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What changed in TXO Partners, L.P.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TXO Partners, L.P.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+306 added−280 removedSource: 10-K (2024-03-05) vs 10-K (2023-03-31)

Top changes in TXO Partners, L.P.'s 2023 10-K

306 paragraphs added · 280 removed · 235 edited across 5 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

124 edited+40 added−13 removed414 unchanged
Biggest changeThese supply chain constraints and inflationary pressures will likely continue to adversely impact our operating costs and, if we are unable to manage our supply chain, it may impact our ability to procure materials and equipment in a timely and cost-effective manner, if at all, which could impact our ability to distribute available cash and result in reduced margins and production delays and, as a result, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Biggest changeIf we are unable to recover higher costs through higher commodity prices, our current revenue stream could be adversely impacted and result in reduced margins and production delays and, as a result, our business, financial condition, results of operations and cash flows could be materially and adversely affected. 35 Table of Contents We continue to take actions to mitigate inflationary pressures.
These conflicts include, among others, the following: • Our partnership agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing its duties, limiting our general partner’s liabilities and restricting the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty; • Neither our partnership agreement nor any other agreement requires the Founders or their respective affiliates (other than our general partner) to pursue a business strategy that favors us; • The Founders and their affiliates are not limited in their ability to compete with us, including with respect to future acquisition opportunities, and are under no obligation to offer or sell assets to us; • Our general partner determines the amount and timing of our development operations and related capital expenditures, asset purchases and sales, borrowings, issuance of additional partnership interests, other investments, including investment capital expenditures in other partnerships with which our general partner is or may become affiliated, and cash reserves, each of which can affect the amount of cash that is distributed to unitholders; 51 Table of Contents • Except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval; • Our general partner determines which costs incurred by it and its affiliates are reimbursable by us; • Our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf; • Our general partner intends to limit its liability regarding our contractual and other obligations and, in some circumstances, is entitled to be indemnified by us; • Our general partner may exercise its limited right to call and purchase common units if it and its affiliates own more than 80% of the common units; • Our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates; and • Our general partner decides whether to retain separate counsel, accountants or others to perform services for us.
These conflicts include, among others, the following: • Our partnership agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing its duties, limiting our general partner’s liabilities and restricting the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty; • Neither our partnership agreement nor any other agreement requires the Founders or their respective affiliates (other than our general partner) to pursue a business strategy that favors us; • The Founders and their affiliates are not limited in their ability to compete with us, including with respect to future acquisition opportunities, and are under no obligation to offer or sell assets to us; 53 Table of Contents • Our general partner determines the amount and timing of our development operations and related capital expenditures, asset purchases and sales, borrowings, issuance of additional partnership interests, other investments, including investment capital expenditures in other partnerships with which our general partner is or may become affiliated, and cash reserves, each of which can affect the amount of cash that is distributed to unitholders; • Except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval; • Our general partner determines which costs incurred by it and its affiliates are reimbursable by us; • Our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf; • Our general partner intends to limit its liability regarding our contractual and other obligations and, in some circumstances, is entitled to be indemnified by us; • Our general partner may exercise its limited right to call and purchase common units if it and its affiliates own more than 80% of the common units; • Our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates; and • Our general partner decides whether to retain separate counsel, accountants or others to perform services for us.
These factors include, but are not limited to: • worldwide and regional economic conditions impacting the supply and demand for oil, natural gas and NGLs; • the level of global oil and natural gas exploration and production; • political and economic conditions and events in foreign oil and natural gas producing countries, including embargoes, continued hostilities in the Middle East and other sustained military campaigns, the armed conflict in Ukraine and associated economic sanctions on Russia, conditions in South America, Central America, China and Russia, and acts of terrorism or sabotage; • the ability of and actions taken by members of Organization of the Petroleum Exporting Countries (“OPEC”) and other oil-producing nations in connection with their arrangements to maintain oil prices and production controls; • the impact on worldwide economic activity of an epidemic, outbreak or other public health events, such as COVID-19; • the proximity, capacity, cost and availability of gathering and transportation facilities; • localized and global supply and demand fundamentals; • weather conditions across the globe; • technological advances affecting energy consumption and energy supply; • speculative trading in commodity markets, including expectations about future commodity prices; • the proximity of our natural gas, NGL and oil production to, and capacity, availability and cost of, natural gas pipelines and other transportation and storage facilities, and other factors that result in differentials to benchmark prices; • the impact of energy conservation efforts; • the price and availability of alternative fuels; • stockholder activism or activities by non-governmental organizations to restrict the exploration, development and production of oil and natural gas to minimize the emission of greenhouse gases; • domestic, local and foreign governmental regulation and taxes; and 29 Table of Contents • overall domestic and global economic conditions.
These factors include, but are not limited to: • worldwide and regional economic conditions impacting the supply and demand for oil, natural gas and NGLs; • the level of global oil and natural gas exploration and production; • political and economic conditions and events in foreign oil and natural gas producing countries, including embargoes, continued hostilities in the Middle East and other sustained military campaigns, the armed conflict in Ukraine and associated economic sanctions on Russia, conditions in South America, Central America, China and Russia, and acts of terrorism or sabotage; • the ability of and actions taken by members of Organization of the Petroleum Exporting Countries (“OPEC”) and other oil-producing nations in connection with their arrangements to maintain oil prices and production controls; • the impact on worldwide economic activity of an epidemic, outbreak or other public health events, such as COVID-19; • the proximity, capacity, cost and availability of gathering and transportation facilities; • localized and global supply and demand fundamentals; • weather conditions across the globe; • technological advances affecting energy consumption and energy supply; • speculative trading in commodity markets, including expectations about future commodity prices; • the proximity of our natural gas, NGL and oil production to, and capacity, availability and cost of, natural gas pipelines and other transportation and storage facilities, and other factors that result in differentials to benchmark prices; • the impact of energy conservation efforts; • the price and availability of alternative fuels; • stockholder activism or activities by non-governmental organizations to restrict the exploration, development and production of oil and natural gas to minimize the emission of greenhouse gases; • domestic, local and foreign governmental regulation and taxes; and 30 Table of Contents • overall domestic and global economic conditions.
Further, many factors may curtail, delay or cancel our scheduled drilling projects, including the following: • unexpected or adverse drilling conditions; • delays imposed by or resulting from compliance with environmental and other governmental or regulatory requirements including permitting requirements, limitations on or resulting from wastewater discharge and the disposal of exploration and production wastes, including subsurface injections; • elevated pressure or irregularities in geological formations; • shortages of or delays in obtaining equipment and qualified personnel; • facility or equipment failures or accidents; • lack of available gathering facilities or delays in construction of gathering facilities; • lack of available capacity on interconnecting transmission pipelines; • adverse weather conditions, such as hurricanes, lightning storms, flooding, tornadoes, snow or ice storms and changes in weather patterns; • issues related to compliance with, or changes in, environmental and other governmental regulations; • environmental hazards, such as oil and natural gas leaks, pipeline and tank ruptures, encountering naturally occurring radioactive materials, and unauthorized discharges of brine, well stimulation and completion fluids, toxic gases or other pollutants into the surface and subsurface environment; • declines in oil, natural gas and NGL prices; • the availability and timely issuance of required governmental permits and licenses; and 31 Table of Contents • title defects or legal disputes regarding leasehold rights.
Further, many factors may curtail, delay or cancel our scheduled drilling projects, including the following: • unexpected or adverse drilling conditions; • delays imposed by or resulting from compliance with environmental and other governmental or regulatory requirements including permitting requirements, limitations on or resulting from wastewater discharge and the disposal of exploration and production wastes, including subsurface injections; • elevated pressure or irregularities in geological formations; • shortages of or delays in obtaining equipment and qualified personnel; • facility or equipment failures or accidents; • lack of available gathering facilities or delays in construction of gathering facilities; • lack of available capacity on interconnecting transmission pipelines; • adverse weather conditions, such as hurricanes, lightning storms, flooding, tornadoes, snow or ice storms and changes in weather patterns; • issues related to compliance with, or changes in, environmental and other governmental regulations; 32 Table of Contents • environmental hazards, such as oil and natural gas leaks, pipeline and tank ruptures, encountering naturally occurring radioactive materials, and unauthorized discharges of brine, well stimulation and completion fluids, toxic gases or other pollutants into the surface and subsurface environment; • declines in oil, natural gas and NGL prices; • the availability and timely issuance of required governmental permits and licenses; and • title defects or legal disputes regarding leasehold rights.
Examples of decisions that our general partner may make in its individual capacity include: • how to allocate corporate opportunities among us and its other affiliates; • whether to exercise its limited call right; • whether to seek approval of the resolution of a conflict of interest by the conflicts committee of the Board; • how to exercise its voting rights with respect to the units it owns; 53 Table of Contents • whether to sell or otherwise dispose of any units or other partnership interests it owns; and • whether or not to consent to any merger or consolidation of the partnership or amendment to the partnership agreement. • our general partner will not have any liability to us or our unitholders for breach of any duty in connection with decisions made in its capacity as general partner so long as it acted in good faith (meaning that it subjectively believed that the decision was not adverse to our best interest); • our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its officers and directors acted in bad faith or engaged in intentional fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and • our general partner will not be in breach of its obligations under the partnership agreement (including any duties to us or our unitholders) if a transaction with an affiliate or the resolution of a conflict of interest is: • approved by the conflicts committee of the Board, although our general partner is not obligated to seek such approval; • approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner and its affiliates; • determined by the Board to be on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or • determined by the Board to be fair and reasonable to us, taking into account the totality of the relationships among the parties involved, including other transactions that may be particularly favorable or advantageous to us.
Examples of decisions that our general partner may make in its individual capacity include: • how to allocate corporate opportunities among us and its other affiliates; • whether to exercise its limited call right; • whether to seek approval of the resolution of a conflict of interest by the conflicts committee of the Board; • how to exercise its voting rights with respect to the units it owns; • whether to sell or otherwise dispose of any units or other partnership interests it owns; and • whether or not to consent to any merger or consolidation of the partnership or amendment to the partnership agreement. • our general partner will not have any liability to us or our unitholders for breach of any duty in connection with decisions made in its capacity as general partner so long as it acted in good faith (meaning that it subjectively believed that the decision was not adverse to our best interest); • our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its officers and directors acted in bad faith or engaged in intentional fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and • our general partner will not be in breach of its obligations under the partnership agreement (including any duties to us or our unitholders) if a transaction with an affiliate or the resolution of a conflict of interest is: • approved by the conflicts committee of the Board, although our general partner is not obligated to seek such approval; • approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner and its affiliates; • determined by the Board to be on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or • determined by the Board to be fair and reasonable to us, taking into account the totality of the relationships among the parties involved, including other transactions that may be particularly favorable or advantageous to us.
You should not rely on the historical record of TXO Energy Partners and its affiliates or our management team’s prior performance as indicative of our future performance or the returns we will, or are likely to, generate going forward. We are responsible for the decommissioning, abandonment, and reclamation costs for our facilities, which could decrease our cash available for distribution.
You should not rely on the historical record of TXO Partners and its affiliates or our management team’s prior performance as indicative of our future performance or the returns we will, or are likely to, generate going forward. We are responsible for the decommissioning, abandonment, and reclamation costs for our facilities, which could decrease our cash available for distribution.
We use derivative instruments to economically hedge exposure to changes in commodity price and, as a result, are exposed to credit risk and market risk. We periodically enter into futures contracts, energy swaps, options, collars and basis swaps to hedge our exposure to price fluctuations on crude oil, natural gas and natural gas liquids sales.
We opportunistically use derivative instruments to economically hedge exposure to changes in commodity price and, as a result, are exposed to credit risk and market risk. We periodically enter into futures contracts, energy swaps, options, collars and basis swaps to hedge our exposure to price fluctuations on crude oil, natural gas and natural gas liquids sales.
Past performance by our management team may not be indicative of future performance of an investment in us. Information regarding performance by, or businesses associated with, TXO Energy Partners and its affiliates is presented for informational purposes only. Past performance by TXO Energy Partners and its affiliates, including our management team, is not a guarantee of future performance.
Past performance by our management team may not be indicative of future performance of an investment in us. Information regarding performance by, or businesses associated with, TXO Partners and its affiliates is presented for informational purposes only. Past performance by TXO Partners and its affiliates, including our management team, is not a guarantee of future performance.
For as long as we are an emerging growth company, unlike other public companies, we will not be required to, among other things, (1) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, (2) comply with any new requirements adopted by the Public Company Accounting Oversight Board (“PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, 58 Table of Contents (3) comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise or (4) provide certain disclosure regarding executive compensation required of larger public companies.
For as long as we are an emerging growth company, unlike other public companies, we will not be required to, among other things, (1) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, (2) comply with any new requirements adopted by the Public Company Accounting Oversight Board (“PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (3) comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise or (4) provide certain disclosure regarding executive compensation required of larger public companies.
Our partnership agreement provides that, with certain limited exceptions, the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, any other court in the State of Delaware with subject matter jurisdiction) will be the exclusive forum for any claims, suits, actions or proceedings (1) arising out of or relating in any way to our partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of our partnership agreement or the duties, obligations or liabilities among limited partners or of limited partners to us, or the rights or powers of, or restrictions on, the limited partners or us), (2) brought in a derivative manner on our behalf, (3) asserting a claim of breach of a duty owed by any director, officer or other employee of us or our general partner, or owed by our general partner, to us or the limited partners, (4) asserting a claim arising pursuant to any provision of the Delaware Revised Uniform Limited Partnership Act (the “Delaware Act”) or (5) asserting a claim against us governed by the internal affairs doctrine.
