Greetings, and welcome to Texas Pacific Land Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Shawn Amini. Thank you. You may begin.

Thank you for joining us today for Texas Pacific Land Corporation's Third 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 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'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. Our third quarter 2025 performance underscores the power of our unique business model and active management and consolidation strategy focused on accretively growing our oil and gas royalties, surface and water assets. This was a record quarter for many of our major revenue and volume performance indicators. Oil and gas royalty production achieved a record of approximately 36,300 barrels of oil equivalent per day representing 9% sequential increase and a 28% increase year-over-year. Record water sales of $45 million represents 74% sequential growth and 23% growth year-over-year. Record produced water royalty revenues of $32 million represents 5% sequential growth and 16% increase year-over-year. In sum, this was the first quarter in TPL's history where we recorded over $200 million of revenue. We accomplished all this despite some of the weakest benchmark oil and gas prices the industry has experienced since the COVID pandemic period. Focusing on our oil and gas royalties. Production volumes continue to benefit from robust activity in our Northern Culberson, Northern Reeves and Central Midland subregions. Production growth has been driven by an increase in net wells turned to sales and longer lateral lengths. Average lateral lengths year-to-date in 2025 are approximately 7% longer than last year and 23% longer compared to laterals spud in 2019. TPL's portfolio of acquired minerals and royalties is also performing very well. We began acquiring minerals and royalty interests in 2018 and in the third quarter, that portfolio was responsible for 18% of TPL's consolidated royalty production. Combined, the minerals and royalties acquisitions are generating a mid-teens pretax cash flow yield. TPL's legacy NPRIs are also performing well with double-digit growth year-over-year. Turning to our Water Services and Operations segment. This business rebounded considerably from last quarter. As I mentioned earlier,…

Thanks, Ty. For the third quarter of 2025, consolidated total revenue was $203 million, and consolidated adjusted EBITDA was $174 million. Adjusted EBITDA margin was 85%. Free cash flow was $123 million, representing a 15% increase year-over-year. Royalty production this quarter was approximately 36,300 barrels of oil equivalent per day. The royalty acquisition that we announced with yesterday's earnings release closed after September 30 and did not contribute to the production or revenue for the third quarter 2025. As of quarter end, TPL had 6.1 net permitted wells, 9.9 net drilled but uncompleted wells and 3.1 net completed but not producing wells. We expect our recent royalty acquisition to add approximately 2 net wells to our line of sight inventory. Turning to our desalination project. Construction continues on our 10,000 barrel per day facility in Orla, Texas. We expect to begin commissioning the facility by the end of the year. Once fully commissioned, we will expand our testing process, as we seek to evaluate the system's capabilities at scale and assess its performance under a wider variety of operating conditions and water specifications. Our previous CapEx estimates remain unchanged from our last update. On the regulatory front, we have received an additional approved land application pilot permit from the Texas Railroad Commission. This permit allows us to use the facility's treated freshwater output to irrigate land with the aim of restoring native bush grass in a nearby area. With respect to our TCEQ discharge permit, we continue to be responsive as we work towards permit approval. We believe our proprietary desalination technology and beneficial reuse efforts can play a critical role in providing a sustainable solution for Permian-produced water beyond just subsurface sequestration. In the near term, our goal is to prove that our patented freeze desalination process can work…

[Operator Instructions] And our first question comes from the line of Derrick Whitfield with Texas Pacific Land Corporation (sic) [ Texas Capital Securities ].

Congrats on a strong [Technical Difficulty] we would assume flattish activity. What's a good run rate for the business? And how much of your water sales are recycled barrels versus water firm source [Technical Difficulty].

And our next question comes from Oliver Huang with TPH.

Just wanted to, I guess, hit on the royalty acquisition you all announced this morning or last night. Just any sort of color on how this deal came together? Also how many incremental net locations on a 10,000-foot equivalent basis would you all say were acquired in your valuation underwriting for the asset? And just when we're kind of thinking about the 2 net incremental, I guess, work-in-progress wells, any sort of color in terms of which bucket it falls into?

Yes. Thanks for the question. We probably won't go into the total location count. But when we think about this type of asset and the type of assets we've purchased in the past and hopefully, the type we'd want to purchase in the future, having a lot of inventory that allows for future growth for years to come is one of the most important aspects of the types of assets that we look to acquire. And so our view is that this is going to be a great asset. It's going to provide a great growth outlook to complement our legacy asset base, and so that's kind of how we've thought about it. Obviously, some of that growth is dependent on the level of activity and commodity prices, but we still think it's a very high-quality asset. It's operated, as you heard in the comments, by some of the most well-capitalized operators in the Permian. And so we feel really good that over the coming years, it's going to grow and provide really strong returns for TPL.

