Good morning, everyone, and thank you for joining the Second Quarter 2022 Matador Resources Company's Earnings Conference Call. My name is Norma, and I'll be serving as the operator for today. At this time, all participants are on a listen-only mode. We will facilitate a question-and-answer session at the end of the company's remarks. As a reminder, this conference is being recorded for replay purposes, and the replay will be available on the company's website for one year, as discussed in the company's earnings press release issued yesterday. I would now turn the call over to Mr. Mac Schmitz, Vice President, Investor Relations for Matador. Mr. Schmitz, you may proceed.
Thank you, Norma, and good morning, everyone, and thank you for joining us for Matador's second quarter 2022 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 the comparable financial measures calculated in accordance with GAAP are contained at the end of the company's earnings press release.
As a reminder, certain statements included in this morning's presentation may be forward-looking and reflect the company's current expectations or forecasts of future events based on the information that is now available. Actual results and future events could differ materially from those anticipated in such statements. Additional information concerning factors that could cause actual results to differ materially is contained in the company's earnings release and its most recent annual report on Form 10-K and quarterly report on Form 10-Q.
In addition to our earnings press release issued yesterday, I would like to remind everyone that you can find a slide presentation in connection with the second quarter 2022 earnings release under the Investor Relations tab on our website. With that, I would now like to turn the call over to Mr. Joe Foran, our Chairman and CEO. Joe?
Thank you, Matt. I appreciate your help very much. I just want to do a sound check with everybody, make sure we're not cutting out. In the pretest, there was some indication that someone's being cut out. If you are, please let the operator know and want to be sure we're coming in loud and clear. Where I'd like to start is on this. This is the best quarter that we've had in company history. Actually, the first quarter was originally the best quarter, but this quarter has been even better. We're proud of that.
It reflects the team effort here, and we feel we've gained strength in all areas and the outlook for it is strong, and we like our chances. Operationally, the big difference makers is first the capital efficiency that you'll note in a lot of our activities. Second, the strong relationships that we've had with our vendors and outside contractors. We've avoided a lot of the problems of the supply chain. They've been there. We've worked with them for many years. All these people, Patterson, Bourland & Leverich, Halliburton, and, you know, we just appreciate them very much.
The all the different elements that go into the well, and our contractors and our field people who are the unsung heroes in keeping things going and helping out and adding to that capital efficiency. Most of the capital efficiency comes from the conversion from drilling one mile laterals to two mile laterals. As you'll hear later on, as we're making preparations to move to some three mile laterals. That's been the big difference maker, even in this time of higher prices, having that extra measure of capital efficiency.
Finally, the financial strength of Matador has continued to grow through the years, and we feel we've reached a new inflection point as our production has climbed to over 100,000 barrels of oil or gas equivalent per day, which puts us in position of being at the strongest time in our history from a financial or operating point of view. During this time, we've had a lot of debt pay down so that we've completely retired our commercial bank lending. We still have a borrowing base there, but we've paid all of that off, and we've also paid down our bond debt.
This has given us, of course, more options, more cash flow, and set us up for a different level that we won't have the risk profile that you have with debt. The leverage ratio has declined from 2.9 in the third quarter of 2020, say, you know, two years ago, to 0.5. Proud of that. We're ready for your questions and what else we can tell you about Matador and our outlook and progress going forward.
Thank you. Ladies and gentlemen, to ask a question, you'll need to press star one one on your telephone. Due to time constraints, we ask that you please limit yourself to one question and one follow-up. Again, we ask that you please limit yourself to one question and one follow-up until we have a chance to ask a question. After which, we will welcome any additional questions from you. One moment for our first question. Our first question comes from the line of Neal Dingmann with Truist. Your line is open.
Morning, Joe and team. Good morning. Let me address, Joe, maybe the, what I call the attractive elephant in the room, and that is, by my estimate, I think you all could have negative net debt. You mentioned the great leverage. By my estimate, you all could potentially have negative net debt next year and, you know, even depending on price, generate over $1.5 billion of free cash flow.
I know you all always talk about wanting to keep your options open and boosting the base dividend. You know, obviously, the general question is, what do you do with all the cash piling up? You know, maybe Joe, I'm thinking Nancy would love a big dividend, so maybe this is a better question for her.
