Earnings Call Transcript - LB Q4 2024

Operator, Operator

Thank you for joining us for the LandBridge Fourth Quarter 2024 Results Conference Call. All lines are muted to minimize background noise. Following the speaker's comments, we will have a question-and-answer session. I would now like to hand the call over to Jason Long, Chief Executive Officer. Please go ahead.

Jason Long, CEO

Good morning everyone and thank you for joining our fourth quarter and fiscal year 2024 earnings conference call. We continue our exceptional growth trajectory in the fourth quarter of 2024, growing revenue 109% and adjusted EBITDA 108% year-over-year with an 87% adjusted EBITDA margin. For the full year ended December 31, 2024, we grew revenues 51% year-over-year, adjusted EBITDA by 55% year-over-year and achieved 88% adjusted EBITDA margins. As we reflect on our first six months as a public company, it is clear that our active land management strategy is working as expected to create value for our shareholders. 2024 was a year of expansion for LandBridge. We more than tripled our land holdings, growing our total surface acreage from approximately 72,000 surface acres to approximately 273,000 surface acres with 53,000 of those acres acquired in the fourth quarter alone. In December, we acquired 46,000 largely contiguous surface acres known as the Wolf Bone Ranch, which expanded our position in Reeves and Pecos Counties, Texas, a highly strategic location for oil and natural gas production that also provides us access to the Waha Natural Gas Hub. As part of the acquisition, LandBridge secured a minimum annual revenue commitment of $25 million for each of the next five years from VTX and its affiliates, which includes surface operations, brackish water and royalties from produced water handling. We've continued that momentum into 2025, closing on an acquisition in February for approximately 3,000 acres contiguous to our current land position in Lea County, New Mexico. This acquisition increased our current acreage position to approximately 276,000 acres. Additionally, we see significant future growth opportunities from digital infrastructure, renewable energy and commercial real estate. Subsequent to the quarter, we executed two notable agreements. We executed a development agreement with Western Midstream Partners LP, providing a surface and pore space solution for a portion of the recently announced Pathfinder produced water pipeline and related produced water handling facilities on our East Stateline range. Additionally, we executed solar energy project development agreements with affiliates of DESRI, a leading developer, owner, and operator of renewable energy projects. The agreements include 6,700 acres in Andrews County, Texas and Lea County, New Mexico, for which DESRI has submitted an interconnection request to the Southwest Power Pool. We're excited to be able to announce these two agreements that speak to our continued success to actively commercialize our land. We remain confident that digital infrastructure will be an important growth driver for our business moving forward. The rapid development of AI and related need for data centers, among other high computing power demands, such as crypto mining, will continue to require access to cheap power and water for cooling. Our acreage in West Texas is well positioned to support these requirements and will remain actively engaged in seeking potential opportunities with these interested parties. As a reminder, in November 2024, we officially signed our first lease development agreement for the development of a data center and subsequently received an $8 million payment in December. The payment is a one-time non-refundable deposit for a two-year site selection period with the potential for a data center to be constructed within four years thereafter. The success of our IPO, the increase of our surface acreage and the signing of new commercial agreements speak to the momentum of our active land management strategy. Scott, now over to you.

