MTDR 2023Q3

Good morning, ladies and gentlemen. Welcome to the Third Quarter 2023 Matador Resources Company Earnings Conference Call. My name is Latif, and I’ll be serving as the 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 for one year as discussed in the company’s earnings press release issued yesterday. I will now turn the call over to Mr. Mac Schmitz, Vice President, Investor Relations for Matador. Mr. Schmitz, you may proceed.

Thank you, Latif and good morning, everyone, and thank you for joining us for Matador’s third quarter 2023 earnings conference call. Some of the presenters today 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 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 in any subsequent quarterly reports on Form 10-Q. In addition, to our earnings press release issued yesterday, I would like to remind everyone that you can find a slide presentation in connection with the third quarter 2023 earnings release under the Investor Relations tab on our corporate website. And with that, I would now like to turn the call over to Mr. Joe Foran, our Founder, Chairman and CEO. Joe?

Thank you, Mac, and thank you all for joining us today. It’s a pleasure to present this report. At the start of the year, we stated that we would finish the year at 140,000 BOE equivalent, but we expect to finish at 145,000. In addition to increased production, we are happy to report a reduction in our debt and costs, and we believe our opportunities are also improving. The plans we implemented are progressing as expected, if not better. We are excited to share this with you and welcome your questions. We believe we are finishing 2023 with greater inventory and options, and the outlook for 2024 is even more promising. While this year has been strong, I reiterate that 2024 looks even better. I would like to highlight two slides in the materials: the first shows our performance over the last five years compared to our peers, showing that we feel we have outperformed them. The second slide reflects our performance since the IPO, with the team making significant progress. I credit them for their collaboration and innovative ideas, leading to Matador's continued growth. When we went public, our market cap was around $300 million, and today it stands at approximately $7.5 billion. We believe this will improve as the year progresses. We have made projections that we are confident will be met. As we prepared, I noticed that we have announced three significant deals, including the HEYCO deal, which we expected to raise our market value but instead saw a decline. After acquiring the BLM leases, despite drilling nearly 90 wells, we faced another unexpected market drop. However, this acquisition allowed us to shift from 98% of our wells being one-mile laterals to 98% being two miles or longer, which has had a substantial impact. Following this, we encountered challenges due to COVID, but after activating the state line wells, we saw a turnaround, leading to a significant increase in production. Unfortunately, when we announced the advance bill, we faced another market dip. Since that point, things have improved, and our production targets have moved from 100,000 at the start of the year to an expected 145,000. To give a brief overview of our Delaware position, we started when we went public in 2012 with six wells. By 2017, we had 212, and now in 2023, we have 751 wells. Our market cap has increased, and so have other key indicators, including our dividend, which we are enthusiastic about. Over 95% of our employees participate in our stock purchase plan, showing strong support from our team. We have raised the dividend four times, and the current rate is $0.85. Production is up, costs are down, and we believe our inventory selection has never been better while debt has decreased by $200 million to $500 million. We have nearly $1 billion available under our RBL with our bank group, positioning us well to seize upcoming opportunities this year. I’m happy to address any concerns you may have. Ultimately, I want to convey that we are prepared to perform even better in 2024 than we did in 2023, and we are making plans accordingly to navigate the volatility and uncertainties we face both operationally and politically. With that, I will open the floor for questions.

Lateef, we'll jump into Q&A. Thanks.

Our first question comes from Scott Hanold of RBC Capital Markets.

Yes. Thanks. Good morning. Congrats on hitting some record volumes this quarter. Joe, you had highlighted the importance of some of these acquisitions you've made over time and the value they continue to add to Matador. And with respect to, I guess, the most recent one in advance, I mean, you all have been bringing in some of those first batch of wells, I think, starting sometime late August, early September. Could you give any kind of context on where you're at with that and some of the initial performance just in terms of your expectation and any kind of tangible data you can provide?

