Matador Expands Footprint in Delaware Through Purchases

Matador Resources Company MTDR purchased 8,400 gross (8,400 net) acres in Lea and Eddy Counties, New Mexico, in the Bureau of Land Management (“BLM”) New Mexico Oil and Gas Lease Sale held on Sep 5 and 6, 2018.

Funding Details

The total purchase consideration was about $387 million or a weighted average cost of around $46,000 per net acre.The company expects to fund these acreage purchases with cash on hand and borrowings under its revolving credit facility, which had no amount outstanding as of Sep 12, 2018. If required,the company may sell portions or all of its non-Delaware Basin assets to finance this acquisition.

Assets to be Purchased

The assets comprise about 2,800 gross per net acres in the Stateline area, 4,800 gross per net acres in the Antelope Ridge asset area, 400 gross per net acres in the Arrowhead asset area and 400 gross per net acres in the Twin Lakes asset area. All these take Matador’s total leasehold and mineral position in the Delaware Basin to about 217,400 gross acres or 123,800 net acres (pro forma at Aug 1, 2018).

Most of the acquired acreage is undeveloped and prospective for multiple geologic targets in areas where operators have already attained strong results. Per the company’s estimates, the assets are expected to be immediately accretive to reserve base, adding an additional 16.3 million barrels of oil equivalent (boe) or 10% in proved undeveloped reserves (PUDs) with a PV-10 of about $135 million to total proved reserves base.This amount corresponds to a weighted average value of about $16,000 per net acre acquired. As of Jun 30, 2018, the company reported proved oil and natural gas reserves of 170.2 million boe, comprising 95.4 million barrels of oil and 448.2 billion cubic feet of natural gas with a PV-10 of $1.8 billion.

The purchased assets are federal leases and provide anet revenue interest (NRI) of 87.5% compared with NRI of about 75% on most fee leases. Consequently, Matador will keep an additional 17% of the net production from each well drilled and completed on these properties. This will considerably improve the economics of wells drilled on this acreage. The enhanced NRI is expected to boost the value of the acquired properties, considering the company’s expectation of multiple zones of development and including seven to nine potentially productive zones in certain tracts.

Matador  believes that most of the acquired properties are favorable for drilling longer laterals (up to two miles or more), exploiting central facilities and developing multi-well pads. This is likely to reduce well costs as well as improve well returns and economics. The acquisition’s impact on the company’s production and potential additional midstream prospectsis expected to be realized in late 2019 or early 2020. The company expects to start production from these properties with higher NRIs and lower costs per lateral foot.

The purchased assets merges well with Matador’s existing properties, increasing and securing acreage in the Antelope Ridge asset area in Lea County as well as establishing foothold in the prolific Stateline area in Eddy County.  It will also maintain Matador’s weighted average all-in Delaware Basin acreage cost at about $11,000 per net acre.

The company’s strategy of growing Delaware Basin land position on a brick-by-brick basis has enable it to capture unique value-creating opportunities on a select basis. Moreover, the company can unlock additional value across the acreage position, comprising midstream prospects. It will be able to add to the growing minerals and leasehold positions.

Price Performance

In the past year, Matador’s shares have increased 9.7% compared with the industry’s 1% rise.

 

Zacks Rank & Stocks to Consider

Matador currently carries a Zacks Rank #3 (Hold).

A few better-ranked players in the same sector are Petroleo Brasileiro S.A. PBR or Petrobras SA, Helix Energy Solutions Group, Inc HLX and TC Pipelines, LP TCP. All these stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Petrobras is the largest integrated energy firm in Brazil and one of the major players in Latin America. It pulled off an average positive earnings surprise of 10.4% in the last four quarters.

Helix Energy offers specialty services to the offshore energy industry. The company delivered an average positive earnings surprise of 66.7% in the trailing four quarters.

TC Pipelines purchases, owns and actively participates in the management of U.S.-based natural gas pipelines and related assets. The company delivered an average positive earnings surprise of 3.7% in the last four quarters.

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