Texas Pacific Land Corporation Acquires Permian Mineral Interests and Surface Acreage in Cash Transactions

Rhea-AI Summary

Texas Pacific Land (NYSE: TPL) has announced the closing of two acquisitions in the Permian Basin for $169 million in cash. The acquisitions include:

1. Mineral interests across 4,106 net royalty acres in Culberson County, Texas, overlapping existing TPL royalty acreage and surface acreage.

2. Surface asset spanning 4,120 acres in Martin County, Texas, generating revenue from water supply, produced water disposal, and other surface-related activities.

The combined asset purchase price implies a >13% 2025 free cash flow yield at current strip prices. TPL expects these high-quality assets to immediately contribute to free cash flow and provide substantial incremental value to their legacy asset base.

Positive

• Acquisition of 4,106 net royalty acres in Culberson County, enhancing net revenue interests in existing and future oil and gas wells
• Purchase of 4,120 surface acres in Martin County, generating multiple revenue streams
• Combined asset purchase price implies >13% 2025 free cash flow yield at current strip prices
• Acquisitions expected to immediately contribute to TPL's free cash flow
• Assets sourced through industry networks, not part of a broad marketed process

Negative

• Significant cash outlay of $169 million for the acquisitions

Insights

Financial Analyst

This acquisition is a strategic move by TPL, enhancing its position in the lucrative Permian Basin. The $169 million cash deal for mineral interests and surface acreage is expected to yield a 13% free cash flow yield by 2025 at current strip prices. This is an impressive return, especially considering it's based on existing production and near-term opportunities only. The overlap of the acquired mineral interests with TPL's existing royalty acreage should boost net revenue interests in both current and future wells, potentially leading to increased royalty income. The surface asset acquisition in Martin County also diversifies TPL's revenue streams, including water supply, waste disposal and other surface-related activities. This multi-faceted approach to land utilization could provide stable, long-term cash flows and hedge against oil price volatility.

Oil and Gas Industry Expert

TPL's acquisition strategically targets the core areas of the Permian Basin, specifically the northern Delaware and Midland Basins. These regions are known for their high-quality oil reserves and favorable economics. The partnership with Coterra Energy as the operator is noteworthy, as Coterra is a well-respected player in the industry. The overlap of mineral and surface rights is a key advantage, potentially allowing TPL to optimize resource extraction and maximize value from each acre. The inclusion of a solids waste landfill royalty agreement with Waste Connections adds an interesting diversification element, tapping into the growing need for waste management services in the booming Permian region. This multi-faceted approach to land utilization showcases TPL's savvy in extracting value beyond traditional oil and gas royalties.

Market Research Analyst

TPL's acquisition aligns with the broader trend of consolidation and strategic positioning in the Permian Basin. The company's focus on high-quality assets in core areas reflects a prudent approach in a competitive market. The projected 13% free cash flow yield is particularly attractive in the current low-yield environment, potentially making TPL an appealing option for yield-seeking investors. The company's unique business model as a land owner rather than an operator provides exposure to oil and gas upside with lower operational risk. The diversification into water and waste management services is forward-thinking, addressing critical infrastructure needs in the region. However, investors should note that while these acquisitions strengthen TPL's position, the company remains heavily exposed to Permian Basin dynamics and oil price fluctuations.

Acquisitions Add High-Quality Assets that are Expected to Generate Attractive Returns

DALLAS--(BUSINESS WIRE)-- Texas Pacific Land Corporation (NYSE: TPL) (the “Company” or “TPL”) today announced the closing of two acquisitions for oil and gas mineral interests and surface acreage located in the Permian Basin for an aggregate $169 million in cash.

Delaware Basin mineral interests (Graphic: Business Wire)

TPL acquired mineral interests across approximately 4,106 net royalty acres located in Culberson County, Texas. The acquired mineral interests overlap existing TPL royalty acreage in current and anticipated Drilling and Spacing Units (“DSU”), enhancing TPL’s net revenue interests in existing and future oil and gas wells. The acreage is leased to and operated by Coterra Energy (NYSE: CTRA). In addition, the acquired mineral interests overlap with TPL surface acreage.

The acquired surface asset spans approximately 4,120 acres in Martin County, Texas and is strategically located in the core of the Midland Basin. The asset generates numerous revenue streams across water supply, produced water disposal, and multiple other surface-related activities, including royalties from a solids waste landfill owned and operated by Waste Connections, Inc. (NYSE: WCN), and possesses significant additional commercial growth opportunities.

“Acquiring high-quality mineral interests in the northern Delaware Basin and strategic surface acreage in the Midland Basin will immediately contribute to TPL’s free cash flow,” said Tyler Glover, Chief Executive Officer of the Company. “The combined asset purchase price implies a greater than 13% 2025 free cash flow yield at current strip prices giving credit to only existing production and line-of-sight wells and opportunities. These bolt-on transactions, in addition to the cash flow currently generated, have excellent growth qualities commensurate with TPL’s legacy portfolio. By owning overlapping and nearby surface and water assets, we believe we can accelerate development and generate incremental value. Both assets were sourced through our industry and professional networks and were not part of a broad marketed process. These type of premium assets located within the core subregions of the Permian Basin represent the growth opportunities available to TPL that can provide a substantial incremental value driver to our legacy asset base.”

About Texas Pacific Land Corporation

Texas Pacific Land Corporation is one of the largest landowners in the State of Texas with approximately 873,000 acres of land in West Texas, with the majority of its ownership concentrated in the Permian Basin. The Company is not an oil and gas producer, but its surface and royalty ownership provide revenue opportunities throughout the life cycle of a well. These revenue opportunities include fixed fee payments for use of our land, revenue for sales of materials (caliche) used in the construction of infrastructure, providing sourced water and/or treated produced water, revenue from our oil and gas royalty interests, and revenues related to saltwater disposal on our land. The Company also generates revenue from pipeline, power line and utility easements, commercial leases and temporary permits related to a variety of land uses including midstream infrastructure projects and hydrocarbon processing facilities.

Visit TPL at http://www.TexasPacific.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240827099522/en/

Investor Relations

IR@TexasPacific.com

Source: Texas Pacific Land Corporation

FAQ

What acquisitions did Texas Pacific Land (TPL) recently make?

TPL acquired mineral interests across 4,106 net royalty acres in Culberson County, Texas, and a surface asset spanning 4,120 acres in Martin County, Texas, for a total of $169 million in cash.

How much did TPL pay for its recent Permian Basin acquisitions?

Texas Pacific Land paid an aggregate of $169 million in cash for the two acquisitions in the Permian Basin.

What is the expected free cash flow yield from TPL's recent acquisitions?

The combined asset purchase price implies a greater than 13% 2025 free cash flow yield at current strip prices, considering only existing production and line-of-sight wells and opportunities.

How will the recent acquisitions impact TPL's business?

The acquisitions are expected to immediately contribute to TPL's free cash flow and provide substantial incremental value to the company's legacy asset base, with excellent growth qualities.