Mac Schmitz - Capital Markets Coordinator Joe Foran - Chairman and Chief Executive Officer Matt Hairford - P resident David Lancaster - Executive Vice President and Chief Financial Officer Craig Adams - Executive Vice President, Land, Legal and Administration Billy Goodwin - Executive Vice President and Head of Operations Van Singleton - Executive Vice President of Land Brad Robinson - Executive Vice President, Reservoir Engineering and Chief Technology Officer.

Scott Hanold - RBC Capital Markets Gab Daoud - JPMorgan Dan McSpirit - BMO Capital Markets Philip Stuart - Howard Weil Neal Dingmann - SunTrust Gordon Douthat - Wells Fargo Jeff Grampp - Northland Capital Sameer Panjwani - Tudor.

Ladies and gentlemen and welcome to the Second Quarter 2018 Matador Resources Company Earnings Conference Call. My name is Sonia and I'll be serving as 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 conference is being recorded for replay purposes and the replay will be available on the company's website through August 31st 2018 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..

Thank you Sonia. Good morning everyone and thank you for joining us for Matador's Second Quarter 2018 Earnings Conference Call. Some of the presenters today will reference certain non-GAAP financial measures regularly used by Matador resources and measuring the company's financial performance.

Reconciliations of such non-GAAP financial measures with 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 including 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 report on Form 10-K and its most recent quarterly report on Form 10-Q.

Finally, in addition to our earnings press release issued yesterday I would like to remind everybody on the call you can find a short slide presentation summarizing the highlights of our second quarter of 2018 earnings release on our website under the presentation and webcast page on 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 interest in Matador very much and we welcome your questions and comments.

Now I'd like to introduce the executive committee a Matador who is joining me in this call this morning along with other members of our management team and senior staff who are all standing by for your questions.

They are Matt Hairford, President, David Lancaster, Executive Vice President and Chief Financial Officer; Craig Adams, Executive Vice President, Land, Legal and Administration; Billy Goodwin, Executive Vice President and Head of Operations; Van Singleton, Executive Vice President of Land; and a new Executive Vice President Brad Robinson of Reservoir Engineering and Chief Technology Officer; congratulations Brad..

Thank you Joe..

Now you're in part of the sharp questioning and comments that we're about to receive. As outlined in our earnings released yesterday the second quarter of 2018 was the very best overall quarter in Matador's history both operationally and financially.

I want to take a moment and personally acknowledge the Matador staff for all their achievements and to recognize them I think for their extraordinary teamwork this past year where the teamwork among the different departments and within the departments have continued to improve and this quarter was a real example of how everybody pushed on the raw; land and legal combined to make an $80 million acquisition yesterday production and the midstream have combined and worked together as a team.

So we're not flaring any gas and just over and over the team work with our Maxcom program with our drilling program has been extraordinary and so from the executive staff is that like a shout out to the guys in the field who have really been connecting wells, working in tough weather conditions, and making it all happen.

So some very pleasing to us just way everybody has worked together and I didn't want this conference go by without recognizing them. We're going to move into questions just a moment but I do want to address just quickly a couple of items and then take your questions or comments on them.

One is the outspent that is of concern and I think you all know our views on that that we are very selective about any outspent that we have and when we do we weigh the choices of is this going to have better than average returns, is this an opportunity that has to be done now and won't be around in a year from now.

An example of that is some of these leases and minerals that we've taken, and third is there in the midstream that if we don't do it someone else will; the same way is that we've discussed in previous conversations the takeaway in flow assurance and we issued a press release June 4. They summarized and updated our views.

Since then we made additional deals that we can discuss here and addressed it in different ways and we're not done yet. We're going to continue to improve and feel like not only we've made great progress but we're working towards the long term and with that I'd be happy to turn it back to you all for questions. .

Thank you. [Operator Instructions] Our first question comes from Scott Hanold of RBC Capital Markets. Your line is now open..

Thanks and morning guys. .

Good morning Scott..

Hey. I was wondering if you could you know talk about the OBO activity that is incremental? It seems like especially on a gross basis there's a lot more happening in the areas where you guys are at and I'm assuming it's pretty strong economic returns.

Could you give us a little bit of color on where some of that activity is concentrated on and you did mention longer lateral? So is this like some of these - is there - can you give us some color also on like the operators that are doing this? Are these some of these larger scale kind of big development pads that we've been hearing a lot from others?.

Scott. Thank you.

I'll take it first and then David and Matt will follow up but first I want to thank you because in our outspent this is the wells operated by others is one of the major motivators for the outspent because when these wells are proposed and they're more wells being proposed than we had projected, you don't want to go non-consent because many of these wells have these high rate returns and big reserves from as you said from the two-mile laterals.

So I think the overall CapEx associated this year with OBO is going to be somewhere in the aggregate of $70 million and that and the amount of additional wells we have two and a half net OBO wells to drill in addition to the five net that we had projected and as you said these are some high return large recovery wells big pad drilling and we want to be a part of that and I think the economics are clearly there to do it rather than to go non-consent.

So OBO is going to be a factor and when you're in the better areas of the basin you have more OBO proposals that just goes with that territory and we've always liked being and what we felt was the core of the core or the best of the best and accepted that competition.

David do you want to comment further?.

Yes. Sure. I'd be happy to Joe.

Scott, I think just add a little to what Joe said probably the two areas where we've seen the most non-operated proposals have been in [indiscernible] but we do have from time to time wells that we're asked to participate in on a non-operating basis up in the arrowhead and ranger as well and I think in previous releases we've talked about some of the results of all of those wells.

I think you know the folks that are kind of in the areas that we are I mean we've talked in the past about wells we've been in with similar sorts of [indiscernible] marathon.

So the folks that are that are in the areas that we're in the areas that we're in we do have some smaller pieces, some smaller tracks outside the cores of our positions at times and this has been a great way for us to get those tracks held. So I think that we've been real pleased with the results. It gives us a chance also to learn some things.

