イーグルロック（EROK）2026年第3四半期決算説明会：EBITDAガイダンスを上方修正

主要なポイント

• EagleRockの2026年第3四半期の売上高は4,330万ドル、調整後EBITDAは約3,400万ドル（マージン78.5%）となりました。
• フリーキャッシュフローは約3,200万ドル（コンバージョン率93%）となった一方、設備投資額は約110万ドルと低い水準にとどまりました。
• 経営陣は2026年通期の標準化調整後EBITDA見通しを1億3,300万〜1億3,700万ドルに引き上げました。新たな中間値である1億3,500万ドルは、従来の中間値を400万ドル上回っています。
• Double Eagle Vはミッドランド郡およびグラスコック郡で約3万5,000エーカーを新たに対象エリアとして指定し、EagleRock向けの合計指定面積を50%増やして10万エーカー超に拡大しました。
• EagleRockはミッドランド盆地で計約2,000エーカーの物件2件を1,540万ドルで取得しました。これらの資産により、給水、貯水、および随伴水処理能力が強化されます。
• 経営陣は、買収による上乗せ効果が見込まれるものの、当初の2026年EBITDAベースラインから20%の自律的成長を目指す2027年の枠組みを改めて示しましたが、正式な2027年の業績予想の提示は見送りました。

主要財務データ

事業および営業業績

EagleRockの売上構成は、最も利益率の高い2つの部門へとシフトしました。地表利用売上高と地表利用ロイヤリティ収入は第3四半期売上高の71%を占め、売上原価が伴わないため、78.5%の調整後EBITDAマージンを支えました。

資源販売高は、ニューメキシコ州での完井活動に連動した汽水の販売量を反映しました。テキサス州では、Shallow ValleyシステムがDE Flow水管理システムと接続されたことで販売量が増加しました。経営陣は、資源販売高の前四半期比での変動は掘削および完井のタイミングによるものとし、第4四半期には販売量と価格の回復を見込んでいます。

Double Eagle Vとの契約により、EagleRockの資本支出を必要とすることなく、約3万5,000エーカーが専用対象エリアとして指定されました。この指定は土地の譲渡ではなく、需要水量の供給、随伴水の排出およびリサイクルを対象としています。経営陣は、掘削・完井活動の拡大に伴い、収益への貢献が2027年に始まり、2028年以降に本格化すると見込んでいます。

また、EagleRockはグラスコック郡およびリーガン郡において、総額1,540万ドル（EBITDA倍率10倍未満）で約2,000エーカーを網羅する2件のボルトオン買収を完了しました。これらの物件により、日量約5万バレル分の汽水供給能力、200万バレルの地上貯水容量、および追加の随伴水処理能力が加わります。

Intrepid Ranchにおいて、EagleRockは砂採掘業者と賃貸借契約を締結しました。この契約により、EagleRock側で資本支出を行うことなく、砂の取扱量に応じたロイヤリティや追加の水販売売上が発生する見込みです。また同社はニューメキシコ州で複数のポアスペース（地下空隙）契約の交渉を進めており、2026年末または2027年初頭に最初のロイヤリティ収入が発生すると予想しています。

EagleRockは、パーミアン盆地のデラウェア盆地およびミッドランド盆地にまたがる約28万8,000エーカーの地表土地を所有または管理しています。すべての売上高は地表利用によるロイヤリティおよび使用料から発生しており、同社は90社を超える顧客にサービスを提供しています。

業績予想（ガイダンス）

経営陣は2026年通期の標準化調整後EBITDA見通しを1億3,300万〜1億3,700万ドルに引き上げました。中間値は400万ドル増の1億3,500万ドルとなり、そのうち約200万ドルは追加の自律的成長、約200万ドルはIntrepid Ranchによるものです。同社が2026年のEBITDA見通しを引き上げるのは2四半期連続となります。

EagleRockは、2026年第4四半期の調整後EBITDAマージンが73%〜75%の範囲になると予想しており、第3四半期の78.5%を下回る見通しです。

2027年について、経営陣は出発点の枠組みとして、当初の2026年EBITDAベースラインから20%の自律的成長を目指す姿勢を改めて示しました。Intrepid、直近の買収2件、Double Eagle V、および追加の商業化機会からの貢献は上乗せ要因となります。ただし、事業者の開発計画が策定中であるため、正式な業績予想を発表したりDouble Eagle Vの貢献度を数値化したりするには時期尚早であるとしています。

同社は買収に対する柔軟性を維持しながら、月額約1,000万ドルを負債返済に充て続ける計画です。約7,800万ドルでのIntrepid買収のためにリボルビング融資から最初に8,000万ドルを引き出した後、EagleRockは10月末までに2,000万ドルを返済しました。同社の2億ドルのリボルビング信用枠には、1億ドルの増枠権（アコーディオンスロット）が含まれています。

