MACH NATURAL RESOURCES LP
For the period ended Dec 31, 2023. Filed Apr 1, 2024.
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FY2023 · Filed Apr 1, 2024
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Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
| Page | ||
|---|---|---|
| Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248) | 74 | |
| Consolidated Financial Statements: | ||
| Consolidated Balance Sheets as of December 31, 2023 and 2022 | 75 | |
| Consolidated Statements of Operations for the Years Ended December 31, 2023, 2022 and 2021 | 76 | |
| Consolidated Statements of Changes in Partners’ Capital and Members’ Equity for the Years Ended December 31, 2023, 2022 and 2021 | 77 | |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021 | 78 | |
| Notes to Consolidated Financial Statements | 79 | |
General Partner and Unitholders
Mach Natural Resources LP
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Mach Natural Resources LP (a Delaware limited partnership) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, partners’ capital and members’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/GRANT THORNTON LLP
We have served as the Company’s auditor since 2018.
Oklahoma City, Oklahoma
April 1, 2024
| As of December 31, | ||||
|---|---|---|---|---|
| 2023 · 2022 | ||||
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $152,792 | $29,417 | ||
| Accounts receivable – joint interest and other, net | 54,155 | 21,797 | ||
| Accounts receivable – oil, gas, and NGL sales | 78,051 | 108,277 | ||
| Short-term derivative assets | 24,802 | — | ||
| Inventories | 31,377 | 24,700 | ||
| Other current assets | 2,425 | 2,459 | ||
| Total current assets | 343,602 | 343,602 | 186,650 | |
| Oil and natural gas properties, using the full cost method: | ||||
| Proved oil and natural gas properties | 2,097,540 | 749,934 | ||
| Less: accumulated depreciation, depletion and amortization | (265,895) | (139,514) | ||
| Oil and natural gas properties, net | 1,831,645 | 610,420 | ||
| Other property, plant and equipment | 105,302 | 82,125 | ||
| Less: accumulated depreciation | (15,642) | (9,198) | ||
| Other property, plant and equipment, net | 89,660 | 72,927 | ||
| Long-term derivative assets | 15,112 | — | ||
| Other assets | 7,102 | 3,052 | ||
| Operating lease assets | 17,394 | 14,809 | ||
| Total assets | $2,304,515 | $887,858 | ||
| LIABILITIES AND EQUITY | ||||
| Current liabilities: | ||||
| Accounts payable | $44,577 | $19,429 | ||
| Accounts payable – related party | 2,867 | 417 | ||
| Accrued liabilities | 44,529 | 60,169 | ||
| Revenue payable | 110,296 | 52,196 | ||
| Short-term derivative liabilities | — | 10,080 | ||
| Current portion of long-term debt | 61,875 | — | ||
| Current portion of operating lease liabilities | 10,765 | 10,767 | ||
| Total current liabilities | 274,909 | 153,058 | ||
| Long-term debt | 745,140 | 84,900 | ||
| Asset retirement obligations | 85,094 | 52,359 | ||
| Long-term portion of operating leases | 6,705 | 4,042 | ||
| Other long-term liabilities | 943 | 269 | ||
| Total long-term liabilities | 837,882 | 141,570 | ||
| Commitments and contingencies (Note 10) | ||||
| Partners’ capital and members’ equity: | ||||
| Partners’ capital | 1,191,724 | — | ||
| Members’ equity | — | 593,230 | ||
| Total liabilities and partners’ capital and members’ equity | $2,304,515 | $887,858 | ||
(in thousands, except per common unit data)
| Year Ended December 31, | |||
|---|---|---|---|
| 2023 | 2022 | 2021 | |
| Revenue | |||
| Oil, natural gas, and NGL sales | $647,352 | $860,388 | $397,500 |
| Gain (loss) on oil and natural gas derivatives | 57,272 | (67,453) | (67,549) |
| Midstream revenue | 26,328 | 44,373 | 31,883 |
| Product sales | 31,357 | 100,106 | 30,663 |
| Total revenues | 762,309 | 937,414 | 392,497 |
| Operating expenses | |||
| Gathering and processing | 39,449 | 47,484 | 27,987 |
| Lease operating expense | 127,602 | 95,941 | 45,391 |
| Production taxes | 31,882 | 47,825 | 21,165 |
| Midstream operating expense | 10,873 | 15,157 | 12,248 |
| Cost of product sales | 28,089 | 94,580 | 28,687 |
| Depreciation, depletion, amortization and accretion – oil and natural gas | 131,145 | 84,070 | 37,537 |
| Depreciation and amortization – other | 6,472 | 4,519 | 3,148 |
| General and administrative | 22,861 | 23,491 | 60,927 |
| General and administrative – related party | 4,792 | 1,963 | — |
| Total operating expenses | 403,165 | 415,030 | 237,090 |
| Income from operations | 359,144 | 522,384 | 155,407 |
| Other (expense) income | |||
| Interest expense | (11,201) | (4,852) | (1,656) |
| Other (expense) income, net | (1,385) | (691) | 1,023 |
| Loss on contingent consideration | — | — | (16,400) |
| Total other expense | (12,586) | (5,543) | (17,033) |
| Net income | 346,558 | $516,841 | $138,374 |
| Less: net income attributable to Predecessor | (278,040) | ||
| Net income attributable to Mach Natural Resources LP | $68,518 | ||
