TXO Partners (TXO) Q3 2026 earnings review
TXO's oil prices rose 34%, but hedges erased the gain
Buyers paid TXO far more for its oil this quarter, but its own hedging contracts handed the gain back. Sales to customers grew by a quarter, while hedging losses of $57.9 million pushed the partnership into a net loss. Co-chief executive and finance chief Brent Clum still declared $0.44 per unit, the fourth rise in a row.
| Sales to customers, before hedging | $113.0M +25% from a year ago |
|---|---|
| Total revenue, after hedging losses | $55.1M -45% from a year ago |
| Loss per common unit | -$0.58 $0.08 profit a year ago |
| Quarterly distribution declared | $0.44 per unit raised from $0.40 |
⚖️ Verdict: 🔴 Bearish
The case got worse, because the cash behind the payout disappeared. Cash available for distribution, the partnership's own measure of what it can hand out, fell below zero, and drilling spending almost doubled. One positive: lifting costs came down and cash earnings grew 26%.
The question now is who gains when the hedges expire. TXO has locked in only about a quarter of its oil output for early 2028, by our math, against most of it today. Either unitholders collect the market price, or a cheaper barrel leaves them unprotected. February's hedge table will show which way management leaned.
🐂 Bull Case
Customers Paid Far More for Each Barrel
TXO Partners pumps oil, gas and natural gas liquids from long-lived conventional fields in Texas, New Mexico, Colorado, Montana and North Dakota. It sells at the wellhead, so monthly commodity prices set what it earns. Buyers paid $113.0 million for that output, up a quarter from a year earlier.
Oil fetched $84.20 a barrel before hedging, against $62.80 last year. Liquids prices climbed 42%, the partnership said. This mattered because the fields TXO bought in Montana and North Dakota pump mostly oil, so crude now drives its revenue more than gas does.
What to watch: the oil price after hedging that TXO reports in the annual report due in February. If that figure closes the gap with the unhedged price, more of each barrel will reach unitholders.
Longer Williston Wells Lifted Well Rates
Elm Coulee, in the Williston Basin of Montana and North Dakota, takes most of TXO's drilling money. Crews now push laterals, the horizontal part of a well that contacts the rock, toward 14,000 feet, against about 10,000 feet in 2025.
Co-chief executive Gary Simpson said: "Our development teams did a stellar job extending laterals in our Williston Basin wells and delivering production rates in excess of 1,000 BOE per day on average." Drilling times improved and total costs landed on budget, he added.
What to watch: the depletion charge per barrel in February's annual report. It reached $10.39 this quarter against $9.02 a year ago, because Williston barrels carry "a higher rate than the historical properties". A flat charge would show the longer wells pay for themselves.
Cash Earnings Grew as Lifting Costs Fell
Cash earnings tell a different story from the loss. Adjusted EBITDAX, which measures profit before interest, tax, depreciation, exploration costs and paper hedging losses, reached $41.3 million, a rise of 26%. Cash from operations climbed to $33.7 million.
Production expenses fell 9% in dollars, because the joint-venture sale removed $10.9 million of them. Measured against sales to customers, they dropped 14.2 percentage points. Overhead shrank 19% on lower professional fees, the partnership said.
Each barrel still costs slightly more to lift, though: production expense reached $18.73 per barrel of oil equivalent against $18.23, since the fields TXO sold were cheap to run.
What to watch: production expense per barrel in February's annual report. A reading near $18 would show the Williston wells absorb the extra maintenance work the partnership has taken on.
🐻 Bear Case
Hedges Took the Whole Oil Price Gain
TXO sells oil at market prices but has promised counterparties a fixed price on most of its barrels. When the market sits above that fixed level, TXO pays the difference in cash. Oil averaged $84.20 a barrel this quarter, far above the levels it locked in during 2025.
So the gain never arrived. After cash settlements, the oil price TXO actually collected came to $63.62 a barrel, against $62.73 a year earlier. Hedging swallowed 18% of everything customers paid.
- Cash paid to counterparties: $20.6 million, against $3.1 million received a year ago
- Paper loss on contracts not yet settled: $37.3 million
- Hedging liability: $65.7 million, of which $54.5 million falls due within a year
That liability matters because TXO settles it in cash as each month passes, and those bills compete with the payout. Lenders granted "a waiver of all hedge requirements for months 19 through 24" for the June and September quarters, so coverage of 2028 can thin out.
What to watch: the hedge table in February's annual report, which lists volumes and prices for 2027 and 2028. Coverage near this quarter's level would mean a firm oil market again bypasses unitholders.
The Payout Ran Past the Cash It Earned
TXO calls itself a production and distribution business, "driven by dynamic capital allocation", and its partnership agreement tells it to hand out all available cash. Co-chief executive and finance chief Brent Clum says the team will "closely manage distributions, leverage and growth capital with a focus on long-term value".
