LandBridge Company LLC (LB) Earnings Call Transcript & Summary

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the LandBridge Second Quarter 2024 Results Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Trey Mattson, Vice President of Finance and Treasury. Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate you joining us for LandBridge's conference call and webcast to review our financial and operational results for the second quarter of 2024. With me today are Jason Long, Chief Executive Officer; and Scott McNeely, Chief Financial Officer. Before I turn the call over to Jason, I have a few housekeeping items to cover. A replay of today's call will be available via webcast and accessible from our website at landbridgeco.com. There will also be a recorded telephonic replay available until August 22, 2024. The access information for this replay was also included in yesterday's earnings release. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of LandBridge's management. However, forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. 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 SEC filings, including our most recently filed prospectus. During this call, we will also discuss certain non-GAAP financial measures. More information and reconciliations of these non-GAAP financial measures to their most comparable GAAP measures are contained in our earnings release that will be available on the Investor Relations page of our website following this call. Now I'd like to turn the call over to our CEO, Jason Long.

Thank you, Trey, and thank you, everyone, for joining us this morning for our first quarterly earnings call as a publicly traded company. Our strong second quarter performance is a testament to the critical role of land price and energy production and the promise it holds for future industrial development. During the quarter, we grew revenues by approximately 36% sequentially from Q1 and 20% year-over-year. We delivered adjusted EBITDA growth of roughly 38% sequentially and 24% year-over-year. And given the lean nature of our operations, our adjusted EBITDA margin for the quarter was 90%. As this is our first earnings call, I'd like to spend a few minutes providing a deeper overview of our business model and why we believe LandBridge is poised to create significant shareholder value over the long term. Scott will then take you through the details of our performance during the quarter. LandBridge owns approximately 220,000 surface acres in and around the Delaware sub-basin and the Permian Basin, which is the most active region for oil and natural gas exploration and development in the United States. It is also a growing area for renewable energy and other industrial development, such as digital infrastructure. We acquired this land primarily through 2 series of acquisitions. In October of 2021, we purchased the Hanging H Ranch consisting of approximately 70,000 surface acres and 4,000 net mineral acres. Then earlier this year, we acquired additional ranches in Lea County, New Mexico and Loving, Winkler and Andrews Counties, Texas, expanding our footprint by an incremental 148,000 surface acres. Our land today is strategically located in the heart of the basin, along and near the regulatory divide at the Texas-New Mexico state border, presenting compelling commercial opportunities, both within and beyond the hydrocarbon value chain. Our strategy is focused on actively managing our land and resources to support and encourage oil and natural gas development as well as other critical land uses that we expect will generate long-term revenue and free cash flow growth. We're excited to share the growth with our new public market shareholders, and we believe there are several reasons LandBridge is an attractive long-term investment opportunity. First, we are well positioned to capitalize on the continued growth in the Permian Basin without incurring meaningful operating and capital expenditures. We're focused on encouraging the build-out of infrastructure on our surface, and our customers bear responsibility for substantially all expenditures related to their operations on our land. This key feature of our business model enables us to deliver industry-leading adjusted EBITDA and free cash flow margin and gives us tremendous confidence in our ability to drive revenue and earnings growth while maintaining relatively high free cash flow. Second, we believe the optionality afforded by owning the surface at the Texas-New Mexico state line is incredibly valuable. While we are clearly well positioned to benefit from increasing oil and gas-related activity in the heart of the basin, we know there are meaningful commercial opportunities from several other land uses. That includes renewable power generation from wind and solar farms, and we anticipate development of the first 2 solar facilities on our surface to commence around year-end. It also includes digital infrastructure. We believe that more data centers are needed to support demand for AI and cloud computing services, which requires access to low-cost fuel, water for cooling and fiber optic infrastructure, all of which, we believe, our land is ideally situated to offer. For example, in July, we executed a nonbinding letter of intent of the development of the first data center on our surface, pursuant to a long-term ground lease, which we expect to have executed before year-end. We are pleased with our commercial momentum to date and look forward to sharing additional details in the near term. Third, as evidenced in our results this quarter, we benefit from diversified revenue streams. We report our revenues in 3 buckets: Surface Use Royalties and Revenues, which include fees from the use of our land for oil and natural gas development and production, produced water, transportation and handling, pipeline and electrical infrastructure and other commercial and industrial activities; Resource Sales and Royalties, consisting of fees from the sale of resources from our land, such as the sale of brackish water used in connection with well completions, and royalties from sand extracted for use in oil and natural gas operations; and Oil and Gas Royalties, where we receive a share of recurring revenues from the production of oil and natural gas in our mineral acres. We are focused on expanding the percentage of overall revenues delivered from fee-based arrangement versus Oil and Gas Royalties, which fluctuate with commodity prices. In the second quarter, non-Oil and Gas Royalty revenue streams accounted for 83% of overall revenues, up from 77% in the same quarter last year. Last but not least, our symbiotic relationship with WaterBridge provides superior visibility into long-term oil and gas trends and ultimately features revenue growth. We share a management team with WaterBridge, which is one of the largest water midstream companies in the United States. WaterBridge operates a large-scale network of pipelines and other infrastructure, primarily in the Delaware Basin, with long-term agreements in place with several leading E&P operators. WaterBridge currently operates approximately 600,000 barrels a day of produced water-handling capacity on our land, with significant additional permitted capacity and available for future development of the land. As a reminder, we receive royalties from each barrel of produced water handled by WaterBridge on our land as well as surface use payments for infrastructure constructed on our land. More generally, as oil natural gas production activity in the Delaware Basin continues to grow, we believe the basin will increasingly require access to additional pore space to support future produced water handling capacity. Because our large land position is strategically located in the intersection of significant producer activity and access to largely underutilized pore space, LandBridge is uniquely able to offer both WaterBridge and third-party water midstream companies critical access to additional pore space for produced water handling. And we strongly believe WaterBridge's growth, in particular, will continue to drive increased revenues requiring minimal investment from us. In closing, we've constructed a unique business model that is closely aligned with industrial growth tailwinds while generating high margins and significant free cash flow growth. Our strong second quarter results underscore the significant opportunities and benefits. We're excited to be a public company, and we're encouraged by the market reaction we received to date. And we are committed to actively managing our land and resources with an eye towards creating value for our shareholders over the long term. Scott?