Good question, Scott. The thing that I'd really point you to is that the first of the year, we were at 100,000. And we said end of the year, we're going to go to 140,000. So here we are at 145,000. Obviously, the projections that Tom and the rest of our group has have been on the money and a little bit better maybe. And we're early times yet, but it looks promising to come in as expected or maybe a little bit better than expected. But we've been active in that area prior to the acquisition. So we knew that it was good rock area, just like what we also had on the adjoining leases and was just about as perfect a fit on an acquisition as we've had. So no surprises, no big surprises. It's pretty much as projected, which is nice, has been real nice and has fit in with our midstream. So that was the biggest acquisition we’ve ever done. There's always a little bit of wariness when you go into something of that magnitude, but it appears to be working out.

Okay. And I would assume that at some point, as you get more of those wells online, we'll kind of see the typical kind of update on well performance. Is that a reasonable assumption?

Yes, that's I think very reasonable. We just need a little more time and then we all feel that a well-established decline curves and well-established production history. But it's looking really good. Everybody here is as glad we did it. We do think it was another important milestone for Matador. So we've done transactions large and small, and have enjoyed working with Merida, the private equity sponsors. So I think it's a win-win-win type of deal.

Okay. I appreciate that. And as a follow-up question, I know you gave some context last quarter on what you all think about 2024 and a 150 plus per day rate on production. And you obviously indicated you're now going to be adding that eighth rig in the first part of the year next year? And could you talk about what that means for that production number you provided? And any color on midstream CapEx if you have it? And really specifically, where we're at with potentially finding a partner for Pronto and whether you think you need to?

That's a really good question. I'll address that first before returning to the other part. If we were to add a new plant, it would cost about $200 million, which is quite small compared to the $1.6 billion we spent on Advance. We have nearly $1 billion available on our RBL. Our cash flow has increased and production is rising, so if we had a partner, it would be due to some advantage they bring to the deal. However, if it isn't mutually beneficial, we can proceed on our own. This is a good opportunity for someone, but we will provide the production and the experienced staff to manage it. This is a proven operation; we've successfully run San Mateo and our EBITDA continues to grow. Pronto has also been performing well and is nearing capacity. We have some short-term capacity options available that guarantee firm capacity if we choose to pursue them. Therefore, we see some flexibility here. We are advancing with the plant as if it will solely be our project. We are open to partners, but we believe the economics are favorable enough that we are content to keep it ourselves. As Gregg and I discussed, unless it is a win-win situation, we are not very inclined to pursue it. Gregg, do you want to add anything?

No. I think you expressed it well. This is Gregg Krug, EVP of Marketing and Midstream Strategy. Scott, I believe Joe captured our perspective accurately regarding what we seek. We're aiming for a mutually beneficial arrangement with a potential partner if we decide to pursue that path, but that’s the only approach that would be viable for us. As Joe mentioned, we can pursue this independently, and we are confident in our ability to do so. We see significant growth potential in the current market with the volume of gas and drilling activities, as well as opportunities for third-party engagement. We feel well-positioned to handle third-party gas with the connector and also through the planned expansion of our plant. We are optimistic about the opportunities available to us.

I'm glad you mentioned the connectors, because that will connect up the Pronto plant swing around and coming through San Mateo. In the extent we've got 550 miles of pipeline out there, and this will just give us that much more optionality. So Scott, I hopefully have answered your question here, in particular, that the economics on a 200 having full control are inviting and the economics appear to be getting better, particularly as we're adding an extra rig and going from there. So if you'll repeat your first question, I'll try to answer it quickly.

I appreciate that. Regarding the 8th rig, how does it relate to your earlier comment about 150 plus a day for 2024?

Well, I think I turn it to Glenn. My view is the 8th rig is being reflected in the 150,000 number, and that's part of the reason why we're confident that we'll increase it from present to add to our numbers, and more in year 2025. Glenn?

Yeah. Hey, Scott, this is Glenn Stetson, EVP of Production. Yeah, and Joe hit it just right. Just to rewind a little bit too, when we picked up the advanced properties, we did operate a rig there for about a 1.5 months or two months before we dropped it to the seventh rig. And so really, just what's new in this release is timing on that eighth rig. And so to your point, we did soft guide for 2024 at the 150,000. That was inclusive of an eighth rig, but the timing piece was what was abstract. So anyway, we are going to pick up that eighth rig in Q1 and look forward to growing production to that 150 plus.

