LandBridge Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 6, 2025

There are 10 speakers on the call.

Operator

Thank you for standing by, and welcome to the Landbridge Fourth Quarter twenty twenty four Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. I'd now like to turn the call over to Jason Long, Chief Executive Officer. You may begin.

Speaker 1

Good morning, everyone, and thank you for joining our fourth quarter and fiscal year twenty twenty four earnings conference call. We continue our exceptional growth trajectory in the fourth quarter of twenty twenty four, growing revenue 109% and adjusted EBITDA 108% year over year with an 87% adjusted EBITDA margin. For the full year ended 12/31/2024, we grew revenues 51% year over year, adjusted EBITDA by 55% year over year and achieved 88% adjusted EBITDA margins. As we reflect on our first six months as a public company, it is clear that our active land management strategy is working as expected to create value for our shareholders. Twenty twenty four was a year of expansion for Landbridge.

Speaker 1

We more than tripled our land holdings, growing our total surface acreage from approximately 72,000 surface acres to approximately 273,000 surface acres with 53,000 of those acres acquired in the fourth quarter alone. In December, we acquired 46,000 largely contiguous surface acres known as the Wolf Bone Ranch, which expanded our position in Reeves And Pecos Counties, Texas, a highly strategic location for oil and natural gas production that also provides us access to the Waha Natural Gas Hub. As part of the acquisition, Landbridge secured a minimum annual revenue commitment of $25,000,000 for each of the next five years from BTX and its affiliates, which includes surface operations, brackish water and royalties from produced water handling. We've continued that momentum into 2025, closing on an acquisition in February for approximately 3,000 acres contiguous to our current land position in Lee County, New Mexico. This acquisition increased our current acreage position to approximately 276,000 acres.

Speaker 1

Additionally, we see significant future growth opportunities from digital infrastructure, renewable energy and commercial real estate. Subsequent to the quarter, we executed two notable agreements. We executed a development agreement with Western Midstream Partners LP, providing a surface and pore space solution for a portion of the recently announced Pathfinder produced water pipeline and related produced water handling facilities on our East State Line Ranch. Additionally, we executed solar energy project development agreements with affiliates of DESRI, a leading developer, owner and operator of renewable energy projects. The agreements include 6,700 acres in Andrews County, Texas and Lee County, New Mexico, for which DESRI has submitted interconnection requests to the Southwest Power Pool.

Speaker 1

We're excited to be able to announce these two agreements that speak to our continued success to actively commercialize our land. We remain confident that digital infrastructure will be an important growth driver for our business moving forward. The rapid development of AI and related need for data centers among other high computing power demands such as crypto mining will continue to require access to cheap power and water for cooling. Our acreage in West Texas is well positioned to support these requirements and will remain actively engaged in seeking potential opportunities with these interested parties. As a reminder, in November 2024, we officially signed our first lease development agreement for the development of a data center and subsequently received an $8,000,000 payment in December.

Speaker 1

The payment is a one time nonrefundable deposit for a two year site selection period with a potential for a data center to be constructed within four years thereafter. The success of our IPO, the increase of our surface acreage and the signing of new commercial agreements speak to the momentum of our active land management strategy. Scott, now over to you.

Speaker 2

Thank you, Jason, and good morning to everyone joining us today. To echo Jason, we're pleased with the results this quarter, proud of the milestones we reached in 2024 and excited for the promising growth opportunities ahead in 2025. Our fourth quarter revenues increased to $36,500,000 up 28% sequentially and 109% year over year. Our full year 2024 revenues increased to $110,000,000 up 51% year over year. Sequential revenue growth for the fourth quarter was driven by surface use royalties and revenues, which increased 54% sequentially, including the $8,000,000 payment related to the data center lease development agreement Jason mentioned, as well as increased produced water royalty volumes.

