EagleRock Land, LLC (EROK) Q3 2026 Earnings Call Transcript

Today's conference call will contain discussions of non-GAAP financial measures, which we believe are useful in evaluating our performance. These supplemental measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and the appendix of today's accompanying presentation. Now I am pleased to turn the call over to Greg.

Thanks, Chris, and good morning, everyone. Welcome to Eagle Rock's third quarter 2026 earnings call. We once again delivered strong results, a testament to the continued dedication of our employees, the support of our ownership group, and the collaboration of our business partners. We are grateful to have them all in our corner. Adjusted EBITDA was approximately $34 million for the third quarter on strength in our higher margin segments. Free cash flow is approximately $32 million, representing a 93% free cash flow conversion rate. This robust cash flow generation has already allowed us to repay, as of October 31, approximately 25% of the debt we raised to fund the Intrepid Ranch acquisition we announced in August. Positive momentum continued after the end of the quarter, as yesterday we announced a significant new acreage dedication from Double Eagle. Our agreement with Double Eagle 5 dedicates approximately 35,000 acres in Midland and Glasscock counties to us, increasing their total acreage dedicated to Eagle Rock by 50% to over 100,000 acres. Importantly, this acreage dedication underscores the strength of our capital light business model, generating additional royalty revenue without requiring any capital investment by Eagle Rock. The Double Eagle 5 dedication is yet another example of how our footprint, assets, and capabilities combined with our relationship with Double Eagle creates meaningful value for our shareholders. In addition to the Double Eagle 5 dedication, we bolstered our acreage footprint through two bolt-on acquisitions that added approximately 2,000 acres in the Midland Basin for less than 10 times EBITDA. These ranches directly offset our existing footprint in Glasscock and Reagan counties and further strengthen our ability to commercialize our surface acreage across the Midland Basin. Although I refer to these transactions as bolt-ons, I cannot underscore enough how excited we are about what these acquisitions, combined with our new acreage dedication, mean for Eagle Rock. These transactions enhance our dedicated acreage and tie our own organic acquisition strategy directly into our largest shareholder's development footprint. They also expand our water resource and storage capabilities, adding approximately 50,000 barrels per day of brackish water supply capacity, 2 million barrels of above-ground storage, and increase our produced water disposal capacity, which supports monetization of the entire Double Eagle dedicated footprint. Taken together, these transactions reflect continued integration and densification of our position across the Midland Basin. Our acquisition pipeline remains robust and continues to grow, and we see a range of additional opportunities across the portfolio, generally in the 500 to 15,000 acre range, that we believe fit our strategy. Our approach to every acquisition remains the same. We access the development potential of the asset and the strategic fit within our portfolio, and we evaluate whether it's accretive and create shareholder value. We view these recent transactions, along with the Intrepid Ranch acquisition, as a demonstration of our ability to move quickly and decisively when a deal fits our portfolio and our strategy. As a reminder, Eagle Rock owns or controls approximately 288,000 surface acres across the Delaware and Midland subbasins of the Permian. One hundred percent of our revenues are derived from royalties and fees generated from surface land use that requires minimal capital exposure. Our surface-use agreements cover a broad range of activities on our land, and as operators' needs evolve in a fast-changing environment, we are able to mutually agree to terms that benefit both parties. This setup creates a continuous and growing set of opportunities to capture additional value over time. We serve more than 90 different customers, including many well-capitalized leading EMPs, Double Eagle, one of the most active private operators in the Midland Basin, is our largest shareholder and a key strategic relationship for us, and we also benefit from equally deep relationships elsewhere across the basin. Eagle Rock is built for growth. Our base business is already expanding, and acquisitions provide another meaningful avenue to scale our platform. Our management teams and owners' deep industry relationships and regional expertise give us a distinct advantage in identifying and executing acquisitions that complement our existing footprint and build on our high-growth core. Third quarter's results reflect that foundation at work, so let me elaborate on the quarter's highlights. Surface use royalties and surface use revenue both became a larger share of our revenue mix in the third quarter. Because they carry no associated cost of sales, that shift supported our strong margin performance. At our core, we are a royalty business, and we're pleased with the continued strength in these high-margin revenue streams. Turning to Intrepid. When we announced this acquisition, we said we intended to unlock additional royalty opportunities on the asset, including from sand development. We recently executed a lease agreement with a sand operator to develop a sand mine on Intrepid Ranch. This covers a relatively small footprint, but it supports the deep pipeline of permitted activity on and around the ranch from several of the industry's most active operators, and it comes at no cost to us. It expands our royalty set in two ways. First, via a royalty on sand volumes produced, and second, via incremental water sales tied into the mining operation itself. More broadly, our view on Intrepid remains that there is meaningful opportunity to apply the same active management approach that built this platform to optimize this asset. The SAN lease is an early example of that, and we will continue to see similar opportunities as we work through the rest of the portfolio. This same approach extends across our broader platform. We are currently in late-stage negotiations on multiple poor space agreements in New Mexico, each of which will create an additional royalty stream for Eagle Rock. We expect the first royalties to be realized in late 2026 or early 2027. Together with the sand lease, this reflects a deliberate, repeatable strategy of converting our land position into new, high-margin royalty streams. Driven by continued strong operating momentum and the contribution from the Intrepid acquisition, we are raising our full-year 2026 guidance from the range provided during our second quarter earnings call. We will speak to that in more detail shortly. Neil, over to you.

