Q3 2025 Texas Pacific Land Corp Earnings Call
Speaker #3: Greetings and welcome to Texas Pacific Land Corp operations . Third quarter 2020 Earnings Conference Call . At this time , all participants are in .
Speaker #3: A listen only mode . The 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 .
Speaker #3: Please note that this conference is being recorded . I will now turn the conference over to Shawn Amini . Thank you . You may begin .
Speaker #4: Thank you for joining us today for Texas Pacific Land Corp third Quarter 2020 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 Texas Pacific Land Corp .
Speaker #4: 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 .
Speaker #4: 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.
Speaker #4: For this quarter and to our recent SEC filings . During this call , we'll 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 .
Speaker #4: Please also note , we may at times refer to our company by stock ticker , TPL . This morning's conference call is hosted by TfL's Chief Executive Officer Tyler Glover .
Speaker #4: TFLs Chief Financial Officer Chris Steddum and Executive Vice President of Texas Pacific Water Resources , Robert Crane . Management will make some prepared comments , after which we'll open the call for questions .
Speaker #4: Now , I will turn the call over to die .
Speaker #5: Good morning , everyone , and thank you for joining us today . Our third quarter 2025 performance underscores the power of our unique business model and active management and consolidation strategy focused on growing our oil and gas royalties , surface and water assets .
Speaker #5: This was a record quarter for many of our major revenue and volume performance indicators . Oil and gas royalty production achieved a record of approximately 36,300 barrels of oil equivalent per day , representing 9% sequential increase and a 28% increase year over year .
Speaker #5: Record water sales of $45 million represents 74% sequential growth , and 23% growth year over year . Record produced water royalty revenues of 32 million represents 5% sequential growth and 16% increase year over year .
Speaker #5: In sum , this was the first quarter in Tpls history where we recorded over $200 million of revenue . We accomplished all this despite some of the weakest benchmark oil and gas prices .
Speaker #5: The industry has experienced since the Covid pandemic period . Focusing on our oil and gas royalties , production volumes continue to benefit from robust activity in our northern Culberson , northern Reeves and Central Midland subregions .
Speaker #5: Production growth has been driven by an increase in net wells turned to sales and longer lateral lengths . Average lateral lengths year to date in 2025 are approximately 7% longer than last year , and 23% longer compared to lateral spud in 2019 .
Speaker #5: Dpl's portfolio of acquired minerals and royalties is also performing very well . We began acquiring minerals and royalty interests in 2018 and in the third quarter that portfolio was responsible for 18% of Tbls consolidated royalty production .
Speaker #5: Combined , the minerals and royalties acquisitions are generating a mid-teens pre-tax cash flow yield . Peoples legacy . Empress are also performing well with double digit growth year over year .
Speaker #5: Turning to our water services and operations segment . This business rebounded considerably from last quarter . As I mentioned earlier , water sales revenue was a record for third quarter 2025 .
Speaker #5: Although rigs and frac spreads have trended lower, upstream operators continue to prioritize development efficiencies, as we see persistent deployment of completions and Simon and tribal fracking.
Speaker #5: Our investments in brackish and treated water infrastructure have established TPL as one of the few systems in the Permian capable of accommodating the volume , intensity required to keep up with operators on the produced water .
Speaker #5: Royalty side . Revenues and volumes continue to perform well . Year over year . Quarterly revenues and volumes were up 16% and 19% , respectively .
Speaker #5: As we see strong demand for both In-basin and out of basin pore space . Similar to our oil and gas royalties , Pls water segment has benefited from both organic investment and inorganic growth since its formation in 2017 .
Speaker #5: We have invested nearly $200 million to build out our source water and recycling infrastructure . We have also acquired approximately $220 million of surface acreage in pore space .
Speaker #5: These acquisitions were substantially funded by approximately $150 million of ten , 31 , and 33 exchanges and land sales , consisting of acreage that was either non-core or have limited strategic value .
Speaker #5: In return, since inception, the water segment has generated over $600 million in earnings, with $142 million in earnings over the last 12 months.
Speaker #5: Size and scale of our water segment across both source and produced is one of critical , competitive advantages for source water . It allows us to maintain and grow market share and preserve pricing .