| Net income per common unit attributable to Mach Natural Resources LP | |||
| Basic | $0.72 | ||
| Diluted | $0.72 | ||
| Weighted average common units outstanding: | |||
| Basic | 94,907 | ||
| Diluted | 94,907 | ||
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL AND MEMBERS’ EQUITY
| Predecessor · Mach Natural Resources LP | ||||
|---|---|---|---|---|
| Members’ Equity | Common Units | Partners’ Capital | Total Partners’ Capital and Members’ Equity | |
| Balance at December 31, 2020 | $139,561 | — | $— | $139,561 |
| Contributions | 101,461 | — | — | 101,461 |
| Distributions | (146,000) | — | — | (146,000) |
| Equity compensation | 45,303 | — | — | 45,303 |
| Net income | 138,374 | — | — | 138,374 |
| Balance at December 31, 2021 | $278,699 | — | $— | $278,699 |
| Contributions | 65,000 | — | — | 65,000 |
| Distributions | (274,837) | — | — | (274,837) |
| Equity compensation | 7,527 | — | — | 7,527 |
| Net income | 516,841 | — | — | 516,841 |
| Balance at December 31, 2022 | $593,230 | — | $— | $593,230 |
| Contributions | 20,000 | — | — | 20,000 |
| Distributions | (101,350) | — | — | (101,350) |
| Equity compensation | 2,595 | — | — | 2,595 |
| Net income prior to the Corporate Reorganization | 278,040 | — | — | 278,040 |
| Common units issued in Corporate Reorganization to Existing Owners of BCE-Mach III LLC (Note 1) | (792,515) | 76,769 | 792,515 | — |
| Common units issued for the acquisitions of BCE-Mach I LLC and BCE-Mach II LLC (Note 3) | — | 11,981 | 227,644 | 227,644 |
| Common units issued in the Offering, net of underwriting fees and offering expenses (Note 1) | — | 10,000 | 168,465 | 168,465 |
| Common units repurchased from Exchanging Members (Note 1) | — | (3,750) | (66,263) | (66,263) |
| Equity compensation subsequent to the Corporate Reorganization | — | — | 845 | 845 |
| Net income subsequent to the Corporate Reorganization | — | — | 68,518 | 68,518 |
| Balance at December 31, 2023 | $— | 95,000 | $1,191,724 | $1,191,724 |
| Year ended December 31, | |||
|---|---|---|---|
| 2023 | 2022 | 2021 | |
| Cash flows from operating activities | |||
| Net income | $346,558 | $516,841 | $138,374 |
| Adjustments to reconcile net income to cash provided by operating activities | |||
| Depreciation, depletion and amortization | 137,617 | 88,589 | 40,685 |
| (Gain) loss on derivative instruments | (57,272) | 67,453 | 67,549 |
| Cash receipts (payments) on settlement of derivative contracts, net | 4,417 | (94,201) | (59,381) |
| Debt issuance costs amortization | 1,950 | 375 | 312 |
| Loss on contingent consideration | — | — | 16,400 |
| Settlement of contingent consideration | — | (13,547) | (9,553) |
| Equity based compensation | 3,440 | 7,527 | 45,303 |
| Credit losses | 1,746 | — | — |
| Gain on sale of assets | (1) | (45) | (85) |
| Settlement of asset retirement obligations | (537) | (49) | (35) |
| Changes in operating assets and liabilities increasing (decreasing) cash: | |||
| Accounts receivable, inventories, other assets | 29,065 | (30,671) | (74,462) |
| Revenue payable | 19,029 | (908) | 24,389 |
| Accounts payable and accrued liabilities | 5,730 | 12,178 | 8,966 |
| Net cash provided by operating activities | 491,742 | 553,542 | 198,462 |
| Cash flows from investing activities | |||
| Capital expenditures for oil and natural gas properties | (302,376) | (233,584) | (37,789) |
| Capital expenditures for other property and equipment | (12,428) | (9,441) | (3,219) |
| Acquisition of assets | (754,847) | (96,620) | (154,419) |
| Acquisition of assets – related party | — | (37,242) | — |
| Cash acquired from the acquisition of businesses | 39,153 | — | — |
| Proceeds from sales of oil and natural gas properties | 3,305 | 3,996 | 599 |
| Proceeds from sales of other property and equipment | 36 | 231 | 85 |
| Net cash used in investing activities | (1,027,157) | (372,660) | (194,743) |
| Cash flows from financing activities | |||
| Proceeds from borrowings on term note | 811,000 | — | — |
| Proceeds from issuance of units in the Offering | 168,465 | — | — |
| Purchases of units from exchanging members | (66,263) | — | — |
| Proceeds from borrowings on credit facility | 68,000 | — | 72,900 |
| Repayments of borrowings on credit facility | (235,000) | (900) | (30,800) |
| Debt issuance costs | (6,062) | — | (245) |
| Contributions from members | 20,000 | 65,000 | 101,461 |
| Distributions to members | (101,350) | (274,837) | (146,000) |
| Settlement of contingent consideration | — | — | (1,900) |
| Net cash provided by (used in) financing activities | 658,790 | (210,737) | (4,584) |
| Net increase (decrease) in cash and cash equivalents | 123,375 | (29,855) | (865) |
| Cash and cash equivalents, beginning of period | 29,417 | 59,272 | 60,137 |
| Cash and cash equivalents, end of period | $152,792 | $29,417 | $59,272 |
(Except as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in thousands of dollars.)
