filings.toolsItem 1. Financial Statements.
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Item 1. Financial Statements.
TEXAS PACIFIC LAND CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and per share amounts)
| December 31, 2025 | December 31, 2024 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | 144,809 | $ | 369,835 | |||||||
| Accounts receivable and accrued receivables, net | 164,905 | 126,670 | |||||||||
| Prepaid expenses and other current assets | 5,295 | 5,318 | |||||||||
| Tax like-kind exchange escrow | 595 | 1,546 | |||||||||
| Prepaid income taxes | 3,716 | — | |||||||||
| Total current assets | 319,320 | 503,369 | |||||||||
| Royalty interests acquired, net | 840,024 | 432,401 | |||||||||
| Real estate acquired | 179,129 | 143,178 | |||||||||
| Property, plant and equipment, net | 164,538 | 122,578 | |||||||||
| Intangible assets, net | 32,846 | 35,188 | |||||||||
| Real estate and royalty interests assigned through the Declaration of Trust, no value assigned: | |||||||||||
| Land (surface rights) | — | — | |||||||||
| 1/16th and 1/128th nonparticipating perpetual royalty interests | — | — | |||||||||
| Equity investment | 50,000 | — | |||||||||
| Operating lease right-of-use assets | 13,683 | 1,163 | |||||||||
| Other assets | 23,738 | 10,143 | |||||||||
| Total assets | $ | 1,623,278 | $ | 1,248,020 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Accounts payable and accrued expenses | $ | 39,578 | $ | 26,958 | |||||||
| Ad valorem and other taxes payable | 8,912 | 8,418 | |||||||||
| Income taxes payable | 4,007 | 4,388 | |||||||||
| Unearned revenue | 20,107 | 6,797 | |||||||||
| Credit facility | — | — | |||||||||
| Total current liabilities | 72,604 | 46,561 | |||||||||
| Deferred taxes payable | 54,107 | 47,401 | |||||||||
| Unearned revenue - noncurrent | 21,072 | 20,636 | |||||||||
| Operating lease liabilities | 16,175 | 453 | |||||||||
| Accrued liabilities - noncurrent | 413 | 504 | |||||||||
| Total liabilities | 164,371 | 115,555 | |||||||||
| Commitments and contingencies (Note 14) | — | — | |||||||||
| Equity: | |||||||||||
| Preferred stock, $0.01 par value; 1,000,000 shares authorized, none outstanding as of December 31, 2025 and December 31, 2024 | — | — | |||||||||
| Common stock, $0.01 par value; 139,610,808 shares authorized as of December 31, 2025 and December 31, 2024, 68,938,230 and 68,915,409 outstanding as of December 31, 2025 and December 31, 2024, respectively | 691 | 231 | |||||||||
| Treasury stock, at cost; 319,998 and 342,819 shares as of December 31, 2025 and December 31, 2024, respectively | (151,242) | (168,843) | |||||||||
| Additional paid-in capital | 9,906 | 19,900 | |||||||||
| Accumulated other comprehensive income | 4,150 | 3,583 | |||||||||
| Retained earnings | 1,595,402 | 1,277,594 | |||||||||
| Total equity | 1,458,907 | 1,132,465 | |||||||||
| Total liabilities and equity | $ | 1,623,278 | $ | 1,248,020 |
See accompanying notes to consolidated financial statements.
F-4
TEXAS PACIFIC LAND CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND TOTAL COMPREHENSIVE INCOME
(in thousands, except shares and per share amounts)
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Revenues: | |||||||||||||||||
| Oil and gas royalties | $ | 411,677 | $ | 373,331 | $ | 357,394 | |||||||||||
| Water sales | 169,701 | 150,724 | 112,203 | ||||||||||||||
| Produced water royalties | 124,218 | 104,123 | 84,260 | ||||||||||||||
| Easements and other surface-related income | 91,775 | 73,257 | 70,932 | ||||||||||||||
| Land sales | 819 | 4,388 | 6,806 | ||||||||||||||
| Total revenues | 798,190 | 705,823 | 631,595 | ||||||||||||||
| Expenses: | |||||||||||||||||
| Salaries and related employee expenses | 57,925 | 53,621 | 43,384 | ||||||||||||||
| Water service-related expenses | 53,528 | 46,124 | 33,566 | ||||||||||||||
| General and administrative expenses | 23,780 | 34,483 | 46,450 | ||||||||||||||
| Depreciation, depletion and amortization | 62,533 | 25,162 | 14,757 | ||||||||||||||
| Ad valorem and other taxes | 8,263 | 7,295 | 7,385 | ||||||||||||||
| Total operating expenses | 206,029 | 166,685 | 145,542 | ||||||||||||||
| Operating income | 592,161 | 539,138 | 486,053 | ||||||||||||||
| Interest expense | (690) | — | — | ||||||||||||||
| Other income, net | 18,858 | 39,683 | 31,508 | ||||||||||||||
| Income before income taxes | 610,329 | 578,821 | 517,561 | ||||||||||||||
| Income tax expense: | |||||||||||||||||
| Current | 122,398 | 120,257 | 110,517 | ||||||||||||||
| Deferred | 6,555 | 4,604 | 1,399 | ||||||||||||||
| Total income tax expense | 128,953 | 124,861 | 111,916 | ||||||||||||||
| Net income | $ | 481,376 | $ | 453,960 | $ | 405,645 | |||||||||||
| Amortization of net actuarial costs, net of income taxes of $(41), $(182), and $(27) for the years ended December 31, 2025, 2024 and 2023, respectively | (156) | (684) | (103) | ||||||||||||||
| Net actuarial gain (loss) on pension plan, net of income taxes of $192, $483, and $(157) as of December 31, 2025, 2024 and 2023, respectively | 723 | 2,436 | (582) | ||||||||||||||
| Total other comprehensive income (loss) | 567 | 1,752 | (685) | ||||||||||||||
| Total comprehensive income | $ | 481,943 | $ | 455,712 | $ | 404,960 | |||||||||||
| Net income per share of common stock | |||||||||||||||||
| Basic | $ | 6.98 | $ | 6.58 | $ | 5.87 | |||||||||||
| Diluted | $ | 6.97 | $ | 6.57 | $ | 5.86 | |||||||||||
| Weighted average number of shares of common stock outstanding | |||||||||||||||||
| Basic | 68,949,240 | 68,958,591 | 69,132,915 | ||||||||||||||
| Diluted | 69,027,492 | 69,059,252 | 69,179,535 | ||||||||||||||
See accompanying notes to consolidated financial statements.
F-5
TEXAS PACIFIC LAND CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except shares and per share amounts)
| Common Stock | Treasury Stock | Additional Paid-in Capital | Accum. Other Comp. Inc/(Loss) | Retained Earnings | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of January 1, 2023 | 69,261,111 | $ | 78 | $ | (104,139) | $ | 8,293 | $ | 2,516 | $ | 866,139 | $ | 772,887 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 405,645 | 405,645 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock and related excise taxes | (248,571) | — | (42,801) | — | — | — | (42,801) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Regular dividends paid and accrued — $1.44 per share of common stock | — | — | — | — | — | (99,972) | (99,972) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | 20,988 | — | 4,006 | 6,320 | — | (140) | 10,186 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares exchanged for tax withholdings | (10,485) | — | (2,064) | — | — | — | (2,064) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Periodic pension costs, net of income taxes of $184 | — | — | — | — | (685) | — | (685) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of December 31, 2023 | 69,023,043 | 78 | (144,998) | 14,613 | 1,831 | 1,171,672 | 1,043,196 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 453,960 | 453,960 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock related to stock split | — | 153 | — | (153) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock and related excise taxes | (128,706) | — | (29,350) | — | — | — | (29,350) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Regular dividends paid and accrued — $1.70 per share of common stock | — | — | — | — | — | (117,474) | (117,474) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special dividends paid and accrued — $3.33 per share of common stock | — | — | — | — | — | (229,834) | (229,834) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | 29,916 | — | 7,128 | 5,440 | — | (730) | 11,838 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares exchanged for tax withholdings | (8,844) | — | (1,623) | — | — | — | (1,623) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Periodic pension costs, net of income taxes of $301 | — | — | — | — | 1,752 | — | 1,752 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of December 31, 2024 | 68,915,409 | 231 | (168,843) | 19,900 | 3,583 | 1,277,594 | 1,132,465 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 481,376 | 481,376 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock related to stock split | — | 460 | — | (460) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock and related excise taxes | (27,000) | — | (8,363) | — | — | — | (8,363) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Regular dividends paid and accrued — $2.13 per share of common stock | — | — | — | — | — | (147,798) | (147,798) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | 82,833 | — | 40,759 | (9,534) | — | (15,770) | 15,455 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares exchanged for tax withholdings | (33,012) | — | (14,795) | — | — | — | (14,795) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Periodic pension costs, net of income taxes of $151 | — | — | — | — | 567 | — | 567 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of December 31, 2025 | 68,938,230 | $ | 691 | $ | (151,242) | $ | 9,906 | $ | 4,150 | $ | 1,595,402 | $ | 1,458,907 | ||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
F-6
TEXAS PACIFIC LAND CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | 481,376 | $ | 453,960 | $ | 405,645 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation, depletion and amortization | 62,533 | 25,162 | 14,757 | ||||||||||||||
| Amortization of debt issuance costs | 211 | — | — | ||||||||||||||
| Share-based compensation | 15,131 | 12,498 | 10,343 | ||||||||||||||
| Pension curtailment/settlement gains | — | (4,616) | — | ||||||||||||||
| Deferred taxes | 6,555 | 4,604 | 1,399 | ||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Receivables and other assets | (52,933) | (610) | (24,457) | ||||||||||||||
| Prepaid income taxes | (3,716) | — | 4,809 | ||||||||||||||
| Income taxes payable | (381) | (407) | 1,628 | ||||||||||||||
| Unearned revenue | 13,746 | (3,903) | 5,140 | ||||||||||||||
| Operating liabilities, excluding income taxes | 22,894 | 6,327 | (3,240) | ||||||||||||||
| Ad valorem and other taxes payable | 494 | (2,343) | 2,264 | ||||||||||||||
| Cash provided by operating activities | 545,910 | 490,672 | 418,288 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Acquisition of royalty interests, net of post-closing adjustments | (454,244) | (395,577) | (3,566) | ||||||||||||||
| Acquisition of a business | — | (45,000) | — | ||||||||||||||
| Acquisition of intangible assets | — | — | (21,403) | ||||||||||||||
| Equity investment | (50,000) | — | — | ||||||||||||||
| Acquisition of real estate | (35,951) | (1,476) | (20,320) | ||||||||||||||
| Purchase of fixed assets | (59,531) | (29,696) | (15,028) | ||||||||||||||
| Proceeds from sale of fixed assets | — | — | 5 | ||||||||||||||
| Post-close adjustment from seller related to prior year asset acquisition | 3,878 | — | — | ||||||||||||||
| Cash used in investing activities | (595,848) | (471,749) | (60,312) | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Dividends paid | (147,798) | (347,309) | (99,972) | ||||||||||||||
| Shares exchanged for tax withholdings | (14,795) | (1,623) | (2,064) | ||||||||||||||
| Repurchases of common stock | (8,380) | (29,159) | (42,573) | ||||||||||||||
| Debt issuance costs | (5,066) | — | — | ||||||||||||||
| Cash used in financing activities | (176,039) | (378,091) | (144,609) | ||||||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | (225,977) | (359,168) | 213,367 | ||||||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 371,381 | 730,549 | 517,182 | ||||||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 145,404 | $ | 371,381 | $ | 730,549 | |||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||||||||
| Income taxes paid | $ | 126,955 | $ | 120,669 | $ | 104,079 | |||||||||||
| Supplemental non-cash investing and financing information: | |||||||||||||||||
| Nonmonetary exchange of assets | $ | — | $ | — | $ | 880 | |||||||||||
| Increase (decrease) in accounts payable related to capital expenditures | $ | 6,417 | $ | (273) | $ | 403 | |||||||||||
| Accrued dividends on unvested stock awards | $ | (309) | $ | 730 | $ | 158 | |||||||||||
| Operating lease right-of-use assets | $ | 13,593 | $ | — | $ | — |
See accompanying notes to consolidated financial statements.