Okay. That's clear. Thank you.

Thank you. Our next question comes from the line of Gabe Daoud of TD Cowen.

Thank you. Morning, Joe. Morning, everybody. Maybe we could go back to the midstream angle and maybe just following up on Scott's question. And, Joe, you kind of eluded us in the response, but just curious if the Marlin plant is at full capacity, how does this impact the way the current 21 wells are being flowed back and the next batch of advanced wells and how those will be flow back. I guess you noted you could divert the gas and lay down some lines to San Mateo, but what would the timing of that be like and how full is the San Mateo plant?

That's a lot of questions all at once. I can tell you that we're not operating at full delivery capacity right now. There’s potential for us to accommodate customers wanting minimum production volumes. Currently, we're taking in some gas on an interruptible basis, but we have the ability to extend this arrangement. This creates opportunities for securing more minimum production volume deals, giving customers confidence in their flow assurance, which we find appealing. We are keeping our options open to utilize that capacity or to bring in third parties under a firm agreement while maintaining flexibility with the interruptible arrangement. Did I express that correctly, Gregg?

Yeah, yeah. It looks like, I mean, we have right now approximately 60 million going into that plant right now. But some of that, as Joe said, is on an interruptible basis. It's short-term contracts. So we do have room for additional capacity on a firm basis that we could push out the interruptible gas or once those terms are up, we could push that out. And then we also have the connector, which we're anticipating having done by the first quarter of next year, which will give us additional capacity and the flexibility as far as bringing it over into the San Mateo system.

Okay. Okay. Thanks guys. That's helpful. And then my follow-up question would be on 2024 CapEx. And maybe instead of asking about how the eighth rig impacts volumes. Just curious how the eighth rig and some of the moving pieces on midstream, how does that translate to a budget for 2024 relative to 2023?

Hey, Gabe, this is Brian Willey, Chief Financial Officer. Thanks for the question. We appreciate that. I think it's something that we are continuing to evaluate and look at as we look into the future in 2024. Joe mentioned earlier that the great production growth that we're set up for next year being at the 145,000 BOE per day in the fourth quarter, and we also have 47 net wells in progress at the end of the year, which sets us up nicely to hit that 150,000 BOE or better next year. So thinking about the CapEx, it's pretty early. I mean, I think normally, we go into those details in the first quarter, I’d expect we'll do that in our February call. I mean, obviously, we're in a volatile commodity environment and the world market as well with the tensions in the Middle East and otherwise. And so we don't want to get ahead of ourselves and our plan. And so there's still a lot of planning left to be done and golf to be played before we were able to talk about that in more detail. So I'd expect more detail on that early next year.

Okay. Understood. Thanks, Brian. Thanks everyone.

I want to emphasize that we have plans A, B, and C ready for various scenarios, whether Congress is at an impasse, the conflict in the Middle East escalates, peace is achieved, or any other situation arises. We are preparing for all possibilities and have the flexibility to adapt within 30 days if circumstances require a change in direction.

Joe, you're exactly right. I think the optionality piece. The midstream that we've talked about for many years and having that be such an advantage for us. I think as we look at the future, I think Joe said it very well having option A, B, C and just looking at the different opportunities ahead and having that midstream piece that can help support the upstream side is critical as we look towards the future.

Yes, I would say our key word around here is being nimble, being prepared to move as these things come to rest in one direction or another.

Thanks, Joe.

Thank you.

Thanks, Gabe.

Our next question comes from the line of Zach Parham of JPMorgan.

Yes. Thanks for taking my question. First, could you just give us some updated thoughts on well productivity in general? Just looking at the state data, well productivity seems down a bit versus 2022 on average. And I know that data has its issues and the public data is a bit delayed. But just curious if that's what you're seeing internally or if productivity is kind of in line with your internal expectations?