Unless otherwise stated or the context otherwise indicates, all references to the “Company” for time periods prior to the Corporate Reorganization refer to BCE-Mach III LLC and its subsidiary, the Company’s predecessor for accounting purposes. For time periods subsequent to the Corporate Reorganization, this term refers to Mach Natural Resources LP and its subsidiaries.
- Nature of Business
Mach Natural Resources LP (“the Company”) is a Delaware limited partnership that was formed for the purpose of effectuating an initial public offering (the “Offering”) that closed in October 2023. The Company’s common units representing limited partnership interests (the “common units”) are listed on The New York Stock Exchange under the symbol “MNR.” The Company is an independent upstream oil and gas company focused on the acquisition, development and production of oil, natural gas and NGL reserves in the Anadarko Basin region of Western Oklahoma, Southern Kansas and the panhandle of Texas.
Following the Offering and Corporate Reorganization, the Company became a holding partnership whose sole material asset consists of membership interests in Mach Natural Resources Intermediate LLC (“Intermediate”). Intermediate wholly owns Mach Natural Resources Holdco LLC (“Holdco”), and Holdco wholly owns each of the Company’s three operating subsidiaries, BCE-Mach LLC (“BCE-Mach”), BCE-Mach II LLC (“BCE-Mach II”) and BCE-Mach III LLC (collectively, the “Mach Companies”). BCE-Mach III LLC (the “Predecessor”) is the accounting predecessor to the Company for all periods prior to the Offering as discussed herein.
The Company’s operations are governed by the provisions of its partnership agreement, executed by its general partner, Mach Natural Resources GP LLC (the “General Partner”) and the limited partners. The General Partner is managed and operated by the board of directors and executive officers of the General Partner. The members of the board of directors of the General Partner are appointed by the members of the General Partner, BCE-Mach Aggregator and Mach Resources in proportion to their respective limited partnership ownership in the Company.
Management has evaluated how the Company is organized and managed and identified a single reportable segment, which is the exploration and production of oil, natural gas and NGLs. Management considers the Company’s gathering, processing and marketing functions as ancillary to its oil and gas producing activities. All of the Company’s operations and assets are located in the United States, and its revenues are attributable to United States customers.
On October 25, 2023, the Company underwent a corporate reorganization (the “Corporate Reorganization”) whereby (a) the owners who directly held membership interests in the Mach Companies prior to the Offering (the “Existing Owners”) contributed 100% of their membership interests in each of the Mach Companies for a pro rata allocation of 100% of the limited partner interests in the Company with BCE-Mach III determined as the accounting acquirer of the net assets and operations of BCE-Mach and BCE-Mach II through a business combination, (b) the Company contributed 100% of its membership interests in the Mach Companies to Intermediate in exchange for 100% of the membership interests in Intermediate, and (c) Intermediate contributed 100% of its membership interests in the Mach Companies to Holdco in exchange for 100% of the membership interests in Holdco.
Initial Public Offering
On October 27, 2023, the Company completed the Offering of 10,000,000 common units at a price of $19.00 per unit to the public. The sale of Company’s common units resulted in gross proceeds of $190.0 million to the Company and net proceeds of $168.5 million, after deducting underwriting fees and offering expenses. The material terms of the Offering are described in the Company’s final prospectus, filed with the U.S. Securities and Exchange Commission (“SEC”) on October 26, 2023, pursuant to Rule 424(b)(4) of the Securities Act of 1933, as amended (the “Securities Act”).
The Company used $102.2 million of the proceeds to pay down the existing credit facilities of its operating subsidiaries (the “Pre-IPO Credit Facilities”) and $66.3 million of the proceeds to purchase 3,750,000 common units from the existing common unit owners on a pro rata basis. After giving effect to the Offering and the transactions related thereto, the Company had 95,000,000 common units issued and outstanding.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.