Matador Resources Company ($MTDR)

Good morning, ladies and gentlemen. Welcome to the First Quarter 2026 Matador Resources Company's Earnings Conference Call. My name is Stacy, and I'll be serving as the operator for today. [Operator Instructions]. 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 earnings press release issued yesterday. I will now turn the call over to Mr. Mac Schmitz, Senior Vice President, Investor Relations for Matador. Mr. Schmitz, you may proceed.

Thank you, Stacy. And good morning, everyone, and thank you for joining us for Matador's First Quarter 2026 Earnings Conference Call. Some of the presenters today will reference certain non-GAAP financial measures regularly used by Matador Resources in measuring the company's financial performance. Reconciliations of such non-GAAP financial measures with comparable financial measures calculated in accordance with GAAP are contained at the end of the company's earnings press release. 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 earnings release and its most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q. In addition to our earnings press release that we issued yesterday, I would like to remind everyone that you can find a slide presentation in connection with the first quarter 2026 earnings release under the Investor Relations tab on our corporate 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, Mac, and good morning to everyone, and thank you for participating in today's earnings conference call. We appreciate your time and your interest in Matador very much. I've been coming to you for a long time. It's actually 40 years -- over 40 years in time and I unequivocally say that this is one of the more challenging times over that history, but also feel very good that -- our team is experienced enough and our balance sheet is strong enough and our lease position is strong enough that we can meet these challenges. And I just want to point out to you what I heard over the years, keeping it simple, was to look at 3 things. It's production up? Yes. Our production up, is our capital spending the same or down a little bit. And it's -- and then finally, is your debt down. So we've reduced debt. We kept the lid on capital spending for those and our production is up. And our balance sheet is in the best position that we've had during this entire time. So we're ready to meet whatever challenges and opportunities as they may come along. And I'd like to say, emphasize the point about the teamwork here. It's continually gotten better and better. And times like this gets everybody working with extra effort. And over time, we've generally made our best gains in times like this. So we -- everybody wants $100 oil or more, but these are often times that help build the company. And so -- thank you for your thoughtful analyst reports, and we look forward to your questions and want to say again that we're open to you all, we want you all to know you're welcome to come visit us where we will be able to spend more time and you meet more of our people. So ask away, and I turn it back to you, Mac.

Sounds great. Stacy, we're ready for Q&A. Thank you very much.

[Operator Instructions]. And with that, our first question comes from Neal Dingmann with William Blair.

Nice quarter, Joe. Joe, just a lot to ask, but I'll just try to focus my first and only question on production growth. I'm just wondering historically, you all have grown production a bit more than this year. And as you pointed out, there's certainly absolutely no balance sheet constraints when you look at now the balance sheet and everything that you all have. So I'm just wondering when you all laid out the plan for this year and you think about the growth for the remainder of this year into next year, is it largely influenced by how you see the macro environment? Is it how you all are thinking about the potential incremental capital spend? Or what is the largest drivers behind how you're thinking about laying out the growth?

Thank you, Neal. That's a great question, multifaceted is we're looking at it in all different ways, is that obviously, as variable is this year has been, price of oil is up, war breaks out. One thing has been somewhat chaotic. So we've discussed all those different plans and what we do in each case. And Matador has always tried to be nimble to be able to change plans as the environment -- business environment changes. And we've been through COVID, and we came out better from that. We've been out, I don't know, all the different crises that you get in the Mid East. We've come out better from that. And that just reflects, I think, the growing teamwork, we're still getting better and better out here. We've got people, we've gotten to know each other really well over the years, and it's really been easy to go down one direction or another. Presently, we think the emphasis should be on getting production up and your debt down and keeping a handle on your capital spending. You want to spend some capital, of course, to keep growing, but you just don't want to be reckless with it and make each dollar count. And that's been our approach, and it's been a collaborative effort with each of the department heads. And I can -- if you or others come business and get around the table with us, I think you'll see the interaction and the teamwork and we'll leave feeling confident that this is a group that works together and has good ideas. And in times like this, they can be trusted and they've proven themselves in challenging environments like this and have produced good results. So that's how we've grown from $270,000 in 1983 to the present market cap somewhere around $8 billion.

