MACH NATURAL RESOURCES LP

Previous wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader of the financial statements with a narrative from the perspective of management on the financial condition, results of operations, liquidity and certain other factors that may affect the Company’s operating results. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included in Part I, Item I of this Quarterly Report and also with “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023. The following information updates the discussion of our financial condition provided in our previous filings, and analyzes the changes in the results of operations for the three months ended March 31, 2024 and March 31, 2023.

Current wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader of the financial statements with a narrative from the perspective of management on the financial condition, results of operations, liquidity and certain other factors that may affect the Company’s operating results. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included in Part I, Item I of this Quarterly Report and also with “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023. The following information updates the discussion of our financial condition provided in our previous filings, and analyzes the changes in the results of operations for the three and six months ended June 30, 2024 and June 30, 2023.

Previous wording

Revenues from oil, natural gas and NGL sales increased $92.8 million, or 57% for the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023. This increase was primarily related to production increases as a result of acquisitions and the Corporate Reorganization in 2023, slightly offset with decreases in the average selling price of natural gas and NGLs.

Current wording

Revenues from oil, natural gas and NGL sales increased $81.4 million, or 54% for the three-month period ended June 30, 2024, as compared to the three-month period ended June 30, 2023. This increase was primarily related to production increases as a result of acquisitions and the Corporate Reorganization in 2023 and increases to the average selling price of oil and NGLs, slightly offset with decreases in the average selling price of natural gas.

Previous wording

Product sales decreased $3.2 million, or 31% for the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023. This decrease was primarily a result of decreases in non-operated production resulting in lower overall product sales and 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.

Current wording

Product sales decreased $0.6 million, or 9% for the three-month period ended June 30, 2024, as compared to the three-month period ended June 30, 2023. This decrease was primarily a result of decreases in non-operated production resulting in lower overall product sales and the decrease in the average selling price of natural gas. These decreases corresponded with the decrease in our cost of product sales noted below.

Previous wording

Gathering and processing expense increased $22.3 million, or 231%, and $1.63 per Boe, or 71%, for the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023, primarily as a result of the Corporate Reorganization in 2023, as BCE-Mach has higher gathering and processing costs per BOE than the predecessor.

Current wording

Gathering and processing expense increased $16.0 million, or 203%, and $1.17 per Boe, or 66%, for the three-month period ended June 30, 2024, as compared to the three-month period ended June 30, 2023, primarily as a result of the Corporate Reorganization in 2023, as BCE-Mach has higher gathering and processing costs per BOE than the predecessor.

Previous wording

Lease operating expense increased $7.9 million, or 24% for the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023, as a result of acquisitions and the Corporate Reorganization in 2023. Lease operating expenses per Boe decreased by $2.82 primarily a result of the different cost profiles of acquired properties from 2023, and the increase in production from acquired properties.

Current wording

Lease operating expense increased $18.7 million, or 67% for the three-month period ended June 30, 2024, as compared to the three-month period ended June 30, 2023, as a result of acquisitions and the Corporate Reorganization in 2023. Lease operating expenses per Boe decreased by $0.49 primarily a result of the lower cost profiles of acquired properties from 2023, and the increase in production from acquired properties.

Previous wording

Cost of product sales decreased $3.0 million, or 33% for the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023. This decrease was primarily a result of decreases in non-operated production resulting in lower overall cost of product sales and the decrease in the average selling price on natural gas and NGLs. These decreases were consistent with the decrease in product sales noted above.

Current wording

Cost of product sales decreased $0.7 million, or 10% for the three-month period ended June 30, 2024, as compared to the three-month period ended June 30, 2023. This decrease was primarily a result of decreases in non-operated production resulting in lower overall cost of product sales and the decrease in the average selling price of natural gas. These decreases were consistent with the decrease in product sales noted above.

