big River
A quick look at TXO Energy Partners, LP
TXO Energy Partners, LP (TXO), pursuant to an S-1 registration statement, has filed to raise an undisclosed amount in an initial public offering of its common shares of limited partnership interests.
The Company acquires and operates conventional oil and gas properties in the Permian and San Juan Basins of the United States.
As we learn more about the IPO’s pricing, valuation, and expected distribution yield, I’ll provide a definitive opinion.
TXO Energy overview and market
TXO Energy Partners, LP, based in Fort Worth, Texas, was incorporated as MorningStar Partners, LP to acquire, develop and produce oil and gas products from conventional formations in the Permian and San Juan Basin areas of the United States
Management is led by Bob R. Simpson, chairman and CEO of MorningStar Oil & Gas, LLC, who was previously chairman of Southland and chairman and CEO of XTO until it merged with Exxon for $41 billion.
As of September 30, 2022, TXO has booked $549.5 million in investments at market value from investors including Global Endowment Management and Luther King Capital Management.
According to a 2022 GlobalData market research report, the US Permian Basin’s crude oil and condensate production capacity is estimated at 5 million barrels per day and natural gas capacity is approximately 19.9 million cubic feet per day.
It is the largest oil production basin in the USA and is mainly located in the state of Texas.
In addition, management intends to focus its exploration efforts on low risk, low rate of decline formations funded by cash flow from operations.
The company expects its annual development budget for 2022 and 2023 to be approximately $30 million.
The following are the Company’s estimated oil and natural gas reserves:
Estimated Proved Reserves (SEC)
Key contestants or other industry participants include:
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rafters
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Exxon Mobile
-
Western Petroleum
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ConocoPhillips
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Pioneer of natural resources
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Chesapeake Energy
-
Devonian energy
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EOG resources
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Strive for energy resources
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Marathon Oil
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Coterra energy
-
Continental Resources
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Laredo Petroleum
Financial performance of TXO Energy Partners
The company’s recent financial results can be summarized as follows:
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Increasing topline earnings
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Variable gross profit and gross margin
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Fluctuating operating result
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Growing cash flow from operations
The following are relevant financial results arising from the company’s registration statement:
|
total revenue |
||
|
Period |
total revenue |
% variance vs. before |
|
Nine Mo. Ends September 30, 2022 |
$204,038,000 |
46.9% |
|
2021 |
$228,344,000 |
109.9% |
|
2020 |
$108,764,000 |
|
|
gross profit (loss) |
||
|
Period |
gross profit (loss) |
% variance vs. before |
|
Nine Mo. Ends September 30, 2022 |
$110,077,000 |
18.2% |
|
2021 |
$159,088,000 |
166.8% |
|
2020 |
$59,618,000 |
|
|
gross margin |
||
|
Period |
gross margin |
|
|
Nine Mo. Ends September 30, 2022 |
53.95% |
|
|
2021 |
69.67% |
|
|
2020 |
54.81% |
|
|
Operating Profit (Loss) |
||
|
Period |
Operating Profit (Loss) |
operating margin |
|
Nine Mo. Ends September 30, 2022 |
$1,394,000 |
0.7% |
|
2021 |
$44,190,000 |
19.4% |
|
2020 |
$(155,300,000) |
-142.8% |
|
net income (loss) |
||
|
Period |
net income (loss) |
net margin |
|
Nine Mo. Ends September 30, 2022 |
$14,613,000 |
7.2% |
|
2021 |
$52,475,000 |
25.7% |
|
2020 |
$(163,238,000) |
-80.0% |
|
Cash flow from operations |
||
|
Period |
Cash flow from operations |
|
|
Nine Mo. Ends September 30, 2022 |
$103,668,000 |
|
|
2021 |
$73,726,000 |
|
|
2020 |
$18,964,000 |
|
|
(Glossary of terms) |
click to enlarge
(Source – SEC)
As of September 30, 2022, TXO had $11.1 million in cash and $352.4 million in total debt.
Free cash flow for the twelve months ended September 30, 2022 was $121.8 million.
TXO Energy Partners, LP IPO Details
TXO intends to raise an undisclosed amount of gross proceeds from an initial public offering of its common shares of limited partnership investments.
No existing shareholder has expressed an interest in acquiring shares at the IPO price.
Management says it will use the net proceeds from the IPO as follows:
repay a portion of the outstanding balances under our revolving credit facility…
(Source – SEC)
Management’s presentation of the company’s roadshow is not available.
Regarding pending litigation, management says it is “far from it that pending or threatened litigation will have a material adverse effect on our financial condition.”
The listed bookrunners for the IPO are Raymond James, Stifel, Janney Montgomery Scott and Capital One Securities.
Commentary on TXO’s IPO
TXO is seeking public capital market investment in the US to repay its revolving credit facility and create a public market for its limited partnership entities.
The Company’s financial metrics have generated increasing revenues, volatile gross profits and gross margins, variable operating profits and increased cash flow from operations.
Free cash flow for the twelve months ended September 30, 2022 was $121.8 million.
The Company currently plans to pay cash distributions to shareholders on a quarterly basis and has provided the following distribution history information in its S-1:
Pro forma cash available for distribution generated during the fiscal year ended December 31, 2021 and the twelve month period ended September 30, 2022 were approximately $89.6 million and $133.0 million, respectively.
The company’s trailing 12-month CapEx ratio was 15.2, indicating that it spent a relatively small amount on capital expenditure relative to its operating cash flow.
The market opportunity for conventional production from the Permian and San Juan Basins is extremely large due to their enormous reserve potential.
Raymond James is the lead underwriter and there is no IPO performance data on IPOs led by the firm in the past 12 months.
The main risk to the company’s prospects as a public company is the recent volatile price environment for oil and gas products as a result of the COVID-19 pandemic followed by the war in Ukraine.
Additionally, the regulatory environment for US oil and gas exploration has been uncertain and dependent on changing policy efforts.
TXO will essentially be a limited partnership dividend payout game for investors interested in receiving dividends from their operating profits.
As we learn more about the IPO’s pricing, valuation, and expected distribution yield, I’ll provide a definitive opinion.
Estimated IPO Price Date: To be announced.
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