Matador Resources Company (MTDR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Matador Resources Company Update Conference Call. My name is Daniel, and I'll be serving as the operator for today. [Operator Instructions] We will facilitate a question-and-answer session at the end of the company's remarks. As a reminder, this conference is being recorded for replay purposes, and the replay will be available on the company's website for 1 year as discussed in the company's press release issued this morning. I will now turn the call over to Mr. Mac Schmitz, Senior Vice President, Investor Relations for Matador. Mr. Schmitz, you may proceed.

Good morning, everyone, and thank you for joining us for Matador's Update Conference Call in connection with the strategic bolt-on Delaware Basin acquisition that we announced this morning. As a reminder, certain statements included in this morning's presentation may be forward-looking and reflect the company's current expectations or forecasts of future events based on the information that is now available. Actual results and future events could differ materially from those anticipated in such statements. Additional information concerning factors that could cause actual results to differ materially is contained in the company's press release and its most recent annual report on Form 10-K, in any subsequent quarterly reports on Form 10-Q. In addition to the press release that we issued earlier this morning, I would like to remind everyone that you can find a short slide presentation in connection with our announcement under the Investor Relations tab on our website. And with that, I would now like to turn the call over to Mr. Joe Foran, our Founder, Chairman and CEO. Joe?

Thank you all of you for joining in on this call. We appreciate your interest very much. And what Mac was saying about the slides that are available on our website are very important because I think sometimes the picture tells a thousand words. And that's where I'd start by looking at the Exhibit A on those slides. And you can see the property fit between Ameredev [indiscernible] and ours. And that's the first point. We're in the same neighborhood, and that we've been in the same neighborhood. The second thing is we looked at the Ameredev property, and for some time, we had to wait until we swallowed the Advance deal to be sure we had the balance sheet strength and the financial wherewithal to do that without threatening taking an undue risk for the rest of our shareholders. Advance has worked out very well. And we believe Ameredev will be work out just as well and has [ ever beared ] as much potential. Our thesis on this deal is not that we were looking for a bargain sum up there buying something cheap. We knew Ameredev, EnCap, being a strong partner it was. It didn't have to do anything. So we looked at it much like what Warren Buffett says, he looks for in a deal. He looks for a wonderful company at a fair price. Ameredev has great rock. It has a great record of success. These are very good properties. They've got flow assurance through their ownership in opinion and the staff is very professional. And we have a lot of trust and confidence that things were done right, and we're pleased to have this opportunity. So how the deal actually should be rated is how it's going to look in a year from now. And as we are able to drill some of the wells, there's 2 or 3 zones out there that we think are very prospective. But we'll just have to let the process run its course. And we have a lot of trust and confidence in the Ameredev staff. So we don't need to intrude in them. We're just, of course, planning to sit back and let them do their work. And as the deal closes and continue to collaborate with them as they know the assets, and they've done a good job. So it's a nice situation to be coming into and in a very nice situation as much as people are talking about inventory these days, their inventory fits very well with us, and there'll be a great combination. So with that, it's accretive on all things, and financially, the same way that we think it'll just make what we think is a real good year for Matador. On the rest of its properties, that's much better if and when we get it closed. Not that we're worried about it. It just -- we'll be eager and see how things move along.

Daniel, we'd like to turn it over to questions when you're ready.

[Operator Instructions] Our first question comes from Scott Hanold with RBC Capital Markets.

Congrats on the acquisition. It looks like a nice tuck-in with -- especially with the Advance assets. My first line of questioning is on the midstream asset. I know that facility had some issues over the past years. You'd be good to kind of give an update on where that is? And just kind of curious with your respective ownership like how much capital needs to be spent on that system to support production there? And what kind of value do you attribute to your ownership there?

