Texas Pacific Land Corp Q4 FY2024 earnings call

Permian Performance - 2024 & Outlook: Despite a decline in Permian horizontal rigs throughout 2024, Permian oil and gas production exited the year at record highs. While rig count decreased, spudded wells only dropped 2%, well laterals were ~5% longer, leading to 3% more drilled lateral feet year-over-year. For 2025, new permits basin wide were up ~20% in count and 24% in total lateral feet. The Matterhorn pipeline has eased natural gas takeaway bottlenecks. ### Next-Generation Opportunities: There's robust interest in developing data centers, power generation, and grid infrastructure in the Permian due to its hydrocarbon and non-hydrocarbon resources. TPL's approach to these new opportunities mirrors its past success in the Delaware Basin water business. ### Produced Water Desalination and Beneficial Reuse: Construction of the 10,000 barrel per day Phase 2b test facility is ongoing, expected to complete mid-2025 at a total cost of ~$25 million (with $7 million spent in 2024). Multiple beneficial reuse initiatives are advancing, including seeking a land application permit for a 100-acre plot in Orla, Texas, to use freshwater from the desalination system.

Fourth quarter 2024 saw Texas Pacific Land Corporation (TPL) set records across key operating drivers despite stable crude oil and natural gas prices. Year-over-year, 2024 oil and gas royalty production volumes increased 14%, water sales volumes rose 31%, and produced water royalty volumes jumped 37%, all corporate records. Surface and water revenues collectively grew 23% year-over-year. In 2024, the company acquired over $400 million of high-quality Permian mineral, royalty, water, and surface assets, providing additional growth levers.

Capital Expenditures: Fiscal year 2025 capital expenditures are expected to be approximately $65 million to $75 million, including ~$28 million for produced water desalination and co-located gas generation. ### Dividend: A regular dividend of $1.60 per share was announced, a 37% year-over-year increase. ### M&A: There's ample opportunity to consolidate Permian minerals, royalties, water, and surface assets, focusing on assets of at least equal or better quality than the legacy asset base to enhance shareholder value.

Oil and Gas Price Fluctuations: Sideways crude oil and natural gas prices can impact Permian activity and production levels. ### Regulatory Changes: Changes in regulations related to produced water disposal and desalination initiatives could affect operations. ### Upstream Activity Uncertainty: Uncertainties in upstream activity ramp in and around TPL's footprint could impact capital expenditure deployment and growth opportunities.

Q: Could you further elaborate on the potential desal synergies with behind-the-meter power generation and data centers?

A: Robert Crain stated that behind-the-grid generation, waste heat capture from power generation, and the availability of produced water for desalination create a transformational opportunity, tying together water, power, and data center needs.

Q: How confident are you guys in achieving that $0.75 per barrel treatment cost with a commercial scale facility?

A: Robert Crain mentioned they are on track for 75% volume reduction and 75% analyte removal, and with scale and the benefits of gas generation, the $0.75 per barrel cost is 100% achievable and trending toward all three 75% targets.

Q: Where are you seeing the greatest opportunities today between royalties and surface?

A: Tyler Glover noted the deal pipeline looks very good for 2025 with many opportunities on both the surface and mineral sides, with more opportunities appearing in the landscape.

Q: Could the Trump administration make any changes in federal policy which could open up greater amounts of pore space in New Mexico?

A: Tyler Glover and Robert Crain stated they are not aware of specific federal policy changes that would open up greater pore space in New Mexico, with such changes likely to be more at the state level.

Q: How are you thinking about the turn-in-line quarterly run rate for oil and gas royalties?

A: Chris Steddum mentioned that with current line of sight inventory including DUCs and completed wells, historical activity levels suggest a robust amount of wells could come online in 2025, depending on oil prices and activity levels