tpl-20210930

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 September 30, 2021

☐ 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 October 29, 2021, the Registrant had 7,746,141 shares of Common Stock, $0.01 par value, outstanding.

TEXAS PACIFIC LAND CORPORATION

Form 10-Q

Quarter Ended September 30, 2021

Page No.

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

Condensed Consolidated Statements of Income and Total Comprehensive Income for the three and nine months ended September 30, 2021 and 2020

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020

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)


	September 30, 2021		December 31, 2020
ASSETS
Cash and cash equivalents	$	372,761	$	281,046
Accrued receivables, net	82,897		48,216
Prepaid expenses and other current assets	2,450		2,778
Tax like-kind exchange escrow	—		1,978

Total current assets	458,108		334,018
Property, plant and equipment, net	79,204		79,267
Real estate acquired	108,546		108,536
Royalty interests acquired, net	45,151		45,646
Operating lease right-of-use assets	1,990		2,473
Other assets	2,618		1,695
Real estate and royalty interests assigned through the Declaration of Trust, no value assigned:
Land (surface rights)	—		—
1/16th nonparticipating perpetual royalty interest	—		—
1/128th nonparticipating perpetual royalty interest	—		—
Total assets	$	695,617	$	571,635

LIABILITIES AND EQUITY
Accounts payable and accrued expenses	$	18,020	$	12,530
Unearned revenue	3,965		3,997
Income taxes payable	7,117		4,054
Total current liabilities	29,102		20,581
Deferred taxes payable	38,096		38,728
Unearned revenue - noncurrent	20,707		22,171
Accrued liabilities	4,377		2,150
Operating lease liabilities	2,293		2,821
Total liabilities	94,575		86,451

Commitments and contingencies	—		—
Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none outstanding as of September 30, 2021	—		—
Common stock, $0.01 par value; 7,756,156 shares authorized and 7,748,344 outstanding as of September 30, 2021	78		—
Treasury stock, at cost; 7,812 shares as of September 30, 2021 and none outstanding as of December 31, 2020	(11,193)		—
Certificates of Proprietary Interest, par value $100 each; none outstanding as of December 31, 2020	—		—
Sub-share Certificates in Certificates of Proprietary Interest, par value $0.0333 each; outstanding 7,756,156 Sub-share Certificates as of December 31, 2020	—		—
Accumulated other comprehensive loss	(2,607)		(2,693)
Retained earnings	614,764		—
Net proceeds from all sources	—		487,877
Total equity	601,042		485,184
Total liabilities and equity	$	695,617	$	571,635

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 September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
Oil and gas royalties	$	79,098	$	31,758	$	186,835	$	94,631
Water sales	19,554		12,139		44,983		47,525
Produced water royalties	15,140		12,246		43,147		37,863
Easements and other surface-related income	9,832		6,690		27,856		32,107
Land sales	—		11,463		746		15,855
Other operating revenue	69		87		213		279
Total revenues	123,693		74,383		303,780		228,260

Expenses:
Salaries and related employee expenses	8,542		7,678		31,792		27,235
Water service-related expenses	3,650		2,260		10,499		11,205
General and administrative expenses	2,844		1,883		8,491		7,290
Legal and professional fees	1,551		1,987		4,904		6,955
Land sales expenses	—		67		—		2,773
Depreciation, depletion and amortization	3,866		3,760		11,562		10,773
Total operating expenses	20,453		17,635		67,248		66,231

Operating income	103,240		56,748		236,532		162,029

Other income, net	513		1,287		924		2,296
Income before income taxes	103,753		58,035		237,456		164,325



Income tax expense	19,916		11,760		46,521		33,067
Net income	$	83,837	$	46,275	$	190,935	$	131,258

Other comprehensive income — periodic pension costs, net of income taxes of $8, $4, $23 and $11, respectively	29		13		86		40
Total comprehensive income	$	83,866	$	46,288	$	191,021	$	131,298

Weighted average number of common shares/Sub-share Certificates outstanding	7,751,329		7,756,156		7,754,439		7,756,156

Net income per common share/Sub-share Certificate — basic and diluted	$	10.82	$	5.97	$	24.62	$	16.92

Cash dividends per common share/Sub-share Certificate	$	2.75	$	—	$	8.25	$	16.00

See accompanying notes to condensed consolidated financial statements.

Table of Contents

TEXAS PACIFIC LAND CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	190,935	$	131,258
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	(632)		(86)
Depreciation, depletion and amortization	11,562		10,773
Land sales revenue recognized on land exchanges	—		(1,415)
Changes in operating assets and liabilities:
Operating assets, excluding income taxes	(35,377)		25,043


Operating liabilities, excluding income taxes	4,961		(1,159)
Income taxes payable	3,063		(2,555)
Cash provided by operating activities	174,512		161,859

Cash flows from investing activities:
Proceeds from sales of fixed assets	1,079		—
Acquisition of real estate	(10)		(3,966)
Acquisition of royalty interests	—		(16,945)
Purchase of fixed assets	(11,058)		(4,736)
Cash used in investing activities	(9,989)		(25,647)

