Q2 2025 Texas Pacific Land Corp Earnings Call
Ladies and gentlemen, greetings and welcome to Texas specific Land Corporation second quarter 2025 earnings Conference call.
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A brief question and answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Sean I mean me. Please go ahead.
Thank you for joining us today, if our Texas specific land Corporation second quarter 2025 earnings Conference call Yesterday afternoon. The company released its financial results and filed its Form 10-Q with the Sip.
Curious and exchange Commission, which is available on the investors section of the company's website at Www Dot, Texas specific dotcom.
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.
We do not undertake any obligation to update our forward looking statements in light of new information or future events or more detailed discussions of the factors that may affect the company's results. Please refer to our earnings release for this quarter and to our recent SEC filings.
During this call. We will also be discussing certain non-GAAP financial measures more information and reconciliations of these non-GAAP financial measures are contained in our earnings release and SEC filings.
Please also know we may at times for our company by its stock ticker PPL.
This mornings conference call is hosted by T. P L Chief Executive Officer, Ty Glover, Ppl's, Chief Financial Officer, Chris that and executive Vice President of Tech specific water resources Robert Crane.
Management will make some prepared comments after which we will open the call for questions now I will turn the call over to Ty.
Good morning, everyone and thank you for joining us today.
The second quarter of 2025 marked another quarter of record performance across T. P. L major revenue streams and key performance indicators.
Okay. So the company's ability to prosper in the commodity price volatility.
Average W. Ti Cushing oil price during the quarter averaged $64 per barrel, which was the lowest average oil benchmark price since the first quarter of 2021.
Despite this oil price weakness P. P. L still set a quarterly revenue record for produced water royalties and easements and other surface related income.
Oil and gas royalty production of 33200 barrels of oil equivalent per day also represents a company record.
Even with our direct and indirect commodity price exposure T. P. L still efficiently converted revenues to cash flow with second quarter adjusted EBITDA margin of 89%.
Tariff uncertainty in opec's decision to reduce voluntary cuts were significant factors contributing towards slumping oil prices in sentiment with W. T I struggling to regain $70.
Over the last few months various operators have publicly signaled intentions to reduce activity. According to Baker Hughes Permian horizontal oil directed rig counts have declined over 20% from the peak in 2023.
Cause of this broader slowdown we now hear more speculation about this idea of peak Permian.
This is the notion of Permian production as soon as that to forever be on a plateau or terminal decline given TPS experienced in Permian centric position I'd like to spend some time in my prepared remarks to share our perspective.
First some stats to put things into context.
The Permian spans millions of acres spread across west, Texas, and new Mexico and it contains numerous high quality stacked pay formations on.
On a production basis, the Permian is the largest oil and gas basin in the world with oil production currently averaging approximately $6 5 million barrels per day, the Permian accounts for roughly half of all U S oil production and it produces more than every OPEC nations other than Saudi Arabia.
Just 10 years ago, Permian production was less than 2 million barrels of oil per day.
The Permian also produces approximately 3 million barrels per day of natural gas liquids, bringing its total liquids production to close to 10 million barrels per day, which represents about 9% of total liquids supply globally.
Simply put the Permian as a major force in the global market.
After such a remarkable run of resource development and combined with recent activity reduction it might be easy to conclude that Permian geology is nearing exhaustion in past its peak in our view this is a misguided conclusions.
First a slowdown in activity due to lower oil prices should not be conflated as a slowdown due to limited drilling inventory upstream.
Upstream companies are still price sensitive it is reasonable to slowdown development when commodity prices have declined this slowdown does not diminish or change how much resource remains underground.
Preserving those reserves for when commodity prices are higher as a sensible strategy for upstream companies looking to maximize long term shareholder value.
Which brings me to my second point from our perspective, the Permian still retains a long runway of undeveloped inventory.
For example, a report published earlier this year buying berries, which is a leading provider of oil and gas analytics estimates that there are over 60000 locations remaining with breakeven below $60 oil and $3 natural gas.
This represents undeveloped resource upwards of 30 billion barrels of oil.
For context in 2020 for the Permian turned to sales approximately 5700 wells.
Assuming that same pace, which would put the Permian on a growth trajectory.
That would translate to approximately 11 years of drilling inventory just for the subset of wells that breakeven below $60.
As you move up the oil price beyond $60 that would potentially pull in tens of thousands of additional economic locations billions of barrels of additional resource in years or decades worth of additional runway.
Furthermore, these types of analysis or generally predicated on prevailing drilling and completion practices.
<unk> clean technology and operational efficiency can further extend the basins longevity.
As development techniques continue to evolve, which they consistently have since the advent of horizontal drilling and fracking upstream companies will continue to drive breakeven economics, lower and improve resource recovery.