Hey, Zach, this is Tom Elsener, EVP for Reservoir. We're very pleased with our well results. As we've mentioned before, the Northern Delaware Basin has performed exceptionally well for us. We are particularly proud of the high oil cuts and low water cuts we've achieved. Many of the wells in that area have lower gas production, so some of them will be brought online using electric submersible pumps or other artificial lift methods. Over the years, we've effectively anticipated how these wells would operate and have made significant improvements in our lateral lengths and targeting. Maxcom and our operations team have played a vital role in this progress, and our Reservoir Engineering departments have done an excellent job predicting the performance of these wells. Overall, I believe we've excelled in that area.

I would like to emphasize that our reservoir group, led by Tanner, has performed exceptionally well. When we've consulted with Netherland and Sewell, they have consistently aligned with our assessments, as have our bank engineers. We've been 10% ahead in our projections, and all three groups have been accurate. This gives us strong confidence, and we are exploring ways to enhance that performance. I believe we are drilling better wells now compared to earlier times and improving our completion techniques. The Maxcom room has helped us maintain better zonal control. While some may not have noticed this, our visitors have responded positively to the room. Staying in zone longer can significantly increase our output, and we are pleased with these advancements. We are also looking for additional incremental improvements for each well.

Got it. Thanks guys. And then just one follow-up, on the cash flow statement for the quarter, there was $65 million in acquisitions. Could you give us a little color on maybe what was acquired and quantify the production impact from those acquisitions?

You're getting probably in the sum that is difficult to breakdown. Some are small, some are larger. It's just a whole mix of items in that kind of a steep-pot where things go in, but you want to take a hand at it, Brian.

Sure, Joe. This is Brian. I believe Joe performed exceptionally well. We have a combination of numerous deals including non-operated assets, operated wells, and an increase in our interests in those wells, along with new acreage. It's quite a diverse mix. Our land team does an outstanding job, and we have emphasized this approach over many years, building our company steadily and organically. I want to acknowledge Van, Jon Filbert, Bryan Erman, and the rest of the team who excel in executing these deals and continually enhancing our presence in the Delaware Basin. Joe highlighted a slide earlier that illustrated the number of wells we've increased and the acreage gain, showing that back in 2012 we had around 6,000 acres, and now we boast over 150,000 net acres. It's wonderful to witness this growth over the years, so kudos to the land team.

Got it. Thanks guys.

Thank you. Our next question comes from the line of Neal Dingmann of Truist.

Good morning, Joe and team, congratulations on another strong quarter. Joe, my first question is a general one regarding your earlier comments. I'm curious about how your plans to add an eighth rig and increase production next year might change if prices were to drop for any reason. Alternatively, how do you view the minimal maintenance capital and production strategies of many other E&Ps? I really appreciate the value you are creating and would like to know your thoughts on this.

Well, you met the team here, Neal, and they're all very strong-minded individuals. So I'm cautious about saying my opinion represents everyone else's. There's an active discussion about the best way forward. However, I believe the addition of the eighth rig is quite certain. We think that fluctuations in commodity prices of $1 or $2 won't materially impact our plans, and considering the specific wells that this rig will drill is crucial for evaluating our overall acreage. At this moment, we’re not seriously considering taking this rig on temporarily before letting it go. We have a structured plan for our rigs, giving us flexibility, but the economics of keeping a rig look quite favorable, and I can't see us changing that unless a significant unforeseen event occurs. I also want to acknowledge Patterson, who has been an excellent partner with us. They've collaborated very effectively to improve our cost structure this year, and I anticipate similar success even if prices were to drop significantly. Patterson has been instrumental in making our drilling operations more efficient. Chris, do you want to add anything to that?

Yeah, this is Chris Calvert, EVP, Co-Chief Operating Officer. I think Joe said it well, the value we place on our relationship with Patterson is extremely important to us. We were discussing the timing for adding the eighth rig. A significant part of that decision is about execution and how this rig can help us carry out our plan not just for 2024 but also enable us to drill wells more quickly and cost-effectively. Our relationship with Patterson spans decades, built on a mutual understanding of expectations. They provide a high-tech super-spec rig along with a highly skilled crew, which helps us reduce drilling days and well costs. The flexibility this provides is crucial, as is our understanding of what to expect from such a rig. It will allow us to drill wells like U-Turns and longer laterals, further improving our operations.