Our partnership agreement provides that, with certain limited exceptions, the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, any other court in the State of Delaware with 58 Table of Contents subject matter jurisdiction) will be the exclusive forum for any claims, suits, actions or proceedings (1) arising out of or relating in any way to our partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of our partnership agreement or the duties, obligations or liabilities among limited partners or of limited partners to us, or the rights or powers of, or restrictions on, the limited partners or us), (2) brought in a derivative manner on our behalf, (3) asserting a claim of breach of a duty owed by any director, officer or other employee of us or our general partner, or owed by our general partner, to us or the limited partners, (4) asserting a claim arising pursuant to any provision of the Delaware Revised Uniform Limited Partnership Act (the “Delaware Act”) or (5) asserting a claim against us governed by the internal affairs doctrine.
The COVID-19 pandemic has adversely affected the global economy and has resulted in unprecedented governmental actions in the United States and countries around the world, including, among other things, social distancing guidelines, travel restrictions and stay-at-home orders, among other actions, which caused a significant decrease in activity in the global economy and the demand for oil, and to a lesser extent, natural gas and NGLs.
For example, the COVID-19 pandemic adversely affected the global economy and resulted in unprecedented governmental actions in the United States and countries around the world, including, among other things, social distancing guidelines, travel restrictions and stay-at-home orders, among other actions, which caused a significant decrease in activity in the global economy and the demand for oil, and to a lesser extent, natural gas and NGLs.
As a result, we may make cash distributions during periods when we record losses for financial accounting purposes and may not make cash distributions during periods when we record net income for financial accounting purposes. 28 Table of Contents The amount of our quarterly cash distributions from our available cash, if any, may vary significantly both quarterly and annually and will be directly dependent on the performance of our business.
As a result, we may make cash distributions during periods when we record losses for financial accounting purposes and may not make cash distributions during periods when we record net income for financial accounting purposes. 29 Table of Contents The amount of our quarterly cash distributions from our available cash, if any, may vary significantly both quarterly and annually and will be directly dependent on the performance of our business.
Please read “—Our general partner and its affiliates own a controlling interest in us and will have conflicts of interest with, and owe limited duties to, us, which may permit them to favor their own interests to the detriment of us and our unitholders.” Even if our unitholders are dissatisfied, they cannot remove our general partner without its consent.
Please read “—Our general partner and its affiliates own a controlling interest in us and will have conflicts of interest with, and owe limited duties to, us, which may permit them to favor their own interests to the detriment of us and our unitholders.” Even if our unitholders are dissatisfied, they are limited in their ability to remove our general partner without its consent.
The foregoing provision will not apply to any claims as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of such court, which is rested in the exclusive jurisdiction of a court or forum other than such court (including claims arising under the Exchange Act), or for which such court does not have subject matter jurisdiction, or to any claims arising under the Securities Act and, unless we consent in writing to the selection of an alternative forum, the United States federal district courts will be the sole and 56 Table of Contents exclusive forum for resolving any action asserting a claim arising under the Securities Act.
The foregoing provision will not apply to any claims as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of such court, which is rested in the exclusive jurisdiction of a court or forum other than such court (including claims arising under the Exchange Act), or for which such court does not have subject matter jurisdiction, or to any claims arising under the Securities Act and, unless we consent in writing to the selection of an alternative forum, the United States federal district courts will be the sole and exclusive forum for resolving any action asserting a claim arising under the Securities Act.
Since affiliates of our general partner (including the Founders) collectively own and control the voting of an aggregate of approximately 38% of our outstanding common units, the other unitholders will not have an ability to influence any operating decisions and will not be able to prevent us from entering into any transactions.
Since affiliates of our general partner (including the Founders) collectively own and control the voting of an aggregate of approximately 37% of our outstanding common units, the other unitholders will not have an ability to influence any operating decisions and will not be able to prevent us from entering into any transactions.
For example, in November 2021, the Biden Administration released “The Long-Term Strategy of the United States: Pathways to Net-Zero Greenhouse Gas Emissions by 2050,” which establishes a roadmap to net zero emissions in the United States by 2050 through, among other things, improving energy efficiency; decarbonizing energy sources via electricity, hydrogen, and sustainable biofuels; and reducing non-CO 2 GHG emissions, such as methane and nitrous oxide.
For example, in November 2021, the Biden Administration released “The Long-Term Strategy of the United States: Pathways to Net-Zero Greenhouse Gas Emissions by 2050,” which establishes a 49 Table of Contents roadmap to net zero emissions in the United States by 2050 through, among other things, improving energy efficiency; decarbonizing energy sources via electricity, hydrogen, and sustainable biofuels; and reducing non-CO 2 GHG emissions, such as methane and nitrous oxide.
If these facilities are unavailable to us because we are unable to obtain services on commercially reasonable terms, the owners and operators of such facilities are unable to obtain permits for new or expanded capacity in compliance with environmental and other governmental or regulatory requirements or are delayed in obtaining such permits, or otherwise, we could be forced to shut in some production or delay or discontinue drilling plans and commercial production 39 Table of Contents following a discovery of hydrocarbons.
If these facilities are unavailable to us because we are unable to obtain services on commercially reasonable terms, the owners and operators of such facilities are unable to obtain permits for new or expanded capacity in compliance with environmental and other governmental or regulatory requirements or are delayed in obtaining such permits, or otherwise, we could be forced to shut in some production or delay or discontinue drilling plans and commercial production following a discovery of hydrocarbons.
Additionally, in November 2021, the Biden Administration released “The Long-Term Strategy of the United States: Pathways to Net-Zero Greenhouse Gas Emissions by 2050,” which establishes a roadmap to net zero emissions in the United States by 2050 through, among other things, improving energy efficiency; decarbonizing energy sources via electricity, hydrogen, and sustainable biofuels; and reducing non-CO 2 GHG emissions, such as methane and nitrous oxide.
Additionally, in November 2021, the Biden Administration released “The Long-Term Strategy of the United States: Pathways to Net-Zero Greenhouse Gas Emissions by 2050,” which establishes a roadmap to net zero emissions in the United States by 2050 through, among other 46 Table of Contents things, improving energy efficiency; decarbonizing energy sources via electricity, hydrogen, and sustainable biofuels; and reducing non-CO 2 GHG emissions, such as methane and nitrous oxide.
Although our general partner has a duty to manage us in a manner that is not adverse to the best interests of us and our unitholders, the executive officers and directors of our general partner also have a duty, in certain cases, to manage our general partner at the direction of MSOG, which is owned by the Founders.
Although our general partner has a duty to manage us in a manner that is not adverse to the best interests of us and our unitholders, the executive officers and directors of our general partner also have a duty, in certain cases, to manage our general partner at the direction of MSOG, which is majority-owned and controlled by the Founders.
If our general partner exercises its limited call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Exchange Act. Affiliates of our general partner own approximately 38% of our common units.
If our general partner exercises its limited call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Exchange Act. Affiliates of our general partner own approximately 37% of our common units.
Additionally, the Federal Trade Commission (“FTC”) has regulations intended to prohibit market manipulation in the petroleum industry with authority to fine violators of the regulations civil penalties of up to $1,426,319 per violation per day, and the Commodity Futures Trading Commission (“CFTC”) prohibits market manipulation in the markets regulated by the CFTC, including similar anti manipulation authority with respect to swaps and futures contracts as that granted to the CFTC with respect to oil purchases and sales.
Additionally, the Federal Trade Commission (“FTC”) has regulations intended to prohibit market manipulation in the petroleum industry with authority to fine violators of the regulations civil penalties of up to $1,426,319 per violation per day, and the Commodity Futures Trading Commission (“CFTC”) prohibits market manipulation in the markets regulated 45 Table of Contents by the CFTC, including similar anti manipulation authority with respect to swaps and futures contracts as that granted to the CFTC with respect to oil purchases and sales.
The issuance by us of additional common units or other equity interests of equal or senior rank will have the following effects: • our unitholders’ proportionate ownership interest in us will decrease; • the amount of cash available for distribution on each unit may decrease; 55 Table of Contents • the ratio of taxable income to distributions may increase; • the relative voting strength of each previously outstanding unit may be diminished; and • the market price of our common units may decline.
The issuance by us of additional common units or other equity interests of equal or senior rank will have the following effects: • our unitholders’ proportionate ownership interest in us will decrease; • the amount of cash available for distribution on each unit may decrease; • the ratio of taxable income to distributions may increase; • the relative voting strength of each previously outstanding unit may be diminished; and • the market price of our common units may decline.
New variants of the virus could cause further commodity market volatility and resulting financial market instability, or any other event described above. These are variables beyond our control and may adversely impact our business, financial condition and results of operations.
New variants of a virus could cause further commodity market volatility and resulting financial market instability, or any other event described above. These are variables beyond our control and may adversely impact our business, financial condition and results of operations.
As a result of our initial public offering, we became subject to the public reporting requirements of the Exchange Act. These rules and regulations has increased certain of our legal and financial compliance costs and made certain activities more time-consuming and costly.
As a result of our initial public offering, we became subject to the public reporting requirements of the Exchange Act. These rules and regulations have increased certain of our legal and financial compliance costs and made certain activities more time-consuming and costly.
See “—Any significant reduction in the borrowing base under our Credit Facility as a result of periodic borrowing base redeterminations or otherwise may negatively impact our ability to fund our operations.” Currently, our producing properties are concentrated in the Permian and San Juan Basins, making us vulnerable to risks associated with operating in a limited number of geographic areas.
See “—Any significant reduction in the borrowing base under our Credit Facility as a result of periodic borrowing base redeterminations or otherwise may negatively impact our ability to fund our operations.” 31 Table of Contents Currently, our producing properties are concentrated in the Permian and San Juan Basins, making us vulnerable to risks associated with operating in a limited number of geographic areas.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Derivatives.” By using derivative instruments to economically hedge exposure to changes in commodity prices, we could limit the benefit we would receive from increases in the prices for oil and natural gas, which could have an adverse effect on our financial condition.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Derivatives.” By using derivative instruments to economically hedge exposure to changes in commodity prices, we could limit the benefit we would receive from increases in the prices for oil and natural gas, which could have an adverse effect on our financial 36 Table of Contents condition.
As a result of our geographic concentration, adverse industry developments in our operating areas could have a greater impact on our financial condition and results of operations than if we were more geographically diverse. We may also be disproportionately exposed to the impact of regional supply and demand factors, governmental regulations or 30 Table of Contents midstream capacity constraints.
As a result of our geographic concentration, adverse industry developments in our operating areas could have a greater impact on our financial condition and results of operations than if we were more geographically diverse. We may also be disproportionately exposed to the impact of regional supply and demand factors, governmental regulations or midstream capacity constraints.
A 33 Table of Contents third-party operator’s failure to adequately perform operations, breach of applicable agreements or failure to act in ways that are favorable to us could reduce our production and revenues, negatively impact our liquidity and cause us to spend capital in excess of our current plans, and have a material adverse effect on our business, financial condition and results of operations.
A third-party operator’s failure to adequately perform operations, breach of applicable agreements or failure to act in ways that are favorable to us could reduce our production and revenues, negatively impact our liquidity and cause us to spend capital in excess of our current plans, and have a material adverse effect on our business, financial condition and results of operations.
If the Permian Basin counties in which we operate were redesignated as nonattainment areas, this could 43 Table of Contents subject us to increased regulatory burdens in the form of more stringent emission controls, emission offset requirements and increased permitting delays and costs. The EPA has also imposed increasingly stringent performance standards on oil and gas operations.
If the Permian Basin counties in which we operate were redesignated as nonattainment areas, this could subject us to increased regulatory burdens in the form of more stringent emission controls, emission offset requirements and increased permitting delays and costs. The EPA has also imposed increasingly stringent performance standards on oil and gas operations.
Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with fossil fuel energy-related assets could lead to increased negative investor 46 Table of Contents sentiment toward us and our industry and to the diversion of investments to other industries, which could have a negative impact on our access to and costs of capital.
Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with fossil fuel energy-related assets could lead to increased negative investor sentiment toward us and our industry and to the diversion of investments to other industries, which could have a negative impact on our access to and costs of capital.
As a result, it may not be possible for tax-exempt entities to utilize losses from an investment in our partnership to offset unrelated business taxable income from another unrelated trade or business and vice versa. Tax-exempt entities should consult a tax advisor regarding the impact of these rules on an investment in our common units.
As a result, it may not be possible for tax-exempt entities to 64 Table of Contents utilize losses from an investment in our partnership to offset unrelated business taxable income from another unrelated trade or business and vice versa. Tax-exempt entities should consult a tax advisor regarding the impact of these rules on an investment in our common units.
This may create actual and potential conflicts of interest between us and affiliates of our general partner and result in less than favorable treatment of us and holders of our common units. Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow our reserves and production and make acquisitions.
This may create actual and potential conflicts of interest between us and affiliates of our general partner and result in less than favorable treatment of us and holders of our common units. 54 Table of Contents Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow our reserves and production and make acquisitions.
The new owner of our general partner would then be in a position to replace the Board and officers of our general partner with their own choices and thereby influence the decisions made by the Board and officers. We may issue an unlimited number of additional units, including units that are senior to the common units, without unitholder approval.
