Q1 2024 Texas Pacific Land Corp Earnings Call

May 9, 2024

Operator: Greetings and welcome to Texas Pacific Land Corporation's First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Shawn Amini: Thank you for joining us today for Texas Pacific Land Corporation's first quarter 2024 earnings conference call. Yesterday afternoon, the company released its financial results and filed its Form 10-Q with the Securities and Exchange Commission, which is available on the investor section of the company's website at www.texaspacific.com. In addition, the company has posted an investor presentation that we will be referencing today. That presentation related to produced water desalination and beneficial reuse can be found in the investor section of our website under Presentations. It is also posted under the events section on our website, which can be accessed through the news and media tab and then the IR calendar.

Greetings and welcome to Texas specific.

Land Corporation first quarter 'twenty 'twenty four earnings call at this time, all participants are in a listen only mode.

Brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Shawn Amini life's President finance and Investor relation.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Shawn Amini, Vice President, Finance and Investor Relations. Thank you, Mr. Amini. You may begin.

Shawn Amini: Thank you Mr. <unk> you may begin.

Shawn Amini: Thank you for joining us today for Texas, particularly in corporations first quarter 2024 earnings Conference call Yesterday afternoon. The company released its financial results and filed its Form 10-Q, but the securities and Exchange Commission.

Shawn Amini: It's available on the investors section of the company's website at Www Dot Tech specific dotcom.

Shawn Amini: In addition, the company has posted in the Investor presentation that we will be referencing today that presentation related to produced water desalination and beneficiaries can be found in the investors section of our website under presentations.

Shawn Amini: It is also posted under the events section on our website, which can be accessed through the news and media tab and then IR calendar.

Shawn Amini: As a reminder, remarks made on today's conference call may include forward-looking statements. Such statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events.

Shawn Amini: As a reminder remarks made on today's conference call May include forward looking statements forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today.

Shawn Amini: We do not undertake any obligation to update our forward looking statements in light of 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 to our most recent SEC filings.

Shawn Amini: For more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filing. During this call, we 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 SEC filing. Please also note that we may at times refer to our company by its stock ticker, TPL.

Shawn Amini: 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 to our most recent SEC filing. During this call, we 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 SEC filing. Please also note that you may sometimes refer to our company by its stock ticker, TPL.

Shawn Amini: During this call. We 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 SEC filings.

Shawn Amini: Also note the Maritimes, a photo of a company by its stock ticker G. P L.

Shawn Amini: This morning's conference call is hosted by TPL's Chief Executive Officer, Ty Glover, Executive Vice President of Texas Pacific Water Resources, Robert Crain, and TPL's Chief Financial Officer, Chris Steddum. Management will make some prepared comments, after which we will open the call for questions. Now, I will turn the call over to Tyler.

Shawn Amini: This morning's conference call is hosted by TPL's Chief Executive Officer, Guy Glover, Executive Vice President of Texas Pacific Water Resources, Robert Crane, and TPL's Chief Financial Officer, Chris Steddum. Management will make some prepared comments, after which we will open the call for questions. Now, I will turn the call over to Tyler.

Shawn Amini: This mornings conference call is hosted by T. P L Chief Executive Officer, Mike Glover Executive Vice President of Texas specific water resources, Robert Crane and T. P L Chief Financial Officer, Chris Adam.

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

Tyler Glover: Good morning everyone, and thank you for joining us today. Driven by the continued strength of our surface-derived cash flows, our first quarter 2024 results are an excellent start to the year. Water sales, produced water royalties, and easements and other surface-related income in aggregate had revenue growth of 19% sequential quarter-over-quarter, which totaled approximately $81 million and accounted for nearly 50% of total consolidated revenues. This was another especially great quarter for water sales, as it generated $37 million of revenues, which was nearly a company record.

Tyler Glover: Good morning everyone, and thank you for joining us today. Driven by the continued strength of our surface-derived cash flows, our first quarter 2024 results are an excellent start to the year. Water sales, produced water royalties, and easements and other surface-related income in aggregate had revenue growth of 19% sequential quarter over quarter, which totaled approximately $81 million and accounted for nearly 50% of total consolidated revenues. This was another especially great quarter for water sales, as it generated $37 million of revenues, which was nearly a company record.

Todd: Good morning, everyone and thank you for joining us today.

Todd: Driven by the continued strength of our surface drive cash flows. Our first quarter 2024 results are an excellent start to the year water sales produced water royalties and easements and other surface related income in aggregate had revenue growth of 19% sequential quarter over quarter, which totaled approximately $81 million and accounted for nearly 50 per.

Todd: We're saying a total consolidated revenues.

Todd: This was another especially very quarter for water sales as it generated $37 million of revenues, which was nearly a company record our source water asset footprint combined with our excellent staff were able to push volumes throughout the Permian basin with 72% of volumes occurring outside of T. P. L surface acreage.

Tyler Glover: Our source water asset footprint, combined with our excellent staff, was able to push volumes throughout the Permian Basin, with 72% of volumes occurring outside of TPL's surface area. Oil and gas royalty production of approximately 24,800 barrels of oil equivalent per day also represents strong performance. Our near-term inventory of permits and drilled but uncompleted wells remains at robust levels, which combined with high activity levels on our water and surface assets indicates royalty production will continue to perform well.

Tyler Glover: Our source water asset footprint, combined with our excellent staff, was able to push volumes throughout the Permian Basin, with 72% of volumes occurring outside of TPL's surface area. Oil and gas royalty production of approximately 24,800 barrels of oil equivalent per day also represents strong performance. Our near-term inventory of permits and drilled but uncompleted wells remains at robust levels, which, combined with high activity levels on our water and surface assets, indicates royalty production will continue to perform well.

Todd: Oil and gas royalty production of approximately 24800 barrels of oil equivalent per day also represents strong performance.

Todd: Our near term inventory of permits and drilled but uncompleted wells remained at robust levels, which combined with high activity levels on our water and surface assets indicates royalty production will continue to perform well.

Tyler Glover: On capital allocation, the company and our board continue to evaluate all of our options as the business continues to generate considerable free cash flow and maintains a net cash position of $837 million. This affords us a tremendous ability to drive value throughout the energy cycle. I do want to spend the majority of my time this morning talking about some exciting news for TPL. As Shawn mentioned, we posted a presentation relating to produced water desalination and beneficial reuse, and I will be referencing those slides. Our remarks today will serve two purposes.

Todd: On capital allocation the company and our board continue to evaluate all of our options as the business continues to generate considerable free cash flow and maintains a net cash position of $837 million.

Todd: This affords us tremendous ability to drive value throughout the energy cycle.

Todd: I do want to spend the majority of my time. This morning talking about some exciting news for T. P L.

Todd: As Sean mentioned, we posted a presentation relating to produce water desalination and beneficial reuse and I will be referencing those slides.

Tyler Glover: First, to give an update on our technology efforts related to produced water, and second, to give an understanding of the state of the produced water market in the Permian today, the latter of which has been getting an increasing amount of attention throughout the industry. Starting with slide two, there are two components to what we announced yesterday. First, we have developed a promising new energy-efficient method of producing water desalination. Although water desalination can be done today utilizing multiple methods and technologies, the challenge has always been doing so cost effectively.

Todd: Our remarks today will serve two purposes.

Todd: First to give an update on our technology efforts related to produced water and second to give an understanding of the state of the produced water market in the Permian today, the latter of which has been getting an increasing amount of attention throughout the industry.