One other point I want to make, Chris, is that we have a long-standing relationship with Patterson that goes back 40 years. When Patterson drilled my first well, it marked the beginning of a partnership where either Patterson or their predecessors have handled our drilling operations. Historically, when times get tough and prices drop, we don't halt our drilling activities. In fact, we find that we make the most progress during those times. While I don't wish for low prices, Patterson understands that we won't be reducing our rigs just because prices are down. Each time we bring on a rig, we have a planned series of wells for them to drill that are suited for their equipment and location. Therefore, even if prices decline, we will keep our rigs operating. We feel that we make the most progress during those times, Chris.

Yes, 100%. That is something that we are very proud of when we've seen some of these pricing environments where oil dips down in, say, COVID times, we did make some of those best operational achievements, whether it was Stateline wells, lateral length extensions into 2 and 2-plus mile laterals, simul frac. All these things were a function of the work that was done during a down cycle in the commodity price. So if we didn't have that maintained level of activity, we wouldn't be talking about some of the operational prowess that we have today.

Now, that all makes sense. I'll let the details go. And then, Joe, maybe a question for you, Brian, just around my second question. Noting that you don't have 2024 specific guidance that you mentioned potential higher production. And I'm just wondering, given the higher production, but in the release, you guys talked about the better than expected. Do you see any capital expenditures and midstream expenditures. I'm just wondering, are you able to give some maybe goalposts or some just broader issues around what maybe the spend might look like next year if you add that A3.

Well, I'd just say Neal, in February, we've announced that we'll be giving you this detail. And if it comes together earlier, we'll be happy to share it with you.

Okay. Okay. I was just curious, given how good the DC and sounds like it's continuing to go.

Thank you. Please stand by for our next question, which comes from the line of Tim Rezvan of KeyBanc Capital Markets.

Good morning, folks. I wanted to circle back on gas processing one more time and try to sort of tie above on the issue for 2024 because it's a big debate point in the marketplace. You're ending the year with 47 wells in progress. You've committed to eight rigs, and we don't expect to see a new plant operational before 2025. So as you build out your drill schedule, what level of confidence do you have that every single well you're going to bring online, you will have either in-house or third-party processes. Just trying to understand will that be a constraint on the program next year.

Hi Tim, this is Glenn Stetson, EVP of production. I feel very confident about our operations. The collaboration between our businesses has improved, especially now that we have three businesses with Pronto involved. We are in constant communication regarding our development plans as we look ahead to ensure we have sufficient capacity. There are several variables to consider, including gathering and processing, as well as the logistics of getting gas out of the basin. We focus on maintaining optionality and providing multiple avenues for transporting our gas and various options for gathering and processing. In many cases, particularly at our most productive facilities, we have redundancy that allows for flexibility with our gas. As mentioned earlier by Greg and Joe, looking ahead to 2024, a significant addition to our capacity will come from the connection to the advanced properties in Southern Ranger and the link from Pronto to San Mateo for swinging gas. We are fully aware of all the ongoing activities in the basin and are preparing for a variety of possible scenarios. The strategic integration of our midstream operations providing flow assurance for the upstream segment is a distinctive feature of Matador. As someone responsible for production, this gives me considerable confidence in our capability to execute our outlined plans.

I appreciate the comprehensive answer to the question. And then as a follow-up, I remember in the past, as it related to 2023, management had talked about it as a pass the ball around year in terms of rigs being spread across your footprint. How do you think about rig allocation in 2024, given the really high oil cuts in Ranger, but possible gathering there? Thank you.

Hey Tim, this is Tom Elsener again. We believe that all the different asset areas have made significant contributions. We are particularly proud of the Ranger wells, as we've mentioned briefly today. We have major wells coming online in Arrowhead during the fourth quarter, and we've been active in Antelope Ridge for many years. The new core shoe wells in the Wolfe area have our teams very excited. Rustler Breaks has also made excellent progress in developing two-mile laterals from some of the shallower targets while reusing drilling pads and infrastructure over the past few years. I believe we will distribute our efforts across various areas, but it’s still early to delve into specifics today. However, all our teams are definitely making meaningful contributions.