Scott McNeely, President

Thank you, Jason and good morning to everyone joining us today. To echo Jason, we're pleased with the results this quarter, prior to the milestones we reached in 2024 and excited for the promising growth opportunities ahead in 2025. Our fourth quarter revenues increased to $36.5 million, up 28% sequentially and 109% year-over-year. Our full year 2024 revenues increased to $110 million, up 51% year-over-year. Sequential revenue growth for the fourth quarter was driven by surface use royalties and revenues, which increased 54% sequentially, including the $8 million payment related to the data center lease development agreement Jason mentioned as well as increased produced water royalty volumes. Revenue from oil and gas royalties also increased 54% sequentially in Q4, driven by an increase in net royalty production. Resource sales and royalties declined 28% sequentially which is driven by a decrease in brackish water sales and royalty volumes. As highlighted in the past few quarters, we continue to shift our revenue mix towards non-oil and gas royalty-based arrangements to further insulate our exposure to commodity price fluctuations. In the fourth quarter, non-oil and gas royalty revenue, including surface use royalties and revenues and resource sales and royalties accounted for nearly 90% of overall revenue, approximately flat from the prior quarter and up about 20% year-over-year. For the full year, non-oil and gas mineral royalty revenue represented 85% of total revenue, an increase of more than 13% year-over-year. Importantly, our results in 2024 validate our ability to capitalize on growth in the Permian Basin without incurring meaningful operating and capital expenditures. This key feature of our business model translated to an adjusted EBITDA margin of 88% and free cash flow margin of 61% in 2024. In the fourth quarter, we delivered $31.7 million of adjusted EBITDA, up 27% sequentially and 108% year-over-year with an adjusted EBITDA margin of 87%. For the full year ended in 2024, we delivered $97.1 million of adjusted EBITDA. We also generated free cash flow of approximately $26.7 million and a free cash flow margin of 73% in the fourth quarter. For the full year ended 2024, we generated $66.7 million of free cash flow. As noted last quarter, our free cash flow in 2024 was impacted by nonrecurring IPO-related expenses and lease termination costs. Our Q4 free cash flow margin of around 70% is more in line with our long-term expectations. Additionally, we'd like to discuss our surface use economic efficiency which we define as total revenues less oil and gas mineral royalty revenues divided by the applicable acreage. This metric for our legacy 72,000 acre position has increased from $465 per acre in 2022 to $724 per acre in 2023 and to $1,018 per acre in 2024. We think this speaks to our unique ability to significantly increase cash flows on our acreage over time through our active land management strategy and we believe similar growth potential exists on the surface acquired in 2024, again, without any meaningful cash outlay for capital expenditures. Moving forward, we will continue to execute on our capital allocation priorities which include pursuing value-enhancing land acquisitions with a focus on underutilized and under-commercialized surface. As a reminder, we seek to acquire surface that is not just financially accretive but also offers long-term growth potential that mirrors our existing portfolio. We are also focused on maintaining a strong balance sheet to maximize financial flexibility over time. We ended the year with $385 million of debt outstanding under our credit and debt facilities which is up from $281.3 million at the end of the third quarter of 2024. We updated and amended our debt facilities in part to fund our recent acquisitions; as part of the amendments, the requirement for quarterly amortization payments was removed which will improve cash flow and liquidity to allow for more flexibility and optionality for future capital allocation alternatives. As a result of these updates, we ended the year with total liquidity of $107 million, including cash and cash equivalents of $37 million and $70 million available under our amended revolving credit facility. Finally, similar to last quarter, we declared a cash dividend to shareholders of $0.10 per share. While we will revisit the amount of the dividend on a quarterly basis with our Board, we will continue to focus our capital allocation strategy on a robust pipeline of attractive acquisition opportunities available to us. Looking ahead, we are reaffirming our previously announced guidance for 2025. For the full year, we expect $170 million to $190 million of adjusted EBITDA driven by incremental contributions from our recent acquisitions, initial solar facility contributions to surface use revenues and growth of surface use royalties through higher produced water volumes among other factors detailed in our press release. In conclusion, we delivered another outstanding quarter to close out a year of strong growth. Our momentum remains promising and we look forward to advancing development on our surface acreage and partnership with industry-leading developers and operators. And now we'd like to open up the line for questions.

Operator, Operator

Your first question comes from the line of Jackie from Goldman Sachs.

Unidentified Analyst, Analyst

First, I just want to start, you called out your ability to increase surface use economic efficiency year-over-year. Looking ahead, where do you think this metric can go from here as you see the growth across your footprint?

