Mach Natural Resources LP

Good morning, everyone. Thank you for joining today's call to discuss Mock Natural Resources Second 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 other SEC filings. For a further discussion of risks and uncertainties that could cause actual results to differ from those in such forlorn 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 forlorn statements and you should not place under 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 MOC's website, and their TANQ, which will also be available on the 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'll turn the call over to Mr. Tom Ward. Tom.

Thank you, Shamali. Welcome to Mock Natural Resources' second 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 times leverage. We believe maintaining a turn of leverage is appropriate to give ourselves opportunities when markets experience high volatility. We accomplished the ICAB and Sabinol purchases by having low leverage. Sabinol provides us with long-term upside potential to oil markets priced in the low 60s. We feel that this price is not sustainable very far into the future and that ultimately crude prices will rise even if the near-term outlook is negative. If the OPEC Plus announcement of bumper oil supply increases comes to pass, we want to stay in a position to capitalize on more crude oil purchases. In the case of ICAB, we purchased an existing natural gas cash flow stream that is heavily hedged with tremendous upside to market demand in the future and nearly unlimited growth opportunities in the San Juan Basin. Both acquisitions were made because our balance sheet was in pristine condition. We also see headwinds ahead for the natural gas prices as we enter the winter season with full storage and growing supply along with additional takeaway capacity being added before further demand develops in 2026. Therefore, we see continued opportunity to add to our portfolio as long as we maintain our leveraged goals. Number two, disciplined execution. We acquire only cash flowing assets at a discount to PDP PV10 that are also accretive to our distribution. We now have initiated 24 acquisitions, spending more than $3 billion. In every case, we have maintained this execution strategy. This strategy has allowed us to build an acreage base that will be nearly 3 million acres in size with multiple areas that have high rates of return drilling locations that are held by production. We believe that MOC is unique in this regard. 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. MOC is also unique in being able to maintain our production with an industry-leading reinvestment rate due to emphasizing our second pillar of disciplined execution. Our entry in the San Juan and Permian basins will move our decline to 15% from 20% through buying low-decline cash-flowing assets. This allows us to enhance our operating cash flow and maintain our production during periods of low prices while looking for areas to purchase if markets become destabilized. However, during periods of high prices, we can use our enhanced cash flow to reinvest more in drilling and grow production during those periods. MOC is positioned well to thrive in both scenarios by being able to pivot from acquisitions during higher prices to drilling of high return locations that are waiting for us with no expiration dates. The ICAB acquisition is an example of this. In the San Juan, we're acquiring more than 500,000 acres of land that is held by production. If natural gas prices remain elevated, we can switch away from drilling crude oil locations to more natural gas focused sites. We are planning to implement this strategy in 2026 by using the spring and summer drilling season with three rigs searching for natural gas in San Juan during drilling for the Mancos Shell, dry gas, and the Fruitland Coal. At today's strip, we plan to maintain our production volumes through 2027 while spending less than 50% of our operating cash flow and using some of the excess to pay down debt. We project increasing our natural gas volumes at 70% post the Savinaw ICAB acquisitions, and for the first time since our inception, project natural gas to be at least 50% of our revenue stream starting in 2026. All of the main pillars lead to the fourth and most important, delivering industry-leading cash returns on capital invested through distributions to our unit holders. With our announced distribution of 38 cents per unit in the second quarter, we have sent back $4.87 per unit to our unit holders since our public offering in October 2023, and more than $1.2 billion in total since inception in 2018. All the while, we have grown our business to more than $3.5 billion of enterprise value without selling any material assets while maintaining a cash return on capital invested more than 30% per year over the past five years. Even in this year, with crude prices moving down, we're expecting to have a 25% return on capital invested and have never been less than 20% since our company was founded. Post the ICAB and Sabino acquisitions, we anticipate having leverage just above one times. However, we'll work diligently to bring back our leverage to our desired goal by presenting a clear path of reducing our debt levels. We will resist the opportunity to acquire other assets that would lead to moving our leverage higher. Our goal is to continue to look for free cash flowing assets where private equity-backed sponsors need to move towards a more liquid currency by taking our equity. In these circumstances, we see the opportunity to increase our operating cash flow, while expanding our drilling budget on our vast acreage. We also continue to be able to purchase small acquisitions in the mid con that fit our goals by using cash on hand. By sticking to our model reinvesting only 50% of our cash flow, we can keep our production flat to slightly growing, while expanding our distributions per unit. Our drilling plans for 2026 revolve around adding to our natural gas mix. We currently plan to have two deep Anadarko dry gas rigs running. These locations are targeting natural gas of a depth of approximately 15,000 feet, true vertical depth. We then project to drill another 15,000 feet of horizontal length. These drills will cost approximately $14 million and find between 15 to 20 BCF of gas and have returns in excess of 50% at today's crisis. We'll also focus on the San Juan during the summer drilling season. In the San Juan, we plan to have three rigs running in 2026. The Mancos Dry gas play is targeting three-mile laterals at a true vertical depth of approximately 7,000 feet. We plan to spend approximately $15 to $16 million per location to find 15 to 20 BCF of gas and have a return of greater than 50%. The deep end of Darko and the San Juan gas plays are just developing. Both are known to be prolific gas areas that have not been extensively drilled since the onset of enhanced drilling procedures with large stimulations due to the previous decade of low natural gas prices. MOC has hundreds of thousands of acres across the place to review and bring to market with no time pressure to be implemented without losing our acreage. We also plan to have one drilling rig drilling the Fruitland Coal. This development is ongoing in the San Juan with rigs targeting the coal between older vertical wells by drilling multiple laterals from one wellbore. The target is shallow at 2,000 feet, and we anticipate having 5,000 to 8,000 feet of lateral in each wellbore. These locations are expected to cost approximately $3 million and have returns in excess of 50%. Lastly, we plan to move back into the Oswego to continue our drilling program that was started in 2021. We've drilled more than 250 wells in the Oswego, where a one-and-a-half-mile lateral costs less than $3 million, and even at today's distressed oil pricing, has returns approaching 40%. Our second deep anadarko rig is projected to spud in early September. The Oswego locations are projected to start in early 2026, and the San Juan rig should move in in early spring 2026. Our focus on gas development through 2026 is driven not only by the current price environment, but also by how we see demand over the next five years. We see total demand growth of upwards of 25 BCF of gas per day by 2030. This is broken down to the following. 15.6 BCF per day of LNG feed gas growth. This includes the facilities under construction in Mexico, which will be an additional outlet for U.S. production and And our San Juan purchase is well positioned to meet West Coast demand. Six BCF per day of power generation growth is a conservative estimate, but it should be acknowledged that two to four BCF of power generation growth will be from the data centers located in Texas, Colorado, the desert southwest, and California. Thus, the San Juan acreage is also strategic and well positioned to meet this upcoming demand. 1.1 BCF per day of demand growth from commercial and industrial, and 1.4 BCF a day of growth from exports to Mexico. We see supply of 6 BCF a day from the Permian associated gas growth, which is at risk if prices remain soft. 15 BCF per day of supply growth in the Hainesville and the Northeast in response to LNG and data center demand. This leaves the Eagleford, MidCon, and San Juan Rockies as the natural supply growth areas to meet demand. We see the current processing capacity of approximately 4 BCF a day in the San Juan and nearly 16 BCF a day at MidCon to meet the ongoing demand requirements needed to fuel or enhance consumption of U.S. natural gas. During the quarter, Mock drilled 10 total wells consisting of 6 Oswego, 3 Woodford Mist condensates, and one red fork location. We're currently drilling one red fork and one deep Anadarko dry gas well. These rigs are located in Dewey and Custer Counties, Oklahoma. In our Oswego program, we averaged 9,850 feet per lateral, our longest locations to date. These locations average 3.6 million per well. MOC drilled three locations in the Woodford Mist Program, including the Brockland 3MH, which was drilled to a total depth of 30,384 feet. The Brockland 3MH is waiting on completion alongside the Brockland 2MH, which is drilling currently. Both locations will be completed together starting later this month. In the Woodford Miscondensate area, we drilled two locations that averaged 10,240 feet of horizontal sections. Our operation goals for Q3 2025 are to continue to refine and reduce our days on location in our deep Anadarko drilling program while increasing our rig count from one to two starting in mid-September. We continue to keep our lease operating costs low at $6.52 per barrel and look forward to closing both the Savadol and ICAB asset purchases to start to work on reducing costs. We're not certain there are additional places to cut LOE. However, in our previous 22 acquisitions, we've reduced LOE by between 25% to 33% each. With that, I'll turn the call over to Kevin for the financial results.

