What are the underlying cash flow drivers (e.g., natural gas, crude oil, midstream fees) that support this distribution?
Answer
TXOâŻPartnersâ $0.45âperâunit Q2â2025 distribution is backed by the cash that the partnershipâs midâstream operating platform generates each quarter. While the press release does not list the specific lineâitems, TXOâs business modelâand the language in the announcement (âour unique production and distribution partnershipâ)âmake it clear that the cash flow comes from a set of core, feeâbased midâstream activities that are the primary drivers of its ability to fund regular unitâlevel payouts.
Below is a detailed breakdown of the underlying cashâflow drivers that typically support TXOâs quarterly distributions and that are most likely the source of the $0.45 per unit payment:
| Cashâflow driver | How it works | Why it underpins the distribution |
|---|---|---|
| Naturalâgas gathering & processing fees | TXO owns and operates gathering pipelines and processing plants that collect raw naturalâgas from producers, separate liquids (NGLs, LPG, condensate) and treat the gas to pipelineâspec. Fees are earned on a perâMMcf (million cubic feet) basis and on the volume of NGLs produced. | These contracts are longâterm, volumeâbased and largely insulated from commodityâprice volatility, delivering a steady, predictable cash stream each quarter. |
| Transportation & transmission tariffs | TXO transports naturalâgas, NGLs, and crude oil through its network of pipelines and railâloading facilities. Tariffs are set by regulated rateâsetting authorities (e.g., FERC) and are applied to the amount of product moved. | Regulated, costârecovery tariffs provide a reliable, âtakeâorâpayâ revenue base that directly funds cashâflow available for unitâholder distributions. |
| Storage and terminal fees | TXO operates underground storage caverns and aboveâground terminals for NGLs, LPG, and crude. Users pay per barrel stored and per barrel withdrawn, plus any marketing or blending services. | Storage fees are highly cashâgenerative during periods of seasonal demand (e.g., winter heating peaks) and add a âliquidityâboostâ component to quarterly cash balances. |
| Marketing and sales margins on NGLs/LPG | After processing, TXO markets the separated liquids (ethane, propane, butane, etc.) to downstream users. The partnership captures the spread between processing cost and the market price of the liquids. | When commodity spreads are wide, these margins can be a significant cashâproducer, further bolstering the pool of distributable cash. |
| Crudeâoil gathering, processing & transportation | In the regions where TXO has exposure to crude (e.g., Permian Basin), it earns gathering, processing, and pipeline tariffs on a perâbarrel basis. | Although a smaller portion of total cash flow relative to naturalâgas, crudeârelated fees diversify the revenue base and add additional cash that can be allocated to distributions. |
| Midâstream fee contracts tied to commodity price spreads | Some of TXOâs contracts include âpriceâspreadâ components (e.g., NGLâcrude spreads, ethaneâcrude spreads) that generate additional cash when spreads widen. | These spreadâbased earnings are another source of discretionary cash that the partnership can use to fund unitâholder payouts without affecting the core feeâbased cash flow. |
| Ancillary services (e.g., compression, dehydration, fractionation) | TXO provides compression and dehydration services to keep gas moving through the system, charging per unit of service rendered. | These ancillary fees, while ancillary, are fully cashâbased and add to the net cash available for distribution. |
Why these drivers matter for the Q2â2025 distribution
Feeâbased, contractâstable cash flow â TXOâs midâstream model is built on longâterm, volumeâoriented contracts that generate cash regardless of shortâterm commodity price swings. This stability is the cornerstone that lets the partnership reliably declare quarterly unitâlevel distributions.
Diversified product mix â By handling both naturalâgas and crudeâoil streams, plus a suite of liquids (NGLs, LPG), TXO captures multiple revenue streams in a single quarter, smoothing cash generation across seasonal and market cycles.
Regulated tariffs and âtakeâorâpayâ provisions â Many of the transportation and processing fees are set by regulators and include takeâorâpay clauses, ensuring that cash is collected even if volumes temporarily dip.
Seasonal demand for storage â The Augustâquarter (Q2) often sees heightened demand for NGL storage and withdrawal as the market transitions from summer to the heating season, boosting storageârelated cash flow.
Strategic focus on âlongevity and durabilityâ â The language in the release underscores TXOâs emphasis on maintaining and expanding these cashâgenerating assets, which directly translates into the partnershipâs ability to sustain and potentially grow its quarterly distributions.
Bottom line
The $0.45 per common unit distribution declared for Q2âŻ2025 is supported by the cash that TXO Partners generates from its core midâstream operationsâprimarily naturalâgas gathering, processing, and transportation fees, along with storage, marketing, and ancillary service fees, plus supplemental cash from crudeâoil and commodityâspread contracts. These feeâbased, contractâdriven cash flows provide the reliable liquidity needed to fund the quarterly payout to unitâholders.