I understand you want detailed numbers today, but it's not in our best interest to provide them given the current volatility and options available. We may have those figures by the end of the year, but we need to see if Congress reaches an agreement, and similarly, how the situation in the Middle East develops. We're focusing on what we know and planning for growth, aiming to meet our previously announced targets like the 150,000. It's likely not wise to go beyond that given the potential need for changes in plans based on circumstances. The outlook remains positive; while 2023 is strong, we anticipate 2024 to be even better, and 2025 is shaping up well. I encourage you not to lose sight of the broader picture. We have ample optionality, production growth is expected, we will continue to reduce debt, and there will be significant free cash flow for optimal use throughout the year. Please consider our performance record, as we’ve made considerable progress in both good and challenging times. We're prepared for any environment we face. I see this as a good buying opportunity, and everything is heading in the right direction. Our leverage ratio is below one, indicating strong financial health regardless of the decisions we make on rigs. While there may be fluctuations in prices, vendor costs could decrease significantly, allowing us to enhance our performance beyond this year. The team has demonstrated its capability, and given time, we will capitalize on these uncertain times effectively.

Okay. Thank you.

Thank you. Our next question comes from the line of Leo Mariani of Roth MKM.

Hey, guys. I wanted to touch base on a couple of numbers here. You guys are guiding to kind of higher fourth quarter LOE. Just wanted to get a sense what was sort of driving that? I'm thinking maybe that you guys are trying to finish with some of your midstream connections and kind of finish replumbing some of the advanced properties. So I just wanted to get a sense if that kind of comes down when that work is finished. And on cash taxes, you'll talk to 1% of pre-tax income in 2023. I wanted to get a sense if you guys had a ballpark estimate on that for 2024?

Hey, Leo. This is Glenn. I'll take the first question, and Rob will address the second one regarding cash taxes. For LOE, we did guide slightly higher for Q4. The majority of the work to integrate the advanced assets is nearly complete. We expect to see efficiencies flowing into 2024. Lea County has higher OpEx because it essentially doesn't align with San Mateo. Additionally, Advance had some elevated LOE costs. We've noticed that LOE on a per unit basis has stabilized, and we'll assess the impact of commodity prices and oil field service costs as we move into 2024. Overall, I feel positive about 2023. Last quarter, we adjusted our guidance downward from the 5.25 to 5.75 range per unit to 5 to 5.50. After taking over Advance and realizing the associated savings, we managed to lower our projections last quarter and maintained those estimates for Q4.

And Leo, this is Rob Macalik, I am the EVP and Chief Accounting Officer. So two things kind of moved in our favor since the last quarter. One of those, we estimated higher 2023 revenue, both because of production and price, and we had lower operating and capital cost estimates for the year. So that led to a little bit higher estimated taxable income and thus our estimate of about a 1% cash tax payment that we'll make for the year. We're obviously doing everything we can to plan for that and to work on our deduction that we can to minimize our income tax payments for 2024. There are a few things that we're still analyzing and studying in addition to the plans for the year. We're also waiting for IRS guidance on the corporate alternative minimum tax, which would be a 15% book tax. But we think there are several things in the guidance that we're waiting for that we're going to be able to do better than that.

Okay. That's helpful, guys. And I was also hoping if you guys could talk a little bit on M&A. There's obviously been some significant deals done in the Permian here in 2023. You guys obviously did one of those with the Advance deal, how are you kind of thinking about it going forward? Do you think the focus is kind of more ground game, kind of brick-by-brick approach here, or do you think that there may be some larger deals that Matador could eventually be involved?

Well, this is Joe. I want to emphasize that our strategy is similar to making choices in a football game, where each decision to run or pass depends on the opportunities we encounter. We aim to maintain a solid foundation each year to support our growth, increase production, boost free cash flow, and reduce debt, as these are essential for our operation. When it comes to acquisitions, we take an opportunistic approach. While we don't engage in many deals, our past transactions have generally been beneficial and have strengthened our foundation. We are more inclined to acquire than to sell, but any acquisition must make sense for us. Our goal is not just to grow in size but to improve the quality of our assets, whether that means acquiring interests in our existing wells or finding opportunities that align with our acreage positions or midstream operations. We're always open to exploring deals. Van, can you share your thoughts on this?

