Good morning, ladies and gentlemen. Welcome to the Third Quarter 2018 Matador Resources Company Earnings Conference Call. My name is Daniel, and I'll be serving as the operator for today. As a reminder, this conference is being recorded for replay purposes and the replay will be available on the company's website through December 31, 2018, as discussed in the company's earnings press release issued yesterday. I will now turn the call over to Mr.
Mac Schmitz, Capital Markets Coordinator for Matador. Mr. Schmitz, you may proceed.
Thank you, Daniel. Good morning, everyone, and thank you for joining us for Matador's Q3 2018 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 ks. Finally, in addition to our earnings press release issued yesterday, I'd like to remind everyone that you can find a short slide presentation summarizing the highlights of our Q3 2018 earnings press release on our website on the Events and Presentations page under the Investor Relations tab. And with that, I would now like to turn the call over to Mr. Joe Foran, our Chairman and CEO.
Joe?
Thank you, Mac, and good morning to everyone on the line and thank you for participating in today's call. We appreciate your time and interest in Matador very much. Now I'd like to introduce the Executive Committee who is joining me this morning along with other members of our management team and senior staff who are standing by for all your questions. They are Matt Hereford, President David Lancaster, Executive Vice President and Chief Financial Officer Craig Adams, Executive Vice President, Land, Legal and Administration Billy Goodwin, Executive Vice President and Head of Operations Van Singleton, Executive Vice President of Land Brad Robinson, Executive Vice President, Reservoir Engineering and Chief Technology Officer. As outlined in our earnings release issued yesterday, the Q3 of 2018 was an outstanding and record quarter for us, which exceeded our original projections.
I want to take a moment and acknowledge the entire Matador staff for all their achievements and to note some groups in particular that really went above and beyond. First is midstream and marketing. They made a number of decisions on marketing including fractionation and hedges which have mitigated much of the differentials and transportation problems and really appreciate what they've accomplished and the goals that they set some ambitious goals in securing 3rd party contracts for some of our midstream facilities. They brought their plant, doubled the capacity of our Rustler brakes print on time, on budget, got the substation going, got the amine plant and have turned in just a great performance. Also to our normal E and P, new zones, reduced cost on drilling, some innovations and completions that have made a difference, some great land work, the whole group I want to commend.
Also don't want to leave out what has been a very busy quarter for our financial group. They redid the bank agreement. They refinanced the bonds. They added to the bonds. They've got the agreement in place for our midstream and they just were relentless in getting all this done.
And as we kid around the office when we shout, AUG, AUG goes off, they just get to work. And finally, our guys in the field who have kept after the production to help us achieve these production results and they fought through rain, truck traffic, demand for services, getting them out there to the wells and we wouldn't have had this kind of record quarter if those guys hadn't given 110% throughout the period. And so it's been a total team effort and I wouldn't feel right without mentioning them. And also want to thank the analysts today for their many kind words. But I want to reassure all of you, we're not letting up a bit on working hard to keep up this momentum.
So let me turn it back to Daniel and the questions. Thank
Our first question is from Scott Hanold with RBC Capital Markets. Your line is now open.
Thanks. Good morning, guys. Good morning, Scott. Good morning, Scott. Joe, you were talking about sort of the midstream asset and how that's progressing pretty nicely.
And I think in your press release, you talked about the gas processing plant being over 80% full with your recent contracts. Can you talk about where you want to take sort of that midstream asset in 2019? Like where are your where do you really see the big stream asset in 2019? Like where are your where do you really see the big opportunities to kind of further development, in when you look at across your acreage position?
Well, Scott, that's an ongoing question that we talk about nearly every day. Where do we want to go with this? And what seems obvious to me is that we'll be close to capacity. So now you look at the feasibility of where you want to extend the reach of your gathering lines for water, oil and gas. And the first thing is locating probably some additional saltwater disposal wells in areas where you're going to have production.
And the most likely candidates there are some of the BLM acreage that we acquired as well as our work to the north, which we think is underserved up there in the Northern Delaware. And we're encouraged by our continuing movement north and the kind of results that we're getting there. We feel are steadily improving. And so those areas make sense to begin with saltwater disposal, follow-up with potentially pipelines to gather the gas and bring it into a central processing statement station. And the 3rd area is in the oil and further developing our strategic agreement with Plains, so that in the future you'll have more options on what markets you want to take to your oil.
So kind of layering that in and kind of that fashion. Matt or Greg, would you add anything to that?
Yes. Joe, I think you said it well. To me Scott, what I think is really important is the success that the midstream team has had thus far with the plant being at 80% that you mentioned. We've got 6 saltwater disposal wells that will be drilled at Russell Breaks. We've got 3 down at Wolf.
And just what that does for us, I think it gets the foundation whereas you continue to add things like Joe said, you add the 6th well, Russell breaks here at the end of this year. You're able to add an amine treater at the plant. You're able to get additional compression where you can build on these things and it really takes the risk out of the midstream business as you tack things on. As you get bigger and bigger adding another saltwater disposal wells is not that big deal and you're usually adding that when you've got committed volumes going forward. So the team has done a great job and I think the opportunity based analysis is what we're going to continue to look at and just make sure that we're doing the right thing for both San Mateo and from Matador.
Understood. Thanks. And as my follow-up, you also talked about production in 4Q being a little bit more flat and it looks like maybe as a result of some drilling by some nearby producing wells with new ones. Can you give us some sense of what that impact for the quarter could be? And is this something that how do we kind of look at this as we go through 2019?