Speaker 2

Revenue from oil and gas royalties also increased 54% sequentially in Q4, driven by an increase in net royalty production. Resource sales and royalties declined 28% sequentially, which is driven by a decrease in brackish water sales and royalty volumes. As highlighted the past few quarters, we continue to shift our revenue mix towards non oil and gas royalty based arrangements to further insulate our exposure to commodity price fluctuations. In the fourth quarter, non oil and gas royalty revenue, including surface use royalties and revenues and resource sales and royalties, accounted for nearly 90% of overall revenue, approximately flat from the prior quarter and up about 20% year over year. For the full year, non oil and gas mineral royalty revenue represented 85% of total revenue, an increase of more than 13% year over year.

Speaker 2

Importantly, our results in 2024 validate our ability to capitalize on growth in the Permian Basin without incurring meaningful operating and capital expenditures. This key feature of our business model translated to an adjusted EBITDA margin of 88% and free cash flow margin of 61% in 2024. In the fourth quarter, we delivered $31,700,000 of adjusted EBITDA, up 27% sequentially and 108% year over year with an adjusted EBITDA margin of 87%. For the full year ended in 2024, we delivered $97,100,000 of adjusted EBITDA. We also generated free cash flow of approximately $26,700,000 and a free cash flow margin of 73% in the fourth quarter.

Speaker 2

And for the full year ended 2024, we generated $66,700,000 of free cash flow. As noted last quarter, our free cash flow in 2024 was impacted by non recurring IPO related expenses and lease termination costs. Our Q4 free cash flow margin of around 70% is more in line with our long term expectations. Additionally, we'd like to discuss our surface use economic efficiency, which we define as total revenues less oil and gas mineral royalty revenues divided by the applicable acreage. This metric for our legacy 72,000 acre position has increased from four sixty five dollars per acre in 2022 to $724 per acre in 2023 to $10.18 dollars per acre in 2024.

Speaker 2

We think this speaks to our unique ability to significantly increase cash flows on our acreage over time through our active land management strategy, and we believe similar growth potential exists on the surface acquired in 2024, again without any meaningful cash outlay for capital expenditures. Moving forward, we will continue to execute on our capital allocation priorities, which include pursuing value enhancing land acquisitions with a focus on underutilized and under commercialized surface. As a reminder, we seek to acquire service that is not just financially accretive, but also offers long term growth potential that mirrors our existing portfolio. We are also focused on maintaining a strong balance sheet to maximize financial flexibility over time. Ended the year with $385,000,000 of debt outstanding under our credit and debt facilities, which is up from $281,300,000 at the end of the third quarter of twenty twenty four.

Speaker 2

We updated and amended our debt facilities in part to fund our recent acquisitions. As part of the amendments, the requirement for quarterly amortization payments was removed, which will improve cash flow and liquidity to allow for more flexibility and optionality for future capital allocation alternatives. As a result of these updates, we ended the year with total liquidity of $107,000,000 dollars including cash and cash equivalents of $37,000,000 and $70,000,000 available under our amended revolving credit facility. Finally, similar to last quarter, we've declared a cash dividend to shareholders of $0.1 per share. While we will revisit the amount of the dividend on a quarterly basis with our Board, we'll continue to focus our capital allocation strategy on a robust pipeline of attractive acquisition opportunities available to us.

Speaker 2

Looking ahead, we are reaffirming our previously announced guidance for 2025. For the full year, we expect $170,000,000 to $190,000,000 of adjusted EBITDA driven by incremental contributions from our recent acquisitions, initial solar facility contributions to surface use revenues and growth of surface use royalties to higher produced water volumes among other factors detailed in our press release. In conclusion, we delivered another outstanding quarter to close out a year of strong growth. Our momentum remains promising and we look forward to advancing development on our surface acreage in partnership with industry leading developers and operators. And now we'd like to open up the line for questions.

Speaker 2

Operator?

Operator

Thank you. We will now begin the question and answer session. Your first question comes from the line of Jackie Koulaitis from Goldman Sachs. Your line is open.

Speaker 3

Hi, good morning. Thank you so much for the time. First, just want to start, you called out your ability to increase surface use economic efficiency year over year. Looking ahead, where do you think this metric can go from here as you see the growth across your footprint?

