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Matador Resources Co
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Good morning, ladies and gentlemen. Welcome to the Fourth Quarter and Full Year 2018 Matador Resources Company Earnings Conference Call. My name is Carmen and I will be serving as the operator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session at the end of the company's remarks. As a reminder, this conference is being recorded for replay purposes and the replay will be available on the company's Web site through March 31, 2019 as discussed in the company's earnings press release issued yesterday.
I will now turn the call over to Mr. Mac Schmitz, Capital Markets Coordinator for Matador. Mr. Schmitz, you may proceed.
Thank you, Carmen. Good morning, everyone and thank you for joining us for Matador's fourth quarter and full year 2018 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 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.
Finally in to our earnings press release and our 2019 operating plan and market guidance press release issued yesterday, I'd like to remind everyone that you can find a short slide presentation summarizing the highlights of these press releases on our Web site on the Events and Presentations page under the Investor Relations tab.
And with that, I would now like to turn the call over to Mr. Joe Foran, our Chairman and CEO. Joe?
Thank you, Mac, and good morning to everyone on the line and thank you for participating in today's call. We appreciate your time and interest in Matador very much and I'd like to introduce you to the executive committee who has joined me this morning along with their other VPs and other key staff members who are standing by to take all of your questions and we'll stand by as long as you all want.
These are Matt Harford, President; David Lancaster, EVP and Chief Financial Officer; Craig Adams, EVP of Land Legal and Administration; Billy Goodwin, EVP and Head of Operations; Van Singleton, Executive Vice President of Land; Brad Robinson, EVP Reservoir Engineering and Chief Technology Officer.
As outlined in our earnings yesterday, 2018 was the best year in Matador's history and we are going to address any questions that you might have on the outspend that seems to be a key issue on everybody's mind. But also want to commend the staff for what has really been an excellent year and the extra effort that so many have put into making these good results come about.
And as I said, we will address the outspend, but like take a few moments and talk about what we accomplished over these last two years. We have doubled reserves and we have doubled production and we have added 55,000 acres, which is approximately a 50% increase in our land position out in the Delaware, the most prolific area that's been primarily on a brick by brick method and engaging in various trades with other companies.
And in addition, you've got your third midstream project. The first two have resulted in us receiving $330 million in hand. This third one we think is going to be another great deal or we're going to receive a carry and performance incentives. It's a good deal for both sides in the sense that we're not paid until we accomplish something the construction of the pipeline and the processing plant and we're not paid unless we deliver the volumes in that we've indicated. But while one and two have worked much the same way we've performed on that. So we're confident this will work out just as well.
So if -- and to put in our proportionate basis down to the individual shareholder, 2 years ago you would have owed a half a barrel of oil and today you own a full barrel of oil as well as four, five Mcf plus your proportionate share of the processing plant in your proportionate share of an acreage base, it's increased 50% while maintaining a weighted average price of approximately $11,000.
So I understand and appreciate the concern many of you have for the outspend, but our shareholders have gotten plenty of bang for their buck. And then, I also want to assure each of you that this management group is very sensitive to and very aware of keeping them strong balance sheet and on the outspend and making sure that it is selective and low risk and that we will invest in those things that have a compelling rate of return, or to invest in.
And in that regard, we're still working all the numbers and double checking, but it appears to us that first at the initial review that of the monies that we've spent this year 85% of our capital expenditures have gone into projects or wells that whose rate of return is going to approach 50% and of the remaining 15% they're in projects going to have a weighted average of approximately 20%. So the money has been well spent and we have continued to do various things as the pipelines, relation a rig in the Eagle Ford converting non-core assets to cash to add to the balance sheet and even our past midstream deal is continuing to add performance incentives to us last year, this year and three years to come.
Now addressing the outspend, we're all proponents of being very careful with the money. We treat it like it's our own because as you all know; our management group has a lot of skin in the game. All of our networks are largely in the form of stock. And recently I bought another 200,000 shares. So we put our money where our mouth is and we think this is the best thing for this stage of our growth. But, we are moving cautiously in all areas and keeping that clean and on the balance sheet. And yet, we're faced with some opportunities where you -- we believe and history suggests that that we can earn a 50% rate of return. It's hard to pass those up when you won't get another chance at them such as acreage in the unit that you're drilling. So these mineral properties that we've talked about in the midstream.
So we hope to continue to submit these results to these, so that you can see that we've been accurate in our projections. We've earned a good return and that we've been a good steward.
Once final statistic, I submit to you and then we'll open it up for questions, is that on the day we went public, we were making net the Matador 400 or 500 barrels of oil a day and today with just our minerals alone we're producing approximately a 1000 barrels a day. So we're making more from the minerals we have than the day we went public on working interest. So good growth and it's been profitable growth. And our earnings per share and our cash flow per share has exceeded the industry consensus by a good margin.
