil to other markets from Midland.

In addition, Plains is currently constructing a mainline extension from its current long-haul oil pipeline system located in Culberson County, Texas to a central delivery point on San Mateo’s Eddy County, New Mexico crude oil pipeline system, which is currently under construction. Matador expects construction will be complete in the third quarter of 2018. In addition, San Mateo will be able to accept crude oil onto its Eddy County system from trucks near the city of Loving, New Mexico. This crude oil trucking station will provide producers in Eddy County whose oil is not yet connected to pipe at the wellhead a favorable option to transport oil to Midland and other end markets. The crude oil will be shipped from New Mexico under a Joint Tariff that is expected to be filed with the Federal Energy Regulatory Commission (FERC) prior to the oil transportation pipeline being placed into service. San Mateo expects to benefit from Matador’s activities in this area and from Plains’ extensive midstream asset footprint, long-term customer relationships and outstanding reputation for oil gathering and transportation services to open up additional market opportunities while also capitalizing on San Mateo’s own ability to offer services across all three production streams—oil transportation and gathering, natural gas gathering and processing and salt water gathering and disposal.

Matador Announces Recent Well Results in Arrowhead and Wolf Asset Areas

Matador is also pleased to announce the results from four notable wells recently completed and turned to sales during the second quarter of 2018 – two in the Arrowhead asset area and two in the Wolf asset area. The following table highlights the 24-hour initial potential (“IP”) test results from these wells.

               
Completion 24-hr IP Oil
Asset Area/Well Name Interval (BOE/d) (%) Comments
Arrowhead/Eddy County, NM
SST 6 State #123H Second Bone Spring 2,056 85% First two Second Bone Spring wells drilled on SST leasehold north of Stebbins acreage. Both wells flowed at approximately 500 psi during IP tests.
SST 6 State #124H Second Bone Spring 1,845 86%
Wolf/Loving County, TX
Wolf 80-TTT-B33 WF #205H Wolfcamp A-XY 2,153 57% Strong 24-hour IPs from Wolfcamp A-XY wells completed in the south-central portion of the Wolf asset area. Both wells flowed at approximately 3,200 psi during IP tests.
Wolf 80-TTT-B33 WF #207H Wolfcamp A-XY 2,104 59%
 

The SST 6 State #123H and #124H wells are the two best Second Bone Spring wells drilled and completed by Matador to date in the Arrowhead asset area. These 24-hour IPs were particularly strong at 435 to 490 BOE/d per thousand feet of completed lateral, given that both wells had completed lateral lengths of just over 4,200 feet. Matador continues to be very pleased and encouraged by the Second and Third Bone Spring results it has achieved in the Arrowhead asset area and on its Stebbins and SST leaseholds in particular.

Corporate Credit and Senior Unsecured Debt Ratings Upgraded by S&P

Finally, Matador is pleased to announce that on May 22, 2018, S&P Global Ratings (“S&P”) raised its corporate credit rating on Matador to “B+” from “B” and raised its issue-level rating on Matador’s senior unsecured notes to “BB-” (one notch above Matador’s corporate credit rating) from “B”. At the same time, S&P revised its recovery rating on the Company’s senior unsecured notes to “2” from “3”.

2018 Annual Meeting of Shareholders

Matador will hold its 2018 Annual Meeting of Shareholders on Thursday, June 7, 2018 at 9:30 a.m. Central Daylight Time. The Annual Meeting will be held in the San Antonio Ballroom located on the fourth floor of The Westin Galleria Dallas hotel, 13340 Dallas Parkway, Dallas, Texas 75240. A continental breakfast will be provided beginning at 8:30 a.m. Central Daylight Time to provide shareholders the opportunity to have a social time with directors, management and staff prior to the meeting.

The Annual Meeting will be webcast live. To access the live webcast, you can use the following link https://edge.media-server.com/m6/p/4aqtdxma or visit the Events page of the Investors section of Matador’s website at www.matadorresources.com.