Speaker 2

Yes. Hey, good morning, Jackie. It's a great question. We haven't defined a hard cap by any means right now, but we think there's still a lot of room to move that up. And just to quantify that a bit, we can look at a section or one square mile six forty acres as a good example.

Speaker 2

And in that section, we can fit one producer or handling facility that can generate $1,500,000 per year at that facility in royalty revenue. But then on top of that, you know, there's a lot of acreage that isn't used by just that 10 acre produced water handling facility site that we can do quite a bit with. You know, I'll give an obvious example, you know, we can fill in, call us, that extra space with opportunities like solar similar to the opportunity we announced on this earnings release and that could add easily another $500,000 plus across that section. So, to think we can do $2,000,000 per section or per square mile, which equates to a little over $3,000 an acre, I would say is very, very achievable. And that's not giving credit to some of the more, call it, economically dense opportunities such as sand mines, such as digital infrastructure and so on.

Speaker 2

And so, a lot of running room left. Again, I think that 3,000 plus is a pretty good bogey here in the near term, but we definitely don't think that's the hard cap.

Speaker 3

Got it. Appreciate it. And then just following up on your agreement with Wes, can you provide just more details on the size and the expected upside from that contract? And then on are there more third party agreements that you can win from here beyond Waterbridge in general?

Speaker 2

Yes, good question. So just to start with the West piece, the agreement is a bit bespoke just given the fact that we are a portion of the solution there, albeit we think that we're one of the critical pieces of the solution. In terms of just the economic impact, we expect to get just low single digit millions in terms of surface damages rights away and those types of payments here over the next twelve to eighteen months as they work out construction of that asset. Once everything is operational, we could see high single digit millions to call it low to mid teens of royalties. It really just depends on the total volumes and the source of those volumes.

Speaker 2

But I would say a good deal for us, a good deal for WES. We're happy to partner with them on this and I think there's a great upside for both of us here. Now, as it relates to the second part of the question, we are in process with in talks with a lot of other folks out there, a lot of other third parties out there. And this West agreement is certainly not, just call it a one and done. Obviously, we have a lot going on with Waterbridge, but there are a lot of other folks in the water infrastructure space and the upstream space that find both access to our surface and through our surface incredibly valuable.

Speaker 2

We continue to have those commercial discussions and hope to share more wins later this year.

Speaker 3

Thank you. I'll leave it there.

Speaker 2

Thanks, Jackie.

Operator

Your next question comes from the line of Charles Meade from Johnson Rice. Your line is open.

Speaker 4

Yes. Good morning, Jason and Scott. Jason, I want to go back to some of your prepared comments on the data center. First, it was great and you guys have been talking about this for a while. It's great to see that $8,000,000 in December.

Speaker 4

But can you I think if I heard you right, you said you've got a two year site selection period and then a four year construction period. Can you give us a sense of the what the roadmap is from here? What the milestones would be for future revenue? And whether there's going to be anything when we exit that two year site selection period? And then what the along the lines what Scott was saying, what the kind of annual revenue opportunity is perhaps after that four year construction period?

Speaker 2

Yes. Hey, Charles, I'll tackle this one. Yes. So, as we've mentioned previously, this two year option period, our site selection period, kind of in the process of that right now. The voiceover to us has been expectations likely closer to twelve to eighteen months, but they do have that full twenty four months.

Speaker 2

After that site selection wraps up, we start to see called a ratchet of cash flows that work to our benefit. And so it will start with a smaller more subsidized lease component as they kind of stage for construction. But once they actually break ground on construction, we would expect to see that full $8,000,000 a year in lease payments for that 2,000 acres. Now, as different phases come online, that's when we would expect to see incremental revenue streams to include the profits interest on the power generation, as well as potentially any water sales that are needed for cooling either the power generation or the actual data center itself. But as you alluded to, it is a multiyear timeline.

