Mach Natural Resources Stock: Bullish 19%-Yielder Has 47% Upside
April 11, 2024
MNR Stock Boosted by Company’s Transformative Year
Things are looking up for the energy sector, particularly for overlooked stocks like Mach Natural Resources LP (NYSE:MNR).
After a sluggish 2023 fourth quarter and a slow start to 2024, oil and natural gas stocks have emerged as some of the best performers so far this year. As of this writing, energy stocks advanced 9.32% over the last month. They also managed to post an 11.8% return year-to-date, which is almost 40% higher than the S&P 500’s return of 8.5% over the same period.
Moreover, after starting 2024 at just $70.00 per barrel, West Texas Intermediate (WTI) crude oil prices have rallied by an impressive 20% to about $87.00 per barrel. Oil prices are set to hit a high of $100.00 per barrel this year.
The price of oil, which is at its highest level in nearly six months, has been surging due to tensions in the Middle East and ongoing production cuts by the Organization of the Petroleum Exporting Countries Plus (OPEC+).
Furthermore, the demand for oil is expected to be robust in 2024, about 1.9 million barrels per day higher than in 2023. That’s according to the CEO of Vitol Group, Russell Hardy, who also projects that oil demand will be about 2.0 million barrels per day in the second half of this year. (Source: “Top Commodity Trader Sees Oil in $80-$100 Range This Year,” OilPrice.com, April 9, 2024.)
Those industry dynamics are perfect for Mach Natural Resources LP, an energy exploration and production company.
Mach Natural Resources focuses on the acquisition, development, and production of oil, natural gas, and NGL reserves—mainly in the Anadarko Basin region of western Oklahoma, southern Kansas, and the Texas panhandle. (Source: “Initial Presentation,” Mach Natural Resources LP, last accessed April 9, 2024.)
The company’s property portfolio includes about 936,000 net acres with a production mix of 53% gas and 47% liquid. Its 2,000+ drilling locations support sustainable production, with its 770 gross horizontal drilling locations being economic at just $50.00 per barrel.
The limited partnership has a strong track record of making acquisitions during various commodity cycles. Since its inception in early 2018, Mach Natural Resources LP has closed 16 transactions totaling about $960.0 million and has returned about $653.0 million to its members through the end of September 2023.
Most investors haven’t heard of Mach Natural Resources stock, likely because it only went public in October 2023. That month, it completed the largest initial public offering (IPO) for an energy exploration and production company since 2017.
The partnership has been making waves since then. In December 2023, it closed on its $815.0-million acquisition of assets in the Anadarko Basin from the privately held Paloma Partners Management Company. (Source: “Mach Announces Acquisition of Paloma Assets,” Mach Natural Resources LP, November 13, 2023.)
Mach Natural said the 62,000 net acres that it acquired from Paloma Partners have reserves of 75.0 million barrels of oil equivalent (BOE) and recent production of roughly 32,000 BOE per day. (Source: “Mach Natural Resources LP Announces Third-Quarter 2023 Financial and Operating Results,” Mach Natural Resources LP, December 6, 2023.)
Mach Natural Resources LP Generated Net Income of $347 Million in 2023
Since Mach Natural Resources only went public in late 2023, its publicly reported earnings history is a little light, but it’s certainly robust. In the third quarter of 2023, the company generated average sales volumes of 66,280 BOE per day, net income of $94.0 million, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $140.0 million. (Source: Ibid.)
Commenting on the quarterly results, Tom L. Ward, Mach Natural Resources LP’s CEO, said, “In the third quarter, we generated strong cash flow from better-than-expected production volumes while controlling costs across all areas of our business…As we look ahead, our focus will remain the same—execute on our operations so that we can continue to deliver robust distributions to our unitholders.”
For full-year 2023, Mach Natural Resources reported total net production of 50,440 BOE per day, which consisted of 29% oil, 54% natural gas, and 17% natural gas liquids (NGL). (Source: “Mach Natural Resources LP Reports 2023 Results and Year-End Reserves,” Mach Natural Resources LP, April 1, 2024.)
In 2023, the partnership generated total revenues of $762.0 million and net income of $347.0 million. It also generated net cash from operating activities of $492.0 million and adjusted EBITDA of $450.0 million.
Looking ahead, management reaffirmed its 2024 guidance. This includes spending $250.0 to $275.0 million, of which about 90% will be associated with drilling and completion activities. The company expects its total production in 2024 to range from 81,300 to 86,400 BOE per day.
Management Declared First Quarterly Dividend in February
In Mach Natural Resources LP’s 2023 earnings release, Ward said, “Our strategic focus is maximizing cash distributions by keeping our reinvestment rate below 50% and evaluating acquisitions which are accretive to our distribution. We will toggle between acquiring and drilling as the market allows to maximize our distributions to unitholders.” (Source: Ibid.)
He’s been true to his word so far. In February, the company declared its first quarterly cash dividends of $0.95 per unit. (Source: “Mach Natural Resources LP Declares Fourth Quarter 2023 Cash Distribution and Provides 2024 Guidance,” Mach Natural Resources LP, February 15, 2024.)
That works out to an annual yield of 19.11% (as of this writing).
Mach Natural Resources Stock Up 26% Year-to-Date
Typically, a stock’s ultra-high-yield distribution is tied to a weak share price. That isn’t the case with MNR stock. On April 1, Mach Natural Resources LP’s unit price hit a record intraday high of $20.37, for a year-to-date gain of 30% at the time. MNR units have pretty much held on to those gains since then.
As you can see in the chart below, it hasn’t been entirely smooth sailing for Mach Natural Resources units. The company had the misfortune of going public in late 2023 at a time when oil and gas prices were depressed.
That sentiment has since changed, and Mach Natural Resources stock has been rising along with oil prices. Recently, however, the price of MNR units has been rising at a faster clip than the price of oil.
Year-to-date, MNR stock is up by 26%, while WTI crude oil is up by 21% (as of this writing). Trading hands at $19.83, MNR units are also up by 13% since going public on October 25, 2023.
Despite already making double-digit gains and trading at record-high levels, the outlook for MNR units is excellent. Wall Street analysts have provided a 12-month target of $23.00 to $29.00. This points to potential gains in the range of approximately 17% to 47%.
Chart courtesy of StockCharts.com
The Lowdown on Mach Natural Resources LP
Mach Natural Resources may be the new kid on the energy block, but so far, it’s been outpacing many of its peers. In its transformative 2023, the partnership completed the largest IPO for an energy exploration and production company since 2017 and closed on its acquisition of Paloma Partners Management Company.
Management reported fabulous third-quarter and full-year 2023 results and reaffirmed its full-year 2024 guidance, which includes high production numbers.
And thanks to Mach Natural Resources LP’s low operating costs, 2,000+ highly economic drilling locations, sustainable production, and high cash flow, MNR stock has been able to start providing investors with big quarterly dividends.
