Matador Resources Company (MTDR) Q1 2019 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to the First Quarter 2019 Matador Resources Company Earnings Conference Call. My name is Dalen [ph], and I will be serving as the operator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session at the end of the company's remarks. As a reminder, this call is being recorded for replay purposes and the replay will be available on the company's website through May 31, 2019, as discussed in the company's earnings press release issued yesterday. I will now turn the call over to Mr. Mac Schmitz, Capital Markets Coordinator for Matador. Mr. Schmitz, you may proceed.

Thanks, Dalen [ph]. Good morning, everyone, and thank you for joining us for Matador's first quarter 2019 earnings conference call. Some of the presenters today will refer 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. Finally, in addition to our earnings press release, I'd like to remind everyone that you can find a short slide presentation summarizing the highlights of our first quarter 2019 earnings release, and a capital efficiency report on our website on the Events and Presentations page under the Investors tab. I would now like to turn the call over to Mr. Joe Foran, our Chairman and CEO. Joe?

Thank you, Mac, and good morning to everyone on the line, and thank you for participating in today's call. We appreciate your time and the interest in Matador very much. And we especially appreciate the kind words that a number of you have had for us and complements. And we invite each of you to come see us in Dallas and meet the staffers, especially many of our young professionals who are making the increasing contributions to the good reports like today. Now I would like to introduce the executive committee who is joining me this morning along with other members of the management team and senior staff who are standing by for all your questions. They are; Matt Hairford, President; David Lancaster, Executive Vice President and Chief Financial Officer; Craig Adams, Executive Vice President and Chief Operating Officer of Land Legal and Administration; Billy Goodwin, Executive Vice President and Chief Operating Officer of Drilling, Completions and Production; Van Singleton, Executive Vice President of Land; Brad Robinson, Executive Vice President, Reservoir Engineering and Chief Technology Officer; and Gregg Krug, Executive Vice President, Marketing and Midstream Strategy. As outlined in our earnings release issued yesterday, 2019 is off to a record start. We had many financial and operational achievements. And I want to take a moment, and again, personally acknowledge the Matador staff for all of their hard work and dedication, not just the ones in the office, but also our field staff who have really done, made efforts to improve our capital efficiencies in the field, just a great work and a total team effort, which leads me to three times, I’d like to point out before getting into questions. One is, if I hadn't emphasized enough already that the teams are working, and its contributions from every phase of our business that is making this work as well as it is. And I really good appreciate their efforts as Matador is growing from 1.1 million barrels at the time we went public the barrels of oil approved reserves over a 100 million barrels of oil approved reserves and a comparable amount of gas reserves for a total of over 200 – I mean, 2 million barrels of oil or gas equivalent, just a great work. And seeing all this come to this has been very pleasing to the members of the executive staff and see the development. We delivered 19 straight quarters where we’ve met or exceeded guidance. And our capital efficiency is -- outlook going forward is very promising. With that, I'm happy to take your questions. And turn it back to the operator.

Thank you, sir. [Operator Instructions] Our first question comes from Scott Hanold from RBC Capital Markets. Please go ahead.

One of the things that stands out a little bit is your capital efficiency in the Permian. It seems to be improving. I think at the same time, you’re expanding your lateral lengths quite a bit this year and I think into next year. Could you give us some color on some of the things you’re doing to see that? I mean that there is no tension between expanding laterals and losing some efficiency. It looks like they are all kind of lining up. But can you kind of talk to progression of that and what you’ll are seeing and doing to continue to execute that expense?

