Mach Natural Resources LP
11/06/2025 | Press release | Distributed by Public on 11/06/2025 16:09
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
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 and nine months ended September 30, 2025 and 2024.
The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance, which may affect our future operating results and financial position. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Actual results and the timing of the events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil, natural gas and NGLs, production volumes, estimates of proved reserves, capital expenditures, economic, inflationary and competitive conditions, drilling results, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in this Quarterly Report, particularly under "Cautionary Statement Regarding Forward-Looking Statements," all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
We are an independent upstream oil and gas company focused on the acquisition, development and production of oil, natural gas and NGL reserves in the Anadarko Basin region of Western Oklahoma, Southern Kansas and the panhandle of Texas; the San Juan Basin region of New Mexico and Colorado; and the Permian Basin region of West Texas.
Within our operating areas, our assets are prospective for multiple formations, most notably the Oswego, Woodford, Mississippian, Mancos and Fruitland formations. Our experience across 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.
Market Outlook
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 September 30, 2025, NYMEX WTI prices for crude oil ranged from $57.13 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, OPEC+'s decision to increase production in May and July 2025, 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.
Between 2022 and 2024, the Federal Reserve raised the target range for the federal funds rate in an effort to curb inflation. In September 2025 and October 2025, the Federal Reserve lowered the target range for the federal funds rate to its current range of 3.75% to 4.00% in light of the reduced inflation. In September 2025, inflation, as measured by the consumer price index, was 3.0%. 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.
How We Evaluate Our Operations
We use a variety of financial and operational metrics to assess the performance of our operations, including the following sources of our revenue, principal components of our cost structure and other financial metrics:
•net production volumes;
•realized prices on the sale of oil, natural gas and NGLs;
•lease operating expense;
•Adjusted EBITDA; and
•cash available for distribution.
Factors Affecting the Comparability of Our Future Results of Operations to Our Historical Results of Operations
Our future results of operations may not be comparable to our historical results of operations for the periods presented, primarily for the reasons described below.
Acquisitions
We have completed six 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 Credit Agreement.
Results of Operations
Three Months Ended September 30, 2025 Compared to the Three Months Ended September 30, 2024
Revenue
The following table provides the components of our revenue, net of transportation and marketing costs, for the periods indicated, as well as each period's respective average realized prices and net production volumes. Some totals and changes throughout the below section may not sum or recalculate due to rounding.
| Three Months Ended September 30, | Change | |||||||||||||||||||||||||
| ($ in thousands) | 2025 | 2024 | Amount | Percent | ||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Oil | $ | 117,450 | $ | 126,347 | $ | (8,897) | (7 | %) | ||||||||||||||||||
| Natural gas | 74,464 | 41,532 | 32,932 | 79 | % | |||||||||||||||||||||
| Natural gas liquids | 42,599 | 41,286 | 1,313 | 3 | % | |||||||||||||||||||||
| Total oil, natural gas, and NGL sales | 234,513 | 209,165 | 25,348 | 12 | % | |||||||||||||||||||||
| Gain (loss) on oil and natural gas derivatives, net | 24,753 | 33,684 | (8,931) | (27 | %) | |||||||||||||||||||||
| Midstream revenue | 6,571 | 5,889 | 682 | 12 | % | |||||||||||||||||||||
| Product sales | 6,725 | 6,798 | (73) | (1 | %) | |||||||||||||||||||||
| Total revenues | $ | 272,562 | $ | 255,536 | $ | 17,026 | 7 | % | ||||||||||||||||||
| Average Sales Price: | ||||||||||||||||||||||||||
| Oil ($/Bbl) | $ | 64.79 | $ | 74.55 | $ | (9.76) | (13 | %) | ||||||||||||||||||
| Natural gas ($/Mcf) | $ | 2.54 | $ | 1.73 | $ | 0.81 | 47 | % | ||||||||||||||||||
| NGL ($/Bbl) | $ | 21.78 | $ | 22.61 | $ | (0.83) | (4 | %) | ||||||||||||||||||
| Total ($/Boe) - before effects of realized derivatives | $ | 27.10 | $ | 27.79 | $ | (0.69) | (2 | %) | ||||||||||||||||||
| Total ($/Boe) - after effects of realized derivatives | $ | 28.21 | $ | 28.66 | $ | (0.45) | (2 | %) | ||||||||||||||||||
| Net Production Volumes: | ||||||||||||||||||||||||||