リスクと注視点

• 資源販売高は、掘削および完井のスケジュールによって四半期ごとに変動する可能性があります。経営陣は第4四半期の回復を見込んでいますが、そのタイミングは事業者の活動状況に依存します。
• 2027年の詳細な掘削および設備投資計画が確定していないため、Double Eagle Vからの売上の規模とタイミングには不確実性が残ります。
• EagleRockは迅速な負債返済と積極的な買収パイプラインのバランスをとっています。経営陣は株主の価値希薄化を避けるため、手元資金および負債による資金調達を好んでいます。
• ポアスペース、砂、排水処理、およびビハインドザメーター電力事業の潜在的プロジェクトは、交渉、許認可取得、開発タイミング、商業化の進捗状況に依存します。
• テキサス州の規制当局の指導部に関する質疑では、採掘随伴水の取り扱いや産業開発に焦点が当てられました。経営陣は、州規制当局者の任期が分散（スタッガード）しているため、少なくとも今後4年間は同様の規制・統治構造が維持される見通しであると述べました。

アナリストQ&Aの要点

Double Eagle Vの事業性： 経営陣は、本契約が土地の譲渡ではなく対象エリアの指定（デディケーション）であることを明確にしました。EagleRockは給水、リサイクル、および随伴水処理サービスを提供し、売上原価を生じさせることなくロイヤリティ収入を獲得します。収益への貢献は2027年に開始し、2028年以降に拡大する見通しです。

M&Aパイプライン： EagleRockは、テキサス州およびニューメキシコ州において、約300エーカーから1万5,000エーカー規模の案件（大型取引を含む）を評価・検討しています。経営陣は、過去6ヶ月間の競合状況は比較的安定しており、同社の上場に伴うバランスシートの強化によって資金調達の柔軟性が拡大したと述べています。

直近の買収の商業化： 経営陣は、ミッドランド盆地における直近2件の買収によるEBITDAが、追加の商業化を通じて今後18ヶ月間で50%〜80%増加しなければ期待外れになると述べました。

パーミアンでの活動状況： 経営陣は、事業者との協議やリグ稼働状況が2027年の力強い事業計画を後押ししていると説明しました。また、EagleRockは決算説明会の当日の朝に酸性ガス圧入契約1件を締結しており、もう1件についても交渉の最終段階にあります。

データセンター開発の選択肢： 経営陣は、EagleRockの所有地、天然ガスへのアクセス、ならびに汽水および随伴水資源がデータセンター開発における潜在的な優位性になるとみています。同社は所有地への電力供給ソリューションで進展があったと述べたものの、財務目標やタイムラインは提示しませんでした。

決算説明会全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Hello, everyone. Thank you for joining us, and welcome to the EagleRock Q3 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Chris Causey, Vice President of Finance. Chris, please go ahead.

Chris Causey

Thank you, operator. Good morning, and thank you for joining EagleRock's Third Quarter 2026 Earnings Conference Call.

With me today are Greg Pipkin, Chief Executive Officer; and Neal Shah, President and Chief Financial Officer of EagleRock. Shortly, Greg and Neal will deliver their prepared comments before going into a question-and-answer session. Yesterday, we posted an updated investor presentation on our Investor Relations website, and we may reference certain slides during today's discussion. A replay of today's call will be available on our website after today's call.

Before we begin, I'd like to remind you that in this call and the related presentation, we will make forward-looking statements, current beliefs, plans and expectations, which are not guarantees of future performance and are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from results and events contemplated by such forward-looking statements. You're cautioned not to place undue reliance on forward-looking statements. Please refer to the risk factors and other cautionary statements included in our filings with the SEC.

I would also like to point out that our investor presentation and today's conference call will contain discussions of non-GAAP financial measures, which we believe are useful in evaluating our performance. These supplemental measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and the appendix of today's accompanying presentation.

Now I am pleased to turn the call over to Greg.

Gregory Pipkin

Thanks, Chris, and good morning, everyone. Welcome to EagleRock's Third Quarter 2026 Earnings Call.

We once again delivered strong results, a testament to the continued dedication of our employees, the support of our ownership group and the collaboration of our business partners. We are grateful to have them all in our corner. Adjusted EBITDA was approximately $34 million for the third quarter on strength in our higher-margin segments. Free cash flow was approximately $32 million, representing a 93% free cash flow conversion rate. This robust cash flow generation has already allowed us to repay as of October 31, approximately 25% of the debt we raised to fund the Intrepid Ranch acquisition we announced in August.

