Two years after agreeing to expand midstream operations in the Permian Basin’s Delaware formation, subsidiaries of Matador Resources Co. and private equity Five Point Energy LLC agreed to a second partnership that would nearly double processing capacity with a cryogenic natural gas processing plant in New Mexico.
Dallas-based Matador said it would be majority owner (51%) of the second joint venture, San Mateo Midstream II LLC, with the Houston-based Five Point owning 49%. The ownership stakes are the same as the first JV, formed in February 2017, which included Matador's Black River cryogenic plant near Carlsbad, in Eddy County, NM.
Black River, in Matador's Rustler Breaks prospect area in the Delaware, first entered service in August 2016 with an inlet capacity of 60 MMcf/d. Although the facility was expanded to 260 MMcf/d last April under the first San Mateo JV, Matador said the plant is almost fully subscribed.
The second San Mateo JV calls for constructing an additional cryogenic plant at Black River, expanding inlet capacity to 460 MMcf/d with service in mid-2020. San Mateo plans to build a large-diameter natural gas pipeline that would extend north from Black River to serve Matador's Stebbins leasehold, and south to Matador's new Stateline asset. Matador acquired Stateline assets in an oil and gas lease sale held last September by the Interior Department's Bureau of Land Management.
San Mateo also would build at least two saltwater disposal wells, one each in the Stebbins and Stateline asset areas, plus associated natural gas and saltwater gathering infrastructure.
Matador CEO Joseph Foran said he expects San Mateo "will continue to provide first class service" to the producer and other producers along pipeline systems in Eddy County, NM, and Loving County, TX. "San Mateo’s ability to offer midstream services across all three production streams -- crude oil, natural gas and water -- makes it one of the important midstream companies in the northern Delaware Basin.”
Five Point COO Matt Morrow concurred. "Collectively, we have built a world-class infrastructure business that is meeting the increasing needs of exploration and production companies in the Delaware Basin.”
To facilitate the second JV, Matador dedicated to San Mateo about 25,500 gross acres -- including the Stebbins and Stateline assets, plus additional acreage surrounding its Arrowhead asset near Stebbins -- under 15-year, fixed-fee contracts. In exchange, Matador would receive a capital carry to fund the projects and pay $25 million of the first $150 million in construction costs related to the expansion.
The capital carry includes in the second JV, coupled with expected cash flows from San Mateo's existing operations, and "should cover most of Matador's expected 2019 capital obligations for San Mateo."
In addition to gaining firm capacity service at market rates for gas gathering and processing, saltwater gathering and disposal and oil gathering for its Arrowhead, Stateline and Stebbins assets, Matador would be allowed to defer performance incentives of up to $150 million over the next five years while it operates in those areas. Matador, as manager of San Mateo, would also receive additional deferred performance incentives to bring in additional third-party customers.
Matador plans to provide additional details on San Mateo and its development plans during an earnings call on Tuesday.