| Oil (MBbl) | 1,813 | 1,695 | 118 | 7 | % | |||||||||||||||||||||
| Natural gas (MMcf) | 29,299 | 24,028 | 5,271 | 22 | % | |||||||||||||||||||||
| NGL (MBbl) | 1,956 | 1,826 | 130 | 7 | % | |||||||||||||||||||||
| Total (MBoe) | 8,652 | 7,526 | 1,126 | 15 | % | |||||||||||||||||||||
| Average daily total volumes (MBoe/d) | 94.04 | 81.80 | 12.24 | 15 | % | |||||||||||||||||||||
Revenue and Other Operating Income
Oil, natural gas and NGL sales
Revenues from oil, natural gas and NGL sales increased $25.3 million, or 12% for the three-month period ended September 30, 2025, as compared to the three-month period ended September 30, 2024. This increase was primarily related to a 15% production increase, which resulted in increased oil, natural gas and NGL sales of $23.5 million. Furthermore, the increase in natural gas prices resulted in an increase in natural gas sales of $19.6 million, which was offset by decreased oil and NGL revenue of $18.1 million from the decline in oil and NGL pricing.
Oil, natural gas and NGL production
Production increased 1,126 MBoe, or 15% for the three-month period ended September 30, 2025, as compared to the three-month period ended September 30, 2024. The increase was primarily related to the IKAV and Sabinal acquisitions in September 2025, which added approximately 1,032 MBoe.
Oil and natural gas derivatives
For the three-month period ended September 30, 2025, we had realized gains on derivative instruments of $9.6 million and unrealized gains of $15.1 million for total gains of $24.8 million. 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. The increase in realized gains is primarily from a decrease in oil prices throughout 2025.
Midstream revenue
Midstream revenue increased $0.7 million, or 12% for the three-month period ended September 30, 2025, as compared to the three-month period ended September 30, 2024, primarily due to additional midstream facilities acquired in the IKAV acquisition.
Product sales
Product sales decreased $0.1 million, or 1% for the three-month period ended September 30, 2025, as compared to the three-month period ended September 30, 2024.
Operating Expenses
The following table summarizes our expenses for the periods indicated and includes a presentation of certain expenses on a per Boe basis, as we use this information to evaluate our performance relative to our peers and to identify and measure trends we believe may require additional analysis:
| Three Months Ended September 30, | Change | |||||||||||||||||||||||||
| ($ in thousands) | 2025 | 2024 | Amount | Percent | ||||||||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||||
| Gathering and processing expense | $ | 33,171 | $ | 23,587 | $ | 9,584 | 41 | % | ||||||||||||||||||
| Lease operating expense | 58,999 | 44,029 | 14,970 | 34 | % | |||||||||||||||||||||
| Production taxes | 10,373 | 9,784 | 589 | 6 | % | |||||||||||||||||||||
| Midstream operating expense | 4,105 | 2,607 | 1,498 | 57 | % | |||||||||||||||||||||
| Cost of product sales | 6,047 | 5,833 | 214 | 4 | % | |||||||||||||||||||||
| Depreciation, depletion, amortization and accretion expense - oil and natural gas | 62,831 | 63,262 | (431) | (1 | %) | |||||||||||||||||||||
| Depreciation and amortization expense - other | 2,747 | 2,315 | 432 | 19 | % | |||||||||||||||||||||
| General and administrative | 23,059 | 9,385 | 13,674 | 146 | % | |||||||||||||||||||||
| Impairment of oil and gas properties | 90,430 | - | 90,430 | 100 | % | |||||||||||||||||||||
| Total operating expenses | $ | 291,762 | $ | 160,802 | $ | 130,960 | 81 | % | ||||||||||||||||||
| Operating Expenses ($/Boe): | ||||||||||||||||||||||||||
| Gathering and processing expense | $ | 3.83 | $ | 3.13 | $ | 0.70 | 22 | % | ||||||||||||||||||
| Lease operating expense | $ | 6.82 | $ | 5.85 | $ | 0.97 | 17 | % | ||||||||||||||||||
| Production taxes (% of oil, natural gas and NGL sales) | 4.4 | % | 4.7 | % | (0.3) | % | (6 | %) | ||||||||||||||||||
| Depreciation, depletion, amortization and accretion expense - oil and natural gas | $ | 7.26 | $ | 8.41 | $ | (1.15) | (14 | %) | ||||||||||||||||||
| Depreciation and amortization expense - other | $ | 0.32 | $ | 0.31 | $ | 0.01 | 3 | % | ||||||||||||||||||
| General and administrative | $ | 2.67 | $ | 1.25 | $ | 1.42 | 114 | % | ||||||||||||||||||
Gathering and processing expense
Gathering and processing expense increased $9.6 million, or 41%, and $0.70 per Boe, or 22%, for the three-month period ended September 30, 2025, as compared to the three-month period ended September 30, 2024, primarily as a result of higher fuel costs due to higher natural gas prices, the IKAV acquisition which added $2.4 million of expenses, and changes in certain purchaser contracts in the third quarter of 2025, which resulted in certain post-production costs that were previously presented as a reduction to gas revenue are now presented as gathering and processing expense.