Neal, this is Chris Calvert, EVP, CFO. The one thing I would like to add to that, and obviously, I think those are great comments from Joe. When we think about growth and the optionality as well that comes with that you have to forward think about potential restrictions or constraints to growth. And I think for Matador, we attack those and we look at those in a very unique way. The inventory scarcity question is something that's not really applied to Matador. 10 to 15 years of inventory with extremely good returns, 50% or better at different commodity prices, takeaway constraints. We look at the catalysts that Matador has, whether those are our fully integrated midstream business of San Mateo or the Hugh Brinson catalyst that will alleviate Waha -- negative Waha pricing in the back half of this year. Operational efficiencies that drive capital efficiencies as we think about growth, you want to have capital efficiencies that come with that. And so for us, we think we're in a position to where, when we think about growth, we don't have some of the potential constraints that I think some of our peers are affected by. And so we have that optionality to potentially grow if we want to. But obviously, we're looking at it from kind of the profitable growth at a measured pace standpoint.

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

Good quarter. I may actually kind of keep on the same line as Neal's question. And look, you guys have historically have seen better and better efficiencies in your operations and have pulled forward activities. So as you look at the balance of this year, what is the opportunity to kind of continue that trend of pulling things forward and how much more could that add to your growth this year without like impacting capital too much?

Yes. Scott, this is Chris Calvert again. When we look at it, if you look at the first quarter, the outperformance of the first quarter, the production outperformance itself was buoyed by and it helped with outperformance of wells that were turned on line in the quarter. Then you also had acceleration of activity. There were 2 additional net wells that were turned on in the quarter. The efficiency story that drives those results will play out through the remainder of the year. And so while we did not increase our full year turn-in-line count, you can go back to the tail end of 2025, the operations team working hand in glove with the midstream team, flow assurance that it provides. We were presented with the opportunity at the back half of last year, the option to accelerate activity at favorable oilfield service pricing. And so we made the decision to do that. And so that seems to be historically operationally how we view the world. And so as efficiencies continue to present themselves. There's likely going to be the opportunity to potentially pull wells into the year. But right now, it's just a little too early to kind of make that judgment. So I think for us, we're focused on the production growth that we can from well outperformance and then incremental production growth that is on the back of efficiencies, which comes in leading wells faster into the quarters.

And one other thing is we're opportunistic about acquisitions. The lease-by-lease, brick-by-brick approach that we've talked to before and whatever else there are deals coming down the line, we just try to be careful to be sure that, as Chris said, is that it's profitable growth at a measured pace.

Our next question comes from Gabe Daoud with Truist.

I was maybe hoping, Joe, could just get an update on your thoughts around San Mateo, another good quarter out of that entity. And just curious how we should think about any type of strategic options for that asset this year?

Gabe, that's a great question, too. And as we give that a lot of thought, the midstream has turned into a very valuable asset, not just in money terms, but also in providing us with efficiencies and flow assurance out there in the basin, but sometimes that can be difficult. So it's been a great asset. Obviously, one thought has been is to take it public, although we can't really say that, but we're not trying to tempt the market. It's just -- we don't want to go out unless it's a good time. We don't need the money, but it's an important catalyst for us because it's grown in our -- some of our [ literature, ] you can see how many miles of pipeline that we have. It's flowing water, gas and oil and have given -- provided great flexibility to our operating group to be sure we get our product to market. The Hugh Brinson deal that we've discussed is an excellent example of what it's done for us. When Waha has had so much negative pricing, the Hugh Brinson is coming online and moves us away from the Waha market, which is negative over to Henry Hub. And we think it may make as much as $0.50 MM difference and multiply that by the number of the gas production we'll have this year, and it's an enormous difference, and we're very excited about that and getting to work with ET. I think they've been a top-notch operator, very innovative and that we're -- we see that as a great relationship with each other that can continue to expand. And we have other good partners that have been midstream that will give us other opportunities as our production in the Delaware is all around the Delaware. And it's not in one location or one field, but it's now throughout that basin. So we think we're set with a property set, takeaway capacity, experienced rigs, experienced people that this is our time to continue to progress. You want to add anything, Chris?

Yes. I think the one thing I would add to that, Gabe, the one thing with San Mateo and the Matador wholly-owned midstream assets, the strategic value of those as they pertain to the Matador E&P upstream side is the flow assurance and really the operational control. We talked in the first quarter release at length about the efficiencies on the upstream side that come in partnership with the San Mateo and really just the midstream business that resides here in Dallas with us. You can talk to water recycling, whereas 30% of the volumes of the Matador E&P recycled water volumes that we used in the first quarter came from San Mateo or Matador wholly owned midstream assets. We're actually increasing an investment. We're building a new water recycling facility, began construction this quarter that will assist and continue to grow both the upstream side from a CapEx savings perspective, but also a revenue side on the San Mateo side. From a gas use perspective, field use gas has been utilized in Southeastern Lea County with a lot of Matador operations that we talked about that mitigates diesel spend. And so the flow assurance and the operational control is something that we are going to be focusing on as we continue to analyze the drop-down for further strategic alternatives with San Mateo. But first and foremost, it's that integrated business that we want to make sure we're thoughtful of because, once again, we don't need the cash. We just -- we want to find the right deal, specifically the right deal that increases the value to the Matador shareholders to where we can pull that value forward.