So what we're doing is trying to make money and add value and do it in a reasonable appropriate way for this stage of growth in Matador.
So with that let me open it up the floor to questions. Mac?
Thank you. [Operator Instructions] And our first question is from Scott Hanold with RBC Capital Markets.
Good morning. Congratulations on quarter.
Thanks, Scott.
Yes. Congrats. My first question is on the midstream agreement that you all signed earlier this week are released. Could you provide some details on that such as some of the MVC targets, what kind of price is in that contract, completing the contract and you're beginning to see a sense of maybe the timing and size of when those performance payments could hit?
I'm going to start off. And there is a confidentiality agreement, so I have to be careful about what we talk about on this. But what I can tell you the payments of course are as I said are based on performance; it's carrying our construction costs upfront for the 25 million. And David will go into details I like his -- the way he has described it. But the other thing I want to emphasize is multi-year. So we're going to earn money from that. This year we're going to defray the construction some of those distraction costs, but in future years as we make these performance incentives, we're going to continue to receive additional monies combined with the monies from the San Mateo 1 that will make a significant impact on our operations and will that help provide better rates of return. David?
Yes. Hi Scott. Good morning. It's David. Just to add to what Joe said. Certainly he's correct there that we do have confidentiality in the agreements that that keeps us from being able to disclose what the actual rates and indices are. We can certainly tell you confidently that the rates that were negotiated or market -- our market rates and we feel very comfortable with that.
Second, we feel very comfortable with the volume commitments. I think that given the -- both our projections for the state line and the seventh area, we feel very comfortable in our ability to meet or even exceed those projections. So over the next several years, I don't think that's really a concern at all.
With regard to the performance incentives, as we noted in the release, there are -- in addition to the capital carrier, which Joe talked about, which basically means of the first $150 million of capital that's going to be spent on the San Mateo expansion. Matador will pay 25 and Five Point has agreed to pay 125. So certainly this expansion of San Mateo is something that is very capital advantaged for Matador particularly in 2019 here, when we exceed 150 million, we'll be on a headset up basis with them and there will be additional capital expended in 2020 to get to where we want to be with the expansion.
In addition, the 150 million in performance incentives we would think would probably begin to be realized towards the end of next year as we meet certain hurdles that have been set up in the agreements. We don't really expect the plant as we noted to be even in-service until about the midpoint of 2020. So but that's okay because that coincides very well with when we'll start to see first production off the state line acreage as we forecast things now.
But I think that it's very exciting to know that we have that additional 150 million in incentives not to mention there's still about 45 million or really 60 million that haven't been realized at this point. I think as we pointed out in the note, we earned the performance incentives understand San Mateo 1 for last year and that additional approximately 15 million will be paid to Matador in the next few days by Five Point. So that's a real plus. There's another 45 million in under that agreement too.
So really we have about $200 million in future performance incentives that we can see in addition to the capital carry in return for doing this deal with Five Point and dedicate the acreage that we did. So we think it's very much a win-win for both sides. We think it gives us a chance to really I think have a very integrated strategy for both our E&P assets and our midstream assets over the next several years and I didn't have a whole lot to do with it. So I've just commend Joe, Matt Spicer, the entire midstream team [indiscernible] forget everybody just like on the Oscars. But so if I do all that I would have said that but I just will say that I think the team and our partners Five Point did a marvelous job in putting the deal together and deal with that all. So not much to talk again.
Great color David. Thank you. You've done the contract all by yourself for a minute.
Recently quick study.
For my follow up, you I'll talk about moving to a larger pad development. Could you talk about how -- so maybe a little bit about like remind us where you were in '18, what that's going to go to on average like in that pad development in '19? And as far as like the progression of the kind of production growth will that create a little bit of lumpiness that we just need to be aware of?
Yes. So the answer to that last part is yes. And I think as we tried to write into the release, we think that our production will grow a little slower in the first two quarters then you'll see a pretty big bump in the third quarter. And then a little bit flatter into the fourth quarter. And frankly, Scott, I think that's the way it's going to be for the next two or three years as we go forward. As we pointed out in the release, last year there was about 9% of our wells that were longer laterals by 2020. We think that we'll be drilling 70% that are greater than a mile. So it's quite a year of transition for us. I would say in 2018 certainly it's not like we weren't doing any multi-pad drilling, we certainly were it was very common that we'd have been doing two wells. Two wells a pad, sometimes 3 wells a pad. But there were a few ones here and there as we were working through a whole particular leases.