And ongoing advancements such as increased fluid and proppant loading produced water recycling increase lateral link final fracs and co completions are examples of industry innovation that have generally become standard practice for modern day Permian well development.
To provide a specific example for horizontal wells developed in loving County, Texas in 2025 compared to 2015 you've seen.
<unk> links doubled to over 10000 feet proppant intensity per foot increase over 50%.
Fluid intensity per foot nearly doubled all of which has resulted in a doubling of the NPV per well with an illustrative $60 oil and $3 gas price deck.
Development transfer more recent periods show that operators continue to make impressive efficiency gains.
For example in 2023 in the Permian averaged 323 horizontal rigs during the year, which then declined in 2024 to an average of 296 rigs and 8% decrease year over year. Despite.
Despite the drop in rig counts total drilled feet increased approximately 5% during the same period.
This equates to an approximate year over year increase of 15% lateral feet drilled per rig and other words declining rig counts were more than offset by increased drilling efficiency.
A more recent example of an exciting innovation by a major operator on our royalty acreage is the use of new lightweight proppant to enhance recovery factors.
This operator has been utilizing this material derived from relatively low value refinery co products to drive improve recoveries up to 20% and the operator has plans to deploy it in roughly a quarter of its Permian wells this year.
In other more mature basins, such as the Eagle Ford and Bakken you also see operators re complete wells that have already been producing for a while economics.
Economics for re completions can be just as good if not better for new drills in the Permian there had been upwards of tens of thousands of wells that have been completed years ago using older less productive development techniques down.
Down the road, even if it might be decades away re completions in the Permian because shallow decline rates further extend the basins resource life and ultimately allow the industry to recover significant incremental reserves.
With current development techniques, only a fraction of oil reserves it recovered from shell.
Through new profit re completions or any other future advancements even just a few percentage points improvement in recovery factors could mean billions of barrels of incremental future production.
This is especially lucrative for royalty owners given that these incremental recoveries are pure upside without having to bear any of the cost to implement it as a free call option on innovation.
Another example of industry ingenuity, our horseshoe wells or two wells or basically a U shaped horizontal lateral. These are used when operators are unable to pool or unitize leasehold acreage to accommodate longer straight line laterals.
What operators are doing instead of drilling one mile laterals within a section they are drilling a U shape or horseshoe shaped lateral that allows longer lateral link while staying within the leasehold boundaries.
Horseshoe wells can also contribute to reduce surface footprint, which can be an advantage in areas with environmental concerns or limited surface availability.
So this is more operationally complex it can save operators substantial capital and improve well economics by only having to drill one horseshoe well, let's say 10000 lateral feet.
Drilling to shorter straight line wells each with their own vertical section and then 5000 feet of lateral and three.
Three years ago, we had zero horseshoe wells on TPS royalty acreage today <unk> has 48 horseshoe wells by multiple operators across both the Midland and Delaware that are in various stages of development.
Royalty acreage could have otherwise been stranded singles sections, but with the advancement of Horseshoe wells. These sections are now economic for operators to develop the oil patch will always find a way.
Even today with the Permian already the largest producing basin in the world. These evolving and improving development practices are allowing operators to pursue new formations. While also pushing the boundaries of the basin potentially adding significant incremental drilling inventory.
A notable recent examples include the emerging Barnett formation in the Midland Basin, the Harkey formation in Culberson County, and the surrounding Stateline and the bone Springs, and the northwest shelf of the Delaware. We're also seeing operators push the northern and eastern boundaries of the northern Delaware and basically the entire Midland Basin Grease on all sides.
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New developments in these formations and boundary extension trends are evident in new leasing activity from our acquired minerals portfolio, primarily located in the Midland Basin.
Leasing activity has increased meaningfully this year and most of these were for unleash mineral assets, where we originally had not ascribed any value to when we acquired the broader portfolios.
Already the preeminent engine of global oil supply growth over the last decade, the Permian still fosters a vibrant entrepreneurial industry.
We are constantly impressed by all the technology and innovation that occurs here and we're excited to see operators still exploring new formations and new areas longer term as the oil cycle will inevitably turn upwards. The Permian will play a critical role towards satisfying the world's growing energy needs.
And as the World will depend on the Permian to supply critical energy for many decades to come.
P L stands to benefit from our extensive footprint.
There is arguably no better basin in the world to be in the Permian and there's undoubtedly no other public company in the Permian with PPL size and scale combined across royalties surface in water.
Turning to our desalination efforts, we continue to make progress with our phase <unk> desalination facility.
We call. This will be a 10000 barrel per day facility that will entail Permian produced water and output high quality fresh water. In addition to a concentrated Brian solution.
