Matador Resources Co

NYSE:MTDR

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, everyone, and thank you for joining to the Second Quarter 2022 Matador Resources Company Earnings Conference Call. My name is Norma, and I'll be serving as the operator for today. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes, and the replay will be available on the company's website for one year as discussed in the company's earnings press release issued yesterday.

I would now turn the call over to Mr. Mac Schmitz, Vice President, Investor Relations for Matador. Mr. Schmitz, you may proceed.

[Mac Schmitz, VP, IR]

Thank you, Norma, and good morning, everyone, and thank you for joining us for Matador's Second Quarter 2022 Earnings Conference Call.

Some of the presenters today will reference certain non-GAAP financial measures regularly used by Matador Resources in measuring the company's financial performance. Reconciliations of such non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP are contained at the end of the company's earnings press release.

As a reminder, certain statements included in this morning's presentation may be forward-looking and reflect the company's current expectations or forecasts of future events based on the information that is now available. Actual results and future events could differ materially from those anticipated in such statements. Additional information concerning factors that could cause actual results to differ materially is contained in the company's earnings release and its most recent annual report on Form 10-K and quarterly report on Form 10-Q.

In addition to our earnings press release issued yesterday, I would like to remind everyone that you can find a slide presentation in connection with the second quarter 2022 earnings release under the Investor Relations tab on our website.

And with that, I would now like to turn the call over to Mr. Joe Foran, our Chairman and CEO. Joe?

[Joseph Foran, Founder, Chairman & CEO]

Thank you, Mac. I appreciate your help very much. And I just wanted to do a sound check with everybody to make sure we're not cutting out. In the pre-test, there was some indication that someone is being cut out. But if you are, please let the operator know and -- want to be sure we're coming in loud and clear.

Where I'd like to start is on this. This is the best quarter that we've had in company history. Actually, the first quarter was originally the last quarter, but this quarter has been even better. And we're proud of that. It reflects the team effort here, and we feel we've gained strength in all areas and the outlook forward is strong, and we like our chances.

Operationally, the big difference makers is first is the capital efficiency that you'll note in a lot of our activities; and second, the strong relationships that we've had with our vendors and outside contractors. So we have not -- we've avoided a lot of the problems of the supply chain. They've been there, we've worked with them for many years, all these people, Patterson, [Borland and Leverage], Halliburton. And we just appreciate very much all the different elements that go into the well. And our contractors and our field people who are unsung heroes in keeping things going and helping out and add to that capital efficiency.

Much of the capital efficiency comes from the conversion from drilling 1-mile laterals to 2-mile laterals. As you'll hear later on, is we're making preparations to move to some 3-mile laterals. That's been the big difference maker even in this time of higher prices, having that extra measure of capital efficiency.

And finally, the financial strength of Matador has continued to grow through the years, and we feel we've reached a new inflection point as our production has climbed to over 100,000 barrels of oil or gas equivalent per day, which puts us in a position of being the strongest time in our history from a financial or operating point of view.

During this time, we've had a lot of debt paydown, so that we've completely retired our commercial bank lending. We still have a borrowing base there, but we paid all of that off, and we've also paid down our bond debt. And this has given us, of course, more options, more cash flow and set us up for a different level that we won't have the risk profile that you have with debt. And the leverage ratio has declined from 2.9 in the third quarter of 2020, say, 2 years ago, to where -- from 2.9 to 0.5.

So proud of that, and we're ready for your questions and what else we can tell you about Matador and our outlook and progress going forward.

[Operator]

[Operator Instructions] Our first question comes from the line of Neal Dingmann with Truist.

[Neal Dingmann, Truist Securities]

Let me address maybe what I call the [attract] development in the room, and that is on my estimate, I think you all could have negative net debt. You mentioned the great leverage. By my estimate you all can potentially have negative net debt next year and even depending on the prices generate over $1.5 billion of free cash flow. So I know you all always talk about wanting to keep your options open and boosting the base dividend. But obviously, the general question is what do you do with all the cash piling up? And maybe, Joe, I'm thinking management would love big dividend, so maybe just a better question for her.

[Joseph Foran, Founder, Chairman & CEO]

I'm sorry, I didn't quite hear. Would you repeat that, please? What...

[Neal Dingmann, Truist Securities]

Did you hear my question, Joe?