I think as you go forward into this year there's just a larger percentage of wells that are going to be 3s and we're going to start with some fours and once we get to 2020 that's going to continue to increase. I think as we said in the release, we see the first wells we drill on state line will all be four well pads that there'll be two up and running at the same time. So as a result of that Scott as we start to do those kind of things and it will just result in both the capital expenditures and the production in particular being a little bit lumpier going forward and that we'll do our best to try to keep everybody informed as to how we see that going forward.
I'll just jump in here Scott and just kind of build on what David saying in regards to this pads drilling and drilling these longer laterals. I think the interesting thing is the result is going to be that we're going to be able to drill more lateral feet for a rig day throughout the year. So it'll definitely move in the right direction for efficiencies. And Billy and his team they're very, very good at getting better and better at things and so we start drilling these longer laterals are going to be taking better bits, they're going to be picking better [indiscernible] assemblies, they going to be drilling faster. So I think it's definitely a step in the right direction for efficiencies.
Okay. That's great. Appreciate the color. Thanks.
Thanks Scott.
Thank you. Our next question is from Neal Dingmann with SunTrust. Please go ahead. Your line is open.
Good morning, gentleman and Dave we will try to get you in there with the Oscars again. My question guys you did a fantastic job really breaking out the minerals and Joe your comments well taken as far as how much production just the minerals and all these net royalties. My question around that is, how do you all think of the return benefit of these the uplift they provide on returns on wells versus the tremendous amount of cash you could obviously get if you decided to monetize those near term. Obviously, it's a sort of nice quandary to have.
Hey Neal. It's David. I don't know how specific or how quantitative I can be on that. I mean certainly we know that having the mineral interest does result in improvement to the returns. One thing I can say is, I know that when we were doing the [indiscernible] back in the fall that we felt like pretty much fully about a third of what the price paid or that you could afford to pay a significant amount more and so if you paid 60,000 probably 20,000 of that was attributable to the advanced royalty kind of thing. So that kind of gives you an idea of the significance that we felt like that it had and seems like there was one other thing I was going to say, but kind of lost my train of thought there.
So that's what I'll say and if you've got another point maybe I'll think of it while you ask the other question.
Sure. My second one just on Slide 9, how you all think about total locations and spacing specifically, you all continue to forecast I think a couple of the looking at the Slide 9 a couple of Wolfcamp A and a couple of Wolfcamp B landing targets. And I guess my question is, do you still believe about the four wells per section in the Wolfcamp A, four wells per section in the Wolfcamp A lower as being the most economical way to develop those plays. So really just on spacing there guys.
Yes. I think we've I think been on the conservative side of this argument sort of right from the beginning. I think we -- our location counts that we've published are all based on 160 acres except for the occasional interval like the Wolfcamp B, which is extremely thick and where we've found two or three benches that we already know work in those intervals. And even at that, we've only put those wells in the 80 acre spacing kind of wide rack or staggered. So I think we continue to be comfortable with the spacing assumptions that we have. And I would expect that we'll stay with that for the foreseeable future.
Very good. Thank you all. Great details.
Hi, Neal. This is Brad. I would just to your first question and David is right. It varies the higher royalty interest, but bear in mind the -- having the higher net royalty interest from the BLM tracks essentially increases your production 17%. And so obviously that's like having 17% better wells everywhere you drill. So it's going to definitely increase your rate of return and economics on those wells.
Great add. Thanks Brad.
Thank you. Our next question is from Irene Haas with Imperial Capital. Your line is open.
Hello. Good morning. How are you doing?
All right. How are you, Irene?
Good. I'm happy to see that you have utilized San Mateo's revolver which is about 250 right now with 220 drawn and what needs to happen for this to be increased and what's your net share on the actual borrowing, is half of that?
Yes, Irene. Again, this is David. So the facility the way that it works, the initial commitment under the facility by the lenders was $250 million, but it has what's called an accordion feature associated with it, which enables us to go back to the lenders and enables them to raise their commitments up to $400 million. It's not exactly a borrowing base kind of -- but it's sort of a similar concept to that. But I think as long as we go back to them and they feel good about where we're going to San Mateo, it would be pretty easy to get that additional commitment from the lender group.
I will say we were very excited by the fact that that all the lenders under our revolver -- our E&P revolver were participants in the midstream revolver. So I think it just goes to show that the entire bank group was a very solid band behind what we're doing with San Mateo.
It is true that the total borrowing was 220 million and that's what you'll see on the financial statements because of the way that we consolidate San Mateo. Of that a 100 -- roughly half of that ultimately was then distributed to Matador. However, the note itself is actually non-recourse to Matador.
