10-Q: TXO Partners Q3 Revenue Soars 47% on Acquisitions

TXO Partners, L.P. reported a significant increase in Q3 2025 revenues and operating income, driven by recent Williston Basin acquisitions and higher natural gas prices, despite a decline in nine-month net income.

Summary

• Total revenues for the three months ended September 30, 2025, increased by 47% to $100.9 million, up from $68.7 million in the prior year period.
• Operating income for Q3 2025 was $3.76 million, a substantial improvement from an operating loss of $4.97 million in Q3 2024.
• Net income for Q3 2025 rose to $4.35 million ($0.08 per common unit) from $0.20 million ($0.01 per common unit) in Q3 2024.
• For the nine months ended September 30, 2025, total revenues increased by 42% to $275.1 million, compared to $193.5 million in the same period of 2024.
• Net income for the nine months ended September 30, 2025, decreased to $6.63 million ($0.14 per common unit) from $13.28 million ($0.39 per common unit) in the prior year period.
• Production volumes for Q3 2025 increased by 24.7% to 2,626 MBoe, primarily due to Williston Basin acquisitions.
• Average natural gas selling price (excluding derivatives) increased by 34% in Q3 2025 and 33% for the nine months, contributing to revenue growth.
• The WRE Acquisition in July 2025, for $338.6 million, added $11.5 million in revenues and $2.5 million in net income for Q3 2025.
• Long-term debt increased to $271.1 million as of September 30, 2025, from $157.1 million at December 31, 2024, largely due to funding acquisitions.
• The borrowing base under the Credit Facility was increased from $275 million to $410 million on July 31, 2025.
• Cash provided by operating activities increased by $16.9 million to $85.7 million for the nine months ended September 30, 2025.
• Cash distributions per common unit have decreased, with the Q3 2025 distribution declared at $0.35, down from $0.61 in Q4 2024 and Q1 2025, and $0.45 in Q2 2025.

Sentiment

Score: 6

Explanation: The company shows strong revenue and operating income growth in the recent quarter, driven by strategic acquisitions and favorable natural gas prices. However, the nine-month net income decline, increasing debt, worsening working capital, and decreasing distributions per unit present a mixed financial picture. The significant increase in debt to fund acquisitions, while expanding production, also increases financial risk. The overall sentiment is cautiously positive due to growth but tempered by profitability and leverage concerns.

Positives

• Total revenues for the three months ended September 30, 2025, increased significantly by 47% to $100.9 million.
• Operating income for Q3 2025 improved substantially to $3.76 million from a loss of $4.97 million in Q3 2024.
• Net income for Q3 2025 saw a strong increase to $4.35 million from $0.20 million in Q3 2024.
• Production volumes increased by 24.7% in Q3 2025 and 19.8% for the nine months, primarily driven by successful Williston Basin acquisitions.
• The average selling price of natural gas (excluding derivatives) increased by 34% in Q3 2025 and 33% for the nine months, positively impacting revenues.
• Cash provided by operating activities increased by $16.9 million to $85.7 million for the nine months ended September 30, 2025.
• The Credit Facility borrowing base was increased to $410 million, enhancing liquidity and capital access.
• The company remains in compliance with all debt covenants as of September 30, 2025, and believes it has adequate liquidity for the next twelve months.

Negatives

• Net income for the nine months ended September 30, 2025, decreased by 50% to $6.63 million from $13.28 million in the prior year period.
• Net income per common unit (basic) for the nine months decreased to $0.14 from $0.39.
• Average selling prices for oil and condensate (excluding derivatives) decreased by 13% in Q3 2025 and 15% for the nine months.
• Average selling prices for natural gas liquids (excluding derivatives) decreased by 17% in Q3 2025 and 1% for the nine months.
• Long-term debt increased significantly to $271.1 million from $157.1 million at year-end 2024, primarily due to acquisition funding.
• Net working capital (excluding cash and derivatives) worsened to negative $86.3 million at September 30, 2025, from negative $2.5 million at December 31, 2024.
• Cash distributions per common unit have been decreasing, from $0.61 in Q4 2024/Q1 2025 to $0.35 for Q3 2025.
• Interest expense increased by 142% in Q3 2025 and 175% for the nine months, due to increased borrowings.
• Other income decreased by 21% in Q3 2025 and 29% for the nine months, primarily due to lower CO2 and plant income and absence of bonus payments on term assignment of leases.

Risks

• Commodity price volatility for oil, natural gas, and NGLs.
• Uncertainties regarding estimated oil, natural gas, and NGL reserves and future production rates.
• Concentration of operations in the Permian Basin, San Juan Basin, and Williston Basin.
• Difficult and adverse conditions in domestic and global capital and credit markets.
• Lack of transportation and storage capacity.
• Lack of availability of drilling and production equipment and services.
• Potential financial losses or earnings reductions from commodity price risk management programs.
• Failure to realize expected value creation from property acquisitions and trades.
• Access to capital and the timing of development expenditures.
• Environmental, weather, drilling, and other operating risks.
• Regulatory changes, including potential production curtailments.
• Competition in the oil and natural gas industry.
• Loss of production and leasehold rights due to mechanical failure or depletion.
• Ability to service indebtedness.
• Cost inflation, particularly for steel, chemicals, transportation, fuel, and wages.
• Geopolitical issues and conflicts (e.g., Israel-Hamas war, Red Sea attacks, Ukraine conflict).
• Evolving cybersecurity risks.
• Risks related to expanding the business, including recruitment and retention of qualified personnel.

