Mach Natural Resources LP’s Mancos Shale Timing and 2027 Growth Plans Clash in Q2 2026 Earnings Call

Date of Call: Aug 7, 2026

Financials Results

• Revenue: $360 million total oil and gas revenues

Business Commentary:

Strategic Pillars and Financial Strength:

• Mach Natural Resources maintained a reinvestment rate of less than 50% of operating cash flow and aims to reduce leverage back to 1 times debt to EBITDA from a projected 1.4 times by the end of 2027.
• The company focuses on disciplined execution by acquiring cash-flowing assets at a discount and avoiding high debt levels, driven by the need to capitalize on market opportunities and sustain distributions.

Drilling Activity and CapEx Allocation:

• The company keeps a consistent drilling rig running in the Oswego Limestone formation, with a rate of return of 87% at a $75 oil strip, and plans to maintain activity in the Mancos Shale if gas prices rebound.
• CapEx is aligned with the highest rates of return, prioritizing oil drilling due to current pricing, with flexibility to shift based on market conditions.

Natural Gas Position and Market Outlook:

• Mach controls 575,000 acres in the San Juan Basin's Mancos Shale, with well performance comparable to Haynesville and Marcellus Shales, and expects potential for lower well costs to below $15 million.
• The company is cautiously optimistic about long-term natural gas demand but is evaluating spending for 2027 due to current market conditions and basis challenges.

Cash Flow and Distribution Strategy:

• The company distributed $0.36 per unit in Q2 2026, with year-to-date development CapEx aligning with 50% of operating cash flow, and generated $60 million in cash available for distribution.
• The variable distribution model allows flexibility to adjust spending based on cash flow, ensuring disciplined capital allocation and shareholder returns.

Sentiment Analysis:

Overall Tone: Neutral

• Management expresses confidence in strategic pillars and strong historical performance but acknowledges near-term challenges, such as low natural gas prices and leverage concerns. Statements include: 'Our steadfast approach to value has paid off' and 'We cannot find another public company with such a strong record of cash returns.' However, they note: 'It’s difficult to be real bullish about it' regarding natural gas and that 'our leverage hasn’t moved down yet.'

Q&A:

• Question from Neal Dingmann (William Blair): Can you remind me just double checking most of your near-term D&C focus will be on the Oswego, and if so, could you just remind us how much activity that will consist of and how you’re thinking about the economics behind this play in this environment?
  Response: The near-term drilling program through Q4 involves keeping an Oswego rig running; the play is the workhorse with high rates of return (~85% at $75 oil).

• Question from Neal Dingmann (William Blair): Tom, does that Oswego compete with other more well-known oily plays in this kind of environment?
  Response: Yes, it competes well given its high rate of return.

• Question from Charles Meade (Johnson Rice): Assuming you had the operating cash flow to do the Mancos completions whenever you wanted, what is the price that you’d need to see in the San Juan Basin market for you to pull the trigger and do those completions?
  Response: Prices would need to be above $3 per Mcf to justify spending; the timing depends on gas price recovery and cash flow allocation.

• Question from Michael Scialla (Stephens): What are the plans there now [for the Clear Fork]?
  Response: The Clear Fork is not in the current drilling schedule; it may be considered in 2027 if prices improve and cash flow allows.

• Question from Michael Scialla (Stephens): It sounds like it doesn’t compete today with the Oswego. Can you just describe what the opportunity set is there?
  Response: It is a waterflooded asset with only eight locations; it has a 53% rate of return but is price-dependent and does not currently compete with higher-return oil plays.

• Question from Michael Scialla (Stephens): On the balance sheet... Still feeling that way [leverage will move down naturally], or do you feel compelled to pull back at all on the distribution or to do anything differently?
  Response: Leverage needs to be reduced to one times; the board is on board, and options include using the ATM program, cutting the distribution, or using equity for accretive acquisitions.

• Question from Derrick Whitfield (Texas Capital): While I realize you can’t provide 2027 guidance... should we think about higher activity in oil through the first half and some degree of shift to gas in the second half as a starting point?
  Response: Yes, that is a fair assumption; activity would be oil-weighted initially, with potential gas spending later if prices rebound.