Todd: Starting with slide two there are two components to what we announced yesterday.

Todd: First we have developed a promising new energy efficient method of produced water desalination.

Todd: Although water desalination can be done today utilizing multiple methods and technologies. The challenge has always been doing so cost effectively.

Tyler Glover: Desalinating produced water also presents some unique challenges compared to normal ocean or brine water. Over the last few years, our team has been studying a wide array of technologies, hoping to find something that could work economically at scale in the oil field. It may seem both simple yet counterintuitive, but we wondered if we could leverage a process that happens every day in people's homes, water turning into ice.

Todd: Desalinating produced water also presents some unique challenges compared to normal ocean or Brian water.

Todd: Over the last few years, our team has been studying a wide array of technologies, hoping to find something that could work economically at scale in the oilfield.

Todd: It may seem both simple yet counterintuitive, but we wondered if we could leverage a process that happens every day in People's home.

Todd: Water turning into ice.

Tyler Glover: We began to look more closely at this process, which is also referred to as fractional freezing. At first glance, it seemed nonsensical to make ice in a desert in West Texas. However, after running in-house experiments and further research, we pursued the idea in earnest. We reached out to a leading industrial technology and manufacturing firm located here in the United States. Over the course of a couple of years, we collaborated on various ideas and techniques. After eventually finding success with a prototype, we quickly constructed a small-scale test unit at TPL's R&D facility in Midland.

Todd: We began to look more closely at this process, which is also referred to as fractional freezing.

Todd: At first glance seem nonsensical to make ice in the desert in West Texas.

Todd: However, after running in house experiments and further research we pursued the idea in earnest.

Todd: We reached out to a leading industrial technology and manufacturing firm located here in the United States.

Todd: Over the course of a couple of years, we collaborated on various ideas and techniques. After eventually finding success with a prototype would quickly constructed a small scale test unit and T. P. L R&D facility in Midland.

Tyler Glover: That test trial was a success, and we are moving forward with a larger test facility capable of processing 10,000 produced water barrels per day, with expansion potential to 20,000 barrels per day. The second aspect of our announcement relates to beneficial reuse. If we're able to desalinate produced water economically at scale, then it opens up a world of possibilities in terms of what to do with that water. We've been conducting detailed studies in our lab to understand whether desalinated produced water could be used to grow various crops and native grasses. Our lab has a greenhouse, which is pictured on this slide.

Tyler Glover: That test trial was a success, and we are moving forward with a larger test facility capable of processing 10,000 produced water barrels per day with expansion potential to 20,000 barrels per day. The second aspect of our announcement relates to beneficial reuse. If we're able to desalinate produced water economically at scale, then it opens up a world of possibilities in terms of what to do with that water. We've been conducting detailed studies in our lab to understand whether desalinated produced water could be used to grow various crops and native grasses. Our lab has a greenhouse, which is pictured on this slide.

Todd: That test trial was a success and we are moving forward with a larger test facility capable of processing 10000 produced water barrels per day with expansion potential to 20000 barrels per day.

Todd: The second aspect of our announcement relates to beneficial reuse.

Todd: If we're able to desalinate produce water economically at scale then it opens up a world of possibilities in terms of what to do with that water.

Todd: We've been conducting detailed studies in our lab to understand whether desalinated produce water it could be used to grow various crops and native grasses.

Todd: Our lab has a greenhouse which is pictured on this slide.

Tyler Glover: Here we use various local soils and native plants to understand the impact of utilizing fully desalinated and treated water. In addition to extensive in-house testing and analytic capabilities, we have also partnered with leading research institutions specializing in water quality, soil, and plant testing. We have another parallel beneficial reuse program underway as we are exploring discharges of desalinated and fully treated water into tributaries that feed into the Pecos River and potentially direct discharge to the surface for aquifer recharge.

Tyler Glover: Here we use various local soils and native plants to understand the impact of utilizing fully desalinated and treated water. In addition to extensive in-house testing and analytic capabilities, we have also partnered with leading research institutions specializing in water quality, soil, and plant tests. We have another parallel beneficial reuse program underway as we are exploring discharges of desalinated and fully treated water into tributaries that feed into the Pecos River and potentially direct discharge to the surface for aquifer recharge.

Todd: Here, we use various local soils and native plants to understand the impact of utilizing fully desalinated and treated water.

Todd: In addition to the extensive in house testing and analytical capabilities. We have also partnered with leading research institutions specializing in water quality soil and plant testing.

Todd: We have another parallel beneficial reuse program underway as we are exploring discharge of desalinated and fully treated water into tributaries that feed into the Pecos River.

Todd: <unk> direct discharge to the surface for aquifer recharge.

Tyler Glover: Across both of these beneficial reuse paths, we are working closely with regulators and have made significant progress with both permitting and stakeholder engagement. Robert Crane, who leads our water team, will discuss these desalination and beneficial reuse initiatives in greater detail later on this call. Ultimately, if everything goes well, our intent is to bring large-scale produced water desalination solutions to the Permian Basin. DPL has created a subsidiary called Transmissive Water Services, LLC, to house our desalination and beneficial reuse efforts. Transmissive is a wholly owned subsidiary of Texas Pacific Water Resources, LLC, or TPWR for short, which itself is a wholly owned subsidiary of TPL.

Tyler Glover: Across both of these beneficial reuse paths, we are working closely with regulators and have made significant progress with both permitting and stakeholder engagement. Robert Crain, who leads our water team, will discuss these desalination and beneficial reuse initiatives in greater detail later on this call. Ultimately, if everything goes well, our intent is to bring large-scale produced water desalination solutions to the Permian Basin. TPL has created a subsidiary called Transmissive Water Services, LLC, to house our desalination and beneficial reuse efforts. Transmissive is a wholly owned subsidiary of Texas Pacific Water Resources, LLC, or TPWR for short, which itself is a wholly owned subsidiary of TPL.

Todd: Okay.

Todd: Across both of these beneficial reuse pass we are working closely with regulators and have made significant progress with both permitting and stakeholder engagement.

Todd: Robert Crane, who leaves our water team will discuss these desalination and beneficial reuse initiatives in greater detail later on this call.

Todd: Ultimately if everything goes well our intent is to bring large scale produced water desalination solutions to the Permian basin.

Todd: T P. L. A has created a subsidiary called transmit the water services LLC to house, our desalination and beneficial reuse efforts.

Todd: Transmission is a wholly owned subsidiary of Texas specific water resources LLC or P. P. W are for short which itself is a wholly owned subsidiary of P. P. L.

Tyler Glover: We are currently in commercial negotiations with blue chip upstream operators as we move towards the next phase of constructing a larger desalination test facility. Interest has been incredibly high as oil and gas operators understand how critical this type of technology is to keep the Permian oil and gas machine going. This first 10,000-barrel-per-day facility, which we refer to as Phase II, will cost approximately $20 million on a 100% basis, though our aim is to offset a substantial amount of TPL capital costs with any commercial arrangement.

Todd: We are currently in commercial negotiations with Blue chip upstream operators as we move towards the next phase of constructing a larger desalination test facility.

Todd: Interest has been incredibly high as oil and gas operators understand how critical this type of technology is to keep the Permian oil and gas machine going.

