Matador Revealed as Mystery Buyer in Record Permian Auction

(Bloomberg) -- Matador Resources Co. was the anonymous purchaser of drilling rights in the Permian shale that fetched a record $95,001 per acre. The shares dropped the most in more than a year.

Chief Financial Officer David Lancaster confirmed on Wednesday that the record lease was part of the $387 million the Dallas-based company spent on 8,400 net acres in the Permian’s Delaware Basin. The U.S. Bureau of Land Management, which conducted New Mexico auction last week, had identified the winning bidder as Federal Abstract Co., a firm in Santa Fe that bids on behalf of anonymous investors.

“We’re comfortable in what we paid,” Lancaster said by telephone late Wednesday. “We feel it’s some of the best acreage in New Mexico.”

The leases are for a 10-year term and a royalty of 12.5 percent, Lancaster said. That gives operators better terms than Texas properties on the other side of the border, where leases typically last up to five years with about 25 percent royalties.

Still, Matador’s shares dropped 7 percent in New York, the most since August 2017. West Texas Intermediate, the U.S. benchmark oil price, fell 2.5 percent to $68.59 a barrel on Thursday.

Matador Revealed as Mystery Buyer in Record Permian Auction

Matador hiked its production and capital spending targets after crude output from the Delaware Basin exceeded the company’s expectations so far this year, according to a statement last month. The purchases won’t affect its 2018 capital budget as they won’t be drilled until late next year, Matador President Matt Hairford said by phone.

“The acquired acreage includes 2,800 acres in the State Line Area, the most prolific portion of the Permian, in our view,” Scott Hanold, an analyst at RBC, said in the research note to clients. All leases purchased by Matador were for land in Lea and Eddy Counties in the state.

The hefty price tag is causing some analyst jitters, since it amounts to about 10 percent of the driller’s $3.7 billion market value, Neal Dingmann, analyst at SunTrust Robinson Humphrey Inc., said in a research note to clients Wednesday.

The purchased segments of land will allow the company to drill longer laterals of up to two miles or more. Since the late 1990s, when fracking began, shale production has meant drilling sideways, pumping water, sand and chemicals at high pressure to create cracks in rock deep in the ground to release oil.

“Slightly under half the acquired position offsets existing Matador acreage, while the other half is blocky and in well-established and very prolific areas,” Dingmann said in the note.

Matador now holds rights to a total of 123,800 net acres in the Delaware. The sale was a record-setter for the state, raising a total of $972 million for bids on 142 parcels of land.

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