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Mach Natural Resources LP (MNR) Q1 2024 Earnings Call Transcript Highlights: Strategic Insights ...

GuruFocus Research
·4-min read

  • Production: 89,000 BOE per day, with 23% oil, 55% natural gas, 22% NGLs.

  • Average Realized Prices: $77.17 per barrel of oil, $2.35 per Mcf of gas, $26.92 per barrel of NGLs.

  • Total Oil and Gas Revenues: $255 million, with oil contributing 57%, gas 24%, and NGLs 19%.

  • Lease Operating Expense (LOE): $41 million or $5.03 per BOE.

  • Cash G&A: Slightly over $9 million or $1.13 per BOE.

  • Total Revenues: $239 million, including hedges and midstream activities.

  • Adjusted EBITDA: $169 million.

  • Operating Cash Flow: $144 million.

  • Upcoming Distribution: $71.25 million to unitholders of record on May 28th.

  • Enterprise Value: $2.5 billion.

  • Capital Expenditure: Higher than expected due to drilling more in-unit Oswego Wells.

Release Date: May 14, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Mach Natural Resources LP has maintained a strong focus on maximizing cash distributions, making accretive acquisitions, maintaining low leverage, and reinvesting less than 50% of operating cash flow.

  • The company has a robust hedging program and drilling operations that help stabilize distributions despite market volatility.

  • Mach Natural Resources LP has a lean corporate structure with 125 employees managing a large portfolio, which enhances operational efficiency and cost management.

  • The company reported strong drilling results and efficiency gains, with production costs per well below estimates, contributing to better financial performance.

  • Mach Natural Resources LP continues to focus on long-term commodity price increases and is bullish on long-term natural gas demand, positioning itself well for future market conditions.

Negative Points

  • The company's distribution is variable and changes each quarter, which could lead to unpredictability in income for investors.

  • Oil production was slightly lower than expected due to downtime from a winter storm, indicating susceptibility to external disruptions.

  • Capital expenditures (CapEx) were slightly higher than expected due to increased drilling activities, which could impact financials if not managed.

  • There is increasing competition in acquisition markets, particularly in the mid-continent region, which could hinder the company's ability to secure valuable assets at reasonable prices.

  • The company faces challenges in maintaining its acquisition strategy due to rising competition and premiums paid for undeveloped land, which may necessitate a strategic pivot or exploration of new markets.

Q & A Highlights

Q: Regarding Q1 2024 guidance, were the production and CapEx ahead of expectations? Does this impact the trajectory for the rest of the year? A: Kevin White, CFO, noted that while Q1 saw higher rig counts and CapEx, they expect to stay within the annual guidance range. Tom Ward, CEO, added that drilling efficiencies are driving costs down, which should keep CapEx under 50% of reinvestment rate for the year.

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Q: Can you discuss the integration and operational plans for the Paloma assets? A: Tom Ward, CEO, highlighted that the Paloma assets have positively impacted the company's lease operating expenses (LOE) and drilling efficiencies. The asset integration has been smooth, with minimal increase in staff, and they anticipate further reductions in drilling estimates.

Q: How is the acquisition opportunity set evolving in the mid-con? A: Tom Ward, CEO, mentioned increased competition from new entrants with access to capital, leading to higher prices in recent bids. The company may need to explore opportunities outside the mid-con if this trend continues.

Q: What are the plans for the $150 million in cash on the balance sheet? A: Kevin White, CFO, clarified that the cash is intended to stabilize distributions rather than for acquisitions, maintaining a robust cash reserve to support quarterly distributions.

Q: Could you provide more details on the drilling and development plans for the Paloma assets? A: Tom Ward, CEO, stated that they plan to drill nine wells this year, focusing on two-mile Woodford and Mississippian wells. Drilling costs have been below estimates, particularly for one-mile Mississippian wells.

Q: What is your outlook on natural gas prices, especially considering the bearish views based on LNG project delays? A: Tom Ward, CEO, expressed a bullish outlook for natural gas due to increasing power generation demands and tight supply conditions. He anticipates a strong market as new LNG capacities come online and power demands rise.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.