Jason Long, CEO

It's a great question. We haven't defined a hard cap by any means right now but we think there's still a lot of room to move that up. And just to quantify that a bit, we can look at a section or one square mile, 640 acres as a good example. And in that section, we can fit one produced water handling facility that can generate $1.5 million per year at that facility in royalty revenue. But then on top of that, there's a lot of acreage that isn't used by just that 10-acre produced water handling facility site that we can do quite a bit with. I'll give an obvious example, we can fill in, call it, that extra space with opportunities like solar, similar to the opportunity we announced on this earnings release and that could add usually another $500,000 plus across that section. So to think we can do $2 million per section or per square mile, which equates to a little over $3,000 an acre, I would say is very, very achievable. And that's not giving credit to some of the more, call it, economically dense opportunities such as sand mines, such as digital infrastructure and so on. And so a lot of running room left. Again, I think that 3,000 plus is a pretty good bogey here in the near term but we definitely don't think that's the hard cap.

Unidentified Analyst, Analyst

Got it. I appreciate that. Following up on your agreement with WES, can you provide more details on the size and expected benefits of that contract? Also, are there additional third-party agreements you anticipate winning beyond WaterBridge?

Jason Long, CEO

Yes, that's a great question. To begin with the WES agreement, it's somewhat tailored because we play a specific role in the solution, and we believe we're a vital part of it. Economically, we anticipate receiving low single-digit millions in terms of surface damages and right-of-way payments over the next 12 to 18 months as they proceed with the construction of that asset. Once operations commence, we could potentially see high single-digit millions in royalties, which could translate to low to mid-teens, depending on overall volumes and their sources. This is beneficial for us as well as for WES, and we are pleased to partner with them, seeing substantial upside for both parties. Regarding the second part of your question, we are actively engaged in discussions with various other parties in the industry. The WES agreement is not a one-off; we are also collaborating with WaterBridge and numerous other entities in the water infrastructure sector that recognize the value of our services. We continue to engage in these commercial discussions and look forward to sharing more successes later this year.

Operator, Operator

Your next question comes from the line of Charles Meade from Johnson Rice.

Charles Meade, Analyst

I want to revisit some of your earlier comments on the data center. First, it's impressive, and you've been discussing this for some time. It's exciting to see that $8 million in December, but can you confirm that you mentioned having a two-year site selection period followed by a four-year construction period? Can you outline what the roadmap looks like from here, what the milestones for future revenue will be, and if there will be anything at the end of the two-year site selection period? Additionally, as Scott mentioned, what is the anticipated annual revenue opportunity after that before your construction period begins?

Scott McNeely, President

Charles, I'll tackle this one. Yes, so as we've mentioned previously, this two-year option period or site selection period kind of in the process of that right now. The voice has been expectations likely closer to 12 to 18 months, but they do have that full 24 months. After that site selection wraps up, we start to see, call it, a ratchet of cash flows that worked to our benefit. And so it will start with a smaller, more subsidized lease component as they kind of stage for construction. But once they actually break ground on construction, we would expect to see that full $8 million a year in lease payments for that 2,000 acres. Now as different phases come online, that's when we would expect to see incremental revenue streams to include the profit interest on the power generation as well as potentially any water sales that are needed for cooling either the power generation or the actual data center itself. But as you alluded to, it is a multiyear timeline. These are large capital projects. And so I think we're in a really good spot right now with everything moving forward as contemplated. But I guess the takeaway is we would expect to start seeing more revenues from that likely next year and seeing those continue to ratchet up over the subsequent years through construction as different phases of operations come online and I think finally kind of targeting again that one gigawatt being probably a few years after that first phase is online.

Charles Meade, Analyst

Thanks for sharing that detail, Scott. I appreciate the refresher. Can you update me on the integration of the Wolf Bone Ranch? What have you learned, and are there any new opportunities that have emerged since you finalized the deal?

Scott McNeely, President

Yes. From an integration perspective, the advantage of the surface is that, since we are not primarily an operating company, the integration effort has been relatively minimal aside from some back-office tasks. This process has gone smoothly, thanks to our accounting and legal teams as well as those at Vital and VTX. As we explore opportunities, we've realized that while it’s not entirely about commercial underwriting, the investment rationale behind the acquisition is significant. The proximity to Waha, large contiguous land blocks, and access to various infrastructures like highway frontages have all quickly proven beneficial. We've generated a good amount of interest and are currently engaged in multiple discussions regarding access to surface due to these resources. Although we only closed on this a couple of months ago and are still in the early stages, things are progressing well, and we are seeing positive traction from the start. We hope to share some successful outcomes later this year as a result of this acquisition.

