MTDR 2025Q4

Good morning, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2025 Matador Resources Company Earnings Conference Call. My name is Marvin, and I'll be serving as the operator for today. As a reminder, this conference is being recorded for replay, and a replay will be available on the company's website for 1 year as discussed in the company's press release issued yesterday. I'll now turn the call over to Mr. Mac Schmitz, Senior Vice President, Investor Relations for Matador. Mr. Schmitz, you may begin.

Thank you, Marvin, and good morning, everyone, and thank you for joining us for Matador's fourth quarter and full year 2025 earnings conference call. Some of the presenters this morning will reference certain non-GAAP financial measures regularly used by Matador Resources in measuring the company's financial performance. Reconciliations of such non-GAAP financial measures with the 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 included in 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 annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q. In addition to our earnings press release yesterday, I would like to remind everyone that you can find a slide presentation in connection with our fourth quarter and full year 2025 earnings release under the Investor Relations tab on our corporate website. And with that, I would now turn the call over to Joe Foran, our Founder, Chairman and CEO. Joe?

Thank you, Mac, and thanks to everybody who has listened and taken the opportunity to participate in this conference call. The first thing I do is encourage you to look over the slides, particularly if you don't have time to read the whole press release that we had. There has been a lot of thought put into those slides to try to make important points that I believe are essential to the Matador story. Second, if you do not feel you've been given an adequate opportunity to ask questions, we want to invite each of you to come visit us at our offices, where we will make sure that you're given all the time you want to ask your questions and get your answers. We would invite you to have lunch with the executive team or, if you'd prefer, we will arrange for you to meet with some of our young leaders and get to know the people who are coming up and are pillars of support and activity, doing a wonderful job. I want to emphasize today in this conversation the quality inventory that we procured over time, particularly in the Delaware, where I started Matador over 40 years ago. This area has over 200,000 acres. My experience is that when you're in what you feel is the best rock, it's a lot easier to build than trying to pull together some of these outlying areas. Second, I hope you'll note the strong balance sheet that we have and that this past quarter, we increased production. Most importantly, we increased reserves by 9%, as measured by Netherland and Sul. We increased production, reduced debt, and had strong cash flow despite fluctuations in prices during the last 90 days. We believe this inventory, balance sheet, and strong cash flow lead to growth optionality. With San Mateo, we now have flow assurance outside the basin. Hugh Brinson has been a change maker for us, and we're excited to work with Energy Transfer on that opportunity. And with that, we'll take the questions. Mac?

So great. Thanks. Marvin, we're ready for Q&A.

First question comes from the line of Lauren from Bank of America.

This is Noah here. You guys increased net undrilled lateral footage by 2% this year. What was the delineation a result of your brick-by-brick land strategy? Where were these locations added? You also had significant inventory adds in the Avalon, third Bone Spring Carbonate, and Wolfcamp D. Are you seeing something that you like from those formations?

First, I'd just say that was a lot more than one question. So which one of those do you want Tom to answer?

Really just if you could address the inventory adds and whether you're seeing any positive results from the Avalon Third Bone Spring or Wolfcamp D?

Sure, Noah. Definitely appreciate your question; it's something we're very proud to answer. I would say the production out of the Avalon in particular has been very strong. I think we highlighted a particular well in our Southern Ranger area, a very strong upper Avalon well that has been a very, very high performer. It's getting close to 400,000 BOE, with a very high oil cut. We have a lot of running room in that part of the basin, and it's been expanded over the years. The other locations are various adds throughout the position. I'm proud that you noted the increase in footage. Our teams have been very busy doing trades and extended laterals, and we’re proud to see the 6% increase in our average lateral length in our inventory from 2024 to 2025. We've noted that we're doing some 3.4-mile laterals, particularly on our Ameredev acreage. Our teams have significantly improved the quality of our inventory through good geoscience support in identifying these opportunities, and I think that’s something we can build upon.

Our next question comes from the line of Neal Dingmann of William Blair.

I'll make sure to keep it to one question so I don't get in trouble.

Neal, we really appreciate that you’ve been here multiple times asking these questions. It’s been a very productive discussion. Colleagues like [indiscernible] and I have posed various questions to you, and we hope to see you return.

