MACH NATURAL RESOURCES LP

Our primary sources of liquidity and capital are cash flows generated by operating activities and borrowings under our Credit Agreements. Outstanding borrowings under our Credit Agreements were $825.0 million at December 31, 2023, and the remaining availability under our Credit Agreements was $70.0 million at December 31, 2023. After the close of the Offering in October 2023, we utilized the proceeds to pay down the Pre-IPO Credit Facilities of the Company’s operating subsidiaries (the “Pre-IPO Credit Facilities”) and to purchase 3,750,000 common units from the existing common unit owners on a pro rata basis.

As a publicly traded partnership, our primary sources of liquidity and capital resources are from cash flow generated by operating activities, borrowings under the Credit Agreements, and proceeds from the issuance of equity and debt. Historically, our primary sources of liquidity have also included capital contributions by our equity holders, but we do not expect to rely on management or our partners for capital in the future. We may need to utilize the public equity or debt markets and bank financings to fund future acquisitions or capital expenditures, but the price at which our common units will trade could be diminished as a result of the limited voting rights of unitholders. We expect to be able to issue additional equity and debt securities from time to time as market conditions allow to facilitate future acquisitions. Our ability to finance our operations, including funding capital expenditures and acquisitions, to meet our indebtedness obligations or to refinance our indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is subject to a number of factors, some of which are beyond our control, including commodity prices, particularly for oil and natural gas, and our ongoing efforts to manage operating costs and maintenance capital expenditures, as well as general economic, financial, competitive, legislative, regulatory, weather and other factors.

Our partnership agreement requires us to distribute all of our cash on hand at the end of each quarter, less reserves established by our general partner, which we refer to as “available cash.” Our quarterly cash distributions may vary from quarter to quarter as a direct result of variations in the performance of our business, including those caused by fluctuations in commodity prices. Any such variations may be significant, and as a result, we may pay limited or even no cash distributions to our unitholders.

Historically, our business plan has focused on acquiring and then exploiting the development and production of our assets. We spent approximately $302.8 million in 2023 on development costs and our budget for 2024 is between $250.0 million and $275.0 million. For purposes of calculating our cash available for distribution, we define development costs as all of our capital expenditures, other than acquisitions. Our development efforts and capital for 2024 is anticipated to focus on drilling Oswego wells given their high oil reserves and low breakeven costs.

During the year ended December 31, 2023, we spent approximately $261.6 million to drill 79.3 net wells and on related equipment, $28.8 million on remedial workovers and other capital projects, $12.4 million on midstream and other property and equipment capital projects, and $774.9 million on acquisitions.

Our 2024 capital expenditures program is largely discretionary and within our control. We could choose to defer a portion of these planned 2024 capital expenditures depending on a variety of factors, including, but not limited to, the success of our drilling activities, prevailing and anticipated prices for oil and natural gas, the availability of necessary equipment, including acid to be used for our acid stimulation completion, infrastructure and capital, the receipt and timing of required regulatory permits and approvals, seasonal conditions, drilling and acquisition costs and the level of participation by other working interest owners. A deferral of planned capital expenditures, particularly with respect to drilling and completing new wells, could result in a reduction in anticipated production and cash flows and reduce our cash available for distribution to unitholders.

Based on current oil and natural gas price expectations, we believe that our cash flow from operations, together with borrowings from time to time under the Revolving Credit Agreement, will be sufficient to fund our operations through 2024 and the foreseeable future. However, future cash flows are subject to a number of variables, including the level of oil and natural gas production and prices, and significant additional capital expenditures will be required to more fully develop our properties. For example, we expect a portion of our future capital expenditures to be financed with cash flows from operations derived from wells drilled on drilling locations not classified as proved reserves in our December 31, 2023 reserve report. The failure to achieve anticipated production and cash flow from operations from such wells could result in a reduction in future capital spending and/or our ability to pay distributions to unitholders. We cannot assure you that operations and other needed capital will be available on acceptable terms or at all.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Net cash provided by operating activities.