Is it going to happen most quarters, but is there a point in time when like in 4Q it looks like it might be a little bit more?
Yes. Hi, Scott, it's David. I think it just happens that this quarter just seems like it's a little bit higher than most. I mean, it happens all the time. I mean, we have well shut in from time to time, but I think that this quarter was just was looked like it was going to be just a little bit higher.
If we're able to get through some of those completions a little more quickly and get the wells back online, which is what we always strive to do, then things might be a little better. But I just felt like looking we felt like looking at the forecast that it was just worth mentioning this time. And sometimes it's not only our wells that we're completing, it may be offsetting wells from other operators that are getting completed that causes the need to shut in some of our recent completions too. So it was just one of those things that kind of stuck out a little bit this quarter and that's why we mentioned it, but it always happens.
Okay. Appreciate that. Thank you.
Thank you, Scott. Thank you. Before we go to the next question, I would like just to note the leaders of our marketing in the midstream group, Greg and Matt, they've formed a great team together and where Greg primarily does the planning and Matt does the execution and you can see the results and want to thank them for their planning and their work with us on the executive committee on making sure it all rolls out smoothly and the operational effect that they've had and that we're flaring less than 1% of our gas production because when we've been ready to turn the wells on, the coordination between them and production, They're waiting with the pipeline when production is ready to hand over. So I don't want to admit they're not just smart guys, they're hardworking guys.
Thank you. And our next question comes from Tim Rezvan of Oppenheimer. Your line is now open.
Hi, good morning folks. Thank you for taking my question. I'd like to start first on the balance sheet. I noticed that leverage has kind of ticked up a bit. I think people expected that with the acquisitions.
You're now at about 2 times, which is kind of the highest level since 2016. And organic deleveraging is I think most people see it as sort of modest in the next year. How are you thinking about leverage and kind of managing that given commodity price volatility?
Tim, I may start off and then ask David about cleanup. But first, we're going at this deleveraging that balance sheet kind of like we do land just at a brick and a time. We've made a number of transactions that have put renewed emphasis after the BLM and we've already retired some in the neighborhood of $15,000,000 that didn't sound like that much, but a brick at a time making a deal on this property or that consideration whether it's for a track or county wide or for the whole frame. In the same way, we're nibbling around the acreage and doing trades out in the Delaware. We're collecting being careful that collect our accounts receivable, all those little things and it's added up.
So in the say over the last month picking up 15,000,000 here breaking up time and we'll continue to do that. We also see, you saw a big jump in our EBITDA this year from last year. And we're pretty pleased with that trend. The E and P is working out pretty well for us. So we're keeping an eye on it for sure, but we are also continuing to address the matter and hope to provide you with further improvement as the year goes along and into 2019.
David?
Yes, Joe. I think you summarized it well. I think that we finished the quarter at about 2.0 which I don't think is concerning. It is a little bit higher than we might have averaged. And I think Tim correctly you pointed out that it's the highest since the early part of 2016.
But we've always tried to keep things around that level. And as we look into next year, we don't it may not go down that much, but don't expect it to go up very much either. So I think it'll stay fairly constant. We believe as we go through the next year, absent any kind of significant downturn in commodity price. And even at that, I don't think we feel like it would be at an level where there would be any alarm.
We certainly maintain as Joe says, the ability to monetize some of our non core assets and I think we never entirely take the need for to if we need to issue equity down the road, we can. That's just not something we chose to do this time, but it's something we certainly can consider. We've also begun to put in some nicer hedges for 2019 and we'll continue to try to do that to protect the cash flows as well. So I hope that helps.
Yes, that does. I appreciate the context there. And if I could have a follow-up and change topics back to San Mateo. In your Analyst Day earlier this year, you gave some kind of EBITDA parameters for the segment, dollars 65,000,000 to $75,000,000 And I know there's a big ramp quarter to quarter. Can you talk about kind of where you stand year to date on sort of the high case of $75,000,000 versus your base case?
And specifically kind of the you had talked about maybe a 4Q high case segment EBITDA of about $25,000,000 setting the stage for 2019. So just any color on how that EBITDA ramp is going at San Mateo? Thanks.
Yes, sure. Well, first of all, I think we believe the EBITDA ramp is going very well. I'm pretty sure I'm correct that the EBITDA number for San Mateo was around $17,000,000 maybe just a little above that in the Q3. And so we're certainly headed in the right direction. I think that we will be close to the $25,000,000 in the Q4.
I'm not sure if we'll quite get there, but I think we'll be in spitting distance of it. And if we don't get there in Q4, we'll get there in Q1. So I think that if anything, it might just be a matter of a little timing, I think. But I feel quite confident that we'll be in that range. We'll hit that probably exceeded by Q1.
Some of the oil gathering revenues that we were counting on toward the end of the year didn't come on quite as quickly as we had anticipated and that probably will end up being the biggest reason if we don't get to 25 in the Q4, but we're still going to get awful close to it, Tim. So and I would say for the year as a whole, we'll probably come out to somewhere probably in the middle of the 65 to 75 that we had anticipated for the year.
The other thing that I'd say Tim is when you look long term out into 2019 beyond, the group has gotten the capacity. It's 80% of capacity out there on their gas processing. The same thing they've secured some 3rd long term third party contracts that bode well and give stability to the cash flow. And so everything is gone, everything is working and everything's gone pretty much as a plan and the delays were not by us so much as some of the right away issues that were belonging to provided that other people were was in their area and really beyond their control, but they've worked hard to get them done. So you're days behind, but you're not months behind.
