Mach Natural Resources LP(MNR) - 2025 Q2 - Quarterly Report

DEFINITIONS This section defines key financial and industry-specific terms used throughout the report - The section provides definitions for key terms used throughout the report, including financial metrics like 'Adjusted EBITDA' and 'PV-10', and industry-specific terms such as 'Bbl', 'Boe', 'Proved reserves', and 'NGLs'[9][10][19][21] CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This statement warns that forward-looking information is subject to inherent oil and natural gas industry risks and uncertainties - This section warns readers that the report contains forward-looking statements based on management's current beliefs, which are subject to various risks and uncertainties inherent in the oil and natural gas industry. Factors that could cause actual results to differ materially include commodity price volatility, acquisition success, general economic conditions, and regulatory changes[28][29][30][35] PART I - FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents the unaudited consolidated financial statements and detailed notes on accounting policies, acquisitions, and debt Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and partners' capital at specific dates | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | Change (%) | | :----------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | Total assets | $2,334,165 | $2,338,214 | $(4,049) | (0.17%) | | Current assets | $209,178 | $322,096 | $(112,918) | (35.06%) | | Cash and cash equivalents | $13,777 | $105,776 | $(91,999) | (87.00%) | | Oil and natural gas properties, net | $1,979,069 | $1,899,357 | $79,712 | 4.20% | | Total current liabilities | $266,341 | $352,421 | $(86,080) | (24.42%) | | Long-term debt | $565,000 | $668,778 | $(103,778) | (15.52%) | | Partners' capital | $1,375,695 | $1,199,046 | $176,649 | 14.73% | Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income for the reported periods | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Change (in thousands) | Change (%) | | :----------------------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | :--------- | | Total revenues | $288,517 | $239,994 | $48,523 | 20.22% | | Gain (loss) on oil and natural gas derivatives | $55,579 | $(4,635) | $60,214 | NM | | Total operating expenses | $177,220 | $169,511 | $7,709 | 4.55% | | Net income | $89,661 | $39,516 | $50,145 | 126.89% | | Basic Net income per common unit | $0.76 | $0.42 | $0.34 | 80.95% | | Diluted Net income per common unit | $0.76 | $0.42 | $0.34 | 80.95% | | Weighted average common units outstanding (Basic) | 118,336 | 95,009 | 23,327 | 24.55% | | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change (in thousands) | Change (%) | | :----------------------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | :--------- | | Total revenues | $515,285 | $479,149 | $36,136 | 7.54% | | Gain (loss) on oil and natural gas derivatives | $14,886 | $(33,903) | $48,789 | NM | | Total operating expenses | $352,316 | $341,422 | $10,894 | 3.19% | | Net income | $105,547 | $81,218 | $24,329 | 29.96% | | Basic Net income per common unit | $0.92 | $0.85 | $0.07 | 8.24% | | Diluted Net income per common unit | $0.92 | $0.85 | $0.07 | 8.24% | | Weighted average common units outstanding (Basic) | 115,248 | 95,004 | 20,244 | 21.31% | Consolidated Statements of Partners' Capital This statement outlines changes in partners' capital, including unit issuances and net income | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | Change (%) | | :------------------------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | Partners' Capital | $1,375,695 | $1,199,046 | $176,649 | 14.73% | | Common Units Outstanding | 118,336 | 103,490 | 14,846 | 14.34% | - The company issued 14,839 thousand common units in a public offering, generating $221.1 million in net proceeds by March 31, 2025[41] Consolidated Statements of Cash Flows This statement details cash inflows and outflows from operating, investing, and financing activities | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change (in thousands) | Change (%) | | :----------------------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | :--------- | | Net cash provided by operating activities | $272,660 | $260,784 | $11,876 | 4.55% | | Net cash used in investing activities | $(212,391) | $(85,261) | $(127,130) | 149.11% | | Net cash used in financing activities | $(152,268) | $(183,694) | $31,426 | (17.11%) | | Net (decrease) in cash and cash equivalents | $(91,999) | $(8,171) | $(83,828) | 1025.92% | | Cash and cash equivalents, end of period | $13,777 | $144,621 | $(130,844) | (90.47%) | Notes to Consolidated Financial Statements These notes provide detailed explanations and disclosures supporting the consolidated financial statements 1. Organization and Nature of Business This section describes the company's primary business as an independent upstream oil and gas producer in the Anadarko Basin - Mach Natural Resources LP is an independent upstream oil and gas company focused on the acquisition, development, and production of oil, natural gas, and NGL reserves in the Anadarko Basin region of Western Oklahoma, Southern Kansas, and the panhandle of Texas[46] - The company operates as a single reportable segment, which is the exploration and production of oil, natural gas, and NGLs, with all operations and assets located in the United States[49] 2. Basis of Presentation and Summary of Significant Accounting Policies This section outlines the basis of financial statement preparation and the company's significant accounting policies - The financial statements are prepared in accordance with US GAAP, requiring management to make estimates and assumptions, particularly for proved oil and natural gas reserves, fair value of acquired assets, and commodity derivatives[50][51][52] - The company uses the full cost method of accounting for exploration and development activities, capitalizing costs and depreciating them using the unit-of-production method. No impairments on proved oil and natural gas properties were recorded for the three and six months ended June 30, 2025 and 2024[60][63] - Revenue from oil, natural gas, and NGL sales is recognized when control transfers to the purchaser at the delivery point. The company's major market risk exposure is in the pricing of these commodities, which is volatile and unpredictable[82][83] Purchaser Concentration | Purchaser | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | | Philips 66 Company | 26.9 % | 29.1 % | | NextEra Energy Marketing LLC | 24.1 % | * | | CVR Supply & Trading, LLC | 11.2 % | * | | Shell Oil Company | * | 17.7 % | * Purchaser did not account for greater than 10% of oil, natural gas, and NGL sales for the period. 3. Acquisitions and Divestitures This section details the company's recent acquisitions and a divestiture of certain acreage - The company completed several acquisitions: XTO Acquisition ($77.9 million cash consideration, closed April 30, 2025), Flycatcher Acquisition ($24.1 million cash consideration, closed January 31, 2025), Ardmore Basin Acquisition ($75.4 million cash consideration, closed October 1, 2024), and Western Kansas Acquisition ($37.5 million cash consideration, closed September 25, 2024)[100][101][102][103][108][109][112] - A divestiture of certain acreage not attributable to proved developed reserves occurred on June 26, 2024, generating approximately $38.0 million in proceeds, which were applied as a credit against the full cost pool with no gain or loss recognized[113] 4. Property and Equipment This section provides a breakdown of the company's property and equipment, including oil and natural gas properties | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Proved oil and natural gas properties | $2,621,011 | $2,419,998 | | Accumulated depreciation, depletion and amortization | $(641,942) | $(520,641) | | Oil and natural gas properties, net | $1,979,069 | $1,899,357 | | Total other property and equipment, net | $96,767 | $91,765 | 5. Accrued Liabilities This section itemizes the company's accrued liabilities, including operating expenses and capital expenditures | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Operating expenses | $13,682 | $12,489 | | Capital expenditures | $16,062 | $24,027 | | Payroll costs | $8,551 | $7,842 | | Severance and other tax | $11,052 | $5,202 | | General, administrative, and other | $13,142 | $2,631 | | Total accrued liabilities | $64,094 | $53,500 | 6. Long-Term Debt This section details the company's long-term debt, including its new revolving credit facility and prior debt repayments - On February 27, 2025, the company entered into a New Revolving Credit Facility with an initial borrowing base of $750.0 million and a maturity date of February 27, 2029. As of June 30, 2025, $565.0 million was outstanding with $180.0 million remaining availability[117][118][121] - The company fully repaid and terminated the previous Term Loan Credit Agreement and Revolving Credit Agreement using proceeds from