Good morning, ladies and gentlemen, and welcome to the Second Quarter 2018 Matador Resources Company Earnings Conference Call. My name is Sonia, and I'll be serving as 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 August 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, Sonia. Good morning, everyone, and thank you joining us for Matador's Q2 2018 earnings conference call. Some of the presenters today will reference certain non GAAP financial measures regularly used by Nautilus 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, including 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 and its most recent quarterly report on Form 10 Q. Finally, in addition to our earnings press release issued yesterday, I would like to remind everybody on the call that you can find a short slide presentation summarizing the highlights of our Q2 2018 earnings release on our website under the Presentation and Webcast page on the Investors tab.
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 and we welcome your questions and comments. Now I'd like to introduce the Executive Committee of Matador who is joining me in this call this morning along with other members of our management team and senior staff who are all standing by for 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 and a new Executive Vice President, Brad Robinson of Reservoir Engineering and Chief Technology Officer. Congratulations, Brad.
Thank you, Joe. Now you're in part of the sharp questioning and comments that we're about to receive. As outlined in our earnings release yesterday, the Q2 of 2018 was the very best overall quarter in Matador's history, both operationally and financially. I want to take a moment and personally acknowledge the Matador staff for all their achievements and to recognize them I think for their extraordinary teamwork this past year where the teamwork among the different departments and within the departments have continued to improve. And this quarter was a real example of how everybody pushed on the ROTH land and legal combined to make an $80,000,000 acquisition yesterday.
Production and the midstream have combined and worked together as a team. So we're not flaring any gas And just over and over the teamwork with our MAXCOM program with our drilling program has been extraordinary. And so from the executive staff is that, I'd like a shout out to the guys in the field who have really been connecting wells working in tough weather conditions and making it all happen. So something very pleasing to us is just the way everybody has worked together. And I didn't want this conference go by without recognizing them.
We're going to move into questions in just a moment, but I do want to address just quickly a couple of items and then take your questions or comments on them. One is the outspend that is of concern and I think you all know our views on that that we are very selective about any outspent that we have. And when we do, we weigh the choices of is this going to have better than average returns? Is this an opportunity that has to be done now and won't be around in a year from now? An example of that is some of these leases and minerals that we've taken.
And 3rd, is there in the midstream that if we don't do it someone else will. The same way is that we've discussed in previous conversations the takeaway and flow assurance. And we issued a press release June 4 that summarize and updated our views then. Since then, we've made additional deals that we can discuss here and addressed it in different ways and we're not done yet. We're going to continue to improve and feel like not only we've made great progress, but we're working towards the long term.
And with that, I'd be happy to turn it back to you, to you all for questions.
Thank you. Our first question comes from Scott Hanold of RBC Capital Markets. Your line is now open.
Thanks. Good morning, guys.
Good morning, Scott. Good morning, Scott.
Hey. I was wondering if you could talk about the OBO activity that is incremental. It seems like, especially on a gross basis, there's a lot more happening in the areas where you guys are at. And I'm assuming it's pretty strong economic returns. Could you give us a little bit of color on where some of that activity is concentrated on?
And you did mention longer laterals. So is this like some of the is there can you give us some color also on like the operators that are doing this? Are these some of these larger scale kind of big development pads that we've been hearing about from others?
Scott, thank you. I'll take it first and then if David and Matt will follow-up. But first I want to thank you because in our outspend this is the wells operate by others is one of the major motivators for the outspend because when these wells are proposed and there are more wells being proposed than we had projected, you don't want to go non consent because many of these wells have these high rate returns and big reserves from as you said from the 2 mile laterals. So I think the overall CapEx associated this year with OVO is going to be somewhere in the neighborhood of $70,000,000 And that and the amount of additional wells, we have 2.5 net OBO wells to drill in addition to the 5 net that we had projected. And as you said, these are some high return, large recovery wells, big pad drilling.
And we
want to
be a part of that. And I think the economics are clearly there to do it rather than go non consent. So OBO is going to be a factor. And when you're in the better areas of the basin, you have more OBO proposals that just goes with that territory. And we've always liked being in what we felt was the core of the core or the best of the best and accepted that competition.
David, do you want to comment further?
Yes, sure. I'd be happy to, Joe. Joe. Scott, I think just to add a little to what Joe said, probably the two areas where we've seen the most non operated proposals have been in Rustler Breaks and Antelope Ridge. But we do have from time to time wells that we're asked to participate in on a non operated basis up in the Arrowhead and Ranger as well.
And I think in previous releases we've talked about some of the results of all of those wells. We I think the folks that are kind of in the areas that we are. I mean, we've talked in the past about wells we've been in with Cimarex or Concho or Newbern or WPX Marathon. So the folks that are in the areas that we're in, we do have some smaller pieces, some smaller tracks outside the cores of our positions at times. And this has been a great way for us to get those tracks held.
So I think that we've been real pleased with the results. It gives us a chance also to learn some things. I think last quarter we were talking about or at Analyst Day anyway, we were talking about, for example, Concho doing some break sand wells down in the Russell Breaks area. And so that probably gives us a chance to learn a little bit by participating in these wells too. So we're happy to continue to participate in these wells.
Our fellow peers are doing a good job with them. And as long as we feel like they're going to make us good returns, we're always interested to participate.
Scott, this is Matt. And just to jump on with David and Joe here, I think very good wells that we're participating in. I think what David mentioned there, the ability for us to learn is very important and we always reserve the right to get smarter. I think it also gives us an opportunity to collaborate with our offset partners. So we are pretty active in a non op role and calling their technical folks and discussing which targets are picking and how they're going to drill the wells and complete them.
And then another thing is it just sets us up to these relationships set us up for potential trades. When we get offered a non op position, we may want to trade out of that into something that we're operating in and it works both ways. It's a good deal, a win win situation for both of us in the non op.