Yes, hi Scott. Good morning. It’s David. I’ll take the first shot at it, and Matt may want to make some comments also. But I think that -- I think as we’ve explained in the past that initially we felt like it was a more prudent thing for us to particularly in trying to get our resource held by production that it was a little better for us to start out with some of the one-mile laterals. It's not that, I think, we had an aversion to the longer laterals. It just was the more prudent thing to us -- for us to do given the particulars of our land situation. And I think we’ve executed on that very well. But, over the past year, certainly, it's been a real focus for our teams to begin to put together more longer and longer lateral opportunities for the company, so that we could take advantage of some of these capital efficiencies. And I think that as is reflected in what we put out whereas just under 10% of our laterals were greater than a mile last year, we'll get it to about 30% this year, but we'll get well over 80% next year. I think we're currently projecting about 85%, which is probably little higher than what we've talked about two months ago because as we continued to kind of flush out our plans for 2020. We've even seen more opportunities to go to the longer laterals. And that's not only just in some of the acreage that we added in the BLM lease sales. We are always knew we were going to be able to do that. But it's also just across all the asset areas. I mean we’re routinely now drilling its laterals in the 1.5 mile range in the Wolf asset area. We're drilling more two-mile laterals in the Rustler Breaks asset area. We're going to begin drilling 1.5 mile to 2 mile laterals all the time up in the Greater Stebbins Area here before very long. And so I think, you're just going to start to see it popping up all over the area. And by the time we get to next year, clearly the vast majority of our wells are going to be in this 1.5 to 2 mile with, I think about 70% now we think will be at least 2-mile. And I think we feel very confident in our ability to do that the wells that we've done so far have gone very well. I think in terms of targeting, we feel very confident with we've -- as we said in previous calls. We've gotten seismic over most of our acreages these days, and we're kind of using that now to better inform our steering. So I think the farther we steer with the -- the longer we drill these wells the farther we're steering, I think having the seismic is particularly important. As you know, we have the 24/7 MAXCOM room that is really making a big difference in terms of our ability to stay bright within the very narrow intervals that we've targeted and want to stay in. And I think that drilling completion guys are just doing a marvelous job of continuing to reduce the daily rates and the costs and be able to drill these wells faster. And on the completion side, I think the guys have done a terrific job in terms of been able to get these wells completed all the way out to their maximum links and get them cleaned up. And we're actually even sort of in some cases, making our jobs a little bigger in terms of fluid size and profit size, in some ways, profit volumes, but not really having to sacrifice in terms of the cost efficiency. So I think that we're -- I think we're on the right path. And I think that you really begin to see that kick-in as the year unfolds, and into next year. And so we're quite excited about the path that we're on here.

One other thing, Matt, before you jumped in. I just also want to comment our completion group. They did their first 100% frac with recycled water, which saved hundreds of thousands of dollars on that. That looks like another promising area to improve and be that much more careful efficient. It was innovative and we appreciate them doing and look forward to doing more. And I think the opportunity to drill even more two-mile laterals is more likely to increase as the year goes along. Matt?

Yes, I’ll jump in here too. I think we’re very excited about the capital efficiencies we’ve achieved and already moving towards getting even more and more capital efficiency. On top of what David and Joe have said here one of the things that we’re putting into our program is combining the longer laterals is batch drilling, so that kind of hit all of the different things. And just an example, our Howard Posner wells, as we drill down in Wolf. They were longer laterals. The guys, as Joe said, did 100% recycle on the water. We used in basin sand. We were zipper-frac's. So it’s a very, very efficient way for us to do that. And it works for us, and it works for the service companies too. We get -- we think we get a better price because we’re more efficient, and we want to continue to do that. And I still a little Billy's thunder here in preparation for the 85% that David was talking about. That will be longer laterals in the future. We’re very, very happy with rigs we have with Patterson. And we’re working hand in hand and in partnership with them to even improve the efficiencies of those rigs. So with the longer laterals, additional hydraulic horsepower in the form of maybe a third month pump as well as additional rotating capabilities with the higher torque, higher horsepower top guys, as we’ve talked about. We’re talking with Patterson about making those improvements, so really these guys can go even faster.

And the last night, I know we’re maybe overwhelming you. But, Scott, in our website, we have the earnings release and capital efficiency. We have a couple of slides that show the growing capital efficiency. It would really encourage people to take a look at that, a picture tells a thousand words. And you say how we’re driving down costs. We’re increasing the number of longer laterals and taking other steps to keep things going in the right direction.

So it sounds like that the savings you all have starting to see are sustainable and could get a little bit better. And I know you are good 10% below your budget this quarter. Can you talk through, and I know there were some puts and takes in that, but what should we expect over the next two to three quarters? Can some of those savings continue to keep you add to below your budget as we progresses through the year?

Yes, Scott, we continue to think we’ll improve on that. We mentioned the areas that we’re working on. We don’t have a specific number not ready to raise it from what we’ve said before. But believe they are sustainable and that with – and that the percentage improvement is more likely to go up and down, but we’d like to wait till next quarter and give you a further report. But we mentioned a lot of those areas, drilling them faster, in basin sand, your central facilities, your recycle water, there is better equipment on the rig, the zipper-frac's, the batch drilling, all those things are showing promise of improving the capital costs and improving the capital -- achieving capital efficiencies that I think the market is seeking.

Thank you. Our next question comes from Gabe Daoud from Cowen. Please go ahead.

Nice capital efficiency update. I was just curious if you guys can maybe just switch gears a little and hit on San Mateo. I think 1Q EBITDA around $21 million, would be a little bit lower on a run rate basis to kind of hit that full year number, just curious if you think that that stuff significantly from here through the rest of the year. Just wondering, again, any kind of color there would be helpful?