the New Revolving Credit Facility and a February 2025 public offering. The termination of the Term Loan resulted in $18.5 million in debt extinguishment costs[121][124][127] 7. Derivative Contracts This section describes the company's use of derivative contracts to manage commodity price risk - The company uses fixed price swap contracts for oil and natural gas to reduce exposure to commodity price fluctuations, but does not designate them for hedge accounting. These contracts are indexed to NYMEX WTI for crude oil and NYMEX Henry Hub for natural gas[129][131][132] Open Oil Derivative Positions as of June 30, 2025 | Period | Volume (Mbbl) | Weighted Average Fixed Price ($) | | :------- | :------------ | :----------------------------- | | Q3 2025 | 705 | 68.41 | | Q4 2025 | 646 | 68.09 | | Q1 2026 | 600 | 67.35 | | Q2 2026 | 563 | 69.50 | | Q3 2026 | 266 | 66.20 | | Q4 2026 | 253 | 65.37 | | Q1 2027 | 241 | 65.00 | | Q2 2027 | 230 | 66.16 | Open Natural Gas Derivative Positions as of June 30, 2025 | Period | Volume (Bbtu) | Weighted Average Fixed Price ($) | | :------- | :------------ | :----------------------------- | | Q3 2025 | 10,782 | 3.58 | | Q4 2025 | 10,308 | 4.03 | | Q1 2026 | 9,896 | 4.03 | | Q2 2026 | 9,532 | 3.68 | | Q3 2026 | 4,602 | 3.53 | | Q4 2026 | 4,453 | 3.77 | | Q1 2027 | 4,316 | 4.35 | | Q2 2027 | 4,190 | 3.83 | Gains and Losses on Derivative Contracts (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Settlements of oil derivatives | $6,640 | $(7,124) | $7,548 | $(5,213) | | Settlements of natural gas derivatives | $388 | $2,365 | $1,127 | $4,409 | | MTM gains (losses) on oil derivatives, net | $15,401 | $6,788 | $16,196 | $(31,392) | | MTM gains (losses) on natural gas derivatives, net | $33,150 | $(6,664) | $(9,985) | $(1,707) | | Total gains (losses) on derivative contracts | $55,579 | $(4,635) | $14,886 | $(33,903) | 8. Fair Value Measurements This section details the company's fair value measurements, categorized into a three-level hierarchy - The company classifies fair value measurements into a three-level hierarchy. Commodity derivative instruments are primarily valued using Level 2 inputs, while proved properties acquired in business combinations and asset retirement obligations are valued using Level 3 inputs[136][137][139][141][142] 9. Equity Compensation and Deferred Compensation Plan This section outlines the company's equity compensation plans, including Time-Based and Performance Phantom Units - The company issues Time-Based Phantom Units and Performance Phantom Units under its Long-Term Incentive Plan. Time-Based Phantom Units vest ratably over three years, while Performance Phantom Units vest based on TSR, relative TSR, and total recordable incident rate[147][152] Non-Cash Compensation Cost (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Time-Based Phantom Units | $3,700 | $3,300 | | Performance Phantom Units | $500 | $100 | Unrecognized Compensation Cost as of June 30, 2025 (in millions) | Metric | Amount | Weighted Average Period (years) | | :----------------------------------- | :----- | :------------------------------ | | Time-Based Phantom Units | $12.8 | 1.9 | | Performance Phantom Units | $1.6 | 1.9 | 10. Commitments and Contingencies This section addresses the company's legal, environmental, and contractual commitments and contingencies - The company is involved in ordinary course legal and environmental matters, accruing $11.1 million for legal matters as of June 30, 2025. Management does not expect a materially adverse effect on financial position[155] - The company has NGL sales and natural gas firm transportation commitments, incurring $0.2 million in transportation charges for the six months ended June 30, 2025. Contributions to its 401(k) plan totaled $2.2 million for the same period[159][160] 11. Leases This section details the company's operating lease arrangements for office spaces, vehicles, and compressors - The company has operating leases for office spaces, vehicles, and compressors, with a weighted-average remaining lease term of 3.33 years and a weighted-average discount rate of 7.5% as of June 30, 2025[161][162][165] Total Lease Costs (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $1,875 | $2,864 | $3,963 | $6,937 | | Short-term lease cost | $10,818 | $5,990 | $18,320 | $11,862 | | Total lease cost | $12,693 | $8,854 | $22,283 | $18,799 | 12. Partners' Capital This section outlines changes in partners' capital, including public offerings and cash distributions - The company completed