Texas Pacific Land Trust Stock

Greetings. Welcome to the Texas Pacific Land Corporation Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Shawn Amini, Vice President of Finance and Investor Relations at Texas Pacific Land Corporation. Thank you. Shawn, you may begin.

Thank you for joining us today for Texas Pacific Land Corporation's Third Quarter 2026 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 our recent SEC filings. During this call, we will also be discussing certain non-GAAP financial measures. More information about and reconciliations of these non-GAAP financial measures are contained in our earnings release for this quarter and our 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 President and 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 will open the call for questions. Now, I will turn the call over to Ty.

Good morning, everyone. For the third consecutive quarter, TPL generated record quarterly total revenue, net income and free cash flow. These results were supported by continued strong development activity across our royalty acreage, supportive commodity price realizations, increased pipeline easement revenue and record produced water royalty volumes.

Starting with oil and gas royalties, oil production of 17,100 barrels per day and total daily production of 42,300 barrels of oil equivalent per day both represent quarterly records. Record production is notable given that oil entered this year below $60 per barrel and upstream operators collectively were dropping rigs.

Oil and gas royalty revenues have benefited from sustained high oil prices as conflict in the Middle East has persisted. We have been and continue to remain today completely unhedged, allowing us to realize the full upside to elevated oil prices. Over the last few months, we have seen an acceleration in Permian activity levels, which we believe will support strong growth for TPL in the basin overall.

Operators were initially cautious for the first part of 2026, unsure of how long the Middle East conflict and higher oil prices would last. In the third quarter of this year, rig counts inflected higher and new permits for horizontal wells set a basin record.

As oil prices have remained strong, we expect the outlook for near-term basin growth to strengthen. New natural gas pipeline capacity has helped to debottleneck the in-basin gas glut, which has alleviated negative prices at the Waha Hub and compressed local basis differentials to U.S. Gulf Coast markets.

TPL's natural gas price realizations improved from $0.40 per thousand cubic feet in the second quarter to $2.40 in the third quarter despite relatively flat benchmark Henry Hub pricing over the same period. The natural gas pipeline egress in the Permian expected to expand substantially in coming years. We're optimistic that prolonged periods of negative prices and wide basis for in-basin gas are behind us.

Our surface leases, easements and materials business, which we refer to as SLEM, had a great quarter with quarterly revenues of $36 million, a 53% sequential increase. Performance was driven by natural gas, natural gas liquids, electric and utility infrastructure growth across our land position.

We're still in the early stages of growth in West Texas for new infrastructure across industrial, manufacturing, power and data centers, and our massive land footprint is well positioned to benefit. We are also investing in additional surface-related opportunities to capture this industrial boom.

Turning to our water business. Water sales volumes were 672,000 barrels per day for the quarter, roughly flat sequentially. Completion activity in the Permian has been slow to ramp even as oil prices have stayed high. Due to weak in-basin gas pricing for most of this year, we've seen an intra-basin shift from the Delaware to Midland as well as an intra-Delaware shift from Texas to New Mexico. In response, we've been increasing our efforts to expand our reach into New Mexico and Midland Basin more broadly.

Our ability to procure produced water for recycling is a major factor that allows us to maintain a presence in New Mexico, especially given operator preferences to reduce disposal needs. Although our acreage is less concentrated in the Midland Basin, we leverage third-party disposal systems on and off our acreage to facilitate completion water sales.

Beyond some of these regional intra-basin dynamics, the near-term water sales outlook for the Permian overall is constructive. As noted, the Permian's record new permits and rising rig counts are leading indicators of higher completion activity and corresponding higher water demand. Produced water royalties had an excellent quarter with record revenue and volumes.

Volumes reached a record 5.5 million barrels per day, which represents growth of 14% sequentially and 27% year-over-year. The near-term and long-term fundamental backdrop for Permian produced water remains strong as activity levels and rising water-to-oil ratios support volume growth.

Recent performance has also been supported by an additional factor. As completion activity declined in the first half of this year, produced water that would otherwise have been recycled for completions instead requires injection into pore space. Thus, more volumes have to move across TPL land for injection into pore space directly on or adjacent to us. This dynamic creates a natural hedge for our water business. Periods of tepid demand for completion water can simultaneously provide tailwinds for our produced water royalties.

Turning to produced water desalination and beneficial reuse. We have made encouraging progress at our Orla Phase 2b facility during the quarter. Our adjacent grassland rehabilitation plot is complete and ready to receive water under our approved land application permit.

With respect to our Texas Pollutant Discharge Elimination System, or TPDES, permit, we hope to receive the final draft of the discharge permit from the TCEQ shortly. In August, we held an on-site grand opening ceremony, which hosted more than 150 guests from across the industry, local and state government, research community, major energy companies and hyperscalers.

Since then, our commissioning process continues, we are inletting increasing concentrations of synthetically produced water brine as we test and calibrate equipment, finalize various process integrations and develop standard operating procedures. Additionally, we are establishing the data collection framework that will allow longer-term efficiency tracking and optimization of the desalination process.

By the end of the year, we hope to flow field-produced water into the Orla facility. We also continue to work on designs related to data center and power generation specific research and development initiatives to further the co-location of produced water desalination facilities.

Turning to our data center efforts. We're working diligently on a number of projects throughout our land position, although commercial agreements are still being negotiated, a significant amount of diligence, project planning and design and site work has progressed.

Recent regulatory moratoriums and new incoming governor at the state level are a couple more things the industry will have to navigate. The outgoing Texas governor directed regulators and ERCOT to conduct a verification and audit for grid-connected projects in ERCOT's large load interconnection process.

Subsequently, the governor also directed the TCEQ to pause issuance of permits to data centers pending the ERCOT review and incorporating other incremental environmental items. And although it's still early, we believe the new incoming governor will take a similarly measured approach to data center development in the state.

With much of West Texas data center projects anticipated to be behind the meter and in relatively rural areas, it does reduce some complexity relative to grid-connected projects that have to undergo interconnection studies. Air permits, water and community engagement remain pertinent for projects and significant focus points for many developers.

It's worth noting that these elements were already major points of emphasis from developers preceding the governor directive and recent election. These actions to date add to the diligence checklist, but these are not viewed as a blanket ban.

Furthermore, and this is true regardless of who's in power, virtually every hyperscaler and AI lab customer we're working with has been extremely focused on minimizing environmental and affordability externalities while maximizing community benefit. This dynamic is largely why these deals take so long to finalize.

Economic terms are obviously important, but customers want to ensure these community issues are proactively resolved and ultimately a net benefit to the local population. In total, we have not sensed waning motivation from landowners, developers and customers to get hyperscale projects built.

As it stands today, we expect to spend capital next year on water-related distribution and treatment infrastructure to serve the initial in-service of power and data center projects. Developers of gigawatt scale infrastructure have spent a lot of time optimizing designs for the unique attributes of West Texas and the scope of these projects continues to evolve. We're collaborating closely with the developers on land, water and easements. For water, quality specification and quantity span across a wide gamut.

TPL's water business is vertically integrated and capable of providing high volumes of non-potable, potable and high-spec demineralized water. Inbounds for quotes and RFPs remain very high, and we've established commercial teams dedicated solely to data center and power customers. We don't have a new major announcement today, but the backlog is robust, and we're well positioned to bring multiple hyperscale projects to West Texas in the near term. And with that, I'll hand the call over to Chris.

Thanks, Ty. Consolidated revenues during the third quarter of 2026 were approximately $273 million. This was an all-time high, up 11% sequentially and 35% year-over-year. Consolidated adjusted EBITDA was $238 million, which was up 11% sequentially and 37% year-over-year.

Our adjusted EBITDA margin for the quarter was 87%. Free cash flow was $170 million, which was up 10% sequentially and 39% year-over-year. Net income was $167 million, or $2.42 per diluted share, up 38% year-over-year.

Moving to our well inventory. As of quarter end, TPL had 5.7 net permitted wells, 8.6 net drilled but uncompleted wells, commonly referred to as DUCs and 2.5 net completed, but not producing wells, which we refer to as CUPs. This amounts to 16.8 net line-of-sight wells. Well inventory has declined from recent levels. However, new wells placed on production still supported continued production growth for TPL.

As Ty noted, operators spent the first part of the year drawing down DUCs and CUPs to support strong levels of new wells placed on production. High oil prices incentivize this behavior. With the rigs largely declining, well inventory was converted to production faster than new spuds could replenish inventory. The same dynamic has played out basin-wide. The Permian is setting new highs for oil production, while DUC inventory is down from a year ago.

