Welcome to the Third Quarter 2016 Matador Resources Company Earnings Conference Call. My name is Chanel and I will be serving as the operator for today. [Operator Instructions]. I will now turn the call over to Mr. Mac Schmitz, Capital Markets Coordinator for Matador.

Thank you, Chanel. Good morning, everyone and thank you for joining us for Matador's third quarter 2016 earnings conference call. Some of the presenters today will reference certain non-GAAP financial measures regularly used by Matador Resources in measuring the Company's financial performance. Reconciliations of such non-GAAP financial measures with comparable financial measures calculated in accordance with GAAP are contained at the end of the Company's earnings press release. As a reminder, certain statements included in this morning's presentation may be forward-looking and reflect the Company's current expectations or forecasts of future events based on the information that is now available. Actual results and future events could differ materially from those anticipated in such statements. Additional information concerning factors that could cause actual results to differ materially is contained in the Company's earnings release and its most recent annual report on Form 10-K. Finally, in addition to our earnings press release issued yesterday, I would like to remind everyone that you can find a short slide presentation summarizing the highlights of our third quarter 2016 earnings release on our website on the Presentation & Webcast page under the Investors tab. I would now turn the call over to Mr. Joe Foran, our Chairman and CEO.

Thank you, Mac. 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. As we have in the past, I would like to introduce the senior members of our operating staff joining me this morning, who are standing by for any questions you may have. They are Matt Hairford, President; David Lancaster, Executive Vice President and Chief Financial Officer; Craig Adams, Executive Vice President of Land, Legal and Administration; Van Singleton, Executive Vice President of Land; Brad Robinson, Senior Vice President of Reservoir Engineering and Chief Technology Officer; Billy Goodwin, Senior Vice President of Operations; Gregg Krug, Senior Vice President and Head of Marketing and Midstream; Matt Spicer, Vice President and General Manager of Midstream; Trent Green, Vice President of Production; Rob Macalik, Vice President and Chief Accounting Officer; Brian Willey, Vice President and co-General Counsel; Bryan Erman, Vice President and co-General Counsel. In this call today there are two main points I would like to get across. First is that the opportunity set that we now have in front of us is the best that Matador has ever had. The length of this press release evidences the opportunities in detail that we have in front of us. We're -- the teams are drilling some great wells with great results at the best prices that we have experienced in terms of cost. In addition, they have opened up more zones. Midstream is clicking on all fronts. They brought their plant, their recent Rustler Breaks plant on-time, on-budget and it's operating better than expected. Our bank group has increased our borrowing base by -- from $300 million to $400 million. The opportunities that we have to expand this with acreage have steadily improved as we have…

[Operator Instructions]. First question is from Jeff Grampp from Northland Capital. Your line is now open.

guess first maybe starting on the land side. Definitely agree with you guys; it seems like, based on our math, you guys are getting acreage substantially below where some of these recent packages have traded. But can you just talk maybe a bit about the continued outlook there? It seems like a lot of the acquisitions are in the rearview mirror, but is the -- would you guys say that the outlook still looks pretty favorable for bolting on some leases? And then can you just maybe talk about on the mineral side what got you guys interested in acquiring minerals versus just the traditional leasehold and do you guys continue to see some opportunities there as well?

All right, Jeff, my experience over a 40-year career in the oil and gas business is there's always leases to be acquired even in the most competitive areas. Matador has always had a philosophy that we like going into the most competitive areas and establishing positions, because if you don't do something with it, there's always somebody who would like to have it. So getting good Tier 1 acreage is always desirable. Our experience is that you may have to hunt for the acreage a little harder in these competitive areas, but they can be obtained. And I think it's a better value-creating exercise to go in surgically and add acreage already in your units or within your sections is a bigger value-add than just buying a package of properties. Some are very good and some are not so good and then averaging out. In our case, we're -- we have the advantage of being further along, maybe having spent more time and more experience in the basin than some and are able to go in to our areas and add on here or trade acreage with someone else that fits them better and us better; all those different ways. Our land men are doing any number of different ways to come up with the acreage. We don't expect to do a big 40,000-acre block or something like that, but we think we will continue to do these surgical strikes that add. We think we can add 1,000 to 2,000 acres a month or say 10,000 a year, 15,000. A sum like that is a pace that can be sustained for years to come and particularly when you have the GSIs and the midstream behind it, because when you have midstream that enhances your ability to get acreage and your…

Or maybe just didn't technically fit with what we wanted to do, just quality that we weren't that impressed with.

As many of you know, that was David Lancaster talking and Matt. They are pretty disciplined around here, too, to make sure that it works, so I hope that answers your question, Jeff.

Jeff, this is Matt. I was just going to add to what you said about the pricing -- that we're at or below what other deals have done. And I think what Joe is talking about is exactly right on the surgical approach. For us to go into the areas that we're in and approach some of these mineral owners and leaseholders, we have an advantage that we're drilling really nice wells. So the guys in the basin that understand the business and that's most of them that are in this basin, they fully appreciate a nice bonus price on the acreage, but what they are really after are better oil for less money. I think we bring that to the table and that allows us to get some of these advantageous pricings.

For my follow-up, one of the wells that stuck out to me is this Wolfcamp A you guys are doing up in Ranger. Can you just talk about how expectations internally for that? And then I think in the past you guys had done a lower Wolfcamp bench up there. Maybe just talk about geology or any other data points up there, since I know that's quite a bit a ways from Rustler Breaks and some of your other Wolfcamp activity historically.

