Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Texas Pacific Land Corp (TPL, Financial) set corporate records across various water performance indicators, including water sales revenues and volumes.
- The company successfully expanded its water sales beyond its acreage, with 73% of sales occurring off TPL's footprint.
- TPL's oil and gas royalty production increased slightly, with a promising inventory of 19.8 net wells.
- The company maintains a strong financial position with a consolidated adjusted EBITDA margin of 89% and a significant cash balance.
- TPL's strategic focus on high-quality mineral and royalty acquisitions aims to enhance long-term free cash flow and intrinsic value per share.
Negative Points
- Weak natural gas prices at the Waha hub negatively impacted realized natural gas prices.
- Commodity price volatility has dampened top-line revenue growth compared to recent years.
- The back half of the year may see softer development activity compared to the strong first half.
- There is ongoing competition in the Permian Basin for high-quality mineral and royalty assets.
- The company faces challenges in maintaining sustainable water sales growth amid increasing competition and infrastructure demands.
Q & A Highlights
Q: Can you speak to the drivers of the sequential increases in water sales and produced water, and the sustainability of these results?
A: Tyler Glover, CEO: The increase is driven by expanding our reach beyond TPL's acreage, with 73% of sales off our footprint. The team has built additional storage and infrastructure, allowing us to meet growing demand from simul-frac and trimul-frac operations. On the produced water side, new tie-ins and robust activity in contracted areas have contributed to volume growth. We expect strong performance to continue, though the second half of the year might be softer.
Q: How do you view the outlook for activity in the near term, and how do you expect the oil cut to trend over time?
A: Chris Steddum, CFO: The near-term inventory is encouraging, setting us up for potential growth. We expect a mid-40% oil cut, which is consistent with past performance. New wells tend to have higher oil cuts initially, but overall, we anticipate maintaining this range.
Q: What are the ideal deal sizes and key criteria for potential mineral acquisitions?
A: Tyler Glover, CEO: We focus more on deal quality than size. Smaller deals may not be worth the effort, while larger deals face less competition. Our priority is acquiring high-quality assets that align with our strategic goals.
Q: Can you provide perspective on the recent earthquakes in the Permian and any potential impacts on your acreage?
A: Tyler Glover, CEO: The recent 5.0 earthquake in Scurry County is far from our operations, so we were not affected. Robert Crain, EVP, added that seismic activity in our areas has declined due to regulatory actions on deep disposal wells, benefiting us as volumes are redirected to shallower formations on our properties.
Q: How did you determine the target cash position of $700 million, and how do you decide between share buybacks and dividends?
A: Chris Steddum, CFO: The target cash level allows us to act opportunistically in the market for buybacks or M&A. Deployment decisions are return-driven, focusing on the best risk-adjusted returns. Excess cash flow is returned to shareholders if attractive opportunities are not available.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