I'm sorry, I didn't quite hear. Would you repeat that, please? What?
Did you hear my question at all?
No, it came across as garbled. So, I mean, try again.
Okay. Let me try one more time. My point was that by my estimate, I guess you talked about the debt. I think you all could have negative net debt next year. I you know, depending again, on prices, potentially generate over $1.5 billion of free cash flow. Again, I know you guys have been very straightforward about keeping options open and boosting your base dividend. Anything you could address about what to do with the cash pile up? My last comment was, Joe, as I you know, I was thinking Nancy would probably love a big dividend, so maybe this would be a better question for her.
Well, it might. That's why you have a board of directors to be sure that it goes to the board and the staff that goes in the right direction. Yeah, that'll provide us with some high-class options. Neal, again, when you start your company as we did Matador 40 years ago, first Matador, we started with $270,000. Of course, we sold that for $388 million, which was a good run. We sold that on a Friday and started new Matador on a Monday, 20 years ago, and with $6 million. When you start with, you know, those were pretty limited funds.
You learn to be very careful about how you spend it because there's no assurance there'll be further capital to use or deploy. We have ideas on what to do, but we wanna be very careful. If we're generating that much cash flow next year and the prices are up, we know the uses will come. One example of what we did recently was the purchase of the Summit Midstream. That deal came up all of a sudden. We closed it within 36 days. That's something that we couldn't have forecast. It came up, but we had the option because we had the money in the bank.
We didn't need to pull down anything on our line of credit. That was one reason we got the opportunity, because we had the wherewithal from a staff viewpoint to do the documents and seal the deal in a little over a month, and we had the money in the bank waiting to go. I think you'll continue to see us, you know, move forward with other acquisitions, either in midstream or buying production bolt on to our acreage.
Our geological group, under Ned's leadership, has a lot of good ideas, and we're optimistic that we'll have some prospects that'll rival, you know, the Rodney Robinson wells or the Stateline or Greater Stebbins area, some of these other areas that we're looking at closely. There's some really exciting opportunities there. We do, you know, if that kind of cash flow comes in, I think people can reasonably expect some increase in the dividend. We've doubled the dividend 3 x in the last two years. You know, we like dividends.
As you know, we're all large shareholders here. There's no opposition, really, to dividends other than we wanna keep a strong financial position. On the debt side, I think we'll continue to retire the bonds at some point. We'll probably keep some debt just for the rating agencies to see that, you know, we're careful about that. You know, we tend not to be real budgeted people trying to plan out two years ahead where we're gonna spend money. We found it's been more efficient for us to be opportunistic and see what comes up at any given time. It's much like as we get into discussing the seventh rig.
It's not like we began the year and said, we're gonna do a seventh rig. Circumstances came up that this is a very special rig, as Billy will describe to you. It's a rig that's if you're gonna drill three miles, this is a rig you want out there. We expect, I think it's a high probability we'll drill a three mile lateral, sometime in the not too distant future. You know, within the year, we'll take up some three mile opportunities, and you need this rig. We'll take that on in late September, so it's really here for this year only for 90 days, will help us drill the Rodney Robinsons and get those off because we have 19 wells there right now.
When we start drilling these next eight, you're gonna have to shut in probably three-fourths of those 19, 15 of the 19, while you're drilling and completing those wells for safety's sake. Having that extra rig to catch back up will be good because one of our rigs, we're gonna use to drill a saltwater disposal well, which will knock it off of the production line for about 60 days. You know, these are things that are well considered, and because of the timing, we thought we should move ahead. It helps to have money in the bank.
I can tell you, starting off with $270,000, which today is one frac stage, so we'd start at 6:00 A.M., we'd be through by noon. You know, we're pretty careful about this money because it's ours. We're large shareholders, it's our friends, and, you know, it's our families that have put up this money. We like to be very careful and try to use it for good purpose. I hope that's helpful to you, Neal, and give you some examples of what we'll try to do.
It does. Thank you, gentlemen. Great details. Then maybe just a second on the capital spending that you all mentioned, the updates specifically. Is the best way for us to think about that for, maybe for Michael, one of you all, is just to think about CapEx in terms of dollar per foot? I know there's a lot of other things, midstream and other things involved in that, so I'm just wondering what's the best way of thinking of CapEx?
