The Daley Note: May 10, 2023
Independent producer Matador Resources (MTDR) is building a midstream foothold in the Delaware Basin, potentially creating competition for services in the West Texas and New Mexico oil patch. The Dallas-based producer plans to build interconnects between several midstream assets following its acquisition of Advance Energy Partners.
Dallas-based MTDR in April closed on the Advance Energy purchase from EnCap Investments. The $1.6B all-cash deal is primarily an upstream package including 206 operated wells and 18,500 net acres in Lea County, NM and Ward County, TX, but also includes 35 miles of gathering pipeline. Matador said the acquired properties are close to some of its best acreage in the Delaware.
The acquisition is Matador’s second in the last year in the area. The E&P acquired the Lane G&P system from Summit Midstream (SMLP) in June 2022 for $75MM. Renamed Pronto Midstream LLC after the close, the assets include a 60 MMcf/d gas processing plant and 45 miles of gas gathering pipeline in Eddy and Leah counties, NM.
Matador also is a partner with Five Point Energy in San Mateo Midstream. The San Mateo joint venture operates the 460 MMcf/d Black River gas processing plant and 10 saltwater disposal wells in Leah County, providing gathering and handling services for oil, gas and produced water for MTDR and other Delaware producers. Taken together, MTDR now claims ~500 miles of three-stream pipeline (oil, gas and water) and 520 MMcf/d of gas processing capacity in the Delaware.
East Daley’s Energy Data Studio tracks and forecasts rigs and natural gas volumes on the San Mateo - Black River and Pronto (Lane) systems, as well as historical MTDR activity in the Delaware Basin. The San Mateo and Pronto G&P systems gather ~70% of Matador’s gas production (329 MMcf/d total). MTDR recently has run 7-8 rigs in the Delaware; our G&P Allocation model places these rigs on the San Mateo (5-6 rigs), Pronto (1 rig) and DMB system owned by Western Midstream (WES; 1 rig). MTDR is guiding to an 8-rig program in the Delaware after the Advance Energy deal closes, with 1 rig to target the newly acquired acreage.
Matador has designs to upgrade its midstream footprint. The producer plans to build pipelines connecting the San Mateo, Pronto and Advance Energy systems, according to its latest investor deck. The Advance Energy purchase also will create expansion opportunities for the San Mateo JV, MTDR said. The San Mateo and Pronto Midstream assets can access the Double E Pipeline to move gas to market; MTDR currently has 50 MMcf/d of contracts on Double E.
Using East Daley’s Energy Data Studio, we can evaluate the profile of a future midstream merger for Matador. Were the San Mateo – Black River and Pronto systems already combined, we estimate processing assets would have averaged 74% utilization over the last year (see figure). We forecast 6 rigs between the two systems and expect utilization to increase to 80% by YE2023, according to Energy Data Studio.
We don’t know whether MTDR plans to grow into its midstream footprint by itself or market services to other northern Delaware producers. If the latter, then MTDR could be a potential midstream competitor in the area for Durango Midstream. Targa Resources (TRGP) and Enterprise Products (EPD) also operate nearby G&P systems in Eddy and Lea counties. – Maria Paz Urdaneta Tickers: EPD, MTDR, SMLP, TRGP, WES.
1Q23 Earnings Previews Now Available in Energy Data Studio
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1Q23 Earnings Reviews are now available for AM, CEQP, DTM, ENB, ENLC, EPD, ET, ETRN, GEL, KMI, KNTK, MMP, OKE, PAA, PBA, NS, SMLP, TRGP, TRP, WES and WMB. Subscribers can access these reports on the Energy Data Studio platform. For more information about Earnings Reviews, please reach out.
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