The new owner of our general partner would then be in a position to replace the Board and officers of our general partner with their own choices and thereby influence the decisions made by the Board and officers. 57 Table of Contents We may issue an unlimited number of additional units, including units that are senior to the common units, without unitholder approval.
Finally, the Dodd-Frank Act was intended, in part, to reduce the volatility of natural gas prices, which some legislators attributed to 49 Table of Contents speculative trading in derivatives and commodity instruments related to natural gas. Our revenues could therefore be adversely affected if a consequence of the Dodd-Frank Act and CFTC rules is to lower commodity prices.
Finally, the Dodd-Frank Act was intended, in part, to reduce the volatility of natural gas prices, which some legislators attributed to speculative trading in derivatives and commodity instruments related to natural gas. Our revenues could therefore be adversely affected if a consequence of the Dodd-Frank Act and CFTC rules is to lower commodity prices.
Any of these risks could adversely affect our ability to conduct operations or result in substantial loss to us as a result of claims for: • injury or loss of life; • damage to and destruction of property, natural resources and equipment; • pollution and other environmental damage; • regulatory investigations and penalties; • suspension of our operations; and 50 Table of Contents • repair and remediation costs.
Any of these risks could adversely affect our ability to conduct operations or result in substantial loss to us as a result of claims for: • injury or loss of life; • damage to and destruction of property, natural resources and equipment; • pollution and other environmental damage; • regulatory investigations and penalties; • suspension of our operations; and • repair and remediation costs.
Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our common units, and a rising interest rate environment could have an adverse impact on our unit price and our ability to issue additional equity or incur debt.
Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our common units, and a 56 Table of Contents rising interest rate environment could have an adverse impact on our unit price and our ability to issue additional equity or incur debt.
The terms of existing or future debt or preferred equity arrangements may restrict us 38 Table of Contents from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on outstanding indebtedness on a timely basis could harm our ability to incur additional indebtedness.
The terms of existing or future debt or preferred equity arrangements may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on outstanding indebtedness on a timely basis could harm our ability to incur additional indebtedness.
These events could lead to financial losses from remedial actions, loss of business or potential liability. Although we maintain insurance to protect against losses resulting from certain data protection breaches and cyber-attacks, our coverage for protecting against such risks may not be sufficient.
These events could lead to financial losses from remedial actions, loss of business or potential liability. Although we maintain 42 Table of Contents insurance to protect against losses resulting from certain data protection breaches and cyber-attacks, our coverage for protecting against such risks may not be sufficient.
In addition, continued hostilities related to the Russian invasion of Ukraine and the occurrence or threat of terrorist attacks in the United States or other countries could adversely affect the global economy.
In addition, continued hostilities related to the Russian invasion of Ukraine, hostilities in the Middle East and the occurrence or threat of terrorist attacks in the United States or other countries could adversely affect the global economy.
As a result, distributions to a non-U.S. unitholder will be subject to withholding at the highest 62 Table of Contents applicable effective tax rate and a non-U.S. unitholder who sells or otherwise disposes of a common unit will also be subject to U.S. federal income tax on the gain realized from the sale or disposition of that common unit.
As a result, distributions to a non-U.S. unitholder will be subject to withholding at the highest applicable effective tax rate and a non-U.S. unitholder who sells or otherwise disposes of a common unit will also be subject to U.S. federal income tax on the gain realized from the sale or disposition of that common unit.
The majority of the scientific community has concluded that climate change may result in more frequent and/or more extreme weather events, changes in temperature and precipitation patterns, changes to ground and surface water availability, and other related phenomena, which could affect some, or all, of our operations.
The majority of the scientific community has concluded that climate change is expected to result in more frequent and/or more extreme weather events, changes in temperature and precipitation patterns, changes to ground and surface water availability, and other related phenomena, which could affect some, or all, of our operations.
Any inability to compete effectively with larger companies could have a material adverse impact on our business activities, financial condition and results of operations and our ability to make distributions to our unitholders. Our Credit Facility has restrictions and financial covenants that may restrict our business and financing activities and our ability to pay distributions to our unitholders.
Any inability to compete effectively with larger companies could have a material adverse impact on our business activities, financial condition and results of operations and our ability to make distributions to our unitholders. 38 Table of Contents Our Credit Facility has restrictions and financial covenants that may restrict our business and financing activities and our ability to pay distributions to our unitholders.
The tax liability, if any, of a unitholder as a result of such an event may be material to such unitholder and may vary depending on the unitholder’s particular situation and may vary from the tax liability of us or of any affiliates of our general partner who choose to retain their partnership interests in us.
The tax liability, if any, of a unitholder as a result of such an event may be 61 Table of Contents material to such unitholder and may vary depending on the unitholder’s particular situation and may vary from the tax liability of us or of any affiliates of our general partner who choose to retain their partnership interests in us.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” 42 Table of Contents Continuing political and social concerns about the issues of climate change may result in changes to our business and significant expenditures, including litigation-related expenses.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Continuing political and social concerns about the issues of climate change may result in changes to our business and significant expenditures, including litigation-related expenses.
Furthermore, our partnership agreement does not restrict the ability of the Founders, who own MSOG, which wholly owns our general partner, from transferring all or a portion of their ownership interests in MSOG (or from causing MSOG to transfer all or a portion of its ownership interest in our general partner) to a third party.
Furthermore, our partnership agreement does not restrict the ability of the Founders, who majority-own and control MSOG, which wholly owns our general partner, from transferring all or a portion of their ownership interests in MSOG (or from causing MSOG to transfer all or a portion of its ownership interest in our general partner) to a third party.
Even if sufficient amounts of oil, natural gas or NGLs exist, we may damage the potentially productive hydrocarbon-bearing formation or 32 Table of Contents experience mechanical difficulties while drilling or completing the well, resulting in a reduction in production from the well or abandonment of the well.
Even if sufficient amounts of oil, natural gas or NGLs exist, we may damage the potentially productive hydrocarbon-bearing formation or experience mechanical difficulties while drilling or completing the well, resulting in a reduction in production from the well or abandonment of the well.
Various U.S. financial regulators have announced that they are considering climate-related regulations and, separately, the Federal Reserve has joined the Network for Greening the 45 Table of Contents Financial System, a consortium of financial regulators focused on addressing climate-related risks in the financial sector.
Various U.S. financial regulators have announced that they are considering climate-related regulations and, separately, the Federal Reserve has joined the Network for Greening the Financial System, a consortium of financial regulators focused on addressing climate-related risks in the financial sector.
Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil or criminal penalties, the imposition of investigatory or remedial obligations, and the issuance of orders limiting or prohibiting some or all of our operations.
Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil or criminal penalties, the imposition of investigatory or remedial obligations, and the issuance of orders limiting or prohibiting some or all of our 44 Table of Contents operations.
Seasonal restrictions may limit our ability to operate in protected areas and can intensify competition for drilling rigs, equipment, services, supplies and qualified personnel, which may lead to periodic shortages when drilling is allowed. These constraints and the resulting shortages or high costs could delay our operations or materially increase our operating and capital costs.
Seasonal restrictions may limit our ability to operate in protected 50 Table of Contents areas and can intensify competition for drilling rigs, equipment, services, supplies and qualified personnel, which may lead to periodic shortages when drilling is allowed. These constraints and the resulting shortages or high costs could delay our operations or materially increase our operating and capital costs.
To the extent we transact with counterparties in foreign jurisdictions, we may become subject to such regulations, the impact of which is not clear at this time. We may be involved in legal proceedings that could result in substantial liabilities.
To the extent we transact with counterparties in foreign jurisdictions, we may become subject to such regulations, the impact of which is not clear at this time. 51 Table of Contents We may be involved in legal proceedings that could result in substantial liabilities.
A court may not agree with some or all of the positions we take. As a result, any such contest with the IRS may materially and adversely impact the market for our common units and the price at which our common units trade.
A court may not agree with some or all of the positions we take. As a result, any such contest with 63 Table of Contents the IRS may materially and adversely impact the market for our common units and the price at which our common units trade.
If so, the unitholder would no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.
If so, the unitholder would no 65 Table of Contents longer be treated for tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.
Under the Energy Policy Act of 2005 (“EPAct 2005”), the Federal Energy Regulatory Commission (the “FERC”) has civil penalty authority under the Natural Gas Act of 1938 (“NGA”) to impose penalties for current violations of $1,496,035 per violation per day. The FERC may also impose administrative and criminal remedies and disgorgement of profits associated with any violation.
Under the Energy Policy Act of 2005 (“EPAct 2005”), the Federal Energy Regulatory Commission (the “FERC”) has civil penalty authority under the Natural Gas Act of 1938 (“NGA”) to impose penalties for current violations of $1,544,521 per violation per day. The FERC may also impose administrative and criminal remedies and disgorgement of profits associated with any violation.
For example, environmental activists continue to advocate for increased regulations or bans on shale drilling and hydraulic fracturing in the United States, even in jurisdictions that are among the most stringent in their regulation of the industry.
For example, environmental activists continue to advocate for increased regulations or bans on shale 48 Table of Contents drilling and hydraulic fracturing in the United States, even in jurisdictions that are among the most stringent in their regulation of the industry.
The amount of our expenses or reserves 59 Table of Contents for expenses, including the costs of being a publicly traded partnership reduce the amount of cash we have for distribution to our unitholders. As a result, the amount of cash we have available for distribution to our unitholders is affected by the costs associated with being a public company.
The amount of our expenses or reserves for expenses, including the costs of being a publicly traded partnership reduce the amount of cash we have for distribution to our unitholders. As a result, the amount of cash we have available for distribution to our unitholders is affected by the costs associated with being a public company.
We expect to fund our 2023 capital expenditures with cash generated by operations; however, our cash flows from operations and access to capital are subject to a number of variables, including: • our proved reserves; • the volume of hydrocarbons we are able to produce from existing wells; • the prices at which our production is sold; • our ability to acquire, locate and produce new reserves; • the extent and levels of our derivative activities; • the levels of our operating expenses; and • our ability to borrow under our Credit Facility.
We expect to fund our 2024 capital expenditures with cash generated by operations; however, our cash flows from operations and access to capital are subject to a number of variables, including: • our proved reserves; • the volume of hydrocarbons we are able to produce from existing wells; • the prices at which our production is sold; • our ability to acquire, locate and produce new reserves; 43 Table of Contents • the extent and levels of our derivative activities; • the levels of our operating expenses; and • our ability to borrow under our Credit Facility.
These and other factors may lead to a shortage of qualified, entry-level technical personnel and increased compensation costs. The foregoing factors may lead to additional competition from oil and gas companies attempting to meet their hiring needs.
These and other factors may lead to a shortage of qualified, entry-level technical personnel and increased compensation 41 Table of Contents costs. The foregoing factors may lead to additional competition from oil and gas companies attempting to meet their hiring needs.
This provision entitles our general partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners.
This provision entitles our general partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or 55 Table of Contents factors affecting, us, our affiliates or our limited partners.
If our acreage is involuntarily pooled under state forced pooling statutes, it would reduce our control over such acreage and we could lose operatorship over a portion of our acreage that we plan to develop.
If our acreage is involuntarily pooled under state forced pooling 34 Table of Contents statutes, it would reduce our control over such acreage and we could lose operatorship over a portion of our acreage that we plan to develop.
Declines in commodity prices could result in a determination by the lenders to decrease the borrowing base in the future and, in such a case, we could be required to promptly repay any indebtedness in excess of the redetermined borrowing base.
Declines in commodity prices could result in a determination by the lenders to decrease the borrowing base in the future and, in such 39 Table of Contents a case, we could be required to promptly repay any indebtedness in excess of the redetermined borrowing base.
Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make distributions to 57 Table of Contents unitholders if the distribution would cause our liabilities to exceed the fair value of our assets.
Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make distributions to unitholders if the distribution would cause our liabilities to exceed the fair value of our assets.
Thus, treatment of us as a corporation could result in a reduction in the anticipated cash-flow and after-tax return to our unitholders, which would cause a reduction in the value of our common units.
Thus, treatment of us as a corporation could result in a 62 Table of Contents reduction in the anticipated cash-flow and after-tax return to our unitholders, which would cause a reduction in the value of our common units.
It is 40 Table of Contents not possible to predict these costs with certainty since they will be a function of regulatory requirements at the time of decommissioning, abandonment and reclamation.
It is not possible to predict these costs with certainty since they will be a function of regulatory requirements at the time of decommissioning, abandonment and reclamation.
The redemption price in the case of such a 54 Table of Contents redemption will be the average of the daily closing prices per unit for the 20 consecutive trading days immediately prior to the date set for redemption.
The redemption price in the case of such a redemption will be the average of the daily closing prices per unit for the 20 consecutive trading days immediately prior to the date set for redemption.
The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some of the other states in which we do business.
The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not 59 Table of Contents been clearly established in some of the other states in which we do business.
We are highly dependent on the services of our senior management and the loss of senior management or technical personnel could adversely affect our operations. We depend on the services of our senior management and technical personnel. Our management team has an average of 32 years’ experience in the oil and gas industry.
We are highly dependent on the services of our senior management and the loss of senior management or technical personnel could adversely affect our operations. We depend on the services of our senior management and technical personnel. Our management team has over 30 years’ experience in the oil and gas industry on average.
