Q3 2024 LandBridge Co LLC Earnings Call
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Our first question comes from the line of Charles Mead with Johnson Rice. Your line is open.
Charles Mead: I want to ask a question about these two acquisitions you did, and I note that it looks like both of them come with revenue streams, and I just wondered
Charles Mead: If you could maybe, I recognize some of this may be sensitive, but if you could just give us an idea of what kind of multiple you paid for them, or...
Charles Mead: If you don't want to talk about that, talk about perhaps the trajectory of those EBITDA streams.
Speaker Change: And Jason, I think you mentioned in your comments on the...
Charles Mead: the Lee County acquisition being right adjacent to State Line. Talk about perhaps any synergies that you might be unlocking with these acquisitions that wouldn't be obvious to someone from the outside looking in.
Speaker Change: Good morning, Charles Scott here. No, very good question. Yeah, just to give you all some some quantitative information to work with.
Charles Mead: The two acquisitions in aggregate were roughly $47 million. They're generating about $9 million of EBITDA today.
Charles Mead: you know, tracking to just over a five times multiple, which is, you know, something that we find obviously very attractive financially. And I think equally as important, you know, the locations of the assets, you know, one being contiguous with the East Stateline Ranch, the second being in New Mexico, just present a lot of opportunities for
Charles Mead: for one, synergies with our existing operations on the East State Line Ranch as well as synergies with the WaterBridge platform in New Mexico as it looks to extend its reach from the State Line into New Mexico. And so when you think through the ability for us to leverage that WaterBridge relationship, this is just a great example of that. The fee surface in New Mexico is
Charles Mead: less abundant than what you get in Texas. And so opportunities to find the right surface at the right price and the right location to be able to exercise on those synergies is rare. And so this was one that we were excited to tackle here. And I think one that's gonna serve us very well from a growth prospect going forward.
Got it. Thank you for that detail, Scott.
Speaker Change: And then I also would like to ask about the, it looks like the strength of your 25 guide is really on the, really based on those two core pieces of your, the two largest pieces of your revenue in EBITDA, the surface use.
royalties and resource sales and royalties.
Speaker Change: In this kind of three key reporting season for E&P companies, there's been a lot of, you know...
Speaker Change: A lot of people are saying we're going to decrease activity levels or maybe keep the same footage drilled and do it with fewer assets, and there's just a lot of people kind of... There's been more people looking to turn the dial down on activity than turn up the activity, and so I'm wondering if you can comment on...
Speaker Change: on if you're seeing that as you kind of look at your operators who are, you know, active with your assets and, you know, what might explain that you guys are going counter trend to that.
Speaker Change: Really good question. You know, I would say, as we thought through guidance for 2025, we took what you just outlined certainly in mind.
Speaker Change: You know, what we're seeing right now from producers along the state line is a continued focus or maybe more of a focus.
on drilling efficiency.
And we're seeing that evidenced by...
Speaker Change: you know, the duck inventory right now along the state line being the highest it's been, as folks think through completion efficiencies and making sure they're getting, you know, the most return for their buck. And so, you know, that's something that we, you know, are in close communications with producers with both in the land bridge and the water bridge side, so we're tracking it pretty meaningfully. You know, I think what's really driving our growth outside of...
Speaker Change: You know, the broader oil and gas industry, I would say, still having the tailwinds that you just...
Speaker Change: just mentioned, particularly in the Delaware, are just a lot of these opportunities we have to also expand beyond that. And, you know, we mentioned in our earnings release, for example, that
Speaker Change: The solar project that we've been working through is going out for development now that we've got this lease development agreement with the data center executed, it just makes that project that much more valuable given its adjacent to the data center site.
Speaker Change: And so we're really chasing a lot of these opportunities that are quite valuable and diversify away from the traditional oil and gas space.
Speaker Change: So, I think it's an important element to remember as you think through our growth trajectory is while oil and gas is a big piece of the story today, there is certainly more than that at the moment. And that's going to continue to be a piece of our business of scoring meaningfully here over the near term.
Great detail. Thank you, Scott.