Thank you, Greg, and good morning, everyone. Before I review the numbers, I want to flag an important modeling point. As a reminder, we completed our initial public offering in May, midway through the second quarter. Because of that, and for comparison purposes, our first and second quarter results were presented on a normalized basis, treating the Double Eagle and Shallow Valley contributions, along with public company costs, as if they had been in place since January 1st to reflect the IPO occurring mid-Q2. That being said, third quarter marks the first quarter with results on an as-reported basis with no further need to normalize results going forward. As for third quarter results, we generated revenue of $43.3 million. Looking at the composition of revenue, service-use revenue represented $11.3 million, or 26% of the total. Surface use royalties represented $19.4 million, or 45% of the total, and resource sales represented $12.7 million, or 29% of the total. Surface use revenue and surface use royalties, our two highest margin streams, grew meaningfully this quarter. Recall, both carry no associated cost of sales, which drove our strong EBITDA margin performance during the quarter. Resource sales results reflected brackish water volumes in New Mexico, consistent with the pace of completions activity on our acreage and broadly in line with our expectations. In Texas, resource sales volumes increased as our shallow valley system continued to benefit from the accelerated synergy realization through its connection with the DE flow water management system. Given these dynamics, we delivered strong adjusted EBITDA for the quarter of $34 million and a margin of 78.5%, compared with a normalized adjusted EBITDA margin of 77.5% in the second quarter. We would expect EBITDA margins to be in the range of 73% to 75% in the fourth quarter. Capital expenditures for the quarter remained low and were approximately $1.1 million, driving strong free cash flow of approximately $32 million and resulting in free cash flow conversion of approximately 93%, underscoring the capital-like nature of our business model. Turning to the balance sheet, as of September 30, 2026, we had $12.3 million of cash and cash equivalents, with $70 million drawn on our $200 million revolving credit facility, with the potential to access an additional $100 million through the accordion feature embedded within our revolving credit facility agreement. As a reminder, we completed the Intrepid acquisition for approximately $78 million, funded primarily through our revolving credit facility. Following our initial $80 million draw in August, we reduced outstanding borrowings by $20 million, or 25%, through the end of October as we allocate approximately $10 million per month towards debt reduction and expect to maintain this pace going forward. Consistent with our strategy, our strong balance sheet and robust free cash flow generation allow us to strategically deploy leverage when compelling opportunities arise, while rapidly reducing debt thereafter. This financial flexibility positions us well to continue executing our disciplined approach to a creative M&A, creating long-term shareholder value. Turning to recent transaction activity, as Greg mentioned, we announced yesterday a new 35,000-acre dedication from Double Eagle 5. This expanded commitment further strengthens our deep relationship with Double Eagle and reflects their continued confidence in Eagle Rock's platform. While it is early to provide specific financial guidance, we expect robust revenue contribution from this dedication beginning in 2027. with further meaningful growth in subsequent years consistent with Double Eagle's drilling and completions cadence. Importantly, as a reminder, this represents royalty revenue, which carry no associated costs and is 100% margin. Additionally, we recently closed two strategic acquisitions in the Midland Basin where we combined a consideration of $15.4 million in aggregate, which we funded through a combination of cash on hand and borrowings under our existing revolving credit facility. As it relates to capital allocation, we continue to view cash and debt as our preferred sources of M&A financing, avoiding dilution to existing shareholders. As previously noted, executing on thoughtful, accretive M&A remains our top priority, strategically deploying leverage when appropriate while rapidly reducing debt thereafter. More broadly, capital allocation, including a potential nominal dividend, remains a topic we discuss and evaluate regularly alongside our other priorities with our board. Turning to our full-year 2026 outlook, we are raising our normalized adjusted EBITDA guidance to a range of $133 million to $137 million, reflecting continued strong momentum across our business. The revised $135 million midpoint represents a $4 million increase from our prior $131 million midpoint, which excluded the contribution from the Intrepid acquisition. Importantly, of the $4 million increase, approximately $2 million is driven by additional organic growth, with approximately $2 million attributable to Intrepid. This marks the second consecutive increase to our full-year 2026 EBITDA outlook. Looking further out, while it is early to provide formal 2027 guidance, we would like to reiterate the same broad framework we discussed during the IPO process and since. We continue to expect 20% organic growth from our original 2026 EBITDA baseline as a reasonable starting point, with a creative M&A further added to this. Suffice it to say, we remain extremely excited for what 2027 holds for Eagle Rock land. In summary, the third quarter marked another period of strong operational execution, while our recently announced strategic transactions further demonstrate our commitment to advancing our long-term strategic priorities and focus on accretive growth. We look forward to sustaining our momentum and driving value for all our shareholders. Thank you for joining us. Operator, you may now begin the Q&A session.

