Mach Natural Resources LP

Good morning, everyone. Thank you for joining today's call to discuss Mock Natural Resources' first quarter 2025 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 their SEC filings. For further discussion of risks and uncertainties 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 reference their press release and supplemental tables, which are 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 opened for questions. With that, I will turn the call over to Mr. Tom Ward. Tom?

Thank you, Darrell. Welcome to Mock Natural Resources' first quarter earnings update. Each quarter, it is 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 EBITDA ratio of one time or less. By maintaining a low leverage profile, we give ourselves opportunities when 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 variable distributions. This pillar drives all of our decisions. I'd like to add additional color to each of the four pillars. Maintain financial strength. During the first quarter, we saw significant progress on reducing our already low leverage. We completed the refinancing of our debt, repaying $763 million on our term note, using proceeds from our new credit facility, our recent equity offering, along with cash from our balance sheet. We exited the quarter with $460 million drawn on our new credit facility, which reduced our net debt to EBITDA ratio from 1.0 times at year end 2024 to 0.7 times at the end of Q1. The refinancing of our debt provides significant savings, lowering our projected interest expense for 2025 by $22 million, while also eliminating quarterly amortization payments of $21 million. These savings will ultimately manifest themselves through higher free cash flow and our ability to enhance distributions to our unit holders. We focus on maintaining financial strength in order for our company to be successful through various commodity cycles. The current market environment is challenging, with oil prices recently dipping in the 50s for the first time since early 2021, reflecting trade policy uncertainties and indications from OPEC Plus on increased production. However, markets positioned well from a natural gas perspective with our volume mix being 54% natural gas, 23% in GLs, and 23% oil projected in 2025. In fact, if we move to three rigs in Q4 from a projected two rigs in Q3 to the more natural gas-weighted deep and arco basin, we will grow our natural gas production at the expense of our oil volume in 2025, but keep our overall barrel equivalent basically flat. However, in 2026, we will experience double-digit growth on the back of the additional gas drilling. We believe the deep Anadarko will be an exceptional area to drill for natural gas. The trick is to do this while keeping our reinvestment rate below 50% of operating cash flow. We project moving out of the Oswego drilling as of early June and down to two rigs during Q3 2025 with one deep rig in the deep gas area of Anadarko Basin and the other drilling red fork wells in western Oklahoma. We then project to move to three rigs in Q4 by adding a second deep gas rig. If it appears that we need to delay that rig until Q1 26 in order to meet our reinvestment rate of 50%, we will do so. As I mentioned, the increased drilling activity in the Deep Andarco is predicated on keeping our investment rate below 50% of our operating cash flow. Our plan is to add operating cash flow during this down cycle and crude through an acquisition accretive to our distribution and giving us cash flow to enhance our drilling budget during 2026. MOC is unique in that we have the ability to utilize our over 2 million acreage inventory to change our drilling mix from one year ago when we drilled Oswego and stacked condensate wells to a completely different set of wells to maximize our return on capital invested. Disciplined execution. Our second pillar, disciplined execution, has always meant being prudent in how we acquire assets. Our strategy since the company's outset has been to purchase cash-flowing properties at bargain prices while paying little to nothing on the associated acreage and infrastructure. In January, we closed on a $30 million acquisition that fit our specific criteria and plan to begin exploiting that future drilling opportunities on its associated acreage. However, With the drop in crude prices, we have delayed drilling in the Ardmore Basin in favor of natural gas drilling. Our large inventory and associated drilling opportunities are only hampered by keeping our reinvestment rate under 50%, which is why we are always intently focused on acquisitions of cash flowing properties that can accelerate our development plans. The XTO acquisition now gives us another million acres to have an inventory to use when needed. In fact, we will move a rig onto our newly acquired XTO acreage in June 2025 during Red Fork Wells. The XTO acquisition is very unique given the huge acreage footprint across northwest Oklahoma and western Kansas. This extra million acres also came to us free of cost while maintaining our stated purpose of buying cash flowing assets at discounts to PDP PV10. Disciplined reinvestment rate. Our third pillar of maintaining a disciplined reinvestment rate focuses on spending only 50% of our cash flow on our development costs, allowing us to optimize our distributions to our unit holders. The development of our inventory is focused on stabilizing our production decline and bolstering our bottom line through high rate of return projects, typically of at least 50%. Our expectation for 2025 is to spend between $260 million and $280 million. Please remember that our CapEx program is fungible and depends on our success for adding additional operating cash flow to keep our reinvestment rate in check. Our change in drilling is due to natural gas prices moving up while oil prices have fallen. In a $70 environment, we would like to have at least one rig running in our Oswego program that delivered actualized 66% returns in 2024. This field is a hallmark of MOC where we have drilled more than 225 wells since 2021. For example, our Oswego DNC cost in 2024 averaged only $2.6 million or $202 per lateral foot. We achieved median payout periods of 15 months, assuming a flat $70 WTI and 350 Henry Hub price. According to Inverus, this compares to 14 months in the Core Delaware and 15 months in the Core 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. However, It is prudent to take our first pause in the Oswego program until crude