Speaker #5: When the overall industry is pulling back on completions for produced water royalties , our size and scale allow us to grow our market capture , attain strong royalty rates , and meaningfully complements our recycling and water sales efforts .
Speaker #5: Although commodity prices today are lower than what the industry believes ideal , we consider this current cycle a uniquely attractive opportunity to consolidate high quality Permian assets .
Speaker #5: First , current oil prices are well below average historical oil prices since 2010 . Brent prompt month oil prices have averaged $78 per barrel .
Speaker #5: Brent prompt month today is around $65 . Although we are not in the business of predicting commodity prices over the short term , we do believe that longer term midcycle oil prices will be higher than current spot prices .
Speaker #5: OPEC reducing spare capacity and bringing barrels back to market has resulted in looser supply demand balances and consequently a weaker price environment . However , longer term , this ultimately will result in a healthier market dynamics .
Speaker #5: Despite uncertain macroeconomic conditions over the past year . Global liquids demand continues to grow at a steady pace . Oil supply will eventually rationalize in response to pricing signals , albeit the process can unfold slowly as CapEx and development cycles tend to be sticky over the short term .
Speaker #5: Although we firmly believe that the Permian still has substantial remaining inventory and growth , runway , other shale basins that have historically contributed to US supply growth now appear to be in terminal decline , according to the EIA .
Speaker #5: The Bakken's most recent peak oil production month was in late 2019 at 1.5 million barrels per day . Today , the Bakken is down to 1.2 million barrels per day .
Speaker #5: The Eagle , Ford's most recent peak oil production month , was also in late 2019 . At 1.4 million barrels per day , whereas today it's 1.1 million barrels per day .
Speaker #5: In fact , if you were to exclude the Permian total US oil production appears to have peaked five years ago and is down about 1 million barrels per day from that peak level .
Speaker #5: Though the US contribution to global oil supply will still benefit from Permian growth , it could likely be offset with increasingly larger declines from Permian basins .
Speaker #5: We suspect that extracting additional global supply will be much harder going forward . The Permian was responsible for virtually all of the world's crude oil supply growth over the last decade .
Speaker #5: Since the beginning of 2015 , global supply growth of crude oil , excluding NGLs and other liquids , has been 4.2 million barrels per day .
Speaker #5: Permian crude oil supply growth during that time was 4.8 million barrels per day , which implies that on an aggregate basis , the Permian made up for global crude oil , declines over the last decade , while also providing all of the incremental growth with structural liquids demand globally .
Speaker #5: Still on a growth trend for the foreseeable future , many key supply regions and structural decline and OPEC reducing spare capacity . We believe that over the long term , there is a very favorable skew towards right tail high oil price .
Speaker #5: Despite the low commodity price environment today , TPL still retains abundant access to attractively priced external capital . Last month , TPL closed on its inaugural credit facility with $500 million of lender commitments that accrues interest at Sofr , plus a spread of either two , 25 or 250 basis points , depending on Tpls debt to EBITDA leverage ratio .
Speaker #5: Pls first ever credit cycles facility enhances our liquidity and allows us even greater flexibility towards funding growth opportunities and other general business purposes .
Speaker #5: The simultaneous occurrence of below Midcycle commodity prices and a robust supply of low cost capital is historically been rare and short lived for oil and gas companies , but currently those elements have aligned for TPL .
Speaker #5: Because TPL is built and managed towards long term value creation , we can arbitrage depressed valuations for long duration assets impacted by short term volatility .
Speaker #5: It's during these periods where TPL can take advantage of cycles and opportunistically leverage our resilient business . High cash flow margins and fortress balance sheet to consolidate high quality Permian royalties .
Speaker #5: Surface and water assets . We can tolerate periods of low commodity prices for assets that will likely generate cash flows for many decades .
Speaker #5: To that end , yesterday we announced acquisitions of Permian oil and gas royalties and surface acreage , which fit seamlessly into the broader TPL portfolio .
Speaker #5: On November 3rd , 2025 , we acquired approximately 17,300 net royalty acres , standardized to one eighth , located primarily in the Midland Basin in Martin , Howard and Midland counties .
Speaker #5: Total purchase price was approximately $474 million , funded entirely by cash on our balance sheet . Approximately 70% of the acquired interests are adjacent to or overlapping drilling , spacing units that TPL already owns , meaning we essentially acquired additional royalties in current and future .
