Matador Resources announces strategic bolt-on Delaware Basin acquisition
BY NS Energy Business
The consideration for the Ameredev Acquisition will consist of a cash payment of $1.905 billion, subject to customary closing adjustments. Ameredev is a portfolio company of EnCap Investments L.P.
Matador Resources Company (NYSE: MTDR) (“Matador” or the “Company”) announced that a wholly-owned subsidiary of Matador has entered into a definitive agreement to acquire a subsidiary of Ameredev II Parent, LLC (“Ameredev”), including certain oil and natural gas producing properties and undeveloped acreage located in Lea County, New Mexico and Loving and Winkler Counties, Texas (the “Ameredev Acquisition”). The Ameredev Acquisition also includes an approximate 19% stake in Piñon Midstream, LLC (“Piñon”), which has midstream assets in southern Lea County, New Mexico. The consideration for the Ameredev Acquisition will consist of a cash payment of $1.905 billion, subject to customary closing adjustments. Ameredev is a portfolio company of EnCap Investments L.P. (“EnCap”).
The Ameredev Acquisition is subject to customary closing conditions and is expected to close late in the third quarter of 2024 with an effective date of June 1, 2024. A short slide presentation summarizing the Ameredev Acquisition is also included on the Company’s website at www.matadorresources.com on the Events and Presentations page under the Investor Relations tab. Matador’s management will host a live conference call to discuss the Ameredev Acquisition on Wednesday, June 12, 2024 at 10:00 am Central Time. Further details are provided at the end of this press release.
Joseph Wm. Foran, Matador’s Founder, Chairman and CEO, commented, “Matador is very excited to work with EnCap again on this strategic bolt-on opportunity. As with the successful Advance Energy deal we completed in April of 2023, we view the Ameredev transaction as another unique opportunity to work with EnCap and another value-creating opportunity for Matador and its shareholders. We evaluated this opportunity based on the high rock quality, the strong existing production and cash flow profile, the significant reserves additions, the high-quality inventory, the strategic fit within our existing portfolio of properties and the expansion of our midstream footprint with an ownership interest in Piñon. The equity and debt securities offerings and the revolving credit facility amendment we completed earlier this year, together with our historical balance sheet conservatism, have provided Matador with the opportunity to acquire these high-quality assets and continue Matador’s consistent history of profitable growth at a measured pace.”
Transaction Highlights
On a pro forma basis following closing of the acquisition, Matador expects to have over 190,000 net acres in the Delaware Basin, approximately 2,000 net locations, production of over 180,000 barrels of oil and natural gas equivalent (“BOE”) per day, proved oil and natural gas reserves of over 580 million BOE and an enterprise value in excess of $10 billion
Expected to generate forward one-year Adjusted EBITDA of approximately $425 to $475 million at strip prices as of late May 2024, which represents an attractive purchase price multiple of 4.2x for the upstream assets:
Strip prices for the remainder of 2024 averaged $77 per barrel of oil and $2.76 per MMBtu of natural gas.
Accretive to relevant key financial and valuation metrics
Significant increase in high quality pro forma drilling locations in primary development zones
PV-10 (present value discounted at 10%) at May 31, 2024 of $1.46 billion on total proved oil and natural gas reserves utilizing strip pricing as of late May 2024. The PV-10 of $1.46 billion does not include the interest in Piñon or certain undeveloped but prospective locations included in Matador’s valuation of the Ameredev assets:
PV-10 of proved developed (PD) oil and natural gas reserves at May 31, 2024 of $1.20 billion, or approximately $47,100 per flowing BOE, utilizing strip pricing as of late May 2024.
