Mach Natural Resources LP — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Important scope caveat: the historical financial statements are for BCE-Mach III LLC, the accounting predecessor, and do not include BCE-Mach LLC or BCE-Mach II LLC. They therefore are not a full-period consolidated presentation of the LP after its October 2023 reorganization and IPO.
Financial results and liquidity
Amounts are in millions of dollars unless otherwise stated. Comparisons are with the same periods in 2022.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $175.4 | $295.7 | $534.5 | $699.2 |
| Operating income | $83.7 | $174.8 | $257.3 | $398.2 |
| Net income | $83.5 | $172.2 | $253.0 | $394.9 |
| Adjusted EBITDA (non-GAAP) | $120.5 | $178.2 | $347.3 | $454.6 |
| Cash available for distribution (non-GAAP) | $53.6 | $84.6 | $84.1 | $238.2 |
| Net cash provided by operating activities | Not separately stated | Not separately stated | $382.0 | $398.3 |
- Q3 operating margin was approximately 47.8%, compared with 59.1% a year earlier; nine-month operating margin was approximately 48.1%, versus 57.0%.
- Q3 production averaged 49.39 thousand Boe/day, up 3%; nine-month production averaged 48.37 thousand Boe/day, up 17%.
- At September 30, cash was $58.7, long-term debt was $91.9, and cash less debt was approximately negative $33.2. Current assets of $170.0 exceeded current liabilities of $136.2 by $33.7.
- Nine-month investing cash outflow was $277.9, including $251.5 of oil and gas property capital expenditures, $9.1 of other property/equipment capital expenditures, and $20.6 of acquisitions. Financing cash outflow was $74.8, including $101.4 of distributions to members.
Changes versus prior period
- Q3 total revenue fell 41% and net income fell 52%. Nine-month revenue fell 24% and net income fell 36%.
- Lower realized commodity prices were the main revenue headwind: Q3 average oil, gas and NGL prices declined 12%, 67% and 40%, respectively. Nine-month declines were 21%, 63% and 42%. Higher production partly offset these price declines.
- Nine-month oil and gas derivative results improved to a $10.8 gain from a $74.6 loss in 2022. Q3 derivative results were a $4.9 loss versus a $1.7 loss.
- Nine-month lease operating expense rose 32% to $89.5, while oil and gas depletion, depreciation and accretion rose 60% to $89.4, reflecting additional drilling, production and acquired properties. General and administrative expense declined 22% to $15.3.
- Operating cash flow was down $16.3 year over year, as lower realized prices and increased production were partly offset by a $90.7 favorable year-over-year change in cash derivative settlements.
Outlook, transactions and risks
- Capital and outlook: The filing reports a 2023 development-cost budget of approximately $316.2; $258.9 had been spent in the first nine months. Management stated that expected operating cash flow and borrowings under the new facility should fund operations through 2024, subject to commodity prices, production and other conditions. Planned 2024 capital spending is discretionary; the filing gives no specific production or commodity-price guidance.
- IPO and reorganization: The October 2023 IPO sold 10 million units at $19 each, yielding $170.0 net proceeds. The LP used $103.7 to repay existing facility borrowings and $66.3 to buy 3.75 million units from existing owners. The LP reported 95 million common units outstanding after the transactions.
- Debt refinancing: On November 10, the prior facilities were terminated and Holdco entered a new revolving facility with a $600 borrowing base, $200 commitments and $1.0 billion maximum size. Borrowings and letters of credit totaled $130 at inception, including $5 of letters of credit. Maturity is November 2027; interest is Term SOFR plus a 3%–4% margin. These are post-quarter-end terms.
- Proposed acquisition: On November 10, the LP agreed to acquire Oklahoma assets from Paloma for $815 cash, subject to adjustments, with closing expected in December 2023. The filing says funding was expected from an $825 senior secured term loan.
- Hedging: At September 30, oil swaps covered 700 thousand barrels for Q4 2023 at a weighted average fixed price of $82.81 and 508 thousand barrels for January–June 2024 at $83.61. No net natural-gas volumes were hedged at that date. Subsequent contracts included oil and gas hedges for 2024 and 2025.
- Principal risks: Commodity-price volatility, Anadarko Basin concentration, cost inflation, operating and environmental hazards, reserve-estimation uncertainty, customer and counterparty concentration, and reliance on borrowing-base financing. Phillips 66 represented 60.2% of Q3 revenue and 53.6% for the first nine months. Management reported no material legal proceedings or material recognized legal liability; environmental obligations remain subject to regulation and uncertainty.
- Management stated that disclosure controls were effective as of September 30 and that there were no material changes in internal control over financial reporting during the quarter. The company reported no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Review post-IPO consolidated results: this filing’s historical statements cover BCE-Mach III only, while the IPO and reorganization brought the other operating companies into the LP structure.
- Confirm the Paloma acquisition’s closing, final purchase price, $825 million term-loan funding and resulting leverage.
- Track borrowing-base redeterminations, facility utilization, interest costs and covenant compliance under the new credit facility.
- Assess whether production growth and capital spending can offset lower realized prices and support distributions; cash available for distribution is a non-GAAP measure, not operating cash flow.
- Monitor realized commodity prices, hedge coverage and purchaser concentration, particularly the exposure to Phillips 66.