Department of the Treasury and the IRS have provided that these rules will generally not apply to transfers of our common units occurring before January 1, 2023. Non-U.S. unitholders should consult their tax advisors regarding the impact of these rules on an investment in our common units.
Department of the Treasury and the IRS have provided that these rules generally apply to transfers of our common units occurring on or after January 1, 2023. Non-U.S. unitholders should consult their tax advisors regarding the impact of these rules on an investment in our common units.
General economic conditions, commodity prices, and financial, business, and other factors affect our operations and our future performance. Many of these factors are beyond our control.
General economic conditions, commodity prices, and financial, business, and other factors affect our 40 Table of Contents operations and our future performance. Many of these factors are beyond our control.
The standardized measure of our estimated proved reserves is not necessarily the same as the current market value of our estimated proved reserves. The present value of future net cash flow from our proved reserves, or standardized measure, may not represent the current market value of our estimated proved oil and natural gas reserves.
The present value of future net cash flow from our proved reserves, or standardized measure, may not represent the current market value of our estimated proved oil and natural gas reserves.
We believe that the known and potential impacts of the COVID-19 pandemic and related events include, but are not limited to, the following: • disruption in the demand for oil, natural gas and other petroleum products; • intentional project delays until commodity prices stabilize; • potentially higher borrowing costs in the future; • a need to preserve liquidity, which could result in a reductions, delays or changes in our capital expenditures; • liabilities resulting from operational delays due to decreased productivity resulting from stay-at-home orders affecting our workforce or facility closures resulting from the COVID-19 pandemic; • future asset impairments, including impairment of our natural gas properties, oil properties, and other property and equipment; and • infections and quarantining of our employees and the personnel of vendors, suppliers and other third parties.
Potential impacts of an epidemic, outbreak or other public health event and related events include, but are not limited to, the following: • disruption in the demand for oil, natural gas and other petroleum products; • intentional project delays until commodity prices stabilize; • potentially higher borrowing costs in the future; • a need to preserve liquidity, which could result in reductions, delays or changes in our capital expenditures; • liabilities resulting from operational delays due to decreased productivity resulting from stay-at-home orders affecting our workforce or facility closures; • future asset impairments, including impairment of our natural gas properties, oil properties, and other property and equipment; and • infections and quarantining of our employees and the personnel of vendors, suppliers and other third parties.
Our general partner has control over all decisions related to our operations. Bob R. Simpson, our Chief Executive Officer and Chairman, Brent W. Clum, our President of Business Operations, Chief Financial Officer and Director, Keith A. Hutton, our President of Production and Development and Director, and Vaughn O.
Our general partner has control over all decisions related to our operations. Bob R. Simpson, our Chief Executive Officer and Chairman, Brent W. Clum, our President of Business Operations, Chief Financial Officer and Director, and Keith A.
It also could affect the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions. Item 1B. Unresolved Staff Comments None.
It also could affect the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.
The proposed rule would establish standards of performance for sources that commence construction, modification or reconstruction after the date the proposed rule was published in the Federal Register and would establish emissions guidelines, which will inform state plans to establish standards for existing sources.
The proposed rule would establishing more stringent standards of performance for sources that commence construction, modification or reconstruction after the date the proposed rule was published in the Federal Register and emissions guidelines to inform state plans to establish similar standards for existing sources.
Affiliates of our general partner may sell common units in the public markets, which sales could have an adverse impact on the trading price of the common units. Affiliates of our general partner (including the Founders) own 11,572,649 common units, or approximately 38% of our limited partner interest.
Affiliates of our general partner may sell common units in the public markets, which sales could have an adverse impact on the trading price of the common units. Affiliates of our general partner (including the Founders) own 11,470,901 common units, or approximately 37% of our limited partner interest.
The impact of these orders, pledges, agreements and any legislation or regulation promulgated to fulfill the United States’ commitments under the Paris Agreement, COP26, or other international conventions cannot be predicted at this time.
The impact of these orders, pledges, agreements and any legislation or regulation promulgated to fulfill the United States’ commitments under the UNFCCC, various COPs or other international conventions cannot be predicted at this time.
In recent years, the securities market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to the operating performance of these companies. Future market fluctuations may result in a lower price of our common units.
In recent years, the securities market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to the operating performance of these companies.
If this negative sentiment continues or worsens, it may reduce the availability of capital funding for potential development projects, each of which 47 Table of Contents could have a material adverse effect our financial condition, results of operations, cash flows and ability to pay distributions on our common units.
If this negative sentiment continues or worsens, it may reduce the availability of capital funding for potential development projects or other strategic or operational purposes, any of which could have a material adverse effect our financial condition, results of operations, cash flows and ability to pay distributions on our common units.
Extreme weather conditions could adversely affect our ability to conduct drilling activities in the areas where we operate.
Extreme weather conditions and other climatic phenomena could adversely affect our ability to conduct drilling activities in the areas where we operate.
For example, our estimated proved reserves as of December 31, 2022 were calculated under SEC rules using the unweighted arithmetic average first day of the month prices for the prior 12 months of $6.36/MMBtu for natural gas and $93.67/Bbl for oil at December 31, 2022, which, for certain periods during this period, were substantially different from the available spot prices.
For example, our estimated proved reserves as of December 31, 2023 were calculated under SEC rules using the unweighted arithmetic average first day of the month prices for the prior 12 months of $2.64/MMBtu for natural gas and $78.22/Bbl for oil at December 31, 2023 , which, for certain periods during this period, were substantially different from the available spot prices.
We continue to take actions to mitigate supply chain and inflationary pressures. We are working closely with other suppliers and contractors to ensure availability of supplies on site, especially fuel, steel and chemical suppliers which are critical to many of our operations. However, these mitigation efforts may not succeed or may be insufficient.
We are working closely with other suppliers and contractors to ensure availability of supplies on site, especially fuel, steel and chemical suppliers which are critical to many of our operations. However, these mitigation efforts may not succeed or may be insufficient.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeIn the opinion of our management, none of these other pending litigation matters, disputes or claims against us, if decided adversely, will have a material adverse effect on our financial condition, cash flows or results of operations. Item 4. Mine Safety Disclosures None. 64 Table of Contents Part II
Biggest changeIn the opinion of our management, none of these other pending litigation matters, disputes or claims against us, if decided adversely, will have a material adverse effect on our financial condition, cash flows or results of operations. Item 4. Mine Safety Disclosures None. 67 Table of Contents Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−5 removed6 unchanged
Biggest changeSee the “Cash Distribution Policy” section below for a discussion of our policy regarding distribution payments. Recent Sales of Unregistered Securities None other than as previously reported in our Current Report on Form 8-K filed with the SEC on January 31, 2023.
Biggest changeSee the “Cash Distribution Policy” section below for a discussion of our policy regarding distribution payments. 2023 Distribution per Unit Payment Date First Quarter $ 0.50 May 30, 2023 Second Quarter $ 0.48 August 25, 2023 Third Quarter $ 0.52 November 27, 2023 Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None.
Available cash generally means, for any quarter, all cash and cash equivalents on hand at the end of that quarter: less , the amount of cash reserves established by our general partner to: • provide for the proper conduct of our business, which could include, but is not limited to, amounts reserved for capital expenditures, working capital and operating expenses; 65 Table of Contents • comply with applicable law, any of our debt instruments or other agreements; or • provide funds for distributions to our unitholders for any one or more of the next four quarters; plus , all cash on hand on the date of determination resulting from dividends or distributions received after the end of the quarter from equity interests in any person other than a subsidiary in respect of operations conducted by such person during the quarter; plus , if our general partner so determines, all or a portion of cash on hand on the date of determination resulting from working capital borrowings made after the end of the quarter.
Available cash generally means, for any quarter, all cash and cash equivalents on hand at the end of that quarter: less , the amount of cash reserves established by our general partner to: • provide for the proper conduct of our business, which could include, but is not limited to, amounts reserved for capital expenditures, working capital and operating expenses; • comply with applicable law, any of our debt instruments or other agreements; or • provide funds for distributions to our unitholders for any one or more of the next four quarters; plus , all cash on hand on the date of determination resulting from dividends or distributions received after the end of the quarter from equity interests in any person other than a subsidiary in respect of operations conducted by such person during the quarter; 68 Table of Contents plus , if our general partner so determines, all or a portion of cash on hand on the date of determination resulting from working capital borrowings made after the end of the quarter.
Our partnership agreement requires us to distribute all of our available cash within 60 days following the end of each quarter (other than the fourth quarter of each fiscal year), and within 90 days following the end of the fourth quarter of each fiscal year, beginning with the quarter ending March 31, 2023.
Our partnership agreement requires us to distribute all of our available cash within 60 days following the end of each quarter (other than the fourth quarter of each fiscal year), and within 90 days following the end of the fourth quarter of each fiscal year.
Item 5. Market for Registrant's Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities Market Information, Holders and Distributions Our common units are listed and traded on the New York Stock Exchange under the symbol “TXO.” As of March 28, 2023, there were 2 record holders.
Item 5. Market for Registrant's Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities Market Information and Holders Our common units are listed and traded on the New York Stock Exchange under the symbol “TXO.” As of March 5, 2024, there were 98 record holders. Our common units began publicly trading on the NYSE on January 27, 2023.
Our common units began publicly trading on the NYSE on January 27, 2023. Prior to that time, there was no public market for our common units. Since the closing of our initial public offering on January 31, 2023, no distributions have been made.
Prior to that time, there was no public market for our common units. Since the closing of our initial public offering on January 31, 2023, we have made distributions for the first three quarters of 2023 as indicated in the table below.
Removed
Use of Proceeds On January 31, 2023, we completed the initial public offering of our common units pursuant to which we issued and sold 5,000,000 shares of our common units at a price to the public of $20.00 per unit.
Added
Our fourth quarter distribution of $0.58 per unit with respect to cash available for distribution for the three months ended December 31, 2023, was declared on March 05, 2024 and will be paid on March 28, 2024 to unitholders of record on March 15, 2024.
Removed
In addition, on February 6, 2023, we sold an additional 750,000 common units pursuant to the underwriter’s option to purchase additional units to cover over-allotments.
Removed
All of the common units issued and sold in our initial public offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-268424), which was declared effective by the SEC on January 26, 2023.
Removed
We received net proceeds of approximately $102.0 million, after deducting underwriting discounts and commissions and offering expenses borne by us. None of the expenses incurred by us were direct or indirect payments to any of (i) our directors or officers or their associates, (ii) persons owning 10% or more of our common stock, or (iii) our affiliates.
Removed
There has been no material change in the planned use of proceeds from our initial public offering to repay a portion of the amounts outstanding under our Credit Facility as described in our final prospectus filed with the SEC on January 27, 2023 pursuant to Rule 424(b)(4). Issuer Purchases of Equity Securities None.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

98 edited+29 added−25 removed72 unchanged
Biggest changeAdditionally, because Adjusted EBITDAX and cash available for distribution may be defined differently by other companies in our industry, our definition of Adjusted EBITDAX and cash available for distribution may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. 73 Table of Contents Results of Operations Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 December 31, 2022 2021 (in thousands) Revenues: Oil and condensate sales $ 160,864 $ 69,971 Natural gas liquids sales $ 41,731 $ 27,875 Gas sales $ 43,802 $ 130,498 Total revenues $ 246,397 $ 228,344 Expenses: Production expenses $ 127,661 $ 69,256 Exploration expenses $ 360 $ 124 Taxes, transportation, and other $ 94,991 $ 58,040 Depreciation, depletion, and amortization $ 41,364 $ 39,889 Accretion of discount in asset retirement obligations $ 6,055 $ 4,670 General and administrative $ 1,646 $ 12,175 Total expenses $ 272,077 $ 184,154 Operating (loss) income $ (25,680) $ 44,190 Other income (expense): Other income $ 26,067 $ 14,139 Interest income $ 143 $ 16 Interest expense $ (8,198) $ (5,870) Total other income $ 18,012 $ 8,285 Net (loss) income $ (7,668) $ 52,475 74 Table of Contents The following table provides a summary of our sales volumes, average prices (both including and excluding the effects of derivatives) and operating expenses on a per Boe basis for the periods indicated: December 31, 2022 2021 Sales: Oil and condensate sales (MBbls) 2,206 1,033 Natural gas liquids sales (MBbls) 1,334 1,089 Natural gas sales (MMcf) 29,557 30,590 Total (MBoe) 8,466 7,220 Total (MBoe/d) 23 20 Average sales prices: Oil and condensate excluding the effects of derivatives (per Bbl) $ 93.69 $ 67.41 Oil and condensate (per Bbl) (1) $ 72.93 $ 67.74 Natural gas liquids excluding the effects of derivatives (per Bbl) $ 35.47 $ 25.16 Natural gas liquids (per Bbl) (2) $ 31.28 $ 25.60 Natural gas excluding the effects of derivatives (per Mcf) $ 6.62 $ 4.00 Natural gas (per Mcf) (3) $ 1.48 $ 4.27 Expense per Boe: Production $ 15.08 $ 9.59 Taxes, transportation and other $ 11.22 $ 8.04 Depreciation, depletion and amortization $ 4.89 $ 5.52 General and administrative expenses $ 0.19 $ 1.69 __________________________________ (1) Oil and condensate prices include both realized and unrealized losses from derivatives.