Scott, this is Brian. Great question about the midstream. We're really excited for this opportunity to work with [indiscernible] and I think it provides really good flow assurance for us. As we go forward and get to know those guys better. I think some of the questions you had about capital expenditures, otherwise, we'll go into that in more detail as we get closer to closing. We certainly enjoy getting to know those folks and they do a good business. I think some of the issues they may have had at the end of last year have largely been resolved. And so I think as we go forward, we'll work with them and just kind of hand in hand, we look forward to that opportunity. And so they run a good business, have EBITDA for us in the future. We think it's going to be a very profitable business for us. And so any investments we make, we think will be profitable on that side. So we're really excited about the midstream business and how this complements Pronto and Sam [indiscernible], other midstream assets and how this is a good opportunity for us.

And I guess my follow-up question would be on just the structure of the deal, how it kind of came together -- if it was -- how competitive it was, but also on the cash payment? And how do you feel about your balance sheet? I mean look, I think you've got a path to get it below 1x, but I'd like some -- if you could get some context on -- was there any equity ever as a consideration for that? And just in terms of are you going to look to hedge going forward to help assure that you can get to those leverage targets?

I'll try that question and Brian, or someone else, Gregg can follow up. But the first thing, how the deal came together is, Ameredev is a company with very good prospects, very good properties, great rock. Everybody recognizes the potential and any number of investment bankers had mentioned it and thought that we were a logical candidate but we weren't ready to do it because we hadn't fully absorbed Advance. And EnCap is somebody that we like dealing with, Gary Peterson and [ our friends ]. And again, it just until now, until just recently, it just hasn't been the right time for us. But once we did the offering a little while back and raised some additional capital, equity capital. And after we did the additional bond deal, we refreshed our financial statement to where we were in good position. We had virtually nothing barred on our RBL, $25 million, I think, on a $1.5 billion RBL. So we had $1.5 billion ready there, did the bond offering. So we extended out to 2032. So that gave us 8 years, but we intend to pay down both the RBL and get our leverage ratio back to 1. It's not obscene right now at 1.3, but I like it better at 1.0 or less. Now we were doing an all-cash offering and thought that was more practical, our stock has performed well, but we think it'll do better as we become a bigger company. And so now we're moving from, say, $8 billion to $10 billion in assets to something that's $10 billion to $12 billion in assets. And as that additional cash flow comes through, we're hoping it's recognized and appreciated in the market. And we know it makes us a bigger, better company, and we see a lot of potential, a lot of locations that we can turn into profitable wells, and they've got a lot of choice out there. So that's how kind of the deal came together. And that, fortunately, we have the strength to do it. And because I believe I'll let them speak for themselves, but EnCap had done another deal with us. It had gone well, and they had -- we've done other business, and I think they had the confidence that we could do what we said. And financing was not a condition. And then we appreciate very much PNC stepping up as they did and assuredness of this before, the deal was finally set aside. And you know that the way everything came together, and you're just really excited to know that you've you got the inventory and you got the people and you got the money to make this a bigger success and puts Matador in a different league. Brian, what did I leave out?

No, Joe, I think you hit that very well. I just echo the thanks you gave to PNC and what they did for us as we got ready to announce this transaction. I think as we go forward, the rest of our bank group for their support, we have 19 very supportive banks. We're grateful for the relationships we have there. And I'll say on the hedging side, Scott, you asked about that, that we are opportunistically putting in hedges now. I think we will continue to do that over the coming weeks and months. So we'll talk about that more when we get to our second quarter earnings call. We certainly want to make sure we protect some of the economics of the transaction. And so we're trying to look at opportunistically hedging as we get closer to closing.

Yes. I want to emphasize that point, Scott, is that we're not trying to -- we're in the process of putting together the hedges and looking how the market goes on that, and we'll have detailed information in the July earnings release, but they're occurring. It is going to be hedged. Fortunately, the market right now is pretty decent, on putting together a decent hedge is insurance. And as I've always said, people tend to hedge to protect the balance sheet or protect a lending arrangement, and we'll be doing that to the safety and well-being of Matador and our lenders both. Gregg, would you add anything to that?