I will let Ned or Brad chime in if they'd like to. But I think we have been pretty consistent in saying that we have an interest in trying to push the boundaries of the Wolfcamp play to the north. Our geologists and engineers, our teams have had I think very good success in taking the Wolfcamp A play from Loving County there at Wolf where we started out in kind of the X and the Y and moving up to the north in the Rustler Breaks area. Though what we're doing here at the airstrip well isn't exactly an XY; it's a little bit more the lower portion of the A. It's still something we're interested in trying to continue to expand the Wolfcamp play to the north. We had done a Wolfcamp B test earlier, a couple years ago. I think we've said pretty consistently this is something that we would do going forward and this is kind of our first crack at it up here in the Ranger area. We have other spots that are already picked out for us to try that as we move west across that portion of the acreage position, so we will see how it goes. We recognize that it's in a little more risky well, but I think we're optimistic about what we will see. I think as we usually say, I feel quite confident that this well will produce hydrocarbons and it will just be a matter of does it produce them in commercial quantities at current prices. But you don't know those things until you take the opportunity to do the test and this is an area that we thought a test was warranted. I don't know; Ned, would you like to add to that?

David, as usual, I think you summarized it perfectly, but this is a big step out for Matador. We took the XY sand across the basin from Wolf up into Eddy County and Rustler Breaks. And, as David said, this is not an XY test but what we're really trying to do is see how far we can extend the Upper Wolfcamp across our acreage. So we view this is very strategic test also. We can begin to unlock the Wolfcamp A across Ranger/Arrowhead. That just again adds to the opportunity set we have on the table, potentially add some new locations up there, but it's a well that we're all watching pretty closely here internally.

This is Brad. I just might add this is an area that's not devoid of actual Wolfcamp production. This whole Ranger/Arrowhead has additionally a lot of conventional Upper Wolfcamp production. And if you go to any of the public data services and tap on Wolfcamp you will see Wolfcamp wells everywhere across this area. Again, it's more conventional, so what we're looking at is we have identified what we believe to be one of the main source rocks of the conventional production. We're interested in testing it and seeing if we can make reservoir out of it.

Our next question comes from the line of Scott Hanold of RBC. Your line is now open.

First, Joe, you had mentioned obviously that the opportunity set you all see with the incremental CapEx is internally pretty exciting it sounded like. Could you generally just give us a sense of strategically how you look at where you are taking the Company, say, over the next six to 12 months with that incremental spending? More specifically, I think we have seen obviously a lot of these big transactions happen in the Permian; come with big equity offerings immediately. It seems like you are taking approach of more bolt-on acquisitions at lower prices and funding it, looking for funding in future periods. Can you just give us a sense of strategically how you look at when you want to kind of bridge that gap between buying these pieces and funding it?

Scott, that's a good question and that's something that we discuss around here. At first of the year take a look -- let me kind of walk you back is that, first, there have been numerous opportunities this year for a, quote-unquote, quick sale of all or part of our midstream assets or all or part of some of our non-core assets. But that quick sale might have generated some short term increase in the stock. But long term we have been much better off to wait, as we have -- and I will give you a couple of examples -- that really add dollars to the share price. For example, at the first of the year when oil was $25, we mentioned at the analyst meeting that we were open to the sale of our Rustler Breaks plant. This was five months or so after our EnLink deal. At that time there was a fair amount of risk if you were to buy into the Rustler Breaks plants. Since then, we have been consistently reducing the risk. First, at that time the plant was not built, so you had the risk of whether it was going to be built on-time, on-budget. We've addressed that risk and we have brought it in on-time, on-budget. Second is was it going to work efficiently or was it going to be -- have downtime? Well, it's operated much -- we expect it to run well. It has run well; it has run even a little better than we thought. In addition, at that time, first of January, is we didn't have the Rustler Breaks as well delineated as we did now. We didn't have these -- we're expecting the wells to do fine, but as you can see the well results have been…

I think you summed it up well, Joe. I just when I think about it, Scott, I really think about creating value. And take a lot of comfort in what we've done since the analyst day. Joe was talking about at the analyst day we identified that we did have an outspend. We identified that we had multiple options to fill that outspend gap. And I think what has happened during the course of the year the midstream has added value to the acreage, particularly at Rustler Breaks and the acreage has added value to the midstream component. So as Joe said, we've taken a lot of risk out of it. We've got the plant halfway full. It gives us a lot of flexibility operationally that we can make sure that we get our wells in on time; that we're not waiting on any interconnects. We're operating the plant; it's operating efficiently. So I think through the course of the year those -- the midstream has added more value. The acreage at Rustler Breaks has added more value and, as Joe said, the Haynesville and Eagle Ford, as commodity prices increase there has been more and more value added to those assets. So I take a lot of comfort in that strategy.

