10-Q: TXO Partners Reports Mixed Q1 2025 Results: Production Boosted by Acquisitions, Hedging Losses Impact Revenue

TXO Partners saw increased revenue and production in Q1 2025, driven by recent acquisitions, but net income declined due to hedging losses and increased expenses.

Summary

• TXO Partners, L.P. reported its financial results for the quarter ended March 31, 2025.
• Total revenues increased by 25% to $84.3 million compared to $67.4 million in the same period last year, primarily due to higher production volumes from recent acquisitions.
• However, net income decreased to $2.4 million, or $0.06 per unit, compared to $10.3 million, or $0.33 per unit, in Q1 2024.
• The decline in net income was attributed to hedging losses and increased production, depreciation, and interest expenses.
• Production volumes increased to 2,329 MBoe compared to 2,046 MBoe in the prior year, driven by the EMEP and KFOC acquisitions in the Williston Basin.
• The company's Credit Facility borrowing base was increased to $275 million, and outstanding borrowings were $155.0 million as of March 31, 2025.
• TXO Partners declared a cash distribution of $0.61 per common unit for Q1 2025, payable on May 23, 2025.
• The company is focused on optimizing its assets and dynamically allocating capital to achieve the highest economic returns.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. Revenue is up, but net income is down significantly due to hedging losses and increased expenses. The company is taking steps to manage costs and maintain liquidity, but the outlook is uncertain due to commodity price volatility and inflationary pressures.

Positives

• Revenues increased by 25% due to higher production volumes, primarily from the Williston Basin acquisitions.
• The Credit Facility borrowing base was increased to $275 million, providing increased financial flexibility.
• TXO Partners declared a cash distribution of $0.61 per common unit for Q1 2025.
• The company is in compliance with all debt covenants as of March 31, 2025.
• The company believes it has adequate liquidity to continue as a going concern for at least the next twelve months.

Negatives

• Net income decreased significantly from $10.3 million to $2.4 million due to hedging losses and increased expenses.
• Hedging activity resulted in net losses of $8.4 million, impacting overall revenue.
• Production expenses increased by 28%, driven by the Williston Basin acquisitions and increased labor, maintenance, and energy costs.
• Depreciation, depletion, and amortization expenses increased by 104% due to the Williston Basin acquisitions and higher rates on historical properties.

Risks

• Commodity price volatility could adversely affect the company's revenue, profitability, and future growth.
• Rising inflation could increase operating costs and impact the company's financial performance.
• The company's ability to service its indebtedness could be affected by various factors, including commodity prices and production levels.
• Failure to realize expected value creation from property acquisitions and trades could impact financial results.
• The company is exposed to environmental, weather, drilling, and other operating risks.
• Regulatory changes could impact the company's operations and financial performance.
• Evolving cybersecurity risks could disrupt operations and compromise data.

Future Outlook

The company expects the crude oil and natural gas markets will continue to be volatile in the future and intends to provide dynamic allocation of funds to prudently meet its goals, including the highest projected economic returns on its capital budget, acquisition opportunities, and cash distributions.

Management Comments

• With our anticipated cash flows from our long-lived property base, we intend to provide dynamic allocation of funds to prudently meet our goals.
• These goals include 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.
• At other times, given fluctuations in industry costs and commodity prices, we may modify our capital budget or cash balances to shift funds towards cash distributions.
• We will use all of these tools to support our underlying strategy as a production and distribution enterprise.

Industry Context

The report highlights the cyclical nature of the oil and natural gas industry and the impact of commodity price volatility on the company's performance. The company's hedging strategy and focus on cost management are common practices in the industry to mitigate these risks. The leadership changes and board appointments reflect ongoing adjustments within the company to navigate the current market environment.

Comparison to Industry Standards

• Comparing TXO Partners' performance to industry peers requires a deeper dive into specific metrics like production costs per Boe, realized prices compared to benchmark prices (NYMEX, etc.), and debt-to-EBITDAX ratios.
• Companies like Viper Energy Partners (VNOM) and Black Stone Minerals (BSM) are mineral interest companies that could be compared to TXO Partners in terms of distribution yield and asset management.
• However, TXO Partners' direct operational involvement (drilling, production) makes it also comparable to upstream E&P companies like APA Corporation (APA) or Devon Energy (DVN), though these are much larger in scale.
• TXO Partners' hedging strategy should be compared to peers to assess its effectiveness; some companies are more aggressive hedgers than others.
• The increase in production costs per Boe should be benchmarked against industry averages to determine if TXO Partners is experiencing unique challenges or if this is a broader trend.
• The debt-to-EBITDAX ratio needs to be assessed against covenant requirements and industry norms to gauge financial health.

Management Changes

Legal Proceedings

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

Related Party Transactions

• The company earned management fees from Cross Timbers Energy of $1.2 million for the three months ended March 31, 2025 and $1.1 million for the three months ended March 31, 2024.
• As of March 31, 2025 and December 31, 2024, the company, through its 5% ownership interest in investment assets at Cross Timbers Energy, had a note receivable totaling $7.1 million outstanding with a highly-rated, offshore subsidiary of Exxon Mobil Corporation.

Stakeholder Impact

• The company's performance and distributions are directly affected by commodity prices, impacting unitholders.
• The company's ability to manage costs and maintain liquidity affects its ability to fund operations and provide employment.
• The company's compliance with environmental regulations impacts the communities in which it operates.
• The company's relationships with suppliers and customers are important for maintaining stable operations.

Next Steps

• The company expects to complete its spring redetermination of the borrowing base in May 2025.
• The company will continue to monitor commodity prices and adjust its hedging strategy accordingly.
• The company will focus on optimizing its assets and dynamically allocating capital to achieve the highest economic returns.
• The company will continue to undertake actions and implement plans to address inflationary pressures and protect the requisite access to commodities and services.

Key Dates

Keywords

TXO Partners, oil and gas, production, revenue, net income, acquisitions, hedging, Credit Facility, distributions, Permian Basin, San Juan Basin, Williston Basin