Speaker 2

These are large capital projects. And so, I think we're in a really good spot right now with everything moving forward as contemplated. But, I guess the takeaway is we would expect to start seeing more revenues from that likely next year, and seeing those continue to ratchet up over the subsequent years through construction as different phases of operations come online. And I think finally kind of targeting again that one gigawatt being probably a few years after that first phase is online.

Speaker 4

Got it. I know. Thanks for that detail, Scott. I know you talked about it before, but it's good to get that refresher.

Speaker 5

Yes, of course.

Speaker 4

The Wolfbone Ranch, can you talk about what how that integration is going? And what if anything you've learned and any kind of opportunities that you may be aware of that you weren't when you struck that deal?

Speaker 2

Yes. I mean, from an integration standpoint, the beauty of Surface and again not being necessarily an operating company is the integration component is actually pretty light other than just some back office work. And so, that has gone seamlessly. I would say kudos to both our accounting and legal teams as well as those over at Vitol and VTX. It was a very smooth process there.

Speaker 2

But I mean as we kind of think through opportunities, I think what we've found is just a lot of the not necessarily the commercial underwriting but the investment thesis that went into that acquisition. So proximity to Waha, large contiguous blocks, access to various infrastructure Highway frontage. Highway frontage. All of that, yes, has come into fruition very, very quickly. And we've gotten quite a bit of interest in that such we're having a number of conversations right now for access to surface because of those various resources.

Speaker 2

So, obviously having just closed on that a couple of months ago, we're still kind of in the early innings here but I would say it's somewhat off to the races and we've got great traction out of the gate here and again, hope to be able to share some of the wins later this year as a result of that acquisition.

Speaker 4

That's great detail. Thanks, Scott. Thanks, Jason.

Speaker 2

Yes. Thanks, Charles.

Operator

Your next question comes from the line of Derrick Whitfield from Texas Capital. Your line is

Speaker 6

open. Good morning, all. Congrats on an impressive first year as a public company.

Speaker 2

Thanks, Derrick. Thank you. First, I wanted to start

Speaker 6

with the land strategy on Page 4. Previously, you were building a wall around the state line for the benefit of Advantage Water Capture's Northern and Delaware water disposal needs grew. Could you speak to the opportunity you're seeing with the BLM SLO leases in Lee County?

Speaker 1

So on the BLM and state lease stuff, majority of those acreage positions that we bought obviously were very strategic in the fact that it gave us the ability to bring some of our supply water from Texas up into New Mexico as well as the produced water piece. So really leveraging on the feed pieces that we bought in and around those leases is where we've been able to get some really good tailwinds.

Speaker 2

Yes. I think it's important to note that we're not necessarily underwriting any value to those leases when we work through our M and A strategy. Now, just by nature of call it the New Mexico landscape, a lot of this fee surface includes some of these leases. So, you tend to be able to capture those in one fell swoop call it. But when we think through like where is the real value proposition in these acquisitions, it is going to be largely on that fee surface.

Speaker 2

For the sake of the map, we wanted to call that out just to be transparent with the folks.

Speaker 6

Yes. Terrific. And then perhaps bigger picture question on data centers for my follow-up. We've seen a trend of data centers being built in more remote locations like Stargate. And thinking about the progression of discussions with your customers, how are you seeing that picture unfold for more data centers in the Permian?

Speaker 6

I guess directionally, are you guys more bullish than three to six months ago?

Speaker 2

Take this one, Jason.

Speaker 1

Yes. Look, I think that there is we definitely are, I think, more bullish. I think that timing is everything here. Once this first domino falls, I think there will be a lot more to come with it. Power is a big piece of this and obviously access to surface, access to the grid, access to gas are all very important pieces of the puzzle.

Speaker 1

So look, I think that the data center hyperscalers are definitely getting more comfortable with these remote locations as we've seen on the Stargate side of things. So, yes, we're very excited about the opportunity. Our position in our surface gives us really good running room as we have these conversations.