The last thing, we also feel it enhances our midstream because every well drilled out there in Russell Breaks is right in our gathering systems for oil, gas and water out there for San Mateo. So it represents and also an opportunity for San Mateo to gain from participation. If we're not in the well, there's less chance that they'll do it, but if we're in it, then we can that's that much more fluid fluids and gas that we can send through our system there. So again, it's a very selective bid on outspend and the OBO is an important factor. We've never taken the view that we had all the answers on ever drilling completion or production system.
And there's always a chance to learn from others to develop some relationships that will pay off going forward.
Great, great. And you're kind of leading me down my second question. And on San Mateo, can you give us a little bit of color on the progress on signing up 3rd party operators? I think planes should be complete with their part of the system in the not too distant future. And you did sign the deal with Marathon on the water.
Can you just give us some general sense of how that's going? And is there more interest in one piece than the other? Does it seem like there's more interest in the saltwater disposal versus the oil or gas lines? Or do you see good progress on sort of all the streams of pipes you have?
Scott, we feel we'll remain progress in all three and I can't say that one stands out to the other necessarily. We believe that there are probably more options sometimes on the gas than having the oil on pipe. And then of all of those that with gas you can flare, oil you can truck, but water has to be disposed of or they'll shut your well in out there. So we've built up a lot of capacity in our saltwater disposal well and that's another area where our teams have worked very well together is we have the capacity to drill deep and the knowledge that most midstreams don't have because we're doing it in our everyday. So we've moved one couple of our rigs from drilling oil and gas wells to drill 2 saltwater disposal wells to 14,000 feet or so and get them completed on time.
And that enhances both our own need for saltwater disposal that helps attract further business. And it wants to make clear, we as a practice don't reveal who our 3rd party contracts are with. So I can just say things are working and we're pleased with the 3rd party contracts that we've entered into, the ones that are working and we feel the ones that are yet to come. And we did announce that we had done an exchange offer with on an interruptible basis, some gas coming through. So we feel we're ahead of the curve on what would set us our goals and we can't guarantee we've set as a target that in the Q4 of this year that we'll have $25,000,000 in EBITDA.
And while we are not yet ready to guarantee it, we do believe that it's achievable, more likely to be achieved now than was 3 months ago or 6 months ago. And the guys are working right along and the plants running on time efficiently. And they've done a number of improvements. For example, they have an interconnect line with BHP, I mean BP. And so we're selling our natural gas liquids to them on pipe, which has given an uplift to our gas prices.
And it put us in a position to do the ethane recovery, either the full recovery or quasi recovery. Again that would be helpful to our commodity pricing. Matt, did I forget something there?
No, I think you summed it up pretty well, Joe. But Scott, just to kind of talk about where we're at in relation to San Mateo. We've got the saltwater disposal system put in place. Joe mentioned we're drilling an additional 2 wells. So that's going to ultimately get us well north of 200,000 barrels a day capacity.
So that's a good thing for the San Mateo team to go out and sell to people. Additionally, we've got our inlet design capacity 260,000,000 cubic feet, which will be at full capacity where we can bring on 260,000,000 by the end of the year. Like Joe said, with the ethane recovery option available, the oil system, the oil gathering system is complete for us at Wolfe. We are selling into the Plains pipeline there. We've got our infrastructure in place at Russell Breaks.
So when Plains gets to us, we'll be ready to go there. So it's really in a nice position that the guys can go out and say the water is important to one of the 3rd party operators. But as we start talking about having the ability to process gas to go into ethane recovery to make sure that they got flow assurance and a pricing agreement for the NGLs at the tailgate of the plant as well as being able to bring oil onto the system. I think it's a pretty powerful thing for them
to sell. Last thing Scott is in our oil fair that pipeline, oil pipeline gathering system is complete and operational. So that as we gather that up on our gathering line, we can turn it over to planes at Wolf and they'll go away on their pipeline. And we like to note on this flow assurance and takeaway that we're selling our barrels at the wellhead. So we don't have the concern about piping it to Midland and we have the option to buy it back there, but we don't have the obligation to give it to Midland or other markets.
It's sold at the wellhead to Plains and we've enjoyed working with Plains. They've really been professional and we're that's going very smoothly and I'd like to give them a shout out. Their work with us is hard to think of any improvements.
Appreciate that. Thanks.
Thank you. Our next question comes from Steve Doud of JPMorgan. Your line is now open.
Hey, good morning, guys. Could you maybe either Joe or David or Matt, just talk a little bit about how you're thinking about the 7th rig at this point. You did mention in the release your expectations about oil differentials for the Q3. And guess at one point, do you think it absolutely makes sense to put the 7th raise in the Eagle Ford?
David, why don't you take this? Sure.
I'd be happy to. Good morning, Gabe. Good morning. So I think what we put in the release sort of reflects where we are, which is that we are continuing to evaluate it, but we haven't actually made a decision on what to do yet. I think that we're still looking at the possibility of maybe putting the rig down in the Eagle Ford for a short period of time.
But we're also weighing that against the potential for putting that 7th rig when we're ready to go with it into the Permian. Clearly, we're pleased with the early results we're seeing in Antelope Ridge. And I think it could certainly be a candidate for the rig. I'll also tell you, we're pretty excited by the some of the things we've been seeing and reporting on from the Arrowhead area, the Stebbins area, the SSD. I mean, and so we're giving considerable consideration to that being the candidate for the next rig.
So I think that it's a little bit of a high class problem. We probably have 2 or 3 different options where we could put the rig and our teams are working to be ready no matter what we might decide together is the right thing to do. But at this moment, we're still kind of debating that internally, Gabe.
Thanks, David. That's helpful. Definitely a high cost problem like you said. And then I guess maybe just a similar question, but do you think there could be a point where it makes sense to if differentials continue to get worse, it makes sense to not only not add the 7th rig, but in the Permian, but also slow down the current pace of activity. Just any thoughts around that?
Well, I suppose that it's always a consideration. I mean, obviously, commodity price and differentials clearly have an impact on our thinking and as to what they will be, what the duration of that will be. I mean, certainly 2 years ago when commodity prices declined the way they did, we looked at things and felt like it made the sense to slow down at point. And so we did, but we didn't stop. We continued to we continued at a 3 rig pace.
