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Texas Pacific Land (TPL) - 2021 Q2 - Earnings Call Transcript
TPLTexas Pacific Land (TPL)2021-08-06 16:26
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Financial Data and Key Metrics Changes - For Q2 2021, the company reported net income of 57millionor57 million or 7.36 per share, compared to 27.6millionor27.6 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 95.9million,upfrom95.9 million, up from 57.3 million in the same quarter last year, with oil and gas royalty revenue increasing 184% to 58.2million[17][18]−Averagerealizedoilpricewasapproximately58.2 million [17][18] - Average realized oil price was approximately 65 per barrel in Q2 2021, compared to approximately 25perbarrelduringthesameperiodlastyear[17]BusinessLineDataandKeyMetricsChanges−ProductionduringQ22021averagedapproximately16,400barrelsofoilequivalentperday,roughlyflatsequentiallyfromQ12021[7]−Producedwaterroyaltyrevenuesincreasedover2025 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 21.5millionintheprioryear,drivenbyincreasesinbothsourcewaterandproducedwaterroyaltyvolumes[18]MarketDataandKeyMetricsChanges−Thecompanyhad565grossdrilledbutuncompletedwells(DUCs)and474grosspermitsasofJune30,indicatingongoingactivityinthePermianBasin[8]−Thecompanynotedthatproducersremaindisciplined,withactivitylevelsnotyetatpre−COVIDlevelsbutstillactiveindevelopingleaseholds[8]CompanyStrategyandDevelopmentDirection−Thecompanypositionsitselfasan"ETFforthePermianBasin,"benefitingfrommultiplecashflowstreamsthroughoutthelifecycleofawell[12][13]−Themanagementexpressedconfidenceintheassetqualityunderlyingroyaltiesandextensivesurfaceacreage,believingitwillcreatelong−termvaluedespiteuncertaintiesrelatedtoCOVID−19andcommodityprices[14]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementindicatedthattheyexpectproductioninthesecondhalfof2021tobeatleastonparwiththefirsthalf,supportedbyarobustlevelofcurrentinventory[9][30]−Themanagementemphasizedtheimportanceofmaintainingalowleverageprofileandexpressedapreferenceforcapitalizingwithcashratherthandebt,althoughtheywouldconsiderdebtforexcellentopportunities[34]OtherImportantInformation−Thecompanydeclaredacashdividendof21.5 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]