Previous wording

Depreciation, depletion, amortization and accretion expense

Current wording

Depreciation, depletion, amortization and accretion expense - oil and natural gas

Previous wording

Depreciation, depletion, amortization and accretion expense for oil and natural gas properties increased by $35.8 million, or 121% for the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023. The increase is primarily a result of acquisitions and the Corporate Reorganization in 2023 that increased the amortization base.

Current wording

Depreciation, depletion, amortization and accretion expense for oil and natural gas properties increased by $37.3 million, or 131% for the three-month period ended June 30, 2024, as compared to the three-month period ended June 30, 2023. The increase is primarily a result of acquisitions and the Corporate Reorganization in 2023 that increased the amortization base.

Previous wording

General and administrative costs increased $5.7 million, or 122% for the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023. The increase in general and administrative costs was primarily a result of acquisitions and the Corporate Reorganization.

Current wording

General and administrative costs increased $6.2 million, or 117% for the three-month period ended June 30, 2024, as compared to the three-month period ended June 30, 2023. The increase in general and administrative costs was primarily a result of acquisitions and the Corporate Reorganization.

Previous wording

For the three-month period ended March 31, 2024, we had realized gains on derivative instruments of $3.9 million and unrealized losses of $33.2 million for total losses of $29.3 million. For the three-month period ended March 31, 2023, we had realized gains on derivative instruments of $2.8 million and unrealized gains of $10.3 million for total gains of $13.1 million. The increase in realized gains is primarily from the decrease in natural gas prices in the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023.

Current wording

For the six-month period ended June 30, 2024, we had realized losses on derivative instruments of $0.8 million and unrealized losses of $33.1 million for total losses of $33.9 million. For the six-month period ended June 30, 2023, we had realized gains on derivative instruments of $7.5 million and unrealized gains of $8.2 million for total gains of $15.7 million. The decrease in realized gains is primarily from a decrease in realized gains of $8.7 million associated with our natural gas derivatives in the six-month period ended June 30, 2024, as compared to the six-month period ended June 30, 2023.

Previous wording

Midstream operating expense decreased $0.4 million, or 14% for the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023, which is in line with the decrease in associated midstream revenue.

Current wording

Midstream operating expense decreased $0.4 million, or 7% for the six-month period ended June 30, 2024, as compared to the six-month period ended June 30, 2023, which is in line with the decrease in associated midstream revenue.

Previous wording

Our primary sources of liquidity and capital are cash flows generated by operating activities, borrowings under the Credit Agreements, and proceeds from the issuance of equity and debt. Outstanding borrowings under our Credit Agreements were $825.0 million at March 31, 2024, and the remaining availability under our Credit Agreements was $70.0 million at March 31, 2024.

Current wording

Our primary sources of liquidity and capital are cash flows generated by operating activities, borrowings under the Credit Agreements, and proceeds from the issuance of equity and debt. Outstanding borrowings under our Credit Agreements were $804.4 million at June 30, 2024, and the remaining availability under our Credit Agreements was $70.0 million at June 30, 2024.

Previous wording

Historically, our business plan has focused on acquiring and then exploiting the development and production of our assets. We spent approximately $80.4 million during the three-month period ended March 31, 2024 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.

Current wording

Historically, our business plan has focused on acquiring and then exploiting the development and production of our assets. We spent approximately $126.0 million during the six-month period ended June 30, 2024 on development costs and our updated budget for 2024 is between $215.0 million and $240.0 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.

Previous wording

During the three-month period ended March 31, 2024, we spent approximately $64.0 million on drilling and completion activities and related equipment and spud 20.5 net wells while bringing online 20.4 net wells, $12.1 million on remedial workovers and other capital projects, and $4.3 million on midstream and other property and equipment capital projects.

Current wording

During the six-month period ended June 30, 2024, we spent approximately $98.2 million on drilling and completion activities and related equipment and spud 30.7 net wells while bringing online 34.3 net wells, $20.8 million on remedial workovers and other capital projects, and $7.0 million on midstream and other property and equipment capital projects.