Lease operating expense
Lease operating expense increased $15.0 million, or 34% for the three-month period ended September 30, 2025, as compared to the three-month period ended September 30, 2024, primarily as a result of the Sabinal and IKAV acquisitions, which added approximately $9.2 million of lease operating expense in the three-month period ended September 30, 2025. Additionally, there were increases in workover expenses of $1.1 million, compression expenses of $0.8 million and company labor and contract services of $0.8 million. Lease operating expenses per Boe increased by $0.97 primarily as a result of the oil heavy production from the Sabinal acquisition added to our overall cost profile.
Production taxes
Production taxes increased $0.6 million, or 6% for the three-month period ended September 30, 2025, as compared to the three-month period ended September 30, 2024. This increase was in line with the increase in oil, natural gas and NGL sales.
Midstream operating expense
Midstream operating expense increased $1.5 million, or 57% for the three-month period ended September 30, 2025, as compared to the three-month period ended September 30, 2024, primarily as a result of higher gathering operating expense of $0.9 million.
Cost of product sales
Cost of product sales increased $0.2 million, or 4% for the three-month period ended September 30, 2025, as compared to the three-month period ended September 30, 2024.
Depreciation, depletion, amortization and accretion expense - oil and natural gas
Depreciation, depletion, amortization and accretion expense for oil and natural gas properties decreased by $0.4 million, or 1% for the three-month period ended September 30, 2025, as compared to the three-month period ended September 30, 2024. The decrease is primarily the result of an increase in total reserves used to calculate depletion, offset with the increase in book value of oil and gas properties from the IKAV and Sabinal acquisitions.
General and administrative costs
General and administrative costs increased $13.7 million, or 146% for the three-month period ended September 30, 2025, as compared to the three-month period ended September 30, 2024. The increase is a result of advisory transaction costs associated with the IKAV acquisition.
Impairment of oil and gas properties
Impairment of oil and gas properties increased $90.4 million for the three-month period ended September 30, 2025, as compared to the three-month period ended September 30, 2024, as a result of the full cost ceiling test at September 30, 2025.
Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024
Revenue
The following table provides the components of our revenue, net of transportation and marketing costs, for the periods indicated, as well as each period's respective average realized prices and net production volumes. Some totals and changes throughout the below section may not sum or recalculate due to rounding.
