tpl-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 1-39804

Exact name of registrant as specified in its charter:

Texas Pacific Land Corporation


State or other jurisdiction of incorporation or organization:						IRS Employer Identification No.:
Delaware						75-0279735

Address of principal executive offices:

1700 Pacific Avenue, Suite 2900 Dallas, Texas 75201

Registrant’s telephone number, including area code:

(214) 969-5530

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock
(par value $.01 per share)

TPL

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer (Do not check if a smaller reporting company)	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

As of July 31, 2023, the Registrant had 7,677,756 shares of Common Stock, $0.01 par value, outstanding.

TEXAS PACIFIC LAND CORPORATION

Form 10-Q

For the Quarter Ended June 30, 2023

Table of Contents

Page No.

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

Condensed Consolidated Statements of Income and Total Comprehensive Income for the Three and Six Months ended June 30, 2023 and 2022

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2023 and 2022

Notes to Condensed Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

TEXAS PACIFIC LAND CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except shares and per share amounts)

(Unaudited)


	June 30, 2023		December 31, 2022
ASSETS
Cash and cash equivalents	$	609,252	$	510,834
Accounts receivable and accrued receivables, net	120,771		103,983
Prepaid expenses and other current assets	5,312		7,427
Tax like-kind exchange escrow	2,195		6,348
Prepaid income taxes	—		4,809
Total current assets	737,530		633,401
Real estate acquired	130,024		109,704
Property, plant and equipment, net	84,324		85,478
Royalty interests acquired, net	45,920		45,025

Other assets	3,526		3,819
Real estate and royalty interests assigned through the 1888 Declaration of Trust, no value assigned:
Land (surface rights)	—		—
1/16th nonparticipating perpetual royalty interest	—		—
1/128th nonparticipating perpetual royalty interest	—		—
Total assets	$	1,001,324	$	877,427
LIABILITIES AND EQUITY
Accounts payable and accrued expenses	$	27,156	$	23,443
Ad valorem and other taxes payable	6,355		8,497
Income taxes payable	5,151		3,167
Unearned revenue	6,222		4,488
Total current liabilities	44,884		39,595
Deferred taxes payable	40,478		41,151
Unearned revenue - noncurrent	26,638		21,708

Accrued liabilities - noncurrent	1,774		2,086
Total liabilities	113,774		104,540

Commitments and contingencies	—		—
Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none outstanding as of June 30, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value; 7,756,156 shares authorized and 7,679,145 and 7,695,679 outstanding as of June 30, 2023 and December 31, 2022, respectively	78		78
Treasury stock, at cost; 77,011 and 60,477 shares as of June 30, 2023 and December 31, 2022, respectively	(128,502)		(104,139)
Additional paid-in capital	10,582		8,293
Accumulated other comprehensive income	2,465		2,516
Retained earnings	1,002,927		866,139
Total equity	887,550		772,887
Total liabilities and equity	$	1,001,324	$	877,427

See accompanying notes to condensed consolidated financial statements.

Table of Contents

TEXAS PACIFIC LAND CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND TOTAL COMPREHENSIVE INCOME

(in thousands, except shares and per share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues:
Oil and gas royalties	$	82,412	$	121,268	$	171,542	$	225,440
Water sales	37,648		22,272		59,377		41,092
Produced water royalties	20,841		18,669		40,975		33,539
Easements and other surface-related income	18,708		13,990		33,677		23,182
Land sales and other operating revenue	1,000		71		1,400		352
Total revenues	160,609		176,270		306,971		323,605

Expenses:
Salaries and related employee expenses	10,596		9,588		21,189		18,973
Water service-related expenses	10,287		3,915		15,943		6,697
General and administrative expenses	3,329		3,674		6,884		6,641
Legal and professional fees	10,154		1,163		26,782		2,882
Ad valorem and other taxes	2,070		2,042		3,644		4,085

Depreciation, depletion and amortization	3,893		4,180		7,297		8,306
Total operating expenses	40,329		24,562		81,739		47,584

Operating income	120,280		151,708		225,232		276,021

Other income, net	6,871		630		12,260		706
Income before income taxes	127,151		152,338		237,492		276,727



Income tax expense	26,758		33,444		50,531		59,933
Net income	$	100,393	$	118,894	$	186,961	$	216,794




Other comprehensive (loss) income — periodic pension costs, net of income taxes for the three and six months ended June 30, 2023 and 2022 of $8, $2, $14, and $4, respectively	(26)		8		(51)		16
Total comprehensive income	$	100,367	$	118,902	$	186,910	$	216,810

Net income per share of common stock
Basic	$	13.06	$	15.37	$	24.31	$	28.02
Diluted	$	13.05	$	15.37	$	24.30	$	28.01

Weighted average number of shares of common stock outstanding
Basic	7,685,662		7,733,730		7,689,352		7,737,527
Diluted	7,690,950		7,737,112		7,694,548		7,739,859

Cash dividends per share of common stock	$	3.25	$	23.00	$	6.50	$	26.00

See accompanying notes to condensed consolidated financial statements.