No. I think you guys touched on it really well. Of course, we're definitely looking at opportunities out there, and we'll continue to do so. I think there is -- it's a great environment right now to continue to be able to get something hedged right now. And I anticipate it not being an issue at all.

And Joe, just to clarify one of your comments. I did -- and I know the Advance -- you bought Advance from EnCap and it was an all-cash deal, and this one was an all-cash deal. Was it your decision for that to be an all cash or was it the buyer's decision -- seller's decision?

It was ours. I don't think I'm giving anything away. They said they'd be willing to take our stock. They liked our stock, and they're willing to take it. But they would be happy to take it. They owned this in the past, but we would prefer to all cash deal and keep that separate that they wouldn't -- we didn't want an overhang. And they appreciated that and we're offering to some protections. But it's just a cleaner deal if you can come in and do all cash, and fortunately, because of PNC and because of the 2 earlier transactions this year on the bonds and the stock, it wasn't necessary. And when you do stock, you're giving away some of your most valuable assets because we think this is a win-win deal that adds value to Matador. And we get what we want is more opportunity and EnCap gets more what they want, it was cash at this point. And we've taken the steps to protect our stock with the hedge. And we know this country well. We've been out here for a long, long time, 20 years. And to be able to get a block of acreage like this in the best part of the fairway we thought was very exciting and just delighted that the financing worked out, the flow assurance worked out, the fit between their properties and our properties works out. All those were pluses. And that we see a lot of opportunity to make this work out very well to our shareholders. And our staff is very excited. And as you know, Scott, that our staff, we have a employee share purchase plan, and we have over 90% participation. So when guys say do it, they were putting their money where their mouth was and their own stock ownership.

Our next question comes from Neal Dingmann with Truist Securities.

Congrats as well. Joe, for you maybe in the team, I'm just wondering why -- first question is on activity. While it's still obviously very early deal just announced is there any consideration about potentially thinking about a step-up in D&C plans given all now the additional inventory that just comes with?

Would you say that again?

My question is around activity. I'm just wondering while very early, given all the inventory that this brings, is would there be any consideration to changing the D&C plans, the rig activity, et cetera?

Not at this time. I mean, look, we're not making decisions like that until it's closer to the time to closing. I mean that's not our mode. They currently have 1 rig running, 1 completion crew. And 82% of the acreage is held by production already. So there's no -- it's not like you're facing the expirations or some compelling reason to move it up. It's their properties right now. We expect them to be professional and as the date nears, and we get to know the properties better and get to know the people at Ameredev and what they think is right and meet with our committees. They're just not a need. We have a very strong, as you know, a very strong relationship with Patterson, they -- or their predecessors have drilled virtually every well we've done. So it's not a problem of either getting the rigs or Halliburton or Schlumberger. We have good relations with all of them, our pipe with [ Forrester ], and B&L all our vendors, we think have been very supportive. And so we're not worried about any of that. It just see how we can get through all the due diligence in this period. And work towards a close and start working on a more detailed plan on how we would do it. But we have the rigs and to do that, if that looks like the best decision. But for right now, I think our first aim is that working out the financial, we're in the financial period and work with the base, get all that laid out and make continuing assessments of the prospective zones that could be added and kind of right their various wells within their deal and how we might extend, Chris may offer that he's looking at it and come up with ideas, but they need to be pressure tested. So a lot of, I would say, characterizes a lot of ideas at this time, and a lot of people can see the potential but that just needs to be thoroughly studied and put into a comprehensive plan and -- but right now, this is the beginning of the engagement period. But also remember, not only we have the relationships with the vendors, it's 86% is HBP, and they also have a very high working interest. Most of it in that 85% or better. So whenever you start it will have an impact. We just need to be patient and spend time to be sure the plan is solid.