Thank you, Jason, and good morning to everyone joining the call. As Jason mentioned, we delivered strong results in the second quarter, reflecting the continued level of activity in the Delaware Basin and the clear growth momentum that it translates to for LandBridge. Since the start of 2023, we have delivered a 10% quarterly revenue CAGR. During the second quarter, total revenues grew 36% sequentially and 20% year-over-year to $26 million. The sequential growth was broad-based across revenue streams as Surface Use Royalties and Revenues grew 55% sequentially, driven primarily by incremental royalties associated with the East Stateline Ranch acquisition. Resource Sales and Royalties increased 28% sequentially, also driven predominantly by the East Stateline Ranch acquisition. And our revenue from Oil and Gas Royalties increased 7% sequentially, largely as a result of mineral lease bonus income. We generated $114 of non-Oil and Gas Royalty revenue per owned surface acre during the second quarter, which is down from $232 in the same period last year, reflecting our recent expansion through the acquisition of an additional 148,000 strategically located surface acres. Because this land has been historically underutilized, we see tremendous growth opportunities from applying our proven active land management strategy. As a result of our lean operating model, we delivered adjusted EBITDA of $23.4 million during the quarter, which represents a 90% adjusted EBITDA margin. SG&A expenses during the quarter were $2.1 million, which represent a step up from the first quarter and same quarter last year due to higher professional service fees, primarily associated with amending our credit facilities and pre-IPO energy restructuring. We generated free cash flow of approximately $16 million and free cash flow margins of 60%. The sequential decrease in free cash flow margin was due to nonrecurring costs associated with M&A activity during the quarter. As a reminder, we closed our IPO in early July, providing net proceeds of approximately $271 million, which were used to further strengthen our balance sheet and distributed dividend to our legacy shareholders. We ended the quarter with total liquidity of approximately $50 million. We had $400 million of debt under our term loan and revolving credit facility, of which approximately $265 million was used to fund the East Stateline Ranch and Speed Ranch acquisitions during the quarter, and ended the quarter with a net leverage ratio of 4.2x. Subsequent to the end of the quarter, we paid down $100 million of debt with IPO proceeds and made a regular amortization payment, bringing our net leverage ratio down to 2.6x. Turning to capital management. As Jason mentioned, we expect our high-margin business model to generate substantial free cash flow over time. As we continue to grow free cash flow, our capital allocation priorities are threefold. First, maintaining a strong balance sheet to ensure maximum financial flexibility over time. Deleveraging is an accretive use of our excess cash, and we will continue to pay down borrowings under our credit facility. Following our IPO, our leverage ratio was approximately 2.6x adjusted EBITDA, and we expect to be around 2x by the second quarter of 2025. We are also committed to returning capital to shareholders through dividends. Our Board will be discussing our dividend policy during the second half of the year, and we anticipate introducing a quarterly dividend following Q3 earnings. Finally, we will continue to pursue value-enhancing land acquisitions. We operate in a fragmented market with significant opportunity to acquire underutilized and undercommercialized land, and we have proven our ability to create value through our active land management strategy. Before closing, I'd like to flag that we intend to provide annual guidance alongside Q3 earnings following our first full quarter as a public company. In conclusion, we are pleased with our second quarter results, and we see significant opportunities ahead as we leverage our high-margin, high-capital efficient business to drive long-term revenue and free cash flow growth, creating substantial value for our shareholders. With that, operator, we are now ready for questions.

