Ladies and gentlemen, good morning, and welcome to the Texas Pacific Land Corporation's Third Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Shawn Amini, VP Finance and Investor Relations. Please go ahead, sir.

Thank you for joining us today for Texas Pacific Land Corporation's Third Quarter 2024 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.texaspacific.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 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 TPL's 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. Our strong third quarter 2024 performance underscores the success of our active management strategy focused on maximizing oil and gas royalties, surface and water assets, with acquisition activity over the last couple of years set to provide incremental growth tailwinds. In addition, TPL continues to benefit from activity levels in the Permian Basin, which remain resilient despite fluctuations in oil and natural gas prices. To start, TPL's oil and gas royalty production of approximately 28,300 barrels of oil equivalent per day represents a corporate record, driven by our Central Midland and oily Loving subregions. For water sales, revenues were up 37% year-over-year as the size and scale of our operations provide a meaningful competitive advantage as operator customers look for delivery assurance. Continued deployment of co-completions and simultaneous and tri-modal fracking placed tremendous volume demands for water delivered over a relatively short period, and our substantial investment in brackish and treated water infrastructure has established one of the few systems in the Permian capable of this type of volume intensity. This was also another record quarter for our produced water royalty revenues, with produced water royalty volumes up 46% year-over-year as our expanding set of commercial arrangements with third-party customers continues to drive increased market capture. In our conversations with investors, our produced water royalties are by far the most misunderstood aspect of our business. Today, I'd like to spend some time elaborating on this topic, especially given the growth we've seen to date and also given the robust outlook over the near term and long term, underpinned by acquisitions we made last year. Our produced water royalties business is often conflated with traditional saltwater midstream and disposal operations. In traditional saltwater disposal operations, otherwise known by its acronym, SWD, an operator will collect water produced via an oil and gas well at a centralized storage facility, transport it typically via pipeline to an SWD facility, where it is then injected thousands of feet below the surface. From a high level, TPL's role in the disposal of produced water is providing SWD operators access to our surface and core space, and in return, we charge a produced water royalty. TPL does not currently operate SWD infrastructure. To receive these produced water royalties, we have negotiated separate individualized commercial agreements with each operator that wants to operate SWD infrastructure on our land. These agreements often cover massive acreage extents and can take months or even years to negotiate. Since we started in 2017, the team has easily spent more hours negotiating, structuring, and executing produced water royalty agreements than any other part of the business. The effort was well worth it as these produced water royalties provide TPL with a commercially unique, extremely high-quality cash flow stream. In 2016, before active management, TPL generated virtually 0 produced water royalties. Fast forward to today, and TPL is positioned to collect royalties on well over 1 billion barrels of produced water for the full year 2024, which will in turn generate around $100 million of royalty revenues. And because of how we've structured these agreements, this revenue stream incurs 0 capital expenditures and 0 operating expense burden outside of personnel salaries and legal expenses that go into negotiating the agreements. In effect, the hundreds of millions or likely billions of dollars this business will cumulatively generate in the years to come flows directly to TPL's bottom line, representing nearly pure margin. By applying our historical earnings trading multiple to the current produced water royalties annualized run rate cash flow, it's easy to see the immense value this business has created for shareholders. It's also worth noting that our agreements provide TPL with extremely robust indemnification against spills, accidents, injuries, or other types of liabilities. In addition to benefiting from the significant financial upside, we've also been very intentional in protecting TPL interests from potential risks. Furthermore, these produced water royalty agreements enhance our water sales business. Many of our contracts include provisions providing TPL the exclusive right to offtake produced water barrels within an area of mutual interest for treatment and resale. This allows TPL to procure produced water from an operator's system, treat it to a customer's specifications, and sell the recycled water for well completions. In such circumstances, TPL is paid twice on a single barrel - once through a produced water royalty and again through a treated water sale. This feature has been especially critical for TPL as operators have been increasingly using raw or treated produced water for well development over the last few years. Looking ahead, recent strategic acquisitions will provide incremental produced water growth opportunities. Last year, we spent nearly $40 million across multiple transactions to acquire over 50,000 acres of surface acreage and core space. These acquisitions were strategically targeted given their location along the east state line of Texas and Mexico in Andrews and Winkler counties. This location is significant as this acreage is outside the core oil and gas development areas of the Permian Basin, where produced water disposal zones will not interfere with drilling and completion operations. Over the last year, our business development teams have been working diligently to commercialize this otherwise raw land. We have since signed an agreement with one of the largest midstream operators serving the broader Delaware market to bring produced water into these new tracts, with initial volumes expected in the fourth quarter of 2024. We are also in advanced discussions with other parties for additional access, and we expect that the aggregate contribution for current and future agreements will support multiple hundreds of thousands of produced water barrels per day. These strategic surface acquisitions play a critical role for TPL as we look to deliver produced water solutions for the broader oil and gas industry. At the same time, they generate substantial incremental cash flows for TPL and help ensure that our oil and gas royalty interests remain undeterred by development constraints. Next, I'd like to spend some time discussing our most recent acquisition activity that we announced this past August and October. In total, we closed on three separate transactions totaling nearly $0.5 billion. The first asset was over 4,000 surface acres in Martin County, which is strategically located in the core of the Midland Basin. These surface assets provide numerous revenue streams across brackish water, produced water, and other surface-related activities. The next asset we closed on was over 4,000 net royalty acres standardized to an 1/8th located in Culberson County. This acquired acreage was especially attractive given the royalty acreage overlap drilling spacing units where we already have an interest in with our legacy royalties. Meaning we essentially acquired a higher net revenue interest in current and future well locations we already own. The third asset we closed on was over 7,000 net royalty acres located primarily in the Midland Basin in Martin, Midland, and other counties. These assets represent some of the best geology for oil development found anywhere in the Lower 48 and significantly expands our net royalty acreage on the Midland side of the Permian Basin. All of these assets, both individually and on an aggregate basis, high-grade TPL's asset portfolio. These newly acquired assets are on par with or even exceed the quality of our legacy portfolio. They are expected to be highly accretive to our near-term financial and operating metrics on a per-share basis while also enhancing and extending our growth runway given the remaining undeveloped inventory on the royalty acreage and the untapped commercial potential on the surface acreage. We expect the two royalty acquisitions to add upwards of approximately 30,000 barrels of oil equivalent per day in the near term, which represents an over 10% increase to our current oil and gas royalty production. Aggregating all three deals, we expect them to generate a double-digit cash flow yield at a flat $70 oil price. As a result of the overall business performance and the additional free cash flow per share accretion these acquisitions provide, we announced yesterday that the Board has approved a 37% increase of our regular quarterly dividend to $1.60 per share. We continue to identify acquisition opportunities that could be excellent additions to the TPL portfolio. Our team brings exceptional technical, financial, and operating capabilities across land, water, and royalties and with a fortress balance sheet and a net cash position coupled with our free cash flow proficiency, we are well positioned to evaluate, execute, and consolidate high-quality assets. As always, we remain intently focused on maximizing intrinsic value per share with a disciplined capital allocation approach aimed at maximizing returns over the long term. Next, I want to provide an update on our desalination efforts. We are making progress with equipment procurement, manufacturing, and testing as we work towards our 10,000 barrel per day test facility, which we refer to as Phase 2b. We still expect completion of this facility in the middle of next year. We have also advanced various operating optimizations, cost efficiencies, and economic analysis. Currently, we expect the total cost of Phase 2b to be approximately $25 million, with $10 million incurred in 2024 and the remaining balance in 2025. As an alternative to a direct grid connection, we are also evaluating a direct natural gas power generation option with a tie-in to a nearby natural gas pipeline which would require additional capital investment of approximately $10 million. Negotiations are ongoing with third-party partners and customers as we evaluate various commercial structures. As we've discussed in the past, we believe produced water desalination and beneficial reuse will potentially play a critical role in providing sustainable produced water solutions that will allow the Permian to maintain robust development activity. And finally, I want to remind TPL shareholders that we will be having our annual meeting tomorrow in Dallas. If you haven't already, I would encourage shareholders to submit their proxy votes soon. You can find the generic proxy statement posted on the TPL website or via the SEC website. If you have any questions, please contact Investor Relations. With that, I'll hand the call over to Chris.

