Ladies and gentlemen, greetings, and welcome to Texas Pacific Land Corporation Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Shawn Amini. Please go ahead.

Thank you for joining us today for Texas Pacific Land Corporation's Second 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 more detailed discussions 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 its stock ticker, TPL. This morning's conference call is hosted by TPL's Chief Executive Officer, Ty Glover; TPL's Chief Financial Officer, Chris Steddum; and Executive Vice President of Texas Pacific Water Resources, Robert Crain. 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. The second quarter of 2025 marked another quarter of record performance across TPL's major revenue streams and key performance indicators, showcasing the company's ability to prosper amid commodity price volatility. Average WTI Cushing oil price during the quarter averaged $64 per barrel, which was the lowest average oil benchmark price since the first quarter of 2021. Despite this oil price weakness, TPL still set quarterly revenue records for produced water royalties and easements and other surface-related income. Oil and gas royalty production of 33,200 barrels of oil equivalent per day also represents a company record. Even with our direct and indirect commodity price exposure, TPL still efficiently converted revenues to cash flow with second quarter adjusted EBITDA margin of 89%. Tariff uncertainty and OPEC's decision to reduce voluntary cuts were significant factors contributing towards slumping oil prices and sentiment with WTI struggling to regain $70. Over the last few months, various operators have publicly signaled intentions to reduce activity. According to Baker Hughes, Permian horizontal oil-directed rig counts have declined over 20% from the peak in 2023. Because of this broader slowdown, we now hear more speculation about this idea of peak Permian. This is the notion that Permian production is soon set to forever be on a plateau or terminal decline. Given TPL's experience in Permian-centric position, I'd like to spend some time in my prepared remarks to share our perspective. First, some stats to put things into context. The Permian spans millions of acres spread across West Texas and New Mexico, and it contains numerous high-quality stacked pay formations. On a production basis, the Permian is the largest oil and gas basin in the world with oil production currently averaging approximately 6.5 million barrels per day. The Permian…

Thanks, Ty. For the second quarter of 2025, consolidated total revenue was $188 million and consolidated adjusted EBITDA was $166 million. Adjusted EBITDA margin was 89%. Free cash flow was $130 million, representing a 12% increase year-over-year. Performance year-over-year benefited from higher oil and gas royalty production, higher produced water royalties and higher easements and other service-related income, otherwise known as SLEM. Performance was partially offset by lower oil price realizations, which declined 21% year-over-year and lower water sales. Royalty production this quarter was approximately 33,200 barrels of oil equivalent per day, representing a 33% increase year-over-year and a 7% increase sequential quarter-over-quarter. As of quarter end, TPL had 6 net permitted wells, 11.1 net drilled but uncompleted wells and 5.1 net completed but not producing wells. SLEM revenues of $36 million was a company record, which benefited from $20 million of pipeline easements. The increase in pipeline easements was due to numerous new large-scale pipeline and infrastructure projects crossing our acreage. Produced water royalty revenues of $31 million was also a company record. As Ty mentioned, our commercial efforts across out-of-basin pore space acquisitions and new contracting continue to allow TPL to capture and take advantage of the secular growth trend for Permian produced water. This quarter, we generated a royalty on over 4 million barrels per day for the first time in our history. Water sales of $26 million was down by $13 million sequential quarter-over-quarter as lower oil prices during the quarter resulted in reduced activity and deferments by operator customers. We have seen operators bring back activity and many of the wells that were deferred during this quarter are now back in our completion schedules for the second half of this year. To conclude, TPL is in an excellent operating and financial position as the broader industry works through this current cycle. As Ty mentioned, commodity prices during this quarter led to the weakest realizations we've had since early 2021 during the depths of COVID; however, comparing this quarter with the first quarter of 2021 when oil last dipped below $60, we've since doubled our royalty production and source water revenue, tripled our produced water royalty volumes and quadrupled our SLEM revenue. We accomplished that while maintaining a debt-free balance sheet and returning hundreds of millions of dollars of capital back to shareholders. We've proven we can grow the business through cycles. And whenever this commodity cycle inevitably turns upward, TPL is positioned to benefit to the fullest extent. And with that, operator, we will now take questions.

Our first question comes from Derrick Whitfield with Texas Capital.