That you all have been very generous with your time, Joe. I definitely look forward to getting back there soon. My question to you, Brian, is really just on the '26 plan. It seems you continue to target free cash flow over production growth. This year, there's a great plan out there for 3% oil growth with an 11% reduction in capital spending, which was different from prior years, where you targeted higher production growth. Do you believe the key to value creation is capital and operational efficiency, or what do you see as the main driver for this value creation?

Well, it’s a good question, and it’s a fair question. The way we do things, as you know, we like to collaborate with each other. Several of us lean one way and others lean another way on what's important. Ultimately, it depends on the economy and what interest rates are. It varies from year to year and time to time. But first, we look for the good acreage. Good acreage generally leads to favorable outcomes, whereas it's hard to turn poor acreage into profitable wells. The other aspect I consider is long-term reserve growth. When you prove up reserves, it gives you options on when to complete wells and bring them to market. Last call, we were criticized because we grew production but also grew our CapEx. This quarter, we demonstrated our capital efficiencies and reduced CapEx spending by 11%, while recovering approximately the same production. Our reserves increased by 9%, which we see as a positive outcome for the quarter.

Great question. When we look at long-term value creation, the focus is profitability, not just production. We try to optimize the various levers that contribute to our strategy. For instance, on the revenue side, Hugh Brinton coming online by the end of this year will help improve gas realizations. We've also achieved a significant capital expenditure reduction as part of our 2026 plan, which I detailed on Slide 6. Overall, we are able to reduce costs while improving well results—combining these efforts contributes to the long-term value creation we are focused on.

Our next question comes from the line of Tim Rezvan of KeyBanc Capital Markets.

One question. Joe and Brian, we noticed the second priority for 2026 in your earnings release was midstream value realization. We also saw your report aggregate San Mateo and Matador Midstream EBITDA guidance for the year. As we think about the timeline, knowing this is a high priority, it seems like dropping Matador assets into San Mateo is a precursor to anything. Is that something you could do now? Or do you need to let the dust settle on the 5-point continuation vehicle first? Can you walk through the theoretical steps we could be looking at this year?

That's a good question. Let me try to answer it. We approach this matter holistically. We gather to discuss various perspectives to create a sound plan. It's been a cautious period, given various factors including the economic climate and geopolitical tensions. We’ve hedged our bets; we’re 50% hedged on oil to protect the balance sheet. Additionally, Five Point has been a great partner and is making steady progress. We aim to be nimble and make decisions holistically, considering the economic landscape and vendor relationships, which have been supportive.

To add to Joe's remarks, our long-standing relationships on the E&P upstream side have been essential to our operational success. The Five Point partnership allows us to work on structuring a deal that includes their participation in our future growth. We will continue to move forward with drop-down conversations. We're excited about our Ameredev acreage and the productivity it brings, pairing well with San Mateo's gathering side.

I want to highlight our participation in artificial intelligence. We've found that working collaboratively with our vendors on AI can be beneficial for all parties involved. We're taking deliberate steps, as some of our partners are further along in their AI strategies than we are.

Can you talk about how you're thinking about using the buyback going forward? It was relatively limited over the last couple of quarters. I know you didn't plan to be formulaic with the boosts, but could you shed light on how you plan to allocate free cash flow to buybacks in the future?

Hi, Zach, definitely on shareholder return. We're proud of the cash we've returned through dividends and share buybacks. We've raised the dividend six times in four years and have a 3% yield today. The share buyback instituted in 2025 is an additional tool we have. Our management feels the stock is undervalued. We're prudent with our capital but plan to use the buyback opportunistically, especially when there's a dislocation between our stock price and the market.

Wanted to focus on surfactants with my question. Could you elaborate on the enhanced performance you're seeing in your well results, the degree to which you could expand the program in 2026, and how much of this is baked into your guidance?

Great question. We have not included any uplift from the surfactant program into our 2026 production guidance. I can mention exciting early results from our pilot tests. We have used surfactants in completions for some time, and the technology continues to improve. Some formations respond better than others, but there’s potential for greater understanding as we evaluate various parts of the basin.