Positive momentum continued after the end of the quarter. As yesterday, we announced a significant new acreage dedication from Double Eagle. Our agreement with Double Eagle V dedicates approximately 35,000 acres in Midland and Glasscock counties to us, increasing their total acreage dedicated to EagleRock by 50% to over 100,000 acres. Importantly, this acreage dedication underscores the strength of our capital-light business model, generating additional royalty revenue without requiring any capital investment by EagleRock. The Double Eagle V dedication is yet another example of how our footprint, assets and capabilities, combined with our relationship with Double Eagle creates meaningful value for our shareholders.

In addition to the Double Eagle V dedication, we bolstered our acreage footprint through 2 bolt-on acquisitions that added approximately 2,000 acres in the Midland Basin for less than 10x EBITDA. These ranches directly offset our existing footprint in Glasscock and Reagan counties and further strengthen our ability to commercialize our surface acreage across the Midland Basin.

Although I refer to these transactions as bolt-ons, I cannot underscore enough how excited we are about what these acquisitions, combined with our new acreage dedication mean for EagleRock. These transactions enhance our dedicated acreage and tie our own organic acquisition strategy directly into our largest shareholders' development footprint. They also expand our water resource and storage capabilities, adding approximately 50,000 barrels per day of brackish water supply capacity, 2 million barrels of aboveground storage and increase our produced water disposal capacity, which supports monetization of the entire Double Eagle dedicated footprint. Taken together, these transactions reflect continued integration and densification of our position across the Midland Basin.

Our acquisition pipeline remains robust and continues to grow, and we see a range of additional opportunities across the portfolio, generally in the 500 to 15,000 acre range that we believe fit our strategy. Our approach to every acquisition remains the same. We access the development potential of the asset and the strategic fit within our portfolio, and we evaluate whether it's accretive and create shareholder value. We view these recent transactions, along with the Intrepid Ranch acquisition, as a demonstration of our ability to move quickly and decisively when a deal fits our portfolio and our strategy.

As a reminder, EagleRock owns or controls approximately 288,000 surface acres across the Delaware and Midland subbasins of the Permian. 100% of our revenues are derived from royalties and fees generated from surface land use that requires minimal capital exposure. Our surface use agreements cover a broad range of activities on our land and as operators' needs evolve in a fast-changing environment, we are able to mutually agree to terms that benefit both parties. This setup creates a continuous and growing set of opportunities to capture additional value over time. We serve more than 90 different customers, including many well-capitalized leading E&Ps. Double Eagle, one of the most active private operators in the Midland Basin is our largest shareholder and a key strategic relationship for us, and we also benefit from equally deep relationships elsewhere across the basin.

EagleRock is built for growth. Our base business is already expanding and acquisitions provide another meaningful avenue to scale our platform. Our management teams and owners deep industry relationships and regional expertise give us a distinct advantage in identifying and executing acquisitions that complement our existing footprint and build on our high-growth core. Third quarter's results reflect that foundation at work, so let me elaborate on the quarter's highlights. Surface use royalties and surface use revenue both became a larger share of our revenue mix in the third quarter. Because they carry no associated cost of sales, that shift supported our strong margin performance. At our core, we are a royalty business, and we're pleased with the continued strength in these high-margin revenue streams.

Turning to Intrepid. When we announced this acquisition, we said we intended to unlock additional royalty opportunities on the asset, including from sand development. We recently executed a lease agreement with a sand operator to develop a sand mine on Intrepid Ranch. This covers a relatively small footprint, but it supports the deep pipeline of permitted activity on and around the ranch from several of the industry's most active operators, and it comes at no cost to us. It expands our royalty set in 2 ways: first, via a royalty on sand volumes produced and second, via incremental water sales tied into the mining operation itself.

More broadly, our view on Intrepid remains that there is meaningful opportunity to apply the same active management approach that built this platform to optimize this asset. The sand lease is an early example of that, and we will continue to see similar opportunities as we work through the rest of the portfolio. This same approach extends across our broader platform. We are currently in late-stage negotiations on multiple pore space agreements in New Mexico, each of which will create an additional royalty stream for EagleRock. We expect the first royalties to be realized in late 2026 or early 2027. Together with the sand lease, this reflects a deliberate, repeatable strategy of converting our land position into new high-margin royalty streams.

Driven by continued strong operating momentum and the contribution from the Intrepid acquisition, we are raising our full year 2026 guidance from the range provided during our second quarter earnings call. We will speak to that in more detail shortly.

Neal, over to you.

Neal Shah

Thank you, Greg, and good morning, everyone.

