Matador Resources has agreed to sell its wholly owned subsidiary, Pronto Midstream, to San Mateo Midstream in a transaction valued at around $600m.

San Mateo is owned 51% by Matador and 49% by an affiliate of Five Point.

The transaction will see Matador receiving an upfront cash payment of $220m, with potential incentive payments of up to $75m from Five Point Energy based on assets it develops over the next five years in northern Lea County, New Mexico.

Matador founder chairman and CEO Joseph Wm. Foran said: “We are excited about the opportunity to combine San Mateo and Pronto. Importantly, Matador will continue to operate and own 51% of San Mateo following this transaction.

“This combination will provide San Mateo with additional scale and expansion of its operations into Lea County, New Mexico, where Matador and third-party customers are increasing their focus and production.”

Matador plans to use the cash payment to repay borrowings under its revolving credit facility.

The deal is set to close before 31 December 2024, subject to customary conditions including Five Point's receipt of debt financing.

In relation to the transaction, Pronto and Matador will form natural gas-gathering and processing agreements, with Pronto responsible for gathering, treating and processing natural gas from Matador’s operated wells in northern Lea County, New Mexico.

Additionally, Pronto will enter into agreements with Northwind Midstream Partners, an affiliate of Five Point, under which Northwind will process certain sour gas gathered and delivered by Pronto in northern Lea County, New Mexico.

This arrangement will provide a sour gas solution for Matador’s northern Lea County acreage. As part of these agreements, Northwind will redeliver the treated sweet gas from Pronto, along with gas from other third-party customers, back to Pronto for further processing.

Foran added: “This transaction also provides Matador with a long-term sour gas solution in northern Lea County, New Mexico. Northwind has been one of our service providers that has gathered and treated sour gas in other areas of the Delaware Basin, and we are pleased with this opportunity to expand our working relationship with Northwind.

“A majority of the acreage dedicated as part of the transaction is just north of the Advance acreage we acquired in 2023. The additional flow assurance for our natural gas provided by both San Mateo and Northwind allows us to accelerate our development plans in an area of northern Lea County, New Mexico, where we have experienced encouraging well results.”

Pronto owns the Marlan cryogenic natural gas processing plant with a capacity of 60 million cubic feet per day.

The plant is being expanded to add another facility with a 200-million-cubic-feet-per-day capacity, increasing the total to 260 million cubic feet per day.