Good morning, and welcome to Texas Pacific Land Corporation's Fourth Quarter and Full Year 2022 Earnings Conference Call. This conference call is being recorded. I would now like to introduce your host for today's call, Shawn Amini, Vice President, Finance and Investor Relations. Please go ahead.

Thank you for joining us today for Texas Pacific Land Corporation's fourth quarter and full year 2022 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.texapacific.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 most 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; and Chief Financial Officer, Chris Steddum. 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. 2022 was a consecutive record year for TPL. Full year 2022 revenue of $667 million exceeded the previous record by over $170 million. We not only generated record revenues from our oil and gas royalties, but our combined water sales, produced water royalties and easements and service-related income also had its best year ever, generating over $200 million of revenue. We achieved a full year consolidated adjusted EBITDA margin of 89% as we continue to efficiently convert revenue into cash flow. We returned $335 million of capital back to shareholders through dividends and buybacks, and we exited the year with zero debt and over $500 million of cash on the balance sheet. The company also made progress towards expanding our revenue opportunities beyond our legacy business. In 2022, we increased our contracted renewable production on our surface by 37% year-over-year. We signed agreements for the potential development of carbon capture, battery storage and bitcoin mining facilities, and we continue to have a lot of good discussions on other interesting fronts. On the topic of carbon capture, we were glad to strike an agreement last month with Ozona. We've been impressed with Ozona's expertise and initiatives, and it's encouraging to see these projects move closer towards reality. Our goal at TPL is to help lay the groundwork as the carbon capture industry scales up and position ourselves to be a key part of the solution and value chain. Another opportunity that we've been working to exploit is sand deposits located on our acreage. We recently executed four separate contracts on in-basin wet sand mines. This reflects years of effort by the team here in conducting geologic studies to identify sand deposits, to assess the feasibility of utilizing wet sand for well…

Thanks, Ty. The total revenue for fiscal year 2022 was $667 million, a 48% year-over-year increase. Net income of $446 million during fiscal year 2022, was also a corporate record and this represents a 65% increase compared to prior year net income. The strong performance was driven not only by higher commodity prices and higher royalty production, but also year-over-year revenue increases of 25% for source water, 24% increase in produced water royalties, and 28% increase in easements and other surface-related income. Excluding ad valorem taxes, a new expense we started to accrue in 2022, our total consolidated operating expenses increased 9% year-over-year. The increase was mostly driven by an approximately $4 million increase, in water service-related expenses as a result of higher source water sales volumes. Royalty production for the full year and for the fourth quarter of 2022, each came in at approximately 21,300 barrels of oil equivalent per day. On a sequential quarter-over-quarter basis, oil and gas royalty production declined by approximately 9%. On a year-over-year basis, royalty production grew by approximately 15%. As we regularly discussed in the past, quarterly oil and gas royalty production will normally have some embedded volatility related to the timing of when we receive our royalty revenue check stubs, versus when that production actually occurred in the field. To that end, let me provide some additional context on what we can expect for production going forward. Based on our internal data to date in 2022, we had new permits of 876 gross and 10.9 on a net basis. For spuds in 2022, so far our tally show 835 gross and 10.3 net. We consider these to be very strong levels, not just for 2022, but also to support 2023 development activity. Data that occurred during the fourth quarter, tends to lag…

Thank you. [Operator Instructions] Our first question is from Derrick Whitfield with Stifel. Please proceed

Good morning, all. A – Ty Glover: Good morning, Derrick A – Chris Steddum: Good morning, Derrick

Good morning. For my first question I wanted to focus on the growth outlook for your business segments. With the understanding, that you don't provide quarterly guidance, how should we think about the near-term production trajectory in light of your line of sight activity and what appears to be a one-off quarter in Q4?

Yes. Thanks, Derrick. Like we said in the comments, any given quarter there is going to be some volatility. The timing under which some of these wells get completed and where rigs are related to our interest can certainly cause some volatility quarter-to-quarter. But I still think our general view is TPL can continue to outperform the Permian as a whole over the near to medium-term. And some of the things we also look at that encourage us that we're still in a real strong position. When we exited 4Q 2022, when I look at our normalized DUC count, it's basically as high as it's ever been. And so to your point when we think about near-term inventory, that DUC count is really that near-term inventory we have available to draw from and where most of our production for the coming year is going to come from. And so the fact that we've got a really nice set of normalized net DUCs gives me a lot of encouragement about the production that will be coming here in the near-term for us.