[Joseph Foran, Founder, Chairman & CEO]

No, it came across as garbled. So I mean try again.

[Neal Dingmann, Truist Securities]

Let me try one more time. So my point was that by my estimate, I guess, you talked about the debt. I think you all could have negative net debt next year. And I -- depending again on prices, potentially generate over $1.5 billion of free cash flow. So again, I know you guys have been very straightforward about keeping options open and boosting your base dividend, but anything you could address about what to do with the cash pile up. And my last comment was, Joe, as I was thinking Nancy would probably love a big dividend. So maybe this would be a better question for her.

[Joseph Foran, Founder, Chairman & CEO]

Well, it might. But that's why you have a Board of Directors to be sure that goes in the -- and a staff that goes in the right direction. Yes, that would provide us with some high-class options. But Neal, we -- again, when you start your company as we did Matador 40 years ago, first Matador, we started with $270,000. And of course, we sold that for $388 million, which was a good run. But we sold that on Friday and started new Matador on a Monday 20 years ago and with $6 million. So when you start with -- those are pretty limited funds, you learn to be very careful about how you spend it because there's no assurance there will be further capital to use or deploy.

We have ideas on what to do, but we want to be very careful. If we're generating that much cash flow next year and their prices are up, we know that uses will come. But one example of what we did recently was the purchase of the Summit Midstream. That deal came up all of a sudden. We closed it within 36 days. So that's something that we couldn't have forecast. That came up, but we had the option because we have the money in the bank. We didn't need to pull down anything on our line of credit, and that was one of the reason we got the opportunity because we had the wherewithal from a [indiscernible] point to do the documents and seal the deal in a little over a month, and we had the money in the bank waiting to go.

I think you'll continue to see us move forward with other acquisitions, either in Midstream or buying production bolt-on to our acreage and our geological group under Ned's leadership, has a lot of good ideas. And we're optimistic that we'll have some prospects that'll rival the Rodney Robinson wells or the Stateline or Stebbins Area, some of these other areas that we're looking at closely. So there are some really exciting opportunities there. We do -- if that kind of cash flow comes in, I think people can reasonably expect some increase in the dividend. We've doubled the dividend 3x in the last 2 years. So we like dividends. As you know, we're all large shareholders here. So there's no opposition really to dividends other than we want to keep a strong financial position.

And then on the debt side, I think we'll continue to retire the bonds at some point, and we'll probably keep some debt just for the rating agencies to see that we are careful about that. We tend not to be real budgeted people, trying to plan out 2 years ahead where we're going to spend money. We found it's been more efficient for us to be opportunistic and see what comes up at any given time.

And as much like as we get into discussing the seventh rig, it's not like we began the year and said we're going to do a seventh rig, but circumstances came up that this is a very special rig, as Billy will describe to you. And it's a rig that's -- that if you're going to drill 3 miles, this is a rig you want out there. And we expect, I think it's a high probability, we'll drill a 3-mile lateral sometime in the not-too-distant future. Within in the year, we'll take up some 3-mile opportunities and you need this rig. So we'll take that on in late September, so it's really here for this year only for 90 days, will help us drill the Rodney Robinson and get those off because we have 19 wells there right now.

But when we start growing these next 8, you're going to have to shut in probably 3/4 of those 19 -- 15 of the 19, while you're drilling and completing those wells for safety's sake. So having that extra rig to catch back up will be good because one of our rigs, we're going to use to drill a saltwater disposal well, which will lock it off of the production line for about 60 days. So these are things that are well considered. And because of the timing, we thought we should move ahead, and it helps to have money in the bank. But I can tell you, starting off with $270,000, which today is on frac stage. So it started 6 in the morning, we'll be through by noon.

No, we're pretty careful about this money because it's ours. We're large shareholders. It's our friends'. And it's our families that have put up this money, and we like to be very careful and try to use it for good purpose. So I hope that's helpful to you, Neal and give you some examples of what we'll try to do.