Speaker 6

That's great. Thanks for taking my questions.

Speaker 2

Yes. Thanks, Derek.

Operator

Your next question comes from the line of Alexander Goldfarb from Piper Sandler. Your line is open.

Speaker 7

Hey, good morning down there.

Speaker 2

Good morning, Alex.

Speaker 7

Hey, morning. Just a few questions. First, you guys are certainly blessed with a great cost of capital in your equity, but you also talked about restructuring your credit facility, I think, to eliminate amortization, have go to IO. So, I guess my question is, as you guys look at the landscape, certainly the market is placing a premium in your stock for data centers, but those deals take a lot longer cash flow wise to materialize versus water, solar, etcetera, that seem to be much sooner in monetization. So how are you guys thinking about the projects that you're looking at from a cash flow perspective versus the funding side where the market is paying a premium for the data centers but those take longer?

Speaker 2

Yes. I think that it's a good question. I think you're spot on. I mean, the market is definitely leaning into the data center theme, not just for us. I would say more broadly to anyone who kind of touches at this point.

Speaker 2

The point I always make when folks bring that up is, first, I think we're in a fortunate spot where that opportunity is very real for us and we're obviously working through that and we've discussed that quite publicly. But totally insulated from that data center narrative is this core oil and gas story or call it energy infrastructure and land story that you alluded to that provides just substantial growth here in the near term. And I mean, we talked to the surface use economic efficiency metrics, the growth there, spoke a bit about where we think that could go. And I think it's important to remember all of that is very achievable outside of the data center narrative, which is only going to provide a lot further uplift as those come to fruition. And ultimately, when we think through our strategy and the action plan on our side, it's all of the above.

Speaker 2

I mean, I think we've got these very real opportunities to grow cash flows here in the near term that, again, cost us no capital that we are going to continue to pursue. Now, we're trying to be mindful about the opportunity costs of certain areas of our surface where we think data centers could be best suited relative to some of the other opportunities. But at the end of the day, I mean, there is a lot of runway we have out there on the surface today for opportunities outside of data centers and we're going to continue to push on those and those will be the driver of the growth that we expect to see here in the coming couple of years. The data center, call it, tailwinds are very real and we think three, five plus years down the road, all of that will start to get layered on to the successes that we achieve in a lot of these other themes, a lot of these other investment opportunities. And so, I tell folks it's great because we can increase or we believe we can increase our cash flows by orders of magnitude outside of data centers and I think we're executing on that.

Speaker 2

We're proving we're executing on that and there's a lot of runway left, the data center story is additive. And so the combination of those two things I think makes this a very, very powerful story in the market, which is why the market's received it the way it has and it's on us to continue to execute on both fronts if we want to hold our ground here.

Speaker 7

And then along those lines, your funding, do you think that you'll go back and raise more equity? Are you planning to use debt? Like, what should we be modeling for capital raises for this year?

Speaker 2

Yes. I mean, I think if the right opportunity presents itself, we would raise equity. I think that said, we obviously generate an immense amount of free cash flow. I think keeping a priority. I mean, we're not afraid to put a little bit of leverage on there when it makes sense, but I think keeping a sensible balance is probably the best approach here.

Speaker 2

I mean, we're in a very healthy position, not just from a leverage standpoint, but just from a debt service coverage standpoint. We want to make sure it stays that way. I mean, that will give us the ability to navigate any volatility or risk that may come up in the future that's unforeseen at the moment. We like that. But for us to issue equity, it's got to make sense.

Speaker 2

It's got to have the acquisition opportunity needs to have a growth profile that we think mirrors our own in attractiveness and it needs to be a story that we can go out and tell the public that, look, this is why equity made sense in this context. And it's there's no one size fits all. I think it's really going to depend on the situation. But ultimately maintaining a prudent balance sheet, making sure we're not diluting folks unnecessarily but ensuring that we're staying kind of responsible in the full context of the company and continuing to drive growth. All of those aspects are top of mind.

