LandBridge Company LLC (LB) is a unique player in the energy industry, strategically positioned to capitalize on the growth and evolution of the Permian Basin. With a diversified business model and a focus on active land management, the company has established itself as a trusted partner for oil and gas producers, as well as a rising force in the renewable energy and digital infrastructure sectors.
Business Overview and History LandBridge Company LLC was formed on September 27, 2023, as a Delaware limited liability company to serve as the issuer in an initial public offering. The company's accounting predecessor is DBR Land Holdings LLC (OpCo) and its subsidiaries, which was formed in September 2021. Prior to the initial public offering, OpCo was treated as a partnership or disregarded entity for federal income tax purposes.
In October 2021, OpCo's subsidiary, Delaware Basin Ranches, Inc., entered into a $65 million credit agreement, known as the Ag Loan, that was scheduled to mature in October 2028. This debt was later repaid in full in July 2023 using borrowings under a new credit facility.
In July 2023, OpCo entered into a four-year credit agreement providing for a $100 million term loan and a $50 million revolving credit facility, which were used to repay the prior Ag Loan and make a distribution to the company's then-sole member, NDB LLC. In May 2024, this credit facility was amended to increase the term loan to $350 million and the revolving credit facility to $75 million in order to fund a portion of the purchase price for certain acquisitions.
The company underwent a corporate reorganization in connection with its initial public offering in July 2024. This reorganization involved the division of NDB LLC into two Delaware limited liability companies - NDB LLC and LandBridge Holdings LLC. Following the reorganization, LandBridge Holdings became the sole member of OpCo and owns 100% of the company's Class B shares.
The initial public offering in July 2024 raised approximately $270.9 million in net proceeds, which were contributed to OpCo in exchange for OpCo units. The proceeds were used to repay outstanding borrowings under the company's credit facilities and make a distribution to LandBridge Holdings.
LandBridge's core assets include fee surface acreage, oil and natural gas mineral interests, brackish water wells and ponds, and related facilities, primarily located in the Delaware Basin, which spans across Andrews, Loving, Reeves, Pecos and Winkler Counties in Texas and Eddy and Lea Counties in New Mexico. As of September 30, 2024, the company owned approximately 221,000 surface acres in this prolific region.
The company's strategy revolves around the active management of its land and resources to support and encourage oil and natural gas development, as well as diversify its revenue streams by targeting opportunities beyond the hydrocarbon value chain, such as solar power generation, power storage, cryptocurrency mining, and data management. LandBridge's ability to provide access to its expansive surface acreage has made it a valuable partner for a wide range of industries.
Financial Performance and Ratios In the latest reported quarter, LandBridge delivered strong financial results, with revenues of $28.5 million, representing a 60% year-over-year increase. This growth was primarily driven by a 14% sequential increase in surface use royalties and a 29% sequential increase in resource sales and royalties. However, oil and gas royalties declined 35% sequentially due to a decrease in net royalty production and lower average realized pricing.
Despite the volatility in oil and gas royalties, LandBridge's highly efficient operating model allowed the company to generate adjusted EBITDA of $25 million, up 62% year-over-year, with an impressive adjusted EBITDA margin of 88%. The company also produced free cash flow of $7.1 million, with a free cash flow margin of 25%.
Financials LandBridge's financial performance demonstrates the company's ability to generate substantial revenue and maintain strong profitability. The company's diversified revenue streams have helped to offset fluctuations in oil and gas royalties, contributing to overall financial stability. The impressive adjusted EBITDA margin of 88% highlights the company's operational efficiency and ability to control costs effectively.
For the most recent fiscal year (2023), LandBridge reported revenue of $92.90 million, net income of $11.35 million, operating cash flow of $53.04 million, and free cash flow of $50.26 million. In the most recent quarter (Q3 2024), the company reported revenue of $28.49 million, a net loss of $2.76 million, operating cash flow of $7.45 million, and free cash flow of $7.15 million. The year-over-year revenue growth for Q3 2024 was 60%.
The increase in revenue was primarily driven by growth in surface use royalties, easements and other surface-related revenues, and resource royalties, partially offset by a decrease in oil and gas royalties. The decrease in net income was due to higher non-cash share-based compensation expense related to the company's incentive unit awards.
Liquidity As of September 30, 2024, LandBridge had total liquidity of $74.4 million, including $14.4 million in cash and cash equivalents and $60 million in available borrowing capacity under its revolving credit facility. The company's net leverage ratio stood at 2.8x, down from 4.2x at the end of the second quarter, as it continued to execute on its capital allocation priorities, which include maintaining a strong balance sheet, returning capital to shareholders, and pursuing value-enhancing land acquisitions.
Additional liquidity metrics include a debt-to-equity ratio of 2.86, a current ratio of 0.73, and a quick ratio of 0.73. The company has $60 million available under its $75 million revolving credit facility.