Hi, Gabe, it's David. Well, I think actually the EBITDA that we have for San Mateo this first quarter was pretty well right in line with what our expectations were. Not surprisingly we've kind of got it modeled on a ramp. And I think as we have said in previous calls that sort of at the midpoint of our guidance, we have about $90 million estimated for this year, for San Mateo. So I think we still are very comfortable with kind of what our projections have been for San Mateo, and we felt like the first quarter was rather in line. And I think as both Matador's production and third-party volumes pick up during the course of the year that you will continue to see that improve through the year. So I guess the bottom line was San Mateo really came in right on top of what we were expecting. So I think we thought it was a good quarter.

And then just a follow-up on the asset sale front, can you maybe just give us an update there on remaining initiatives potentially what's like the Eagle Ford, San Mateo 1 and or Haynesville, just any updates there?

Sure. I think that we're pleased with the progress that we've made so for and really quite optimistic that we will continue to make progress as the year goes on. I think we've said that our intention has been primarily where the Eagle Ford and Haynesville assets are concerned that we felt like that we would probably have a little more success in selling off the assets, kind of pieces at the time because we don’t know that there is anyone out there that's interested in the assets across the play that there may be. But we certainly know that there are a number of people that are interested in particular assets that we have, and often those maybe the offsetting operators in those areas. And so I think that we've -- we're encouraged by the number of inquires that we still are continuing to get about some of our Eagle Ford properties. I know that Van and Jon Filbert and their teams are in the constant communications with the folks that have expressed interest. And so, as we -- I think as Joe said in this quote, in the earnings release, we're continuing to look to make satisfactory transactions and optimistic that we can, but certainly we're not going to give it away. But if we can come up with acceptable business deals, we will continue to do that. And I'm optimistic that we will.

Gabe, another area and that still remains fertile to make a win-win deal as these trades with other operators that we're doing. I mean, I guess they have the area of interest in their units that we tried for interest they have in our units, and that improves both sides of the transaction. And that's been an active area for us and that we feel very good about. Our mineral transactions have also been good. We’re -- I think we have currently about 1,500 BOE off of our minerals, 1,000 barrels of oil. Of that - two thirds of that is oil that has been growing. And we've leased some minerals that have brought in several millions of dollars, so very encouraged. The bits and the pieces they add up -- and so it's active and we will hope to continue to -- anytime you do a deal, the next time you deal that party it seems easier. So a number of those are in the works and we hope to increase that as the year goes along. Matt?

Yes. I just want to underscore what you started with your comment there and how it relates to capital efficiency. These trades, a lot of times, are set up for us to be able to drill longer laterals. And so, Van and John and the team have done a really nice job in converting one-mile lateral potentials to 1.5 mile and 2 mile just by making these trades that you're talking about.

Thank you. [Operator Instructions] Our next question comes from Neal Dingmann from SunTrust. Please go ahead.

Yes, sir giving me that warning Joe, I'll try to keep mine brief.

We know you all have a choice – we know you all have a choice and it's like airline say. And we appreciate to be and tuned into.

My question is really what you talked about earlier about the efficiencies. And you guys really are just notably running ahead. And based on that, what’s your thoughts if you continue to run ahead, so far ahead in these efficiencies. Would you cut activity and keep the spending down? Or how do you think of it? It’s obviously a nice sort of quandary to have. You guys simply running ahead more than most out there. I’m just wondering if that continues to be the case, how you think about activity and CapEx et cetera for going in at the end of the year?

Neal, that’s a great question and that’s one where we’re focused in a lot on discussing what’s best is that we approach the what's best question from what creates those value for our shareholders and other share values. So the first thing is to look at the opportunity and the opportunity set and say what will that do for us. And, but second, we’re also thinking about the money and being more selective in what we do and trying to thread the needle of increasing value without overspending. And so probably, the assets we like acquiring the best, so that was acreage that are in our current tracks where we’re about ready to drill, where we can bolster our working interest or work at trade at some sort. Those opportunities take priority because if you don't buy that acreage, it comes up available in your units, you won't ever get it, you will never see this. So you’ve got to either do it or not. We’re more selective in just -- in pursuing trends. And we just don't buy acreage to pursue trends. It's got to be related to the prospect of some sort. And then just balancing that we’ve told the market, you included, that we’re determined to narrow the gap over time. And to do it in a pragmatic value creating way, and we think we achieve that this quarter and the same practices that helped us achieve in this quarter. We continue to follow and do what we say. It's just like selling parts of the Haynesville and Eagle Ford. We said we do that and we have. We said we dropped the rig in the Eagle Ford, and we have. And we said we'd be more selective in what we do, and we have, and that, perhaps most importantly, that we saw ways to improve our capital efficiency, and we have. And we think they did that in the right set. First get the acreage validated and held by production, so you have more time and leverage to convert those one-mile into two miles, and we have. So we're, I think, doing the right things. And it's lively discussions around here about exactly how to do that. But we are, I think getting it done, and threading that needle this first quarter, and we believe it's sustainable. And we’ll continue to do through the year, but I don't want to paint myself in the corner and say we're not going to take advantage of a special situation either to acquire acreage in units or areas where we can convert one mile to two miles. You guys sometime spend a little money to do that, but you're going to have a value increase. And finally, I just -- but we're monitoring everything very closely. And finally, on these issues of this is that we're very pleased that we think our shareholders and gotten a lot of value for what outstand that we've had in terms of not just production growth, but profitable growth. And that you see that we doubled earnings last year, and we had an earnings be in this quarter. Does that answer your question? I hope it did.

