TXO

TXO Partners, L.P. - 10-Q Filing Summary (Q2 2026)

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2026. TXO Partners, L.P. is an independent oil and gas company operating primarily in the Permian, San Juan, and Williston Basins. The company is currently in the process of winding down its 50% joint venture, Cross Timbers Energy, LLC, following the sale of its assets in the first half of 2026. The company is classified as an accelerated filer and an emerging growth company.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Composition: Q2 2026 revenues surged 68% compared to Q2 2025, driven by a 58% increase in realized oil prices (excluding derivatives) and increased production volumes from the Williston Basin acquisition. However, YTD 2026 revenues were only 3% higher than YTD 2025 due to significant hedging losses in the first half of 2026.
• Profitability Volatility: While Q2 2026 reported a net income of $60.8 million, the YTD 2026 period resulted in a net loss of $13.6 million. This divergence is primarily due to a $42.2 million unrealized loss on oil derivatives recognized in the first half of 2026, contrasting with a $6.4 million unrealized gain in the same period in 2025.
• Asset Dispositions: The company completed the sale of Cross Timbers Energy assets in Q2 2026, generating $100.3 million in proceeds from investing activities. This contrasts with the prior year, which saw significant capital outflows for acquisitions.
• Liquidity Position: Cash and cash equivalents increased from $9.4 million at year-end 2025 to $107.5 million at June 30, 2026, largely due to proceeds held from the Cross Timbers Energy asset sales.

Guidance, Outlook, and Risks

• Capital Allocation: Management intends to use proceeds from asset sales to pay down debt and fund distributions. A $70.0 million deferred payment for the White Rock Energy acquisition was paid in July 2026 using proceeds from the Cross Timbers wind-down.
• Capital Expenditures: The company incurred $33.1 million in development costs for the first half of 2026 and expects to spend approximately $80 million for such costs in the full year 2026. Management retains flexibility to defer expenditures based on commodity prices.
• Hedging Strategy: The company maintains a hedging program to manage price volatility. As of June 30, 2026, the net fair value of derivative contracts was a liability of $17.2 million. A waiver of hedge requirements for months 19-24 was received in June 2026.
• Risks: Key risks include commodity price volatility, inflationary pressures on operating costs (steel, diesel, labor), and the successful integration of acquired assets. The company notes that a sustained decline in commodity prices could adversely affect its ability to meet capital expenditure obligations.

Investor Verification Checklist

• Derivative Impact: Verify the reconciliation of GAAP net income to Adjusted EBITDAX to understand the magnitude of unrealized derivative losses ($42.2 million YTD 2026) impacting reported earnings.
• Cross Timbers Wind-Down: Confirm the timeline and final proceeds from the remaining wind-down of Cross Timbers Energy, LLC, as the initial $95.0 million distribution was received in July 2026 (subsequent to the reporting period).
• Debt Covenants: Review the Credit Facility terms, specifically the leverage ratio (Net Debt to EBITDAX) and current ratio covenants, to ensure compliance given the recent asset sales and debt paydowns.
• Production Volumes: Analyze the sustainability of the production increase (29 MBoe/d in Q2 2026 vs. 26 MBoe/d in Q2 2025) driven by the Williston Basin acquisition versus natural declines in legacy basins.
• Deferred Payment Obligation: Confirm the settlement of the $70.0 million deferred payment for the White Rock Energy acquisition, which was due July 31, 2026.