Texas Pacific Land Corp Q1 FY2025 earnings call

• Oil and gas production: Strong growth in Northern Culberson, Northern Reeves, and Central Midland subregions led by major operators. - Water segment: Revenue growth due to commercial efforts in water sales and produced water royalties. - Operator activity: Some operators adjusting plans, but TPL's royalty acreage is mainly operated by super majors and large independents with more inertia. - Well inventory: Robust near-term well inventory with high levels of permitted, drilled but uncompleted, and completed but not producing wells. - Revenue streams: Oil and gas royalties generate positive free cash flow; water sales have flexibility; produced water royalties are fixed fee; SLEM revenues tied to Permian activity with renewal payments increasing via CPI escalators. - Balance sheet: Strong net cash position with $460 million in cash and no debt. - Desalination: Phase IIb unit expected to come online by end of year; progress made on reducing operating costs. - Grid infrastructure: Approved transmission lines in ERCOT expected to drive load growth and enhance commercial potential.

Oil and gas royalty production averaged approximately 31,100 barrels of oil equivalent per day, representing 7% sequential quarter-over-quarter growth and 25% growth year-over-year. Water segment revenues totaled $69 million, representing 3% sequential quarter-over-quarter growth and 11% growth year-over-year. Oil and gas royalty production contributed based on volume, while water segment revenue contribution was from its commercial efforts.

• Near-term activity: If oil stays below $60 sustained, more activity may emerge in back half of year. - Well inventory: High near-term well inventory, with 18 net wells from major operators. - Desalination: Phase IIb unit on track for end of year. - M&A: Opportunities still exist, but bid-ask spread may widen if commodity prices decrease.

• Commodity price volatility: Could impact activity levels and revenue streams. - Regulatory changes: May affect desalination and beneficial reuse initiatives. - Infrastructure bottlenecks: Could limit development if not addressed.

Q: Thoughts on water fundamentals in Delaware Basin and produced water volume growth A: Yes. We're seeing higher water cuts as operators move to second and third tier formations. Expect produced water to continue to grow at a pretty rapid pace over the next 10 years, which is why we think it's going to take out bits and disposal. It's going to take beneficial reuse, it's going to take continuing to treat and reuse more and more water to be able to effectively handle the volumes of produced water that we're going to need to so that development of minerals doesn't bottleneck.

Q: Impact of pipeline projects (WaterBridge, Western, ARRIS) A: Well, we think, I mean, it's a benefit to the basin benefit to the development of our minerals. Operators need more poor space to head off potential bottlenecks on having to shut in wells or forgo development in certain areas because of water cuts. So from that standpoint, it really is a benefit. And then I would just add too that on the Western Pathfinder pipeline, we will be paid because of our relationship with Western and where our assets will be paid for those barrels. They're going to move through that first phase of that project. And then the second phase of that project is a pipeline that actually goes to out-of-basin surface that we've acquired. So we'll receive payment on existing barrels that are moved to the East and then payment on new barrels as well. So that project is a pretty fantastic benefit for TPL.

Q: Perspective on M&A landscape A: Yes. I mean I think on the M&A front, there’s still a lot of opportunity. We haven’t seen a big pullback from sellers if commodity prices continue to decrease, the bid-ask spread may widen. But right now, it still seems like a pretty friendly environment, a lot of opportunity in the backlog.