Good morning, and welcome to Texas Pacific Land Corporation's Third Quarter 2022 Earnings Conference Call. This conference call is being recorded. I would now like to introduce your host for today's call, Shawn Amini, Vice President, Finance and Investor Relations. Please go ahead.

Good morning. Thank you for joining us today for Texas Pacific Land Corporation's third quarter 2022 earnings conference call. Yesterday afternoon, the company released its financial results and filed its Form 10-Q with the Securities and Exchange Commission, which is available on the Investors section of the company's website at www.texapacific.com. As a reminder, remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filings. During this call, we will also be discussing certain non-GAAP financial measures. More information and reconciliations about these non-GAAP financial measures are contained in our earnings release and SEC filings. Please also note, we may at times refer to our company by its stock ticker, TPL. This morning's conference call is hosted by TPL's Chief Executive Officer, Ty Glover; and Chief Financial Officer, Chris Steddum. Management will make some prepared comments, after which, we will open the call for questions. Now I will turn the call over to Ty.

Thanks, Shawn. Good morning, everyone, and thank you for joining us today. Third quarter 2022 represents another well-rounded performance across the TPL business. Consolidated revenues increased 8% and net income increased 9% sequential quarter-over-quarter, driven by growing oil and gas royalty production, outstanding source water and produced water performance and continued strong SLEM activity. Royalty production for the third quarter of approximately 23,400 barrels of oil equivalent per day is a new corporate record. On the water side, during this most recent quarter, we sourced and treated over 40 million barrels of water. Since the water business inception, TPL has sourced or treated over 500 million barrels of water, which we estimate is responsible for over 1,000 new well completions in the Permian, with many of these on TPL royalty acreage. On the produce side, we generated contracted royalty volumes on approximately 190 million barrels of water. Recall, we don't own or operate any saltwater disposal infrastructure. Rather, we collect a contracted royalty fee on produced water that is injected in or crosses our surface. Over half our produced water volumes that we generated royalty on last quarter were actually injected into SWDs located off of TPL surface. Last quarter, we saw a nice uptick in SLEM revenues, and that strong performance carried over into third quarter. Activity is up across the board in SLEM, with large year-over-year increases for wellbore easements, pipeline easements and material sales. Just on the land side alone, this past quarter, we papered up 233 new contracts, which is nearly double what we did during the same quarter last year. Recent highlights include two separate contracts for mobile mini sand mines. These sand mines not only help support completion activities in the Permian, but because the sand is developed and sourced in-basin, it reduces the amount of heavy truck traffic in the region. And of course, TPL will generate a royalty for every ton extracted, with zero CapEx or operating expenses required from us. Our land managers do an incredible job overseeing a vast acreage footprint and working every day with operators to stay in front of their needs and to help facilitate development. In addition to our core active management activities on the land side, we've had a team tasked specifically to pursue alternative and next-generation uses for our nearly 1 million-acre surface asset. Investments in time and resources we've dedicated to this venture over the past few years are bearing results. Yesterday, we announced that TPL signed an agreement with Samsung Solar Energy 2, LLC to begin evaluating the siting in grid-connected batteries located on TPL's surface. Preliminary studies have begun to evaluate project viability throughout West Texas, where an abundant amount of transmission infrastructure overlaps with TPL. These battery projects could help enhance grid reliability and encourage further renewables development across TPL's footprint. TPL is thrilled to have someone looking to develop these next-generation projects on our surface, and we look forward to collaborating together to hopefully bring these projects to fruition. We also continue to make good progress on the solar and wind front. This year, we've increased the amount of solar and wind projects contracted on our surface by over 30% from what we had coming into the year. In summary, our surface asset is unique not only for its size but also because it contains water rights and aquifers, exposure to excellent solar and wind resources, materials deposits, electrical grid access, connectivity to gas processing facilities, subsurface pore space, among many other desirable features. Our employees leverage their extensive relationships with Permian producers and across the energy industry to source and collaborate on new projects. The access to all these things at massive scale makes us an attractive partner for interesting opportunities, and we're having a lot of good conversations with developers, engineers, entrepreneurs and companies on a wide array of new technologies and ideas. Changing gears, I'd like to remind everyone that our annual meeting is in two weeks. Proxy materials have been filed with the SEC and distributed to shareholders, and I would encourage everyone to carefully review the materials and vote. If any shareholders have any questions or issues, please do not hesitate to contact Investor Relations. And finally, I want to thank all the employees here at TPL. Our team does an amazing job of proactively serving our customers while also creating real value for our shareholders. Their tireless efforts and consistent performance are the engine of this company, and I'm proud to work with them every day. With that, I'll turn the call over to Chris to discuss our quarterly results.

