Executive Summary / Key Takeaways

• Mach Natural Resources (MNR) operates on a disciplined four-pillar strategy centered on opportunistic, cash-flow-accretive acquisitions, a low 15% production decline rate, and a sub-50% reinvestment rate, enabling industry-leading cash distributions to unitholders.
• Recent "transformational" acquisitions in the Permian and San Juan Basins, including IKAV and Sabinal, have diversified MNR's asset base, increased scale, and positioned the company for significant natural gas growth, with volumes projected to exceed 70% of its product mix by year-end 2026.
• MNR differentiates itself through a focus on capital efficiency and optimized well stimulation, aiming to significantly reduce drilling and completion costs in new plays like the Mancos Shale, thereby enhancing project returns and competitive advantage.
• Despite a Q3 2025 net loss due to a $90.4 million impairment and non-recurring deal costs, the underlying operational performance remains robust, with strong production growth driven by acquisitions and an anticipated increase in distributions in coming quarters.
• The company is strategically pivoting towards natural gas development, anticipating substantial demand growth from LNG exports and data centers through 2030, while maintaining flexibility to adjust capital allocation based on evolving commodity prices and market opportunities.

The Foundation: Disciplined Strategy in a Dynamic Energy Landscape

Mach Natural Resources LP (MNR) is an independent upstream oil and gas company that has carved out a distinct niche in the energy sector through a highly disciplined and opportunistic strategy. Operating primarily in the Anadarko Basin of Western Oklahoma, Southern Kansas, and the Texas panhandle, with recent expansions into the San Juan Basin of New Mexico and Colorado, and the Permian Basin of West Texas, MNR focuses on the acquisition, development, and production of oil, natural gas, and natural gas liquids (NGLs). The company's business model is underpinned by four strategic pillars: maintaining financial strength, disciplined execution in acquisitions, a low reinvestment rate, and maximizing cash distributions to unitholders. This approach has allowed MNR to thrive by acquiring distressed, cash-flowing properties at attractive valuations, often gaining associated acreage and infrastructure at minimal or no additional cost.

The broader energy landscape is currently characterized by significant shifts, including growing demand for natural gas driven by liquefied natural gas (LNG) exports and the burgeoning power needs of artificial intelligence (AI) data centers. Management anticipates total natural gas demand growth of up to 25 Bcf per day by 2030, with 24 Bcf per day specifically from LNG exports and an additional 5-10 Bcf per day from data centers. This macro trend provides a compelling backdrop for MNR's strategic pivot towards gas-centric development. In this competitive environment, MNR positions itself as a nimble, cost-focused operator, often targeting smaller, overlooked acquisitions where it can achieve superior returns, rather than competing head-on with larger, well-capitalized players like Devon Energy , Continental Resources , Occidental Petroleum (OXY), or Chesapeake Energy (CHK) in large-scale bidding wars.

Technological Edge: Optimizing Drilling for Superior Returns

MNR's operational excellence is rooted in its differentiated approach to drilling and completions, which it views as a core technological advantage. The company believes the industry often "overstimulates wells," leading to unnecessary costs without commensurate production benefits. Instead, MNR focuses on optimizing stimulation techniques and employing aggressive bidding practices to drive down drilling and completion (D&C) expenses. This philosophy has yielded tangible, quantifiable benefits. For instance, in its mature Oswego program, D&C costs in 2024 averaged only $2.6 million, or $202 per lateral foot, achieving median payout periods of just 15 months, assuming WTI at $70 and Henry Hub at $3.50. This compares favorably to payout periods in the Delaware and Midland Basins, which are also around 14-15 months but involve significantly higher well costs, often exceeding $10 million per location.

The company is actively applying this cost-optimization strategy to its newer, high-potential plays. In the Mancos Shale, where industry costs for a 3-mile lateral typically range from $16 million to $20 million, MNR aims to achieve well costs in the $12 million range. This targeted reduction of $3 million to $8 million per well is expected to add an additional 30 percentage points to the internal rate of return (IRR) per location. This disciplined approach to capital efficiency is not merely about saving money; it's about maximizing the "rate of return" for every dollar invested, thereby enhancing the company's competitive moat and directly contributing to higher cash available for distribution (CAD) and long-term growth. This operational acumen, honed over years of acquiring and integrating diverse assets, allows MNR to generate attractive returns even in challenging commodity price environments.

A History of Opportunistic Growth

Mach Natural Resources' journey began in 2017, with its first acquisition in early 2018. The company's foundational strategy was to acquire distressed, cash-flowing properties at bargain prices, often securing associated acreage and infrastructure at little to no additional cost. This counter-cyclical approach allowed MNR to build a substantial asset base during periods when many competitors were overspending on growth. By 2024, this strategy had resulted in the accumulation of over 1 million acres of land held by production, along with ownership in four midstream gathering and processing facilities. These midstream assets, acquired for $65 million, proved highly valuable, contributing $78 million in EBITDA in 2024 alone, with $17 million from third parties. Furthermore, MNR's operating team consistently reduced lease operating expenses (LOE) by 25% to 35% from previous owners' costs in every acquisition.

