txo-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number 001-04321

TXO Partners, L.P.

(Exact name of registrant as specified in its charter)


Delaware			32-0368858
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

400 West 7th Street, Fort Worth, Texas			76102
(Address of Principal Executive Offices)			(Zip Code)

(817) 334-7800

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Units	TXO	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The registrant had outstanding 30,938,332 common units as of May 7, 2024.


			Page
Part I - Financial Information
Item 1. Financial Statements			1
Consolidated Balance Sheets			1
Consolidated Statements of Operations			2
Consolidated Statements of Cash Flows			3
Consolidated Statements of Members’ Equity			4
Notes to Financial Statements			5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures About Market Risk			25
Item 4. Controls and Procedures			26

Part II - Other Information
Item 1. Legal Proceedings			28
Item 1A. Risk Factors			28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			28
Item 3. Defaults Upon Senior Securities			28
Item 4. Mine Safety Disclosures			28
Item 5. Other Information			28
Item 6. Exhibits			29
Signatures			30


	March 31, 2024		December 31, 2023
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	4,570	$	4,505
Accounts receivable, net	30,721		32,226
Derivative fair value	5,167		6,052
Other	13,469		12,406
Total Current Assets	53,927		55,189
Property and Equipment, at cost – successful efforts method:
Proved properties	1,544,870		1,540,105
Unproved properties	18,516		18,479
Other	83,997		83,854
Total Property and Equipment	1,647,383		1,642,438
Accumulated depreciation, depletion and amortization	(1,023,632)		(1,013,115)
Net Property and Equipment	623,751		629,323
Other Assets:
Note receivable from related party	7,131		7,131
Other	3,394		3,970
Total Other Assets	10,525		11,101
TOTAL ASSETS	$	688,203	$	695,613
LIABILITIES AND PARTNERS’ CAPITAL
Current Liabilities:
Accounts payable	$	7,659	$	8,598
Accrued liabilities	25,143		23,362
Derivative fair value	3,818		4,045
Asset retirement obligation, current portion	1,750		1,750
Other current liabilities	1,354		1,361
Total Current Liabilities	39,724		39,116

Long-term Debt	26,100		28,100
Other Liabilities:
Asset retirement obligation	154,803		152,222
Other liabilities	1,845		2,377
Total Other Liabilities	156,648		154,599
Commitments and Contingencies
Partners’ Capital:
Partners’ capital	465,731		473,798
TOTAL LIABILITIES AND PARTNERS’ CAPITAL	$	688,203	$	695,613


TXO PARTNERS, L.P. Consolidated Statements of Operations (Unaudited)


	Three months ended March 31,
	2024		2023
REVENUES
Oil and condensate	$	38,034	$	49,621
Natural gas liquids	6,502		9,123
Natural gas	22,903		99,655
Total Revenues	67,439		158,399
EXPENSES
Production	33,083		35,324
Exploration	123		67
Taxes, transportation and other	15,573		28,903
Depreciation, depletion and amortization	10,517		10,938
Accretion of discount in asset retirement obligation	2,784		2,118
General and administrative	2,654		2,222
Total Expenses	64,734		79,572
OPERATING INCOME	2,705		78,827
OTHER INCOME (EXPENSE)
Other income	8,413		6,314
Interest income	125		107
Interest expense	(976)		(1,439)
Total Other Income	7,562		4,982
NET INCOME	$	10,267	$	83,809

NET INCOME PER COMMON UNIT
Basic	$0.33		$2.91
Diluted	$0.33		$2.86

WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
Basic	30,800		28,783
Diluted	31,425		29,328