Scott, the last thing I'd say is just ask yourself what would it have been like if we hadn't done this? If you look back at analyst day a number of people were asking us why don't you go from three rigs to two rigs. If we had gone three rigs to two rigs you wouldn't have all this growth that you see in here and the fact that we have substantially increased production even over what we were projecting at analyst day. You would be down and there would -- Matador be a no-growth company. Over 33 years of being out on my own I have never had a layoff. I've never had to call people in and say we're reducing force 10% or 20%, so that's a 33-year track record that we have managed our balance sheet in a very prudent fashion. And if I thought it was at risk -- you know how much I own and how much the management team own and how much the Board owns, you can be sure we would be addressing it differently. We have gotten this kind of pushback. As you know, when we went public people made that form public indicating an outspend. But when you are a growth company like ourselves you are going to have some. We have addressed it with capital raises over time, sale of assets. You are at a time -- you don't want to sell something in the Delaware right now, a Delaware asset in the early innings of the Delaware, unless you are sure you are getting the right deal. We're confident we're on track there. At the same time, we're being careful that whatever we spend we're making sure that it's money well spent. So feel real good. I appreciate your questions because, as Matt said, if you remember analyst day, our first slide was the elephant in the room and we appreciate this opportunity to discuss this. Know that we're not whistling past the graveyard, but we've got a clear plan and timing to address it. It will become clearer to you, we think, in a fairly short time ahead.

As a follow-up, on the Rustler Breaks plant it seems like it's ramping up really nicely and certainly starting to edge toward the capacity you've built it at. Based on your well results that have been pretty strong and potentially getting another rig in that area, at what point do you need to contemplate expanding the facility's capacity?

Scott, again, you pegged a really good question. We're already contemplating that. The guys are working on the plans, how many wells and trying to put a fine pencil to it. But that's a high-class problem and we're delighted to have that -- starting to need to be concerned with that just 60 days after getting the plant online. But we recognize, with the success of these wells and putting a fourth rig in, that that is work that needs to be done and it's underway. David?

I think you summarized it well, Joe. That is what is happening, Scott. I think just like a year ago, we were contemplating we were going to -- if things work out as well as we expect at Rustler Breaks, we're going to need a plan. They probably exceeded our expectations and we're more pleased with that asset today than we were a year ago. We know it will get the fourth rig when we decide to commit that and with that will come the need for some expansion to the plant. So Matt and Greg are diligently working towards that and when the appropriate time comes, we will consider moving forward with that.

Scott, this is Matt. Also I think you probably know this, but the midstream team has done a great job in preparing for this. The infrastructure we put in the ground, the site preparation, everything has been put together for this expansion so we can greatly increase the capacity of this facility with just surface -- adding surface equipment there at the plant.

Scott, while you are on the subject, I just want to give one example of how this is helping us both operationally and financially. We have been turning on some additional wells that have some pretty high volumes. And instead of having to flare them for a while which is the common practice out there that you flare them for so many days before you even get them hooked up because the processing plants have got to make adjustments in order to receive that, we're not flaring anything out there in Rustler Breaks. The day that these wells are ready to go down the line, our production group has been working with Greg, our midstream guys, so they are ready for that gas. And so we're not losing say some big volumes, 5 million, 10 million a day from a well, because the plant isn't ready for it. That is an example of how these plants have added to the operational efficiency. One thing that has guided our decision that we may want to keep part of it in order to operate it to be sure that we're not flaring and that we can easily connect and do a little better. But that's a little thing, one of many, where midstream is working hand-in-hand with our operational group just to add value to both sides.

Our next question comes from the line of Brian Corales of Howard Weil. Your line is now open.

Good morning, guys. Congrats on building such a nice acreage position, pretty quietly as well. And nice quarter as well. Joe, you talked about adding a fourth rig at the end of the year. Is anything dependent on -- outside of commodity prices, is it dependent on some sort of asset sale, whether it's midstream or one of your non-core assets?

Brian, not directly. If we didn't think we had deals working or possibly working that might be a different matter, but that decision isn't what I call a single variable tied either oil prices or deals or --. That is based more on the economics. We're here to make a profit and we think we've got lots of choices of where to put that rig that can make us money and add to the overall value of the Company. If we thought we were in a liquidity crisis, if we didn't think that we had any number of options or cards to play in that regard, that might be different, but we're fortunate. Our bonds are trading above par. The capital markets are open to us, if we elect to go that way and we have billions of dollars of capital because we have those kind of locations. So obviously, we're going to access the capital market from time to time; that is always going to be out there. We did the public bonds so we would have access to that. At the same time, we -- if you look at people, at companies that -- we have not been a serial issue. Others have issued far more equity per their original IPO shares than us. We would rather not have that dilution, but know that some is inevitable to keep growing and to take care of all of the Tier 1 locations that we have, so timing is important and interest is important in these assets like the midstream. I fully expect in the next -- in the fairly near future, between now and next year, to work out some clear on the midstream. And the same thing on the non-core assets is that we announced that we would entertain offers. We don't discuss specifics or anything; but people who covet any of our assets, we're a public company here to make money. We say make the offer and it will get appropriate consideration. There's enough public data out there that people can indicate it, that they can give an indication of interest. But we're going to be just as methodical in evaluating those offers as we're in evaluating our drilling opportunities. I think that our Board and staff will get to the right decision that when the shareholders look at it, they will say that is a prudent management group and they're making sure they are keeping their balance sheet in the proper perspective. I don't know if I said that right. Matt, David?

I think you said it fine, Joe. So I don't think it's just dependent on commodity prices, Brian. We know we have a lot of good places to take the rig and the rest of the rig's team is sort of chomping at the bit to have the opportunity to have that additional rig. I think that we're certainly pleased with the addition of liquidity that we received from the bank group here just this past week, so I think that also makes us more comfortable in wanting to go ahead and pick up the rig and get started. I think we have a lot of good things to work on and a lot of good wells to drill that we feel like will deliver strong economic returns. And I think that, as Joe said, is what will drive our decision as much as anything.

