Business Context and Reporting Period
Company: TXO Partners, L.P.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2024
Business Overview: TXO Partners is an independent oil and natural gas company focused on the acquisition, development, optimization, and exploitation of conventional reserves in North America. Operations are concentrated in the Permian Basin (West Texas/New Mexico), San Juan Basin (New Mexico/Colorado), and the Williston Basin (Montana/North Dakota). The company operates as a "production and distribution" enterprise, aiming to maintain flat to low growth production while maximizing cash distributions to unitholders.
Key Financial Metrics
| Metric | 2024 | 2023 | Change |
|---|---|---|---|
| Total Revenues | $282.8 million | $380.7 million | (26%) |
| Net Income (Loss) | $23.5 million | $(104.0) million | Turnaround to Profit |
| Adjusted EBITDAX | $108.7 million | $73.9 million | +47% |
| Cash Available for Distribution | $79.1 million | $34.7 million | +128% |
| Net Cash from Operating Activities | $109.3 million | $77.2 million | +42% |
| Capital Expenditures (Total) | $288.3 million | $46.2 million | +524% |
| Development Costs Only | $28.0 million | $29.8 million | (6%) |
| Outstanding Debt (Credit Facility) | $150.0 million | $21.0 million | +614% |
| Net Debt-to-EBITDAX Ratio | ~1.0x | ~0.3x | Increased |
| Proved Reserves (MBoe) | 93.8 million | 100.2 million | (6%) |
| Average Daily Production (Boe/d) | 23,387 | 23,000 (approx) | Flat |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 26% to $282.8 million, primarily driven by a 60% drop in natural gas prices (excluding derivatives) and a 4% drop in oil prices. This was partially offset by a 2% increase in production volumes due to the Williston Basin acquisitions.
- Profitability Improvement: The company returned to net income of $23.5 million in 2024, compared to a net loss of $104.0 million in 2023. The 2023 loss included a significant non-cash impairment charge of $223.4 million related to Permian Basin assets, which did not recur in 2024.
- Major Acquisition: In August 2024, the company completed the Williston Basin Acquisitions (Eagle Mountain and Kaiser Francis) for approximately $312.6 million (cash and equity). This significantly increased capital expenditures and debt levels but added production capacity.
- Debt Increase: Borrowings under the Credit Facility increased from $21.0 million to $150.0 million to fund the Williston Basin acquisitions, raising the net debt-to-EBITDAX ratio to approximately 1.0x.
- Reserve Revisions: Proved reserves decreased by 6% to 93.8 MBoe, primarily due to downward revisions from lower commodity prices and changes in development plans, partially offset by purchases in place from the Williston acquisitions.
Guidance, Outlook, and Risks
- 2025 Capital Budget: Management expects to incur approximately $30 million to $50 million in development capital expenditures for 2025, funded primarily by cash flow from operations.
- Production Outlook: The company aims to maintain a flat to low growth production profile. Drilling activity is expected to focus on the Williston Basin (approx. 50% of work), San Juan Basin, and Permian Basin.
- Commodity Price Volatility: Management notes continued volatility in oil and natural gas markets. Natural gas prices rebounded to $3.05/MMBtu as of late January 2025 after hitting lows of $1.58/MMBtu in early 2024.
- Hedging Strategy: The company opportunistically hedges production. As of December 31, 2024, it had open swaps covering oil production through late 2026 and natural gas through late 2026. Credit facility covenants require minimum hedge volumes based on leverage ratios.
- Key Risks:
- Customer Concentration: Chevron USA and Gunvor USA accounted for nearly 46% of total revenues in 2024.
- Joint Venture Control: Approximately 24% of revenues and reserves are held through the Cross Timbers joint venture, requiring unanimous consent for major decisions.
- Regulatory Environment: Risks related to methane emissions regulations (Inflation Reduction Act fees), climate change litigation, and potential changes in federal leasing policies.
- Debt Covenants: The company must maintain a current ratio >1.0 and a total indebtedness-to-EBITDAX ratio not exceeding 3.0 to 1.0.
Investor Verification Checklist
- Williston Basin Integration: Verify the actual production ramp-up and cost performance of the newly acquired Williston Basin assets against the $312.6 million investment.
- Debt Service Capacity: Confirm that operating cash flows remain sufficient to service the increased $150 million debt load and maintain the target net debt-to-EBITDAX ratio of 1.0x.
- Commodity Price Sensitivity: Assess the impact of potential further declines in natural gas prices on the borrowing base redetermination (scheduled semi-annually) and the ability to fund the 2025 capital budget.
- Customer Concentration: Monitor the stability of relationships with Chevron and Gunvor, which represent nearly half of total revenue.
- Reserve Revisions: Track future reserve reports for continued downward pressure on proved reserves due to price volatility or development plan changes.