Mach Natural Resources Q3 Earnings Call Highlights

Key Points

• Distributions could rise as drilling spending slows: Mach paid a third-quarter distribution of $0.22 per unit after generating $38 million available for distribution. Management expects higher payouts in February and May, including a significant increase tied to the fourth quarter, while aiming to keep reinvestment below 50% of operating cash flow.
• The 2027 development plan shifts toward oil: Mach expects to run two oil-focused rigs and complete seven Mancos Shale wells, with total production projected to stay within about 5% of current levels. Higher drilling costs have lifted its Oswego cost estimate by 11%, and a sharp drop in oil prices could prompt activity cuts.
• Acquisitions remain on hold: Mach says competition and pricing disagreements make producing assets unattractive at present. It expects to end the year at 1.4 times leverage, above its below-one-times goal before taking on substantial acquisition debt.

Mach Natural Resources NYSE: MNR expects to increase its cash distributions after a period of elevated drilling spending, while shifting its 2027 development program toward oil and waiting for more attractive acquisition opportunities.

The company reported third-quarter production of 147,000 barrels of oil equivalent per day and operating cash flow of $165 million. Development capital spending reached $126 million, or 77% of operating cash flow, as Mach drilled wells in the San Juan Basin’s Mancos Shale.

Chief Financial Officer Kevin White said Mach generated $38 million in cash available for distribution during the quarter. The resulting distribution of $0.22 per unit is payable Nov. 30 to holders of record on Nov. 16.

Spending Pullback to Support Distributions

CEO Tom Ward said higher capital spending in the second and third quarters reduced distributions paid in August and due later in November. He expects higher payouts in February and May, with a significant increase in the distribution associated with the fourth quarter as drilling slows.

Mach has reduced its fourth-quarter activity to one rig in the oil-focused Oswego formation. The company aims to keep its reinvestment rate below 50% of operating cash flow, although development spending amounted to 59% of operating cash flow for the first nine months of 2026, White said.

Asked whether Mach might retain part of its fourth-quarter distribution for debt reduction or unit repurchases, White said he did not expect the company to do either. Ward said he prefers to distribute all cash available for distribution to unitholders, but noted that the decision rests with the board.

Ward cited analyst expectations for 2027 cash available for distribution of $2 to $2.50 per unit, while emphasizing that Mach was not issuing guidance for that measure.

2027 Program Favors Oil

Mach plans to operate two oil-focused rigs in 2027 and complete seven Mancos Shale wells in the second and third quarters, assuming operating cash flow does not change dramatically. Ward said the company has finished drilling natural gas wells for now and is waiting for a recovery in gas prices.

The Oswego will remain the primary oil target, with one rig expected to work there consistently and another moving between the Oswego and other opportunities. Ward identified the Red Fork in the western Anadarko Basin, the Clear Fork in Texas and acreage in the New Mexico Permian as potential alternatives.

Ward said the seven Mancos wells are included in the company’s plans because, with drilling costs already incurred, completing them can offer returns comparable to oil drilling. A substantial decline in gas prices could change that decision, he said.

At a high level, Ward expects total production to remain within about 5% of current levels, with oil potentially rising by single digits and natural gas declining by single digits.

Cost inflation is also affecting the drilling plan. Ward said diesel, drill bits and casing had risen roughly 30% to 50% quarter over quarter, prompting Mach to increase its 2027 Oswego drilling cost estimate by 11%. He said oil drilling returns remain strong at prices near $70 per barrel, though a sharp price decline could force the company to reduce activity.

Financial Results and Acquisition Outlook

Natural gas accounted for 69% of third-quarter production, while oil represented 15% and natural gas liquids made up the remaining 16%. Average realized prices were $84.84 per barrel of oil, $2.17 per thousand cubic feet of gas and $30.02 per barrel of natural gas liquids.

Oil and gas revenue totaled $360 million. Total revenue, including hedges and midstream activities, was $319 million, and adjusted EBITDA was $183 million. Mach ended the quarter with $31 million in cash and $250 million of availability under its credit facility, White said.

Ward said competition for cash-flowing assets has kept Mach on the sidelines in the acquisition market. The company seeks to buy producing assets at or below their estimated present value and sees aggressive bids for oil assets and disagreements over pricing for gas properties.

Mach expects to end the year at 1.4 times leverage, above its goal of less than one times before using substantial debt for an acquisition. Ward said he would be more aggressive about reducing leverage if more discounted assets were available, but does not currently see urgency to issue equity or reduce distributions for that purpose.

Looking further ahead, Ward expects stronger natural gas demand and additional takeaway capacity to improve the San Juan market. He said a gas delivery agreement through 2030 hedges approximately 60% of Mach’s San Juan natural gas volumes.

About Mach Natural Resources (NYSE:MNR)

Mach Natural Resources LP is an independent oil and natural gas company focused on the acquisition, development and production of oil, natural gas and natural gas liquids. The company's operations are concentrated in the Anadarko Basin of the Mid-Continent region.

Mach's assets are primarily located in Western Oklahoma, with additional interests in surrounding areas of the Anadarko Basin, including parts of the Texas Panhandle and southern Kansas. Its activities include drilling and completing wells, operating producing properties and managing associated gathering and processing infrastructure.

The company was formed by Mach Resources and its affiliates and became a publicly traded limited partnership in 2023.

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