Over the long term, however, wells turned to sales are limited by how many wells operators spud and complete and DUC inventory is finite. We just started seeing rig additions in the third quarter, which should continue to rise through year-end. As rig counts rise and new spuds increase, the DUC drawdown will level off as new wells drilled and new wells placed on production come into balance.

Historically, sustained high oil prices lead operators to build DUCs and record new horizontal well permits in the third quarter suggest the Permian is currently on the same path. All that said, we're not concerned by the drop in near-term well inventory. DUCs and CUPs can naturally be replenished as rigs and frac spreads are added.

Despite entering 2026 with 5-handle oil, the Permian will once again set a new oil production record this year. And given the activity ramp we're now seeing, it's looking increasingly certain that 2027 will also be another record production year. From our vantage point, the Permian oil machine and by extension, TPL is not even close to slowing down.

Turning to our balance sheet. At quarter end, TPL had $370 million of cash and cash equivalents and no debt with our $500 million credit facility remaining undrawn. After quarter end, we acquired approximately 9,700 surface acres and 238 net royalty acres in Midland and Glasscock counties.

This acreage sits in a high-quality subregion within the Midland Basin and is checkerboarded with 4 legacy TPL sections. The acquired acreage currently generates cash flow from source and produced water, SLEM and mineral interest. The acquisition augments our Midland Basin footprint where we can apply our existing commercial capabilities and expand capture on and off ranch.

Post acquisition, we continue to maintain a pristine balance sheet. We have tremendous flexibility to create value for shareholders as this is an opportunity-rich environment across organic investment, bolt-ons and M&A. We can also opportunistically lean into buybacks given the recent volatility induced by midterms and perceived impacts on the energy and data center industries in Texas.

Meanwhile, current high oil prices augments our free cash flow profile, enabling us to efficiently recycle cash towards attractive growth opportunities or expanded return of capital to shareholders. We remain very focused and disciplined as we look to maximize long-term intrinsic value per share. And with that, operator, we will now take questions.

[Operator Instructions] Our first question is from Derrick Whitfield with Texas Capital.

Congrats on a very strong quarter. I'd like to start with the market and political landscape given the impact it had on your stock yesterday. The Blue Wave and change in Texas Governor leadership is perceived to be a headwind to your business. As I think about it, any political or regulatory rebuke against data centers actually makes the case for what you're pursuing with Bolt even stronger, not weaker. A, is that a fair assessment? And b, if so, what's your greatest concern in the new political landscape?

Thanks, Derrick. I think that's a fair assessment. Did things get slightly more difficult in Texas? Yes, but they certainly haven't gotten any easier in any other states. So I think the political change, one, just makes us more bullish on West Texas for data centers and compute.

When you think about the concerns of the governor, those are the same concerns that we've been hearing from local communities that we've been talking to out there for the last 1.5 years. And so we've already started working to design these facilities to address those concerns like cheaper power, concerns around using municipal water, traffic and noise.

So I think the type of site that we are trying to build will become the blueprint for how you have to build these things in Texas. And I think the lack of population in West Texas, cheap gas, abundant water, brackish non-potable water, all makes West Texas just the place for large-scale compute to be built.

So again, we're just more bullish. Does it affect the timing of some of these projects in the near term? Yes. But I think it's a net positive for the long-term value proposition for TPL and West Texas more broadly. So look, I think will we have to figure out how to navigate this in the near term? Certainly. But again, I think it's a net positive for TPL and we're just more and more bullish as we go on the value proposition for power generation and compute in West Texas.

Terrific. And regarding the base business, just on the intra-basin and across basin moves you noted, could you -- I guess, how would you characterize from what you've seen today, how the production and water trajectories look over the next couple of quarters? I'm not asking for like a 2027 guide, but just with how you see the pieces that have moved to date, just how do you think that looks for the business, that base business?

Well, we've definitely seen an uptick in permitting. The overall basin rig count is climbing. The percentage of rigs on our acreage versus the basin has continued to climb. Our completion schedule on the water side is much more robust for the fourth quarter than it was third quarter. So I think the next couple of quarters are going to be much stronger kind of across our legacy business for TPL.

I mean, when we look at that shift, we've seen this shift to Midland Basin coming for a while. I think it's got different characteristics and reasons why it occurred. I think water is probably one of them. And we start to see some -- over the last, let's say, years, some maybe spatial challenges in water handling. I think it just goes even further to say what we've started creating for solutions on the water side, out-of-basin disposal, desal. When we see this shift back to the Delaware, there's going to be higher water volumes to handle. We're putting the framework in place for how to handle that through additional out-of-basin capacity. What we know is going to be the eventual pivot to beneficial reuse and desal and be ready for this activity level when it returns to the Delaware.

Our next question is from Tim Rezvan with KeyBanc Capital Markets Inc.

Ty, I appreciated the prepared comments that it's been sort of a shoot first, ask questions later kind of response yesterday and today on the Blue Wave. I was curious, I think not a lot of people assumed Abbott would lose. Did you or anybody else in the organization have discussions with the incoming governor before to understand their positions and where I'm going. Is there any specificity that you can see on what might change either on permitting or developing or time lines? Just any insight would be helpful, if you have any.

I don't think we have any real clear insight on where things are going. I mean, I'll be honest, we were in the camp of thinking that Abbott would get reelected. But from what the new governor has put out so far, I mean, we don't expect the view on data centers in Texas and how those are developed to change too significantly.

I'll say we're heavily engaged in Austin. Again, not saying that anybody saw this coming. But when we're engaged on the regulatory side and on the legislative side as well, I'll reiterate, I think, what Ty said in his first comments of our blueprint for what kind of functional data center and power gen build-out should be.

I completely agree that it strengthens the West Texas thesis. If we look at short-term what permitting is going to look like. Obviously, there's still the moratorium in place that Abbott put on. We're going to continue to work with the regulators to say, okay, what does that proper siting do? I think, again, it strengthens our thesis, probably some short-term headwinds just from a permitting standpoint.

But long term, I think it continues to, if you say, force to compute to the Permian because of the attributes. I think when you look at Permian, too, you have to look at now -- you're going to not just kind of those quantitative inputs of the commodities, the land and the water and the gas.

But I think you also have to look at just the community's acceptance and kind of qualitative acceptance that West Texas sees toward data centers. And if you look at the Permian, it's a more transient community. It's always been that work community. I think the community as a whole are starting to see compute as a way not only get another industry in, but continue to prop up what is West Texas in the upstream side of the world.

Okay. I appreciate the comments. I know we're about 36 hours into digesting all this, so thank you. As my follow-up, your slide deck had some cursory comments about next steps on the desalination progress. And I know time lines are hazy right now given everything that's happened this week.

But can you just talk about kind of what you would need to see to kind of -- you talked about 2027 and beyond procurement of equipment for a commercial scale facility. Maybe just talk about the next steps on desalination and given the progress to date.

Sure. Right now, as Ty mentioned in the prepared remarks, commissioning continues. We -- the reason we do synthetic brines to start out, we're being very deliberate in our approach of the commissioning of the system. It's a very complex system with a lot of data sensors and inputs. And when we -- why we run synthetic brines is mainly from a characteristics and waste standpoint. So short term, by the end of the year, we pivot from synthetic brines over to actual produced water and let the system start to run.

When we think about next level initiatives and commercial interest, somewhat twofold. One, when we look at traditional just upstream offtake, a lot of interest from the operators, what does an offtake agreement look like. But then the second piece has been the increasing interest from the hyperscaler community. And for that, it's kind of twofold. We look at the research initiatives that we've talked about before, waste heat capture, possible implementation of our freeze and direct chip cooling. But kind of high level, just what does the use of produced water look like in a data center. Can you pivot back to an evaporative model?

So over the next couple of months, it's going to depend completely on commercial conversations on both those fronts from the upstream side and the hyperscaler side, what the scale-up look like and what does the ultimate use of that water and compute look like.

I appreciate that, Robert. I know it's still early days.

This now concludes our question-and-answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.

Greetings, and welcome to the Texas Pacific Land Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Shawn Amini, Vice President of Finance and Investor Relations. Please go ahead.

Thank you for joining us today for Texas Pacific Land Corporation's Second Quarter 2026 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 will open the call for questions.

Now I will turn the call over to Ty.

Good morning, everyone, and thank you for joining us today. This quarter, we delivered exceptional results across major financial and operating metrics and achieved significant milestones towards key growth initiatives. TPL generated record quarterly total revenue, net income and free cash flow. These results were supported by record oil and gas royalty production and produced water royalty volumes. Oil and gas royalty production averaged approximately 39,700 barrels of oil equivalent per day, up 7% sequentially and 20% year-over-year.