| Nine Months Ended September 30, | Change | |||||||||||||||||||||||||
| ($ in thousands) | 2025 | 2024 | Amount | Percent | ||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Oil | $ | 353,513 | $ | 421,757 | $ | (68,244) | (16 | %) | ||||||||||||||||||
| Natural gas | 225,606 | 138,050 | 87,556 | 63 | % | |||||||||||||||||||||
| Natural gas liquids | 127,532 | 136,137 | (8,605) | (6 | %) | |||||||||||||||||||||
| Total oil, natural gas, and NGL sales | 706,651 | 695,944 | 10,707 | 2 | % | |||||||||||||||||||||
| Gain (loss) on oil and natural gas derivatives, net | 39,639 | (219) | 39,858 |
NM(1)
|
||||||||||||||||||||||
| Midstream revenue | 18,958 | 18,549 | 409 | 2 | % | |||||||||||||||||||||
| Product sales | 22,599 | 20,411 | 2,188 | 11 | % | |||||||||||||||||||||
| Total revenues | $ | 787,847 | $ | 734,685 | $ | 53,162 | 7 | % | ||||||||||||||||||
| Average Sales Price: | ||||||||||||||||||||||||||
| Oil ($/Bbl) | $ | 66.20 | $ | 77.09 | $ | (10.89) | (14 | %) | ||||||||||||||||||
| Natural gas ($/Mcf) | $ | 2.93 | $ | 1.81 | $ | 1.12 | 62 | % | ||||||||||||||||||
| NGL ($/Bbl) | $ | 23.68 | $ | 24.43 | $ | (0.75) | (3 | %) | ||||||||||||||||||
| Total ($/Boe) - before effects of realized derivatives | $ | 30.02 | $ | 29.30 | $ | 0.72 | 2 | % | ||||||||||||||||||
| Total ($/Boe) - after effects of realized derivatives | $ | 30.80 | $ | 29.54 | $ | 1.26 | 4 | % | ||||||||||||||||||
| Net Production Volumes: | ||||||||||||||||||||||||||
| Oil (MBbl) | 5,340 | 5,471 | (131) | (2 | %) | |||||||||||||||||||||
| Natural gas (MMcf) | 76,904 | 76,260 | 644 | 1 | % | |||||||||||||||||||||
| NGL (MBbl) | 5,385 | 5,573 | (188) | (3 | %) | |||||||||||||||||||||
| Total (MBoe) | 23,542 | 23,754 | (212) | (1 | %) | |||||||||||||||||||||
| Average daily total volumes (MBoe/d) | 86.23 | 86.69 | (0.46) | (1 | %) | |||||||||||||||||||||
(1)Not Meaningful
Revenue and Other Operating Income
Oil, natural gas and NGL sales
Revenues from oil, natural gas and NGL sales increased $10.7 million, or 2% for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024. This increase was primarily related to the increase in gas prices which added $85.8 million in gas sales, offset by the decrease in oil and NGL prices, which resulted in lower oil and NGL sales of $63.7 million. Additionally, the decrease in production resulted in decreased oil, natural gas and NGL sales of $11.7 million.
Oil, natural gas and NGL production
Production decreased 212 MBoe, or 1% for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024. The decrease was primarily a result of natural well declines on our producing wells, partially offset with production on wells acquired in the Sabinal and IKAV acquisitions.
Oil and natural gas derivatives
For the nine-month period ended September 30, 2025, we had realized gains on derivative instruments of $18.3 million and unrealized gains of $21.3 million for total gains of $39.6 million. For the nine-month period ended September 30, 2024, we had realized gains on derivative instruments of $5.8 million and unrealized losses of $6.0 million for total losses of $0.2 million. The increase in realized gains is primarily from a decrease in oil prices throughout 2025.
Midstream revenue
Midstream revenue increased $0.4 million, or 2% for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024, primarily due to lower third-party volumes flowing through our midstream facilities for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024.
Product sales
Product sales increased $2.2 million, or 11% for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024. This increase was primarily a result of the increase in the average selling price of natural gas. These increases corresponded with the increase in our cost of product sales noted below.
