MACH NATURAL RESOURCES LP

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Revenue

The following table provides the components of our revenue, net of transportation and marketing costs for the periods indicated, as well as each period’s respective average realized prices and net production volumes. Some totals and changes throughout the below section may not sum or recalculate due to rounding.

(1)Average sales prices reflected above exclude gathering and processing expense.

Revenue and Other Operating Income

Oil, natural gas and NGL sales

Revenues from oil, natural gas and NGL sales decreased $213.0 million, or 25%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This decrease is primarily a result of a 17% decrease in the average selling price on oil resulting in a decrease in oil sales revenue of $76.2 million, a 60% decrease in the average selling price on natural gas resulting in a decrease in natural gas sales revenue of $181.4 million, and a 38% decrease on the average selling price on NGLs resulting in a decrease in NGL sales revenue of $41.5 million. An increase in production of 2,870 MBoe for the year ended December 31, 2023, as compared to the year ended December 31, 2022, resulted in an increase in oil, natural gas and NGL revenues of $86.0 million.

Oil, natural gas and NGL production

Production increased 2,870 MBoe, or 18%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was primarily attributable to an increase in production of 1,239 MBoe as a result of additional production from acquisitions that closed in 2023, as well as production from wells drilled subsequent to December 31, 2022, offset by natural production declines in our existing producing wells.

Oil and natural gas derivatives

For the year ended December 31, 2023, we had realized gains on derivative instruments of $8.4 million and an unrealized gain of $48.9 million for total gains of $57.3 million. For the year ended December 31, 2022, we had realized losses on derivative instruments of $90.8 million and an unrealized gain of $23.3 million for total losses of $67.5 million. The increase in realized gains is primarily from the overall decrease in oil and gas prices in 2023.

Midstream revenue

Midstream revenue decreased $18.0 million, or 41%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to lower non-operated throughput in our midstream facilities. Of the total decrease, $10.2 million relates to decreases in fee revenue for gathering and processing, and $7.8 million is due to decreased saltwater gathering and disposal revenue.

Product sales

Product sales decreased $68.7 million, or 69%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This decrease was primarily a result of decreases in non-operated production resulting in lower overall product sales, compounded by the decrease in the average selling price on natural gas and NGLs. These decreases corresponded with the decrease in our cost of product sales noted below.

Operating Expenses

The following table summarizes our expenses for the periods indicated and includes a presentation of certain expenses on a per Boe basis, as we use this information to evaluate our performance relative to our peers and to identify and measure trends we believe may require additional analysis:

Gathering and processing expense

Gathering and processing expense decreased by $8.0 million, or 17%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to decreased natural gas prices leading to lower fuel costs. Gathering and processing expense per Boe produced decreased by $0.92 due to lower expense that fluctuated with the decrease in commodity gas prices.

Lease operating expense

Lease operating expense increased $31.7 million, or 33% and by $0.76 per Boe , for the year ended December 31, 2023, as compared to the year ended December 31, 2022. Lease operating expense increased primarily as a result of additional wells brought on-line as a result of the drilling activity subsequent to December 31, 2022. Additionally, we closed on four acquisitions throughout the year ended December 31, 2022, and four acquisitions in the year ended December 31, 2023, which all have unique cost and production profiles. Accordingly, 2023 includes a full year of lease operating expenses for acquisitions that closed in 2022, as well as new lease operating expense for acquisitions in 2023.

Production taxes

Production taxes decreased $15.9 million, or 33%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This decrease was primarily a result of a decrease in the average selling price on all products, resulting in a decrease of $22.3 million in production taxes, offset by an increase in production, resulting in an increase of $6.4 million in production taxes. Production taxes as a percentage of revenue decreased from 5.6% for the year ended December 31, 2022 to 4.9% for the year ended December 31, 2023. The effective tax rate can have minor fluctuations due to the overall product mix and related tax deductions available for each product.

Midstream operating expense

Midstream operating expense decreased $4.3 million, or 28%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to a decrease in water disposal costs of $2.4 million and gathering operating expense of $1.3 million, both of which decreased as a result of us taking over as operator on a significant number of wells beginning January 1, 2023.

Cost of product sales

Cost of product sales decreased $66.5 million, or 70%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This decrease was primarily a result of decreases in non-operated production resulting in lower overall cost of product sales, compounded by the decrease in the average selling price on natural gas and NGLs. These decreases were offset with the decrease in product sales noted above.

Depreciation, depletion, amortization and accretion expense

Depreciation, depletion, amortization and accretion expense for oil and natural gas properties increased by $47.1 million, or 56%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase is primarily attributable to additional drilling activities and acquisitions in both 2022 and 2023 that added to the depletable base and overall changes on reserve inputs used in the depletion calculation. Depreciation and amortization expense for other assets increased $2.0 million, or 43%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to acquisitions and additional assets acquired during the year.