It did. And then my second question, Joe, that was a great answer. And just on my follow-up, I love that Slide 5 -- you all filling in your great ownership. My thoughts, look, if your stock continues to be this cheap, Joe, are you going to encouraged all your guys here to keep selling all their Tesla and Facebook stock and buy some more Matador?

I hope our staff has good chance enough not to buy Tesla. [Laughs]

There’s not many electric cars in the garage.

I do want to comment the board and the staff and the executive staff as you’ve noticed, nobody sell shares, we have been buyers. Nobody's held a share among any of our directors and staff. And we think it's a great opportunity when you move in six years from 1 million barrels of hold over 100 million barrels. I think that's a lot of value. And that our right of change is, I think one of the best in the business. And we've grown our acreage position to 135,000 acres, and what we believe and evidently other companies believe is the best basin in the country. That's great achievement. I think over the last few years, and we acknowledge we hear the market, want to be sure that you're addressing and moving towards free cash flow and we are. And it's -- by the next year, I think it will be increasing clear how we are doing there. But we've made a lot of progress already. It's just that at this point in our life cycle we have a great opportunity set. And our guys have turned up some other great opportunities. I don’t want to tell them, ignore them because this is carrier add value. So I appreciate our shareholders who appreciated that and new ones because they can save it. 36 years, I've never had a lay-off. So in 36 years we've been financially disciplined to the point. We never had to call good people in and let them go. So financial discipline coming up not through private equity, but through, for instance, neighbors, I can assure you that we care a lot about financial discipline. We practice it, 36 year record, and started with $270,000 to $2.5 billion market cap. I think is hopefully speaks for itself, but we care about it. And we feel we are on a good road and path to achieve it in a way that doesn’t damage the value of the individual Matador share. So we've spent a lot of focus on it. I think the plan is good. And I -- if you look over the last few quarters, the business has been steady and methodical to achieving the free cash flow standard.

Our next question comes from Tim Rezvan of Oppenheimer. Please go ahead.

Gabe, hit on some lines. So I just have one for you. You mentioned the well results in Antelope Ridge and the Charles Ling pad, very strong 24-hour IPs on 5,000 foot laterals. You mentioned you have drilled and completed simultaneously. If the horizon in an area that people understand pretty well. So I just wonder if you could talk that kind of what the purpose was at this pad or any learning to how we can think about you all applying as you move to kind of pad drilling going forward, especially on the state line area?

Yes, Tim, this is Matt. And, I think you kind of just detailed into what we've been talking about here this morning. It's a -- to be able to do these four wells all at the same time is very efficient way to do it. I think the well results are very nice. They are very good wells. We expected them to be, and they are. One of the other things that we just touched on little bit is we've actually increased the amount of food that we've pumped on these wells, so we've gone upwards of 60 barrels per foot. We kept the profit about the same. So it was really nice just for us to try a number of different things that all relate to efficiency.

And just a follow-up and you say drilled and completed simultaneously. Did you have multiple rigs on that pad? And is that just unique plan to different fracs?

Just zipper-fracs, they were all done at one well with one rig, Tim.

Our next question comes from Noel Parks from Coker & Palmer. Please go ahead.

Well, you’ve talked a lot about the trade-offs and strategically, as you mentioned, threading the needle to your growth or spending. When we’re looking at the progress you're making on lateral lengths, is that fair to say that given 5-year inventory right now that the focus is more on, let's say, over the next year, on productivity across within the wells on that inventory as opposed to different ways either through adding formations or and in the footprint of expand the inventory that in terms of total location?