In addition, our unhedged royalty position allowed us to benefit fully from the strong oil price environment. Produced water royalty volumes were 4.9 million barrels per day during the quarter, which represents growth of 6% sequentially and 15% year-over-year, driven by strong demand for TPL's in-basin and out-of-basin pore space. Water sales volumes of 663,000 barrels per day represents a 19% decline sequentially and a 38% increase year-over-year.

Second quarter water sales volumes have been impacted by weak in-basin natural gas prices as operators have shifted some development away from the Delaware Basin. However, substantial new gas pipeline capacity enters service over the next few quarters, and we would expect some mix shift towards the Delaware as local in-basin gas price differentials improve.

For SLEM, revenues of $24 million, which represents a 37% sequential increase, were driven by strong performance for pipeline and wellbore easements. With respect to our data center and power generation efforts, we disclosed that a previously announced land sale and water supply agreement was related to Project Kilby, which is a large-scale power generation facility Chevron is developing to support a customer data center in Reeves County, Texas. This multi-gigawatt power and data center development represents a substantial commitment by some of the largest energy and technology companies in the world, and this validates the Permian as an attractive data center infrastructure hub capable of accommodating hyperscale facilities.

In addition, during the quarter, we acquired over 10,000 acres of land in Shackelford and Jones County, Texas, for approximately $100 million. This region is amongst the fastest-growing data center regions in the country, and this acquisition further expands our strategic data center and power generation efforts beyond the immediate Permian Basin. This land was attractive due to its contiguousness, land and water resources, access to natural gas and grid infrastructure, established fiber and proximity to a midsized city.

We are also progressing on a number of projects with various high-quality hyperscalers and AI labs, which also includes our joint effort alongside Bolt Data & Energy. Deal execution requires extensive work involving many counterparties and thorough wide-ranging diligence and our conversations revolve around multiple verticals such as land, water, aggregates and other aspects. West Texas is rapidly becoming a dominant global hub for power and compute, and it's apparent that developers and customers remain keenly motivated to expand their power and compute footholds in the regions. We will be able to provide more specific details as our commercial efforts turn into executed agreements.

Turning to our produced water desalination efforts. We have completed construction and commenced commissioning on our desalination facility located in Orla, Texas, which we refer to as Phase 2b. Eventually ramping the facility to its 10,000 barrel a day capacity will allow us to demonstrate that produced water desalination can work at scale. Our desalination effort leverages our patented freeze desalination process where we also have equipment exclusivity for oil and gas applications with one of the country's leading providers of industrial scale process cooling solutions.

In addition, this year, we will be implementing various desalination colocation studies. Our freeze desalination process will generate large volumes of ice and chilled water, which then could potentially be used by data centers for chip cooling. Furthermore, we are also investigating the utilization of waste heat recovery equipment to enhance our desalination process and reduce our energy consumption. There is also additional optionality to monetize both the high-spec freshwater and concentrated brine output streams from the facility. Desalinated produced water represents an interesting opportunity as it is not part of the hydrologic cycle and thus high-spec desalinated freshwater could meet standards for irrigation, industrial cooling, rangeland rehabilitation, streamflow augmentation and data center cooling, thereby reducing demands on existing local water resources. The concentrated brine may also enhance economics of produced water valorization by extracting valuable minerals such as lithium.

We're excited to finally have completed construction on our Phase 2 facility as produced water desalination at scale could help significantly reduce traditional injection demand. In addition, energy supermajors and large independent hyperscalers and AI labs have shown strong interest related to the commercial and operational opportunities related to colocation and output water streams. Our Orla Phase 2 facility will provide interested parties with a tangible real-world exhibit of how we can turn an oilfield waste product into something with highly positive commercial and environmental attributes.

We look forward to providing more updates in the coming quarters as we operate the facility and as business discussions advance.

With that, I'll hand the call over to Chris.

Thanks, Ty. Consolidated revenues during the second quarter 2026 were approximately $246 million. This represents a quarterly all-time high as well as a 4% sequential increase and a 31% increase year-over-year. Consolidated adjusted EBITDA was $216 million, which was up 19% sequentially and 30% year-over-year. Our adjusted EBITDA margin for the quarter was 88%. Free cash flow was $156 million, which was up 14% sequentially and up 20% year-over-year.

Moving to our well inventory. As of quarter end, TPL had 5.6 net permitted wells, 9.5 net drilled but uncompleted wells or commonly referred to as DUCs and 3.4 net completed but not producing wells. That amounts to 18.4 net line-of-sight wells. Year-to-date, capital expenditures were $29 million. As Ty discussed, in the second half of this year, we will be spending capital to investigate colocation cooling and waste heat capture opportunities at our Orla Phase 2b desalination facility. This spend was embedded in our original CapEx guidance at the beginning of the year, and we reaffirm the fiscal year guide of $65 million to $75 million.

And with that, operator, we will now take questions.

[Operator Instructions] First question comes from Derrick Whitfield with Texas Capital.

My first question, I wanted to start with the surface acquisitions you made in Shackelford and Jones Counties. While a bit of a step out, it's clear to us that it was bought on more than a hunch. How would you guys frame the opportunity with this kind of build-out in this project potential and the amount of revenue streams it could involve?

Yes. That's a good question, Derrick. I mean it is a little bit of a step out, but I mean, we think the power and compute opportunity in West Texas is enormous and broader than just the Permian and our legacy footprint. And so we've been doing diligence on that property for over a year now to make sure that it specs out. That area was interesting to a compute user that we've been working with for a while now. And so I think we've demonstrated to the tech community that our team has the expertise to locate land, water, gas resources even if it's outside of our legacy footprint. And so I think it just adds some flexibility to the value proposition of TPL. We're excited about it. We think we can replicate it.

And I think the question about the value chain, it's very similar to our other properties and how we look at the oil and gas business. We want to be as involved in the project as we can while still being really capital light. And so land use, water, aggregates, just clipping coupons to the kind of the entire life cycle of that project so that we capture as much of the value chain as we possibly can.

Great. And then as my follow-up, I wanted to focus on the water desal, but specifically water desal for chip cooling. How would you frame the depth of interest you're seeing in your conversations with hyperscalers and AI labs, given the fact that it is water additive to the hydrologic cycle. I think it's a huge selling point that you guys have in your process.

Yes. I mean the interest in produced water and data center use is huge. And I think it's not just one stream. When you look at it, just -- let's start with just the consumptive piece. I think there still is some evaporative cooling and adding adiabatic assist that is water consumption that goes into data center, not just chip cooling, but building cooling. Obviously, that's your first one that everybody hits on because it is water that's not in the hydrologic cycle.

Next, you move into something that's more specific to our technology that we're in a lot of discussions with a couple of hyperscalers and AI labs on, and that's using our freeze technology for direct chip cooling. If you look at the heat transfer that a hyperscaler uses for direct chip, it's a fraction of the heat transfer that we look at when we're getting this water down to sub-15 degrees Fahrenheit to be able to remove the salts from the water. So that's another fit. All of it goes towards a water positivity or water neutrality goal, a couple of other aspects that we're chasing just to reduce that consumption on any municipal or type of traditional water sourcing that they typically use today.

Next question, Tim Rezvan with KeyBanc Capital Markets.

Derrick touched on the topics of interest to me, but I thought I'd follow up a little more on this acreage acquisition. I think a little bit of a surprise is that you all have almost 1 million surface acres already. I know the opportunity set is vast on power and compute. But should we be expecting potential like sizable acquisitions like this in the future? I guess the idea is how much of the opportunity can you leverage off your existing footprint versus needing to buy more?

Yes. Look, we're looking at it the same way we did when we started the water business, right? The primary objective is to develop the existing resource that we already have, but we're simultaneously looking for other opportunities. Like I mentioned, I think the opportunity set here is beyond our legacy footprint. And so why let someone else capture that value. And so very similar to how we've built the water business, like I said, we are looking at both options simultaneously.

And I would just say like we're in advanced conversations with multiple hyperscalers, AI labs and power generators on 25 gigawatts of projects right now. I would be disappointed if we don't announce at least one or more major definitive agreements in the near term. So with an opportunity set like that, that's growing by the week, we feel like we owe it to our shareholders to look outside of our existing footprint.