I don't think it today that we're entertaining a slowdown at the moment because I think we feel like that this issue will resolve itself sooner rather than later. But certainly we remain vigilant in terms of watching it and seeing how it goes. One thing I'll say is that I'm always very comforted by the fact that I think we've done a good job in terms of the optionality that we've given ourselves. And as we've added rigs back, I think as you know, we have done them on a short term basis. Even the long term rigs that we have now are under contract for less than a year.
And so we really have a lot of optionality in terms of the ability to go faster or or go slower if that's what we should decide to do. So I think that it's not necessarily something we're entertaining at the moment, Gabe. But one thing I do know is if the environment indicated
it was the right decision, we could get there pretty quick. Gabe, I'd like to just chime in here a little bit and mention again that we're focused also not just on commodity price, but returns. One thing is that if price goes down, generally your costs go down And that you can still achieve 40% to 50% rate of return. And I think we demonstrate that when oil was $50 or even less, we were still making money and we were beating consensus now for 16 straight quarters as that we make adjustments and focus on returns and how to get to the desired returns and not just be driven by price. And as Matt says, we aim at profitable growth at a measured pace and measured means taking into account the environment, but maintain a strong balance sheet as you've seen over time.
And so over 5 years, we've kept that debt to EBITDA ratio is being one of the best in the industry and that's still a core belief of ours that if you're going to be in this business, I've been in 34 years, you've got to maintain a strong balance sheet. So as David says, you maintain your flexibility and ability to carry through because it's some of those times where it's tougher, you actually make more progress. So I would like for everybody to feel comfortable that we're not out there growing for this just the sake of growing, but it's select, it's a definite plan that's based on returns and profitability and the value added and we're all committed to that. And we do think that if you're selective enough, you can still have and you're fortunate to have the acreage, the right kind of rock, you can still have growth with profitability in almost any circumstance, you've just got to be a little creative and a little bit put in a little extra effort. Matt?
Yes. I just want to add one thing Gabe. Just the way we think about things is pretty consistent across all the different activities we do. And David mentioned the optionality we have with the drilling rigs. We've been talking with Patterson for just a really continuous discussion with them about if we decide to add a 7th rig, what kind of rig are we going to get.
And we're assured that we're going to get a high-tech rig. It's going to be just exactly like what we want. On the other hand, in discussions with them, if we need to go down a rig or 2, we can absolutely do that same with the frac crews. We don't have any obligation to frac a number of wells or number of stages or anything like that. We have a pricing agreement that allows us to go up or down.
The Eagle Ford versus Delaware option is there. We still nobody said anything about it for a long time, but we still have a Haynesville option. So keeping all our options open even in the midstream business, we've got one of the things that Greg Kroger, Head of Marketing has told us since day 1 is options are good. So when we built our plant, we built a number of outlets and we could offload gas into it. And one of those outlets now has turned into the one that's bringing gas into us.
So just maintaining optionality in all our business lines is very important to us.
Gabe, it's a great question that you asked. I hope that answer was sufficient and I would invite you to come see us and we again continue to discuss at length, but we really it's really important for us to have that flexibility and we do have that deal if it's not doesn't provide a return. We don't do it unless it makes economic sense is you know how much stock that these executives in our board own. We make more from our stock than we do our salary. So we're not out here to invest in things that don't add value.
That sounds corny, but we really believe that and a lot of other shareholders are friends and family. And so everybody's pretty value conscious.
That's definitely a great answer and great color. And thanks Joe, David, Matt and everyone else. Talk soon. Thanks, Gabe.
Thank you. And our next question comes from Dan McSpirit of BMO Capital. Your line is now open.
Thank you, folks. Good morning. Speaking of driving shareholder value, Joe, if we could just turn to Twin Lakes, no ignoring what Twin Lakes could mean to the inventory and how it could help write the next growth chapter for the company. How do you frame the asset's importance in driving shareholder value and how do you assess the risk of it not working and not competing for capital?
Well, Dan, let me try to take the question in this basis. A question like that has to be taken in relation to your other assets. And very fortunately, we have we'll probably finish the year with over 90,000 acres in the Delaware portion of the company. So we got great assets. We've got 2,000 engineered locations down there.
No shortage, lots of options. So what you have up in Twin Lakes is very additive to what we already have. Its exploration acreage that we acquired for the most part on a weighted average basis of probably $200 to $300 So in terms of investment up there, there isn't that much. And on the other hand, we've been encouraged by what we've seen. We've approached it like we've done everything.
If you think about our progress in the Delaware, we went public in 2012 with a small Delaware position. We announced that it wouldn't be until 2015 that we thought would really gear up and that's exactly what we did. We drilled a well in 13 or 2014, drill a few more following that as we began to delineate our position and then gear it up. So I think most good exploration is done deliberately over a period of time and that's what we've approached. Others have gotten interested in that area up there at Continental, Cimarex, GrayWolf.
DGP. DGP. And so we're not the only ones that appear to be encouraged by the data. The 3 wells that we've drilled up there ourselves have all done better than expected. The Holocene, the Culberson and one that we're in now in the process of completing, we're very encouraged by it, but it's a deliberate gain.
If you go too fast, you waste some money, but we've cored 2 wells. We're able to compare. They look promising and they're behaving better than expected, but must like we had projected that they would have not headline grabbing initial rates, but over time they're a little better permeability and ferocity would have a more general decline and we've raised our reserve estimates on those wells. And so we think it's going to be additive. If the whole thing should not happen, we didn't pay much in acreage.
I mean, it was a couple of $100 and it's to me good exploration to go into an area where you know there's oil. That area up there has produced billions of barrels. It's still very promising. And I think it'll come to contribute and things are moving faster up there now that other companies have seen kind of what we've done and the results. And so that's building some momentum.
Brad, what would you add to that? Brad is our Head of Reservoir Engineering. Joe, I think you hit all the key points there. I do think the point you made on just the Wolfcamp especially is a little different up there. And what we're finding is that targeting can make a big difference.