Previous wording

Net cash provided by operating activities decreased $3.2 million for the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023. The decrease in net cash provided by operating activities is primarily a result of decreases in working capital of $38.1 million, offset with an increase in income from acquisitions and the Corporate Reorganization in 2023.

Current wording

Net cash provided by operating activities decreased $14.4 million for the six-month period ended June 30, 2024, as compared to the six-month period ended June 30, 2023. The decrease in net cash provided by operating activities is primarily a result of decreases in working capital of $51.7 million, offset with an increase in income from acquisitions and the Corporate Reorganization in 2023.

Previous wording

Net cash used in investing activities decreased $29.2 million for the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023. The decrease in net cash used in investing activities is primarily a result of decreases in capital expenditures on oil and gas properties of $30.0 million due to decreased drilling and completion activities in the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023.

Current wording

Net cash used in investing activities decreased $102.6 million for the six-month period ended June 30, 2024, as compared to the six-month period ended June 30, 2023. The decrease in net cash used in investing activities is primarily a result of decreases in capital expenditures on oil and gas properties of $66.0 million due to decreased drilling and completion activities in the six-month period ended June 30, 2024, as compared to the six-month period ended June 30, 2023. Additionally, the Company had an increase of $39.0 million in proceeds from the sale of oil and gas properties for the six-month period ended June 30, 2024, as compared to the six-month period ended June 30, 2023, primarily from the sale of non-producing acreage.

Previous wording

Net cash used in financing activities increased $31.3 million for the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023. The increase in net cash used in investing activities is primarily due to a $31.3 million increase in distributions paid in the three-month period ended March 31, 2024, as compared to the three-month period ended March 31, 2023.

Current wording

Net cash used in financing activities increased $115.8 million for the six-month period ended June 30, 2024, as compared to the six-month period ended June 30, 2023. The increase in net cash used in investing activities is primarily due to a $87.1 million increase in distributions paid and a $20.6 million increase in repayments of borrowings in the six-month period ended June 30, 2024, as compared to the six-month period ended June 30, 2023.

Previous wording

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.

Current wording

(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%. As of June 30, 2024, mandatory repayments of principal of $41.3 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.

Previous wording

We are a party to firm transportation contracts for the transport of natural gas. We paid approximately $1.2 million in firm transportation contracts for the three-month period ended March 31, 2024 and expect to pay approximately $4.4 million in firm transportation contracts through 2025. For further information on firm transportation contracts, see Note 10 of our consolidated financial statements.

Current wording

We are a party to firm transportation contracts for the transport of natural gas. We paid approximately $0.9 million and $2.1 million in firm transportation contracts for the three and six month periods ended June 30, 2024, respectively, and expect to pay approximately $2.6 million in firm transportation contracts through 2025. For further information on firm transportation contracts, see Note 10 of our consolidated financial statements.

Previous wording

Our operating lease obligations include long-term lease payments for office space, vehicles, equipment related to exploration, development and production activities. We paid approximately $4.1 million in operating lease payments for the three-month period ended March 31, 2024 and expect to pay approximately $14.3 million in operating lease payments through 2028. For further information on our operating lease obligations, see Note 11 of our consolidated financial statements.

Current wording

Our operating lease obligations include long-term lease payments for office space, vehicles, equipment related to exploration, development and production activities. We paid approximately $6.9 million and $2.9 million in operating lease payments for the three and six month periods ended June 30, 2024, respectively, and expect to pay approximately $13.8 million in operating lease payments through 2028. For further information on our operating lease obligations, see Note 11 of our consolidated financial statements.

Previous wording

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

Current wording

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

Previous wording

Our critical accounting policies and estimates are disclosed in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report for the year ended December 31, 2023. No modifications have been made during the three months ended March 31, 2024.

Current wording

Our critical accounting policies and estimates are disclosed in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report for the year ended December 31, 2023. No modifications have been made during the six months ended June 30, 2024.