Mach Natural Resources LP

Greetings and welcome to the Mock Natural Resources fourth quarter and full year 2024 earnings results conference call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may press star one at any time to be placed into question queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Chief Executive Officer and Director, Tom Ward. Please go ahead, Senator.

Thank you, Kevin. Welcome to Mock Natural Resources' fourth quarter earnings update. Each quarter, it's important to reiterate the company's four strategic pillars. These are, number one, maintain financial strength. Our goal is to have a long-term debt-to-dividend ratio of one times or less. By maintaining a low leverage profile, we give ourselves opportunities when markets experience high volatility. Two, disciplined execution. We acquire only cash flowing assets at a discount to PDP, PD10, that are accretive to our distribution. 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. and four, maximizing cash distributions. We target peer leading variable distributions. This pillar drives all decisions. I'd like to add additional color to each of these four pillars. Disciplined execution. Our strategy since the founding of the company in 2017 has been to purchase cash flowing assets at bargain prices while paying nothing for associated acreage and future drilling and very little to nothing for the associated infrastructure and midstream assets. Our company was built during a time of distress in our industry. We made our first acquisition in early 2018 and then followed that with 19 additional acquisitions. We accumulated over 1 million acres of land that is held by production. We have ownership in four midstream gathering and processing facilities and significant other infrastructure. We purchased these facilities for $65 million, and these assets contributed $78 million of EBITDA and $24 million alone. $17 million of this midstream EBITDA came from third parties and the remainder from higher realized wellhead prices for our own production. And finally, in every single one of our acquisitions, our best-in-class operating team has reduced LOE by 25% to 35% from the previous owner's cost. Disciplined reinvestment rates. We now have the distinct advantage of choosing where to drill from hundreds of potential locations on the previously mentioned 1.1 million acres. In general, we look for opportunities to invest in projects with the potential to have at least 50% IRRs. In our presentation posted today on our website, we list all of the locations drilled in the Oswego and Wood formations during 2024. In short, even during a year with exceptionally low natural gas prices, we achieved our goal. Natural gas prices have recently moved up, and that will result in more operating cash flow during 2025. We plan to move in an additional rig in 2025 and still stay below our 50% reinvestment rate while adding high rate of return wells to our production. In 2025, we anticipate three rigs running. Continue to drill the Oswego formation of Kingfisher County, where we've drilled more than 225 wells since 2021. The Mississippian and the Woodford formations in the condensate window of the Stack and Ardmore Basin, where we incorporate locations from the last three acquisitions made, and the Deep Mississippian formation in the Andarco Basin. It is worth highlighting that out of the 45 wells drilled in our Oswego and Woodford drilling program, that greater than 35% achieved more than 100% rates of return. These were all drilled on lands that we paid zero for. We drill wells that are highly efficient. For example, our Oswego DNC cost in 2024 averaged only $2.6 million or $202 per lateral foot. By keeping our costs low, we achieve medium payout periods of 15 months, assuming a flat $70 WTI and $350 Henry Hub. According to Inverse, this compares to 14 months in the Delaware and 15 months in the Midland Basins, where purchasing locations can cost more than $10 million each. All of these statistics add up to unmatched cash returns for our unit holders over the last five years, and the next five years. We anticipate spending between $225 to $240 million on drilling and completion plus workovers in 2025. With this expenditure, we anticipate holding our production basically flat, either up or down a few percentage points on a BOE basis. Maintain financial strength. We also watch our leverage very closely. During the downturn starting in 2019, we adjusted our development capex from $101 million to only $28 million in 2020, $61 million in 2021, then $291 million in 2022 as prices rose. All the while, our EBITDA grew from $119 million to $719 million over the same period. We achieved this exceptional performance by being able to acquire cash-producing properties in a distressed environment due to our strong balance sheet. MOC also has peer-leading PDP decline and reinvestment rates. Our next 12-month PDP decline is projected to be 20%, while our reinvestment rate in 2024 was only 47%. Both of these statistics are number one in a group of 16 peer companies. We have exceptionally strong asset coverage with total approved coverage of 3.9 times, net debt enterprise value of 21%, and PDP PB10 to total debt of 3.3 times. Our LOE averaged $6.17 per BOE in the fourth quarter of 2024, and our 2024 free cash flow was $8.43 per BOE. We're also starting 2025 with a net debt EBITDA at 0.8 times pro forma for our recent offering. Maximizing distributions. Management tries to understand risk and mitigate that risk where possible. We hedge 50% of our oil and natural gas on a rolling one-year basis and 25% during the second year. We also have a variable distribution that rises and falls with the changes in pricing. Each quarter, we are methodical to reinvest 50% of our operating cash flow, then receive our calculated cash available for distribution and send it home to our unit holders. We've done this since our inception and do not plan to change our approach. During this time, we have distributed back to our owners over $1 billion. When we hold our production flat by spending less than 50% of our operating cash flow, we are allowed to send back distributions to our unit holders. The best way to describe what we do is