Diversified Revenue Streams and Growth Opportunities One of LandBridge's key strengths is its diversified revenue streams, which help mitigate its exposure to fluctuations in commodity prices. In the third quarter of 2024, non-oil and gas royalty revenue streams, including surface use royalties and revenues, as well as resource sales and royalties, accounted for 90% of the company's total revenues, up from 83% in the previous quarter and 65% in the same quarter a year ago.
The company's active land management strategy has enabled it to capitalize on a broad array of commercial opportunities in the Permian Basin and beyond. In addition to its core oil and gas-related revenues, LandBridge has made significant strides in diversifying its business, particularly in the renewable energy and digital infrastructure sectors.
LandBridge's revenue streams can be categorized into two main segments:
1. Surface Use Royalties and Revenues: - Surface use royalties: LandBridge enters into surface use royalty agreements (SURAs) with operators that require royalty payments based on a percentage of the customer's gross revenues derived from use of LandBridge's land and/or volumetric use of infrastructure installed on the land. These royalties include payments for services like produced water transportation and handling, skim oil recovery, and produced water throughput and waste reclamation. - Easements and other surface-related revenues: LandBridge grants surface use agreements (SUAs) that allow operators to install infrastructure like drilling sites, pipelines, roads, and electric lines on LandBridge's land. LandBridge receives per-rod or per-acre fees when the contracts are executed, as well as additional fees at the start of renewal periods or on a monthly/annual basis.
2. Resource Sales and Royalties: - Resource sales: LandBridge sells brackish water, primarily for use in well completions, at negotiated per-barrel fees. It also sells other surface composite materials like caliche for construction. - Resource royalties: LandBridge leases surface acreage to customers to construct and operate brackish water wells and sand mines, for which it receives royalties per barrel of water or ton of sand extracted. - Oil and gas royalties: LandBridge receives royalties from its owned oil and gas mineral interests when hydrocarbons are produced from those leases.
In November 2024, the company announced the execution of a lease development agreement for the construction of a 1-gigawatt data center and related facilities on approximately 2,000 acres of its land in Reeves County, Texas. This project includes a non-refundable $8 million deposit and is expected to generate escalating annual lease payments, as well as additional revenue from the power generation facilities to be located on the leased property.
Furthermore, LandBridge continues to expand its land holdings, recently acquiring an additional 1,200 surface acres in Winkler County, Texas, and entering into a contract to acquire 5,800 acres in Lea County, New Mexico. These strategic acquisitions, situated in close proximity to the company's existing Stateline assets, are expected to drive further synergies and growth opportunities.
Risks and Potential Headwinds While LandBridge's diversified business model and active land management approach have proven successful, the company is not without its risks and potential headwinds. The company's revenues are still heavily dependent on the level of activity in the energy industry, particularly in the Permian Basin. A prolonged and substantial reduction in oil and natural gas prices could adversely affect development and production activity levels, thereby impacting demand for LandBridge's land and resources.
Additionally, the company's ability to generate revenue from its surface acreage is subject to the success and performance of its customers, which include oil and gas producers, renewable energy developers, and other commercial entities. The failure of these customers to maintain their operations or meet their contractual obligations could have a material adverse effect on LandBridge's financial results.
Furthermore, the company's growth strategy, which includes the acquisition of additional surface acreage, is subject to risks related to the identification and successful integration of such assets. Any difficulties in executing these acquisitions or realizing the anticipated benefits could hinder LandBridge's ability to achieve its long-term growth objectives.
Outlook and Guidance Despite these risks, LandBridge remains optimistic about its growth prospects. The company has provided guidance for the full year 2024, expecting $95 million to $100 million in adjusted EBITDA. This guidance takes into account the higher-than-expected surface use royalties and the $8 million lease development agreement deposit payment related to the data center project.
Looking ahead to 2025, LandBridge expects to generate $140 million to $160 million in adjusted EBITDA, driven primarily by the incremental contributions of its recent acquisitions, the initial contribution of a 250-megawatt solar facility to surface use revenues, and the continued growth of surface use royalties through higher produced water volumes.
The Delaware Basin, where LandBridge operates, has seen strong growth in oil and gas production, with a CAGR of 23% from 2016 to the first half of 2024 for oil production and 21% for water production. The EIA expects Permian Basin oil production to grow by an additional 230,000 bpd in 2025.
In addition, the Inflation Reduction Act passed in 2022 provides incentives for renewable energy development, which could benefit LandBridge as it pursues opportunities in solar, data centers, and other non-hydrocarbon commercial activities on its land.
Conclusion LandBridge Company LLC has established itself as a unique and promising player in the energy industry, leveraging its strategic position in the Permian Basin to generate diversified revenue streams and capitalize on the evolving landscape of the energy sector. The company's active land management approach, coupled with its ability to attract a wide range of commercial partners, positions it well to deliver sustainable growth and value creation for its shareholders.
Despite the risks and potential headwinds, LandBridge's strong financial performance, efficient operating model, and commitment to diversification provide a solid foundation for the company's continued success. As the Permian Basin and the broader energy industry continue to evolve, LandBridge is poised to play a significant role in shaping the future of this dynamic market.