We will now move on to the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Teresa Chen with Barclays. Your line is open. Please go ahead.

Good morning. I wanted to delve a bit further on the additional... Double Eagle Acres dedication. As development ramps, how should we think about the timing and mix of incremental water easement and surface use revenues and ultimately earnings contribution from the dedication from here?

Good morning, Teresa. Thank you for joining. We're super excited about the Double Eagle 5 acreage dedication into Eagle Rock. I think it doubles down on Double Eagle's conviction in our business model and the fact that we are super convicted in owning land in the Permian. We truly believe it's the best place in the world to own Surface for many of the reasons we've detailed out. I will tell you that the Double Eagle 5 dropdown is very similar to the Double Eagle 4 assets that were contributed to us at IPO. From a sense of, you know, there's no capital outlay to Eagle Rock. It's 100% margin revenue coming our way. And, you know, even better than the contribution at IPO, there's no cash out the door for us, which I think further reiterates Double Eagle's conviction in Eagle Rock as, you know, the premier surface land. Acquirer in the basin and in the world. I'll pass it over to Neil to kind of talk through what we're seeing for 2027 and beyond.

Thanks, Greg. Good morning, Teresa. You know, as Greg said, I'd start when I say first, we're extremely fortunate to have Double Eagle as a strategic partner. And this new dedication really does further that relationship. It really reflects their confidence in us and really underscores our long-term growth strategy and driving EBITDA and shareholder value. In terms of the financial contributions, I can tell you we've had conversations with Double Eagle, and we're very excited about this future royalty revenue derived from that education, both in 2027, where we expect robust contribution and meaningful contribution even thereafter. You know, it's a little bit early to give precise numbers, only because, as you know, similar to other EMPs that set their program, their capital, we're sitting here in October, which is something they usually prep here as we move into 2027. So we're just slightly early on that. But I think you can really tell from our excitement that this is meaningful, right? If I look at all the elements of what we reported this morning, the beat on EBITDA, increasing 2026 guidance, we're talking about the progression of Intrepid, two other acquisitions announced, I think the biggest impact in my mind to 27 and beyond is really this Double Eagle 5 announcement that we're discussing with you here today. So, look, I think this just really reinforces that robust multi-year growth that really reinforces the strength of our capitalite business and my confidence that we want to portray it to you all that the long-term earnings trajectory for Eagle Rock is material and real.

That's very helpful. Thank you both. Shifting gears a bit, following the election results in Texas, how are you thinking about the potential implications of the new state leadership for energy development and infrastructure investment at large?