I'll just underscore what David and Joe said. In regards to the how we're handling the assets, we have the infrastructure in place for the oil gathering when we finally get the crude line up to us. So we're ready to go there. In regards to the plant, we've got an electrical substation that was done on time, on budget that gives us better quality, more reliable power for us to run the substation and also some of our saltwater disposal facilities. The aiming trigger that we've been talking about is on time too.
And what that's going to allow us to do at San Mateo is to process some small amounts of CO2 and H2S out of gas and also run that plant on full ethane recovery. So San Mateo that's a great thing. As Matador that's even a better thing that we can recover as much of the ethane as possible. So that will be done for the entire volumes for the plant. And we have the NGL contract to back that up.
So all those NGLs that are produced are guaranteed to be fractionated and transported. So feel really good about what that asset is right now.
And one other thing, Tim, is I like to put things in proportion. In the first plant that we built down there in Wolf that we sold to EnLink, its capacity was about 30,000,000. Now we're up to 200,000,000 up at Rustler Brakes. So that's 6 to 7 times the capacity we'd had down there at Wolf. And things are looking promising and we're considering a lot of options, including ultimately building a third train up at Rustler Breaks that would double the capacity from 200,000,000 to perhaps something approaching 400,000,000.
Dollars That's not guaranteed, but that's it's nice to be able to consider that that is something that is possible. And that's those are nice projects to consider is what I'm saying that we got some good choices and some good optionality.
Okay. I appreciate all that color. Just given everything happening at Antelope Bridge, it seems like there's a lot of options on the midstream. So I'll leave it there. Thanks for your time.
All right.
Thank you. And our next question comes from Gordon Douthat with Wells Fargo. Your line is now open.
Hey, good morning, everybody.
Hey, Gordon. Hey,
Just wanted to ask about Antelope Ridge actually, with the well results you had there look pretty strong, obviously a good area. But was just wanted to inquire about your completion designs there and see if you're doing anything different on that front relative to the other parts of the basin?
Yes, Gordon, this is Matt. And we're continuing to tweak our completion design. We've kind of settled in on profit volumes and fluid volumes. We have been tinkering a bit with more slickwater designs. We've also been looking and pumping more and more regional sand.
As we've talked about before, we took a pretty methodical approach to getting into that part of the business, but we're getting more and more comfortable with it. We are continuing to test this for cluster spacing and just overall just optimizing the completion design. The other thing that we've been doing and it's not related to completions is targeting. We've got seismic in the area, so we're able to utilize our MaxCom operations to steer the wells better and find better zones to drill them in. And plus it's just a good area with some great rock.
Okay.
And then specific to that, your comment, Matt, on the seismic. Do you have that across your various areas? Or is that something that could apply to other areas should you get that?
Yes. Hi, Gordon. This is Ned Frost. We do have the seismic over Rustler Breaks and Antelope Ridge. We have some data in house right now up in the Ranger area and we are participating in a group shoot with Fairfield across pretty much the whole northern half of the Delaware Basin.
So moving forward kind of into 2019, we will have the bulk of our acreage under 3 d in the Delaware Basin. And really we've seen a lot of value out of that data so far. And I want to reiterate what Matt said is that we are seeing the targeting with seismic and identification of targets is really helping well results. I also left out that we do have coverage over our Jackson Trust asset and our Wolfe asset too. So increasingly, we're going to be folding that into our workflow.
Thank you, guys.
Thanks, Gordon.
Thank you. And our next question comes from Neal Dingmann with SunTrust. Your line is now open.
Can you hear me guys? Yes. Yes, Neal.
Hey, Joe, a question just for you and all the guys. You had such an obviously tremendous well there at that setting the new record on that strong 1424s. My question is, is that just continued improvement with your D and C or was there anything sort of special to note on that one from a D and C side or that caused that one to be so exceptionally good?
Hi, Neal, it's David. I think as Matt mentioned there, it's clearly a good area. It's good rock. But I'd also like to compliment our geoscience team. I think that again to sort of what Matt said about the importance of targeting and kind of the follow-up on what Ned said about the use of the 3 d.
We thought we had chosen a good target in the Thorsnes well and clearly we had because it was about a 3,000 BOE a day well and we were kind of as you like to say turning double back flips on that. But the GSI team, I think really sort of adjusted the target just even a little bit on this well. And I think the other nice thing was we were able to really do a great job of staying precisely in that target for the entire length of the lateral. We did a good job in the Thorsenus, but this particular well was exceptionally good, I think. And I think that's attributed a lot to the MAXCOM team and the fact that we have that group downstairs working 20 fourseven to be sure that these wells are steered right where they need to be.
And I can't help but think that that also made an impact on the quality of this well.
Yes. I'd like to give a shout out to our max comps. They go 20 fourseven, 7 days on, 7 days off and they are staying in zone better. So if you stay in zone an extra 100 feet or 10% that adds to your reserves And there it's a mix of geologists and engineers and they work together the interdisciplinary and there are televisions that go out in real time to the well with the directional drilling. And this was Billy Goodwin's idea, our Head of Operations that we think is
really making a
lot of contributions they are. And I have to admit I was had reservations at first because they wanted to use the room I was going to have as a boardroom. And so we didn't get the boardroom. We got to max comp room, but they're saving money on every single well and they're adding net fee to pay because they're staying in zone. And
so it's I think it's a perfect example of working together. We've got engineers sitting next to geologists shoulder to shoulder down there. They're not only working on the geosteering, but they're working on drilling performance. So you've got the advantage of having a geologist sitting next to drilling engineer when they start talking about why it's drilling faster, why it's drilling slow. There may be a very good geological reason why things are happening.