I think last quarter we were talking about or an analyst day we were talking about for example [indiscernible] doing some breaks and wells down in the [Rustler Breaks] area and so that always gives us a chance to learn a little bit about participating in these wells too. So we're happy to continue to participate in these wells.

Our fellow peers are doing a good job with them and as long as we feel like they're going to make us good returns we're always interested to participate..

Scott this is Mac and just to jump on with David and Joey I think very good wells that we're participating I think what David mentioned there the ability for us to learn is very important and we always reserve the right to get smarter. I think it also gives us an opportunity to collaborate with our offset partners.

So we are pretty active and on up rolling and calling they're technical folks in discussing which targets are picking and how they're going to drill the wells and complete them and then another thing is it just sets us up to believe these relationships set us up for potential trades.

When we could offer them on up position we may want to trade all that into something that we're operating in and it works both ways. It's a good deal; a win-win situation for both of us..

The last thing we also feel it enhances our midstream because every well drilled out there in [indiscernible] in our gathering systems for oil, gas and water out there for San Mateo.

So to represent and also an opportunity for San Mateo to gain from participation if we're not in the well there's less chance that they'll do it but we're in it then we can effect much more fluids and gas that we can send through our system there. So again it's a very selective bid on outspent and the OBO is an important factor.

We've never taken the view that we had all the answers on ever drilling completion or production system. There's always a chance to learn from others to develop some relationships that will pay off going forward. .

Great. Great. And you're kind of leading me down my second question on San Mateo can you give us a little bit of color on the progress on signing up third party operators? I think planes should be complete with their part of the system in the not-too-distant future and we did sign the deal with Marathon on the water.

Can you just give us some general sense of how that's going and is there more interest in one piece and the other is there -- does it seem like there's more interest in the saltwater disposal versus the oil or gas lines or do you see little bit progress on sort of all the streams of pipes you have?.

Scott we feel remain progress on all three and I can't say that one stands out to the other necessarily that we believe that they're probably more options sometimes on the gas than having oil on path and then of all of those that would gas you can flare or you can truck but water has to be disposed off or they'll shut you well in out there.

So we've built up a lot of capacity in our saltwater disposal well and that's another area where our teams have worked very well together is we have a capacity to drill deep and the knowledge that most midstreams don't have because we're doing it in every day.

So we've moved couple of our rigs from drilling oil and gas wells to drill two saltwater disposal wells for 14,000 feet or so and get them completed on time and that enhances both our own need for saltwater disposal but it helps attract further business and I want to make it clear we as a practice don't reveal who our third-party contracts are or with so I can just say things are working and we're pleased with the third-party contracts that we've entered into; the ones that are working and we feel the ones that are yet to come and we did announce that we had done an exchange offer with uninterruptible basis some gas coming through.

So we feel we are ahead of the curve on what we'd set as our goals and we can't guarantee.

We've said as a target that in the fourth quarter of this year they will have $25 million in EBITDA and while we are not yet ready to guarantee if we do believe that it's achievable more likely to be achieved now than was three months ago or six months ago and the guys are working right along and the plants running on time efficiently and they've done a number of improvements, for example, they have an interconnect line with BHP I mean BP and so we're selling our natural gas liquids to them on pipe which is given an uplift of our gas prices and it put us in a position to do the ethane recovery either the full recovery or a quasi recovery.

Again that would be helpful to our commodity pricing.

Mac did I forget something there?.

No. I think you summed it up pretty well Joe. But Scott just to kind of talk about where we're at in relation to San Mateo we've got the saltwater disposal system put in place. Joe mentioned we're drilling additional two wells so that's going to ultimately get us well north of 200,000 barrels a day capacity.

So that's a good thing for the San Mateo team to go out and sell to people. Additionally, we've got our inland design capacity 260 million cubic feet which will be full capacity where we can bring on 260 million by the end of year.

As Joe said with the ethane recovery option available the oil system, the whole gathering system is complete for us, we are selling into the client's pipeline there.

We've got our infrastructure in place at Rustler Breaks so when planes get to us we'll be ready to go there so it's really in a nice position that the guys can go out and then say the water is important to one of the third-party operators, but as we start talking about having the ability to process gas to go into ethane recovery to make sure that they've got flow assurance and a pricing agreement for the NGLs at the tailgate of the plant as well as being able to bring oil onto the system, I think that's a pretty powerful thing for them to sell..

Last thing Scott is in our Rustler Breaks that pipeline oil pipeline gathering system is complete and operational. So that as we gather that up on our gathering line. We can turned over to planes at Wolf and they'll go away on their pipeline and we like to note on this flow assurance and take away that we're selling our barrels at the wellhead.

So we don't have the concern about piping it to midland and we have the option to buy it back there but we don't have the obligation to give it to midland or other markets. It's sold at the wellhead the planes and we've enjoyed working with planes.

They've really been professional and we're - that's going very smoothly and I'd like to give them a shout out. Their work with us is hard to think of any improvements. .

Appreciate that. Thanks..

Thank you. Our next question comes from Gab Daoud of JPMorgan. Your line is now open. .

Hey good morning guys. Could you may be either Joe or David or Mac just talk a little bit about how you're thinking about the 7th rig at this point? You did mention in the release your expectations about oil differentials for the third quarter and I guess at one point do you think it absolutely makes sense to put this [indiscernible] Eagle Ford. .

David why don't you take this..

Sure. I'd be happy. Morning Gab. So I think what we put in the release sort of reflects where we are which is that we are continuing to evaluate it but that we haven't actually made a decision on what to do yet.

I think that we're still looking at the possibility of maybe putting the rig down in the Eagle Ford for a short period of time but we're also weighing that against for the potential for putting that 7th rig when we're ready to go with it into the Permian. Clearly we're pleased with the early results.

We're seeing an analog bridge and I think it could certainly be a candidate for the rig. I'll also tell you we're pretty excited by some of the things we've been seeing and reporting on from the Eagle Ford area, the [indiscernible] the SSD I mean and so we're giving considerable consideration to that being that the candidate for the next rig.

