Encouraging Sustainable Operating Practices

Texas Pacific is unique when it comes to environmental sustainability, particularly as it applies to surface interactions with oil and gas exploration and production companies ("E&P"). Except for the Company’s water solutions business, we do not directly develop or operate the infrastructure on our lands and our legacy assets do not include mineral rights. As a result, TPL has limited influence over E&P operations on our lands. Nevertheless, we maintain close relationships with our lessees and operators to support and encourage sustainable operating practices that align with our ESG goals and targets.

Our extensive surface assets allow us to partner with E&P companies. These companies collaborate with TPL throughout the cycle of their operations, from initial infrastructure development to drilling and completions and, finally production. We enable and foster lasting partnerships throughout the lifecycle of resource development.

We Set High Expectations for Our Partners

TPL relies on and expects operators to conduct their business with sustainability best practices and accountability. Where applicable, all of our existing operators and new operators abide by contracts and guidelines established by TPL, and we have included ESG language in these documents to reflect our sustainability commitments.

Additionally, given our strategic partnerships with the E&P industry, we are developing new opportunities to work together and augment our collective ESG commitments and projects. The energy industry is a leader in ESG disclosure and reporting, and it is prudent for companies to partner together to align our ESG goals and drive beneficial sustainability synergies. Future partnerships may include biodiversity and conservation projects, greenhouse gas and emissions projects, growth in water management innovation, community engagement and strategic social investment opportunities.

We Responsibly Manage Water Sourcing and Water Disposal

We formed Texas Pacific Water Resources (“TPWR”) in 2017 to create additional value and support for E&P operators in their efforts to manage the sourcing of water and disposal of produced water. Notably, TPWR does not operate saltwater disposal wells (SWDs), but TPL requires SWDs drilled on our property by third parties to meet industry and regulatory standards. Within our water business, we facilitate development of infrastructure to provide water midstream services that enable the gathering, reuse, and recycling of produced water. Beyond water management, TPL also prioritizes critical environmental issues such as energy efficiency, emissions management, and ecological due diligence. These sustainability areas continue to remain a top priority for the Company in our forward-looking strategies and decision-making.

Environmental Management

At Texas Pacific, we understand that spill prevention and control is key to our responsible land and water management. Protecting the environment and our surrounding communities is fundamental to our operations and long-term business strategy.

To ensure the continued integrity of our operations, we have implemented a Spill Prevention, Control, and Countermeasure (“SPCC”) plan and protocol for our water assets. These assets are also equipped with advanced technology and secondary containment protections to prevent spills or leak risks. Our advanced operating equipment allows the operations team to automatically shut down equipped assets if an emergency scenario arises.

TPL strives for excellence; thus, we employ as a best practice the tracking and monitoring of all spills, regardless if they are small enough to be outside regulatory reporting requirements. All spill information is input into our centralized database to allow us to easily track and manage data, facilitating proactive preventative measures.

TPL has an excellent record of preventing spills. This is attributed to our employee training and to our exceptional asset management and integrity protocols. That said, it is best to be prepared: TPL prioritizes the continued education and engagement of employees and contractors to ensure they are equipped to manage emergency scenarios. For example, the entire operations team participates in TPL’s Spill Champion Program, which provides on-site training to our employees that are most likely to encounter issues or emergencies that come from transporting liquids, including brackish water and liquids with hydrocarbons. If a spill does occur, TPL operators and field Health, Safety and Environment (“HSE”) coordinators have a defined process and protocol to survey the spill and confirm its extent. There is a process to notify the proper channels within TPL to ensure oversight, and a certified third-party partner is retained if remediation services are required. Additionally, a local accredited laboratory provides soil sample assessments before and after remediation.

Texas Pacific’s Environmental Management System aligns with ISO14001 as a recognized environmental management standard. This guides our environmental impact assessment processes in TX & NM.