Todd: This first 10000 barrel per day facility, which we referred to as phase two will cost approximately $20 million on 100% basis, though our aim is to offset a substantial amount of T. P O capital costs with any commercial arrangement.

Todd: Yeah.

Tyler Glover: Longer term, our intent and desire is to structure commercial arrangements that align with TPL's ongoing business principles of high-margin, capital-like cash flows. We've had tremendous success with that model in the past as our team was able to turn TPL's raw surface acreage ownership into a business that last year collectively generated over $250 million of high-margin revenue. So we have a proven track record.

Tyler Glover: Longer term, our intent and desire is to structure commercial arrangements that align with TPL's ongoing business principles of high margin capital and light cash flows. We've had tremendous success with that model in the past as our team was able to turn TPL's raw surface acreage ownership into a business that last year collectively generated over $250 million of high-margin revenue. So we have a proven track record.

Todd: Longer term, our intent and desire is to structure commercial arrangements that align with ppl's ongoing business principles of high margin capital light cash flows.

Todd: You had tremendous success with that model in the past as our team was able to turn the T. P. L. Raw surface acreage ownership into a business that last year collectively generated over $250 million of high margin revenue.

Todd: So we have the proven track record.

Tyler Glover: Sure, our desalination technology and beneficial reuse advances have reached a point where we can help launch a large-scale buildout throughout the Permian Basin. I'm confident in our ability to execute agreements and strategic partnerships in a manner that generates significant shareholder value. Turning to slide three, titled Produce Water Overview, these next couple of slides are for the benefit of current and prospective investors that may not be completely apprised of the state-of-the-permian produced water market. I'd like to provide additional context around what TPL is trying to solve.

Tyler Glover: Sure, our desalination technology and beneficial reuse advances have reached a point where we can help launch a large-scale build-out throughout the Permian Basin. I'm confident in our ability to execute agreements and strategic partnerships in a manner that generates significant shareholder value. Turning to slide three, titled Produce Water Overview, these next couple of slides are for the benefit of current and prospective investors that may not be completely apprised of the state of the Permian produced water market. So I'd like to provide additional context around what TPL is trying to solve.

Todd: Sure a desalination technology and beneficial reuse advances get to a point, where we can help launch a large scale build out throughout the Permian basin.

Todd: I'm confident in our ability to execute agreements in strategic partnerships in a manner that generate significant shareholder value.

Todd: Turning to slide three titled produced water overview.

Todd: These next couple of slides are for the benefit of current and prospective investors that may not be completely apprised of the state of the Permian produced water market, but I'd like to provide additional context around what P. P. L is trying to solve.

Tyler Glover: The term produced water refers to the water that is a co-product from a producing oil and gas well. This water has very high salinity levels and contains oil, suspended solids, and heavy metals. Because untreated, produced water is not safe for crop irrigation or municipal use, there are two methods in which the industry deals with it. The most common method is to re-inject produced water back into the ground. For many years, water was injected into subsurface formations either above or below oil-bearing shell formations.

Todd: The term produced water refers to the water that is a co product from a producing oil and gas well.

Todd: Water has very high salinity levels and contains oil and suspended solids and heavy metals.

Todd: Because the untreated produce water is not safe for crop irrigation or municipal use their two methods in which the industry deals with it.

Tyler Glover: The most common method is to re-inject produced water back into the subsurface. For many years, the water was injected into subsurface formations either above or below oil-bearing shell formations. Due to the high levels of development activity and high water cuts experienced in the Permian Basin, the industry has begun to experience constraints concerning traditional disposal into both of these zones. The high volumes of deep formation injection are suspected to cause seismicity in local areas as injected water can find its way into natural faults.

Todd: The most common method is to re inject produced water back sub surface.

Todd: For many years the water was injected in the subsurface formations either above or below oil bearing shale formations.

Tyler Glover: The Texas Railroad Commission, which regulates the oil and gas industry in Texas, has responded by instituting numerous seismic response areas, or SRAs, in certain regions. These SRAs have put restrictions on how much water can be injected.

Tyler Glover: Due to the high levels of development activity and high water cuts experienced in the Permian Basin, the industry has begun to experience constraints concerning traditional disposal into both of these zones. The high volumes of deep formation injection are suspected to cause seismicity in local areas as injected water can find its way into natural faults. The Texas Railroad Commission, which regulates the oil and gas industry in Texas, has responded by instituting numerous seismic response areas, or SRAs, in certain regions. These SRAs have put restrictions on how much water can be injected.

Todd: Due to the high levels of development activity and high water cuts experienced in the Permian basin. The industry has begun to experience constraints concerning traditional disposal into both of these zones.

Todd: The high volumes of deep formation injection is suspected to cause seismicity and local areas as injected water. It can find its way into natural fault.

Todd: The Texas Railroad Commission, which regulates to the oil and gas industry in Texas.

Todd: Has responded by instituting numerous seismic response areas, our SRA and certain regions.

Todd: As far as that put restrictions on how much water can be injected.

Tyler Glover: The industry has since pivoted to injections strictly targeting shallower formations, hoping to avoid some of the faulting issues. However, although injection into shallow formations does work, it presents additional complexity for upstream operators who plan to develop overlapping oil and gas acreage, which they would now potentially be drilling through a more highly pressured zone. The other common solution for produced water today is to reuse or recycle that water for oil and gas completion activities, otherwise known as fracking.

Todd: The industry has since pivoted to injection strictly targeting the shallower formations, hoping to avoid some of the faulting issues.

Todd: Although injection into shallow formations does work and it presents additional complexity for upstream operators, who plan to develop overlapping oil and gas acreage, which they would now potentially be drilling through a more highly pressured zone.

Todd: The other common solution for produced water today is to reuse or recycle that water for oil and gas completion activities otherwise known as fracking.

Tyler Glover: Upstream operators can use raw-produced or lightly treated produced water to complete new wells. However, given the sheer amount of produced water volumes that come from the Permian, even if operators were to use only produced water in their completion activities, the Permian could still have north of 10 million barrels of produced water that would need to find a home. Turning to slide four.

Tyler Glover: Upstream operators can use raw produced or lightly treated produced water to complete new wells. However, given the sheer amount of produced water volumes that come from the Permian, even if operators were to use only produced water in their completion activities, the Permian could still have north of 10 million barrels of produced water that would need to find a home. Turning to slide four.

Todd: Upstream operators can use raw produced or lightly treated produced water to complete new wells.

Todd: However, given the sheer amount of produced water volumes that come from the Permian, even if operators where to use only produced water in their completion activities.

Todd: Permian could still have north of 10 million barrels of produced water that would need to find a home.

Todd: Turning to slide four.

Tyler Glover: The Permian is recognized as an oil and gas powerhouse. Oil production today is over 6 million barrels per day, which is more than other well-known oil-producing nations such as Iraq, Iran, and Kuwait. However, one unique aspect of the Permian is its relatively high water-to-oil ratio. The Delaware side of the Permian has an especially high water-to-oil ratio of nearly four times. Despite the high water cuts, robust drilling economics in Delaware have driven a strong ramp in activity, which has generated a commensurate increase in produced water. Today, the industry is finding it increasingly difficult to handle all of this water.

Tyler Glover: The Permian is recognized as an oil and gas powerhouse. Oil production today is over 6 million barrels per day, which is more than other well-known oil producing nations such as Iraq, Iran, and Kuwait. However, one unique aspect of the Permian is its relatively high water to oil ratio. The Delaware side of the Permian has an especially high water to oil ratio of nearly four times. Despite the high water cuts, robust drilling economics in Delaware have driven a strong ramp in activity, which has generated a commensurate increase in produced water. Today, the industry is finding it increasingly difficult to handle all of this water.