Yep, thank you, Charles. Thanks, Charles.
and I'm going to see you next time.
Speaker Change: Our next question comes from the line of John McKay with Goldman Sachs. Your line is open.
Speaker Change: Operator, maybe we move to the next question, yeah, and let John dial back in here.
Our next question comes from the line of Alexander Goldfarb.
from Piper Sandler, your line is open.
Speaker Change: Hey, good morning, good morning down there. I'm guessing you guys are happy with the pending changes in energy policy.
Speaker Change: following Tuesday. So two questions here. The first one is good to see the data center deal signed and appreciate the outline of the of the terms you have the two-year pre-development phase and four-year
Speaker Change: construction as part of the agreement, you know, as far as hurdles that need to be achieved. But in thinking about, you know, the timeline that the data center takes and...
Speaker Change: you know, other commercial projects. You bought, you bought acquisition land in the quarter at five times EBITDA, and I think your stock is trading somewhere around 30 times on my math, or our math.
Speaker Change: So just trying to get a sense for what the trajectory of the growth is now that you've been public for a few quarters and it seems like more commercial ventures are starting to form, just trying to understand what, obviously the stock's pricing in a tremendous amount of growth.
Speaker Change: Just trying to see what's on your plate and what types of projects we could see announced.
Speaker Change: in the next few quarters, because clearly it takes time for these projects to come to fruition. But, you know, curious what you guys are seeing, because the stock is certainly pricing in a lot of good stuff. And I'm just trying to get a better sense of how that's looking from your perspective.
Speaker Change: Yeah, great, great question. Yeah, I mentioned on the last earnings call that that commercial traction out of the gate was even stronger than we had hoped for.
Speaker Change: and that certainly holds true, and I think what your question alludes to is a lot of these
These projects that utilize our surface are not.
Speaker Change: short-term, call it quick-win kind of projects. These are long-term, you know, oftentimes capital-intensive from the operator and the developer standpoint type of projects, but ones that just generate meaningful long-term value for LandBridge. And so, you know, all of those, all of those discussions I kind of referenced.
Speaker Change: on the last call are still very much ongoing and are making progress, and I think there are a lot of wins that we expect to have and share with you all, you know, over the coming quarters.
Speaker Change: It's tough to quantify exactly, you know, this is the growth trajectory we're going to see, but I'll say...
Speaker Change: With the amount of surface that we have, our ability to grow our position as creatively as we can, and the commercial landscape that's out there, our ability to generate meaningful double-digit kind of growth profile over the near to medium term seems very, very likely.
Speaker Change: it's tough to say that the answer is X. But I think ultimately the ability to grow returns here, grow our cash flow base and be able to return that growth as value to investors, I think is going to be very, very achievable given what we see in the pipeline at the moment.
Speaker Change: But just given the timeline to roll out, sign the deals, do the pre-development and build, I mean, not everything is as complex as the data center. It still seems like it's probably...
Speaker Change: three to four years at least before we start seeing commercial NOI start to really, you know,
Speaker Change: expand and grow? Is that is that a reasonable timeline? Or do you think it could be sooner than let's say four years before we really start with the meaningful contribution?
Speaker Change: Yeah, we would we would start seeing the cash flow impact ahead of that I mean, I think this data center opportunity is a good is a good reference point You know the the eight million dollar deposit payment that we're receiving You know, we will also be generating revenue throughout the construction phase. So we'll be receiving rent through the construction phase of the project You know from land bridges perspective. We were able to start realizing that uplift well in advance of
Speaker Change: you know, some of these projects, which can be multi-year, the data center being the obvious example before those become operational. And so, you know, we would certainly see, you know, the most uplift once these sites are operational, once we start seeing the benefits of not just the full lease payment, but also a part of the economics being, you know, a profit centrist on the power generation.
Speaker Change: But that said, it's not a hair trigger where we go from zero to call it full uplift. There's gonna be a phasing in of cashflow for us, as these projects come online. And I think that's gonna be a part of the growth story here over the next couple of years.
