TXO's Comprehensive Business Overview
TXO Partners LP (TXO) is a unique oil and gas company focused on the acquisition, development, optimization, and exploitation of conventional oil, natural gas, and natural gas liquid reserves in North America. Through its long-lived, low-risk property base and strong financial stewardship, TXO has established itself as a production and distribution enterprise committed to providing ongoing cash returns while creating long-term value for its unitholders.
TXO Partners, L.P. was formed as a Delaware limited partnership in January 2012, with operations effectively beginning on January 18, 2012. The company's operations are governed by the provisions of the partnership agreement, as amended, executed by the general partner, TXO GP, LLC, and the limited partners.
TXO's assets include its investment in an unincorporated joint venture, Cross Timbers Energy, LLC, which is governed by a Member Management Committee comprised of six representatives, three from TXO Partners and three from the XTO Entities. Cross Timbers' properties are primarily located in the San Juan Basin of New Mexico and Colorado and the Permian Basin of West Texas and New Mexico. Additionally, TXO Partners owns a wholly-owned subsidiary, MorningStar Operating, LLC, which holds oil and gas assets primarily in the San Juan Basin, Permian Basin, and Williston Basin.
In January 2023, TXO Partners underwent a series of reorganization transactions in preparation for its public listing on the New York Stock Exchange. These transactions included a reverse unit split, an exchange of all outstanding Series 5 preferred units for common units, and an amendment to the partnership's governing documents. As a result, TXO Partners' capital structure now consists of a single class of common units.
The company has pursued a strategy of growth through acquisitions to establish its presence in key operating areas. In 2022, TXO acquired additional interests in its producing properties and gas processing plant in the Permian Basin of New Mexico. More recently, in 2024, the company completed acquisitions of producing properties in the Williston Basin of Montana and North Dakota, significantly increasing its proved reserves and production.
Throughout its history, TXO Partners has maintained a focus on efficient operations and prudent financial management, even in the face of challenges such as volatile commodity prices and the COVID-19 pandemic. The company has consistently worked to optimize its existing assets, control costs, and maintain a conservative capital structure, enabling it to generate stable cash flows and provide cash distributions to its unitholders over time.
The company's management team boasts over 30 years of experience in the oil and gas industry on average, having previously held executive roles at XTO Energy Inc. This seasoned leadership has been instrumental in TXO's success, as the team has demonstrated a proven track record of identifying, acquiring, and optimizing long-lived and low-decline assets. In fact, the management team has collectively invested more than $500 million in TXO since its inception, further aligning their interests with those of the company's unitholders.
Financials
TXO's financial position is characterized by a strong and conservative balance sheet, with a focus on maintaining a disciplined leverage profile. As of December 31, 2024, the company had $150 million in outstanding borrowings under its credit facility, resulting in a net debt-to-EBITDAX ratio of approximately 1.0x. This financial flexibility allows TXO to effectively allocate capital and grow its reserves and production, while also providing the necessary liquidity to fund its ongoing operations and potential future acquisitions.
For the fiscal year 2024, TXO reported total revenue of $282.81 million, with net income of $23.50 million and operating cash flow of $109.30 million. The company's most recent quarter (Q4 2024) saw revenue of $89.33 million and net income of $10.22 million.
TXO's liquidity position remains strong, with $7.30 million in cash and $125 million available under its $275 million Credit Facility as of December 31, 2024. The company's debt-to-equity ratio stands at 0.26x, while its current ratio and quick ratio are both 0.97x, indicating a solid short-term financial position.
Operational and Financial Performance
In 2024, TXO reported total revenues of $282.81 million, a decrease from $380.72 million in the prior year. This decline was primarily attributable to a decrease in average selling prices for oil, natural gas, and NGLs, as well as lower realized gains on the company's commodity derivative contracts. Despite the revenue decline, TXO's production volumes increased to 8.56 million barrels of oil equivalent (MBoe) in 2024, up from 8.40 MBoe in 2023, largely due to the acquisition of producing assets in the Williston Basin.
TXO's net income for the year ended December 31, 2024, was $23.50 million, compared to a net loss of $103.99 million in 2023. The significant improvement in net income was primarily driven by the absence of a $223.38 million impairment charge that was recorded in the prior year, as well as lower operating expenses. Additionally, the company's operating cash flow for 2024 was $109.30 million, up from $77.15 million in 2023, reflecting the company's ability to generate strong cash flows from its operations.
Despite the challenging market conditions, TXO maintained its focus on prudent capital allocation and financial discipline. In 2024, the company incurred $28 million in development capital expenditures, which it plans to increase to $30 million to $50 million in 2025. These investments are expected to be funded primarily from the company's cash flow from operations, further strengthening its balance sheet and liquidity position.
Liquidity
TXO's strong financial position and conservative balance sheet provide the company with ample liquidity to fund its operations and pursue growth opportunities. The company's focus on maintaining a disciplined leverage profile and generating strong cash flows from operations ensures that it has the financial flexibility to weather market volatility and capitalize on strategic opportunities as they arise.
