8-K: Matador Resources Announces Strategic $1.9 Billion Delaware Basin Acquisition

Matador Resources Company has agreed to acquire Ameredev II Parent, LLC's subsidiary for $1.905 billion, adding significant acreage and production in the Delaware Basin.

Summary

• Matador Resources Company will acquire a subsidiary of Ameredev II Parent, LLC for $1.905 billion in cash.
• The acquisition includes oil and natural gas producing properties and undeveloped acreage in Lea County, New Mexico, and Loving and Winkler Counties, Texas.
• It also includes a 19% stake in Pion Midstream, LLC, which has midstream assets in southern Lea County, New Mexico.
• The deal is expected to close late in the third quarter of 2024, with an effective date of June 1, 2024.
• The acquired assets are expected to generate approximately $425 to $475 million in Adjusted EBITDA in the next year at strip prices as of late May 2024.
• The acquisition will increase Matador's Delaware Basin acreage to over 190,000 net acres, with approximately 2,000 net locations.
• Pro forma production is expected to be over 180,000 BOE per day, with proved reserves of over 580 million BOE.
• The company expects pro forma leverage to be approximately 1.3x at closing and below 1.0x by mid-2025 based on current commodity prices.

Sentiment

Score: 8

Explanation: The document is very positive, highlighting the strategic benefits of the acquisition, the strong financial metrics, and the expected growth. The language used is optimistic and confident, suggesting a high level of satisfaction with the deal.

Positives

• The acquisition is expected to be accretive to key financial and valuation metrics.
• It significantly increases Matador's high-quality drilling locations in primary development zones.
• The deal preserves Matador's strong balance sheet with pro forma leverage expected to be approximately 1.3x at closing and back below 1.0x by the middle of 2025.
• The acquisition expands Matador's midstream footprint with a stake in Pion Midstream, LLC.
• The acquired assets have a strong existing production and cash flow profile.

Risks

• The acquisition is subject to customary closing conditions and regulatory approvals.
• There are risks related to integrating the acquired assets and maintaining business relationships.
• The company faces risks related to changes in oil and natural gas prices and demand.
• There are risks related to the ability to replace reserves and efficiently develop current reserves.
• The company faces risks related to weather and environmental conditions.

Future Outlook

Matador expects to continue operating a total of nine drilling rigs for the immediate future on the combined approximately 192,000 net acres of the Matador-Ameredev properties. The additional ninth drilling rig and the associated Ameredev activities are not expected to increase the range of Matador's estimated drilling, completing and equipping (D/C/E) capital expenditures of $1.10 to $1.30 billion for 2024.

Management Comments

• Matador is very excited to work with EnCap again on this strategic bolt-on opportunity.
• We view the Ameredev transaction as another unique opportunity to work with EnCap and another value-creating opportunity for Matador and its shareholders.
• We evaluated this opportunity based on the high rock quality, the strong existing production and cash flow profile, the significant reserves additions, the high-quality inventory, the strategic fit within our existing portfolio of properties and the expansion of our midstream footprint with an ownership interest in Pion.
• The equity and debt securities offerings and the revolving credit facility amendment we completed earlier this year, together with our historical balance sheet conservatism, have provided Matador with the opportunity to acquire these high-quality assets and continue Matador's consistent history of profitable growth at a measured pace.

Industry Context

This acquisition is a strategic bolt-on opportunity for Matador, allowing them to expand their presence in the Delaware Basin and increase their production and reserves. It also highlights the ongoing consolidation trend in the oil and gas industry.

Comparison to Industry Standards

• The acquisition is expected to be accretive to key financial and valuation metrics, suggesting a favorable deal compared to industry averages.
• The purchase price multiple of 4.2x for the upstream assets is considered attractive based on the expected Adjusted EBITDA.
• The pro forma leverage ratio of 1.3x at closing and expected return below 1.0x by mid-2025 indicates a strong balance sheet compared to industry peers.
• The addition of 431 gross (371 net) operated locations for future drilling is a significant increase in high-quality drilling locations, which is a key metric for oil and gas companies.

Stakeholder Impact

• Shareholders are expected to benefit from the accretive nature of the acquisition and the potential for increased value.
• Employees may see opportunities for growth and development within the expanded company.
• Customers and suppliers may experience changes in their relationships with the company as a result of the acquisition.
• Creditors may see a stronger balance sheet and improved financial performance.

Next Steps

• The acquisition is expected to close late in the third quarter of 2024.
• Matador will continue operating nine drilling rigs on the combined acreage.
• Matador will provide more information regarding the capital expenditures associated with the Ameredev Acquisition and its impact on Matador's guidance for 2024 in its second quarter 2024 results press release.

Key Dates

Keywords

Delaware Basin, acquisition, oil and gas, Matador Resources, Ameredev, Pion Midstream, production, reserves, midstream, drilling