F-7
TEXAS PACIFIC LAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
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 882,000 surface acres of land, principally 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 33,000 additional net royalty acres (normalized to 1/8th) (“NRA”) for a collective total of approximately 224,000 NRA, principally concentrated in the Permian Basin.
Our revenues are derived from oil and gas royalties, water sales, produced water royalties, easements and other surface-related (“SLEM”) income and land sales.
On January 11, 2021, we completed our reorganization from a business trust, Texas Pacific Land Trust (the “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”).
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include our consolidated accounts and the accounts of our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with the current year presentation.
Segment Reporting
Operating segments are based on components of the Company that engage in business activity that earn revenues and incur expenses and (a) whose operating results are regularly reviewed by our chief operating decision maker (“CODM”) to make decisions about resource allocation and performance and (b) for which discrete financial information is available. The measure of profit or loss that the CODM uses to assess performance and allocated resources to our reportable segments is Net Income. Our chief executive officer is the CODM and uses Net Income to evaluate income generated by each segment in his determination of allocating resources to each segment. As a result, the Company operates two operating segments which represent our reportable segments: Land and Resource Management and Water Services and Operations. 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 16, “Business Segment Reporting” for further information regarding our segments.
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 amounts and disclosures reported in the financial statements and accompanying notes. 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.
Revenue Recognition
Oil and Gas Royalties
Oil and gas royalties are received in connection with royalty interests owned by TPL. Oil and gas royalties are reported net of production taxes and are recognized as revenue when crude oil and natural gas products are removed from the respective mineral reserve locations. Oil and gas royalty payments are generally received one to two months after the crude oil and gas products are removed. An accrual for amounts not received during the month crude oil and natural gas products are removed is included in accounts receivable and accrued receivables, net based on historical trends.
F-8
The oil and gas royalties which we receive are dependent upon the market prices for oil and gas, and locational and contractual price differences. The market prices for oil and gas are subject to national and international economic and political conditions and subject to significant price fluctuations.
TPL has analyzed public reports of drilling activities by the oil companies operating where we have an oil and gas royalty interest in an effort to identify unpaid royalties associated with royalty interests we own. Rights to certain oil and gas royalties we believe to be due and payable may be subject to dispute with the oil company involved as a result of disagreements with respect to drilling and related engineering information. Disputed oil and gas royalties are recorded when these contingencies are resolved.
Water Sales
Water sales revenue encompasses the sale and delivery of sourced, produced and treated water to operators and other customers, royalties received related to areas of mutual interest (“AMI”), and royalties received pursuant to legacy agreements with operators. In certain instances, we enter into agreements with third parties to provide various water services, including but not limited to, the purchase, sale or transfer of water within a specific geographic area, also known as an AMI. Our performance obligation is deemed satisfied upon the delivery of water at which point, revenue is recognized. In instances where a third party other than the customer is involved in the sale and/or transport of water, such as a revenue share agreement, brokered water sale transaction or third party acquisition of water, the Company will either be acting as the principal or the agent in the water sales transaction. If the Company is deemed to be acting as a principal, the associated revenues are reported on a gross basis in water sales revenue and the corresponding costs associated with the sale are reported as an operating expense in water service-related expenses in the consolidated income statement. If the Company is deemed to be acting as an agent, principally in brokered water transactions, the associated water sales revenue is reported net of the corresponding costs associated with the sale and included in the water sales revenue line item on the consolidated income statement.
Purchases of water from third parties, transfer costs and treatment expenses associated with water sales are included in water service-related expenses.
Produced Water Royalties
Produced water royalties represent revenue from the transfer and disposal of saltwater from producing oil and gas wells on our land. Revenue is recognized when the water is transported across or injected into our land.
Easements and Other Surface-Related Income
Easement contracts represent contracts which permit companies to install pipelines, electric lines and other equipment on land owned by TPL. When TPL receives a signed contract and payment, we make available the respective parcel of land to the grantee. Easement income is recognized upon the execution of the easement agreement, or in the event of a renewal upon receipt of the renewal payment, as at that point in time, we have satisfied our performance obligation and the customer has right of use.
Leases of our surface acreage include, but are not limited to, facility, roadway and surface leases with a typical lease term of 10 years and generally require fixed annual payments. Lease cancellations are allowed under certain circumstances, but initial lease deposits are generally nonrefundable. The initial lease deposits and annual payments are recorded as unearned revenue upon receipt and amortized over the life of the lease. Advance lease payments are deferred and amortized over the appropriate accounting period.
Other surface-related income includes revenue from permits, material sales, renewable energy sources, and lease bonuses related to royalty interests acquired. Revenue from permits is recognized upon execution of the contract and receipt of payment. Revenue from material sales is recognized upon the removal of materials by the customer. Revenue from renewable energy sources, such as wind and solar power, generally consist of leases, some of which may include a provision for future royalties once certain circumstances occur. As discussed above, lease payments are recorded as unearned revenue and amortized over the life of the lease. Royalties are recognized based upon actual production. Revenue from mineral lease bonuses represent upfront payments received from operators to secure the right to explore and develop oil and gas interests. Lease bonus payments are not contingent on future production and are recognized in full when received.
F-9
Land Sales and Exchanges
We consider purchasers of land to be our customers as land management, leasing and sales are normal operating activities for TPL. Revenue is recognized on land sales when the performance obligation to the purchaser (customer) is complete. Revenue from land exchanges is recognized based upon the estimated fair value of the consideration exchanged.
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.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that correspond to the same such amounts shown in the consolidated statements of cash flows (in thousands):
| December 31, 2025 | December 31, 2024 | |||||||||||||
| Cash and cash equivalents | $ | 144,809 | $ | 369,835 | ||||||||||
| Tax like-kind exchange escrow | 595 | 1,546 | ||||||||||||
| Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 145,404 | $ | 371,381 |
Receivables
Receivables consist primarily of royalty income due related to our oil, gas and produced water royalties and trade accounts receivable related to water and material sales. An allowance is recorded for expected credit losses and is based upon our historical write-off experience, aging of trade accounts receivable and collectability patterns of our customers. The allowance for expected credit loss was approximately $0.1 million and $0.2 million as of December 31, 2025 and 2024, respectively.
Accrual of Oil and Gas Royalties
The Company accrues oil and gas royalties, which are included in accounts receivable and accrued receivables, net. An accrual is necessary due to the time lag between the removal of crude oil and natural gas products from the respective mineral reserve locations and generation of the actual payment by operators. The oil and gas royalty accrual is based upon historical production volumes, estimates of the timing of future payments and recent market prices for oil and gas. Accrued oil and gas royalties included in accounts receivable and accrued receivables, net totaled $61.3 million and $60.7 million as of December 31, 2025 and 2024, respectively.
Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date.
The fair value accounting standards establish a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs used in measuring fair value, as follows:
Level 1 – Inputs are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Since inputs are based on quoted prices that are readily and regularly available in an active market, Level 1 inputs require the least amount of judgment.
Level 2 – Inputs are based on quoted prices for similar instruments in active markets, or are observable either directly or indirectly. Inputs are obtained from various sources including financial institutions and brokers.
F-10
Level 3 – Inputs that are unobservable and significant to the overall fair value measurement. The degree of judgment exercised by us in determining fair value is greatest for fair value measurements categorized in Level 3.
We use the highest level of observable market data if such data is available without undue cost and effort.
Business Combinations and Asset Acquisitions
Our acquisition activities generally include acquisitions of royalty interests and/or land (real estate), and at times, may also include acquisitions of intangible assets or other tangible assets.
When accounting for acquisition activities, we evaluate whether a transaction meets the definition of a business. We first apply a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen test is met, the transaction is accounted for as an asset acquisition. If the screen test is not met, we further consider whether the set of assets acquired have, at a minimum, inputs and processes that have the ability to create outputs in the form of revenue. If the assets acquired meet this criteria, the transaction is accounted for as a business combination.
Acquisitions that qualify as an asset acquisition are accounted for using a cost accumulation model whereby the purchase price of the acquisition is allocated to the assets acquired on a relative fair value basis on the date of acquisition. Inputs used to determine such fair values are primarily based upon internally developed models, publicly-available drilling information, a risk-adjusted discount rate and/or publicly-available data regarding transactions consummated by other buyers and sellers, as applicable. These fair values are considered Level 2 and Level 3 assets in the fair value hierarchy. Any associated acquisition costs are capitalized.
Acquisitions that qualify as a business combination are accounted for using the acquisition method of accounting. The fair value of consideration transferred for an acquisition is allocated to the assets acquired and liabilities assumed based on their fair value on a nonrecurring basis on the acquisition date and are subject to fair value adjustments under certain circumstances. The excess of the consideration transferred over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Conversely, in the event the fair value of assets acquired and liabilities assumed is greater than the consideration transferred, a bargain purchase gain is recognized.
Determining the fair value of assets acquired and liabilities assumed requires judgment and often involves the use of significant estimates and assumptions as fair values are not always readily determinable. Different techniques may be used to determine fair values, including market prices (where available), comparisons to transactions involving the acquisition of similar assets and liabilities and the discounted net present value of estimated future cash flows, among others. We engage third-party valuation firms when appropriate to assist in the fair value determination of assets acquired and liabilities assumed. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred. We may adjust the amounts recognized in connection with an acquisition during a measurement period not to exceed one year from the date of acquisition, as a result of subsequently obtaining additional information that existed at the acquisition date.
Royalty Interests Acquired
Royalty interests acquired represent royalty interests in proved and unproved oil and gas properties. The cost of acquired oil and gas royalties are capitalized and are accounted for under the successful efforts method. Proved properties refer only to proved developed producing (“PDP”) reserves, as the Company does not control the timing or development of drilling activities. As unproved properties are determined to have PDP reserves, the related costs are transferred to proved properties and become subject to depletion at that time.
Estimates of crude oil, gas, and NGL reserves affect the calculation of depletion and impairment and also the unaudited standardized measure disclosures associated with our oil and gas royalty interests. We engaged an independent consulting petroleum firm, with assistance from us, to prepare an estimate of proved developed producing reserves, future production and income attributable to our royalty interests as of December 31, 2025. All reserve estimates involve an assessment of the uncertainty relating to the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of the date the estimate is made. The uncertainty depends primarily on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of such data. For depletion purposes, and as required by the guidelines and definitions established by the Securities and Exchange Commission (the “SEC”), the reserve estimates were based on the average prices during the 12-month period prior to December 31, 2025 determined as an unweighted arithmetic average of the first day of the month for each month within the period. Any significant
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variance in the assumptions could materially affect the estimated quantity of reserves, which could affect the carrying value of our oil and gas royalty interests and/or the rate of depletion related to the oil and gas royalty interests.
Depletion of Royalty Interests Acquired
Capitalized costs for proved oil and gas royalty interests are depleted on a unit-of-production basis over total PDP reserves. For depletion of proved oil and gas properties, interests are grouped in a reasonable aggregation of properties with common geological structural features or stratigraphic conditions.
Real Estate and Royalty Interests Assigned Through the Declaration of Trust
The fair market value of the land and royalty interests that were assigned through the Declaration of Trust (referred to as “Assigned” land and royalty interests) was not determined in 1888 when the Trust was formed; therefore, no value is assigned in the accompanying consolidated balance sheets to the Assigned land and royalty interests. Consequently, in the consolidated statements of income and total comprehensive income, no allowance has been made for depletion and no cost has been deducted from the proceeds of sales of the Assigned land and royalty interests. Even though the 1888 value of real properties cannot be precisely determined, we have concluded that the effect of this matter is no longer significant to our financial position or results of operations. Minimal real estate improvements are made to land.
Equity Investment in Bolt Data & Energy, Inc.
In December 2025, the Company made a minority equity investment in Bolt Data & Energy, Inc. (“Bolt”), a privately held company focused on the development of large-scale data center and energy infrastructure projects. The Company invested $50.0 million in exchange for shares of Series A preferred stock of Bolt, resulting in a minority ownership interest. In connection with the investment, the Company has the right to appoint one member to Bolt’s seven-member board of directors. The Company does not have any veto, consent, or other substantive participating rights over Bolt’s operating or financial policies and is not involved in Bolt’s operations or management.
The Company also received contingent warrant rights exercisable upon the achievement of specified operational milestones with respect to power drawn by Bolt for use on land contributed by TPL, as well as a right of first refusal to provide water to Bolt-affiliated projects and related infrastructure. As of December 31, 2025, no value was attributed to the warrant rights, as progress toward the underlying operational milestones had not commenced.
The Company’s agreement with Bolt provides that the Company is obligated to contribute certain surface acreage in exchange for additional shares of preferred stock, subject to the Company and Bolt’s mutual agreement on the location and valuation of such acreage. Bolt is not obligated to develop projects on the Company’s land and may pursue development activities on non-Company surface acreage. Any future land contributions will be evaluated as separate transactions upon closing.
The Company evaluated its investment in Bolt and determined that Bolt is a variable interest entity (“VIE”), as the equity investment at risk is not sufficient to permit the entity to finance its planned large-scale infrastructure activities without additional financial support. Although Bolt is a VIE, the Company is not the primary beneficiary because it does not have the power to direct the activities that most significantly impact Bolt’s economic performance, including development, financing, and operational decision-making. The Company’s exposure to loss as a result of its involvement with Bolt is limited to the carrying value of its investment, as the Company has no obligation to provide additional financial support. Accordingly, the Company does not consolidate Bolt.
The Company next evaluated its investment to determine if equity method accounting would apply. In making this determination, the Company assessed whether the investment in preferred equity met the criteria to be considered in-substance common stock. The Company determined that the preferred equity investment did not meet this criteria, and accordingly concluded that the investment does not qualify for equity method accounting.
Investments that are not consolidated and do not qualify for equity method accounting are accounted for as equity securities. The Company has elected to measure such investments at cost, subject to impairment and observable price changes, rather than at fair value. Accordingly, the investment is accounted for as an equity security measured at cost.
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Impairment of Long-Lived Assets
We evaluate long-lived assets, including intangible assets with finite lives and royalty interests acquired with proved oil and gas reserves, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When assessing the asset for impairment, we compare the undiscounted future net cash flows to the carrying value to determine recoverability. If the carrying value exceeds the undiscounted future net cash flows, the fair value of the asset is determined and an impairment is recognized based on the amount by which the carrying value exceeds the fair value. Fair value is determined primarily by discounted cash flows, supported by available market valuations, if applicable.
The factors used to determine fair value of proved oil and gas royalty interests include estimates of PDP reserves, future commodity prices, timing of future production, and a risk-adjusted discount rate. If pricing conditions decline or are depressed, or if there is a negative impact on one or more of the other components of the calculation, we may incur proved property impairments in future periods. Factors used in the assessment of fair value of unproved oil and gas royalty interests include, but are not limited to, commodity price outlooks and current and future operator activity in the Permian.
No impairments were recorded for the years ended December 31, 2025, 2024, or 2023.
Amortization of Intangible Assets
Intangible assets are amortized on a straight-line basis over their estimated useful lives ranging from 13 to 20 years.
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accumulated depreciation. Maintenance and repair costs are expensed as incurred. Costs associated with our development of infrastructure for sourcing and treating water are capitalized.
Research and Development Activities
Research and development activities relate to the Company’s initiative to develop an energy-efficient desalination and treatment process for surface discharge and beneficial reuse of produced water. Costs for tangible assets used in these activities that have an alternative future use to the Company are capitalized. All other research and development related expenses are expensed when incurred.
Depreciation Expense
We account for depreciation of property, plant and equipment on the straight-line method over the estimated useful lives of the assets. Depreciable lives by category are as follows:
| Range of Estimated Useful Lives (in years) | |||||||||||||||||
| Water wells and other water-related assets | 3 | to | 20 | ||||||||||||||
| Furniture, fixtures and equipment | 3 | to | 15 |
Leases
We lease certain facilities under operating leases. A determination of whether a contract contains a lease is made at the inception of the arrangement. Our leased facilities include our administrative offices located in Dallas and Midland, Texas.