[Neal Dingmann, Truist Securities]

It does. It does. Great details. And then maybe just a second on the capital spending that you all mentioned the update, specifically, is the best way for us to think about that for -- maybe for Michael, one of you all, is just to think about CapEx in terms of dollar per foot? I know there's a lot of other things, Midstream and other things involved in that. So I'm just wondering what's the best way to think of the CapEx. And knowing you don't have a '23 budget out there, should we just kind of think on $1 per foot and maybe add some inflation to it? Or how should we think about sort of CapEx going forward? Knowing as you said, I don't want to get into just '23 budget yet, but just kind of on a broader scale, how to think about when you look at the budget?

[Christopher Calvert, SVP, Operations]

Yes, Neal, this is Chris Calvert. I think looking at it at a D&C cost per foot is a good way to look at it. We came out with $845 per foot in the fourth quarter of 2021. And so we had projected about a 10% to 15% increase versus our fourth quarter number. And so with this revised CapEx, it did bump it up to about $890 per foot. And so that is highly related to timing, highly related to inflation that we are seeing and the heavy hitting components of that would be sand, steel, fuel. And so while we are seeing inflation, we've seen it throughout the year, that big jump, and really the jump that you're seeing is really related to timing and when we're bringing these wells online.

And so kind of like we've spoken in the past, we control what we can control when it comes to sand, steel and fuel. On the sand side, long-standing solid relationships with our vendors, line of sight for them to procure supplies for us. So we don't have interruptions to operations. On the fuel side, the completions team has implemented dual fuel frac fleets. And so for the remainder of the year, 100% of our wells will have dual fuel capabilities, and that typically saves about $100,000 to $150,000 per well.

And then also just spending less time on wells. And so for the drilling team, when we went back to Rustler Breaks, we initially budgeted about 20 days to drill some of these wells in Rustler Breaks. We're drilling some of these now right around 10 days. And so that time savings component has a dollar component to it. And so we're spending less time on wells. And then the completions team implementing simul frac, remote frac. That's spending less time on wells and also saving about $250,000 per well. And so for all the heavy hitting cost components that we are seeing, inflation on -- our operations team is doing a fantastic job on mitigating those inflationary pressures with sustainable efficiencies.

[Operator]

Our next question comes from Scott Hanold with RBC Capital Markets.

[Scott Hanold, RBC Capital Markets]

Could you walk through the thoughts on adding the seventh rig and how you see like that creating shareholder value over time? And I think implicitly, you all see some strong value opportunity and investment into the business. Can you give us a sense of the types of returns you expect to see from that rig in the wells that you'll be drilling?

[Thomas Elsener, SVP]

Sure, Scott, this is Tom. I think that our teams are doing a wonderful job on the cost front, as Chris just mentioned. But when we're talking about adding an additional rig, the first thing we're looking at is the rock. We always want to make sure that we're drilling the best targets that we can drill. Ned and the geoscience team with MAXCOM are doing a great job putting these wells right in the target zone. We think that these wells can't earn 4x their cost over the life of the wells. And when you have 2-mile-long laterals going through great rock with an 87.5% net revenue interest. And when we have facilities and pads that are already built, that's a good formula for adding value for the long term.

[Scott Hanold, RBC Capital Markets]

Great. Appreciate that. And my follow-up question is sort of talking to, obviously, the trajectory of spending into next year, which I think is going to be very topical for a lot of companies. Understanding it's early in the plans that explicitly laid out into next year. But can you give us a sense on where you see lateral lengths going forward as well? I think on Page 29, you demonstrate how that's stepped up nicely through 2021, and held pretty constant through 2022. How do you see that progressing as you look at '23 and beyond based on your opportunity set and plans to drill some more some 3-mile laterals?

[Thomas Elsener, SVP]

Sure, Scott. We're definitely big believers in these longer laterals. And as Joe mentioned, the teams are working towards getting further out to the 3-mile mark. We've executed very well at the 2.5-mile lateral length down at Stateline, as you know, and we're excited to push the boundaries out even further. Not every well we drill will be the long laterals. We'll have some wells that we'll need to drill that will be -- kind of stay in between two existing wells, where we'll drill some shorter wells along the way. But we still think those wells will have excellent returns and will certainly compete for capital. Executionally, I think that as Chris and Billy and all the ops teams have made some big improvements on some of the [greases], wireline and some of the [for-purpose] snubbing units that really are kind of the tighter parts of executing these longer laterals, and they've really made these operations safer and faster and more efficient. And give us the type of confidence to drill these longer laterals.