Great point, Joe, and just something you just said kind of brings to my second question. You just mentioned the opportunities. I wonder, given how adjacent a lot of this acreage. I'm just wondering if you and Chris could comment. It seems like there would be opportunities to extend laterals to sort of tie in different things there. Could you just talk about the opportunities that this might bring either future trades? Or really, I'm just thinking about maybe you guys have done a great job on extending laterals, seeing higher returns because of that there are going to be opportunities -- more opportunities now because of this adjacent acreage?

I think undoubtedly, you're going to have more opportunities. And just like you mentioned, it's not going to be limited to operations -- trades that make sense for both parties. That's going to be an opportunity. And Chris is already chomping at bit, to look at what might be possible with 3-mile laterals. Chris, to speak for yourself?

I think you highlight some of the things that we are very excited about with this transaction. You speak to longer laterals that has been somewhat of a game changer for us when we started talking about those 3, 4 years ago. The blockiness of this acreage does set itself up extremely well for these extended length laterals that we have kind of talked through the way that they have set up their position with multi-well pads, long laterals, the way that they've already planned to develop this. We're really excited about that. So I think it's one of those things that you're already looking and highlighting the things that we are excited about. But once again, we see this and we see this as an opportunity to work with a partner, like Joe has said, we're kind of in a 3-month or a financial period right now to where we don't want to get ahead of ourselves, but the blockiness of this acreage is something that we are excited about.

Our next question comes from Gabriel Daoud with TD Cowen.

Congrats on the deal. I was hoping maybe we could just start with that HBP number, it doesn't appear to be [indiscernible] number, obviously, at 82% [indiscernible] production, but just curious maybe if there's like a split between Lee and Winkler. And how do you guys think about the relative productivity out of both counties, Lee versus Winkler?

The acreage is 82% held by production.

Right. Just curious of the leases that are not currently held by production, is that more skewed towards Winkler or to Lee, or kind of evenly spread? And then just curious how you think about like the relative differences in productivity out of both counties?

This is Van Singleton, it's more in New Mexico. And I think the way we've looked at this going forward, as Joe said, we've been working on a plan to fold this into our existing drilling schedule and certainly those leases are getting attention and will be held in time. We don't have any concerns over losing any leases, and there is plenty of term left on the leases that are not held for us to accomplish that. And I'd say, 2-plus years before anything is going to start expiring. So we feel very comfortable that we'll be able to get to everything that needs to be gotten to. And I guess maybe, Tom, do you want to add anything to that?

Yes. Gabriel, between the -- just kind of going across the Canyon there, there's a lot of great rock on both sides. We've drilled wells to the north and some of our acreage in Antelope Ridge into the west in Texas. And so we really think that there's excellent targets kind of all throughout. Ameredev has done a really nice job delineating the Wolfcamp in particular, the Wolfcamp A and the Wolfcamp B zones, but also the Second Bone Spring. And there's been other great new wells off to the west and kind of all throughout the acreage. And so we're very confident in this area. As Joe mentioned, we've had operations all around this area for several years, and it's something that we're very familiar with. And I think Ned Frost and I would both agree that Ameredev has done a very nice job to winning these targets over the years with their campaign and getting good log data and drilling wells with 3D seismic. And so I think that they've done a have done a very nice job with all of these different targets.

Ned, do you have anything you want to add?

Sure. I think I'd second what Tom said. I mean, I think Ameredev has done a good job of assembling a very blocky position in rock that we are familiar with. To Tom's point, we have drilled offsetting this acreage on both ends. I think they have been methodical in their approach in delineating their targets, and it is a very high-quality asset. And I think I speak for everyone here when I say we can't wait we can't wait to start drilling wells out here.

And then just as a follow-up, there were no operational synergy numbers quoted. Just curious if you can maybe talk about that? And what does LOE look like on these properties?

