• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Matador Resources Picks Up Premium Property in the Permian Basin

Matador shares have outperformed the S&P 500 by more than 12% over the last 12 months.
By ELIECER PALACIOS
Sep 14, 2018 | 01:39 PM EDT
Stocks quotes in this article: MTDR, XOP, SM, CDEV

Matador Resources Co.'s ( MTDR) stock decline on Thursday has given investors a great opportunity to buy this mid-cap oil and gas exploration and production company focused on the Permian Basin. Shares fell 7% yesterday as the company was reported to be the higher bidder for a record sale by the Bureau of Land Management in New Mexico's Permian Basin. Shares were up slightly at $31.14 on Friday afternoon.
 
The company spent more than $387 million in last week's federal New Mexico Permian lease sale, picking up 8,400 gross acres in Lea and Eddy counties, or a weighted average cost of approximately $46,000 per net acre. The recent BLM lease sale was the largest in the last 10 years and Matador did not waste any time picking up the premium acreage.
 
We think short sellers seized the opportunity on the back of this big news as there's no reason to fundamentally sell the stock. We attribute the sell-off mainly to the value of the acquisition, which amounts to about 10% of Matador's $3.7 billion market value, the fact that it will use bank debt to acquire assets and that the acreage is undeveloped, which will demand further capital expenditures down the line.
 
Matador shares have outperformed the S&P 500 by more than 12% over the last 12 months, 28.91% vs. 18.27% respectively, as crude oil has given a boost to the sector. We expect this trend to continue near term. MTDR is the third largest holding in the SPDR S&P Oil & Gas Exploration & Production ETF   ( XOP) , at 2.20%, right below peers: SM Energy ( SM) and Centennial Resource Development ( CDEV) .
 
Matador management is comfortable with the price they paid as they believe it is some of the best acreage in New Mexico. The leases are for a 10-year term and a royalty of 12.5%, which are better terms than neighboring Texas properties, where leases typically last up to five years with about 25% royalties.
 
From a location perspective, around 50% of the acquired position offsets existing Matador acreage in the Antelope Ridge area in Lea County, New Mexico, while the other half is concentrated amid the well-established and very prolific Stateline area of the Permian Basin in Eddy County, New Mexico.
 
In addition, all of the acquired acreage is undeveloped and have potential for multiple geologic targets in areas where operators have already achieved strong well results. Let us remember that this is a long-term, value-added transaction, where the large majority of the acquired acreage is believed to be conducive to drilling longer laterals of up to two miles or more, utilizing central facilities and multi-well pad development, which should reduce well costs and further improve well returns and economics.
 
However, the purchases will not be drilled until late next year and will not affect MTDR's 2018 capital budget. Despite the hefty price tag, Matador estimates these properties should immediately add an incremental 16.3 million barrels of oil equivalent (BOE), or 10%, in proved undeveloped reserves.
 
The positive effects of this acquisition on Matador's production and on potential additional midstream opportunities should begin to be realized in late 2019, 2020 and beyond and that's why we believe this stock is a long-term buy.
 
Matador has increased its production and capital spending targets after crude output from the Delaware Basin exceeded the company's expectations so far this year. After this transaction Matador's total leasehold and mineral position in the Delaware Basin will be 217,400 gross (123,800 net) acres, greatly positioning its footprint versus peers.
 
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication Palacios had no position in the securities discussed.

TAGS: Investing

More from Investing

Bearish Bets: 3 Stocks You Should Consider Shorting This Week

Bob Lang
Jul 3, 2022 10:30 AM EDT

These recently downgraded names are displaying both quantitative and technical deterioration.

Let's Shine a Light on Lucid Motors as It Slides Downhill

Brad Ginesin
Jul 2, 2022 1:00 PM EDT

LCID's market cap has been deflated, so is it now a bargain, or can it slip further?

Stop Wishing, Hoping and Praying and Take Control of Your Investing

James "Rev Shark" DePorre
Jul 2, 2022 10:00 AM EDT

The most powerful thing an investor can do is embrace the idea that they don't know what the future holds.

If You've Got Time, These Three Dividend Aristocrats Should Pay Off

Bob Ciura
Jul 2, 2022 7:30 AM EDT

There high-growth dividend stocks will be here over the long haul.

Welcome to Second Semester on Wall Street, Here's How to Make the Grade

Jim Collins
Jul 1, 2022 4:36 PM EDT

Think you can own big tech? You might just get an 'F' for that. Here's what will get you on the other side of this year.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:49 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Stop Wishing, Hoping, and Praying and Take Control...
  • 07:59 PM EDT PAUL PRICE

    Very Good Quarterly Numbers From Bassett Furniture (BSET)

    Bassett Furniture blew right through analysts es...
  • 04:41 PM EDT PAUL PRICE

    First-Half Results - Putrid; Second Half Results - Likely to Be Much Better

    It's great that we're done with June. 2022 mark...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login