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 and nine months ended September 30, 2024 and September 30, 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, 2024. 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, 2025 and 2024.

Previous wording

Within our operating areas, our assets are prospective for multiple formations, most notably the Oswego, Woodford, Meramec/Osage and Mississippi Lime formations. Our experience in the Anadarko Basin and these formations allows us to generate significant cash available for distribution from these low declining assets in a variety of commodity price environments. We also own an extensive portfolio of complementary midstream assets that are integrated with our upstream operations. These assets include gathering systems, processing plants and water infrastructure. Our midstream assets enhance the value of our properties by allowing us to optimize pricing, increase flow assurance and eliminate third-party costs and inefficiencies. In addition, our owned midstream systems generate third-party revenue.

Current wording

Within our operating areas, our assets are prospective for multiple formations, most notably the Oswego, Woodford and Mississippian formations. Our experience in the Anadarko Basin and these formations allows us to generate significant cash available for distribution from these low declining assets in a variety of commodity price environments. We also own an extensive portfolio of complementary midstream assets that are integrated with our upstream operations. These assets include gathering systems, processing plants and water infrastructure. Our midstream assets enhance the value of our properties by allowing us to optimize pricing, increase flow assurance and eliminate third-party costs and inefficiencies. In addition, our owned midstream systems generate third-party revenue.

Previous wording

Our financial results depend on many factors, particularly commodity prices and our ability to find, develop and market our production on economically attractive terms. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand. The oil and natural gas industry is cyclical and commodity prices are highly volatile and we expect continued and increased pricing volatility in the crude oil and natural gas markets. Regional and worldwide economic activity, including any economic downturn or recession that has occurred or may occur in the future, extreme weather conditions and other substantially variable factors, influence market conditions for these products. Between January 1, 2023 and September 30, 2024, NYMEX WTI prices for crude oil ranged from $65.75 to $93.68 per Bbl, and the NYMEX Henry Hub price of natural gas ranged from $1.58 to $4.17 per MMBtu. The war in Ukraine, rising interest rates, global supply chain disruptions, concerns about a potential economic downturn or recession, and instability in the financial sector have contributed to recent economic and pricing volatility and may continue to impact pricing throughout 2024.

Current wording

Our financial results depend on many factors, particularly commodity prices and our ability to find, develop and market our production on economically attractive terms. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand. The oil and natural gas industry is cyclical and commodity prices are highly volatile and we expect continued and increased pricing volatility in the crude oil and natural gas markets. Regional and worldwide economic activity, including any economic downturn or recession that has occurred or may occur in the future, extreme weather conditions and other substantially variable factors, influence market conditions for these products. Between January 1, 2024 and March 31, 2025, NYMEX WTI prices for crude oil ranged from $65.75 to $86.91 per Bbl, and the NYMEX Henry Hub price of natural gas ranged from $1.58 to $4.49 per MMBtu. The war in Ukraine and conflict in the Middle East, uncertainty regarding interest rates, global supply chain disruptions, the potential for significant new tariffs, concerns about a potential economic downturn or recession, and instability in the financial sector have contributed to recent economic and pricing volatility and may continue to impact pricing throughout 2025.

Previous wording

Further, although inflation in the United States had been relatively low for many years, there was a significant increase in inflation beginning in the second half of 2021, which continued into 2023, due to a substantial increase in the money supply, a stimulative fiscal policy, a significant rebound in consumer demand as COVID-19 restrictions were relaxed, the Russia-Ukraine war and worldwide supply chain disruptions resulting from the economic contraction caused by COVID-19 and lockdowns followed by a rapid recovery. We cannot predict the future inflation rate but to the extent inflation remains elevated, we may experience cost increases in our operations, including costs for drill rigs, workover rigs, tubulars and other well equipment, as well as increased labor costs. We continue to evaluate actions to mitigate supply chain and inflationary pressures and work closely with other suppliers and contractors to ensure availability of supplies on site, especially fuel, steel and chemical supplies which are critical to many of our operations. However, these mitigation efforts may not succeed or may be insufficient. Further, if we are unable to recover higher costs through higher commodity prices, our current revenue stream, estimates of future reserves, borrowing base calculations, impairment assessments of oil and natural gas properties, and values of properties in purchase and sale transactions would all be significantly impacted.