Okay. Perfect. And maybe just, for a second question, on the power side of things, just power data center type of conversations that are occurring. How do you all feel about your position in terms of being able to participate out in West Texas versus, say, a quarter ago or even the start of the year to capture some share of this market? And just given the expansiveness of your footprint, just any sort of color you can provide in terms of which areas seem more prospective for getting such deals executed on?

Yes, sure. Thanks for the question. Look, we feel like TPL is very well positioned. We have all of the attributes needed to be very attractive to power generators and data center developers, hyperscalers. I think we've probably got more available land with those attributes needed than anyone else in West Texas, and I think West Texas is quickly becoming more and more popular as an area to build out multi-gig facilities and campuses. I would just say that we're -- we continue to have really good conversations. I think we're pretty close on a couple of opportunities that are very interesting. So hopefully, we'll have additional news to share here in the very near future.

And next up, we have Derrick Whitfield with Texas Pacific Land Corporation (sic) [ Texas Capital Securities ].

Let's try this again. Can you hear me?

Yes, we got you now, Derrick.

Awesome. Sorry about that, and congrats on a strong financial and operational update. For my first question, I wanted to focus on your outlook for water resources business. Over the last 2 quarters, we've seen a bit of volatility in water sales, assuming flattish activity, what's a good run rate for that business? And how much of your water sales today are recycled barrels versus water from source water wells?

When you look at -- Derrick, it's Robert. When you look at the change of quarter-over-quarter, it's something that we're always trying to work to minimize that volatility and you can really attribute it to -- mainly to consolidation and diverse acreage position that you see. Our footprint allows us to expand off that legacy acreage, and that's what we're attempting to do to capture as much as that diversity that we see because of the consolidation is so centralized in activity area from one area to another. As far as what the produce looks like, it's really a moving target every quarter. Obviously, the goal is to maximize the amount of recycled produced your putting it on operation, but there's a lot of factors that go into that, mainly the availability produced and the demand of what that frac is going to be in that area. So that's where our team works with the operators every day to look at what that balance looks like, how can we maximize produced and how can we backstop it with the brackish and keep up with the simul and trimul demand that we see today.

Makes sense. And then for my follow-up, Robert, we could probably stay with you. Just wanted to focus on how you're thinking about progressing desal beyond Phase II and Phase III and the degree of conversations you're having with the industry about your technology? And then also I'd love to get your views on the permit that was just approved for NGL for 800,000 barrel produced water treatment plant for beneficial reuse and recharge into the Pecos River basin, sorry?

I'll start on desal. I'd say that we were the first entry into desal in the market. I think our expanse of footprint and diversity of operators and midstream companies allowed us to see that desal was going to be necessary at some time in the future. And we got to think, we're 4 years into this at this point of starting from exploring different technologies, doing the R&D on which technology we selected, we're confident in desal and our technology to bring desal to the future. When we look at commercialization of desal and how that fits into the upstream market, what the ultimate commercial model looks like right now is yet to be determined for the industry as a whole. What we see the biggest benefit on ours is you go back to the power component, waste heat capture of really what we'll be exploring a waste heat capture and use of our technology and then freeze technology and how that fits into direct air cooling and direct chip cooling utilizing the freeze technology. So when we look at 2026, for us, it's not necessarily growing in volume, it's working with those other synergies of how we how we implement direct capture. And you got to think anything that you can do in that to, one, decrease the input cost of energy into desal and to maximize any value you can get of the output of the water greatly helps the economics of bringing desal to full commercialization. On the NGL permit. There were a couple of draft permits issued. There have been no final permits issued so far from the TCQ. NGL and us included, are in draft permit phase right now, as we work with the commission to get that into permit -- final permit approval.

And maybe one more, if I could, on M&A more broadly. While we tend to see less opportunity at lower prices due to wider bid-ask spreads, you guys are having success as evidenced in this quarter. I guess when you kind of think about the broader picture, both surface and minerals, how would you characterize the competitive landscape in the Permian at present and the opportunities really you're seeing across the broader Permian footprint, both Delaware, Central Basin Platform and Midland?

Yes. I mean we've been successful getting some of these deals done here recently. They've been sourced just through our relationships. I mean the lower commodity price environment makes it a little tougher because of the bid-ask spread, like you said. But I think we're still seeing a pretty healthy amount of opportunity in the pipeline, and so I think we'll continue to be successful. And there's probably some equally interesting opportunities in the Delaware and the Midland and starting to see some kind of interesting stuff across the platform as well when you think about out-of-basin disposal in some of these next-gen type projects, power generation, data centers, things like that. So pretty excited looking forward on the opportunity set in front of us.

Thank you. And with that, this does conclude today's question-and-answer session and it also concludes today's teleconference. And thank you for your participation, and you may disconnect your lines at this time, and have a wonderful day.