Matador Resources (MTDR) agrees $1.27bn Paloma Permian deal as Delaware Basin acreage reaches 240,000 acres

Matador Resources Company, listed on the New York Stock Exchange under the ticker MTDR, has agreed to acquire Paloma Permian LLC from EnCap Investments L.P. for $1.275 billion in cash. The transaction adds 16,235 net undeveloped acres in Eddy and Lea counties, New Mexico, approximately 11,100 barrels of oil equivalent per day of estimated third-quarter production and more than 156 net drilling locations. Matador has separately agreed to acquire primarily undeveloped Woodford acreage from Ridge Runner Resources II LLC, another EnCap-backed company, taking its expanded Delaware Basin position to approximately 240,000 net acres. The acquisitions increase the depth of Matador’s Bone Spring, Wolfcamp and emerging Woodford inventory without issuing new shares. The central tension is whether the company can convert the additional acreage into high-return production while rapidly repaying the reserve-based borrowings required to fund the transactions.

Why is Matador Resources paying $1.275 billion for Paloma Permian’s Delaware Basin inventory?

Matador Resources is acquiring more than current production. The Paloma portfolio includes acreage that is largely held by production, 55 million barrels of oil equivalent of proved reserves and drilling inventory concentrated in the Bone Spring and Wolfcamp formations.

The company estimates that the acquired properties will produce between 10,600 and 11,600 barrels of oil equivalent per day during the third quarter, with oil representing approximately 57% of output. That production provides immediate cash flow while Matador determines how quickly to integrate the undeveloped locations into its drilling schedule.

The purchase price equates to approximately $23 per barrel of disclosed proved reserves. It also represents about $115,000 for each barrel of daily production, although neither measure captures the full value of the undeveloped acreage or future drilling opportunities.

Matador disclosed a May 31 PV-10 value of $816 million for the acquired proved reserves, calculated using oil at $70 per barrel and natural gas at $3 per million British thermal units, adjusted for transportation, marketing and energy content. The $1.275 billion purchase price is approximately 56% above that figure.

That difference does not automatically indicate that Matador is overpaying. PV-10 is not an estimate of market value and reflects only proved reserves under specific price and cost assumptions. It does not capture all unproved locations, future operating efficiencies, midstream integration or acreage value.

However, the gap shows that a meaningful portion of the acquisition thesis depends on future development rather than existing proved production alone. Matador must successfully drill the 156 identified locations and demonstrate that well costs and recoveries meet or exceed its existing corporate averages.

The company believes Paloma’s undeveloped properties can support lower finding and development costs during 2027 and 2028 because of below-average expected well costs and reserve estimates comparable with or better than its current portfolio. Those remain forward-looking expectations that will need to be validated through actual drilling results.

How do the Paloma assets change Matador’s production, reserves and drilling runway?

Matador produced an average of 207,594 barrels of oil equivalent per day during the first quarter of 2026. Paloma’s estimated 11,100 barrels per day would increase that production base by roughly 5%, before accounting for changes in Matador’s own output or future drilling on the acquired acreage.

The 55 million barrels of acquired proved reserves would represent approximately 8% of Matador’s 667 million barrels of oil equivalent of proved reserves reported at the end of 2025. This is a meaningful increase, but not one large enough to fundamentally change Matador’s concentration in the Delaware Basin.

Matador’s strategic rationale is therefore more closely connected to inventory quality than immediate scale. United States shale companies need a continuing supply of commercially competitive locations because individual wells decline quickly after initial production.

Premium acreage allows a producer to sustain output and free cash flow without depending on higher commodity prices or increasingly marginal drilling locations. The Paloma assets deepen Matador’s inventory within a basin where it already has operating teams, geological knowledge and infrastructure.

The majority of the acreage is held by production, reducing pressure to drill merely to preserve lease rights. This gives Matador more flexibility to sequence development according to commodity prices, rig availability, midstream capacity and expected returns.

The company can also combine Paloma locations into longer laterals and larger development batches where lease geometry permits. Batch drilling and simultaneous completions can reduce equipment movements, spread fixed costs across more wells and improve infrastructure utilisation.

