Greetings, and welcome to the Texas Pacific Land Corporation Fourth 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, Vice President of Finance and Investor Relations. Thank you, sir. You may begin.

Thank you for joining us today for Texas Pacific Land Corporation's Fourth Quarter 2025 Earnings Conference Call. Yesterday afternoon, the company released its financial results and filed its Form 10-K 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 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. Fourth quarter was an excellent finish to 2025 with quarterly records set for oil and gas royalty production, water sales volumes and produced water royalties. Excluding the contribution from our previously announced royalties acquisition from last November, our fourth quarter oil and gas royalty production grew 23% year-over-year. Water sales volumes this quarter exceeded 1 million barrels per day for the first time in our history, growing 36% year-over-year and produced water royalty volumes grew 22% year-over-year. For the full fiscal year 2025, we set annual records across our major operating milestones of oil and gas royalty production, water sales, produced water royalties and SLEM revenue. We also delivered fiscal year records for consolidated metrics, including revenue, net income and free cash flow. Despite oil prices declining from $95 per barrel in 2022 to $65 per barrel in 2025, during the same span, TPL delivered 3-year compounded annual growth rate for oil and gas royalty production of 17%, water sales volumes of 18%, and produced water royalty volumes of 30%. We achieved this growth while maintaining a debt-free balance sheet and without any financing from new equity. We owe this countercyclical growth to our continued market capture, talented employees, commercial development focus, differentiated scale across royalties, land and water and self-funded acquisitions and investments. Beyond this excellent performance from our core business, we also made tangible progress with next-generation opportunities in data centers and produced water desalination. Starting with data centers. This past December, we announced a strategic investment into Bolt Data & Energy, a new AI infrastructure platform chaired by former Google CEO, Eric Schmidt. Bolt seeks to develop large-scale solutions across data centers and power generation. We're excited to team up with Bolt. For TPL, we can provide…

Thanks, Ty. Consolidated revenues during the fourth quarter of 2025 were approximately $212 million. Consolidated adjusted EBITDA was $178 million. Adjusted EBITDA margin was 84%, and free cash flow was $119 million. For full year 2025, we generated record free cash flow of approximately $498 million, which represents an 8% year-over-year increase. Full year performance benefited from higher daily oil and gas royalty production, which increased 29% year-over-year, higher water sales daily volumes, which increased 4% and higher produced water royalty daily volumes, which increased 25%. Of the approximately 34,600 barrels of oil equivalent per day for full year 2025 royalty production, the acquisition that closed last November contributed approximately 500 barrels of oil equivalent per day. Consolidated results were partially offset by lower realized oil prices, which declined year-over-year by 15%. Given the strong performance, yesterday, we announced a regular dividend of $0.60 per share, which represents a 12.5% increase versus the prior quarter dividend. Capital expenditures last year were $66 million, which is inclusive of $6 million of payables. This was at the low end of our original guidance. Moving to our well inventory. As of quarter end, TPL had 5.6 net permitted wells, 9.8 net drilled but uncompleted wells, or commonly referred to as DUCs, and 4.0 net completed but not producing wells. That amounts to 19.5 net line-of-sight wells, which also includes approximately 2 net wells from our recent royalty acquisition. Across the Permian Basin, sustained low oil and Waha natural gas prices during 2025 has generally led to a decline in rig activity, which according to Baker Hughes, Permian horizontal rig count is down approximately 26%. However, despite less rigs, the basin has been able to sustain production growth through a sizable drawdown in DUCs. The decline in our line of sight wells, and this…

[Operator Instructions] Our first question comes from the line of Derrick Whitfield with Texas Capital.

Congrats on a strong financial and operational update. I'd like to start with AI macro. Based on the flurry of both power and AI announcements we've seen across West Texas over the last 6 months, I'd love to hear your thoughts on how the opportunity set for power and data center development has evolved for TPL and if it extends beyond what you've highlighted with Bolt Energy to date?

Yes, it definitely has. I think the further we dig into it, the bigger we think the opportunity is. We've got a few projects we're working on, some Bolt related, some not. But I think when you look at that business, just like any other business, at the end of the day, scale is what really matters. And there's not really anyone in Texas that offers scale like TPL does, whether that's land, access to gas or water. And I think long term we're trying to build a real business here. We're not trying to hodgepodge 200-meg facilities over the acreage footprint. The long-term goal is to build multiple multi-gig energy campuses, and that takes a little time. But efforts have been very promising so far. And like I said, we've got a few deals we're working on, commercial negotiations are ongoing. So very excited about the opportunity set.