Todd: The Permian is recognized as an oil and gas powerhouse oil production today is over 6 million barrels per day.

Todd: Which is more than other well known oil producing nations, such as Iraq, Iran and Kuwait.

Todd: However, one unique aspect of the Permian is it's relatively high water to oil ratio.

Todd: The Delaware side of the Permian has an especially high water to oil ratio of nearly four times.

Todd: Despite the high water cuts robust drilling economics in the Delaware has driven a strong ramp in activity, which has generated a commensurate increase in produced water.

Todd: Today, the industry is finding it increasingly difficult to handle all of this water.

Tyler Glover: Given TPL's longstanding, actively-managed, vertically-integrated water business, this is a dynamic bet we've seen coming for quite some time now. Over the last few years, we have actively sought to increase our capabilities across every aspect of produced water solutions. This is why we began investing so much effort into desalination R&D years ago. We've also significantly increased our treatment capacity for traditional produced water reuse. And finally, we've made a concerted effort to increase our force-based ownership.

Tyler Glover: Given TPL's longstanding, actively managed, vertically integrated water business, this is a dynamic bet we've seen coming for quite some time now. Over the last few years, we have actively sought to increase our capabilities across every aspect of produced water solutions. This is why we began investing so much effort into desalination R&D years ago. We've also significantly increased our treatment capacity for traditional produced water reuse. And finally, we've made a concerted effort to increase our force-based ownership.

Todd: Given the P. P O as long standing actively managed vertically integrated water business. This is a dynamic that we've seen coming for quite some time now.

Todd: Over the last few years, we actively sought to increase our capabilities across every aspect of produced water solutions.

Todd: This is why we began investing so much effort into desalination R&D years ago.

Todd: We've also significantly increased our treatment capacity for traditional produced water reuse.

Todd: And finally, we've made a concerted effort to increase our forest base ownership.

Tyler Glover: Through various bolt-ons, we managed to purchase surface and subsurface pore space easements totaling over 100,000 acres. The pore space we've acquired, combined with our legacy surface position, is critical in providing long-term solutions for produced water. In evaluating surface acreage to acquire, we often perform extensive pore space due diligence across attributes such as capacity, formation pressures, and fault and seismic mapping.

Todd: Through various bolt ons, we managed to purchase surface and subsurface pore space isn't that's totaling over 100000 acres the.

Todd: Poor space, we've acquired combined with our legacy surface position is critical in providing long term solutions for produced water.

Tyler Glover: In evaluating surface acreage to acquire we often perform extensive poor space due diligence across attributes such as capacity formation pressures and fault and seismic mapping.

Tyler Glover: Although we are well positioned to facilitate traditional produce water injection for years to come, we knew the industry needed additional solutions. There's still a lot of work and testing to be done with our emerging technology. So we are encouraged and excited by what we've seen so far. As we've presented our technology to potential partners, customers, and regulators, the feedback has been overwhelmingly positive. We've received immense interest from operators to deploy the test facility near their development areas, not just in the Permian but also in other major oil and gas basins in the U.S.

Tyler Glover: Although we are well positioned to facilitate traditional produced water injection for years to come, we knew the industry needed additional solutions. There's still a lot of work and testing to be done with our emerging technology, so we are encouraged and excited with what we've seen so far. As we've presented our technology to potential partners, customers, and regulators, the feedback has been overwhelmingly positive. We've received immense interest from operators to deploy the test facility near their development areas, not just in the Permian but also in other major oil and gas basins in the US.

Todd: Although we are well positioned to facilitate traditional produced water injection for years to come we knew the industry needed additional solutions.

There's still a lot of work and testing to be done with our emerging technology, though we are encouraged and excited with what we've seen so far.

Tyler Glover: As we presented our technology to potential partners customers and regulators the feedback has been overwhelmingly positive.

Tyler Glover: Received immense interest from operators to deploy the test facility near their development areas not just in the Permian, but also in other major oil and gas basins in the U S.

Tyler Glover: I'm extremely proud of the team here for their innovation, dedication, and talent, and their efforts will be critical in sustaining the positive momentum of Permian development over the long term. With that, I will turn the call over to Robert.

Tyler Glover: I'm extremely proud of the team here for their innovation dedication and talent and their efforts will be critical in sustaining the positive momentum of Permian development over the long term.

Tyler Glover: With that I will turn the call over to Robert.

Robert Crane: Thanks, Ty. For those of you that don't know me, I run TPWR. I joined TPL in 2017 when Ty recruited me to help build out TPL's nascent water Prior to TPL, I led water resource development efforts for EOG resources across multiple basins, including the Parmian and Eagle Basins, excited to be here today and talk about water. Turning to Slide 5, I'll provide an overview of our technology, our targets for desalinization, and results to date.

Robert A. Crain: Thanks, Ty. For those of you that don't know me, I run TPWR. I joined TPL in 2017 when Ty recruited me to help build out TPL's nascent water Prior to joining TPL, I led water resource development efforts for EOG resources across multiple basins, including the Parmian and Eagle Basins. I'm excited to be here today and talk about water. Turning to slide five, I'll provide an overview of our technology, our targets for desalination, and our results to date.

Robert: Thanks, Ty for those of you that don't know me I run D. P. W. R.

Robert Crane: I joined <unk> in 2017, and tie recruited me to help build out T feels nascent water business.

Robert Crane: Prior to P. P. L. L add water resource development efforts for EOG resources across multiple basins, including the Permian and Eagle Ford excited to be here today and talk about water.

Robert Crane: Turning to slide five I'll provide an overview of our technology, our targets for desalinization and results to date.

Robert A. Crain: As Ty described, we teamed up with a top-tier technology and manufacturing partner that specializes in industrial refrigeration and freezing, where they serve clients across food services, industrial temperature control, and nuclear power plants. TPL collaborated with this technology partner to develop a thermal system specifically designed for produced water desalination. While our partner retains the patents on the equipment, TPL has exclusive rights to the equipment used toward produced water applications. In addition, TPL has filed for a process patent utilizing fractional freeze desalination to treat produced water for beneficial reuse.

Robert Crane: I described we teamed up with a top tier technology and manufacturing partner that specializes in industrial refrigeration and freezing where they serve clients across food services industrial temperature temperature control and nuclear power plants T.

Robert Crane: P. P O collaborated with this technology partner to develop a thermal system specifically designed for produced water desalination, while our partner retains the patents on the equipment T. P. L has the exclusive rights for the equipment used toward produced water application.

Robert Crane: In addition, T. P. L has filed for a process patent patents utilizing fractional for easy validation to treat produced water for beneficial reuse.

Robert A. Crain: There are a couple other competing desalination technologies on the market today, with many of them focused on heat distillation. However, heat distillation can require a temperature change of 120 to 140 degrees Fahrenheit and additional energy to condense the vapor back into liquid form.

Robert Crane: There are a couple of other competing desalinization technologies on the market today with many of them focused on heat distillation.

Robert Crane: Eat installation can require a temperature change of 120 to 140 degrees Fahrenheit and additional energy to condense the vapor back into liquid form.

