Texas Pacific Land Corporation

Good morning and welcome to Texas Pacific Land Corporation's fourth quarter and full year 2022 earnings conference call. This conference call is being recorded. I would now like to introduce your host for today's call, Sean Amini, Vice President, Finance and Investor Relations. Please go ahead.

Thank you for joining us today for Texas Pacific Land Corporation's fourth quarter and full year 2022 earnings conference call. Yesterday afternoon, the company released its financial results and filed its Form 10-K with the Security 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 different 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 most 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 Chief Financial Officer, Chris Bedham. 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. 2022 was a consecutive record year for TPL. Full year 2022 revenue of $667 million exceeded the previous record by over $170 million. We not only generated record revenues from our oil and gas royalties, but our combined water sales, produce water royalties, and easements and service-related income also had its best year ever, generating over $200 million of revenue. We achieved a full-year consolidated adjusted EBITDA margin of 89% as we continue to efficiently convert revenue into cash flow. We returned $335 million of capital back to shareholders through dividends and buybacks, and we exited the year with zero debt and over $500 million of cash on the balance sheet. The company also made progress towards expanding our revenue opportunities beyond our legacy business. In 2022, we increased our contracted renewable production on our surface by 37% year over year. We signed agreements for the potential development of carbon capture, battery storage, and Bitcoin mining facilities. and we continue to have a lot of good discussions on other interesting fronts. On the topic of carbon capture, we were glad to strike an agreement last month with Ozona. We've been impressed with Ozona's expertise and initiative, and it's encouraging to see these projects move closer towards reality. Our goal at TPL is to help lay the groundwork as the carbon capture industry scales up and position ourselves to be a key part of the solution and value chain. Another opportunity that we've been working to exploit is sand deposits located on our acreage. We recently executed four separate contracts on in-basin wet sand mines. This reflects years of effort by the team here in conducting geologic studies to identify sand deposits, to assess the feasibility of utilizing wet sand for well completion, and to proactively initiate discussions with operators and customers to underwrite developments. These potential projects would generate direct revenue benefit to TPL. They would also deliver the dual benefit of sourcing a critical input used in the development of TPL royalty acreage, while also significantly reducing truck congestion and associated emissions compared to using sands sourced and transported from out of basins. Yesterday, we announced an agreement with BPX, a subsidiary of BP, provide comprehensive source water, produce water offtake, and surface access across approximately 270,000 acres spanning Culberson, Loving, and Reeves counties. This agreement will facilitate BPX's oil and gas development of a high-quality resource base in the Delaware Basin while providing PPL incremental value across multiple water and surface revenue streams. We have known and worked with the BP team for a long time, and we're very excited to see them ramp Permian development. I also want to spend some time today discussing some broader Permian topics pertinent to TPL. First is the potential trend of declining well productivity. TPL, of course, doesn't operate on gas wells, so we don't have the detailed perspective that our operators do, but we do monitor what's going on in our backyard. What we've observed is that operators continue to experiment with optimal development strategy, especially for acreage perspective for multiple zones. The trend seems to be that an increasing number of operators are moving towards co-development of multiple zones within a section, as opposed to drilling one zone first and then returning at a later time to develop the other zone. We'd note that a large portion of our operators have been deploying the former co-development strategy for quite some time, resulting thus far in consistently robust well productivity. In addition, laterals on our acreage continue to trend longer. Fourth quarter 2022 was the first quarter where new permitted wells, new spuds, new completions, and new producing wells each averaged over 10,000 feet. Overall, we continue to see strong well performance and productivity across our acreage. One other industry focal point is the increasing price differential between local Permian natural gas and coastal markets. As many are aware, natural gas pipeline capacity out of the Permian remains tight. Some relief will come this year with a couple pipeline capacity expansions and repairs. That said, we have started to see natural gas pricing realizations weaken, especially among smaller independent and private producers. Although marginally weaker gas realizations will negatively impact our royalty revenue, it presents significant upside for TPL on the surface side. Insufficient takeaway capacity means that the industry has an incentive to develop additional new midstream infrastructure And given our vast checkerboarded surface footprint, this presents pipeline easement opportunities for TPL to pursue. Any revenue that we lose from weaker gas differentials, we could potentially more than offset with incremental easements. This is another example of the benefit of our active management approach and the natural hedges that we've built into the business here. Another item we are watching closely is the evolving practice of handling produced water. especially in response to the previous seismic response areas, otherwise referred to as SRAs. As a reminder, these SRAs were enacted by the State Railroad Commission in response to previous seismic activity. Among the biggest impact of the SRAs was the reduction of injection rates into deep formation saltwater disposal wells, otherwise referred to as SWDs. As a result, deep formation SWDs have generally experienced much lower utilization, and we've concurrently seen a large increase in demand for shallow formation SWD permits on our surface. Going back to the inception of our water business, we've been very deliberate in limiting the amount of deep SWD permitting on TPL. This helps to preserve viability of third-party infrastructure operating on our surface while also keeping with our focus on sustainability and safety. Just to reiterate, PPL does not own or operate SWDs. Rather, we have negotiated with various operators a type of surface use agreement that pays PPL a royalty for any produced water barrels that are either stored directly on or that cross PPL surface. These agreements in aggregate cover acres spanning approximately half a million acres in West Texas. Contracts also contain strong indemnification language protecting TPL interest as operator and water midstream companies continue to build and develop infrastructure on our surface. It's not an accident how we set up the water business here at TPL, and this all serves as a testament to our water team for their skill and foresight. Looking forward to 2023, although we do not control the direction of commodity prices, which directly impacts a large portion of our revenues, the TPL team remains committed to sustaining our positive momentum. Our assets are positioned in the heart of one of the best resource plays found anywhere in the world. And should development slow down in response to lower commodity prices or other constraints, the immense resource still remains in the ground and available to be exploited in the future when commodity prices strengthen. Finally, I want to thank all the employees here at TPL for their diligent work and commitment. In 2022, we had zero spills, zero reportable safety incidents, and reduced our scope one emissions by 34%. So not only did our employees help the company achieve record revenues, industry-leading consolidated adjusted EBITDA margins, and record earnings and free cash flow per share, but they did it safely, efficiently, and with a stakeholder mentality. With that, I'll turn the call over to Chris to discuss our financial results.