[Scott Hanold, RBC Capital Markets]

I appreciate that. So it sounds like staying around 10,000 feet on average is sort of a good sort of thought when you look at the relative mix going forward?

[Thomas Elsener, SVP]

I think that's pretty reasonable. We still have a ways to go before we finalize our plans for next year, but I think that's in the ballpark.

[Operator]

And our next question comes from the line of John Freeman with Raymond James.

[John Freeman, Raymond James]

First question I had -- you all have a slide in your presentation on Slide 26, that's quite helpful. It kind of shows how everything kind of breaks down on a positive and negative standpoint on your updated guidance. And obviously, the biggest positive through the first half of the year was the much better well performance, specifically, you all cited those 11 [Voni] wells and the 9 Rodney Robinson. I'm trying to get a sense of -- on a go-forward basis, the better well performance you've had, is that -- when you think about the additional wells you're going to be drilling going forward in those areas or others, is there any additional upside from what you all had originally planned at the start of the year? In other words, are you still using the same previous kind of type curve assumptions that you did going into the year despite the better well performance you had?

[Thomas Elsener, SVP]

Good question, John. I think we just try to -- we try to put our projections down just down the middle of the fairway. We do pride ourselves and looking at the wells very closely. And we just want to be as accurate as we can. As shown on that slide, we did have outperformance in many of our wells in the first half of the year, and we're very happy with that. It's -- sometimes the wells are -- do better and sometimes they're a little under. But overall, I think we've done a nice job forecasting our wells and things like spacing and putting the wells in the right zone and good execution, good fracs, all contribute to these types of outperformances.

[Joseph Foran, Founder, Chairman & CEO]

Yes. John, I'd like to add. This is a good point to point out the efficiency of our MAXCOM group. That's at 24/7 group that measures in real time where that wellbore is going horizontally. And then before we had that, if a horizontal well went out of zone, it might be a little while before it was recognized. And then they had to call in to a geologist, get them up in the middle of the night. They had to talk around, and they could go 200 feet outside of the zone because of the slip fault or some other normal operating procedure. Well today now that time has been reduced to a matter of minutes -- a few minutes before you realize what's happened, you can redirect.

So you're staying in zone a larger percentage of the time. And we estimate prior to having that room, we were in zone -- in the 80% -- 85%, somewhere in that mid-80s percent. But now we're routinely drilling those wells at over 95% and there have been some wells we've been very close to 100% of the time in zone. Well, you have a 1 million-barrel well or whatever size well you want to talk about, and you're in zone 10% more of the time, that's 100,000 barrels. So that's one part of the efficiency. And then second, Chris and Ned working as geologists and engineers in there, so they get very comfortable working with each other.

And then Chris and Cliff and Ned have been real good about collaborating on the frac jobs and what works and what doesn't. And we think they've been very effective in the tweaks they've made to our frac programs and how they're doing it and reducing the cost by doing remote fracs, among other ideas. And this has resulted in a lot of this outperformance. In the second half of the year, we're still going to be trying out some new things, and we're still drilling in areas of good rock. But because we got ahead a little bit on the outperformance and got ahead of what our guidance was for the year, it's allowed us to accelerate the Rodney Robinson wells, 8 more Rodney Robinson wells. Instead of waiting to the end of next year, we're accelerating them to the end of this year. And in doing so, we have so many federal permits. Those are at 87.5% net. We have federal permits. They're due to expire at the end of next year.

Well, as uncertain as the current administration's regulations are and other thoughts, why take a chance of something happening to that or having the Mexico regulatory authorities now want them drilled because they're close to the [pre-checking] area or parts of it or even in it. And -- we just want to eliminate and get those wells online much like what we did this past year with the Voni wells down there in Stateline and the Boros wells. And we drilled, those accelerated the development. And so we began the year with a lot of momentum that's carried this halfway point, that's allowed us to consider doing that again up there in the Rodney Robinson.

So I guess the point I'm trying to make is one of the things that we try to do in an effective manner is make these judgments and shift strategies a little bit. We call it trying to be a little more nimble in that as opportunities arise to go for them just like what we did on Pronto, buying other leases. And we think that has to be part of our effectiveness is that we still are small enough where we meet them together and make a more effective plan going forward. So I hope that answered your question. If not, I'll get one of these other young guys on the line, and they'll give you their perspective.

