Q3 2022 Texas Pacific Land Corp Earnings Call

[music].

Good morning, and welcome to Texas specific plan corporations, Torquato 20 twenty-two earnings conference call.

This conference call is being recorded.

I would now like to introduce your host for today's call, Sean Amini, Vice President Finance and Investor Relations.

Please go ahead.

Good morning, Thank you for joining us today for Texas, specifically Incorporations third quarter to my 22 earnings Conference call.

Yesterday afternoon. The company released its financial results and filed this form. Thank you with the Securities and Exchange Commission, which is available on the investors section of the company's website www dot specific dot com.

As a reminder of remarks may on today's conference calls May include forward looking statements.

Looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today we.

We do not undertake any obligation to update our forward looking statements I might've, new information or future events.

For a more detailed discussion of the factors that may affect the company's results. Please refer to our earnings release for this quarter and our most recent SEC filings.

During this call will also be discussing certain non-GAAP financial measures more information and reconciliations about these non-GAAP financial measures are contained in our earnings release and the SEC filings. Please.

Please also note we may at times, a further accompanied by a stock ticker T. P L.

This morning's conference call it posted by T. P L Chief Executive Officer by Glover, and Chief Financial Officer cursed at him.

Management will make some prepared comments after which we will open the call for questions now I will turn the call over to die.

Thanks, Sean Good morning, everyone and thank you for joining us today.

Third quarter of 2022 represents another well rounded performance across the T. P O business.

Consolidated revenues increased 8% and net income increased 9% sequential quarter over quarter, driven by growing oil and gas royalty production.

Standing source water and produce water performance and continued strong slim activity.

Royalty production for the third quarter of approximately 23400 barrels of oil equivalent per day is a new corporate record.

On the waterside during this most recent quarter with source and treated over 40 million barrels of water.

Since the water business inception T. P. L. A sore stirred treated over 500 million barrels of water, which we estimate is responsible for over a thousand new well completions in the Permian with many of these on T. B L royalty acreage.

On the produce side, we generated contracted royalty volumes on approximately 190 million barrels of water.

Good call, we don't own or operate any saltwater disposal infrastructure.

Rather we collected contracted royalties C. Unproduced water that is injected in or crosses are surface.

Over half are produced water volumes that we generated royalty on last quarter were actually injected into S. W. DS located off of T. P L surface.

Last quarter, we saw a nice uptick in slim revenues and that strong performance carried over into third quarter activities of across the board and slim with large year over year increases for Wellbore easements pipeline easement in material sales.

Just on the landside alone this past quarter, we pay for it up 233, new contracts, which is nearly double what we did during the same quarter last year.

Recent highlights include two separate contracts for mobile many sand mines.

<unk> not only help support completion activities in the Permian.

But because the sand is developed in sourced in basin. It reduces the amount of heavy truck traffic in the region.

And of course T. P. L will generate a royalty for every ton extracted was zero capex or operating expenses required from us.

Our land managers do an incredible job overseeing a vast acreage footprint in working everyday with operators to stay in front of their needs and to help facilitate development.

In addition to our core active management activities on the Landside, we've had a team test specifically to pursue alternative and next generation uses for our nearly 1 million acre surface assets.

Investments in time and resources, we'd dedicated to this venture over the past few years are bearing results.

Yesterday, we announced that T. P. L sign an agreement with Samsung solar energy to LLC to begin evaluating the siting of grid connected batteries located on T. B L surface.

Preliminary studies have begun to evaluate project viability throughout west, Texas, where an abundant amount of transmission infrastructure overlaps with T. P O.

These battery projects could help enhance grid reliability and encourage further renewables development across ttl's footprint.

Phoebe Ellis thrilled to have someone looking to develop these next generation projects on our surface and we look forward to collaborating together to hopefully bring these projects to fruition.

We also continue to make good progress on the solar and wind front.

This year, we've increase the amount of solar and wind projects contracted on our surface by 30% from what we had coming into the year.

In summary, or surface asset is unique not only for its size, but also because it contains water rights and <unk> <unk>.

Exposure to excellent solar and wind resource materials deposits electrical grid access connectivity the gas processing facilities.

[noise] surface poor space among many other desirable features.

Our employees leverage their extensive relationships with premium producers and across the energy industry to source and collaborate on new projects.

The access to all of these things in massive scale makes us an attractive partner for interesting opportunities and we're having a lot of good conversations with developers and engineers entrepreneurs and companies on a wide array of new technologies and ideas.

Changing gears I'd like to remind everyone that our annual meetings in two weeks boxing materials have been filed with the SEC distributed to shareholders and I would encourage everyone to carefully review the materials and boat.

If any shareholders had any questions or issues. Please do not hesitate to contact Investor relations.

And finally.

I think all the employees here at T. P O R.

