Matador Resources Q2 Cash Flow Hits $303M, Debt Reduced

Matador Resources generated $303 million in adjusted free cash flow during the second quarter, a near-record, and used $200 million to cut acquisition-related bank debt, Chairman and CEO Joe Foran said on the company's earnings call.

Bank debt fell to less than $1 billion from $1.25 billion, Foran said. The company expects to produce roughly $900 million in free cash flow for the full year and plans to keep paying down debt.

"We've exceeded the high end of our production guidance," Foran said. Reserves rose 5% in the quarter to 703 million barrels of oil equivalent from 667 million.

Matador raised its year-over-year oil production growth outlook to a range of 4% to 7%. Foran said that comes with 1% less capital spending. He repeated the company's strategy of "profitable growth at a measured pace" while managing the balance sheet.

The quarter's results were better than feared. The story is about what comes next. The company's recent acquisitions, the Cardinal purchase and federal lease buys, are the foundation for future development. Foran said Matador made offers to 26 Cardinal field employees and all accepted.

Midstream funds were used to buy Cardinal's midstream assets, while the E&P business funded the upstream acquisitions, he said.

Federal lease purchases extended Matador's inventory life beyond 15 years, Foran said. The acreage has nine producing zones and sits near existing midstream infrastructure, which could support development and gas transportation economics.

Tom Elsener, executive vice president of reservoir engineering, said the acquired properties should generate returns above 80%. He cited high-quality rock and estimated oil recoveries 15% to 20% higher than on other properties. Multiple productive benches, longer laterals and lower projected well costs also support the return estimate. Well costs on the acreage could fall to the $600-per-foot range, he said. The 80% return estimate excluded the one-eighth royalty rate and potential midstream synergies.

Bryan Erman, co-president and head of M&A, said Matador evaluated the federal acreage for months before the lease sale and started permit work immediately after. Operations could begin as early as late 2026 or early 2027, he said.

Mac Schmitz, senior vice president of investor relations, said Matador has 12 operated wells near the federal acreage that are being completed and should start production in the third quarter. The company also increased planned midstream spending to expand San Mateo and Matador infrastructure toward the federal properties, signalling potential drilling activity near the acquired acreage this year.

Foran said the acquisitions and federal leases should support a strong finish to 2026 and an even stronger 2027. He did not give a specific 2027 capital or production forecast.

Management stressed that the acquisitions improve the fit between Matador's upstream portfolio and its midstream network. Foran said Cardinal's pipeline system complements existing infrastructure across the Delaware Basin. About 100 rigs are operating within 10 miles of its pipelines, he said, and growing activity could tighten gas transportation markets, making flow assurance more important. Matador aims to use its infrastructure for its own production and potentially for third-party customers.

Erman said Matador assigned $50 million of midstream value to the Paloma transaction and nearly $100 million of midstream value to the federal lease sale. The acquired assets stand on their own from an E&P perspective while adding value to the midstream business, he said.

Michael Frenzel, executive vice president and treasurer, said a significant marketing gain in the quarter reflected the team's work to mitigate weak Waha natural gas pricing. He does not expect that gain to recur, but said improved natural gas realizations should come from the Hugh Brinson Pipeline and other agreements with Energy Transfer.

Foran described the company as in a deleveraging period after the recent transactions, but open to future opportunities that fit its strategy. The revolving credit group includes 19 banks and has increased the borrowing base, providing capacity for another acquisition if one emerges.

Drilling efficiency gains also featured. Foran said Matador cut drilling time for three-mile wells from roughly 20 days to about 10 days. Those improvements can lower capital requirements and improve well economics.

The first Rae's Creek well produced more than 2,200 barrels, Foran said. Elsener said the initial well came online stronger than expected and that the target has potential as part of future development.

Matador Resources is an independent energy company focused on the Permian Basin, primarily the Delaware Basin in West Texas and New Mexico.