Thanks for your general thoughts on basin activity. My first question, I wanted to focus on your outlook for Water Resources over the second half. While you guys achieved company records with produced water royalties, water sales were a bit weaker than anticipated. And as you guys think about kind of industry activity leveling out on a pretty material reduction in activity during the first half, how do you see each of those businesses performing in the second half?

Derrick, this is Robert. I'll take that. I mean when we look at Q2, I think it was 2 factors in Q2 that really led to the reduction we saw. One was definitely commodity price driven. We had one of our biggest customers delay activity until second half of the year and others reduce in certain areas. But I'd say Q2 was also combined with just kind of the spatial variation that you can see in completion activities. The decline we saw was not fully representative of commodity price decline. There's times, especially when you look at the consolidated acreage positions that have been a result of M&A over the last couple of years that there's times that spatial variation, a lot of activity is outside of your core areas given the acreage positions they hold now. So when we look at Q3 and Q3 looks to be very strong. Q4, which happens a lot in Q4, it's kind of yet to be determined what that activity level is going to be. And I'll say probably Q4 is going to be more heavily dependent on commodity prices than any other quarter.

Great. And maybe just staying on water. I'd love your thoughts on the Aris acquisition by Western while we look at it and question it from a timing perspective as it relates to value recognition, it absolutely supports the Delaware water thesis, yours and also the value of pore space in the basin. So again, love any thoughts you guys have there.

Yes, Derrick, I agree. It supports the Delaware water thesis that we've been talking about for a while. I mean we've got a great relationship with Aris and with Western. So we see this as a huge benefit for TPL. I think consolidation in the water midstream just creates more opportunity for land and pore space owners.

Great. Maybe, again, Ty, you or Robert, I'd love for you to kind of speak to just your cost objectives for the 10,000 barrel per day desal facility? And more broadly, how important is this project to attracting power gen and data center opportunities to the Permian Basin?

And Derrick, you know this -- this is Robert. I mean when we chose a couple of years ago when we saw the produced water, I'd say, challenges that we saw that were going to come in the next 5 years, we tackled it in 2 ways. It was out of basin disposal and truly leading the effort on desal within the Permian. When we look at this project, it's like Ty said, this is going to be the largest. And while it's still research and development, we refer to it as research and development at scale. This is in the field. This is at scale. This is live desal that will be occurring. And it's extremely important for us, but I think it's extremely important for the industry. We know that it's still a multiyear effort to get beneficial reuse at true commercial scale in the hundreds of thousands, if not millions of barrels a day, but we've taken that charge to help get it there. When we look at it in terms of -- in conjunction with data center cooling and cogen power, the opportunities are pretty astounding when you really look at it. And that's what we're going to be not only testing this in the field at scale, but then also continuing to explore what those synergies are, waste heat capture, which is a huge component that will be working in conjunction with cogen power and then also the data center cooling aspect of what we do. There's a lot of synergies in both. So I mean, we're excited. We know the industry has to get there on beneficiaries out of basin is really going to provide that buffer and those years that we need to bring this to scale for what we see beneficiaries can be 2028, '29.

That's great. And Robert, maybe just leaning in on the power generation opportunities. With the announcements we've seen with CPV Basin, Ranch Energy and Lambridge this morning, could you guys just maybe speak to your expectations for additional announcements based on the dialogue you're having with the industry?

I mean when you look at power generation in the Permian, it makes 100% sense -- 100% bit of sense. I mean we have the largest component for cogen power and we have water that is truly not part of the water cycle. When we look at produced water and what produced water can do at cogen, all the ingredients are there. A lot of folks can say there's not a lot of sense to build transmission across the state of Texas to the Permian when you've got all the ingredients in the Permian to produce the power. I think the announcement that you saw today with Coterra yesterday, Coterra is the first of many that are going to come. Not only the -- when we look at the power demand and power shortages that we're seeing in the Permian and before you look at data centers and things of that nature, it's real and the need for power just to power the upstream industry over the next couple of years. So the talks are continuing. They're accelerating, and it's an exciting time for what we -- I think you'll see in the Permian over the next couple of years.

Great color, guys. I'll turn it back to the operator.

At this time, there are no further questions. This concludes Texas Pacific Land Corporation Second Quarter 2025 Earnings Conference Call. Thank you for joining the call today. You may now disconnect your lines.