Before I review the numbers, I want to flag an important modeling point. As a reminder, we completed our initial public offering in May, midway through the second quarter. Because of that and for comparison purposes, our first and second quarter results were presented on a normalized basis, treating the Double Eagle and Shallow Valley contributions, along with public company costs as if they had been in place since January 1 to reflect the IPO occurring mid-Q2. That being said, the third quarter marks the first quarter with results on an as-reported basis with no further need to normalize results going forward.

As for third quarter results, we generated revenue of $43.3 million. Looking at the composition of revenue, surface use revenue represented $11.3 million or 26% of the total. Surface use royalties represented $19.4 million or 45% of the total and resource sales represented $12.7 million or 29% of the total. Surface use revenue and surface use royalties, our 2 highest margin streams grew meaningfully this quarter. Recall, both carry no associated cost of sales, which drove our strong EBITDA margin performance during the quarter. Resource sales results reflected brackish water volumes in New Mexico, consistent with the pace of completions activity on our acreage and broadly in line with our expectations. In Texas, resource sales volumes increased as our Shallow Valley system continued to benefit from the accelerated synergy realization through its connection with the DE Flow water management system.

Given these dynamics, we delivered strong adjusted EBITDA for the quarter of $34 million and a margin of 78.5% compared with a normalized adjusted EBITDA margin of 77.5% in the second quarter. We would expect EBITDA margins to be in the range of 73% to 75% in the fourth quarter. Capital expenditures for the quarter remained low and were approximately $1.1 million, driving strong free cash flow of approximately $32 million and resulting in free cash flow conversion of approximately 93%, underscoring the capital-light nature of our business model.

Turning to the balance sheet. As of September 30, 2026, we had $12.3 million of cash and cash equivalents with $70 million drawn on our $200 million revolving credit facility with the potential to access an additional $100 million through the accordion feature embedded within our revolving credit facility agreement. As a reminder, we completed the Intrepid acquisition for approximately $78 million, funded primarily through our revolving credit facility. Following our initial $80 million draw in August, we reduced outstanding borrowings by $20 million or 25% through the end of October as we allocate approximately $10 million per month towards debt reduction and expect to maintain this pace going forward. Consistent with our strategy, our strong balance sheet and robust free cash flow generation allow us to strategically deploy leverage when compelling opportunities arise while rapidly reducing debt thereafter. This financial flexibility positions us well to continue executing our disciplined approach to accretive M&A, creating long-term shareholder value.

Turning to recent transaction activity. As Greg mentioned, we announced yesterday a new 35,000-acre dedication from Double Eagle V. This expanded commitment further strengthens our deep relationship with Double Eagle and reflects their continued confidence in EagleRock's platform. While it is early to provide specific financial guidance, we expect a robust revenue contribution from this dedication beginning in 2027 with further meaningful growth in subsequent years, consistent with Double Eagle's drilling and completions cadence. Importantly, as a reminder, this represents royalty revenue, which carry no associated costs and is 100% margin. Additionally, we recently closed 2 strategic acquisitions in the Midland Basin for a combined consideration of $15.4 million in aggregate, which we funded through a combination of cash on hand and borrowings under our existing revolving credit facility.

As it relates to capital allocation, we continue to view cash and debt as our preferred sources of M&A financing, avoiding dilution to existing shareholders. As previously noted, executing on thoughtful, accretive M&A remains our top priority, strategically deploying leverage when appropriate while rapidly reducing debt thereafter. More broadly, capital allocation, including a potential nominal dividend, remains a topic we discuss and evaluate regularly alongside our other priorities with our Board.

Turning to our full year 2026 outlook. We are raising our normalized adjusted EBITDA guidance to a range of $133 million to $137 million, reflecting continued strong momentum across our business. The revised $135 million midpoint represents a $4 million increase from our prior $131 million midpoint, which excluded the contribution from the Intrepid acquisition. Importantly, of the $4 million increase, approximately $2 million is driven by additional organic growth with approximately $2 million attributable to Intrepid. This marks the second consecutive increase to our full year 2026 EBITDA outlook.

Looking further out, while it is early to provide formal 2027 guidance, we would like to reiterate the same broad framework we discussed during the IPO process and since. We continue to expect 20% organic growth from our original 2026 EBITDA baseline as a reasonable starting point with accretive M&A further additive to this. Suffice it to say, we remain extremely excited for what 2027 holds for EagleRock Land.

In summary, the third quarter marked another period of strong operational execution, while our recently announced strategic transactions further demonstrate our commitment to advancing our long-term strategic priorities and focus on accretive growth. We look forward to sustaining our momentum and driving value for all our shareholders.

Thank you for joining us. Operator, you may now begin the Q&A session.

Operator

[Operator Instructions] Your first question comes from the line of Theresa Chen with Barclays.