I think, Brian, this is Matt. I think the other thing too is, if you look at the year on our drilling and completion dollars, we've done really well. We've come in under budget on the wells and the wells have been performing better than we thought they would. So we have improved our completion design. The drillers are drilling them faster. There's just a lot of momentum there. And as we go into what might be an uptick in commodity prices, we want to make sure we continue that momentum and we want to make sure that we've got good, efficient rigs to move on forward. We continue to add to the acreage base so we're going to need to drill more wells. One of the rigs -- the rig that's running in the Ranger/Arrowhead area will be drilling wells that have a lower working interest than what we have drilled at Rustler Breaks and down in Wolf so you know we will have fewer CapEx dollars there. But we just want to kind of keep the momentum going and make sure that we're moving forward.

Brian, again, the last thing that I would say on this is that last year at this time when we had the same comment, we thought we had a knockout quarter where everything went super. We hit all of our numbers. We beat estimates, all that and we used the outspend word that we were going to go from two rigs to three rigs. And you remember how we got hammered during the time of the conference call until the humans got back in there and realized how much progress we were making. We were going to three rigs because the opportunity set was so good. Well it's that much better this year and I know that some of the short term holders would rather hear about a quick sale than patience and getting a better price for longer, but it wouldn't have been a solution not to go the three rigs. We wouldn't be here today having this opportunity set if we hadn't taken the calculated risk of an outspend and put it to good use. That's where we still are and that's why during what I call feast periods, when oil is $100, you stay out of debt, as we did. We had virtually no debt during times of $100 oil and in times like this you use that debt strategically to make these acquisitions. And as cash flow improves and your production increases and you have an opportunity to more rationalize your asset base, that's what you are supposed to do and that's how you build companies. We have added staff during this period and they have been delivering a lot of value, too. So I think these are really good questions and that's why we're really glad that you all are bringing them up and hope you all step back in line and everybody asks a third or fourth question, too.

One more for you all, just more operational. You all are using some pretty big fracs and it's resulting in some much better wells. Do you all think you've hit the limits there or are you still increasing the proppant size? Are you all still testing even bigger fracs than you already have done?

Brian, this is Matt; that's a great question. I think that if you just go back to our entry into the basin, we started bigger than a lot of folks did. Down in the Wolf area there were a lot of folks pumping 500, 800, 900 pounds of proppant. We just went right to 2,000 and liked the results there. We've gone to 3,000 and liked them there as well. I think for now the 3,000 pounds per foot is probably about right; the 40 barrels per foot is probably about right for us. We're trying some additional things. We talked in the past about these diverting agents. We've had good success with those; we're going to continue to use those. And then probably the next big knob we're going to turn, Brian, is perf cluster spacing. We've gone from 35 and we're going to start testing some 25, maybe 20 feet between perf clusters in an attempt to stimulate more rock closer to the wellbore. This is going to be particularly important as we start nailing down the spacing on these Wolfcamp wells and Bone Spring swells. But as far as the proppant volumes, who knows what it's going to be a year from now. We're going to continue to evaluate. As you know, you can't tell much from the difference between a 2,000-pound job and a 3,000-pound job with the IP; 30 days out you can't tell much. So we're getting to a little length of these frac jobs so we're able to see the 3,000 looks like it's going to work, but I'm not exactly sure where it will end up.

Our next question comes from the line of Irene Haas of Wunderlich. Your line is now open.

My question has to do with sort of the CapEx increase for this year and land seismic is quite a bit larger, so about 110, 125. Is it mostly land? And if yes, is it in New Mexico or Texas? Then any thought on -- I think earlier you talked about the midstream being able to probably get its own revolver. Would you consider actually creating a new spinoff, MLP, things of that nature?

Yes, Irene, I'm going to address your first question on the capital and then I'm going to turn it over to David. The capital increase is for land and midstream; most of that is between the two of those. And really the land has been opportunities you couldn't walk away from. You are not going to see opportunities like we're seeing, pass on them and then be able to turn around and buy them next month or six months from now or a year from now. This is kind of now or never. On the midstream, a lot of that is timing. Do you want to do it now or do you want to do it later? One example is in Rustler Breaks, we disposed of last quarter an average of about 1 million barrels of water a day. This quarter it was 2 million barrels of water. Well, why wait a year to drill the necessary disposal well for that because it's, quote, above your capital budget? You are better off to go ahead and spend that money now and that, we think, is the prudent thing to do and if you are in our deals you'd say the same thing. Why pay someone else to dispose of water that you are ultimately going to do? You might as well accelerate, given the success of the development program. David, can you?

As far as the acreage, Irene, again I will point out that the money that we've spent so far has been on acreage. It's been on minerals. It's also been on acquiring some working interest from some of our smaller partners in various wells that we have been participating in so it's a little bit of a mix of things. I would say the preponderance of it has been in New Mexico. It has probably been in and around the Rustler Breaks area. It is also been some in the southern Ranger area, but we have also made some additions of both acreage and minerals in and around our Wolf asset. With regard to the facility that you mentioned, that certainly is something that I think is still very clearly on the table. We have had conversations with our bank group for some time about that and I think, should we decide to continue to operate the plant for some time into the future or perhaps enter into some kind of a joint venture, that that may be something that makes a lot of sense for us to do in terms of going ahead and pursuing a separate facility on that. I'm confident we can get that. I'm confident that we can get that fairly quickly, but it's not something that we figured we needed to spend the time and/or the money to get in place until we were more certain as to whether we would be operating the plant long term or -- because obviously if we had monetized it wouldn't have been something that we would have needed. So I hope that answers your question there. I certainly feels something that's on the table and something that I think we can get in place pretty quickly and that would actually be fairly significant. I feel from the conversations with the bank groups that we would be looking at something in the $50 million to $100 million range, probably right out of the gate on that facility.

