Greetings, and welcome to Texas Pacific Land Corporation's Third Quarter 2025 Earnings Conference Call. Please note that this conference is being recorded. I will now turn the conference over to Shawn Amini. Thank you. You may begin.

Thank you for joining us today for Texas Pacific Land Corporation's Third Quarter 2025 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; TPL's Chief Financial Officer, Chris Steddum; and Executive Vice President of Texas Pacific Water Resources, Robert Crain. Management will make some prepared comments, after which we'll open the call for questions. Now I will turn the call over to Ty.

Good morning, everyone, and thank you for joining us today. Our third quarter 2025 performance underscores the power of our unique business model and active management and consolidation strategy focused on accretively growing our oil and gas royalties, surface and water assets. This was a record quarter for many of our major revenue and volume performance indicators. Oil and gas royalty production achieved a record of approximately 36,300 barrels of oil equivalent per day, representing a 9% sequential increase and a 28% increase year-over-year. Record water sales of $45 million represent a 74% sequential growth and 23% growth year-over-year. Record produced water royalty revenues of $32 million represent 5% sequential growth and a 16% increase year-over-year. In sum, this was the first quarter in TPL's history where we recorded over $200 million of revenue. We accomplished all this despite some of the weakest benchmark oil and gas prices the industry has experienced since the COVID pandemic period. Focusing on our oil and gas royalties, production volumes continue to benefit from robust activity in our Northern Culberson, Northern Reeves, and Central Midland subregions. Production growth has been driven by an increase in net wells turned to sales and longer lateral lengths. Average lateral lengths year-to-date in 2025 are approximately 7% longer than last year and 23% longer compared to laterals spud in 2019. TPL's portfolio of acquired minerals and royalties is also performing very well. We began acquiring minerals and royalty interests in 2018 and in the third quarter, that portfolio was responsible for 18% of TPL's consolidated royalty production. Combined, the minerals and royalties acquisitions are generating a mid-teens pretax cash flow yield. TPL's legacy NPRIs are also performing well with double-digit growth year-over-year. Turning to our Water Services and Operations segment, this business rebounded considerably from last quarter. As I mentioned earlier, water sales revenue was a record for the third quarter of 2025. Although rigs and frac spreads have trended lower, upstream operators continue to prioritize development efficiencies, as we see persistent deployment of co-completions and simul and trimul fracking. Our investments in brackish and treated water infrastructure have established TPL as one of the few systems in the Permian capable of accommodating the volume intensity required to keep up with operators. On the produced water royalty side, revenues and volumes continue to perform well. Year-over-year, quarterly revenues and volumes were up 16% and 19%, respectively, as we see strong demand for both in-basin and out-of-basin pore space. Similar to our oil and gas royalties, TPL's Water segment has benefited from both organic investment and inorganic growth. Since its formation in 2017, we've invested nearly $200 million to build out our source water and recycling infrastructure. We've also acquired approximately $220 million of surface acreage in pore space. These acquisitions were substantially funded by approximately $150 million of 1031 and 33 exchanges and land sales, consisting of acreage that was either non-core or has limited strategic value. In return since inception, the Water segment has generated over $600 million of earnings, with $142 million of earnings in the last 12 months. The size and scale of our water segment across both sourced and produced is one of critical competitive advantages. For source water, it allows us to maintain and grow market share and preserve pricing when the overall industry is pulling back on completions. For produced water royalties, our size and scale allow us to grow our market capture, attain strong royalty rates, and meaningfully complement our recycling and water sales efforts. Although commodity prices today are lower than what the industry believes ideal, we consider this current cycle a uniquely attractive opportunity to consolidate high-quality Permian assets. First, current oil prices are well below average historical oil prices. Since 2010, Brent prompt month oil prices have averaged $78 per barrel. Brent prompt month today is around $65. Although we are not in the business of predicting commodity prices over the short term, we do believe that longer-term mid-cycle oil prices will be higher than current spot prices. OPEC reducing spare capacity and bringing barrels back to market has resulted in looser supply and demand balances, and consequently, a weaker price environment. However, longer term, this ultimately will result in healthier market dynamics. Despite uncertain macroeconomic conditions over the past year, global liquids demand continues to grow at a steady pace. Oil supply will eventually rationalize in response to pricing signals, albeit the process can unfold slowly as CapEx and development cycles tend to be sticky over the short term. Although we firmly believe that the