Yeah, I think it's a great question. I think we've had a truly differentiated approach. When you think about data center optionality, we're continuing to look at the opportunity set as a great call option on a surface business that already generates substantial free cash flow. In our mind, our view hasn't changed. What Texans said in the election last night is that they want data centers that don't raise their power bills, they don't compete for local municipal drinking water, and have support from the community. And I think that further doubles down on the Permian's case to be the data center hub for the country. We've got abundant gas to generate power without leaning on residential tax rate payers. We have abundant produced in brackish water instead of straining municipal supply. And communities that have built their economies around industrial development are all over the Permian. So they're used to this kind of activity. And so, in short, you know, I think the Permian's access to water, the Permian's access to cheap natural gas, an abundance of land, which Eagle Rock has in spades, combined with, you know, I think one of the biggest hurdles for this industrial development is power. And I would say that we're making real progress on a power solution on our lands that we'll be excited to talk with you all about, you know, in the coming months.

Thank you.

Your next question comes from the line of Alexander Goldfarb with Piper Sandler. Your line is open. Please go ahead.

Hey, morning down there. Just following up that line of question on the election, I saw that one of the Texas Railroad commissioners went to a Democrat, and just you outlined the impact thoughts on data centers, but what about produced water, re-injection, anything like that? Do you see any changes to Texas's traditional accommodative approach to produced water handling and, you know, and use of the land, or do you think that that could change under the new leadership in Austin?

Yeah, great question. I would say that, you know, the two kind of governing bodies as it relates to oil and gas and kind of industrial development, you know, particularly on the Texas side of the Permian Basin are the Railroad Commission and the TCEQ, and both have very similar structures. Each has a set of three commissioners with staggered six-year terms. And so I think, you know, from that perspective, you know, at least for the next four years, you will have kind of a similar construct as you do now. And then, you know, six years from now, I think that'll be a conversation for, you know, a different day. I think at the end of the day, once again, what the Permian provides from a development and industrialization perspective is a mutually agreeable and kind of compromise when you think about you're able to develop these massive projects and you're not straining resources that would harm communities or kind of increase their cash out of their pockets. Based on, you know, increased rates, you know, from electricity. You know, I think the behind the meter power story and the Permian continues to pick up speed, and we're continuing to focus our time and attention on that.

Okay, and second question is, Neil, on the Double Eagle 5, you said that it was a cashless transaction, but you also said you expect a lot of growth out of it. It's 100% margin. Can you just remind us, like, why Double Eagle would, you know, basically… Convey land to you guys at no cost and you know what their economic side of the equation is and and also it you know what you what we should expect as the project ramps in 27 as far as EBITDA contribution from the double equal five.

Yeah, all great questions. And so to be crystal clear, it's not a conveyance of land. It's a dedication of the water requirements, the produce water takeaway, the recycling. As Greg said, it's very similar to Double Eagle 4. So I would think about it in the context of Double Eagle 4 and the next iteration is Double Eagle 5. So it's from that perspective of how I'd view it. I mean, they've been great strategic partners. It's important to remember they're our largest shareholder. So I think a lot of those components in terms of our ability, as we've demonstrated, to prosecute and help along their program and assure their needs for water, produce water takeaway, and recycled water as well. So again, it's not a conveyance of land. It's really just a dedication, again, similar to Double Eagle 4. Now, your next question pertains to the growth of EBITDA. As they ramp up, I'm going to speak to it kind of on a holistic basis. As I've seen initial look, I can tell you it's meaningful. It's material. In my mind, it's one of the most important things we've probably announced since inception from our IPO. This is going to move the needle for us as we move out. You know, they're going to ramp into their program in 2027. And then you start to see, I'd say, more meaningful growth in 2028 and beyond. You know, it is a little bit early because they're still working through the specific details. Because I'll be honest, I would love to give you and the street firm numbers, but we want to be very prescriptive. And we want to be precise in terms of what we deliver and what we say. And to be fair to Double Eagle and all other operators, right, it's no operators really provided 2027 plans and guidance yet. So I think it's pretty much consistent there. But think about it as you step into it in 2027, as they increase the cadence of drilling and completions activity that then kind of is more meaningful as you move into 2028 and beyond.

Thank you.

Of course.

Your next question comes from the line of Derek Whitfield with Texas Capital Bank. Your line is open. Please go ahead.