Perfect. And Ty, for my follow-up, I really wanted to focus more firmly on Bolt Energy and the potential of your strategic agreement as laid out by one of your prominent investors. And maybe just for the benefit of level setting the discussion, the investor believes Bolt's ambition is to build a 10-gigawatt data center campus in West Texas, and that each gigawatt could be worth over $125 million in water revenue for TPL, with power generating requiring over 120,000 barrels [ per day ] of less conditioned water and data center cooling requiring over 200,000 barrels per day of more conditioned water. With the understanding that we're still kind of in the early stages of charting this out, I know Robert and team have made a great deal of advances in understanding waste heat capture and cooling to improve PUE efficiencies for data centers. All that being said, are these reasonable numbers when kind of thinking about the scale and the potential value that we have in front of us?

Well, what we've seen is it varies pretty greatly with the design of the facility, both on the power side and the data center side. But with certain designs, yes, those numbers are very reasonable. And we've talked to some power generators that the water usage numbers seem substantially higher than that. So for us, I mean, we're used to moving a lot of water. Fourth quarter, we moved over 1 million barrels of water a day. And we think that this could be pretty material to the water business over the long term. So again, I think the opportunity is pretty substantial. But the usage actually depends -- varies pretty widely depending on design of the facility. Robert, I don't know if you have anything to add to that.

Derrick, it's -- you know our stance on it. It's variation in design. Our goal is to, obviously, work with the customer on how do we implement the right volume and quality of water in that design. But as things start to evolve, I know it's specific for Bolt, but I think you have to look at just how that power plant is designed. Is it a single cycle? Is it a combined cycle? Is it using evaporative direct air cooling to offset those efficiency losses due to higher ambient air? Our goal is to work with the customer, facilitate their design from a water perspective. Again, we focus on the quality and the volume that's needed. I think when we look at the amount of compute that's coming, I mean, you mentioned the 10 gigawatt goal from Bolt, we're confident in the amount of compute and associated gen that's going to be coming to the Permian that the effect on our water business is going to be significant.

Perfect. And maybe just one quick follow-up, if I could, and shifting really more to your traditional water business. You guys saw record volumes for both disposal and source water and really, for that matter, really strong implied source water realization per barrel for this quarter. Given the broader contraction in activity that we're seeing across the basin, could you speak to some of the things that TPL is actively doing to drive this strength in the business? And just your current outlook for each of these businesses? And the thing that we're kind of seeing occur right now with both is higher highs and higher lows. So any color you could provide would be helpful.

Sure. I'll start on the produced water side. I mean if you look at our success and the growth of produced water volume, I think it's twofold. One, you go back to our legacy contracts, what we were able to really set up in the early days of ensuring the volumes and how we direct those volumes and work with operators and midstream companies to do it. But the second is the strategy that we implemented 4 or 5 years ago, looking at the constraints we knew that were going to come from produced water management, associated pore space was two things: out-of-basin pore space for short-term solutions and desal. The result you're seeing in those higher numbers is a result of those legacy contracts and our strategy that we've implemented. We look at the produced water management space of -- we're the solutions provider, again, to the operators and the midstream company, I think you're seeing the result in the numbers. When you look at our source water business, the scale and scope of our system that we continue to expand on every year, as we see water demands go up due to cube development and trimul-fracs, we've always said the scale and scope of our business allows us to expand and capture more market. We are -- we can bolt on and build on to that system to capture more where even if we see a slight contraction in overall activity level, we're able to touch so much more as we continue to expand.

Our next question comes from the line of Tim Rezvan with KeyBanc.

Derrick actually hit on some of my topics here but just wanted to kind of follow up again on the commentary on the data centers. Your shareholder put out some pretty impressive comments. So do you anticipate putting something out yourself on that opportunity set? Is there a time when you may feel comfortable doing that? Or do you think that your shareholders' commentary is sufficient as it created quite a stir and people are trying to kind of understand the opportunity set here?

I think eventually we'll put more information out. We've got pretty strict confidentiality agreements in place with all of our counterparties. And kind of like when we started the water business, keeping most of the commercial terms private, at least in the near term, we think is a competitive advantage for us. But yes, we do hope to put a stronger narrative out eventually with some additional information on the opportunity set.

Okay. Okay. I guess we'll stay tuned on that. And then if I could pivot to the desalination update. It sounds like there's sort of a change in process that you think creates more efficiencies. So just to be clear on that, this waste heat capture is the idea that it will sort of just improve the efficiency of the operation. And where I'm going with that is there's a debate in the marketplace about the power intensity to run that process. And in an area that's short electricity today, people are trying to understand kind of how feasible it would be to scale that. So if you could just kind of talk through the efficiencies you're trying to capture and overall power intensity of that business, that would be helpful.