So I think that it's a little bit of a high-class problem. We probably have two or three different options where we could put the rig and our teams are working to be ready and no matter what we might decide together is the right thing to do but at this moment we're still kind of debating that internally Gab..

Thanks David. That's helpful.

Definitely a high-class problem like you said and then I guess maybe just a similar question but do you think there could be a point where it makes sense to if differentials continue to get worse make sense now not only not add the 7th rig but in the Permian but also slow down the current pace of activity? Just any thoughts around that?.

Well I suppose that it's always a consideration. I mean obviously a commodity price and differentials clearly have an impact on our thinking and as to what they will be, what the duration of that will be.

I mean certainly two years ago when commodity prices decline the way they did we looked at things and felt like it made the sense to slow down at that point and so we did but we didn't stop. We continued to 3 rig pace.

I don't think today that we are entertaining a slowdown at the moment because I think we feel like that this issue will resolve itself sooner rather than later but certainly we remain vigilant in terms of watching it and seeing how it goes.

One thing I'll say is that I'm always very comforted by the fact that I think we've done a good job in terms of the optionality that we've given ourselves and as we've added rigs back I think as we have done them on a short term you know basis even the long term rigs that we have now are under contract for less than a year and so we really have a lot of optionality in terms of the ability to go faster or go slower if that's a what we should decide to do.

So I think that it's not necessarily something we're entertaining at the moment Gab but one thing I do know is if the environment indicated it was the right decision we could get there pretty quick. .

Okay I would like to just chime in here a little bit and mention again that we're focused also not just on commodity price but returns.

One thing is that if price goes down generally your cost go down Gab and that you can still achieve 40% to 50% of rate of return and I think we demonstrate that when the oil was $50 or even less we were still making money and we were beating consensus.

Now for 16 straight quarters as that we make adjustments and focus on returns and how to get to the desired returns and not just be driven by price and as Mac says we aim at proper growth at a measured pace and measured means taking into account the environment but maintaining a strong balance sheet as you've seen over times and so over five years we've kept that debt to EBITDA ratio is being one of the best in the industry and that's still a core belief of ours that if you're going to be in this business I've been in 34 years you've got to maintain a strong balance sheet.

So as David says you maintain your flexibility and ability to carry through because it's some of those times where it's tougher you actually make more progress.

So I would like for everybody to feel comfortable that we're not out there growing for this just the sake of growing but it's select, it's a definite plan that's based on returns and profitability and the value added and we're all committed to that and we do think that if you're selective enough you can still have and you've fortunate to have the acreage the right kind of rock you can still have growth with profitability in almost any circumstance.

You've just got to be a little creative and a little bit put in a little extra effort.

Matt?.

Yes. I just want to add one thing Gab just the way we think about things is pretty consistent across all the different activities we do and David mentioned the optionality we have with the drilling rigs.

We've been talking with Patterson for just it really continues discussion with them about if we decide to add a 7th rig what kind of rig are we going to get and we're assured that we're going to get a high-tech rig. It's going to be just exactly like what we want.

On the other hand in discussions with them if we need to go down a rig or two we can absolutely do that same with the [frackers] we don't have any obligation to fracker number of wells or number of stages or anything like that. We have a pricing agreement that allows us to go up or down the Eagle Ford versus Delaware option is there.

We still nobody said anything about it for a long time but we still have a hinds of option. So keeping all our options open even in the midstream business we've got one of the things that Craig our head of marketing is still list since day one his options are good.

So we built our plant we built a number of outlets and we could offload gas into it and one of those outlets now has turned into the ones bringing gas into us. So just maintaining optionality in all our business lines is very important to us..

Gab that's a great question that you asked. I hope that answer was sufficient and I would invite you to come see us and we again continue to discuss at length but we're really, it's really important for us to have that flexibility and we do have that deal if it's not - doesn't provide a return we don't we do unless it makes economic senses.

You know how much stock that these executives in our board own. We make more from our stock than we do our salary. So we're not out here to invest in things that don't have value. That sounds corny but we really believe that and a lot of other shareholders and friends and family and so everybody's pretty values pretty value conscious. .

All right. That's definitely great answer and great color and thanks Joe, David and Matt and everyone else. Talk soon. .

Thank you. And our next question comes from Dan McSpirit of BMO Capital Markets. Your line is open. .

Thank you folks. Good morning. Speaking of driving shareholder value Joe if we could just turn to Twin Lakes no ignoring what Twin Lakes could mean to the inventory and how it could help write the next growth chapter for the company.

How do you frame the assets importance and driving shareholder value and how do you assess the risk of it not working and not competing for capital?.

Well, Dan let me try to take your question in this basis. Question like that has to be taken in relation to your other assets and very fortunately we have we'll probably finish a year with over 90,000 acres in the Delaware portion of the company. So we got great assets. We've got 2000 engineered locations down there. No shortage. Lots of options.

So what you have up in Twin Lakes is very additive to what we already have. It's exploration acreage that we require for the most part on a weighted average basis of probably $200 to $300. So in terms of investment up there isn't that much and on the other hand we've been encouraged but what we've seen we've approached it like we've done everything.

If you think about our progress in the Delaware we went public in 2012 with a small Delaware position. We announced that it wouldn't be until 2015 that we thought would really gear up and that's exactly what we did. We drilled well in 2013 or 2014 drill a few more follow on that as we begin to delineate our position and then geared it up.

So I think most good exploration is done deliberately over a period of time and that's what we've approached. Others have gotten interested in that area up there at [indiscernible] DGP, and so we're not the only ones that appear to be encouraged by the data. The three wells that we've drilled up there ourselves have all done better than expected.

And one that we're in now in the process of completing we're very encouraged by but it's a deliberate game. If you go too fast you waste some money but we chord two wells. We are able to compare.

They look promising and they're behaving better than expected but most like we projected that they would have not headline-grabbing initial rates but over time they're little better permeability and porosity would have a more gentle decline and we've raised our reserve estimates on those wells and so we think it's going to be additive.

