Acquisitive Public Minerals, Royalty Firms Shift to Organic Growth

Businesses looking for growth this year are riding on momentum gathered in 2024. Minerals and royalties firms traded assets during an intense consolidation trend that continues unabated. The goal: take on undeveloped assets that will boost scale with organic growth, industry analysts and insiders tell Oil and Gas Investor (OGI).

Texas Pacific Land Corp. (TPL) raised expectations for a strong long-term sector performance early last year when its board approved a three-for-one stock split, distributed as a stock dividend in which each stockholder would receive two shares for each share owned as of March 18.

The firm followed up that cash return with a one-off dividend in June. TPL declared a $10/share special dividend with a total price tag close to $230 million. The special dividend was TPL’s largest ever, representing a 50% increase from its most recent prior split-adjusted special dividend.

The cash return to shareholders led to a flurry of deal-making. Before the end of summer 2024, TPL closed on a pair of acquisitions that added some 8,226 net royalty acres to its portfolio, split almost evenly between the Delaware and Midland basins. The Delaware assets, leased and operated by Coterra Energy, overlap existing TPL royalty acreage in current and anticipated drilling and spacing units, “enhancing TPL’s net revenue interests in existing and future oil and gas wells” and other significant additional commercial growth opportunities, TPL said during the announcement.

Moreover, the asset generates multiple revenue streams across water supply, produced water disposal and multiple other surface-related activities, including royalties from a solid waste landfill owned and operated by Waste Connections, TPL said.

In October, TPL closed a $290 million acquisition deal on Permian assets operated by several of the basin’s top producers. Most of the assets are minimally developed with permitted wells and drilled but uncompleted (DUC) wells, CEO Tyler Glover told OGI.

Located mainly in the Midland Basin, the assets span some 7,490 net royalty acres mostly in Martin and Midland counties, Texas. More than 80% of these interests are adjacent to existing TPL surface and royalty acreage.

The vast majority of production on TPL assets is controlled by supermajors and the largest independents, including Chevron, Exxon Mobil, Occidental Petroleum and ConocoPhillips. The assets acquired in October build upon that footprint.

Exxon and Diamondback Energy operate about 60% of the acquired acreage, which averages production close to 1,300 boe/d (about 78% liquids) from 12 active rigs.

Diversification

Founded in 1888 as a business trust during the reorganization of the Texas and Pacific Railway, TPL today is a product of its buy-and-develop strategy. At the beginning of March, the firm had a market cap of $29 billion, making it the largest of the minerals companies that trade on the public markets.

The Dallas-based firm owes much of its confidence in long-term success to its diversification strategy, executives told OGI. Of its $706 million in 2024 revenue, 53% was derived from oil and gas revenue; surface estate ownership generated more than 46% of the total revenue. Of the 46%, water sales and transportation accounted for 21%, produced water royalties represented 15%, and the remaining 10% was earned from a variety of sources, such as surface leases, easements and materials that included pipeline easements, sand sales and leases for wind and solar farms.

LandBridge is the latest minerals firm to begin trading on the public markets. Following a successful IPO in August, the Houston-based company acted quickly to grow its size and scope. On Dec. 20, LandBridge closed a $245 million acquisition in the Southern Delaware Basin that added 46,000 largely contiguous surface acres in the Wolf Bone Ranch to its footprint.

LandBridge purchased the acreage from Vitol-backed VTX Energy Partners, which agreed to provide a minimum annual revenue of $25 million for the next five years. The deal brought LandBridge’s total holdings to roughly 273,000 acres.

The Wolf Bone Ranch acquisition expands LandBridge’s position in Reeves and Pecos counties, Texas, and provides access to the Waha hub. It also fits into the firm’s corporate strategy, which is based on generating revenue from a diverse set of business streams. The Wolf Bone Ranch deal generates cash flow from existing third-party operations and is located to capture potential future growth opportunities from renewable energy projects, commercial real estate and digital infrastructure development.

Charles Meade, a Johnson Rice & Co. sell-side analyst, told OGI that LandBridge’s growth this year will be “driven the same way as was driven in 2024 ... both organically and by acquisition.”