And we're producing in our Culberson well. We're really pleased. It's done probably better than I expected at this point. And we're learning that it could be better with some slightly different targeting. And that's things we're learning from the data that we're collecting and we're applying that now over in Kimnitz and we're really excited to be completing that well, which should be towards the end of this month.
And we'll know something probably about our Q3. So it's a little different up there than down in the heart of the basin. But we've got a great science team with Ned and his geoscience team analyzing all the data and we're really excited that it is going to be a major asset for us in the future. Or it certainly could be. But we're going at it in a way we're not dependent upon it anyway to achieve our 20% growth that we aim for or the profitability, but we think it will be additive.
You have the opportunity because that area is blockier, blockier for the longer laterals. Also it has opportunities for midstream possibilities and we're going to continue this methodical approach to expirations like what we did down there in Wolf and then again in Rustler Brakes and we've gone in our other areas. So I hope that answers your question. We see it a lot of upside, not much downside. And so anyway, again, we feel there's two areas, the Kimnis area and over on the other side of Lovington, both showing a lot of possibilities, not just in the Wolf Camp, which is thick and there's a number of target zones, but also in the Strahan, the Olivine well that we drilled has held up very well to and exceeded expectations and that was just a vertical well.
So looking good, I don't want to tell you it's going to be better than Rustler Brakes or any of that. It's hard to meet that kind of a success superstar, but I think it's a there'll be a productive area and could get really good.
Well, I appreciate the thoughts folks. And with that, have a great day.
Thanks, Dan.
Thank you. Our next question comes from Philip Stewart of Scotia Howard Weil. Your line is now open.
Good morning, guys. Congrats on a great quarter.
Thank you, Bill.
You guys have obviously done a very good job of adding acreage to kind of your existing operating areas. I'm just curious if you have if you see a larger opportunity set in any one particular operating area to add acreage going forward, maybe Rustler Breaks just given kind of the San Mateo partnership there and kind of that's kind of your area where you're running the most rigs. Is that maybe the most likely spot where you continue to look to add and kind of what kind of prospects are out there?
Phil, good a very good question. And we ask us that same question of ourselves all the time. We included a map on our website, which shows on this $80,000,000 deal that we did yesterday where we added acreage. And I would refer people to that and that showed that we acquired acreage in Wolf, a good amount in Antelope Ridge and of course a good amount in Russell Breaks is really add on to our existing acreage or in the adjacent tracks. But I think there's still just as much opportunity up in Arrowhead and Ranger to add acreage.
And the pleasant thing for us is that each of our operating area across all of our acreage, we're having good drilling success and even up there in Twin Lakes. It's a high class problem as David said, but each of the asset teams are asking for more drill time and more CapEx being spend and they're proposing some pretty good wells and we're trying to again keep to that measured pace. So I would just tell you that in Wolf, Jackson Trust all that down south, our guys did a good job, but they're going to be but I think up there in Arrowhead and Ranger you're going to see opportunities and in our core areas of Twin Lakes. So over the next 12 months expect additions in all of those areas. And I do want to again thank you and the other analyst who last time really wanted to see a map.
So we wanted to be responsive to that and include the map to give people an idea and tie it back to our the when we did the equity raise in our offering document there that we did exactly what we said we'd do that this was a good part of this money was going to go to buy acreage, lease acreage and mineral interest in and around our acreage. And I think people can see that we've done that and that we're we haven't stopped yet. My experience over 34 years and out here in this area and being a land man is there's always acreage to be had, deals to be had, trades to be had with other companies, which I think are picking up steam because that's such a win win proposition that you fill in your sections, they fill in there as you do the trades. So I see that opportunities continue and we kid with man, he still has his RV and that you never know where he's going to pull out on the night and just set up shop at all the court houses.
Well, I'm sorry, man. So Joe,
I just can add to that. It's not entirely coincidental that a lot of these opportunities present themselves in areas where you're very active. Down in Wolf, Russell Breaks, Antelope Ridge, as our activity levels increased in those areas over time, we had more and more opportunities come to us. And I think there's a number of reasons for that. And maybe one of the most important one is when you get in an area and you start to show level in the coming year or so up in Antelope Ridge or in Arrowhead and Ranger, I think we're going to see additional opportunities up there
as well. And Phil, this is David. I just wanted to make one quick comment while we're talking about acreage in the maps. In the slide deck that we sent out last night as part of our earnings release, I noted this morning as we were getting our action last night as I was kind of doing one last review of all the materials in preparation for the call today. On Slides 89 where we show the updated map and particularly Slide 9, the call out box that we had for Antelope Ridge actually happened to cover up a chunk of the acreage that we bought in Antelope Ridge.
So that was probably not the best placement of that call out box, but we have corrected that on the website. And so if you just go back, if you're interested, anyone who may be listening and kind of reprint slides 89, you'll see that you'll see the acreage in its fullness as opposed to the little peekaboo that we had last
night. All
right, guys. I appreciate the time and the color. Thanks.
Yes. Thank you. Thanks, Hale.
Thank you. Our next question comes from Neal Dingmann of SunTrust. Your line is now open.
Good morning, guys. And Joe, let me know if there's room on that RV. I'm always ready to go on a road trip event. Dave, for you or Joe, my question is really just on opportunities. You continue to see you guys did a great San Mateo long term agreement deal.
You've talked a lot about that's been really beneficial as well as this KinderFirm sales agreement. And Joe, my question is really are there as you guys continue to see out there, are there more opportunities or do you call it needs for more of these things going forward?
Neal, yes, we're not done yet. We do see further agreements or arrangements that can be made to improve our lives, so to speak, improve where we have set things up that will give us more options, volumes, prices, terms. When I say terms, I'm talking about duration that we're looking at some very tempting deals, but they're say a little longer term than we'd like to have. And then we're looking at some shorter term deals that we think can be favorable. So we're never going to stop trying to provide better takeaway and flow assurance and processing options and market options.
