Texas Pacific Land Corporation (TPL): Unlocking Value Through Innovative Water Solutions

Published on September 24, 2024 | Ticker: TPL

Texas Pacific Land Corporation (NYSE: TPL) is a unique land and resource management company that has consistently delivered exceptional financial performance and shareholder returns. With a diversified business model spanning oil and gas royalties, water services, and surface-related income, TPL has demonstrated its ability to navigate the dynamic energy landscape and capitalize on emerging opportunities.

Financials

In the first quarter of 2024, TPL reported robust financial results, with revenues reaching $174.1 million, a 19.0% increase compared to the same period in 2023. Net income for the quarter stood at $114.4 million, a 32.2% year-over-year improvement. The company's strong performance was driven by a 19% sequential quarter-over-quarter increase in water sales, produced water royalties, and easements and other surface-related income, which collectively accounted for nearly 50% of total consolidated revenues.

Water sales, in particular, were a standout, generating $37.1 million in revenue, nearly a company record. TPL's strategic focus on expanding its water services and operations segment has paid dividends, as the company leverages its extensive surface acreage and infrastructure to meet the growing demand for water solutions in the Permian Basin.

The company's oil and gas royalty revenue also remained robust, reaching $92.1 million in the first quarter, a 3.4% increase compared to the same period in 2023. TPL's share of production increased to 24.8 thousand barrels of oil equivalent (Boe) per day, up from 20.9 thousand Boe per day in the prior-year quarter, despite a 4.6% decline in the average realized price per Boe.

Outlook

Looking ahead, TPL's near-term well inventory remains elevated, with 5.1 net permitted wells, 10.3 net drilled but uncompleted wells, and 2.2 net completed, not yet producing wells. This robust pipeline of activity provides the company with confidence that its royalty production will continue to grow.

Recent Developments

In addition to its core business operations, TPL has made significant strides in its water-related initiatives, particularly in the areas of produced water desalination and beneficial reuse. The company has developed a promising new energy-efficient method of produced water desalination, leveraging a process known as fractional freezing. This innovative approach aims to address the growing challenges faced by the industry in managing the increasing volumes of produced water generated in the Permian Basin.

TPL's desalination technology has the potential to unlock new possibilities for the beneficial reuse of produced water, which the company is actively exploring. Through extensive in-house testing and partnerships with leading research institutions, TPL is evaluating the use of desalinated produced water for crop irrigation, native plant growth, and potential discharge into tributaries and aquifer recharge.

The company's water-related initiatives are housed under a newly formed subsidiary, Transmissive Water Services LLC, which is a wholly-owned subsidiary of Texas Pacific Water Resources, LLC (TPWR). TPL is currently in commercial negotiations with blue-chip upstream operators as it moves towards the next phase of constructing a larger 10,000 barrel per day desalination test facility, which is expected to cost approximately $20 million on a 100% basis.

Liquidity

The company's strong financial position, with $837.1 million in cash and cash equivalents as of March 31, 2024, provides it with the flexibility to invest in these strategic initiatives while maintaining its commitment to shareholder returns. In the first quarter of 2024, TPL paid $26.9 million in dividends to its stockholders and repurchased $10.3 million of its common stock.

Conclusion

TPL's diversified business model, innovative approach to water management, and robust financial performance have positioned the company as a leader in the Permian Basin. As the industry continues to grapple with the challenges of produced water, TPL's water-related initiatives could unlock significant value and solidify the company's position as a key player in the region's energy ecosystem.

With a strong balance sheet, a proven track record of value creation, and a forward-looking strategy, Texas Pacific Land Corporation remains well-positioned to capitalize on the evolving dynamics of the energy industry and deliver sustainable growth and returns for its shareholders.

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