Okay. Okay. That's good context, especially on the scale, 25 gigawatts is a big number. If I could switch gears a little bit. Produced water royalty volumes, you touched on it. It was a record in the second quarter. And looking at sort of the revenue per barrel, it was at the high end, about over $0.08 a barrel. Should we be modeling that to continue to kind of ramp? I mean we know the broader trends in the business, but just kind of curious how you see that trending over the next year or 2.

Well, we've got price escalators built in our existing contracts. And I think pore space will become more valuable over time. I would say the one caveat is transportation royalties are typically a little less than an actual pore space injection royalty. And so as that mix changes, you should see that royalty kind of stay steady to increasing over time.

Okay. I appreciate that. If I could just ask one more question on your minerals business. It's biggest revenue component, but probably the least discussed segment. We saw oil tick down about 5% in the second quarter, which is a little contrary to sort of comments from large operators about pulling volumes forward into higher oil prices. So can you comment on kind of maybe what happened and maybe how you see oil volumes trending amid the rig ramp in the Permian?

Yes, Tim. I think there's a couple of factors. One, I think I would just start by saying I don't think the lower oil percentage is a near-term trend for us. I think kind of this quarter and even last quarter to some extent was a bit unique. There's probably some accounting noise as some of our new acquisitions come online. We also just had a lot of heavy development that was occurring late last year, really throughout 2025 in areas that are pretty gas-rich including one of our other acquisitions. A couple of our acquisitions were some really high-interest wells in Culberson County were drilled over a pretty short time frame. And so I think our expectation is we were kind of mid-30% oil cuts. I do think that's going to trend back up. And if you look at it as a more normalized long term, it should get back up 40% plus over time. So really more kind of something unique to TPL.

And the reality is even as diversified as our royalty interests are the way that people operate, they can park a rig and a completion crew in an area and can affect some of the mix with drilling a whole bunch of 3- and 4-mile laterals, the production that comes online can be significant. And so there's a lot of different factors that I think led to the -- what we might see as a pretty high gas cut. But I do think we will see both that oil trend back up and become a more meaningful part of the production mix on a go-forward basis.

Next question, Oliver Huang with Tudor, Pickering.

Just wanted to hit on, I guess, thoughts around the buyback. I mean, I know there have been some royalty bolt-ons over the past 12 to 18 months in addition to the land acquisition here. But it's been several quarters since there's been anything meaningful on the buyback front. Just trying to get a better understanding how does this reflect your current view of where the equity sits from a valuation perspective? Is this something that's being purposely done just to build capital for bigger near-term asks across whether it be royalty M&A, land, power and desal investments?

Yes. Right now, there's a lot of really good opportunity set as we've seen the Shackelford acquisition is one of those. And I think one of our big thoughts when it comes to capital allocation is kind of putting those dollars toward best and highest use. And we just continue to see a lot of great opportunities out there where we feel like we want to be kind of in that cash build mode for now. And that's not to say that in the future, we retain the right to go out and do buybacks if that at the time becomes what we would view as a very attractive use of capital. And so it is always on our mind. We are always considering that as a way to deploy our capital. As we sit here today in the environment that we're in right now, building cash seems like and deploying it for some of these other opportunities is kind of where we want to focus. But buybacks are always on the table and something we're constantly looking at.

Okay. Perfect. Maybe just a follow-up on desal. Apologies if I missed it earlier, but just any sort of color in terms of just initial takeaways? How is what you all seen early on just kind of changed your conviction level in terms of what next steps might be? And what should we kind of be watchful for on that front?

If anything, over the time, our belief that beneficial reuse and produced water desal will take hold as part of that mix only grows stronger. I think if you look at total water production, it continues to climb. It will continue to climb as you get into some of these Tier 2 zones that just have a higher water cut. So we were some of the first early adopters to why we are where we are and ahead of the industry in the facility is because we knew it was going to be part of that takeaway mix. That belief only gets stronger. I think what helps even strengthen that further is the interest we're seeing from the hyperscalers and the AI labs for eventually implementing this into a sourcing mix as we see the compute build-out in West Texas.

To note, we're done in build. We're commissioning. Actually, on Monday, we will be hosting our grand opening and ribbon cutting at the facility. The interest we're seeing not just from the operators, we'll be attending legislators, regulators, but also multiple hyperscalers that will be on site with us on Monday as we commission the facility.

Awesome. Maybe one more follow-up, if I could squeeze it in. Just kind of on your earlier comments with working with the compute user in the Shackelford, Jones County area. Any sort of color as to how quickly you can recycle the opportunity set into actual revenue dollars that start to come through the financial statements?

Repeat the last part of that question, sorry.

Just how quickly could we start seeing actual revenue dollars start to come through the financial statements given that specific opportunity set?

Yes. Like I said, that's one that we've been working on for a while. We're a year into diligence. We're working with Bolt to develop that project. We've already started working with the local communities there on tax abatements and other things that are kind of like the tail end of the diligence process. So that's one that I would be very disappointed if we don't have a definitive agreement to announce in the very near term.

Yes. Real quick follow-up on what we see as this opportunity and how we're preparing for it. When we look at the near-term sourcing mixes that we're looking for these data centers and what we need to do to prepare for it, the water sourcing is varied. The eventual goal is to get produced water into data center usage. But near term, we know that we have to build out a team and build out systems for the non-potable construction water usage, the potable water that goes into the man camps. And even as far as the demand water that's used in the closed-loop system.

So when we look at that, we know we've got to build a new division, a new team around that, bring in folks that the chemist of the world and these direct chip design guys, cooling design, closed-loop systems. So it's moving fast. It's moving rapidly, as Ty said, it kind of is growing by the week right now as we see the interest in West Texas compute.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.

Ladies and gentlemen, greetings, and welcome to the Texas Pacific Land Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions]

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Shawn Amini, VP of Finance and Investor Relations. Please go ahead.

Thank you for joining us today for Texas Pacific Land Corporation's First Quarter 2026 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; 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. TPL's first quarter 2026 marked a strong start to the year as TPL generated record quarterly total revenue, net income and free cash flow. Oil and gas royalty production averaged approximately 37,100 barrels of oil equivalent per day, roughly flat sequentially, and up roughly 19% year-over-year.

In our water segment, both water sales and produced water royalties had the second best volume numbers in our history. And now with crude oil prices spiking dramatically over the last few months, TPL is poised to benefit directly through our oil and gas royalties and indirectly through our diversified exposure across surface and water.

Regarding the macro impact for the Permian Basin overall from our vantage point, we've only seen a marginal uptick in recent operator activity. Although oil prices at these current levels would generally stimulate a more robust producer response, there is still a lot of industry uncertainty around the duration of this oil supply shock. However, as this major supply disruption has persisted longer than initially anticipated and given that global oil and product inventories are rapidly depleting, oil prices could very well remain elevated for quite some time even if the supply disruption were to be resolved in the near term. If so, we would expect the industry to ramp rig and frac spread activity over the coming quarters. With an immense unmatched amount of undeveloped well locations, the Permian could readily support robust volume growth so long as the price signal persists.

For TPL, we have always viewed a strong balance sheet as our hedge against low commodity prices. Despite declining oil prices over the last 3 years, we maintained a strong net cash position throughout and did not need to hedge to protect the balance sheet liabilities. Today, with our unhedged commodity position, we are fully capturing the direct upside from elevated oil prices.

In addition to the upward trending momentum in our legacy oil and gas business, we have also made tangible progress with our next-gen endeavors. Starting with power generation and data centers. During the quarter, we entered into an agreement to sell a small section of land for $43 million, which is structured into annual payments over a 20-year period. We have entered into a separate commercial agreement to supply water for this same development. Given the broader commercial details for the project are still being finalized, we are currently limited in providing additional details. We hope to provide additional information in the coming months.

Speaking more broadly about our efforts on this front, our commercial activities continue to pick up speed. Virtually every major hyperscaler and AI lab are evaluating large-scale plans in Texas, and our sense is that urgency to lock up power and compute continues to rise. I would add that it is important to not overextrapolate deal structure and terms from any one deal. Virtually, all of our ongoing discussions and negotiations have substantially different makeups. Every developer needs something different. And depending on where in the region a development is planned for, TPL has varying capabilities for capturing commercial opportunities. For some deals, the land piece will be the primary value driver. For other deals, it may be water or aggregates.

Given our scale, our unique capabilities across surface, water and energy and our relationships across multiple industries, we have significant flexibility to solve problems for developers. These projects often represent tens of billions of dollars of capital, but naturally, alignment across parties and final investment decisions will take time to unfold. It is clear to me that Texas will become a dominant global hub for large-scale power and compute over the short, medium and long term, and we're excited to get this first agreement. We hope to provide updates on other significant opportunities as we progress throughout the year.