consistency. In all price environments, we maximize our distributions while maintaining a clean balance sheet. In times of lower pricing, we lower our capex, thus not having long-term contracts on capital expenditures. In doing so, we continue to have excellent cash returns on capital invested. Our croaky five-year average from 2020 to 2024 is 32%. This was achieved through several commodity cycle fluctuations. During 2024, we delivered total net production of 86.7 MBOE a day and reported net income and adjusted EBITDA of $185 million and $601 million, respectively. We also distributed $310 million, or $3.20 per unit, and attained a cash return on capital invested metric of 25%. Recently, we closed a bolt-on acquisition in the Ardmore Basin of approximately $30 million that will provide additional locations for us to drill this year. We repaid the company's term loan and lowered our net debt to 8.8 times from 1.0 times. We then entered into a new revolving credit facility with an initial borrowing base of $750 million. We continue to have success buying assets in the MidCon. Our latest successful acquisitions have been in the $100 million range. In fact, we've made 20 acquisitions that average just less than $100 million on each one. This approach is important as we can stay away from large, well-capitalized competitors to buy assets that are less expensive. We focus these acquisitions on not only acquiring PDP at less than PV10, but also acquiring land that one day will be drilled by us at no cost and no time frame for expiration due to being held by production. This formula has served us well. We also like buying crude oil any time we move into the 60s or less and have a backward-rated curve. We see the crude market moving through the inevitable one to two standard deviations, both up and down, and want to be ready with a strong balance sheet during times when pricing is at the bottom of a cycle. We do not envision a longer-term down cycle in the vein of 2015 to 2020. and feel like it is a good time to lean in on a crude acquisition if we can find the right deal that fits our criteria for investing. However, we also do not stray away from our basic philosophy of needing an acquisition to be accretive to our distribution. We also will trade in natural gas if the opportunity arises at the correct price. In order for us to make a larger acquisition, say something north of $500 million, We need to find a partner who will be willing to take equity alongside of us. We believe our time is coming when PE firms and small public companies will find our formula for cash returns attractive and want to be a part of a larger mock. We welcome these opportunities as a way to grow our business while creating larger cash returns to our unit holders and having more float so that institutional investors can participate on a larger scale in our business. I feel that we will accomplish at least one of these types of transactions in 2025. Even if we do not make a meaningful acquisition, we will continue to replace our production through our drilling program and small acquisitions and deliver excellent returns to our unit holders. In 2024, we rank first out of all public upstream energy companies in distribution yields. We also ranked 10th in the total shareholder returns. We achieved these returns at a time of very low natural gas prices. In fact, 2024 had the lowest natural gas prices since the early 1990s. Our commodity mix on a revenue basis was weighted 59% oil, 21% natural gas, and 20% NGLs by revenue in 2024. However, as we move into 2025, we can see what happens in a higher natural gas environment with our volume by product being 54% natural gas, 23% NGLs, and 23% oil. Therefore, in a $4 plus environment for natural gas, we're leaving all of our liquids in the gas stream and producing 77% of our production as natural gas. This increase in EBITDA allows us to have more operating cash flow. which enables us to add another rig in 2025 to have three rigs running versus the two we had in 2024. We remain focused on the price for our products and our reinvestment rate. The reinvestment rate drives our budget, not the IRR of the wells we drill. We feel confident we can continue to achieve high return drilling results, but we will not move away from our core tenets of keeping the reinvestment rate low to maximize cash returns to unit holders. If we are fortunate enough to add larger acquisitions, we'll be able to then monetize more of the hundreds of high internal rate of return projects we have waiting to be drilled on our 1.1 million acres of HVP land. This is why our focus remains on free cash flowing assets to acquire prices that are creative to our distribution. In closing, I want to reemphasize that we are an acquisition company. Our industry-leading cash returns have been made through opportunistic acquisitions. This is our primary lever of growth. Our expectation is to continue making acquisitions that are accreted to our distribution in 2025, just as we have over the last seven years in 20 deals. I'll now turn the call over to Kevin to discuss our financial results.

Thanks, Tom. For the fourth quarter, our production of 86.7 thousand BOE per day was 24% oil, 52% natural gas, and 24% Our average realized prices were $70.06 per barrel of oil, $2.31 per MCF of gas, and $25.82 per barrel of NGLs. Our G&A stayed flat during the quarter at $8 million, or around $1 per BOE. We ended the quarter with $106 million in cash, and our first lean term principal was $763 million. During the quarter, total revenues, including our hedges and midstream activities, totaled $235 million, adjusted EBITDA of $162 million, and $134 million of operating cash flow. After CapEx of $60.5 million, we generated $81 million of free cash, which we used to pay our final operating principal amortization of roughly $20.6 million on the first lien term loan, and the remainder results in the $60 million or 50 cents per unit distribution for this quarter and was paid earlier this week. As Tom mentioned, we've closed on a new $750 million RBL made up of a syndicate of 10 banks. We're currently drawn around $500 million. And with that, Kevin, I'll turn it back to you to open up the call for questions.