Speaker 7

Okay. And just one more question. On the water needs for the data centers and forgive me, obviously coming from real estate side, not an oil guy, the brackish water and the water that you guys take from others who are drilling or fracking for oil, does that brackish water, can that be converted to use in cooling data centers or do data centers require pure fresh first generation water, if you will?

Speaker 2

Yes. Good question. So, you've got just brackish water, which is not necessarily the same as produced water. So, you've got brackish water wells on the ground. You've got produced water which is coming up with the oil and gas.

Speaker 2

I think the latter certainly would require more treatment. There's likely to be some level of treatment for either most definitely with produced water. And so I don't want to give the impression it's, you just connect the pipe up to the data center and it's good. I think there would be some costs associated with getting that water to the quality that's needed. And all of that is kind of taken into consideration as a lot of these data center developers and operators work through their diligence and underwriting.

Speaker 2

But I think that said, where we have a big advantage in West Texas is we have an abundance of these resources both in terms of brackish water and produced water. And while there may be some incremental costs associated with treatment, there isn't a large metropolitan area that you're competing with for these resources. And I think generally speaking that is very attractive. Jason, you

Speaker 1

want to add? Well, I just would one thing to be clear is that cost would not be something that Landbridge would great point, yes.

Speaker 8

Okay. Thank you.

Speaker 1

Yes.

Speaker 2

Thanks, Alex.

Operator

Our next question comes from the line of Kevin McCurdy from Pickering Energy Partners. Your line is open.

Speaker 9

Hi, good morning, Jason and Scott. My first question is on the macro outlook and impact on your business. Oil prices have kind of taken a hit over the last week. What oil price and corresponding level activity is built into your 2025 guide? And how sensitive do you expect your EBITDA to be at oil prices this year?

Speaker 2

Yes. Good question, Kevin. Good to hear from you. So, no meaningful ramps whatsoever built into our 2025 guide. All of that's based on firm guidance from operators we have, both from the Waterbridge side and others.

Speaker 2

And I think generally speaking as it relates to commodity price sensitivity, there would need to be a pretty massive swing to the economic potential for the Delaware Basin for that to move off track. Outside of our small minerals position which is we expect to be sub 10% of our business this year, we really don't have any meaningful commodity price sensitivity. So, I would say in summary as long as the commodity prices kind of hold to a point where producers continue with their development plans this year as kind of spoken to the public, no real impact on us.

Speaker 9

Great. Appreciate that detail. And, thank you for the earlier comments on the Western Midstream, EBITDA impact. I wonder if you could share the same thing for the newly announced solar agreement looking for any EBITDA impact in the timing?

Speaker 2

Yes. Yes. So for those deals, it takes somewhere between two and three years to get through the permitting and development. In that interim period, we get a smaller call it, we call it option fee development fee something to that extent. But two to three years down the road once that comes online, we would expect a project like this about 7,000 acres, five fifty megawatts to contribute, call it mid to high single digit millions of cash flow per year.

Speaker 9

Great. Thank you.

Speaker 2

Yes. Thanks, Tim.

Operator

Your next question comes from the line of Theresa Chen from Barclays. Your line is open.

Speaker 3

Good morning. You have been very busy with a flurry of activity within the last year, both on the organic and inorganic front. I wanted to ask on your M and A outlook from here, if you could just remind us how fragmented is the market at this point? And are there still many areas of desirable surface acreage left near your footprint that would fit well within your portfolio?

Speaker 2

Yes. Hey, good morning, Theresa. We have been busy. No, I think to answer your question, there's still quite a bit out there. And I think that's I alluded to that in the prepared remarks.

Speaker 2

From a capital allocation standpoint, M and A continues to be by a wide margin the best use of our capital. Generally speaking the landscape is still very, very fragmented. There are still a lot of opportunities out there and we're in talks with a number of those right now. I think there is a real benefit that we bring to the table particularly in opportunities where the surface owner may own the underlying minerals and wants to encourage more development activity on that surface that's something we can bring to the table or in situations where a seller may have tax considerations, the ability to do a more tax advantaged deal via public currency is also another advantage that we have. And so we continue to look at all the tools that we have to execute on our M and A strategy.