Yes, Joe, I think what you're saying is right. And I think you guys have heard this from us for a decade or so that we're always on the lookout for good deals. We're going to make sure that we keep the balance sheet strong and when opportunities present themselves that we feel like are going to give our acreage position enhancement, whether it be in existing units or expanding into new units, we're going to take a hard look at it. And if the deal is right, we'll do it. But I think Joe is right, we're buyers. And we're always looking.

Thanks.

Thank you. Our next question comes from the line of Trafford Lamar of Raymond James.

Hi guys. Thanks for taking my questions. The first one I have, it circles around the Horseshoe wells. How did the cycle times on these wells compare to your more standard two-mile laterals? Just any color on that would be great.

Yes, Trafford, this is Chris Calvert, EVP and COO. I want to emphasize that the cycle times for these Horseshoe wells are part of a larger nine-well batch. For reference, one of these Horseshoe wells actually surpassed our previous record for drilling a two-mile Wolfcamp A in our Wolf asset area by about 20% from the start to total depth. When considering cycle times, it's difficult to assign a specific number, as it heavily depends on the number of wells in the batch. However, in terms of drilling and completion times, they are very similar to a standard two-mile lateral. We like to say that the drill bit doesn’t recognize whether it’s drilling a U-turn or not. With the advancement of new technologies, including improved bit and motor technologies, we continue to achieve strong performance, whether it’s a U-turn well like this one or other two-mile, 2.5, and even 2.7-mile wells that we plan to bring online in the next year. Our focus remains on drilling efficiently and reducing cycle times.

Perfect. I appreciate that, Chris. And then just a quick one here. Just to clarify, have you already signed the contract and secured the additional 8th rig for 1Q, '24, or is that happening later this quarter?

It's Chris again. We anticipate that this will occur in the short term, within the next week or two. We are focused on valuing our relationship with Patterson. Currently, we understand that we will be adding a rig in the first quarter of next year, contingent upon the super-spec capabilities of that rig to ensure it is drilling wells in a manner we have become accustomed to, and that's the essence of the situation.

Great. I appreciate it. Thanks, guys.

Thank you. Our next question comes from the line of Kevin MacCurdy of Pickering Energy Partners.

Hey. Good morning, Joe and team. Just one question for me today. We noticed realized oil prices have gone back to being above WTI, both through actuals in the third quarter and the guidance for the fourth quarter. I wonder if you could talk about what you're seeing there that has improved over the first couple of quarters earlier this year.

Yes. This is Brian, and I think Gregg can feel free to chime in as well. But I think just looking at the prices, I think part of it's the role as we've looked at this historically and just how the price is calculated in the realized pricing. And so, that's something that we saw an impact from looking at second quarter to third quarter and even first quarter, second quarter. And so, I think as we look forward going into the future, I think that's a big piece of it is just how the role plays an effect in the realized pricing. Also, I'll just say, I think one of the big benefits we have is that a lot of the marketing team has done a very good job in getting much of our oil on pipe. And so I think that's really significant because we are able to save cost there and be able to incur the savings, thereby getting a higher realized price. But Gregg, I don't know if you have anything else you want to add?

Well, yes, I think as far as the amount of oil on pipe, it also helps versus being trucked. It's a lot more efficient. It helps operations as well, streamline that. And so that's a big benefit to be able to have as much oil on pipe as we do.

I'd just add that yesterday, we put out our sustainability report. I give credit to the team that drill that together. I think it's in good shape, makes for good nighttime reading and a good reference materials. So, take a look at that, and we've worked hard to put more and more on top and to reduce our emissions by 44%.

Sure. This is Shelley Alpern, Director and former ESG Coordinator. And I will say that, in 2022, we had 89% of our operated produced oil on pipe. And to Joe's point, we're very, very pleased that from 2019 to 2022, we reduced our greenhouse gas intensity by 44%, so almost cutting it in half over that four-year period.

Thank you. Our next question comes from Oliver Huang of TPH & Company.