Speaker #5: Well , locations . We already retain an interest in approximately 61% of the royalty acreage is operated by Exxon , Diamondback , and Occidental .
Speaker #5: The royalty acquisition currently produces more than 3700 barrels of oil equivalent per day , with an approximately 80% oil and natural gas liquids cut .
Speaker #5: We expect to generate a double digit pre-tax cash flow yield at realized oil and natural gas prices of approximately $60 per barrel and $2 per thousand cubic feet , respectively .
We plan to provide updates on these key initiatives. Next year, as our Phase 2 facility ramps operations,
Turning to our balance sheet.
Yesterday, we announced that our board approved a 3 for 1 stock, split of the company's common stock.
This stock split is expected to be completed in December 2025 subject. The finalization of the record date and distribution date by the board.
At the quarter end TPL had 532 million of cash and cash equivalents and no debt.
Is tied discussed last month. TPL close on a credit facility with 500 million of lender commitments.
The credit facility was oversubscribed. It contains favorable terms, and the interest rates for borrowed funds are attractively priced for TPL.
The facility was undrawn at close and remains undrawn today.
This augments our liquidity position even as we maintain a net cash balance sheet today.
And it expands our ability to capitalize on opportunities counter cyclically.
Ing returns over the long term.
And with that operator, we will now take questions.
Thank you. And with that, we will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star 2 to remove yourself from the queue.
For participants using speaker equipment, it may be necessary to pick up a handset before pressing the star keys.
1 moment while we pull for questions.
And our first question comes from the line of Derek Whitfield with Texas Pacific Land Corporation.
Please proceed with your question.
Good morning guys. And congrats on a strong,
We would assume flash activity, what's a good run rate for the business and how much of your water sales are recycled barrels versus water from source.
In our next question comes from Oliver. Hang with tph. Please receive with your question.
Good morning, all. Thank you for taking the questions.
Um just wanted to, I guess, hit on the royalty acquisition. You all announced this morning or last night just any sort of color on how this deal came together. Also, how many incremental net locations on a 10,000 foot equivalent based
Would you all say, we're acquired in your valuation underwriting for the asset and just 1, we're kind of thinking about the 2al, I guess, work in progress. Well, any sort of color in terms of which bucket it falls into.
Hey, yeah, thanks for the question. Um,
you know, we we
probably won't go in to the total location count.
But, you know, when we think about this type of asset and the type of assets we've purchased in the past, and hopefully the top we'd want to purchase in the future. Um, you know, having a lot of inventory that allows for future growth for years to come, is 1 of the most important aspects of the types of assets that we, uh, we look to acquire
And so our view is that this is going to be a great asset. It's going to, you know, provide uh a great growth Outlook uh to complement our Legacy asset base.
And so that's kind of how we've we've thought about it.
Obviously some of that growth is dependent on you know, the level of activity and commodity prices but you know we we still think it's a very high quality asset. It's it's operated as you heard in the comments by some of the most well capitalized operators in the Permian. And so we feel really good that, you know, over the coming years it it's it's going to grow and provide really strong returns for TPL.
Okay, perfect. Um, and maybe just for a second question, on the power side of things, just power data, center type of conversations that are occurring. How do you all feel about your position in terms of being able to participate out in West, Texas versus say
A quarter ago or even the start of the year to capture some share of this market and just given the expansiveness of your footprint, just any sort of color. You can provide in terms of which areas seem more perspective for getting such deals executed on,
Yeah, sure, thanks for the question. Um, look, we we feel like TPL is very well positioned. Um,
we have all of the attributes needed to be very attractive to our generators and and data center Developers hyperscalers.
Have additional news to share.
Here in the very near future.
Awesome. Thanks for the time.
Thank you. Thank you.
Thank you.
And next up we have Derek Woodfield with Texas Pacific Land Corporation. Please proceed with your question.
Uh, good morning guys. Let's let's try this again. Can you hear me?