We're working towards just like what we did with Plains where we buy the barrels back in Midland. But those days when we might want to send it to Cushing or down to the Gulf Coast, we're working out deals to get our gas down the Gulf Coast, which we think is a good market or even the Henry Hub. So I give a lot of credit. Greg Craig and his marketing group have really done a good job of creating those options and those opportunities. And we think there'll be more to come.
I mean this business is there's going to be more pipes, which mean you have more opportunities. The marketing is getting more sophisticated and they've been good about building relationships and I've really learned a lot from all of them on what can be. So I think in October and at the end of the year, you're going to have more comment from us on how they continue to further our position. Matt?
Yes, Neal. This is Matt. And I think the way you phrased the question in regards to San Mateo, I think is important. So the takeaway capacity we're talking about, Joe is talking about the deal with planes. Any third party volumes that San Mateo brings on board for the gathering system will be in that same agreement.
So they all have the same flow assurance that the Matador has getting the barrels bought at the wellhead and the opportunity buying back at Plains. But one thing that doesn't get near as much discussion is the NGL takeaway and fractionization. I think people are starting to talk about it a little bit more, but that's one thing Matt Spicer who heads up the San Mateo group, that's one of the things he can now go to 3rd party operators with and say, look, we've got not only do we have firm takeaway capacity for your residue gas, but we have a couple of things in regards to NGL. We're going to have the full ethane recovery option, which ethane now is in the money. And certainly as gas prices would continue to deteriorate that would become even more valuable for them to be able to offer that.
But also this agreement that we have with the pipeline that comes to the tailgated plant for NGLs, that's a firm takeaway issue there too. I mean, BP is actually buying the NGLs at the tailgate of the plant. So they own them. They're putting them on their system, taking away to where they've got fractionation capacity. And so that's a pretty good deal for both Matador and San Mateo.
Very good. And then just one quick follow-up. Joe, I hadn't talked to you on a lot. Your well costs continue to be about among the lowest, up in the basin there in the Delaware. We're just wondering about when you talk to about local sand, are you looking at things like local sand or more vertical integration to bring costs down further or are there opportunities like that getting a little bit more difficult to come by?
Neil, again, an excellent question. And the answer is yes to all of those. Every phase of costs that we're really looking at and we've begun some experimentation with local sand. We're doing almost all of those things. And Billy, I want Billy to pitch in here and Matt because they're doing a lot of the credit for working out some pretty good arrangements.
We have a MaxCom program, which goes 20 fourseven in our offices where the geologists and the engineers are doing the directional drilling and that's working out amazingly well, the teamwork between them, the engineers learn geology, the geologists learn engineering and we're saving a lot of money because you don't have drilling engineers that got to wake up in the middle of the night and make a decision and takes 2 or 3 hours. Our guys are making them instantly. That's already saved us a ton of money. Our young guys that are running the rigs have they just get better and better and never I'm going to let me just let Billy speak for his group because I know he's beaming with pride at your question.
That's right, Joe. The MaxCom room 20 fourseven, it's tied together the drillers and geology department and the asset teams. They all spend a lot of time in there working together, having meetings and watching what each other is doing. And we found that we're staying in zone a lot more and not just zone in the target zone, but in the preferred part of the target zone. And thinking that we're going to be doing that, we were thinking we might be slowing down, but we didn't.
We've and hats off to all those guys like we say 20 fourseven. So that's a great thing for us and we set records in each whole section. And become not just like a one off record, but they become consistent. They'll knock down a curve in an area from 12 hours to 10 hours to 7 to 6.5 hours and then they'll just keep matching it. So we're consistently performing at a high level and expect that to continue.
So we're all doing a great job there. And then also like you mentioned, the completion side there, we've been testing and evaluating new techniques, the slickwater fracs and spacing and the local sand. And I'll let Matt chime in here.
Yes. Neal, I like the fact that
you said that we're on the low cost. What we're really
looking at is trying to maximize value. And so the completion team, we've talked in quarters past about moving towards regional sand and we're going to do our testing, we're going to do our research and we're going to make sure that we're comfortable. I think we're pretty comfortable at this point. So we've actually pumped some jobs with regional sand. And as we've talked about before, we're not going to know from an IP or even 30 or 60 or 90 days.
But so far the things look good. The cost savings that we had anticipated are there. So there's a reason for us to do that. But Billy mentioned some slickwater jobs. That's an area where we may actually spend a little more money.
But if we can increase the production in the reserves, we're very willing to do that. So again, we just try to maintain a lot of optionality with this. And we're also as we put the drill schedule together for this year and for next year, we've got a large number of the wells that we're going to drill will have some component of pad drilling. So we talked at Analyst Day about 2 thirds would have some multi well component to it. So we're going to continue to focus on not only cost structures, but also efficiencies.
And then I want to thank Patterson for working with us as they have on the rigs because these are really state of the art rigs as Billy will describe. I mean they can do a lot more. They're more powerful, better pump systems. And again they have helped set those records in each section of the whole has made a difference. Billy?
Right.
That's right, Joe. We got out front with Patterson putting together the rigs for us with high pressure 7,500 PSI piping, the 1600 horsepower pumps, redundancies in the mud system, the higher pressure, higher capacity, gas separators and we've added our managed pressure drilling packages to those. And it's helped us as we face challenges in the different hole sections when they appear and we just blow right through them. That's helped us be really efficient. And then also the walking packages like Joe mentioned there with BOP handlers and all, so we can get the rigs moved around and batch drill the wells and working with the asset teams, they're saving a lot of money.
It's great details guys. Thanks so much. And I'll be waiting for that
And our next question comes from Gordon Douth of Wells Fargo. Your line is now open.
Hey, good morning everybody.
Hi, Gordon.
Hey. So just had a question. As you've put on these wells across various benches, multiple benches in the Bone Spring, multiple benches in the Wolfcamp, pretty strong results across various areas. Are there any projects that are rising to the top from an economic standpoint as you look to plan out your development, what are you seeing kind of rise to the top?
Hey, Gordon, it's David. That's an interesting question. I think that in some ways it's a little bit dependent on the area that we're in. I think that we've been very pleased with the returns from both the X, Y and the B in rest of breaks. You get up to Ranger and Arrowhead.