Permian still has substantial remaining inventory and growth runway, other shale basins that have historically contributed to U.S. supply growth now appeared to be in terminal decline. According to the EIA, the Bakken's most recent peak oil production month was in late 2019 at 1.5 million barrels per day. Today, the Bakken is down to 1.2 million barrels per day. The Eagle Ford's most recent peak oil production month was also in late 2019 at 1.4 million barrels per day, whereas today, it's 1.1 million barrels per day. In fact, if you were to exclude the Permian, total U.S. oil production appears to have peaked 5 years ago and is down about 1 million barrels per day from that peak level. Though the U.S. contribution to global oil supply will still benefit from Permian growth, it could likely be offset by increasingly larger declines from non-Permian basins. We suspect that extracting additional global supply will be much harder going forward. The Permian was responsible for virtually all of the world's crude oil supply growth over the last decade. Since the beginning of 2015, global supply growth of crude oil, excluding NGLs and other liquids, has been 4.2 million barrels per day. Permian crude oil supply growth during that time was 4.8 million barrels per day, which implies that, on an aggregate basis, the Permian made up for global crude oil declines over the last decade while also providing all of the incremental growth. With structural liquids demand globally still on a growth trend for the foreseeable future, many key supply regions are in structural decline and OPEC is reducing spare capacity, we believe that over the long term, there is a very favorable skew towards high oil price cycles. Despite the low commodity price environment today, TPL still retains abundant access to attractively priced external capital. Last month, TPL closed on its inaugural credit facility with $500 million of lender commitments that accrues interest at SOFR plus a spread of either 225 or 250 basis points, depending on TPL's debt-to-EBITDA leverage ratio. TPL's first-ever credit facility enhances our liquidity and allows us even greater flexibility towards funding growth opportunities and other general business purposes. The simultaneous occurrence of below mid-cycle commodity prices and a robust supply of low-cost capital has historically been rare and short-lived for oil and gas companies. But currently, those elements have aligned for TPL. Because TPL is built and managed towards long-term value creation, we can arbitrage depressed valuations for long-duration assets impacted by short-term volatility. During these periods where TPL can take advantage of down cycles and opportunistically leverage our resilient business, high cash flow margins, and fortress balance sheet to consolidate high-quality Permian royalty surface and water assets. We can tolerate periods of low commodity prices for assets that will likely generate cash flows for many decades. To that end, yesterday, we announced acquisitions of Permian oil and gas royalties and surface acreage, which fits seamlessly into the broader TPL portfolio. On November 3, 2025, we acquired approximately 17,300 net royalty acres, standardized to 1/8th, located primarily in the Midland Basin in Martin, Howard, and Midland counties. The total purchase price was approximately $474 million, funded entirely by cash on our balance sheet. Approximately 70% of the acquired interests are adjacent to or overlapping drilling spacing units that TPL already owns. This means we essentially acquired additional royalties in current and future well locations in which we already retain an interest. Approximately 61% of the royalty acreage is operated by Exxon, Diamondback, and Occidental. The royalty acquisition currently produces more than 3,700 barrels of oil equivalent per day with an approximately 80% oil and natural gas liquids cut. We expect to generate a double-digit pretax cash flow yield at realized oil and natural gas prices of approximately $60 per barrel and $2 per 1,000 cubic feet, respectively. In September, we closed on an acquisition of approximately 8,100 surface acres in Martin County, Texas. The surface acquisition is adjacent to land TPL already owns, providing TPL an even larger contiguous block in a strategic area that is prospective for source and produced water, SLEM, and other next-generation commercial opportunities. In conclusion, we're not overly concerned with near-term commodity price volatility. Although TPL's oil and gas royalty revenues remain below the peak from the third quarter of 2022, it's entirely attributable to lower commodity prices as our royalty production has increased 55% since then. We can't make any promises as to if or when commodity prices improve. But as TPL's royalty production has substantially grown both organically and inorganically, TPL retains immense upside leverage to the next oil and gas price up-cycle. That potential incremental revenue represents pure inflation-protected margin, as our royalties are not burdened by capital costs in most operating expenses. In addition, our water business just had a record quarter, as we execute on multiple growth opportunities such as out-of-basin disposal and produced water desalination. Overall, TPL is positioned exceptionally well over the near and long term, and we remain intently focused on exploiting our commercial potential while deploying capital opportunistically as we seek to maximize shareholder returns. With that, I'll hand the call over to Chris.

