Permian Basin landowners plan leases for AI data centers

Chevron signs 20-year deal to power a Microsoft data center

Texas Pacific Land, LandBridge and EagleRock — which together sit on 1.4 million acres in the Permian Basin, more than seven times the size of New York City — plan to lease land to AI data centers and sell them resources from water to construction materials, according to The Wall Street Journal. The companies are betting that developers facing community pushback from Maine to Arizona will be drawn to the region’s abundant land, cheap energy and business-friendly climate.

The firms sit on land empires spanning West Texas and New Mexico, where their customers today are oil-and-gas producers who pay for the right to build roads, drill wells and dispose of the salty water produced alongside the oil they bring to the surface. Texas Pacific derived nearly half of its revenue last year, about $386 million, from activities such as selling sand, caliche and water to operators and collecting royalties from allowing producers to dispose of saltwater on its land; royalties on oil-and-gas production made up the rest.

Now the companies want a share of the data-center buildout. “A lot of places you see 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,” said EagleRock Chief Executive Greg Pipkin Jr.

The strategy is already producing deals. Chevron recently signed a 20-year agreement to sell electricity to a Microsoft data center and is working to build a gas-fired power plant in the Permian to feed the facility. Texas Pacific said it is inking deals, including a $43 million agreement to sell land to Chevron, and would sell brackish groundwater to Chevron for use at the plant. Artificial-intelligence startup Poolside and cloud-infrastructure company CoreWeave have said they would build a massive data-center complex on a sprawling ranch in West Texas.

Investors have rewarded the push. Texas Pacific’s stock trades at about 37 times its projected earnings over the next four quarters and LandBridge at about 39 times — levels analysts say reflect growth expectations driven in part by data centers. The two stocks are up 14% and 56%, respectively, so far this year. EagleRock, which also sits on a vast land domain, raised $320 million from an initial public offering earlier this year.

“There’s so much money,” said Bryan Loocke, an energy partner at law firm Vinson & Elkins. “Everybody’s chasing that white whale.”

The Permian offers advantages other data-center markets lack. If it were a state, it would be the least populated in the nation, with roughly 500,000 residents, making it unlikely that large facilities consuming substantial water and electricity would spark local opposition. Producers in the region have suffered from a lack of pipelines to ship and sell natural gas, and they are eager to provide the fuel to electrify tech companies. They also have water in abundance — a toxic, salty byproduct of oil production that they plan to treat for use in cooling data centers and power plants. The water-disposal issue has become a major headache for companies, the Journal reported.

Texas Pacific has been gearing up to host data centers and power plants. It invested $50 million in Bolt, a data and energy infrastructure company co-founded by former Google Chief Executive Eric Schmidt, to pursue data-center development in West Texas. Chief Executive Tyler Glover said he expects revenue from data center-related services to be “significant,” particularly sales of water to the electricity plants that power them. The company has said each data-center project could represent multiple hundreds of millions of dollars over its life when adding up sales of water and construction materials on top of land leases and sales.

“There are a lot of traditional oil-and-gas people that are starting to refocus on, you know, how do we attract this industry,” Glover said.

LandBridge is going a step further. It has said it is actively working to host several data-center campuses on its land, complete with fiber-optic cables and electrical substations; affiliates will spend the capital to build the power and utility infrastructure. A typical 1-gigawatt data-center campus on its land could generate tens of millions of dollars in annual free cash flow, the company has said, including royalties on the power plants and from the water used by the facilities. LandBridge recently told analysts it was in various stages of discussions and negotiations with seven power and digital infrastructure counterparties, and its stock jumped about 9% on the news.

EagleRock has roots in oil-country dealmaking. Oilmen Cody Campbell and John Sellers, the co-founders of energy firm Double Eagle, contributed a sprawling water system and associated royalties to the venture that birthed EagleRock and are involved in its growth plans.

“If hyperscalers want to hyperscale,” Sellers said, “they need land and a lot of it in the Permian Basin.”