About Matador Resources Company

Matador is an independent energy company engaged in the exploration, development, production and acquisition of oil and natural gas resources in the United States, with an emphasis on oil and natural gas shale and other unconventional plays. Its current operations are focused primarily on the oil and liquids-rich portion of the Wolfcamp and Bone Spring plays in the Delaware Basin in Southeast New Mexico and West Texas. Matador also operates in the Eagle Ford shale play in South Texas and the Haynesville shale and Cotton Valley plays in Northwest Louisiana and East Texas. Additionally, Matador conducts midstream operations, primarily through its midstream joint venture, San Mateo Midstream, LLC, in support of its exploration, development and production operations and provides natural gas processing, oil transportation services, natural gas, oil and salt water gathering services and salt water disposal services to third parties.

For more information, visit Matador Resources Company at www.matadorresources.com.

About San Mateo Midstream, LLC

San Mateo is a strategic joint venture formed in February 2017 by a subsidiary of Matador and a subsidiary of Five Point Energy LLC. San Mateo provides an all-inclusive approach to midstream services for the three main product streams produced by oil and natural gas activities, including salt water gathering and disposal services, natural gas gathering, compression, treating and processing services, and oil gathering, transportation and blending services. San Mateo owns and operates oil, natural gas and water gathering and transportation systems in Eddy County, New Mexico and Loving County, Texas, the Black River Processing Plant in Eddy County, New Mexico with a designed inlet capacity of 260 million cubic feet of natural gas per day and six commercial salt water disposal wells in Eddy County, New Mexico and Loving County, Texas. San Mateo serves as one of the primary midstream solutions for multiple customers across the northern Delaware Basin, including its anchor customer, Matador Resources Company.

For more information, visit San Mateo Midstream, LLC at www.sanmateomidstream.com.

Forward-Looking Statements

This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. “Forward-looking statements” are statements related to future, not past, events. Forward-looking statements are based on current expectations and include any statement that does not directly relate to a current or historical fact. In this context, forward-looking statements often address expected future business and financial performance, and often contain words such as “could,” “believe,” “would,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “should,” “continue,” “plan,” “predict,” “potential,” “project,” “hypothetical,” “forecasted” and similar expressions that are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Such forward-looking statements include, but are not limited to, statements about guidance, projected or forecasted financial and operating results, results in certain basins, objectives, project timing, expectations and intentions and other statements that are not historical facts. Actual results and future events could differ materially from those anticipated in such statements, and such forward-looking statements may not prove to be accurate. These forward-looking statements involve certain risks and uncertainties, including, but not limited to, the following risks related to financial and operational performance: general economic conditions; the Company’s ability to execute its business plan, including whether its drilling program is successful; changes in oil, natural gas and natural gas liquids prices and the demand for oil, natural gas and natural gas liquids; its ability to replace reserves and efficiently develop current reserves; costs of operations; delays and other difficulties related to producing oil, natural gas and natural gas liquids; delays and other difficulties related to regulatory and governmental approvals and restrictions; its ability to make acquisitions on economically acceptable terms; its ability to integrate acquisitions; availability of sufficient capital to execute its business plan, including from future cash flows, increases in its borrowing base and otherwise; weather and environmental conditions; the operating results of the Company’s midstream joint venture’s expansion of the Black River cryogenic processing plant; the timing and operating results of the buildout by the Company’s midstream joint venture of oil, natural gas and water gathering and transportation systems and the drilling of any additional salt water disposal wells; and other important factors which could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. For further discussions of risks and uncertainties, you should refer to Matador’s filings with the Securities and Exchange Commission (“SEC”), including the “Risk Factors” section of Matador’s most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. Matador undertakes no obligation to update these forward-looking statements to reflect events or circumstances occurring after the date of this press release, except as required by law, including the securities laws of the United States and the rules and regulations of the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement.

Contacts

Matador Resources Company
Mac Schmitz, 972-371-5225
Capital Markets Coordinator
investors@matadorresources.com

Release Summary

Matador Resources Company announces firm natural gas sales agreement at Gulf Coast pricing, recent well results and credit rating upgrade.

Contacts

Matador Resources Company
Mac Schmitz, 972-371-5225
Capital Markets Coordinator
investors@matadorresources.com