Sure. The overall goal in water desal is to reduce energy consumption to overall reduce your price per barrel. If you look at how desal metrics are measured, it's really in your kilowatt per hour per barrel of water treated. So I'll touch first on our kind of adaptation of design. Again, that is trying to achieve that goal of process the water without having to put more energy consumption into it to bring that kilowatt per hour per barrel down. When you look at the power piece of all thermal technologies, you're right, they do require power. So that's where we go when you look at waste heat capture. Again, anything we can do from a waste heat capture standpoint, waste heat is almost free energy. And so we look at one of the big benefits of desal combined with power generation, be it for compute or microgrids, or whatever the use may be. Again, it's just furthering, bringing that kilowatt per hour per barrel treated down.

Okay. We will stay tuned for an update on that. I appreciate that. And then if I could sneak one more question in. On the western part of your acreage position, you have meaningful acreage in Hudspeth County. There have been companies developing, exploring for rare earths out there. Could you discuss your exposure to that activity, maybe from any exploration or right-of-way occurring there? Any color there would be helpful?

Yes. So we do have a couple of exploration projects going on currently out there on some properties that we've actually purchased or traded for in the last 7 or 8 years. Early stages, but findings seem promising so far. So we'll be glad to update you as we have additional information.

Our next question comes from the line of Oliver Huang with Tudor, Pickering, Holt.

Just wanted to start out on the water side. As we think about the ROFR to supply water for the previously announced Bolt partnership, just any sort of color on if this is expected to be done through your source water network, treated desal water or a tiered combination? Just really trying to get a better understanding how the latter measures up to spec requirements of counterparties for a CCGT and for a data center.

I would say both. Again, we go back to that variation in design of what's the water volume and quality is needed. I think when you look at Bolt and some of the other deals we work on, eventually, it's going to be a combination of both of the water sources. We love the produced water component that could be used in power gen. And combining desal with power gen and data center usage, there's some synergies there that are pretty amazing when you dig into them from waste heat capture, freeze technology. Obviously, the desal and that water is a little bit more complicated to treat, and that's what we've been working on the last couple of years to do. But when you look at the water use and the produced water, really not being in the hydrologic cycle and being able to implement a produced water stream into power gen and compute water needs, it's really unique to oil and gas operations. Those conversations are progressing nicely. So again, I think it's going to probably be eventually a combination of both water sources.

Okay. Perfect. That's helpful. And maybe as we're just kind of thinking about potential scaling up whether it's 1 gig or multiple gigawatts, do you all have the capacity to ramp the treated water to the required volumes? Or is there a point where you all would be capped out? And just any sort of color in terms of how much capital it might take to build out to, call it, an incremental 250,000 a day of capacity?

When you look at the -- if we look at it just from a feedstock point, Ty mentioned in the commentary, there's 25 million barrels a day in the Permian, in produced water aspect. We're never going to have a feedstock shortage of water usage for power gen or compute. I think when you look at actual facilities to get up to the scale that's going to feed it, again, we're going to have to look at what the eventual water needs are, any capital offset that we can get for power gen and compute to help offset the capital needs of a desal facility are going to help bring it to market. I think it's too early to say, are you going to have a constraint to get there. Again, we're going to have to look at what the gen capacity is, what the water needs are, and then design around that and make sure there's an economic return for us to do it.

Okay. That makes sense. And if I could squeeze one more in, just on the Bolt agreement that you all have. I know it's still pretty early days, but any sort of updates you can provide with respect to just securing any sort of commercial partnerships and anchor customers to just get a better sense of facility size? And also just how should we expect revenues to start flowing through for the first data center project? Any sort of color on timing?

Well, I think you can find some public comments that Eric's made. His goal is to get to 1 gig pretty swiftly with kind of a 10-gig campus being the ultimate goal. I would say the conversations that he's having and the pace that he's moving are pretty swift. So hopefully, we're announcing some stuff at least this year, if not first half of the year, but that's the goal. I think for us, there's a land use component. Obviously, we've got the right of first refusal on the water, which we think could be substantial, and then the equity return on Bolt could be very material for our business. And so I would just say Eric continues to build out his team. They're moving swiftly and having a lot of really good conversations. I mean the guy's got an unbelievable network of contacts in that space.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Thanks for joining, everyone. Have a good day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.