Texas Pacific Land Q4 FY25 earnings call TPL

Texas Pacific Land Corporation concluded 2025 with record-setting performance across its core operations. Fourth quarter saw oil and gas royalty production grow 23% year-over-year (excluding acquisitions), water sales volumes surpass 1 million barrels per day for the first time (up 36% YoY), and produced water royalties increase 22% YoY. For the full fiscal year 2025, the company achieved annual records in oil and gas royalty production, water sales, produced water royalties, SLEM revenue, consolidated revenue, net income, and free cash flow, which rose 8% YoY to $498 million, despite a 15% decline in realized oil prices.

TPL is actively pursuing next-generation opportunities, particularly in data centers. The company announced a strategic investment in Bolt Data & Energy, an AI infrastructure platform chaired by former Google CEO Eric Schmidt. TPL provides Bolt with unparalleled access to land, conventional and renewable energy, and water in West Texas, a region with a pro-growth regulatory environment. TPL retains a right of first refusal to supply water to Bolt projects, which aim to develop multi-gig energy campuses. TPL is also engaging with other developers for projects across its acreage, with some conversations in advanced planning stages, indicating increased urgency in the data center landscape.

The 10,000 barrel per day R&D desalination facility (Phase 2b) in Orla, Texas, is nearing completion and is now expected to commence operations in the coming months^⏳, slightly delayed from the original end-of-2025 target. The delay allowed for the implementation of a new process into the freeze desalination design, which is expected to substantially reduce processing time and cycles, leading to significant capital and operating expense savings for future commercial-scale facilities. TPL plans to invest $20 million in 2026 to install co-location equipment at the Orla facility to evaluate waste heat capture and data center cooling feasibility, aiming for energy savings and direct cooling benefits.

Despite a 26% decline in the Permian horizontal rig count during 2025 due to sustained low oil and Waha natural gas prices, basin production has been maintained through a significant drawdown of drilled but uncompleted wells (DUCs). TPL estimates the industry drew down approximately 600 DUCs in 2025, with 3,500 to 4,000 DUCs remaining. With 1,500 to 2,000 discretionary DUCs available, the Permian is believed to have over a year of runway to support completion pacing without needing to add new rigs, mitigating the impact of reduced drilling activity.

Operator efficiencies continue to improve, with well laterals getting significantly longer. Wells completed on TPL royalty acreage were, on average, 8% longer than the prior year. New permitted wells in Q4 2025 showed an average lateral length 35% longer than the 2024 average, with over 100 wells exceeding 15,000 feet and 34 wells over 20,000 feet. This trend, driven by industry consolidation enabling larger drilling spacing units (DSUs), contributes to sustaining production growth despite lower rig counts.

TPL maintains a robust financial position, exiting 2025 with $145 million in cash, zero debt, and a $500 million undrawn credit facility. For fiscal year 2026, capital expenditures are projected to be $65 million to $75 million, including $20 million dedicated to investigating waste heat capture and data center co-location. This financial flexibility allows TPL to invest opportunistically, acquire high-quality assets, and enhance shareholder returns, such as the recently announced 12.5% increase in the regular dividend to $0.60 per share.

TPL's traditional water business demonstrated significant strength, achieving record volumes for both disposal and source water. This success is attributed to legacy contracts, a strategic focus on out-of-basin pore space, and advancements in desalination. The Permian Basin currently generates nearly 25 million barrels of produced water daily, with volumes expected to grow through the end of the decade. TPL aims to be a comprehensive solutions provider, leveraging its scale and expanding system to capture more market share, even amidst broader activity contractions.