Thanks, Ty. Consolidated revenues during the third quarter 2024 were approximately $174 million. Consolidated adjusted EBITDA was $144 million, and adjusted EBITDA margin was 83%. Diluted earnings per share were $4.63, which was up slightly versus the same period last year. Performance year-over-year benefited from higher oil and gas royalty production, which increased 29%, higher water sales volumes, which increased 32%, and higher produced water royalty volumes which increased 46%. Results were offset by lower realized oil and natural gas prices, which declined by 8% and 65%, respectively. Royalty production of approximately 28,300 barrels of oil equivalent per day represents 13% growth on a sequential quarter-over-quarter basis. Production continues to benefit from strong activity levels across our Northern Delaware and Midland Basin footprint with strong contributions from Exxon, Occidental, Coterra, BP, and Diamondback. Our recent M&A activity that closed during the third quarter 2024 added approximately 900 barrels of oil equivalent per day and $3 million of cash flow. As Ty mentioned earlier, on a full quarterly run rate basis, we expect our recent royalty and minerals acquisitions to add over 3,000 barrels of oil equivalent per day with an approximate 50% oil cut and the rest split relatively evenly between gas and NGLs. As of quarter-end, we had 6.9 net permitted wells, 11.8 net drilled but uncompleted wells, and 3.4 net completed but not producing wells. That amounts to 22.1% net line of sight inventory, which is the highest ever for TPL. The recent minerals and royalties acquisitions that closed in October are not reflected in the well statistics. We anticipate this acquisition to add approximately 1.5 net wells to our line of sight inventory. While we continue to monitor activity on our acreage and in the broader Permian amid recent commodity price volatility, current activity levels remain robust from our vantage point. Finally, our balance sheet remains incredibly strong with 0 debt and in a net cash position. While commodity prices are beyond our control, we remain focused on maximizing value where we can. The business has been set up to thrive in virtually any commodity price environment, and regardless of which way the macroeconomic environment unfolds, TPL will be operating from a position of strength and will look to be opportunistic.