Our team does an amazing job proactively serving our customers, while also creating real value for our shareholders.

Their tireless efforts and consistent performance are the engine of this company and I'm proud to work with them everyday.

With that I'll turn the call over to Chris to discuss a quarterly results.

Thanks Ty.

Total revenue for the third quarter of 2022 was $191 million, which was driven by increases across all of our major revenue streams on a sequential quarter over quarter basis.

Oil and gas royalty revenue was up 7% quarter over quarter, primarily due to higher royalty production will partially offset by lower crude oil and NGL prices.

Crude and NGL price realizations declined sequentially by 13% and 15 per cent, respectively, while natural gas realisations increased 21%.

Third quarter royalty production increased 18% sequentially to approximately 23400 barrels of oil equivalent per day.

Which was driven by strong operator activity, especially in our loving and Reeves County royalty acreage.

As time mentioned, our land and water teams remain very busy working with operators on facilitating upstream development.

New permits and spud so far in 2022 are tracking well ahead of 2021 levels.

For permits we are averaging about 80 growth and one night, new well per month this year.

Spuds, we were averaging about 70 gross and 0.9 that new wells every month.

Lateral length also continue to get longer with the average permitted well on a royalty acreage now over 10000 feet long.

Well status is on T. P. L acreage is a quarter and included five six net permanent wells six nine net ducks 2.9 that completed well and 55 and that producing levels I'll note that the sequential decline in net permitted wells was largely from removing permits that we viewed.

Be still are likely to lapse and this represented about 1.8 net wells. This decline refers to the wealth status on a static basis, which is not to be confused by the strong activity for new permits we've seen throughout 2022.

Or $100 million buyback authorization was active during the quarter and we repurchased approximately 19000 shares for approximately $33 million.

We intend for the buyback program to remain active through the end of the year and.

In addition, yesterday, we announced that our board is authorized a new $250 million share repurchase authorization, which will take effect after the expiration of our existing buyback program at the end of the year.

As many of you know share buybacks have long been an important part of <unk> history and buybacks remain an important aspect of our capital allocation toolbox.

We're glad to put this new program in place and we believe it further enhances details ability to optimize capital returns for our shareholders.

Fundamentals of T. P. L remain excellent and we continue to generate high quality high margin cash flows with minimal capital needs kind of fortress that free balance sheet and the robust free cash flow generated by the business affords a tremendous amount of flexibility as we look to maximize shareholder value.

With that operator, we will now take questions.

[noise]. Thank you.

Ladies and gentlemen at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

A confirmation dawn indicate your line isn't a question killed you May press start to if you would like to move your question from the queue.

Four participants using speaker equipment, it may be necessary to pick up your handset before pressing the stock east.

Ladies and gentlemen.

Wait for a moment, while I pull it for questions.

Our first question comes from the line of static Redfin, Tom Stifles. Please go ahead.

Good morning, all and congrats on your strong operational update.

Thanks, Sir.

With my first question I wanted to focus on the annual meeting rigged.

Regarding the proposed three per one sure split <unk>.

Can you share issues issuance authorization.

Could you speak to your capital priority broadly and the strategic importance of the share issuance I might've, you're approved share repurchase.

[noise] yeah. Thanks Derek.

I mean look sure authorization just provides a normal course financing tool and gives us additional means to potentially grow the company and and creative value enhancing way.

Like you mentioned it also allows us to affect the three to one stock split.

So I would just add.

This is not a change in strategy. It just gives us additional flexibility and optionality to continue to execute the same strategy that's created tremendous value for our shareholders.

We've got a long history of strong performance and capital stewardship.

It's something that we've engaged our shareholders on we've sought advice from governance experts on.

Best practices instituted in something that we feel really good about so it's all about just adding flexibility and optionality for the company moving forward.

Thanks that makes sense tie and then maybe shifting over to the Samsung Solar energy agreement.

We assume that this is a capital light arrangement is similar to other slim arrangements.

Yes, that's that's correct.

Can't say too much beyond what's in the press release, but ER.

Gonna be similar structure to the these types of deals that we've done in the past very capitalized.

You know it also just say that this is a great example of the optionality in surface ownership.

Also the benefit of having a team with a large network.

Industry relationships, so pretty excited about it.

Got a lot of potential to to scale up so.

Perfect and perhaps for Chris regarding what you're prepared comments on permits.

Net of the true up that you.

Put into play for Q3 could you give us a sense services. These sequential increase impairment activity and comparing Q T vs. Q theory.

[noise] yeah, yeah. Thanks, Eric.

We have looked at.

Kind of like new well activity.

You know what I would say is.

The way, we always I think kind of think about these numbers as we compare to one to 2020, which was really like the high watermark that we have seen from activity levels across the board.