Okay. And that's super helpful. And I have one more follow up question. Any plans for asset sale and upstream, you talked about Eagle Ford and Haynesville and that's all I have for you today.
Irene as we've said for a long time, at first Matador, we sold out to Tom Brown and second Matador, we sold good part of our Haynesville to Chesapeake. And then we've done now three midstream deals. So when the price is right we sell. And we've announced for several years here that the Eagle Ford and the Haynesville were available if people paid, we weren't under any pressure to sell, has been good cash flow, good returns, but we've been open. And in the Eagle Ford it seems like, it's been more successful to sell in bits and pieces because some people are interested in the South and some people won't be over there to the east in -- the [Karnes] [ph] County. So we're open and but we're not sell that for PDP, it's got to be plus the full value including the undeveloped acreage.
Last year drilling five wells we doubled production. So there's still gas in the tank down there and we're also drilling one Austin Chalk well as an exploration project down there. So we -- it has good potential and we'd like to make a deal, but we want to be good for both sides. Does that answer your question?
Yes, yes. This is perfect. Thank you.
Thank you.
Thank you. Our next question comes from Gabe Daoud with Cowen and Company. Your line is open.
Hey, good morning guys.
Hey, Gabe.
Hey maybe just starting with San Mateo and you did some operating set for the quarter, also gathered and process amounts which were a little bit below than what I was thinking and below the capacity of 250 million cubic feet a day. So just thinking, how does that number change as you move toward 2019? And then, I guess similar question on the water disposal side. I think you anticipated disposing about 200,000 barrels a day on an exit basis. So how does that number changed throughout the year. Just obviously trying to get a sense of what San Mateo EBITDA looks like for 2019 relative to previous expectations?
Yes. This is David, Gabe. So as far as the throughput volumes really pretty much when you looked at all the throughput volumes on San Mateo everything just doubled pretty much year-over-year whether you're talking the gathering processing, water disposal of course all gathering went up quite a bit more than double. But any event, we felt like it was a very successful year as far as those things went. The plant itself as we've said is actually 80% plus of its volumes are currently subscribed. We have a one large commercial producer that we expect to continue to increase the volumes that it's going to be delivering over the next several months. But they just sort of been in a ramp up mode.
And the same thing a little bit on the water side, the large customer we have has been sort of gradually just increasing their volumes all along. I was myself pretty excited by some of the things that we were able to put into the release with regard to even how in the first month of the year things have popped up. I mean the processing volumes, the gathering volumes particularly the oil gathering volumes now that we have everything online through with planes all the rest of breaks in Wolf.
So, I think you can certainly see those things are trending in the right direction. I think that what we had actually said was we thought we might get up to pretty close to 200,000 barrels a day of water in the first quarter of this year as opposed to an exit rate, I had to go back and look at that for sure. But that's -- we certainly are above the 150,000 at this point and I think on a spot basis, we've been pretty close to that 200,000 number here in the first quarter. So I think we feel like things are all trending in the right direction.
Gabe, this is Matt. I will just build on what David said. I think everything he said is exactly right. I think the thing that I like is, he's on a go forward basis. We've got this midstream business to a point where the initial footprint is very nice and it's in good spots. They're good volumes. And so for us to add even doing this expansion we talked about at San Mateo that's adding another 200 million cubic feet there. And that again is a need based opportunity rig. So not only for a Matador volumes, but as we build that system out of [indiscernible] and down in the state line that gives us lots of opportunities to add third party volumes.
And as far as the disposal deal goes, we've got to guard our system built out there. Russell will be building out the same system as state line standards where as more volumes become available we can drill additional saltwater disposal wells to handle that capacity issue too.
Thanks guys. That's great. Definitely some impressive operating sets on the Michigan side. And just I guess follow up maybe Joe, high level question, obviously investors are kind of focused on reigning in outspend and you hit on this in the remarks. But just curious if you could just give us a sense of or philosophically how you think the appropriate way to run Smith having a big company. And ultimately what's the right level of outspend when ultimately do you think that should convert to like free cash flow generation and what's the appropriate timeline for that. Any color around like high level thoughts on how to run the business would be helpful? Thank you.
All right. Well, Gabe, this is the reason we talk about nearly every day. What is the right level and should we spend this dollar or save this dollar or whatever, but it's a very good question. It's very strategic question. We talk about it all the time not only internally, but with our board, with our shareholders. And we welcome your thoughts and questions on it is that, it's evolving and its complex and that you have a number of circumstances. What is the commodity price? What is the outlook for that commodity price? And then, how good is the opportunity? Obviously, if it's a mineral interest in a track that we operate that adds to the return and significantly that's easier question.