Operating Expenses
The following table summarizes our expenses for the periods indicated and includes a presentation of certain expenses on a per Boe basis, as we use this information to evaluate our performance relative to our peers and to identify and measure trends we believe may require additional analysis:
| Nine Months Ended September 30, | Change | |||||||||||||||||||||||||
| ($ in thousands) | 2025 | 2024 | Amount | Percent | ||||||||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||||
| Gathering and processing expense | $ | 93,116 | $ | 79,360 | $ | 13,756 | 17 | % | ||||||||||||||||||
| Lease operating expense | 157,317 | 131,286 | 26,031 | 20 | % | |||||||||||||||||||||
| Production taxes | 33,643 | 33,838 | (195) | (1 | %) | |||||||||||||||||||||
| Midstream operating expense | 10,275 | 7,782 | 2,493 | 32 | % | |||||||||||||||||||||
| Cost of product sales | 20,308 | 17,719 | 2,589 | 15 | % | |||||||||||||||||||||
| Depreciation, depletion, amortization and accretion expense - oil and natural gas | 188,356 | 194,453 | (6,097) | (3 | %) | |||||||||||||||||||||
| Depreciation and amortization expense - other | 7,905 | 6,655 | 1,250 | 19 | % | |||||||||||||||||||||
| General and administrative | 42,728 | 31,131 | 11,597 | 37 | % | |||||||||||||||||||||
| Impairment of oil and gas properties | 90,430 | - | 90,430 | 100 | % | |||||||||||||||||||||
| Total operating expenses | $ | 644,078 | $ | 502,224 | $ | 141,854 | 28 | % | ||||||||||||||||||
| Operating Expenses ($/Boe): | ||||||||||||||||||||||||||
| Gathering and processing expense | $ | 3.96 | $ | 3.34 | $ | 0.62 | 19 | % | ||||||||||||||||||
| Lease operating expense | $ | 6.68 | $ | 5.53 | $ | 1.15 | 21 | % | ||||||||||||||||||
| Production taxes (% of oil, natural gas and NGL sales) | 4.8 | % | 4.9 | % | (0.1) | % | (2 | %) | ||||||||||||||||||
| Depreciation, depletion, amortization and accretion expense - oil and natural gas | $ | 8.00 | $ | 8.19 | $ | (0.19) | (2 | %) | ||||||||||||||||||
| Depreciation and amortization expense - other | $ | 0.34 | $ | 0.28 | $ | 0.06 | 21 | % | ||||||||||||||||||
| General and administrative | $ | 1.81 | $ | 1.31 | $ | 0.50 | 38 | % | ||||||||||||||||||
Gathering and processing expense
Gathering and processing expense increased $13.8 million, or 17%, and $0.62 per Boe, or 19%, for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024, primarily as a result of higher fuel costs due to higher natural gas prices, the IKAV acquisition which added $2.4 million of expenses, and changes
in certain purchaser contracts in the third quarter of 2025, which resulted in certain post-production costs that were previously presented as a reduction to gas revenue are now presented as gathering and processing expense.
Lease operating expense
Lease operating expense increased $26.0 million, or 20% for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024, primarily as a result the IKAV and Sabinal acquisitions, which added $9.2 million of lease operating expense. Additionally, there was an increase in company labor and contract services of $5.6 million, higher saltwater disposal related expenses of $2.8 million, and higher compression expenses of $2.1 million. Lease operating expenses per Boe increased by $1.15 primarily related to the above noted increases, combined with lower production for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024, and as a result of the oil heavy production from the Sabinal acquisition added to our overall cost profile.
Production taxes
Production taxes decreased $0.2 million, or 1% for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024. This decrease was in line with the decrease in oil, natural gas and NGL sales.
Midstream operating expense
Midstream operating expense increased $2.5 million, or 32% for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024, primarily as a result of an increase of $1.3 million in gathering operating expense and increases of $0.6 million in both produced water operating expense and plant operating expense.
Cost of product sales
Cost of product sales increased $2.6 million, or 15% for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024. This increase was primarily a result of the increase in the average selling price of natural gas. These increases were consistent with the increase in product sales noted above.
Depreciation, depletion, amortization and accretion expense - oil and natural gas
Depreciation, depletion, amortization and accretion expense for oil and natural gas properties decreased by $6.1 million, or 3% for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024. The decrease is primarily the result of an increase in total reserves used to calculate depletion, offset with the increase in book value of oil and gas properties from the IKAV and Sabinal acquisitions.
General and administrative costs
General and administrative costs increased $11.6 million, or 37% for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024. The increase is primarily result of advisory transaction costs associated with the IKAV acquisition.
Impairment of oil and gas properties
Impairment of oil and gas properties increased $90.4 million for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024, as a result of the full cost ceiling test at September 30, 2025.