[Operator Instructions] We'll take our first question from John Mackay at Goldman Sachs.

Congrats on the first call. I understand you guys aren't giving kind of formal guidance at this point for the year. But maybe if you could just talk a little bit about how we expect your overall EBITDA growth to look like on the base business, maybe, for now, excluding the data center opportunity, et cetera.

John, thanks for joining. That's right, we'll be providing guidance after Q3. But I mean, just as it relates to sentiment, I would say, our outlook for 2024 is just as strong as it was at the beginning of the year. And what we've seen, what we really like seeing is just the commercial traction we've gotten over the last 6 weeks, particularly on the East Stateline Ranch opportunities. And as a result of that, I would say, we're more optimistic going into 2025. I want to hesitate providing any firm numbers on that just yet, but I would say, we continue to get more traction than we originally anticipated across all of our assets, and it's really going to shape up to be a good '24, and we think an even stronger 2025.

I appreciate that. I'm sure you'll get plenty of questions on the data center side, so I'll put that aside for right now. Maybe just talking about the produced water volume growth in the quarter. Really strong. Maybe you can unpack that a little bit for us on what was maybe contributions from the new acreage versus the Devon ramp versus anything else you can talk about in there?

Yes. So we added, call it, roughly 150,000 barrels a day of incremental capacity in the second quarter. So a pretty meaningful step up on capacity along the legacy Stateline asset base. And so we were able to continue to take both an increased amount of Devon volumes that have previously flown on their legacy system as well as start to realize some commercial volumes, which we continue to kind of see grow here throughout the beginning of this quarter. So that was certainly a big piece of it. On the East Stateline Ranch, you're exactly right. There was the combination of, first, the Conoco system, which we get royalties for, which was a meaningful increase, as well as the infrastructure assets that WaterBridge NDB acquired as part of that acquisition. That also contributed to the increase. And so when you think of just that step change from Q2 to Q4 -- or excuse me, Q1 to Q2, a big piece of that is the acquisition. But I would say, we still saw a meaningful ramp just from the organic buildout on our legacy Stateline system from those Devon volumes.

We'll move next to Charles Meade at Johnson Rice.

Jason and Scott, my first question is kind of an open-ended one. I'd like to ask you guys, your IPO marketing process is just a few weeks ago. And I'd like to ask you, to offer you what -- did you have any kind of persistent surprises as part of that? And I'm thinking, in particular, are there parts of your business that -- when you were talking to investors, that they immediately understood. And at the other end of the spectrum, is there part of the opportunity that you guys have in front of you that may be required repeated explanations? Just any thoughts you had on that. And what the investing public has an easier time understanding what they have maybe a more difficult time coming to speed on?