Preserves Matador’s strong balance sheet with pro forma leverage expected to be approximately 1.3x at closing and back below 1.0x by the middle of 2025 based upon current commodity prices, allowing Matador to maintain operational and financial flexibility while continuing to return value to shareholders through its fixed quarterly dividend and protecting cash flows through its appropriate commodity hedges
Expanding Matador’s midstream footprint with an approximate 19% stake in Piñon, which allows for increased coordination between Matador and Piñon in gathering, transporting and treating natural gas from the Ameredev properties
Ameredev Asset Highlights
Estimated production in the third quarter of 2024 of 25,000 to 26,000 BOE per day (65% oil)
Approximately 33,500 highly contiguous net acres (82% held by production; over 99% operated) in the northern Delaware Basin, most of which is located in Matador’s Antelope Ridge asset area in southern Lea County, New Mexico and Matador’s West Texas asset area in Loving and Winkler Counties, Texas
Adds 431 gross (371 net) operated locations (86% working interest) identified for future drilling, including prospective targets throughout the Wolfcamp and Bone Spring formations
Locations are consistent with Matador’s methodology for estimating inventory with typically three to four (or fewer) locations per section, or the equivalent of 160-acre (or greater) spacing, in all prospective completion intervals
Prior to transaction closing, Matador expects Ameredev to operate one drilling rig and to continue operations on 13 drilled but uncompleted (DUC) wells with one completion crew:
The prospectivity of the Ameredev acreage immediately competes for development capital with Matador’s existing acreage so Matador expects to continue operating a total of nine drilling rigs for the immediate future on the combined approximately 192,000 net acres of the Matador-Ameredev properties.
The additional ninth drilling rig and the associated Ameredev activities are not expected to increase the range of Matador’s estimated drilling, completing and equipping (“D/C/E”) capital expenditures of $1.10 to $1.30 billion for 2024. More information regarding the capital expenditures associated with the Ameredev Acquisition and its impact on Matador’s guidance for 2024 will be included in Matador’s press release announcing its second quarter 2024 results, which is expected to be issued in late July 2024.
Matador estimates total proved oil and natural gas reserves associated with the Ameredev properties of 118 million BOE (60% oil) at May 31, 2024. The pro forma combined company is estimated to have 578 million BOE, a 26% increase from Matador’s total proved reserves at December 31, 2023 of 460 million BOE. PV-10 of the proved oil and natural gas reserves of the Ameredev properties at May 31, 2024 was approximately $1.66 billion using the same unweighted arithmetic average first-day-of-the-month price methodology for the previous 12-month period being used to value the Company’s reserves, which are $74.91 per barrel of oil and $2.35 per MMBtu of natural gas. The PV-10 of $1.66 billion does not include the interest in Piñon or certain undeveloped but prospective locations included in Matador’s valuation of the Ameredev assets. Matador expects to add future proved reserves and reserves value as a result of the development of the Ameredev properties going forward. These reserves estimates were prepared by Matador’s engineering staff and audited by Netherland, Sewell & Associates, Inc., independent reservoir engineers, as of May 31, 2024.
Mr. Foran further commented, “We took significant strides during and shortly after the first quarter of 2024 to strengthen our balance sheet and allow us to participate in another special opportunity like this one. The specific location and quality of the Ameredev assets, the strong existing cash flow, the multi-pay potential and the cost savings associated with developing these assets via longer laterals on multi-well pads on blocky acreage were key features that attracted us to this unique opportunity and significantly enhance our already strong Delaware Basin portfolio and prospect inventory. This acquisition also positions Matador for continued success and growth throughout 2024, 2025 and into the future as one of the top ten producers in the Delaware Basin.
“To assist in financing this all-cash transaction, Matador has received firm commitments from PNC Bank, the lead bank under our reserves-based credit facility, to provide at closing (i) a 50% increase in the elected commitment under our credit facility from $1.5 billion to $2.25 billion and (ii) a $250 million Term Loan A under our credit facility to provide additional liquidity following the closing of the transaction. Importantly, this acquisition should not significantly impact Matador’s leverage profile in the long-term, as we expect our pro forma leverage ratio to return to a ratio below 1.0x by the middle of 2025 based upon current commodity prices. We especially appreciate PNC Bank for their leadership and support in arranging this financing commitment and the confidence and support we have received from the other members of our bank group.
“This transaction marks the second significant deal Matador has done with EnCap in the last 18 months. Gary Petersen, one of EnCap’s Founders, and I have known each other for many years. Similar to the Advance Energy transaction we closed in April of 2023, the long relationship with Gary and EnCap was critical to the smooth negotiation of this transaction. Thank you to Gary, the other senior members of the EnCap team, Parker Reese and the rest of the Ameredev team and the Matador team for their hard work and integrity in efficiently reaching a deal that we believe is a positive development for all parties. We also appreciate the support of our other friends, shareholders, bankers and vendors in making this deal happen. We look forward to the additional commercial opportunities and free cash flow that this new acreage and production will provide for Matador.”