And Gabe, this is Glenn Stetson. I would just add on to what Chris said in terms of the use of field gas. And so we highlighted in the release, but by using field gas as opposed to compressed natural gas that is trucked-to-location for frac, we save an average of $100,000 per well. And that advantage is in large part due to our relationship with our unique relationship with San Mateo and Matador's midstream company. And in Q1 and today, where prices are negative, in addition to those $100,000 in capital savings, we are burning that gas in the field for hydraulic fracturing operations as opposed to selling them at what negative Waha pricing.

Our next question comes from Zach Parham with JP Morgan.

One thing you mentioned in the release is that you drilled your first Woodford well. Could you give us a little more detail there? What are your expectations on that well? And maybe could you talk about what the inventory opportunity set could look like for the Woodford if that well does prove to be successful?

Zach, this is Chris Calvert again, and I'll pass it over to Andrew Parker here in a second. But I think expectations of this well, you can look at surrounding offset production. We have -- we have strong, encouraging expectations that this well will come on from a hydrocarbon perspective, operationally. Things are moving right along as well has been successfully drilled and cased with completion operations ongoing. From a productivity standpoint, we can expect to discuss this probably on the next call in July. But I think I can kick it over to Andrew Parker here to talk about some of the geosciences.

Yes. Thanks. This is Andrew Parker, EVP of Geoscience. Thanks for the question. We're really excited about the Woodford. This is a huge catalyst for us this year. And the land team has really done a tremendous job putting this position together. But more importantly, the whole team has really just done a tremendous job executing on this first well. So we're excited about it. It's still early, but we like our position. We like our chances here and we're looking forward to reporting more later in the year, but so far, so good.

And Zach, this is Tom Elsener. I'd just like to remind everybody that we haven't currently counted any of the Woodford in our inventory today. So that would be the upside if we get success there.

Either in the reserves or in the lease position, it's just been done.

Our next question comes from Phillips Johnston with Capital One.

I wanted to ask about your quarterly CapEx cadence for the year. Your second quarter guidance implies you spend around 55% to 60% of the budget in the first half of the year. So I wanted to get a sense around the shape for the second half. Would you expect it to be fairly ratable at a little over $300 million in both Q3 and Q4? Or is 1 quarter significantly safer than the other?

Yes. This is Chris Calvert again. Thank you for referring back to the first quarter. I think the 55% to 60% that we -- guidance that we put out with the February release, first quarter, where we came in the first quarter of $428 million was right in line with what we expected. The second quarter midpoint. If you put those 2 together, it puts us right in that 55% to 60% range. And so the first half of this year, the capital spending is exactly in line with what we told everyone. As you look at the back half of this year, it definitely steps down from where it is on a quarterly basis. We haven't really put any sort of forward messaging to it. But you can look at whether it's TIL cadence, over 50% of our TILs are occurring in the first half of this year. So you would expect a sizable drop in the back half of this year. But once again, as efficiencies shift, I think it's a little too early to put any sort of capital cadence to the third and the fourth quarter other than they will be down from the second quarter number.

Our next question comes from Paul Diamond with Citi.

I wanted to touch base on your -- is the improvement D&C per lateral foot. Can you talk about the levers you see available in the next coming quarters and I guess the trajectory here getting down to that sub-800 level?

Yes. This is Chris Calvert again. And I think the range we put forward at the beginning of the year, $785 to $805, 6% down from where we were in 2025. And I think as we look at the levers to maintain and finish towards the bottom end of that range target for the year, it's a lot of the similar levers that we have spoken to in the past. It's multi-well completions, utilization of simul- and trimul-frac. It's the full utilization of electric fleets with 90% reduction in diesel usage, continued water recycling usage and improvements in water recycling in the first quarter of 2026, we recycled over 70% of our water came from recycled sources. And so looking forward, how do we continue to push that? It's drilling and completing wells in shorter cycle times. Year-over-year, we're about 13% faster just on average from cycle times. But I think the really impressive parts of this are in the deeper parts of the basin, as we extend laterals, the improvement grounds that we have made. And so if you look at 3-mile well laterals, for example, in 2025 versus 2026, our best 3-mile well we've drilled this year in under 16 days, which was a 40% improvement versus 2025. And so I think as we look at levers going forward, it's going to be reduced drilling times, increased use of recycled water, vendor relationships, AI integration within certain operational processes, MAXCOM integration, our MAXCOM room here, we're in our eighth year of MAXCOM, continuing to see improvements, continuing to see records broken, 3-mile U-turns. I think the laundry list is long of levers on how we can continue to improve upon that number.