If the whole thing should not happen we didn't pay much in acreage. I mean it was a couple of hundred dollars and it's to me good exploration to go into an area where you know there's oil that area up there is produced billions of barrels. It's still very promising and I think you'll come to contribute and things are moving faster up there.

Now that other companies have seen kind of what we've done as the results and so that's building some momentum. Brad what would you add to that? Brad is our head of reservoir engineering. .

Joe I think you hit all the key points there. I do think the point you made on just the Wolfcamp especially it's a little different up there and what we're finding is that targeting can make a big difference and we're producing and our Culberson well we're really pleased.

It's done probably better than I expected at this point and we're learning that it could be better with some slightly different targeting and that's things we're learning from the data that we're collecting and we're applying that now over in [indiscernible] and we're really excited to be completing that well which should be towards into this month and we'll know something probably about our third quarter.

So it's a little different up there then down in the heart of the basin but that we've got a great science team with [indiscernible] and his geo-science team analyzing all the data and we're really excited that it is going to be a major asset for us in the future. .

Certainly it could be but we're going at it in a way we're not dependent upon it any way to achieve our 20% growth that we aim for or the profitability but we think we'll be additive. You have the opportunity because that area is block here for the longer laterals.

Also it has opportunities for midstream possibilities and we're going to continue this methodical approach to explorations like what we did down there in Wolf and then again in Rustler Breaks and we've gone in our other areas. So I hope that answers your question.

We see it a lot of upside not much downside and so anyway again we feel there's two areas the [indiscernible] area and [indiscernible] on the other side of [indiscernible] both showing a lot of possibilities not just in the Wolfcamp which is thick and there's a number of target zones but also in the strong though all the oil well that we drilled has held up very well too and exceeded expectations and that was just a vertical well.

So looking good I don't want to tell you it's going to be better than Rustler Breaks or any of that. It's hard to meet that kind of success superstar but I think it's going to be a productive area and could get really good. .

Well I appreciate the thoughts folks and with that have a great day. .

Thanks Dan..

Thank you. Our next question comes from Philip Stuart of Howard Weil. Your line is now open. .

Good morning guys. Congrats on a great quarter. You know you guys have obviously done a very good job of adding acreage to kind of your existing operating areas.

I'm just curious if you have - if you see a larger opportunity set in any one particular operating area to add acreage going forward maybe Rustler Breaks just given another San Mateo partnership there and kind of that's kind of your area where you're running the most rigs is that maybe the most likely spot where you continue to look to add and kind of what kind of prospects are out there?.

It feels good. A very good question and we ask this that same question of ourselves all the time.

We included a map on our website which shows on this $80 million eighty deal that we did yesterday where we added acreage and I would refer people to that and that showed that we acquired acreage in Wolf a good amount of Antelope Ridge and of course a good amount in Rustler Breaks it's really add on to our existing acreage or in the adjacent tracks.

But I think there's still just as much opportunity up in [indiscernible] and Ranger to add acreage and the pleasant thing for us is that each of our operating there across all of our acreage we're having good drilling success and even up there in Twin Lakes.

It's a high-class problem as David said but each of the asset teams are asking for more drill time and more CapEx being spent and they're proposing some pretty good wells and we're trying to again keep that measured pace.

So I would just tell you that in Wolf, Jackson Trust all that down south our guys did a good job but they're going to be but I think up there in [indiscernible] Ranger you're going to see opportunities and in our core areas of Twin Lake.

So over the next 12 months we expect additions in all those areas and I do want to again thank you and the other analysts who last time really wanted to see a map.

So we want to be responsive to that and include the map to give people an idea and tied back to our the - when we did the equity race in our offering document there that we did exactly what we said we do that this was a good part of this money was going to go to buy acreage, lease acreage and rental acreage in and around our acreage and I think people can see that we've done that and that we're - we haven't stopped yet.

My experience over 34 years and out here in this area and being a land man is there's always acreage to be had, deals to be had, trades to be had with other companies which I think are picking up steam because that's such a win-win proposition that you feel in your sections, they fill in there's, you do the trades.

So I see that opportunities continue and [indiscernible] he still has his RV and that you never know he's going to pull out in the night and just set up shop at all the courthouses. .

I'm sorry [indiscernible] can add to that it's not entirely coincidental that while these opportunities present themselves in areas where you're very active in Wolfe, in Rustler Breaks, Antelope Ridge is our activity levels increase in those areas over time we had more and more opportunities come to us and I think there's a number of reasons for that and maybe one of the most important ones is when you get in an area and you start to show efficiencies and you're drilling good wells and you're good operator those opportunities will come to you.

So I think as we increase our activity level in the coming year or so up in Antelope Ridge or in Arrowhead and Ranger I think we're going to see additional opportunities up there as well. .

And Phil this is David. I just wanted to make one quick comment while we're talking about acreage in the maps.

In the slide deck that we sent out last night as part of our earnings release I noted this morning those who are getting to know actually last night as I was kind of doing one last review of all the materials in preparation for the call today.

On slides 8 and 9 where we show the updated map at particularly slide 9 the call-out box that we had for Antelope Ridge actually happened to cover up the chunk of the acreage that we bought in Antelope Ridge so that was probably not the best placement of that call-out box but we have corrected that on the website and so the if you just go back if you're interested anyone you may be listening and kind of reprint slides 8 and 9 you'll see it says - you'll see the acreage in its fullness as opposed to the little peek-a-boo that we had last night there.

.

All right guys. I appreciate the time and the color. Thanks. .

Yes. Thank you..

Thanks Phil..

Thank you. Our next question comes from Neal Dingmann of SunTrust. Your line is now open..

Morning guys and Joe let me know if there's room on that RV. I'm always ready to just kind of road trip..

You are welcome anytime..

Your development piece is ready for that..

David, and Joe my question is really just on the opportunities you continue to see. You guys did a great [indiscernible] long term agreement deal.

You've talked a lot about that's been really beneficial as well as this kinder firm sales agreement and Joe my question is really are there as you guys continue to see out there are more opportunities or you call it needs for more of these things going forward?.