	Three months ended March 31,
	2024		2023
OPERATING ACTIVITIES
Net income	$	10,267	$	83,809
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	10,517		10,938
Accretion of discount in asset retirement obligation	2,784		2,118
Derivative fair value (gain) loss	1,054		(15,056)
Net cash paid to counterparties	(396)		(80,438)
Non-cash incentive compensation	1,141		639
Other non-cash items	241		180
Changes in operating assets and liabilities (a)	(411)		14,959
Cash Provided by Operating Activities	25,197		17,149
INVESTING ACTIVITIES
Proved property acquisitions	—		(232)
Development costs	(2,835)		(11,278)
Unproved property acquisitions	(37)		(53)
Other property and asset additions	(143)		(818)
Cash Used by Investing Activities	(3,015)		(12,381)
FINANCING ACTIVITIES
Proceeds from long-term debt	10,000		37,000
Payments on long-term debt	(12,000)		(150,000)
Net proceeds from initial public offering	—		106,277
Proceeds from sale of units to cover withholding taxes	187		—
Withholding taxes paid on vesting of restricted units	(851)		—
Debt issuance costs	(2)		(1)
Distributions	(19,451)		—
Cash Used by Financing Activities	(22,117)		(6,724)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	65		(1,956)
Cash and Cash Equivalents, beginning of period	4,505		9,204
Cash and Cash Equivalents, end of period	$	4,570	$	7,248

(a) Changes in Operating Assets and Liabilities
Accounts receivable	$	2,100	$	20,527
Other current assets	(1,071)		(2,948)
Current liabilities	(1,087)		(2,313)
Other operating liabilities	(353)		(307)
	$	(411)	$	14,959


	Series 5 Preferred		Common		Total
Balances, December 31, 2023	$	—	$	473,798	$	473,798
Net income	—		10,267		10,267
Expensing of unit awards	—		1,141		1,141
Proceeds from sale of units to cover withholding taxes	—		827		827
Withholding taxes paid on vesting of restricted units	—		(851)		(851)
Distributions to unitholders	—		(19,451)		(19,451)
Balances, March 31, 2024	$	—	$	465,731	$	465,731


(in thousands)	March 31, 2024		December 31, 2023
Credit Facility, 8.6% at March 31, 2024 and 8.6% at December 31, 2023	$	19,000	$	21,000
September 2016 Loan, 8.7% at March 31, 2024 and 8.7% at December 31, 2023	$	7,100	$	7,100
Total Long-term Debt	$	26,100	$	28,100


	(in thousands)
Asset retirement obligation, January 1	$	153,972
Liability settled upon plugging and abandoning wells	(203)
Accretion of discount expense	2,784
Asset retirement obligation, March 31	156,553
Less current portion	(1,750)
Asset retirement obligation, long term	$	154,803


	Asset (Liability)
	March 31, 2024				December 31, 2023
(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Note receivable from related party	$	7,131	$	7,131	$	7,131	$	7,131
Long-term debt	$	(26,100)	$	(26,100)	$	(28,100)	$	(28,100)
Derivative asset	$	5,167	$	5,167	$	6,052	$	6,052
Derivative liability	$	(3,818)	$	(3,818)	$	(4,045)	$	(4,045)


	Fair Value Measurements
	March 31, 2024				December 31, 2023
(in thousands)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Note receivable from related party	$	7,131	$	—	$	7,131	$	—
Long-term debt	$	(26,100)	$	—	$	(28,100)	$	—
Derivative asset	$	5,167	$	—	$	6,052	$	—
Derivative liability	$	(3,818)	$	—	$	(4,045)	$	—


Production Period	Bbls per Day	Weighted Average NYMEX Price per Bbl
April 2024—June 2024	2,000	$	63.27


Production Period	Gallons per Day	Weighted Average NGL OPIS Price per Gallon
Ethane
April 2024—June 2024	63,000	$	0.23


Production Period	MMBtu per Day	Weighted Average NYMEX Price per MMBtu
April 2024—June 2024	30,000	$	3.26


		Weighted Average NYMEX Price per MMBtu
Production Period	MMBtu per Day	Floor		Ceiling
April 2024—June 2024	5,000	$	3.75	$	7.25


