By: Jon Costello
Mach Natural Resources LP (MNR) sold off by more than 10% on Tuesday after pricing a 9-million-unit secondary offering at $13.05 per unit. By today’s close, the units continue to trade nearly 6% below the offering price. The units’ selloff in response to the news is silly, and it presents an opportunity for long-term investors willing to look past the headline.
The Secondary Is Not What The Market Thinks
On April 6, three selling unitholders, Vepu Inc., Simlog Inc., and Sabinal Energy Operating LLC, priced a secondary offering of 9 million common units, with Morgan Stanley serving as the bookrunner. The sellers also granted a 30-day greenshoe option for an additional 1.35 million units.
The units’ selloff suggests the secondary offering is significantly dilutive to common unitholders, even though Mach is not issuing a single new unit and the company will not receive any proceeds from the offering. Only existing units are being sold, which are already counted in Mach’s 168 million units outstanding. These units are already reflected in every per-unit financial metric.
In short, the secondary is a large unitholder liquidity event, not a capital raise. Nothing about the economics of Mach’s business has changed as a result of this offering.
As a longtime investor in MLPs, this activity in the units comes as no surprise. I’ve seen many sponsor-backed midstream entities go through a predictable cycle that begins with early investors holding large blocks of common units, which suppresses the units’ trading multiple. The market then treats every secondary offering as a negative signal. Eventually, the overhang clears and the unit price re-rates to higher levels. Hess Midstream (HESM), another longtime holding of ours, has experienced such a cycle.
Mach units’ response to this secondary strikes me as similar. The unit price has declined even though the secondary had no dilutive effect, while bringing benefits such as increased public float, improved daily trading liquidity, and, arguably, an improved unitholder base. All these factors are long-term positives, not a reason to sell.
Resilience Amid a Brutal Selloff
I bought Mach units on Tuesday at an average cost of $12.69 per unit. The days that followed the purchase have provided an unexpected but instructive test of Mach’s downside resilience. Wednesday’s session was the worst day for the energy sector in a year. The SPDR S&P Oil & Gas E&P ETF (XOP) fell 6.3%, Diamondback Energy (FANG) dropped 7%, Occidental Petroleum (OXY) fell 7%, and APA Corporation (APA) lost more than 9%. The trigger for the selloff was the announcement of a conditional ceasefire and the potential reopening of the Strait of Hormuz, which sent WTI crude tumbling from above $112 per barrel to the mid-$90s in a single session as the market rushed to unwind the war premium.
Against that backdrop, after the headwind from Mach’s secondary offering, its units have declined only 2.7% since my purchase. Their relative resilience reflects the excessive selling that occurred on Tuesday, as well as their status as an unloved MLP. But I believe it also reflects the nature of Mach’s asset base, which consists of long-lived, low-decline wells across the Anadarko and San Juan Basins. The company’s low cost structure enables it to generate free cash flow at virtually any oil price above $40 per barrel, so Mach isn’t likely to get dragged down as violently as operators running on the treadmill of high-decline Permian shale with higher breakeven costs per barrel. Its business resilience translates into resilience in its unit price, particularly when that price is as discounted as it is today.
Mach’s Valuation Disconnect
At our $12.69-per-unit purchase price, Mach’s enterprise value stands at approximately $3.2 billion, comprised of its roughly $2.2 billion market capitalization and $1.1 billion in net debt. At year-end 2025, Mach reported total proved reserves of 705 million barrels of oil equivalent, representing a 109% year-over-year increase, with a PV-10 value of $3.1 billion. The PV-10 alone covers nearly the entire enterprise value, implying that the market assigns essentially zero value to owned midstream infrastructure, future development upside, and continued growth through future accretive acquisitions.
Consider that under current management, Mach has never acquired an asset at a price in excess of PDP PV-10. When management consistently buys oil and gas assets below their intrinsic value at low commodity prices, and commodity prices then increase while the market value remains flat, the gap between market price and asset value becomes a coiled spring. In today’s commodity environment, the spring is very tightly coiled.
Mach’s valuation gap widens further when measured against corporate E&P peers. Mach trades at approximately 4.4x EV/EBITDA. At first glance, that looks to be in line with some C-corp peers, such as Devon Energy (DVN), at 4.7x. But Mach is a master limited partnership, which requires K-1 tax forms, multi-state filing obligations, and disqualification from most tax-advantaged retirement accounts. Many institutional investors cannot or will not hold MLPs. The more limited universe of potential buyers structurally depresses the unit price relative to what the same assets would command inside a C-corp, creating a sort of “form-over-substance” penalty that has nothing to do with the quality of the business.
Moreover, Mach’s EV/EBITDA multiple is significantly lower than Diamondback (FANG) at 6.0x, EOG Resources (EOG) at 6.0x, and ConocoPhillips (COP) at 6.9x. Investors can purchase Mach at a 25% discount from these names.
The yield differential tells the story. Mach yields significantly more than 10% at current prices. Meanwhile, Devon yields roughly 1.8%, EOG yields 2.9%, and ConocoPhillips yields 2.6%. Investors can therefore buy Mach at a lower multiple and receive three to five times the cash distribution. When its units’ overhang eventually clears through either secondaries reducing the sponsor’s stake, a potential C-corp conversion, and/or simply the passage of time, the re-rating potential is far greater than that of a comparably valued C-corp.