If it's a midstream deal that's -- once every couple of years, top question and you want to be sure that it's good for you. We couldn't have done that, if we hadn't done the BLM. So when we got the pushback, which was understandable on the BLM why did we do that? There are two factors that really went into it that we haven't been able to say until now. One is that we were able to book 286 million in puds half of that $410 million purchase 75%. And the rest of it, we feel like we got back in the value of the Midstream deal because without state line down there and if it wouldn't have carried the day. I mean do you need that was vital because that's such great rock and we've already -- we are very indicate, we think there is going to be at least nine producing zones down there. So that's some of the best rock in the country to tie into our process in which helped attract made Five Point comfortable and that's comfortable that we could deliver the volumes and perform as agreed as both of us hope because it was tied to incentives and performance.
And so during that deal was announced then, but look where is pud, it's really enhanced and we will grow our two mile laterals from 10 percentage in 2018 to 30% in 2019 and maybe as much as 70% in 2020 year. So that's kind of what you mean would you -- that wasn't asked then. We anticipated there would be some pushback, but I think it's clearly paying off.
So we kind of look at it on a case by case trying to be very selective and at the same time we cut back our or released the rig in the Eagle Ford after drilling just those wells it validated virtually all the acreage. So we didn't keep on even though that was going to produce good rates of return. It's HBP now we'll take our time. See if we can't make a deal. And so goes everything else and I got to commend our operating staff for helping to stretch the dollar and some of the [indiscernible] group on the drilling and completion side are going to nearly double their footage drilled for the same amount of CapEx.
So it's a deal that you take up and I'd rather not have announced band and we're watching the net debt to EBITDA number and very carefully we appreciate the support from our bond group. The bonds are trading above par. We appreciate the support we've had from the bank group is that they've made clear they would be happy to increase the borrowing base if necessary. We're not even or about 10% drawn or a little maybe slightly more on the borrowing base. And either we're making some great strides as I said that you got a -- we feel we're a growth company and if we cut back our growth below 10%, we would suffer for it.
So when we meet with our shareholder group, I think people understand why we're doing it. And I think they may know that we have is so much skin in the game friends and relatives that this then work out I don't have anywhere to live -- and so does Matt. Matt has his mother and mother-in-law in it. And so trust me, we're we are looking at that and trying to make ever bullet count. And it's a very good strategic question. And there have been people in the industry that have destroyed, we admit that and hold us to a higher standard. But so far, we feel the money has been spent has resulted in added value for the shareholders.
Thanks so much. That's really good color. Thanks everyone.
Thank you, Gabe. Good question.
Thank you. And our next question comes from Jeff Grampp with Northland Capital. Please go ahead. The line is open.
Good morning, guys. I had a question on the drilling inventory, I guess kind of two parted question. I was curious if you guys could maybe from a high level talk about kind of, if you had to split the inventory up into say PV 10 breakeven at 50 or 40 or pick your number. But what would you say of your inventory, would you put in that kind of tier one type of quality. And then, I guess just conceptually given the depth of the inventory you're always interested in maybe peeling off some of the lower return maybe less strategic assets in any kind of divestiture program or any opportunistic things on that side as well. Thanks.
Yes. I think one thing that's difficult in answering your question Jeff is, if I get too much of the detail of what I think is Tier 1 and Tier 2 then we want to fill up all the Tier 2. I mean disadvantage ourselves in terms of what we could get for. I'm not sure that I want somebody else to decide what they think on some of these things. But I will just say look at -- I think that some of it depends on area as well. So I think that there are intervals that are going to work well on state line that don't work in -- that don't work maybe up in Arrowhead and there's stuff that works well in Arrowhead that may not work as well in Wolf.
So I would say for the most part in particular areas the second Bone Spring and the third Bone Spring, for example, I think is absolutely Tier 1 up in Ranger and Arrowhead. It may be somewhat less so in a different interval, it might require or it might require a little bit different strategy. You know in a different -- one of the asset areas, but overall I think that I think that most of the plays will work in those areas where they will work and where we've assigned locations to them. I think that we feel like the returns will be pretty good.
One other thing, Jeff that I just remind is that things change. New zones are discovered in different areas that changed completely the economics. There was a time early as we were RPO putting together the Rustler Breaks, if people didn't want to give us any value on the Rustler Breaks. They didn't think, it'd work and we didn't even get our cost. But, Ned and his group was right. And that's turned out to be a good deal. Similarly, as you learn to drill these wells faster for example you can change the economics on the up, so that like down the Eagle Ford, some of the lateral wells we drill that wasn't necessarily in his prime or rock. So they had better rates of return because Billy and his group had brought drilling cost and cut days on wells from 20 days to six days, which changes the economics.
