Core Insights - Texas Pacific Land Corp. (TPL) has shown resilience with a 9% increase in sales and a 12% increase in free cash flow in Q2, despite a significant drop in average oil prices [1][2] - The market reacted negatively to a 34% decline in water sales, which raised concerns about the company's future performance [2][6] - TPL operates in the Permian Basin, generating income through various high-margin business segments, including leasing land and providing water for fracking [3][5] Financial Performance - TPL's sales grew by 9% and free cash flow increased by 12% in Q2 [1] - The decline in water sales by 34% was attributed to reduced activity from operator customers due to lower oil prices [2][6] Business Model - TPL generates revenue from multiple segments: oil and gas royalties, water sales, produced water royalties, and easements [8] - The company leases land to major oil companies and earns royalties from the oil and gas produced, creating a diversified income stream [5] Future Prospects - TPL is exploring next-generation ideas such as carbon capture, solar, wind, grid-connected batteries, and water desalination, indicating potential for future growth [7]

Financial Data and Key Metrics Changes - For the second quarter of 2025, consolidated total revenue was $188 million, with consolidated adjusted EBITDA at $166 million, resulting in an adjusted EBITDA margin of 89% [28] - Free cash flow increased by 12% year over year to $130 million, driven by higher oil and gas royalty production and increased produced water royalties [28][29] - Oil price realizations declined by 21% year over year, impacting overall performance despite record revenues in other areas [28] Business Line Data and Key Metrics Changes - Oil and gas royalty production reached approximately 33,200 barrels of oil equivalent per day, marking a 33% increase year over year and a 7% increase sequentially [29] - Produced water royalty revenues set a company record at $31 million, while slim revenues also reached a record of $36 million, benefiting from $20 million in pipeline easements [29] - Water sales decreased by $13 million sequentially to $26 million due to lower oil prices leading to reduced activity [30] Market Data and Key Metrics Changes - The average WTI Cushing oil price during the quarter was $64 per barrel, the lowest since 2021, contributing to a decline in operator activity [5][28] - Permian horizontal oil directed rig counts have declined over 20% from the peak in 2023, indicating a broader slowdown in the market [6] Company Strategy and Development Direction - The company remains focused on its desalination efforts, with a 10,000 barrel per day facility expected to begin operations by year-end, which will convert produced water into high-quality freshwater [22][25] - TPL is strategically positioned to capture growth in produced water volumes, with proactive measures in out-of-basin pore space acquisitions and new contracting [30][24] - The company emphasizes the long-term potential of the Permian Basin, asserting that it retains significant undeveloped inventory and will benefit from technological advancements in drilling and completion practices [11][12][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the Permian's resource potential despite current commodity price volatility, indicating that the company is well-positioned to capitalize on future upturns in the market [26][27] - The management highlighted that the current oil prices are below longer-term mid-cycle expectations, suggesting a favorable outlook for the future [26] Other Important Information - The company has maintained a debt-free balance sheet while returning significant capital to shareholders, demonstrating financial resilience [31] - TPL's royalty acreage has expanded to include 48 horseshoe wells, showcasing innovation in well development techniques [19] Q&A Session Summary Question: Outlook for water resources in the second half - Management noted that Q2's water sales decline was driven by commodity prices and spatial variations in completion activities, but they expect Q3 to be strong [35][36] Question: Thoughts on the ARRIS acquisition by Western - Management agreed that the acquisition supports the Delaware water thesis and creates opportunities for land and resource owners [38][39] Question: Cost objectives for the desalination facility and its importance - The desalination project is crucial for attracting power generation and data center opportunities, with significant synergies expected [40][42] Question: Expectations for additional power generation announcements - Management indicated ongoing discussions and accelerating talks regarding power generation in the Permian, anticipating more announcements in the near future [44][45]

Financial Data and Key Metrics Changes - For Q1 2025, consolidated revenues reached $196 million, with an adjusted EBITDA of $169 million, resulting in an adjusted EBITDA margin of 86.4% [14] - Free cash flow was reported at $127 million, reflecting an 11% year-over-year increase [14] - Oil and gas royalty production averaged approximately 31,100 barrels of oil equivalent per day, marking a 25% increase year-over-year [5][14] Business Line Data and Key Metrics Changes - Oil and gas royalty production saw a 7% growth quarter-over-quarter and a 25% growth year-over-year, driven by strong development in specific subregions [5] - Water segment revenues totaled $69 million, representing a 3% sequential growth and an 11% year-over-year growth [5] Market Data and Key Metrics Changes - The company noted that while oil prices have weakened, there has not yet been a widespread downturn in activity, although some operators have announced plans to reduce rigs [6] - The company expects that if oil prices remain below $60 for an extended period, more significant activity declines may occur in the latter half of the year [6] Company Strategy and Development Direction - The company aims to maximize shareholder value and is positioned to take advantage of opportunities that may arise, including acquiring high-quality royalties and ramping up buybacks [13] - TPL's royalty acreage is primarily operated by supermajors and large independents, which tend to exhibit more inertia in their development plans compared to mid-cap independents [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in TPL's ability to withstand potential downturns in oil prices due to its strong financial position and high-margin cash flow streams [12] - The company anticipates that renewal payments from easements will significantly increase, with estimates exceeding $200 million over the next decade [11] Other Important Information - TPL maintains a net cash position with zero debt and $460 million in cash and cash equivalents as of March 31 [12] - The company is advancing its desalination and beneficial reuse initiatives, with a new desalination unit expected to come online by the end of the year [17] Q&A Session Summary Question: Thoughts on macro oil and gas activity and impacts on business segments - Management noted that there is significant demand for water handling in the Delaware Basin, with expectations for produced water volumes to grow rapidly over the next decade [23][24] Question: Impact of pipeline projects on TPL - Management indicated that new pipeline projects would benefit the basin and TPL's mineral development, with compensation expected from barrels moved through these projects [25] Question: Perspective on the M&A landscape in the basin - Management stated that there are still opportunities in the M&A front, with no significant pullback from sellers observed, although a decrease in commodity prices could widen the bid-ask spread [29]