Texas Pacific Land Q2 FY25 earnings call TPL

TPL refutes the "peak Permian" notion, citing Enverus estimates of over 60,000 remaining economic locations below $60 oil, representing 30 billion barrels of undeveloped resource and 11 years of drilling inventory at current pace. The company highlights continuous technological advancements like increased lateral lengths, proppant/fluid intensity, and new proppants (driving 20% improved recoveries for one operator), which extend the basin's longevity and improve resource recovery.

Despite an 8% year-over-year decrease in Permian horizontal rigs (from 323 to 296) in 2023-2024, total drilled feet increased by approximately 5%, indicating a 15% year-over-year increase in lateral feet drilled per rig. This demonstrates that declining rig counts are being offset by improved drilling efficiency.

TPL notes the emergence of "horseshoe wells" (U-shaped laterals) as an innovation to maximize lateral length within leasehold boundaries, reducing surface footprint and capital costs. The company now has 48 such wells on its royalty acreage, up from zero three years ago, making previously stranded single sections economic.

Operators are exploring new formations like the Barnett (Midland Basin), Harkey (Culberson County), and Bone Spring (Northwest Shelf of Delaware), and pushing the boundaries of the Northern Delaware and Midland Basins. This trend is evident in increased leasing activity for TPL's acquired minerals portfolio, primarily in the Midland Basin.

TPL is making progress on its Phase 2b desalination facility in Orla, Texas, a 10,000 bbl/day unit expected to begin taking produced water by year-end. This facility aims to output high-quality freshwater and concentrated brine, reducing subsurface injection needs. TPL also emphasizes its comprehensive solutions including in-basin disposal capacity, over 100,000 bbl/day of out-of-basin pore space injection, and beneficial reuse efforts.

While produced water royalties hit a record $31 million, water sales declined $13 million QoQ to $26 million due to lower oil prices and operator deferments. However, management expects activity to return in the second half of the year, with many deferred wells back in completion schedules.

Despite near-term commodity price volatility, TPL maintains industry-leading cash flow margins and a debt-free balance sheet. The company is prepared to deploy capital opportunistically through substantial buybacks, organic investment, or asset acquisitions if the down cycle persists.