The minerals company “may be attractive if you are an investor looking for exposure to oil and gas minerals. But LandBridge also offers less volatile uncorrelated sources of royalty income such as produced water and water sourcing, sand mining, solar development, and even data center siting,” he said. 

Building diverse streams of revenue diminishes risk, Meade said.

“The whole portfolio is less volatile than any one given constituent.”

‘Scale begets scale’

Sitio Royalties closed out 2024 continuing its small-ball growth. The company confirmed three acquisitions made for $140 million during the last three months of the year in its fourth-quarter earnings call.

Fourth-quarter production averaged 40 mboe/d, a record high at Sitio. Denver-based Sitio guided its 2025 total production to 39.75 mboe/d (47% oil) in 2025, a 3% increase over 2024; the figure includes the impact from undisclosed production added by the fourth-quarter deals, said KeyBanc Capital Markets analyst Tim Rezvan in a February research note.

Early this year, Rezvan and colleague Jonathan Mardini wrote that Sitio is among the most likely acquirers after Viper Energy, which made a $4.45 billion blockbuster deal with its parent company, Diamondback Energy, to buy mineral interests in January. In addition to the unusual mineral deal between the related firms, Viper also bought mineral and royalty interests from Morita Ranches Minerals in a cash-and-equity deal valued at about $330 million during the first quarter.

The acquisition trend among top minerals and royalties firms is showing no signs of abating.

In early January, Kimbell Royalty Partners announced it will acquire oil and natural gas mineral and royalty interests in the Midland Basin in a cash-and-equity deal valued at $231 million. Kimbell agreed to pay $207 million in cash and 1.4 million common units valued at $24 million for interests held by Canada-based Boren Minerals.

The interests are located in the Mabee Ranch and concentrated in Martin and Andrews counties, Texas. They hold more than 875 gross producing wells across 68,000 gross acres. Operators on the acreage include ConocoPhillips, Diamondback Energy and Exxon Mobil.

“We believe that the ‘scale begets scale’ thesis we have for growth-oriented coverage companies suggests that Kimbell may look to transact again in 2025, given its history of being aggressive when market opportunities present themselves,” Rezvan and Mardini said.

The acquisitions add to critical diversity, adding strength to a firm’s corporate strategy, said Dax McDavid, executive vice president of corporate development at Sitio.

The firm’s mineral position covers more than 270,000 net royalty acres in five basins, he said. Sitio’s inventory locations “are in geologic zones that are currently being developed by operators in our basins. We have not yet included up-and-coming zones like Upper Spraberry, Barnett and Woodford.”  

Inflation, fragmentation and consolidation

Management and analysts both cited concerns about the expense side of the business, especially as its costs increase. Investors have long noted the capital expenditure treadmill that oil and gas companies must manage to hold production at maintenance and growth levels.

“There is the dynamic where investors see the shale story getting old,” Noam Lockshin, a partner at Kimmeridge, told OGI. “And investors are very concerned about where the future well inventory is going to be coming from.”

As producers attempt to maintain production from dwindling assets, they will need to grow capex, he said. The dynamic will “compress free cash flow for E&Ps, but not for owners of minerals.” 

Moreover, Lockshin said, a new dynamic is emerging: competition from bigger players.

Large corporations are participating in minerals and royalties auctions “in a way that we have not seen before.”

Cost pressures will continue to create challenges to shale drillers investing to sustain free cash flow. That makes investing in the revenue side without exposure to the expenditure side more interesting, Lockshin said.

“This is what M&R assets offer, and in an environment where investors see oil and gas capital cost inflation, it pays to be long on the revenue side rather than on the producer side.”

Private equity shops are holding their assets longer as they build out minerals and royalties portfolio companies. The minerals space has long been a fragmented one, and there is room for the ongoing movement of assets into publicly traded entities, Lockshin said.

“One of the great things about M&R is that ‘today’ is never a day when you have to sell your minerals.”

The fragmentation of the minerals market presents many opportunities for firms seeking scale, TPL’s Glover said.

“Looking out in front of us in 2025, we see a ton of fantastic well-operated and high-quality assets, including family-owned assets, that we think TPL would be a good owner of,” he said. “The acquisition landscape looks wonderful for 2025.”