I think the second and the third Bone Spring have probably been what we've focused on the most and we're pleased with what we're seeing there. But we're even as we speak, we're doing another test at Stebbins on the Upper Wolfcamp there in that area as we continue to try to test the Wolfcamp a little farther to the north. I think you get over Nanon Bridge, there's a number of targets that we're excited about. But I would say this 1st Bone Spring target is one that I think has really begun to catch our attention and catch our fancy. Of course, the lower part of the Wolfcamp where we drilled that Thorsnes well in the last quarter, it was certainly been a standout and continued to do well.
And been down in the Wolf area while we like what we've seen in the B and the fat and the lower part of the Wolfcamp and the Bone Spring, I think the X, Y has probably been the strongest. But then you go over to Jackson Trust and it's probably the more part of the Wolfcamp there. So it's hard to just say. It kind of becomes more asset specific, I think.
Okay. That's all I had. Thank you very much.
Cory, before you go, I don't want to leave out that we have some deeper targets that we haven't gotten to that have showed promise in one of our wells. We decide just to deepen a well to the morrow just to get a quote easy test, get some gauge of it. But here's a vertical well we took to tomorrow and it's made 3,000,000 a day very steadily for a long time is really held in. That's the Norris Thornton well named after 2 of our shareholders who were recipients of the Medal of Honor. And so I told them that we really appreciate their efforts to make sure we had a really good well coming out of their nomenclature, I guess, so to speak.
But that test alone shows some of the options you have by going deeper to these other zones that we hadn't gotten to. So we're we hadn't yet reached full development mode because we're having so many different zones. And just to give you a story, when we were doing the IPO, our reasons for going out there to the Delaware was that we had done the oil in the Eagle Ford. That was the hot area of the country and we felt there was more application for these oil techniques, these oil shells out there than anywhere else. And as we went out there, it was on the strength of 2 or 3 formations.
And now we've got production coming from about 16 and it hadn't stopped yet. And so it's been a very favorable area. The Eagle Ford has had comparable turns on the well you drill. It just has 1 or 2 zones. Austin Chalk is coming back down there and the Buddha, but out there in the Delaware, as I said, you got 16 and we may end up with 20 before different zones.
And if the column is so big 5,000 what Brad was talking about targeting, we found that even moving as little as a 30 feet can sometimes make twice the well. So we've been proponents that over time targeting will be as important as any of the other steps of looking at formations and figuring out which ones offer the most potential. So we're the thing that pleases most that across all of our acreage, we're earning the targeted returns that we try to get to 40% to 50%. And we're still assessing and watching the new innovation and new frac techniques all that. They can have a big effect on which zone has got the most offer and where should we go economically.
Thank you for that color, Joe.
Well, thanks, Gordon. And it's a great question. And as I said, there's it's hard to say, they've all been so good that you can't say we're going to go over here and put this other area in hold. All the asset teams make very compelling cases to keep up investment in each area and see what happens. Thank you.
Thank you. Our next question comes from Jeff Grampp of Northland Capital Markets. Your line is now open.
Good morning, guys. Thanks for squeezing me in.
Hi, Jeff.
I was curious, you guys referenced in the release a couple of times, the trucking of your oil in the Delaware. I'm just kind of curious if you guys can give us a sense, what's trucked versus what's on pipe on your Delaware oil? How that could potentially change over the next few months? And then just in general of your conversations with the trucking companies, what's your sense of how availability might be trending on that side of things? Thanks.
Yes, Jeff, this is Matt. As we talked about the Wolf acreage, everything at Wolf is currently on pipe. And so when we get planes into Russell Breaks up there all that will be on pipe. So I think in the basin you're probably looking at certainly north of 70% of all the oil will be on pipe. The remainder of it, we've been successful thus far and we'll knock on wood, but we've been successful thus far in securing firm capacity on the stuff at Antelope Ridge and stuff at the Ranger and Arrowhead that's not on pipe.
Typically, the negotiation is about term and how long we're willing to sign up for that. But even the stuff that we've got on trucks there, we've got firm capacity there.
Okay, great. And then for my follow-up, I'll hop in the weeds here. You guys may not have the soft hand, but on the mineral acquisition side of things, can you give us a number of where that kind of mineral acreage stands today and maybe what kind of production is coming from those minerals?
Yes, this is David, Jeff. If you'll just sort of forgive us, I think we're not quite ready to disclose. I think we said in here that we had 3,400 acres of minerals that closed in this deal. I think you can go back to previous releases and kind of see what we had. But we're just not quite ready to disclose what all we've done there.
There's still we still have a little bit of work to do there and want to maintain as much of our competitive advantage as we can. So if you'll indulge us a little bit there, I think we will we certainly will talk more about that as time goes on. I do think that as we said at the time of the offering that the minerals that we get acquired over in the Rest of Breaks area, for example, we're probably going to add plus or minus 500 BOE a day as I recall, once they had closed. So we'll begin to see that. I think what's exciting to us is that so many of those minerals are under tracks that we actually already have on production or will have on production.
And it's certainly in an area where there's a lot of activity. So we expect those minerals to get drilled. Likewise, the things that we acquired in the other areas should have the same kind of activity on them. So I hope that's adequate, but that's probably about as far as we're ready to go today.
Yes. I appreciate it David and that we'll stay tuned in the future. Appreciate the time and good quarter.
Okay. Very good. Thank you.
Thank you. Our next question comes from Noel Parks of Coker Palmer Institutional. Your line is now open.
Good morning.
Good morning. I wanted to
go back to Twin Lakes for a minute again. And I was wondering, I know one of the speeches of the position out there is the water content is expected to be lower than elsewhere in the basin. I was just wondering from the wells that have been drilled so far, I know it's early still, but has the cleanup and then sort of
the oil cut relative to
the water, has that been about like you expected pre drill?
This is Brad. We it is. We expected it to be a little lower up there. And right now the water cut averages maybe 40% or 50%. So that's substantially less than what we found out in the main part of the basin.
