TPL Q2 2025: Water sales down $13M; Q3 rebound forecast
- Robust Water Business Recovery: Q&A discussion indicated that while water sales softened in Q2 due to temporary operator deferments, deferred activities are resuming with expectations of strong performance in Q3 and potential rebound later. This suggests that TPL's integrated water solutions, including produced water royalties and disposal strategies, stand to benefit from a near-term recovery.
- Strategic Consolidation Bolstering Delaware Water Assets: The mention of the ARRIS acquisition by Western supports TPL’s Delaware water thesis. This consolidation in the water midstream sector underscores the underlying value of TPL's water asset portfolio, which could drive superior long‐term performance.
- Desalination Facility Driving Synergies: The planned 10,000 barrel per day desalination facility is highlighted as a key project expected to unlock significant industrial synergies—particularly with power generation and data center cooling opportunities—while reducing subsurface injection needs. This positioning could create new revenue streams and enhance asset value.
- Water Sales Weakness: Despite record produced water royalty revenues, water sales decreased by $13M sequentially due to reduced operator activity from lower oil prices, which may indicate ongoing revenue pressure in a declining demand environment.
- Commodity Price Dependency: Future water resource performance, particularly in Q4, appears highly dependent on volatile commodity prices, with customer activity closely tied to oil price movements, adding uncertainty to future cash flows.
- Desalination Project Uncertainty: The ambitious 10,000 barrel-per-day desalination facility remains in a preliminary stage with its commercial scaling and regulatory approvals still pending, posing execution risks and potential delays in generating expected ancillary revenue from power and data center opportunities.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Produced Water Royalties | 2025 and beyond | no prior guidance | Expects continued growth in produced water volumes due to increased water‐to‐oil ratios and development of secondary benches | no prior guidance |
Water Sales | 2025 | no prior guidance | Q3 2025 is expected to be strong, while Q4 2025 activity levels are anticipated to be more dependent on commodity prices | no prior guidance |
Desalination Facility | 2025 and beyond | no prior guidance | The Phase 2B desalination facility (10,000 barrels per day) is expected to begin operations by the end of 2025; regulatory approvals are anticipated soon | no prior guidance |
Power Generation and Data Centers | 2025 and beyond | no prior guidance | Anticipates significant opportunities for power generation and data center cooling by leveraging produced water and waste heat capture | no prior guidance |
Commodity Price Sensitivity | Q4 2025 | no prior guidance | Q4 2025 activity levels could be heavily influenced by commodity prices, particularly oil prices | no prior guidance |
General Industry Outlook | 2025 and beyond | no prior guidance | Remains optimistic about the long-term prospects of the Permian Basin, citing extensive drilling inventory, technological advancements, and potential for recompletions and new formations | no prior guidance |
Capital Deployment | 2025 and beyond | no prior guidance | Prepared to deploy capital opportunistically through buybacks, organic investments, or asset acquisitions | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Water Business Recovery and Produced Water Commercialization | In Q3 2024 and Q4 2024, discussions emphasized strong revenue growth, record produced water royalty volumes, and innovative business models through substantial water sales and strategic capital investments | In Q2 2025, while produced water royalties hit records, water sales revenue declined sequentially due to lower oil prices, with ongoing focus on reactivating deferred wells | Consistent focus on water recovery and commercialization, but with a shift toward managing revenue declines amid softer commodity prices. |
Desalination Facility Projects | Q3 2024 and Q4 2024 calls detailed the Phase 2b test facility progress, natural gas options, synergies with power generation and data centers, cost-reduction targets, and regulatory permitting efforts | Q2 2025 emphasizes the same 10,000 barrel-per-day facility now in advanced installation with record produced water royalties, remaining R&D at scale, and ongoing regulatory approvals | Long-term commitment remains; continued focus on scaling and synergy opportunities with heightened emphasis on regulatory execution. |