Gabe, that's a very good question. It's a very appropriate question. And will -- ask that again in July, so we -- give us some time because I just don't want to throw out some numbers as we do our due diligence and start to see a clearer idea of those various synergies. But obviously, the most obvious one is that this boosts our production by about 26%, but we're not going to add 26% to the current staff that you've got a lot of jobs that can be done by existing staff. Now having said that, we're going to be selective. We're hopeful of attracting some of the Ameredev people to work with us just as we did on Advance, particularly in the field. And I think that's a real possibility, but you don't have to add a lot of the administrative staff or the headquarter staff, except on a selective basis. So that's the most obvious one to me just know going in that we can absorb most of that by ourselves, except for the field staff, we'd like to be sure to keep they've done a good word.

Gabe, this is Glenn. I'll just add to what Joe was saying and talk about a little bit of what Ameredev has done in terms of building out their infield gathering. They had a very similar approach to Matador and controlling their own destiny. And they've made a fairly large investment in infrastructure, both -- or excuse me, on the crude, produced water and on the natural gas gathering side. And then this partnership with opinion to be an anchor tenant and make sure that they have flow assurance and firm capacity to be able to have a home for their natural gas. And so they've done a very nice job and look forward to taking over the assets and seeing where we can be efficient.

Our next question comes from Phillips Johnston with Capital One Securities.

Congrats. First, I just wanted to clarify the EBITDA guidance range of $425 million to $475 million includes any contribution from the midstream? And if so, what that could be?

Phillip, this is Brian Willey, EVP and CFO. Thanks for the question. Yes, the $425 million to $475 million kind of forward-looking 12-month EBITDA does include some midstream, but it's not much, it's less than 5% of that number. Like I said earlier, we're excited about the midstream and be able to know those guys better in their business, but it's very minimal as it relates to that school $425 million to $475 million.

And then it sounded like based on the prior question, we might get more FFO on LOE unit costs later on. But just from a directional standpoint, can you maybe give us a sense of what kind of an effect these properties are going to have on your stand-alone LOE costs.

Well, Phil, we'll have a better idea on that, ask us in July. But what I would tell you is, I think you know me well enough that I'm not going to turn to Glenn and say, the LOE numbers are just fine, don't worry about trying to improve them. You know that's my first job. [indiscernible]. Now what can you do to improve these. But in fairness term, I'll let him sit on it for a day or 2. And then I'll get all [indiscernible]. And the same thing with Chris is that in our -- that's the way we do things around here as we look and try to see how we can make them better. And you've watched us for how many years, continually improve our rates of return and our free cash flow numbers. And so we're going to -- I'm not making Glenn bring up his bedroll here, but we're going to improve -- we'd like to think we're going to improve the LOE numbers and the other cost numbers in other ways. But I stress at Ameredev did some good things already in place, the 3-stream pipes that they put in are already there. And that helped make this an attractive property. It was very professionally run.

And then once again, I'd just say exactly what Joe said is if we go back and look at the Advance properties, it was bolt-on properties in between our existing wells and operations. And so there's 101 operated wells here on these properties and that folds in very nicely to our existing Antelope Ridge assets. And so we have a management team in place, and we have field staff in place, and we think that these properties will much like the Advance will fold in nicely and we'll be able to realize synergies that are associated with having adjacent operations. And again, similarly to the Advance deal as we get in and we see how they're doing things. And again, they've made a really nice investment here that we think will just be very complementary to our existing operations.

Well, it's back to what we said. This is a good company that we're paying a fair price for, but we still see the potential -- a lot of potential for further development and for improvement as you combine areas. And as Chris indicated, the economies of scale of having 3-mile laterals and common facilities. So it's the usual thing. It just takes strong execution, and we got confidence in our staff.

Our next question comes from Tim Rezvan with KeyBanc Capital Markets.

I wanted to ask about midstream. You've gotten a lot of questions in the last year about the optionality that you had with the midstream assets you own outside of the JV. And I'm just curious how much, if at all, the decision to hold off on that was based on line of sight on this acquisition? How are you thinking about kind of the optionality now? And am I overthinking that idea.