The value of that flexibility depends on subsurface consistency. Acquiring nearby acreage does not guarantee that every location will perform like Matador’s strongest existing wells. Bone Spring and Wolfcamp productivity can vary by landing zone, geology, spacing and completion design.

The transaction therefore improves inventory quantity immediately, while inventory quality will be demonstrated gradually as Matador drills the acreage and reports production, well costs and reserve additions.

Why does the Ridge Runner acquisition make Matador’s Woodford well result strategically important?

The separate Ridge Runner transaction gives Matador primarily undeveloped acreage in the Woodford formation across West Texas and southeast New Mexico. Combined with earlier purchases, the company expects to control approximately 50,000 contiguous net Woodford acres.

Matador has not disclosed the total consideration payable for Ridge Runner. It has said the acquired position adds more than 150 net operated Woodford locations, normalised to two-mile laterals, at an average cost of approximately $1.3 million per location.

The company also stated that its combined Woodford position was assembled at an average cost of approximately $4,000 per acre. Those figures cover the wider accumulated position and should not be interpreted as a confirmed standalone purchase price for Ridge Runner.

The acreage becomes more strategically relevant because Matador announced encouraging results from its first exploratory Woodford well in southeast Lea County. The Rae’s Creek well achieved an official 24-hour test rate above 2,200 barrels of oil equivalent per day, with oil accounting for 72% of production.

Matador said the well continued to perform approximately 20% better than the average Woodford well in Texas when measured using cumulative oil production over 60 days. A single well cannot establish the productivity of 50,000 acres, but it provides initial evidence that the New Mexico portion of the play may support commercial horizontal development.

The Woodford creates another potential drilling horizon beneath or near Matador’s existing Delaware Basin acreage. If successful, this can increase the number of economic locations available from the same surface infrastructure and land position.

Matador expects extended-reach laterals, large development batches and multi-well completions to reduce drilling and completion costs. Management is targeting cost reductions of between 30% and 40% over 12 to 18 months as operating teams apply lessons from previous acquired asset areas.

The strategic upside is substantial because a commercially successful Woodford position could add a new inventory layer without requiring Matador to enter another basin. The risk is that early well performance may not be replicated consistently across the acreage.

The next several wells will therefore be more important than the initial headline rate. Investors will need to see repeatable production, controlled decline rates, competitive costs and sufficient oil content before assigning the full 150-location value to the Woodford portfolio.

Can Matador finance the acquisitions without weakening leverage and shareholder returns?

Matador intends to fund the Paloma and Ridge Runner transactions using cash on hand and borrowings under its existing reserve-based lending facility. The facility had been fully repaid in May 2026, restoring borrowing availability before the new acquisitions were announced.

This means Matador is not issuing equity for Paloma and is avoiding immediate shareholder dilution. Existing investors retain the full per-share exposure to any production, reserves and cash flow created by the acquired assets.

The cost is renewed leverage. The $1.275 billion Paloma price exceeds Matador’s latest estimate of approximately $1 billion in adjusted free cash flow for full-year 2026. Ridge Runner consideration and closing adjustments will increase the total funding requirement further.

Matador expects production from the acquired properties to accelerate debt repayment and believes its corporate leverage ratio can return closer to 1.0 times within 12 to 18 months after closing. Management said paying down the acquisition borrowings would be a top priority.

That target appears achievable under a supportive commodity-price environment, particularly because Paloma contributes immediate production. It is not assured.

Oil prices, natural gas differentials, development expenditure and integration timing will influence how much cash is available for repayment. A decline in commodity prices or higher-than-expected capital spending could lengthen the deleveraging period.

The acquisition also follows other capital commitments. San Mateo Midstream LLC, Matador’s 51%-owned joint venture with Five Point Infrastructure LLC, agreed in June to acquire Cardinal Midstream Partners’ operating subsidiaries for $752 million. That transaction was still awaiting completion and is expected to be financed primarily at the San Mateo level, but it adds to the wider organisation’s execution requirements.

Matador also continues funding its drilling programme and midstream infrastructure. The company’s 2026 budget includes between $1.35 billion and $1.44 billion for drilling, completion and equipping activity, along with $100 million to $110 million of midstream investment.