Knowing you don't have a 2023 budget out there, should we just kind of think on a dollar per foot and maybe add some inflation to it? Or, you know, how should we think about sort of CapEx going forward? Knowing, as you said, I don't wanna get into specifics of 2023 budget yet, but just kind of on a broader scale, how to think about when you look at the budget.
Yeah. Hi, Neal. This is Chris Calvert. I think looking at it at a D&C cost per foot is a good way to look at it. You know, we came out with $845 per foot in the fourth quarter of 2021, you know. We had projected about a 10%-15% increase versus our fourth quarter number. With this revised CapEx, it did bump it up to about $890 per foot. That is, you know, highly related to timing, highly related to inflation that we are seeing, you know, and the heavy-hitting components of that would be, you know, sand, steel, fuel.
While we are seeing inflation, we've seen it throughout the year, that big jump and really the jump you're seeing is really related to timing and when we're bringing these wells online. Kind of like we've spoken in the past, you know, we control what we can control when it comes to sand, steel, and fuel. On the sand side, you know, longstanding solid relationships with our vendors, line of sight for them to procure supplies for us, so we don't have interruptions to operations.
On the fuel side, the completions team has implemented dual fuel for all fleets, and so for the remainder of the year, 100% of our wells will have dual fuel capabilities, and that typically saves about $100,000-$150,000 per well. Then also just spending less time on wells. For the drilling team, when we went back to Rustler Breaks, we initially budgeted about 20 days to drill some of these wells in Rustler Breaks. We're drilling some of these now right around 10 days, and so that time savings component has a dollar component to it, and so we're spending less time on wells.
Then, you know, the completions team implementing simul-frac, remote frac, that's spending less time on wells and also saving about $250,000 per well. For all the heavy-hitting cost components that we are seeing inflation on, our operations team is doing a fantastic job on mitigating those inflationary pressures with sustainable efficiencies.
Yeah, I would agree. Great, great operations efficiencies, guys. Thanks, Joe. Thanks, team.
Thank you. One moment for our next question. Our next question comes from Scott Hanold with RBC Capital Markets. Your line is now open.
Thanks. Good morning, all.
Good morning, Scott.
Good morning. Could you walk through the thoughts on adding the seventh rig and how you see, like, that creating shareholder value over time? You know, I think, you know, implicitly you all see some strong value opportunity in investment into the business. Can you give us a sense of the types of returns you expect to see from that rig and the wells that you'll be drilling?
Sure, Scott. This is Tom. You know, I think that our teams are doing a wonderful job on the cost front as Chris just mentioned. When we're talking about adding an additional rig, the first thing we're looking at is the rock. We always wanna make sure that we're drilling the best targets that we can drill. Ned and the geoscience team with MAXCOM are doing a great job putting these wells right in the target zone.
We think that these wells can earn 4x their cost over the life of the wells. You know, when you have twio mile-long laterals going through great rock with an 87.5 net revenue interest, and when we have facilities and pads that are already built, that's a good formula for adding value for the long term.
Great. Appreciate that. You know, as my follow-up question, it's sort of, you know, talking to obviously the trajectory of spending into next year, which I think is gonna be very topical for a lot of companies. Understanding it's early in the plans that are explicitly laid out, you know, into next year, but can you give us a sense on, you know, where you see, you know, lateral lengths, you know, going forward as well? You know, I think on page 29, you demonstrate, you know, how that's stepped up nicely, you know, through 2021 and, you know, held pretty constant through 2022. How do you see that progressing as you look at 2023 and beyond based on your opportunity set and plans to drill some more 3-mile laterals?
Sure, Scott. Yeah, we're definitely big believers in these longer laterals. As Joe mentioned, the teams are working towards getting further out to the three mile mark. We've executed very well at the 2.5 mile long lateral length down at Stateline, as you know, and we're excited to push the boundaries out even further. Not every well we drill will be the long laterals. We'll have some wells that we'll need to drill that'll be kind of fit in between two existing wells, where we'll drill some shorter wells along the way, but we still think those wells will have excellent returns and will certainly compete for capital.