Operator, Operator

Your next question comes from Derrick from Texas Capital.

Unidentified Analyst, Analyst

Congrats on an impressive first year as a public company. First, I wanted to start with the land strategy on Page 4. Previously, you were building a wall around the state line for the benefit of advantaged water captures, build in Delaware water disposal needs grew. Could you speak to the opportunity you're seeing with the BLM, SLO leases in Lea County?

Jason Long, CEO

So on the BLM and state lease stuff, a majority of those acreage positions that we've bought. Obviously, we're very strategic in the fact that it gave us the ability to bring some of our supply water from Texas up into New Mexico, as well as the produced water piece. So really leveraging on the fee pieces that we bought in and around those leases is where we've been able to get some really good tailwinds.

Scott McNeely, President

Yes. I think it's important to note that we're not necessarily underwriting any value to those leases when we work through our M&A strategy. Now just by nature of, call it, the New Mexico landscape, a lot of this fee surface includes some of these leases. So you tend to be able to capture those in one fell swoop, call it, but when we think through like where is the real value proposition in these acquisitions, it is going to be largely on that fee surface. For the sake of the map, we wanted to call that out just to be transparent with the folks. Yes.

Unidentified Analyst, Analyst

And then perhaps a bigger picture question on data centers for my follow-up. We've seen a trend of data centers being built in more remote locations like Stargate and thinking about the progression of discussions with your customers. How are you seeing that picture unfold for more data centers in the Permian? I guess, directionally, are you guys more bullish than three to six months ago?

Jason Long, CEO

Yes, I believe we are definitely feeling more optimistic. Timing is crucial in this situation. Once the first significant step is taken, I expect many more will follow. Power supply, surface access, grid connectivity, and gas availability are all critical factors in this equation. Data center hyperscalers seem to be increasingly comfortable with these remote sites, as indicated by our experiences with Stargate. We're very enthusiastic about the opportunities our position and access provide as we engage in these discussions.

Operator, Operator

Your next question comes from the line of Alexander Goldfarb from Piper Sandler.

Alexander Goldfarb, Analyst

I have a few questions. First, you have a strong cost of capital in your equity, and you mentioned restructuring your credit facility to eliminate amortization and switch to interest-only payments. My question is, as you assess the market, it seems there's a premium on your stock for data centers, but those investments typically take longer to generate cash flow compared to water or solar projects that offer quicker monetization. How are you approaching the cash flow considerations for the projects you're evaluating in relation to funding, given that the market is favoring data centers which take more time to yield returns?

Jason Long, CEO

Yes, I think it's a good question. I think you're spot on. I mean, the market is definitely leaning into the data center theme, not just for us, I would say more broadly to anyone that kind of touches it at this point. The point I always make when folks bring that up is, first, I think we're in a fortunate spot where that opportunity is very real for us. And we're obviously working through that and we've discussed that quite publicly. But totally insulated from that data center narrative is this core oil and gas story or call it, energy infrastructure and land story that you alluded to that provides a substantial growth here in the near term. And I mean we talk to the surface use economic efficiency metric, the growth there, spoke a bit about where we think that could go. And I think it's important to remember all of that is very achievable outside of the data center narrative which is only going to provide a further uplift as those come to fruition. And ultimately, when we think through our strategy and the action plan on our side, it's all of the above. I mean I think we've got these very real opportunities to grow cash flows here in the near term that again, cost us no capital, but we are going to continue to pursue. Now we're trying to be mindful about the opportunity cost of certain areas of our surface where we think data centers could be best suited relative to some of the other opportunities. But at the end of the day, I mean, there is a lot of runway we have out there on the surface today for opportunities outside of data centers and we're going to continue to push on those. And those will be the driver of the growth that we expect to see here in the coming couple of years. The data center, call it, tailwinds are very real and we think three to five-plus years down the road, all of that will start to get layered onto the successes that we achieved in a lot of these other themes, a lot of these other investment opportunities. And so I tell folks, it's great because we can increase or we believe we can increase our cash flow orders of magnitude outside of data centers and I think we're executing on that. We're improving. We're executing on that and there's a lot of runway left. The data center story is additive. And so the combination of those two things, I think, makes this a very, very powerful story in the market which is why the markets received it the way it has and it's on us to continue to execute on both fronts if we want to hold our ground here.