Can I take this one, Jason?

Yes, that's fine. I'd probably chime in a little bit.

Yes. I would -- it's a really good question. I mean, I would say, the biggest education effort, I think, as a result of this being just a fairly new, call it, a business model, I think the folks at TPL have done a great job kind of growing and monetizing their asset base. And there was some familiarity with their model, which certainly helped inform, I think, initial discussions with investors. But more broadly speaking, there just hasn't been a lot of analysis or research on the land business that interacts with the energy industry. And so really kind of talking through the dynamics of how land is so critical, it's not just the oil and gas industry in West Texas, but just the broader opportunities that come to the surface as a result of just having these large contiguous acreage positions. It's something that I think, when we talk through it with investors, folks would nod along, and they started to see it. It's just something that hadn't been readily discussed in the past. And as a result, I think it just took a little bit of dialogue. But I mean, fortunately, all you both on the research side, on the investor side are very, very smart in the energy space. And so you start to put the pieces together as it relates to maybe there are other coverage or there are other investments, and people got it pretty quickly. And I think the big question, ultimately, was how do we think about valuation then. And that was -- that continues to be a discussion. I think, again, TPL sitting out there as with the assets they have serve as a great metric and one that we were able to point to. Now that said, there are some differences between them and us. We are highly focused on the surface side. We feel like that is what drives the ultimate premium valuation, and we will continue to focus on that going forward. But it's really just kind of a full-cycle discussion of the business model, what we have in common with the one comp out there on the energy side and what sets us apart. And I think investors were generally very receptive and very excited about the story. And fortunately, we've seen that continue to play out to post-IPO.

Got it. Thanks for that color. I think it's interesting. Now the market votes every day on what you're worth. The follow-up is, Scott, I think that you alluded to this just briefly in your response to the previous question. I wanted to ask, the Stateline and I guess the Speed -- or East Stateline, rather, and Speed Ranch, those are newer assets for you, what is -- what's new for you guys on your view of the low-hanging fruit or the most immediate opportunities to add revenue there?

Yes, Charles, this is Jason. I'll take that one. And then the branch itself, both the East Stateline and the Speed Ranch were just really not developed from a commercial standpoint at all. So we look at that as really a blank canvas to open up a ton of opportunity, not just on the oil and gas side, but both in renewables. And we've got major thoroughfares that run through that ranch that really feed the Delaware Basin. And we think that there's a massive opportunity on the real estate side, whether that's man camps, fueling stations, et cetera, to really feed the basin as a whole.

On top of that, I would probably say that -- well, the only thing I would say on top of that is that the produced water infrastructure was not utilized at all. So we looked at it. It was not only strategic as it was located on the Stateline, but also just the fact that there was limited disposal wells outside of ConocoPhillips' wells and systems that are on the surface. And so a really good running room. We did a really deep dive on the geology and the geophysics there to make sure that we've got plenty of pore space to really handle the produced water in a sustainable way for the future.

Our next question comes from Alexander Goldfarb of Piper Sandler.

Welcome to public land. So 2 questions for me. First, and as you know, I'm a real estate guy, not an energy guy, but still, on a political landscape, change in candidates for the White House and certainly seems like a more progressive team from the Dem ticket. Do you have any thoughts on a Harris presidency, what that would mean to regulations, especially around the water injection and some of the other business lines that underlie the pipeline side of your business?

Alexander, good talking to you. Thanks for opening up with a soft ball here. Yes, we're certainly keeping an eye on it. I think, look, we're generally not too concerned, I think, regardless of which way the election goes. We're certainly kind of focused more on the, call it, the broader geopolitical situation and its ultimate impact on commodity prices. I think that is one that just impacts us as an industry. We saw the -- call it the regime change, so to speak, back in 2000. But ultimately, while there was some impact on commodity prices and where folks are focusing on development and so on, I think most of the, call it, the direct regulation that impacts us is much more driven at the state level. And as a result of that, it's tough to think that there's any kind of knee-jerk reaction, regardless of who steps into office, that could really impact us, call it, quickly in an unexpected way. And so we're keeping a watchful eye on it. But at this point, I would say no strong opinion, one way or the other, in terms of an impact on us.