On TPL's produced water desalination efforts, our Phase 2b 10,000 barrel per day facility is nearly complete. The refrigeration inspection is planned for later this month, and we expect to begin flowing inlet water barrels in the coming weeks. This project represents a pathway towards a meaningful additional solution for Permian's growing produced water volumes. This test facility will allow us to evaluate whether produced water desalination can work economically at scale while also providing an opportunity to empirically demonstrate commercial potential for waste heat capture, cooling co-location and utilization of outlet freshwater and concentrated brine streams.

Turning to our upcoming shareholder office and field tour visit in Midland on May 18. For those of you that have submitted an RSVP, you should have received an e-mail a couple of weeks ago with event details and the schedule. If you have not received an e-mail, please reach out to Investor Relations. We look forward to hosting and seeing everyone in Midland.

On a final note, I wanted to comment on Murray Stahl's passing. Most of you know Murray's firm, Horizon Kinetics, along with its predecessors, has been TPL's largest shareholder for many decades. Murray himself has been a tremendous long-time advocate for TPL. He believed in the company while it was still a thinly traded, little-known trust that own royalties and surface in West Texas. Murray understood the virtues of real property combined with patience, and he was a rare combination of an independent thinker and dedicated practitioner.

Over the years, as horizontal drilling and fracking began to unlock the latent value of West Texas land and as our commercial efforts expanded, TPL grew to become one of the largest publicly traded energy companies in the world. Through it all, as TPL's share price began to reflect the immense value of our assets, Murray's and Horizon Kinetics' conviction and devotion to TPL remained unrivaled. While other shareholders would come and go as our share price rose and fell, Murray and Horizon steadfastly remained our largest owner and our biggest fan.

Despite these recent tragic events, I'm confident that Murray's legacy will live on. Over the years, we have also gotten to know many of Murray's colleagues at Horizon Kinetics who share his principles and investment philosophy. It is plainly obvious how much Murray is revered and respected by his colleagues. We continue to maintain a close relationship with Horizon Kinetics, and we believe that our combined ongoing stewardship will allow TPL to attain the full potential Murray envisioned. On behalf of TPL, I offer our condolences to Murray's colleagues, friends and family.

And with that, I will hand over the call to Chris.

Thanks, Ty. Consolidated revenues during the first quarter of 2026 were approximately $237 million. This represents a quarterly all-time high as well as a 12% sequential increase and a 21% increase over last year's first quarter. Consolidated adjusted EBITDA was $181 million, which was up 2% sequentially and 7% over the last year. Free cash flow was $136 million, which was up 15% sequentially and up 8% over last year. The continued strong performance of our royalties position was primarily driven by strong completion activity in the Delaware Basin by Occidental, BP and Devon in Loving and Northern Reeves Counties, and in the Midland Basin by Exxon in Martin County.

With the high volatility and uncertainty related to global oil prices, I would like to provide some color regarding our commodity price sensitivities. As Ty mentioned earlier, TPL remains fully unhedged. Using our royalty production volumes for fiscal year 2025 and as an illustrative guide, the roughly 5 million barrels of annual oil production means that every $10 per barrel increase in oil realizations would equate to approximately $50 million. Our oil price realization last year averaged $65 per barrel. For natural gas liquids, we received production volumes of roughly 3.8 million barrels, which means every $5 per barrel increase to our NGL realization would equate to an additional $17 million of annual revenue.

Moving to our well inventory. As of quarter end, TPL had 5.8 net permitted wells, 9.6 net drilled but uncompleted wells or commonly referred to as DUCs, and 5.2 net completed but not producing wells. That amounts to 20.7 net line-of-sight wells, which represents a 6% sequential increase. We continue to see operators push longer laterals with our new permits and new spuds, both having an average lateral length in excess of 13,000 feet. On a net normalized basis, after factoring in longer lateral lengths, our line of sight inventory is up 11% sequentially. We continue to see strong permitting and drilling activity across our Delaware and Midland positions.

And with that, operator, we will now take questions.

[Operator Instructions] We take the first question from the line of Derrick Whitfield from Texas Capital.

Congrats on a really strong quarter across the board. And also, Ty, thanks for your comments on Murray and Horizon Kinetics as I know many of your investors will appreciate that.

Starting with, I guess, first, the land and water agreement with a gas power generation project. While I realize you may be limited in what you can say this morning, but any color that you can paint around the counterparty and scale of this development? It would seem to us it's safe to assume that it's not Bolt given the time line of the development. And I'd also love your thoughts on whether desalinated produced water could be part of the equation for the data center.

Yes. Thanks, Derrick. Not a whole lot that we can say beyond what we put in the release and what I said in the transcript. But this project is not Bolt related. We've got several projects that we are working with Bolt on, but we also have several that are not Bolt related. I can't comment on the size or the counterparty. This is one that will likely be brackish water to start, but we are in talks around produced water and using desalinated water at some point on this project and others.

Great. And maybe just shifting back to the 13,000 foot level. It seems in your messaging that there is certainly a heightened urgency year-over-year among the hyperscalers. Could you kind of help frame how that opportunity has changed and what it could mean for TPL really above and beyond today's announcement?

Yes. I mean I think speed and power has been the key to these projects all along. I think substantially, all of the grid power has been taken at this point. And I think a lot of these hyperscalers and developers are now focusing on behind-the-meter gas-fired generation. And so that makes a lot of our acreage more viable. And I think the water usage, when you're talking about a gas-fired power plant located with a data center will be much higher. So we see that as a net benefit, not only from like a revenue standpoint, but just unlocking additional acreage for TPL overall.

We take the next question from the line of Tim Rezvan from KeyBanc Capital Markets.

There wasn't a lot of color on desalination in the release. I appreciate your comments at the start of the call here. I was hoping to get a bigger picture overview of sort of where you're going. You've given some parameters on OpEx and CapEx around a theoretical 100,000 a day facility. So kind of what are you -- exactly are you looking for as you start up this first facility to kind of assess the feasibility of moving forward? And then I know you need to take a first step before you take a second step, but how would you think about funding projects? I believe you talked about like $100 million CapEx per 100,000 barrel a day facility. Are there discussions going on about a potential partner to help defray those costs?

Yes, sure. This is Robert. Thanks for the question. I mean I'll start with what the goals of the facility are. And I think we've said them for a while, and we call this research development at scale. We knew the industry had to move from pilot phasing to something that we would call commercial sizing at the smallest scale, and from the industry, that's usually 10,000 barrels a day. So strictly from a functional aspect before we get into co-location, we want to see how this operates 24/7 day in, day out at scale. That is really going to prove the economic viability strictly from an upstream market.

Now when we look at co-location, when you start combining these desal facilities with nat gas gen and waste heat capturing co-location, yes, there's great benefit for the hyperscalers from a sustainability standpoint. But also we have to look at the co-location piece of what everything we can do to lessen that upstream cost to the operator to make these commercial. We believe in desal strictly from a need from the upstream perspective minus what we see for co-location benefit.

So to be determined on what commercial looks like. There's a lot of structures that we're chasing and looking at, some that focus just on that upstream and then getting the benefit of co-location as well.

Okay. I guess we'll have to stay tuned throughout the year. And then as my follow-up, touching on sort of, I guess, call it the legacy segments. We saw a step-down in revenues in SLEM and in the water segments from record high levels. And if you strip out that onetime land revenue, it's almost flattish kind of quarter-over-quarter.

So as we look at kind of the trends here, would you say that the fourth quarter of 2025 was sort of an upside aberration? Or do you think the first quarter was a little bit low? And where I'm going with this, how do we think about sort of the revenue trend across these legacy segments throughout this year, given the volatility of the last couple of quarters?

Rob, do you want to touch on water and then I'll touch on SLEM?

Yes. When you look at Q4, we'll start with the produced segment. You've got some accrual noise in there in Q4. But really, when you look at produced, how you have to look at it is more of a, let's call it, a 3-quarter trend look. When you look at -- when you start looking at that 3-quarter trend, look, we think that's much more reflective of the contractual and functional nature of what we've been doing to drive volumes. We are still very bullish on the produced water space. So you're going to see some noise in activity levels and movement of volumes. You're going to see some accrual noise. But again, when you look at that kind of 3-quarter trend, that's where we see and we still see excitement in the produced water space.

And I would just add on the SLEM front, I wouldn't read too much into any single quarter. SLEM can get pretty lumpy. We may have quite a few big infrastructure projects hit within a quarter. And I know it was pretty strong last year with some of the gas pipe build-out that we were seeing. So again, I just wouldn't read too much into any one quarter on the SLEM front.