Biggest changeAdditionally, because Adjusted EBITDAX and cash available for distribution may be defined differently by other companies in our industry, our definition of Adjusted EBITDAX and cash available for distribution may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. 75 Table of Contents Reconciliation of Adjusted EBITDAX and Cash Available for Distribution to GAAP Financial Measures For the Year Ended December 31, 2023 2022 2021 (in thousands) Net income (loss) $ (103,987) $ (7,668) $ 52,475 Interest expense 4,423 8,198 5,870 Interest income (461) (143) (16) Depreciation, depletion and amortization 44,288 41,364 39,889 Impairment of long-lived assets 223,384 — — Accretion of discount in asset retirement obligation 8,644 6,055 4,670 Exploration expense 151 360 124 Unrealized (gain)/loss on derivatives (106,247) 113,217 (8,977) Non-cash incentive compensation 3,470 — 2,400 Non-cash gain on forgiveness of debt — — — (9,152) Non-recurring (gain)/loss $ 209 $ 23 $ (1,935) Adjusted EBITDAX $ 73,874 $ 161,406 $ 85,348 Cash Interest expense (3,677) (7,506) (4,520) Cash Interest income 461 143 16 Exploration expense (151) (360) (124) Development costs (35,799) (23,720) (8,372) Cash Available for Distribution $ 34,708 $ 129,963 $ 72,348 Net cash provided by operating activities $ 77,150 $ 136,380 $ 73,726 Changes in operating assets and liabilities (6,643) 17,303 6,994 Development costs (35,799) (23,720) (8,372) Cash Available for Distribution $ 34,708 $ 129,963 $ 72,348 76 Table of Contents Results of Operations For the year ended December 31, 2023 2022 2021 (in thousands) Revenues: Oil and condensate sales $ 182,733 $ 160,864 $ 69,971 Natural gas liquids sales 29,193 41,731 27,875 Gas sales 168,792 43,802 130,498 Total revenues 380,718 246,397 228,344 Expenses: Production 144,730 127,661 69,256 Exploration 151 360 124 Taxes, transportation, and other 75,415 94,991 58,040 Depreciation, depletion and amortization 44,288 41,364 39,889 Impairment of long-lived assets 223,384 — — Accretion of discount in asset retirement obligation 8,644 6,055 4,670 General and administrative 7,887 1,646 12,175 Total expenses 504,499 272,077 184,154 Operating (loss) income (123,781) (25,680) 44,190 Other income (expense): Other income 23,756 26,067 14,139 Interest income 461 143 16 Interest expense (4,423) (8,198) (5,870) Total other income 19,794 18,012 8,285 Net (loss) income $ (103,987) $ (7,668) $ 52,475 77 Table of Contents The following table provides a summary of our sales volumes, average prices (both including and excluding the effects of derivatives) and operating expenses on a per Boe basis for the periods indicated: For the year ended December 31, 2023 2022 2021 Sales: Oil and condensate sales (MBbls) 2,376 2,206 1,033 Natural gas liquids sales (MBbls) 1,232 1,334 1,089 Natural gas sales (MMcf) 28,739 29,557 30,590 Total (MBoe) 8,397 8,466 7,220 Total (MBoe/d) 23 23 20 Average sales prices: Oil and condensate excluding the effects of derivatives (per Bbl) $ 75.94 $ 93.69 $ 67.41 Oil and condensate (per Bbl) (1) $ 76.92 $ 72.93 $ 67.74 Natural gas liquids excluding the effects of derivatives (per Bbl) $ 22.53 $ 35.47 $ 25.16 Natural gas liquids (per Bbl) (2) $ 23.70 $ 31.28 $ 25.60 Natural gas excluding the effects of derivatives (per Mcf) $ 5.20 $ 6.62 $ 4.00 Natural gas (per Mcf) (3) $ 5.87 $ 1.48 $ 4.27 Expense per Boe: Production $ 17.24 $ 15.08 $ 9.59 Taxes, transportation and other $ 8.98 $ 11.22 $ 8.04 Depreciation, depletion and amortization $ 5.27 $ 4.89 $ 5.52 General and administrative expenses $ 0.94 $ 0.19 $ 1.69 __________________________________ (1) Oil and condensate prices include both realized and unrealized losses from derivatives.
Taxes, transportation, and other expenses can also be influenced by acquisitions, commodity prices, changes in values of our properties, sales mix and acquisitions. Depletion, depreciation, and amortization Depreciation, depletion, and amortization (“DD&A”) is the systematic expensing of the capitalized costs incurred to acquire, explore and develop oil and natural gas.
Taxes, transportation, and other expenses can also be influenced by commodity prices, changes in values of our properties, sales mix and acquisitions. Depletion, depreciation, and amortization Depreciation, depletion, and amortization (“DD&A”) is the systematic expensing of the capitalized costs incurred to acquire, explore and develop oil and natural gas.
Factors Affecting the Comparability of Our Financial Condition and Results of Operations Our historical financial condition and results of operations for the periods presented may not be comparable, either from period to period or going forward, primarily for the following reasons: Property acquisitions We have completed three significant acquisitions in the past two years that affect the comparability of results of operations between 2021 and 2022 to some extent.
Factors Affecting the Comparability of Our Financial Condition and Results of Operations Our historical financial condition and results of operations for the periods presented may not be comparable, either from period to period or going forward, primarily for the following reasons: Property acquisitions We have completed three significant acquisitions in the past two years that affect the comparability of results of operations between 2021, 2022 and 2023 to some extent.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our audited financial statements as of and for the years ended December 31, 2022 and 2021 and related notes thereto, included in Item 8. Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our audited financial statements as of and for the years ended December 31, 2023, 2022 and 2021 and related notes thereto, included in Item 8. Financial Statements.
Accordingly, the standardized measure does not represent management’s estimated current market value of proved reserves. 83 Table of Contents Revenue recognition Oil, NGL and natural gas revenues are recognized upon the satisfaction of the performance obligation which occurs at the point in time when control of the product transfers to a customer, in an amount that reflects the consideration to which we expect to be entitled in exchange for the product.
Accordingly, the standardized measure does not represent management’s estimated current market value of proved reserves. 86 Table of Contents Revenue recognition Oil, NGL and natural gas revenues are recognized upon the satisfaction of the performance obligation which occurs at the point in time when control of the product transfers to a customer, in an amount that reflects the consideration to which we expect to be entitled in exchange for the product.
For example, we generally intend to hedge a portion of our production. We generally will be required to settle our commodity hedge derivatives within twenty-five days of the end of the month.
For example, we intend to opportunistically hedge a portion of our production. We generally will be required to settle our commodity hedge derivatives within twenty-five days of the end of the month.
If we are unable to recover higher costs through higher commodity prices, our current revenue stream, estimates of future reserves, borrowing base calculations, impairment assessments of oil and natural gas properties, and values of properties in purchase and sale transactions would all be significantly impacted. We are taking actions to mitigate supply chain and inflationary pressures.
If we are unable to recover higher costs through higher commodity prices, our current revenue stream, estimates of future reserves, borrowing base calculations, impairment assessments of oil and natural gas properties, and values of properties in purchase and sale transactions would all be significantly impacted. We are taking actions to mitigate inflationary pressures.
We plan to continue our practice of entering into such transactions to reduce the impact of commodity price volatility on our cash flow from operations. Impairment We evaluate our producing properties for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
We plan to continue our practice of o pportunistically entering into such transactions to reduce the impact of commodity price volatility on our cash flow from operations. Impairment We evaluate our producing properties for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
How We Evaluate Our Operations We use a variety of financial and operational metrics to assess the performance of our operations, including: • production volumes; 72 Table of Contents • realized prices on the sale of oil, NGLs and natural gas; • production expenses; • acquisition and development expenditures • Adjusted EBITDAX; and • Cash Available for Distribution.
How We Evaluate Our Operations We use a variety of financial and operational metrics to assess the performance of our operations, including: • production volumes; 74 Table of Contents • realized prices on the sale of oil, NGLs and natural gas; • production expenses; • acquisition and development expenditures • Adjusted EBITDAX; and • Cash Available for Distribution.
For the Year Ended December 31, 2022 2021 Crude oil sales 48 % 32 % Natural gas sales 40 % 56 % Natural gas liquid sales 12 % 12 % Revenue excluding the unrealized effects of commodity derivative contracts is a non-GAAP supplemental financial measure that management and external users of our combined financial statements, such as investors, lenders and others (including industry analysts and rating agencies who will be using such measure), may use for the periods presented to more effectively evaluate our operating performance and our results of operation from period to period without giving effect to non-cash gains and losses.
For the Year Ended December 31, 2023 2022 2021 Crude oil sales 63 % 48 % 32 % Natural gas sales 27 % 40 % 56 % Natural gas liquid sales 10 % 12 % 12 % Revenue excluding the unrealized effects of commodity derivative contracts is a non-GAAP supplemental financial measure that management and external users of our combined financial statements, such as investors, lenders and others (including industry analysts and rating agencies who will be using such measure), may use for the periods presented to more effectively evaluate our operating performance and our results of operation from period to period without giving effect to non-cash gains and losses.
We also expect to incur additional significant and recurring expenses as a publicly traded partnership, including costs associated with the employment of additional personnel, compliance under the Exchange Act, annual and quarterly reports to unitholders, tax return preparation, independent auditor fees, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and independent director compensation.
We also incurred additional significant and recurring expenses as a publicly traded partnership, including costs associated with the employment of additional personnel, compliance under the Exchange Act, annual and quarterly reports to unitholders, tax return preparation, independent auditor fees, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and independent director compensation.
If conditions indicate that proved properties may be impaired, the carrying value of property is compared to management’s future estimated pre-tax undiscounted cash flow from properties generally aggregated on a field-level basis. If impairment is necessary, the asset carrying value is written down to fair value, typically a discounted present value of estimated future cash flows.
If conditions indicate that proved properties may be impaired, the carrying value of property is compared to management’s future estimated pre-tax undiscounted cash flow from properties generally aggregated on a field-level basis. If impairment is necessary, the asset carrying value is written down to fair value, typically a discounted present value of 85 Table of Contents estimated future cash flows.
Successful drill well costs are transferred to proved properties generally within one month of the well completion date. 82 Table of Contents Depreciation, depletion and amortization (DD&A) of proved producing properties is computed on the unit-of- production method based on estimated proved oil and gas reserves. Repairs and maintenance are expensed, while renewals and betterments are generally capitalized.
Successful drill well costs are transferred to proved properties generally within one month of the well completion date. Depreciation, depletion and amortization (DD&A) of proved producing properties is computed on the unit-of- production method based on estimated proved oil and gas reserves. Repairs and maintenance are expensed, while renewals and betterments are generally capitalized.
The realized losses were $4.6 million for the year ended December 31, 2022 and $0.0 million for the year ended December 31, 2021. (3) Natural gas prices include both realized and unrealized losses from derivatives.
The realized gains were $0.4 million for the year ended December 31, 2023, realized losses were $4.6 million for the year ended December 31, 2022 and $0.0 million for the year ended December 31, 2021. (3) Natural gas prices include both realized and unrealized losses from derivatives.
Oil prices steadily increased through 2021 due to continued recovery in demand before increasing drastically in the first half of 2022 due to further demand, domestic supply reductions, OPEC control measures and market disruptions resulting from the Russia-Ukraine war and sanctions on Russia.
Oil prices steadily 69 Table of Contents increased through 2021 due to continued recovery in demand before increasing drastically in the first half of 2022 due to further demand, domestic supply reductions, OPEC control measures and market disruptions resulting from the Russia-Ukraine war and sanctions on Russia.
Please see “Risk Factors—Risks Related to the Natural Gas, NGL and Oil Industry and Our Business—Commodity prices are volatile—A sustained decline in commodity prices may adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations and financial commitments.” Public company expenses We expect to incur incremental costs in 2023 related to our transition to a publicly traded partnership, including the costs associated with the initial implementation of our internal controls implementation and testing.
Please see “Risk Factors—Risks Related to the Natural Gas, NGL and Oil Industry and Our Business—Commodity prices are volatile—A sustained decline in commodity prices may adversely affect our business, 84 Table of Contents financial condition or results of operations and our ability to meet our capital expenditure obligations and financial commitments.” Public company expenses We incurred in 2023 and expect to incur in 2024 incremental costs related to our transition to a publicly traded partnership, including the costs associated with the initial implementation of our internal controls implementation and testing.
This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for the years ended December 31, 2022 and 2021.
This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for the years ended December 31, 2023 and 2022 .
Our Credit Facility contains certain customary representations, warranties and covenants, including but not limited to, limitations on incurring debt and liens, limitations on merging or consolidating with another company, limitations on making certain restricted payments, limitations on investments, limitations on paying distributions on, redeeming, or repurchasing common units, limitations on entering into transactions with affiliates, and limitations on asset sales.
Our Credit Facility contains certain customary representations, warranties and covenants, including but not limited to, limitations on incurring debt and liens, limitations on merging or consolidating with another company, limitations on making certain restricted payments, limitations on investments, limitations on paying distributions on, redeeming, or 82 Table of Contents repurchasing common units, limitations on entering into transactions with affiliates, and limitations on asset sales.
We expect to fund these capital expenditures from cash flow from operations. 77 Table of Contents The amount and timing of these capital expenditures is substantially within our control and subject to management’s discretion.
We expect to fund these capital expenditures from cash flow from operations. The amount and timing of these capital expenditures is substantially within our control and subject to management’s discretion.