Neal yes. We're not done yet. We do see further agreements or arrangements that can be made to improve our lives so to speak, improve where we have set things up it'll give us more options, volumes, prices, terms.

When I say terms I'm talking about duration that we're looking at some very tempting deals but they're saying a little longer term than we'd like to have and then we're looking at some shorter term deals that we think can be favorable.

So we're never going to stop trying to provide better takeaway and flow assurance and processing options and market options.

We're working towards just like what we did with planes where we buy the barrels back in midland for those days when we might want to send it to [indiscernible] or do to the Gulf Coast we're working out deals to get our gas down the Gulf Coast which we think is a good market or even to Henry Hub. So I give a lot of credit.

Craig and his marketing group have really done a good job of creating those options and those opportunities and we think there will be more to come.

I mean this business is there's going to be more pipes which mean you have more opportunities that marketing is getting more sophisticated and they've been good about building relationships and I've really learned a lot from all of them what can be.

So I think in October and at the end of the year you're going to have more comment from us and how they continue to further our position.

Matt?.

Hey Neal this is Matt and I think the way you phrase the question in regards to San Mateo I think is important. So the take away capacity we're talking about [indiscernible] about to deal with claims any third party volumes that San Mateo brings on board for the gathering system will be in that same agreement.

So they all have the same flow assurance that the Matador has getting the barrels bought at the wellhead and the opportunity buy back your planes but one thing that doesn't get near as much discussion is the NGL take away in the, I think people are starting to talk about a little bit more but that's [indiscernible] sponsor it heads up to the San Mateo group that's one of the things he can now go to third-party operators with and say look we've got not only do we have firm take away capacity for your residue gas but we have a couple things in regards to the NGL.

We're going to have the full ethane recovery option which I think now is in the money and certainly as gas prices would continue deteriorate it would become even more valuable for them to be able to offer that but also this agreement that we have with the pipeline that comes to the tailgater of plant for NGL so that's a firm takeaway issue there too.

I mean BP is actually buying NGL at the tailgate of the plant. So they own and they're putting them on their system taking away to where they've got fractionation capacity and so that's a pretty good deal for both Matador and San Mateo..

Pretty good and then just one quick follow-up Joe you're well cost continue to be about among the lowest up in the basin there in the Delaware.

I was just wondering about when you talked about local sand are you looking at things like local sand or more vertical integration to bring costs down further or are there opportunities like that getting a little bit more difficult to come by?.

Yes. Again an excellent question and the answer is yes to all of those. Every phase of cost that we're really looking at and we begun some experimentation with local sand. We're doing almost all of those sands and Billy I want Billy to pitch in here and Matt because there's a lot of credit for working out some pretty good arrangements.

We have a Maxcom program which goes 24/7 in our offices where the geologists and the engineers are doing the directional drilling and that's working out amazingly well the teamwork between them, the engineers learn geology, the geologists learn engineering and we're saving a lot of money because you don't have drilling engineers they've got to wake up in the middle of the night and make a decision and takes two or three hours.

Our guys are making them instantly. That's already saved us a ton of money. Young guys that are running the rigs have they just get better and better and ever, let me just let Billy speak for his group because I know he's beaming with pride at your question. .

That's right Joe. The Maxcom room 24/7 it's tied together the drillers and geology department and the asset teams.

They all spend a lot of time in there working together having meetings and watching what each other doing and we found that we're staying in zone a lot more and not just zone in the target zone but in the preferred part of the target zone and thinking that we're going to be doing that. We were thinking we might be slowing down but we didn't.

We've actually started staying in there and drilling faster at the same time. So making better wells, the drilling faster, saving money and hats off to all those guys like we say 24/7 so that's a great thing for us and we've set records in each whole section and we've become not just like a one-off record but they become consistent.

They'll knock down a curve in an area from 12 hours to 10 hours to 7 to 6.5 hours and then they'll just keep matching it. So we're consistently performing at a high level and expect that to continue.

So we're all doing a great job there and then also like you mentioned the completion side there we've been testing and evaluating new techniques, the slick-water tracks and spacing and the local sand and I'll let Matt chime in here. .

Yes. I mean near your elective the fact that you said too were the low-cost what we're really looking at is trying to maximize value and so the completion team we talked in quarters past about moving towards regional sand and we're going to do our testing, we're going to do our research and were going to make sure that we're comfortable.

I think we're pretty comfortable at this point. So we've actually plumbed some jobs with regional sand and as we've talked about before we're not going to know from an IP or even 30 or 60 or 90 days but so far the things look good. The cost savings that we had anticipated are there.

So there's a reason for us to do that but Billy mentioned some slick-water jobs. That's an area where we may actually spend a little more money but if we can increase the production in the reserves we're very willing to do that.

So again we just try to maintain a lot of optionality with this and we're also as we put the drill schedule together for this year, for next year we've got a large number of the wells that we're going to drill. We will have some component of pad drilling.

So we talked at analyst about two-thirds will have you know some multi well component too so we're going to continue to focus on not only cost structures but also efficiencies. .

And then I want to thank Patterson for working with us as they have on the rigs because these are really state-of-the-art rigs as Billy will describe. I mean they can do a lot more. They're more powerful and better pump systems and they again, they have helped set those records in each section of the hole has made a difference.

Billy?.

Right. That's right Joe. We got out front with Patterson putting together the rigs for us with a high pressure 75,00 PSI popping the 1600 HP pumps.

We've done in the mids in the mud system, the higher pressure, higher capacity gas separators and we've added or manage pressure drilling packages to those and it's helped us as we face challenges in the different hole sections when they appear and we just blow right through them.

That's helped us be really efficient and then also the walking packages like Joe mentioned there with BOP and also we can get the rigs moved around and batch drill the wells and working with asset teams they're saving a lot of money..

It's great details guys. Thanks so much and I will do inside invite from Dan..

Thank you and our next question comes from Gordon Douthat of Wells Fargo. Your line is now open. .

Hey good morning everybody. .

Hey Gordon..