Thanks, Ty. Total revenue for the third quarter of 2022 was $191 million, which was driven by increases across all of our major revenue streams on a sequential quarter-over-quarter basis. Oil and gas royalty revenue was up 7% quarter-over-quarter, primarily due to higher royalty production, though partially offset by lower crude oil and NGL prices. Crude and NGL price realizations declined sequentially by 13% and 15%, respectively, while natural gas realizations increased 21%. Third quarter royalty production increased 18% sequentially to approximately 23,400 barrels of oil equivalent per day, which was driven by strong operator activity, especially in our Loving and Reeves County royalty acreage. As Ty mentioned, our land and water teams remain very busy working with operators on facilitating upstream development. New permits and spuds so far in 2022 are tracking well ahead of 2021 levels. For permits, we are averaging about 80 gross and 1 net new well per month this year. For spuds, we are averaging about 70 gross and 0.9 net new wells every month. Lateral lengths also continue to get longer with the average permitted well on our royalty acreage now over 10,000 feet long. Well statuses on TPL acreage as of quarter end included 5.6 net permitted wells, 6.9 net DUCs, 2.9 net completed wells and 55 net producing wells. I'll note that the sequential decline in net permitted wells was largely from removing permits that we viewed to be stale or likely to lapse, and this represented about 1.8 net wells. This decline refers to the well status on a static basis, which is not to be confused by the strong activity for new permits we've seen throughout 2022. Our $100 million buyback authorization was active during the quarter, and we repurchased approximately 19,000 shares for approximately $33 million. We intend for the buyback program to remain active through the end of the year. In addition, yesterday, we announced that our Board has authorized a new $250 million share repurchase authorization which will take effect after the expiration of our existing buyback program at the end of the year. As many of you know, share buybacks have long been an important part of TPL's history, and buybacks remain an important aspect of our capital allocation toolbox. We're glad to put this new program in place, and we believe it further enhances TPL's ability to optimize capital returns for our shareholders. Fundamentals at TPL remain excellent, and we continue to generate high-quality, high-margin cash flows with minimal capital needs and a fortress debt-free balance sheet, and the robust free cash flow generated by the business affords a tremendous amount of flexibility as we look to maximize shareholder value. With that, operator, we will now take questions.

Our first question comes from Derrick Whitfield at Stifel. Please go ahead.

Good morning, all. And congrats on your strong operational update.

Thanks, Derrick.

With my first question, I wanted to focus on the annual meeting, regarding the proposed 3-for-1 share split and the share issuance authorization. Could you speak to your capital priorities broadly and the strategic importance of the share issuance in light of your approved share repurchase?

Yes. Thanks, Derrick. A share authorization just provides a normal course financing tool and gives us additional means to potentially grow the company in an accretive, value-enhancing way. Like you mentioned, it also allows us to affect the 3:1 stock split. So I would just add that this is not a change in strategy; it just gives us additional flexibility and optionality to continue to execute that same strategy that's created tremendous value for our shareholders. We've got a long history of strong performance and capital stewardship. It's something that we've engaged our shareholders on. We've sought advice from government experts on best practices to institute it, and it's something that we feel really good about. So it's all about just adding flexibility and optionality for the company moving forward.

That makes sense, Ty. And maybe shifting over to the Samsung Solar Energy agreement. Should we assume that this is a capital-light arrangement similar to other SLEM arrangements?

Yes, that's correct. I can't say too much beyond what's in the press release, but it's going to be a similar structure to these types of deals that we've done in the past, very capital-light. I'd also just say that this is a great example of the optionality in surface ownership and also the benefit of having a team with a large network of industry relationships. So pretty excited about it. Things have a lot of potential to scale up.

Perfect. And perhaps for Chris, regarding your prepared comments on permits, net of the true-up that you put into play for Q3. Could you give us a sense of the sequential increase in permit activity in comparing Q2 versus Q3?

