10-Q: TXO Partners Reports Q1 2026 Results, Faces Revenue Decline

TXO Partners L.P. reported a significant revenue decrease for the first quarter of 2026, primarily due to substantial losses on hedging activities, despite an increase in production volumes.

Summary

• TXO Partners L.P. reported a net loss of $74.3 million for the first quarter of 2026, a significant shift from a net income of $2.4 million in the same period of 2025.
• Total revenues for Q1 2026 were $28.3 million, a decrease of 66% from $84.3 million in Q1 2025, largely driven by $91.3 million in net losses from derivative hedging activities.
• Production volumes increased by 577 MBoe, contributing to higher revenues, particularly from the Williston Acquisition.
• Production expenses rose by 13% to $47.7 million, while depreciation, depletion, and amortization (DD&A) increased by 35% to $28.8 million, both influenced by recent acquisitions.
• The company has entered into agreements to sell oil and gas properties from Cross Timbers Energy for approximately $200 million, with expected net proceeds of $100 million.
• A portion of these proceeds will be used to pay a $70 million deferred payment for the 2025 White Rock Energy acquisition, due July 31, 2026.
• The company maintained compliance with its debt covenants and believes it has adequate liquidity for the next twelve months.
• Cash available for distribution was $29.2 million for Q1 2026, slightly down from $29.3 million in Q1 2025.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to the significant net loss, substantial revenue decline driven by hedging losses, and increased operating expenses, despite positive production volume growth and asset sale progress.

Positives

• Production volumes increased by 577 MBoe compared to the prior year's quarter, driven by the Williston Acquisition.
• The company successfully closed two of three planned property sales from Cross Timbers Energy, receiving $8.2 million and $30.8 million in net proceeds respectively.
• The company expects to receive approximately $100 million in net proceeds from the remaining Cross Timbers Transactions.
• TXO Partners maintained compliance with all debt covenants as of March 31, 2026.
• The company believes it has adequate liquidity to continue as a going concern for at least the next twelve months.
• Cash available for distribution remained strong at $29.2 million for the quarter.

Negatives

• The company reported a net loss of $74.3 million for Q1 2026, compared to a net income of $2.4 million in Q1 2025.
• Total revenues decreased significantly by 66% to $28.3 million in Q1 2026, primarily due to $91.3 million in net losses from derivative hedging activities.
• Oil and condensate revenues were negative at $(2.7) million due to substantial unrealized losses on derivative contracts.
• General and administrative expenses increased by 97% to $4.8 million, largely due to amortization of unit-based compensation.
• Interest expense increased by 59% to $5.7 million due to increased borrowings.

Risks

• Commodity price volatility remains a significant risk, impacting revenue, profitability, and future growth.
• The company faces risks related to its estimated oil, natural gas, and NGL reserves, particularly the impact of commodity price declines on economic producibility.
• Concentration of operations in the Permian Basin, San Juan Basin, and Williston Basin exposes the company to regional risks.
• Difficult and adverse conditions in domestic and global capital and credit markets could impact access to capital.
• Lack of transportation and storage capacity due to oversupply, regulations, or other factors can affect operations.
• Potential financial losses or earnings reductions may result from commodity price risk management programs or the inability to manage commodity risks effectively.
• The company faces evolving cybersecurity risks.
• Inflationary pressures on the cost structure, including commodity costs for steel and chemicals, transportation, fuel, and wages, are expected to continue.

Future Outlook

The company expects the crude oil and natural gas markets to remain volatile. They intend to provide dynamic allocation of funds to meet goals including highest projected economic returns, acquisition opportunities, and cash distributions. Capital expenditures are subject to management discretion and can be deferred based on market conditions. The company expects to fund distributions, debt obligations, and 2026 capital development programs from cash flow and credit facility borrowings, but may reduce expenditures or distributions if cash flow falls short of expectations.

Management Comments

• Management believes they have adequate liquidity to continue as a going concern for at least the next twelve months.
• Management intends to use a portion of the net proceeds from the Cross Timbers Transactions to pay the $70.0 million deferred payment for the 2025 purchase of assets from White Rock Energy, LLC.
• Management believes that the ultimate disposition of pending legal matters will not have a material adverse effect on the Partnership.

Industry Context

StockSavvy.ai notes that TXO Partners' Q1 2026 results reflect the ongoing volatility in the oil and gas sector, particularly the significant impact of commodity price fluctuations and hedging strategies on reported revenues and earnings. The company's strategic asset dispositions and focus on liquidity management are common responses to these market conditions.

Comparison to Industry Standards

• The net loss of $74.3 million in Q1 2026 contrasts sharply with the net income of $2.4 million in Q1 2025, indicating a significant downturn in profitability for TXO Partners.
• The substantial unrealized losses on derivative contracts, amounting to $84.2 million for oil and condensate in Q1 2026, highlight the aggressive hedging strategies employed by some E&P companies to manage price volatility, which can lead to significant swings in reported earnings.
• The increase in production expenses per Boe to $16.43 in Q1 2026 from $18.15 in Q1 2025, despite higher overall production, suggests potential cost pressures or inefficiencies that are being managed.
• The company's Adjusted EBITDAX of $44.1 million in Q1 2026, while down from $41.0 million in Q1 2025, shows a resilience in operational cash flow generation before accounting for non-cash items and hedging impacts, a metric commonly used by industry peers for performance evaluation.

Legal Proceedings

• The Partnership is party to lawsuits arising in the ordinary course of business, but management believes the ultimate disposition of these matters will not have a material adverse effect on the Partnership.
• Other routine litigation, disputes, or claims related to business activities, including workers compensation and employment-related disputes, are not expected to have a material adverse effect.

Related Party Transactions

• Management fees were earned from Cross Timbers Energy of $1.4 million for the three months ended March 31, 2026, and $1.2 million for the three months ended March 31, 2025.
• A note receivable from a related party (a subsidiary of Exxon Mobil Corporation) totaled $7.2 million as of March 31, 2026.

Stakeholder Impact

• Unitholders may experience variable quarterly cash distributions, which could be zero in some quarters due to business performance fluctuations.
• The company's ability to fund distributions and capital expenditures relies on cash flow from operations and credit facility borrowings; shortfalls could lead to reduced capital expenditures or distributions.
• Employees may be affected by changes in compensation structures, including grants of phantom units with distribution equivalent rights.

Next Steps

• The third Cross Timbers Transaction is expected to close by the end of the second quarter of 2026.
• The company intends to use a portion of the net proceeds from the Cross Timbers Transactions to pay the $70.0 million deferred payment for its 2025 purchase of assets from White Rock Energy, LLC, due on July 31, 2026.
• The company expects to begin the process of winding down Cross Timbers Energy subsequent to the closing of the Cross Timbers Transactions.

Key Dates

Recommendation

While the company faces significant headwinds with a net loss and revenue decline due to hedging, it maintains compliance with debt covenants, has adequate liquidity, and is progressing with asset sales that will address upcoming debt obligations. The increase in production volumes is a positive sign. However, the substantial impact of commodity price volatility and hedging losses warrants a cautious approach, making 'hold' the most appropriate recommendation pending clearer market stabilization and improved financial performance.

Keywords

TXO Partners, 10-Q, Quarterly Report, Oil and Gas, Natural Gas, Commodity Prices, Hedging, Financial Results, EBITDAX, Asset Retirement Obligation, Debt Covenants, Cross Timbers Energy, WRE Acquisition