Matador (MTDR) to Grow Delaware Basin Presence With $1.9B Deal

Zacks Equity Research

13 June 2024 at 7:36 am·4-min read

Matador Resources Company MTDR has unveiled a strategic acquisition, aimed at expanding its footprint in the Delaware Basin. A wholly-owned subsidiary of Matador has entered into a definitive agreement to acquire a subsidiary of Ameredev II Parent, LLC, encompassing oil and natural gas properties and undeveloped acreage in Lea County, NM, and Loving and Winkler Counties, TX. This acquisition will also include an approximate 19% stake in Pinon Midstream, LLC, with midstream assets in southern Lea County, NM. The transaction, valued at $1.905 billion in cash, is expected to close in late third-quarter 2024, with an effective date of Jun 1, 2024.

Strategic Acquisition Details

Matador's CEO Joseph Wm. Foran emphasized the strategic nature of this bolt-on acquisition, highlighting the high-quality reserves, strong production and significant cash flow potential of the Ameredev assets. Since a similar successful deal with EnCap Investments L.P. was made in April 2023, this imminent acquisition reinforces Matador's strategy of measured, profitable growth.

Upon completion, Matador's pro forma holdings will exceed 190,000 net acres in the Delaware Basin, boosting production to more than 180,000 barrels of oil and natural gas equivalent (BOE) per day and increasing proved reserves to over 580 million BOE. According to the company, the deal is expected to generate forward one-year Adjusted EBITDA of approximately $425-$475 million, offering a favorable purchase price multiple of 4.2x for the upstream assets.

Enhancing Midstream Capabilities

The acquisition is set to extend Matador's midstream capabilities through the stake in Pinon Midstream, enhancing coordination in gathering, transporting and treating natural gas. The additional 33,500 highly contiguous net acres, predominantly located in Matador’s Antelope Ridge and West Texas asset areas, include 431 operated locations for future drilling.

Financial and Operational Impact

Matador plans to maintain its strong balance sheet, with pro forma leverage expected to be around 1.3x at closing, dropping below 1.0x by mid-2025. The company will continue operating nine drilling rigs across the combined properties without increasing its estimated capital expenditures for 2024.

Mr. Foran expressed confidence in the acquisition's ability to drive growth and shareholder value, attributing the deal's success to Matador's solid financial foundation and strategic relationships with EnCap and banking partners like PNC Bank. The acquisition is expected to bring additional commercial opportunities and enhance free cash flow, positioning Matador among the top ten producers in the Delaware Basin.

Zacks Rank & Key Picks

MTDR currently carries a Zack Rank #3 (Hold).

Investors interested in the energy sector may look at some better-ranked stocks like Archrock Inc. AROC, Sunoco LP SUN and SM Energy Company SM. While Archrock and Sunoco sport a Zacks Rank #1 (Strong Buy) each, SM Energy carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.

The Zacks Consensus Estimate for AROC’s 2024 EPS is pegged at $1.07. The company has a Zacks Style Score of A for Growth. It has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 60 days.

Sunoco is a leading wholesale motor fuel distributor in the United States, boasting a vast distribution network spanning 40 states. With long-term contracts servicing more than 10,000 convenience stores, it distributes over 10 fuel brands, ensuring a stable revenue stream. SUN currently has a Value Score of A.

The Zacks Consensus Estimate for 2024 and 2025 earnings per unit is pegged at $7.29 and $7.17, respectively. The partnership has witnessed upward earnings estimate revisions for 2024 and 2025 in the past seven days.

SM Energy is set to expand its oil-centered operations in the coming years, with an increasing focus on crude oil, especially in the Permian Basin and Eagle Ford regions. The company’s attractive oil and gas investments should create long-term value for shareholders.

The Zacks Consensus Estimate for SM’s 2024 EPS is pegged at $6.63. The company has a Zacks Style Score of B for Value. It has witnessed upward earnings estimate revisions for 2024 in the past 30 days.

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Strategic Acquisition Details

Enhancing Midstream Capabilities

Financial and Operational Impact

Zacks Rank & Key Picks

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