Executionally, you know, I think that as I'm. You know, Chris and Billy and all the ops teams have, you know, made some big improvements on some of the greaseless wireline and some of the fit for purpose snubbing units that really are kind of the tighter parts of executing these longer laterals. They've really made these operations safer and faster and more efficient and give us the type of confidence to drill these longer laterals.
Appreciate that. It sounds like, you know, staying around 10,000 feet on average is, you know, sort of a good sort of thought when you look at the relative mix going forward.
I think that's pretty reasonable. We still have a ways to go before we finalize our plans for next year, but I think that's in the ballpark.
Appreciate it. Thanks.
Thank you. One moment for our next question. Our next question comes from the line of John Freeman with Raymond James. Your line is now open.
Good morning, guys.
Good morning, John.
Yeah. The first question I had, y'all have a slide in your presentation on slide 26 that's quite helpful, kind of shows how everything kind of breaks down on a positive and negative standpoint on y'all's updated guidance. Obviously the biggest positive through the first half of the year was the much better well performance, specifically y'all cited those 11 volume wells in the nine Rodney Robinson.
I'm trying to get a sense of, on a go-forward basis, the better well performance you've had, or is that impacting when you think about the additional wells you're going to be drilling going forward in those areas or others, is there any additional upside from what y'all had originally planned at the start of the year? In other words, are you still using the same previous kind of tight curve assumptions that you did going into the year despite the better well performance you've had?
Yeah, good question, John. You know, I think we just try to put our projections down, just down the middle of the fairway. We do pride ourselves on looking at the wells very closely, and we just wanna be as accurate as we can. As shown on that slide, we did have outperformance in many of our wells in the first half of the year, and we're very happy with that. It's sometimes the wells do better, and sometimes they're a little under, but overall, I think we've done a nice job forecasting our wells. Things like spacing and putting the wells in the right zone and good execution, good fracs all contribute to these types of outperformances.
Yeah. John, I'd like to add, this is a good point to point out the efficiency of our MAXCOM group. You know, that's the 24/7 group that measures in real time where that wellbore is as it's going horizontally. Before we had that, you know, if a horizontal well went out of zone, it might be a little while before it was recognized, and then they had to call in to a geologist, get them up in the middle of the night. They had to talk around, and they could go 200 feet outside of the zone because of a slip fault or some other normal operating procedure.
Well, today now, that time has been reduced to a matter of minutes. A few minutes before you realize what's happened, you can redirect, so you're staying in zone a larger percentage of the time. We estimate prior to having that room, we were in zone in the 80% - 85%, you know, somewhere in that mid-80s%. Now we're routinely drilling those wells at over 95%, and there have been some wells we've been very close to 100% of the time in zone. Well, you have a 1 million-barrel well or whatever size well you wanna talk about, and you're in zone 10% more of the time, that's 100,000 barrels.
That's one part of the efficiency. Then second, Chris and Ned working. There's geologists and engineers in there, so they get very comfortable working with each other. Then Chris and Cliff and Ned have been real good about collaborating on the frac jobs and, you know, what works and what doesn't. We think they've been very effective in the tweaks they've made to our frac programs and how they're doing it and reducing the cost by doing remote fracs, among other ideas.
This has resulted in a lot of this outperformance. In the second half of the year, we're still gonna be trying out some new things, and we're still drilling in areas of good rock. Because we got ahead a little bit on the outperformance and got ahead of what our guidance was for the year, it's allowed us to accelerate the Rodney Robinson wells, eight more Rodney Robinson wells. Instead of waiting to the end of next year, we're accelerating them to the end of this year.
In doing so, we have so many federal permits, those are 87.5 net, we have federal permits, they're due to expire at the end of next year. Well, as uncertain as the current administration's regulations are and other thoughts, why take a chance on something happening to that or having the New Mexico regulatory authorities not want them drilled because they're close to the Prairie Chicken area or parts of it or even in it? We just wanted to eliminate and get those wells online, much like what we did this past year with the Voni wells down there in Stateline, and the Boros wells.
We drilled those, accelerated the development, and we began the year with a lot of momentum that's carried this halfway point. That's allowed us to consider doing that again up there in the Rodney Robinson. I guess the point I'm trying to make is one of the things that we try to do in a effective manner is make these judgments and shift strategies a little bit. We call it trying to be a little more nimble in that, as opportunities arise to go for them, just like what we did on Pronto, buying other leases.