Hey. So just had a question as you've put on these wells across various benches, multiple benches in the Bone Spring, multiple benches in the Wolfcamp pretty strong results across various areas.

Are there any projects that are rising to the top from an economic standpoint kind of as you looked to playing at your development with what do you see in kind of rise at the top?.

Hey Gordon it's David. That's an interesting question. I think that in some ways it's a little bit dependent on the area that we're in. I think that we've been very pleased with the returns from both XY and the B in Rustler Breaks restive.

You get up to Ranger and Arrowhead I think the second and the third Bone Spring and probably been what we've focused on the most and we're pleased with what we're seeing there but we're even as we speak we're doing another test at Stebbins on the upper Wolfcamp.

They're in that areas we continue to try to test the Wolfcamp a little farther to the North. I think you get over Antelope Ridge there's a number of targets that we're excited about but I would say this first Bone Spring target is one that I think is really begun to catch our attention and catch our fancy.

Of course the lower part of the Wolfcamp where we drove that hoarseness well in the last quarter we're certainly - is certainly going to stand down and continue to do well and you've been down in the Wolf area while we like what we've seen in the lower parts of the Wolfcamp and the Bone Spring I think the XY has probably been the strongest but then you go over to Jackson Trust and it's probably the lower part of the Wolfcamp there.

So it's hard to just say and it kind of becomes more asset specific I think. .

Okay. That's all I have. Thank you very much. .

Gordon before you got out I don't want to leave out that we have some deeper targets that we hadn't gotten to that have showed promise in one of our wells.

We decided just to deepen a well to the more just to get a quite easy test give some gauge of it but here's a vertical well we took to the [indiscernible] and it's made three million a day very steadily for a long time.

It has really held in that's the Norris-Thornton well named after two of our shareholders who were recipients of the Medal of Honor and so I told them that we really appreciate their efforts to make sure we had a really good well coming out of their nomenclature I guess so to speak but that test alone shows some of the options you have by going deeper to these other zones that we hadn't gotten to.

So we're hadn't yet reached full development mode because we're having so many different zones and just to give you a story when we were doing the IPO our reasons for going out there to the Delaware was that we had done the oil in the Eagle Ford that was the hot area of the country and we felt there was more application for these old [indiscernible] these old shells out there than anywhere else and as we went out there it was on the strength of two or three formations and now we've got production coming from about 16 and it hadn't stopped yet and -- so it's been a very favorable area the Eagle Ford has had culpable turns on the well you drill.

It just has one or two sounds Austin Chalk is coming back down there in the Buda but out there in the Delaware as I said you got 16 and we may end up with 20 before different zones and if the column is so picked 5000 what Brad was talking about targeting we found that even losing as little as a 30 feet can sometimes make twice the well.

So we've been proponents that over time targeting will be as important as any of the other steps of looking at some formations and figuring out which ones offer the most potential.

So where the thing that pleases most that across all of our acreage we're earning the targeted returns that we try to get to 40% to 50% and we're still assessing and watching the new innovation and new [indiscernible] all that they can have a big effect on which zone is got the most offer and where should we go economically. .

Thank you for that color Joe. .

Well thanks Gordon and it's a great question and as I said there's -- it's hard to say they've all been so good that you can't say we're going to go over here and put this other area and hold. All the asset teams make very compelling cases to keep up investment in each area and see what happens. .

Thank you. .

Thank you. Our next question comes from Jeff Grampp of Northland Capital. Your line is now open..

Morning guys. Thanks for squeezing me in. I was curious you guys reference in the release a couple of times the trucking of your oil in the Delaware.

I'm just kind of curious if you guys can give us a sense what truck versus what's on pipe on your Delaware oil? How that could potentially change over the next few months and then just in general of your conversations with the trucking companies what's your sense of how availability might be trending on that side of thing. Thanks..

Thanks Jeff, this is Matt. As we talked about the Wolf acreage everything at Wolf is currently on pipe and so when we get planes into Rustler Breaks up there all that will be on pipe. So I think in innovation you're probably looking at certainly north of 70% of all the oil will be on pipe.

The remainder of it we've been successful thus far and we'll knock on wood but we've been successful thus far in securing firm capacity on the stuff of Antelope Ridge and stuff at the Ranger and Arrowhead it's not on pipe.

We - typically the negotiation is to that term and how long we're willing to sign it for that but even the stuff that we've got on trucks there we've got from capacity there. .

Okay. Great.

And then for my follow-up I'll hop in the [indiscernible] hand but on the mineral acquisition side of things can you give us a number of where that's kind of mineral acreage stands today and maybe what kind of production is coming from those minerals?.

Yes. This is David, Jeff. If you'll just sort of forgive us I think we're not quite ready to you disclose I think we said in here that we had 3400 acres of minerals that closed in this deal. I think you can go back to previous releases and kind of see what we had and but we're just not quite ready to disclose what all we've done there.

They're still - we still have a little bit of work to do there and we want to maintain as much of our competitive advantage as we can. So if you'll indulge us a little bit there I think we will - we certainly will talk more about that as you know time goes on.

I do think that as we said at the time of the offering that the minerals that we can acquired over in the Rustler Breaks area for example we're probably going to add plus or minus 500 BOE a day as I recall once they had closed. So we will begin to see that.

I think what's exciting to us is that so many of those minerals are under tracks that we actually already have one production or will have on production and it's certainly in an area where there's a lot of activity.

So we expect those minerals to get drilled likewise the things that we acquired in the other areas should have the same kind of activity on them. So I hope that's adequate but that's probably about as far as we're ready to go today. .

Yes. I appreciate it David and that I will stay tuned in the future..

Okay. Very good. Thank you..

Thank you. Our next question comes from [indiscernible] Institutional. Your line is now open. .

Morning. .

Morning..

I want to go back to Twin Lakes for a minute again and I was wondering I know the features of the position out there is the water content is expected to be lower than elsewhere in the base and I was just wondering from the wells that have been drilled so far I know it's early still but has the cleanup and then sort of the oil [indiscernible] relative of the water is that kind of about like you expected pre-drill?.