prices recover and not waste this valuable resource when natural gas locations provide superior rates of return. We eagerly await adding an Oswego rig when crude prices recover. The Woodward Condensate and Ardmore Basin locations are also on hold until crude prices rise to a point where they compete with natural gas drilling in the deep Anadarko. MOC is in an enviable position. of having too many good locations to drill, thus the need to increase our operating cash flow during a time of lower crude prices. Suffice it to say, we are on the hunt for cash-flowing PDP assets to be able to drill more in the mid-con. Maximizing distributions. Our fourth pillar is one that drives all of our decisions, maximizing distributions. We are disciplined in our execution and capital strategy, and by reinvesting 50%, into our development program, we leave significant amounts of cash available for distribution that can be passed on to unit holders through our quarterly distributions. These quarterly distributions are variable and will rise and fall with changes in pricing. However, we are proactive in managing our risk where possible and had 50% of oil and natural gas production on a rolling one-year basis and 25% during the second year. Over the next 12 months, our hedge volumes are an average price of $69.31 for oil and $3.77 for gas. Our distribution-focused approach has been rewarding to our owners. We have distributed over $1 billion back to unit holders since our inception. Our upcoming distribution of 79 cents per unit results in an LTM yield of 20%. Mock's cash return on capital invested over the last five years is 32%. These industry-leading cash returns have been facilitated through a series of opportunistic acquisitions of cash-flowing properties throughout a variety of commodity cycles. We continue to see success in buying mid-con assets, with our most recent acquisition closing just last week. The $60 million XGO acquisition fits perfectly with what we have done since inception of the company in 2017. We found an asset that delivers free cash flow while also giving us free land to develop at a distressed purchase price. The XGO acquisition is primarily natural gas with a mix of production of 79% natural gas, 7% NGLs, and 14% oil. We continue to see the best value in acquisitions. that are at or below $100 million, but they do add up. We were already approaching $100 million of acquisitions in 2025. We made 21 acquisitions and have spent just over $2 billion since early 2018. This approach is important because we stay away from large, well-capitalized competitors to buy assets that are less expensive. This formula has served us well. During this period of uncertainty in crude markets, we'd also like to find a larger acquisition that continues to fit our basic business model. We believe that if crude prices remain under $60 for very long, we'll have the opportunity for a seller to merge into a larger, well-capitalized company. This type of acquisition will allow us to expand our operating cash flow and maintain a robust drilling schedule on the more than 2 million acres of land that we have held by production. The key to any acquisition is that it must be accretive to our distribution. MOC is off to a solid start in 2025. We've averaged total net production of 80.9 MBOE per day, even though we only used 37% of our operating cash flow during the quarter. This did result in a lower oil volume than we projected due to deferring drilling in the Ardmore Basin that we projected to start in Q1. Our lease operating costs remain low at $6.69 per BOE, and we expect that to continue into Q2 with the acquisition of the XTO assets. In the 21 acquisitions that we have made, we have averaged approximately a 30% decrease in LOE. We expect the same in this acquisition. Markets change, and the most successful companies need to be able to react to change quickly. I want to reemphasize that Mock is 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 accretive to our distribution in 2025, just as we have over the last seven years in 21 deals. MOC has a peer-leading PDP decline and reinvestment rate. 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 to enterprise value of 21%, and PDP PV10 to total debt of 3.3 times. Our LOE averaged $6.69 per BOE in Q1 2025, and our 2024 free cash flow was $8.43 per BOE. We also have moved our net debt EBITDA down to 0.7 times. In short, Mach is in perfect position to grow during a time of unease in our industry. Over the past seven years, our very best acquisitions have come when oil prices were down. In fact, we bought Altamesa through a 363 bankruptcy process in 2020 when oil was at $20 per barrel. I do not know how long OPEC Plus will increase production or how long a trade war will continue, or if we'll go into a global recession. But I do know that if we keep our balance sheet strong and stick to our four pillars, that we can weather any storm and can build an even stronger foundation for the future when prices rebound. I also believe that prices ultimately do rebound as the world looks to the U.S. to provide stability and energy to the 7 billion people striving to be as wealthy as the lucky 1 billion of us. I'll now turn the call over to Kevin to discuss our financial results.

Thanks, Tom. For the quarter, our production of 81,000 BOE per day was 24% oil, 53% natural gas, and 23% NGLs. Our average realized prices were $70.75 per barrel of oil, $3.56 per mcf of gas, and $27.33 per barrel of NGLs. Of the 253 million total oil and gas revenues, the relative contribution for oil was 49%, 33% for gas, and 18% for NGLs. On the expense side, our lease operating expense of 49 million was equivalent to 669 per barrel. Cash G&A was slightly less than 9 million, resulting in about $1.20 per BOE. We ended the quarter with $8 million in cash, $460 million drawn on the $750 million revolver. As of today, after closing the XTO acquisition, we have $530 million drawn on the RBL. Total revenues, including our hedges and midstream activities, total $227 million. Adjusted EBITDA of $160 million and $143 million of operating cash flow. After the development capex of $52 million, which was 37% of the operating cash flow, we generated over $94 million of cash available for distribution, resulting in an approved distribution of 79 cents per unit, which will be paid out on June 5th to record holders as of May 22nd. And with that brief overview, Darrell, I'll turn the call back to you to open up the call for questions.