Strategic Asset Consolidation and M&A in Water and Related Assets | Q3 2024 and Q4 2024 highlighted active acquisitions, consolidation of fragmented water assets, robust deal pipeline, and alignment with broader industry consolidation (e.g., ARRIS acquisition) | Q2 2025 maintains focus on strategic consolidation, noting ARRIS acquisition synergies and the strategic importance of out-of-basin disposal and desalination | Consistent and positive sentiment, with ongoing emphasis on leveraging consolidation to enhance asset value. |
Oil and Commodity Price Dependency | Q3 2024 mentioned offsetting commodity price declines (8% oil, 65% gas declines) with increased production and robust activity; Q4 2024 noted modest price declines (2% oil, 48% gas) impacting revenue, though production remained strong | Q2 2025 reports lower average WTI prices (down to $64) significantly impacting water sales revenue but offset by record royalty production and improved operational efficiency | Persistent challenge with commodity price sensitivity; lower oil prices now have a more pronounced effect, although operational resilience continues. |
Regulatory Challenges in Water Management and Capital Projects | Q3 2024 focused on evolving regulatory frameworks for produced water ownership while Q4 2024 detailed permitting progress, higher disposal costs, and capital expenditure plans linked to regulatory hurdles | Q2 2025 discusses submitted permitting applications for the desalination facility and managing regulatory risks on produced water projects with expectations for approvals in coming months | Ongoing regulatory concerns remain central, with consistent emphasis on navigating permitting challenges for capital projects. |
Non-Oil Diversification Initiatives | Q3 2024 featured a broad diversification set including solar, battery storage, and Bitcoin mining along with data centers; Q4 2024 narrowed the focus to data centers, behind‐the‐grid power, and renewable projects with grid infrastructure enhancements | Q2 2025 concentrates on desalination synergies with power generation and data center cooling, with no mention of solar, battery storage, or Bitcoin mining | Shift from a broad set of non-oil initiatives to a more focused strategy emphasizing industrial synergies around desalination, power generation, and data center applications. |
Production Pipeline and Well Activation Dynamics | Q3 2024 and Q4 2024 highlighted steady growth with record royalty production, expanding approved and drilled but uncompleted well inventories, and acquisitions contributing to pipeline expansion | Q2 2025 reports record oil and gas royalty production, detailed well status (permitted, drilled but uncompleted, and completed but not producing), and record easement income from pipeline developments | Consistent operational performance with robust production metrics and well pipeline growth maintained across periods. |
Capital Project Execution and Investment Risks | Q3 2024 did not specifically address this topic; however, Q4 2024 discussed detailed execution of the desalination Phase 2b facility, cost management via natural gas synergies, and careful capital allocation amid emerging opportunities | Q2 2025 continues execution on the Phase 2B desalination facility with progressing installation, unchanged capital expenditure estimates, and acknowledgment of long-term R&D risks and scaling challenges | Execution focus remains strong with ongoing capital investment in key projects, although long-term scale-up risks are clearly acknowledged. |
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Water Outlook
Q: How will water businesses perform in H2?
A: Management noted that despite record produced water royalties, lower water sales in Q2 were driven by commodity price pressures and spatial variations, but they expect Q3 activity to be strong with Q4 performance hinging on commodity prices. -
ARRIS Acquisition
Q: What’s the view on ARRIS acquisition timing?
A: The team sees the ARRIS deal as a strong endorsement of the Delaware water thesis, reinforcing the value of their water assets and midstream consolidation, which bodes well for their strategy. -
Desal Cost
Q: What are the cost objectives for desal project?
A: They are focused on delivering a cost-effective 10,000 barrel per day desal facility, viewed as pivotal for enabling beneficial water reuse and attracting power and data center opportunities in the Permian. -
Power Generation
Q: What future power announcements are expected?
A: Management is optimistic about additional power generation deals, expecting more announcements as the Permian continues to contend with power shortages and capitalize on local cogeneration opportunities.
Research analysts covering Texas Pacific Land.