Texas Pacific Land (TPL) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total consolidated revenue for Q3 2023 was $158 million, with net income at$ 106 million, and adjusted EBITDA of $141 million, reflecting a 6% increase compared to the prior sequential quarter [35] - Free cash flow was approximately$ 106 million, and the company exited the quarter with approximately $660 million in cash on the balance sheet [20] - Royalty production decreased by 12% sequentially to approximately 21,800 barrels of oil equivalent per day, while the realized price per barrel of oil equivalent increased by 19% to approximately$ 45 [20] Business Line Data and Key Metrics Changes - Revenues from the produced water segment increased by 9% year-over-year, with third quarter 2023 source water sales volumes at approximately 545,000 barrels per day, indicating high utilization across the system [6][16] - The surface leases, easements, and materials segment (SLEM) benefited from robust pipeline easements driven by expanding infrastructure development in the Permian [5] - Sand royalties reached just under $1 million in the last quarter, with expanded caliche sales into New Mexico contributing positively [30] Market Data and Key Metrics Changes - Benchmark prices for oil, gas, and NGLs rose over the prior sequential quarter, leading to improved realizations relative to benchmark prices [10] - Rig counts in the overall Permian have declined by approximately 10% compared to last year, but more than 50 rigs are currently operating on TPL acreage, up from approximately 42 rigs last year [18] Company Strategy and Development Direction - The company is well-positioned to succeed through various market environments, supported by a strong backlog of completed wells and high levels of ongoing new permits [8] - The management emphasized the importance of infrastructure and logistics, which are expected to improve with additional natural gas takeaway capacity coming online [15] - The company is expanding its footprint in water sales and treatment, indicating a strategic focus on increasing water revenue as completions activity ramps up [28] Management's Comments on Operating Environment and Future Outlook - Management noted that elevated temperatures and brownouts had previously impacted production, but these issues have subsided, allowing for improved development activities [15] - The company expects production growth in the coming year, driven by a high number of permits and quicker turnaround times for permits to production [39] - Management highlighted that the timing of permit to spud and spud to completion has compressed considerably in 2023 compared to prior years, indicating operational efficiency [33] Other Important Information - The company maintained its$ 3.25 per share dividend and repurchased approximately 3,600 shares of common stock for about $6 million [10] - The company will host its 2023 Annual Meeting in Dallas, encouraging shareholders to review proxy materials [34] Q&A Session Summary Question: Production impact split between elevated temperatures and brownouts versus delayed TILs - Management indicated that the production was likely more heavily impacted by delays in TILs due to larger pad developments, which caused lumpier near-term production [22][23] Question: Future water sales outlook - Management stated that water sales typically parallel completions activity, and with a high number of permits and spud activity, there is an expectation for increased water sales in the coming quarters [28][45] Question: Contributors to easement revenue - The primary contributors to easement revenue have been pipeline easements and material sales, driven by significant infrastructure build-out [46]