And so you know when you look at both gross wells net wells net normalized wells. This year has has generally been in line with those numbers and so from a from a new permit activity standpoint.

You know something a little bit.

Two two twenty-five region was kind of like a high watermark that we've seen and we have consistently been at or above that all year, including Q3.

And so three Q as slightly on the permitting front is slightly below.

One Q2, Q on a gross basis, but still if you look at it in context.

Like historical averages, it's a very strong quarter.

Permitting fraud, so really bad that decrease in the net static number.

Covid and everything there was a little bit of.

A delay so we were hesitant to pull out all the permits but at this point I think when we look at them. It's unlikely those still permits are going to kind of make it into the queue. So to speak again, there's a lot of those wells won't be drilled is just.

Once we deem it well within the queue you reasonably expect it to get drilled in the next year or two.

And we felt it was prudent at this point to kind of pull some of those older ones out I'm sure they'll work their way back into the queue, but but that's really what that adjustment was.

That makes sense and if I could ask one final question with the understanding that you don't provide quarterly guidance, how should we think about the near term production trajectory.

For you guys kind of taken into year end and the Netbacks you'd likely C. As a result of the volatility we're experiencing was baja.

[laughter] Yeah. That's a good question I mean on the on the production front.

Again, I think as we kind of alluded to last time all of the numbers as far as activity levels have continued to be very strong.

The ducks the completions.

And you know when we do a look back at kind of actual production that's come through the trend has continued to be up.

Through the summer it appears.

So when we look at the continued activity levels being as strong as they are I think that's fairly supportive, though the continued strong production outlook going through the end of the year.

As far as Netbacks.

If that becomes a little more difficult I think it's clear right now if you look at kind of afford expectations that waha differential is probably expected to kind of be weaker on a go forward basis with some of the constraints.

Having said that through our operators, we've always tended to get better realizations on gas.

It usually comes in between work on IMAX.

And so when we look at that granted you've seen very.

Very big differentials in awhile as of late but our expectation would be that.

That in between Waha, Nymex, probably still a good number.

But with.

With those big volatile Johnson does become difficult.

To predict but through through time, where there's been other ones similar to this in the past.

What has held true as I realizations kind of tend to be in between those two those two marks and so we would suspect that will continue.

That makes sense, great update and thanks for your time.

Thanks, Sir Thanks Derek.

Thank you.

Next question comes from the line of humming it caused sent from B W. S. Financial. Please go ahead.

Good morning. So the first question I had was this a return on or increase in.

Daily you barrels per day.

Was that primarily driven by the mobile San lines that you have on your land.

And do you own those are you able to move those around as you see that.

Their customers need them.

Yeah.

Thanks for the question.

The increase in production was not related to the mobile San months. We've just recently contracted those we do not own them.

Just working with a strategic partner there.

Have our sand deposits developed and so we will be strictly a royalty owner on those minds.

Okay and then on the other question I had was.

Think that this those sure split the air proposing improves the index Ah that your European for their stock.

Hey, how bad I would say.

Sherwood the hope.

Hope would be to and we've had it analyzed by you know some of our consultants and banks and I hope would be that it would allow for an increase in.

And the liquidity of T P L stock and some trading improvements, but as far as <unk>.

Index eligibility for future indices and things of that sort, we already have pretty strong metrics and so are you know I think this is this is more of an enhancement just on the trading it's not an attempt for us to be included in any index. I think we believe we already generally qualify for most of the indices and we'll work our way on the new ones and a few.

Sure.

Okay and my last question was you sold some land this quarter any reason in particular reason why was it just the price and if you're selling does that essentially mean, you you wouldn't be buying at this moment in the market.

[laughter].

No I mean.

Like the reason that we made those two landfills I mean, yes. It was robust pricing, but those were kind of specialty sales. So one was for a crowd generic processing plant.

The other was for the expansion of an existing substation and so if you kind of think about those two facilities right. The.

Only where are we able to get a robust price breaker for the land, but that also attracts additional infrastructure and development to those areas and so like on a cryo plant for instance.

That plan is going to draw additional pipeline easement revenue to our surface. So I think we had something.

You know like three quarters of a million dollars, an easement revenue kind of immediately associated with that.

Cryo plant and you know in the future that just continues to draw development from our midstream operators to that particular area.

And then the expansion of the existing substation, that's just allowing that.

That operator to.

Expand their power infrastructure in the area, which is also very good for future development. So I wouldn't say that you know.

That pricing reflects the overall market out there and would keep us from being a buyer.

Okay, great. Thank you.

Thanks.

Thank you ladies.

Ladies and gentlemen, we have reached the end of the question and answer session.

And I would like to take the help shanty. So thank you for for your participation.

The confidence of Texas Pet Snake Land Corporation has now concluded.

Have a wonderful day.

[music].