May I have a follow-up question? Joe, I was just kind interested in your comment it's now or never on these land grabs; your sentiment being shared by other producers. Can you expand on why there is such an intense interest in Delaware now? That it's so important that we grab the land and can't wait for another six months or 12 months?

Irene, I would like to phrases in this fashion. There is a macro land grab in that people have come to appreciate the Delaware and they are willing to pay up for it because there's potential. You noticed that the first time you visited us is about the thickness of the Delaware. You've got a 6,000-foot column that has multiple zones. And so there has come to be an appreciation this is a good station to be in. So macro, yes, there are people wanting to move in and established positions. On a micro basis, there's always ways to make deals here and there of one sort or another to increase either your working interest or your net revenue interest in these properties and that's where we're working from. We feel our group, being at our size, we've got to be more nimble. We can't outspend. We're not the ones that win by outstanding or by spending more. We don't have the big budget that some of the bigger companies do. We try to -- I've used this term a couple of times today and I don't overuse it, but surgical. We have challenged our land group to look for those opportunities, a few hundred acres here, a thousand acres there, 500 acres. Also look at trading with people. Be creative because we won't win strictly on auction basis. We need to be selective. David has got his [indiscernible].

I was just going to say I think when we say now or never, I don't think that we're referring to the fact that we don't think there are ever going to be future opportunities to improve our acreage position in the Delaware Basin. We do and I think we have been demonstrating over the last five years, quite frankly, that we can do that organically and a little bit at a time and have done that very well. I think what that is in reference to more is the fact that you do sometimes have discrete opportunities that come your way, as I feel like we did in the third quarter in some very specific instances, where it was like this is a very fine discrete opportunity for Matador to pick up some additional acreage that's going to be both value-creating for the Company; it's going to enhance our ability to operate. That particular opportunity might not be on the table a month or two from now and so we want to be sure we execute on it at that point.

For example, when you are getting ready to drill a well, someone may be willing to farm out and you either take that farmout or somebody else gets it and you won't get another chance at that for perhaps a long time to come. And so I do think, just what David said, you have these discrete opportunities on a micro basis and on a macro, the potential value of the Delaware is becoming better known and is getting more competitive. We just tell our land men they've just got to work a little harder.

Our next question comes from the line of Gabe Daoud of JPMorgan. Your line is now open.

Can we maybe just talk a little bit about Delaware LOE and how you think that trends over time, specifically with another saltwater disposal well coming online pretty soon? I think last time you guys put on the first two you had realized about $1 savings per barrel. Could you maybe just talk a little bit about that?

Gabe, this is Matt; you bring up a good point. I think the thing we're pleased about is that the overall unit costs are far down. We did have an uptick in LOE this quarter. Last quarter was a great quarter for us. This quarter we had a couple nonrecurring deals. We had a couple of workovers that added into that number and then what you're talking about is a very significant portion of it. The increased production, particularly at Rustler Breaks, these wells make a lot of oil and gas; they make a lot of water, too. So we were -- as Joe mentioned a little bit earlier, we've doubled the barrels of water that we dispose of in this quarter versus Q2. What we have done is just go out there and drill a salt water disposal well. So that thing will be operational by the end of the year we hope and we should have capacity there to take care of our current water use. So that's probably going to knock somewhere around $1 a barrel off on the water disposal. Similarly, we're down in Wolf. We're adding capacity to our commercial saltwater disposal facility there as well. Trying to stay ahead of it, Gabe. One of the great things when you start in [indiscernible] here, you don't really know exactly how much drilling you're going to do and so as we've progressed through the drilling plan at Rustler Breaks it has caused us to go out and do these things. Looking forward to a good quarter in Q4.

And then maybe just a follow-up. A large competitor yesterday highlighted some pretty impressive Bone Spring results, not too far from the Rustler Breaks position and just curious on your thoughts. I know today you're focused on Wolfcamp development there, but just curious on your thoughts when you could potentially get back out there and drill some more Second Bone Spring or Third Bone Spring wells at Rustler Breaks, particularly with increased proppant loadings, etc.

This is David, Gabe. The area that we're in with Rustler Breaks I think has been pretty traditional Bone Spring area and so that's something that has always been of interest to us. In fact, I think that probably sooner rather than later you'll probably see that we will actually go out and drill another Bone Spring well or two. And at that point we will look to stimulate the well with a larger frac treatment I'm sure more on the lines of what we've done at Wolf. We've really had very good success at Wolf this year in improving the results from our initial Second Bone Spring well that we drilled there in 2015. That was a good well, but the wells that we're drilling out there now are significantly better, as you've seen from our operational updates all through this year. We're really pleased with the way that the Second Bone Spring has come along there at Wolf; not only on the productivity side, but on the cost side. So I think that has become a very, very attractive interval for us and I think we have a lot of confidence that we will be able to do the same thing up in the Rustler Breaks area. Particularly by going to a little bit bigger frac than what we did in some of our initial wells that we drilled there.

Our next question comes from the line of Ben Wyatt of Stephens. Your line is now open.

I will spare you guys another operations question and maybe ask one on pricing, maybe for David. But over the last couple of quarters have seen a nice uptick on your nat gas pricing. Just curious is that something you see creeping higher or is this level that we're seeing here over the last couple of quarters a good number to use going forward?