We take the next question from the line of Oliver Huang from TPH & Co.

For my first question, I was wondering if there is any sort of color on which direction the Bolt partnership is headed from a power gen source perspective? Would the initial phase be going down the path of a CCGT type of infrastructure? Or are you all thinking about something that could be more modular based?

I think still a little early to tell, looking at both options on a couple of different projects kind of depending on end user design. But I wouldn't rule either out.

Okay. That makes sense. And maybe just for my second question, given all the conversations that you all are having, looking out over the next 5 or so years, what do you all think the total gigawatts deployed to data centers in the Permian might be? Or asked another way, where do you all see the TAM of the market of where it could potentially be headed? And what type of market share could TPL grab with that given your land and water infrastructure footprint?

Hard to say on total Permian outlook. I think for us, we feel like multiple multi-gig energy campuses on our acreage are viable, and that's definitely the goal. We continue to be very pleased with our progress on that front and very excited about the opportunity set.

Ladies and gentlemen, with that, we conclude the question-and-answer session and also conclude today's conference call of Texas Pacific Land Corporation. Thank you for your participation. You may now disconnect your lines.

Greetings, and welcome to the Texas Pacific Land Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Shawn Amini, Vice President of Finance and Investor Relations. Thank you, sir. You may begin.

Thank you for joining us today for Texas Pacific Land Corporation's Fourth Quarter 2025 Earnings Conference Call. Yesterday afternoon, the company released its financial results and filed its Form 10-K 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, you may at times referred to our company by its stock ticker by TPL.

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 Tech Pacific Water Resources, Robert Crain. Management will make some prepared comments, after which, we will open the call for questions.

Now I will turn the call over to Ty.

Good morning, everyone, and thank you for joining us today. Fourth quarter was an excellent finish to 2025 with quarterly records set for oil and gas royalty production, water sales volumes and produced water royalties. Excluding the contribution from our previously announced royalties acquisition from last November, our fourth quarter oil and gas royalty production grew 23% year-over-year. Water sales volumes this quarter exceeded 1 million barrels per day for the first time in our history, growing 36% year-over-year and produced water royalty volumes grew 22% year-over-year.

For the full fiscal year 2025, we set annual records across our major operating milestones of oil and gas royalty production, water sales, produced water royalties and SLEM revenue. We also delivered fiscal year records for consolidated metrics, including revenue, net income and free cash flow. Despite oil prices declining from $95 per barrel in 2022 to $65 per barrel in 2025. During the same span, TPL delivered a 3-year compounded annual growth rate for oil and gas royalty production of 17%, water sales volumes of 18%, and produced water royalty volumes of 30%. We achieved this growth while maintaining a debt-free balance sheet and without any financing from new equity. We owe this countercyclical growth to our continued market capture, talented employees, commercial development focus, differentiated scale across royalties, land and water and self-funded acquisitions and investments.

Beyond this excellent performance from our core business, we also made tangible progress with next-generation opportunities in data centers and produced water desalination.

Starting with data centers. This past December, we announced a strategic investment into Bolt Data & Energy, a new AI infrastructure platform chaired by former Google CEO, Eric Schmidt. Bolt seeks to develop large-scale solutions across data centers and power generation. We're excited to team up with both. For TPL, we can provide unrivaled access to land, conventional and renewable energy and water. We can offer this in a state that maintains arguably the most pro growth and pro-infrastructure regulatory environment. Bolt is currently expanding its team and having productive conversations with potential customers our personnel have been evaluating future site selections across TPL Land.

As part of our agreement, TPL retains a right of first refusal to provide water to both affiliated projects. We believe both can become a large-scale, fully integrated data center and power generation platform, and we look forward to working closely together as we seek to make West Texas one of the premier technology infrastructure hubs. In addition to Bolt, TPL continues to engage in productive conversations with potential developers and customers for various projects. The data center landscape in the region is rapidly evolving and highly dynamic. We're working on projects across the full extent of our acreage, both in basin and out of basin. Project time lines run the gamut as well with developers viewing West Texas as a near-term priority for new developments, but also as a longer-term that can support large-scale expansions.

Given the size of these developments, which can potentially represent tens of billions of dollars of total investment across GPUs and power generation, these projects require extensive due diligence and negotiations across numerous counterparties. Projects of this scale are always difficult, especially with West Texas as a relative beta center newcomer. That said, versus even a few quarters ago, urgency from developers and customers has clearly increased. Some of these conversations have progressed beyond just conceptual ideas are in advanced stages of planning. We are encouraged by the progress we've made thus far, and we are hopeful to have multiple new updates to share before the end of the year.

Turning to our desalination project. Our 10,000 barrel per day R&D desalination facility in Orla, Texas, which we refer to as Phase Ib is nearing completion. We had originally expected this facility to commence operations by the end of 2025 and we now expect the facility to begin taking produced water in the coming months. During equipment testing and flowing through synthetic produced water, the engineering team experimented with an additional process beyond the original design. After successful testing of new equipment to assess efficacy, we implemented the new process into our freeze desalination design, and we'll be installing the associated equipment into our Orla Phase 2 facility. We believe this will substantially reduce the amount of time and cycles produced water need to pass through the system, thereby providing substantial capital cost and operating expense savings for a commercial scale facility.

For TPL, desalination would provide another solution we can offer the industry in addition to our extensive in-basin and out-of-basin pore space. Permian already generates nearly 25 million barrels of produced water a day, with volumes expected to grow through the end of the decade, even if oil production were to plateau, to accommodate longer-term produced water growth, the industry will likely need incremental solutions beyond traditional subsurface disposal and desalination potentially provides a sustainable pathway to reduce the amount of water injected subsurface.

For 2026, we look forward to commencing operations and ramping volumes on our Orla desalination facility evaluating the potential to bring large-scale freeze desalination to the Permian. In addition, we plan to invest approximately $20 million on installing co-location equipment at the Orla facility to evaluate the feasibility of waste heat capture and data center cooling. Waste heat capture could provide significant energy savings for our freeze process, while our outlet freshwater stream after having gone through a freezing process could provide direct cooling benefits for data centers and power generation.

In conclusion, as we look ahead to 2026, we're excited with the growth pipeline in front of us. We are focused on exploiting our strengths and leveraging our expertise as we look to benefit from the long-term structural tailwinds unfolding across our business. We believe we can continue to drive growth and extract incremental value even as this relatively weak oil price environment persists. With our industry-leading margins, our fortress balance sheet, a $500 million undrawn credit facility, not only can we tolerate periods of low commodity prices, we have considerable capability to invest opportunistically as we look to consolidate high-quality assets and expand market capture. We remain steadfastly focused on maximizing long-term intrinsic value per share and the opportunity set in front of us today across our legacy and next-gen businesses is as robust as ever.

One additional housekeeping item I wanted to mention, yesterday, we announced an event for TPL shareholders for an office and water field visit in Midland, Texas. That event will be held on Monday, May 18. We welcome all shareholders to attain, and we ask that shareholders submit an RSVP by filling out a form on our website or e-mailing Investor Relations. Please visit the Events section of our website for more information.

With that, I'll hand the call over to Chris.

Thanks, Ty. Consolidated revenues during the fourth quarter of 2025 were approximately $212 million. Consolidated adjusted EBITDA was $178 million. Adjusted EBITDA margin was 84% and free cash flow was $119 million. For full year 2025, we generated record free cash flow of approximately $498 million, which represents an 8% year-over-year increase. Full year performance benefited from higher daily oil and gas royalty production which increased 29% year-over-year, higher water sales daily volumes, which increased 4% and higher produced water royalty daily volumes, which increased 25%. The approximately 34,600 barrels of oil equivalent per day for full year 2025 royalty production, the acquisition that closed last November contributed approximately 500 barrels of oil equivalent per day. Consolidated results were partially offset by lower realized oil prices, which declined year-over-year by 15%. Given the strong performance, yesterday, we announced a regular dividend of $0.60 per share, which represents a 12.5% increase versus the prior quarter dividend. Capital expenditures last year were $66 million which is inclusive of $6 million of payables. This was at the low end of our original guidance.

