Matador Flashes $1.6B for Permian Purchase

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US independent Matador Resources moved to beef up its footprint in the Permian Basin of New Mexico and Texas through the acquisition of privately held Advance Energy for $1.6 billion.

Dallas-based Matador announced the purchase price on Tuesday, but said it could pay more if commodity prices remain stable. The deal includes a provision requiring Matador to pay an extra $7.5 million for each month in 2023 that oil prices average higher than $85 per barrel.

In return, Matador is getting 18,500 net acres, primarily in the Delaware sub-basin of New Mexico. Around 10% of Advance’s production, which averaged 24,500-25,5000 barrels of oil equivalent per day in the first quarter, is located on the Texas side of the Delaware, officials said during an investor call to discuss the deal.

The assets to be acquired also include 203 net horizontal drilling locations, a “significant increase” to its current inventory, Matador said. Most of the Advance locations are within Matador’s Ranger asset in Lea County, New Mexico, and the company plans to target a number of formations including the prolific Wolfcamp and Bone Spring zones.

“A lot of the locations that we have here are spread across those zones,” said Ned Frost, Matador's senior vice president of geosciences. “And then we're also seeing a fair amount of potential in the Avalon, the Wolfcamp B and potentially the Delaware Mountain Group here. So I think there's still a lot to do in this acreage block.”

Matador also touted Advance’s midstream potential: The assets include 35 miles of water and gas gathering pipelines, as well as a disposal well. The gas lines could connect to Matador’s existing Pronto system and processing plant.

“We think that there is definitely some upside associated with this production up into our Pronto system,” said Greg Krugg, Matador's executive vice president of marketing and midstream strategy. “I mean that was one of the drivers behind acquiring Pronto, for this kind of a situation to be able to tie into additional acreage. And so we definitely think there's a potential upside here, and we're excited to get started on it.”

Matador plans to fund the deal with a mix of cash on hand, free cash flow and debt, although the company said the transaction shouldn’t “significantly” impact its leverage profile. That, along with a pledge by Matador to continue to return cash to shareholders through its quarterly dividend, appeared to play well with investors, as the company’s stock price rose more than 1% to close at $63.59 per share on Tuesday.

Operators including Matador have been under pressure from investors to cut spending and debt and return cash through dividends and share repurchases.

The deal is expected to close in the second quarter of this year.

Permian Heat

Matador’s announcement comes as deal activity is starting to heat up in the Permian. Just last week, Vitol upstream subsidiary VTX Energy and Delaware Basin pure-play Permian Resources announced a set of deals in the region.

VTX’s acquisition of Stellus Capital Management-backed Delaware Basin Resources includes 35,000 net leasehold and 40,000 surface acres across Reeves and Pecos counties in Texas, with about 40,000 boe/d of production.

Meanwhile, Permian Resources said it had recently “high-graded” its footprint in a set of deals with undisclosed parties that included the acquisition of about 4,000 net acres and the divestment of about 3,800 net acres and saltwater disposal infrastructure.

More recently, Midland sub-basin player HighPeak Energy announced Monday it was exploring a sale of the company along with other “strategic alternatives” to boost shareholder value.

“We believe we are currently trading at a substantial discount to our intrinsic value and our investors will benefit materially as we transition into a free cash flow mode,” HighPeak CEO Jack Hightower said. “Likewise, we believe many companies would benefit from owning our portfolio to extend their premium inventory life and enhance their return on capital.”

Corporate Strategy , Independent E&Ps, M&A, Shale
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