The first question comes from Derrick Whitfield from Texas Pacific Land Corporation.

Congrats on your quarter and recent acquisitions.

Thanks, Derek.

Starting on M&A, could you help frame what led you to be more active as of recent and your view on the opportunity set that meets your checklist?

Yes, sure. I think we've talked about it for the last couple of years; we have a lot of interest in owning more assets that look just like what we own today. I mean, we love surface, minerals, water. The overall environment has been pretty good for M&A lately where commodity prices are; sellers are willing to sell, and it's an attractive time to buy. So those deals were directly sourced, non-marketed deals, but just really attractive asset classes, high-quality long-duration cash flows, very similar to what we own today. A lot of the interest we bought was actually in drilling spacing units (DSUs) that we already own. So some intelligence there on development timing, and pretty easy to manage when you're just going in and changing decimal places in the database that we already have. So again, just really high quality, very attractive assets that are really easy to integrate into our management system.

Terrific. And then maybe shifting over to the surface side of the business. I mean, there's been a tremendous uptick in interest in surface rights since the LandBridge IPO. Given that you guys own one of the largest surface acre spreads in Texas, could you speak to the level of non-oil and gas revenue you're generating to date and the potential you see in opportunities surrounding AI, data centers, renewable energy, crypto mining, et cetera?

Yes, surface is a great asset. What we appreciate most about it is the flexibility it offers. While minerals are also valuable, they don't provide as much control over development. With surface, we can take a more proactive approach in deciding how and when to develop that asset. Currently, non-oil and gas revenue is fairly minimal, but we've recently signed numerous contracts. Over the past 24 months, we have contracted more than 700 megawatts of solar that are in development. We have seven utility-scale battery projects underway and four active Bitcoin mines totaling about 78 megawatts, with an additional 50 in development. There's considerable opportunity beyond oil and gas, and we've noticed a growing interest in wind power. Additionally, there's been discussion around data centers, which companies like Diamondback and Permian Resources have highlighted. We have been exploring this area for some time. If we view data centers as compute centers, we actually have a few small ones operating as Bitcoin mining facilities, with more in negotiation. We understand the requirements for these negotiations, and while each deal is unique, large data centers targeted at hyperscalers are still in early development stages in the Permian. There are many ongoing discussions in the industry and specifically within TPL. We believe we are well-positioned in West Texas to offer land and water solutions as these opportunities emerge. We have substantial experience in negotiating and contracting for compute facilities and all related needs such as solar, wind, gas generation, pipeline and electric easements, water, grid-scale batteries, and carbon capture. We have already signed contracts related to many of these items and are generating cash flow. TPL has significant advantages for data centers, and we own more land in West Texas than anyone else. If we need to acquire additional land for a data center, we have demonstrated that we can do so easily. There are other regions in the country that are also appealing for data centers, and we are striving to make TPL as attractive as possible. We are having productive discussions and will keep you updated moving forward.

Terrific. And maybe just staying on water. A few of your midstream peers are pursuing mineral extraction opportunities with iodine and lithium. Is there a royalty opportunity for you guys on that front?

Robert, do you want to take that one?

Certainly. We discuss the beneficial extraction of produced water, and many are pursuing this opportunity. These discussions remind me of the early days of large data centers, where potential was evaluated. We have been identifying and cataloging concentrations by both strata and spatial area for some time now, assessing whether this can be marketed in a commercial setting. Internally, we have a clear understanding of the analytes that can be concentrated at a commercial scale, and we are ongoing in our evaluations. Furthermore, discussions are ongoing about the beneficial uses of that water and their implications. The regulatory landscape regarding ownership of produced water is evolving, which will ultimately influence ownership and any related downstream revenue opportunities.

And finally, if I could, just referencing the new midstream agreement you mentioned in your prepared remarks that will bring additional produced water in Q4. How material of a step-up in SWD volumes is that?

I think that contract is a couple of hundred thousand barrels a day. And if you look at our run rate, we're just under 4 million barrels a day on average today.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. The conference of Texas Pacific Land Corporation has now concluded. Thank you for your participation. You may now disconnect your lines.