The company demonstrated remarkable resilience during market downturns, such as the period starting in 2019. MNR strategically adjusted its development capital expenditures, reducing them from $101 million in 2019 to a low of $28 million in 2020, before scaling back up to $291 million in 2022 as commodity prices recovered. This flexibility, coupled with opportunistic acquisitions, fueled a significant increase in EBITDA from $119 million to $719 million between 2019 and 2022. The company's initial public offering (IPO) in October 2023 marked a new chapter, providing a public platform for its proven strategy.

MNR continued its acquisition-driven expansion in 2024 and 2025. Notable deals included the Western Kansas Acquisition for $38 million and the Ardmore Basin Acquisition for approximately $98 million in 2024. In early 2025, the Flycatcher Acquisition ($29.8 million) and XTO Acquisition ($60 million) further expanded its footprint. A pivotal moment arrived in September 2025 with the simultaneous closing of the IKAV Acquisition and the Sabinal Acquisition, collectively valued at approximately $1.3 billion. These "transformational" deals significantly diversified MNR's asset base into the San Juan and Permian Basins, with sellers taking equity as part of the consideration. By Q3 2025, MNR had completed 24 acquisitions, investing over $3 billion, and growing its acreage base to nearly 3 million acres. These strategic moves also reduced the company's production decline rate from 20% to an industry-leading 15%, enhancing operating cash flow and providing substantial flexibility.

Financial Performance: Growth Amidst Shifting Tides

MNR's financial performance in the third quarter and first nine months of 2025 reflects the impact of its strategic acquisitions and the dynamic commodity price environment. For the three months ended September 30, 2025, revenues from oil, natural gas, and NGL sales increased by 12% to $234.51 million, primarily driven by a 15% increase in production volumes. The IKAV and Sabinal acquisitions, which closed in September 2025, contributed approximately 1,032 MBoe to this production growth. Higher natural gas prices also boosted gas sales by $19.60 million, partially offsetting an $18.10 million decline in oil and NGL revenue due to lower pricing. Despite these revenue gains, the company reported a net loss of $35.65 million for the quarter, largely due to a $90.40 million impairment of oil and gas properties resulting from the full cost ceiling test and $13.70 million in advisory transaction costs related to the IKAV acquisition.

For the nine months ended September 30, 2025, total oil, natural gas, and NGL sales increased by 2% to $706.65 million. This was primarily due to an $85.80 million increase in gas sales from higher prices, which largely offset a $63.70 million decrease in oil and NGL sales from lower prices and an $11.70 million decrease from slightly lower overall production volumes (down 1% for the nine-month period). The company's production mix in Q3 2025 was 21% oil, 56% natural gas, and 23% NGLs, with oil contributing 50% of total oil and gas revenues, natural gas 32%, and NGLs 18%.

Operating expenses saw notable increases. Lease operating expense (LOE) rose by 34% to $58.99 million in Q3 2025, or $6.82 per Boe, primarily due to the Sabinal and IKAV acquisitions adding $9.20 million. Gathering and processing expense also increased by 41% to $33.17 million, or $3.83 per Boe, driven by higher fuel costs, IKAV acquisition expenses, and a reclassification of certain post-production costs. Despite these cost increases, MNR maintains a strong focus on cash flow generation. For the nine months ended September 30, 2025, net cash provided by operating activities increased by $6.60 million to $378.21 million, supported by higher natural gas prices and increased realized derivative gains. The company's cash return on capital invested (CROCI) has consistently exceeded 20% since its founding, averaging over 30% annually for the past five years, a testament to its disciplined capital allocation.

Liquidity and Capital Allocation: A Flexible Framework

MNR's financial strength is a cornerstone of its strategy. As of September 30, 2025, the company had $53.60 million in cash and cash equivalents and $295 million in remaining availability under its New Credit Agreement. Total outstanding borrowings under this facility stood at $1.20 billion, with an effective interest rate of 8.10%. The New Credit Agreement, established in February 2025 and amended in September 2025, provides a flexible borrowing base (initially $750 million, increased by $700 million to $1.45 billion, with a maximum commitment of $2 billion) and includes covenants requiring a consolidated total net leverage ratio of less than or equal to 3:1 and a current ratio of no less than 1:1. The company's long-term goal is to maintain a debt-to-EBITDA ratio of around 1x, acknowledging that the IKAV and Sabinal acquisitions temporarily pushed this above 1.3x. Management intends to reduce this leverage over time, primarily through EBITDA growth.

Capital expenditures are largely discretionary and directly tied to MNR's disciplined reinvestment rate of less than 50% of operating cash flow. For the nine months ended September 30, 2025, development costs (excluding acquisitions) were approximately $174.60 million, with an additional $70 million to $75 million budgeted for the remainder of 2025. Total capital expenditures, including acquisitions, reached $1.30 billion for the nine-month period. This flexible approach allows MNR to adjust its drilling program based on commodity prices and market conditions.

