Texas Pacific Land Corporation

Greetings and welcome to Texas Pacific Land Corporation second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sean Animi of Investor Relations.

Good morning. Thank you for joining us today for Texas Pacific Land Corporation's second quarter 2021 earnings conference call. Yesterday afternoon, the company released its financial results and filed its Form 10-Q with the Securities and Exchange Commission. These documents are available on the investor 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 risk 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 most recent SEC filings. During this call, we'll 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 Chief Financial Officer, Chris Stedham. Management will make some prepared comments, after which we will open the call for questions. Now, I will turn the call over to Ty.

Thanks, Sean, and thank you, everyone, for joining us today. I'll begin with an overview of our quarterly performance, and then I'll turn it over to Chris to discuss our financial results in more detail. Oil and gas royalties had a strong quarter supported by solid activity levels across the Permian Basin and higher oil prices. Production during the quarter averaged approximately 16,400 barrels of oil equivalent per day, which is roughly flat sequentially from first quarter 2021. In an effort to provide investors additional useful information, TPL has disclosed three stream production and realized pricing figures in our recently filed 10Q and earnings press release. For second quarter 2021, our production mix was 46% oil, 31% natural gas, and 23% natural gas liquids. Our oil price realizations during second quarter 2021 averaged $65 per barrel, which was 18% higher compared to first quarter 2021. CPL did not carry any commodity price hedges during the most recent quarter, so we benefited fully from the oil price rally, and we currently remain unhedged. As of June 30th, TPL royalty inventory included 565 gross drilled but uncompleted wells, or DUCs, and 474 gross permits. From our vantage point, producers remain disciplined, especially the publicly traded integrators and large independents. Though not at pre-COVID activity levels, these producers still remain active in developing their leasehold and based on trends with new permits and DUCs. we think TPL production in the second half of 2021 will be at least on par compared to first half of 2021. Next, for our surface leases, easements, and material sales, or SLIM, total revenues were about flat sequentially from the first quarter of 2021. We saw a nice uptick in pipeline easement and collegiate sales during the second quarter, which generally reflects healthy Permian activity levels. Turning to water, Produced water royalty revenues during the quarter were up over 20% sequentially from first quarter 2021. We benefited from a one-time catch-up payment from a customer. Although excluding this benefit, produced water revenues were still up nicely from last quarter. Produced water continues to provide stable, high-margin royalty cash flows without the direct exposure to commodity prices. Our source water sales were roughly flat compared to the first quarter 2021, Source water sales volumes were negatively impacted by four to five days of system downtime due to flash flooding. TPL continues efforts to electrify our water operations, and we expect to realize cost savings and reduce our emissions once completed. Before I turn it over to Chris, I'd like to summarize the uniqueness of our value proposition and the remarkable opportunity we believe TPL provides. We call ourselves the ETF of the Permian Basin because we can benefit throughout the entire lifecycle of a well, generating multiple cash flow streams through this value chain. Generally, before an operator begins development, they first call us for easements, surface leases, and colicci so they can start constructing and installing vital infrastructure. As development progresses, we often supply the water that is necessary for drilling the wellbore and fracking the shale reservoir. As a well begins producing hydrocarbons, it will also flow back water, and TPL collects royalties on most produced water that crosses or is disposed of on our land. We leverage this entire integrated value chain to incentivize timely and efficient development on our royalty acreage. And of course, TPL's royalty interests benefit directly from all the oil and gas production that flows from a well. Although there is uncertainty with the ongoing impact of COVID-19 on the global economy, and there is always uncertainty with future commodity prices, we are confident about our position in the Permian, and we believe the asset quality underlying our role as an extensive surface acreage footprint will create tremendous value over the long term. Now, I'll turn it over to Chris to discuss our financials.