This quarter produced no such cash. Cash available for distribution, the partnership's own measure, starts from cash earnings and subtracts interest and drilling spend; it came to minus $2.7 million, against $7.5 million a year ago. Clum still declared $0.44 per unit, a fourth straight increase.
By our math that payout costs about $24.4 million, which TXO must fund from its bank line or from the money its joint venture returned. Drilling spending explains the squeeze, because it rose 85% from a year ago and exceeded cash from operations.
What to watch: cash available for distribution for the fourth quarter, when the full-year plan leaves only about $13 million of spending by our math. A positive reading would show the shortfall came from heavy summer drilling rather than from the payout itself.
Gas Output and Gas Prices Both Dropped
The San Juan Basin in New Mexico and Colorado supplies most of TXO's natural gas, and that output keeps draining away. Gas volumes fell 27% from a year ago, which the partnership attributes to the Cross Timbers sale and "natural decline in the San Juan Basin".
Prices offered no help. Customers paid $2.14 per thousand cubic feet before hedging, a tenth below last year, so gas sales to customers slipped to $11.2 million. Gas still makes up more than a third of production, so its decline caps how far oil growth can lift total volumes.
What to watch: whether TXO funds Mancos shale drilling or finds a partner for it. The partnership holds 58,500 net acres there and says today's 2027 forward prices do not justify the capital, which leaves its gas business shrinking.
👓 Other Themes
The Joint Venture Is Almost Wound Up
TXO's half-owned joint venture, Cross Timbers Energy, sold its wells for about $200 million gross this year and sent TXO $95.0 million in July. Management used $70.0 million of that to settle the deferred bill for the Montana purchase and cut bank debt with the rest. Fees from the venture dropped to $0.1 million, and TXO expects no more.
💲 Other KPIs
Oil output keeps growing, but at a slower clip than last year. Daily oil production runs 27% above the 2025 average, after a 30% reading at midyear. The 2025 year itself gained 54%. Quarterly oil volumes reached 1,088 thousand barrels against 1,053, as new Williston wells offset the fields TXO sold.
Borrowings fell to $271.1 million from $291.1 million at the end of 2025. TXO repaid more than it drew over nine months, helped by the cash its joint venture returned. Room left on the bank line now stands at $146.0 million, and the rate on it was 7.4%.
This is the money TXO must spend to plug and clean up wells at the end of their lives. It fell to $161.2 million from $221.1 million in January, because buyers of the joint venture's wells took on $68.4 million of it. Unwinding the discount added $11.0 million back.
Earnings from outside the wellhead more than doubled, to $11.7 million. TXO credits its gas plant and CO2 assets, which earned $4.1 million more "due to the absence of third-party pipeline disruptions", plus a $2.0 million bonus on a lease assignment. This income now covers overhead and most of the interest bill.
🔮 Guidance
Raised. The board lifted the quarterly payout to $0.44 per unit, its fourth increase in a row. By our math it costs about $24.4 million, more cash than the quarter itself generated. Clum promises another programme for 2027 but has not named a figure for it.
Raised. TXO expects to spend $90-95 million this year, after $79.2 million in the first nine months. By our math that leaves roughly $13 million for the fourth quarter, about half the quarterly pace so far. It is the third step up from the original $70 million budget, a rise of about a third in a year.
Unchanged. TXO still aims to keep debt between one and two times its annual cash earnings. By our math it sits near 1.45 times, using borrowings of $271.1 million and nine-month cash earnings annualised. Lenders also require current assets above current liabilities, a test TXO met in September.
New. TXO reckons 43% of this year's revenue will reach cash earnings, using actual results through September and its own forecast for the rest. The estimate counts gas plant and CO2 earnings as revenue, and it assumes oil prices hold near the late-October forward curve.
❓ Key Questions
How much will TXO spend in 2027?
Clum says the partnership is designing another programme for 2027 and gave no figure. The 2026 plan has already moved from about $70 million to $90-95 million, and spending drives the cash left for unitholders.
Why raise the payout with no spare cash?
Cash available for distribution fell below zero this quarter, yet the board lifted the distribution for a fourth time. Unitholders need to know which source funds the next one: the bank line, asset sales or operating cash.
How much 2028 oil will TXO hedge?
Lenders waived the hedge requirement for months 19 to 24 for two quarters only. If they restore it, TXO may add contracts well below the price its customers now pay, repeating this quarter's drag.
What price does the 2028 swaption imply?
In October TXO sold counterparties the option to put it into 2028 oil swaps at $80 a barrel for 3,880 barrels a day. The partnership has not said what premium it received or when the option expires.
What replaces the joint venture's income?
Cross Timbers Energy contributed $1.0 million of property income this quarter and fees that have now stopped. Investors need the size of the gap in next year's cash flow once the wind-up completes.