Hi, Noel, it’s David. I think it will always be a little bit of both, but our exploration staff, goescience staff does, I think an excellent job in terms of identifying targets and often new targets that we want to test. I think, just a side, as an example, I think, we’ve drilled quite a number of First Bone Spring wells over the past year, and have drilled those in various places around the basin, and I have been pleased with those results. And I think that two years ago that’s probably not a target that we were thinking or talking much about. So I think that we’ll continue to look for -- I know that Ned and the staff are frequently identifying new zones, new targets that they would like to go after. I think we just try to balance that with the kind of development efforts that we have in place. And certainly, we’re going to be very focused on development, and longer laterals and more batch drillings as we’ve been saying. And so I don’t – I think we’ll still continue to see a little bit of that exploration mix in what we’re doing, but we clearly have a strong focus on development in longer laterals, and more multi-well batches. And that will only become more apparent as we go through this year into next? Did that get your answer or -- did we lose it? Operator, I guess, I'll turn it back to you.

Our next question comes from John Freeman from Raymond James. Please go ahead.

One of the – you noted that one of the main drivers of the lower well costs in the quarter was impart due to the increased use of in basin sand. I know that in 4Q about 50% of your Delaware completions were utilizing the regional sand. Where did that sand in 1Q? And sort of where do you anticipate that being by year end?

John, this is Matt. We are moving more and more towards the in basin sand, in fact in Q1, just about 100% of those wells were in basin sand. So as we’ve talked in the past, it’s the way we do things are very methodical about how we make changes. And so we’re -- we've gone through all the processes as we talked about in the past and getting very comfortable in basin sand and most of the formations. There may be a formation or two that we’re still looking at and we will continue to look at these things going into the future. Like I said it can be very methodical, but we’re happy with the results we're seeing so far.

Yes, Matt, in particular, on your methodical study, while you’ve done it zone-by-zone just make sure there's no degradation in any of those. And we're getting increasingly comfortable that there isn't any degradation or there's a class advantage, but we're still monitoring it.

Right, we’ll continue to monitor, John. And these things-- the IPs, it really won't make any difference for 30-days, 60-days, probably not, but we'll continue to watch these things for years to make sure that we don't have the degradation, which Joe talked about, and we don't see it.

And then just my follow-up question, I just want to make sure that I'm thinking about the second quarter natural gas production guidance the right way. So the 7% to 9% decrease, which you'll say partly is just due to the normal sort of declines from the larger than expected gas production that in Q1, and then some is due to possible shut-ins given sort of gas price dynamic at the moment. Is there any way to sort of quantify how much of that is due to the possible shut-ins? Like, how much is built into that guidance?

Yes, John. Hi, it's David. I don't know that I know just wrapped up my head how much that is, I think that it maybe sort of half and half kind of thing. I think part of it was that we had a number of fairly big wells that are wells that came in at higher than expected gas production in the quarter that we called out like the David Edelstein well, which was our first 2-mile lateral at Rustler Break. And in the Wolfcamp B, which is traditionally a higher gas producing zone, if I recall correctly. I think that in its earliest days, it was making 10 to 12 million a day. So it was clearly a contributor to that, the Howard Posner wells that we called out in the report at Wolf contributed to that. And then we did have a couple of just really nice set of wells that we're not op in the Elm Grove part of our Haynesville asset that Chesapeake operates and they drilled a couple of really nice wells that really exceeded our expectations in terms of their early gas flow rates. So those things will trend off. As I recall, we don't have much in the way of any Wolfcamp B completion kind of on the schedule here in the second quarter. So that happens to us from time to time. We kind of have these wells, spikes and gas production. We had one last year in the second quarter for predominately the same reasons. And I think we'll see it again this year. We already expect in late part of the third quarter and into the fourth quarter because there's two additional non-op wells that are scheduled to be drilled by Chesapeake in an area we call our LA wildlife area where we actually will have about a 40%, 45% working interest in those wells. And we expect those will also be very, very good, natural gas wells. So I think you'll see that it spikes back up again in the third and fourth quarters. And with regards to the temporary shut-ins, we did have a few days in April where we did shut-in some of our higher GOR wells on a temporary basis. I believe that I'm correct in saying that all the wells are now back and flowing. And there might be one or two that are still temporarily shut-in. But I think that we're just sort of monitoring that situation. I think if we don't see gas prices doing anything different than they are right now that we would plan to, it's pretty well keep the wells on in producing. But, we just -- we were just trying to do our best to estimate how that might impact our second quarter production.

