Texas Pacific Land (US:TPL)2023-08-03 15:36Financial Data and Key Metrics Changes - Total revenues for Q2 2023 were $161 million, a 10% increase from Q1 2023, driven by higher royalty production and water sales despite lower oil and gas prices [45][40] - Adjusted EBITDA and free cash flow for the quarter were $134 million and $105 million, respectively, with consolidated CapEx at $1.4 million [10][40] - Royalty production averaged approximately 24,900 barrels of oil equivalent per day, representing a 19% increase on a sequential quarter basis [10] Business Line Data and Key Metrics Changes - Source water revenues increased by 69%, produced water revenues rose by 12%, and SLEM revenues were up 34% year-over-year [26] - Produced water volumes for Q2 2023 were up 15% year-over-year, contributing nearly $60 million in high-margin revenue [42][40] - Over 60% of water sales were from outside TPL acreage, indicating successful expansion efforts [14] Market Data and Key Metrics Changes - Oil and gas royalty production increased by 26% year-over-year, but revenues decreased by 32% due to a decline in WTI crude oil and Henry Hub natural gas prices [40] - Average realized oil price for Q2 2023 was $73 per barrel, representing approximately 100% realization relative to WTI Cushing price [61] Company Strategy and Development Direction - The company focuses on maintaining a capital-light, high-margin business philosophy while expanding its water and surface-related income streams [4][25] - TPL is actively seeking land acquisitions that can be commercialized, particularly in underutilized areas [57][58] - The competitive landscape for royalty opportunities is described as very competitive, with ongoing opportunities for surface-related assets [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustainability of strong water sales, despite potential tapering off in the fourth quarter due to seasonal activity [55] - The company anticipates continued growth in production for the remainder of the year, supported by high activity levels in key areas [51][31] Other Important Information - The company announced the nomination of two independent director candidates for the upcoming annual meeting, with current directors retiring [29] - TPL's recent acquisition of 12,000 surface acres in Andrews County is expected to provide incremental opportunities for commercialization [58] Q&A Session Summary Question: What are the drivers behind the strength in water resources this quarter? - Management highlighted increased activity in contracted areas of mutual interest as a key driver for the record water sales [50] Question: How should the production trajectory be viewed given the strength of Q2? - Management indicated that the trajectory for the rest of the year should include continued growth based on current activity levels [51] Question: What are the strategic implications of the recent surface acquisition? - The acquisition is seen as a good option due to the activity crossing the state line, providing potential for future commercialization [53] Question: What could hinder further growth in water sales? - Management noted that while Q2 was strong, water sales typically taper off in the fourth quarter due to reduced activity [55] Question: Are pipeline easement revenues expected to recur? - Most pipeline easements are on term agreements that will recur, indicating a stable revenue stream [69]