Robert A. Crain: However, our freeze technology uses less energy as it recovers heat from the incoming produced water and requires a temperature change at a fraction of what is required for heat distillation. With our current R&D test unit, we've been running extensive optimization testing as we closely monitor time spent in pull-down and freezing, the progression of ice formation, salinity reduction, anion cation reduction, and energy efficiency, among other factors. We had power meters installed at basically every step, so we knew how much power was being used by each piece of equipment.

Robert Crane: However, our free technology uses less energy as it recovers heat from the incoming produced water and requires temperature change at a fraction of what is required for heat distillation.

Robert Crane: With our current R&D test unit, we've been running extensive extensive optimization testing as we closely monitor time spent and pull down and freezing the progression of ice formation solidity reduction and I in Qatar and reduction in energy efficiency. Among other factors, we had power meters installed at basically every step. So we knew how much power was being used by <unk>.

Robert Crane: Each piece of equipment.

Robert A. Crain: We have a better understanding of the various tradeoffs, such as higher pressure and higher analyte production or reduced power consumption. We have gained a lot of valuable insights that we can now apply as we look to scale up and enhance our next. We have a target matrix that we call 75. This represents our high-level goals for desalination. First, it is a 75% volume reclamation, which means if we take 100 barrels of produced water, we can churn out 75 barrels of fully desalinated and treated water.

Robert Crane: We have a better understanding of the various trade offs, such as high higher pressure and higher antilife production or reduce power consumption.

Robert Crane: Gained a lot of valuable insights that we can now apply as we look to scale up and enhance our next unit.

Robert Crane: We have a target matrix that we call 75 cube.

Robert Crane: Represents our high level goals for desalination.

Robert Crane: First it is a 75% volume reclamation, which means if we take 100 barrels of produced water. We can turn out 75 barrels of fully consolidated and treated water, but we believe we're well on target to achieve this goal.

Robert A. Crain: We believe we're well on target to achieve this goal. The second goal is a 75% reduction in analytes. Here, our goal is to remove analytes of concern. Our desalination technology is not just about freezing. Rather, it's a series of processes as we seek to create very pure water.

Robert Crane: The second goal of 75% reduction in analytes.

Robert Crane: We'll have to remove analytes are concerned.

Robert Crane: Desalination technology, it's not just about freezing rather it's a series of processes as we seek to create a very pure water.

Robert A. Crain: Again, we have already far exceeded this goal. And truly, our goal is to treat water not just to meet every regulatory parameter but to exceed them. The final element of 75 cubed is a 75 cent per barrel.

Robert Crane: Again, we have already far exceeded this goal.

Robert Crane: Truly our goal is to treat water not just to me every regulatory parameters parameter but to exceed it.

Robert Crane: The final element of 75 to <unk> 75 per barrel treatment cost. This is where we have the most work left the biggest operating expense item of any desalinization and energy consumption.

Robert A. Crain: This is where we have the most work to do. The biggest operating expense item of any desalination process is energy consumption. As mentioned earlier, we are metering every aspect of our equipment and process. We're working hard to find the fish.

Robert Crane: I mentioned earlier, we are metering every aspect of our equipment and process, we're working hard to find efficiencies.

Robert A. Crain: In addition, we continue to work with utilities and developers as we seek options and novel solutions for electricity prices. Given the abundance of renewable power and natural gas prices that are negative at times in West Texas, we think we can find creative answers to bring our power costs down. We hope with this upcoming phase to 10,000 barrels per day facility that we can make further process optimization and cost improvement. At $0.75 per barrel cost for desalinated high-spec water, we believe our technology becomes economically cost competitive and environmentally superior versus traditional subsurface injection.

Robert Crane: In addition, we continue to work with the utilities and developers.

Robert Crane: Seek options and novel solutions for electricity prices.

Robert Crane: Given the abundance of renewable power and natural gas prices that are negative at times in West, Texas. We think we can find creative answers to bring our power cost out.

Robert Crane: We hope with this upcoming phase 210000 barrel per day for the facility that we can make further process optimization and cost improvements.

Robert Crane: At 75 cents per barrel costs in Desalinated high spec water, we believe our technology becomes economically cost competitive and environmentally superior versus traditional subsurface injection.

Robert A. Crain: Our desalination process produces excellent water quality along the most important parameters. Almost all semi-volatile organic compounds, SVOCs, and volatile organic compounds, VOCs, are reduced well below the maximum containment level. We have reduced PFAS, radionuclides, and metals to trivial levels.

Robert Crane: Our desalinization process produces excellent water quality, along the most important parameters almost all Sydney volatile organic compounds S. P O sees and volatile organic compounds V O sees.

Robert Crane: Our reduced well below the maximum contaminant levels.

Robert Crane: We have reduced DFAST radionuclides in metals to trivial levels.

Robert A. Crain: In addition, we are working with premier research institutions to examine water analytes that are not traditionally tested. Our goal isn't just to meet the regulatory requirements; we want to exceed them across every possible parameter that can be measured and tested. We are striving for the absolute best quality fresh water we can achieve. Turning to slide 6, where I will talk about our progress with beneficial... There are multiple aspects of our beneficial reuse endeavors.

Robert Crane: In addition, we are working with Premier research institutions to eczema water analytes that are not traditionally tested.

Robert Crane: Our goal isn't just to meet the regulatory requirements, we want to exceed across every possible parameter that can be measured and tested.

Robert Crane: We are striving for the absolute best quality fresh water, we can achieve.

Robert Crane: Turning to slide six where I will talk about our progress with beneficial reuse.

Robert Crane: There are multiple aspects are beneficial reuse endeavors first as our greenhouse pilot.

Robert A. Crain: The first is our greenhouse pilot. This pilot was used to test discharge and irrigation potential for various native plants. In our Midland yard, we built a greenhouse where we gathered local soils from Loving and Reese counties, and then we planted various native plants and alfalfa.

Robert Crane: This pilot was used to test discharge in irrigation potential.

Robert Crane: For various native plants, and our Midland yard, we built a greenhouse where we gather local soils from loving and Reeves County.

Robert Crane: And then we plan on various natus plaintiffs in alfalfa, we're working on New Mexico State University, which has one of the Premier labs and research facilities for planting soil testing.

Robert A. Crain: We're working with New Mexico State University, which has one of the premier labs and research facilities for plant and soil testing. The results from this pilot have been very positive. Data from this pilot was used for a Railroad Commission land application permit, and TPL was granted the first permit in the state in February of this year. With that permit, TPL is expanding the facility to include an outdoor field of alfalfa to study the effects in the natural environment. That outdoor plot is currently under construction.

Robert Crane: The results from this pilot have been very positive data from this pilot was used for a Royal Commission land application Department and T. P. L was granted the FERC permit in the state in February of this year.

Robert Crane: Would that permit T. P. L is expanding the facility to include an outdoor field of alfalfa to study the effects of the natural environment.

Robert Crane: That outdoor Plaza is currently under construction.

Robert A. Crain: TPL will share water, soil, and plant data from the greenhouse pilot with regulatory agencies, operators, and universities to help the industry further develop standards and beneficial reuse technology. Lastly, we have applied for a Texas Pollutant Discharge Elimination System permit with the Texas Commission on Environmental Quality, otherwise referred to as TCEQ. This permit relates to discharging treated desalinated produced water into tributaries in the upper region of the Pecos River. Given our multi-step desalination process produces high-spec fresh water, we will add BAT, salt, and alkalinity to match the Pecos River water quality.