質疑応答

Theresa Chen

I wanted to delve a bit further on the additional Double Eagle acreage dedication. As development ramps, how should we think about the timing and mix of incremental water easement and surface use revenues and ultimately, earnings contribution from the dedication from here?

Gregory Pipkin

Theresa, thank you for joining. We're super excited about the Double Eagle V acreage dedication into EagleRock. I think it doubles down on Double Eagle's conviction in our business model and the fact that we are super convicted in owning land in the Permian. We truly believe it's the best place in the world to own surface for many of the reasons we've detailed out. I will tell you that the Double Eagle V drop-down is very similar to the Double Eagle IV assets that were contributed to us at IPO from a sense of there is no capital outlay to EagleRock. It's a 100% margin revenue coming our way and even better than the contribution at IPO. There's no cash out the door for us, which I think further reiterates Double Eagle's conviction in EagleRock as the premier surface land acquirer in the basin and in the world.

I'll pass it over to Neal to kind of talk through what we're seeing for 2027 and beyond.

Neal Shah

Thanks, Greg. Theresa, as Greg said, I'd start to say, first, we're extremely fortunate to have Double Eagle as a strategic partner. And this new dedication really does further that relationship. It really reflects their confidence in us and really underscores our long-term growth strategy and driving EBITDA and shareholder value. In terms of the financial contributions, I can tell you, we've had conversations with Double Eagle, and we're very excited about this future royalty revenue derived from the dedication, both in 2027, where we expect robust contribution and meaningful contribution even thereafter. It's a little bit early to give precise numbers only because, as you know, similar to other E&Ps that set their program, their capital, we're sitting here in October, which is something they usually prep here and as we move into 2027. So we're just slightly early on that.

But I think you can really tell from our excitement that this is meaningful, right? If I look at all the elements of what we reported this morning, the beat on EBITDA, increasing 2026 guidance, we're talking about the progression of Intrepid, 2 other acquisitions announced. I think the biggest impact in my mind to '27 and beyond is really this Double Eagle V announcement that we're discussing with you here today. So look, I think this just really reinforces that robust multiyear growth that really reinforces the strength of our capital-light business and my confidence that we want to portray it to you all that the long-term earnings trajectory for EagleRock is material and real.

Theresa Chen

That's very helpful. Shifting gears a bit, following the election results in Texas, how are you thinking about the potential implications of the new leadership for energy development and infrastructure investment at large?

Gregory Pipkin

Yes, I think it's a great question. I think we've had a truly differentiated approach when we -- when you think about data center optionality, we're continuing to look at the opportunity set as a great call option on a surface business that already generates substantial free cash flow. In our mind, our view hasn't changed. What Texans said in the election last night is that they want data centers that don't raise their power bills. They don't compete for local municipal drinking water and have support from the community. And I think that further doubles down on the Permian's case to be the data center hub for the country.

We've got abundant gas to generate power without leaning on residential tax ratepayers. We have abundant produced and brackish water instead of straining municipal supply and communities that have built their economies around industrial development are all over the Permian. So they're used to this kind of activity. And so in short, I think the Permian's access to water, the Permian's access to cheap natural gas, an abundance of land, which EagleRock has in spades, combined with, I think, one of the biggest hurdles for this industrial development is power. And I would say that we're making real progress on a power solution on our lands that we'll be excited to talk with you all about in the coming months.

Operator

Your next question comes from the line of Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb

Just following up that line of question on the election. I saw that one of the Texas Railroad Commissioners went to a Democrat and just you outlined the impact thoughts on data centers. But what about produced water reinjection, anything like that? Do you see any changes to Texas' traditional accommodative approach to produced water handling and use of the land? Or do you think that, that could change under the new leadership in Austin?

Gregory Pipkin

Yes, great question. I would say that the 2 kind of governing bodies as it relates to oil and gas and kind of industrial development, particularly on the Texas side of the Permian Basin are the Railroad Commission and the TCEQ and both have very similar structures. Each has a set of 3 commissioners with staggered 6-year terms. And so I think from that perspective, at least for the next 4 years, you will have kind of a similar construct as you do now. And then 6 years from now, I think that will be a conversation for a different day. I think at the end of the day, once again, what the Permian provides from a development and industrialization perspective is able -- is a mutually agreeable and kind of compromise when you think about you're able to develop these massive projects and you're not straining resources that would harm communities or kind of increase their cash out of their pockets based on increased rates from electricity. I think the behind-the-meter power story in the Permian continues to pick up speed, and we're continuing to focus our time and attention on that.

Alexander Goldfarb

Okay. And second question is, Neal, on the Double Eagle V, you said that it was a cashless transaction, but you also said you expect a lot of growth out of it. It's 100% margin. Can you just remind us like why Double Eagle would basically convey land to you guys at no cost? And what their economic side of the equation is and also what you -- what we should expect as the project ramps in '27 as far as EBITDA contribution from the Double Eagle V?