So they're saving money and drilling better wells. So that's about us.
Yes. Neal, I just quickly say also that no matter where you put these wells, they still all got to get fracked. And I think that the completions guys also just do a terrific job of getting all these stages pumped away, pumped away successfully. And it makes a big difference. They're constantly trying to innovate and improve on what we're doing out there.
And I think this was just a case where it all comes together. And one thing I've always known is that fracking makes fracking sometimes make bad wells good, but it always makes good wells great. And so this is one of those cases where I think it took a good well and made it great.
Great color guys. And then just one follow-up. I think Matt, some of you guys were hitting on this earlier. Can you just talk about over in the over in Antelope and then Stateline, just maybe in broad terms, how you see the infrastructure build out sort of progressing, not necessarily just remainder of this year, but more for 2019, if you could?
Yes, Neal. I think the advantage we have there is obviously the blockiness of that acreage and the number of wells we're going to be able to drill from a minimal number of surface locations. So the team is as we speak they're actively putting all that together, finding out where they're going to put drilling pads, where they're going to have production pads and how the infrastructure the internal infrastructure is going to look. And at that point, we can decide what we want to do with those volumes, whether we want to tie in somebody locally or whether we want to do it with 1 of the midstream another midstream company or whether we want to do it ourselves. So it's a big enough thing that we're working on it right now and not just gas, oil and water, but also electricity.
I mean, we've been talking about the substation and getting electrical in on these blocks is going to be important too. So that's ongoing, Neil, and it will be part of our development plan.
Great. Thanks so much, guys. Thanks, Neil.
Thank you. And our next question comes from Noel Parks with Coker and Palmer. Your line is now open.
Good morning.
Good morning, Noel. Good morning, Noel.
I wanted to turn to the Eagle Ford and I was interested in hearing as far as making the decision to put a rig back out there, what was it that sort of pulled you over the line other peers' returns? And I other peers' returns? And I was also curious what well cost and you were thinking and then also the working interest we might see from the 10 wells?
Okay. I'll start off and you all pitch in. And I'm not sure that we're all of exactly the same mind, but when we weighed those various considerations that you've mentioned, some of us gave them different weight. But in the end, we were all of the consensus that this was the right thing to do. You had a differential, so you took advantage of the little better oil price that you got.
You were also validating we didn't have a lot. Most of our acreage was HBP already, but with these wells you'll get, I think approximately 95% and nothing else would have any expiration until 2020. So we thought that was a positive thing. And we also thought it was good to look at the economics. And I'm pleased to say that the first well out of the box established a new record in time it took to drill.
And I'll turn that to Matt for further details. Yes.
I think, it's a great story. When we came back and started drilling last year on that on our Eagle Ford acreage, we hit the ground running. We picked up a Patterson rig, a new Patterson rig and brought it down there and start drilling and drill the fastest well we'd ever drilled on Martin Ranch. We picked up this Patterson rig. Again, it's one of their XK rigs.
They're high-tech rigs that we like and all 7 of the rigs we have are these XK rigs. So it's been really nice working with Patterson. And like Joe said, not only was the first well the fastest well we had drilled, the second well was just a few hours slower than that. So the 2 fastest wells we've drilled in Eagle Ford were right out of box with this new rig. So very happy about all that.
The other thing I think we're anxious to do is just to complete these wells. One of the things that happened last year, we drilled these wells. We brought the completion technology that we advanced in the Delaware and put them on these new Eagle Ford wells and did really, really well with those completions. So we'll be completing the first ones here towards the end of the year and look forward to how those are going to turn out.
And Neal, this is David. You asked the question about the working interest. And actually I can tell you that most all of these wells will be essentially 100% working interest for Matador. Probably on the cost, I imagine we're probably plus or minus $5,000,000 if we have a 1 mile well and probably in the order of maybe 7, 8, if we have a 1.5, 2 mile well. And some of these wells will be longer laterals.
So I think about 6 of the 10 will be longer laterals.
Okay, great. And I also noticed in the press release you mentioned that the wells would primarily be targeting the Eagle Ford. Does that mean you'll be doing other targets as well, Austin Chalk or something else?
Yes, that is what that means. I think as we noted earlier when we announced the rig, we'll probably do 1 or 2 Austin Chalk tests. We've not actually done any tests of the Austin Chalk on our acreage. And so that's something that we do plan to do with a well or 2. We think that certain of the areas are perspective for the Chalk.
And so we're probably going to give that a shot here in this program.
Great. Thanks a lot.
Thank you. And our next question comes from Irene Haas with Imperial Capital. Your line is now open.
Yes. Hey. So my question for you is really getting the oil and gas out of Delaware Basin can be pretty daunting and challenging. Understanding that you have a plant at Wolf and Rustler breaks, which is going great. Elsewhere, I'm kind of curious when you try to secure a 3rd party gas processing, how difficult was it?
And what did you do precisely to end up with just 1% gas flare considering how tough things has been? And then second question is really mid cush differential. It looks like October is the worst. Any color?