Net cash provided by operating activities decreased $61.8 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The decrease in net cash provided by operating activities is primarily attributable to the decrease in realized pricing for all products. The decrease in realized pricing was partially offset with an increase in production from year to year. Additionally, we received $4.4 million in cash related to derivative settlements in 2023, compared to paying derivative settlements of $94.2 million in 2022, resulting in a net change of derivative settlements of $98.6 million.

Net cash used in investing activities.

Net cash used in investing activities increased $654.5 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase in net cash used in investing activities is primarily attributable to an increase in cash used in acquisitions of $621.0 million as well as an increase in capital expenditures on our oil and gas properties of $68.8 million from 2023 to 2022.

Net cash provided by (used in) financing activities.

Net cash provided by (used in) financing activities increased $869.5 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase in net cash provided by financing activities is primarily attributable to an increase in proceeds from borrowings, net of repayments and issuance costs, of $638.8 million, as well as cash increase in cash received from the issuance of units in the Offering, net of repurchases of exchanging members of $102.2 million. Additionally, there was a decrease in distributions to members of the Company prior to the Offering of $173.5 million in 2023 in comparison to 2022.

Debt Agreements

Our Predecessor, BCE-Mach and BCE-Mach II were party to revolving credit facilities. We used a portion of the net proceeds from our initial public offering to (i) repay in full the BCE-Mach Credit Facility, (ii) repay in full the BCE-Mach II Credit Facility and (iii) repay a portion of the BCE-Mach III Credit Facility. On November 10, 2023, we entered into the November 2023 Credit Facility, and we used borrowings under the November 2023 Credit Facility to repay the BCE-Mach III Credit Facility in full and terminate each of the Pre-IPO Credit Facilities.

Prior Credit Facilities

BCE-Mach III Credit Facility. BCE-Mach III entered into a credit agreement for a revolving credit facility with a syndicate of banks, including MidFirst Bank, who served as administrative agent and issuing bank. The BCE-Mach III Credit Facility provided for a maximum outstanding amount of $400.0 million, subject to commitments of $100.0 million as of November 10, 2023. The BCE-Mach III Credit Facility was scheduled to mature in May 2026. Outstanding obligations under the BCE-Mach III Credit Facility were secured by substantially all of BCE-Mach III’s assets. The amount available to be borrowed under the BCE-Mach III Credit Facility was subject to a borrowing base that was redetermined semiannually each May and November in an amount determined by the lenders. As of November 10, 2023, there was $91.9 million outstanding under the BCE-Mach III Credit Facility, which was repaid and terminated when we entered into the November 2023 Credit Facility.

BCE-Mach Credit Facility. BCE-Mach entered into a revolving credit facility with a syndicate of banks, including MidFirst Bank who served as sole book runner and lead arranger, maturing in September 2026. Outstanding obligations under the BCE-Mach Credit Facility were secured by substantially all of BCE-Mach’s assets. The credit agreement provided for a revolving credit facility in a maximum outstanding amount of $200.0 million, subject to commitments of $100.0 million as of October 25, 2023. As of October 25, 2023, $65.0 million was outstanding under the BCE-Mach Credit Facility along with $5.0 million in outstanding letters of credit, which reduced the availability under the credit facility on a dollar-for-dollar basis. On November 10, 2023, the Company repaid all amounts outstanding under the BCE-Mach Credit Facility and entered into the November 2023 Credit Facility and terminated the BCE-Mach Credit Facility.

BCE-Mach II Credit Facility. BCE-Mach II entered into a revolving credit facility with a syndicate of banks, including East West Bank, who served as sole book runner and lead arranger, maturing in September 2024. Outstanding obligations under the BCE-Mach II Credit Facility were secured by substantially all of BCE-Mach II’s assets. The credit agreement provided for a revolving credit facility in a maximum outstanding amount of $250.0 million, subject to a borrowing base of $26.0 million as of October 25, 2023. As of October 25, 2023, $17.1 million was outstanding under the BCE-Mach II Credit Facility. On October 31, 2023, the Company repaid all amounts outstanding under the BCE-Mach II Credit Facility. On November 10, 2023, the Company entered into the November 2023 Credit Facility and terminated the BCE-Mach II Credit Facility.