[John Freeman, Raymond James]

You covered it well, Joe. I just -- my follow-up question is on the seventh rig, which you'll characterize as a special rig, and it would allow you all to ultimately do some 3-mile laterals. Just so I understand, though, these initial 8 wells that are getting accelerated, none of those are planned to be 3-mile laterals, right? That's something you would plan to do after the conclusion of these 8 wells, is that right?

[Joseph Foran, Founder, Chairman & CEO]

That's right. There are 19 wells currently on the Rodney Robinson. These will add 8, but while you drill the 8, you're going to have to shut in 75%. Since we're ahead of the curve right now, this seems like time to do it. Billy can tell you why this rig is particularly suited for 3 mile, but they won't be on these first wells. We'll break out the crew and make sure that we're all comfortable with the crew. Billy?

[Billy Goodwin, President of Operations]

Yes sir. John, this is Billy. And just like Joe was saying, we don't want to bring a new rig in and jump right on 3-mile well with it. We want to get everyone working together and make sure we got everything in line. And further out, we will be drilling some 3-mile wells and we run one of these rigs like this one we just picked up before, and it was available and it was about to get taken by other people. The rigs are getting gobbled up these high-spec, high-tech rigs like we like to run, and all of our rigs would be able to drill 3-mile laterals, but this one, in particular, will be better and has more setback for your drill pipe for the 5-inch or 4.5, whichever we use.

And in the deeper laterals, there'll be a lot of drill pipe stacked back there. So it helps us out there and the substructure as well is rigged up really well for handling your [wellhead] BOP equipment and save us time there. And this rig would have the high torque top drive and all the other things we require as well. So it's a good rig, and it is definitely capable of drilling 3-mile laterals, and we're glad to have it coming in to support our drilling program.

[Operator]

[Operator Instructions] Our next question comes from the line of Gabe Daoud with Cowen.

[Gabriel Daoud, Cowen and Company]

Joe, I was hoping maybe we could just go back to the seventh rig. I was curious if you could -- maybe help us think about how that impacts volume growth for 2023? The release mentioned that it obviously accelerates those completions to late 1Q, early 2Q. So just curious if you can maybe quantify the volume impact on 2023?

[Joseph Foran, Founder, Chairman & CEO]

I'll do the best I can. I do want to mention one more thing -- a couple of things about the seventh rig is first, remember, take into account that we've announced we want to drill another saltwater disposal well with one of the other rigs. So while that's out 2 months drilling the saltwater disposal well, which we really need to give us some safety measure, so we have some place to go with our water. That will cut back production a little bit, and there's some timing questions that may affect the time. And we're uncertain of whether the drop in price or the threats of a recession will decrease the number of non-operating well proposals we received.

This past year, I think we had 105 such proposals that resulted in 8 net wells to us. So if that's reduced in half because prices are down or something else, that's going to have an impact on saltwater disposal. So we're optimistic, very optimistic that our production will be more next year, but it's not bird in hand yet, as I've tried to explain in those two situations. And so we definitely felt this rig was needed, but we -- and maybe we would have taken it at first of the year, but it was offered to us at the end of September.

And as Billy pointed out, if we didn't pick it up now, we would never have a chance at it. Other people want it and they would take it and just not release it. So that was something that just like the Summit deal, if we didn't take it when we did, it had gone to somebody else and we would have lost that opportunity. So that's something that excites me about having the additional cash, not that I'm looking to spend it, and I hope no one's ever thought me as being quick to spend, but it helps you on your execution to have the right equipment at the right time or the right situation.

So the seventh rig -- effectively as we drill the saltwater disposal, we have 6 rigs. If we didn't have that seventh rig, we'd be down to 5 rigs, and we certainly wouldn't be able to maintain the production that we have. So it wasn't a hard decision at all to pick up the rig. The real decision is how do we optimize the pacing of our rigs and the pacing of our production. Did that answer your question?

[Gabriel Daoud, Cowen and Company]

Yes, that's helpful. And then maybe if I could just follow up as the -- think about asset allocating the rigs across your Delaware asset base or maybe for the remainder of '22, but specifically into '23, just how should we think about returning to Stateline? Just curious if that's still part of the plan here to return to those 2 units and until the remainder of the wells that you have permitted. And then also on that note, I was just curious if you're seeing any differences in getting permit approvals?

