Texas Pacific Land Corp TPL

Despite a steady decline in Permian horizontal rigs throughout 2024, oil and gas production exited the year at record highs. Operators achieved efficiencies through longer laterals (up 5% YoY) and multi-formation development, resulting in a 3% increase in drilled lateral feet. The Permian saw mid-single-digit production growth exit-to-exit from Q4 2023 to Q4 2024. New permits basin-wide were up approximately 20% year-over-year on a simple count basis and 24% on a total lateral feet basis in Q4 2024, indicating a constructive outlook for 2025. The Matterhorn pipeline has eased natural gas takeaway bottlenecks, which should improve price realizations, especially in the Delaware Basin where gas and NGLs can represent over 60% of a well's energy content.

TPL is actively pursuing opportunities in data centers, power generation, and grid infrastructure, leveraging the Permian's vast resources. The company believes that combining land ownership with high-spec freshwater, grid access, and hydrocarbon/renewable energy availability creates durable incremental value. This approach mirrors TPL's successful strategy in the Delaware Basin water business a decade ago, where they proactively invested resources to exploit latent advantages. Discussions are advancing, particularly regarding the synergies between desalinated water, behind-the-grid power generation, and data center needs, with waste heat capture from generation being a key benefit for desalination.

Construction has begun on TPL's 10,000 barrel per day Phase 2b test facility for produced water desalination, with equipment assembly and testing underway in the U.S. before final installation in Orla, Texas, expected by mid-2025. The total cost for Phase 2b is approximately $25 million, with $7 million spent in 2024 and the remainder in 2025. An additional $10 million capital investment is an option for co-located gas-to-electric generation. TPL is also advancing beneficial reuse initiatives, including a planned 100-acre restoration project in Orla irrigated with desalinated water and an application to TCEQ to discharge treated water into the Pecos River, which is progressing.

In 2024, TPL deployed a record amount of capital towards accretive M&A, invested in its water business, and returned significant cash to shareholders. The company maintains a fortress balance sheet with zero debt and ended the year with $370 million in cash and equivalents. TPL's M&A focus remains on high-quality Permian mineral, royalty, water, and surface assets that enhance intrinsic value per share. Recent acquisitions have contributed double-digit percentage uplift to production and augmented well inventory, with acreage and pore space acquisitions driving significant produced water volume growth and providing out-of-basin disposal options.

As of quarter-end, TPL had 6.4 net permitted wells, 13.2 net DUCs (drilled but uncompleted wells), and 3.0 net completed but not producing wells, totaling 22.6 net line-of-sight inventory. This level of near-term inventory is expected to support production growth above overall Permian production growth. Permit and spud activity have been particularly strong in Culberson County royalty acreage. The top six operators on TPL's DUCs (Chevron, Coterra, Exxon, Oxy, BP, EOG) represent approximately 71% of the total DUCs, indicating strong operator presence.