Thanks, Derrick. When we evaluate new well activity, we always compare it to the first quarter of 2020, which was really the peak for activity levels. This year, when you look at gross wells, net wells, and net normalized wells, we have generally aligned with those figures. In terms of new permit activity, we reached about 225, which has been our consistent high this year, including the third quarter. Although Q3 saw a slight decrease in permitting compared to Q1 and Q2 on a gross basis, it remains a strong quarter when considered against historical averages. The drop in the net static number was partly due to the pause during COVID, and we were cautious about removing older permits. However, it's unlikely those older permits will make it back into the queue. This doesn't mean those wells won't get drilled; it just indicates that once we officially list a well in the queue, we expect it to be drilled within the next one to two years. We decided it was wise to remove some of the older permits at this stage. I'm confident they will eventually find their way back into the queue, but that explains the adjustment.

That makes sense. And if I could ask one final question. With the understanding that you don't provide quarterly guidance, how should we think about the near-term production trajectory for you guys, kind of thinking into year-end? And the netbacks you'd likely see as a result of the volatility we're experiencing with Waha?

Yes, that's a good question. I mean, on the production front, again, I think as we kind of alluded to last time, all of the numbers as far as activity levels have continued to be very strong, the DUCs, the completions. And when we do a look-back at kind of actual production that's come through, the trend has continued to be up through the summer, it appears. And so when we look at the continued activity levels being as strong as they are, I think that's fairly supportive of the continued strong production outlook going through the end of the year. As far as netbacks, that becomes a little more difficult. I think it's clear right now, if you look at kind of the forward expectations, that Waha differential is probably expected to kind of be weaker on a go-forward basis with some of the constraints. Having said that, through our operators, we've always tended to get better realizations on gas than Waha. It usually kind of comes in between Waha and NYMEX. And so when we look at that, granted, you've seen very big differentials in Waha as of late. But our expectation would be that kind of that in between Waha and NYMEX, it's probably still a good number. But with those volatile jumps, it does become difficult to predict. But through time, where there's been other ones similar to this in the past, what has held true is our realizations kind of tend to be in between those two marks. And so we would suspect that will continue.

That makes sense. Great update. And thanks for your time.

Thanks Derrick.

Thanks Derrick.

Thank you. Our next question comes from the line of Hamed Khorsand from BWS Financial. Please go ahead.

Good morning. My first question is about the increase in daily barrels per day. Was this mainly due to the mobile sand mines you have on your property? Do you own those, or can you relocate them based on other customers' needs?

Yes, Hamed, thanks for the question. The increase in production was not related to the mobile sand mines. We've just recently contracted those. We do not own them. We're just working with a strategic partner there to have our sand deposits developed. And so we will be strictly a royalty owner on those mines.

Okay. And then the other question I had was, do you think that the share splits that you're proposing improves the index that you'll be in, for your stock?

The share split has been analyzed by our consultants and banks, with the hope that it will enhance the liquidity of TPL's stock and improve trading conditions. We already have strong metrics for index eligibility, so this is primarily an enhancement for trading rather than an attempt to get into a new index. We believe we already qualify for most indices and will work towards being included in additional ones in the future.

Okay. My last question was you sold some land this quarter. Any particular reason why? Was it just the price? And if you're selling, does that essentially mean you wouldn't be buying at this moment in the market?

No. I mean, look, the reason that we made those two land sales, I mean, yes, it was robust pricing, but those were kind of specialty sales. So one was for a cryogenic processing plant. The other was for the expansion of an existing substation. And so if you kind of think about those two facilities, right, not only were we able to get a robust price per acre for the land, but that also attracts additional infrastructure and development to those areas. And so like on a cryo plant, for instance, that plant is going to draw additional pipeline easement revenue to our surface. So I think we had something, like $0.75 billion in easement revenue kind of immediately associated with that cryo plant. And in the future, that just continues to draw development from our midstream operators to that particular area. And then the expansion of the existing substation, that's just allowing that operator to expand their power infrastructure in the area, which is also very good for future development. So I wouldn't say that, that pricing reflects the overall market out there and would keep us from being a buyer.

Okay. Great. Thank you.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to take the opportunity to thank you for your participation. The conference of Texas Pacific Land Corporation has now concluded. Have a wonderful day.