I think, Ben, that probably what has helped us has been increasing NGL volumes, as well as the pricing on the NGLs has been a bit more favorable. So I think that that has provided a little bit of an uptick. We just report in two streams and so we had been pretty well modeling Henry Hub. But you're right; we've had a little bit of a bump over Henry Hub in the last couple of quarters. I think we were up about $0.20 on that this quarter and I would attribute that to some improved pricing that we've seen from the liquids that we've processed out of the gas. Gregg runs our midstream. Do you want to add to that?

Yes, I think you are going to see some additional increases in our pricing. Mainly -- one thing we've noticed or been able to achieve this quarter was a decrease in our trucking costs, so you should see an uptick on that based on -- for that reason alone. Also, as David pointed out, as far as the NGL pricing, we're continually seeing the increase in that as well to offset all of our transportation processing fees and so forth to a point now that we've got actually a surplus or an increase up and beyond those costs. So I think we should continue to see that uptick.

And then maybe just one more on the hedging side. You guys continue to layer on some nice hedges. Maybe with the pullback in crude; not looking to add more at these levels, but are you guys pretty comfortable with 2017 or is that something you would like to add more to?

It all -- that is such a depends question, Ben and I'm not trying to dodge it. We think we've got a nice base down that protects us on the downside, but yet leaves us plenty of upside. So until the direction of the market becomes clearer I think we've got a pretty good midcourse there. But this is something we debate; we bet with each other. We're not all of the same opinion and it varies from day to day when you look at the trends on price. But I think we have a nice base on both and that we've got to feel the trend is headed one way or there's a surge probably to do a whole lot more. Dave and Gregg, was that consistent?

I think it is. I think that's right, Ben. So I think we feel pretty comfortable with what we've got down both on oil and gas right now for 2017. We have been pretty opportunistic, I would say here, on both sides in the recent little tick-up in price, particularly on the natural gas side. I think we've taken advantage of that to put some very nice hedges in place for 2017. But something that the team is looking at every day. I suspect that as we move into 2017 there will probably be additional things that we will do, but I think we're pretty comfortable with the progress we've made this year.

Maybe if I can just ask one more, it's more of a reminder. You guys have a lot of results under your belt in the Delaware, but the wells you're going to drill up in Ranger/Arrowhead, the I believe 7,500-foot laterals, would those be the longest laterals you guys have drilled so far?

Ben, this is Matt. They will be in New Mexico. They will be Third Bone Spring laterals. We've drilled from longer laterals down in Wolf just due to the geometric shape of the lease. We typically try to optimize the acreage with the wellbore so we may have --. We've got a couple of wellbores down there that are longer than 7500, but those are the longest ones in New Mexico.

Our next question comes from the line of Neal Dingmann of SunTrust. Your line is now open.

Just wondering, on the plan that you mentioned to accelerate the midstream initiatives -- I know you've mentioned this a lot already, Joe, on this call, but is there more opportunities to build out? Is that more I would say out of opportunistically doing this or out of necessity and how do you see that continuing into 2017?

I see that as more opportunistic than anything and I think it will continue for the foreseeable future into 2017. There are a lot of wells that have to be drilled. We're still very early innings in the Delaware and I think you want to have a midstream presence. There are three things that Matador really aims at doing to add value. First is the traditional oil and gas; better wells, less money. Drill these wells; keep working to get the cost down. And Matt likes to point out there's two buckets on the cost. First is the service cost has come down since price of oil has come down and the second is efficiencies that have been achieved by Billy and his group and Matt by drilling the wells faster and using better technology. Billy was advising us yesterday that there is some new technology that they were looking to implement that doesn't have a name yet -- they were trying to consider what to call it -- that they thought it would also speed up the drilling times. Billy's group is ahead of their target days to drill these wells and if you look, when we drilled the first Wolfcamp wells it was 43 days. Now they're in the teens and you can see that sort of efficiency is sustainable at whatever price of oil. And so I think you're going to continue to see improvement in that regard. I give a lot of credit to those sustainable efficiency and I think we have to think of it in those terms.

Neal, this is Matt. Joe is absolutely right; these efficiencies are huge for us, even in current pricing, service company pricing. And if service company pricing continues to go up or does go back up, it'll even be more important. But I also wanted to just comment on -- you had asked about opportunities and just talk a little about our strategy regarding midstream assets. Where we have built these assets, they are need-based. We build them where we're going to drill wells and, therefore, the midstream team has an anchor tenant and the E&P team has a place to go with their product. They are need-based opportunities and so I don't think you'll see us go somewhere else and build midstream facilities where we're not operating.

Right. Back to just finish my deal, Neal, there's three ways, one is the traditional oil and gas, second is this midstream and the third is the acreage that we think --. When we're able to get it at the prices we're that we're adding value that way and we intend to keep that up through 2017, 2018 and on forward.

I like that, Joe. You've got definitely a unique position in all three of those. Just, lastly, on the salt water disposal after you drill these two, how are you all sitting for 2017 in that regard?

Neal, we will be in pretty good shape at that point. The great thing is, as we continue to operate in the area, we're going to be able to stay in front of that. So as we need a fourth well down in Wolf we will go ahead and drill it; as we need to second one up in Rustler Breaks, we will drill that. And we will keep our eye on Ranger/Arrowhead progress and see what we may need up there as well.

Our next question comes from the line of Kevin MacCurdy of Heikkinen Energy Advisors. Your line is now open.