Tim, this is Brian Willey. I'm happy to take that question. And Joe or Gregg can certainly jump in. Look, I think certainly, we have a lot of optionality on the midstream side. It's something we've talked about a lot in the past. Having San Mateo and that's been a great business for us. We expect $225 million in EBITDA this year from that business. Pronto also being a fantastic business and providing a lot of flow assurance for us in Lee County. And we've talked about having that optionality and as we go forward, I don't think we were necessarily delaying anything on that front to look forward to a deal like this. But I think this certainly adds to the optionality going forward. that this transaction is a great transaction for us, both from an E&P side and have this additional interest on the midstream side. And so we're very excited that -- again, one more option for us and opportunity for us as we go forward working with Pinion and continuing to explore optionality and opportunities with our existing midstream assets in San Mateo and at Pronto.

Then another question I had is on the CapEx guide for this year, lost in all the news here. But if we think about 1 rig for a quarter, I don't know if that's $35 million or $40 million for a typical Delaware Basin rig. But are you essentially saying that outside of this acquisition, you've identified cost savings on the budget that you can kind of absorb that rig for a quarter or so and leave that budget unchanged? Just kind of curious if you could provide a little more context on that unchanged CapEx guide.

Yes. This is Brian again. Happy to answer that as well. Yes, I think, look, we've had some good savings this year. Earlier, we talked about in the first quarter, we had savings of $10 million off of what we expected to incur in the first quarter. Chris and his team have done a fantastic job, Ned and his team as well, just the guys in the field have done a very good job for us. And so as we go forward, obviously, we talked about in the release, so we'll have more information about how the Advance transaction impacts our CapEx. When we get to the next earnings release and then also at closing. But that's right. I think if we run that ninth rig for the roughly 1 quarter depending on when closing occurs, that we can still be in the range that we set forth earlier this year. And so again, good credit to Chris and his folks and the guys out in the field to be able to make that possible.

One of the things that people need to keep in mind as they calculate this, when we reduce the number of days on wells, you save money without cutting or beating down a vendor. And so as our Chris' cruise, the drilling engineers have done a very good job of setting, I don't know close to 300 records -- of drilling records of one sort or another. And every time they do that and drill these wells faster and faster fewer days on well, we save a lot of money. And that's the trend that we've been in, continuing to save some money. That's another reason why we're confident that we'll still be in range but if things change, we will certainly pass that message along at one of these earnings release or earnings calls, just like this, Chris?

This is Chris Calvert again. Brian highlighted the $10 million in Q1 savings from a capital standpoint. I would also highlight -- we -- Matador was one of the first Delaware Basin companies to go out and use Trimul-frac within our completions. And Tim, I know you're aware of this, but we piloted that on wells that were part of the Advance acquisition in 2023, so we successfully piloted that. And so we're looking at savings like that, that will also kind of chip away at that incremental rig cost, I guess, is where your original question was. So I think it is something -- it speaks to what Joe just said. It's we focus on efficiencies. We focus on things that are sort of agnostic to OFS pricing and that is just -- that basically boils down to spending less time on well. And that's really what we saw with Trimul-frac, for example. We estimated it to be about a 40% time savings versus Simul-frac, and that's really kind of where it came out to. And so it does -- it speaks to the operational group and the mindset of just reducing days on well.

Our next question comes from Oliver Huang with TPH & Co.

Any color on the spacing design that Ameredev had been operating the position on and if there are any plans to kind of change the design from a completion intensity or spacing perspective when we're kind of thinking about any potential value uplift, you all might be able to extract from a well productivity perspective relative to what we've seen historically out of the asset?

Oliver, this is Tom Elsner, EVP of Reservoir Engineering. I will give my hats off to the Ameredev team. I think they have very thoughtfully designed their development, taking into consideration many factors, as we all know, it's not a one factor that controls kind of the well spacing. But there they've done a very nice job and I think they have delivered some excellent wells, you can see on one of our slides, how they have done a very nice job generating these wells and bring them online. We will see kind of how things go up through closing, but I don't anticipate any major changes to kind of how they space their wells. In general, they have been pretty close to the 160-acre spacing or the 1,320 feet between wellbores per horizon. And they adjust that based on the reservoir thickness and other considerations. I think it's too early to say exactly if we would do anything dramatically different. We may tweak some things around the fringes. But again, I think they've done a very nice job with their development so far.