public offerings in February 2025 and September 2024, raising net proceeds of $221.1 million and $128.9 million, respectively, used for debt repayment and acquisitions[167][168] Common Units and Distributions | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Common units outstanding (millions) | 118.3 | 103.5 | | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :----------------------------------- | :------------------------------- | :----------------------------- | | Cash distributions per unit | $0.79 | $1.29 | | Total cash distributions (millions) | $93.5 | $152.7 | 13. Earnings Per Common Unit This section presents the basic and diluted earnings per common unit for the reported periods Earnings Per Common Unit | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income - basic and diluted (thousands) | $89,661 | $39,516 | $105,547 | $81,218 | | Weighted-average common units outstanding - basic (thousands) | 118,336 | 95,009 | 115,248 | 95,004 | | Earnings per common unit - basic | $0.76 | $0.42 | $0.92 | $0.85 | | Earnings per common unit - diluted | $0.76 | $0.42 | $0.92 | $0.85 | - The company's phantom units are considered potentially dilutive securities, with 0.1 million phantom units dilutive for the three and six months ended June 30, 2025[170] 14. Related Party Transactions This section describes transactions with related parties, including management fees and unit purchases - The company has a Management Services Agreement (MSA) with Mach Resources, paying an annual management fee of approximately $7.4 million and reimbursing costs. Payments to Mach Resources were $57.2 million for the six months ended June 30, 2025[173] - BCE-Mach Aggregator, an affiliate of the General Partner, purchased 5,161,290 common units for $79.2 million in the February 2025 Offering[174] 15. Segment Information This section identifies the company's single reportable segment as the exploration and production of oil, natural gas, and NGLs - The company operates as a single reportable segment: the exploration and production of oil, natural gas, and NGLs (E&P Segment). The CEO uses consolidated net income to measure segment performance[175][176] E&P Segment Financial Summary (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $288,517 | $239,994 | $515,285 | $479,149 | | Total significant expenses | $91,846 | $81,630 | $181,533 | $167,084 | | Net income | $89,661 | $39,516 | $105,547 | $81,218 | | Capital expenditures, including acquisitions | $125,452 | $45,669 | $206,810 | $127,245 | 16. Subsequent Events This section discloses significant events that occurred after the reporting period, including major acquisitions and distributions - On July 9, 2025, the company entered into agreements for the Sabinal Acquisition ($500.0 million, including $200.0 million cash and 20.6 million common units) and the IKAV Acquisition ($787.2 million, including $325.0 million cash and 31.7 million common units), both expected to close in Q3 2025[179][181][182] - On July 8, 2025, lenders under the New Revolving Credit Facility waived certain restrictions related to financial covenants. On August 7, 2025, a quarterly distribution of $0.38 per common unit for Q2 2025 was declared[183][184] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, operational results, liquidity, and capital resources Overview This section provides an overview of the company's upstream oil and gas operations and midstream assets - The company is an independent upstream oil and gas company focused on acquisition, development, and production in the Anadarko Basin, with assets prospective for Oswego, Woodford, and Mississippian formations[187][188] - It also owns extensive complementary midstream assets (gathering systems, processing plants, water infrastructure) that enhance property value and generate third-party revenue[188] Market Outlook This section discusses the market outlook, highlighting commodity price volatility and potential impacts of inflation - Financial results are highly dependent on volatile commodity prices, influenced by global economic factors, supply/demand, geopolitical events (Ukraine war, Middle East conflict), and interest rate uncertainty[189] - NYMEX WTI crude oil prices ranged from $57.13 to $86.91 per Bbl, and NYMEX Henry Hub natural gas prices ranged from $1.58 to $4.49 per MMBtu between January 1, 2024, and June 30, 2025[189] - Inflation concerns may lead to increased operating costs, and the company is evaluating mitigation actions, but these efforts may not be sufficient[190][191] How