And then the same thing, commodity price can shift from area to area. They have a big effect in the same cost. There are just a lot of factors that go into it. And so you're constantly -- it's just like a football poll, the national poll people are -- some teams you're going up in the summer coming down and sometimes our teams have put together some good creative deals that really enhance the economics. So I could make a list. It didn't there we just put everything down there that would earn 11% rate of return. We got a stiffer criteria than that. And that we are trying in good faith, if not put any on the location list that we don't think that we've actually got or are interested in drilling either this year or over the next couple of years.
So when we first were going public, we got a lot of pushback because we had six or seven years of inventory and now maybe it's 20 or more 20, 25 easily because in the state line prospect even though we've booked a lot of puds, Brad feels that's a tiny part of what's the oil there that the vast majority of all hadn't even been put in there as a location. So but when we first went public, I pushed back for not having enough inventory and now we're kind of getting some pushback because we have 20 years inventory. And we ought to get maybe some of that Martin, I'll be real rate of return. We try to be very consistent. It can't make the list unless it's some that we would consider drilling today or in the next couple of years. So, we could really puff that up but there's no sense in gilding the lily. If 20 years inventory is not enough then likely 30 years isn't going to help our costs either. But there is a stiff standard and that's what I want you to take from this answer that not everything makes the list even though it's technically viable and could earn some return. It's got to be some that we were serious about drilling.
Jeff, Van Singleton underscore what Joe is saying there. And I think the one thing that does factor into this is the notion that the land team has done such a fantastic job of putting this position together for a waiting price of $11,000 an acre. And then, the technical team, they continue to figure out things and make things work and different things work. And we've got additional tools. We as long as -- as well as others are using seismic and a lot of our exploration efforts and that's been really beneficial.
So I think as time goes along, if you're talking 20 years that acreage is not going to change but the ability to make money on that acreage may. So I'm kind of like Joe and David, I'm not sure that I would consider any of that.
All right. Really helpful comments. For my follow up, what's curious on the release referenced you guys incorporating in basin sand a little bit more in '19 and maybe some additional downside to CapEx, if you utilize that more was just kind of curious, what you guys need to see that to pull that lever is it, any particular I guess usage by zone or area that you're waiting for some additional results on before getting more aggressive there just kind of what are the checkboxes that you guys need to see to get more aggressive with these and basin sand?
This is Matt. And I think it's kind of a continuation of what we've been talking about in the prior quarters. We are getting more and more confident that basin sand is going to work in most of our reservoirs. So that being said, we can't save a bunch of money, we again want to just make sure that we understand long-term effects. So we've got a number of wells that we have completed that. We used in basin sand including a couple of the most recent ones down in Wolf, 206 and 208 wells that have done very, very well and continue to do well.
So I think as we progressed New Year, our confidence will increase and I think our use of in Basin sand will increase. I'm not sure that we're going to get to 100% utilization by the end of the year, but we very well may.
Right. Thanks for your time guys. A nice quarter.
Thanks Jeff.
Thank you. Our next question is from Drew Lipke with Stephens. Please go ahead. Your line is open.
Good morning and thank you for taking the questions. Just maybe circling back to the outspend and the greater investor focus on the eventual path to sustainable free cash flow. When you look at your current compensation incentives, I believe the target incentives are largely based on absolute production growth, the net acreage growth, cash operating cost, EBITDA until the shareholder returns. Has there been any consideration to changing incentive targets to maybe address the progression to sustainable free cash flow?
Drew, that's a good question. Our compensation committee has been steady in it and I'm not in -- it'll come out in our Q, in the proxy statements. And you will see that I've taken a substantial salary cut. And I think you'll see some trimming of all the officers and the compensation committee has broadened its criteria for looking at Phase 2 to make a better appreciation for the quality of earnings and part of that message is to, let people know we've heard what they've said. And then we make more money from our stock to go in than we do for compensation. And I clearly want to send a message I'm no saint as you know, but I clearly want to send a message that look we care about the stock value in it going up and not trying to had my compensation. We don't look at any one statistic, but try to use them all just like in a football game. You take the statistics and time of possession is an important number, but it doesn't determine the winner. Same thing first downs all of those but when you look at all those statistics, you get a better sense on the quality of the performance. And that's where we're really heavy is trying to make sure that it's the best we can make it. We have a very strong compensation team with strong individuals on it and we're all looking -- we are all substantial stakeholders and we're all trying to make sure it's right. But I appreciate the executive team's investments in Matador. I appreciate their willingness to take a little haircut. I'm willing to do it too for the long-term. Good. There was no problem with it. I think it was the right move to make it clear that we pay for performance around here. And when performance is good, we reward. And when it didn't we take less.