And maybe just for a follow-up, just on the acquired assets, any color you're able to provide on the average lateral length for the new undeveloped locations that you're highlighting at this time? And just kind of looking at how Ameredev had predominantly focused on the Upper Wolfcamp as deals had mentioned earlier on in the call. Any sort of color with respect to how many of the remaining locations fall into that Wolfcamp A [ and ] fly bucket versus the [indiscernible] or any other zones that you all are willing to scribe credit for at this time?

Sure. Oliver, this is Tom again. The average lateral length, as it's kind of starting right now is pretty close to 2 miles as kind of we discussed the blockiness of the acreage and how continuous it is, it does create some potential to combine some things into longer 3-mile units. But I think it kind of starts around the 2-mile mark. As far as the inventory goes, the Wolfcamp A has been a very prolific zone in this area. Approximately around 1/3 of the inventory is kind of Wolfcamp A related lower Third Bone Spring, Wolfcamp B. And then probably the other 2/3 are in the kind of the other Bone Spring targets like the Second Bone Spring, First Bone Spring. Of the 371 net operating locations that we listed, that is even include some of the other prospective zones like Avalon that we could have a couple of dozen net locations down the road if things work out there.

And actually not trying to add much. It's the average length is closer to actually the 10,000 feet to 9,000 feet. And so it's a little longer. I'm not trying to contradict what Tom is saying because Tom has on top of that, particularly on the spacing and our drilling program and does a superb job. But according to some of the due diligence items we've got have indicated that, on average, they're a little longer than that 10% difference. But we just always try to be a little as accurate as we can in your answer to your questions.

That's right, Joe. I think for the drilling in the DUCs that are in place, that's exactly right, Joe.

Right. And on new wells, we see possibilities to go longer. And that's what interested Tom and Chris, as they evaluate this company. So we hope to report back to you at this time next year that we've successfully done some longer laterals.

Our final question comes from Leo Mariani with ROTH MKM.

I was hoping you guys could speak a little bit to the production trajectory on the asset. My understanding is maybe the production kind of had been coming down in the past handful of quarters here due to the issues at the [indiscernible] plant that you guys can kind of confirm that. But if I heard you guys, it sounds like you're saying that issues with the plant have been rectified. So as we kind of look into the end of the year, should we expect production to start to stabilize and you got the 13 DUCs, you see the 13 DUCs when those come on as being able to grow the [indiscernible] a little bit. Just anything you can tell me around kind of how the production trajectory has been trending and what we should expect as we get closer to the end of the year?

This is Brian. Happy to talk about that. So I think as you mentioned, like with some of the issues at the end of last year and early this year, but I think largely, those have been rectified. And so we put in the slide deck in our press release that we expect in the third quarter, the production will be 2,500 BOE per day at the midpoint and 65% oil. So that really is getting back to the full run rate. We expected that kind of continue through the end of the year. And you're right, with the 13 DUCs, depending on when those come online, that, that could boost that number some as you go into the fourth quarter. And so really, the timing of, a, when we close and then, b, also when those DUCs come online and how they contribute to the production. But we're really excited about the assets and what they'll do for us going this year and then also as we go forward into 2025.

And then just on the financing side, if I heard you guys correctly, it sounds like you certainly feel comfortable we don't need to put any additional equity into the transaction are comfortable with cash. I did see you've got a $250 million term loan piece as part of the funding here. But you are putting a fair amount of debt here on the revolver. Are you looking at other potential options to maybe term out some of that debt as well. I know you certainly did that with Advance. Just wondering if we should see something maybe similar there.