John, a couple of other factors, yes, I agree with everything that that David was saying. But couple of factors that have mitigate the gas situation was; one, is that 20% of our gas came from the Haynesville and the Eagle Ford, which were unaffected by Waha. And second is in our processing we get an uplift on NGLs. And then when you process about 20% of the processed gases as NGLs and with that uplift, we have takeaway from our plant, BP, who has done a good job. They've taken to Mont Belvieu and they're responsible for the transportation and the fractionization. So those factors have mitigated and have helped us, but it's a day-to-day. But we are not flaring, primarily because of the processing effect and the other mitigations that we've got going. We also belong -- we'll participate in the Gulf Coast Express. So by October, the vast majority of our gas would be either on pipeline or be in the Haynesville and the Eagle Ford and on the Gulf Coast Express where we have firm transportation.

It's a nice time with the midstream business too as the process is to have the residue capacity and the NGL capacity that Joe was talking about for not only transportation but the fractionation as well. So it's a very nice thing for us to have.

Thank you. Our next question comes from Sameer Panjwani from Tudor, Pickering, Holt. Please go ahead.

So first off on the lateral length side of things. Is it possible for you to quantify the existing opportunity set of 1.5 to 2 mile laterals? And is it fair to assume that extending laterals is now a key goal for the land team as you shift to larger development projects?

Yes, I think it's -- to take the last part of the question. It absolutely is a goal of the asset and teams, and the land department to try to make every well that we can a 1.5 to 2 mile lateral going forward. I would dare say that there are many proposals that we're sending out to perspective partners anything anymore that are for single mile laterals. I'm sure there is certainly few. Obviously, we've estimated that we still not have as many as 10% or 15% of them next year. But it's certainly decreasing at a rapid pace. And I think that when we had the call in February, I think we had talked about we were estimating about 70% of our laterals in 2020, could be greater than a mile just in this past quarter the efforts of the teams and the land department as we look out into our 2020 schedule, I think has made us confident that we can get to 85% there. So we've even been able to progress that just in the last several months. But I am very confident that the teams are approaching every opportunity that they can to make these wells longer laterals.

And on the first part of the question, the existing opportunity set of one of the 1.5 to 2 mile laterals?

Well, I'm not entirely sure what you mean by that. Can you be a little more specific or what's you’re at trying to asking there?

Well, I guess I’m trying to understand how sustainable over 8,000 foot average lateral is going forward. How many wells in your inventory do you think you have at that lateral when that’s your acreage position sits in today?

Well, I think that -- so just to being specific. I think we’ve been clear in the past that of 2,600 or so net wells that we have in our 2,500, I guess it is in our inventory, 4,500 gross or something that effect that was all based on 1 mile lateral estimates. And so -- but I think for all of those locations, it is our plan to try to convert as many of those into 2 mile laterals, sometimes that maybe combining a couple of those locations into a two mile lateral, sometimes it maybe extending one of those existing ones into being a 2 mile lateral. But I think that as we’ve mentioned before as we’ve got more and more of our acreage held by production in a single zone that’s given us the luxury of time to go back and look at putting together different units that would make for longer laterals in other zones that we intend to come back and drill over the years. And so I guess after the life that this will be sustainable for us going forward that its’ not just not going to be one year or 18 months flash of the pan, I think that it will be something that we’ll be able to sustain on and perhaps even improve on as we go forward.

Just to tag on what David saying there, a lot of these wells that are now mile and a half or two mile laterals or more. And so the team has done a fantastic job of moving those in the direction where they now are, one and a half to two mile laterals. And typically the way this works is let's say you've got your combining two sections there in New Mexico. The hardest one to get to 1.5 mile and 2 mile is the first one. So once you get that done in subsequent wells, you come back and drill in regard to which formation they're in or usually already addressed by joint operating agreement or a trade advantage team. So it's easy to move them forward faster.

Sameer, there is one other thing while you’re on this still is sustainability. The other part or what runs in parallel to the sustainability of convert each into 1.5 mile or 2 mile laterals is the fact that when we were naming our potential locations, we were spacing them on a 160 acres. We didn’t do that closer to 80 that’s gotten some that as a result didn’t -- and some people will have in under protection, the original Wall Street article commended us, we were one of the few companies that whose actual production exceeded projections. And one of the main reasons for that was the fact that we have always been concerned deep in our spacing and spacing mile. So sustainability is not only having the ability to have number of 1.5 mile to 2 mile laterals, but also the ability to convert by trades or acreage acquisitions of 1 mile laterals and buying and adjourning property in some fashion, so that you can convert force pool into 2 miles. And we’ve been working at that well. And then again, MAXCOM program where you stay in zone better and pick up the lease line acreage on the curve, so you don't have two curves, you have one curve and pickup the lease line. All lends itself to the sustainability and the additional reserves by staying in zone more. So, I like our chances is what I'm trying to say is that we're making steady progress on that, and continue to like our chances, going forward.