Mach offers relatively greater downside protection in a prolonged crude price disruption. Its variable distribution model means distributions ramp directly with oil prices, unlike peers whose capital allocation is weighted toward buybacks and fixed dividends. If crude falls sharply, Mach’s $10.72 per Boe cash operating cost and 17% corporate decline rate provide a wider margin of safety than Permian E&Ps with cash operating costs at $15 to $20 per Boe with 30% to 40% declines. In either direction, Mach is better positioned than its multiple suggests.
And deleveraging will accelerate, as every dollar of incremental cash flow from elevated commodity prices flows through to debt reduction, shortening the time to achieve to management’s 1.0x leverage target. The company will emerge from this episode prepared for its next phase of acquisitive and opportunistic growth, which I expect will come once commodity prices have fallen to lower levels.
The Distribution Engine
In 2025, Mach paid $1.97 per unit in total cash distributions, representing a yield of 16% at Mach’s current unit price. The fourth-quarter 2025 distribution was $0.53 per unit, which was paid on March 12, 2026.
Mach’s capital allocation plan stipulates that no more than 50% of operating cash flow is to be reinvested in the company’s development capital, with the remaining capital distributed to unitholders. For 2026, management has guided to $315 to $360 million in total development capital against a production target of 150 to 157 MBoe/d. That reinvestment ceiling is a structural feature of how the company operates. It creates a floor under distributions that doesn’t depend on management’s discretion in any given quarter.
My fourth-quarter 2025 earnings review, published on March 17, walked through the distribution math under an $82.50-per-barrel WTI scenario. It is worth revisiting, as the conclusion remains the same and the commodity environment has only improved since then.
At $82.50 per barrel WTI, we estimate that Mach’s quarterly distribution could rise from approximately $0.53 to approximately $0.74 per unit, representing a 40% increase, driven primarily by the revenue uplift on unhedged production volumes net of roughly $59 million in annual hedge settlement losses. Annualized, that implies approximately $2.96 per unit, or a yield approaching 20% at a $15 unit price. With WTI currently trading around $100 per barrel, the actual upside is even more pronounced, though Mach’s hedge book, which included 3,436 MBbl in fixed-price swaps at $66.13 per barrel and 549 MBbl in costless collars with a $78.05 per barrel ceiling, caps some of the near-term benefit. The point is not that $0.74 is a precise forecast. It is that the distribution’s sensitivity to oil prices is substantial, and the current price environment is extremely favorable for unitholders.
Balance Sheet and Path to Deleveraging
Net debt of approximately $1.1 billion against pro forma trailing-twelve-month adjusted EBITDA puts its leverage ratio at roughly 1.3x as of the end of last year. Management has been clear about its priority to return to 1.0x leverage before pursuing further acquisitions. With $338 million of available liquidity under a $1.0 billion revolving credit facility, Mach’s balance sheet is not stressed.
The deleveraging path and the distribution are funded by the same cash flows. The capital allocation framework accommodates both without forcing a trade-off, and every quarter of execution brings leverage closer to management’s target.
Catalysts on the Horizon
The next potential inflection point for Mach units is the company’s first-quarter 2026 earnings, expected in May. This will be the market’s first clean look at production and cash flow tracking against the 150 to 157 MBoe/d guidance and the company’s new capital plan.
Meanwhile, management’s development of the Mancos shale in the San Juan Basin, which CEO Tom Ward has called a “world-class reservoir,” adds optionality that is not priced in. If those results continue to outperform, the reserve and production trajectory has meaningful upside beyond current guidance.
Later in the year, I expect improved financial results to be another catalyst from Mach’s current stock price. Mach’s multi-basin position across the Anadarko and San Juan Basins, consisting of more than 10,000 net producing wells on long-life, low-decline assets, generates ample cash in low-commodity-price environments, but is a cash machine at higher commodity prices like today’s. The market will have a better grasp of Mach’s cash generation potential over the coming quarters, which I expect will bolster distributions and drive the units higher.
Conclusion
My approach to a position like Mach in the HFIR Energy Income Portfolio is the same as for Genesis Energy LP (GEL) and other income-oriented holdings. I aim to manage the portfolio conservatively, prioritizing income safety over trying to goose returns by timing commodity cycles or holding out for a few extra points of upside. Once my return parameters are met, I consider selling. The goal is steady, compounding income, not heroics. Mach’s deeply discounted units, low cost structure, and unitholder-friendly distribution framework are built for exactly this kind of patient, income-first approach.
At $12.69, we’re buying a vehicle that is yielding significantly more than 10% based on oil prices we expect to prevail this year, backed by $3.1 billion of proved reserves calculated at lower oil prices, run by a management team with a consistent track record of capital discipline with a clear path to deleveraging and multiple upcoming catalysts. The MLP discount that compresses Mach’s multiple relative to corporate E&P peers is a gift to investors willing to put up with the hassle of a K-1 at tax time. When the unit overhang clears, Mach’s re-rating potential is far greater than what Devon or EOG offer from current levels.
Mach’s secondary offering changed nothing about the business. It moved existing units from one set of hands to another. The 10% selloff it triggered is a gift. Investors interested in both income and capital appreciation should consider buying the units at a bargain price below $13.
Analyst’s Disclosure: Jon Costello has a beneficial long position in the shares of MNR, GEL, HESM either through stock ownership, options, or other derivatives.