Liquidity and Capital Resources
Our primary sources of liquidity and capital are cash flows generated by operating activities, borrowings under the New Credit Agreement, and proceeds from the issuance of equity and debt. At September 30, 2025, outstanding borrowings under the New Credit Agreement were $1.2 billion with $5.0 million in letters of credit outstanding, and the remaining availability under the New Credit Agreement was $295.0 million at September 30, 2025.
We may need to utilize the public equity or debt markets and bank financings to fund future acquisitions or capital expenditures, but the price at which our common units will trade could be diminished as a result of the limited voting rights of unitholders. We expect to be able to issue additional equity and debt securities from time to time as market conditions
allow to facilitate future acquisitions. Our ability to finance our operations, including funding capital expenditures and acquisitions, to meet our indebtedness obligations or to refinance our indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is subject to a number of factors, some of which are beyond our control, including commodity prices, particularly for oil and natural gas, and our ongoing efforts to manage operating costs and maintenance capital expenditures, as well as general economic, financial, competitive, legislative, regulatory, weather and other factors.
Our partnership agreement requires us to distribute all of our cash on hand at the end of each quarter, less reserves established by our general partner, which we refer to as "available cash." Our quarterly cash distributions may vary from quarter to quarter as a direct result of variations in the performance of our business, including those caused by fluctuations in commodity prices. Any such variations may be significant, and as a result, we may pay limited or even no cash distributions to our unitholders.
Historically, our business plan has focused on acquiring and then exploiting the development and production of our assets. We spent approximately $174.6 million during the nine-month period ended September 30, 2025 on development costs and our budget for the remainder of 2025 is between $70.0 million and $75.0 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 2026 is anticipated to focus on a mix of drilling Mississippian, Mancos and Fruitland wells.
During the nine-month period ended September 30, 2025, we spent approximately $145.2 millionon drilling and completion activities and related equipment and spud 20.3 net wells while bringing online 20.9 net wells, $23.8 millionon remedial workovers and other capital projects, $5.6 millionon midstream and other property and equipment capital projects and $1.3 billionon acquisitions of oil and natural gas properties and other property and equipment.
Our 2025 and 2026 capital expenditures program is largely discretionary and within our control. We could choose to defer a portion of these planned capital expenditures depending on a variety of factors, including, but not limited to, the success of our drilling activities, prevailing and anticipated prices for oil and natural gas, the availability of necessary equipment, including acid to be used for our acid stimulation completion, infrastructure and capital, the receipt and timing of required regulatory permits and approvals, seasonal conditions, drilling and acquisition costs and the level of participation by other working interest owners. A deferral of planned capital expenditures, particularly with respect to drilling and completing new wells, could result in a reduction in anticipated production and cash flows and reduce our cash available for distribution to unitholders.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
| Nine Months Ended September 30, | ||||||||||||||
| (in thousands) | 2025 | 2024 | ||||||||||||
| Net cash provided by operating activities | $ | 378,207 | $ | 371,631 | ||||||||||
| Net cash used in investing activities | $ | (808,367) | $ | (179,275) | ||||||||||
| Net cash provided by (used in) financing activities | $ | 377,983 | $ | (160,615) | ||||||||||
Net cash provided by operating activities
Net cash provided by operating activities increased $6.6 million for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024. The increase in net cash provided by operating activities is primarily a result of an increase in the average selling price of natural gas, offset with a decrease in production. Additionally, we had an increase in realized gains on derivative instruments of $12.5 million for the nine-month period ended September 30, 2025 primarily from a decrease in oil prices throughout 2025.
Net cash used in investing activities
Net cash used in investing activities increased $629.1 million for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024. The increase in net cash used in investing activities is primarily a result of increases in cash used to acquire assets of $593.8 million in the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024. Additionally, we had a decrease in proceeds from the sale of oil and gas properties of $35.5 million in the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024.
Net cash provided by (used in) financing activities
Net cash provided by (used in) financing activities increased $538.6 million for the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024. The increase is primarily due to an increase in cash provided by borrowings under our New Credit Agreement and Revolving Credit Agreement, net of repayments of $1.2 billion, and an increase in cash provided from proceeds from equity offerings of $91.2 million. These were partially offset by increases in cash used for repayments of borrowings under our Term Loan Credit Agreement of $721.9 million, prepayment penalties of $7.7 million and new debt issuance costs of $23.0 million. Additionally, there was a decrease in cash used for distributions to unitholders of $49.5 million in the nine-month period ended September 30, 2025, as compared to the nine-month period ended September 30, 2024.