Okay. And then the second question is on the data center and commercial rollout of the land that you have, the holdings. Can you just talk a little bit more about the data -- the initial data center in terms of the deal, the timing on deal closing, entitlements that -- how that's being managed as far as who's obtaining the entitlements and what the financial recourses and if there's any end user pre-leasing that's going on? Basically trying to understand you guys protecting yourselves so you're not left holding the bag while the third-party user, which is also partly your sponsor, is out there trying to get things -- their ducks lined up and get this entitled and sign up users and stuff like that, that you're not left there with no recourse? And also whether you're precluded from pursuing additional data center deals or other similar large-scale commercial deals until this first one pans out?

Yes. Those are all really, really good questions. So as we mentioned in the earnings release, we're currently sitting on a nonbinding LOI that's being worked through with both affiliates or sponsors as well as some other parties. We're obviously optimistic in the opportunity, but we're not going to release, call it, any of those details at this point. A lot of that is still being ironed out. I would say, we have a focus on ensuring that we are, call it, protected and being cognizant of a lot of the concerns you flagged. And I think once we get a little further along in the process and the ground lease, for example, is executed. We plan on circling back and discussing in a bit more detail. But at this point, we're not going to really, call it, talk through or, call it, speculated a lot of those high-level concerns until the dust settles.

We'll go next to Kevin MacCurdy at Pickering Energy Partners.

Yes, following up on the data center, I just was curious if you guys have quantified how many data center and solar lease opportunities you had out there? And if you wanted to provide some high-level thoughts on what the potential revenue impact could be from either a single deal or from all the opportunities you see?

Yes, Kevin. So we've roughly identified 5 to 6 right off the bat from a data center standpoint. As far as you think about solar, one of the first data centers that we're focused on would be co-located with a large solar development, roughly 250 megawatts. As we think about the new acquisition, obviously, we just closed in May. And so we're still exploring a ton of opportunities. There's a lot of -- again, like I said, really, a blank canvas of opportunity, both for solar and for wind. So the ability to add those colocated with some of these data center opportunities seems to be a good win for the hyperscalers.

Yes. I mean on the economic side, we obviously mentioned the upfront payment in the earnings release. I think this is -- this initial opportunity we're working through, as we kind of refine the terms and the details, is really going to help inform us to, call it, the range of economic opportunities and impact to LandBridge. I'll say it's something that we're very excited about. It's something we think that will be meaningful. But it's too early to really throw out any numbers at this point. in a responsible way. So again, we're looking forward to circling back to you all to the market and kind of talking in a bit more detail when the time is right, which we don't think is too far down the road. But we do want to have things firmed up a bit more before we start discussing economics.

Yes, sure. That makes sense. And then as a follow-up question, just given the success of the IPO and the subsequent trading, does that change anything on your M&A strategy? Are there any more opportunities that are arising or increased interest from your side to get bigger?

Yes. I mean we're always evaluating M&A opportunities. I would say, just as a general rule, we're not going to really talk to anything in particular until it's far enough along, where we've got a meaningful amount of confidence in it. But just taking a step back, and I think addressing your question more high-level M&A ideology, ultimately, the answer is we're going to continue to find opportunities that make sense. And we've said previously that we're really focused on ensuring we're not going out and executing on M&A that would cannibalize the existing opportunity set that exists on our surface today, and that's something we remain highly focused on. Now there are smaller tuck-in and bolt-on opportunities where the economics make all the sense in the world, much smaller denominations. But I'll say, our desire to pursue those really are driven or impacted necessarily by where we're trading. Ultimately, our underwriting criteria hasn't shifted as a result of where we're trading. We're ultimately really focused on making sure that we find accretive deals that generate meaningful free cash flow and free cash flow growth for our company, and that's going to continue to be the focus going forward.