Prior to the Company acquiring additional surface acreage, an on-site Phase 1 Environmental Site Assessment is conducted by environmental consultants to gauge the condition of the property. Similarly, when TPL obtains a Right-of-Way for infrastructure expansion, it performs soil testing to confirm no immediate environmental remediation is required. As part of its operational excellence due diligence, TPL also tests for chlorides, which is typically not required.

To manage the integrity of existing pipeline assets, we schedule regular pipeline maintenance checkups, and the HSE team closely monitors assets for spills, leaks, or any other type of release.

TPL fosters partnerships with environmental experts, which is why the Company partners with the New Mexico Bureau of Land Management to obtain biodiversity impact guidance and vital insight into environmentally sensitive areas. This allows the Company to proactively manage and avoid these areas or, when appropriate, to proceed with caution and apply environmental due diligence.

We also contractually require our grazing tenants to use proper grazing and stockman standards and participate in conservation, range, and wildlife improvement programs when possible.

TPWR also works closely with O&G operators to follow their established biodiversity protocols.

Prior to the buildout of any new water midstream assets, we partner with our environmental consultant to obtain any environmental and ecological information that could impact the development and / or expansion of water operations. These consultants utilize ArcGIS software to capture and report data that shows if TPL’s planned infrastructure intersects with environmentally sensitive areas. The current process allows the Company to proactively manage and mitigate construction on land with conservation status, high biodiversity value, endangered species habitat, and Unusually Sensitive Areas (as defined by SASB). Additionally, the Company employs land surveyors who act as on-the-ground resources to confirm the environmental intelligence obtained from the software. We believe these practices mitigate any unknown environmental risks or potential information gaps not captured by virtual assessment tools.

As part of our asset management protocol, TPL continues to drive environmental accountability by testing and performing water quality analytics and assessments. This provides the Company and surrounding communities and landowners assurance that the integrity and safety of the surrounding areas are ecologically maintained.

It is also important to note that TPL encourages, and where applicable, requires O&G and midstream operators to build their assets in specific, designated land corridors to avoid unnecessarily disturbing land and to minimize environmental footprints. TPL’s pipeline leases have stringent contractual obligations to ensure environmental due diligence and responsible land management.

TPL prioritizes consistent engagement and communications with operators and lessees that are on TPL’s land to ensure environmental due diligence is maintained. When an operator or lessee comes to the end of a lease or is leaving TPL’s land, TPL requires a reclamation process to verify that the land has been restored to the environmental condition stipulated by the contractual agreement. In cases where TPL finds misalignment with the level of expected remediation, TPL works with the operator and/or lessee to complete all remediation efforts necessary.

Waste and Chemical Management

TPL’s chemical management program abides by the stringent specifications provided by operators. In instances where operators do not take possession of solids for their own disposal process, we bring  a NORM-certified (“Naturally Occurring Radioactive Material”) company on-site to perform maintenance and treatment activities. TPL holds itself and its operators and lessees accountable to these procedures and stringent expectations.

Climate Change

Position on Climate Change

At TPL, we view climate change as a critical component of our long-term business strategy. We are factoring in the risks and impacts of climate change to our environmental, economic, and social strategies to ensure we remain committed to responsible operations.

TPL is dedicated to reducing our GHG emissions through a series of electrification projects and capital expenditure commitments. For example, the Company is prioritizing the electrification of our water assets to reduce reliance on diesel and to manage our emissions profile. The Company is also expanding our new Renewables Team, a segment created to solely focus on encouraging wind and solar development on our properties and exploring all available options to increase our existing renewable footprint. Finally, TPL allows for easements on our land to construct electricity infrastructure, supporting oil and gas operators’ access to electricity and thus avoiding the use of diesel to power in their operations. This supports a tremendous amount of emissions reductions from operators across TPL’s land. Additionally, the Company’s water infrastructure—used to transport water—takes commercial trucks off the road. Each truck runs off of diesel, so for every truck that is removed due to TPL’s water infrastructure, the Company is supporting GHG reductions for its operators. Additionally, within our water business, TPL facilitates the development of infrastructure to provide water midstream services that enable the gathering, reuse, and recycling of produced water. Our water recycling capabilities help operators minimize the use of freshwater demand. This business offering is critical to support the risk of water availability that is associated with climate change.