Our leases generally contain options to extend or terminate the lease. We reevaluate our leases on a regular basis to consider the economic and strategic incentives of exercising the renewal options, and how they align with our operating strategy. Therefore, substantially all of the renewal option periods are not included within the lease term and the associated payments are not included in the measurement of the right-of-use asset and lease liability as the options to extend are not reasonably certain at lease commencement. Short-term leases with an initial term of 12 months or less are not recognized in the right-to-use asset and lease liability on the consolidated balance sheets.
The lease liabilities are measured at the lease commencement date and determined using the present value of the minimum lease payments not yet paid and our incremental borrowing rate, which approximates the rate at which we would borrow, on a collateralized basis, over the term of a lease in the applicable currency environment. The interest rate implicit in the lease is generally not determinable in transactions where we are the lessee.
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For real estate leases, we account for lease components and non-lease components (such as common area maintenance) as a single lease component. Certain real estate leases require reimbursement for real estate taxes, common area maintenance and insurance, which are expensed as incurred as variable lease costs. Certain leases contain fixed lease payments for items such as common area maintenance and parking. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities. See Note 14, “Commitments and Contingencies” for additional information.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The liability for unrecognized tax benefits was zero as of December 31, 2025 and 2024. We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated statements of income and total comprehensive income.
Share-Based Compensation
The Company utilizes the closing stock price on the date of grant to determine the fair value of stock awards and service-vesting awards, which for the Company includes restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and performance stock units (“PSUs”) with a performance condition. For PSUs with a market condition, grant date fair value is determined using a Monte Carlo simulation model. Unvested awards are entitled to dividends or dividend equivalents which are accrued and distributed to award recipients at the time such awards vest. Dividends are forfeitable if the related award is forfeited. For RSAs, RSUs and PSUs with performance conditions, forfeitures are recognized in the period in which they occur. For PSU awards with market conditions, forfeitures are only recognized if the award recipient does not render the required service during the measurement period.
Share-based compensation expense for restricted stock awards with no requisite service period is recognized in the financial statements immediately on date of grant. Share-based compensation expense for RSUs and RSAs with a requisite service period is recognized in the financial statements over the awards’ vesting periods using the graded-vesting method. Share-based compensation expense for PSU awards with performance conditions is recognized ratably over the measurement period at such time as the awards are probable and estimable. Share-based compensation expense for PSU awards with market conditions is recognized ratably over the measurement period regardless of whether the market condition is satisfied if the service for the award is rendered. Share-based compensation is reported on the consolidated statements of income and total comprehensive income as a component of salaries and related employee expenses for employee awards and in general and administrative expenses for director awards.
Net Income Per Share
Basic income per share is based on the weighted average number of shares outstanding during the period. Diluted net income per share is computed based upon the weighted average number of shares outstanding during the period plus unvested shares issued pursuant to our equity and deferred compensation plans. See Note 13, “Earnings Per Share.”
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Treasury Stock
Treasury stock purchases are accounted for under the cost method whereby the entire cost of the shares of the Company’s common stock, par value $0.01 per share (“Common Stock”), acquired is recorded as treasury stock. The cost associated with issuance of treasury stock is based on the average cost of treasury stock as of the date of issuance.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income and other gains and losses affecting capital that, under GAAP, are excluded from net income.
Concentrations of Credit Risk
We invest our cash and cash equivalents (which include U.S. Treasury bills, money market funds, and commercial paper with maturities of three months or less) among major financial institutions in an attempt to minimize exposure to risk from any one of these entities. As of December 31, 2025 and 2024, we had cash and cash equivalents deposited in our financial institutions in excess of federally-insured levels. We regularly monitor the financial condition of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents.
Significant Customers
Three customers represented, in the aggregate, 39.6% of TPL’s total revenues for the year ended December 31, 2025. Three customers represented, in the aggregate, 40.9% of TPL’s total revenues for the year ended December 31, 2024. Three customers represented, in the aggregate, 42.5% of TPL’s total revenues for the year ended December 31, 2023.
3. Assets Acquired in a Business Combination
On August 20, 2024, we acquired 4,120 acres of land along with other surface-related tangible and intangible assets (collectively referred to as the “Acquired Assets”) from an unaffiliated seller for total consideration of $45.0 million, in an all-cash transaction. There were no liabilities assumed by the Company in this transaction. The Acquired Assets generate revenue streams across water sales, produced water royalties, and SLEM, and provide additional commercial growth opportunities for the Company to expand water sourcing and produced water opportunities to both new and existing customers. The Acquired Assets are located in the Midland Basin.
The Acquired Assets included the following:
| Acquired Assets | Balance Sheet Classification | Business Segment | ||||||||||||
| 4,120 acres of land | Real estate acquired | Land and Resource Management | ||||||||||||
| Water sourcing assets, including water pits, water wells, pipes and electrical infrastructure | Property, plant and equipment | Water Services and Operations | ||||||||||||
| A 25% non-operating working interest in an existing saltwater disposal (“SWD”) system | Property, plant and equipment | Water Services and Operations | ||||||||||||
| Contractual right to a 10% royalty on produced water revenue generated from the SWD system | Intangible assets | Water Services and Operations | ||||||||||||
| Contractual right to a 7.5% royalty on revenue generated from nonhazardous oilfield solids waste disposal site | Intangible assets | Land and Resource Management |
The combination of the 25% non-operating working interest and the 10% royalty interest from the SWD system entitles the Company to 32.5% of produced water revenues generated from the SWD system. As a 25% non-operating working interest owner, the Company is also responsible for its 25% share of operating expenses associated with the SWD system. The operator of the SWD system is responsible for the day-to-day management and operations. Of the 4,120 acres of land acquired, 392 acres are leased to, and operated by, an environmental solution (“ES”) company that operates a nonhazardous oilfield solids
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waste disposal site. The ES company pays a 7.5% royalty, on revenue generated, to the Company. The Company reports the royalty received as SLEM revenue.
The acquisition was accounted for as a business combination using the acquisition method and, therefore, the Acquired Assets were recorded based on their fair value on a nonrecurring basis on the date of acquisition and are subject to fair value adjustments under certain circumstances. In determining the fair values of the Acquired Assets, management made estimates, judgments and assumptions. Inputs used to determine fair values of assets included internally-developed models, risk-adjusted discount rates by asset class, publicly available data on land sales comparisons and other cost analysis. These fair values are considered Level 3 assets in the fair value hierarchy. There was no goodwill recorded in connection with this acquisition. The purchase price allocation was finalized during the year ended December 31, 2024.
The following table presents the allocation of fair value by asset class as of December 31, 2024 (in thousands):
| Real estate acquired | $ | 12,100 | ||||||
| Property, plant and equipment | 17,200 | |||||||
| Intangible assets | 15,700 | |||||||
| Total consideration and fair value | $ | 45,000 |
For the year ended December 31, 2025, revenues and operating expenses from the acquisition were $4.7 million and $4.9 million, respectively. From August 20, 2024 through December 31, 2024, revenues and operating expenses from the acquisition were approximately $1.4 million and $1.5 million, respectively. The revenues and expenses from the acquisition are included in our consolidated statements of income.
4. Oil and Gas Royalty Interests
As of December 31, 2025 and 2024, the net book value of the oil and gas royalty interests we owned was as follows (in thousands):
| December 31, 2025 | December 31, 2024 | |||||||||||||
| Oil and gas royalty interests: | ||||||||||||||
| 1/16th nonparticipating perpetual royalty interests (1) | $ | — | $ | — | ||||||||||
| 1/128th nonparticipating perpetual royalty interests (2) | — | — | ||||||||||||
| Royalty interests acquired, at cost (3) | 897,437 | 447,071 | ||||||||||||
| Total royalty interests | 897,437 | 447,071 | ||||||||||||
| Less: accumulated depletion | (57,413) | (14,670) | ||||||||||||
| Royalty interests, net | $ | 840,024 | $ | 432,401 |
*(1)*Royalty interests assigned through the Declaration of Trust dated February 1, 1888. Nonparticipating perpetual royalty interests in 185,369 NRA as of December 31, 2025 and 2024.
*(2)*Royalty interests assigned through the Declaration of Trust dated February 1, 1888. Nonparticipating perpetual royalty interests in 5,308 NRA as of December 31, 2025 and 2024.
*(3)*Royalty interest in 33,380 and 15,897 NRA as of December 31, 2025 and 2024, respectively.
Royalty Interests Assigned Through the Declaration of Trust
The fair market value of the Trust’s Assigned royalty interests was not determined in 1888 when the Trust was formed, and accordingly, the Assigned royalty interests were recorded with no value. See Note 2, “Summary of Significant Accounting Policies — Real Estate and Royalty Interests Assigned Through the Declaration of Trust” for further information regarding the Assigned royalty interests. The Assigned royalty interests include 1/16th and 1/128th royalty interests.
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Royalty Interest Transactions
We completed the following acquisitions during the year ended December 31, 2025:
-
In March 2025, we acquired oil and gas royalty interests in 177 NRA for a purchase price of $3.5 million, net of post-closing adjustments, in an all-cash transaction.
-
In November 2025, we acquired 17,306 NRA for an aggregate purchase price of $450.7 million, net of post-closing adjustments, in an all-cash transaction.
For the year ended December 31, 2024, we completed two separate acquisitions of oil and gas royalty interests, acquiring a total of 11,596 NRA for an aggregate purchase price of $395.5 million, net of post-closing adjustments, in all-cash transactions. During the year ended December 31, 2025, we received a $3.9 million post-closing adjustment from the seller related to curative title defects.