Well, I'd just say this. At this point, we're considering any and all methods, and we'll be more precise on that as we get closer to close, but -- and the same thing -- we're -- we don't want to say that we're going to do some and not do it. And the same thing is we don't know what all the options are on the financing. We're pretty satisfied that PNC has given us a very nice avenue, but things can happen that would be more attractive, going down some other path or turning one direction or another. But it looks good, as we have a Konrad saying around here, we always reserve the right to get smarter. And if something better is presented as a public company, we will -- we give that serious study. As we sum up, is that for the operator?

Yes, I think we can move to the closing remarks.

To get to closing remarks, I again would like to really emphasize, this is a unique opportunity and usually often the sales package that comes out, they're selling it because it has some problem. This isn't the case. This is a really good property, and we welcome the chance to have a shot at it because, again, just like Buffett's remark, try to buy really good properties for a reasonable price and we felt like we reached that with EnCap, and they're happy, we're happy. And we see a lot of potential here. And I think the staff has proven itself when we went public, we were about $300 million in assets. And today, with this transaction, we move up in excess -- we exceed $10 billion. So the staff has done very strong work all through that time, and we'd like to see them work their process on this and appreciate this opportunity. And we view it as a real opportunity and that can help us in any number of ways, and we really like the inventory. And it's not a case where we feel diluted, but between the 2 companies that it's a bigger, better company with more options. Now I'd like to really -- the summary is that on a -- is at the bottom of our press release, it says at a pro forma basis, we expect to have 190,000 net acres in the best basin in the country, with approximately 2,000 net locations with production over 180,000 barrels of oil or natural gas equivalent per day, improved oil and gas reserves of over $580 million as audited by Netherlands and Sewell, with a value in excess of $10 billion. That's a great opportunity. And we all are very excited by what it provides us going forward. And finally, I'd like to mention 2 things. First, we have our Annual Meeting tomorrow, and you can hear what we tell our shareholders. It'll be broadcast. And we're excited. It will be our 40th Annual Meeting dating back to first Matador to this Matador. And we have a number of shareholders, a good number of shareholders, who have been shareholders for 40 years and the even larger number of people who have inherited their shares from their parents and still own them. We think that's just a record of relationships that we have with, as I mentioned, Patterson, Halliburton, Schlumberger, B&L, [indiscernible] and so many others in relationships with the shareholders. And I don't mean to work that issue over 2 much but it means a lot to us that we didn't come up through private equity, but through friends and family and are excited about the future growth possibilities. So come to shareholder, and you'll get a second chance to ask questions as we'll open the floor, and you can meet the guys who are going to do the work. And I think you'll be pleased with -- and we'll have [indiscernible] maps and things that you can see and see the potential, but also shout out to Rob and the accounting group to get this deal done in time, they had to really work some late hours. So they've had their time pulling these numbers together, too. So I just want to be sure we've recognized all the groups and great work. Bryan Erman and the legal staff in pulling this together, and getting it done as quickly as we did, and especially [indiscernible], who was the primary point man. And why don't we close with leaving you something to say if you'd like?

Well, Joe, I think I would just continue on with the thanks. The shout out to the [indiscernible], and Ameredev and Jason DiLorenzo and [indiscernible]. I mean it really both teams work and even our outside counsels at Vinson & Elkins and Baker Botts. Everybody worked together on this as well as I've ever seen it done. And there were lots of late nights, internally and externally. But at the end of the day, we were all working towards the same goal. And as Joe said, this is a great company. We feel like we've made a fair deal where both sides win, and that's what we always try to accomplish. So we're looking forward to getting into our due diligence period and getting this to closing and thank all of you for participating today and hope to hear from you again more and answer any questions you might have.

With that, no more questions, we'll sign off. Thank you all for listening. Thank you for participating, and I repeat, come to see you some time and we can discuss this at greater length.

Ladies and gentlemen, thank you for your participation today. This concludes today's program.