Just one quick one from me. Now that you have a rig in Ranger, do you have any plans to test the Avalon given the success other operators have had there?

This is David, Kevin. Sure, we certainly have plans to test the Avalon; not only on some of the southern Ranger areas where we have acreage, but I think you'll probably see us test it also in Loving County in Wolf next year. So we're looking at that pretty hard right now and I think we feel like that there are potentially a couple intervals that we might want to test there. So I definitely feel like you'll see us have one or more Avalon tests on our plans for 2017.

Our next question comes from the line of Richard Tullis of Capital One Securities. Your line is now open.

Couple quick questions, Joe. With the potential to add a fourth rig and any associated midstream requirements, what's your current comfort level with degree of outspend in 2017?

Well, Richard, that is coming together and the plans -- it's pretty fluid in a lot of ways. David is beginning his preliminary and rather than put words in his mouth, I am just going to let him.

Richard, it's David. I think that we're along now in our 2017 planning. I think the good news, if we pick up the fourth rig, that our expectations is that if prices hang out where they are here in this kind of $45 to $50 range in 2017, at strip we can see a significant, as you can too, increase into what our cash flow, EBITDA and all is going to be for next year. So I think just organically that both helps deleverage the balance sheet and to bring down the level of outspend. I, again, want to reiterate the fact that I don't think that we have any sort of a liquidity issue, even if we have an outspend in 2017. That we feel comfortable that -- particularly with this increase in our line. I felt comfortable before that; I certainly feel comfortable now that we're in good shape. But, again, I do think that we're optimistic about improvement in cash flow as a result of commodity prices next year which will be positive obviously as a result of continued growth in production. So I feel like that that's going to come in. On top of that again, as we've I think said several times in this call, we still continue to feel like that we have a multitude of options that are open to us that have been, both with regard to some kind of deal on the midstream, with regard to some kind of deal on maybe one of the non-core assets, as well as the potential for accessing the markets. So I guess I feel very confident in our ability to manage any level of midstream which we will know better and be able to talk about once we finalize all our plans for 2017.

And then just lastly for me, how does the spend I guess since 2Q on mineral interest and acreage split out between the two categories?

That is not something that we've disclosed and I probably would prefer not to just from a standpoint of it probably tends to be a little -- take away some of our competitive advantage in terms of the negotiations on those deals. But all I would say is that I think the fact that our land guys have been able to add 7300 leased acres, 2300 minerals, buy a little bit of production, buy some increased working interest in and around our properties this year speaks to how effectively they have done that and how much below the current market rate they have been able to do that at. So I continue to be both proud and amazed at what they're able to do and I'm glad they're on my team, Richard.

Our next question comes from the line of Adam France of 1492 Capital. Your line is now open.

With respect to Ranger and Arrowhead, what do you look at that has been done by the competition up there that says, okay, this makes this, what we're planning to do, a little less risky than we originally thought? What do you got in terms of comparables that excite you up there?

First of all, this is David, Adam. How are you? I would say that probably, first and foremost -- I sometimes call it the bread basket of the Bone Spring up in that area, but it is certainly historically the area where the most Bone Spring production, be it First, Second and Third, has been produced over time. There have been just thousands of wells that have been drilled across that area, so we know that there is a lot of oil and gas in the Bone Spring in that area, as well as other intervals. And so that gives us a lot of confidence. Second, even since we acquired the HEYCO position about 18 months ago, we've had the opportunity to participate in a number of non-operated wells on our acreage that had been operated by companies like Cimarex or Concho or Mewbourne or Yates Petroleum. And quite honestly, as we have reported in some previous periods, we have had -- we have been fortunate to be in some very, very good wells that have been drilled up there. Wells that will have 1,000-plus BOE per day up to 2,000 BOE per day. I think the one well on the western part of the acreage actually had like a 2,300 BOE per day. And they tend to be very high oil cut type wells, sort of in the 85%-plus, many of them 90%. In addition, we have also drilled a number of wells ourselves so far that I think we have been pleased with going all the way back to our Ranger 33 well, the first well we drilled at Pickert, our Cimmaron well. We have had a string of some nice wells ourselves, so Brad may want to chip in and add something here, but I think all those things have given us confidence, as well as just the work of our own geoscience team, in our expectation for that area going forward.

This is Brad, Adam. I echo what David said. This was one area that had a lot of early horizontal well drilling. As David alluded to, roughly 50% of all the oil production out of the Bone Spring has come from this area and a lot of that through horizontal well drilling. But it was a little older technology, pretty small fracture treatments, probably 500 pounds per foot. So to the question Matt had a little earlier about what is some upside for bigger frac jobs, we definitely see the upside for trying some of our larger fracture treatments up there in the Bone Springs. We're going to be testing that on the Mallon wells in the Third Bone Springs. We've got wells planned for the remainder of the year in the Second Bone Springs, some of the larger fracture treatments. Some of those early wells were pretty good; they'd make 200,000 or 300,000 barrels. We're hoping to significantly increase that.

Our next question comes from the line of Mike Breard of Hodges Capital. Your line is now open.

Most analysts give you little or no credit for your Twin Lakes acreage. When do you suppose you might have more drilling days from that area?

Mike, thanks for the question. We were hoping somebody would ask that. We've been very pleased with the first well that we drilled on that. It was a vertical well; it made about 43,000 barrels, still making 100 barrels a day. The cost on these we think can get down to about $1.5 million, because they don't have the big fracs and so we afford that. We have supposed to evaluate in the end of that core. We have decided upon our landing zone for the Wolfcamp D, so we now look at the Wolfcamp D and the Strawn being a one-two punch for that area and expect to drill the next well in that area between now and the first quarter of next year. Ned, is that right?