Okay and then just second question is on on windmills.
Speaker Change: The VP-elect was recently on a podcast and was talking about, you know, he's not a real big fan of the tax incentives for windmills.
Speaker Change: Just curious, on your alternative energy rollout, what percentage are windmills, I know you guys do a lot of solar, but just curious on the windmills, if that's a big contributor or if that's sort of a smaller part and more of the alternative energy is on the solar front?
Speaker Change: No, no revenue from windmills today. I mean, we have some of those commercial opportunities in the pipeline. So obviously there could be some discussion points there, but no impact to the business as of today. And then, you know, I think
Speaker Change: More generally speaking, we would see this administration's stance to being called status quo to very constructive.
Speaker Change: relative to the bulk of our business here. And so, yeah, I appreciate there are all nuanced things like wind worth talking about, but I think generally speaking, from Landridge's perspective, you know, more tailwinds coming out of this recent election cycle.
Thank you.
Thanks all.
Speaker Change: Our next question comes from the line of Kevin McCurdy with Pickering Energy Partners. Your line is open.
Speaker Change: Hey, good morning. We appreciate the color on 2025. It looks like produced water is really the driver of a higher EBITDA next year than we expected. I wonder if you could talk about the outperformance of that business a little bit and what is driving the higher volumes there?
Thank you.
Speaker Change: You know, I would say there's a few things just out of the gate that have really worked in our favor. I mean, first we spoke to
Speaker Change: the relationship Waterbridge has with Devin, you know, that's been a fantastic partnership on the Waterbridge side and Devin is very focused.
Speaker Change: on ensuring that their water volumes are handled responsibly. And a big piece of that solution is sending water to water bridge assets on land bridge surface. And so there's been a focus from their side to really move as much of their water as possible onto our surface given
Speaker Change: Given the Waterbridge operating methodology of ensuring, you know, proper spacing between sites, as an example, you know, really provide the longevity to operations that they're looking for.
Speaker Change: You know, I think second, you know, on the Waterbridge side as well, just the commercial traction that we've seen on that front has been incredibly positive.
Speaker Change: We've got a number of blue chip operators looking for solutions at scale. And a lot of those projects are starting to come online next year. And so, we on the Waterbridge side continue to see good commercial traction. I think that's largely because of...
Speaker Change: you know, because of the land and the poor space access that we have via Landbridge. And I think conversely, you know, to Landbridge's benefit here, we're seeing the synergies of that Waterbridge relationship, given the fact that all of this commercial winds, or these commercial winds, Waterbridge is achieving are just working in the benefit of Landbridge in the form of those royalties.
Speaker Change: You know, part of the thesis from the get-go, out of the gate, was the water company and the land company.
Speaker Change: you know, really serve each other well. And I think it's just that kind of proving itself out here in the eyes of a lot of these larger producers. Yeah, the only thing I would add to that is, you know, we obviously strategically located all of these acquisitions from a surface standpoint, but also from a geological standpoint.
and to Scott's point on the poor space.
Speaker Change: We've been very successful thinking through, you know, we're not only in-basin solutions for operators, but also out-of-basin solutions, and we've been, from a WaterBridge standpoint and from other third parties, have been very successful in bringing that stuff to fruition.
Speaker Change: Got it. I appreciate that answer. And as a follow-up, you know, it seems that all the Delaware operators are talking up efficiency gains and raising their production forecasts, and I know your team, you know, keeps a pretty detailed macro outlook on the basin, and I'm just curious if anything, if you're seeing any changes to your outlook based on these efficiency gains or anything changing in terms of water cuts.
Speaker Change: I would say, you know, there's certainly a focus on the efficiency side. I mean, honestly, that plays out more for WaterBridge as it thinks through its capital planning and infrastructure build-out. I mean, from LandBridge's perspective, you know, we continue to be, I would say, the beneficiaries of increasing development in the Permian, and that's kind of the takeaway there. You know, I think the fortunate thing about our business is, you know, there's no capital required to kind of keep up with those.
