Texas Pacific Land (TPL) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated revenues increased by 8% quarter-over-quarter, reaching $191 million, while net income rose by 9% [8][22] - Oil and gas royalty revenue increased by 7% quarter-over-quarter, driven by higher royalty production, despite lower crude oil and NGL prices [22] - Crude and NGL price realizations declined by 13% and 15% respectively, while natural gas realizations increased by 21% [22] Business Line Data and Key Metrics Changes - Royalty production reached approximately 23,400 barrels of oil equivalent per day, marking an 18% increase sequentially [23] - The water business sourced and treated over 40 million barrels of water in the quarter, contributing to over 1,000 new well completions in the Permian [9] - SLEM revenues saw a significant year-over-year increase, with 233 new contracts signed, nearly double from the same quarter last year [12] Market Data and Key Metrics Changes - New permits and spuds in 2022 are tracking well ahead of 2021 levels, averaging about 80 gross and 1 net new well per month [24] - The average permitted well on TPL royalty acreage now exceeds 10,000 feet in lateral length [24] Company Strategy and Development Direction - The company is pursuing alternative and next-generation uses for its nearly 1 million-acre surface asset, including agreements with Samsung Solar Energy for battery projects [14][15] - TPL has increased its solar and wind projects contracted on its surface by over 30% from the beginning of the year [16] - The company emphasizes its unique surface asset features, including water rights, solar and wind resources, and connectivity to gas processing facilities [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued strong production outlook through year-end, supported by robust activity levels [40] - The company noted that while Waha differentials are expected to weaken, it typically achieves better realizations on gas than Waha [41][42] Other Important Information - The company announced a new $250 million share repurchase authorization, which will take effect after the current program ends [26][27] - TPL's balance sheet remains debt-free, allowing for flexibility in capital allocation [28] Q&A Session Summary Question: Focus on the annual meeting regarding the proposed 3-for-1 share split - Management indicated that the share authorization provides a normal course financing tool and adds flexibility for future growth [33][34] Question: Regarding the Samsung Solar Energy agreement - The arrangement is expected to be capital-light, similar to previous SLEM arrangements [35] Question: Sequential increase in permit activity - The company noted that new permit activity remains strong, with Q3 being slightly below Q1 and Q2 but still robust compared to historical averages [36][37] Question: Near-term production trajectory and netbacks - Management expects continued strong production levels through year-end, although predicting netbacks is more challenging due to market volatility [40][41] Question: Increase in daily barrels per day and mobile sand mines - The increase in production was not related to mobile sand mines, as those were recently contracted and the company acts only as a royalty owner [48] Question: Land sales and market implications - The land sales were driven by robust pricing and specific infrastructure needs, not indicative of a broader market trend [50][51]