Irene, this is Matt. In regards to what we've got there at Russell Breaks and Wolf, you're right. We've got very good coverage on getting
oil out,
getting gas out, getting in the gas process, getting the NGLs out. We're rock solid there. And what Greg Krug and his marketing team have been able to do at Antelope Ridge and Ranger Arrowhead and up in the Twin Lakes, they've been able to go out and secure firm capacity for our products. And the discussion kind of goes, Greg will call and say, hey, can we get this on firm? And they'll say yes.
And then it becomes a negotiation about price and term. So knocking on wood here, Irene, but so far we have not had much of an issue getting that done. So and that's how we're severely limiting the number of MCF that we're flaring. As Joe said earlier, the stuff that San Mateo, the stuff of Russell operation was less than 1% and we're in single digit percent on the other. And that's just time waiting to get interconnects, which is one of the beautiful things about being in the midstream business that the E and P company walks down the hall and says to the midstream company, we need to get hooked up and they get us hooked up.
Yes. This is Greg. And yes, I'd like to add a little bit. Yes, as far as any production that we've had curtailed, it may have only been just because of timing when it comes to hooking up the well. Had nothing to do with being curtailed on downstream markets.
We've never been cut back from our markets. So we feel really good about that.
Thank you. And our next question comes from Richard Tullis with Capital One Securities. Your line is now open. Hey, Richard.
Good morning, Joe. Congrats on a very nice quarter there. 2, I guess, bigger picture questions. We've seen at least 3 E and P Industry transactions already this week, and those were all or mostly all stock deals. Joe and the rest of the team, how do you view the larger M and A landscape as we sit now?
And should we look at it as a tougher environment to potentially monetize the Eagle Ford and Haynesville, but at the same time, maybe makes it a little easier for Matador, if it chooses to do a bigger acquisition. How do you view the landscape right now, Joe?
Well, Richard, that's a great question. And we it's another question we talk about almost every day in one way or the other. The guiding principle for us is that we realize we're a public company with a public trust and we're going to play a straight game. Matador has shown that it sold itself way back there in 2,003. We sold our good part of our position to Chesapeake and the Haynesville in 2,008, 2,009.
We sold our 1st processing plant to EnLink and we sold part of our Rustler brakes to Five Point. So when a really serious offer comes in, we're going to give it serious consideration. And we've said for some time, we're not a company that says we are a single basin company and we're going to reduce ourselves down whatever basin is most important. Clearly most important right now is the Delaware, but as you can see being in several basins is shown to be good strategy in that that diversification leads to more options. There are several companies that are talking about themselves now.
There the wisdom of being a multi basin. So I don't to me it doesn't matter so much whether you're single basin or multi basin. The point of it is to get into the best rock that you can with the best economics. And that's what our primary focus is. At the same time, as I said, we play a straight game.
If a company feels that something that an asset that we have, whether it's midstream or oil or gas is more important to them than to us and they want to Bill, we're always ready to talk or trade JV whatever they think makes sense and would make sense to us. Usually the people that come in to try to buy say, we're so sorry you're burdened with Haynesville, we'll buy it at PDP or here we don't want you to have to go down to South Texas so we'll buy your Eagle Ford and they're trying to buy it on the cheap. That won't work particularly with a company that has a strong balance sheet. And that's one of the things that you have is when you have that stronger balance sheet, you don't have to do things. We're very open to that, but it's got to be full value or to offer something better in trade.
But we're very open to that and want everybody to know that look we play a straight game here. And when some makes sense, we'll pull the trigger on it. Now, I hope that answered your first part of your question. How do we feel about the M and A transactions and that the same thing I would say is this is a group here that is the golden goose. For 35 years, Matador either in its first iteration or the second one is delivered about a 20% rate of return.
These guys know how to work together. They've developed a methodology and
as long
as they can keep generating that, I see us continuing to move forward and because it's hard to earn that rate of return consistently and don't want to kill the golden goose because I think these guys are getting better and better and hope that you've continued to see since the day we went public how the improvement has been. We've gone from 400 barrels a day to over 30,000 barrels a day and the consistency that this group has delivered. I think this is now the 17th straight quarter where we met or beat industry consensus. So I think and we've grown primarily organically, almost all organically, virtually all organically. And then when you can do that, you'll should be make a higher rate of return.
When you grow by acquisition, naturally that's generally a lower rate of return closer to 10%. So I think it's made sense what we've done. I think our guys been very careful about spending the money. Mats is kind of a guiding principle. He articulated that guiding principle that we want to grow.
We want profitable growth at a measured pace. And the outspend, we've had some outspend, but look at what we spend it for. I think our shareholders have gotten full value and have greatly benefited from the outspend because if you borrow it at 5% or 5.5.8% and get a 40% or 50% of rate of return, I think that's good business, but yet everybody here really looks at the financial discipline. So we don't get over our skis and we don't double our rig count. It goes up one rig when we know we've got it covered with good prospects.
So that's kind of that tension. We want to grow, but we wanted at that measured pace and we wanted to be profitable. And we want to watch the balance sheet, but there are opportunities that come along that if you don't take them like bolt on acreage in your tracks or to increase working interest, if you don't take them then, you'll never have another chance to do it. And the same thing on midstream, these midstream opportunities when we first did it, people question why are you doing that? And you can now see the help that it's been operationally, financially, creating a presence and it's worked out every bit is that said it would improve takeaways, improved our hedging.