Future Outlook

The company expects continued volatility in crude oil and natural gas markets. Management intends to dynamically allocate funds to meet capital budget goals, pursue acquisition opportunities, and provide cash distributions, while prioritizing debt repayment incurred in acquisitions. Inflationary pressures on costs are expected to persist, and mitigation efforts may not fully succeed. The company plans to fund 2025 capital development programs and distributions from cash flow from operations, the recent public offering, and Credit Facility borrowings, but may reduce expenditures or distributions if cash flow falls short.

Management Comments

• We intend to provide dynamic allocation of funds to prudently meet our goals, including the highest projected economic returns on our capital budget, acquisition opportunities that fulfill our strategy, and cash distributions for the life of our legacy assets.
• From time to time, we may choose to prioritize the repayment of debt incurred in acquisitions to support the longer-term financial stewardship of our business.
• Given fluctuations in industry costs and commodity prices, we may modify our capital budget or cash balances to shift funds towards cash distributions.
• We expect for the foreseeable future to experience inflationary pressure on our cost structure, particularly for steel, chemicals, transportation, fuel, and wages.
• We are taking actions to mitigate inflationary pressures, working closely with suppliers and contractors to ensure availability of critical supplies, however, these mitigation efforts may not succeed or be insufficient.
• Based on current commodity prices and our drilling success rate to date, we expect to be able to fund our distributions, meet our debt obligations and fund our 2025 capital development programs from cash flow from operations, the Offering and borrowings under our Credit Facility.

Industry Context

The oil and natural gas industry is highly cyclical and subject to significant commodity price volatility. Oil prices saw increases in the first half of 2024 due to Middle East hostilities and global consumption, but then declined into 2025 due to increased supply, tariff announcements, and global recession expectations. WTI crude oil prices ranged from $86.91/Bbl to $57.52/Bbl, and natural gas prices from $4.49/MMbtu to $3.40/MMbtu during the period. Pervasive inflation continues to increase costs for salaries, wages, supplies, materials, freight, and energy, running higher than the Federal Reserve's target, which impacts operating costs across the industry.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• The Partnership is subject to various claims and legal actions arising in the ordinary course of business, but management believes their ultimate disposition will not have a material adverse effect on the Partnership.

Related Party Transactions

• Earned management fees from Cross Timbers Energy of $1.2 million for the three months ended September 30, 2025, and $3.7 million for the nine months ended September 30, 2025.
• Had a note receivable totaling $7.1 million outstanding with a highly-rated, offshore subsidiary of Exxon Mobil Corporation, through a 5% ownership interest in investment assets at Cross Timbers Energy. Interest is earned based on the one-month SOFR rate and paid monthly.

Stakeholder Impact

• Shareholders (unitholders) experienced a decrease in quarterly cash distributions per unit, from $0.61 to $0.35, potentially impacting their income from the partnership.
• Shareholders (unitholders) benefited from increased production and revenues, but also saw a decline in nine-month net income per unit.
• Creditors (lenders) have increased exposure due to higher long-term debt, but the borrowing base was also increased, and the company remains in compliance with debt covenants.
• Employees and management received phantom unit awards, aligning their incentives with company performance and unit value.

Next Steps

• Continue dynamic allocation of funds to meet capital budget goals, pursue acquisition opportunities, and provide cash distributions.
• Monitor and manage inflationary pressures on cost structure.
• Fund 2025 capital development programs from cash flow from operations, the public offering, and Credit Facility borrowings.
• Potentially reduce capital expenditures and/or distributions if cash flow from operations does not meet expectations.
• Evaluate semi-annual borrowing base redeterminations under the Credit Facility in March and September.

Key Dates

Recommendation

The company demonstrates strong operational growth through strategic acquisitions, leading to significant increases in Q3 revenues and operating income. However, the decline in nine-month net income and per-unit metrics, coupled with a substantial increase in long-term debt and worsening net working capital, presents a mixed financial picture. While the increased borrowing base provides liquidity, the rising leverage and decreasing distributions per unit warrant caution. The stock is a 'hold' as the growth from acquisitions needs to translate into sustained profitability and improved per-unit metrics to justify a 'buy', while current operational improvements prevent a 'sell' despite the financial pressures.

Keywords

Oil and Gas, Exploration and Production, Permian Basin, San Juan Basin, Williston Basin, Commodity Prices, SEC Filing, 10-Q, Financial Results, Acquisitions, Debt, Cash Flow, Distributions, Hedging, Energy, Upstream