I might just add one thing Drew and that is that I think what you certainly will see, I think that the numbers you're quoting are based on the last -- however, the statistics are based on the last proxy statement which of course that would be that's all you would have to go on. But I think what you'll find when this proxy statement is released, is that actually there were more shareholder focused type of criterion in the 28 plan and that there will be even more as you move into 2019. So I think that the board of the compensation committee in particular has definitely moved in that direction over the last several years and we're -- and I think you'll see that as the next proxy has come out.
That's helpful. Thanks for that. And then, just as a follow up with the six rig program in the Delaware throughout '19, and then dropping the rig in the Eagle Ford is there any color you can give us on maybe corporate decline rates and how we should think about 2020 production growth and rig additions as we look to 2020?
Well, I think that we would -- it's probably a little early to talk I think about specifics on 2020 and what we think that production growth could be -- production growth in 2020 is going to be, I think heavily influenced by some of the new -- not some of the new areas that we're drilling, but we acquired in the BLM acreage for example and in the western part of Antelope Ridge in the state line area particularly as you go through the latter part of that year. Also it's going to be pretty heavily influenced by the results that we're seeing from some of the longer laterals we're going to be drilling up into Stebbins area over the next several years.
So, I'm very optimistic about what our growth profile will be going into 2020 but it's probably I think we feel like it's just a little early particularly since we're going to be drilling in some newer areas probably would prefer to have a few of those wells under our belt before we come out with a lot more with regard to what we expect in 2020. But we certainly would expect to have continued growth in 2020.
All right. Thanks a lot.
Thank you. Our next question is from Kevin MacCurdy with Heikkinen Energy. Please go ahead.
Hey guys. Your efforts to $500 million value for the midstream business. I was wondering if that value is based on a forecast of EBITDA or maybe some color on what method you use to come up with a number.
Yes. Hi, Kevin. It's David. Well, I think historically that we base that on having a kind of a 10 multiple on an EBITDA that was plus or minus 100 million on an annualized basis. I don't know whether 10s aren't multiple or twelve aren't multiple or what it is. But I think when we put that out there before that's been pretty much what it's based on. And I think that our expectations for 2019 put it squarely in that -- squarely in that range. And of course that's only just -- that's only just what we have going now, it doesn't include how we expect the value to grow over the next couple of years as we build up the additional assets associated with the expansion that we announced on Monday.
Great. So it doesn't include San Mateo 2 yet.
It does not, no.
Okay. Thanks for that. And on the asset sales, you highlighted that you have $50 million to $55 million net sales that that could be clarified in the near term. I wonder if you could put that $50 million in broad context compared to your goals for the year.
Well it's not that -- I want to make clear that the $50 million, $55 million is not all -- is not all sales in Eagle Ford or the Haynesville. There are other categories there where we have obligations under contract. We mentioned some of the performance incentives on San Mateo 1, those had been paid. And then there have been some sales NOI. So as far as what we feel today is that we're real pleased with the interest that we have received over the last few months. The interest has been real good. We've talked to some people. There are a number of properties that are undergoing negotiations but we're not really go much beyond that simply for the confidentiality that's occurred. But when you add all that up a little bit here, a little bit there that's what it's come to and there's more to come. So we're real pleased with the job that land is doing and the evaluation work and we'll have a further update at the next conference call.
Great. Thanks for that color Joe.
Thank you.
Thank you. And our next question is from Sameer Panjwani with Tudor, Pickering, Holt. Please go ahead. Your line is open.
Good morning guys.
Hi, Sameer.
So first off I think there was some earlier commentary regarding lateral length expansion. So can you share the average lateral length for the 2019 program and how that compares to 2018?
Yes. I think in rough terms that last year the vast majority of everything was pretty much one mile lateral. So I think we had a kind of an average of about 4700 feet is what I recall. I think this year that number grows to around 6000 feet and I think by next year we think it could approach 8000 feet.
Okay, great. And then, you also mentioned some timing issues with midstream throughput that led to San Mateo EBITDA coming in below expectations for 2018. So it's possible to quantify what you're expecting for San Mateo's EBITDA in Q1 relative to Q4?
Well, I think that your point is well taken we reported about the 62 million for San Mateo EBITDA for the year. I think the range we had hope to hit was somewhere between 65 and 75. But again, I think a lot of that had to do with just timing on a couple of things. One in particular being, we thought we were going to be -- hook that to the plains interconnect there in Rustler Breaks probably in the September timeframe that ended up being more or less December. So that but it's a great thing now. I'll tell you. So and as I mentioned earlier, I think we've taken our all gathering for about 10,000 barrels a day in the fourth quarter up to, I think it was 26,000 barrels a day in January. So all the metrics are up in January. I don't know that I have a good handle on the -- I will say the fourth quarter, if you looked at the slide, we did just under 20 million in the fourth quarter alone. And I know by the time we got to December that number I think was about 8 million, in the quarter, I mean in the month.