Good morning, guys, and congrats on a strong quarter update and also your M&A. Thank you. I wanted to start on M&A. Just with the success you've announced today, I wanted to ask how you would characterize the competitive landscape and opportunity for surface M&A in midland as you see it today versus where it was six months ago.

Yeah, absolutely. Appreciate the question. I would say, you know, from an M&A perspective, you know, transactions and growing inorganically is one of the lifebloods of our business. We have a robust pipeline of deals in both the New Mexico, Delaware, and the Midland Basin in Texas, ranging anywhere from a half section, which is, you know, 300 plus acres, all the way up to 15,000 acre, you know, commercialized properties in size. I would also add that there are, you know, additional opportunities out there as it relates to drop downs, you know, similar to Double Eagle Five. I would say that our relationships, our network, and our reputation of being able to transact has increased the deal flow since we went public. And to directly answer your question, I think the competition over the last six months has remained relatively steady with the only thing changing is us now having a balance sheet with a lot of liquidity and a public currency that gives us added flexibility to do more M&A like we set out to do on our roadshow six months ago.

Just as a follow-up to that, and I'm really happy you laid it out that way, but when you think about Double Eagle 5, how would you characterize potential other dedications or even beyond Double Eagle dedications that could become part of the calculus in the future? Any color you could offer, they would be appreciated.

Yeah, absolutely. You know, Double Eagle has… I would say they are more or less vertically integrated across the oil and gas value chain. So there are some opportunities on the ENSP side of things. They do have a minerals and royalty business that is not our core focus, but they also have some non-op. Not not positions with some pretty premier, you know, public and private operators in the Midland Basin. I would take it a step further. We have, you know, as a part of our ownership group, you know. A group with deep Midland ties that have other avenues to where, you know, we would be privy to more surface. I think at the end of the day, our mission statement has stayed the same in terms of looking for accretive surface positions that we can extend our reach with, you know, combining what we currently have in the portfolio.

Thanks, Greg. Great update, guys.

Your next question comes from the line of John McKay with Goldman Sachs. Your line is open. Please go ahead. As a reminder, please unmute your device locally. Your next question comes from the line of Eli Jasson with J.P. Morgan. Your line is open. Please go ahead.

Hey, good morning. Just wanted to circle back to some of the color you gave on 2027. I think you referenced 20% growth off of the original 26 guys. Um, I reckon. But just high level, can you walk us through some of the key drivers we can think about next year, particularly with respect to some of the recent integrations and, you know, kind of opportunities you have on W5 and the other platforms? Thanks.

Sure, great question. And you kind of broke up there for a second, so I'll just give you kind of a broad look overview of how we think about 2027. To start, you're absolutely right. It's kind of that 20% growth relative to the initial 2026 EBITDA outlook, and then it's incremental from there. And you've seen a lot of increments in terms of, you know, what we're even discussing and talking about here. The Intrepid Acquisition, as we discussed in the M&A, and the ability to further grow that EBITDA and commercialize that. And as we discussed, we've already started a process there with the announcement related to the sand mine, the support there, right? We're talking about AGI wells that are incremental. We've got two that are in deep discussions right now, late-stage negotiations, solid waste facility. We talk about, and Greg's talked about, behind the power generation, behind the meter power generation. We've got a lot of progress there. Then you've got the double-eagle component as it pertains to D5. All of that is additive to that outlook as it pertains to 2027. So if you were to ask me, looking at consensus, what do I think about consensus? I think it's conservative. I mean, that's 2027 EBITDA, for all intents and purposes, is 14 months out from where we sit now, and I look at everything that we've accomplished just in the last six months and everything that we've delivered and how we've grown the business, how we've commercialized the business, and we've actively built the business to continue to grow through M&A and the continued commercialization of that M&A. I feel really good about 2027. And then when you look at it through the lens of what DE5 will add as well, you know, if I sit here looking at where I believe 2027 will end, I think estimates for 2027 in my mind look conservative. So that should give you kind of a, I think, a good way to kind of think about the business and the progression of the business and thoughts on 2027. I hope that's helpful.

Yeah, it's very helpful. It's great color. Thanks. And then maybe shifting to the kind of M&A landscape more broadly. Obviously, you've executed a ton of, you know, successful activity already, but can you just walk us through kind of what the opportunity set looks like from here? You know, what specifically you're targeting? And, you know, if you think there's anything, you know, with a little more scale out there that you could go out and acquire.