Yes, that's absolutely right. The core that we took in the Olivine has been invaluable, so as Joe said, we've picked the landing target there. We're very optimistic about what we have seen and we're working on the development plan for 2017 there. As Joe said, you'd see probably an initial test up there in Q1 of 2017. We're excited to get to the prospects. We think that this can add a lot of value to Matador's shareholders, so we're looking forward to drilling that and showing that.

One other thing I just wanted to mention, the acreage in Delaware has been going for $40,000 an acre. You've got 100,000 net acres, round numbers, that's $4 billion and your market cap is only $2 billion. Seems like you'd have a long way to go on the upside.

Thank you, Mike. We want to have you on more of these calls. We like your math. We think there's a lot of value that will ultimately come out and that's what we found about being public. If you remember, when we went public we were the ugly duckling. We were only making about 400 barrels of the oil and most of our production was gas. Today they moved from 400 barrels of oil to 15,000 barrels of oil; 30,000 BOEs approximately. So I give a lot of credit to the staff and we know it just takes time for some of that be recognized. We all remember those days when nobody was giving us any credit for Rustler Break and now it's much more appreciated. I think the same thing on midstream. It just takes a while sometimes for those inherent values to be noticed. And the acreage, our guys have made good decisions on the acreage and our acreage basis -- our basis in the acreage is low so we've got a lot of upside and I think our costs reflect that. If you look at the overall unit cost, as Matt pointed out, they are trending in the right area. Our finding costs this year have really gotten down there and we have proven up the acreage so I hope over time it will be -- continues to be noticed more. We like our chances, that's the bottom line. There's a lot of questions about the spending, but it's not so much what you spend, it's what you get for that spending. And I think the proof is -- the way all these areas are turning out that we may be the ugly duckling company. Rustler Breaks is an ugly duckling that worked out. When we were drilling, most active in the Eagle Ford, people questioned why we were going to the Delaware. That was considered an ugly duckling and it worked out. I think that all of our work in New Mexico will bear fruit. We look forward to continuing and we're pleased with the additional value that these assets seem to be accruing. Thanks for your question, Mike and anytime you want to get on you will be welcome.

Our next question comes from the line of Gabe Daoud of JPMorgan. Your line is now open.

Just a really brief follow-up for me. Just on 2017 guidance, should we expect that at an analyst day either next month or early in the year in 2017?

Yes, Gabe, I think you would expect it early in 2017 as we have done over the last couple of years. And I would imagine that our analyst day -- we have still got to look at our schedules, but I would suspect it would be late January, first of February just like we have had in the past couple years.

Our next question comes from the line of Gordon Douthat of Wells Fargo. Your line is now open.

Thanks for fitting me in here. Just a quick question; I apologize if it was covered earlier. I know the focus of Rustler Breaks has been on the Wolfcamp, but I was wondering about your thoughts on the Second Bone Springs. Think that OXY earlier this week had some good things to say about that not far from your acreage and just wanted to get your thoughts on that opportunity set over in Rustler Breaks.

Gordon, it's David. We mentioned a minute ago that we also are excited about our Second Bone Spring. Clearly that's an area that's been Second Bone Spring country historically and I think we would expect to drill another test or two up there at Rustler Breaks in the immediate future. Probably put a little bit bigger fracs on those wells. And in doing so, I think we're pretty optimistic as to be able to sort of recreate the same kind of success that we have seen in Wolf this year with our Bone Spring program up in Rustler Breaks.

This is Brad, Gordon. We mentioned that in drilling our saltwater disposal well up there we were able to take some whole core and some open-hole logs throughout the Upper Bone Spring, the Delaware, even in some of the deeper formations and we're really excited at what we hope that data tells us about adding even more zones in Rustler Breaks than what we have already tested. So we're looking at that data now. I know Ned has been at the core laboratories looking at it. He's got his geoscientists analyzing the logs and looking to add additional zones, just like they did in the identifying the Blair Shale many months ago working with the Rustler Breaks team. Sure enough we drill a couple of wells in the Blair Shale and have found a significant new reservoir that has added to the reserves and the value of that acreage.

Thanks, Brad. This is Ned here. That's a good point and it also should be pointed out that we basically undertook the same analytical program in Wolf also, so we hope to add new targets there as well.

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

Thank you. If we may have one point of indulgence, we have not asked Billy Goodwin to say much today, our Vice President of Operations. He is recovering. He is 59, ran the Marine Corps Marathon this past weekend, his first marathon, with his son Trent. They both finished and we're really proud of him. If you have any doubt about the determination of our drilling group, go run your first marathon at age 59. And so we're real proud of him and want to give him this shout out and thank him and his team for all their great work and the great work they have been doing bringing along our young people. I would also like to include this for all the analysts, people, come see us. Come to Matador. When you do, we want you to meet the people beyond just Matt, David and me. Meet the other VPs and a lot of our young staff who are doing such outstanding work in executing on all of this, because we're really trying to continue to build for the future and think we have the asset base and the plans. We're very, very pleased with where we're. Encouraged by what we're seeing and encouraged that the next time we will talk that you will be pleased with the results too. So with that I'm going to sign off and, again, encourage you to come see us when you can, thanks.

Ladies and gentlemen, thank you for your participation today. This concludes the program. Everyone, have a great day.