We think that has to be part of our effectiveness, is that we still are small enough where we meet together and make a more effective plan going forward. I hope that answered your question. If not, I'll get one of these other young guys on the line and they give you their perspective.
You covered it well, Joe. I just my follow-up question on this on the seventh rig, which y'all you know characterize as a special rig, and it would allow y'all to ultimately do some three-mile laterals. Just so I understand, though, these initial eight wells that are getting accelerated, none of those are planned to be three-mile laterals, right? That's something you would plan to do at the conclusion of these eight wells. Is that right?
That's right. There are 19 wells currently on the Rodney Robinson. These will add eight, but while you're drilling the eight, you're gonna have to shut in 75%. Since we're ahead of the curve right now, this seemed like time to do it. Billy can tell you why this rig is particularly suited for three-mile, but they won't be on these first wells. We'll break out the crew and make sure that we're all comfortable with the crew. Billy?
Yes, sir. Hey, John, this is Billy, and just like Joe was saying, we don't wanna bring a new rig in and jump right on a three-mile well with it. We wanna get everyone working together and make sure we got everything in line. You know, further out, we will be drilling some three-mile wells. We ran one of these rigs like this one we just picked up before, and it was available, and it was about to get taken by other people. The rigs are getting gobbled up, these high spec, high tech rigs like we like to run.
All of our rigs would be able to drill three mile laterals, but this one in particular would be better and has more setback for your drill pipe for the five inch or 4.5-inch, whichever we use. In the deeper laterals, there'd be a lot of drill pipe stacked back there. So it helps us out there. The substructure of the well is rigged up really well for handling your wellhead and BOP equipment and save us time there. You know, this rig would have the high torque top drive and all the other things we require as well. It's a good rig, and it is definitely capable of drilling three mile laterals, and we're glad to have it coming in to support our drilling program.
I appreciate it. Thanks, guys.
Thanks, John.
Thank you. One moment for our next question, please. Our next question comes from the line of Gabe Daoud with TD Cowen. Sir, your line is now open.
Thanks. Morning, everybody. Joe, I was hoping maybe we could just go back to the seventh rig. Was curious if you could maybe help us think about how that impacts volume growth for 2023. The release mentioned that it obviously accelerates those completions to late 1Q, early 2Q. Just curious if you can maybe quantify the volume impact on 2023.
I'll do the best I can. I do wanna mention one more thing, a couple more things about the seventh rig. First, remember, take into account that we've announced we're gonna drill another saltwater disposal well with one of the other rigs. So while it's that's out two months drilling the saltwater disposal well, which we really need to give us some, you know, a safety measure that we have someplace to go with our water, you know, that'll cut back production a little bit.
There's some timing questions that may affect the time, and we're uncertain of whether the drop in price or the threats of a recession will decrease the number of non-operating well proposals we receive. This past year, I think we had 105 such proposals that resulted in eight net wells to us. If that's reduced in half because prices are down or something else, that's gonna have an impact, saltwater disposal. We're optimistic, very optimistic that our production will be more next year, but it's not bird in hand yet, as I've tried to explain in those two situations.
We definitely felt this rig was needed, but maybe we would have taken it at first of the year, but it was offered to us at the end of September. As Billy pointed out, if we didn't pick it up now, we would never have a chance at it. You know, other people want it, and they would take it and just not release it. That was something that, just like the Summit deal, if we didn't take it when we did, it had gone to somebody else, and we would have lost that opportunity. That's something that excites me about having the additional cash.
Not that I'm looking to spend it, and I hope no one's ever thought of me as being quick to spend, but it helps you, on your execution, to have the right equipment at the right time or the right situation. The seventh rig, you know, effectively, as we drill the saltwater disposal, we have six rigs. If we didn't have that seventh rig, we'd be down to five rigs, and we certainly wouldn't be able to maintain, the production that we have. It wasn't a hard decision at all to pick up the rig. You know, the real decision is how do we optimize the pacing of our rigs and the pacing of our production. Did that answer your question?