Depletion expense was $42.7 million, $9.8 million, and $2.0 million for the years ended December 31, 2025, 2024, and 2023, respectively.
5. Real Estate Activity
As of December 31, 2025 and 2024, we owned the following land and real estate (in thousands, except number of acres):
| December 31, 2025 | December 31, 2024 | |||||||||||||||||||||||||
| Number of Acres | Net Book Value | Number of Acres | Net Book Value | |||||||||||||||||||||||
| Land (surface rights) (1) | 798,626 | $ | — | 798,643 | $ | — | ||||||||||||||||||||
| Real estate acquired | 83,427 | 179,129 | 74,493 | 143,178 | ||||||||||||||||||||||
| Total real estate | 882,053 | $ | 179,129 | 873,136 | $ | 143,178 |
*(1)*Real estate assigned through the Declaration of Trust.
The Assigned land held by TPL was recorded with no value at the time of acquisition. See Note 2, “Summary of Significant Accounting Policies — Real Estate and Royalty Interests Assigned Through the Declaration of Trust” for further information regarding the Assigned land. Real estate acquired includes land parcels which have either been acquired through foreclosure or transactions with third parties.
Land Acquisitions
For the year ended December 31, 2025, we acquired 8,934 acres of land for an aggregate purchase price of $36.0 million.
For the year ended December 31, 2024, we acquired 4,120 acres through a business combination with a fair value of $12.1 million. See further discussion of the business combination in Note 3, “Assets Acquired in a Business Combination.” Additionally, we acquired 1,009 acres of land for an aggregate purchase price of $1.5 million for the year ended December 31, 2024.
Land Sales
For the year ended December 31, 2025, we sold 17 acres of land for an aggregate sales price of $0.8 million. For the year ended December 31, 2024, we sold 439 acres of land for an aggregate sales price of $4.4 million.
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6. Property, Plant and Equipment
Property, plant and equipment, net consisted of the following as of December 31, 2025 and 2024 (in thousands):
| December 31, 2025 | December 31, 2024 | |||||||||||||
| Property, plant and equipment, at cost: | ||||||||||||||
| Water service-related assets(1) | $ | 218,657 | $ | 167,855 | ||||||||||
| Furniture, fixtures and equipment | 12,087 | 9,932 | ||||||||||||
| Other | 598 | 598 | ||||||||||||
| Total property, plant and equipment, at cost | 231,342 | 178,385 | ||||||||||||
| Less: accumulated depreciation | (66,804) | (55,807) | ||||||||||||
| Property, plant and equipment, net | $ | 164,538 | $ | 122,578 |
*(1)*Includes $17.2 million of assets acquired in a business combination during 2024. For further information, see Note 3, “Assets Acquired in a Business Combination.”
Depreciation expense was $17.1 million, $13.6 million, and $12.2 million for the years ended December 31, 2025, 2024, and 2023, respectively.
7. Intangible Assets
Intangible assets, net consisted of the following as of December 31, 2025 and 2024 (in thousands):
| December 31, 2025 | December 31, 2024 | |||||||||||||
| Intangible assets, at cost: | ||||||||||||||
| Saltwater disposal easement | $ | 17,557 | $ | 17,557 | ||||||||||
| Contracts acquired in a business combination(1) | 15,700 | 15,700 | ||||||||||||
| Groundwater rights acquired | 3,846 | 3,846 | ||||||||||||
| Total intangible assets, at cost (2) | 37,103 | 37,103 | ||||||||||||
| Less: accumulated amortization | (4,257) | (1,915) | ||||||||||||
| Intangible assets, net | $ | 32,846 | $ | 35,188 |
*(1)*For further information, see Note 3, “Assets Acquired in a Business Combination.”
*(2)*The remaining weighted average amortization period for total intangible assets was 9.8 years as of December 31, 2025.
Amortization of intangible assets was $2.3 million, $1.5 million, and $0.4 million for the years ended December 31, 2025, 2024, and 2023, respectively. The estimated future amortization expense of intangible assets for each of the next five years and thereafter is as follows (in thousands):
| Year | Estimated Future Amortization Expense | ||||||||||
| 2026 | $ | 2,342 | |||||||||
| 2027 | 2,342 | ||||||||||
| 2028 | 2,342 | ||||||||||
| 2029 | 2,342 | ||||||||||
| 2030 | 2,342 | ||||||||||
| 2031 and thereafter | 21,136 | ||||||||||
| Total expected amortization expense | $ | 32,846 |
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8. Credit Facility
On October 23, 2025, the Company entered into a revolving credit agreement among the Company, as borrower, Wells Fargo Bank, National Association and certain other lenders, which provides for a senior unsecured revolving credit facility (the “Credit Facility”) with aggregate commitments of $500.0 million, with the ability, subject to lender approval, to increase total commitments by up to $250.0 million in minimum increments of $50.0 million. The Credit Facility matures on October 23, 2029.
Borrowings under the Credit Facility bear interest, at the Company’s option, at either (i) term SOFR plus an applicable margin ranging from 2.25% to 2.50%, or (ii) a base rate plus an applicable margin ranging from 1.25% to 1.50%, in each case depending on the Company’s consolidated total leverage ratio. The base rate is the greatest of (a) the federal funds rate plus 0.50%, (b) the administrative agent’s prime rate, and (c) one-month term SOFR plus 1.00%. The Company also pays commitment fees on the unused portion of the Credit Facility and customary letter of credit fees.
The Credit Facility is unsecured; however, it becomes subject to a springing security interest on substantially all equity securities of the Company’s subsidiaries if the Company’s consolidated total leverage ratio exceeds 2.50 to 1.0. The Credit Agreement contains customary affirmative, negative and financial covenants and customary events of default, including payment defaults, covenant defaults, cross-defaults to certain other indebtedness, bankruptcy and insolvency events and change-in-control provisions. As of December 31, 2025, the Company was in compliance with all covenants.
In connection with entering into the Credit Facility, the Company incurred $5.1 million of debt issuance costs. These costs are recorded in other assets on the consolidated balance sheet and are amortized on a straight-line basis over the term of the Credit Facility. As of December 31, 2025, unamortized debt issuance costs related to the Credit Facility were $4.9 million.
Interest expense on the Credit Facility includes amortization of debt issuance costs, commitment fees on the unused portion of the facility and, if applicable, interest on outstanding borrowings. For the year ended December 31, 2025, interest expense related to the Credit Facility was $0.7 million, including $0.2 million of amortization of debt issuance costs. The facility was undrawn during the period.
9. Pension and Other Postretirement Benefits
Defined Contribution Plan
TPL has a defined contribution plan available to all eligible employees. Qualifying participants may receive a matching contribution based on the amount participants contribute to the plan up to 6% of their qualifying compensation. TPL contributed approximately $1.1 million, $0.9 million, and $0.8 million to the defined contribution plan for the years ended December 31, 2025, 2024, and 2023, respectively. Additionally, for the 2025 plan year, qualified participants may receive a discretionary employer non-elective contribution of 6% of compensation, subject to the IRS annual compensation limitation of $350,000. TPL accrued $1.3 million for the year ended December 31, 2025.
Defined Benefit Pension Plan
The Restated Texas Pacific Land Corporation Employees’ Pension Plan (the “Pension Plan”) was frozen for benefit accruals and closed to new participants effective as of December 31, 2024, and on December 31, 2025, the Pension Plan was terminated.
Prior to the freezing of the Pension Plan, the Pension Plan was a noncontributory defined benefit pension plan qualified under Section 401 of the Internal Revenue Code of 1986, as amended (the “Code”), and was available to all eligible employees who had completed one year of continuous service with TPL during which they completed at least 1,000 hours of service. The Pension Plan provided for a normal retirement benefit at age 65. Contributions to the Pension Plan reflect benefits accrued with respect to participants’ services to date, as well as the amount actuarially determined to pay lifetime benefits to participants and their beneficiaries upon retirement.
During 2024, the Company irrevocably transferred $3.4 million of the Pension Plan’s defined benefit obligations and related plan assets to a third-party insurance company in an annuity buyout. The transaction resulted in no changes to the benefits to be received by the retired and deferred vested participants. The Company recognized a realized non-cash settlement gain on the annuity buyout of $0.7 million. The gain is included in other income (expense) on the consolidated statement of income.
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Upon the freezing of the Pension Plan effective December 31, 2024, a non-cash curtailment gain of $3.9 million was recognized for the year ended December 31, 2024. The gain is included in other income (expense) on the consolidated statement of income.
The following table sets forth the Pension Plan’s changes in benefit obligation, changes in fair value of assets, and funded status as of December 31, 2025 and 2024 using a measurement date of December 31 (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Change in projected benefits obligation: | |||||||||||
| Projected benefit obligation at beginning of year | $ | 3,567 | $ | 10,553 | |||||||
| Curtailment gain | — | (3,864) | |||||||||
| Annuity buyout settlement | — | (3,439) | |||||||||
| Service cost | — | 1,848 | |||||||||
| Interest cost | 206 | 503 | |||||||||
| Actuarial gain (loss) | 164 | (1,812) | |||||||||
| Benefits paid | (7) | (222) | |||||||||
| Projected benefit obligation at end of year | $ | 3,930 | $ | 3,567 | |||||||
| Change in Pension Plan assets: | |||||||||||
| Fair value of Pension Plan assets at beginning of year | $ | 12,611 | $ | 14,201 | |||||||
| Annuity buyout settlement | — | (3,439) | |||||||||
| Actual return on Pension Plan assets | 1,961 | 2,071 | |||||||||
| Contributions by employer | — | — | |||||||||
| Benefits paid | (7) | (222) | |||||||||
| Fair value of Pension Plan assets at end of year | 14,565 | 12,611 | |||||||||
| Funded status at end of year | $ | 10,635 | $ | 9,044 |
The projected Pension Plan benefit obligation as of December 31, 2025, was impacted by changes in assumptions used as of that date compared to assumptions used as of December 31, 2024. As the Pension Plan has been terminated, liquidation basis termination assumptions were used in the calculation as of December 31, 2025. These changes included a decrease in the discount rate from 5.75% as of December 31, 2024 to 5.47% as of December 31, 2025 due to changes in methodology to align with the assumptions that will be used to settle benefit obligations upon final distribution to participants and other assumptions related to anticipated participant elections of annuity versus lump sum distribution at final settlement. The effect of these assumption changes was an increase in the projected benefit obligation of approximately $0.1 million.