Congratulations on the success so far.

Yes. Thanks, Kevin.

We appreciate it.

We'll move next to Roger Read at Wells Fargo.

Welcome to the world of public companies and quarterly earnings calls.

Thanks, Roger.

Let me kind of change tack a little bit with some of the guys. Surface, you have, obviously, sand sales access, things like that. Just curious from where you were at the time of the most recent acquisition to what you see now looking forward on that front.

Yes. I guess, I want to make sure I understand the question. Are you talking about the opportunity set? Or what are you addressing exactly there?

Yes. If anything has changed, I guess, looks a little better, it looks a little clearer as we think about just the surface access, right, whether it's roads, whether it's pipes, whether it's sand sales, something along those lines?

Yes. I mean, I think with the addition of the East Stateline Ranch and these other acquisitions, just having access to more of that contiguous surface, particularly along the state line, just makes, call it, our strategy. I don't see that much easier to execute, but it allows us to deploy so much in the way of both surface and resources to the industry in the region. And so it was interesting timing because we closed that acquisition kind of mid-Q2, and obviously, kind of parlayed that straight into the IPO. So I think a lot of the players and the customers that we interact with kind of caught wind of what it is we did kind of through the IPO process. And so we're getting a lot of inbounds now. As I mentioned earlier, commercial traction, both on the WaterBridge side, but just more broadly on the LandBridge side, I think, continues to outpace our initial expectations, which is a great problem to have. And I mean, and that, I think, is again a good reflection of the asset that we have and the recognition of the value of that asset. And so the full, call it, opportunity set that you laid out there continues to be very, very, call it, interesting for folks in the industry and something that they're very focused on thinking through, again, assets that had been historically underutilized and are now available. And so it's all kind of good news in that camp, really, no, call it, headwinds from a surface perspective. We continue to see a lot of interest, and we expect to see a lot of growth as a result.

That sounds great. One other question I had for you, this is on the, I guess, produced water side of it. We've noted several companies on the E&P side of done a little bit better on the OpEx side, and some of this is even in Marcellus. So I know it's not you or your opportunity suite, but some of them are also Permian guys, that they've been able to lower some of their LOE by getting better on handling water. And I was just curious, if you kind of look at, let's call it, not industry best practice versus what you offer, kind of, if you think of the high cost of disposal of water versus what you offer and what sort of opportunity that maybe even builds a greater growth possibility for you than what's sort of baked into the current numbers?

Yes. It's an interesting question. I think it's one that really points to the water handling industry in the Delaware and how that subsequently flows through to the LandBridge. I mean the, I would say, the evolution of water handling over the last, call it, 6 to 8 years in the Delaware has really reflected a shift of folks doing it largely in-house to looking at folks externally, whether it's WaterBridge, NGL, Arris or one of the other peers that are out there. And so I think folks have found that's generally more cost -- producers have found that's generally more cost-effective, particularly given the volumetric profile of water as it relates to upstream development in the Delaware, maybe compared to some other basins. But how that ultimately flows through for LandBridge is we continue to see the Permian and the Delaware, in particular, getting an outsized piece of the commodity growth here in the near term. It's just going to drive meaningful increases in water handling capacity and infrastructure to accommodate that growth. And as we've kind of discussed in the past, and we have in our material, one of the big, call it, core tenets of the investment thesis here was buying the surface along the state line that has kind of meaningfully underutilized pore space subsurface to accommodate that water handling infrastructure. And so all of these, call it, tailwinds for us and the dynamic around upstream producers continuing to lean on third-party water handling companies to accommodate the water needs for their growth here in the Delaware, I think, all plays out very, very well for LandBridge. It's going to result, I think, in more infrastructure being built very quickly on LandBridge, and that's ultimately going to play out for us in terms of surface use revenues and damage payments, also in produced water royalties. So it's all very good momentum, kind of, worries at the moment.

Great. We'll look forward to it.

Yes. Thanks, Roger.

We'll take our final question from Lawrence Goldstein at Santa Monica Partners.