The balance-sheet strategy therefore depends on sequencing. Matador must integrate Paloma, complete the Ridge Runner acquisition, support San Mateo’s expansion and maintain its organic operating programme without allowing capital requirements to rise faster than cash generation.

How strong was Matador’s financial position before agreeing the Paloma acquisition?

Matador reported first-quarter production of 207,594 barrels of oil equivalent per day, 5% above the same period in 2025. Oil production reached 120,277 barrels per day, while natural gas production averaged 523.9 million cubic feet per day.

The company generated $470.5 million of operating cash flow and $577.2 million of adjusted EBITDA attributable to Matador shareholders. Adjusted net income was $189.5 million, or $1.53 per diluted share.

Matador recorded a GAAP net loss of $35.9 million because of a $255.5 million unrealised derivative loss. That accounting result did not represent a comparable cash outflow during the quarter, but it highlights how hedging valuations can create volatility in reported earnings.

Capital expenditure reached $428.1 million as Matador turned 36 net operated wells to sales. The company increased its full-year production guidance without raising its existing capital budget, indicating an improvement in expected capital efficiency.

Matador had reduced reserve-based lending borrowings by more than $350 million during the first quarter and expected to repay the remaining balance during May. Management said the repayment would restore approximately $2.2 billion of liquidity under a $2.25 billion elected commitment, with a potential borrowing base of up to $3.25 billion.

The company’s balance sheet was therefore prepared for another acquisition. The more difficult issue is whether repeatedly paying down and redrawing the facility represents disciplined capital recycling or an acquisition cycle that prevents leverage from remaining low for long.

Matador’s strategy has historically combined organic drilling with targeted acreage and infrastructure acquisitions. This can create value when the company purchases assets that fit its operating system and then reduces costs or improves production.

The Paloma transaction is large enough to require more than a routine integration outcome. Matador will need the acquired assets to contribute material free cash flow while preserving the efficiency improvements expected from its existing 2026 programme.

How could San Mateo midstream infrastructure improve the economics of the Paloma properties?

Matador’s upstream and midstream businesses are closely connected. San Mateo Midstream provides natural gas gathering, processing, oil transportation and produced-water services across parts of the Delaware Basin, while Matador also owns other midstream assets directly.

The Paloma acreage is located in Eddy and Lea counties, where Matador already has substantial operations and infrastructure relationships. This creates potential opportunities to connect acquired wells to Matador-controlled or affiliated systems.

Midstream integration can reduce reliance on third-party facilities, improve production flow assurance and allow part of the gathering or processing margin to remain within the wider corporate structure.

It can also create additional third-party revenue if infrastructure constructed for Matador has spare capacity that can serve other producers.

Matador’s combined midstream assets generated first-quarter adjusted EBITDA of $82.2 million on a 100% basis. San Mateo distributed $31.6 million to Matador during the period, demonstrating that the midstream business already contributes cash beyond supporting upstream operations.

The pending Cardinal acquisition would increase San Mateo’s gas-processing capacity and gathering reach across the northern Delaware Basin. If completed, the expanded system could provide additional flexibility as Matador integrates Paloma and develops its broader acreage position.

The benefit should not be assumed automatically. Connecting new production can require pipelines, compression, water infrastructure and capital. The economics will depend on asset location, available capacity and the contractual arrangements between Matador, San Mateo and other service providers.

There is also a governance distinction. Matador owns 51% of San Mateo rather than 100%, meaning some midstream economics accrue to Five Point Infrastructure. The structure can reduce Matador’s capital burden, but it also means the company does not retain all cash generated by the joint venture.

The strongest integration outcome would combine lower upstream operating constraints with increased midstream throughput and third-party service revenue. Evidence of those benefits should emerge through lower unit costs, higher processing volumes and stronger San Mateo distributions after the acquisitions close.

What does the July 23 share-price reversal reveal about investor expectations for the deal?

Matador shares initially rose in premarket trading after the acquisition was announced. The reaction reversed after the regular session opened.

The stock traded at approximately $52.62 at 11:48 a.m. Eastern Time on July 23, down about 4.3% from the previous closing price of $54.99. The shares had opened at $56.20 and reached an intraday high of $56.49 before falling to the session low at the time of measurement.