Amounts recognized on the consolidated balance sheets as of December 31, 2025 and 2024 consisted of (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Assets | $ | 10,635 | $ | 9,044 | |||||||
| Liabilities | — | — | |||||||||
| $ | 10,635 | $ | 9,044 |
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The Pension Plan asset is included in other assets on the consolidated balance sheets.
Amounts recognized in accumulated other comprehensive income on the consolidated balance sheets consisted of the following as of December 31, 2025 and 2024 (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Net actuarial gain | $ | 5,090 | $ | 4,371 | |||||||
| Amounts recognized in accumulated other comprehensive income, before taxes | 5,090 | 4,371 | |||||||||
| Income tax expense | (1,069) | (918) | |||||||||
| Amounts recognized in accumulated other comprehensive income, after taxes | $ | 4,021 | $ | 3,453 |
Net periodic pension (benefit) cost for the years ended December 31, 2025, 2024, and 2023 included the following components (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Components of net periodic (benefit) cost: | |||||||||||||||||
| Curtailment gain | $ | — | $ | (3,864) | $ | — | |||||||||||
| Realized gain on settlement | — | (752) | — | ||||||||||||||
| Service cost | — | 1,848 | 1,537 | ||||||||||||||
| Interest cost | 206 | 503 | 423 | ||||||||||||||
| Expected return on Pension Plan assets | (882) | (964) | (807) | ||||||||||||||
| Recognized actuarial (gain) loss | (197) | (114) | (130) | ||||||||||||||
| Net periodic pension (benefit) cost | $ | (873) | $ | (3,343) | $ | 1,023 |
Service cost, a component of net periodic pension (benefit) cost, is reflected in our consolidated statements of income and total comprehensive income within salaries and related employee expenses. The other components of net periodic pension (benefit) cost are included in other income, net on the consolidated statements of income and total comprehensive income. As the Pension Plan was frozen for benefit accruals and closed to new participants effective as of December 31, 2024, there was no service cost for the year ended December 31, 2025.
Other changes in Pension Plan assets and benefit obligations recognized in other comprehensive (income) loss for the years ended December 31, 2025, 2024, and 2023 were as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net actuarial (gain) loss | $ | (915) | $ | (2,919) | $ | 739 | |||||||||||
| Recognized actuarial gain (loss) | 197 | 866 | 130 | ||||||||||||||
| Total recognized in other comprehensive (income) loss, before taxes | $ | (718) | $ | (2,053) | $ | 869 | |||||||||||
| Total recognized in net benefit cost and other comprehensive (income) loss, before taxes | $ | (1,591) | $ | (5,396) | $ | 1,892 |
TPL reclassified $0.9 million (net of income tax benefit of $0.2 million) out of accumulated other comprehensive loss for net periodic pension (benefit) cost to other income, net for the year ended December 31, 2025, $0.6 million (net of income tax benefit of $0.1 million) for the year ended December 31, 2024 and $0.5 million (net of income tax benefit of $0.1 million) for the year ended December 31, 2023.
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The following table summarizes the projected benefit obligation in excess of Pension Plan assets and Pension Plan assets in excess of accumulated benefit obligation as of December 31, 2025 and 2024 (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Projected benefit obligation in excess of Pension Plan assets: | |||||||||||
| Projected benefit obligation | $ | 3,930 | $ | 3,567 | |||||||
| Fair value of Pension Plan assets | $ | 14,565 | $ | 12,611 | |||||||
| Plan assets in excess of accumulated benefit obligation: | |||||||||||
| Accumulated benefit obligation | $ | 3,930 | $ | 3,567 | |||||||
| Fair value of Pension Plan assets | $ | 14,565 | $ | 12,611 |
The following are weighted-average assumptions used to determine benefit obligations and costs as of December 31, 2025, 2024, and 2023:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Weighted average assumptions used to determine benefit obligations as of December 31: | |||||||||||||||||
| Discount rate | 5.47 | % | 5.75 | % | 5.00 | % | |||||||||||
| Rate of compensation increase | N/A (1) | N/A (1) | 7.29 | % | |||||||||||||
| Weighted average assumptions used to determine benefit costs for the years ended December 31: | |||||||||||||||||
| Discount rate | 5.75 | % | 5.00 | % | 5.25 | % | |||||||||||
| Expected return on Pension Plan assets | 7.00 | % | 7.00 | % | 7.00 | % | |||||||||||
| Rate of compensation increase | N/A (1) | 7.29 | % | 7.29 | % |
*(1)*As the Pension Plan was frozen effective December 31, 2024, this assumption is not applicable in the calculation of the benefit obligations as of December 31, 2025 and 2024.
The expected return on Pension Plan assets assumption of 7.0% was selected by TPL based on historical real rates of return for the current asset mix and an assumption with respect to future inflation. The rate was determined based on a long-term allocation of about two-thirds short-term cash equivalent securities and one-third fixed income; historical real rates of return of about and 2.5% and 8.5% for cash equivalent securities and fixed income, respectively; and assuming a long-term inflation rate of 2.5%.
The Pension Plan has a formal investment policy statement, which was changed at the end of 2025 due to the termination of the Pension Plan and pending distribution of assets. The Pension Plan’s investment objective is to minimize investment rate risk on the assets needed to satisfy the Pension Plan’s benefit obligations through investment in fixed income assets with durations matching the duration of the benefit obligations and to protect principal on the remaining assets through investment in cash equivalent securities. This objective emphasizes funded status protection rather than actual rate of return due to the short time horizon until assets are expected to be distributed. Diversification is achieved through investment in various classes of taxable bonds and U.S. Treasury bonds of varying durations. The asset allocation will be reviewed regularly with respect to the target allocations and rebalancing adjustments and/or target allocation changes will be made as appropriate. Our current funding policy is to maintain the Pension Plan’s fully funded status on an ERISA minimum funding basis.
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The fair values of the Pension Plan assets (all considered Level 1 assets in the fair value hierarchy) are classified by major asset category as of December 31, 2025 and 2024, were as follows (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Cash and cash equivalents — money markets | $ | 2,579 | $ | 574 | |||||||||||||||||||
| Equities | — | 8,600 | |||||||||||||||||||||
| Equity funds | 7,282 | 1,049 | |||||||||||||||||||||
| Fixed income funds | — | — | |||||||||||||||||||||
| Taxable bonds | 4,704 | 2,388 | |||||||||||||||||||||
| Total | $ | 14,565 | $ | 12,611 |
While no funding requirements are expected for 2026, management intends to fund the Pension Plan for 2026 to the extent of any minimum amount required under ERISA.
The following benefit payments and final distributions are expected to be paid for the following periods (in thousands):
| Year ending December 31, | Amount | |||||||
| 2026 | $ | 83 | ||||||
| 2027 | 4,281 | |||||||
| 2028 | — | |||||||
| 2029 | — | |||||||
| 2030 | — | |||||||
| 2031 to 2035 | — |
10. Share-Based Compensation
The Company grants share-based compensation to employees under the Texas Pacific Land Corporation 2021 Incentive Plan (the “2021 Plan”) and to its non-employee directors under the 2021 Non-Employee Director Stock and Deferred Compensation Plan (the “2021 Directors Plan” and, together with the 2021 Plan, the “Plans”). As of December 31, 2025, share-based compensation granted under the Plans included restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance stock units (“PSUs”). RSUs granted under the 2021 Plan vest in one-third annual increments over three years, and PSUs granted under the 2021 Plan cliff vest at the end of three years if the applicable performance metrics are achieved (as discussed further below). RSAs granted under the 2021 Directors Plan vest in full on the date of grant.
Incentive Plan for Employees
The maximum aggregate number of shares of Common Stock that may be issued under the 2021 Plan is 675,000 shares, which may consist, in whole or in part, of authorized and unissued shares (if any), treasury shares, or shares reacquired by the Company in any manner. As of December 31, 2025, 366,381 shares of Common Stock remained available under the 2021 Plan for future grants.
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The following table summarizes activity related to RSUs under the 2021 Plan for the years ended December 31, 2025 and 2024:
| Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted Stock Units (1) | Restricted Stock Units (1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Number of RSUs | Weighted-Average Grant-Date Fair Value per Share | Number of RSUs | Weighted-Average Grant-Date Fair Value per Share | |||||||||||||||||||||||||||||||||||||||||||||||
| Nonvested at beginning of period | 69,636 | $ | 170 | 56,025 | $ | 176 | ||||||||||||||||||||||||||||||||||||||||||||
| Granted | 19,512 | 457 | 37,965 | 160 | ||||||||||||||||||||||||||||||||||||||||||||||
| Vested (2) | (36,177) | 166 | (23,436) | 169 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cancelled and forfeited | (267) | 457 | (918) | 176 | ||||||||||||||||||||||||||||||||||||||||||||||
| Nonvested at end of period | 52,704 | $ | 277 | 69,636 | $ | 170 |
*(1)*RSUs vest in one-third increments over a three-year period.
