Texas Pacific Land Corporation

philosophy, which ultimately contributes substantial free cash flow to the overall entity while also accelerating development of our oil and gas royalty interest. This most recent quarter is a great example of the built-in hedges that protect TPL during periods of volatile commodity prices. Although oil and gas royalty production this quarter increased 26% year-over-year, our oil and gas royalty revenues were still down 32% due to WTI crude oil and Henry Hub natural gas prices They declined approximately 32% and 71%, respectively. However, for that same quarterly year-over-year comparison, our source water revenues were up 69%, produce water revenues up 12%, and swim revenues were up 34%. During this last quarter, these surface-derived revenue streams in aggregate comprised 48% of TPL's overall consolidated revenues. and helped maintain strong consolidated earnings and free cash flow despite much lower commodity prices. For SLIM specifically, we're seeing broad strength across each subcategory. Pipeline easements, electric line easements, and caliche sales have been especially good as operators deplete duck inventory and push development across broader areas. Our team of land agents and GIS specialists has done a tremendous job working with upstream, midstream, and other operators to accommodate their development needs and procure revenue opportunities for our surface. Turning to water, during the quarter we averaged over 700,000 barrels per day of source water sales volumes, driven by robust brackish and treated water demand. Year-to-date through second quarter 2023, total source, treated, and brokered water volumes are up 31% year-over-year. For the last 12 months, we've sold nearly 200 million barrels of water, and many of those barrels were used to complete oil and gas wells on TPL Royalty Acreage. Produced water volumes during the quarter averaged approximately 2.3 million barrels per day. Just as a reminder, TPL contracts with operators and other third parties for use of our surface for produced water facilities, including disposal wells, and we generate a contracted fee for produced water barrels. Reduced water volumes for second quarter 2023 are up 15% year-over-year. This was by far our best-ever quarterly revenue and free cash flow performance for the water business, contributing just under $60 million of high-margin revenue while only spending less than $2 million in capex. The cumulative efforts of prior capital investments and commercial negotiations going back to the inception of our dedicated in-house water business in 2017 are paying substantial dividends today. In many of our water contracts with operators, we have negotiated exclusive offtake of produced water across large areas of mutual interest. This is an important feature because it provides TPL holistic control over both source and produced water throughout the basin and across our surface. It allows us to continue sales of brackish water while also providing us incremental upside and opportunities to reuse and treat produced water for completion activities. Our operations team also deserves tremendous credit for procuring and moving water for our customers at volume levels we've never done before. TPL continues to demonstrate its ability to offer a full spectrum of reliable water services. During the last quarter, we spent approximately $20 million to acquire 12,000 surface acres in Andrews County along the Texas-New Mexico state line. This acreage fits nicely with our current surface footprint and will provide incremental opportunities for our teams to pursue and commercialize. As previously disclosed, on November 22, 2022, the company filed a complaint to the Delaware Chancery Court to resolve a disagreement with Horizon Kinetics LLC, Horizon Kinetics Asset Management LLC, SoftBest Advisors LLC, and SoftBest LP over their voting commitments pursuant to a stockholder's agreement with the company. We recently concluded the trial, and we're now waiting for the court to issue its opinion. We expect that to happen in due course, and we will update our stockholders when we have more to share. Also, the company recently announced that it has nominated Marguerite Woong Chapman and Robert Rusa as two independent director nominees for election at the upcoming 2023 annual meeting of stockholders. Both candidates bring a strong mix of industry skills and experience. Current directors and co-chairs of the board, David Berry and John Norris, have decided to retire and not stand for re-election at the 2023 annual meeting. Dave and John have been involved with the company for decades, back to its days as a trust. They have always been great stewards of the company and have played a pivotal role in helping the company achieve the success it enjoys today. Without their support, TPL would not have a water or service business or the professional administration anywhere near the scale and expertise it has today. They saw and understood the potential that TPL's unique assets possess, and they took a chance to support a pivot to active management. On behalf of the entire management team here at TPL, we are thankful for their service, guidance, leadership, and friendship over the years, and they will leave behind an exceptional legacy at TPL. With that, I'll turn the call over to Chris. Thanks, Ty.

Total revenues for the second quarter of 2023 were $161 million, representing a 10% increase from the first quarter 2023 revenues. As previously discussed, revenues benefited from higher royalty production, source water sales, produced water royalties, and SLIM revenues, though partially offset by lower oil and gas prices. Adjusted EBITDA and free cash flow for the quarter were $134 million and $105 million, respectively. Consolidated CapEx was $1.4 million, with most of the spend related to the water business. We ended the quarter with $609 million of cash on the balance sheet. Royalty production of approximately 24,900 barrels of oil equivalent per day represents a 19% increase on a sequential quarter basis. Although we continue to maintain that individual quarterly production figures can be lumpy, the underlying production on our royalty acreage continues to trend upward. This is further supported by new well data as recent permits, spuds, and completions remain high across both our Midland and Delaware footprints. In particular, activity in central Midland, Loving, Reeves, and Culberson counties are especially strong. Our oil price realizations remain high, with second quarter 2023 average realized oil price of $73 per barrel, which represents an approximate 100% realization relative to WTI Cushing price per barrel. However, our natural gas and natural gas liquids realizations weakened this quarter relative to prior quarter realizations. Infrastructure constraints and downtime, among other factors, continue to suppress local West Texas price realizations for many operators. For TPL, this is somewhat mitigated as we benefit from additional infrastructure build-out to our SLIM business as new pipelines, processing facilities, and other logistics assets generate easement and lease opportunities. In addition, our royalty acreage is dominated by supermajors and large independent EMPs that tend to own and or commit to new infrastructure, which generally provides them better netbacks compared to smaller public and private operators. As more infrastructure is developed and completed, we would expect our realizations to improve. For this quarter, we have maintained our $3.25 per share dividend. We also spent approximately $20 million to repurchase approximately 14,000 shares. And with that, operator, we will now take questions.

We will now begin the question and answer session. To ask a question, you may press star and 1 on your telephone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. At this time, I will announce the first questioner, which is Derek Whitefield from Stiefel. Please go ahead.