We haven't met yet, but I believe I'm the second oldest shareholder of TPL, having purchased it when I was about 13 years old, which was 75 years ago. And -- but I'm not the oldest. Warren, Warren Buffett, told me he, too, bought when he was 13, and he's older than I. He never bought again, which is the oddest thing for that gentleman. I did, over the years, and that, of course, led me to investors who have purchased a great deal of TPL and a great deal of LandBridge. And I'm just interested. The questions all seem to be focused on whether you're going to have a data center this year, a deal for one or not. What I'm interested in, being a long-term investor and my investment partnership which is 42 years old, makes nothing but long-term investments. What I'm interested is, when this company was put together and you had your dreams, if you just go out 10 years from now, it's now 2034, what would you hope that the profit and loss statement would be looking like?

Good to connect. I hope we can meet in person, and congratulations on your TPL acquisition.

That's amazing.

Yes. That's quite a haul. I'm sure it's doing fantastic for you. Yes, it's a good question. I think as we think through the near to medium-term evolution of the company, I'll start with the water side, and then I'll move to the data center side, and I can kind of aggregate it here. Over the next few years, I think the water is going to be a big piece of the story. We've talked to the pore space, the subsurface, and its ability to accommodate at least another 3.5 million to 4 million barrels a day of water handling capacity. And when you think through like what does that mean from an economic perspective? Each 1 million barrels a day of water handling capacity calculates to $40 million to $60 million a year of free cash flow. And so there's pretty clear runway with just where we're at today with no M&A to add another, call it, roughly $200 million of free cash flow, just to the water handling side. Now you look kind of a few years out to kind of that 10-year point, like you mentioned. I think we start seeing other opportunities like solar, solar data centers, like data centers. A lot of these other non-oil and gas infrastructure plays really start to take advantage of the benefits of West Texas. And that's cheap power, that's fiber accessibility, that's large contiguous blocks of land. There's just a lot commercially that Texas has to offer that's going to be challenging to find other landscapes in the U.S. to compete with. And so we could see just the data center and kind of the auxiliary opportunities that come with that, add another couple of hundred million dollars in free cash flow as well. And so I don't want to put, call it, discrete numbers against discrete years and get myself into a bind here. But I would say, you could ultimately look at just orders and orders of magnitude of growth over the next decade, very easily with the surface we have today and just the opportunity set that we have today. And as you know, I'm sure, I hope being a long-term TPL shareholder, a lot of new opportunities that come out of the woodworks when you hold land like this that's not even being contemplated today. And we always like to point out the data center piece, 12 to 18 months ago, we knew it was an option. But at the time, latency made Texas maybe not the best location, we've seen the evolution of that very quickly just over the last few quarters with kind of the advent and rapid growth of AI, latency being less of an issue, and all of a sudden, everyone's talking data centers in West Texas. It's tough to say what that next phase of evolution is going to be, that would just be additive to us. So again, I kind of -- I'm dancing around your question a bit because I don't want to give any firm numbers. But I would say the outlook is very, very promising. We've got the opportunity to grow both in the oil and gas space, particularly within water here in the near term. But we're also very, very focused on data centers, solar, wind and these non-oil and gas infrastructure plays. But I think in the more medium to long term, it's going to be a big piece of the story.

Is the solar and wind going to be associated with the data centers, i.e., are you going to have the utility the power as a separate operation? Or does that go hand-in-hand with the data center? Obviously, data centers need that. And so is it -- it won't have one or the other, it will have both. Yes? No?

No, yes, I think that's exactly right. I mean the data center, the hypescaler folks that are building these out would love to be able to check that box and have the co-located, whether it's solar or wind, to have that alternative piece of power.

And that concludes our Q&A session. I will now turn the conference back over to Scott McNeely for closing remarks.

Yes. Thank you, operator, and thanks again for everyone joining today. We're very excited about the initial performance of the business. We're obviously very excited about the opportunities that lay ahead for LandBridge going forward. We want to be available to you all as a resource. Please feel free to reach out if there are any follow-up questions. But yes, I look forward to continuing to stay synced up, and we'll talk soon. Thank you.

Thanks for your time.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.