Alexander Goldfarb, Analyst

And then along those lines, your funding, do you think that you'll go back and raise more equity? Or are you planning to use debt? Like what should we be modeling for capital raises for this year?

Jason Long, CEO

Yes, if the right opportunity arises, we would consider raising equity. That said, we generate a significant amount of free cash flow and prioritize maintaining a healthy balance sheet. While we're not opposed to adding a bit of leverage when it makes sense, striking a sensible balance is likely the best strategy. We are in a strong position, not only in terms of leverage but also with our debt service coverage. It's essential to maintain this status, as it will help us manage any unforeseen volatility or risks in the future. For us to issue equity, it must make sense; the acquisition opportunity needs to align with our growth profile and be attractive. We need to present a narrative that justifies the equity raise, as there is no one-size-fits-all solution. Ultimately, we aim to maintain a prudent balance sheet, avoid unnecessary dilution, and ensure that we act responsibly while driving growth. All of these factors are our top priorities.

Alexander Goldfarb, Analyst

Okay. I have one more question. Regarding the water requirements for the data centers, I come from a real estate background, so bear with me as I ask about the brackish water and the water sourced from others who are drilling or fracking for oil. Can brackish water be used for cooling data centers, or do data centers specifically need pure, fresh first-generation water?

Scott McNeely, President

Yes. Good question. So you've got just brackish water which is not necessarily the same as produced water. So you've got your brackish water wells out of the ground, you've got produced water which is coming up with the oil and gas. I think the latter certainly would require more treatment. There's likely to be some level of treatment for either most definitely with produced water. And so I don't want to give the impression it's you just connect the pipe up to the data center and it's good. I think there would be some costs associated with getting that water to the quality that's needed and all of that is kind of taken into consideration as a lot of these data center developers and operators work through their diligence and underwriting. But I think that said, where we have a big advantage in West Texas is we have an abundance of these resources, both in terms of brackish water and produced water. And while there may be some incremental costs associated with treatment, there isn't a large metropolitan area that you're competing with for these resources. And I think generally speaking, that is very attractive. Jason, do you want to add?

Jason Long, CEO

Well, just one thing to be clear is that cost would not be something that LandBridge fit in.

Operator, Operator

Your next question comes from the line of Kevin MacCurdy from Pickering Energy Partners.

Kevin MacCurdy, Analyst

My first question is on the macro outlook and the impact on your business. Oil prices have kind of taken a hit over the last week. What oil price and corresponding level activity is built into your 2025 guide? And how sensitive do you expect your EBITDA to be at oil prices this year?

Scott McNeely, President

Yes. Good question, Kevin. Good to hear from you. So no meaningful ramps whatsoever built into our 2025 guide. All that's based on firm guidance from operators we have, both from the WaterBridge side and others. And I think, generally speaking, as it relates to commodity price, sensitivity, there would need to be a pretty massive swing to the economic potential for the Delaware Basin for that to, call it, move off track. Outside of our small minerals position which is we expect to be sub-10% of our business this year, we really don't have any meaningful commodity price sensitivity. So I would say in summary, as long as the commodity prices kind of hold to a point where producers continue with their development plans this year as kind of spoken to the public, no real impact on us.

Kevin MacCurdy, Analyst

Great. I appreciate that detail. And thank you for the earlier comments on the Western Midstream EBITDA impact. I wonder if you could share the same thing for the newly announced solar agreement look for any EBITDA impact in the timing?