Thanks, Joe. Yeah, that's helpful. Maybe if I could just follow up as we think about allocating the rigs across your Delaware asset base or maybe for the remainder of 2022, but specifically into 2023, just how should we think about returning to Stateline? Just curious if that's still part of the plan here to return to those two units and drill the remainder of the wells that you have permitted. On that note, I was just curious if you're seeing any differences in getting permit approvals. Thanks, guys.
Hey, Gabe, this is Tom. We're still very excited about our Stateline acreage, and in fact, we have a rig drilling right down Stateline right now. We have 50 wells producing at Stateline, and so we're, you know, we're mindful of making sure we have good takeaway for our oil, gas, and our water, and that's where San Mateo has done an excellent job for us in all three phases. As far as kind of the rig allocations, we have excellent targets all around the basin.
As we acquired some acreage at the end of last year up in our Ranger area, we're very proud to be putting money to work drilling wells up there in the original part where the Bone Spring Formation kind of got going many years ago. We've also been pushing the Wolfcamp play further north, both in Ranger and also across over in the Arrowhead area. As we mentioned, we're getting that saltwater disposal well drilled now so that we can drill some more wells in the Greater Stebbins area in parts of next year.
The teams have been drilling great wells in Wolf and in Rustler Breaks, and obviously, you heard about Rodney, but also all across other parts of Antelope Ridge, where we've been drilling some really good two-mile Third Bone Spring, Second Bone Spring laterals. It's kind of a high-class problem to have so many good opportunities to put these good wells, get these good wells going.
No, definitely. Thanks, Tom. Thanks a lot, guys.
Thanks, guys.
All right. Thank you. All right. One moment for our next question. Our next question comes from the line of Zach Parham with JPMorgan. Your line is now open.
Hey, guys. Thanks for taking my question. I guess first, maybe just on the balance sheet, y'all bought back the $158 million in bonds during the quarter and into July. You know, maybe could you just talk about your balance sheet goals? I know, Joe, you mentioned earlier on the call not wanting to go to zero debt, but do you have a target debt level you'd like to get to?
That's a good question. Zach, we tend to do very little targeting, you know, that we're gonna target so many wells or target so much debt or any of that, or target production levels. We try to let things unfold. As we said, we aim for profitable growth at a measured pace, and not growth for the sake of growth, but what comes more naturally from your drilling completion efforts or your acquisitions, and that's what we're trying to stress with the opportunistic nature of a lot of our decisions and trying to leave ourselves with a lot of flexibility. We really haven't targeted.
We know we wanted to pay this down and continue to pay down the debt as it comes up, and we felt the opportunity where people were eager to or willing to sell at a discount. Now, a few years ago, our bonds fell down there to a very low level. Probably most of these people bought at that low level, and they were 30% or 40%. They've got a lot of gain. They've taken it. It's win for them, win for us, because we were never in default or never in financial trouble with our banks. In fact, at that time, we had already been approved with no change by 13 different credit committees.
That was just where the market went into disarray because of other problems unrelated to us. You know, that was an opportune time for people to buy. I think that's helped us buy in this situation and retire more of the debt than would have otherwise. We just haven't been in trouble, and now we have this cash, and we believe paying down debt is a better alternative for our shareholders than merely buying back stock.
When you buy back stock, the person who sells their stock often leaves, doesn't come back, where buying back debt is a more enduring benefit and improves the financial strength of the company and its opportunities. The company is strengthened with the debt buyback, where if you're buying back stock, that's a short-term benefit and may help. On the dividends, we're studying the market and looking to see if there's a program that really resonates with the long-term shareholder.
If you look at, go to the 13F and look who owns stock in Matador, you're gonna see they're almost all long-only funds, and that we think it gives us a certain amount of stability. We just had our annual meeting. We had over 90% of the shares represented, over 200 people there, and the votes were all overwhelmingly, you know, 95% or better on what we're doing.
We feel they support us in the view to keep strengthening the company first financially, rewarding the shareholders, but be sure you can do it, can sustain it, and keep drilling, and giving us the discretion to drill those wells that we think we should in cadence to this profitable growth at a measured pace mantra. We haven't had calls from shareholders saying, "Cut back or speed up." They "Keep doing what you're doing" is the message that we've been getting. It seems to be working effectively. You know, 10 years ago, we're celebrating our tenth anniversary. 10 years ago, we went public at $12.
