Hi, I'm Darren Barbee. I'm the senior managing editor at Hart Energy. I'm here at the A&D Strategies and Opportunities Conference in Dallas, and I'm joined by Chris Steddum. He's the CFO for Texas Pacific Land (TPL). Chris, first of all, thanks very much for being here. I appreciate it.

Chris Steddum, CFO, Texas Pacific Land: Thanks. We're excited to be a part of it.

DB: You guys have recently been active the past, say 18 [months] to two years, but before that there was kind of a quiet period, so I'm curious with what made you guys start to explore the market again?

CS: Yeah, some of it, when you look back at TPL’s past for really the first 100 plus years, it was pretty passively ran. And of course there wasn't that much going on a lot of our land because the Permian hadn't really had this rebirth from the shale revolution. In 2016, new management took over and one of the first things that occurred was kind of wrapping your hands around the asset and trying to find areas where we could really improve the cashflow of those legacy assets, which were enormous, tremendous assets, almost 1 million acres of surface. And the other thing too was just as a public company, there was a lot of professionalization and modernization that was needed: databases, things to keep track of the surface, keeping track of legal agreements over the [company’s] very long history. So really in the beginning a lot of it was just trying to optimize our legacy assets that we had.

And there was so much to do on that front that it really consumed everybody's time. Once you got to the point where we fully had our hands around that, we started a water business, which has now grown to be a tremendous part of our revenue. And as we kind of reached the point where that work started to be finished, we had professional systems, tracking [and] databases, that positioned us finally then to go out and consider acquiring new assets that we could bring into the system. A lot of what's been really fun is, especially on the surface side, there's actually assets that look a lot like our asset did 6 [years], 7 [years] ago, where now with lesson learned, we can kind of apply our same business model to those new assets and hopefully allow them to do what that legacy asset has done over the last 7 [years] or 8 [years], which is tremendous amount of growth, tremendous amount of cash flow. So you can have the opportunity now to buy some new assets where that's also possible, and that creates a lot of value for our shareholders if we're able to do that.

DB: Now, you [TPL] buy surface acreage, obviously you talked about your water business, [but] more recently you did a Midland Basin royalties acquisition. Can you talk about that deal and what were the motivating factors there?

CS: Yeah, if you look at our position right now, or legacy position rather, we were quite Delaware heavy. I think something like 80% of our cashflow was from the Delaware and 20% was coming from the Midland Basin. The Midland Basin has fantastic operators, it's got fantastic geology. And so we saw the opportunity to start to add a little bit more weighting to the Midland side. We also, earlier this year, bought some surface in Martin County, [Texas] which is a great addition. We already had some surface in the Midland Basin as well, but we think there's some opportunity, probably never on the scale of our Delaware Basin [side], on the Midland side to also kind of recreate what has been such a successful model for us in the Delaware. And so as we do that, we think it makes sense to add some Midland assets.

DB: So are you in acquisition mode now to look for more Midland or for more areas around your massive acreage position?

CS: It's really both. Obviously we know the Delaware incredibly well. We love those assets. One of the royalties deals we did earlier this year was only Delaware royalties. So I don't think it's an either or. I think we like all of those. And a lot of it too is just kind of what our view, ‘Let's build a broad portfolio that gives our investors access to what we think are the best cash flow streams in the Permian Basin.’

DB: And so you're actively working on this?

CS: We're actively working on that. We're actively, like many of the other folks here, we screen dozens and dozens of deals every year and there's a huge opportunity set out there. But at the same time, we own a tremendous legacy asset base. So we're also fortunate [that] we don't feel like we have to go do something. If we do it, we think it's because it's really adding value and if it doesn't add value, we'll pass and wait. In some sense, the business has been waiting for over 100 years so. We can be patient.

DB: You kind of have that luxury, I guess.

CS: We do. And it truly is a luxury scale, especially for public companies, its a very important aspect. It makes you more investible, it raises your profile, you get on indices and all those things are very beneficial. And so the fact that we have achieved some level of scale, I think accrues to our benefit, allowing us to have patience and be more selective about things.

DB: Well, again, I just really want to thank you for being here at the A&D Strategies and Opportunities Conference in Dallas. And again, thank you for joining us. If you want to learn more information or read more information, please visit us at hartenergy.com. Thanks very much.

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