My question is really on the Woodford. What is the strategy there? Is your position primarily held by production? You're drilling your first well in the first half of this year. You have additional pipeline capacity by the end of this year. Is there further derisking in 2027? What are your thoughts on this play?

Yes, John, we're excited about the Woodford. Our geoscience team has long looked at deeper areas, and we are excited about delineating and producing wells out of several horizons. The Woodford would be additive, and we have a good position on the eastern side of the basin. Our primary objective is to learn as much about the Woodford and adjacent zones as we can through our pilot project.

Thanks, John. This will be our first well in the Woodford, and we have been tracking its results closely. Our aim is to gather as much data as we can as we believe in the potential of the play. This is incremental to current inventory, and we remain very excited about the opportunity.

Yes, John. We're excited about the opportunities in the Woodford. It plays an important role in the petroleum system of the Delaware Basin, and we believe it enhances our confidence in our overall inventory across the basin.

Can you speak about how Matador has built itself through brick fabric M&A as well as organic growth? What are the ways to add value for Matador moving forward? Do you see many M&A opportunities left to continue consolidation?

Hi, Scott. Our brick-by-brick approach has been effective, creating significant acreage without major transactions. We stay vigilant to protect our balance sheet while seeking good opportunities. Many trades yield benefits, but they need to be in the right neighborhoods. We will evaluate larger opportunities as they arise, looking out for beneficial trades.

Just to add to what Van said, we can grow through both larger deals and our brick-by-brick approach. We believe there will be future opportunities, but during years when larger deals aren’t available, we can effectively grow through smaller transactions. This adaptability is a differentiator for us.

Let’s put this in perspective. I started with $270,000 in 1983, and now we have over $10 billion in assets. The same question has been asked throughout those 40 years, including whether growth is still possible amid consolidation. We have consistently found opportunities and believe this will continue as we focus on quality and collaboration, which is key to our success.

I wanted to touch on D&C in '26 for a moment. You guided towards a midpoint of $7.95 and talked about cycle times and better land development. Could you parse that a bit regarding how those improvements are broken out amongst different groups or any other levers?

Yes, Paul. The improvements in D&C cost per foot to $7.95 are largely efficiency-driven. We see greater efficiency through longer laterals and reduced cycle times. We expect to turn in line the same net lateral footage in 2026 versus 2025, while benefiting from $130 million in D&C capital savings year-over-year and maintaining moderate organic oil growth.

I was hoping you could discuss the better wells for less money slide. I am particularly interested in the forecasting of EURs, and whether the exclusion of wells drilled by Matador or Advance impacts historical EURs and if your designs show improvement across this acreage.

Philip, we are proud of our continuous improvement in well productivity shown in our operations. These improvements stem from enhanced targeting, spacing, and completions strategies. We've seen a significant improvement in cost per foot and overall rates of return due to our operational improvements, and acquisitions like Emeritus and Advanced have further bolstered our portfolio.

These efficiencies not only improve well performance but also lead to increased cash flows that allow us to pay down our debt. Last year, we successfully paid down $200 million, lowering our leverage ratio to around 1, providing us with greater flexibility.

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

I'd like to say if anyone on the call feels they did not get their questions answered, please reach out to Mac, and we'll arrange a separate conference call. We want to make ourselves available because we think there's a lot of good progress being made. We're excited about some of these new areas we're developing. As this year progresses, we believe you'll see why we are optimistic, and we hope oil prices stabilize while the economy remains strong. I credit this team for continuing to work well together and encourage everyone to meet the people behind the company who have a direct impact on value. I also want to recognize Glenn Stetson, who has overseen both production and midstream operations.

Thank you, Joe. I’d like to provide an example of how Matador, San Mateo, and other departments work together. In 2025, 72% of the water we used for hydraulic fracturing operations was produced water, which reduced our CapEx per foot while also lowering our lease operating expenses. We couldn't achieve these results without the collaboration of San Mateo and Matador's midstream assets.

To provide further context on flow assurance, just as a cotton farmer in Dawson County, Texas needs to manage the cotton supply chain, we must ensure gas is properly managed in the market. This has been a key consideration for us since going public in 2012. It’s vital for our long-term success.

Marvin, with that, that concludes our closing remarks. Thank you.

Ladies and gentlemen, thank you for participating today. This concludes today's program.