Mach Natural Resources LP

Good morning, everyone. Thank you for joining today's call to discuss Mock Natural Resources' third quarter 2024 financial and operational results. During this morning's call, the speakers will be making forward-looking statements that cannot be confirmed by reference to existing information, including statements regarding expectations, projections, future performance, and the assumptions underlying such statements. Please note a number of factors will cause actual results to differ materially from their forward-looking statements. including the factors identified and discussed in their press release and in other SEC filings. For further discussion of risks and uncertainty that can cause actual results to differ from those in such forward-looking statements, please read the company's annual report on Form 10-K, which is available on the company's website or the SEC's website. Please recognize that except as required by law, they undertake no duty to update any forward-looking statements, and you should not place undue reliance on such statements. They may refer to some non-GAAP financial measures in today's discussion. For reconciliation from non-GAAP financial measures to the most directly comparable GAAP measures, please refer to their press release, which is available on Mock's website, and their 10Q, which will also be available on their website when filed. Today's speakers are Tom Ward, CEO, and Kevin White, CFO. Tom will give an introduction and overview. Kevin will discuss Mock's financial results, and then the call will be open for questions. With that, I will turn the call over to Mr. Tom Ward.

Tom? Thank you, Darrell. Welcome to Mock Natural Resources third quarter earnings update. As a reminder to anyone listening who might not know too much about Mock, we are an upstream energy MLP. We like the attributes of the MLP model for unit holders, the tax benefits and the focus on returning cash. We also remember and acknowledge the misgivings the others made during the previous period, now a decade ago, due to chasing growth with runaway leverage and fixed distributions, along with misalignment between the unit holders and the general partner. Our strategy from the beginning was to buy distressed cash-flowing properties when others were seeking growth through leasing and drilling and outspending cash flow. We were certain the growth model was flawed. And as a result of their failure, we were able to purchase the bulk of our cash flowing assets at steep discounts to PDP PD10. It was not the assets that were bad, but the execution of the asset. We feel the same way about the upstream MOP model. Therefore, we came up with four pillars to build a successful company as follows. Number one, maintain financial strength. Our goal is to have a long-term debt to EBITDA ratio of one time or less. By maintaining a low leverage profile, we give ourselves opportunities when the markets experience high volatility. Number two, disciplined execution. We acquire only cash-flowing assets at a discount to PDP PB10 that are accretive to our distribution. Number three, disciplined reinvestment rate. We maintain a reinvestment rate of less than 50% of our operating cash flow. By keeping our reinvestment rate low, we optimize our distribution to unit holders. Number four, maximize cash distributions. We target peer-leading distributions. This pillar drives all decisions. In order to maintain the four pillars of our company, we also need to emphasize that our distributions are variable. Therefore, we distribute more cash to our unit holders in times of rising prices. We want exposure to energy for the long term and like being invested in a company that is upside to commodity pricing. We believe that the poor 7 billion people on Earth want to achieve the same standard of living as the wealthy 1 billion. Energy will be the key catalyst for them to do so. Over time, this shift will drive demand for our products, not to mention the increased demand for power generation that's already widely discussed. However, in quarters of lower pricing, our distribution will also be lower. To offset large risks to falling prices while maintaining exposure to gains, we have chosen to hedge 50% of our next 12 months' production and 25% of the second 12 months. Since 2018, MOC has invested $1.9 billion by raising $520 million of equity. We have $600 million in net debt and will have distributed $962 million to unit holders. This results in an actualized MOEC of 1.9 times and an average CROCI over the last five years of 31%. We did all of this without selling any producing properties and build a company that has $2.3 billion of enterprise value. In the third quarter, we realized average prices of $74.55 per barrel of oil, which is 6% lower than Q2, and $1.73 per MCF of natural gas. If crude prices or natural gas prices were to deteriorate even further, we are positioned to make acquisitions that ultimately will be a creep to our distribution due to maintaining low amounts of leverage. If prices move up, we are positioned to use more than 1 million acres of land across the Andarco Basin to drill more aggressively while staying within our 50% reinvestment rate. This ability to pivot is one of our unique strengths and will continue to underpin our success regardless of which stage the commodity cycle we're in. Another point of pride is the ability to assimilate acquisitions into our company at very low costs. Our lease operating expense for the third quarter was $5.85 for BOE, which is at the low end of guidance. For the third quarter, we drilled and brought online 11 gross and 9 net wells while running two rigs. We also had five gross and four net operated wells at various stages of drilling and completion. Our guidance for 2025 increases our rig cap to three rigs with two drilling deeper wells and one drilling the shallow Oswego wells. We plan to expand our drilling in 2025 to locations in the Ardmore Basin on our recently announced acquisition lands in Stevens County, Oklahoma, drilling the Mississippian Sycamore Formation and Woodford Wells, plus in previously held Custer County, Oklahoma, drilling Deep Miss and Red Fork locations, along with the locations in Canadian County, Oklahoma. Drilling is important to us, generating attractive returns and offsetting natural production declines while keeping the reinvestment rate at or below 50%. However, acquisitions will be the primary driver for production growth and associated growth in future distributions. As I mentioned, in Q3, we had two rigs running. We continued to find ways to drill more lateral length while spending less per foot. In the Oswego, we averaged spread to total depth time of 7.43 days while spending $204 per lateral foot. This compares to an average of 10.1 days and $206 per lateral foot in Q2. We also increased our lateral length from 6,123 feet to 6,536 feet in Q3. Our overall cost per completed foot fell from $248 to $231 from Q2 to Q3. In the Woodford, the average completed length was 10,222 feet compared to 10,122 feet in Q2, while the cost per completed foot moved down from $368 to $357. The average drilling and completion cost was $7.7 million, compared to our predecessor's $9.7 million. In both areas, our service costs have remained constant, except for a small reduction in casing prices during the quarter. In the third quarter, we completed a follow-on public offering generating proceeds of $129 million to fund the two acquisitions announced. We continue to use equity as a useful tool to keep our leverage low while adding to our distribution per unit. As a large unit owner, I'm pleased to fund acquisitions in this manner while increasing our distribution per unit, all the while maintaining our leverage at or below one times. During the quarter, We have noticed that our pipeline of deals continues to improve. We have more interest from parties willing to sell at prices that are moving into our range and also parties that are willing to engage in discussions regarding trading producing assets for our units. We will see if this materializes into deals that create higher distributions per unit in the coming year. With that, I'll turn the call over to Kevin to discuss our financial results.