Our final question this morning comes from Phillip Jungwirth with BMO.

One of the other Delaware operators this week was talking a lot about AI and just wondering how is Matador either implementing or looking at this in its own operations to enhance efficiencies on the production optimization side or also help on the drilling and completion side?

Phil, that's -- we kind of gained tackle that around here and it's coming contributions to executing a confident AI program is coming from different people. It's a committee working together. Glenn Stetson is somewhat the leader and Jordan Ellington of that. And the effort is to understand it, think about applications. But again, to make sure they're not missteps and that people as you go in a controlled organized fashion with the group working together, it builds confidence. So we're trying to learn at a measured pace, too. And I think Glenn can give you more specifics, but we see use of it. But again, you want to build confidence if you put to use and it fails in some aspect of it, you get people that might be leery. So we want to go slow but sure and make sure it's practical and fits in with what we're doing. It's pretty remarkable. But I think it's like any tool, you've got to be careful and be sure you understand its use. Glenn?

Yes. Phillip, just Joe said it, I think, nicely. We're continuing to increase our integration of AI-driven analytics and pretty much every facet of our operations. On the production side, we've looked at this, and we bring in over 40 million data points a day. And we have a control room that is monitoring those data points, along with our field staff in real time. And the goal for us is to make those actionable and help to reduce downtime and identify inefficiencies so that we can address them as quickly as possible. On the completion side, similarly, activating in real time monitoring what the hydraulic fracturing operations, the pressures, the volumes that are coming in from water side and from the sand side on the -- even in terms of logistics, I think, is helping us out greatly as we expand the use of simul and trimul-frac all of that becomes paramount. And then on the drilling side, Chris mentioned MAXCOM, we said over 36 records just in this quarter in different hole sections and into lateral using AI to help target in the lateral to make sure that we're not just in the preferred target, but in the preferred portion of the preferred target and making sure that we can drill faster that ultimately, you put it all together and we get the results that you saw in Q1 that we hope to replicate and continue to replicate get better.

Yes. I think you all have done an excellent job, and I'd like to stress that the committee is made up from people all departments not that everybody in that department is still, but there's a representative from each of the departments, so that their recommendations are backed by a whole team, and they've been working together in a very nice way, monitored by our Board. And we're optimistic that it's going to have an application, more so in some areas than others, but it's for real, but you just don't want to make a bunch of mistakes as the caution and have the staff lose confidence in the work that it's doing. So I'm very pleased. I think the whole management team, Dan and Bryan are all same view as others that this is -- this can become a very important tool for us going forward. Bryan?

No, I think that's right, Joe. I think we're taking really, really proud of the approach we're taking to this. We're being methodical about it. We see the benefit of it. And as Glenn and Joe talked about, we're seeing real applications that we're able to get real value from. But I think as Joe said, we're going to be fast followers on this. We're not going to jump in and make a bunch of mistakes. And so I think we're taking the right measured approach with it.

Thank you. Ladies and gentlemen, this ends the Q&A portion of this morning's call. I'd now like to turn it over to management for any closing remarks.

Thank you very much for that. And I do want to encourage the people that are listening, if you have follow-up questions to please call Mac Schmitz here at the office. And Mac, give me your number.

Yes, you can reach me at the Investors inbox, which is [email protected] and the phone number is 972-371-5225 and we're always available.

And second is, if you're here in the area, come by. We are a public company, and we like meeting our shareholders. As you know, we began not through private equity, but through friends and family, and we try to keep perpetuate that feeling even today that we like knowing our shareholders and like all of the owners and to be sure that you know that we're putting your interest first and want to invite you to our annual meeting this summer. And I think we have a display of equipment that when you get to see the drill bits that we're actually using and meet the young engineers and geologists that have led this to a successful program. And same thing on our completion activities. I don't think Cliff gets enough attention on those, but has done an excellent job of continuous improvement of our fracs, working closely with our vendors on that and their research. So we think that some of this that you get to see the industry has made great strides over the last 40 years. And when they see pictures of me on the first year out there in the old Kelly rigs, the drilling engineers think I was driving a model T or something that. But the industry has made a lot of progress and still making a lot of progress. So I think our outlook is very good, and we take a team approach on all of this. So if you have other questions, call in Mac, and we'll try to take care of you.

Back to you, Stacy.

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