Robert Crane: P L will share water soil and plant data from the greenhouse pilot with regulatory agencies operators and universities to help the industry further develop standards and beneficial reuse technologies.

Robert Crane: Lastly, we have applied for Texas pollutant discharge elimination system permit with the Texas Commission on environmental quality, otherwise referred to as the T C cure.

Robert Crane: This apartment relates to discharging treated desalinated produced water and distribute terese and the upper region Pecos River.

Robert Crane: Given our multi step desalination process produces high spec freshwater we will add that salt and alkalinity to match the Pecos River water quality.

Robert A. Crain: We will utilize a batch relief system to thoroughly analyze all water prior to environmental release. CPL's priority is to go above and beyond the standard environmental assessment to assure the safety and longevity of the project. Now turning to slide 7 for an environmental and regulatory overview. I've already discussed the latest on our regulatory efforts on the last couple slides, but I'll just reiterate that TPL is committed to the highest standards in environmental stewardship.

Robert Crane: We will utilize a batch release system to thoroughly analyze all water prior to environmental release D. B.

Robert Crane: <unk> priority is to go above and beyond the standard environmental assessment to ensure safety and longevity of the project.

Robert Crane: Now turning to slide seven for an environmental and regulatory overview.

Robert Crane: I've already discussed the latest our regulatory efforts for the last couple of slides, but I'll just reiterate the T. P. L is committed to the highest standards in environmental stewardship.

Robert A. Crain: Our goal is to not just meet the regulatory standards but to exceed them. As many of you know, TPL owns nearly 1 million surface acres, and as surface owners, we have every incentive to maintain and enhance the environmental quality of our acres.

Robert Crane: Our goal is to not just meet the regulatory standards, but to exceed that.

Robert Crane: Any of you know T. P. L owns nearly 1 million surface acres and the surface owners, we have every incentive to maintain and enhance the environmental quality of our acreage.

Robert A. Crain: We consider our surface to be extremely valuable, and we've always managed our surface assets to preserve its sustainability attributes for future generations. Now turning to slide 8 for our key milestones accomplished to date and further timeline. We've talked a lot about the progress we've made already, successfully tested a pilot multi-step desalination, and we've made significant headway on beneficial reuse and regulatory efforts.

Robert Crane: We consider our surface to be extremely valuable and we've always managed our surface assets to preserve its sustainability attributes for future generations.

Robert Crane: Now turning to slide eight for our key milestones accomplished to date and further timeline.

Robert A. Crain: In terms of our near-term priorities, we are working to move forward with a larger 10,000-barrel-per-day test facility and to execute one or more commercial agreements. We have begun equipment procurement. The facility is expected to cost approximately $20 million on a 100% basis, so our aim is to offset costs with any commercial arrangement.

Robert A. Crain: Longer term, should the next test facility prove successful, then we would move toward Phase 3, which is the development of a large-scale, 100,000 barrel per day facility. With demand for produced water desalination potentially millions of barrels per day, widespread desalination adoption would require significant investment from the industry, if we get to that point. It will very likely require additional commercial arrangements as we do not intend for TPL to be primarily responsible for self-funding and developing this infrastructure.

Robert A. Crain: Although the exact commercial arrangements remain to be seen, we have a successful track record of executing contracts that ultimately provide TPO with a very valuable, high-margin capital-wide cash flow. That said, we have a lot of work to do before we get there. We still need to build this initial Phase II facility.

Robert Crane: Cause it ultimately provide G P L with a very valuable high margin capital White cash flow stream.

Robert Crane: That said, we have a lot of work to do before we get there we still need to build this initial phase two facility. They have a lot of engineering and technical work ahead of US we need to keep driving costs down we have to execute on our various beneficial reuse endeavors really excited with our progress so far the team here is working incredibly hard.

Robert A. Crain: We have a lot of engineering and technical work ahead of us. We need to keep driving costs down. We have to execute on our various beneficial reuse endeavors, but we're excited with our progress so far. The team here is working incredibly hard. The Permian needs to find a solution for produced water. And I believe TPL is going to play a key role in that future. With that, I will hand the call over to Chris.

Robert Crane: The Permian needs to find a solution for produced water and I believe T. P. L is going to play a key role in that future without I won't hand to call overdrafts.

Chris Steddum: Thanks, Robert. Consolidated revenues during the first quarter of 2024 were approximately $174 million, representing 4% sequential quarter over quarter growth. Adjusted EBITDA was $152 million, and free cash flow was $115 million for the first quarter. Free cash flow for the quarter grew 30% on a year-over-year basis, driven by higher royalty production, source water sales, produced water royalties, and easements and other surface-related income, and partially offset by lower natural gas and NGL prices. Weak Waha natural gas prices have negatively impacted natural gas realizations in March and April of this year.

Robert Crane: Thanks, Robert consolidated revenues during the first quarter of 2024 for approximately $174 million, representing 4% sequential quarter over quarter growth.

Robert Crane: Ah just EBITDA was $152 million in free cash flow was $115 million for the first quarter free.

Robert Crane: Free cash flow for the quarter grew 30% on a year over year basis, driven by higher royalty production source water sales produced water royalties and easements and other surface related income and partially offset by lower natural gas and NGL prices.

Robert Crane: Week lahar natural gas prices have negatively impacted natural gas realisations in March and April of this year.

Chris Steddum: We do expect low WAHA prices in the second quarter 2024 to continue putting downward pressure on gas realizations, though we expect this to be somewhat mitigated by the stronger realizations that supermajor and large independent operators generally receive. Our realizations on oil continue to be very strong, generally at 100% of the WTI cushion. Our near-term well inventory remains elevated relative to historical levels. At the end of the quarter, we had 5.1 net permitted wells, 10.3 net drilled but uncompleted wells, and 2.2 net completed but not yet producing wells.

Robert Crane: We do expect low waha prices in second quarter of 2024 to continue putting downward pressure on gas realisations that we expect us to be somewhat mitigated by the stronger realizations that super major in large independent operators generally receive.

Robert Crane: Ah realizations on oil continue to be very strong generally at 100 per cent of W. T I Cushing.

Robert Crane: Our near term well inventory remains elevated relative to historical levels at the end of the quarter. We had 5.1 net permitted wells 10.3, net drill, but uncompleted wells and 2.2 net completed not yet producing wells. This near term inventory gives us confidence that our royalty production Rimmer.

Chris Steddum: This near-term inventory gives us confidence that our royalty production remains on a growth trend. To conclude, PPL is in an enviable position today. Our balance sheet is the strongest it's ever been. We still maintain top-tier cash flow and profitability margins. Today's disclosure of our efforts with produced water desalination is a great testament to the team and to the multiple elements of upside the business has with its unique surface ownership. TPL continues to generate substantial free cash flow, and we are in an excellent position to drive value. And with that, operator, we will now take questions.

Robert Crane: <unk> on a growth trend.

Robert Crane: Take include P. P L. As in an enviable position today, our balance sheet is the strongest it's ever been we still maintain top tier cash flow and profitability margins today's disclosure of our efforts with produced water desalination is a great Testament to the team until the multiple elements of upside the business has with it.

Robert Crane: Unique surface ownership.

Robert Crane: <unk> continues to generate substantial free cash flow and we are in excellent position to drive value and with that operator, we will now take questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 2. One moment, please, while we poll for questions. The first question comes from the line of Hamed Khorsand with BWS Financials. Please go ahead.