Cash distributions to unitholders are a core tenet of MNR's model. The company declared a quarterly distribution of $0.27 per common unit for Q3 2025, to be paid on December 4, 2025. While the Q3 distribution was impacted by non-recurring deal costs and a legal settlement, management expects higher distributions in upcoming quarters as the acquired assets contribute for a full period and one-time expenses subside. Since its IPO in October 2023, MNR has distributed $5.14 per unit to unitholders, totaling over $1.2 billion since inception in 2018. This variable distribution model provides unitholders with direct exposure to commodity price upside while maintaining financial flexibility.

Strategic Outlook: A Gas-Focused Future

MNR's outlook is strategically aligned with its long-term vision and the evolving energy market. The company projects modest production growth through year-end 2027, achieved while maintaining its sub-50% CapEx reinvestment rate. Management believes the crude oil market is nearing the end of a cyclical downturn, anticipating a reversal in the coming quarters that will enhance returns from oil-heavy assets like Sabinal. However, the immediate focus is on natural gas.

For 2026, MNR is targeting natural gas as its primary commodity of choice, with natural gas volumes projected to increase to over 70% of its product mix by year-end 2026 and closer to 75% by 2027. This pivot is driven by a strong bullish outlook on long-term natural gas demand, fueled by LNG exports and data center growth. The 2026 development plan anticipates running two Deep Anadarko dry gas rigs and three rigs in the San Juan Basin (targeting Mancos Shale dry gas and Fruitland Coal), with Oswego drilling resuming in early 2026. The Deep Anadarko wells are expected to cost around $14 million and yield 15-20 Bcf of gas with IRRs exceeding 50%. Mancos wells are targeted at $12 million per 3-mile lateral, aiming for 24 Bcf of gas and a PV-10 of approximately $14 million. The company is also exploring the possibility of bringing in drilling partners for its extensive Deep Anadarko and Mancos Shale acreage to accelerate value realization without increasing its own reinvestment rate.

Competitive Positioning and Risk Assessment

MNR operates in a highly competitive upstream oil and gas industry. Its primary competitive advantage lies in its disciplined acquisition strategy, which consistently targets cash-flowing assets at a discount to proved developed producing (PDP) PV-10. This allows MNR to acquire future drilling locations at no additional cost, building a vast inventory of high-return opportunities across nearly 3 million acres. The company's operational efficiency, particularly its ability to reduce LOE by 25-35% in acquired assets and optimize D&C costs, further strengthens its competitive standing. For instance, MNR's Oswego D&C costs of $2.6 million per well are significantly lower than those in other major basins, contributing to superior payout periods.

However, MNR faces competition from larger, well-capitalized independents like Devon Energy (DVN) and Continental Resources (CLR), which benefit from greater scale, diversified asset bases, and deeper technological capabilities. While MNR's regional expertise and agility allow it to excel in niche acquisitions and cost control, it may lag in overall growth rates and R&D investment compared to these larger players. The company strategically avoids direct competition with the "ABS market" and those bidding for upside, focusing instead on smaller, accretive deals. MNR's ability to offer equity as part of acquisition consideration, as seen with IKAV and Sabinal, is a key differentiator in attracting sellers looking for liquid holdings.

Key risks include the inherent volatility of commodity prices, which directly impacts revenue, cash flow, and reserve values. While MNR hedges 50% of its next 12 months' production and 25% of the subsequent 12 months, this only provides partial protection. Inflationary pressures on operating costs, counterparty credit risk from derivative instruments, and interest rate risk from its variable-rate debt also pose challenges. Furthermore, the natural gas market faces near-term headwinds, with full storage and new takeaway capacity coming online ahead of demand, creating a "precarious position" for winter 2025. Long-term natural gas demand, while bullish, relies on the timely development of LNG export facilities and data centers. Regulatory changes and environmental liabilities also represent ongoing risks.

Conclusion

Mach Natural Resources LP presents a compelling investment thesis rooted in its disciplined, acquisition-driven growth model and a strategic pivot towards a gas-centric future. By consistently acquiring distressed, cash-flowing assets at discounts to PDP PV-10 and maintaining an industry-leading low decline rate and reinvestment rate, MNR has demonstrated a remarkable ability to generate robust cash available for distribution to unitholders. The recent transformational acquisitions of IKAV and Sabinal have significantly expanded its operational footprint and diversified its asset base, positioning the company to capitalize on the anticipated surge in natural gas demand from LNG exports and data centers through 2030.

While the company faces the inherent volatility of commodity markets and competitive pressures from larger industry players, its focus on operational efficiency, cost optimization in drilling, and flexible capital allocation provides a strong competitive edge. The expected reduction in leverage and the full contribution from recent acquisitions are poised to drive higher distributions in the coming quarters. For discerning investors seeking exposure to the energy sector with a focus on consistent cash returns and strategic growth, MNR's proven model and forward-looking gas strategy offer a unique and potentially rewarding opportunity.