Speaker 2

We think that again it's the pipeline is very robust right now. We think there's a lot out there that makes a lot of sense and is incredibly additive to our platform. So we will continue to pursue those.

Speaker 3

Understood. And on the topic of surface efficiency, for the assets already within your portfolio and getting to that incremental $3,000 per acre target, understanding that some of it will be relatively capital light and some of these opportunities might be more involved. But when we think about the average going forward, how much CapEx do you expect to deploy in order to realize this target?

Speaker 2

Yes. I mean, just as a reminder, we don't do any of the developing of any of these assets whatsoever. I think for this upcoming year, we had expected somewhere between $1,000,000 and $2,000,000 of CapEx total and that's just kind of nickel and dime things on like trucks and other kind of field assets that we need just to manage the business. And so the beauty of the business model is we acquire surface. We'll go through some of the efforts needed to make that surface commercially viable.

Speaker 2

That typically does not involve any capital. And then we go out and we try to drive business to that surface from other folks looking for sophisticated landowners in the right areas who know how to work with them. And that has gone very, very well for us and that has allowed us to drive that surface use efficiency metric on that Lake Sea, position up more than 100% in a couple of years. And like I mentioned earlier, we think that that is a very replicable growth strategy on the rest of our surface. And there is a very long runway for us to continue to drive growth on the position as it exists today.

Speaker 2

Like I mentioned, we think that M and A is only going to be additive and going to help drive that growth. But the point I'd make is outside of acquiring Surface, all of that growth does not necessitate CapEx, which is again the beauty of the business model here.

Speaker 3

Thank you.

Speaker 2

Yes. Thank you, Theresa.

Operator

Your next question comes from the line of Roger Read from Wells Fargo. Your line is open.

Speaker 7

Yes. Good morning.

Speaker 5

Let me take a slightly different tack here. Just with the Texas legislature in session and some of the water issues are on their agenda. We don't know exactly where it will shake out. But is there anything you're watching there in terms of regulation that would be potentially enhancing for you or create an opportunity? It kind of ties into the earlier question Yes.

Speaker 5

I

Speaker 1

Yes. Great question. We 100% are watching everything that's going on. Obviously, not only potentially could be a benefit for Landbridge, but also the same with Waterbridge on that on the Waterbridge side as well. As you think through the recycling piece of that, which our surface position gives us a really good opportunity to take advantage of that opportunity, right?

Speaker 1

So you need access to large surface, large contiguous surface to create these recycling ponds and basically centers. So, yes, we do think it's a great opportunity, and we're watching it extremely closely.

Speaker 5

And then one of the other things out there was, and this gets back to the issue with some of the minor earthquakes out in West Texas, disposal of water from neighboring states, which in this case would obviously be New Mexico. Is there anything that you're looking at you might have to do differently or that would force the industry to be more likely to lean on Land Bridge in order to deal with produced water from New Mexico?

Speaker 1

Yes. I mean, that has been one of our biggest thesis from the start, right, is taking a lot of this water out of New Mexico where historically it's been handled in deep injection, which in our view and I think in the regulatory bodies view, that's what's causing a lot of the seismicity. And actually getting that out of basin, that's one solution, but also just spreading out that injection in whole and having access to this large contiguous surface gives us the ability to give people like Wes, and that's a prime example with this recent deal we did with Wes, give them the opportunity to spread that injection out and bring that water from New Mexico. We've got that opportunity with every other third party water provider out there as well.

Speaker 5

And then just as a follow-up on that, are you seeing any change in how you I guess, what your costs are or what your revenue potential could change as a result of, call it, regulation, legislation needs to spread out? I mean, is that impacting at all what you are able to charge per gallon per barrel? And then think about that on the revenue per acre that you were talking about earlier?