Neal Shah

Yes, all great questions. And so to be crystal clear, it's not a conveyance of land. It's a dedication of the water requirements, the produced water takeaway, the recycling. As Greg said, it's very similar to Double Eagle IV. So I would think about it in the context of Double Eagle IV and the next iteration is Double Eagle V. So it's from that perspective of how I view it. I mean they've been great strategic partners. It's important to remember, they're our largest shareholder. So I think a lot of those components in terms of our ability, as we've demonstrated to prosecute and help along their program and assure their needs for water, produced water takeaway and recycled water as well. So again, it's not a conveyance of land. It's really just a dedication, again, similar to Double Eagle IV.

Now your next question as it pertains to the growth of EBITDA. As they ramp up, I'm going to speak to it kind of on a holistic basis. As I've seen initial look, I can tell you it's meaningful. It's material. In my mind, it's one of the most important things we've probably announced since inception during our -- from our IPO. This is going to move the needle for us as we move out. They're going to ramp into their program in 2027. And then you start to see, I'd say, more meaningful growth in 2028 and beyond. It is a little bit early because they're still working through the specific details because, I'll be honest, I would love to give you and the Street firm numbers, but we want to be very prescriptive and we want to be precise in terms of what we deliver and what we say. And to be fair to Double Eagle and all other operators, right? No operators really provided 2027 plans and guidance yet. So I think it's pretty much consistent there. But think about it as you step into it in 2027 as they increase the cadence of drilling and completions activity that then kind of is more meaningful as you move into 2028 and beyond.

Operator

Your next question comes from the line of Derrick Whitfield with Texas Capital Bank.

Derrick Whitfield

Congrats on the strong quarter and update, and also your M&A. Why don't you start on M&A, just with the success you've announced today? I wanted to ask how you would characterize the competitive landscape and opportunity for surface M&A in Midland as you see it today versus it was 6 months ago?

Gregory Pipkin

Yes, absolutely. Appreciate the question. I would say from an M&A perspective, transactions and growing inorganically is one of the lifebloods of our business. We have a robust pipeline of deals in both the New Mexico Delaware and the Midland Basin in Texas, ranging anywhere from a half section, which is 300-plus acres all the way up to 15,000-acre commercialized properties in size. I would also add that there are additional opportunities out there as it relates to drop-downs similar to Double Eagle V. I would say that our relationships, our network and our reputation of being able to transact has increased the deal flow since we went public. And to directly answer your question, I think the competition over the last 6 months has remained relatively steady with the only thing changing is us now having a balance sheet with a lot of liquidity and a public currency that gives us added flexibility to do more M&A like we set out to do on our roadshow 6 months ago.

Derrick Whitfield

Just as a follow-up to that, and I'm really happy you laid it out that way. But when you think about Double Eagle V, how would you characterize potential other dedications or even beyond Double Eagle dedications that could become part of the calculus in the future? Just any color you could offer there would be appreciated.

Gregory Pipkin

Yes, absolutely. Double Eagle has -- I would say they are more or less vertically integrated across the oil and gas value chain. So there are some opportunities on the E&P side of things. They do have a minerals and royalty business that is not our core focus, but they also have some non-op positions with some pretty premier public and private operators in the Midland Basin. I would take it a step further. We have, as a part of our ownership group, a group with deep Midland ties that have other avenues to where we would be privy to more surface. I think at the end of the day, our mission statement has stayed the same in terms of looking for accretive surface positions that we can extend our reach with combining what we currently have in the portfolio.

Operator

Your next question comes from the line of John Mackay with Goldman Sachs. Your next question comes from the line of Eli Jossen with JPMorgan.

Elias Jossen

Just wanted to circle back to some of the color you gave on 2027. I think you referenced a 20% growth off of the original '26 guide. I [indiscernible] year-end, but just high level, can you walk us through some of the key drivers we should think about next year, particularly with respect to some of the recent integrations and kind of opportunities you have on Double Eagle V and the other platforms?

Neal Shah

Sure. Great question. And you kind of broke up there for a second. So I'll just give you kind of a broad look overview of how we think about 2027. To start, you're absolutely right. It's kind of that 20% growth relative to the initial 2026 EBITDA outlook, and then it's incremental from there. And you've seen a lot of increments in terms of what we're even discussing and talking about here, the Intrepid acquisition, as we discussed, the M&A and the ability to further grow that EBITDA and commercialize that. And as we discussed, we've already started process there with the announcement related to the sand mine and the support there, right? We're talking about AGI wells that are incremental. We've got 2 that are in deep discussions right now, late-stage negotiations, solid waste facility, we talked about and Greg's talked about behind the power generation -- behind-the-meter power generation. We've got a lot of progress there. Then you've got the Double Eagle component as it pertains to DE V. All of that is additive to that outlook as it pertains to 2027.