We have broken ground on location in Orla, Texas.
Of the desalination equipment has been received and is onsite, we expect installation to take a few months and we still anticipate the unit to begin taking produced water by year end.
Our capex estimates related to the facility remain unchanged we.
We have made a number of process improvements since our previous prototype and we look forward to bringing online the largest desalination facility in the Permian today.
In addition, we have submitted permit applications for both land application and environmental discharge and we hope to procure regulatory approvals within the next few months.
As a reminder, the Permian is now generating north of 23 million barrels per day of produced water even.
Even if Permian oil production were to stay flat, we believe Permian produced water volumes could still grow by millions of barrels per day over the next few years due first to increase water to oil ratio as well as age and second to increase water tests from the development of secondary benches.
For PPL, we've been proactive across numerous fronts towards making sure. We can provide the industry with the central produced water solutions.
PPL surface acres still retains millions of barrels per day of additional in basin disposal capacity.
From the beginning we have been intentional and limiting the amount of disposal wells per section with increased regulatory attention on surface and reservoir pressure gradient, our conservative approach to signing SW days has allowed us to preserve ample injection capacity.
Second we have been proactively acquire tens of thousands of acres of out of base and poor space. We currently have well over 100000 barrels per day of produced water that is currently being injected into out of basin floor space that we own and we expect that volume to continue growing for the foreseeable future.
Third is the desalination and beneficial reuse efforts that I just discussed conceptually if it works economically at scale. This would reduce the amount of produced water that would need to be injected subsurface. While also providing a valuable freshwater scream that could potentially be repurposed for power and data center cooling hydrogen.
In production for a number of other industrial activities.
Today, <unk> already touches and generates royalties on over 4 million barrels per day of produced water we.
We believe with our industry, leading and comprehensive solutions across end basin disposal out of basin disposal and desalination plus beneficial reuse that we are well positioned to capture a substantial amount of the produced water volume growth going forward.
In conclusion for PPL, we're not overly concerned with near term commodity price Escalations, we don't have a crystal ball I can't say for sure what commodity prices will be in the near term. However, we are certain that the Permian remains a world class resource and still retains plenty of latent growth.
We do ultimately believe that current oil prices are well below longer term mid cycle oil prices.
Despite today's broader macro uncertainty PPL is still generating industry, leading cash flow margins.
We already have a leading royalty water and surface footprint across key areas of the Permian. We believe we're in a favorite position and should this downcycle persists, we're ready to deploy capital opportunistically, whether through substantial buybacks organic investment or asset acquisitions or some combination thereof.
With that I'll hand, the call over to Chris.
Thanks, Todd for.
For the second quarter of 2025 consolidated total revenue was $188 million and consolidated adjusted EBITDA was $166 million.
Adjusted EBITDA margin was 89% free cash flow was $130 million, representing a 12% increase year over year.
Performance year over year benefited from higher oil and gas royalty production higher produced water royalties and higher easements and other service related income otherwise known as Slim performance was partially offset by lower oil price realizations, which declined 21% year over year and lower water sales royalty.
Production. This quarter was approximately 33200 barrels of oil equivalent per day, representing a 33% increase year over year, and a 7% increase sequential quarter over quarter.
As of quarter end <unk> had six net permitted wells 11, one net drilled but uncompleted wells and five one net completed but not producing wells.
One revenues of $36 million was a company record, which benefited from $20 million of pipeline easements.
Kris and pipeline easements was due to numerous new large scale pipeline and infrastructure projects crossing our acreage.
Robert royalty revenues of $31 million was also a company record as Tom mentioned, our commercial efforts across out of basin floor space acquisitions, and new contracting continue to allow <unk> to capture and take advantage of the secular growth trend for Permian produced water this quarter.
We generated a royalty on over 4 million barrels per day for the first time in our history.
Water sales of $26 million was down by $13 million sequential quarter over quarter as lower oil prices during the quarter resulted in reduced activity and deferments by operator customers we.
Have seen operators bring back activity and many of the wells that were deferred during this quarter are now back in our completion schedules for the second half of this year.
To conclude PPL is in an excellent operating and financial position as the broader industry works through this current cycle.
As Todd mentioned commodity prices during this quarter led to the weakest realizations. We've had since early 2021 during the depths of Covid.
However, comparing this quarter with the first quarter of 2021, when oil last dip below $60, we've doubled our royalty production and source water revenue tripled our produced water royalty volumes and quadrupled our slim revenue, we accomplish that while maintaining a debt free balance sheet and returning hundreds of millions of dollars.
Of capital back to shareholders.
Proven we can grow the business through cycles and whenever this commodity cycle inevitably turns upward PPL is positioned to benefit to the fullest extent and with that operator, we will now take questions.