Today, our price is over in the $50s. Given all the ups and downs, we think that's been a reward, a positive reward for our shareholders to be up 4x-4.5 x what we originally went public. I like our record. I like the decisions we've been making. I think we're setting ourselves up with plenty of A-plus locations to drill. We've tried to make sure that with the money that we spent, it's being spent on the very best caliber of wells and not deluding ourselves into where you're doing the B-plus or A-minus.
I mean, these are that our caliber of wells and not deluding ourselves into where you're doing the B-plus or A-minus. I mean, these are, you know, that our production is not because we've spent so much more money, but it's just been better rock with better execution, and getting more capital efficient. I'm hoping Tom and Chris and Cliff and Ned and Billy and Josh, all of them will keep up that practice. We don't have a set plan. I keep telling Ned, "Keep finding us those A-plus rock, and we'll keep going ahead and making those bigger returns."
Most shales return about a 2-1, and the ones that we've been drilling, as Tom pointed out, have been a 4-1. That's why the production's about 20%, and not because we spent a lot more money. I think where we spent money, Chris and Billy have made sure that we've gotten our money's worth by having the best caliber rigs, you know, really strong vendors who have done what they've said for us and great execution from people being out on the rigs. Billy, what am I missing there?
No, Joe, that's a big part of it, you know, staying with the A-plus rock and location to match up with our A-plus staff, you know. Also the vendor relationship, that's something we hadn't touched on. We talked about the people, a lot of them that we work with and others, and how we stay together through the good times and the bad, and we always keep operations going and keep our people out there and keep them going.
You get in situations like now where it's hard to get, you know, sand and rigs and casing and all the different things, we stay out in front of that. The relationships are a big difference in keeping A-plus operation going.
Yeah. It's just it meshes. All of us have worked together for a number of years together. You know, we think we're on a good plan and looking for those extra opportunities that'll enhance returns. It's a simple plan. It's just executing requires you know, more effort on part of everybody, but trying to get a little more efficient all the time and keep finding ways to improve. I'm proud of our operations group. They've set 170
Nine.
179 records for drilling out there in the last two or three years.
Got it. Thank you, guys. Appreciate that color. Just one follow-up. You know, I know y'all don't have a 2023 guide out there yet, but with the seventh rig, you know, running later this quarter, and the oil price, you know, kind of in the mid-$80s for next year, you know, should our assumption be that at the strip that seventh rig will continue running into 2023 and beyond?
Yes, Zach, I would do that. We can make money at $80 a barrel of oil. You know, our gas production is, you know, we're 60/40, 60% oil and 40% gas, and our gas prices have been very strong, you know, these past months. You know. Remember, we have two assets that really get overlooked. One is the value of the midstream, and second is that we've got 200 Bcf or 300 Bcf of reserves behind pipe in the Haynesville. When we did the deal with Chesapeake, we reserved all of our Cotton Valley rights. We put a rig over there.
Don't want to right now because we feel it's better to grow by a tortoise than a hare. You know, we tend to plug along. As I said, we feel growth from the size we were when we went public. I'm not even going back to ancient times when I first started, but when we went public, we were $200 million -$300 million, and today we're $6 billion or more. We don't think our pace of growth has been too slow. We just, you know, keep looking, let it be determined not by targeted growth, by the number of really good locations that we know we can make money on, and let it be determined by that.
Also want to mention just as a point of reference on the rigs, we've laddered them in so we can let rigs go in a matter of, you know, 90 days to six months, we could go down by probably about half because they're all staggered out there with, you know, with the contracts expiring and being renewed every six months or so. That gives us flexibility in the pace that we're having with the rigs, or on an acquisition. I'm pleased it's been a cooperative effort.
Just a point of clarification, just the Cotton Valley would be in addition. We don't have those currently booked as reserves right now, so that'd be on top of what we've already got.
Got it. Thanks, guys.
Thank you.
Thanks. Thanks, Zach.
One moment for our next question. Our next question comes from the line of Michael Scialla with Stifel. Your line is now open.