Water Management, Sourcing and Supply Resiliency

TPL’s operations include protections and processes that help address the risks of climate change. In alignment with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), TPL has identified water availability as a key business risk associated with climate change. TPL is actively addressing this concern by utilizing advanced technology where possible, and to  build operational processes that support responsible resource usage.

For example, the Company conducts groundwater monitoring as well as precipitation tracking in order to evaluate level changes in producing aquifers. Combined with production data, this allows us to adapt production based on the level and overall health of the aquifer. For wells without devices, the Company monitors static and dynamic well levels, actively reducing energy use to align with the availability of water.

Utilizing Automation for Water Production and Treatment

Our automated volume tracking infrastructure exists on all active water production and treatment assets.

  • Brackish Water: automated meters collect all water produced, stored, transferred, and eventually sold to customers.
  • Recycled Water: the same automated processes are installed on localized treatment systems.

Water wells are automated through Variable Frequency Drive (“VFD”) pumps—this enables control of the asset and provides the ability to shut off production when needed, allowing TPL to control water withdrawals and water movement. These motors will correspondingly slow to minimize consumption and proactively prevent negative environmental impacts to the aquifer. Assets also have a Global Systems for Mobile (“GSM”) backup as a redundant option should there be a critical service outage.

Sourcing Brackish Water

Our monitoring and response capability is vital to supporting sustainable operations and managing the risks and impacts of climate change.

TPL understands the criticality of responsibly managing water as a natural resource. The Company focuses on the development of brackish, non-potable water with the majority of our water production occurring from these brackish aquifers. Freshwater development is limited only to cases where brackish water is not geologically feasible.

Energy Management and Efficiency

TPL is committed to electrifying our water assets in an effort to mitigate the overall emission profile by reducing reliance on diesel generators. TPL has processes in place to track energy consumption (electric and diesel) by location, covering approximately 80% of the energy used.

The 2021 Texas Freeze highlighted infrastructure vulnerabilities across the Permian Basin for both water management and O&G companies. Although electrification is the goal as a primary power source, TPL has diesel generators as backups for all assets to ensure operations continue to run in an emergency power-outage scenario.

TPL is in the process of implementing a software solution to manage its assets and validate that they are efficiently working and receiving proper maintenance when needed. When operational, this platform will allow the Company to avoid unnecessary expenditure of energy for assets that are not working properly.

TPL recognizes the growing importance of the energy transition and the role that renewable energy resources play in shaping the future of global energy production. We feel that our land holding uniquely positions us to promote and inspire innovation across the clean energy market.

In an effort to continually adapt to market opportunities and diversification strategies, TPL has created a team to solely focus on encouraging wind and solar development on our properties and exploring all available options to increase our existing renewable footprint. TPL currently hosts around 120MW of wind power and our land holdings play a critical part in supporting infrastructure related to an additional 100MW of solar power. The TPL team plans to strategically prioritize increasing its existing renewable portfolio through industry outreach and a thorough understanding of regulatory considerations and infrastructure requirements. TPL aims to help streamline land leasing procedures to provide a reliable and predictable foundation for future projects.

We are working to partner with best-in-class developers, who can create over 100 MW of commercial-grade projects by executing long-term purchase power agreements (PPA). In addition, we are also working with our current partners across the Permian Basin to implement micro-grid sized projects (typically 5-50MW) that will allow traditional O&G companies to reduce their own carbon footprint by supplementing grid power with cost-efficient and reliable green energy. Holistically, the buildout of renewable energy drives an element of the Company’s business revenue.