Thank you <unk>.
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Ladies and gentlemen that you'd wait for a moment, while we poll for questions.
Our first question comes from Derrick Whitfield with Texas Capital. Please go ahead.
Good morning, guys and thanks for your general thoughts on basin activity.
Good morning.
Well My first question I wanted to focus on your outlook for water resources over the second half.
While you guys achieved company records with produce.
Water royalties water sales were a bit weaker than anticipated.
As you guys think about kind of industry activity levels now all in a pretty material reduction in industry activity. During the first half how do you see each of those businesses performing in the second half.
Derek This is Robert I'll take that.
I mean, when we look at Q2 I think it was two factors in Q2 that really led to the reduction we saw one was definitely commodity price driven.
We had one of our biggest customers.
Les activity until second half of the year and others.
A reduce in certain areas, but.
Q2 was also combined with just kind of the spatial variation that you can see in completion activities.
The decline we saw was not fully representative of a commodity price decline.
Times, especially when you look at the consolidated acreage positions.
It had been a result of M&A over the last couple of years that.
There is there are times that spatial variation a lot of activity is outside of your core areas given the acreage positions they hold now.
So when we look at Q3 Q3 books.
It looks to be very strong.
Q4, whats happened is a lot in Q4.
Yet to be determined what that activity level is going to be and I would say, probably Q4 is going to be more heavily dependent on commodity prices than any other quarter.
Great and maybe just staying on water I'd love your thoughts on the Arris acquisition by Western while we look at it in question that from a timing perspective as it relates to value recognition.
It absolutely supports the Delaware water thesis yours and also the value of poor space in the basin. So again love any thoughts you guys have there.
Yes, Derrick I agree it supports the Delaware water thesis that we've been talking about for a while.
We've got a great relationship with them and with Western So we see this as a huge benefit for PPL.
Yes, I think consolidation in the water midstream just creates more opportunity for Atlanta for space owners.
Great maybe again, Ty you or Robert.
Love for you to kind of speak to.
Just your cost objectives for the 10000 barrel per day decile facility.
And more broadly how important is this project.
You're attracting powergen and data center opportunities to the Permian Basin.
And Derrick this is Robert.
When we chose a couple years ago, when we saw the produced water.
I'd say challenges that we saw that were going to come in the next five years, we tackled it in two ways.
Is that a basin disposal and truly leading the effort on diesel within the Permian.
When we look at this project, it's like I said this is going to be the largest.
It's still research and development, we've referred to it as research and development at scale.
The field is that scale. This is leigh salvo would be occurring.
And it's extremely important for us I think it's extremely important for the industry.
We know that it is still a multi year effort to get beneficial reuse.
True commercial scale in the hundreds of thousands if not millions of barrels a day.
We've taken that charge too to help get it there.
When we look at it in terms of.
In conjunction with data center cooling.
The co Gen power.
The opportunities are pretty astounding when you really look at it.
And that's what we're going to be not only testing this.
In the field at scale, but they are also continuing to explore what those synergies are waste heat capture.
Which is a huge component that will be working in conjunction with cogent power and then also the data center cooling aspect of what we do.
There's a lot of synergies and boat so.
We're excited we know the industry has to get there.
Beneficiaries out of basin is is really going to provide that buffer and those years that we need to bring this to scale for what we see beneficiaries can be.
'twenty eight 'twenty nine.
That's great and Robert maybe just leaning in on the power generation opportunities with the announcements we've seen with CPB basin.
Ranch energy and land bridge this morning.
Could you guys just maybe speak to your expectations for additional announcements based on the dialogue, you're having with industry.
I mean, when you look at power generation of the Permian It makes 100 bps.
But a sense I mean.
We have the largest component for cogent power and we have water.
It's truly not part of the water cycle.
When we look at produced water what produced water can do co Gen. All the ingredients are there.
A lot of folks can say there's there's.
Theres not a lot of sense to build transmission across the state of Texas to the Permian when <unk> got all the ingredients in the Permian Bruce power.
I think the announcement that you saw today with <unk> yesterday with <unk> is the first of many theyre going to come.
Not only is.
When we look at the power demands and power shortages that we're seeing in the Permian and before you look at data centers and things of that nature.
It's real.
And the need for power just to just to power the upstream industry over the next couple of years. So the talks are continuing they're accelerating and it's an exciting time for what we I think youll see in the Permian in the next couple of years.
That's great color guys I will turn it back to the operator.
Okay.
Thanks, Eric.
Thank you at this time there are no. Further question. This concludes Texas specific land Corporation's second quarter 2025 earnings Conference call.
You for joining the call today you may now disconnect your lines.
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