TXO Partners LP: 12%-Yielder Crushing S&P 500—Up 16% in 2025
March 19, 2025
TXO Partners Bullish on Industry Tailwinds
Industry tailwinds are bullish for TXO Partners LP (NYSE:TXO), an oil and gas exploration and production company.
While West Texas Intermediate Crude is facing pressure on fears of a tariff-induced recession, natural gas prices have surged to their highest level in two years. Currently trading at $4.50 per million British thermal units (BTU), natural gas prices are up 24% year to date and 135% on an annual basis.
Natural gas prices have jumped on cold weather, supply concerns ahead of the summer, geopolitical tensions, and reduced supply from Russia.
The U.S. may be the biggest producer of natural gas in the world, but as more of our natural gas is shipped overseas, strong domestic demand and reduced supply have led to prices climbing considerably higher.
And the U.S. uses a lot of natural gas. Roughly 43% of electricity here in the U.S. is generated by natural-gas-fired power plants. Natural gas is also used for heating by residential, commercial, and industrial customers. It is also essential for feedstock and used as fuel for city buses, garbage trucks, etc. (Source: “Electricity Explained,” U.S. Energy Information Administration, last accessed March 11, 2025.)
Chart courtesy of StockCharts.com
While natural gas prices can be volatile, the outlook remains robust for the time being. And again, that’s good news for TXO Partners LP. The Fort-Worth-Texas-based oil and gas company is focused on conventional oil, natural gas, and natural gas liquid reserves in North America. (Source: “Company Profile,” TXO Partners LP, last accessed March 11, 2025.)
Its current acreage positions are concentrated in the Permian Basin of West Texas and New Mexico, the San Juan Basin of New Mexico and Colorado, and the Williston Basin of Montana and North Dakota.
With long-lived, low-decline assets, the partnership has identified a rich inventory of development opportunities. This includes resources in excess of 50 million barrels of oil. TXO Partners also recently announced an overall gas resource potential of three trillion cubic feet equivalent (TCFE) of natural gas in the Mancos shale region of the San Juan basin. (Source: “TXO Partners Announces 3 TCFE of Natural Gas Potential in the Mancos Shale of the San Juan Basin,” TXO Partners LP, January 15, 2025.)
On an oil equivalent basis, management believes this could represent as much as five times its current total reserve base. Phase 1 of development represents just six percent of the current Mancos position. This single position holds about 200 to 300 billion cubic feet (BCF) of natural gas with 25 BCF equivalent estimated per drill well. It also has the potential to almost double TXO Partners’ existing natural gas reserves.
Solid 2024 Results
TXO Partners has been reporting strong revenue over the last number of years, with revenue climbing from $227.3 million in 2021 to $246.4 million in 2022, to a record $380.7 million in 2023. (Source: “FORM 10-K,” TXO Partners LP, last accessed March 11, 2025.)
For the year ended December 31, 2024, TXO Partners’ revenue slipped to $282.8 million. The decline in revenue was due, in part, to lower prices for oil and natural gas. On the plus side, the company reported net income of $23.4 million, or $0.65 per share. This was a sharp improvement over the 2023 net loss of $103.9 million, or a loss of $3.44 per share, and 2022 net loss of $7.6 million, or loss of $0.31 per share.
Quarterly Distribution Increased to $0.61/Unit
TXO Partners’ distribution fluctuates based on how much it makes. On top of that, the company only went public in January 2023, so it doesn’t have a long history of providing a dividend. With that said, in that short period of time, TXO Partners has delivered $4.49 per unit to shareholders. (Source: “TXO Partners Declares a Fourth Quarter 2024 Distribution of $0.61 on Common Units; Provides 2025 Distribution Outlook and Files Annual Report on Form 10-K,” TXO Partners LP, March 4, 2025.)
Most recently, for the fourth quarter of 2024, the company announced that it had raised its payout from $0.58 in the previous quarter and same prior-year period to $0.61 per share, or $2.41 on an annual basis, for a current forward yield of 12.33%.
The good times are expected to continue. Given the current outlook, management is targeting a full-year distribution in excess of $2.45 per unit for the year ahead.
TXO Stock Offers Great Upside Potential
TXO stock hit a record high of $23.56 on May 16, 2024, and trended lower for much of the rest of the year. But the stock experienced a big rebound after announcing three TCFE of natural gas potential back in January.
As of March 11, TXO stock is trading hands at $19.47 per unit and is up 16% year to date and 20% on an annual basis. Big gains, but Wall Street thinks the stock has a lot more room to run, with Wall Street analysts providing a 12-month share price target of $27.00 per share. This would put TXO in record territory and represents a potential gain of approximately 39%.
Chart courtesy of StockCharts.com
The Lowdown on TXO Partners LP
TXO Partners LP is a great energy company with a growing property portfolio in the Permian, San Juan, and Williston Basins, each characterized by low geological risk, low decline rates, and high recovery rates.
For passive income investors, the partnership legally has to distribute all of its cash on hand at the end of each quarter. Management has said that the low-decline nature of its reserves and the relatively low cost to maintain production combined with its low-leverage profile will continue to support distributions.
And that should continue to be good news for all shareholders. This includes the 25.04% held by insiders and 29.14% held by institutions. Of the 61 institutional holders, three of the largest are CIBC Private Wealth Group, LLC, Goldman Sachs Group Inc, and Raymond James Financial, Inc. (Source: “TXO Partners, L.P. (TXO),” Yahoo! Finance, last accessed March 11, 2025.)
