Business Combinations and Divestitures

12 Months Ended

Dec. 31, 2020

Business Combinations [Abstract]

BUSINESS COMBINATIONS AND DIVESTITURES

Joint Ventures

On February 17, 2017, the Company contributed substantially all of its midstream assets located in the Rustler Breaks (Eddy County, New Mexico) and Wolf (Loving County, Texas) asset areas in the Delaware Basin to San Mateo I, a joint venture with a subsidiary of Five Point Energy LLC (“Five Point”). The midstream assets contributed to San Mateo I include (i) the Black River Processing Plant (before its expansions); (ii) one salt water disposal well and a related commercial salt water disposal facility in the Rustler Breaks asset area; (iii) three salt water disposal wells and related commercial salt water disposal facilities in the Wolf asset area; and (iv) substantially all related oil, natural gas and produced water gathering systems and pipelines in both the Rustler Breaks and Wolf asset areas (collectively, the “Delaware Midstream Assets”). The Company continues to operate the Delaware Midstream Assets and San Mateo I’s other assets. The Company retained its ownership in certain midstream assets owned in South Texas and Northwest Louisiana, which are not part of San Mateo.

The Company and Five Point own 51% and 49% of San Mateo I, respectively. Five Point provided initial cash consideration of $176.4 million to San Mateo I in exchange for its 49% interest. Approximately $171.5 million of this cash contribution by Five Point was distributed by San Mateo I to the Company as a special distribution. The Company had the potential to earn up to $73.5 million in performance incentives over a five-year period, which in October 2020 was extended by an additional year. At February 23, 2021, the Company had earned $58.8 million of the potential $73.5 million in performance incentives. Through February 23, 2021, Five Point had paid $14.7 million in performance incentives in each of the first quarters of 2018, 2019 and 2020, and the Company expects Five Point to pay an additional $14.7 million in performance incentives in the first quarter of 2021. The Company may earn up to the remaining $14.7 million in performance incentives over the next two years. These performance incentives are recorded as additional contributions related to the formation of San Mateo I as they are received. The Company contributed the Delaware Midstream Assets and $5.1 million in cash to San Mateo I in exchange for its 51% interest.

The Company dedicated its current and certain future leasehold interests in the Rustler Breaks and Wolf asset areas to San   Mateo I pursuant to 15-year, fixed-fee oil, natural gas and produced water gathering and produced water disposal agreements, effective as of February 1, 2017. In addition, the Company dedicated its current and certain future leasehold interests in the Rustler Breaks asset area to San Mateo I pursuant to a 15-year, fixed-fee natural gas processing agreement (see Note 14).

On February 25, 2019, the Company announced the formation of San Mateo II, a strategic joint venture with Five Point designed to expand the Company’s midstream operations in the Delaware Basin, specifically in Eddy County, New Mexico. San Mateo II was owned 51% by the Company and 49% by Five Point. In addition, Five Point committed to pay $125.0 million of the first $150.0 million of capital expenditures incurred by San Mateo II to develop facilities in the Stebbins area and surrounding leaseholds in the southern portion of the Arrowhead asset area (the “Greater Stebbins Area”) and the Stateline asset area. During the year ended December 31, 2020, the $150.0 million threshold for capital expenditures was reached, and additional capital expenditures were the responsibility of Matador and Five Point based on each company’s proportionate interest. During the year ended December 31, 2020, the Company contributed $59.7 million and Five Point contributed $105.0 million of cash to San Mateo II, of which $23.1 million was paid to carry Matador’s proportionate interest. The portion of the amount contributed by Five Point to carry Matador’s proportionate interest was recorded in “Additional paid-in capital” in the Company’s consolidated balance sheets at December 31, 2020, net of the $4.8 million deferred tax impact to Matador related to this equity contribution. During the year ended December 31, 2019, the Company contributed $15.5 million of cash, and Five Point contributed $69.0 million of cash, of which $28.4 million was paid to carry Matador’s proportionate interest in San Mateo II and was therefore recorded in “Additional paid-in capital” in the consolidated balance sheet, net of the $5.9 million deferred tax impact to Matador related to this equity contribution. Upon formation of San Mateo II, in the first quarter of 2019, the Company also contributed $1.0 million of property to San Mateo II. In addition, the Company has the ability to earn up to $150.0 million in deferred performance incentives over the next several years, plus additional performance incentives for securing volumes from third-party customers.

In connection with the formation of San Mateo II, the Company dedicated to San Mateo II acreage in the Greater Stebbins Area and the Stateline asset area pursuant to 15-year, fixed-fee oil, natural gas and produced water gathering, natural gas processing and produced water disposal agreements (see Note 14).

Effective October 1, 2020, San Mateo II merged with and into San Mateo I. San Mateo is consolidated in the Company’s financial statements with Five Point’s interest in San Mateo being accounted for as a non-controlling interest.

Divestitures    

During 2020 and 2019, we converted approximately $4.8 million and $21.9 million, respectively, of non-core assets to cash. These properties were primarily located in South Texas and Northwest Louisiana and East Texas but included a small portion of our leasehold in a non-operated area of the Delaware Basin.