Moving to our well inventory. As of quarter end, TPL had 5.6 net permitted wells, 9.8 net drilled but uncompleted wells, were commonly referred to as DUCs and 4.0 net completed but not producing wells. That amounts to 19.5 net line of sight wells which also includes approximately 2 net wells from our recent royalty acquisition. Across the Permian Basin, sustained low oil and Waha natural gas prices during 2025 and has generally led to a decline in rig activity, which according to Baker Hughes, Permian horizontal rig count is down approximately 26%. However, despite less rigs, the basin has been able to sustain production growth through a sizable drawdown in DUCs. The decline in our line of sight wells, and this is true basin-wide is primarily due to this DUC drawdown.

From our vantage point, we believe the industry will remain in DUC drawdown mode this year. During 2025, we estimate that the industry drew down approximately 600 DUCs with roughly 3,500 to 4,000 still remaining in the Permian today. With the current pacing of new completions, the industry will generally require around 2,000 DUCs to maintain a buffer in front of active frac fleets. Leaving roughly 1,500 to 2,000 discretionary DUCs. Thus, we believe the Permian still has ample DUC inventory to drive a completion pacing to support production via continued discretionary DUC draws with at least a year or more of runway for the industry would need to begin adding rigs to bring new spuds and new completions into balance while maintaining current completion pacing.

Another mitigating factor to lower rig counts is that operator efficiencies continue to improve and well laterals continue to get longer. Wells completed on TPL royalty acreage were on average 8% longer than the prior year. We are seeing substantial increases in lateral lengths across the board. This was the first quarter in which new permits, spuds, completions and new PDP wells all had average lateral lengths in excess of 11,000 feet.

For new permitted wells this past quarter, the average lateral length is 35% longer than the average permitted well in 2024. We also had over 100 new permitted wells with lateral lengths over 15,000 feet and 34 wells over 20,000 feet. Industry consolidation over the last few years is allowing operators to block up sections and create much larger DSUs. With this trend of longer laterals, greater operator efficiencies and sizable DUC balance, we do not anticipate basin-wide production declines given the current oil strip.

Turning to our capital allocation priorities for 2026. We exited the year with $145 million of cash on the balance sheet and 0 debt. During the quarter, we closed on TPL's inaugural credit facility with $500 million of commitments. That facility remains fully undrawn today. For fiscal year 2026, we anticipate capital expenditures to be approximately $65 million to $75 million. And as Ty mentioned, $20 million will be allocated towards investigating waste heat capture and data center and power generation co-location potential for our freeze desalination facility. The remaining balance will be dedicated to our water cells business for electrification, equipment and supply improvement and maintenance. With modest capital needs, a business that continues to generate strong free cash flow and a balance sheet and a net cash position with a sizable undrawn facility, TPL has the flexibility and liquidity to respond to evolving macro and sector volatility.

We retain the ability to simultaneously invest in the business, acquire high-quality assets and expand shareholder return of capital and we can flex up any or multiple aspects of those options should any opportunities or dislocations occur. We have a resilient business and a pristine balance sheet and our focus remains on maximizing intrinsic value per share over the long term.

And with that, operator, we will now take questions.

[Operator Instructions] Our first question comes from the line of Derrick Whitfield with Texas Capital.

Congrats on a strong financial and operational update. I'd like to start with AI macro. Based on the flurry of both power and AI announcements we've seen across West Texas over the last 6 months, I'd love to hear your thoughts on how the opportunity set for power and data center development has evolved for TPL? And if it extends beyond what you've highlighted with Bolt Energy to date?

Yes. It definitely has. I think the further we dig into it, the bigger we think the opportunity is, we've got a few projects we're working on, some Bolt related, some not. But I think when you look at that business, just like any other business at the end of the day, scale is what really matters. And there's not really anyone in Texas that offers scale like TPL does, whether that's land, access to gas or water.

And I think long term, we're trying to build a real business here. We're not trying to hodgepodge 200 meg facilities over the acreage footprint. The long-term goal is to build multiple multi-gig energy campuses, and that takes a little time, but efforts have been very promising so far. And like I said, we've had a few deals we're working on, commercial negotiations are ongoing. So very excited about the opportunity set.

Perfect. And Ty for my follow-up, I really wanted to focus more firmly on Bolt Energy and the potential of your strategic agreement is laid out by one of your prominent investors. And maybe just for the benefit of level set in the discussion, the investor believes Bolt ambition is to build a 10-gigawatt data center campus in West Texas and then each gigawatt could be worth over $125 million in Water revenue for TPL, with power generated and acquiring over 130,000 barrels of a less conditioned water and data center cooling requiring over 200,000 barrels per day of more conditioned water.

With the understanding that we're still kind of in the early stages of charting this out, I know Robert and team have made a great deal of advances in understanding waste heat capture and cooling to improve P efficiencies for data centers. All that being said, are these reasonable numbers when kind of thinking about the scale and the potential value that we have in front of us?

Well, what we've seen is it varies pretty greatly with the design of the facility, both on the power side and the data center side. But with certain designs, yes, those numbers are very reasonable. And we've [ taught ] some power generators that the water usage numbers seem substantially higher than that. So for us, I mean, we're used to moving a lot of water. Fourth quarter, we moved over 1 million barrels of water a day. And we think that this could be pretty material to the Water business over the long term.

So again, I think the opportunity is pretty substantial. The usage actually depends -- various pretty widely depending on design of the facility. Robert, I don't know if you have anything to add to that.

Derrick, it's -- you know our stance on it, it's variation in design. Our goal is to obviously work with the customer on how do we implement the right volume and quality of water in that design. But as things start to evolve, I know it's specific for Bolt, but I think you have to look at just how that power plan is designed. Is it a single cycle? Is it a combined cycle? Is it using evaporative director cooling to offset those efficiency losses due to higher ambient air. Our goal is to work with the customer, facilitate their design from a water perspective. Again, we focus on the quality and the volume that's needed. I think when we look at the amount of compute that's coming, I mean, you mentioned the 10 gigawatt goal from Bolt, we're confident in the amount of compute and associated gen that's going to be coming to the Permian, the effect on our Water business is going to be significant.

Perfect. And maybe just one quick follow-up, if I could, and chip in really more to your traditional Water business. You guys saw record volumes for both disposal and source water. And really -- for that matter, really strong implied source water realization per barrel for this quarter. Given the broader contraction in activity that we're seeing across the basin, could you speak to some of the things that TPL is actively doing to drive this strength in the business? And just your current outlook for each of these businesses. And the thing that we're kind of seeing occur right now with both is higher highs and higher lows. So any color you could provide would be helpful.

Sure. I'll start on the produced water side. I mean if you look at our success in the growth of produced water volumes, I think it's twofold. One, you go back to our legacy contracts, what we were able to really set up in the early days of ensuring the volumes and how we direct those volumes and work with operators and midstream companies to do it. But the second is the strategy that we implemented 4 or 5 years ago, looking at the constraints we knew that were going to come from produced water management associated pore space was two things out of basin pore space for short-term solutions and desal. The results you're seeing in those higher numbers as a result of those legacy contracts and our strategy that we've implemented. We look at the produced water management space of we're the solutions provider at the end of the operators in the midstream company. I think you're seeing the results of the numbers.

When you look at our source water business, the scale and scope of our system that we continue to expand on every year as we see water demands go up due to cube development and trimul fracs, we've always said the scale and scope of our business allows us to expand and capture more markets. We are -- we can bolt on and build onto that system to capture more where even if we see a straight contraction in overall activity level, we're able to touch so much more as we continue to expand.

Our next question comes from the line of Tim Rezvan with KeyBanc.

Derrick actually hit on some of my topics here. But I just wanted to kind of follow up again on the commentary on the data centers. Your shareholder put out some pretty impressive comments. So do you anticipate putting something out yourself on that opportunity set? Is there a time when you may feel comfortable doing that? Or do you think that your shareholders' commentary is sufficient as it created quite a stir and people are trying to kind of understand the opportunity set here?

I think eventually, we'll put more information out. We've got pretty strict confidentiality agreements in place with all of our counterparties. And kind of like when we started the Water business, keeping most of the commercial terms, private at least in the near term, we think, is a competitive advantage for us. But yes, we do hope to put a stronger narrative out eventually with some additional information on the opportunity set.

Okay. Okay. I guess we'll stay tuned on that. And then if I could pivot to the desalination update. It sounds like there's sort of a change in process that you think creates more efficiencies. So just to be clear on that, this waste heat capture is the idea that it will sort of just improve the efficiency of the operation. And where I'm going with that is there's a debate in the marketplace about the power intensity to run that process and in an area that's short electricity today. People trying to understand kind of how feasible it would be to scale that. So if you can just kind of talk to the efficiencies you're trying to capture and overall power intensity of that business, that would be helpful.