Derrick, I would just add. One of the main things that gives us that comfort that Chris was talking about are these broad development agreements like we announced yesterday that we put in place with bpx. We've talked about these agreements in the past that cover these large AMIs. So if you look at that one that's a multifaceted agreement that covers surface use source water sales, produced water off-take, recycling treatment. So getting an agreement in place with a major operator like bpx that covers that much acreage. Now we've got most of our acreage in the Delaware with most of our major operators covered with a development agreement similar to this. And so that really gives the operator like bpx the certainty that they need for their operations so that they can ramp up development across their leasehold and it also makes sure that TPL is involved in the entire value chain produced from that development. So we're really excited about that. We think it's going to create a lot of value for both companies. Something that we've been working on for a long time and I'm really excited to see it finally come together.

That's great. Maybe Ty just to clarify too on the bpx announcement. Does that add third-party services across your footprint? Meaning new acreage dedications that you wouldn't have had otherwise, or really simply just facilitate bpx's ability to grow by streamlining the processes.

Yes. I think it's a bit of both. So it adds to the ongoing relationship that we've had with bpx and then just opening up more acreage for them setting out terms of development ahead of time so that they can move faster.

Terrific. And as my follow-up I wanted to reference some of your prepared comments on SLEM and specifically, the wet sand opportunity. Could you perhaps elaborate on the potential of that development and when we could first expect meaningful revenue?

Yes. So we announced four sand mines that we've contracted. We've done a lot of work over the last couple of years geologic studies coring, locating the sand deposits that we have on TPL's surface. So we've got four sands. We're still working on locating additional sand deposits so we think there's future potential there as well. I think we'll start to see some revenue this year from the mines that we've contracted. And probably within a couple of years I think that's probably going to add somewhere around $20 million in revenue for the company. And so I think there's a lot of benefit to in-basin wet sand mining right? You're getting closer to the development, so you're reducing truck traffic, you're saving money, reducing emissions, making the roads safer to travel, you're not running a dryer. So the end user, which is the operator is able to save money, which increases their efficiency for development and should attract additional development to our acreage.

Very helpful. Thanks for your time and thoughts.

Thanks Derrick.

Our next question is from Hamed Khorsand with BWS Financial. Please proceed.

Good morning. First off I just want to ask about this bpx agreement. How -- where are these or how abundant are these? And why would a company want to use so many acres from you, or is that more of a highlight of the assets that you own?

Yeah. So the acreage announced that 270,000 acres, bpx has leasehold spread all within that AMI. And this actually covers parts of three different counties. So they're not necessarily going to be using all 270,000 acres, it just gives them the right to use our surface for certain things gives us the ability to supply them water increase water offtake things like that. So we're not necessarily using all of those acres, but it just gives both parties certain rights within that AMI.

Okay. Are there deals like of this size out there? Are there other more of these size deals out there?

I mean, we've announced in the past that we've got large AMI agreements like this with multiple operators on our acreage. There's still some acreage probably left out there. But I think especially in the Delaware, we've probably got most of our acreage with most of our operators contracted under some sort of broad agreement like this.

And the other question I had was about new sources of revenue in your existing acreage. Are you putting more emphasis on trying to develop the acreage for traditional oil, or how much of your time and resources are you applying for new revenue sources?

That's a good question. I mean, obviously, we focus a lot on the legacy business. But in the last couple of years we've got an internal team that's focused solely on next-gen opportunities and creating revenue outside of that legacy footprint. So I think more and more we can continue to focus on those non-legacy type opportunities.

Okay. And my last question is any methodology to the current stock buyback program? You haven't really utilized the $250 million yet.

Yeah. Well, I mean, I think that program just started off. And so I think as we've said in some of the prepared remarks and press releases, a lot of it is going to be opportunistic. And we're going to look at a variety of different factors to determine when to deploy that capital over the coming year and years. And -- but I think we're going to continue to be good stewards of that capital as we have in the past and try to use it for what we think is best for the shareholders. And as we said, there can be a variety of different things. It can be regular dividends, special dividends and buybacks. And so we just continue to try to optimize it in what is a volatile market and try to use it as best we can.

A follow-up guys. What is your preferred cash level? I mean, you're adding quite a bit every quarter.

Yeah. Look I think -- we think that having a robust cash balance especially in times like these where there's a lot of uncertainty provide us with really good opportunities. And again as we've shown in the past when we think the time is right we can take that cash and return it to shareholders in lots of different efficient ways. But as of right now, we felt like a good use of that cash is to hold some on the balance sheet because we think there may be some good opportunities coming up in the near-term to utilize it.

Okay. Thank you.

Thanks, Hamed.

Thanks, Hamed.

We have reached the end of our question-and-answer session. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.