And so I think your point is very, very well taken and that when we view it all in concept, I think the guys here have done a good job in growing Matador from the size when we went public and you remember how humble our beginnings were. And today we're still got a lot of room for improvement, but we're steadily making progress on that consistency and delivering now over 4 years of consistent returns that are and I'm touching wood, don't know how long he'll last, but it looks like it's very encouraging with these better than expected results. Our guys are just finding better ways to target, better ways to complete and reducing the cost is Matt explained like with his MaxCom program, it's I don't know where the end of that is, but each of the groups keep finding ways to improve. So I'll rest my case on that. And as long as they keep telling me they can make further improvements, we'll the executive group plans to be supportive of that.
David?
Yes, I think you summarized it well, Joe. I don't know that I would have anything to add to that. I think as far as the M and A landscape goes and all Richard, I think Joe is just right. We know we're officers in public company and if we should get an offer, we'll consider it and we look for opportunities to improve our company all the time. So but I think those transactions are difficult to do.
But obviously as you said, we've seen several of them get done this week.
Thank you for that, David. And Joe, appreciate your response. And that's all for me. I'll leave it there. Thank you.
Well, thank you and thanks for giving me the time to say all that.
Thank you. Our next question comes from Dan McSpirit with BMO Capital Markets. Your line is now open.
Thank you, folks. Good morning and thanks for fitting me in. Hi, Dan. I was hoping we could just hit on the company's reinvestment rate just a little more directly, a little harder here if we could. There's an expectation on free cash flow generation that's growing in the capital markets today.
Those producers that can achieve this state may be able to separate themselves in what remains, as you know, still a very crowded field of independence. Will the company be more explicit with respect to achieving a free cash neutral state when laying out its 2019 guide? Or should announced spend still be expected given where the company sits in its lifecycle?
I'm going to say some real short and then I'm going to turn it over to David for further details. But I'd tell you this is that whenever outspend is discussed, I think it's vitally important to understand it in the outspend, just the outspend. There's 2 variables involved. What you how much you outspend in relation to your balance sheet? And second is what are you getting for it?
And if we weren't getting some really good results, we wouldn't be outspending or didn't have exceptional opportunities. So whatever we outspend is on a very select basis and really has to really fit in. That's the first thing. And second is I'm very pleased we've got the kind of opportunities that you would want to do so. And clearly you've seen how we've grown in value and I think we've made the right decision to go ahead.
Having said that, this is a question we talk about, our Board talks about and we think we're doing the right thing. At some point, our opportunities won't be as robust as they are now perhaps and then you'd see that slow down. And we're closing it in, it's narrowing on that, on the free cash flow, we're aiming for that to get things a better balance. But I started with $270,000 so I've had to out spend to grow to get to this point and to grow to this point. So it's something that we practice for a long time on a very select basis.
But if you just spend the same money that'd be like a football, the 2 football teams we got to come in and they've all got a you can't run around in. Everybody has to go up the middle and you can't have anybody fast on your team and you can't throw the ball but once. No, that's what this capital market is and different people with different styles, but you still got to be conservative. And we practice financial discipline. We've never had a layoff in 35 years.
And I think we do that. So it's a very select basis and it's 2 variables. So with that, let me turn it over to David and let him say what he thinks.
Sure. Yes, I had to answer David. I Again, I think Joe did a nice job of summarizing it. I might just add with regard to your question about 2019, certainly when we put out our guidance for 2019, which I would expect would be likely after the 1st of the year, we will discuss our plans and what we may have in the way of outspend. I think we would expect that there will be an outspend in 2019 with your regarding your comments about life cycle I think of the company or where we are in our life cycle.
I think we feel like we're still at a scale that doesn't flat lend itself yet to the best to the free cash flow model. But the fact of the matter is we could do it next year. I think it'll be more a matter of choice because of some of the things that we've done recently, particularly in terms of adding the new acreage from the BLM acquisition into the portfolio. That's something we're going to want to get going on. And we're optimistic we'll be able to get going on that certainly by the Q4 of next year, maybe even a little earlier.
And if we can, we're going to get after that. And I think that that will also make a big difference in what we're able to do in the out years. But I certainly would imagine that we'll see an outspend again next year and it'll still be I think a couple of years before we'd be able to achieve that. I might point out that the as Joe said, I do think we've continued to narrow in on it every year on the E and P side, on the midstream side depending on what we decided to do next year, again, we could also be spending within cash flow on the midstream side. We may decide to outspend that a little bit as well in order to expand our operations from the footprint that we currently have.
But again, I think that we've demonstrated that those have been good investments and good uses of money that have created additional value for our shareholders. So I hope that helps.
It does. I appreciate the well rounded answers. I do. It helps in framing 2019 and periods beyond. And then just as a follow-up, just on 2019, David, what are the big challenges putting up a more capital efficient year, whether it's cost inflation or plateauing your productivity gains or other such variables?
Can you ask it again, Dan? I didn't quite get what you were asking me there.
Yes. Just what are the challenges that you see now as you're putting up a more capital year, whether it's cost inflation or on the production side, just plateauing of productivity gains in the field?
Well, I think you probably hit on a couple of them. Certainly, although I'm pretty optimistic that we can continue to improve upon the profitability mix or the productivity mix in some ways just perhaps by the mix of wells that we drill. And I certainly think as we go into the latter part of next year and into 2020 as we begin to fold some of this BLM acreage into the mix and work with some longer laterals not only in our existing footprint, but in that acreage that actually our capital efficiency can improve. So you certainly have the you're always fighting the declines and that's just a part of this business. But as I look into next year in 2020, I really feel like we've set up a fair amount of time Dan in the last couple of years getting our footprint held by production.
