Matador Resources MTDR recently announced that its majority-owned midstream joint venture, San Mateo Midstream, LLC, has signed an agreement to purchase the operating subsidiaries of Cardinal Midstream Partners for a total consideration of $752 million in cash. Cardinal Midstream Partners is a portfolio company of EnCap Flatrock Midstream.
Acquisition to Expand Midstream Infrastructure
The assets included in the deal consist of a processing plant with an inlet capacity of up to 320 million cubic feet (MMcf) per day of natural gas in Loving County, TX, along with 145 miles of high-pressure and low-pressure natural gas gathering pipelines in West Texas and southern Eddy County. The Cardinal plant complex spans approximately 75 acres and has excess natural gas and natural gas liquids takeaway connections to support future processing capacity expansion.
These midstream assets complement and expand the San Mateo unit’s existing midstream network and enable it to transport natural gas across the northern Delaware Basin in southeast New Mexico and West Texas more efficiently. Moreover, the transaction will add Cardinal’s nine natural gas gathering and processing customers to San Mateo’s customer base, thereby increasing throughput volumes and boosting revenues from third-party customers.
After the closing of this acquisition, San Mateo's total natural gas processing capacity will exceed 1 billion cubic feet per day, while its gathering system will expand to more than 800 miles. The acquisition is expected to be closed by July 31, 2026.
Funding Structure for the Acquisition
Matador has highlighted that the deal is not expected to materially impact its cash position. The company intends to fund any cash contribution related to the deal using distributions from San Mateo and may also use proceeds from a drop-down to San Mateo or from the sale of a part of wholly-owned midstream assets.
San Mateo plans to fund the acquisition partly using a new term loan of up to $650 million under its existing credit facility. For the remaining part, the joint venture will use a combination of its existing cash reserves, borrowings under its existing credit facility and capital contributions from its partners. San Mateo is a midstream joint venture owned by Matador Resources and Five Point Infrastructure.
Acquisition Expected to Drive Operational & Financial Benefits
The acquisition is expected to provide several operational and financial benefits for San Mateo. The combined natural gas gathering and processing network will enhance the flow of natural gas and reduce the risk of bottlenecks. Moreover, these assets are expected to be financially accretive to San Mateo in terms of adjusted EBITDA and cash flows almost immediately. The company has also highlighted that the Cardinal assets are expected to generate up to $110 million in annual adjusted EBITDA by 2028, provided the Cardinal plant complex is fully utilized.
Strengthening the Delaware Basin Midstream Footprint
The acquisition is expected to significantly strengthen Matador’s midstream footprint. For San Mateo, the transaction will expand gathering and processing infrastructure in the Delaware Basin, a productive oil and gas basin in the United States. The increased processing capacity, pipeline network and new third-party customer relationships should help the company support higher throughput volumes and increase its midstream revenues over the long-term.
MTDR’s Zacks Rank and Key Picks
MTDR currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the energy sector are Valero Energy VLO, W&T Offshore WTI and FuelCell Energy FCEL. While Valero Energy currently sports a Zacks Rank #1 (Strong Buy), W&T Offshore and FuelCell Energy carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks Rank #1 stocks here.
Valero Energy is a leading refining player with a robust network of 14 refineries located across the United States, Canada and Peru. The company has a combined high-complexity throughput capacity of 3 million barrels per day, which distinguishes it among other independent refiners. Valero’s refineries have a combined Nelson Complexity Index of 11.5, which implies that they can process a wide variety of feedstock and convert it into higher-value products and shift product yields according to market conditions.
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Matador Resources Company (MTDR): Free Stock Analysis Report
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