So I'm not too surprised, but I am pleasantly surprised that it is actually a little bit lower than we expected. Yes. In the lower part of the Delaware Basin, you may have 4 times the water for each barrel of oil. And up here, you're having a half a barrel for each barrel of water. So certainly makes your lift cost better.
That's one of the economic advantages. And as I said, we like both areas. There are different kinds of production and wells, but we believe both will add value.
Great. Thanks. And just to follow-up, as you plan the next wells you're going to do out there or between you and your partners that are going to happen, are you more drilling at this point sort of along a trend? Or are you going to be heading more towards, if you will, the 4 corners
of your acreage to just get
a sense of how the formations might develop across it?
I'll speak and then anybody else can say what they want, but we don't tend to go to the 4 corners. We tend to go to the very core and then expand out. Is the way I would describe it on a kind of a step out controlled basis. Brad? I agree, Joe.
I think we go right to what we believe to be the core of the acreage and we collect data in that area and we use that data to help extrapolate to in all directions and try to help us predict based on our geologic models and our reservoir models where we think the acreage can be developed. And we're over in Twin Lakes, we had identified 2 different specific areas where the Wolfcamp looked very good to us. And you can tell from our acreage position where the areas we were interested in and we went right in the middle and drilled some test wells there. So we're really excited to complete and test this new well that we've drilled. As Joe mentioned earlier, there's quite a bit of activity going on up there.
If you would have looked at that area 2 years ago, it wouldn't have been very active. But so we're really excited about it and that's what we're planning on.
Great. Thanks a lot.
Thank you, Mel.
Thank you. Our next question comes from Mike Schlot of Stifel. Your line is now open.
Good morning, guys.
Hey, Mike. Hi, Mike.
Just trying to do some math here, which is always a challenge for me, but wanted to see if this sounded right to you. I'm looking at your first half D and C capital of about $336,500,000 to complete 35.7 wells works out to about $9,500,000 per well. Is that in the ballpark or is there something faulty with my math there?
Yes, I'd say what probably is faulty with the math, Mike, is that there's always costs of wells in progress that from an accounting standpoint have to be accrued. So, and I don't have that number exactly on the top of my head, but I can guarantee you that there will be a significant chunk of capital that's been accrued in that $335,000,000 for wells that had not been turned to sales yet because they were either drilling or completed or in the process of drilling and completion. And so I think you just always have to take that with a grain of salt. For example, we had 2 wells on our Coleman lease up there in Rustler Breaks that were absolutely drilled, completed, finished and that didn't come online until the 1st or second day of July. So when we report numbers turn into line, well, they didn't make the cut, so they weren't shown on the list, but all their costs, I guarantee are in that number already.
So I think that's I think until you kind of get through a year and have a chance to kind of look at all that in hindsight. It's a little hard to make that kind of math work.
Got you. Okay. I wanted to follow-up on Joe's commentary on the 16 zones that you've tested. I think you guys have been really a pioneer in the basin on testing both the number of zones and the acreage that you've delineated. Do you foresee at some point next year or I guess my question is when do you foresee there's a lot of issues with full development.
People have talked about parent child issues and how to set up your infrastructure. When would you or do you have any plans for 2019 or beyond to maybe look at a full development scenario?
Mike, it's Matt. I think the way we're approaching this is kind of a, as Joe said, a measured pace. We do our we are currently drilling wells on what we think is likely the proper spacing, determine exactly what we want to do in a full development on a section. I know there's some others that are out testing that that are actually doing multiple wells, but our approach is going to be a little more methodical. I think we're going to do it in a section here and a section there where we're looking to get the right type
of spacing before we jump off into a full development tube type drilling. Mike, big risk about rushing into full development is you're going to there's a likelihood of over drilling the sections that this is something that we discovered in the Eagle Ford that when you thought that you were you could drill say these on 40s or 80s, you didn't notice on the IP the 1st month that there was any interference. And it wasn't until after a year you began to see the interference. And so as a result, you just can't rush in and drill 4 off the pad. I wouldn't do that.
I think there's too much risk that you take some time and some data points to know whether it should be 4 wells to the section or 6 wells to the section. And you need to go at it in a pretty methodical fashion. And the same thing, it's a tension between delineation and full pad and you can't say there's always a bright line and you have a push pull there that depends on a lot of different circumstances. It's not a single factor and you can do a pad and in the 1st months of production you'll think, hey, no interference, but at the end of the year you'll begin to be seen. This is Brad.
I agree, Joe. That's exactly and we treat each area a little differently because the reservoir properties do change. And so what might we may develop on 160 acre spacing in one area might be 80 acre spacing in a different area for essentially the same reservoir. So as we drill these parent wells and we analyze the production and the data that we collect, we are constantly looking at optimizing the well spacing. And just to expand a little bit.
In Wolf right now, we are more in a development mode for the X, Y. It's been our bread and butter down there, but we're still doing some exploration. And so there are some areas where we're in, I would say, full development mode, while in other areas we're still delineating new reservoirs. Should that answer your question, Mike?
Yes. It does sound like you have still primarily delineation probably through next year, I would guess, but in isolated areas like Wolf, sounds like you're there. But I wouldn't expect a big cube type development for 6 or 7 zones in
Matt? Yes, I think that's fair. Matt?
Yes, I think that's accurate. I said, I don't think we're quite ready to start doing that. Just we're kind of like Brad said piecemeal and together what's going to work in the X and Y and what's going to work in the 2nd and third Bone Spring and First Bone Spring in areas where we're drilling just we'll take it piece by piece. And Mike, we're trying to gather data from some
of our operated by others that are in a bigger development mode like that and see how those results compare. So kind of letting somebody else go first with and through our OBO give us a chance to get smarter.
Makes sense. Thank you, guys.
Thanks, Meyer.
Thank you. Our next question comes from Sameer Panjwani
of Tudor, Pickering, Holt and Company. Your line is
now open. Hey, guys. Good morning. The
increased
the increased non op activity in the Permian, is that pushing a more aggressive stance basin wide on trying to get trades done to have better control over company specific spending and development?