Yeah, absolutely. We have some chunkier things we are looking at, both in New Mexico and Texas. But at the same time, you know, I would argue that, you know, what we what we bought, you know, here recently on the two acquisitions that complemented the drop down, we're super happy about. There's, you know. There's pros to both of them. You know, the lower place ranch is directly offset Double Eagle 5's, you know, dedication and drop down. And so what we can do there, you know, from an above ground storage perspective on the water side, there are, you know, two SWDs, you know, in the permit and development process. And what we can do there to kind of service their needs, combined with kind of the easement and kind of activity levels that are occurring in that part of the Midland Basin get us super excited. And then when you think about the Evans acquisition down south, that ranch is directly offset and adjacent to our current stronghold down there and is largely unencumbered. So what you can do with a lot of white space in an area of high activity is super exciting. On the Midland Basin side, you know, we do have. You know, some more chunky acreage acquisitions that we are looking at. As I mentioned earlier, the pipeline is super robust, but, you know, everything that we look at is going to maintain that high hurdle rate that we can, you know, buy accretively and make sure that we can go in and commercialize, you know, the assets on the ranch, you know, to increase value for everyone here and on the phone.

And, you know, to Greg's point, you know, we even double clicking on those two acquisitions in terms of what we underwrote the acquisition as pertains to EBITDA generation, where I believe we can take it. You know, I'll be honest, I'd be disappointed if we didn't grow that EBITDA footprint through the commercialization efforts by 50 to 80 percent over the next 18 months. I mean, those are the elements that are really going to drive further growth into 2027, and we still have 14 months for additional M&A, right? That isn't even contemplating the conversation that you and I are having right now. So I think if you take all those elements of what I said previously, these acquisitions, our ability to commercialize acreage, I think that portends very well for Eagle Rock Land, its employees, and most importantly, as well, our shareholders.

Great. Thanks, guys.

Your next question comes from the line of Michael Furrow with Pickering Energy Partners. Your line is open. Please go ahead.

Hey, good morning, Greg Neal on the Eagle Rock team. Look, we're not hearing any material acceleration of activity levels from public operators at this time, but we did notice that the service's revenues increased quarter over quarter, so we were hoping that maybe you could offer some commentary on what the team's seeing on the ground just in terms of activity levels, maybe in both the Midland and Delaware basins.

We continue to see strong activity, right? If we look at the rig count just as a simple proxy, I mean, we consider and we've seen continued strong operational and rig cadence. I mean, I can tell you specifically from conversations that our team are having because we probe deep not only into 4Q, right, because we increased our guidance. So from our perspective, we need to have confidence in that rig cadence and the deliverability. And from our conversations with the operators, it also, in part, led to our ability to increase 4Q and also, in part, to speak to 2027 in the direct confidence in the manner in which we are. So those conversations that we're having speak to a really strong program here as we move into 2027 and through 2027. So I guess in direct response to your questions, the conversations and the early indications are 2027 is going to be exceptionally strong.

Yeah, and I would add on that, you know, we mentioned in our materials and our release that we had a few, you know, AGI projects and late stage negotiations. We actually inked one of those this morning. And so super excited about that. Still have, you know, one more kind of in the negotiating phase. But along with receiving royalty, you know, from the injection of gas, we also, you know, those. Those midstream operators have to build pipelines, you know, away from where they're separating gas and sending it to commercial markets. So, you know, the activity levels we're seeing from the midstream companies, you know, would tell you that, you know, operators are still continuing to, you know, put the pedal down as it relates to development.

Great. Appreciate the commentary. Just on the quarters, nice another beat out the gate. It's good to see the continued execution. We were a little surprised to see the resource sales revenue down quarter over quarter despite similar brackish water sales. We presume it was just a standard lumpiness or one-on-quarter given the full year guidance raised, but maybe you could offer some insight into the Delta.

Yeah, I mean, it's exactly what you said. There's a slight amount of lumpiness. You saw a number of rigs move into the basin during the first quarter, which really led to that first quarter. They were drilling wells, and there was a completions lag, so you saw a big uptick in 2Q. Then there's that cadence of drilling. And then as our expectations from conversations and understanding the cadence, that 4Q, you'll see a rebound in volumes and pricing for Bradshaw Water. Really, it's just a function of, as you point out, the completions and drilling activity on a quarter-to-quarter basis. But our belief and our conversation we had 4Q is going to see a rebound, and then you'll see continued growth, actually, in 2027, based upon the commentary I made as relates to conversations with operators.