The reversal suggests investors were balancing the value of the acquired inventory against the size of the cash commitment and expected increase in borrowing. It would be too definitive to attribute the entire decline to the transaction because energy equities also respond to oil prices and wider market conditions.

At $52.62, Matador’s market capitalisation was approximately $6.5 billion. The $1.275 billion Paloma purchase price therefore represented close to 20% of the company’s equity market value, making the transaction large enough to influence investor perceptions of leverage and capital allocation.

The stock was approximately 0.9% below its July 16 close of $53.08, but remained around 4.4% above its June 23 close of $50.38. Matador’s 52-week trading range stood between $37.14 and $66.84.

This performance indicates that the shares were still above their levels from one month earlier despite the negative intraday reaction. Investors had not abandoned the broader growth thesis, but the acquisition announcement raised the standard of proof required from management.

The market is likely to focus on whether Matador can close the transaction without unexpected adjustments, integrate the assets quickly and reduce borrowings within the promised 12 to 18 months.

A sustained positive reassessment would require evidence that Paloma’s wells produce strong returns and that the Woodford position develops into a repeatable commercial play. Continued share-price pressure could emerge if acquisition spending expands further before debt begins declining.

Which closing and operating milestones will determine whether the acquisition creates value?

The first milestone is completion of the Paloma transaction, which is expected during the fourth quarter of 2026 and remains subject to customary closing conditions and adjustments.

Matador must also complete the Ridge Runner acquisition and disclose enough information for investors to understand its final cost and financial impact. The absence of a standalone purchase price currently limits a complete assessment of the combined capital commitment.

The company’s second-quarter results on August 5, followed by its conference call on August 6, should provide updated production, liquidity and free cash flow information. Management is also expected to discuss how the acquisitions will alter the 2027 development programme.

After closing, acquired production will provide the earliest financial test. Paloma must deliver close to the expected 10,600 to 11,600 barrels of oil equivalent per day without requiring unexpected workovers or operating expenditure.

The next proof point will be drilling performance. Matador must demonstrate that Paloma’s Bone Spring and Wolfcamp locations achieve the expected reserves at costs below or comparable with its corporate averages.

Woodford appraisal will be equally important. Additional wells must confirm that Rae’s Creek was representative of a broader commercial resource rather than an isolated strong result.

Debt reduction will provide the clearest capital-allocation test. Returning leverage close to 1.0 times within 12 to 18 months would show that the assets are generating cash and that management has avoided allowing acquisition debt to become permanent.

The transaction improves Matador’s inventory depth, current production and strategic control within the Delaware Basin. What remains unresolved is whether the company has paid an attractive price after accounting for development capital and renewed leverage.

The thesis would strengthen if acquired production remains stable, drilling costs fall and Matador begins repaying the reserve-based facility soon after closing. It would weaken if well performance disappoints, commodity prices reduce free cash flow or additional acquisitions postpone deleveraging.

The decisive proof will not be reaching 240,000 Delaware Basin acres. It will be generating stronger production and free cash flow per share while restoring the balance sheet within management’s stated timetable.

What are the key takeaways from Matador Resources’ Paloma Permian acquisition?

• Matador Resources has agreed to acquire Paloma Permian from EnCap Investments for $1.275 billion in cash.
• The transaction adds 16,235 net undeveloped acres in Eddy and Lea counties, New Mexico.
• Paloma is expected to contribute approximately 11,100 barrels of oil equivalent per day, with oil representing 57% of production.
• The assets include 55 million barrels of oil equivalent of proved reserves and more than 156 net Bone Spring and Wolfcamp locations.
• The purchase price is approximately 56% above the disclosed $816 million PV-10, showing that future development inventory is central to the valuation.
• The separate Ridge Runner transaction helps expand Matador’s Woodford position to approximately 50,000 net acres and more than 150 potential locations.
• Matador plans to use cash and reserve-based lending borrowings rather than issuing shares, avoiding immediate equity dilution.
• Management expects approximately $1 billion of adjusted free cash flow in 2026 and aims to restore leverage near 1.0 times within 12 to 18 months after closing.
• Matador shares fell approximately 4.3% intraday on July 23 after initially rising before the market opened.
• Closing, acquired production, Woodford appraisal and the pace of debt repayment are the next measurable catalysts.