*(2)*Of the 36,177 RSUs that vested during the year ended December 31, 2025, 14,262 RSUs were surrendered by employees to the Company upon vesting to settle tax withholdings. Of the 23,436 RSUs that vested during the year ended December 31, 2024, 8,844 RSUs were surrendered by employees to the Company upon vesting to settle tax withholding obligations.
The following table summarizes activity related to PSUs under the 2021 Plan for the years ended December 31, 2025 and 2024:
| Years Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||
| Number of Target PSUs | Weighted-Average Grant-Date Fair Value per Share | Number of Target PSUs | Weighted-Average Grant-Date Fair Value per Share | |||||||||||||||||||||||
| Nonvested at beginning of period(1) | 63,234 | $ | 191 | 38,214 | $ | 198 | ||||||||||||||||||||
| Granted(2) | 11,544 | 548 | 25,020 | 179 | ||||||||||||||||||||||
| Vested(3) | (21,546) | 151 | — | — | ||||||||||||||||||||||
| Cancelled and forfeited | — | — | — | — | ||||||||||||||||||||||
| Nonvested at end of period | 53,232 | $ | 285 | 63,234 | $ | 191 |
*(1)*Nonvested PSUs as of January 1, 2025 included 31,617 RTSR (as defined below) PSUs and 31,617 FCF (as defined below) PSUs. If the maximum of the performance metrics described in the applicable PSU agreements are achieved, the actual number of shares that will ultimately vest pursuant to the PSU agreements will exceed target PSUs by 100% (i.e., a collective 63,234 additional shares would be issued).
*(2)*The PSUs were granted on February 15, 2025 and include 5,772 RTSR PSUs (based on target) with a grant date fair value of $638 per share and 5,772 FCF PSUs (based on target) with a grant date fair value of $457 per share. If the maximum amount of the performance metrics described in the applicable PSU agreements are achieved, the actual number of shares that will ultimately vest pursuant to the PSU agreements will exceed target PSUs by 100% (i.e., a collective 11,544 additional shares would be issued).
*(3)*Vested PSUs are based on the original number of PSUs granted (i.e., target units). The actual number of shares delivered upon vesting of PSUs during the year ended December 31, 2025 totaled 43,092 shares, of which 18,750 shares were surrendered by employees to the Company upon vesting to settle tax withholding obligations.
Each PSU has a value equal to one share of Common Stock. The PSUs will vest three years after grant if certain performance metrics are met, as follows: 50% of the PSUs may be earned based on the Company’s relative total stockholder return (“RTSR”) over the applicable three-year measurement period compared to the SPDR® S&P® Oil & Gas Exploration & Production ETF (“XOP”) Index, and 50% of the PSUs may be earned based on the cumulative free cash flow per share (“FCF”) over the three-year vesting period. As the RTSR PSUs are market-based awards, their grant date fair value was determined using a Monte Carlo simulation model that uses the same input assumptions as the Black-Scholes model to determine the expected potential ranking of the Company against the XOP Index (i.e., the probability of satisfying the market condition defined in the awards). Expected volatility in the model was estimated based on the volatility of historical stock prices over a period matching the expected term of the awards. The risk-free interest rate was based on U.S. Treasury yield constant
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maturities for a term matching the expected term of the awards. The inputs for the Monte Carlo simulation model are designated as Level 2 within the fair value hierarchy.
Equity Plan for Non-Employee Directors
The maximum aggregate number of shares of Common Stock that may be issued under the 2021 Directors Plan is 90,000 shares, which may consist, in whole or in part, of authorized and unissued shares (if any), treasury shares, or shares reacquired by the Company in any manner. As of December 31, 2025, 69,093 shares of Common Stock remained available under the 2021 Directors Plan for future grants.
The following table summarizes activity related to the RSAs under the 2021 Directors Plan for the years ended December 31, 2025 and 2024:
| Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted Stock Awards | Restricted Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||
| Number of RSAs | Weighted-Average Grant-Date Fair Value per Share | Number of RSAs | Weighted-Average Grant-Date Fair Value per Share | |||||||||||||||||||||||||||||||||||||||||||||||
| Nonvested at beginning of period | — | $ | — | 3,402 | $ | 260 | ||||||||||||||||||||||||||||||||||||||||||||
| Granted (1) | 3,564 | 369 | 6,480 | 175 | ||||||||||||||||||||||||||||||||||||||||||||||
| Vested | (3,564) | 369 | (9,882) | 204 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cancelled and forfeited | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Nonvested at end of period | — | $ | — | — | $ | — |
*(1)*RSAs vest in full on the date of grant.
Share-Based Compensation Expense
The following table summarizes our share-based compensation expense by line item in the consolidated statements of income (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Salaries and related employee expenses (employee awards) | $ | 13,817 | $ | 11,364 | $ | 9,124 | |||||||||||
| General and administrative expenses (director awards) | 1,314 | 1,134 | 1,219 | ||||||||||||||
| Total share-based compensation expense (1) | $ | 15,131 | $ | 12,498 | $ | 10,343 |
*(1)*The Company recognized a tax benefit of $3.2 million, $2.6 million, and $2.2 million related to share-based compensation for the years ended December 31, 2025, 2024, and 2023, respectively.
As of December 31, 2025, there was $12.4 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under existing share-based plans expected to be recognized over a weighted average period of 11 months.
11. Other Income, Net
Other income, net, includes interest earned on our cash balances, and other miscellaneous income (expense). Miscellaneous income (expense) includes insurance proceeds and gains and losses on disposals of capital assets.
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Other income, net for the years ended December 31, 2025, 2024, and 2023 was as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Other income, net: | |||||||||||||||||
| Interest earned on cash and cash equivalents, net | $ | 17,970 | $ | 32,140 | $ | 28,630 | |||||||||||
| Curtailment gain (1) | — | 3,864 | — | ||||||||||||||
| Realized gain on pension settlement (1) | — | 752 | — | ||||||||||||||
| Other employee pension costs | 873 | 575 | 514 | ||||||||||||||
| Miscellaneous other income (expense), net (2) | 15 | 2,352 | 2,364 | ||||||||||||||
| Total other income, net | $ | 18,858 | $ | 39,683 | $ | 31,508 |
*(1)*See Note 9, “Pension and Other Postretirement Benefits” for discussion of curtailment gain and realized gain on pension settlement.
*(2)*For the year ended December 31, 2024, miscellaneous income (expense), net includes $1.9 million of proceeds from a settlement with a title company regarding a defect in title to property acquired in a prior year. For the year ended December 31, 2023, miscellaneous other income (expense), net includes $1.4 million of interest and damages resulting from an arbitration settlement with an operator.
12. Income Taxes
The income tax provision charged to operations for the years ended December 31, 2025, 2024, and 2023 was as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| U.S. federal | $ | 118,700 | $ | 116,323 | $ | 106,721 | |||||||||||
| State and local | 3,698 | 3,934 | 3,796 | ||||||||||||||
| Current income tax expense | 122,398 | 120,257 | 110,517 | ||||||||||||||
| Deferred expense: | |||||||||||||||||
| U.S. federal | 6,546 | 4,530 | 964 | ||||||||||||||
| State and local | 9 | 74 | 435 | ||||||||||||||
| Deferred income tax expense | 6,555 | 4,604 | 1,399 | ||||||||||||||
| Total income tax expense | $ | 128,953 | $ | 124,861 | $ | 111,916 |
Total income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 21% for the years ended December 31, 2025, 2024, and 2023 to income before federal income taxes as a result of the following (in thousands, except percentages):
| Years Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Computed tax expense at the statutory rate of 21% | $ | 128,169 | 21.0 | % | $ | 121,552 | 21.0 | % | $ | 108,688 | 21.0 | % | |||||||||||||||||||||||
| Reduction in income taxes resulting from: | |||||||||||||||||||||||||||||||||||
| State and local income taxes, net of federal benefit (1) | 2,930 | 0.5 | % | 3,182 | 0.5 | % | 3,439 | 0.7 | % | ||||||||||||||||||||||||||
| Tax credits | (1,857) | (0.3) | % | (850) | (0.1) | % | — | — | % | ||||||||||||||||||||||||||
| Nondeductible and nontaxable items | (289) | (0.1) | % | 977 | 0.2 | % | (211) | (0.1) | % | ||||||||||||||||||||||||||
| Total income tax expense | $ | 128,953 | 21.1 | % | $ | 124,861 | 21.6 | % | $ | 111,916 | 21.6 | % |
*(1)*Primarily related to income taxes imposed by the State of Texas.
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Nondeductible and nontaxable items primarily consist of statutory depletion, prior-year tax adjustments, penalties and interest, and other permanent differences. The Company had no material changes in valuation allowances, unrecognized tax benefits, foreign tax effects, cross-border tax laws, or enacted tax law changes impacting the effective tax rate during the periods presented.