Speaker 1

Yes. As we I mean, obviously, we have no cost associated with it. I do think that access to good pore space that's spread out and can be handled in a sustainable way, the price of that I think will go up over time. We have seen royalties increase over time as you have access to this pore space. So we feel like we're in a really good spot and we continue to be optimistic as we think through adding to our portfolio of acreage being very mindful of pore space going forward.

Speaker 5

All right. Thank you.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Sean Milligan from Janney. Your line is open.

Speaker 8

Hey, good morning, guys. Thanks for taking the questions. On the 2025 guidance, I was curious if you'd be willing to provide any guardrails around kind of expected produced water volume growth that's embedded in that guidance range?

Speaker 2

Yes. Hey, good morning, Sean. Yes, I can talk through a high level here. I think the way to think about it is with the inclusion of the Wolfbone Ranch acquisition was wrapped up at the end of twenty twenty four, that will put us call it just over 1,000,000 barrels a day kind of low millions. Through the course of the year, we've got a handful of projects coming online, two of which we've spoken about publicly, so I'll reiterate that the first is Waterbridge's construction of the BPX Kraken line that will come online the end of second quarter and that will add meaningful volumes and we've talked about a bit rather that has been published in a press release.

Speaker 2

So, I won't go over the details of that, but that's going to be fairly additive from a volume perspective towards the end of second quarter. And then the second piece is there are a number of new assets coming online on our legacy surface position that will also be used to handle Devon volumes that are flowing today that are being diverted off of their legacy position. And so, I would expect to see a pretty meaningful step change in produced water volumes starting to hit in second quarter, but really fully materializing in third quarter. But I would say it's very easy relative to the call it the million or so barrels a day today to see low to mid double digit growth in those produced water volumes through the course of the year and kind of exiting '25.

Speaker 8

Great. That's really helpful. And then on the solar side, I think previously you had talked about kind of receiving prepayments. Those had been pushed to 2025. I guess, like I was expecting those to sort of be in line with what the data center payment was in the fourth quarter.

Speaker 8

Is that still the right way to think about those payments in 2025?

Speaker 2

Yes. Great, great question. So, you didn't ask this, but I'll clarify an obvious point that the Desiree deal that we announced alongside earnings is different and additive relative to the solar opportunity we've spoken to previously. Yes, so that we are in the process of evaluating different proposals on that right now. I've spoken previously about the you know, call it the lack of, call it, conformity around how those proposals, will look.

Speaker 2

Everyone or each of these developers and operators will put forward some upfront consideration and some recurring rent effectively. And it is our job then to go through those proposals and determine what presents the best value for the company. Now, we would expect to receive those upfront milestone payments this year. From a total size perspective, it's about you're thinking it the right way, it's probably $8,000,000 to $10,000,000 this year. But I kind of caveat that a bit with what I said initially, which is, we will not favor the proposal that has the most cash upfront if we get a situation where there is a smaller upfront but a much larger residual over an extended period of time that would just generate more value for the company.

Speaker 2

We would, of course, go with that. But that's something that as the dust settles and we choose a path forward, I'll be transparent to the market about just so folks can adjust their forecast and expectations accordingly.

Speaker 8

Okay, great. But just to confirm, so the Desiree deal is separate from the prior deal that you talked

Speaker 2

about developing yourself?

Speaker 8

Okay. Thank you. That's helpful.

Speaker 2

Yes. You got it.

Operator

And that concludes our question and answer session. I will now turn the call back over to Scott McNealy for closing remarks.

Speaker 2

Yes. Thank you, Rob, and thank you, everyone, for joining us this morning. Again, we are very happy with how the year wrapped up and are very enthusiastic about the tailwinds of our business stepping into 2025. We look forward to sharing just more of our wins and successes with you through the course of this year. To the extent there are any questions or any follow-up discussions would be helpful, please feel free to reach out to contactlambridgeco dot com so we can get a call scheduled.

Speaker 2

Thanks again. We hope you all enjoy the weekend.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
LandBridge Q4 2024
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