Operational Segments and Production
TXO Partners' operations are primarily concentrated in three key geographical regions: the Permian Basin, the San Juan Basin, and the Williston Basin.
The Permian Basin segment is TXO Partners' largest operating area, accounting for approximately 32% of the company's total production in 2024. In 2024, TXO Partners drilled or participated in the drilling of 6 gross wells in the Permian Basin and expects to drill or participate in approximately 1 gross well in 2025.
The San Juan Basin segment accounts for approximately 54% of TXO Partners' total production. In 2024, TXO Partners drilled or participated in the drilling of 18 gross wells in the San Juan Basin and expects to drill or participate in approximately 14 gross wells in 2025.
The Williston Basin segment, which includes the Bakken formation, was acquired by TXO Partners in 2024 through the Eagle Mountain Energy Partners and Kaiser Francis acquisitions. It accounted for approximately 9% of the company's total production in 2024. TXO Partners drilled or participated in the drilling of 2 gross wells in the Williston Basin during 2024 and expects to drill or participate in approximately 6 gross wells in 2025.
Across all three of its operating regions, TXO Partners reported total production of 23.39 thousand barrels of oil equivalent per day (MBoed) in 2024, with oil comprising approximately 32% of total production, natural gas 54%, and NGLs 14%. The company's proved reserves as of December 31, 2024, were approximately 93.83 million barrels of oil equivalent (MMBoe), of which 89% were proved developed. TXO Partners' standardized measure of discounted future net cash flows from its proved reserves was $976.59 million as of December 31, 2024.
Mancos Shale Development and Growth Opportunities
In addition to its core operating areas, TXO has identified a significant growth opportunity in the Mancos Shale, a large natural gas field located in the San Juan Basin. The company holds an approximately 58,500-acre contiguous position in the Mancos Shale, which it believes has the potential to contain 3.5 trillion cubic feet of natural gas. TXO has identified a 3,500-acre block as Phase I for developing and monetizing these reserves, representing approximately 6% of its current Mancos position.
Given that TXO's Mancos Shale acreage is held by production, the company plans to develop this resource at a measured pace as commodity prices allow. As of December 31, 2024, the company did not have any proved reserves associated with its Mancos Shale position, but it believes this represents a significant long-term growth opportunity that could further enhance its production and reserve base.
Risks and Challenges
As with any oil and gas company, TXO faces a variety of risks and challenges that could impact its future performance. The volatility of oil, natural gas, and NGL prices is a significant risk factor, as the company's revenues, profitability, and cash flows are highly dependent on the prices it receives for its production. To mitigate this risk, TXO has implemented a hedging strategy to protect a portion of its future production, but it remains exposed to commodity price fluctuations.
Additionally, TXO's operations are subject to various federal, state, and local laws and regulations, which can result in increased costs and delays in the company's drilling and development activities. Changes in these regulations, or in their interpretation and enforcement, could have a material adverse effect on TXO's business.
Another key risk is the company's reliance on a limited number of significant purchasers for the sale of its oil, natural gas, and NGL production. The loss of one or more of these purchasers could limit TXO's access to suitable markets for its production and adversely affect its financial condition and results of operations.
Industry Trends and Market Conditions
The oil and gas industry has experienced significant volatility in commodity prices over the past few years. WTI crude oil prices ranged from a high of $123.70 per barrel to a low of $65.75 per barrel during the period from January 1, 2022 to December 31, 2024. Natural gas prices also experienced similar volatility, reaching a high of $9.68 per MMBtu and a low of $1.58 per MMBtu over the same time period.
Despite this volatility, the Permian Basin, San Juan Basin, and Williston Basin where TXO Partners operates have remained relatively stable and are expected to continue providing growth opportunities for operators like TXO Partners. The company's focus on acquiring and exploiting long-lived, low-decline conventional oil and gas assets in these prolific producing basins has enabled it to maintain a stable production profile and generate consistent cash flows to support its distribution to unitholders.
Recent Acquisitions and Strategic Moves
In August 2024, TXO Partners completed the acquisitions of producing properties in the Williston Basin for total consideration of $312.60 million. These acquisitions were funded through a combination of cash on hand and borrowings under its Credit Facility. The Williston Basin acquisitions have increased the company's scale and production, further diversifying its asset base and providing additional opportunities for growth.
Outlook and Conclusion
Despite the challenges faced by the oil and gas industry, TXO Partners LP has demonstrated its resilience and commitment to delivering long-term value to its unitholders. The company's seasoned management team, conservative financial profile, and strategic focus on low-risk, long-lived assets position it well to navigate the volatile market environment and capitalize on growth opportunities, such as the development of its Mancos Shale position.
Looking ahead, TXO's guidance for 2025 includes a target full-year distribution in excess of $2.45 per unit, reflecting the company's confidence in its ability to generate sustainable cash flows and grow its business over the long term. As TXO continues to execute on its strategy and capitalize on the inherent value of its asset base, it remains well-positioned to create value for its unitholders and establish itself as a premier production and distribution enterprise in the oil and gas industry.