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Q4 2024 Mach Natural Resources LP Earnings Call

In This Article:

Participants

Tom Ward; Chief Executive Officer, Director; Mach Natural Resources LP

Kevin White; Chief Financial Officer; Mach Natural Resources LP

Unidentified Participant

Presentation

Operator

Greetings, and welcome to the Mach Natural Resources fourth quarter and full year 2024 earnings results conference call. (Operator instructions) 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, sir.

Tom Ward

Thank you, Kevin. Welcome to Mach 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-EBITDA ratio of 1 times or less. By maintaining a low leverage profile, we give ourselves opportunities when markets experience high volatility.
Two, this line execution. We acquire only cash flowing assets at a discount to PDP 10 that are accretive to attribution; 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 optimized our distribution to unitholders. 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 purchasing 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 have followed that with 19 additional acquisitions. We accumulated over one 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 in 2024 alone.
$17 million of that 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 rate. We now have the distinct advantage of choosing where to drill from hundreds of potential locations on the previously mentioned.
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 these 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, continuing to drill the Oswego formation of Kingfisher County, where we've drilled more than 225 wells since 2021, and the Mississippian and 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 Anadarko 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 when we paid 0 for. We drill wells that are highly efficient. For example, our Oswego D&C cost in 2024 averaged only $2.6 million or $202 per lateral foot.
By keeping our costs low, we achieved median payout periods of 15 months, assuming a flat $70 WTI and $350 Henry Hub. According to Invest, 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 an unmatched -- to unmatched cash returns, for our unitholders over the last five years and the next five years. We anticipate spending between $225 million 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.
Maintained 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 2021, $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. Mach also has peer-leading PDP decline in reinvestment rates. Our next 12-month PDP decline is projected to be 20%, while our reinvestment rate in 2024 was only 47%.
Both these statistics are number one in a group of 16 peer companies. We have exceptionally strong asset coverage with total proved acreage -- total proved coverage of 3.9 times. Net debt to enterprise value of 21% and PDP PV 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-to-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 were methodical to reinvest 50% of our operating cash flow then receive our calculated cash available for distribution and send it home to unitholders.
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 our operating cash flow, we're allowed to send back distributions to our unitholders.
The best way to describe what we do is consistency. In oil price environments, we maximize our distributions while maintaining a clean balance sheet. In times of lower pricing, we lower our CapEx and thus not having long-term contracts on capital expenditures. In doing so, we continue to have excellent cash returns on capital invested. Our coke 2020 to 2024, 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 three unit and obtained 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 location drilled this year.
We repaid the company's term loan and lowered our net debt to EBITDA to 0.8 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 Mid-Continent. Our latest success to have been in the $100 range.
In fact, we've made 20 acquisitions in average just less than $100 million on H1. 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 PV-10, but also acquiring land that one day will be drilled by us at no cost and no time frame operation due to being held by production.
This formula served us well. We also like buying crude oil anytime we move into the 60s or less and have a backwardated 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's 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 that 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 it's coming when PE firms and a small public company, we'll find our formula for cash returns attractive and want to be a part of larger mark -- of a larger Mach. We welcome these opportunities as a way to grow our business, getting larger cash returns to our unitholders 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 our production through our drilling program and small acquisitions and deliver excellent returns to our unitholders. In 2024, we ranked first out of all public upstream energy companies and distribution yield.
We also ranked tenth in the total of 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 rent basis was weighted 59% oil, 21% natural gas and 20% NGLs by revenue in 2024.
However, as we've 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 is 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 unitholders.
If we are fortunate enough to add larger acquisitions, we'll be able to then monetize more of the hundreds of high in total rate of return projects, we are waiting to be drilled on our 1.1 million acres of HBP link. This is why our focus remains on free cash flowing assets to acquire prices that are accretive to our distribution.
In closing, I want to reemphasize that we are an acquisition company. Our industry 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 20 deals.
I'll now turn the call over to Kevin to discuss our financial results.