	Asset Derivatives				Liability Derivatives
(in thousands)	March 31, 2024		December 31, 2023		March 31, 2024		December 31, 2023
Derivatives not designated as hedging instruments:
Crude oil futures and differential swaps	$	—	$	—	$	(3,440)	$	(3,163)
Natural gas liquids futures	$	273	$	477	$	—	$	—
Natural gas futures, collars and basis swaps	$	4,894	$	5,575	$	(378)	$	(882)
Total	$	5,167	$	6,052	$	(3,818)	$	(4,045)


Production Period	MMBtu per Day	Weighted Average Sell Basis Price per MMBtu(a)
April 2024—December 2024	20,000	$	0.25


	(in thousands, except per unit data)	Net income		Units	Income per Unit
2024
	Basic	$	10,267	30,800	$0.33
	Dilutive effect of phantom units	—		625
	Diluted	$	10,267	31,425	$0.33

2023
	Basic	$	83,809	28,783	$2.91
	Dilutive effect of phantom units	—		545
	Diluted	$	83,809	29,328	$2.86


	For the Three Months Ended March 31, 2024
	Oil and condensate		Natural gas liquids		Natural gas		Total Revenues

	(in thousands)
Revenue from customers	$	40,804	$	6,470	$	21,219	$	68,493
Unrealized gain (loss) on derivatives	(277)		(204)		(177)		(658)
Realized gain (loss) on derivatives	(2,493)		236		1,861		(396)
Total revenues	$	38,034	$	6,502	$	22,903	$	67,439


	March 31, 2024		December 31, 2023
Accrued production expenses	$	17,476	$	17,443
Accrued severance taxes	$	2,538	$	2,828
Accrued ad valorem taxes	$	1,237	$	2,177
Accrued capital expenditures	$	2,606	$	676
Other accrued liabilities	$	1,286	$	238
Total accrued liabilities	$	25,143	$	23,362


(in thousands)	Fair Value at March 31, 2024		Hypothetical Price Increase or Decrease of 10%
Derivative asset (liability) – Crude Oil	$	(3,440)	$	1,495
Derivative asset (liability) – Natural Gas Liquids	$	273	$	107
Derivative asset (liability) – Natural Gas	$	4,516	$	441
Net cash used in financing activities	$	1,349	$	2,043


Exhibit Number			Description

3.1			Amended and Restated Certificate of Limited Partnership of TXO Partners, L.P. (incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q filed on May 9, 2023)

3.2			Amended and Restated Certificate of Formation of TXO Partners, GP, LLC (incorporated by reference to Exhibit 3.2 to Quarterly Report on Form 10-Q filed on May 9, 2023)

3.3			Seventh Amended and Restated Agreement of Limited Partnership of TXO Partners, L.P. (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed on January 31, 2023)

3.4			Amendment No. 1 to the Seventh Amended and Restated Agreement of Limited Partnership of TXO Partners, L.P. (incorporated by reference to Exhibit 3.3 to Quarterly Report on Form 10-Q filed on May 9, 2023)

3.5			Amended and Restated Limited Liability Company Agreement of TXO Partners GP, LLC (incorporated by reference to Exhibit 3.4 to Annual Report on Form 10-K filed on March 31, 2023)

3.6			Amendment No. 1 to the Amended and Restated Limited Liability Company Agreement of TXO Partners GP, LLC (incorporated by reference to Exhibit 3.4 to Quarterly Report on Form 10-Q filed on May 9, 2023)

31.1*			Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a)

31.2*			Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a)

32.1*			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2*			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101.INS			Inline XBRL Instance Document. (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

101.SCH			Inline XBRL Taxonomy Extension Schema Document.

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104.0			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


			TXO Partners, L.P.

			By:			TXO Partners GP, LLC, its general partner

			By:			/s/ Brent W. Clum
						Name: Brent W. Clum Title: President of Business Operations, Chief Financial Officer and Duly Authorized Officer

SEC Form 10-Q filed by TXO Partners L.P.