[Thomas Elsener, SVP]

Gabe, this is Tom. We're still very excited about our Stateline acreage. And in fact, we have a rig drilling right [there] right now. We have 50 wells producing at Stateline. And so we're mindful of making sure we have good takeaway for oil, gas and water, and that's where San Mateo has done an excellent job for us in all 3 phases.

As far as kind of the rigs allocations, we have excellent targets all around the basin. We're -- as we acquired some acreage at the end of last year up in our Ranger area, we're very proud to be putting money to work at drilling wells up there in the -- kind of in the original part where the Bone Spring formation kind of got going many years ago. We've also been pushing the Wolfcamp play further north, both in Ranger and also a crossover in the Arrowhead area.

As we mentioned, we're getting that saltwater disposal well drilled now so that we can have -- we can drill some more wells in the Greater Stebbins area in parts of next year. The teams have been drilling great wells in Wolf and in Rustler Breaks. And obviously, you heard about Rodney, but also across other parts of Antelope Ridge where we've been drilling some really good 2-mile Third Bone Spring, Second Bone Spring laterals. So it's kind of a high-class problem to have so many good opportunities to put these wells going.

[Operator]

[Operator Instructions] Our next question comes from the line of Zach Parham with JPMorgan.

[Zachary Parham, JPMorgan]

I guess, first, maybe just on the balance sheet. You all bought back the $158 million in bonds during the quarter and into July. Maybe could you just talk about your balance goals? I know, Joe, you mentioned earlier on the call not wanting to go to 0 debt, but do you have a target debt level you'd like to get to?

[Joseph Foran, Founder, Chairman & CEO]

That's a good question. Zach, we don't -- we tend to do very little targeting that we're going to target some many wells or target so much debt or any of that or target production levels. We try to let things unfold. And as we said, we aim for profitable growth at a measured pace and not growth for the sake of growth, but what comes more naturally from your drilling completion efforts or your acquisitions. And that's what we're trying to stress, the opportunistic nature of a lot of our decisions and trying to leave ourselves with a lot of flexibility. We really haven't targeted. We know we wanted to pay this down and continue to pay down the debt as it comes up, and we felt the opportunity where people were eager to or willing to sell at a discount.

Now a few years ago, our bonds fell down there to a very low level. So probably most of these people bought at that low level, and they were 30% or 40%. And so they've got a lot of gain. They've taken it, it's win for them, win for us because we were never in default or never in financial trouble with our banks. And in fact, at that time, we had already been approved with no change by 13 different credit committees. That was just where the market went into disarray because of other problems unrelated to us. So that was an opportune time for people to buy.

I think that's helped us buy in this situation and retire more of the debt than would have otherwise. But we just haven't been in trouble. And now we have this cash, and we believe paying down debt is a better alternative for our shareholders in merely buying back stock. When you buy back stock, the person who sells their stock often leaves. Doesn't come back, where buying back debt is a more enduring benefit and improves the financial strength of the company and its opportunities. And so the company has strengthened with the debt buyback, where it -- if you're buying back stock, that's a short-term benefit may help.

And on the dividends, we're studying the market and looking to see if there's a program that really resonates with the long-term shareholder. If you look at -- go to the 13F and look to own stock in Matador, you're going to see they're almost all long-only funds. And then we think it gives us a certain amount of stability. And we just had our annual meeting. We had over 90% of the shares represented over 200 people there. And the votes are all overwhelmingly 95% or better on what we're doing.

So we feel they support us in the view to keep strengthening the company first financially, rewarding the shareholders, but be sure you can do it -- can sustain it and keep drilling and giving us a discretion to drill those wells that we think we should in cadence to this profitable growth at a measured pace mantra. So we haven't had calls from shareholders saying, cut back or speed up. They -- keep doing what you're doing is what the -- is the message that we've been getting, it seems to be working effectively.

