Matador’s Lower 48 Natural Gas, Oil Output Set to Climb 14%

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Matador Resources Co., whose upstream operations span the Eagle Ford and Haynesville shales, as well as the Permian Basin, reported record production in the first quarter with plans to top that by the end of June.

“The first quarter of 2022 was another outstanding quarter both operationally and financially for Matador, highlighted by the successful completion of 26 gross operated wells with better-than-expected results,” said CEO Joseph Foran.

The results mark the second straight quarterly production record for the Dallas-based independent.

During the latest period, Matador completed and turned to sales 26.4 net wells in the Permian’s Delaware sub-basin. The producer has been focused on the Delaware, particularly in New Mexico.

Average daily production volumes totaled 94,000 boe/d (57% oil), with the Delaware accounting for 89,400 boe/d (59% oil). There also was 2,800 boe/d from the gassy Haynesville and 1,800 boe/d (73% oil) from the Eagle Ford.

Total average production for 1Q2022 was 8% higher than guidance. Its 2Q2022 guidance is about 107,000 boe/d, or a 14% sequential increase.

Toward the end of the first quarter, 10 operated Antelope Ridge wells in the Delaware were turned to sales and should “more fully contribute to production” in 2Q2022, management said.

The company added that seven net operated Delaware wells in the Rustler Breaks area in Eddy County, NM, would turn to sales during the second quarter.

In late April, Matador was operating six drilling rigs in the Delaware. Four rigs were drilling 16 Antelope Ridge wells, while one was drilling four wells in Rustler Breaks and the sixth was drilling on a recently acquired lease in the Ranger area in Lea County, NM, management said.

Faster Cost Growth Rates?

Matador said it spent 9% less on 1Q2022 capital expenditures for drilling, completion and equipment for its wells than it had anticipated at nearly $199 million from an estimate of $218 million.

During the quarterly call, Foran told analysts “this growth that we’ve had particularly this year has not come from spending that much more” in capital, “but from better than expected growth from our various drilling programs and capital efficiency.”

Foran said drilling and completion costs for operated wells turned to sales rose 2% sequentially to $752/completed lateral foot. In 2Q2022, Matador expects a 5-10% increase in costs, “which is still within our original estimates for service cost inflation,” the CEO said.

“Operationally, when we think about service cost inflation…, I think the main ticket items are the cost of steel, the cost of fuel, and the cost of sand,” said Senior Vice President (SVP) Chris Calvert, who handles operations.

In the case of fuel, Calvert said Matador is limiting its “exposure to diesel” by using dual-fuel-powered hydraulic fracturing fleets.

“What we’re doing is dual-fuel. We’re bringing in either field gas” or compressed natural gas, he said.

President Billy Goodwin said the company is working with its vendors  to “stay out in front of everything” in terms of remaining supplied with casing and tubular goods, rigs and related equipment, and sand for hydraulic fracturing. “So all of those things together that helps us drill better wells, faster.”

There is “more uncertainty” in 2Q2022 regarding “rising commodity and raw materials prices, global supply chain constraints, high inflation rates and service and labor availability,” Foran said. Matador’s costs for laterals could be higher than originally estimated.

“We will continue to look for ways to mitigate any potential cost increases through additional operational and capital efficiencies such as continued improvement in drilling times and wellbore design, simultaneous fracturing operations, the use of dual-fuel fracturing fleets and focusing on drilling longer laterals,” he said.

In the second half of the year, Matador plans to bring on 16 wells in Antelope Ridge with “a big tranche of…wells coming up,” said SVP Tom Elsener of reservoir engineering. “On our timeline for the year, we still feel really good about our plan and the major milestones that we’ve got set up for the year.”

Realized sales prices, including hedging, were $91.68/bbl for oil and $7.43/Mcf for natural gas in 1Q2022. In contrast, realized prices in the year-ago period were $50.08 for oil and $5.89 for gas. For 4Q2021, they were $60.96l for oil and $6.64 for gas.

Oil and natural gas revenues for 1Q2022 were $626.5 million, compared with $316.2 million year/year During the most recent reporting period, Matador also reported $17.3 million in third-party midstream services revenues and a $22.4 million realized loss on derivatives revenue.

Matador reported 1Q2022 net income of $207.1 million ($1.73/share), up year/year from $60.6 million (51 cents) but down quarter/quarter from $214.8 million ($1.80).