Speaker Change: you know, called the evolving methodologies that that upstream producers are seeing at the moment. So, you know, we are just ultimately, again, the beneficiaries of the free cash flow that's coming out of these, call it new production cycles.
Speaker Change: But yeah, I mean, from a general macro outlook on average, I mean, we continue to see growth in the Delaware next year. You know, meaningful growth, I think that comes as no surprise. I mean, I guess the only thing I would flag that we haven't spoken to is as, you know, producers are looking to
Speaker Change: develop out, you know, one section of surface or acreage rather, you know, in a more concentrated period of time that typically lends itself to developing out deeper benches and there's
Speaker Change: inherently higher water cuts that we see in those deeper benches. And so, you know, these more concentrated development approaches kind of coupled with transition from
Speaker Change: shallower development to deeper development is just going to lend itself to, on average, a higher water-to-oil ratio across all production along the state line and in New Mexico. And so, you know, Waterbridge will be obviously the beneficiary of those water cuts, and in turn, so will Landbridge, given it'll be receiving a higher royalty on average.
per barrel of oil than it has historically.
I appreciate the answers. Thank you.
Yeah, that's good.
Our next question comes from the line of Lauren.
Goldstein with Investor. Your line is open.
All right. Thank you. Good morning.
A couple of questions. When you talk data centered,
and others talked at a symposium.
Speaker Change: I have now seen 300,000 square foot centers, I've seen years ago 10,000, 5,000, and I've recently seen over 7 million square foot data centers.
Speaker Change: What do you mean by data census? What are you negotiating, the first 101s we will see, what's the size of them?
Speaker Change: Great, great question. So this initial lease is for 2,000 acres for a one gigawatt data center.
Speaker Change: The infrastructure itself will clearly not take up that full 2,000 acres. It is going to be a mix of the buildings themselves that house the data centers, the power infrastructure needed to power the data centers, and then just the associated infrastructure that's needed to support the data centers.
Speaker Change: Yeah, Lawrence, the one thing I'd add to that is, you know, once the infrastructure is in place, it's a lot easier to grow these campuses, as we say, in scale, right? So, the infrastructure being in place, we could see these, you know, one gigawatt data center growing to, you know, five or six gigawatts over time.
Speaker Change: Okay, so you're not, you're not willing to respond in terms of square feet of the complex.
of the Quote Data Center.
Speaker Change: Yeah, it's in terms of the actual square footage of the buildings themselves, I can't speak to that offhand. You know what's been what's been given to us or voiced over to us by the developers are, you know, rather this 2000 square foot lease initially.
Speaker Change: is going to be for a one gigawatt data center initially, but to Jason's point, that site is not limited to one gigawatt. They've got the ability to scale up to, you know, five to six gigawatts on that 2,000 acre plot. So,
Speaker Change: There's ample runway and benefits of scale to having those co-located, but no, I don't know the exact square footage of the buildings themselves.
Mm-hmm. Okay. Thank you.
Yeah, thank you, Lawrence. Thank you, Lawrence.
Speaker Change: Our next question comes from the line of Chinese Routon with Lampridge. Your line is open.
Speaker Change: Hi, my question is real short. Where are you posting your earnings reports? Because I've been online and I can't find them.
Speaker Change: Yeah, we should have them posted in the IR portal on our website, on the landbridgeco.com website.
Okay, but we're on the website. I are.
Yeah, there should be an investor's portal on the website.
Speaker Change: okay go ahead and take another question I'll see if I can for some reason I missed that
Speaker Change: I'll see if I can do it. Yeah, there's an investor relations link up top. Yeah, no problem. And if you've got, if you've got issues hunting it down, feel free to shoot me a note at scott.mcneely at lamburgsco.com and I can, I can help you afterwards and walk through. But I didn't get an answer, but that's okay. I'll look for it. Okay.
Speaker Change: There are no further questions at this time. Mr. Scott McNeely, I turn the call back over to you.
Speaker Change: Thanks again for everyone joining today. You know please please feel free to reach out to us if we can be helpful but again we appreciate your support. We hope everyone enjoys the rest of the week.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.