This is Brad. It is. We expected it to be a little lower up there and right now the water cut averages maybe 40% or 50% so that's substantially less than what we found in the main part of the basin. So I'm not too surprised but I am pleasantly surprised that it is actually a little bit lower than we expected. .

Yes. In the lower part of the Delaware basin you may have four times the water for each barrel of oil and up here you're having a half a barrel for each barrel of water. So it certainly makes your lift costs better that's one of the economic advantages and you know as I said we like both areas.

There are different kinds of production and wells but we believe both will add value. .

Great. Thanks. And just to follow up as you plan the next wells you're going to do out there between you and your partners that are going to happen are you more doing at this point sort of along a trend or are you going to be heading more towards all the four corners of your acreage to just get a sense of how the formations might develop across it. .

I'll speak and then anybody else can say what they want but we don't tend to go to the four corners. We tend to go to the very core and then expand out is way I would describe it on a step out controlled basis.

Brad?.

I agree Joe.

I think we go right to what we believe to be the core of the acreage and we collect data in that area and we use that data to help extrapolate to in all directions and try to help us predict based on our geologic models and our reservoir models where we think the acreage can be developed and we are in Twin Lakes we had identified two different specific areas where the Wolfcamp looked very good to us and you can tell from our acreage position where the areas we were interested in and we went right in the middle and drilled some test wells there.

So we're really excited to complete and test this new well that we've drilled. As Joe mentioned earlier there's quite a bit of activity going on up there if you would have looked at that area two years ago wouldn't have been reactive but so we're really excited about it and that's what we're planning on. .

Great. Thanks a lot. .

Thank you..

Thank you. Our next question comes from [indiscernible]. Your line is now open. .

Morning guys. .

Hey Mike..

I am just trying to do some math here which is always a challenge for me but I wanted to see if this sounded right to you [indiscernible] first half DNT capital of about 336.5 million to complete 35.7 wells works out to about 9.5 million per well is that in the ballpark or is there's something fault with my math there?.

Yes I'd say what probably is faulty with the math Mike is that there's always costs of wells in progress.

The term of the accounting standpoint have to be a [indiscernible] so and I don't have that number exactly on the top of my head but I can guarantee you that there will be a significant chunk of capital that's been accrued in that 335 million for wells but had not been turned to sales yet because they were either drilling or completed or in the process of drilling and completion and so I think you just always have to take that with a grain of salt.

For example we had two wells on our Coleman [indiscernible] up there and Rustler Breaks they were absolutely drilled, completed, finished and that didn't come online until the first or second day of July.

So only report numbers turn into line well they didn't make the cut so they weren't shown on the list but all their costs I guarantee are in that number already. So I think that's - I think until you kind of get through a year and have a chance to kind of look at all that in hindsight it's a little hard to make that that kind of math work. .

Got you. Okay. Wanted to follow up on Joe's commentary on the 16 zones that you've tested. I think you guys have been really a pioneer in the basin on testing both the number of zones and the acreage that you have delineated.

Do you foresee at some point next year I guess my question is when do you foresee? There's a lot of issues with full development people have talked about parent child issues and how to set up your infrastructure.

When would you or do you have any plans for 2019 or beyond to maybe look at a full development scenario?.

Mike it's Matt I think the way we're approaching this is it's kind of as Joe said a measured pace we do or we are currently drilling wells on what we think is likely the proper spacing both vertically and horizontally and as we learn more about that we'll adjust that as we go but I think it's going to take a while before we're able to determine exactly what we want to do in a full development on a section.

I know there's some others that are out testing that that are actually doing multiple wells but our approach is going to be a little more methodical I think. We're going to do it in a section here in a section there where we're looking at the right types of spacing before we jump off into a full development cube type drilling. .

Mike big risk about rushing into full development is you're going to - there's a likelihood of over drilling the sections that this is something that we discovered in the Eagle Ford that when you thought that you were - you could drill say these on 40s, or 80s you didn't notice on the high [indiscernible] the first month that there was any interference and it wasn't until after a year you began to see the interference and so as a result you just can't rush in and drill full of the pad.

I wouldn't do that.

I think there's too much risk that you take some time and some data points to know whether it should be four wells to the section or six wells to the section and you need to go at it in a pretty methodical fashion and the same thing it's a tension between delineation and full path and you can't say there's always a bright line and you have a push-pull there that depends on a lot of different circumstances.

It's not a single factor and you can do a path and in the first months of production you'll think hey no interference but at the end of the year you will begin to be seen. .

This is Brad. I agree Joe. That's exactly and we treat each area a little differently because the reservoir properties do change and so what might we may develop on 160 acre spacing in one area might be 80 acre spacing in a different area for essentially the same reservoir.

So as we drilled these parent wells and we analyzed the production and the data that we collect we are constantly looking at optimizing the well spacing and just to expand a little bit in Wolf right now we are more in a development mode for the XY.

It's been our bread and butter down there but we're still doing some exploration and so there are some areas where we're in I would say full development mode while in other areas we're still delineating new reservoirs..

Does that answer your question Mike?.

Yes. It did. It does sound like you're still primarily delineation probably through next year yes, but then isolated areas like Wolf sounds like you're there but I wouldn't expect a big cube type development for six or seven zones in a section next year that probably too early to anticipate sounds like..

Yes, I think that's fair.

Matt?.

Yes, I think it's accurate. Like I said I don't think we're quite ready to start doing that just for kind of like Brad said [indiscernible] together what's going to work in the X and Y and what's going to work in the second and third Bone Spring and first Bone Spring in areas where we're drilling just we'll take it piece by piece..

And Mike we're trying to gather data from some of our operated by others that are in a bigger development mode like that and see how those results compare. So kind of letting somebody else go first with it and through our OBO give us a chance to get smarter..

Make sense. Thank you guys. .

Thanks Mike. .

Thank you. Our next question comes from Sameer Panjwani of Tudor, Pickering, Holt Company. Your line is now open..