So if you were to ask me looking at consensus, what do I think about consensus, I think it's conservative. I mean that's -- 2027 EBITDA for all intents and purposes is 14 months out from where we sit now. And I look at everything that we've accomplished just in the last 6 months and everything that we've delivered and how we've grown the business, how we've commercialized the business, and we've actively built the business to continue to grow through M&A and the continued commercialization of that M&A, I feel really good about 2027. And then when you look at it through the lens of what DE V will add as well, if I sit here looking at where I believe 2027 will end, I think estimates for 2027 in my mind, look conservative. So that should give you kind of, I think, a good way to kind of think about the business and the progression of the business and thoughts on 2027. I hope that's helpful.

Elias Jossen

Yes, it's very helpful. It's great color. And then maybe shifting to the kind of M&A landscape more broadly. Obviously, you've executed a ton of successful activity already. But can you just walk us through kind of what the opportunity set looks like from here? What specifically you're targeting? And if you think there's anything with a little more scale out there that you should go out and acquire?

Gregory Pipkin

Yes, absolutely. We have some chunkier things we are looking at both in New Mexico and Texas. But at the same time, I would argue that what we bought here recently on the 2 acquisitions that complemented the drop-down, we're super happy about. There's pros to both of them. The Lower Place Ranch is directly offset Double Eagle V's dedication and drop-down. And so what we can do there from an aboveground storage perspective on the water side, there are 2 SWDs in the permit and development process. And what we can do there to kind of service their needs, combined with kind of the easement and kind of activity levels that are occurring in that part of the Midland Basin get us super excited. And then when you think about the Evans acquisition down south, that ranch is directly offset and adjacent to our current stronghold down there and is largely unencumbered. So what you can do with a lot of white space in an area of high activity is super exciting.

On the Midland Basin side, we do have some more chunky acreage acquisitions that we are looking at. As I mentioned earlier, the pipeline is super robust. But everything that we look at is going to maintain that high hurdle rate that we can buy accretively and make sure that we can go in and commercialize the assets on the ranch to increase value for everyone here and on the phone.

Neal Shah

And to Greg's point, even double-clicking on those 2 acquisitions in terms of what we underwrote the acquisition as it pertains to EBITDA generation where I believe we can take it. I'll be honest, I'd be disappointed if we didn't grow that EBITDA footprint through the commercialization efforts by 50% to 80% over the next 18 months. I mean those are the elements that are really going to drive further growth into 2027. And we still have 14 months for additional M&A, right? That isn't even contemplating the conversation that you and I are having right now. So I think if you take all those elements, what I said previously, these acquisitions, our ability to commercialize acreage, I think that portends very well for EagleRock Land, its employees and most importantly as well, our shareholders.

Operator

Your next question comes from the line of Michael Furrow with Pickering Energy Partners.

Michael Furrow

Look, we're not hearing any material acceleration in activity levels from public operators at this time. But we did notice that the surface use revenues increased quarter-over-quarter. So we were hoping that maybe you could offer some commentary on what the team is seeing on the ground just in terms of activity levels maybe in both the Midland and Delaware Basins?

Neal Shah

We continue to see strong activity, right? If we look at the rig count, just as a simple proxy, I mean, we consider and we've seen continued strong operational and rig cadence. I mean I can tell you specifically from conversations that our team are having because we probed deep not only into 4Q, right, because we increased our guidance. So from our perspective, we need to have confidence in that rig cadence and the deliverability. And from our conversations with the operators, also in part, led to our ability to increase 4Q and also in part to speak to 2027 in the direct confidence in the manner in which we are. So those conversations that we're having speak to a really strong program here as we move into 2027 and through 2027. So I guess in direct response to your questions, the conversations and the early indications are 2027 is going to be exceptionally strong.

Gregory Pipkin

Yes. And I would add on that. We mentioned in our materials and our release that we had a few AGI projects in late-stage negotiations. We actually inked one of those this morning. And so super excited about that. Still have one more kind of in the negotiating phase. But along with receiving royalty from the injection of gas, we also -- those midstream operators have to build pipelines away from where they're separating gas and sending it to commercial markets. So the activity levels we're seeing from the midstream companies would tell you that operators are still continuing to put the pedal down as it relates to development.

Michael Furrow

Great. Appreciate the commentary. Just on the quarter, nice another beat out the gate. It's good to see the continued execution. We were a little surprised to see the resource sales revenue down quarter-over-quarter despite some brackish water sales. We presume it's just a standard lumpiness or one-off quarter given the full year guidance raise. But maybe you could offer some insight into the delta.