We Evaluate Our Operations This section outlines the key financial and operational metrics used to evaluate the company's performance - The company assesses performance using financial and operational metrics including net production volumes, realized prices, lease operating expense, Adjusted EBITDA, and cash available for distribution[192][194] Factors Affecting the Comparability of Our Future Results of Operations to Our Historical Results of Operations This section highlights that recent acquisitions will impact the comparability of future and historical financial results - Future results may not be comparable to historical results due to four acquisitions completed since the beginning of 2024, which impact the comparability of financial periods[193] Results of Operations This section provides a detailed analysis of the company's financial performance, including revenue and operating expenses Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024 This section compares the company's financial and operational results for the three months ended June 30, 2025, and 2024 Revenue and Production (Three Months Ended June 30) | Metric | 2025 | 2024 | Change Amount | Change % | | :----------------------------------- | :----- | :----- | :------------ | :------- | | Total revenues (in thousands) | $288,517 | $239,994 | $48,523 | 20% | | Oil sales (in thousands) | $111,053 | $150,889 | $(39,836) | (26%) | | Natural gas sales (in thousands) | $68,420 | $34,237 | $34,183 | 100% | | NGL sales (in thousands) | $39,939 | $46,413 | $(6,474) | (14%) | | Gain (loss) on derivatives (in thousands) | $55,579 | $(4,635) | $60,214 | NM | | Total production (MBoe) | 7,606 | 8,130 | (524) | (6%) | | Average daily total volumes (MBoe/d) | 83.59 | 89.34 | (5.75) | (6%) | | Average Oil Price ($/Bbl) | $63.10 | $79.27 | $(16.17) | (20%) | | Average Natural Gas Price ($/Mcf) | $2.81 | $1.33 | $1.48 | 111% | | Average NGL Price ($/Bbl) | $22.41 | $23.83 | $(1.42) | (6%) | Operating Expenses (Three Months Ended June 30, in thousands) | Expense Category | 2025 | 2024 | Change Amount | Change % | | :----------------------------------- | :----- | :----- | :------------ | :------- | | Gathering and processing expense | $31,784 | $23,831 | $7,953 | 33% | | Lease operating expense | $49,566 | $46,497 | $3,069 | 7% | | Production taxes | $10,496 | $11,302 | $(806) | (7%) | | Midstream operating expense | $3,200 | $2,616 | $584 | 22% | | Cost of product sales | $6,274 | $5,786 | $488 | 8% | | Depreciation, depletion, amortization and accretion – oil and natural gas | $64,340 | $65,819 | $(1,479) | (2%) | | General and administrative | $8,802 | $11,418 | $(2,616) | (23%) | - The increase in total revenues was driven by a significant swing from derivative losses to gains and higher natural gas prices, despite a 6% decrease in overall production[197][198][199] - Operating expenses increased due to higher fuel costs and reclassification of post-production costs to gathering and processing expense, as well as increased company labor and contract services in lease operating expense[203][204] Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024 This section compares the company's financial and operational results for the six months ended June 30, 2025, and 2024 Revenue and Production (Six Months Ended June 30) | Metric | 2025 | 2024 | Change Amount | Change % | | :----------------------------------- | :----- | :----- | :------------ | :------- | | Total revenues (in thousands) | $515,285 | $479,149 | $36,136 | 8% | | Oil sales (in thousands) | $236,064 | $295,410 | $(59,346) | (20%) | | Natural gas sales (in thousands) | $151,141 | $96,518 | $54,623 | 57% | | NGL sales (in thousands) | $84,933 | $94,851 | $(9,918) | (10%) | | Gain (loss) on derivatives (in thousands) | $14,886 | $(33,903) | $48,789 | NM | | Total production (MBoe) | 14,890 | 16,228 | (1,338) | (8%) | | Average daily total volumes (MBoe/d) | 82.26 | 89.17 | (6.91) | (8%) | | Average Oil Price ($/Bbl) | $66.93 | $78.23 | $(11.30) | (14%) | | Average Natural Gas Price ($/Mcf) | $3.17 | $1.85 | $1.32 | 71% | | Average NGL Price ($/Bbl) | $24.77 | $25.32 | $(0.55) | (2%) | Operating Expenses (Six Months Ended June 30, in thousands) | Expense Category | 2025 | 2024 | Change Amount | Change % | | :----------------------------------- | :----- | :----- | :------------ | :------- | | Gathering and processing expense | $59,945 | $55,773 | $4,172 | 7% | | Lease operating expense | $98,318 | $87,257 | $11,061 | 13% | | Production taxes | $23,270 | $24,054 | $(784) | (3%) | | Midstream operating expense | $6,170 | $5,175 | $995 | 19% | | Cost of product sales | $14,261 | $11,886 | $2,375 | 20% | | Depreciation, depletion, amortization and accretion – oil and natural gas | $125,525 | $131,191 | $(5,666) | (4%) | | General and administrative | $19,669 | $21,746 | $(2,077) | (10%) | - Total revenues increased by 8% for the six-month period, primarily due to a significant positive swing in derivative gains and higher natural gas prices, despite an 8% decrease in overall production[212][213][214] - Operating expenses rose, driven by increases in lease operating expense (company labor, contract services, saltwater disposal, compression) and gathering and processing expense (higher fuel costs, reclassified post-production costs)[219][220] Liquidity and Capital Resources This section discusses the company's liquidity sources, capital expenditures, and funding for recent acquisitions - Primary liquidity sources are cash flows from operations, borrowings under the New Revolving Credit Facility, and equity/debt issuances. As of June 30, 2025, $565.0 million was outstanding on the New Revolving Credit Facility with $180.0 million available[226] - The company's 2025 capital expenditures budget for development costs is between $260.0 million and $280.0 million, focusing on drilling Oswego, Woodford, Red Fork, and Mississippian wells[229] - Recent acquisitions (Sabinal and IKAV) involve issuing 52.3 million common units and significant cash components, with the company expecting sufficient cash flows and credit facility availability to meet future cash requirements[232] Cash Flows This section summarizes the company's cash flows from operating, investing, and financing activities Cash Flow Summary (Six Months Ended June 30, in thousands) | Cash Flow Type | 2025 | 2024 | Change Amount | Change % | | :----------------------------------- | :----- | :----- | :------------ | :------- | | Net cash provided by operating activities | $272,660 | $260,784 | $11,876 | 4.55% | | Net cash used in investing activities | $(212,391) | $(85,261) | $(127,130) | 149.11% | | Net cash used in financing activities | $(152,268) | $(183,694) | $31,426 | (17.11%) | - Operating cash flow increased due to higher natural gas prices and increased realized derivative gains. Investing cash flow significantly increased due to higher cash used for asset acquisitions[234][235] - Financing cash flow decreased (less cash used) primarily due to net borrowings on credit facilities and proceeds from public offerings, partially offset by term loan repayments and debt extinguishment costs[237] Debt Agreements This section describes the terms of the New Revolving Credit Facility and the repayment of previous debt agreements - The New Revolving Credit Facility, established February 27, 2025, has an initial borrowing base of $750.0 million, matures February 27, 2029, and requires maintaining specific consolidated total net leverage and current ratios[238][239][240] - The company repaid and terminated its previous Term Loan Credit Agreement and Revolving Credit Agreement using funds from the New Revolving Credit Facility and a February 2025 offering[241] Contractual Obligations and Commitments This section outlines the company's contractual obligations, including firm transportation contracts and operating lease commitments - The company has firm transportation contracts for natural gas, incurring $0.2 million in charges for the six months ended June 30, 2025, with no material amounts remaining. Operating lease obligations are expected to be approximately $17.7 million through 2029[242][243] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures like Adjusted EBITDA and Cash Available for Distribution - The company uses Adjusted EBITDA and Cash Available for Distribution as supplemental non-GAAP financial measures to evaluate operating performance and liquidity, respectively. These measures exclude items like interest expense, DDA, unrealized derivative gains/losses, and equity-based compensation[246][248] Reconciliation of Non-GAAP Measures (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $89,661 | $39,516 | $105,547 | $81,218 | | Adjusted EBITDA | $122,270 | $135,335 | $282,121 | $303,973 | | Cash available for distribution | $45,982 | $67,705 | $140,558 | $134,716 | Critical Accounting Policies and Estimates This section confirms no material changes to the company's critical accounting policies and estimates - No material changes have been made to the company's