Matador Resources Co. reported record natural gas, oil and total oil equivalent production during the second quarter, driven by “better-than-expected” performance of 13 new wells in the New Mexico portion of the Permian Basin, according to CEO Joseph Foran.

Permian

Natural gas production rose 23% sequentially to about 239.1 MMcf/d, while oil output was up 28% to 53,400 b/d. Total output swelled 26% to 93,200 boe/d.

The 13 new wells are part of a group dubbed the Voni wells on the western side of Matador’s Stateline asset in Eddy County, NM.

Matador plans to accelerate completion operations of the next 11 Voni wells into the fourth quarter, sooner than previous plans for 1Q2022. The faster completions will be done without increasing upstream capital expenditures.

“Accelerating these completions should allow us to make more capital-efficient use of two stimulation crews during the fall of 2021 and into early 2022, which should enable us to turn this next group of Voni wells to sales two to three months earlier in 2022 than previously anticipated, but will defer some of our expected fourth quarter 2021 production until after the first of next year,” Foran said. 

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The Stateline asset is on federal acreage administered by the Department of the Interior’s Bureau of Land Management (BLM) in Carlsbad, NM. Matador management has stated the firm will prioritize development of its federal acreage amid uncertainty over restrictions on permitting and lease sales by the Biden administration.

“I think we feel like things are going very well with the BLM office there in Carlsbad,” CFO David Lancaster told analysts during the quarterly earnings call in late July. He added that, “we have focused more in recent months on getting approvals of the sundries, which are sort of the amendments to the existing permits.” 

In terms of pricing, Matador expects to fetch a weighted average $1.00-1.50/Mcf premium to Henry Hub for its natural gas output, assuming natural gas liquids (NGL) prices remain strong throughout the third quarter, Foran said.

For oil production, Matador expects to fetch a weighted average $1.00-2.00/bbl premium to West Texas Intermediate (WTI) pricing.

Matador reported record oil and natural gas revenues of $412.1 million for the second quarter.

Foran said Matador has secured “several new midstream opportunities with new and existing customers” for its San Mateo Midstream LLC joint venture (JV) in Eddy County.

The JV between Matador and Five Point Energy was created to operate and grow midstream assets in the Permian’s Delaware sub-basin.

“We…look forward to these new natural gas, oil and water volumes begin connected to San Mateo’s system,” Foran said, adding that Matador has raised its full-year midstream capital expenditure guidance by about $15 million to connect the new midstream volumes and be ready for first production from the next 11 Voni wells in early 2022.

The company is focused on adding more “non-Matador” customers to San Mateo in 2021 and beyond, Foran said. He expects the JV to continue generating free cash flow through the second half of 2021.

Matador reported average realized natural gas prices, excluding the effect of derivatives, of $4.46/Mcf in the second quarter, down from $5.88 in 1Q2021, but up from $1.49 in 2Q2020.

NGL prices, “and especially propane prices, continued to be strong in the second quarter, which contributed to the company’s weighted average natural gas price being well above the company’s expectations in the second quarter of 2021,” Foran said.

Matador includes revenues from its NGL production in its weighted average realized natural gas price. 

For full-year 2021, Matador expects to produce 76-79 Bcf of natural gas, translating to a roughly 12% year/year increase. Oil production is expected to rise 10% y/y, to a range of 17.2-17.8 million bbl.

Capital expenditures associated with drilling, completing and equipping wells is expected to rise 22% versus 2020 to a range of $525-575 million.

Matador reported a realized loss on derivatives of about $42.6 million during the second quarter, primarily because of “the significant increase in WTI oil prices during the first and second quarters of 2021, resulting in WTI oil prices that were above the strike prices for most of the company’s oil swaps and costless collars.”

Matador posted net income of $105.9 million (89 cents/share) for the second quarter, versus a net loss of $353.4 million (minus $3.04) in 2Q2020.