Good morning, all, and thanks for taking my questions. My first question, just with respect to the Arrowhead area, there's a significant portion of your Q4 program in New Mexico coming from there. Assume these wells should be online in pretty short order, but I was just trying to get a better understanding on plans for getting those wells online. Is the thinking there is something similar to kind of the staggered nature we saw out of the margarita wells in that advanced area last quarter?

This is Tom Elsener again. As we usually do with large batches of wells, we typically bring them online in a staggered manner. Some of the wells may require artificial lift at different times. This is something we've consistently practiced throughout the basin, whether at Stateline, Rodney, or other large batches of wells. We are very excited about these wells. This area has been a focus for us for many years as we prepared these targets and ensured that San Mateo and the team are ready. I know Glenn and the team are eager to get these wells up and running.

Yes. Oliver, this is Glenn. I'd just add that the 17 wells are going to come in at different times, and they're actually on – on different development units and deliver to different facilities. And so a little bit different than the Advance situation, where you had 21 wells going to one facility but Tom, just what Tom said was is exactly accurate. We'll bring them on a few at a time. And then they're all delivering to San Mateo, oil, gas and water, so will help bolster volumes there.

Awesome. That's helpful. And just for a second question, I know in the past, you all have called out activity or even certain pads that might require incremental downtime or shut-ins. So I'm just kind of thinking about this next batch of 20 or so wells in the Advance area in early 2024. Are we going to need to see some of the recently online Margarita wells, either being curtailed or shut in when those come online on the backdrop of, I guess, tighter infrastructure. I'm not sure if the next set of wells is – are enough in proximity within Ranger to where such impacts might be deemed relatively minimal. But really just trying to understand that dynamic as well as we enter next year.

Oliver, this is Glenn again. The short answer is no. The Dagger Lake South development of the additional 21 wells is not in proximity to the Margarita wells. Therefore, shutting in wells for offset frac protection will not be an issue for this particular development.

Awesome. Thank you, 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.

Thank you all for your time and attention. I want to highlight the fundamentals: we started the year at 100,000 barrels and we are set to end the year at 145,000 barrels, achieving a growth of 40% to 45%. During this time, we also reduced our debt by over $200 million while keeping our rigs operational and onboarding new wells. Additionally, Glenn has lowered our lease operating expenses, and we have managed to decrease our drilling costs per foot amidst rising service costs. We are continuing to expand our midstream opportunities and improve our ESG performance. I believe we've had a strong year and quarter, and despite the recent decline in stock price, I see it as a buying opportunity. I have not sold any of my shares in the 12 years we've been public, and neither have most of our other officers. We are committed to buying stock, and our staff is actively participating in this as well. Anyone investing at this point is likely to be pleased with the outcome for the year. I understand that you would want precise numbers, but it's not realistic to expect certainty in such volatile times. We assure you that we will remain profitable and keep our leverage ratio below 1 unless an exceptional opportunity arises. Our focus is on maintaining a strong balance sheet, growing production, reducing costs, and executing effectively. We believe our midstream operations enhance our prospects by ensuring flow assurance. As I often tell people, if you're going to be a cotton farmer, you need to have a stake in the cotton gin; similarly, our midstream operations provide efficiency and predictability. We haven't overlooked any details; we are just awaiting the right moment to share more information as conditions stabilize. We invite you to visit us for a comprehensive discussion with our senior team, where we can address any questions within SEC guidelines. We are transparent in our dealings and would love to engage in further discussions. Our properties are improving, our team is becoming stronger, and our outlook remains positive. I’d like to extend a personal invitation to visit us. I didn’t mention Ned, our Head of Geoscience, today, but his insights into our acreage and growing inventory over the next 10 to 20 years are promising. We would not have increased dividends or secured additional loans from banks if we believed our future was uncertain—these decisions reflect our solid reserves and positive financial trajectory. Thank you again for your attention. We look forward to future interactions and providing more detailed information next time while maintaining our flexibility to respond to emerging opportunities. Our ability to adapt to changing circumstances has been a key strength for us. Come visit our great team and properties, and we will provide deeper insights. Thank you.

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