Debt Agreements
New Credit Agreement
On February 27, 2025, the Company entered into the New Credit Agreement, among the Company, the lenders and issuing banks party thereto from time to time and Truist Bank, as the administrative agent and collateral agent.
The New Credit Agreement has (i) an initial borrowing base and elected commitment amount of $750.0 million, with a maximum commitment amount of $2.0 billion subject to borrowing base availability, (ii) a maturity date of February 27, 2029 and (iii) an interest rate equal to, at the Company's election, (a) term SOFR (subject to a 0.10% per annum adjustment) plus a margin ranging from 3.00-4.00% per annum or (b) a base rate plus a margin ranging from 2.00-3.00% per annum, with the margin dependent upon borrowing base utilization at the time of determination. The Company is also required to pay a commitment fee of 0.50% per annum on the daily unused portion of the current aggregate commitments under the New Credit Agreement.
The New Credit Agreement's borrowing base is redetermined semi-annually, in April and October. The New Credit Agreement requires the Company to maintain as of the last day of each fiscal quarter (i) a consolidated total net leverage ratio of less than or equal to 3.00 to 1.00, and (ii) a current ratio of no less than 1.00 to 1.00. In July 2025, the
Company entered into the Letter Agreement pursuant to which the lenders under the New Credit Agreement waived
certain restrictions to permitted payments with respect to certain financial covenants.
The Company used borrowings from the New Credit Agreement, together with cash on hand and proceeds from the February 2025 Offering, to repay the Term Loan Credit Agreement and the Revolving Credit Agreement in full.
On September 12, 2025, the Company entered into a First Amendment to the New Credit Agreement, together with certain of its subsidiaries party thereto, the lenders and issuing banks party thereto and Truist Bank, as administrative agent and collateral agent (the "First Amendment"), which amends the New Credit Agreement, dated as of February 27, 2025. The First Amendment, among other things, (a) removes the 0.10% per annum credit spread adjustment otherwise applicable to the determination of Term SOFR (as defined in the New Credit Agreement), (b) excludes up to $750.0 million in principal amount of Borrowing Base Reduction Debt (as defined in the New Credit Agreement) issued prior to December 31, 2025 from the provisions otherwise requiring a borrowing base reduction as a result of the issuance of such indebtedness and (c) provides for (i) a $700.0 million aggregate increase in the borrowing base under the New Credit Agreement and (ii) the establishment of aggregate term loan commitments (prior to giving effect to any prior funding of term loans) in an amount of $450.0 million and the funding of any unfunded term loan commitments thereunder and an increase in the Aggregate Elected Revolving Commitment Amount (as defined in the New Credit Agreement) to $1.0 billion.
We have not guaranteed the debt or obligations of any other party, nor do we have any other arrangements or relationships with other entities that could potentially result in consolidated debt or losses.
Contractual Obligations and Commitments
We are a party to firm transportation contracts for the transport of natural gas. We paid approximately $0.1 million and $0.2 million in firm transportation contracts for the three and nine month periods ended September 30, 2025, respectively. As of September 30, 2025, the Company has no material amounts remaining under these agreements. For further information on firm transportation contracts, see Note 10of our consolidated financial statements.
As part of the IKAV acquisition, we are now party a firm sales contract to deliver and sell a certain amount natural gas at a fixed price of $1.72 per MMbtu through 2030. The Company expects to fulfill its delivery commitments primarily with production from proved developed reserves. The Company's production has been sufficient to satisfy its delivery commitments during the periods presented, and it expects its future production will continue to be the primary means of
fulfilling its future commitments. However, if the Company's operated production is not sufficient to satisfy its delivery commitments, it can and may use spot market purchases to satisfy the commitments. For further information on firm sales commitments, see Note 10of our consolidated financial statements.
Operating lease obligations
Our operating lease obligations include long-term lease payments for office space, vehicles, equipment related to exploration, development and production activities. We paid approximately $6.1 million and $2.1 million in operating lease payments for the three and nine month periods ended September 30, 2025, respectively, and expect to pay approximately $23.6 million in operating lease payments through 2029. For further information on our operating lease obligations, see Note 11of our consolidated financial statements.