Well, this is David, it's Samir. I think that I think I would characterize it is that it just provides for more opportunities to do that. I mean, there are times that we issue proposals to partners or they issue proposals to us. And as part of that activity, you may discover, hey, we could swap out our interest in this section for your interest in that section. And it would it might result in a situation that both of us prefer from an operating standpoint.
And when that's a mutual win win for both of us, we're certainly very willing to do that and have done it many times. And I compliment our land staff on the ability to recognize those situations and seek them out. So I think that we've done several trades. We've done a lot of trades, but we've done a number that we've talked about that I think we felt like really added value for us and I'm confident they did for the partners that we traded with. So I think we're pleased with the cooperation that we see and get and appreciative of the other companies that we work with and the relationships that we have.
I think we're all trying trying to just improve our lives the best we can. And this has proven to be a good way. And I'm glad that the industry is very open to doing that sort of thing.
Okay. That makes sense. So I guess it would be fair to say that the pace at which those opportunities are presenting themselves has accelerated?
I think that's probably fair because of the fact that activity is picked up and as activity is picked up for everyone, then there's just more of these kind of proposals that are being issued and when they are that just opens up the opportunities.
Okay, great. And then on the midstream side, you guys are quickly approaching that $100,000,000 EBITDA mark. It kind of feels like that's the point where generally it might be able to stand on its own 2 feet. Are there any incremental third party opportunities available today? And how far away do you guys think you are from achieving the scale required to make a decision on the future of that business?
Well, I think that this is David again. I think that, first of all, sometimes the midstream guys think they already are sitting on their own 2 feet.
So they might touch back with
you a little bit there,
but I know what you mean. But I think that look, we feel like that there continue to be a lot of midstream opportunities available to Matador and to San Mateo. So San Mateo has done a great job of getting the infrastructure in place both at Wolf and in the Rustler Breaks area and for all three streams, for natural gas, for oil, for water, drilling out 2 more saltwater disposal wells up there now as we speak. The oil infrastructure, gathering infrastructure is all in place. The trucking facility is all just about finished up.
So that we're all ready when the planes line arrives. And look, there's areas of our acreage, Antelope Ridge, Arrowhead Ranger, where we're starting to talk about what might we want to do from a midstream basis in those areas as well. And in the areas where we are, there's always additional third party opportunities. I mean, clearly the significant agreement signed with another producer on the water side this year, I mean, this past quarter was great. It was just terrific.
And we but we have other agreements that are already in place. As Joe mentioned earlier, there's another and we've put in the release, there's another midstream company where we're going to be having the ability to purchase some of their gas and process that there at San Mateo. So that'll add to the volumes there. And the guys are working on other deals all the time. So I think we're very optimistic, pleased where we are, but very optimistic that we will continue to add to these 3rd party opportunities.
Dave, I think you make a very good point. And one of the things that I think is very advantageous is the footprint we now have in the basin with oil gathering, water gathering and disposal, gas gathering and processing. All these things are at a point now where as the third party opportunities present themselves
and those continue to grow and grow, it's pretty
easy for us to add to disposal systems. We've got to the point where we've got a number of saltwater disposal wells and as more opportunities, more volumes come online, it's pretty easy to drill another well and add to that. Even on the gas plant, the gas processing plant we have there at Russell Breaks. If we get that thing full of $260,000,000 a day, we can easily add another train and just continue to build the business. So it's in a very nice place for growth.
Okay. That's really helpful. Last one for me. I'm just trying to understand with the Q2 production outperformance and the increase to the full year guidance, how much of that is coming from operations and how much of that is coming from the acquisitions?
It's coming almost entirely from operations. So the acquisitions are going to add round off error to what those numbers are.
Okay. Thank you.
Yes. Sameer, that's one of the things that we think distinguish Matador from many other companies out there. We haven't been acquiring really producing properties. We all of our growth is almost all come organically from drilling of wells. And when you grow organically, you should have higher rates of return.
When you have to grow by buying production and things like that, that may work out for you over time. But generally you're lucky to get a 10% rate of return because there's a lot of competition. It turns in one way or another into a bidding auction and the seller isn't going to do his best to get that rate of return as low as he can and be much less than what your drilling opportunities are. Now it's trickier to grow organically and with the drill bit, but our teams have met the challenge that Mad Door start off with $6,000,000 and we're at the $4,000,000,000 level. And when we went public, we were making 400 barrels of oil a day and now it's 30,000 barrels of oil.
So you got to give credit to our various teams and that production we have comes out of 3 basins. We made good decisions in the Haynesville and the Eagle Ford and now the Delaware. So I think that's one thing like to be noted that over the 15 years that we've had a very steady rate of return. We've done it organically and that we put the money back in good decisions. And the outlook for us going forward, we think has never looked better.
All areas of the company are doing very well, exceeding expectations. The wells are exceeding expectations. And the teams are really working well together. And a couple of things I don't think are fully recognized in the market. One is the growing value of the midstream.
As you noted, they're really doing a good job in their areas. I don't know when it reaches critical mass. We're studying it and we have a great partner there that has worked with us. And we're very pleased with the way that joint venture is going. Our minerals are growing in value and that gives us further options there.
And then the ongoing development plan that we have, we're not finished targeting our various zones or other zones and our teams are building scale. So we like our chances going forward and are very pleased with the opportunities we have above. We just enjoyed the 2 best quarters in company history. We'd like to think that momentum will continue and we invite all of you to come see us and see that the depth of Matador in just with the executive committee, but goes throughout the company and we've got rising contributions from our young leaders here and in each of the departments. So that look, I'd just like to say looks very promising here.
We got a lot of hard work in front of us. We got to keep finding ways to improve, but I like our chances.
That's the color, Joe. Thank you.
Thank you. Ladies and gentlemen, this ends the Q and A portion of this morning's conference call. I'd now like to turn the call over to management for any closing remarks.
Compliments of Samir, I think I just did it. So if you want more, hit your rewind and do that again. But thank you all. We do appreciate your questions and comments. We do think it helps make us better and we hope to see all of you soon and more to report in the near future.