Thanks, Tom. For the quarter, our production of 84,000 BOE per day was 23% oil. 53% natural gas and 24% NGLs. Our average realized prices were $63.10 per barrel of oil, $2.81 per MCF of gas and $22.41 per barrel of NGLs. Worth noting, pre-hedge realized prices were lower by 11%, 21% and 17% for oil, gas and NGLs compared to the first quarter of this year. Of the $219 million total oil and gas revenues, the relative contribution for oil was 51%, 31% for gas, and 18% for NGLs. On the expense side, our lease operating expense totaled $50 million, as Tom mentioned, $652 per BOE. Cash G&A was only $7 million, 88 cents per BOE. We ended the quarter with $13.8 million in cash, and we had drawn $565 million on our $750 million revolver. In conjunction with our plan to close the ICAB and Sabinal acquisitions, we are in the latter stages of expanding our RBL and expect the borrowing base and commitments to nearly double from its current amount and to add a handful of new banks to the syndicate. Total revenues, including our hedges and midstream activities, totaled $289 million, adjusted EBITDA of $122 million and $130 million of operating cash flow. We had development CapEx of $64 million during the quarter. We also had a reduction of cash available for distribution of $8.2 million due to a settlement of royalty owner legal dispute. We generated $46 million of cash available for distribution, resulting in an approved distribution of 38 cents per unit, which will be paid out on September 4th to record holders as of August 21st. Shamali, I will now turn the call back to you to open the line for questions.