We -- 10 years ago -- we're celebrating our tenth anniversary, 10 years ago, we went public at [12]. Today, our price is over in the 50s. So given all the ups and downs, we think that's been a reward. A positive reward for our shareholders to be up 4 to 4.5x what we originally went public. I like our record, I like the decisions we've been making. I think we're setting up ourselves up with plenty of A+ locations to drill. And we've tried to make sure that with the money that we spend -- that's being spent on the very best caliber of wells and not diluting ourselves into where you're doing the B+ or A-. I mean these are -- that our caliber of wells and not diluting ourselves into where you're doing the B+ or A-. I mean these are -- that our production is not because we spend so much more money, but it's just been better rock with better execution and getting more capital efficient.

And I'm hoping, Tom, and Chris and Cliff and Ned and Billy and Josh, all of them will keep up that practice. So we don't have a set plan. I keep telling Ned, keep finding those A+ rock, and we'll keep going ahead and making those bigger returns. Most shales returned about 2:1. And the ones that we've been drilling, as Tom pointed out, had been affordable. And that's why the production is up 20% and not because we spend a lot more money. But I think where we spent money, Chris and Billy have made sure that we've gotten our money's worth by having the best caliber rigs, really strong vendors who have done what they've said for us and great execution from people being out on the rigs.

Billy, what am I missing there?

[Billy Goodwin, President of Operations]

No, Joe, that's a big part of it. There was spend with the A+ rock in location, the match up with our A+ staff. And -- but also the vendor relationships, that's something we hadn't touched on. We talked about the people, lot of them that we work with and others and how we stay together through the good times and the bad, and we always keep operations going and keep our people out there and keep them going. And you get in situations like now where it's hard to get sand and rigs and casing and all the different things we stay out in front of that. And the relationships are big difference in keeping A+ operation going.

[Joseph Foran, Founder, Chairman & CEO]

Yes. It's just -- it [measures] -- all of us have worked together for a number of years together. And we think we're on a good plan and looking for those extra opportunities, it will enhance returns. It's a simple plan. It's just executing requires more effort on part of everybody, but trying to get a little more efficient all the time and keep finding ways to improve. I'm proud of our operations group. They've set 179 records for drilling out there in the last two or three years.

[Zachary Parham, JPMorgan]

Got it. I appreciate that color. Just one follow-up. I know you all don't have 2023 guide out there yet. But with the seventh rig running later this quarter, the oil price kind of in the mid-80s for next year. Should our assumption be that at the strip, that seventh rig will continue running into '23 and beyond?

[Joseph Foran, Founder, Chairman & CEO]

Yes. Zach, I would do that, we can make money at $80 a barrel of oil. And our gas production is we're 60%-40%, 60% oil and 40% gas. And our gas prices have been very strong these past months. And so -- and remember, we have 2 assets that really get overlooked: one is the value of the Midstream; and second is that we've got 200 or 300 Bcf of reserves behind pipe in the Haynesville. When we did the deal with Chesapeake, we reserved all of our Cotton Valley rights. So we put a rig over there. Don't want to right now because we feel it's better to grow by a tortoise than a hare.

We tend to plug along. And as I said, we feel growth from the size we were when we went public, I'm not even going back to ancient times when I first started. But when we went public, we were $200 million or $300 million. And today, we're $6 billion or more. So we don't think our pace of growth has been too slow. We just keep looking. Let it be determined not by targeted growth, by the number of really good locations that we know we can make money on and let it be determined by that. I also want to mention just as a point of reference on the rigs, we've laddered them in. We can let rigs go in a matter of 90 days to 6 months. We could go down by probably about half because they're all staggered out there with the contracts expiring and being renewed every 6 months or so. So -- and that gives us flexibility in the pace that we're having with the rigs or on an acquisition. So I'm pleased it's been a [cooperative] effort.

[Thomas Elsener, SVP]

Just a point of clarification. Just the Cotton Valley would be in addition, we don't have those current booked as reserves right now. So that would be on top of what we've already got.

[Operator]

[Operator Instructions] And our next question comes from the line of Michael Scialla with Stifel.

[Michael Scialla, Stifel]

Joe, you talked a lot this morning about how being nimble and maintaining optionality has really been key to the company's ability to create value. You mentioned last quarter you were evaluating a variable dividend. Looking at how that's gone for some of your competitors who've allocated, in a lot of cases, more than half of their future free cash flow to a dividend, most in the form of a variable. So am I reading too much into your comments to say maybe a variable doesn't really make sense for you? Or I guess just any updated thoughts on how you're viewing the concept of variable dividend?

