Greetings, and welcome to the Texas Pacific Land Corporation First Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now pleasure to introduce your host, Shawn Amini, Investor Relations. Thank you. You may begin.

Thank you for joining us today for Texas Pacific Land Corporation's First Quarter 2025 Earnings Conference Call. Yesterday afternoon, the company released its financial results and filed its Form 10-Q with the Securities 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 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 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 stock ticker TPL. This morning's conference call is hosted by TPL's Chief Executive Officer, Ty Glover; Chief Financial Officer, Chris Steddum; and Executive Vice President of Tech Specific Water Resources, Robert Crain. Management will make some prepared comments, after which we'll open the call for questions. Now I will turn the call over to Ty.

Good morning, everyone, and thank you for joining us today. TPL's first quarter 2025 marked a strong start to the year with quarterly records set in both oil and gas royalty production and water segment revenues. Oil and gas royalty production averaged approximately 31,100 barrels of oil equivalent per day, representing 7% growth sequential quarter-over-quarter and 25% growth year-over-year. This performance was driven by strong development activity in our Northern Culberson, Northern Reeves and Central Midland subregions led by operators, including Chevron, BP, Devon and Cotner. Water segment revenues totaled $69 million, representing 3% sequential quarter-over-quarter growth and 11% growth year-over-year as our commercial efforts continue to yield robust volume gains in both water sales and produced water royalties. Given the evolving macroeconomic landscape and volatility in commodity markets, my prepared remarks today will focus on what we're seeing and hearing from our operator customers, the natural business hedges and the built-in growth TPL retains to withstand a potential oil price downturn. Beginning with our outlook on near-term activity. We have not yet seen a widespread downturn in activity as oil prices have weakened this year, although a few operators have recently announced intentions to drop rigs and frac spreads. Feedback from other operators as they are cautiously evaluating activity plans. If oil were to stay below $60 for a sustained period of time, then we would expect more meaningful activity to clients to emerge in the back half of the year. Specific to TPL, our royalty acreage is predominantly operated by super majors and large independents whose development plans while not completely impervious to price declines tend to exhibit more inertia than those with mid-cap independents and privates. We would expect overall Permian activity and production declines to be slower relative to other U.S. oil basins and we believe…

Thanks, Ty. For the first quarter of 2025, consolidated revenues were $196 million. Consolidated adjusted EBITDA was $169 million with an adjusted EBITDA margin of 86.4%. Free cash flow was $127 million, representing an 11% increase year-over-year. As Ty mentioned earlier, royalty production this past quarter was approximately 31,100 barrels of oil equivalent per day, representing a 25% increase year-over-year. As of quarter end, we had 5.9 net permanent wells, 12.9 net drilled but uncompleted wells, otherwise known as DUCs, and 5.4 net completed but not producing wells, otherwise known as CUPs. The sum of permitted wells, DUCs, CUPs totals 24.3 net wells of near-term inventory. This number reflects an all-time high and a 7% higher sequential quarter-over-quarter and 38% higher on a year-over-year basis. . We estimate that it would take approximately 12 net wells turned to sales per year to maintain TPL's current production. Based on recent historical trends, approximately 93% of permitted wells are drilled within a year, approximately 90% of DUCs are completed within a year, and approximately 96% of CUPs are turned to sales within 1 month. Of course, development timing may change depending on commodity price environment, but we expect our operator group to maintain steadier levels of development relative to the overall industry. Specifically for DUCs and CUPs, these types of wells have already had substantial capital invested in them and thus, we would expect these wells to still be turned to saless along a relatively typical cadence, even if commodity prices were to weaken. With respect to our desalination and beneficial reuse initiatives, we now expect our Phase IIb desalination unit to come online by the end of the year. Recall, this is a 10,000 barrel per day R&D test facility where we are processing oil and gas produced water and treating…

[Operator Instructions] The first question comes from Derrick Whitfield with Texas Capital.

Congrats on a record quarter. Maybe starting with you, certainly, thanks for your thoughts, macro thoughts on the oil and gas activity and the impacts across your business segments. With the first question, I really wanted to lean in on the water side. and specifically the fundamentals -- water fundamentals within Delaware Basin. Given the recent flurry of midterm announcements we've seen, it's quite clear there's significant demand for water handling. Do you have a sense on the underlying growth in produced water volumes across the basin before activity adjustments are considered? And where I'm going with this is kind of setting aside the water oil ratio increase within a well over time, we are broadly seeing a shift to deeper intervals, which are more water wet and that's seemingly driving water growth at levels elevated to that of oil growth. Any perspective you could offer that would be greatly appreciated.

Yes. I mean we're definitely seeing higher water cuts as operators move to second and third tier formations. I think we've seen as high as 10:1 on some pads. And so we expect produced water to continue to grow at a pretty rapid pace over the next 10 years, which is why we think it's going to take out bits and disposal. It's going to take beneficial reuse, it's going to take continuing to treat and reuse more and more water to be able to effectively handle the volumes of produced water that we're going to need to so that development of minerals doesn't bottleneck. .

And then kind of along the same lines Ty, with those 3 larger pipeline projects that appear to be moving forward with WaterBridge, Western and ARRIS, how does that impact you guys?

Well, we think, I mean, it's a benefit to the basin benefit to the development of our minerals. Operators need more poor space to head off potential bottlenecks on having to shut in wells or forgo development in certain areas because of water cuts. So from that standpoint, it really is a benefit. And then I would just add too that on the Western Pathfinder pipeline, we will be paid because of our relationship with Western and where our assets will be paid for those barrels. They're going to move through that first phase of that project. And then the second phase of that project is a pipeline that actually goes to out-of-basin surface that we've acquired. So we'll receive payment on existing barrels that are moved to the East and then payment on new barrels as well. So that project is a pretty fantastic benefit for TPL. And Robert, I don't know if you have anything to add to any of those questions.

I'll add on the first 1 really quick. From just strictly volume standpoint, varying numbers on how it's calculated and where we're at today on total Delaware produced water production, probably somewhere in the 12 million to 15 million I think if you look at most forecasts, Derrick, as you see the proliferation of those secondary benches start to -- development start to occur. You're probably getting into the 18 million to 20 million barrels a day, 2028 through 2030. So as Ty mentioned, secondary out of base of disposal beneficial reuse has to occur. Just our stats on out of basin I'll say we truly led the charge on it from the beginning and saw this trend coming many years ago as we knew it was going to take a little bit of time for beneficial reuse to get there from a technology and a regulatory standpoint, led the charge on that and continue to help facilitate the development and the redistribution of volumes because as Ty has mentioned, a lot of our legacy contracts, we still take part and will be compensated on those volumes moving even if perhaps in the early phases, certain projects are not moving directly to our acreage, and there's still compensation as we help redistribute those volumes. .

That's great color. And then lastly, could you guys offer some perspective on the M&A landscape in the basin at present? I realize volatility tends to great challenges with Dealflo. Having said that, we are seeing some transactions clear on the E&P side. So any perspective you guys could offer on kind of framing up the competitive landscape for both minerals and surface would be greatly appreciated.

Yes. I mean I think on the M&A front, there’s still a lot of opportunity. We haven’t seen a big pullback from sellers if commodity prices continue to decrease, the bid-ask spread may widen. But right now, it still seems like a pretty friendly environment, a lot of opportunity in the backlog.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.