Texas Pacific Land (TPL) 7 Nov 24 2024 Q3 Earnings call transcript

Texas Pacific Land Corporation (TPL) recently held its third quarter 2024 earnings call, highlighting a strong performance driven by the success of its active management strategy. The company's focus on maximizing oil and gas royalties, surface and water assets, and strategic acquisitions have contributed to a robust outlook for TPL.

Strong Financial Performance and Strategic Acquisitions

TPL's oil and gas royalty production reached a corporate record of approximately 28,300 barrels of oil equivalent per day, driven by its Central Midland and oily Loving subregions. This performance was underpinned by the company's Central Midland and oily Loving subregions, which have seen significant activity levels despite fluctuations in oil and natural gas prices. Additionally, TPL's water sales revenues increased by 37% year-over-year, with produced water royalty revenues up 46%.

The company's strategic acquisitions, including over 50,000 acres of surface acreage and core space, have positioned TPL to capitalize on incremental produced water growth opportunities. These acquisitions, located along the East state line of Texas and Mexico in Andrews and Winkler counties, are expected to support multiple hundreds of thousands of produced water barrels per day.

Produced Water Royalties: A Commercially Unique Cash Flow Stream

TPL's produced water royalties have emerged as a significant revenue stream for the company. By providing saltwater disposal (SWD) operators access to its surface and core space, TPL charges a royalty for produced water disposal. This business model, which is distinct from traditional saltwater midstream and disposal operations, has generated around $100 million of royalty revenues in 2024, with nearly pure margin. The company's robust indemnification against spills, accidents, injuries, and other liabilities further enhances the value of this revenue stream.

Looking Ahead: Expanding Horizons and Sustainable Solutions

TPL's strategic acquisitions and investments in desalination efforts reflect the company's forward-looking approach. The company's recent acquisition of over 4,000 surface acres in Martin County, which includes assets with numerous revenue streams across brackish water, produced water, and other surface-related activities, underscores TPL's intent to diversify its portfolio. Additionally, TPL's efforts in desalination, aimed at providing sustainable produced water solutions, are expected to play a critical role in maintaining robust development activity in the Permian Basin.

Conclusion

Texas Pacific Land Corporation's third quarter 2024 earnings call painted a picture of a company well-positioned for growth. With a strong financial performance, strategic acquisitions, and a focus on sustainable solutions, TPL is poised to capitalize on opportunities in the Permian Basin and beyond. As the company continues to expand its horizons, investors and stakeholders can look forward to a promising future for TPL.