Thanks, Ty. For the third quarter of 2025, consolidated total revenue was $203 million, and consolidated adjusted EBITDA was $174 million. Adjusted EBITDA margin was 85%. Free cash flow was $123 million, representing a 15% increase year-over-year. Royalty production this quarter was approximately 36,300 barrels of oil equivalent per day. The royalty acquisition that we announced with yesterday's earnings release closed after September 30 and did not contribute to the production or revenue for the third quarter of 2025. As of quarter end, TPL had 6.1 net permitted wells, 9.9 net drilled but uncompleted wells, and 3.1 net completed but not producing wells. We expect our recent royalty acquisition to add approximately 2 net wells to our line of sight inventory. Turning to our desalination project, construction continues on our 10,000 barrel per day facility in Orla, Texas. We expect to begin commissioning the facility by the end of the year. Once fully commissioned, we will expand our testing process as we seek to evaluate the system's capabilities at scale and assess its performance under a wider variety of operating conditions and water specifications. Our previous CapEx estimates remain unchanged from our last update. On the regulatory front, we have received an additional approved land application pilot permit from the Texas Railroad Commission. This permit allows us to use the facility's treated freshwater output to irrigate land with the aim of restoring native bush grass in a nearby area. With respect to our TCEQ discharge permit, we continue to be responsive as we work towards permit approval. We believe our proprietary desalination technology and beneficial reuse efforts can play a critical role in providing a sustainable solution for Permian-produced water beyond just subsurface sequestration. In the near term, our goal is to prove that our patented freeze desalination process can work economically at scale to advance on the regulatory and compliance fronts and to further investigate waste heat capture, process efficiencies, and colocation designs. We plan to provide updates on these key initiatives next year as our Phase 2 facility ramps operations. Turning to our balance sheet, yesterday, we announced that our Board approved a 3-for-1 stock split of the company's common stock. This stock split is expected to be completed in December 2025, subject to finalization of the record date and distribution date by the Board. At the quarter end, TPL had $532 million of cash and cash equivalents and no debt. As Ty discussed, last month, TPL closed on a credit facility with $500 million of lender commitments. The credit facility was oversubscribed. It contains favorable terms and the interest rate spreads for borrowed funds are attractively priced for TPL. The facility was undrawn at close and remains undrawn today. This augments our liquidity position even as we maintain a net cash balance sheet today, and it expands our ability to capitalize on opportunities counter-cyclically. 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. And with that, operator, we will now take questions.

And our first question comes from the line of Derrick Whitfield with Texas Capital Securities.

Congrats on a strong financial update. Assuming flattish activity, what's a good run rate for the business? And how much of your water sales are recycled barrels versus sourced water?

And our next question comes from Oliver Huang with TPH.

Just wanted to hit on the royalty acquisition you all announced this morning or last night. Just any sort of color on how this deal came together? Also, how many incremental net locations on a 10,000-foot equivalent basis would you all say were acquired in your valuation underwriting for the asset? And just, when we're thinking about the 2 net incremental work-in-progress wells, any sort of color on which bucket it falls into?

Yes. Thanks for the question. We probably won't go into the total location count. But when we think about this type of asset and the type of assets we've purchased in the past and hopefully, the type we'd want to purchase in the future, having a lot of inventory that allows for future growth for years to come is one of the most important aspects of the types of assets that we look to acquire. So our view is that this is going to be a great asset. It's going to provide a great growth outlook to complement our legacy asset base, and so that's kind of how we've thought about it. Obviously, some of that growth is dependent on the level of activity and commodity prices, but we still think it's a very high-quality asset. It's operated, as you heard in the comments, by some of the most well-capitalized operators in the Permian. So we feel really good that over the coming years, it's going to grow and provide really strong returns for TPL.

