grandriver
A Quick Take On TXO Energy Partners, L.P.
TXO Energy Partners, L.P. (TXO) has filed to raise an undisclosed amount in an IPO of its common units of limited partner interests, according to an S-1 registration statement.
The firm acquires and operates conventional oil and gas extraction sites in the Permian and San Juan Basins in the United States.
When we learn more about the IPO’s pricing, valuation and expected distribution yield, I’ll provide a final opinion.
TXO Energy Overview And Market
Fort Worth, Texas-based TXO Energy Partners, L.P. was founded as MorningStar Partners, L.P. to acquire, develop and produce oil & gas products from conventional formations in the Permian and San Juan Basin areas of the U.S.
Management is headed by MorningStar Oil & Gas, LLC Chairman and CEO Bob R. Simpson, 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 fair market value investment of $549.5 million from investors including Global Endowment Management and Luther King Capital Management.
According to a 2022 market research report by GlobalData, the USA Permian Basin crude oil and condensate production capacity is an estimated 5 million barrels per day and natural gas capacity is approximately 19.9 million cubic feet per day.
It is the largest oil-producing basin in the U.S. and is primarily located in the state of Texas.
Also, management aims to focus its exploration efforts on low risk, low decline rate formations funded by cash flow from operating activities.
The firm expects its annual development budget to be approximately $30 million for 2022 and 2023.
Below are the firm’s estimated oil and natural gas reserve metrics:
Estimated Proved Reserves (SEC)
Major competitive or other industry participants include:
-
Chevron
-
Exxon Mobil
-
Occidental Petroleum
-
ConocoPhillips
-
Pioneer Natural Resources
-
Chesapeake Energy
-
Devon Energy
-
EOG Resources
-
Endeavor Energy Resources
-
Marathon Oil
-
Coterra Energy
-
Continental Resources
-
Laredo Petroleum
TXO Energy Partners Financial Performance
The company’s recent financial results can be summarized as follows:
-
Growing topline revenue
-
Variable gross profit and gross margin
-
Fluctuating operating profit
-
Growing cash flow from operations
Below are relevant financial results derived from the firm’s registration statement:
| Total Revenue | ||
| Period | Total Revenue | % Variance vs. Prior |
| Nine Mos. Ended 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. Prior |
| Nine Mos. Ended September 30, 2022 | $ 110,077,000 | 18.2% |
| 2021 | $ 159,088,000 | 166.8% |
| 2020 | $ 59,618,000 | |
| Gross Margin | ||
| Period | Gross Margin | |
| Nine Mos. Ended September 30, 2022 | 53.95% | |
| 2021 | 69.67% | |
| 2020 | 54.81% | |
| Operating Profit (Loss) | ||
| Period | Operating Profit (Loss) | Operating Margin |
| Nine Mos. Ended 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 Mos. Ended 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 Mos. Ended September 30, 2022 | $ 103,668,000 | |
| 2021 | $ 73,726,000 | |
| 2020 | $ 18,964,000 | |
(Source – SEC)
As of September 30, 2022, TXO had $11.1 million in cash and $352.4 million in total liabilities.
Free cash flow during the twelve months ended September 30, 2022, was $121.8 million.
TXO Energy Partners, L.P. IPO Details
TXO intends to raise an undisclosed amount in gross proceeds from an IPO of its common units of limited partner interests.
No existing shareholders have indicated an interest to purchase units at the IPO price.
Management says it will use the net proceeds from the IPO as follows:
to repay a portion of the amounts outstanding under our revolving credit facility…
(Source – SEC)
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, management says it is ‘remote that pending or threatened legal matters will have a material adverse impact on our financial condition.’
The listed bookrunners of the IPO are Raymond James, Stifel, Janney Montgomery Scott and Capital One Securities.
Commentary About TXO’s IPO
TXO is seeking U.S. public capital market investment to pay down its revolving credit facility and to create a public market for its limited partnership units.
The firm’s financials have generated increasing topline revenue, fluctuating gross profit and gross margin, variable operating profit and higher cash flow from operations.
Free cash flow for the twelve months ended September 30, 2022, was $121.8 million.
The firm currently plans to pay cash distributions to unitholders on a quarterly basis and provided the following distribution history information in its S-1:
Pro forma cash available for distribution generated during the year ended December 31, 2021 and the twelve month period ended September 30, 2022 was approximately $89.6 million and $133.0 million, respectively.
The company’s trailing twelve-month CapEx Ratio was 15.2, which indicates it has spent a relatively low amount on capital expenditures as a percentage of its operating cash flow.
The market opportunity for conventional production from the Permian and San Juan Basins is extremely large owing to their enormous reserve potential.
Raymond James is the lead underwriter and there is no IPO performance data on IPOs led by the firm over the last 12-month period.
The primary risk to the company’s outlook as a public company is the recently volatile pricing environment for oil & gas products as a result of the COVID-19 pandemic followed by the war in Ukraine.
Additionally, the regulatory environment for oil & gas production in the U.S. has been uncertain and subject to changing political efforts.
TXO will essentially be a limited partnership dividend distribution play for investors interested in receiving dividends out of its operational profits.
When we learn more about the IPO’s pricing, valuation and expected distribution yield, I’ll provide a final opinion.
Expected IPO Pricing Date: To be announced.
Source link