• Question from Jeff Grampp (Northland Capital Markets): I just wanted to better understand what you guys are seeing there to drive that kind of cost improvement [in the Mancos]?
  Response: Costs are reduced through service optimization, drilling efficiency (fewer days), and new vendors, bringing completions closer to $13 million per well.

• Question from Tim Rezvan (KeyBanc Capital Markets): Are you looking at asset sales?... Are you looking to kind of get someone to farm into acreage to get some sort of carry?
  Response: Selling assets is not preferred as it would mean giving up future high-return opportunities; distribution cuts are seen as more efficient for de-leveraging.

Contradiction Point 1

Capital Allocation and Growth Strategy

Shift from maintaining flat production to actively pursuing growth.

- Neal Dingmann (William Blair)

2026Q2: Development CapEx is driven by operating cash flow and is capped at less than 50%, with flexibility to adjust spending based on prices and returns. - Kevin White(CFO), Tom Ward(CEO)

What is your reinvestment rate and how will you deploy the remaining cash flow? - Bert Donais (William Blair)

2026Q1: The strategy is to chase the best areas for high rates of return and spend only up to 50% of operating cash flow, allowing for growth if prices rise. - Tom Ward(CEO)

Contradiction Point 2

Mancos Shale Completions Strategy

Change in timing and justification for delaying Mancos completions.

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2026Q2: Completions would be difficult to justify if gas prices remain below <$3/MMBtu. A decision on a 2027 gas drilling program will depend on gas prices rebounding sufficiently, likely not until summer 2027. - Tom Ward(CEO)

Given available operating cash flow for Mancos completions, what San Juan Basin market price is needed to proceed? - Michael Scialla (Stephens)

2026Q1: The decision to delay Mancos completions (due to low gas basis) is easy given the superior returns of Clear Fork oil wells at current prices, and they will likely delay the Mancos until after January 1st. - Kevin White(CFO), Tom Ward(CEO)

Contradiction Point 3

Development Plans and Capital Allocation for 2027

Contradiction on whether 2027 plans include gas activity and production growth.

What were Texas Capital's earnings results? - Derrick Whitfield (Texas Capital)

2026Q2: The company currently has no gas activity planned for 2027. ... 2027 are to keep production flattish across all assets. - Tom Ward(CEO)

Is planning for higher oil activity in H1 2027 and a shift to gas in H2 a viable strategy? - Derrick Whitfield (Texas Capital Securities)

2025Q4: The goal is to return to the market this year after debt reduction... to continue drilling over the next five years. - Tom Ward(CEO)

Contradiction Point 4

Strategy for Mancos Shale Development

Contradiction on the urgency and conditions for starting the Mancos Shale drilling program.

Charles Meade (Johnson Rice) - Charles Meade (Johnson Rice)

2026Q2: A decision on a 2027 gas drilling program will depend on gas prices rebounding sufficiently, likely not until summer 2027. - Tom Ward(CEO)

Given sufficient operating cash flow for Mancos completions, what price threshold in the San Juan Basin market would prompt action? - Derrick Whitfield (Texas Capital Securities)

2025Q4: The Mancos wells are performing better than anticipated... The company is focused on lowering Mancos well costs to make it a more attractive option. - Tom Ward(CEO)

Contradiction Point 5

Outlook for San Juan Gas Basis and Pipeline Capacity

Contradiction on the near-term potential for San Juan gas basis tightening due to pipeline capacity.

Derrick Whitfield (Texas Capital) - Derrick Whitfield (Texas Capital)

2026Q2: San Juan basis is currently tight (~$0.20 under the hub). The company is cautious but sees long-term potential with new gas pipelines... - Tom Ward(CEO)

How does the new Permian pipeline impact the San Juan basis outlook for next year? - Michael Scialla (Stephens Inc.)

2025Q4: They expect basis to potentially tighten as weather normalizes. - Tom Ward(CEO)