Okay. Perfect. And maybe just, for a second question, on the power side of things, just power data center type of conversations that are occurring. How do you all feel about your position in terms of being able to participate out in West Texas compared to a quarter ago or even the start of the year, capturing some share of this market? Just any sort of color you can provide in terms of which areas seem more prospective for getting such deals executed on?

Yes, sure. Thanks for the question. Look, we feel like TPL is very well positioned. We have all of the attributes needed to be very attractive to power generators and data center developers, hyperscalers. I think we've probably got more available land with those attributes needed than anyone else in West Texas, and I think West Texas is quickly becoming more and more popular as an area to build out multi-gig facilities and campuses. I would just say that we're continuing to have really good conversations. I think we're pretty close on a couple of opportunities that are very interesting. So hopefully, we'll have additional news to share here in the very near future.

And next up, we have Derrick Whitfield with Texas Capital Securities.

Let's try this again. Can you hear me?

Yes, we got you now, Derrick.

Awesome. Sorry about that, and congrats on a strong financial and operational update. For my first question, I wanted to focus on your outlook for the water resources business. Over the last 2 quarters, we've seen a bit of volatility in water sales. Assuming flattish activity, what's a good run rate for that business? And how much of your water sales today are recycled barrels versus water from source water wells?

When you look at the change quarter-over-quarter, it's something that we're always trying to work to minimize that volatility. You can really attribute it mainly to consolidation and diverse acreage position that you see. Our footprint allows us to expand off that legacy acreage, and that's what we're attempting to do to capture as much diversity as we can. As far as what the produce looks like, it's a moving target every quarter. Obviously, the goal is to maximize the amount of recycled produced you are putting into operation, but there are a lot of factors that go into that, mainly the availability produced and the demand of what that frac is going to be in that area. So that's where our team works with the operators every day to look at what that balance looks like, how we can maximize produced, and how we can backstop it with brackish and keep up with the simul and trimul demand that we see today.

Makes sense. And then for my follow-up, Robert, we could probably stay with you. Just wanted to focus on how you're thinking about progressing desal beyond Phase II and Phase III and the degree of conversations you're having with the industry about your technology? I'd love to get your views on the permit that was just approved for NGL for an 800,000 barrel produced water treatment plant for beneficial reuse and recharge into the Pecos River basin?

I'll start on desal. I'd say that we were the first entry into desal in the market. I think our expanse of footprint and diversity of operators and midstream companies allowed us to see that desal was going to be necessary at some time in the future. We're confident in our technology to bring desal to the future. When we look at commercialization of desal and how that fits into the upstream market, the ultimate commercial model is yet to be determined for the industry as a whole. What we see as the biggest benefit is waste heat capture and how that fits into direct air cooling and direct chip cooling. So when we look at 2026, for us, it's not necessarily growing in volume; it's working with those other synergies of how we implement direct capture. Decreasing the input cost of energy into desal and maximizing any value from the output of the water greatly helps the economics of bringing desal to full commercialization. On the NGL permit, there were a couple of draft permits issued. There have been no final permits issued so far from TCEQ. NGL and us included, are in draft permit phase right now, as we work with the commission to get that into final permit approval.

And maybe one more, if I could, on M&A more broadly. While we tend to see less opportunity at lower prices due to wider bid-ask spreads, you guys are having success as evidenced in this quarter. When you think about the broader picture, both surface and minerals, how would you characterize the competitive landscape in the Permian at present and the opportunities you're seeing across the broader Permian footprint, both Delaware, Central Basin Platform, and Midland?

Yes. I mean we've been successful in getting some of these deals done here recently. They've been sourced just through our relationships. The lower commodity price environment makes it a little tougher because of the bid-ask spread, like you said. But I think we're still seeing a pretty healthy amount of opportunity in the pipeline, and so I think we'll continue to be successful. There's probably some equally interesting opportunities in the Delaware and the Midland and starting to see some interesting stuff across the platform as well when you think about out-of-basin disposal and some of these next-gen type projects, power generation, data centers, things like that. So pretty excited looking forward on the opportunity set in front of us.

Thank you. And with that, this does conclude today's question-and-answer session and it also concludes today's teleconference. Thank you for your participation, and you may disconnect your lines at this time. Have a wonderful day.