Speaker Change: Thank you you will now be conducting a question and answer session. If you would like to ask a question. Please <unk> one on your telephone keypad.

Robert Crane: The information <unk> indicate your line is in the question queue. If you <unk>. If you would like to to move your questions from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the <unk> one moment, please funded pull for questions.

Robert Crane: The first question comes from the line of <unk>, <unk> <unk> <unk> <unk> <unk>.

Hamed Khorsand: Hey, good morning. First off, I just wanted to ask about your water desalination. What is the reason to highlight it now? Is it a scientific breakthrough or do you think you're at a point where you can get revenue soon, or is it really just to let investors know about the CapEx that's required going forward?

Speaker Change: Good morning, first off I just wanted to.

Robert Crane: Ask about your water desalination what is <unk>.

Robert Crane: The reason to highlight it now is it the scientific breakthrough or do you think you're at a point, where you can get revenue soon or is it really just to let investors know about capex that's required going forward.

Robert A. Crain: This is Robert. Thank you for the question. I think it's a combination of everything you just said.

Robert Crane: This is Robert Thank you for the question I think it's a combination of everything you just said it is a capital investment and we felt it prudent to.

Robert A. Crain: It is a capital investment, and we felt it prudent, too, to let investors know and shareholders know that, for now, it's a $20 million investment. While we're looking to offset that, PPL will have some capital burden in the near term. Additionally, you know, the talk of water in the Permian is another reason, and the press that we've been getting on our technology. We've put a very heavy focus on the regulatory front and also on the institutional research front, and we thought it was prudent at this time to announce it.

Robert Crane: To let investors know and shareholders know that you know it is for now it's a 20 million dollar investment uhm, while we're looking to offset that T. B L will have some capital burden in the near term.

Robert Crane: Additionally, the talk of water in the Permian is another reason and depressed that we've been getting on our technology. We've played a very heavy focus on the regulatory front and also on the institutional research front.

Robert Crane: And we thought it prudent at this time to announce.

Robert A. Crain: And then, as far as water sales are concerned, do you think this is a sustainable level? I mean, last year you had a record number, but it sounded like it was one-time related. Is this more sustainable?

Robert Crane: And then as far as water sales is concerned.

Robert Crane: Do you think this is sustainable level I mean last year, you had a record.

Robert Crane: Record number but it sounded like it was one time related is this more sustainable.

Robert A. Crain: Well, I think, you know, second quarter of last year was a record quarter for water sales. We were right there close this quarter. And, you know, looking at the sales schedule for second quarter this year, we've got some really strong numbers on the schedule, a lot of welds to be completed. So I think we will continue to put up strong numbers on that front.

Robert Crane: Well I think you know second quarter of last year.

Robert Crane: It was a record quarter from water sales and we were right. There close this quarter and you know looking at the sales scheduled for second quarter of this year we've got.

Robert Crane: You know some really strong numbers on the schedule a lot of wells to be completed so I think we will continue.

Robert Crane: To put up strong numbers on that front.

Robert A. Crain: Okay, and last question here is that, did you just talk about what your expectations here are with the capital you're adding onto the balance sheet? Is it just focus on the water business that you're now expanding the technology? There was a Reuters article this past week about Oxy looking to sell some land. You know, what are your intentions here?

Speaker Change: Okay and last question here that could you just talk about what your expectations here, what's a chapel, you're adding onto the balance sheet is it just focus on the water business that you're now expanding the technology Hey, there was a reuters articles this past week about.

Robert Crane: Oxy looking to sell some land.

Robert Crane:

Robert Crane: Or your intentions here.

Robert Crane: M N.

Chris Steddum: [inaudible] You know, I think our general capital allocation thoughts are really still kind of unchanged from, you know, what we talked about during the last earnings call. Certainly, we continue to look, and different opportunities are available. It's a constant topic of discussion between management and the board. And, you know, right now, we're happy with kind of the direction and where that cash is, but it's certainly something that is always a topic, and we're always looking for the best way to deploy that capital when the opportunity arises.

Robert Crane: You know I think our our general capital allocation thoughts are really you've still kind of unchanged from.

Robert Crane: What we talked about during the last earnings call certainly we continue to look and a different opportunities are available.

Robert Crane: It's a constant topic of discussion between management and the board.

Robert Crane: And you know right now we're happy with kind of.

Robert Crane: The direction, and and where that caches, but it's certainly something that is what was the topic and we're always looking for the best way to deploy that capital when the opportunity arises.

Hamed Khorsand: Okay, thank you.

Ty: Okay. Thank you.

Robert Crane: Thinks about.

Operator: Thank you. The next question comes from the line of John Annis with Stiefel. Please go ahead.

Speaker Change: Thank you next question comes from the line of John <unk> with Stifel. Please go ahead.

John Michael Annis: Hey, good morning, guys. And thanks for taking my question. I wanted to focus in on the announcement of your desalination and beneficial reuse efforts, which is really exciting stuff and timely given the growing sensitivities around impacts of oil and gas development in the Permian. To start, and I apologize in advance for a dense question, but I wanted to try to get a better understanding of the beneficial reuse market and how the value chain works.

Speaker Change: Hey, good morning, guys and thanks for taking my questions I wanted to focus in on the announcement of your desalination and beneficial reuse efforts, which is really exciting stuff and timely given the growing sensitivities around impacts of oil and gas development and the premium.

John Michael Annis: With the freshwater that's produced from your process, can you talk more about the potential end markets, the size of those markets, any green incentives that you would be eligible for, and any potential applications for your process outside of the oil and gas industry?

Speaker Change: To start and I apologize in advance for dental question, but I wanted to try to get a better understanding of the beneficial reuse marketing how the value chain works with the fresh water. That's produced from your process can you talk more about the potential and markets. The size of those markets any green incentives that you would be.

Robert Crane: Eligible for.

Robert Crane: And any potential applications for your process outside of the oil and gas industry.

Robert A. Crain: Sure, this is Robert. I'll take that.

Robert Crane: Sure, it's Robert I'll take that there's been a lot of discussion on the beneficial analytes and you know any downstream revenues that could come from the distillate water beneficial reuse technologies I think there's still emerging there's a lot of discussion on hydrogen beneficial analyzed such as lithium a water rights retention.

Robert A. Crain: There's been a lot of discussion about the beneficial analytes and any downstream revenues that could come from the distillate water of beneficial reuse technologies. But I think they're still emerging. There's a lot of discussion on hydrogen, beneficial analytes such as lithium, and water rights retention once this water is reintroduced. As those develop, our kind of marching orders was to develop a technology and structure a commercial model that stands on its own legs. Anything that comes from a downstream revenue perspective will be great, and it will further help the economics of beneficial reuse. But when we look at it right now, we had to develop a treatment technology and a commercial model that fit within the upstream economics.

Robert Crane: Once this water has reintroduced as does develop you know are kind of marching orders was develop a technology and structure of commercial model to stand on its own legs.

Speaker Change: Yeah anything that it comes from a downstream revenue perspective will be great and it will further help to get the economics of beneficial reuse, but when we look at it right now we had to develop a treatment technology in a commercial model that fits within the upstream economics.

Robert A. Crain: Got it. And then, with the $0.75 per barrel treatment costs you provided in the presentation, you mentioned that it becomes competitive with subsurface injection. Is that expectation based on the ongoing discussions you are having with customers? And then, more broadly, how do you envision those commercial agreements for monetizing the water working?

