Texas Pacific Land (US:TPL)2021-08-06 16:26Financial Data and Key Metrics Changes - For Q2 2021, the company reported net income of $57 million or $7.36 per share, compared to $27.6 million or $3.56 per share in Q2 2020, primarily due to increased oil and gas royalty revenue [16][17] - Total revenue for Q2 2021 was $95.9 million, up from $57.3 million in the same quarter last year, with oil and gas royalty revenue increasing 184% to $58.2 million [17][18] - Average realized oil price was approximately $65 per barrel in Q2 2021, compared to approximately $25 per barrel during the same period last year [17] Business Line Data and Key Metrics Changes - Production during Q2 2021 averaged approximately 16,400 barrels of oil equivalent per day, roughly flat sequentially from Q1 2021 [7] - Produced water royalty revenues increased over 20% sequentially from Q1 2021, benefiting from a one-time catch-up payment [10] - Water revenue was $27.9 million in Q2 2021, up from $21.5 million in the prior year, driven by increases in both source water and produced water royalty volumes [18] Market Data and Key Metrics Changes - The company had 565 gross drilled but uncompleted wells (DUCs) and 474 gross permits as of June 30, indicating ongoing activity in the Permian Basin [8] - The company noted that producers remain disciplined, with activity levels not yet at pre-COVID levels but still active in developing leaseholds [8] Company Strategy and Development Direction - The company positions itself as an "ETF for the Permian Basin," benefiting from multiple cash flow streams throughout the life cycle of a well [12][13] - The management expressed confidence in the asset quality underlying royalties and extensive surface acreage, believing it will create long-term value despite uncertainties related to COVID-19 and commodity prices [14] Management's Comments on Operating Environment and Future Outlook - Management indicated that they expect production in the second half of 2021 to be at least on par with the first half, supported by a robust level of current inventory [9][30] - The management emphasized the importance of maintaining a low leverage profile and expressed a preference for capitalizing with cash rather than debt, although they would consider debt for excellent opportunities [34] Other Important Information - The company declared a cash dividend of $2.75 per share, payable on September 15, with year-to-date dividends totaling $5.50 per share [21] - The company joined the Russell 1000 Index, marking a significant milestone [22] Q&A Session Summary Question: Capital allocation approach and attractive opportunities - Management stated they are always looking for deals but are very selective, benefiting from a strong cash position that allows for optionality in capital allocation [25][26] Question: Maintenance scenario for net wells - Management indicated that approximately seven net wells would be needed to maintain production levels, with a robust inventory supporting this [27][30] Question: Willingness to go into debt for valuable assets - Management expressed a preference for maintaining a low leverage profile but would consider debt for excellent opportunities [34] Question: Changes in activity or new production customers - Management noted that consolidation in the industry has led to new relationships with operators, enhancing their exposure [35] Question: Expectations for activity based on permit scrapes - Management reported robust permitting activity, particularly from major operators, supporting ongoing development [42] Question: Trajectory of capture rates for water businesses - Management highlighted strong capture rates for both source water and produced water, with growth expected to continue [44][45] Question: Appetite to hedge production profile - Management stated they have historically managed the business without hedges, allowing them to fully benefit from favorable commodity prices [46][48]