[Joseph Foran, Founder, Chairman & CEO]

No, Mike, I think you're reading it -- we're -- it's an open mind that nobody's ruled it out. Nobody has ruled it in, but it's being studied. We're looking at it and trying to see what makes sense, where does it work? I mean -- and where does it not work? So the main thing -- we think the most important part of the dividend is being sure it can be sustained. You don't -- even on a variable dividend, it could be set high enough where you put out enough money to cover the variable dividend and it start to limit your options or prevents you from doing what would otherwise create a lot of value.

We think the existing shareholders come first. And the long-term dividend people seem like they'd rather know they have it. It will grow from year to year over a long period of time rather than trying to accelerate dividend payments and then not have enough few years down the line. So it's an open deal. And again, I want to emphasize, we like dividends. And if you look at it, I'm largest individual shareholder. I mean I think it would be nice to have some of those big dividends, but it's better that Matador continues to grow and strengthen itself financially and operationally so that you have more over a longer period of time.

But we're open to any idea that adds value to the shareholders, and we're studying the variable. The thing that I'm -- probably have the lowest chance on is trying to do a buyback at this time because I just think we've got better uses for the money than just buying back somebody's stock would rather use it to help the company grow more prosperous and more reserves, more assets, more midstream, more quality acreage. We think that, that enhances what a Matador shareholder has. And I put out how many you take, our reserves are approaching 300 million barrels of oil or gas equivalent, and divide that by the number of shares. And each share has a lot of value behind it. And that allows us to grow to -- as we have to be 1 of the top 20 companies by market cap, I understand. And that's a long way from where we started. And Mike, you were there when we started.

[Michael Scialla, Stifel]

Yes. No arguing with your success. Just wanted to get a read on how you're viewing that concept, and we look forward to see how that unfolds. I guess my second question is just a modeling question. Looking at next year on cash taxes, based on where strip prices are right now, would you expect to be a partial cash taxpayer like you are this year? Or would it be a higher percentage in '23?

[Joseph Foran, Founder, Chairman & CEO]

I'm going to let Rob go first. I have two people who raised hands, look at me. So, Rob, our Chief Accounting Officer will go first as they finished the audit. Go ahead, you talk and then Mike talk.

[Robert Macalik, SVP & CAO]

Okay. Perfect. This is Rob Macalik. So yes, I think you're right. It will be a higher percentage of our net income. We'll be paid in cash taxes next year as we roll through all of our net operating loss carry forwards on a tax basis. So probably approaching closer to the 15% to 20% of our net income range.

[Joseph Foran, Founder, Chairman & CEO]

Which would be $100 million.

[Robert Macalik, SVP & CAO]

Well, this year, for 2021, we're forecasting to be about $100 million. If you're talking specifically about 2023, that would be the 15% to 20% range that I was talking about.

[Joseph Foran, Founder, Chairman & CEO]

Michael?

[Michael Frenzel, EVP and Treasurer]

Yes. So that could range $100 million to a couple of hundred million, depending on how commodity prices shake out. Could be higher if commodity prices are higher.

[Operator]

And this ends the Q&A portion of this morning's conference call. I'd like to hand the conference back over to management for closing remarks.

[Joseph Foran, Founder, Chairman & CEO]

Well, thank you to everybody that listened in. We appreciate the questions were really good. I think they were really fair. And we appreciate it. I want to extend once again our invitation to come in and visit us, see the MAXCOM room, 24/7. Same thing, we have a measurement room that's 24/7 that measures and automates. And they do a really great job verifying that we're getting paid for all the hydrocarbons that we're producing. We'd love for you all to see those, would love to visit with you for you to see, meet a lot of our young people who have very important jobs here. And knocking it out of the park and see the depth that we've moved to.

I think that's been one of the biggest advantages of being public these 10 years. It helped us to attract some really good people who have really been helping build this company. And -- so come see us, and we're always available on the phone for phone calls, call us. One of us will get back with you and try to help you with your questions. And continue to work with you. We appreciate the time you all are taking to try to get to know our business and get to know us.

So with that, I'll sign off, but my phone line is always open to you.

[Operator]

Thank you for participating in today's conference. You may now disconnect. Everyone, have a wonderful day.