So I would think Sameer we will probably be somewhere in the 20 million maybe 22 something like that for the quarter. But I think that's a pretty good estimate of where it'll come out. And I think we would see that hopefully ramping as we go through the year.
Okay. I appreciate that color. And then, lastly, I'm just trying to think about how far along you are in the midstream development lifecycle. And correct me if I'm wrong, but I think in Antelope Ridge, at Ranger are the two key areas that have yet to be committed to San Mateo. So how should we expect the midstream build out into those areas in 2020 or beyond. And in that context how large do you think San Mateo can get to in terms of gross EBITDA. And how large do you think it needs to be in order to become a sustainable standalone business.
Well, maybe we can answer those questions in reverse. First of all, I think it is a sustainable standalone business pretty much today. I think if you look at -- let's just go with the 22 million annualized, you'd be talking about 90 million of EBITDA associated with San Mateo 1, the existing San Mateo. And we I believe are anticipating that we will have investments of about 80 million on that, for the year 80 million, 85 million. So to me what we would expect to earn from San Mateo pretty well accounts for what we would be investing in San Mateo.
So I feel like that that San Mateo as it is, it continue to be a sustainable business. We have elected along with Five Point to invest an additional round of capital to even further enhance the value of San Mateo. And I think that's going to work out for us every bit as well if not better than the investment that we made in San Mateo 1. So you are correct that we do not have Antelope Ridge or Ranger currently dedicated nor Twin Lakes. So and really it's not even all of Arrowhead. It's a portion of Arrowhead in the western part of Arrowhead. But it is certainly Wolf, Rustler Breaks, the state line acreage and a good chunk of Arrowhead that's now dedicated.
So we'll be continued looking for solutions as to what we want to do in Antelope Ridge or Ranger those may be -- those may not be San Mateo solutions. But I think that's to come. We've got plenty to focus on with the expansion that we've just announced, how big can San Mateo get? I don't know. How big can we dream? I mean it's -- I feel like it's already bigger than I thought it'd be when that came in. So here's what we're going to do so. So clearly they've been able to go beyond what I expected. So every time they come in, I'm like oh, wow, that's awesome. So I don't know how big it can get.
But also got to remember, I was here when we drilled the first well in matador. So if you'd told me that day that Matador would be producing 55000 Boe a day, I probably would've gone, I don't know. So I don't know how big it will be.
Sameer, this is Joe. I'd just like to add on this, over in Antelope Ridge in particular there's some real nice options other than just basically building the pipe for us that we're interested in. So if you're in a capital constrained deal, some of those options look really good. That where we don't have to -- have a such -- invest so much capital up front. So we want to thoroughly look at those and overall determine what's best. But Craig is good about generating some things and we're real serious. And those are some facts that could happen quicker instead of waiting until 2020 and make things happen that are real interesting to us and appealing.
So that lot going on and I don't want to get into that we're going to run the same play every time. But look at some of these other ways that are maybe even more capital efficient. Craig have we covered it?
Yes, absolutely, Joe. I think that covers it. One thing about the Antelope Ridge area is, you have a lot of optionality over there. So that's kind of the name of the game on the E&P side is to have options and we're evaluating all those options suggested.
Okay, great. Thanks guys. I appreciate the detailed answers.
Thank you. And ladies and gentlemen, this ends our Q&A portion of today's conference. I would like to turn the call over to management for any closing remarks.
Thank you all. I thought this is one of our more productive earnings call. Really appreciate your questions. I thought there were some really good ones. We look forward to meeting the operational and financial challenges of the coming year and keep positioning Matador for further growth and value, prosperity achieving our goals and balance sheet, strength this year and beyond.
I do want to emphasize the slide presentation there are some very good slides on that that really give you not just the last quarter, but a whole trend, multi-year where we're headed, which I think you can see.
And finally, we really would like to have you visit us -- all the people on the call come visit us, so we can meet in person and take all your questions and let you meet some of the people because our business most like yours, it comes down to people and judgment and we'd like for you to meet this team over the years since being public, one of the big advantages, it's helped us attract some really outstanding people who were growing in their roles and helped to meet these results. So please come see us. That's not a trite thank. We really mean it and we'll even buy a lunch if you come.
So with that, we'll sign off and hope to see somewhere soon.
And ladies and gentlemen thank you for your participation today. This concludes the program.