critical accounting policies and estimates during the six months ended June 30, 2025, as previously disclosed in its 2024 Annual Report on Form 10-K[251] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily commodity price volatility and interest rate fluctuations Commodity Price Risk This section addresses the company's exposure to volatile commodity prices and its mitigation strategies - The company's revenue and cash flow are highly susceptible to volatile commodity prices, which are influenced by global economic factors, supply/demand, and other external conditions[253][254] - To mitigate this risk, the company uses commodity derivative instruments, primarily fixed price swaps, to hedge a portion of its anticipated production, providing partial price protection and cash flow certainty[255][256] Counterparty and Customer Credit Risk This section addresses credit risk from derivative counterparties and major oil and gas purchasers - The company is exposed to credit risk from its derivative counterparties and major oil and gas purchasers/joint interest owners. It mitigates this by engaging only with creditworthy financial institutions for derivatives and can withhold future revenue disbursements from non-paying joint interest owners[257][258] Interest Rate Risk This section discusses the company's exposure to interest rate fluctuations on its variable rate debt - As of June 30, 2025, the company had $565.0 million in variable rate debt outstanding under the New Revolving Credit Facility at an effective interest rate of 8.1%. A 1% change in interest rates would impact annual interest expense by approximately $5.7 million[259] - The company currently does not have interest rate derivative arrangements but may enter into them in the future[260] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and reports no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2025 - The CEO and CFO concluded that the company's disclosure controls and procedures were designed and effective as of June 30, 2025, ensuring timely and accurate reporting of information[261] Changes in Internal Control over Financial Reporting This section reports no material changes in the company's internal control over financial reporting - There were no material changes in the company's internal control over financial reporting during the six-month period ended June 30, 2025[263] PART II - OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, and other required disclosures Item 1. Legal Proceedings This section addresses the company's involvement in legal and environmental matters, accruing $11.1 million for legal costs - The company is subject to ordinary course litigation, including title, royalty, contract, personal injury, and employment claims. It accrues liabilities when costs are probable and estimable, with $11.1 million accrued for such matters as of June 30, 2025[265] - The company is also subject to environmental laws and regulations but is not aware of any environmental claims as of June 30, 2025[266][267] Item 1A. Risk Factors This section reports no material changes to the risk factors previously disclosed in the 2024 Annual Report on Form 10-K - No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2024[268] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities during the reporting period[269] Item 3. Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the reporting period[270] Item 4. Mine Safety Disclosures This section states that there are no mine safety disclosures to report - There are no mine safety disclosures to report[271] Item 5. Other Information This section confirms no directors or officers adopted or terminated Rule 10b5-1 trading arrangements - No directors or officers adopted or terminated Rule 10b5-1 trading agreements or non-Rule 10b5-1 trading arrangements during the six months ended June 30, 2025[272] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including agreements and certifications - The exhibits include purchase and sale agreements for the Sabinal and IKAV acquisitions, various partnership and limited liability company agreements, a letter agreement related to the New Revolving Credit Facility, and certifications from the CEO and CFO[273][274] Signatures This section contains the required signatures for the Form 10-Q, confirming its official submission - The report is signed by Mach Natural Resources LP, by its general partner Mach Natural Resources GP LLC, with Kevin R. White, Chief Financial Officer, signing on August 7, 2025[277][278][279]