Texas Pacific Land (US:TPL)2022-08-04 19:08Financial Data and Key Metrics Changes - Total revenue for Q2 2022 was $176 million, representing a 20% increase compared to the previous quarter [7][21] - Adjusted EBITDA reached a record $158 million with an EBITDA margin of 90% [7][8] - Oil and gas royalty revenue increased by 16% quarter-over-quarter, primarily due to higher commodity prices [21] - Royalty production was slightly lower at 19,800 barrels of oil equivalent per day, with oil production at approximately 8,900 barrels per day [22] Business Line Data and Key Metrics Changes - Source water revenues increased by 18%, while reduced water royalty revenues rose by 26% [9] - Revenues from surface leases, easements, and materials (SLEM) surged by 52%, indicating strong demand across various segments [9][13] - Sales volumes for source water increased by 40% sequentially, driven by high demand [11] Market Data and Key Metrics Changes - The outlook for the oil and gas industry remains positive, with ongoing development in the Permian Basin and high commodity prices expected to benefit shareholders [14] - New permits for wells increased significantly, with over 500 gross well permits issued in the first half of the year compared to approximately 750 for all of 2021 [24] Company Strategy and Development Direction - The company is focusing on next-generation opportunities beyond oil and gas, including a bitcoin mining venture and carbon capture projects [15][16] - The board has approved a proposal to declassify the board, indicating a move towards improved governance [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the business and the potential for continued strong development on royalty acreage [10][14] - There are ongoing discussions regarding carbon capture opportunities, with studies being conducted to evaluate viability [30] Other Important Information - The company returned over $200 million to shareholders through dividends and share buybacks while maintaining a debt-free balance sheet and nearly $400 million in cash [8] - The capital expenditure budget for the water business has been increased to accommodate new contracts and demand, with expectations of $18 million to $20 million for the full year [11][33] Q&A Session Summary Question: Can you provide additional detail on SLEM strength this quarter? - Management indicated that the increase in SLEM revenue was due to heightened activity across various segments, suggesting a durable trend rather than sporadic activity [28] Question: Can you share how the next-gen opportunities came about and their revenue potential? - The company has a dedicated team seeking next-gen opportunities, with the bitcoin mining facility expected to be operational by Q4 2022 [29] Question: Was there any one-time revenue in the easement revenue bump? - Management confirmed that the increase was primarily due to increased activity, with some material sales being one-time events [32] Question: What is the timeline for supply chain bottlenecks to smooth out? - Management did not provide a specific timeline but noted that conditions seem to be easing slightly [35] Question: Is the company still seen as a natural consolidator of minerals longer term? - Management affirmed that they continue to evaluate potential acquisitions to add value for shareholders [37] Question: What guidelines exist for net debt leverage for larger scale deals? - Management indicated a preference for very low to zero leverage, consistent with their current position [39]