As of November 3, 2022, the last date of redetermination, our borrowing base was $165 million. Redetermination of the borrowing base under the Credit Facility is based primarily on reserve reports that reflect commodity prices at such time and occurs semi-annually, in March and September, as well as upon requested interim redeterminations by the lenders at their sole discretion.
As of October 25, 2023, the last date of redetermination, our borrowing base was $165 million. Redetermination of the borrowing base under the Credit Facility is based primarily on reserve reports that reflect commodity prices at such time and occurs semi-annually, in March and September, as well as upon requested interim redeterminations by the lenders at their sole discretion.
Our ability to add reserves through development projects and acquisitions is dependent on many factors, including our ability to raise capital, obtain regulatory approvals, procure contract drilling rigs and personnel, and successfully identify and consummate acquisitions.
Our ability to add reserves through development projects and acquisitions is dependent on many factors, including our ability to raise capital, obtain regulatory approvals, procure contract drilling rigs and personnel, and successfully identify and consummate 71 Table of Contents acquisitions.
The following table presents historical production volumes for our properties for the periods specified below: The following table presents historical production volumes for our properties for the periods specified below: For the Year Ended December 31, 2022 2021 Oil and condensate (MBbls) 2,206 1,033 Natural gas liquids (MBbls) 1,334 1,089 Natural gas (MMcf) 29,557 30,590 Total (MBoe) 8,466 7,220 Average net sales (MBoe/day) 23 20 68 Table of Contents Sales volumes directly impact our results of operations.
The following table presents historical production volumes for our properties for the periods specified below: The following table presents historical production volumes for our properties for the periods specified below: For the Year Ended December 31, 2023 2022 2021 Oil and condensate (MBbls) 2,376 2,206 1,033 Natural gas liquids (MBbls) 1,232 1,334 1,089 Natural gas (MMcf) 28,739 29,557 30,590 Total (MBoe) 8,397 8,466 7,220 Average net sales (MBoe/day) 23 23 20 Sales volumes directly impact our results of operations.
The following table presents the breakdown of our revenues including both the realized and unrealized effects of our commodity derivative contracts for the periods specified below: For the Year Ended December 31, 2022 2021 Crude oil sales 65 % 31 % Natural gas sales 18 % 57 % Natural gas liquid sales 17 % 12 % The following table presents that breakdown of our revenues for the periods specified below excluding the unrealized effects of our commodity derivative contracts.
The following table 70 Table of Contents presents the breakdown of our revenues including both the realized and unrealized effects of our commodity derivative contracts for the periods specified below: For the Year Ended December 31, 2023 2022 2021 Crude oil sales 48 % 65 % 31 % Natural gas sales 44 % 18 % 57 % Natural gas liquid sales 8 % 17 % 12 % The following table presents that breakdown of our revenues for the periods specified below excluding the unrealized effects of our commodity derivative contracts.
The facility has a maturity date of November 1, 2025. In connection with entering into the Credit Facility, as of December 31, 2022, we incurred financing fees and expenses of approximately $2.8 million before accumulated amortization of $0.8 million . These costs are being amortized over the life of the Credit Facility.
The facility has a maturity date of November 1, 2025. In connection with entering into the Credit Facility, as of December 31, 2023, we incurred financing fees and expenses of approximately $3.0 million before accumulated amortization of $1.5 million . These costs are being amortized over the life of the Credit Facility.
Downward revisions of proved reserves result in an acceleration of DD&A expense, while upward revisions tend to lower the rate of DD&A expense recognition. During 2022 , net upward revisions to proved reserves on a Boe basis occurred, which will result in a decrease in DD&A expense of 11% in 2023.
Downward revisions of proved reserves result in an acceleration of DD&A expense, while upward revisions tend to lower the rate of DD&A expense recognition. During 2023 , net downward revisions to proved reserves on a Boe basis occurred, which will result in an increase in DD&A expense of 26% in 2024.
Such amortized expenses are recorded as interest expense on the statements of operations. As of December 31, 2022 , we had $113 million in borrowings outstanding under our Credit Facility and $52 million in availability.
Such amortized expenses are recorded as interest expense on the statements of operations. As of December 31, 2023 , we had $21 million in borrowings outstanding under our Credit Facility and $144 million in availability.
Market Outlook The oil and natural gas industry is cyclical and commodity prices are highly volatile. For example, during the period from January 1, 2021 through December 31, 2022, prices for crude oil and natural gas reached a high of $123.70 per Bbl and $23.86 per MMBtu, respectively, and a low of $47.62 per Bbl and $2.43 per MMBtu, respectively.
Market Outlook The oil and natural gas industry is cyclical and commodity prices are highly volatile. For example, during the period from January 1, 2021 through December 31, 2023, prices for crude oil and natural gas reached a high of $123.70 per Bbl and $9.68 per MMBtu, respectively, and a low of $47.62 per Bbl and $1.99 per MMBtu, respectively.
The weighted average interest rate on Credit Facility borrowings was 5.4% in 2022 . The effective borrowing rate under our Credit Facility was 7.8% as of December 31, 2022 .
The weighted average interest rate on Credit Facility borrowings was 8.4% in 2023 . The effective borrowing rate under our Credit Facility was 8.6% as of December 31, 2023 .
(2) Natural gas liquids prices include both realized and unrealized losses from derivatives. The unrealized losses were $1.0 million for the year ended December 31, 2022 and unrealized gains were $0.5 million for the year ended December 31, 2021.
The realized losses were $7.1 million for the year ended December 31, 2023, $32.8 million for the year ended December 31, 2022 and $0.0 million for the year ended December 31, 2021. (2) Natural gas liquids prices include both realized and unrealized losses from derivatives.
Our acquisition and development expenditures consist of acquisitions of proved, unproved and other property and development expenditures. Our capital expenditures including acquisitions were $86.7 million for the year ended December 31, 2022 and $227.8 million for the year ended December 31, 2021.
Our acquisition and development expenditures consist of acquisitions of proved, unproved and other property and development expenditures. Our capital expenditures including acquisitions were $46.2 million for the year ended December 31, 2023 and $86.7 million for the year ended December 31, 2022.
The following is a comparison of average pricing excluding and including the effects of derivatives: For the Year Ended December 31, 2022 2021 Average prices: Oil (Bbl) Average NYMEX Price $ 94.33 $ 68.11 Average Realized Price (excluding derivatives) $ 93.69 $ 67.41 Average Realized Price (including derivatives) $ 72.93 $ 67.74 Differential to NYMEX $ (0.64) $ (0.70) Natural Gas (Mcf) Average NYMEX Price $ 6.54 $ 3.71 Average Realized Price (excluding derivatives) $ 6.62 $ 4.00 Average Realized Price (including derivatives) $ 1.48 $ 4.27 Differential to NYMEX $ 0.08 $ 0.29 Natural gas liquids (Bbl) Average Realized Price (excluding derivatives) $ 35.47 $ 25.16 Average Realized Price (including derivatives) $ 31.28 $ 25.60 High and low NYMEX prices: Oil (Bbl) High $ 123.70 $ 84.65 Low $ 71.02 $ 47.62 Natural gas (MMBtu) High $ 9.85 $ 23.86 Low $ 3.52 $ 2.43 Hedging activities To achieve more predictable cash flow and to reduce our exposure to adverse fluctuations in commodity prices, from time to time we enter into derivative arrangements for our production.
The following is a comparison of average pricing excluding and including the effects of derivatives: For the Year Ended December 31, 2023 2022 2021 Average prices: Oil (Bbl) Average NYMEX Price $ 77.60 $ 94.33 $ 68.11 Average Realized Price (excluding derivatives) $ 75.94 $ 93.69 $ 67.41 Average Realized Price (including derivatives) $ 76.92 $ 72.93 $ 67.74 Differential to NYMEX $ (1.66) $ (0.64) $ (0.70) Natural Gas (Mcf) Average NYMEX Price $ 2.66 $ 6.55 $ 3.71 Average Realized Price (excluding derivatives) $ 5.20 $ 6.62 $ 4.00 Average Realized Price (including derivatives) $ 5.87 $ 1.48 $ 4.27 Differential to NYMEX $ 2.54 $ 0.07 $ 0.29 Natural gas liquids (Bbl) Average Realized Price (excluding derivatives) $ 22.53 $ 35.47 $ 25.16 Average Realized Price (including derivatives) $ 23.70 $ 31.28 $ 25.60 High and low NYMEX prices: Oil (Bbl) High $ 93.68 $ 123.70 $ 84.65 Low $ 66.74 $ 71.02 $ 47.62 Natural gas (MMBtu) High $ 4.17 $ 9.68 $ 6.31 Low $ 1.99 $ 3.72 $ 2.45 72 Table of Contents Hedging activities To achieve more predictable cash flow and to reduce our exposure to adverse fluctuations in commodity prices, from time to time we enter into derivative arrangements for our production.
On a per unit basis, G&A expense decreased from $1.69 per Boe sold for the year ended December 31, 2021 to $0.19 per Boe sold for the year ended December 31, 2022. The decrease is primarily related to decreased costs and increased production.
On a per unit basis, G&A expense increased from $0.19 per Boe sold for the year ended December 31, 2022 to $0.94 per Boe sold for the year ended December 31, 2023. The increase is primarily related to increased costs and decreased production.
Oil and natural gas prices have historically been volatile. During the period from January 1, 2021 through December 31, 2022, prices for crude oil and natural gas reached a high of $123.70 per Bbl and $23.86 per MMBtu, respectively, and a low of $47.62 per Bbl and $2.43 per MMBtu, respectively.
Oil and natural gas prices have historically been volatile. During the period from January 1, 2021 through December 31, 2023, prices for crude oil and natural gas reached a high of $123.70 per Bbl and $9.68 per MMBtu, respectively, and a low of $47.62 per Bbl and $1.99 per MMBtu, respectively.
Financial Statements and Supplementary Data for an expanded discussion of our significant accounting policies and estimates made by management. Property and equipment A majority of the property costs reflected in the accompanying balance sheet are from the acquisition of proved properties.
See Note 1 of the notes to the audited financial statements included in Item 8. Financial Statements and Supplementary Data for an expanded discussion of our significant accounting policies and estimates made by management. Property and equipment A majority of the property costs reflected in the accompanying balance sheet are from the acquisition of proved properties.
The price we receive for our oil and natural gas production is generally different than the NYMEX price because of adjustments for delivery location (“basis”), relative quality and other factors. 69 Table of Contents As such, our revenues are sensitive to the price of the underlying commodity to which they relate.
The price we receive for our oil and natural gas production is generally different than the NYMEX price because of adjustments for delivery location (“basis”), relative quality and other factors. For example, most of our gas is sold in the San Juan Basin. As such, our revenues are sensitive to the price of the underlying commodity to which they relate.
Outstanding borrowings under our Credit Facility were $145.0 million at December 31, 2021 and $113.0 million at December 31, 2022, and the remaining availability under our Credit Facility was $20.0 million at December 31, 2021 and $52.0 million at December 31, 2022.
Outstanding borrowings under our Credit Facility were $21.0 million at December 31, 2023 and $113.0 million at December 31, 2022, and the remaining availability under our Credit Facility was $144.0 million at December 31, 2023 and $52.0 million at December 31, 2022.
During the period from January 1, 2021 through December 31, 2022, prices for crude oil and natural gas reached a high of $123.70 per Bbl and $23.86 per MMBtu, respectively, and a low of $47.62 per Bbl and $2.43 per MMBtu, respectively.
During the period from January 1, 2021 through December 31, 2023, prices for crude oil and natural gas reached a high of $123.70 per Bbl and $9.68 per MMBtu, respectively, and a low of $47.62 per Bbl and $1.99 per MMBtu, respectively.
The unrealized losses were $13.0 million for the year ended December 31, 2022 and unrealized gains were $0.3 million for the year ended December 31, 2021. The realized losses were $32.8 million for the year ended December 31, 2022 and $0.0 million for the year ended December 31, 2021.
The unrealized gains were $9.5 million for the year ended December 31, 2023, unrealized losses were $13.0 million for the year ended December 31, 2022 and unrealized gains were $0.3 million for the year ended December 31, 2021.
The unrealized losses were $99.2 million for the year ended December 31, 2022 and unrealized gains were $8.2 million for the year ended December 31, 2021. The realized losses were $52.6 million for the year ended December 31, 2022 and $0.0 million for the year ended December 31, 2021.
The unrealized gains were $95.8 million for the year ended December 31, 2023, unrealized gains losses $99.2 million for the year ended December 31, 2022 and unrealized gains were $8.2 million for the year ended December 31, 2021.
Production Period Bbls per Day Weighted Average NYMEX Price per Bbl January 2023—December 2023 2,500 $ 68.87 January 2024—June 2024 2,000 $ 63.27 Crude Oil Basis Swaps—West Texas Midland Production Period Bbls per Day Weighted Average Sell Basis Price per Bbl (a) January 2023—December 2023 5,000 $ 1.21 (a) Increases to NYMEX oil price for delivery location Crude Oil—Roll Component Production Period Bbls per Day Weighted Average Roll Price per Bbl (a) January 2023—December 2023 3,000 $ 0.89 (a) Increases to NYMEX oil price for roll component Natural Gas Liquids—Swaps Production Period Gallons per Day Weighted Average NGL OPIS Price per Gallon Ethane January 2023—December 2023 63,000 $ 0.27 January 2024—June 2024 63,000 $ 0.23 Natural Gas—Swaps Production Period MMBtu per Day Weighted Average NYMEX Price per MMBtu January 2023—December 2023 35,000 $ 3.51 January 2024—June 2024 30,000 $ 3.26 Natural Gas—Collars Production Period MMBtu per Day Weighted Average NYMEX Price per MMBtu Floor Ceiling January 2023—March 2023 5,000 $ 5.00 $ 9.85 January 2024—June 2024 5,000 $ 3.75 $ 7.25 Natural Gas Basis Swaps—San Juan Production Period MMBtu per Day Weighted Average Sell Basis Price per MMBTU (a) January 2023—December 2023 70,000 $ 0.17 (a) Reductions to NYMEX gas price for delivery location 71 Table of Contents Principal Components of Our Cost Structure Production expenses Production expenses are the costs incurred in the operation of producing properties and include workover costs.