Hey guys. Good morning. .

Hi Sameer. .

Is the increase [lot of activity] in the Permian is that pushing more aggressive stance based and wide I'm trying to get trades done to have better control over companies specific spending and development?.

Well, this is David Sameer. I think that I would characterize it is that it just provides for more opportunities to do that.

I mean there are times that we issue proposals to partners or they issue the proposal to us and as part of that activity you may discover hey we could swap out our interest in this section for your interest in that section and it would, it might result in a situation that both of us prefer from an operating standpoint and when that's a mutual win-win for both of us we're certainly very willing to do that and have done it many times and I compliment our land staff on the ability to recognize those situations and seek them out.

So I think that we've done several trades. We've done a lot of trades but we've done a number that we've talked about that I think we felt like really added value for us and I'm confident they get for the partners that we traded with.

So I think we're pleased with the cooperation that we see and yet and appreciative of the other companies that we work with and the relationships that we have. I think we're all trying to just improve and prove our lives the best we can and this is proven to be a good way and I'm glad that the industry is very open to doing that sort of thing..

Okay, that makes sense. So I guess it would be fair to say that a pace at which those opportunities are presenting themselves has accelerated..

I think that's probably fair because of the fact that activity is picked up and as activity is picked up for everyone but there's just more of these kind of proposals that are being that being issued and when they are that just opens up the opportunities..

Okay. Okay. Great. And then on the midstream side you guys are quickly approaching that $100 million EBITDA mark.

It kind of feels like that's the point where generally it might be able to stand on its own two feet are there any incremental third-party opportunities available today and how far away do you guys think you are from achieving the scale required to make a decision on the future of that business?.

Well, I think that this is David again, I think that first of all sometimes the midstream guys think they already are standing on their own two feet.

So they might push back with you a little bit there but I don't want to be but I think that's what look we feel like that there continue to be a lot of midstream opportunities available to Matador and to San Mateo.

So San Mateo has done a great job of getting the infrastructure in place both at Wolf and in the Rustler Breaks area and for all three streams for natural gas, for oil, for water drilling out two more saltwater disposal those up there now as we speak.

The oil infrastructure, gathering infrastructures is all in place, the trucking facility is all just about finished up.

So that we're all ready when the planes line arrives and there's areas of our acreage Antelope Ridge, Arrowhead Rangers where we're starting to talk about what might we want to do from the midstream basis in those areas as well and in the areas where we are there's always additional third party opportunities.

I mean clearly the significant agreement signed with another producer on the water side this year I mean this past quarter was great. It was just terrific and but we had other agreements that are already in place as Joe mentioned earlier.

There's another and we've put in the release is another midstream company where we're going to be having the ability to purchase some of their gas and process that there at San Mateo so that'll add to the volumes there and the guys are working on other deals all the time.

So I think we're very optimistic pleased where we are but very optimistic that we will continue to add to these third-party opportunities. .

And I think you make a very good point and one thing that I think is very advantageous is the footprint we now have in the basin with oil gathering, water gathering and disposal, gas gathering processing all these things are at a point now where as a third-party opportunities present themselves and those continue to grow and grow.

It's pretty easy for us to add to these assets for instance on the saltwater disposal systems we've got to the point where we've got a number of saltwater disposal wells and there's more opportunities more volumes come online.

It's pretty easy to drill another well and add to that even on the gas plant, the gas processing plant we have Rustler Breaks, if we get that thing full of 260 million a day we can easily add another drill and just continue to build a business. So it's in a very nice place for growth..

Okay. That's really helpful.

Last one for me I'm just trying to understand with the second quarter production out-performance and the increase to the full-year guidance how much of that is coming from operations and how much of that is coming from the acquisitions?.

It's coming almost entirely from operations. So the acquisitions are going to add round-off there to what those numbers are..

Okay. Thank you..

You know Sameer that's one of the things that we think distinguish Matador from many other companies out there. We haven't been acquiring really producing properties. We all of our growth is almost all come organically from drilling of wells and when you grow organically you should have higher rates of return.

When you have to grow by buying production and things like that that may work out for you over time, but generally you're likely to get a 10% right and return because there's a lot of competition it turns in one way or another into a bidding auction and the seller in that do his best to get that rate of return as low as he can and be much less than what you're drilling opportunities are.

Now it's trickier to grow organically and with the drill bit that our teams have met the challenge that Matador start off with $6 million and we're at the $4 billion level and when we went public we were making 400 barrels of oil a day and now it's 30,000 barrels of oil.

So you got to give credit to our various teams and that production comes out of three basins we made good decisions in the [indiscernible] and the Eagle Ford and now the Delaware. So I think that's one thing like to be noted that over the 15 years that we've had a very steady rate of return.

We've done it organically and that we put the money back in good decisions and the outlook for going forward we think has never looked better. All areas of the company are doing very well, exceeding expectations.

The wells are exceeding expectations and the teams are really working well together, and a couple of things I don't think are fully recognized in the market one is the growing value of the midstream. As you noted they're really doing a good job in their areas. I don't know when it reaches critical mass.

We're studying it and we have a great partner there that has worked with us and we are very pleased with the way that joint venture is going. Our minerals are growing in value and that gives us further options there and then the ongoing development plan that we have.

We're not finished targeting our various zones or other zones and our teams are building scale. So we'd like our chances going forward and are very pleased with the opportunities we have above. We just enjoyed the two best quarters in company history.

I would like to think that momentum will continue and we invite all of you to come see us and see the depth of Matador just with the executive committee because throughout the company and we've got rising contributions from our young leaders here and in each of the departments. So now look I just like to say it looks very promising here.

We've got a lot of hard work in front of us. We got to keep finding ways to improve but I like our chances..

That's a color Joe. Thank you..

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

Compliments of Sameer I think I just did it. If you want more hit you rewind and do that again, but thank you all. We do appreciate your questions and comments. We do think it helps make us better and we hope see all of you soon and more to report in the near future..

Ladies and gentlemen thank you for your participation today. This concludes the program. You may now all disconnect..