And I'll just make one last just quick comment, Sameer. And that is that it maybe that we find that the number of locations actually could increase, because the fact that some horizons in some areas that are maybe a little skinny at one mile laterals actually may have much better returns if we can get to the longer lateral. So that'll be something that we will visit there as well.

For my second question, you guys continue to be active in testing. The Wolfcamp zones at Ranger and Arrowhead over the past few quarters, the XY specifically. But I don't think we've got an update on these wells. I think previously, you've talked about some land work that's been outstanding. So just trying to get a sense of how close you are to completing that land work before we can get some more color on the results.

I'd say pretty close now. So I think that we've been pretty close to getting all the various trades and things that we've been working on put together. And certainly, we're back to drilling at sevens, and I think that we've got at least another Wolfcamp well planned here for the very near future. And so I think it's a -- I know there's a lot of curiosity about it. I don't think it'll be long before able to talk a little bit more about that, Sameer.

So next quarters' call is a good guess?

Well, I don't ever want to say -- I don't want on comment there and I probably cry the wolf for two months already. So I'll just say as soon as they let me tell you, I will. How's that for a deal?

Well, I had to take a shot. So, appreciate it.

Thank you. Our next question comes from Irene Haas from Imperial Capital. Please go ahead.

A question to follow up on the earlier oil production cadence, just want to make sure. Is the 2019 guidance still good with oil growing at 18% and gas growing at 18%?

Irene, we didn't make any updates to our guidance for this quarter. So I think you can assume that that's a yes. So we just didn't -- we didn't feel like -- it's too early in the year for us to make any changes. We've only been out with that for a couple of months, I guess. And first quarter was a little bit better than what we thought. But it still looks pretty good to us.

And second question, the state line area. When would you guys start drilling that really nice central land?

Well, our plan as we had talked about when we put our guidance release out was to begin activity there right around the first of 2020. And we're on task and on plan right now to be able to do that. We have submitted for approval now some of the first permits to the BLM. We've had all our onsite visits with the BLM. We feel like that they're on board with what the teams have laid out in terms of how we would like to go forward with the development of those properties, and saying with attracting Western Antelope Ridge, which we're hoping to be able to start drilling on this fall also. I think everything appears to be on track, Irene. And if that's the case, hopefully, we'll be drilling there by the 1st of the year.

And if I may follow-up on that and presumably would have all your infrastructure set-up close time that you guys start completing?

Well, I think certainly that's what our plan is. And we have said we would expect to run two rigs there, one on the eastern side and one on the western side. On the eastern side, we're planning 2 mile laterals. On the western side, we are planning 2.5 mile laterals. And it will take us -- of course, we're going to drill those at least to begin with four wells on each pad, perhaps even five, and so it will take us several months to get all that done. So I think you would expect to see first production from those pads until sometime probably in the third quarter of 2020. So between now and then, certainly, we'll be a up there getting the roads and the pipes, and the facilities and all in place. And of course we will be extending the large truck line down from the Black River processing plant and to Rustler Breaks area, down to that state line acreage. So that as soon as we turn those wells on the gas will be flowing back to the new plant that Matt Spicer and his team are starting to build and that is on track to be finished by the summer of 2020. So I think all those things are moving together on plan. And hopefully by the time we're doing the second or third quarter conference call in 2020 we'll be talking all about that.

Thank you. Our last question comes from Richard Tullis from Capital One Securities. Please go ahead.

I guess the question to start off with Matt. We've heard from offset operator recently reported some really strong second Bone Spring wells, and that suddenly Eddy border county area. And I know that Matador has already drilled some solid second Bone Spring wells. But have you been able to pick-up anything from that operator, Matt, that you might be able to use in your own operations, including planned drilling down in the state line area?

It's just one of the things that we focus on. We've got a non-op team that looks at all the non-op proposals, all of the well results, what people are doing, how they are doing. And we will look at the good stuff. We look at stuff that’s maybe not so good and try to learn from all of that. But Richard, this stuff continues to evolve. One of the things that we --Ned and his team do along with the MAXCOM guys is look where these wells are steered, what zones they are producing out of, what the results are, how the completions are put together, what type of artificial is. So there is just a number of things that we have a lot of insight into to non-op partners, as well as looking at public stuff, like you are talking about and understanding how people are thinking about things and the folks making. One of the other things that Ned and his team are very actively doing is continuing to work on the 3D seismic. We've had a lot of success identifying targets, steering with 3D seismic and really making a lot of progress in those. Ned?

