Matador Resources Company (NYSE: MTDR) (“Matador”) announced that it has executed a definitive agreement whereby Matador would contribute Pronto Midstream, LLC (“Pronto”), Matador’s wholly-owned midstream subsidiary, to San Mateo Midstream, LLC, Matador’s midstream joint venture (“San Mateo”), for a total implied valuation of Pronto of approximately $600 million. At the closing of the transaction, Matador will receive an up-front cash payment of approximately $220 million for the contribution of Pronto to San Mateo. In addition, Matador may earn up to $75 million in incentive payments from Five Point Energy LLC (“Five Point”) as Matador executes its operational plans in northern Lea County, New Mexico over the next five years. San Mateo will continue to be owned 51% by Matador and 49% by an affiliate of Five Point.
Matador intends to use the up-front cash payment to repay borrowings outstanding under its revolving credit facility. Following the closing of this transaction, Matador expects its leverage ratio to be approximately 1.1 times at December 31, 2024. The transaction is expected to close prior to December 31, 2024, and is subject to customary closing conditions, including Five Point’s receipt of debt financing in accordance with its commitment letter from its lender.
In connection with the transaction, Pronto and Matador will enter into certain natural gas gathering and processing agreements whereby Pronto will gather, treat and process natural gas produced from Matador’s operated wells in northern Lea County, New Mexico. In addition, Pronto will enter into certain agreements with Northwind Midstream Partners LLC (“Northwind”), an affiliate of Five Point, whereby Northwind will treat certain sour gas gathered and delivered by Pronto in northern Lea County, New Mexico providing a sour gas solution for Matador’s northern Lea County acreage. Under these agreements, Northwind will redeliver the treated sweet gas from Pronto and other third-party customers to Pronto for processing.
Pronto currently owns and operates the Marlan cryogenic natural gas processing plant (the “Marlan Processing Plant”), which has a designed inlet capacity of 60 million cubic feet of natural gas per day. Pronto is currently expanding the Marlan Processing Plant to add an additional plant with a designed inlet capacity of 200 million cubic feet of natural gas per day increasing the total capacity of the Marlan Processing Plant complex to 260 million cubic feet of natural gas per day.
Joseph Wm. Foran, Matador’s Founder, Chairman and CEO, commented, “We are excited about the opportunity to combine San Mateo and Pronto. Importantly, Matador will continue to operate and own 51% of San Mateo following this transaction. This combination will provide San Mateo with additional scale and expansion of its operations into Lea County, New Mexico where Matador and third-party customers are increasing their focus and production. Pronto’s Marlan Processing Plant expansion remains on time and on budget and is expected to come online in the first half of 2025. We expect that this transaction, as well as other third-party opportunities, will fill up much of this new plant as early as 2026.
“Matador’s midstream team continues to provide flow assurance and create additional value for Matador’s customers and shareholders. The approximate $220 million up-front payment, which Matador will receive in connection with this transaction, will allow Matador to repay debt under its credit facility. Matador also expects to receive up to $75 million in performance incentive payments from Five Point as Matador executes its operational plans in northern Lea County, New Mexico over the next five years.
“This transaction also provides Matador with a long-term sour gas solution in northern Lea County, New Mexico. Northwind has been one of our service providers that has gathered and treated sour gas in other areas of the Delaware Basin, and we are pleased with this opportunity to expand our working relationship with Northwind. A majority of the acreage dedicated as part of the transaction is just north of the Advance acreage we acquired in 2023. The additional flow assurance for our natural gas provided by both San Mateo and Northwind allows us to accelerate our development plans in an area of northern Lea County, New Mexico where we have experienced encouraging well results.
“Matador wishes to express its appreciation to Five Point for their professionalism and investment as a partner in San Mateo over the last seven years. We also express our appreciation to the Matador midstream team as well as our vendors, banks, partners and shareholders that have been instrumental in building additional shareholder value while growing Matador’s midstream business.
“San Mateo has grown from a startup company with only approximately $26 million in net income and approximately $31 million in Adjusted EBITDA in 2017. Now, seven years later in 2024, San Mateo expects to have over $170 million in net income and over $250 million in Adjusted EBITDA. San Mateo’s ability to offer midstream services across all three production streams—crude oil, natural gas and water—makes it one of the few full-service midstream companies in the northern Delaware Basin.”