Production Period Bbls per Day Weighted Average NYMEX Price per Bbl January 2024—June 2024 2,000 $ 63.27 Natural Gas Liquids—Swaps Production Period Gallons per Day Weighted Average NGL OPIS Price per Gallon Ethane January 2024—June 2024 63,000 $ 0.23 Natural Gas—Swaps Production Period MMBtu per Day Weighted Average NYMEX Price per MMBtu January 2024—June 2024 30,000 $ 3.26 Natural Gas—Collars Production Period MMBtu per Day Weighted Average NYMEX Price per MMBtu Floor Ceiling January 2024—June 2024 5,000 $ 3.75 $ 7.25 Natural Gas Basis Swaps—San Juan Production Period MMBtu per Day Weighted Average Sell Basis Price per MMBTU (a) January 2024—December 2024 20,000 $ 0.25 (a) Reductions to NYMEX gas price for delivery location 73 Table of Contents Principal Components of Our Cost Structure Production expenses Production expenses are the costs incurred in the operation of producing properties and include workover costs.
For further information on derivative contracts, see Note 9 in the financial statements included in Item 8. Financial Statements and Supplementary Data. Asset Retirement Obligation At December 31, 2022 , we had asset retirement obligations of $126.5 million inclusive of a current portion of $2.5 million.
Asset Retirement Obligation At December 31, 2023 , we had asset retirement obligations of $154.0 million inclusive of a current portion of $1.8 million. For further information on asset retirement obligations, see Note 7 in the financial statements included in Item 8. Financial Statements and Supplementary Data.
Additionally, we had positive net working capital (including 76 Table of Contents cash and excluding the effects of derivative instruments) of $17.6 million at December 31, 2021 and $20.7 million at December 31, 2022.
Additionally, we had positive net working capital (including cash and excluding the effects of derivative instruments) of $14.1 million at December 31, 2023 and $20.7 million at December 31, 2022.
On a per unit basis, depreciation, depletion, and amortization decreased from $5.52 per Boe sold for the year ended December 31, 2021 to $4.89 per Boe sold for the year ended December 31, 2022. The decrease is primarily related to changes in reserves.
On a per unit basis, depreciation, depletion, and amortization increased from $4.89 per Boe sold for the year ended December 31, 2022 to $5.27 per Boe sold for the year ended December 31, 2023. The increase is primarily related to changes in production mix.
For purposes of the total net debt-to-EBITDAX ratio, total net debt is total debt for borrowed money (including capital leases and purchase money debt) minus the unpaid balance of the FAM Loan (as defined in Note 4), minus unrestricted cash and cash equivalents on hand at such time (not exceeding $15.0 million in the aggregate), and EBITDAX includes Cross Timber’s EBITDAX only to the extent of cash distributions received by us.
For purposes of the total net debt-to-EBITDAX ratio (“Leverage Ratio”), total net debt includes total debt for borrowed money (including capital leases and purchase money debt), minus unrestricted cash and cash equivalents on hand at such time (not exceeding $15.0 million in the aggregate), minus the unpaid balance of the FAM Loan.
The direct, incremental general and administrative costs are not included in our historical financial statements.
The direct, incremental general and administrative costs are not included in our historical financial statements prior to going public in January 2023.
For purposes of our Credit Facility, EBITDAX is defined to mean net income plus interest expense; income taxes paid; depreciation, depletion and amortization; exploration expenses, including workover expenses; non-cash charges including unrealized losses on derivative instruments; and any extraordinary or non-recurring charges, minus any extraordinary or non-recurring income and any non-cash income including unrealized gains on derivative instruments.
EBITDAX means sum of (i) net income plus interest expense; income taxes paid; depreciation, depletion and amortization; exploration expenses, including workover expenses; non-cash charges including unrealized losses on derivative instruments; and, any extraordinary or non-recurring charges, minus (ii) any extraordinary or non-recurring income and any non-cash income including unrealized gains on derivative instruments.
If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Credit Facility to be immediately due and payable. 79 Table of Contents At our election, interest on borrowings under the Credit Facility is determined by reference to either the secured overnight financing rate (“SOFR”) plus an applicable margin between 3.00% and 4.00% per annum (depending on the then-current level of borrowings under the Credit Facility) or the alternate base rate (“ABR”) plus an applicable margin between 2.00% and 3.00% per annum (depending on the then-current level of borrowings under the Credit Facility).
At our election, interest on borrowings under the Credit Facility is determined by reference to either the secured overnight financing rate (“SOFR”) plus an applicable margin between 3.00% and 4.00% per annum (depending on the then-current level of borrowings under the Credit Facility) or the alternate base rate (“ABR”) plus an applicable margin between 2.00% and 3.00% per annum (depending on the then-current level of borrowings under the Credit Facility).
Other factors impacting supply and demand include weather conditions, pipeline capacity constraints, inventory storage levels, basis differentials, export capacity, strength of the U.S. dollar as well as other factors, the majority of which are outside of our control.
Other factors impacting supply and demand include weather conditions, pipeline capacity constraints, inventory storage levels, basis differentials, export capacity, strength of the U.S. dollar as well as other factors, the majority of which are outside of our control. As a result of these external factors, we expect global commodity price volatility will continue throughout 2024.
In the year ended December 31, 2021, all of our hedging activities increased oil revenue $0.3 million, NGL revenue $0.5 million and gas revenue $8.2 million. The following tables summarize our open oil, NGL and natural gas hedging production as of December 31, 2022.
In the year ended December 31, 2022, all of our hedging activities decreased oil revenue $45.8 million, NGL revenue $5.6 million and gas revenue $151.8 million. In the year ended December 31, 2021, all of our hedging activities increased oil revenue $0.3 million, NGL revenue $0.5 million and gas revenue $8.2 million.
If the carrying amount of proved properties exceeds the expected undiscounted future cash flows, the carrying amount is written down to the properties’ estimated fair value, which is measured as the present value of the expected future cash flows of such properties.
If the carrying amount of proved properties exceeds the expected undiscounted future cash flows, the carrying amount is written down to the properties’ estimated fair value, which is measured as the present value of the expected future cash flows of such properties. We record any impairments to accumulated depreciation, depletion and amortization on the balance sheets.
While prices appear to have begun moderating, we do not expect these shortages and cost increases to reverse in the short term. Typically, as prices for oil and natural gas increase, so do associated costs. Conversely, in a period of declining prices, associated cost declines are likely to lag and may not adjust downward in proportion to prices.
Typically, as prices for oil and natural gas increase, so do associated costs. Conversely, in a period of declining prices, associated cost declines are likely to lag and may not adjust downward in proportion to prices.
We are required to pay a commitment fee to the lenders under the Credit Facility, which accrues at a rate per annum of 0.5% on the average daily unused amount of the lesser of: (i) the maximum commitment amount of the lenders and (ii) the then-effective borrowing base, less the aggregate outstanding principal amount of the loans at such time.
We are required to pay a commitment fee to the lenders under the Credit Facility, which accrues at a rate per annum of 0.5% on the average daily unused amount of the aggregate commitments under the Credit Facility minus the aggregate outstanding principal amount of all advances at such time.
Depreciation, depletion, and amortization Depreciation, depletion, and amortization increased $1.5 million, or 4%, from $39.9 million for the year ended December 31, 2021 to $41.4 million for the year ended December 31, 2022.
Depreciation, depletion, and amortization Depreciation, depletion, and amortization increased $2.9 million, or 7%, from $41.4 million for the year ended December 31, 2022 to $44.3 million for the year ended December 31, 2023.
The increase is primarily related to the increased costs per Boe from the acquired Vacuum and Andrews Parker properties due to the acquired properties having a higher percentage of 75 Table of Contents oil production, which is more expensive on a Boe basis than natural gas production.
The increase is primarily related to the increased costs per Boe from the acquisition of additional interest in the Permian Basin due to the acquired properties having a higher percentage of oil production, which is more expensive on a Boe basis than natural gas production. Additionally, increased maintenance and energy costs contributed to the increase per Boe.
We have entered into basis swap agreements that effectively fix the basis adjustment for our delivery locations. 70 Table of Contents In the year ended December 31, 2022, all of our hedging activities decreased oil revenue $45.8 million, decreased NGL revenue $5.6 million and decreased gas revenue $151.8 million.
We have entered into basis swap agreements that effectively fix the basis adjustment for our delivery locations. In the year ended December 31, 2023, all of our hedging activities increased oil revenue $2.3 million, NGL revenue $1.4 million and gas revenue $19.4 million.
We are required to maintain (i) a current ratio (the ratio of current assets to current liabilities) greater than 1.0 to 1.0, which for purposes of this definition includes availability under the Credit Facility but excludes the fair value of derivative instruments, and (ii) a ratio of total net debt-to-EBITDAX of not greater than 3.00 to 1.00.
We are required to maintain (i) a current ratio greater than 1.0 to 1.0 and current assets shall include availability under the credit facility but shall exclude the fair value of derivative instruments and any advances under the facility and (ii) a ratio of total indebtedness-to-EBITDAX of not greater than 3.0 to 1.0.
Net cash used by investing activities Net cash used by investing activities decreased $141.1 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 due to a decrease in proved property and other property acquisitions of $156.1 million and proceeds from sale of property of $0.3 million partially offset by an increase in development costs of $15.3 million. 78 Table of Contents Net cash (used by) provided by financing activities For the Year Ended December 31, 2022 2021 (in thousands) Proceeds from long-term debt $ 1,461,000 $ 1,437,000 Payments on long-term debt $ (1,493,000) $ (1,427,000) Proceeds from partners’ investment $ — $ 132,660 Debt issuance costs $ (161) $ (2,832) Capitalized offering costs $ (3,738) $ — Proceeds from exercise of Series 3 warrants $ 1,029 $ — Distributions $ (13,183) $ (139) Net cash (used by) provided by financing activities $ (48,053) $ 139,689 Net cash used in financing activities increased $187.7 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 due to an absence of partners’ investments of $132.7 million, an increase in net repayments under our credit facility of $42.0 million, a $13.0 million increase in distributions and an increase in capitalized offering costs of $3.7 million partially offset by decreased debt issuance costs $2.7 million and proceeds from exercise of Series 3 warrants $1.0 million.
Net cash (used by) provided by financing activities For the Year Ended December 31, 2023 2022 2021 (in thousands) Proceeds from long-term debt $ 86,000 $ 1,461,000 $ 1,437,000 Payments on long-term debt (178,000) (1,493,000) (1,427,000) Proceeds from initial public offering 106,950 — — Proceeds from partners’ investment — — 132,660 Debt issuance costs (144) (161) (2,832) Capitalized offering costs (673) (3,738) (139) Proceeds from exercise of Series 3 warrants — 1,029 — Distributions (49,762) (13,183) — Net cash (used by) provided by financing activities $ (35,629) $ (48,053) $ 139,689 Net cash used in financing activities decreased $12.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to proceeds from the initial public offering of $107.0 million partially offset by an increase in net repayments under our credit facility of $60.0 million and increased distributions to unitholders of $36.6 million.
We utilized the proceeds from our initial public offering and cash on hand to pay down our credit facility in full as of March 31, 2023. 66 Table of Contents For additional information, see Note 1 to our audited consolidated financial statements in this Annual Report on Form 10-K.
We received net proceeds of approximately $102.0 million, after deducting underwriting discounts and commissions and offering expenses borne by us. We utilized the proceeds from our initial public offering and cash on hand to pay down our credit facility. For additional information, see Note 1 to our audited consolidated financial statements in this Annual Report on Form 10-K.
As a publicly traded partnership, our primary sources of liquidity and capital resources are from cash flow generated by operating activities and borrowings under our Credit Facility. Historically, our primary sources of liquidity have also included capital contributions by our equity holders, but we do not expect to rely on management or our partners for capital going forward.
Historically, our primary sources of liquidity have also included capital contributions by our equity holders, but we do not expect to rely on management or our partners for capital going forward.
The CO 2 and plant income is ancillary to the operations of the Vacuum properties. Interest expense Interest expense increased $2.3 million, or 40%, from $5.9 million for the year ended December 31, 2021 to $8.2 million for the year ended December 31, 2022.
The plant came back online in late December 2023. The CO 2 and plant income is ancillary to the operations of the Vacuum properties. 79 Table of Contents Interest expense Interest expense decreased $3.8 million, or 46%, from $8.2 million for the year ended December 31, 2022 to $4.4 million for the year ended December 31, 2023.
Based on current commodity prices and our drilling success rate to date, we expect to be able to fund our distributions, meet our debt obligations and fund our 2023 capital development programs from the proceeds from the our initial public offering and cash flow from operations.
