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Texas Pacific Land (TPL) - 2023 Q1 - Earnings Call Transcript
TPLTexas Pacific Land (TPL)2023-05-04 15:55
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Financial Data and Key Metrics Changes - Total revenues for Q1 2023 were 146million,representinga4146 million, representing a 4% decline sequentially from Q4 2022 due to lower oil and gas prices and royalty production, offset by higher sourced water sales and other income [7] - Oil and gas royalty revenues were down 14% year-over-year, while sourced water sales increased by 15%, produced water royalties rose by 35%, and easement and other surface-related income surged by 63% [4][5] - Adjusted EBITDA for the quarter was 116 million, and free cash flow was 88million,withacashbalanceof88 million, with a cash balance of 591 million at the end of the quarter [7] Business Line Data and Key Metrics Changes - The non-oil and gas royalty businesses contributed nearly 40% of total revenues, providing a hedge against commodity price fluctuations [5] - The sourced water sales and produced water royalties showed significant growth, indicating diversification in revenue streams [4] Market Data and Key Metrics Changes - WTI Cushing Oil and Henry Hub natural gas prices decreased by 19% and 43% respectively compared to the same period last year, impacting oil and gas royalty revenues [4] - The company reported strong leading indicators such as new permitting and drilling activity, which remain at historically high levels [6] Company Strategy and Development Direction - The company maintains a debt-free balance sheet and focuses on maximizing shareholder value through capital allocation strategies, including a 250millionbuybackauthorization[8]−Thelong−termoutlookremainsstrong,particularlyinthePermianBasin,whichisconsideredapremierresourceplayinNorthAmerica[5]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementexpressedoptimismbasedoncustomerconversationsandinternaldata,indicatingapositiveproductionoutlookfortheremainderoftheyeardespiteshort−termvolatility[6][11]−ThecompanyispositionedwellwithastronginventoryofpermitsandDUCs,suggestingpotentialforincreasedproduction[7][11]OtherImportantInformation−ThecompanyisinvolvedinalegaldisputewithHorizonKineticsregardingvotingcommitments,withacourtdecisionanticipatedfollowingatrialheldonApril17,2023[6]−Aone−timerevenueadjustmentrelatedtoChevron′sover−deductionofexpenseswasdisclosed,whichcouldhaveimpactedoilrevenuebyanestimated250 million buyback authorization [8] - The long-term outlook remains strong, particularly in the Permian Basin, which is considered a premier resource play in North America [5] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism based on customer conversations and internal data, indicating a positive production outlook for the remainder of the year despite short-term volatility [6][11] - The company is positioned well with a strong inventory of permits and DUCs, suggesting potential for increased production [7][11] Other Important Information - The company is involved in a legal dispute with Horizon Kinetics regarding voting commitments, with a court decision anticipated following a trial held on April 17, 2023 [6] - A one-time revenue adjustment related to Chevron's over-deduction of expenses was disclosed, which could have impacted oil revenue by an estimated 8 million on a normalized basis [18][19] Q&A Session Summary Question: Growth outlook of oil and gas royalty segment - Management expects TPL to outperform the basin in the near and medium term, with strong near-term inventory supporting a positive production outlook [11] Question: Impact of Chevron's issues on operations - The company has limited exposure to Chevron's operations, as most of the minerals have been leased out [12] Question: Drivers behind strong SLEM business performance - Increased pipeline easements and successful rock sales have contributed to the strong performance in the SLEM business [13] Question: Legal expenses and future expectations - Legal expenses are accrued, and future spending cannot be commented on at this time [17] Question: One-time revenue from arbitration - The one-time revenue was related to past overcharges by Chevron, and it is not expected to recur [18][19] Question: Capital expenditure in Water Resource business - The capital expenditure is aligned with maintenance needs and electrification processes, with the Water Resource business generating positive free cash flow [21]