And the best way to do that in a lot of these areas was to focus on 1 mile laterals because it allowed us to capture more of the acreage and get it held in a more efficient manner. Even doing that, I still think we've done pretty well with our well results and our productivity per lateral foot. But now that we have a lot of that behind us, I think we have now the luxury of being able to go back and kind of drill the next round of wells on those properties at a little bit longer laterals than we have. And we started doing that at Rustler Breaks. We're doing it at Wolf.
We put the rig up in Stebbins. We already are making plans to have longer laterals up in Stebbins. When we get to the BLM acreage a year from now, we will be consistently drilling 2 and 2.5 mile laterals on that acreage. And so I think that we actually have some pretty positive things to look forward to in terms of improving our capital efficiency over the next several years.
Superb. Appreciate it. Thank you, gentlemen. Have a great day.
Yes. Dan, before you sign off, I'd just like to add a little bit to what David was saying is one of these capital efficiencies that I don't think is always recognized or appreciated is this brick by brick strategy that we have for adding acreage as well as the brick by brick strategy that I mentioned on realizing more cash from our asset base is that we bought last year 25,000 we acquired 25,000 acres, little more than that. And our whole weighted average base of our 130,000 acres is $11,000 So yes, we bid strongly for the BLM because we consider that the best rock in the country. But the brick by brick strategy gave that weighted average where we're well below the weighted average costs that other producers have out there. The same thing, this little brick by brick, it will make a deal little or small, acreage trade also favors those are highly efficient capital transactions while not big in any one instance they add up.
If you acquire a thousand, 1500 acres a month, end of the year you've acquired 15,000 to 20,000 acres that other that can be quite expensive, but our guys have done that on that brick by brick approach. So and the 11,000 an acre includes our mineral position. So I think it's that's kind of a highly efficient, but not necessarily fully appreciated effort. And then the same thing on our midstream that's kind
of been
working with that has gotten us either cash or carries or and further efficiencies, operating efficiencies by having that. So that's an indirect efficiency, but it adds up to the bottom line of improving your overall. So we kind of call that our gorilla campaign so to speak of getting out there and getting it one way or another. And so when you start with $270,000 which in perspective is 1 frac stage, you learned all these ways to try and create additional capital that you just don't have very much of it. And that culture I think remains in Matador today.
Billy and the drilling guys look for ways to work with the vendors just to challenge them. We don't want to cut prices on you guys. We want you to show us how we can do things more efficiently. And our vendors have really set up and whether it's Halliburton or Schlumberger or Patterson or Forrester, they've helped us and I want to express my appreciation. The Champions is pop as well that they instead of coming in saying you got to lower your prices, they've helped us show us ways to use their services in a more capital efficient way.
And I just had to say that I couldn't restrain myself.
I appreciate the additional thoughts, Joe. Thanks again and have a great day, gentlemen.
All right. Thanks, Dan.
Thank you. And our next question comes from Mike Scialla with Stifel. Your line is now open.
Yes. Hi, good morning everybody. I just want to ask a few questions on the Eagle Ford. Can you say where production is now? And if you do all the 10 wells there where you might expect that to go in the first half of twenty nineteen and what the drilling inventory looks like there?
Well, as far as the latter part goes, we still I think have on our acreage position couple of 100 locations in the Lower Eagle Ford that on various parts of the acreage that we think it's still be drilled. And then of course, as we've mentioned, we've always in the past, we've only drilled into the lower part of the Eagle Ford. And so we hadn't tested the Upper Eagle Ford or the Austin Chalk, some of the other areas down in South Texas that other operators have worked with and which we think are also perspective on our acreage. That inventory could be higher. As far as the production goes, I think that we were I think it was about 8% of our production this past quarter.
So I think it was pretty close to 4,000 BOE a day and it's about 2,400 I think barrels of oil a day. So I would expect that I don't think we'd quite double from that, certainly not on the average. We'd probably get our rates up with this 10 well program. They'll probably early on get up in the 6,000 to 8000 BOE a day, I would imagine from this program, maybe even a little better. But on average, I would expect it for 2019, our production might be 50% better out of the Eagle Ford as a result of this project.
Well, that's helpful. Thanks, David. And Joe, I wanted to ask on, you mentioned your 11,000 per acre average to date in the Delaware for acreage acquisitions. Do you have a number for, I know you get the BLM number out there, which is a big part of this year's, but just wondered if you had a number handy for the, I believe it's 27,000 net acres you've added this year in the Delaware?
No, I don't Mike. You just have to factor that into that overall number. But most of that other acreage from the BLN was done at lower levels, including some mineral, a fair amount of mineral acreage that we acquired. I think our guys have done a real good job and that has been a real capital efficient way for us to grow.
Agreed. Thank you.
Thank you. And our next question comes from Samir Panjwani with Tudor, Pickering, Holt. Your line is now open.
Hey guys, good morning.
Hi Samir.
So one of the wells that we've been watching for is the Wolfcamp XY test at Arrowhead. It looks like it was completed this quarter, but not much detail in the press release. So is there any color you can provide on how things are looking there so far?
Yes. Hi, Sameer. It's David. I would say that we would prefer not to provide any additional information on that well at this time. We have drilled and completed the well and we have some land work that we're doing up in that area right now.
And I think until that's done, we'd prefer just to kind of remain silent on the results from that well. So I think we're satisfied with how it's gone. But just because of we've got a couple of deals we're finishing work on, it'd probably be better that we just get that done before we report on the results.