Based on current commodity prices and our drilling success rate to date, we expect to be able to fund our distributions, meet our debt obligations and fund our 2024 capital development programs from cash flow from operations. If cash flow from operations does not meet our expectations, we may reduce our expected level of capital expenditures and/or distributions to unitholders.
Revenues Revenues increased $18.1 million, or 8%, from $228.3 million for the year ended December 31, 2021 to $246.4 million for the year ended December 31, 2022.
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 Revenues Revenues increased $134.3 million, or 55%, from $246.4 million for the year ended December 31, 2022 to $380.7 million for the year ended December 31, 2023.
On a per unit basis, taxes, transportation, and other increased from $8.04 per Boe sold for the year ended December 31, 2021 to $11.22 per Boe sold for the year ended December 31, 2022. The increase is primarily related to the higher commodity prices and change in production mix.
On a per unit basis, taxes, transportation, and other decreased from $11.22 per Boe sold for the year ended December 31, 2022 to $8.98 per Boe sold for the year ended December 31, 2023. The decrease is primarily attributable to the decrease in oil, NGLs and natural gas prices.
If pricing conditions decline or are depressed, or if there is a negative impact on one or more of the other components of the calculation, we may incur proved property impairments in future periods.
If pricing conditions decline or are depressed, or if there is a negative impact on one or more of the other components of the calculation such as a change in our future capital plans, we may incur proved property impairments in future periods. We recorded an impairment of long-lived assets of $223.4 million for the year ended December 31, 2023.
Cash flows The following table summarizes our cash flows for the periods indicated (in thousands): For the Year Ended December 31, 2022 2021 Net cash provided by operating activities $ 136,380 $ 73,726 Net cash used by investing activities (86,670) (227,801) Net cash provided by (used in) financing activities (48,053) 139,689 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net cash provided by operating activities Net cash provided by operating activities increased $62.7 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily as a result of improved prices in 2022 compared to 2021 and increased production primarily due to the Vacuum and Andrews acquisitions in late 2021 partially offset by increased costs.
Cash flows The following table summarizes our cash flows for the periods indicated (in thousands): For the Year Ended December 31, 2023 2022 2021 Net cash provided by operating activities $ 77,150 $ 136,380 $ 73,726 Net cash used in investing activities (46,220) (86,670) (227,801) Net cash (used by) provided by financing activities (35,629) (48,053) 139,689 Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Net cash provided by operating activities Net cash provided by operating activities decreased $59.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of lower oil and natural gas prices in 2023 compared to 2022, increased costs and decreased production. 81 Table of Contents Net cash used by investing activities Net cash used by investing activities decreased $40.5 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to a decrease in proved property and other property acquisitions of $52.9 million partially offset by an increase in development costs of $12.1 million and a decrease in proceeds from sale of property of $0.3 million.
On a per unit basis, production expenses increased from $9.59 per Boe sold for the year ended December 31, 2021 to $15.08 per Boe sold for the year ended December 31, 2022.
The remainder of the increase is primarily due to increased maintenance and energy costs. On a per unit basis, production expenses increased from $15.08 per Boe sold for the year ended December 31, 2022 to $17.24 per Boe sold for the year ended December 31, 2023.
The increase is primarily attributable to the additional borrowings to fund the Chevron Acquisitions, the Additional Interest Vacuum Acquisition and a higher interest rate. Liquidity and Capital Resources Our primary sources of liquidity and capital are cash flows generated by operating activities and borrowings under our Credit Facility.
The decrease is primarily attributable to the decreased borrowings due in part to the January 2023 initial public offering partially offset by a higher interest rate and increased commitment fees. Liquidity and Capital Resources Our primary sources of liquidity and capital are cash flows generated by operating activities and borrowings under our Credit Facility.
Critical accounting policies and estimates Our financial position and results of operations are significantly affected by accounting policies and estimates related to our oil and gas properties, proved reserves, asset retirement obligation and commodity prices and risk management, as summarized below. See Note 1 of the notes to the audited financial statements included in Item 8.
We did not recognize an impairment of long-lived assets during the years ended December 31, 2022 and 2021 . Critical accounting policies and estimates Our financial position and results of operations are significantly affected by accounting policies and estimates related to our oil and gas properties, proved reserves, asset retirement obligation and commodity prices and risk management, as summarized below.
We cannot assure you that necessary capital will be available on acceptable terms or at all. Our ability to raise funds through the incurrence of additional indebtedness could be limited by covenants in our debt arrangements.
Our ability to raise funds through the incurrence of additional indebtedness could be limited by covenants in our debt arrangements.
Cash flow pricing estimates are based on estimated reserves and production information and pricing assumptions that management believes are reasonable. The impairment assessment process is primarily dependent upon the estimate of proved reserves. Any overstatement of estimated proved reserve quantities would result in an overstatement of estimated future net cash flows, which could result in an understated assessment of impairment.
We record any impairments to accumulated depreciation, depletion and amortization on the balance sheets. Cash flow pricing estimates are based on estimated reserves and production information and pricing assumptions that management believes are reasonable. The impairment assessment process is primarily dependent upon the estimate of proved reserves.
The Credit Facility also contains customary events of default, including non-payment, breach of covenants, materially incorrect representations, cross-default, bankruptcy and change of control.
The Credit Facility also contains customary events of default, including non-payment, breach of covenants, materially incorrect representations, cross-default, bankruptcy and change of control. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Credit Facility to be immediately due and payable.
Since the Russia-Ukraine conflict first commenced, WTI crude oil prices have been volatile, rising from $92.81 per Bbl on February 24, 2022 to a high of $123.70 per Bbl in March 2022 before declining to $77.05 per Bbl as of February 28, 2023.
Since the Russia-Ukraine conflict first commenced, WTI crude oil prices have been volatile, reaching a high of $123.70 per Bbl in March 2022 before declining to $77.82 per Bbl as of January 30, 2024. Natural gas prices reached a high of $9.68 per MMbtu in August 2022 before declining to $2.08 per MMbtu as of January 30, 2024.
However, management’s assessment of product prices for purposes of impairment is consistent with that used in its business plans and investment decisions. While there is judgment involved in management’s estimate of future product prices, the potential impact on impairment has not been significant recently since product prices have been substantially higher than our net acquisition and development costs per Boe.
While there is judgment involved in management’s estimate of future product prices, the potential impact on impairment has not been significant recently since product prices have been substantially higher than our net acquisition and development costs per Boe. Prior to 2021, our historical impairment of proved properties included $311.5 million of proved property impairments from 2014 through 2020.
Prices to be realized for hedged production will be less than these NYMEX prices because of location, quality and other adjustments.
The following tables summarize our open oil, NGL and natural gas hedging positions as of December 31, 2023. Prices to be realized for hedged production will be less than these NYMEX prices because of location, quality and other adjustments.
Pricing of commodities is subject to supply and demand as well as to seasonal, political and other conditions that we generally cannot control. Our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices.
Our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices.
Natural gas prices reached a high of $9.85 per MMbtu in August 2022 before declining to $2.50 per MMbtu as of February 28, 2023. These prices have been very volatile and experience large swings, sometimes on a day-to-day or week-to-week basis. We expect the crude oil and natural gas markets will continue to be volatile in the future.
These prices have been very volatile and experience large swings, sometimes on a day-to-day or week-to-week basis. We expect the crude oil and natural gas markets will continue to be volatile in the future. Our revenue, profitability and future growth are highly dependent on the prices we receive for our oil and natural gas production.
Prior to 2021, our historical impairment of proved properties included $311.5 million of proved property impairments from 2014 through 2020. We believe that a sensitivity analysis regarding the effect of changes in assumptions on estimated impairment is impracticable to provide because of the number of assumptions and variables involved which have interdependent effects on the potential outcome.
We did not recognize an impairment of long-lived assets during the years ended December 31, 2022 and 2021 . We believe that a sensitivity analysis regarding the effect of changes in assumptions on estimated impairment is impracticable to provide because of the number of assumptions and variables involved which have interdependent effects on the potential outcome.
We plan to continue our practice of entering into hedging arrangements to reduce the impact of commodity price volatility on our cash flow from operations.
We plan to continue our practice of opportunistically entering into hedging arrangements to reduce the impact of commodity price volatility on our cash flow from operations. Effective with our June 2023 amendment to the Credit 80 Table of Contents Facility our hedge requirements are based on availability under the Credit Facility and the Leverage Ratio.
We sell oil, natural gas and NGLs at a specific delivery point, pay transportation to third parties and receive proceeds from the purchaser with no transportation deduction. As a result, we record transportation costs we pay to third parties as taxes, transportation and other deductions.
Our revenues are influenced by production volumes and realized prices on the sale of oil, NGLs, and natural gas including the effect of our commodity derivative contracts. We sell oil, natural gas and NGLs at a specific delivery point, pay transportation to third parties and receive proceeds from the purchaser with no transportation deduction.
From September 30, 2022 through the next scheduled spring redetermination which shall occur no later than June 30, 2023, we received waivers to reduce the hedging requirement from 30 months to 15 months and from 50% to 45% of the reasonably anticipated projected production.
From September 30, 2022 through the date of the spring redetermination in June 2023, we received waivers to reduce the hedging requirement from 30 months to 15 months and from 50% to 45% of the reasonably projected production. As a result, w e were in compliance with all of our debt covenants as of December 31, 2022 .

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+1 added−2 removed10 unchanged
Biggest changeThe future availability of a ready market for our production depends on numerous factors outside of our control, none of which can be predicted with certainty. For the years ended December 31, 2022 and December 31, 2021 , we had two and three customers, respectively, that each accounted for more than 10% of total revenues.
Biggest changeThe future availability of a ready market for our production depends on numerous factors outside of our control, none of which can be predicted with certainty.
See “Business—Operations—Marketing and Customers.” We do not believe the loss of any single purchaser would materially impact our operating results because oil, NGLs and natural gas are fungible products with well-established markets and numerous purchasers. At December 31, 2022 , we had commodity derivative contracts with counterparties.
See “Business—Operations—Marketing and Customers.” We do not believe the loss of any single purchaser would materially impact our operating results because oil, NGLs and natural gas are fungible products with well-established markets and numerous purchasers. At December 31, 2023 , we had commodity derivative contracts with counterparties.
See “—Liquidity and Capital Resources—Revolving credit agreement.” 85 Table of Contents
See “—Liquidity and Capital Resources—Revolving credit agreement.” 88 Table of Contents
Based upon our open commodity derivative positions at December 31, 2022 , a hypothetical 10% change in the NYMEX WTI and Henry Hub prices, OPIS prices and basis prices would change our net oil, NGL and natural gas derivative liability by approximately $26.8 million.
Based upon our open commodity derivative positions at December 31, 2023 , a hypothetical 10% change in the NYMEX WTI and Henry Hub prices, OPIS prices and basis prices would change our net oil, NGL and natural gas derivative liability by approximately $4.2 million.
As of December 31, 2022 , the fair market value of our oil, NGL and natural gas derivative contracts was a net liability of $104.2 million.
As of December 31, 2023 , the fair market value of our oil, NGL and natural gas derivative contracts was a net asset of $2.0 million.
(in thousands) Fair Value at December 31, 2022 Hypothetical Price Increase or Decrease of 10% Derivative asset (liability) – Crude Oil $ (12,626) $ 10,168 Derivative asset (liability) – Natural Gas Liquids $ (524) $ 929 Derivative asset (liability) – Natural Gas $ (91,091) $ 15,665 $ (104,240) $ 26,762 The hypothetical change in fair value could be a gain or loss depending on whether prices increase or decrease. 84 Table of Contents Counterparty and customer credit risk Our cash and cash equivalents are exposed to concentrations of credit risk.
(in thousands) Fair Value at December 31, 2023 Hypothetical Price Increase or Decrease of 10% Derivative asset (liability) – Crude Oil $ (3,163) $ 2,619 Derivative asset (liability) – Natural Gas Liquids $ 477 $ 220 Derivative asset (liability) – Natural Gas $ 4,693 $ 1,398 $ 2,007 $ 4,237 The hypothetical change in fair value could be a gain or loss depending on whether prices increase or decrease. 87 Table of Contents Counterparty and customer credit risk Our cash and cash equivalents are exposed to concentrations of credit risk.
Additionally, we use master netting arrangements to minimize credit risk exposure. The creditworthiness of our counterparties is subject to periodic review. Interest rate risk At December 31, 2022 , we had $113.0 million of variable rate debt outstanding.
Additionally, we use master netting arrangements to minimize credit risk exposure. The creditworthiness of our counterparties is subject to periodic review. Interest rate risk At December 31, 2023 , we had $21.0 million of variable rate debt outstanding. Based on this and the expected borrowing levels in 2024, a change in interest rates would be de minimus.
Removed
Assuming no change in the amount outstanding, the impact on interest expense of a 1% increase or decrease in the average interest rate would be approximately $1.1 million per year.
Added
Sales to two purchasers for the year ended December 31, 2023, two purchasers for the year ended December 31, 2022, and three purchasers for the year ended December 31, 2021, were greater than 10% of total revenues .
Removed
We utilized the proceeds from our initial public offering and cash on hand to pay down our credit facility in full, so that we had no debt outstanding as of March 31, 2023. Based on this and the expected borrowing levels in 2023, a change in interest rates would be de minimus.

Other TXO 10-K year-over-year comparisons