Current wording

Between 2022 and 2024, the Federal Reserve raised the target range for the federal funds rate in an effort to curb inflation. In September 2024 and November 2024, the Federal Reserve lowered the target range for the federal funds rate to its current range of 4.25% to 4.50% in light of the reduced inflation. In March 2025, inflation, as measured by the consumer price index, was 2.4%. We cannot predict the future inflation rate but to the extent we experience high inflation, we may see cost increases in our operations, including costs for drill rigs, workover rigs, tubulars and other well equipment, as well as increased labor costs. We continue to evaluate actions to mitigate supply chain and inflationary pressures and work closely with other suppliers and contractors to ensure availability of supplies on site, especially fuel, steel and chemical supplies which are critical to many of our operations. However, these mitigation efforts may not succeed or may be insufficient. Further, if we are unable to recover higher costs through higher commodity prices, our current revenue stream, estimates of future reserves, borrowing base calculations, impairment assessments of oil and natural gas properties, and values of properties in purchase and sale transactions would all be significantly impacted.

Previous wording

We completed acquisitions on December 28, 2023 and September 25, 2024 for approximately $815 million and $38 million, respectively, subject to customary post-closing adjustments. These acquisitions are reflected in our results of operations as of and after the date of completion of such acquisitions. As a result, periods prior to such acquisitions will not contain the results of such acquired assets which will affect the comparability of our results of operations for certain historical periods.

Current wording

We have completed three acquisitions since the beginning of 2024. These acquisitions are reflected in our results of operations as of and after the date of completion for each such acquisition. As a result, periods prior to each such acquisition will not contain the results of such acquired assets which will affect the comparability of our results of operations for certain historical periods. We may continue to grow our operations through acquisitions when economical, including by funding such acquisitions under our New Revolving Credit Facility.

Previous wording

Revenues from oil, natural gas and NGL sales increased $42.5 million, or 25%, for the three-month period ended September 30, 2024, as compared to the three-month period ended September 30, 2023. This increase was primarily related to production increases as a result of acquisitions and the Corporate Reorganization in 2023 and slightly offset with decreases to the average selling price of oil, natural gas and NGLs.

Current wording

Revenues from oil, natural gas and NGL sales decreased $2.5 million, or 1%, for the three-month period ended March 31, 2025, as compared to the three-month period ended March 31, 2024. This decrease was primarily related to a 10% production decrease, which resulted in decreased oil, natural gas and NGL sales of $23.6 million. These decreases were offset with an overall increase in the average selling price of our products, which resulted in an increase in oil, natural gas, and NGL sales of $21.0 million.

Previous wording

For the three-month period ended September 30, 2024, we had realized gains on derivative instruments of $6.6 million and unrealized gains of $27.1 million for total gains of $33.7 million. For the three-month period ended September 30, 2023, we had realized losses on derivative instruments of $3.2 million and unrealized losses of $1.7 million for total losses of $4.9 million. The increase in realized gains is primarily from an increase in realized gains of $7.6 million associated with our gas derivatives and a decrease in realized losses from our oil derivatives of $2.2 million in the three-month period ended September 30, 2024, as compared to the three-month period ended September 30, 2023.

Current wording

For the three-month period ended March 31, 2025, we had realized gains on derivative instruments of $1.6 million and unrealized losses of $42.3 million for total losses of $40.7 million. For the three-month period ended March 31, 2024, we had realized gains on derivative instruments of $4.0 million and unrealized losses of $33.2 million for total losses of $29.3 million. The increase in unrealized losses is primarily due to the increase in natural gas prices. The decrease in realized gains is primarily due to a decrease in the spread between settlement prices and contract prices.