Yeah. Good morning, everybody. Joe, you talked a lot this morning about how being nimble and maintaining optionality has really been key to the company's ability to create value. You mentioned last quarter you were evaluating a variable dividend, and looking at how that's gone for some of your competitors who've allocated, in a lot of cases, more than half of their future free cash flow to a dividend, most in the form of a variable. Am I reading too much into your comments to say maybe a variable doesn't really make sense for you? Or I guess just any updated thoughts on how you're viewing the concept of variable dividend?
No, Mike, I think you're reading it. It's an open mind that nobody's ruled it out, nobody's ruled it in, but it's being studied. You know, we're looking at it and trying to see what makes sense, where has it worked? I mean, and where has it not worked? The main thing we think the most important part of the dividend is being sure it can be sustained. You know, even on a variable dividend, it can be set high enough where you put out enough money to cover the variable dividend, and it starts to limit your options or prevents you from doing what would otherwise create a lot of value.
You know, we think the existing shareholders come first. You know, the long-term dividend people seem to like. They'd rather know they have it'll grow from year to year, over a long period of time, rather than trying to accelerate dividend payments and then not have enough a few years down the line. It's an open deal. Again, I wanna emphasize, we like dividends. If you look at it, I'm largest individual shareholder. I mean, it'd be nice to have some of those big dividends, but it's better that Matador continues to grow and strengthen itself financially and operationally so that you have more over a longer period of time.
We're open to any idea that adds value to the shareholders, and we're studying the variable. You know, the thing that I'm probably have the lowest chance on is trying to do a buyback at this time, because I just think we've got better uses for the money than just buying back somebody's stock. We'd rather use it to help the company grow more prosperous and more reserves, more assets, more midstream, more quality acreage. We think that that enhances what a Matador shareholder has.
You know, you take our reserves are approaching 300 million barrels of oil or gas equivalent, and divide that, you know, by the number of shares, and each share has a lot of value behind it. That allows us to grow to, as we have, to be in one of the top 20 companies by market cap, I understand. That's a long way from where we started. Mike, you were there when we started.
Yep. No argument with your success. Just wanted to get a read on how you're viewing that concept, and we'll look forward to see how that unfolds. I guess my second question was just a modeling question. On looking at next year, on cash taxes based on where strip prices are right now, would you expect to be a partial cash taxpayer like you are this year, or would it be a higher percentage in 2023?
I'm gonna let Rob go first. I have two people raised hand. Look at me. Look at me. Rob, our chief accounting officer, will go first. They've finished the audit. Go ahead. You talk and then Mike talks.
Okay. Perfect. This is Robert Macalik. Yes, I think you're right. It'll be a higher percentage of our net income will be paid in cash taxes next year as we roll through all of our net operating loss carryforwards on a tax basis. Probably approaching, you know, closer to the 15%-20% of our net income range.
Which would be $100 million.
Well, this year for 2021, you know, we're forecasting it be about $100 million. If you're talking specifically about 2023, you know, that would be the 15%-20% range that I was talking about.
Michael?
Yeah. That could range $100 million-$200 million, depending on how commodity prices shake out. Could be higher if commodity prices are higher.
Got it. Thank you. Helpful, guys. Appreciate it.
Appreciate you, Mike. Thanks.
Thank you. This ends the Q&A portion of this morning's conference call. I'd like to hand the conference back over to management for closing remarks.
Well, thank you to everybody that listened in. We appreciate the questions. They were really good. I think they were really fair, and we appreciate it. I wanna extend once again our invitation to come in and visit us, see the MAXCOM room 24/7. Same thing, we have a measurement room that's 24/7 that measures and automates, and they do a really great job verifying that we're getting paid for all the hydrocarbons that we're producing. Would love for y'all to see those.
Would love to visit with you, for you to see, meet a lot of our young people who have very important jobs here and knocking it out of the park and see the depth that we've moved to. I think that's been one of the biggest advantages of being public these 10 years, is it's helped us attract some really good people who have really been helping build this company. Come see us, and we're always available on the phone for phone calls. Call us, one of us will get back with you and try to help you with your questions and continue to work with you. We appreciate the time y'all have taken to try to get to know our business and get to know us. With that, I'll sign off, but my phone line is always open to you.
Thank you for participating in today's conference. You may now disconnect. Everyone, have a wonderful day.