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Deal Boosts Matador's Delaware Basin Profile

Dallas-based Matador Resources Co. would become the largest Delaware Basin acreage holder among small- and mid-cap public companies with the consummation of its recently announced deal to acquire Roswell, NM-based Harvey E. Yates Co. from HEYCO Energy Group Inc.

The deal includes certain oil and natural gas producing properties and undeveloped acreage in Lea and Eddy counties, NM. HEYCO is privately owned by members of the Yates family of southeastern New Mexico, who have been active in the upstream oil and gas business since the inception of production in the Delaware Basin in the 1920s.

"Matador's operational excellence in horizontal drilling and its top-tier organization make me confident that this partnership will maximize the value of our properties in the Delaware Basin, where HEYCO pioneered vertical development in the Bone Spring in the 1980s," said HEYCO CEO George Yates, adding that HEYCO will own about 6% of the combined entity.

HEYCO is exchanging certain assets in the Delaware Basin for an ownership position in Matador, besides these assets HEYCO has additional nonoperated interests in the Permian Basin, other U.S. basins as well as internationally, Yates said. Matador is to pay $37.4 million in cash (including assumed debt), issue 3,140,960 shares of Matador common stock and issue 150,000 shares of a new series of Matador convertible preferred stock to HEYCO. Closing is expected by Feb. 27.

The deal includes certain oil and natural gas producing properties and undeveloped acreage in Lea and Eddy counties, NM. HEYCO is privately owned by members of the Yates family of southeastern New Mexico, who have been active in the upstream oil and gas business since the inception of production in the Delaware Basin in the 1920s.

The HEYCO assets link Matador's existing acreage in its Ranger and Rustler Breaks prospect areas. The acreage to be acquired would increase Matador's total acreage position in the Permian Basin to 151,300 gross (84,300 net) acres, providing Matador with an increased operational footprint throughout the northern Delaware Basin.

The acreage being acquired is within the main part of the Bone Spring and Wolfcamp plays in New Mexico, Matador said. The HEYCO properties add to Matador's inventory of prospects in the First, Second and Third Bone Spring formations, the Delaware Mountain Group and various members of the Wolfcamp formation, as well as a variety of both shallower and deeper formations. To date, only a relatively small portion of the HEYCO acreage has been developed using horizontal drilling and large stimulation treatments. Matador said it believes its experience in the Haynesville Shale, the Eagle Ford Shale, and more recently in the Delaware Basin, will add value to the development of the HEYCO acreage.

"The location and quality of HEYCO's assets are both strategic and highly complementary to Matador's existing Delaware Basin acreage..." said Matador CEO Joseph Foran. "The specific location of these select assets, the multi-pay potential, favorable net revenue interests and the held-by-production status of essentially all of this acreage were key features that attracted Matador to this unique opportunity. This acquisition also provides us with increased operational scale in the Delaware Basin, making Matador one of the largest and most focused industry players in the area, which we are confident will improve our overall rates of return and unit-of-production costs."

The Delaware Basin continues to account for a greater percentage of all drilling rigs working the Permian Basin. The total rig count in Lea and Eddy and Lea counties in New Mexico, along with Culberson, Jeff Davis, Loving, Pecos, Reeves and Winkler counties in Texas, has grown from 29.1% of all rigs working the Permian Basin on Feb. 4, 2011 to 44.1% as of Jan. 23.

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