Previous wording

Product sales decreased $3.9 million, or 16%, for the nine-month period ended September 30, 2024, as compared to the nine-month period ended September 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 and NGLs. These decreases corresponded with the decrease in our cost of product sales noted below.

Current wording

Product sales increased $1.6 million, or 24% for the three-month period ended March 31, 2025, as compared to the three-month period ended March 31, 2024. This increase was primarily a result of increases in third-party volumes resulting in higher overall product sales and an increase in the average selling price on natural gas and NGLs. These increases corresponded with the increase in our cost of product sales noted below.

Previous wording

Midstream revenue decreased $0.8 million, or 12%, for the three-month period ended September 30, 2024, as compared to the three-month period ended September 30, 2023, primarily due to lower non-operated volumes running through our midstream facilities and lower gathering revenue for the three-month period ended September 30, 2024, as compared to the three-month period ended September 30, 2023.

Current wording

Midstream revenue decreased $0.1 million, or 1% for the three-month period ended March 31, 2025, as compared to the three-month period ended March 31, 2024, primarily due to lower salt water disposal revenue for the three-month period ended March 31, 2025, as compared to the three-month period ended March 31, 2024.

Previous wording

Cost of product sales decreased $3.9 million, or 18%, for the nine-month period ended September 30, 2024, as compared to the nine-month period ended September 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 and NGLs. These decreases were consistent with the decrease in product sales noted above.

Current wording

Cost of product sales increased $1.9 million, or 31% for the three-month period ended March 31, 2025, as compared to the three-month period ended March 31, 2024. This increase was primarily a result of increases in third-party volumes resulting in higher overall cost of product sales and the increase in the average selling price on natural gas and NGLs. These increases were consistent with the decrease in product sales noted above.

Previous wording

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

Current wording

Depreciation, depletion, amortization and accretion expense

Previous wording

General and administrative costs increased $4.0 million, or 75%, for the three-month period ended September 30, 2024, as compared to the three-month period ended September 30, 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 $0.5 million, or 5% for the three-month period ended March 31, 2025, as compared to the three-month period ended March 31, 2024. The increase in general and administrative costs was primarily a result of an increase in equity compensation of $0.9 million for the three-month period ended March 31, 2025, as compared to the three-month period ended March 31, 2024.

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 $783.8 million at September 30, 2024, and the remaining availability under our Credit Agreements was $70.0 million at September 30, 2024.

Current wording

Our primary sources of liquidity and capital are cash flows generated by operating activities, borrowings under the New Revolving Credit Facility, and proceeds from the issuance of equity and debt. At March 31, 2025, outstanding borrowings under the New Revolving Credit Facility were $460.0 million with $5.0 million in letters of credit outstanding, and the remaining availability under the New Revolving Credit Facility was $285.0 million at March 31, 2025.

Previous wording

Historically, our business plan has focused on acquiring and then exploiting the development and production of our assets. We spent approximately $178.9 million during the nine-month period ended September 30, 2024 on development costs and our 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 and Woodford wells.

Current wording

Historically, our business plan has focused on acquiring and then exploiting the development and production of our assets. We spent approximately $52.0 million during the three-month period ended March 31, 2025 on development costs and our budget for 2025 is between $260.0 million and $280.0 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 2025 is anticipated to focus on a mix of drilling Oswego, Woodford, Red Fork and Mississippian wells.

Previous wording

During the nine-month period ended September 30, 2024, we spent approximately $143.6 million on drilling and completion activities and related equipment and spud 40.1 net wells while bringing online 43.3 net wells, $26.1 million on remedial workovers and other capital projects, and $9.2 million on midstream and other property and equipment capital projects.

Current wording

During the three-month period ended March 31, 2025, we spent approximately $42.8 million on drilling and completion activities and related equipmentand spud 6.7 net wells while bringing online 9.3 net wells, $8.2 million on remedial workovers and other capital projects, $1.0 million on midstream and other property and equipment capital projects and $26.3 million on acquisitions.

