Texas Pacific Land delivered its third straight record quarter, earning $2.42 per share on revenue of $273.39 million for the September quarter. That beat the $2.35 consensus by 3.0% and the $264.0 million revenue estimate by 3.6%. Earnings grew 37.8% year over year and revenue rose 34.6%. Sequential momentum also improved. Revenue climbed 11% from the June quarter, a sharper step-up than the move from $237 million to $246 million between Q1 and Q2. Net income rose to $167.4 million, Adjusted EBITDA reached $238.4 million, and free cash flow hit $170.3 million. Yet the stock enters the report down 27% since the last one, because the narrative that had been propping up a premium multiple, data centers, slipped again. That is the central tension: the core royalty machine is accelerating while the optionality story is drifting.
The quality of the beat deserves scrutiny, because price was not the main driver. Realized oil prices actually fell to $83.57 per barrel from $97.55 in Q2. Oil royalties still rose to $125.9 million on record volumes, with total royalty production reaching 42.3 thousand Boe per day versus 39.7 thousand. The bigger swing came from natural gas. Realizations jumped from $0.40 to $2.40 per Mcf as new pipeline egress eased the Waha bottleneck, lifting gas royalties to $15.6 million from $2.6 million. Easements and other surface income added another $12.5 million sequentially, the result of midstream build-out. Produced water royalties set a record at 5.5 million barrels per day.
The soft spots sit in water sales and costs. Water sales revenue fell $11.3 million to $28.4 million on weaker pricing. Volumes of 672 thousand barrels per day remain far below the more than 1 million barrels per day posted in Q4 2025, as activity shifts toward Midland and New Mexico. Operating income in the Water Services segment dropped to $41.5 million from $55.5 million. Consolidated operating expenses rose to $65.6 million from $54.2 million, led by higher depreciation and G&A. As a result, Adjusted EBITDA margin eased to roughly 87% from 88%. These are modest erosions, not a broken model.
The call preserved a credible activity story, and arguably strengthened it. Earlier this year management was describing only a marginal uptick and a DUC drawdown. Now it cites a rising Permian rig count, record new horizontal permits, a 'much more robust' Q4 completion schedule, and an expectation that 2027 will be another record Permian year. That optimism needs to be weighed against the inventory data. Line-of-sight net wells fell to 16.8, down from 18.4 in Q2 and 20.7 in Q1, as DUCs and CUPs were worked down. Management's view of a busier development pipeline still has to show up in permits and spuds on TPL acreage.
The data center thesis is where bears have legitimate ammunition. In Q2, management cited 25 GW in advanced talks and expected definitive agreements in the 'very near term.' This quarter brought no new major announcement. Management acknowledged that a change in the Texas governorship, a TCEQ pause on data center permits, and an ERCOT large-load audit could delay timing. The Chevron Project Kilby land and brackish water agreement, the Phase 2B desalination commissioning with field water targeted by year-end, and planned 2027 water infrastructure spending keep the option alive. None of these yet amounts to the hyperscale commercial outcome investors had been promised. Earnings also remain fully unhedged against oil prices that the call characterized as elevated and conflict-driven.
The market has already punished the stock. At $287.65, shares are 27% below the $394.23 open after the August report and about 28% under the 200-day moving average of $401.11. Investor sentiment nonetheless improved meaningfully, moving from slightly negative (-0.08) to modestly positive (+0.24). The Earnings Whispers trend readings are split: sequential growth and momentum are positive, while price and AVWAP remain negative. Management's shift toward opportunistic buybacks after the post-election selloff is notable. It contrasts with Q2's cash-build stance and is backed by $370 million of cash, no debt, and a post-quarter acquisition of roughly 9,700 surface acres and 238 net royalty acres in Midland and Glasscock counties.
The bottom line is that TPL's royalty and surface franchise is performing better than at any point in its history, helped by volume growth and a gas realization recovery rather than oil price alone. The stock's derating reflects a credibility gap on data centers that this quarter widened rather than closed. Until a definitive agreement materializes or the Texas regulatory picture clears, investors are likely to value TPL on its royalty cash flows. On that score, the quarter delivered.