Texas Pacific Land (TPL) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2024, Texas Pacific Land Corporation (TPL) achieved record free cash flow of approximately $461 million, an 11% year-over-year increase [24] - Full year 2024 oil and gas royalty production volumes increased by 14%, while water sales volumes rose by 31% and produced water royalty volumes increased by 37% [6][24] - Consolidated revenues for Q4 2024 were approximately$ 186 million, with adjusted EBITDA of $161 million and an adjusted EBITDA margin of 87% [25] Business Line Data and Key Metrics Changes - Royalty production for Q4 2024 was approximately 29,100 barrels of oil equivalent per day, representing an 11% increase year-over-year and a 3% increase sequentially [26] - Produced water royalty volumes grew 44% year-over-year to approximately 4 million barrels per day, benefiting from new volumes into out-of-basin pore space acquired in 2023 [26] - Sourced water sales volumes increased by 42% year-over-year to 737,000 barrels per day, with strong demand for treated water [26] Market Data and Key Metrics Changes - The Permian Basin saw a decline in rig counts from around 345 in early 2023 to approximately 290 by the end of 2024, yet production still managed to grow mid-single digits year-over-year [10][11] - New permits in the Permian Basin were up approximately 20% year-over-year, indicating a constructive outlook for 2025 [12] Company Strategy and Development Direction - TPL is focusing on next-generation opportunities, including data centers, power generation, and grid infrastructure, leveraging its hydrocarbon and non-hydrocarbon resources [15] - The company is committed to investing in produced water desalination technology and beneficial reuse initiatives, with a test facility expected to be completed mid-2025 [18][20] - TPL aims to consolidate Permian minerals, royalties, water, and surface assets, with a strong deal pipeline anticipated for 2025 [32][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to generate long-term value while returning substantial cash to shareholders, supported by a fortress balance sheet and high-margin business model [29][34] - The outlook for the Permian Basin remains positive, with expectations for robust well completions in 2025, contingent on oil prices and activity levels [62] Other Important Information - TPL returned a record$ 376 million to shareholders in 2024 through dividends and buybacks, with a regular dividend announced at $1.60 per share, a 37% year-over-year increase [7][30] - The company maintains a debt-free balance sheet with cash and cash equivalents of approximately$ 370 million at year-end [34] Q&A Session Summary Question: Can you elaborate on the potential desalination synergies with behind-the-meter power generation and data centers? - Management highlighted the transformational opportunity of combining power generation with desalination and water needs for data centers, emphasizing the synergies of waste heat capture and produced water availability [40] Question: Is the goal still 75% volume reclamation and analyte removal at a cost of $0.75 per barrel? - Management confirmed they are on track to achieve the 75% volume reduction and analyte removal, with confidence in reaching the$ 0.75 treatment cost through economies of scale [42][44] Question: Where are the greatest opportunities for consolidation between royalties and surface assets? - Management indicated a strong deal pipeline for 2025, with numerous high-quality opportunities available in both surface and mineral assets [46][47] Question: Could federal policy changes open up greater pore space in New Mexico? - Management noted that while changes are possible, they are not aware of any imminent regulatory changes that would significantly impact pore space availability [52][54] Question: What is the expected turn-in-line quarterly run rate for oil and gas royalties in 2025? - Management projected that approximately 14 to 15 net wells could come online during 2025, indicating a robust inventory and strong potential for production growth [62]