MTDR Announces Midstream Transaction Expanding San Mateo's Operations in the Delaware Basin

Matador Resources Company (MTDR) today announced a second strategic midstream transaction (“San Mateo II”) with a subsidiary of Five Point Energy LLC (“Five Point”) to expand San Mateo’s natural gas gathering and processing, salt water gathering and disposal and oil gathering operations in the Delaware Basin to be owned in the same proportions as San Mateo I—51% by Matador and 49% by Five Point. As part of the expansion, an additional cryogenic natural gas processing plant will be constructed in close proximity to the existing Black River cryogenic natural gas processing plant near Carlsbad, New Mexico in Matador’s Rustler Breaks asset area (the “Black River Processing Plant”).

The existing Black River Processing Plant was placed into service in August 2016 with a designed inlet capacity of 60 million cubic feet of natural gas per day. In February 2017, San Mateo I was formed as a joint venture owned 51% by Matador and 49% by Five Point. The Black River Processing Plant was then expanded to a designed inlet capacity of 260 million cubic feet of natural gas per day in April 2018. Today, this plant is already almost fully subscribed. This new transaction is the next step to almost doubling that capacity to meet growing natural gas processing demand in the area. With this new transaction, San Mateo plans to expand its natural gas pipeline system to run from the Black River Processing Plant north to Matador’s Stebbins leasehold area and south to Matador’s new Stateline asset area that was acquired in connection with the Bureau of Land Management (“BLM”) New Mexico Oil and Gas Lease Sale in September 2018. The additional salt water gathering and disposal and oil gathering facilities will be variously located across Matador’s Eddy County, New Mexico acreage, additional portions of which will be dedicated to San Mateo.

To facilitate this transaction and add economies of scale, Matador dedicated to San Mateo acreage under 15-year, fixed-fee contracts in the Stebbins and surrounding acreage in the Arrowhead asset area (the “Greater Stebbins Area”) as well as Matador’s Stateline asset area—totaling approximately 25,500 gross acres. In exchange for this acreage dedication to San Mateo and certain minimum volume commitments in connection therewith, Matador received:

• A capital carry to fund the expansion of the Black River Processing Plant and the construction of the gathering and salt water disposal (“SWD”) systems related to San Mateo’s expansion into the Stateline asset area and the Greater Stebbins Area (the “Midstream Assets”), which has the effect that Matador will only pay $25 million of the first $150 million in capital expenditures related to this expansion;
• Firm capacity service at market rates for natural gas gathering and processing, salt water gathering and disposal and oil gathering in the Stateline asset area and the Greater Stebbins Area;
• Deferred performance incentives of up to $150 million over the next five years as Matador executes its operational plans in and around the Stateline asset area and the Greater Stebbins Area;
• Additional deferred performance incentives for Matador, as Manager of San Mateo, to bring in additional third-party customers; and Operational control over the Midstream Assets.

The specific Midstream Assets that San Mateo initially plans to construct and install in connection with this transaction include:

• An additional cryogenic natural gas processing plant to serve as an expansion of the Black River Processing Plant near Carlsbad, New Mexico to increase the current designed inlet capacity of 260 million cubic feet of natural gas per day to a total designed inlet capacity of 460 million cubic feet of natural gas per day. This expansion is expected to be operational in mid-2020;
• At least two SWD wells and related commercial SWD facilities, one in the Greater Stebbins Area and one in the Stateline asset area; and
• Related oil, natural gas and salt water gathering systems in both the Greater Stebbins Area and the Stateline asset area, including a large-diameter natural gas pipeline that is expected to run from the expanded Black River Processing Plant north to Matador’s Greater Stebbins Area and south to Matador’s Stateline asset area.

Matador intends to provide its 2019 operational and financial outlook and initial 2019 guidance, including additional details surrounding the development plan for the Midstream Assets and San Mateo, in conjunction with its fourth quarter and full-year 2018 earnings release scheduled for Tuesday, February 26, 2019. Notably, the capital carry included in this transaction and expected cash flows from San Mateo’s existing operations should cover most of Matador’s expected 2019 capital obligations for San Mateo.

Joseph Wm. Foran, Chairman and Chief Executive Officer of Matador, said, “We are very pleased and excited to announce yet another transaction with Five Point. This transaction represents another significant step forward for Matador and the midstream team and the accomplishment of one of our strategic goals for 2019 and was made possible in part by Matador’s acquisition of its BLM properties at the September 2018 BLM Lease Sale. We expect that San Mateo will continue to provide first class service to Matador and other producers along San Mateo’s pipeline systems in Eddy County, New Mexico and Loving County, Texas in some of the prime producing areas of the Delaware Basin. We obviously are pleased with the progress of our existing joint venture with Five Point, and this transaction is a further testament to the existing joint venture’s success and positive outlook. San Mateo’s ability to offer midstream services across all three production streams—crude oil, natural gas and water—makes it one of the important midstream companies in the northern Delaware Basin. Five Point’s financial and operational expertise has accelerated and heightened this success.

“The Board and I congratulate the respective staffers and deal teams who worked on this transaction for the significant value they have created thus far for Matador shareholders and for our joint venture partner Five Point by structuring the deal as they have. We believe this most recent transaction further enhances the value by (i) the dedications of what we expect to be exceptionally productive acreage in the Stateline asset area and the Greater Stebbins Area, (ii) the natural synergies in operations of the expanded plant and the connected pipeline systems and (iii) further developing third-party customers in the area. We look forward to discussing San Mateo’s 2019 plans in further detail as part of Matador’s upcoming earnings release and subsequent earnings call later this week.”

Matt Morrow, Chief Operating Officer and Managing Partner of Five Point, said, “We are delighted to continue our very successful partnership with the Matador team, who we believe to be one of the pre-eminent operators in North America. Collectively, we have built a world-class infrastructure business that is meeting the increasing needs of E&Ps in the Delaware Basin.”