Mach Natural Resources LP Q4 FY2024 earnings call

1. Strategic Pillars:

• Maintain financial strength: Aim to have a long-term debt-to-EBITDA ratio of 1x or less to have flexibility during market volatility.
• Disciplined execution: Acquire cash-flowing assets at a discount to PDP 10 that are accretive to attribution.
• Disciplined reinvestment rate: Keep reinvestment rate below 50% of operating cash flow to optimize distributions to unitholders.
• Maximize cash distributions: Target peer-leading variable distributions that rise and fall with price changes.

1. Acquisitions: Since founding in 2017, made 20 acquisitions, accumulated over 1 million acres held by production. Purchased 4 midstream gathering and processing facilities for $65 million, which contributed $78 million of EBITDA in 2024. LOE reduced by 25%-35% from previous owners in every acquisition.
2. 2025 Plans: Anticipate 3 rigs running in 2025, will drill in Oswego, Mississippian, Woodford, and Anadarko Basins. Plan to spend $225 million to $240 million on drilling, completion, and workovers, and hold production basically flat.
3. Financial Strength: Closely monitor leverage. During downturns, adjusted CapEx, EBITDA grew from $119 million to $719 million from 2019 to 2022. Peer-leading PDP decline and reinvestment rate, strong asset coverage with total proved coverage 3.9x, net debt to enterprise value 21%, and PDP PV total debt 3.3x. LOE was $6.17 per BOE in Q4 2024, and free cash flow was $8.43 per BOE.
4. Distributions: Hedge 50% of oil and natural gas on a rolling 1-year basis and 25% during the second year. Have a variable distribution that aligns with price changes, and have distributed over $1 billion to unitholders since inception.

In 2024, Mach Natural Resources achieved a total net production of 86.7 MBOE per day. Net income stood at $185 million and adjusted EBITDA was $601 million. Distributions amounted to $310 million, and the cash return on capital invested was 25%. For the fourth quarter, production was 86,700 BOE per day, with composition being 24% oil, 52% natural gas, and 24% NGLs. Average realized prices were $70.06 per barrel of oil, $2.31 per Mcf of gas, and $25.82 per barrel of NGLs. G&A remained flat at $8 million per BOE. Cash available for distribution was approximately $80 million, with principal amortization of around $20.6 million leading to a $0.50 per unit distribution for the quarter.

1. 2025 will have 3 rigs running, spending between $225 million to $240 million on drilling, completion, and workovers.
2. Net debt-to-EBITDA is at 0.8x pro forma for the recent offering.
3. Anticipate making acquisitions in 2025 that are accretive to distribution, similar to the past 7 years of 20 deals.

1. Market price volatility which can impact product prices and financial results.
2. Risks associated with acquisitions, such as not finding suitable accretive assets.
3. Debt-related risks, including changes in debt terms that could affect financial flexibility.

Q: Neil Dingmann from Truist Securities asked about expectations on gas and oil in 2024 and where better deals might be found.

A: Tom Ward said they take what is delivered, and if a deal on gas or oil fits criteria, they will pursue it. He mentioned liking to buy oil in the 60s and may lean in on a crude oil deal currently.

Q: Charles Meade from Johnson asked about the third rig and gas assets.

A: Tom Ward said the third rig is coming soon, driven by reinvestment rate as operating cash flow has increased with higher prices. He also stated he always likes to buy gas assets as he believes natural gas demand will increase in the long term.

Q: Michael Scialla from Stephen asked about the recent bolt-on acquisition and fourth quarter distribution.

A: Tom Ward said sellers were distressed, and the wells have good rates of return. Kevin White explained that cash available for distribution was after interest expense but before principal amortization, and the per unit number was lower due to equity purchasers in February.

Q: Unknown Analyst from Stifel asked about organic leasing opportunities and BOE expense.

A: Tom Ward said the leasing budget for 2025 is around $30 million, mostly on existing acreage. He also stated that BOE expense is expected to be flat in 2025.