Yeah, we got you now Derek. Good morning, awesome. Sorry about that. And congrats on a strong financial and operational update. Uh, for my first question, I wanted to focus on your outlook for Water. Resources business, over the last 2 quarters, we've seen a bit of volatility in water sells semi, flattish activity. Uh what's a good run rate for that business and how much of your water sales today are recycled barrels versus water from Source, water wells,
you know, when you look at
Good morning, Derek. It's Robert. Um, you know, when you look at the change of quarter over quarter, you know, it's something that that we're always trying to to work to minimize that volatility, and you can really attribute it to mainly to consolidation and, and diverse acreage positions that you see. Um, you know, our footprint, allows us to expand offset Legacy acreage. And that's what we're attempting to do, um, you know, to capture as much of that that diversity, that we see um, because the consolidation, you know, the is so centralized in activities.
Area from from 1 area to another. Um, as far as what the produce looks like, you know, it's a, it's really a moving Target every quarter, um, you know, obviously the goal is to maximize the amount of of recycled produced, you're putting it on operation, but there's a lot of factors that go into that, mainly the availability produced, um, and the demand of what that fra is going to be in that area. So that's where our team works with the operators every day. Um, to look at what that balance looks like, how can we maximize produced and how going back? Stop it with the brackish and keep up with the SIM and trial demands that we see today.
Makes sense. And then for my follow-up Robert, we could probably stay with you. Just wanted to to focus on how you're thinking about progressing Del Beyond Phase 2 and phase 3 and the degree of conversations you're having with industry about your technology and then also love to get your views on the, uh, permit. That was just approved for NGL for 800,000 Barrel produce, water treatment plant for beneficial reuse and uh, recharge into the POS River.
Basin. Sorry.
Um, you know, I'll start on Del I say that, you know, we were the first entry into, you know, diesel in the market. Um, you know, I think our our expanse of, of footprint and and diversity of operators in Midstream companies allowed us to see that, you know, Bell was going to be necessary at sometime in the future. And you know, we got to think we're we're 4 years into this. At this point of, you know, starting from, you know, exploring different
Different Technologies, um, doing the R&D on which technology we selected. Um, you know, we're confident in diesel uh and our technology to bring these out to the Future.
When we look at commercialization of diesel and how that fits into the Upstream Market, you know what the ultimate commercial model looks like right now is yet to be determined from the industry as a whole. Um, what we see the biggest benefit on ours is, you know, you go back to the power component. Um, you know, waste heat capture of of really what will be exploring, a waste heat capture, and use of our technology, and then freeze, technology, and how that fits into direct their cooling. Um, and direct chip cooling, utilizing the freeze technology. So, when we look at, when we look at 2026, um, you know, for us it's not necessarily growing in volume. Um, it's, you know, working with those other synergies um of how we how we Implement direct capture and you know you got to think anything that you can do in that to you know 1, decrease the input cost of energy into Diesel and to maximize any value, you can get of the output of the water. Um you know that greatly helps the
economics of bringing diesel, um, to full commercialization
Um, on the NGL permit, um, you know, there were a couple draft permits issued. There have been no, um, you know, final permits issued so far, um, from the TCEQ. Uh, NGL and US included are in the draft permit phase right now. As we work, uh, with the commission to get that into, you know, final permit approval.
thanks for the color and maybe 1 more, if I could, um, on m&a, more, broadly,
While we tend to see less opportunity at lower prices due to water, as spreads, you guys are having success, as evidenced in this quarter.
Surface and minerals. How would you characterize a competitive landscape in the puran? Um at present and the opportunities really you're seeing across the broader uh puran footprint. Both Delaware Central Basin platform and Midland
Yeah, I mean you know, we've we've been successful getting some of these deals done here recently, they've been sourced just through our relationships. Um, I mean the the lower commodity price environment makes it a little tougher because of the Midas spread like you said, but I think we're still you know, seeing a pretty healthy amount of opportunity in the pipeline. And so I think we'll continue to be successful and uh you know there's probably some
Equally interesting opportunities in the Delaware and the Midland and starting to see some kind of interesting stuff across the platform as well. Um, you know, we think about database and Disposal and some of these next-gen type projects, power generation data centers, things like that. So pretty excited. Looking forward on the opportunity to set in front of us,
All right. Well, great update, guys. I'll turn it back to the operator.
Thanks Derek.
Thank you. And with that, this does conclude today's question, answer session and also concludes today's teleconference and thank you for your participation and you may disconnect your lines at this time and have a wonderful day.