Previous wording

Net cash provided by operating activities decreased $10.3 million for the nine-month period ended September 30, 2024, as compared to the nine-month period ended September 30, 2023. The decrease in net cash provided by operating activities is primarily a result of decreases in working capital of $34.9 million, offset with an increase in income from acquisitions and the Corporate Reorganization in 2023.

Current wording

Net cash provided by operating activities decreased $1.4 million for the three-month period ended March 31, 2025, as compared to the three-month period ended March 31, 2024. The decrease in net cash provided by operating activities is primarily a result of a decrease in production, offset with an increase in the average selling price of natural gas.

Previous wording

Net cash used in financing activities increased $85.9 million for the nine-month period ended September 30, 2024, as compared to the nine-month period ended September 30, 2023. The increase in net cash used in financing activities is primarily due to a $145.8 million increase in distributions paid and a $41.3 million increase in repayments of borrowings in the nine-month period ended September 30, 2024, as compared to the nine-month period ended September 30, 2023. These increases in cash used in financing activities were partially offset by an increase in cash provided related to the Company’s public offering that was completed in September 2024, which provided cash of $129.8 million after underwriters commissions and offering costs.

Current wording

Net cash used in financing activities increased $71.8 million for the three-month period ended March 31, 2025, as compared to the three-month period ended March 31, 2024. The increase in net cash used in investing activities is primarily due to increases in cash used for repayments of our term loan of $763.1 million, prepayment penalties of $7.7 million and new debt issuance costs of $13.4 million. These were partially offset by an increase in cash provided by borrowings on our credit facilities, net of repayments of $460.0 million, and an increase in cash provided from proceeds from follow-on offerings of $221.6 million. Additionally, there was a decrease in cash used for distributions of $31.1 million in the three-month period ended March 31, 2025, as compared to the three-month period ended March 31, 2024.

Previous wording

We are a party to firm transportation contracts for the transport of natural gas. We paid approximately $0.6 million and $2.7 million in firm transportation contracts for the three and nine month periods ended September 30, 2024, respectively, and expect to pay approximately $1.4 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 $0.1 million in firm transportation contracts for the three-month period ended March 31, 2025 and expect to pay approximately $0.1 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 $9.5 million and $2.5 million in operating lease payments for the three and nine month periods ended September 30, 2024, respectively, and expect to pay approximately $11.9 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 $2.1 million in operating lease payments for the three-month period ended March 31, 2025 and expect to pay approximately $15.6 million in operating lease payments through 2029. For further information on our operating lease obligations, see Note 11 of our consolidated financial statements.

Previous wording

We include in this Quarterly 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, net, (2) depreciation, depletion, amortization and accretion, (3) unrealized (gain) loss on derivative instruments, (4) equity-based compensation expense, (5) credit losses, and (6) (gain) loss on sale of assets.

Current wording

We include in this Quarterly 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 measure calculated and presented in accordance with GAAP. We define Adjusted EBITDA as net income before (1) interest expense, net, (2) depreciation, depletion, amortization and accretion, (3) unrealized loss (gain) on derivative instruments, (4) loss on debt extinguishment, (5) equity-based compensation expense and (6) (gain) loss on sale of assets, net.

Previous wording

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, net, (2) depreciation, depletion, amortization and accretion, (3) unrealized (gain) loss on derivative instruments, (4) equity-based compensation expense, (5) credit losses, (6) (gain) loss on sale of assets, (7) settlement of asset retirement obligations, (8) cash interest expense, net (9) development costs, and (10) 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.

Current wording

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 adjusted for (1) interest expense, net, (2) depreciation, depletion, amortization and accretion, (3) unrealized loss (gain) on derivative instruments, (4) loss on debt extinguishment, (5) equity-based compensation expense, (6) (gain) loss on sale of assets, net, (7) cash interest expense, net, (8) development costs and (9) 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.

Previous wording

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

Current wording

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

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 nine months ended September 30, 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, 2024. No modifications have been made during the three months ended March 31, 2025.