I would like to open with a quick reminder that the comparative income and cash flow statements for both the third quarter and year-to-date for last year reflect only the results of the predecessor entity, Mach 3, whereas the 2024 reported results capture all of the entities and assets of Mach Natural Resources. For the quarter, our production of 82,000 BOE a day was 23% oil, 53% natural gas, and 24% NGLs. Our average realized prices were $74.55 per barrel of oil, $1.73 per MCF of gas, and $22.61 per barrel of NGLs. Of the $209 million in total oil and gas revenues, the relative contribution for oil was 60%, 20% for gas, and 20% for NGLs. On the expense side, our LOE of $44 million, or $585 per BOE, again came in at the bow end of guidance. Cash G&A was approximately $8 million, or only $1.08 per BOE. We ended the quarter with $184 million in cash, a bit elevated since we did not close the Ardmore Basin acquisition until October 1st. Our $75 million revolver was undrawn. and our first lien term loan principal is approximately $784 million. Total revenues, including our hedges and midstream activities, total $256 million, adjusted EBITDA of $134 million, and $111 million of operating cash flow. After CapEx of $53 million, we generated $52 million of free cash, which we used to pay $21 million of principal on the first lien term loan, and the remainder plus excess balance sheet cash results in the $62 million or 60 cents per unit distribution for this quarter. As we announced, this will be paid on December 10th to holders of record as of November 26th. Darrell, I'll now turn the call back to you to open the line for questions.