Permian land firms chase AI data centers across 1.4 million acres

Texas Pacific Land, LandBridge and EagleRock, which control 1.4 million acres across the Permian Basin, are pivoting from oil royalties to leasing land and selling water to AI data centers, betting cheap power and sparse population will draw hyperscalers.

"A lot of places all over the country they're worried about water, they're worried about power, they're worried about transmission, and the Permian has all of those things in spades," EagleRock Chief Executive Greg Pipkin Jr. said.

Chevron signed a 20-year agreement to sell electricity to a Microsoft data center and is building a gas-fired power plant in the region, buying land from Texas Pacific for the project. Texas Pacific invested $50 million in Bolt, a data and energy infrastructure company co-founded by former Google Chief Executive Eric Schmidt, and said each data-center project could generate multiple hundreds of millions of dollars over its life from land leases, water sales and construction materials. Artificial-intelligence startup Poolside and cloud-infrastructure company CoreWeave have said they would build a data-center complex on a sprawling West Texas ranch.

LandBridge, which raised its full-year adjusted EBITDA outlook to $210 million to $230 million, said a typical 1-gigawatt data-center campus on its land could generate tens of millions in annual free cash flow. The companies trade at 37 to 39 times forward earnings, reflecting investor expectations that data centers will drive growth beyond oil.

Landlord model scales beyond oil

The three firms together sit on more than seven times the land area of New York City, and they are acquiring more. Texas Pacific derived nearly half of its revenue last year, about $386 million, from selling sand, caliche and water to operators and pocketing royalties for saltwater disposal. In the second quarter, revenue rose 31 percent year over year to about $246 million, with adjusted EBITDA of $216 million and an 88 percent margin.

Texas Pacific acquired more than 10,000 acres in Shackelford and Jones counties for about $100 million, an area it called among the fastest-growing data-center regions in the country. The company said it is in advanced discussions with hyperscalers, artificial-intelligence labs and power generators involving 25 gigawatts of projects, and disclosed that a land and water agreement supports Chevron's Project Kilby power facility in Reeves County. It also began commissioning a produced-water desalination plant in Orla, Texas, designed to process 10,000 barrels a day for industrial and data-center cooling.

Data centers meet the oil patch

LandBridge is going further, working to host several data-center campuses complete with fiber-optic cables and electrical substations, with affiliates spending the capital to build power and utility infrastructure. It told analysts it is in various stages of discussions with seven power and digital infrastructure counterparties. The company acquired about 5,700 acres and entered a lease development agreement covering up to roughly 3,400 acres in Reeves County tied to the Alpha Digital Campus, a giga-scale project with up to 2 gigawatts of co-located power generation under development through its PowerBridge agreement.

EagleRock, backed by Double Eagle co-founders Cody Campbell and John Sellers, raised $320 million from an initial public offering earlier this year. The Permian, which would be the least-populated state in the nation with roughly 500,000 residents, offers developers land without the local opposition that has stalled projects from Maine to Arizona.

The pivot carries risk. The companies still earn most of their cash from oil-and-gas clients, and data-center development timelines run long. LandBridge trades at about 66 times trailing earnings with a market cap of $5.8 billion, and its shares, at $75.02, sit below the 52-week high of $85.60. Texas Pacific shares trade near 37 times projected earnings. If data-center deals slip, the growth premium baked into those valuations could unwind.

This article is for informational purposes only and does not constitute investment advice.