Texas Pacific Land Q3 Earnings Call Highlights

Key Points

• Record results: Third-quarter revenue rose 35% year over year to $273 million, net income climbed 38% to $167 million, and free cash flow increased 39% to $170 million. Higher production, commodity prices, and water and infrastructure revenue contributed to the gains.
• Production and water volumes hit records: Oil production on royalty acreage reached 17,100 barrels per day, while produced-water royalties rose 27% year over year to 5.5 million barrels per day. Surface leases, easements and materials revenue also increased 53% sequentially to $36 million.
• Growth opportunities and risks: The company acquired about 9,700 surface acres and 238 net royalty acres in the Midland Basin after quarter-end, and had $370 million in cash with no debt. Data center projects could face timing delays amid Texas permitting and grid reviews, though management said the actions were not a blanket ban.

Texas Pacific Land NYSE: TPL reported record third-quarter revenue, net income and free cash flow, as higher oil and gas production, elevated commodity prices and increased water and infrastructure revenue supported its results.

Revenue rose 35% from a year earlier to $273 million, while net income increased 38% to $167 million, or $2.42 per diluted share, Chief Financial Officer Chris Steddum said on the company’s earnings call. Free cash flow climbed 39% to $170 million, and adjusted earnings before interest, taxes, depreciation and amortization rose 37% to $238 million.

It was the third consecutive quarter in which the company set records for revenue, net income and free cash flow, President and CEO Ty Glover said. He attributed the results in part to strong development across Texas Pacific Land’s royalty acreage, increased pipeline easement revenue and record produced water royalty volumes.

Production and infrastructure revenue rise

Oil production on the company’s royalty acreage reached a quarterly record of 17,100 barrels per day, while total production set a record of 42,300 barrels of oil equivalent per day. Glover said Texas Pacific Land remained unhedged, allowing it to benefit from elevated oil prices associated with the continuing conflict in the Middle East.

Natural gas realizations improved to $2.40 per thousand cubic feet from $0.40 in the second quarter, despite relatively flat benchmark Henry Hub prices. Glover said new pipeline capacity had helped ease the Permian Basin’s gas transportation constraints, alleviating negative prices at the Waha Hub and narrowing local price differentials.

Revenue from surface leases, easements and materials reached $36 million, up 53% from the preceding quarter. Glover said the increase was driven by growth in natural gas, natural gas liquids, electric and utility infrastructure across the company’s land.

Steddum said the company’s well inventory had declined as operators drew down drilled but uncompleted wells and completed wells not yet producing. At quarter-end, Texas Pacific Land had 16.8 net wells in those categories or permitted for development. He said management was not concerned about the decline, expecting inventories to replenish as operators add rigs and completion crews.

Water royalties set records

Produced water royalty volumes rose to a record 5.5 million barrels per day, up 14% from the second quarter and 27% from a year earlier. Water sales volumes were roughly flat sequentially at 672,000 barrels per day.

Glover said slower completion activity in the first half of the year meant more produced water that otherwise might have been recycled for completions needed to be injected into disposal formations, supporting royalty volumes. He described the relationship as a natural hedge within the water business.

Management also reported progress on its Orla phase II-B produced water desalination facility. Glover said commissioning continued using increasingly concentrated synthetic brine, and the company hoped to begin processing field-produced water by year-end. An adjacent grassland rehabilitation plot was ready to receive water under an approved land application permit, while the company awaited a final draft of a separate discharge permit.

Robert Crain, executive vice president of Texas Pacific Water Resources, said the pace and scale of further development would depend on commercial discussions with upstream operators and hyperscale data center customers.

Data center plans face permitting uncertainty

Texas Pacific Land is negotiating commercial agreements for data center projects across its land, but Glover said there was no new major announcement. The company expects to spend capital next year on water distribution and treatment infrastructure for the initial operation of power and data center projects.

Glover acknowledged that recent regulatory actions and a change in Texas gubernatorial leadership could affect project timing. He said the outgoing governor had directed regulators and the state’s grid operator to review grid-connected large-load projects and directed the Texas Commission on Environmental Quality to pause data center permit issuance pending that review and additional environmental considerations.

Although the actions add to developers’ diligence, Glover said they were not viewed as a blanket ban. He said many proposed West Texas projects would be behind the meter and in rural areas, reducing some of the complexity associated with grid-connected projects.

“Does it affect the timing of some of these projects in the near term? Yes, but I think it is a net positive for the long-term value proposition for TPL and West Texas more broadly,” Glover said. Asked about the incoming governor’s approach, he said the company did not have clear insight into what might change.

Midland Basin acquisition

After the quarter ended, Texas Pacific Land acquired approximately 9,700 surface acres and 238 net royalty acres in Midland and Glasscock counties, Steddum said. The acreage generates cash flow from water, surface and mineral interests and expands the company’s Midland Basin footprint. He did not disclose a purchase price on the call.

At quarter-end, the company had $370 million in cash and cash equivalents, no debt and an undrawn $500 million credit facility. Steddum said Texas Pacific Land could use its financial flexibility for investments, acquisitions or shareholder returns, including opportunistic buybacks.

About Texas Pacific Land (NYSE:TPL)

Texas Pacific Land Corporation is a land and resource management company focused on properties in West Texas, particularly the Permian Basin. Its roots date to the Texas and Pacific Railway, and the company's land holdings were historically managed through the Texas Pacific Land Trust before it became a corporation.

The company earns revenue from oil and natural gas royalties and from activities tied to its surface and mineral interests. Its land and resource management operations include leasing land, granting easements and rights-of-way, and supporting energy development and other land uses.

Texas Pacific Land also provides water-related services to energy companies, including water sourcing, handling, treatment, recycling and disposal.

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