And I’ll follow in on that. The 3D is great and helping accelerate that learning curve. I mean, we’re able to see what the offset operators are targeting and really being able to relate that to the rock on our own acreage. And I think that’s been very beneficial for accelerating our results in places like Antelope Ridge. I mean recent ring wells were targeted and see it on the seismic and then you handing off a wellbore that’s exactly the right rock to the completions guys and they’re doing a great job with that. So it’s really firing on all cylinders here. So we are definitely looking at and offset operators are trying to relate that back to our own acreage.

And then just lastly for, Joe, maybe just a big picture question to close out the call, as Matador moves closer to Delaware Basin pure play. Just want to get your view on the competitive landscape in the Delaware going forward with a very large company significantly ramping up activity and playing a larger role. Joe, do you see any risk for the small and medium size companies to be able to consistently execute operationally, going forward?

Thank you, Richard that’s really a thoughtful question. And I appreciate you’re asking it and giving us -- the first thing is I think those with Chevron and Exxon into the basin and other bigger companies ramp and is first very bullish on oil process. Second, I think it reaffirms what we’ve always thought that the Delaware Basin is the best basin in the country. They wouldn’t be losing in there at that level if they didn’t think it was really good capture. So I think that enhances our 135,000 acres out there and just makes it that much more valuable. Those that we’ve discussed a lot internally and with our vendors is they've been through ups and downs out there. And I think we're six or seven in size and production and rigs is that those companies we have a long history at the Patterson where they or their predecessors have drill nearly every well that I have drilled. They’re doing a great job for us and I don’t see them like to come in here and say, this 36 year relationship they’re going to dedicate everything to ex-owner Chevron, they want some diversity in their clientele too. The other thing that I think it also means that other vendors that are not yet in the basin or in it as much as much as they'd like to be are going to move, because that’s where the business is. So, yes, they’re going to want some of Exxon and Chevron's business. But Exxon and Chevron don’t want to put all of their ace in one basket, they’re going to spread their business among different vendors and those vendors going to look to pick up business from other companies like ours. So, I’d say this is a good thing just like in cities you’re better off to have a lot of construction projects going on than no construction projects. So that bring in the workers and really facilitates, I think a lot of progress and a lot of innovation. So I'd say that is really pretty positive. And you know if you’re in the top 10 in a year I think in a pretty good spot to take advantage that there is actually more competitions for services. And it will help you in the long run they have more good frac crews, and more good drillers, and more good labor out there in field services. So it doesn't worry me. Our guys compete a lot, but it's a different time of competition between us and say Exxon and Chevron. Our guys are drilling these wells faster. We're innovating after every well and after every completion job. And where their practice is more to try to turn it into manufacturing and we're more like a custom home. They're building a bunch of track homes, we're being somewhat the custom builder but we're doing it faster and quicker and for less money. But we're still -- we’re both doing fast drilling, we’re both recycling water. So I don't think they're doing anything that we're not doing. We just have the advantage that we're able to innovate and change after every well and our rate of change is higher than theirs. So I think it’s a positive. I haven't seen any negative impact. Have you, Matt?

I agree with what you're saying, Joe. I think if anything, it helps with the service companies. And you're right that nobody really wants to put all their eggs in one basket, but they do want to work with a qualified partner and I think we fit that bill. I think that relationships we have established with our partners over the years, Patterson being one, Halliburton another, got our frac work right now. I think they enjoy working with us. I think they enjoy the innovation that we bring to the table and I think that will continue. So I see it more as a positive.

Billy is our head of operations there. Billy?

No, I agree. We're all working together and made with each other and pay attention to what each other is doing. And for us, we stay out in the lead and develop the new technology. We're not waiting for anyone else to tell us what to do or the best way to do. We got a lot of guys that go meet with the scientists that design new bids and new motors. And our geology group getting out there and getting all the seismic in there. I mean everybody's working together and we're doing really good things and having the majors come in, and hopefully help bring more people into help us. That's all good.

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

Thank you very much. I thought I want to thank you everybody for, again their time and attention and their questions. We really want to sincerely invite you to come see us we'll give you the time that hopefully will make it worth it. We’ll help for you to meet and see the depths of our staff and have more time to answer your specific questions. We really welcome those visits and appreciate your interest. And I want to emphasize that we're on a good path right now towards nearing any spending gap, yet the same time, we're moving forward with thoughtful growth and thoughtful production and building up the inventory of the longer laterals and other capital efficient projects. So it's been a good plan so far. We want to continue to enhance it. And look forward to sharing with you details of our progress either here or at conferences. And so please feel free to call David anytime or come see us, and we will get together and make sure you get a complete review of what we're doing. So thanks again. Good to talk to you. And look forward to our next visit.

Thank you, ladies and gentlemen, for attending today's conference. This concludes the program. You may all disconnect. Good day.