Speaker Change: Got it and then with the 75 cent per barrel treatment costs you provided in the presentation, you mentioned that it becomes a competitive with subsurface injection is.

Robert Crane: Is it is that expectation based on the ongoing discussions you weren't happy with customers and then more broadly how do you envision those commercial agreements for monetizing the water working.

Robert A. Crain: We don't have a firm commercial structure in place, I think this is a new concept for the industry in general, and beneficial reuse is going to be at a higher price per barrel than traditional injection, but it still has to be economical in the sense that it incentivizes the drill bit to continue to turn. The commercial model and the structure of it are still being developed; we're in talks right now with operators about what that looks like.

Robert Crane: We don't have a firm commercial structure in place I think this is a new concept for the industry in general and beneficial reuse is gonna be at a higher price per barrel than traditional injection, but it still has to be economic in the sense that it incentivizes the drill bit to continue to <unk> the commercial <unk>.

Robert Crane: Idol and the structure of it is still being developed <unk>. We're in talks right now with operators what that looks like I think it's gonna be a blend at least for T. P. L. It will be a blend of a traditional water midstream pricing and how we how we structure T. P. R. From the gecko you know T. P. W. R. R capital of light harm Iron business, we were able to leverage our search.

Robert A. Crain: I think it's going to be a blend, at least for TPL, it will be a blend of the traditional water midstream pricing and how we structured TPR from the get-go. You know, TPWR and our capital light harm iron business; we were able to leverage our surface acreage to not have to take the traditional role of water midstream. So our role in that commercial model is going to be a blend of the two.

Robert Crane: Office acreage to not have to take the traditional role of water midstream. So our role in that commercial model I think is going to be a blend of the two.

Ty: Makes sense, then I wanted to understand more about the operational complexities as you scale what in your view are the biggest hurdles or technical challenges I see moved from a larger pilot and then ultimately to a commercial scale facility.

Robert A. Crain: Then I wanted to understand more about the operational complexities as you scale. What, in your view, are the biggest hurdles or technical challenges as you move from a larger pilot and then ultimately to a commercial scale facility?

Robert A. Crain: I think the regulatory piece is initially presenting some hurdles that we've tackled and I think we're getting over as we look at any beneficial reuse technology. Energy consumption is 75 to 80 percent of the opex of any piece of it, and it's what we mentioned in the talk earlier, continuing to drive down cost on the energy perspective. It's why we went with this technology, but the most work and complexity that we still have to do is ensure that energy does take up so much of that opex cost, and ensure that we can find an alternative energy source to come in line with those projected opex costs.

Robert Crane: I think the regulatory piece is initially presenting some hurdles that we've we've we've tackled that I think we're getting over as we look at any beneficial reuse technology energy consumption is 75 to 80 per cent of the opex of any piece of it.

Robert Crane: And that's what we mentioned in the talk earlier continuing to drive down costs on the energy perspective, It's why we went with this technology, but that's what that's the most work and complexity that we still have to do is be in that energy does take up so much of that that opex cost is ensuring that we can <unk>.

Robert Crane: Find an alternative energy source to come in line without those projected opex costs.

Robert A. Crain: Great. And then shifting back to your core businesses, you were able to achieve significant quarter-over-quarter revenue growth. In water, can you talk more about what drove that growth and are you seeing any tailwinds on source water demand just with the increase in simul refract development across industries that are generally more water-intensive?

Robert Crane: Great and then shifting back to your core businesses, you were able to achieve significant quarter over quarter revenue growth.

Robert Crane: In water can you talk more about what what drove that growth and are you seeing any tailwinds on source water demand just with the increase of Samuel track development across industry that are generally more water intensive.

Robert A. Crain: Yeah, we definitely are seeing some tailwinds from SimulFrax. You know, just the volume of water needed, you know, delivered to the pad per day for those fraxes is enormous. And I think, you know, the scale that we've built our business to is a huge competitive advantage for us. There's just not a lot of water providers that can provide those kind of volumes.

Speaker Change: Yeah, we we definitely are saying some tailwind from <unk> you know just the volume of water needed Dear.

Robert Crane: Delivered to pad per day for those Fracs is enormous and I think you know the scale that we've built our business too is a huge competitive advantage for us. There's just not a lot of water providers that can provide those kind of volumes.

Robert Crane: You know with as far reaches we have across the base and especially on the Delaware side. So.

Robert Crane: I think there's a lot of factors you know that are.

Robert A. Crain: [inaudible] giving strength to that part of the business. Obviously, our vast surface footprint and the ability to move water further than other competitors are one of those as well. But I think we're going to continue to see strength in that business, and I think the important thing to remember about our water business as well is You know, we're involved in source water sales for completions. We're involved in reuse and treatment. We've got pore space or produced water disposal.

Robert Crane: Giving strength to that part of the business and obviously, our our bass surface footprint in the ability to move water further than other competitors as one of those as well, but I think we're gonna continue to see strength in that business and and just you know I think I think the important thing to remember about our water bill.

Robert Crane: Business as well as.

Robert Crane: You know we're involved in source water sales for completions or involved in reuse and treatment, we've got four space or produce water disposal and now with this beneficial reuse technology that we're working our we're really setting the company.

Robert A. Crain: And now, with this beneficial reuse technology that we're working on, we're really setting the company up to be a leader across the water industry as a whole. You know, so no matter which way that aspect of the industry moves, I think TPL is well positioned to, you know, continue to gain market share across the board.

Robert Crane: To be a leader across the water industry as a whole.

Robert Crane: No matter, which way that aspect of the industry moves I think <unk> well positioned to continue to gain market share across the board.

Robert A. Crain: Terrific, and for my last one, on the governance front, you recently announced the formation of a strategic acquisition committee as a standing committee of the board. Will this mean that M&A will be a board-led rather than management-led decision? I'm just trying to understand how that dynamic will work.

Robert Crane: Terrific and for my last one on the governance front, you recently announced the formation of a <unk> strategic acquisition Committee as a standing committee of the board with.

Robert Crane: Would this mean that M&A will be bored word rather than management led.

Robert Crane: Decision I'm, just trying to understand how that dynamic will work.

Robert A. Crain: Yeah, we've had an ad hoc acquisition committee in the past just to kind of vet projects that management is working on before we take them to the full board and make sure that we've got buy-in from that committee. So this is just kind of formalizing that with a standing committee. So it gives management the opportunity to vet new projects, get some feedback, you know, before we take it to the full board. So that's the purpose of the committee.

Speaker Change: Yeah, we've had an AD hoc acquisition committee in the past just to kind of projects that managements working on before we take it to the full board and make sure that we've got by him for that committee. So this is just kind of formalizing that with a standing committee. So it gives management the opportunity to vet new.

Robert Crane: Projects get some feedback you know before we take it to the full board. So that that's the purpose of the committee.

John Michael Annis: Perfect. I appreciated all the color, and thanks again for taking my questions. Thanks, John.

Speaker Change: Perfect I appreciate it at all the color and thanks again for taking my questions.

Ty: Yeah. Thanks.

Robert Crane: Sure.

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

Robert Crane: Mmm.

Robert Crane: [music].

Operator: ?? ?? [inaudible] ? ? ? ? ? ? ? ? ?? ?? ?? ?? ??

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