Matador Resources contributes Pronto Midstream to San Mateo joint venture

Matador Resources Company, a leading independent energy firm in the United States, has executed a significant transaction to bolster its midstream operations. The company has announced the contribution of its wholly-owned subsidiary, Pronto Midstream, LLC, to its joint venture, San Mateo Midstream, LLC, for an implied valuation of approximately $600 million. This strategic move reflects Matador Resources Company’s commitment to enhancing operational efficiencies while creating additional value for shareholders.

Under the terms of the agreement, Matador Resources Company will receive an upfront cash payment of $220 million, which it plans to use to reduce its borrowings under a revolving credit facility. Additionally, the company could earn up to $75 million in performance-based incentives from its joint venture partner, Five Point Energy LLC, contingent on operational success in northern Lea County, New Mexico.

Strengthening operations in Lea County

The transaction underscores Matador Resources Company’s growing focus on northern Lea County, a region known for increasing production activities. Pronto Midstream, LLC will play a critical role in this expansion, gathering and processing natural gas produced from Matador-operated wells. The deal also includes agreements with Northwind Midstream Partners LLC, an affiliate of Five Point, to address sour gas treatment challenges.

Pronto Midstream’s flagship asset, the Marlan Processing Plant, will be at the heart of this expansion. With an existing capacity of 60 million cubic feet per day, the facility is undergoing an upgrade to add an additional processing unit. Once completed, the plant’s total capacity will increase to 260 million cubic feet per day, supporting both Matador Resources Company’s operations and third-party customers.

Financial impact and shareholder value

The financial benefits of this transaction are clear. The upfront payment will significantly reduce Matador Resources Company’s debt, lowering its leverage ratio to an estimated 1.1x by the end of 2024. This positions the company for enhanced financial stability while maintaining its majority 51% ownership of San Mateo Midstream, LLC.

Matador Resources Company’s CEO, Joseph Wm. Foran, highlighted the strategic importance of the deal, stating that it not only provides immediate financial benefits but also sets the stage for future growth. By 2026, the expanded Marlan Processing Plant is expected to reach near-full capacity, driven by increased production from both Matador Resources Company and third-party operators.

A growing partnership with five point energy

The collaboration between Matador Resources Company and Five Point Energy LLC has been pivotal in the success of San Mateo Midstream, LLC. Established as a joint venture in 2017, the partnership has transformed San Mateo from a startup to a major midstream player. Today, the company generates over $170 million in net income and more than $250 million in adjusted EBITDA, compared to just $26 million in net income in 2017.

The addition of Pronto Midstream, LLC’s assets will further enhance San Mateo Midstream, LLC’s capabilities, allowing it to offer comprehensive midstream services, including crude oil, natural gas, and water management, across the Delaware Basin.

Strategic outlook

This transaction represents a critical step in Matador Resources Company’s strategy to strengthen its midstream operations and streamline natural gas processing. Analysts believe that the integration of Pronto Midstream, LLC into San Mateo Midstream, LLC will unlock new revenue streams, reduce operational bottlenecks, and solidify the company’s presence in the competitive Delaware Basin.

Joseph Wm. Foran also emphasized that the partnership with Northwind Midstream Partners LLC will provide a long-term solution for sour gas treatment in northern Lea County, enabling Matador Resources Company to accelerate its development plans in high-potential acreage.