MTDR Acquisition

[dan_s]

This deal significantly increases Matador's long-term potential in the Permian Basin. - Dan

Matador Resources Company (MTDR) recently announced it has entered into a definitive agreement to acquire Harvey E. Yates Company (“HEYCO”), a subsidiary of HEYCO Energy Group, Inc., including certain oil and natural gas producing properties and undeveloped acreage located in Lea and Eddy Counties, New Mexico. HEYCO, headquartered in Roswell, New Mexico, is privately owned by members of the Yates family of Southeastern New Mexico, who have been active in the upstream oil and natural gas business in this area since the inception of production in the Delaware Basin in the 1920s.

As consideration for the acquisition, Matador will pay approximately $37.4 million in cash (including assumed debt obligations), issue 3,140,960 shares of Matador Common Stock and issue 150,000 shares of a new series of Matador Convertible Preferred Stock to HEYCO Energy Group, Inc. (convertible into 10 shares of Matador Common Stock for each share of Preferred Stock), subject to customary purchase price adjustments, including adjusting for production, revenues and operating and capital expenditures from September 1, 2014 to closing.

Key attributes of the acquired properties include the following:
• Approximately 58,600 gross (18,200 net) acres located in Lea and Eddy Counties, New Mexico, strategically located between Matador’s existing acreage in its Ranger and Rustler Breaks prospect areas (see attached map).
• Approximately one-third of the acreage is operated, one-third is non-operated, and operations on the remaining one-third will be pursued by Matador under various operating, farm-in and other agreements.
• Over 95% of the acquired acreage position consists of state and federal leases, most with favorable net revenue interests greater than 80% and some as high as 87.5%.
• Essentially all of the acreage is held by production from existing wells and production units.
• The two most recent Second Bone Spring wells drilled horizontally and completed on this acreage - the CTA State Com #4H and #3H wells operated by COG Operating LLC, a subsidiary of Concho Resources, Inc. - averaged 1,063 barrels of oil equivalent (“BOE”) per day (78% oil) and 992 BOE per day (84% oil), respectively, during their first 30 days of production. HEYCO owns a 14.3% working interest (11.4% net revenue interest) in both wells.
• Average net daily production during the fourth quarter of 2014 of approximately 530 BOE per day (approximately 70% oil), including average net daily production from the CTA State Com #3H and #4H wells.
• Net proved developed producing (“PDP”) oil and natural gas reserves of approximately 1.3 million BOE (approximately 60% oil) as of September 1, 2014, based on an independent reserves analysis prepared by Netherland, Sewell & Associates, Inc., excluding any contributions from the CTA State Com #3H and #4H wells. In addition, no proved developed non-producing (“PDNP”) nor proved undeveloped (“PUD”) reserves have been assigned to these properties. For purposes of this transaction, the PDP reserves were valued at $27.9 million.

Matador will assume operatorship of all operated properties upon closing of the transaction, which the parties expect to occur on or before February 27, 2015. Upon closing of the transaction, Mr. George M. Yates, CEO of HEYCO Energy Group, Inc., is expected to join Matador’s Board of Directors. The transaction is subject to customary closing conditions, including regulatory approvals and expiration or termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

[dan_s]

“Matador’s operational excellence in horizontal drilling and its top-tier organization make me confident that this partnership will maximize the value of our properties in the Delaware Basin, where HEYCO pioneered vertical development in the Bone Spring in the 1980s,” said Mr. Yates. “HEYCO is exchanging certain assets in the Delaware Basin for an ownership position in Matador, and I look forward to building on my long-standing friendship with Joe Foran and contributing to the ongoing success of Matador by serving on its Board of Directors.” HEYCO Energy Group, Inc. has additional non-operated interests in the Permian Basin, other domestic basins and internationally. Upon closing of this transaction, HEYCO Energy Group, Inc. will become one of the largest shareholders in Matador Resources Company and will own approximately 6% of the equity in the combined entity.