Matador Resources Co.’s majority-owned San Mateo Midstream LLC and Plains All American Pipeline LP are teaming up to transport crude oil from the Permian Basin in the Rustler Breaks area of Eddy County, NM.

San Mateo, 51% owned by Matador, and Plains plan to offer services to third-party producers across a joint development area (JDA) of the Delaware sub-basin that covers about 400,000 acres.

Oil would be gathered and transported from the wellhead to Midland, TX, with access to other end markets including the Cushing, OK, oil hub and the Gulf Coast. A Plains unit also agreed to purchase Matador’s oil production from Rustler Breaks and from its West Texas assets in the Wolf play in Loving County.

“Similar to the formation of San Mateo in early 2017, this transaction demonstrates the different ways companies in the same industry can work together to create value for their stakeholders,” said Matador CEO Joseph Foran.

“Not only does this relationship open up additional market opportunities for San Mateo and Matador through Plains’ extensive midstream asset footprint, long-term customer relationships and record of performance, but it also demonstrates San Mateo’s ability to generate value for itself and for third-party customers by providing services across all three production streams — oil, natural gas and water.”

For Matador, the transaction “is significant,” Foran said. “In addition to Matador’s 51% ownership in San Mateo, the joint tariff in Rustler Breaks and the tariff in Wolf provide Matador the ability to lock in attractive and competitive long-term oil transportation rates, obtain additional oil market optionality, reduce shut-in and transportation risk and receive increased takeaway capacity out of the Delaware Basin.”

Plains plans to construct a mainline extension to the JDA from its long-haul oil pipeline system in Culberson County, TX. San Mateo’s crude oil pipeline system is under construction throughout the Rustler Breaks asset area near Carlsbad, NM. Construction should be completed by early in the third quarter.

In addition, San Mateo would be able to accept oil on its system from trucks near Loving, NM. The crude oil trucking station would provide an outlet for area producers not yet connected to pipe at the wellhead. Oil would be shipped under a joint tariff filed with the Federal Energy Regulatory Commission before the pipeline being placed into service.

With transportation costs rising in the Delaware sub-basin, Matador expects to save substantial expenses by transporting increasing oil volumes by pipeline.

“Matador has simultaneously improved its net pricing realizations for the oil it already has on pipe in the Wolf asset area and expects to have additional options for various end markets as a result of this arrangement with Plains,” management said. “These transactions also provide operational advantages as transportation by pipeline rather than by truck reduces operational and shut-in risks; for example, interruptions from ice storms or insufficient trucking capacity around holidays…”

As of Monday (Jan. 22), Matador was operating five oil and gas rigs rigs in the Delaware. It also was temporarily operating a sixth rig to drill a well well in the Antelope Ridge area in southern Lea County, NM.

Matador plans to drill two additional saltwater disposal wells in Rustler Breaks for San Mateo, giving it five by mid-2018. San Mateo now disposes of around 100,000 barrels of wastewater per day for Matador and third-party operators in the Rustler Breaks and Wolf asset areas.