All right, that makes sense. Thanks for your time. Thank you.

Your last question comes from the line of Jared Giroux with Stevens. Your line is open. Please go ahead.

Hey, good morning, guys, and congrats on a strong quarter. So my first question is to do with the free cash flow conversion. Yeah, so it reached about 93% in the quarter, and you indicated an expectation to allocate about $10 million per month towards debt reduction. I'm just wondering how you're balancing that deleveraging objective against acquisition opportunities, and then is there a leverage level that you'd maybe become more aggressive if there are some larger acquisitions out there? Thanks.

Yeah, it's a good question. Maybe I should just start with the overall thoughts on the balance sheet and how we think about debt. To me, debt really provides those safety guardrails on the business without really being an impediment to the business, meaning it provides the safety, but it's not going to impede our ability to prosecute accretive acquisitions that we feel are in the best interest of our shareholders. We've got a very capital-like business. A tremendous amount of our EBITDA converts into free cash flow, as you pointed out. In fact, 93% of that EBITDA is actually converted into free cash flow. So if you look at even based on what we – let's just take the Intrepid acquisition where we drew down $80 million. We've had the capacity and the ability, as we've been prosecuting, to pay down incremental $10 million per month of debt on that $80 million. So you've got your $200 million revolving credit facility. We drew $80 million. Since then, we've paid down an additional $20 million. We did pull a little bit for these acquisitions, but again, the ability to pay down that $10 million per month as a starting point is pretty impressive. And suffice to say, the revolving credit facility in its fullness, remember, it's $200 million with the ability to increase that by an additional $100 million through the agreement as it relates to the accordion feature. So our debt capacity and our ability to take on incremental leverage is there. That's not an impediment to the business. I'd actually say it's an enablement to the business. Now, if we find those acquisitions and they're going to deliver growth and they're in the best interest of the shareholders, we have the ability from a balance sheet perspective to prosecute those acquisitions, and I can assure you that we will.

Yeah, to dovetail on that, we've talked about You know, the dynamic as it relates to surface M&A. You know, it's not like leaseholder minerals. You can see it. You know, these acreage positions have likely been owned inside of the same family for decades. And so there's an attachment to that rather than, you know, owning something subsurface. And so us having a ton of liquidity and a public currency to be able to transact when we're able to kind of pry some of these bigger positions loose is paramount. And so we think, to Neil's point, our balance sheet and our currency enables us and strengthens our case to be able to pursue that accretive M&A that we continue to talk about.

That's perfect. Thanks for the color. And then, yeah, just one more to wrap it up. So you did, you raised the midpoint of 2016 EBITDA guidance by 4 million. 2 million of that is for Intrepid Ranch, and the other two is for organic growth. Can you just elaborate on the underlying drivers of that organic growth improvement? Thanks.

Yeah, it's really strength across the business. We're seeing that. We talked about service use royalties were strong. Service use revenues were strong. I discussed how in 4Q, you actually see a rebound relative to Q3 and resource sales. So really a strength across the business. Then if you really dig a little bit deeper and you think or talk about all those elements that Greg and I are discussing here as it relates to sand, AGI wells, and some of those other elements that really start to kick in towards the end of 2026 but are more meaningful into 2027. So I'd say it's the full business that are really, and kudos to the operations teams because everyone's out there on a day-to-day basis making it happen. But it's those conversations that are happening with operators that are really driving the fullness of the business in terms of where we're seeing the benefit.

All right. Good quarter, guys. Thanks.

Thank you.

There are no further questions at this time. I will now turn the call back to Greg Pipkin, Chief Executive Officer, for closing remarks.

I want to thank everyone for spending their time with us on a busy Wednesday morning, kind of post-election and right in the middle of earnings season. We at Eagle Rock are super excited about our quarter and the go-forward proposition of our business. I think we all remain super convicted that our platform and our business model are tremendous and that owning land in the Permian Basin is the best place to do it. Looking forward to catching up with you all shortly. Thank you very much.

This concludes today's call. Thank you for attending. You may now disconnect.