Table of Contents

TEXAS PACIFIC LAND CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	186,961	$	216,794
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	(673)		(953)
Depreciation, depletion and amortization	7,297		8,306
Share-based compensation	5,323		3,495

Changes in operating assets and liabilities:
Operating assets, excluding income taxes	(14,477)		(35,472)
Operating liabilities, excluding income taxes	8,040		9,668
Income taxes payable	1,984		(6,433)
Prepaid income taxes	4,809		—

Cash provided by operating activities	199,264		195,405

Cash flows from investing activities:
Proceeds from sale of fixed assets	5		96
Acquisition of real estate	(20,320)		(12)
Acquisition of royalty interests	(1,803)		(1,662)
Purchase of fixed assets	(5,536)		(6,685)
Cash used in investing activities	(27,654)		(8,263)

Cash flows from financing activities:
Repurchases of common stock	(26,379)		(24,592)
Shares exchanged for tax withholdings	(939)		—
Dividends paid	(50,027)		(200,998)
Cash used in financing activities	(77,345)		(225,590)

Net increase in cash, cash equivalents and restricted cash	94,265		(38,448)
Cash, cash equivalents and restricted cash, beginning of period	517,182		428,242
Cash, cash equivalents and restricted cash, end of period	$	611,447	$	389,794

Supplemental disclosure of cash flow information:
Income taxes paid	$	44,396	$	67,324
Supplemental non-cash investing and financing information:
Nonmonetary exchange of assets	$	—	$	4,174
(Increase) decrease in accounts payable related to capital expenditures	$	(392)	$	3,662
Share repurchases and associated excise taxes not settled at the end of the period	$	432	$	1,161

See accompanying notes to condensed consolidated financial statements.

Table of Contents

TEXAS PACIFIC LAND CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Description of Business Segments

Organization

Texas Pacific Land Corporation (which, together with its subsidiaries as the context requires, may be referred to as “TPL”, the “Company”, “our”, “we” or “us”) is a Delaware corporation and one of the largest landowners in the State of Texas with approximately 886,000 surface acres of land in West Texas, with the majority of our ownership concentrated in the Permian Basin. Additionally, we own a 1/128th nonparticipating perpetual oil and gas royalty interest (“NPRI”) under approximately 85,000 acres of land, a 1/16th NPRI under approximately 371,000 acres of land, and approximately 4,000 additional net royalty acres (normalized to 1/8th) in the western part of Texas.

TPL’s income is derived primarily from oil, gas and produced water royalties, sales of water and land, easements and commercial leases of the land.

On January 11, 2021, we completed our reorganization from a business trust, Texas Pacific Land Trust, organized under a Declaration of Trust dated February 1, 1888 (the “Declaration of Trust”), into Texas Pacific Land Corporation, a corporation formed and existing under the laws of the state of Delaware (the “Corporate Reorganization”).

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and on the same basis as the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. The condensed consolidated financial statements herein include all adjustments which are, in the opinion of management, necessary to fairly state the financial position of the Company as of June 30, 2023 and the results of its operations for the three and six months ended June 30, 2023 and 2022, respectively, and its cash flows for the six months ended June 30, 2023 and 2022, respectively. Such adjustments are of a normal nature and all intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, and accordingly these interim financial statements and footnotes should be read in conjunction with the audited financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2022. The results for the interim periods shown in this report are not necessarily indicative of future financial results.

We operate our business in two segments: Land and Resource Management and Water Services and Operations. Our segments provide management with a comprehensive financial view of our key businesses. The segments enable the alignment of strategies and objectives of TPL and provide a framework for timely and rational allocation of resources within businesses. See Note 11, “Business Segment Reporting” for further information regarding our segments.

2. Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. In the event estimates and/or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.

Cash, Cash Equivalents and Restricted Cash

We consider investments in bank deposits, money market funds, and other highly-liquid cash investments, such as U.S. Treasury bills and commercial paper, with original maturities of three months or less to be cash equivalents. Our cash equivalents are considered Level 1 assets in the fair value hierarchy.

Table of Contents

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows as of June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023		December 31, 2022
Cash and cash equivalents	$	609,252	$	510,834
Tax like-kind exchange escrow	2,195		6,348
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	611,447	$	517,182

Reclassifications

Certain financial information on the condensed consolidated balance sheet as of December 31, 2022 and condensed consolidated statement of income and total comprehensive income for the three and six months ended June 30, 2022 has been revised to conform to the current year presentation. These revisions include a balance sheet reclassification of $454,000 of other taxes payable previously included in accounts payable and accrued expenses to ad valorem and other taxes payable and an income statement reclassification of $31,000 and $64,000 of property taxes previously included in general and administrative expenses to ad valorem and other taxes for the three and six months ended June 30, 2022, respectively.

3. Real Estate Activity

As of June 30, 2023 and December 31, 2022, TPL owned the following land and real estate (in thousands, except number of acres):


	June 30, 2023			December 31, 2022
	Number of Acres	Net Book Value		Number of Acres	Net Book Value
Land (surface rights) (1)	817,017	$	—	817,060	$	—
Real estate acquired	69,447	130,024		57,306	109,704

SEC Form 10-Q filed by Texas Pacific Land Corporation