General and administrative costs

General and administrative costs increased $2.2 million, or 9%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase in general and administrative costs was primarily due to an increase in compensation and benefits of $5.3 million driven by change of control bonus payments of $4.5 million recognized as a result of the initial public offering in 2023, offset by a decrease of $4.1 million in equity compensation expense recorded in the year ended December 31, 2023, as compared to the year ended December 31, 2022.

Non-GAAP Financial Measures

Adjusted EBITDA

We include in this Annual Report the supplemental non-GAAP financial performance measure Adjusted EBITDA and provide our calculation of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, our most directly comparable financial measures calculated and presented in accordance with GAAP. We define Adjusted EBITDA as net income before (1) interest expense, (2) depreciation, depletion and amortization, (3) unrealized (gain) loss on derivative settlements, (4) equity-based compensation expense, (5) loss on contingent consideration and (6) (gain) loss on sale of assets.

Adjusted EBITDA is used as a supplemental financial performance measure by our management and by external users of our financial statements, such as industry analysts, investors, lenders, rating agencies and others, to more effectively evaluate our operating performance and our results of operation from period to period and against our peers without regard to financing methods, capital structure or historical cost basis. We exclude the items listed above from net income in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as indicators of our operating performance. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax burden, as well as the historic costs of depreciable assets, none of which are reflected in Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our results will be unaffected by unusual items. Our computations of Adjusted EBITDA may not be identical to other similarly titled measures of other companies.

Cash Available for Distribution

Cash available for distribution is not a measure of net income or net cash flow provided by or used in operating activities as determined by GAAP. Cash available for distribution is a supplemental non-GAAP financial performance measure used by our management and by external users of our financial statements, such as industry analysts, investors, lenders, rating agencies and others, to assess our ability to internally fund our exploration and development activities, pay distributions, and to service or incur additional debt. We define cash available for distribution as net income less (1) interest expense, (2) depreciation, depletion and amortization, (3) unrealized (gain) loss on derivative settlements, (4) equity-based compensation expense, (5) loss on contingent consideration, (6) (gain) loss on sale of assets, (7) settlement of asset retirement obligations, (8) net cash interest expense, (9) development costs, (10) settlement of contingent consideration and (11) change in accrued realized derivative settlements. Development costs include all of our capital expenditures, other than acquisitions. Cash available for distribution will not reflect changes in working capital balances. Cash available for distribution is not a measurement of our financial performance or liquidity under GAAP and should not be considered as an alternative to, or more meaningful than, net income or net cash provided by or used in operating activities as determined in accordance with GAAP or as indicators of our financial performance and liquidity. The GAAP measures most directly comparable to cash available for distribution are net income and net cash provided by operating activities. Cash available for distribution should not be considered as an alternative to, or more meaningful than, net income or net cash provided by operating activities.

Reconciliations of GAAP Financial Measures to Adjusted EBITDA and Cash Available for Distribution

The following table presents our reconciliation of the GAAP financial measures of net income and net cash provided by operating activities to the non-GAAP financial measures Adjusted EBITDA and cash available for distribution, as applicable, for each of the periods indicated.

Reconciliation of PV-10 to Standardized Measure

Certain of our oil and natural gas reserve disclosures included in this Annual Report are presented on a PV-10 basis. PV-10 is a non-GAAP financial measure and represents the estimated present value of the future cash flows less future development and production costs from our proved reserves before income taxes discounted using a 10% discount rate. PV-10 of proved reserves generally differs from the standardized measure of discounted future net cash flows from production of proved oil and natural gas reserves (the “Standardized Measure”), the most directly comparable GAAP financial measure, because it does not include the effects of future income taxes, as is required under GAAP in computing the Standardized Measure. However, our PV-10 for proved reserves using SEC pricing and the Standardized Measure of proved reserves are equivalent because we were not subject to entity level taxation. Accordingly, no provision for federal or state income taxes has been provided in the Standardized Measure because taxable income is passed through to our unitholders.

We believe that the presentation of a pre-tax PV-10 value provides relevant and useful information because it is widely used by investors and analysts as a basis for comparing the relative size and value of our proved reserves to other oil and natural gas companies. Because many factors that are unique to each individual company may impact the amount and timing of future income taxes, the use of PV-10 value provides greater comparability when evaluating oil and natural gas companies. The PV-10 value is not a measure of financial or operating performance under GAAP, nor is it intended to represent the current market value of proved oil and gas reserves. However, the definition of PV-10 value as defined above may differ significantly from the definitions used by other companies to compute similar measures. As a result, the PV-10 value as defined may not be comparable to similar measures provided by other companies.

Investors should be cautioned that neither PV-10 nor Standardized Measure of proved reserves represents an estimate of the fair market value of our proved reserves. We and others in the industry use PV-10 as a measure to compare the relative size and value of estimated reserves held by companies without regard to the specific tax characteristics of such entities.