Mach Natural Resources LP Q3 FY2025 earnings call

Strategic Pillars

• Financial Strength: Aim for debt-to-EBITDA around 1x leverage. Post IKAV and Sabinal acquisitions, leverage is above 1.3x, with plans to reduce over time. Interested in PE firm production swaps if leverages reduce. Can review sub-$150 million acquisitions in established basins.
• Disciplined Execution: Only purchase assets at discounts to PDP PV-10, done 23 times. Lowered 2026 CapEx by 8% without affecting production guidance. IKAV purchase was at distressed prices with upside potential.
• Disciplined Reinvestment Rate: Target reinvestment rate <50%. Decline rate is 15%, allowing flat production with low reinvestment. Focus on natural gas drilling in 2026, with plans to drill 7 Mancos locations and 2 Fruitland Coal locations.
• Delivering Cash Returns: Announced $0.27 per unit distribution in Q3, with over $5.14 per unit returned since 2023. IKAV and Sabinal deals are transformational, adding operating cash flow.

Well Performance

• Deep Anadarko: First 2 well pads producing >40 million cubic feet gas/day, with PV-10 ~$15 million per location. Spent $14 million per well, expecting cost reduction to $12 million next year.
• Mancos Shale: 5 wells producing >100 million cubic feet gas/day. 2-mile laterals produce ~30 million/day, 3-mile laterals ~70 million/day. Expect EOR of 24 Bcf per 3-mile lateral. Inherited cost savings from IKAV.

Midstream and Integration

• Inherited midstream from acquisitions, with $17 million for maintenance and upgrading. Land budget increased by ~$32 million for new leases and acreage adjustments in Deep Anadarko.

For the quarter, production was 94,000 BOE per day, with 21% oil, 56% natural gas, and 23% NGLs. Total oil and gas revenues were $235 million. The relative contribution of oil was 50%, gas 32%, and NGLs 18% of the total revenues. Expenses included lease operating expense of $50 million ($6.52 per BOE) and cash G&A of $21 million, with nonrecurring deal costs of $13 million from the IKAV acquisition.

• CapEx for 2026 lowered by 8% without affecting production guidance. Project modest production growth in 2026-2027 with <50% of operating cash flow spent on CapEx.
• Target reinvestment rate <50% of operating cash flow. Natural gas volumes expected to move to over 70% by year-end 2026.
• Anticipate continued growth through sub-$150 million acquisitions in established basins, especially in Anadarko, but acquisitions must be equity-friendly to avoid excessive debt.

• Concerns about associated gas in Permian with takeaway capacity coming online by Q4 2027, though seen as a basis issue rather than a demand problem.
• Weather impact on natural gas pricing, especially entering winter with full storage.
• Potential for gas to be stranded due to takeaway capacity issues, though demand from LNG exports and data centers is expected to offset this.

Q: In the Mid-Con operations, what's driving the notable well upside?

A: Moving deeper into deep gas from condensate zone. With gas strip above $4, rates of return >50% meet threshold. Efficiencies in drilling 3-mile laterals and low decline rates contribute.

Q: On gas strategy, any takeaway constraints?

A: Mid-Con has ample takeaway capacity, estimated at 3 Bcf a day, with no issues of restrained rates for gas wells.

Q: On D&C cost reduction in Mancos and Deep Anadarko, any impact on productivity?

A: In Deep Anadarko, reduced frac sand usage to ~2,000 pounds per foot from ~3,000 pounds. Confident that cutting costs won't impact productivity as past experience shows no decrease in rate of return with reduced stimulation.

Q: M&A plan going forward?

A: Plan to do bolt-on deals in existing basins and positions, focusing on sub-$150 million acquisitions. Expansion into new areas would require equity deals with partners or sellers.