Cash flows from financing activities:
Repurchases of common stock	(10,816)		—
Dividends paid	(63,970)		(124,098)
Cash used in financing activities	(74,786)		(124,098)

Net increase in cash, cash equivalents and restricted cash	89,737		12,114
Cash, cash equivalents and restricted cash, beginning of period	283,024		303,645
Cash, cash equivalents, and restricted cash, end of period	$	372,761	$	315,759

Supplemental disclosure of cash flow information:
Income taxes paid	$	44,113	$	35,719
Supplemental non-cash investing and financing information:
Fixed asset additions in accounts payable	$	441	$	245
Share repurchases not yet settled	$	377	$	—
Issuance of common stock	$	78	$	—

Land exchange	$	—	$	1,415

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 Basis of Presentation

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 880,000 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, organized under a Declaration of Trust dated February 1, 1888 (the “Declaration of Trust”), to a corporation (the “Corporate Reorganization”) and changed our name from Texas Pacific Land Trust (the “Trust”) to Texas Pacific Land Corporation. See further discussion of the Corporate Reorganization and its impact on our equity structure in Note 7, “Changes in Equity.” Any references in these condensed consolidated financial statements and notes to the Company, TPL, our, we, or us with respect to periods prior to January 11, 2021 are in reference to the Trust, and references to periods on that date and thereafter are in reference to Texas Pacific Land Corporation or TPL Corporation.

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, 2020. 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 September 30, 2021 and the results of its operations for the three and nine months ended September 30, 2021 and 2020, respectively, and its cash flows for the nine months ended September 30, 2021 and 2020, 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 Form 10-K for the year ended December 31, 2020. 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 8. “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 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.

Table of Contents

Cash, Cash Equivalents and Restricted Cash

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


	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	372,761	$	281,046
Tax like-kind exchange escrow	—		1,978
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	372,761	$	283,024

Treasury Stock

Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock and reported as a separate line item on our condensed consolidated balance sheets.

Reclassifications

Certain financial information on the condensed consolidated statements of income for the three and nine months ended September 30, 2020 have been revised to conform to the current year presentation. These revisions include (i) a reclassification of $12.2 million and $37.9 million of produced water royalties revenue for the three and nine months ended September 30, 2020, respectively, previously included in easements and other surface-related income to a separate financial statement line item within revenues and (ii) a reclassification of approximately $0.1 million and $2.8 million of land sales expenses for the three and nine months ended September 30, 2020, respectively, previously included in land sales to a separate financial statement line item within operating expenses. Land sales expenses include cost basis and closing costs associated with land sales.

Recently Adopted Accounting Guidance

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740) — Simplifying the Accounting for Income Taxes.” The ASU simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The Company adopted the guidance effective January 1, 2021. The adoption had minimal impact on the Company’s consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements

In July 2021, the FASB issued ASU 2021-05, “Leases (Topic 842) Lessors – Certain Leases with Variable Lease Payments.” Under the ASU, a lessor would classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if the lease would have been classified as a sales-type lease or direct financing lease under ASC 842 classification criteria and the lessor would have otherwise recognized a day one loss. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The ASU is anticipated to have minimal to no impact on our consolidated financial statements and disclosures upon adoption.

Table of Contents

3. Property, Plant and Equipment

Property, plant and equipment, net consisted of the following as of September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021		December 31, 2020
Property, plant and equipment, at cost:
Water service-related assets (1)	$	104,612	$	97,699
Furniture, fixtures and equipment	9,195		6,125
Other	598		598
Property, plant and equipment at cost	114,405		104,422
Less: accumulated depreciation	(35,201)		(25,155)
Property, plant and equipment, net	$	79,204	$	79,267

(1) Water service-related assets reflect assets related to water sourcing and water treatment projects.

Depreciation expense was $3.7 million and $3.5 million for the three months ended September 30, 2021 and 2020, respectively. Depreciation expense was $10.9 million and $10.3 million for the nine months ended September 30, 2021 and 2020, respectively.

4. Real Estate Activity

As of September 30, 2021 and December 31, 2020, the Company owned the following land and real estate (in thousands, except number of acres):


	September 30, 2021			December 31, 2020
	Number of Acres	Net Book Value		Number of Acres	Net Book Value
Land (surface rights) (1)	823,452	$	—	823,482	$	—
Real estate acquired	57,049	108,546		57,041	108,536
Total real estate situated in Texas	880,501	$	108,546	880,523	$	108,536

(1) Real estate originally assigned through the Declaration of Trust.

Land Sales

For the nine months ended September 30, 2021, we sold 30 acres of land in Texas for an aggregate sales price of $0.7 million, an average of approximately $25,000 per acre. For the nine months ended September 30, 2020, we sold 21,347 acres of land in Texas for an aggregate sales price of $14.5 million, an average of approximately $676 per acre. The aggregate sales price excludes a reduction of $2.7 million in land basis. Additionally, we recognized land sales revenue of $1.4 million for the nine months ended September 30, 2020 related to land exchanges where we had no cost basis in the land conveyed.

Land Acquisitions

SEC Form 10-Q filed by Texas Pacific Land Trust