Texas Pacific Land delivered its strongest quarter on record, with US$273.4 million in revenue, US$167.4 million in GAAP net income and US$170.3 million in free cash flow. The Permian Basin landowner is also pushing deeper into water infrastructure, data centres and power generation, though those newer ambitions remain largely unquantified.
- Record quarterly revenue, GAAP net income and free cash flow
- Oil and gas royalty revenue rose to US$167.3 million
- Produced water royalty revenue reached a record US$41.4 million
- US$122.7 million spent on land acquisitions through September
- Quarterly dividend declared at US$0.60 per share
Texas Pacific Land Corporation (NYSE:TPL) produced a record third quarter, helped by stronger Permian Basin production, higher realised oil and gas prices and a sharp lift in surface-related income. Revenue reached US$273.4 million, while GAAP net income rose to US$167.4 million, or US$2.42 a diluted share. Free cash flow, a non-GAAP measure, reached US$170.3 million.
Royalty production and water volumes set new records
The quarter’s main engine was the royalty portfolio. Oil and gas royalty revenue climbed to US$167.3 million from US$145.6 million in the second quarter, as daily royalty production increased to 42.3 thousand barrels of oil equivalent from 39.7 thousand. The average realised price also improved, reaching US$44.97 per barrel of oil equivalent compared with US$42.17 in the prior quarter.
Produced water royalties added another record, rising to US$41.4 million as royalty volumes reached 5.5 million barrels per day. The result highlights the unusual mix in Texas Pacific Land’s model: it benefits from oil and gas development without being the operator responsible for drilling and completion capital. Water sales were the exception in the quarter, falling to US$28.4 million from US$39.7 million as lower realised pricing outweighed higher volumes.
Nine-month earnings show the scale of the improvement
For the nine months to September, revenue rose to US$756.3 million from US$586.6 million a year earlier, while GAAP net income increased to US$464.2 million from US$358.0 million. Oil and gas royalty revenue contributed US$431.0 million, up from US$315.0 million, with average realised prices rising to US$41.60 per barrel of oil equivalent from US$36.01 and daily royalty production increasing from 33.6 thousand barrels of oil equivalent to 39.7 thousand.
Adjusted EBITDA, a non-GAAP measure, came in at US$238.4 million for the quarter and US$635.4 million for the nine months. The company’s reconciliation shows quarterly GAAP net income of US$167.4 million as the starting point for adjusted EBITDA, with interest, tax, depreciation and employee share-based compensation added back. Operating expenses also increased, reaching US$65.6 million for the quarter from US$54.2 million in the second quarter, led by higher depreciation, general and administrative costs and water-service expenses.
Capital returns meet expansion into power and water technology
The board declared a quarterly cash dividend of US$0.60 per share, payable in December. Through September, total dividends paid reached US$124.6 million. Texas Pacific Land also spent US$122.7 million on land acquisitions in Texas, including acreage linked to data centre and power-generation initiatives as well as purchases in Winkler and Reeves counties.
Those investments are intended to broaden the company’s commercial opportunities beyond royalties and conventional water sales. The company has agreed to provide land and brackish water resources for Chevron’s Project Kilby, a proposed large-scale power-generation development supporting a customer data centre in Reeves County. It has also completed construction and begun commissioning a Phase 2B produced-water desalination facility at Orla, with anticipated capacity of 10,000 barrels per day. The filing does not quantify the expected economics or timing of these projects, leaving their value to shareholders more prospective than proven.
Permian inventory provides near-term visibility, not certainty
At September 30, Texas Pacific Land reported 5.7 net permitted wells, 8.6 net drilled-but-uncompleted wells and 2.5 net completed-but-not-producing wells across its royalty acreage. Together, the 16.8 net wells represent a pipeline of activity, alongside 132.5 net producing wells. Actual conversion into production will still depend on operators’ drilling and completion decisions, as well as commodity prices.
The immediate test is whether the record quarter can be extended without relying on all three supports at once: higher volumes, favourable commodity realisations and strong surface activity. The company’s earnings call on November 5 is the first opportunity to clarify how much of the newer data-centre, power and desalination strategy can move from promising land position to measurable cash flow.
Bottom Line?
The established royalty and produced-water businesses are generating substantial cash, but the next valuation question rests on whether newer power, data-centre and desalination projects can produce returns comparable with the legacy portfolio.
Questions in the middle?
- How much recurring revenue could Project Kilby and related data-centre initiatives generate, and on what timetable?
- Can royalty production continue rising if oil, gas and NGL prices weaken or operators moderate development?
- Will the Phase 2B desalination facility progress towards commercial-scale deployment without materially changing the company’s capital-light profile?