Sure. The overall goal in water desal is to reduce energy consumption to overall reduce your price per barrel. If you look at how desal metrics are measured, it's really in your kilowatt per hour per barrel of water treated. So I'll touch first on our kind of adaptation of design. Again, that is trying to achieve that goal of process the water without having to put more energy consumption into it to bring that kilowatt per hour per barrel down. When you look at the power piece, all thermal technologies, you're right, they do require power. So that's where we go when you look at waste heat capture, again, anything we can do from a waste heat capture standpoint, waste heat is almost free energy. And so we look at one of the big benefits of desal combined with power generation, be it for computer microgrids or whatever the use may be, again, it's just further in bringing that kilowatt per hour per barrel treated down. .

Okay. We will stay tuned for an update on that. I appreciate that. And then if I could sneak one more question. On the western part of your acreage position, you have a meaningful acreage in Hudsmith County. There have been companies developing exploring for rare out there. Could you discuss your exposure to that activity maybe from any exploration or right away occurring there? Any color there would be helpful.

Yes. So we do have a couple of exploration projects going on currently out there on some properties that we've actually purchased or traded for in the last 7 or 8 years. Early stages, but finding seem promising so far. So we'll be glad to update you as we have additional information. .

Our next question comes from the line of Oliver Huang with Tudor, Pickering, Holt.

Just wanted to start out on the water side. As we think about the [ ROFR ] to supply water for the previously announced bolt partnership, just any sort of color on if this is expected to be done through your source water network, treated desal water or a tiered combination? Just really trying to get a better understanding how the latter measures up to stack requirements of counterparties for CCGT and for data center?

I would say both. Again, we go back to that variation in design of what the water volume and quality is needed. I think when you look at Bolt and some of the other deals we work on, eventually, it's going to be a combination of both of the water sources. We love the produced water component that could be used in power gen and combining desal with power gen and data center usage. There are some synergies there that are pretty amazing when you did in dig into them from waste heat capture, freeze technology. Obviously, the desal and that water is a little bit more complicated to treat, and that's what we've been working on the last couple of years to do.

But when you look at the water use and the produced water, really not being in the hydrologic cycle, and being able to implement a produced water stream into power gen and compute water needs, it's really unique to oil and gas operations. Those conversations are progressing nicely. So again, I think it's going to probably be eventually a combination of both water sources.

Okay. Perfect. That's helpful. And maybe as we're just kind of thinking about potential scaling up, whether it's 1 gig or multiple gigawatts, do you all have the capacity to ramp the treated water to the required volumes? Or is there a point where you all would be capped out? And just any sort of color in terms of how much capital it might take to build out to, call it, an incremental $250,000 a day of capacity?

When you look at the -- if we look at it just from a feedstock point, Ty mentioned in the commentary, it's 25 million barrels a day in the Permian Basin in produced water aspect. We're never going to have a feedstock shortage of water usage for power gen compute. I think when you look at actual facilities to get up to the scale that's going to feed it, again, we're going to have to look at what the eventual water needs are, any capital offset that we can get for power gen in an -- to help offset the capital needs of the desal facility are going to help bring it to market.

I think it's too early to say, are you going to have a constraint to get there Again, we're going to have to look at what the gen capacity is, what the water needs are and then design around that and make sure there's an economic return for us to do it.

Okay. That makes sense. And if I could squeeze one more in, just on the Bolt agreement that you all have. I know it's still pretty early days, but any sort of updates you can provide with respect to just securing any sort of commercial partnerships and anchor customers to just get a better sense of facility size. And also just how should we expect revenues to start flowing through for the first data center project? Any sort of color on timing?

Well, I think you can find some public comments that Eric has made. His goal is to get to 1 gig pretty swiftly with kind of a 10-gig campus being the ultimate goal. I would say the conversations that he's having and the pace that he's moving are pretty swift. So hopefully, we're announcing some stuff at least this year, if not first half of the year, but that's the goal. I think for us, there's a land use component. Obviously, we've got the right of first refusal on the water, which we think could be substantial and then the equity return on Bolt could be very material for our business.

And so I would just say Eric continues to build out his team. They're moving swiftly and having a lot of really good conversations. I mean, the guys got an unbelievable network contacts in that space.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Thanks for joining, everyone. Have a good day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Greetings, and welcome to Texas Pacific Land Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 9% sequential increase and a 28% increase year-over-year. Record water sales of $45 million represents 74% sequential growth and 23% growth year-over-year. Record produced water royalty revenues of $32 million represents 5% sequential growth and 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 MPRIs 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 third quarter 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 treat and water infrastructure have established TPL as one of the few systems in the Permian and 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 for 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 poor space.

These acquisitions were substantially funded by approximately $150 million of 1031 and 33 exchanges and land sales, consisting of acreage that was either noncore or have limited strategic value. In return since inception, the Water segment has generated over $600 million of earnings, a $142 million of earnings in the last 12 months. 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 complements 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 a 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 with increasingly larger declines from non-Permian basins. We suspect that extracting additional global supply will be much harder going forward. 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.

The structural liquids demand globally still on a growth trend for the foreseeable future, many key supply regions in structural decline and OPEC reducing spare capacity, we believe that over the long term, there is a very favorable skew towards right tail high oil price cycles.

Despite the low commodity price environment today, TPL still retains abundant access to attractively priced to 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 18, located primarily in the Midland Basin in Martin, Howard and Midland counties.

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. Meaning, we essentially acquired additional royalties in current and future well locations we already retain an interest in.

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-gen 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 third quarter 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 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 wide 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 brush 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. The 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. 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 countercyclically. As always, we remain intently focused on maximizing intrinsic value per share with a disciplined capital allocation approach aimed on maximizing returns over the long term.

And with that, operator, we will now take questions.

[Operator Instructions] And our first question comes from the line of Derrick Whitfield with Texas Pacific Land Corporation (sic) [ Texas Capital Securities ].

Congrats on a strong [Audio Gap] we would assume flattish activity. What's a good run rate for the business? And how much of your water sales are recycled barrels versus water firm source?

[Audio Gap]

And our next question comes from [ Oliver Huang ] with TPH.

Just wanted to, I guess, 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 kind of thinking about the 2 net incremental, I guess, work-in-progress wells, any sort of color in terms of 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. .

And 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. And 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 versus, say, a quarter ago or even the start of the year to capture some share of this market? And just given the expansiveness of your footprint, 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 -- we continue 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 Pacific Land Corporation (sic) [ 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 Water Resources business. Over the last 2 quarters, we've seen a bit of volatility in water sales, semi 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 -- Derrick, it's Robert. When you look at the change of quarter-over-quarter, it's something that we're always trying to work to minimize that volatility and you can really attribute it to -- 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 as that diversity that we see because of the consolidation is so centralized in activity area from one area to another.

As far as what the produce looks like, it's really a moving target every quarter. Obviously, the goal is to maximize the amount of recycled produced your putting it on operation. There's 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 can we maximize produced and how going to backstop it with the 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? And then I also love to get your views on the permit that was just approved for NGL for 800,000 barrel produced water treatment plant for beneficial reuse and recharge into the Pecos River basin, sorry?

I'll start on desal. I'd say that we were the first entry into desal in the market. I think our our expanse of footprint and diversity of operators and midstream companies allowed us to see that desal is going to be necessary at some time in the future. And we got to think we're 4 years into this at this point of starting from exploring different technologies, doing the R&D on which technology we selected, we're confident in desal and our technology to bring desal to the future.

When we look at commercialization of desal and how that fits into the upstream market, what the ultimate commercial model looks like right now is yet to be determined for the industry as a whole. What we see the biggest benefit on ours is you go back to the power component, waste heat capture of really what we'll be exploring a waste heat capture and use of our technology and then freeze technology and how that fits into direct or cooling and direct chip cooling utilizing the freeze technology.

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 how we implement direct capture. And you got to think anything that you can do in that to, one, decrease the input cost of energy into desal and to maximize any value you can get of 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 the TCQ. NGL and us included, are in draft permit phase right now, as we work with the commission to get that into permit -- 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 spreads, you guys are having success as evidenced in this quarter. I guess when you kind of think about the broader picture, both surface and minerals, how would you characterize the competitive landscape in the Permian at present and the opportunities really you're seeing across the broader Permian footprint, both Delaware, Central Basin Platform in Midland?

Yes. I mean we've been successful getting some of these deals done here recently. They've been sourced just through our relationships. I mean 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. And there's probably some equally interesting opportunities in the Delaware and the Midland and start to see some kind of interesting stuff across the platform as well. When you think about out-of-basin disposal in 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.

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