Mach Natural Resources LP — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing. Year-over-year comparisons require caution: 2022 reflects the accounting predecessor BCE-Mach III, while 2023 includes BCE-Mach III for the full year and BCE-Mach and BCE-Mach II only from October 25. The Paloma acquisition closed December 28, 2023.
Business context
Mach is an upstream oil and gas partnership focused on the Anadarko Basin in Oklahoma, Kansas and the Texas Panhandle, with related gathering, processing and water infrastructure. It reported average 2023 production of approximately 50.44 MBoe/d. The partnership completed its IPO in October 2023, issuing 10 million units at $19 per unit for net proceeds of $168.5 million, and acquired the Paloma assets in Oklahoma in December for approximately $815 million, subject to customary adjustments.
Financial and operating performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $762.3 million | $937.4 million | Down 19% |
| Oil, gas and NGL sales | $647.4 million | $860.4 million | Down 25% |
| Net income | $346.6 million | $516.8 million | Down 33% |
| Adjusted EBITDA (non-GAAP) | $450.1 million | $594.4 million | Down 24% |
| Net cash from operations | $491.7 million | $553.5 million | Down $61.8 million |
| Cash available for distribution (non-GAAP) | $135.1 million | $300.9 million | Down 55% |
| Development costs | $302.8 million | $272.0 million | Up $30.8 million |
| Cash and cash equivalents at year-end | $152.8 million | $29.4 million | Up $123.4 million |
Production increased 18% to 18.409 million Boe, but lower realized prices more than offset higher volumes. Average realized prices before derivative effects fell 17% for oil, 60% for natural gas and 38% for NGLs. Derivatives produced a $57.3 million total gain in 2023, including $48.9 million of unrealized gains, versus a $67.5 million total loss in 2022.
Operating cash flow exceeded net income, while investing cash outflow rose to $1.027 billion, principally reflecting acquisitions and capital expenditures. Financing provided $658.8 million. Cash available for distribution is a company-defined non-GAAP measure and fell substantially, in part because development costs were higher.
Debt and liquidity
At year-end, principal outstanding under the secured term loan was $825 million. The loan matures December 31, 2026, bears floating interest at three-month SOFR plus 6.50% and a 0.15% spread adjustment, with a 3.00% SOFR floor; its effective rate was 13.1% at year-end. Scheduled principal repayments are $61.9 million in 2024, $82.5 million in 2025 and $680.6 million in 2026. The $75 million revolving facility was undrawn, with $5 million of letters of credit outstanding. The filing reports $70 million remaining availability under the credit agreements.
Current assets were $343.6 million and current liabilities were $274.9 million. Balance-sheet debt, after unamortized costs and discount, totaled approximately $807.0 million. A 100-basis-point change in the assumed variable rate would change annual interest expense by approximately $8.3 million, holding debt constant.
Changes, outlook and notable items
- 2023 proved reserves increased to 345.7 million Boe from 200.3 million Boe, largely reflecting acquired reserves. Reserve PV-10 declined to $2.577 billion from $2.954 billion; lower SEC oil and gas price assumptions and reserve revisions were significant factors. PV-10 is non-GAAP and is not fair market value.
- Management budgeted $250–$275 million for 2024 development capital, expects to drill or participate in approximately 83 gross wells, and plans to emphasize Oswego wells. It expects operating cash flow to fund the program under current commodity-price expectations, while noting that results and funding depend on prices, operations and costs. No formal earnings guidance is provided in the supplied filing text.
- Management declared a fourth-quarter 2023 distribution of $0.95 per common unit on February 15, 2024; it was paid March 14, 2024. Distributions are not guaranteed, have no minimum, and depend on available cash, reserves, debt terms and capital needs.
- Notable items include the IPO-related vesting of predecessor incentive units and change-of-control compensation, derivative fair-value gains, and $1.7 million of credit losses. No material legal proceedings or environmental claims were reported; the company said it was not aware of material cybersecurity incidents.
- Key risks include commodity-price volatility, concentration in the Anadarko Basin, high floating-rate leverage and the large 2026 term-loan repayment, reserve and development uncertainty, dependence on third-party infrastructure and purchasers, and environmental, methane and climate regulation. Phillips 66 accounted for 52.6% of 2023 oil, gas and NGL sales.
- The Sponsor and Tom L. Ward affiliates controlled approximately 86.2% of common units at year-end. Mach Resources provides management and operating services under a related-party agreement; 2023 payments were $52.3 million, including a $4.8 million management fee. The filing states that disclosure controls were effective; management’s internal-control assessment and auditor attestation were not required during the new-public-company transition period.
Important facts for investors to verify
- Review the term-loan covenants, required amortization and the company’s refinancing plan for the $680.6 million due in 2026, particularly given the 13.1% year-end effective interest rate.
- Assess whether the 2024 capital budget and planned well count can be funded at realized prices and costs consistent with management’s assumptions, and how the $815.5 million of estimated PUD development costs over five years may affect distributions and liquidity.
- Check subsequent filings for Paloma purchase-price adjustments and the acquisition’s realized production, operating costs and contribution to cash flow; 2023 results do not include a full year of its operations.
- Monitor realized commodity prices, hedge volumes and counterparties, purchaser concentration, and the sustainability of distributions; reported cash available for distribution is non-GAAP and is not equivalent to cash flow from operations.
- Consider reserve-estimate sensitivity to prices, costs and development timing, as well as related-party service costs and the effects of sponsor control on governance and unitholder rights.