TXO Partners, L.P. - Q3 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2024. TXO Partners, L.P. is an independent oil and natural gas company operating primarily in the Permian Basin, San Juan Basin, and the Williston Basin. The company is an accelerated filer and an emerging growth company. As of November 5, 2024, there were 40,913,332 common units outstanding.
Key Financial Metrics
| Metric (in thousands) | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Total Revenues | $68,731 | $69,874 | $193,478 | $288,745 |
| Net Income | $203 | $8,479 | $13,278 | $89,742 |
| Net Income Per Unit (Diluted) | $0.01 | $0.27 | $0.39 | $2.93 |
| Operating Cash Flow (YTD) | $68,792 (2024) vs $59,732 (2023) | |||
| Long-Term Debt | $155,100 | $28,100 | (Balance Sheet) | |
| Cash and Equivalents | $3,846 | $4,505 | (Balance Sheet) | |
| Adjusted EBITDAX (YTD) | $67,684 (2024) vs $50,049 (2023) |
Material Changes vs. Prior Period
- Revenue Decline: YTD revenues decreased 33% to $193.5 million, driven primarily by a 67% drop in average natural gas selling prices (excluding derivatives) and a 1% decrease in oil prices. Q3 revenues were relatively flat year-over-year ($68.7M vs $69.9M).
- Profitability Impact: Net income dropped significantly due to lower commodity prices and increased expenses. Q3 operating loss was $4.97 million compared to $4.38 million operating income in Q3 2023.
- Acquisitions: In August 2024, the company completed the "EMEP Acquisition" (Williston Basin) for $241.8 million cash and 2.5 million units ($50M value), and the "KFOC Acquisition" for $18.2 million cash. These added production but increased depreciation and production costs.
- Debt Increase: Long-term debt surged from $28.1 million (Dec 31, 2023) to $155.1 million (Sep 30, 2024) to fund acquisitions. The Credit Facility borrowing base was increased to $275 million.
- Equity Raise: The company raised approximately $141.2 million in net proceeds from a public offering in June/July 2024.
Guidance, Outlook, and Risks
- Outlook: Management expects continued volatility in oil and gas markets. The company intends to maintain a "production and distribution" strategy, using cash flows to fund distributions and capital budgets.
- Distributions: A cash distribution of $0.58 per unit for Q3 2024 was declared on November 5, 2024, payable November 22, 2024.
- Capital Expenditures: YTD capital expenditures (including acquisitions) were $273.0 million. The company has budgeted approximately $20.0 million for development costs for the remainder of 2024.
- Risks:
- Commodity Prices: Significant exposure to oil and natural gas price volatility.
- Acquisition Integration: Risks related to realizing expected benefits from the Williston Basin acquisitions, including potential unknown liabilities or integration costs.
- Leverage: Increased debt levels raise interest rate risk and reduce financial flexibility.
- Regulatory/Geopolitical: Risks include regulatory changes, environmental laws, and geopolitical conflicts affecting global energy markets.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the new Credit Facility covenants, specifically the net debt-to-EBITDAX ratio (currently ~1.0x) and current ratio requirements.
- Acquisition Performance: Monitor the production volumes and cost basis of the newly acquired Williston Basin assets to ensure they meet the projected 78% oil / 12% NGL / 10% gas mix and decline rates.
- Derivative Exposure: Review the impact of commodity hedges on realized prices, noting the net derivative liability of $1.5 million as of September 30, 2024.
- Liquidity Position: Assess the sufficiency of the $127 million remaining availability under the Credit Facility to fund future distributions and development costs if commodity prices decline further.
- Pro Forma Filings: Note the requirement to file audited financial statements and pro forma information for the Williston Acquisitions within 75 days of the closing date.