Texas Pacific Land (TPL) - 2025 Q2 - Earnings Call Transcript

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]