Non-GAAP Financial Measures
Adjusted EBITDA
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) impairment on oil and gas assets, (5) loss on debt extinguishment, (6) equity-based compensation expense and (7) (gain) loss on sale of assets, net.
Adjusted EBITDA is used as a supplemental financial performance measure by our management and by external users of our financial statements, such as industry analysts, investors, lenders, rating agencies and others, to more effectively evaluate our operating performance and our results of operation from period to period and against our peers without regard to financing methods, capital structure or historical cost basis. We exclude the items listed above from net income in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as indicators of our operating performance. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax burden, as well as the historic costs of depreciable assets, none of which are reflected in Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our results will be unaffected by unusual items. Our computations of Adjusted EBITDA may not be identical to other similarly titled measures of other companies.
Cash Available for Distribution
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) impairment on oil and gas assets, (5) loss on debt extinguishment, (6) equity-based compensation expense, (7) (gain) loss on sale of assets, net, (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 measure most directly comparable to cash available for distribution is net income. Cash available for distribution should not be considered as an alternative to, or more meaningful than, net income.
Reconciliation of Adjusted EBITDA and Cash Available for Distribution to GAAP Financial Measures
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||
| ($ in thousands) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Net (loss) Income Reconciliation to Adjusted EBITDA: | |||||||||||||||||||||||
| Net (loss) income | $ | (35,654) | $ | 67,444 | $ | 69,893 | $ | 148,662 | |||||||||||||||
| Interest expense, net | 16,878 | 25,598 | 46,392 | 76,550 | |||||||||||||||||||
| Depreciation, depletion, amortization and accretion | 65,578 | 65,577 | 196,261 | 201,108 | |||||||||||||||||||
| Unrealized (gain) loss on derivative instruments | (15,124) | (27,118) | (21,335) | 5,981 | |||||||||||||||||||
| Impairment of oil and gas properties | 90,430 | - | 90,430 | - | |||||||||||||||||||
| Loss on debt extinguishment | - | - | 18,540 | - | |||||||||||||||||||
| Equity-based compensation expense | 2,133 | 1,267 | 6,348 | 4,749 | |||||||||||||||||||
| Gain on sale of assets | (35) | (40) | (202) | (349) | |||||||||||||||||||
| Adjusted EBITDA | $ | 124,206 | $ | 132,728 | $ | 406,327 | $ | 436,701 | |||||||||||||||
| Net Income Reconciliation to Cash Available for Distribution: | |||||||||||||||||||||||
| Net (loss) income | $ | (35,654) | $ | 67,444 | $ | 69,893 | $ | 148,662 | |||||||||||||||
| Interest expense, net | 16,878 | 25,598 | 46,392 | 76,550 | |||||||||||||||||||
| Depreciation, depletion, amortization and accretion | 65,578 | 65,577 | 196,261 | 201,108 | |||||||||||||||||||
| Unrealized (gain) loss on derivative instruments | (15,124) | (27,118) | (21,335) | 5,981 | |||||||||||||||||||
| Impairment of oil and gas properties | 90,430 | - | 90,430 | - | |||||||||||||||||||
| Loss on debt extinguishment | - | - | 18,540 | - | |||||||||||||||||||
| Equity-based compensation expense | 2,133 | 1,267 | 6,348 | 4,749 | |||||||||||||||||||
| Gain on sale of assets | (35) | (40) | (202) | (349) | |||||||||||||||||||
| Cash interest expense, net | (15,804) | (23,571) | (42,955) | (71,029) | |||||||||||||||||||
| Development costs | (59,075) | (52,922) | (174,633) | (178,909) | |||||||||||||||||||
| Change in accrued realized derivative settlements | (3,513) | (5,633) | (2,367) | (1,475) | |||||||||||||||||||
| Cash available for distribution | $ | 45,814 | $ | 50,602 | $ | 186,372 | $ | 185,288 | |||||||||||||||
Critical Accounting Policies and Estimates
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 nine months ended September 30, 2025.
Mach Natural Resources LP published this content on November 06, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 06, 2025 at 22:09 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]