Scott McNeely, President

Yes. Yes. So for those deals, it takes somewhere between two and three years to get through the permitting and development. In that interim period, we get a smaller, call it, we call it option fee development fee, something to that extent. But two to three years down the road once that comes online, we would expect a project like this, about 7,000 acres, 550 megawatts to contribute, call it, mid- to high single-digit millions of cash flow per year.

Operator, Operator

Our next question comes from Theresa from Barclays.

Unidentified Analyst, Analyst

You have been very busy with a flurry of activity within the last year, both on the organic and inorganic front. I wanted to ask on your M&A outlook from here. If you could just remind us how fragmented is the market at this point? And are there still many areas of desirable surface acreage left and near your footprint that would fit well within your portfolio?

Scott McNeely, President

We have been quite active. To address your question, there are still plenty of opportunities available. As I mentioned earlier, from a capital allocation perspective, mergers and acquisitions remain the most advantageous use of our capital by a significant margin. The market remains highly fragmented, and we are currently in discussions regarding several opportunities. We offer specific advantages, especially in cases where the surface owner controls the underlying minerals and seeks to promote more development on that land. Additionally, we can facilitate tax-advantaged transactions through our public currency, which is another benefit we provide. We are exploring all the options available to us to advance our M&A strategy. The pipeline for potential deals is very strong right now, and we see numerous opportunities that align well with our platform. Therefore, we will keep pursuing these prospects.

Unidentified Analyst, Analyst

Understood. And on the topic of surface efficiency for the assets already within your portfolio and getting to that incremental $3,000 per acre target, understanding that some of it will be relatively capital light and some of these opportunities might be more involved. But when we think about the average going forward, how much CapEx do you expect to deploy in order to realize this target?

Jason Long, CEO

Yes. I mean just as a reminder, we don't do any of the developing of any of these assets whatsoever. I think for this upcoming year, we had expected somewhere between $1 million and $2 million of CapEx total. And that's just kind of nickel and dime things on like trucks and other kind of field assets that we need just to manage the business. And so the beauty of the business model is we acquire surface. We will go through some of the efforts needed to make that surface commercially viable. That typically does not involve any capital. And then we go out and we try to drive business to that service from other folks looking for sophisticated landowners in the right areas who know how to work with them. And that has gone very, very well for us and that has allowed us to drive that surface use efficiency metric on that legacy position up more than 100% in a couple of years. And like I mentioned earlier, we think that is a very replicable growth strategy on the rest of our service. And so there is a very long runway for us to continue to drive growth on the position as it exists today. Like I mentioned, we think that M&A is only going to be additive and going to help drive that growth. But the point I'd make is outside of acquiring surface, all of that growth does not necessitate CapEx, which is, again, the beauty of the business model here.

Operator, Operator

Our next question comes from the line of Roger Read from Wells Fargo.

Roger Read, Analyst

Let me take a slightly different approach given that the Texas legislature is in session and some water issues are on their agenda. We don't know exactly how things will turn out. But is there anything you're monitoring in terms of regulation that could potentially benefit you or create an opportunity? This relates to the earlier question about the type of water needed for a data center, as I understand some of the proposed legislation focuses on recycling water rather than just disposing of it underground.

Jason Long, CEO

Yes. Great question. 100% are watching everything that's going on. Obviously, it not only potentially could be a benefit for LandBridge but also the same with WaterBridge on the WaterBridge side as well. As you think through the recycling piece of that which our surface position gives us a really good opportunity to take advantage of that opportunity, right? So you need access to large surface, large continuous surface to create these recycling ponds and basically centers. So yes, I mean, we do think it's a great opportunity and we're watching it extremely closely.

Roger Read, Analyst

One of the issues we are addressing is related to the minor earthquakes in West Texas and the disposal of water from neighboring states, specifically New Mexico. Are there any changes you are considering or actions that might lead the industry to rely more on LandBridge for managing produced water from New Mexico?

