Mach Natural Resources LP Q2 FY2025 earnings call

Strategic Pillars

• Maintain financial strength: Goal of 1x long-term debt to EBITDA ratio. Acquisitions of IKAV and Sabinal made with low leverage. Anticipate headwinds in natural gas prices entering winter but see opportunity to add to portfolio while maintaining leverage goals.
• Disciplined execution: Acquire cash-flowing assets at discount to PDP PV-10 and accretive to distribution. Initiated 24 acquisitions, spending over $3 billion, with an acreage base near 3 million acres.
• Disciplined reinvestment rate: Maintain reinvestment rate <50% of operating cash flow. Plan to increase natural gas volumes to 70% post-Sabinal and IKAV acquisitions, with natural gas projected to be at least 50% of revenue stream in 2026. Drilling plans for 2026 focus on natural gas, including 2 deep Anadarko dry gas rigs, 3 rigs in San Juan, and 1 rig in Fruitland coal.
• Deliver industry-leading cash returns: Announced distribution of $0.38 per unit in Q2. Project 25% return on capital invested in 2025. Post-IKAV and Sabinal acquisitions, aim to bring leverage back to 1x.

Operational Activities

• Drilled 10 total wells in Q2: 6 Oswego, 3 Woodford-Miss condensate, 1 Red Fork. Currently drilling 1 Red Fork and 1 deep Anadarko dry gas well. Q3 goals include refining and reducing days on location, increasing rig count, and closing Sabinal and IKAV asset purchases to reduce costs.

For the quarter, production was 84,000 BOE per day, with 23% oil, 53% natural gas, and 24% NGLs. Total oil and gas revenues were $219 million, with oil contributing 51%, gas 31%, and NGLs 18% of the revenue.

Forward-Looking Statements

• Project natural gas product mix to move north of 70% in 2026 and closer to 75% in 2027. Leverage expected to be just above 1x post-IKAV and Sabinal acquisitions, with plan to reduce debt levels. Drilling plans for 2026 include 2 deep Anadarko dry gas rigs, 3 rigs in San Juan, 1 rig in Fruitland coal, with returns in excess of 50% at current prices. Operations depend on operating cash flow and pricing, with potential to expand or contract drilling activity based on price movements.

Risks

• Headwinds in natural gas prices entering winter with full storage and growing supply. Basis widening in the Mid-Con gas market. Legal settlements, such as the $8.2 million royalty owner dispute settlement, which impacted distributions.

Q: How did production volumes compare and what parts of the portfolio were strong?

A: Production was 84,000 BOE per day, with normal operations driving performance, no extraordinary areas but strong operations overall.

Q: What led to lower distribution than cash flow minus CapEx?

A: A $8.2 million legal settlement related to royalty owner dispute and lower gas prices, along with basis widening in the Mid-Con, reduced the distribution.

Q: How does the portfolio balance between stable, low-decline-rate assets and emerging growth plays?

A: Balanced by reinvestment rate of <50%. Stable assets provide foundation, while emerging plays like Mancos and Anadarko deep gas are part of growth with flexibility to pivot between oil and gas based on prices.

Q: What are 2026 drilling plans?

A: 3 rigs in San Juan, 2 deep rigs in Anadarko, and 1 rig in Oswego, depending on operating cash flow and pricing.

Q: Any preference for acquisitions taking cash and part units?

A: Acquisitions over $400 million require equity to maintain leverage ratios, with equity being a key factor in being able to complete acquisitions