November 2023 Credit Facility

On November 10, 2023, Holdco entered into the November 2023 Credit Facility with a syndicate of banks, including MidFirst Bank who served as sole book runner and lead arranger. Outstanding obligations under the November 2023 Credit Facility were secured by substantially all of Holdco’s assets. In connection with entering into the November 2023 Credit Facility, each of the Pre-IPO Credit Facilities were terminated.

The aggregate principal amount of loans outstanding under the November 2023 Credit Facility as of November 10, 2023 was $130.0 million, which included $5.0 million of issued letters of credit. The November 2023 Credit Facility provided for a revolving credit facility in an aggregate maximum amount of $1.0 billion, with an initial borrowing base of $600.0 million, subject to commitments of $200.0 million. On December 28, 2023, we entered into the Term Loan Credit Agreement and Revolving Credit Agreement, as described below, and terminated the November 2023 Credit Facility.

Term Loan Credit Agreement and Revolving Credit Agreement

On December 28, 2023, the Company entered into (i) the Term Loan Credit Agreement with the lenders party thereto, Texas Capital Bank, as agent, and Chambers Energy Management, LP, as the arranger, and (ii) the Revolving Credit Agreement with the lenders party thereto and MidFirst Bank as the agent.

Loans advanced to the Company under the Term Loan Credit Agreement are secured by a first-priority security interest on substantially all of our assets. The Term Loan Credit Agreement has (i) an aggregate principal amount of $825.0 million, (ii) a maturity date of December 31, 2026 and (iii) an interest rate equal to the three-month SOFR plus 6.50% plus a credit spread adjustment equal to 0.15%, provided that the three-month SOFR will not be less than 3.00%. Mandatory repayments of principal of $61.9 million, $82.5 million, and $680.6 million are due in the year 2024, 2025, and 2026, respectively. The Term Loan Credit Agreement includes customary covenants, mandatory repayments and events of default of financings of this type.

Loans advanced to the Company under the Revolving Credit Agreement are secured by a super-priority security interest on substantially all of our assets. The Revolving Credit Agreement has (i) a maximum available principal amount of $75.0 million, (ii) a maturity date of December 28, 2026 and (iii) an interest rate equal to one, three, or six month SOFR, at the Company’s election, plus a credit spread adjustment equal to 0.10%, 0.15% or 0.25%, respectively, in each case, plus 3.00%, provided that the applicable tenor SOFR will not be less than 3.50%. The Revolving Credit Agreement includes customary covenants, mandatory repayments and events of default of financings of this type. The Company used borrowings from the Term Loan Credit Agreement, together with cash on hand, to repay the November 2023 Credit Facility. As of December 31, 2023, the Revolving Credit Agreement was undrawn, and there was $5.0 million in outstanding letters of credit.

We have not guaranteed the debt or obligations of any other party, nor do we have any other arrangements or relationships with other entities that could potentially result in consolidated debt or losses.

Contractual Obligations and Commitments

Firm transportation contracts

We are a party to firm transportation contracts for the transport of natural gas. We paid approximately $1.0 million in firm transportation contracts for the year ended December 31, 2023 and expect to pay approximately $7.0 million in firm transportation contracts through 2025. For further information on firm transportation contracts, see the notes to our audited financial statements included in Item 8 of Part II of this Annual Report.

Operating lease obligations

Our operating lease obligations include long-term lease payments for office space, vehicles, equipment related to exploration, development and production activities. We paid approximately $14.3 million in operating lease payments for the year ended December 31, 2023 and expect to pay approximately $18.3 million in operating lease payments through 2027. For further information on our operating lease obligations, see the notes to our audited financial statements included in Item 8 of Part II of this Annual Report.