Neal Shah

Yes. I mean there is -- it's exactly what you said. There's a slight amount of lumpiness. You saw a number of rigs move into the basin during the first quarter, which really led to that first quarter, there were drilling wells and there was a completions lag. So you saw a big uptick in 2Q, then there is that cadence of drilling. And then as our expectations from conversations and understanding the cadence that 4Q, you'll see a rebound in volumes and pricing for brackish water, really, it's just a function of, as you point out, the completions and drilling activity on a quarter-to-quarter basis. But our belief and our conversations we had 4Q is going to see a rebound and then you'll see continued growth actually in 2027 based upon the commentary I made as it relates to conversations with operators.

Operator

Your last question comes from the line of Jarrod Giroue with Stephens.

Jarrod Giroue

Congrats on a strong quarter. So my first question has to do with the free cash flow conversion. Yes, so it reached about 93% in the quarter, and you indicated an expectation to allocate about $10 million per month towards debt reduction. So I'm just wondering how you're balancing the deleveraging objective against acquisition opportunities? And then is there a leverage level that you'd be maybe become more aggressive if there are some larger acquisitions out there?

Neal Shah

Yes. It's a good question. Maybe I should just start with the overall thoughts on the balance sheet and how we think about debt, right? Really, to me, debt is -- really provides those safety guardrails on the business without really being an impediment to the business, meaning it provides the safety, but it's not going to impede our ability to prosecute accretive acquisitions that we feel are in the best interests of our shareholders, right? We've got a very capital-light business. A tremendous amount of our EBITDA converts into free cash flow, as you pointed out.

In fact, 93% of that EBITDA is actually converted into free cash flow. So if you look at even based on what we -- let's just take the Intrepid acquisition where we drew down $80 million. We've had the capacity and the ability as we've been prosecuting to pay down incremental $10 million per month of debt on that $80 million. So you've got your $200 million revolving credit facility. We drew $80 million. Since then, we've paid down additional $20 million. We did pull a little bit for these acquisitions. But again, the ability to pay down that $10 million per month as a starting point is pretty impressive.

And suffice to say, the revolving credit facility and it's fullness remember, it's $200 million with the ability to increase that by an additional $100 million through the agreement as it relates to the accordion feature. So our debt capacity and our ability to take on incremental leverage is there. That's not an impediment to the business. I'd actually say it's an enablement to the business. Now if we find those acquisitions and they're going to deliver growth and they're in the best interest of the shareholders, we have the ability from a balance sheet perspective to prosecute those acquisitions, and I can assure you that we will.

Gregory Pipkin

Yes. To dovetail on that, we've talked about the dynamic as it relates to surface M&A, it's not like leasehold or minerals. You can see it. These acreage positions have likely been owned inside of the same family for decades. And so there's an attachment to that rather than owning something subsurface. And so us having a ton of liquidity and a public currency to be able to transact when we're able to kind of price some of these bigger positions loose is paramount. And so we think, to Neal's point, our balance sheet and our currency enables us and strengthens our case to be able to pursue that accretive M&A that we continue to talk about.

Jarrod Giroue

That's perfect. And then yes, just one more to wrap it up. So you raised the midpoint of '26 EBITDA guidance by $4 million. $2 million of that is for Intrepid Ranch and the other $2 million is for organic growth. Can you just elaborate on the underlying drivers of that organic growth improvement?

Neal Shah

Yes. It's really strength across the business. We're seeing that if we talk about surface use royalties were strong. Surface use revenues were strong. I discussed how in 4Q, you actually see a rebound relative to Q3 and resource sales. So it really is strength across the business. Then if you really dig a little bit deeper, you think or talk about all those elements that Greg and I are discussing here as it relates to sand, AGI wells and some of those other elements that really start to kick in towards the end of 2026, but are more meaningful into 2027. So I'd say it's the full business that are really -- and kudos to the operations teams because everyone is out there on a day-to-day basis making it happen. But it's those conversations that we're having with operators that are really driving the fullness of the business in terms of where we're seeing the benefit.

Operator

There are no further questions at this time. I will now turn the call back to Greg Pipkin, Chief Executive Officer, for closing remarks.

Gregory Pipkin

I want to thank everyone for spending their time with us on a busy Wednesday morning, kind of postelection and right in the middle of earnings season. We, at EagleRock, are super excited about our quarter and the go-forward proposition of our business. I think we all remain super convicted that our platform and our business model are tremendous and that owning land in the Permian Basin is the best place to do it. Looking forward to catching up with you all shortly. Thank you very much.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.