Scott McNeely, President

Yes. That has been one of our biggest thesis from the start, right? It's taking a lot of this water out of New Mexico where historically, it's been handled in deep injection which, in our view and I think in the regulatory view, that's what's causing a lot of the seismicity and actually getting that out of basin, that's one solution but also just spreading out that injection as a whole and having access to this large contiguous surface gives us the ability to give people like WES and that's a prime example of what this recent deal we did with WES, give them the opportunity to spread that injection out and bring that water from New Mexico. We've got that opportunity with every other third-party water provider out there as well.

Roger Read, Analyst

As a follow-up, are you noticing any changes in your cost structure or potential revenue due to regulatory and legislative developments? Is this affecting your pricing per gallon or barrel, and how does that relate to the revenue per acre you mentioned earlier?

Jason Long, CEO

Yes. We obviously have no costs associated with it. I do think that access to good pore space that's spread out and can be handled in a sustainable way. The price of that, I think, will go up over time. We have seen royalties increase over time as you have access to this pore space. So we feel like we're in a really good spot and we continue to be optimistic as we think through adding to our portfolio of acreage, being very mindful of pore space going forward.

Operator, Operator

Your next question comes from the line of Sean Milligan from Janney.

Sean Milligan, Analyst

On the 2025 guidance, I was curious if you'd be willing to provide any guardrails around kind of expected produced water volume growth that's embedded in that guidance range?

Scott McNeely, President

Sean, yes, I can talk through a high level here. I think the way to think about it is with the inclusion of the Wolfbone Ranch acquisition was wrapped up at the end of 2024. That will put us, call it, just over 1 million barrels a day, kind of low millions. Through the course of the year, we've got a handful of projects coming online, two of which we've spoken out publicly, so I'll reiterate the first is WaterBridge's construction of the BPX Kraken line that will come online at the end of the second quarter and that will add meaningful volumes and we've talked to that a bit, rather that has been published in a press release, so I'll go over the details of that. But that's going to be fairly additive from a volume perspective towards the end of the second quarter. And then the second piece is there are a number of new assets coming online on our legacy surface position that will also be used to handle Devon volumes that are flowing today that are being diverted off of their legacy position. So I would expect to see a pretty meaningful step change in produced water volumes starting to hit in the second quarter but really fully materializing in the third quarter. But I would say it's very easy relative to, call it, 1 million or so barrels a day today to see low to mid-double-digit, call it, growth in those produced water volumes through the course of the year and kind of exiting '25 million.

Sean Milligan, Analyst

That's really helpful. Regarding the solar aspect, I recall you mentioned receiving prepayments, but those have now been moved to 2025. I had anticipated those would align with the data center payment in the fourth quarter. Is that still the correct way to view those payments for 2025?

Scott McNeely, President

Yes, great question. I'll clarify that the DESRI deal we announced alongside earnings is different and adds to the solar opportunity we've discussed previously. We are currently evaluating different proposals for that. I have mentioned before the lack of standardization in how these proposals will be structured. Each developer and operator will present some upfront consideration and recurring rent. It is our responsibility to assess these proposals and identify which offers the best value for the company. We expect to receive those upfront milestone payments this year, which will likely be in the range of $8 million to $10 million. However, I want to note that we will not prioritize the proposal with the highest upfront cash. If a proposal has a smaller upfront but a significantly larger residual over a longer timeframe that could provide more value for the company, we would choose that option. Once we finalize our decision, I will be transparent with the market to allow for adjustments in forecasts and expectations accordingly.

Sean Milligan, Analyst

Okay, great. Just to confirm, the DESRI deal is separate from the previous deal discussed about developing it yourself. That's helpful.

Operator, Operator

And that concludes our question-and-answer session. I will now turn the call back over to Scott McNeely for closing remarks.

Scott McNeely, President

Yes. Thank you Rob and thank you everyone for joining us this morning. Again, we are very happy with how the year wrapped up and are very enthusiastic about the tailwinds of our business stepping into 2025. We look forward to sharing just more of our wins and successes with you through the course of this year. To the extent there are any questions or any follow-up discussions would be helpful, please feel free to reach out to contact at landbridgeco.com, so we can get the call scheduled. Thanks again. We hope you all enjoy the weekend.

Operator, Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.