And you'd also like a little more data history before we come out. One thing you probably noticed that we've moved to do a 90 day IPs to try to give you all people didn't seem to like our instant IP. So we've tried to make it a practice of getting a little more data history before saying something. And there can be great change in these wells. As you know,
so we
were encouraged. I will say that the results right today have been positive. But we just want to be more confirming before we make an announcement and before we commit more capital to that area.
Okay. That's fair enough. Maybe on the Twin Lakes well then, did you guys do anything different here versus the initial wells that you've operated or in which you've had a non op interest? And then are there any intervals being tested by operators in the region
or the B?
Yes, this is David again Sameer. With regard to the last question, I'm not aware that there's anything being tested. I mean, not in the Wolfcamp proper. I mean, in that area to the West, you've had people that have worked in the ABO and the ASO and historically there have been any number of different targets. We even tested the strong several years ago in the run up to our first well over by the Culberson that was the Olivine well.
But I think in the Wolfcamp proper, the answer to best of our knowledge anyway is that it's either been the DER or the B. And I think that Continental is the first one that's tried to be out there. With regard did we do anything different? I would say that we did target a little bit different interval than we had before. We took a whole core on this well also and we did some additional geomechanical testing and not only for targeting, but also for helping us to select the zone that we thought might frac better than what we had experienced in the previous well.
I think that absolutely happened. So the well treated much better and it's just started flowing back and we just don't have a whole lot of results to talk about on it as yet, but I think we should
pretty soon. Was there anything different on the completion front on that well?
Matt, do you want to take one of that? This is Matt. And nothing real significant in terms of outside of what we're doing in other areas. I think one of the most important things that David said was we did find a target. We stayed in that target all along the way and the completion guys spent a good deal of time looking at data, looking at the whole core, making sure that we had the right design and it went off pretty well.
I think it probably fracked is actually better than the other well that we have drilled and better than some of the others drilled in the area. We did actually pump some resin coated sand on the tail end. So we haven't in the early stages of production here, we haven't flowed by sand back. So like David said, it's just still a little early to tell.
Okay. That's helpful. Thank you.
Thank you. And our next question comes from Jeff Grampp with Northland Capital Markets. Your line is now open.
Good morning, guys. Thanks for fitting me in here. I'll leave it at one quick one here hopefully. Just curious given the results that Antelope would continue to be really positive. Is it fair to think that that's the likely bias for where that Eagle Ford rig goes when it wraps up over there?
Or are there any midstream facility related to build outs you guys maybe need to get ahead of before accelerating there? And then I guess just building off that, are there any stack pad type tests or anything that you guys might be planning at that Antelope Ridge as well?
Well, to that question, I say yes to all of them is that the Antelope Ridge is certainly emerging as you get more data in. I mean that's one of the things that's changed is we're beginning to like having a little more data before we have to make a decision and coming out too early can get you in trouble. But the way it looks right now as we get more and more data, it looks very encouraging. It's a little early to declare victory, but it looks good. And the same point about the saltwater disposal, there's a process in getting permits out there that's not entirely your control.
The state of the regulatory people have a say and how quickly you can get them. So we first have to get them before we can drill them. And so the exact order and that rig may drill some Antelope Ridge, go drill a saltwater disposal well or 2, then come back to Antelope Ridge or vice versa. So that's all part of the planning process. And all things being equal, you drill your oil and gas wells the first of the year and tend to drill your saltwater disposal at the end of the year because they won't have an effect on production.
But that's all up in the air as we talk. So does that answer your question? David has something. I'm just
going to say Jeff, the only thing I would add is that while we're in the aggregate, so 100%, we're very excited by the way the Antelope Ridge area is testing out. And certainly it will it's going to compete well for next rig or rigs before very long, especially with the additional BLM acreage that we acquired. But I do want to also say that we've been pretty happy with the results we've seen recently up in Arrowhead. I'll point you back to the recent Stebbins wells in the second and third Bone Spring, the SST wells that we reported on last quarter. So I will say that team is making a pretty strong statement for having another rig in that area as well.
And given the fact that we have a nice several 1,000 acre block right up there in that area, it is an area where we can go in and I think do some capital efficient drilling in terms of longer laterals and just leaving a rig park right there in the same vicinity for a good period of time. So that is something that we're seriously considering in making the rig allocation decision as well.
All right. Understood. It's a high class problem, but I'll leave it there. Nice quarter guys.
Thanks, Jeff.
Thank you. And our next question is from Tim Rezvan with Oppenheimer. Your line is now open.
I'm sorry guys. I was hoping for color on Twin Lakes and you gave some, so I'm all good here. Thanks.
Well, Tim, thank you and come by and see us at some we'd like to invite all the listeners to come by to see us in person. And I think we always gain from meeting you all in person and taking all your questions and the same thing meeting with us and meeting some of these young staffers that we've been touting as guys who are really helping make a difference and adding value in a lot of different ways. That's an open invitation and we'd really like to have you here and we'll buy you lunch or breakfast or dinner or whatever suits you as a further incentive.
Thank you. Ladies and gentlemen, this ends the Q and A portion of this morning's conference call. I'd like to turn the call over to management for any closing remarks.
As I said, please come see us. We'd like to get to know you better too. So with that, I'm off and thank you again for the kind words many of you had. We're continuing work just as hard as ever and look forward to reporting to you next quarter.
Ladies and gentlemen, thank you for your participation today. This concludes the program.