Total income taxes paid (net of refunds received) for the year ended December 31, 2025, 2024, and 2023 were as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| U.S. federal | $ | 123,000 | $ | 117,000 | $ | 100,538 | |||||||||||
| State and local | 3,955 | 3,669 | 3,541 | ||||||||||||||
| Total income taxes paid (net of refunds received) | $ | 126,955 | $ | 120,669 | $ | 104,079 |
Income taxes paid (net of refunds received) were principally attributable to U.S. federal income taxes. No individual state jurisdiction accounted for 5% or more of the total income taxes paid in the periods presented.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2025 and 2024 are as follows (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Unearned revenue | $ | 8,821 | $ | 5,879 | |||||||
| Stock compensation | 2,976 | 2,677 | |||||||||
| Right of use lease liabilities | 3,739 | 263 | |||||||||
| Other | 260 | 515 | |||||||||
| Total deferred tax assets | 15,796 | 9,334 | |||||||||
| Real estate and royalty interests | 35,405 | 33,581 | |||||||||
| Property, plant and equipment | 23,482 | 20,724 | |||||||||
| Capitalized research and development cost | 5,905 | — | |||||||||
| Pension plan asset | 2,235 | 1,901 | |||||||||
| Right of use assets | 2,876 | 244 | |||||||||
| Other, net | — | 285 | |||||||||
| Total deferred tax liabilities | 69,903 | 56,735 | |||||||||
| Deferred taxes payable | $ | (54,107) | $ | (47,401) |
One Big Beautiful Bill Act
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The provisions of the OBBBA impacting the Company primarily related to accelerated depreciation and immediate expensing of capitalized research and development costs. The OBBBA did not have a material impact on our annual effective tax rate in 2025.
Unrecognized Tax Benefits and Open Tax Years
The Company is subject to taxation in the United States, Texas, and New Mexico. The Company is no longer subject to U.S. federal income tax examinations for tax years prior to 2022.
The Company had no material unrecognized tax benefits as of December 31, 2025 or 2024. Accordingly, changes in unrecognized tax benefits did not have a material impact on the Company’s effective tax rate during the periods presented.
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13. Earnings Per Share
Basic earnings per share (“EPS”) is computed based on the weighted average number of shares outstanding during the period. Diluted EPS is computed based upon the weighted average number of shares outstanding during the period plus unvested RSAs and other nonvested awards granted pursuant to our incentive and equity compensation plans. The computation of diluted EPS reflects the potential dilution that could occur if all outstanding awards under the incentive and equity compensation plans were converted into shares of Common Stock or resulted in the issuance of shares of Common Stock that would then share in the earnings of the Company. The number of dilutive securities is computed using the treasury stock method.
The following table sets forth the computation of EPS for the years ended December 31, 2025, 2024, and 2023 (in thousands, except number of shares and per share data):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net income | $ | 481,376 | $ | 453,960 | $ | 405,645 | |||||||||||
| Basic earnings per share: | |||||||||||||||||
| Weighted average shares outstanding for basic earnings per share | 68,949,240 | 68,958,591 | 69,132,915 | ||||||||||||||
| Basic earnings per share | $ | 6.98 | $ | 6.58 | $ | 5.87 | |||||||||||
| Diluted earnings per share: | |||||||||||||||||
| Weighted average shares outstanding for basic earnings per share | 68,949,240 | 68,958,591 | 69,132,915 | ||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||
| Stock-based incentive plan | 78,252 | 100,661 | 46,620 | ||||||||||||||
| Weighted average shares outstanding for diluted earnings per share | 69,027,492 | 69,059,252 | 69,179,535 | ||||||||||||||
| Diluted earnings per share | $ | 6.97 | $ | 6.57 | $ | 5.86 |
RSAs are included in the number of shares of Common Stock issued and outstanding, but omitted from the basic earnings per share calculation until such time as the RSAs vest. Certain stock awards granted are not included in the dilutive securities in the table above as they are anti-dilutive for the years ended December 31, 2025 and 2023. There were no anti-dilutive securities for the year ended December 31, 2024.
14. Commitments and Contingencies
Litigation
Management is not aware of any legal, environmental or other commitments or contingencies that would have a material effect on the Company’s financial condition, results of operations or liquidity as of December 31, 2025, other than as described below.
Prior to January 1, 2022, ad valorem taxes with respect to our historical royalty interests were paid directly by third parties pursuant to an existing arrangement. After the completion of our Corporate Reorganization, we received notice from a third party that it no longer intended to pay the ad valorem taxes related to such historical royalty interests. In order to protect the historical royalty interests from any potential tax liens for non-payment of ad valorem taxes, we have accrued and/or paid such ad valorem taxes since January 1, 2022. While we intend to seek reimbursement from the third party for such taxes, we are unable to estimate the amount and/or likelihood of such reimbursement, and accordingly, no loss recovery receivable has been recorded as of December 31, 2025.
Lease Commitments
As of December 31, 2025 and 2024, we have recorded right-of-use assets of $13.7 million and $1.2 million, respectively, and lease liabilities of $17.8 million and $1.3 million, respectively, primarily related to operating leases in connection with our administrative offices located in Dallas and Midland, Texas. During the year ended December 31, 2025, the Company entered into a new office lease, expiring in May 2036, for the relocation of its headquarters in Dallas, Texas. The
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office lease agreement for our Midland, Texas, office expires in July 2027. The office lease agreements require monthly rent payments, and the operating lease expense is recognized on a straight-line basis over the lease term. Operating lease costs were $1.4 million and $0.9 million for the years ended December 31, 2025 and 2024, respectively.
While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations. There are no residual value guarantees in our lease commitments. The weighted-average lease term for our operating lease liabilities is approximately 10.2 years. The weighted average discount rate of our operating leases is 6.6%.
Future minimum lease payments are as follows (in thousands):
| Year ending December 31, | Amount | |||||||
| 2026 | $ | 1,613 | ||||||
| 2027 | 2,401 | |||||||
| 2028 | 2,275 | |||||||
| 2029 | 2,338 | |||||||
| 2030 | 2,403 | |||||||
| 2031 and thereafter | 14,220 | |||||||
| Total lease payments | 25,250 | |||||||
| Less: imputed interest | (7,462) | |||||||
| Total operating lease liabilities | $ | 17,788 |
Rent expense for these lease agreements amounted to approximately $1.3 million for the year ended December 31, 2025 and approximately $0.8 million for each of the years ended December 31, 2024 and 2023.
15. Equity
Increases in Authorized Shares of Common Stock
As of December 31, 2025, the Company had authorized shares consisting of 1,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”) and 139,610,808 shares of Common Stock. On December 2, 2025, the Company filed an amendment to the Company’s Second Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) with the Secretary of State of the State of Delaware, pursuant to which the Certificate of Incorporation was amended to provide that the total number of authorized shares of capital stock of the Company be increased to 140,610,808 share of capital stock, consisting of 1,000,000 shares of Preferred Stock and 139,610,808 shares of Common Stock.
As of December 31, 2024, the Company had authorized shares consisting of 1,000,000 shares of Preferred Stock, and 46,536,936 shares of Common Stock. On March 1, 2024, the Company filed a Certificate of Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware, pursuant to which the Certificate of Incorporation was amended to provide that the total number of authorized shares of capital stock of the Company be increased to 47,536,936 shares of capital stock, consisting of 1,000,000 shares of Preferred Stock and 46,536,936 shares of Common Stock.
Common Stock Split
On December 22, 2025, we effected a three-for-one forward stock split of our Common Stock. The record date for the stock split was December 12, 2025. The shares of Common Stock retained a par value of $0.01 per share. Accordingly, an amount equal to the par value of the increased shares resulting from the stock split was reclassified from “Additional paid-in capital” to “Common Stock.”
On March 26, 2024, we effected a three-for-one stock split in the form of a stock dividend of two additional shares of Common Stock outstanding to stockholders of record as of March 18, 2024. The shares of Common Stock retained a par value of $0.01 per share. Accordingly, an amount equal to the par value of the increased shares resulting from the stock split was reclassified from “Additional paid-in capital” to “Common Stock.”
F-29
All share, RSA, RSU, PSU and per share information has been retroactively adjusted to reflect both the December 22, 2025 and March 26, 2024 stock splits.
Dividends
For the year ended December 31, 2025, we paid total regular cash dividends of $2.13 per share of Common Stock. For the year ended December 31, 2024, we paid total regular cash dividends of $1.70 per share of Common Stock and special dividends of $3.33 per share of Common Stock.
Stock Repurchase Program
On November 1, 2022, our board of directors (the “Board”) approved a stock repurchase program, which became effective January 1, 2023, to purchase up to an aggregate of $250.0 million of our outstanding Common Stock. The Company opportunistically repurchases stock under the stock repurchase program with funds generated by cash from operations. The stock repurchase program may be suspended from time to time, modified, extended or discontinued by the Board at any time. Purchases under the stock repurchase program may be made through a combination of open market repurchases in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, privately negotiated transactions, and/or other transactions at the Company’s discretion, including under a Rule 10b5-1 trading plan implemented by the Company, and are subject to market conditions, applicable legal requirements and other factors. As of December 31, 2025, the remaining amount authorized under the approved stock repurchase program was $170.2 million.
For the years ended December 31, 2025 and 2024, we repurchased $8.4 million and $29.2 million shares of our Common Stock, respectively.
16. Business Segment Reporting
During the periods presented, we reported our financial performance based on the following reportable segments: Land and Resource Management and Water Services and Operations. We eliminate inter-segment revenues and expenses, if any, upon consolidation. There were no inter-segment revenues for the years ended December 31, 2025, 2024, and 2023.
The Land and Resource Management segment encompasses the business of managing our approximately 882,000 surface acres of land and our approximately 224,000 NRA of oil and gas royalty interests, principally concentrated in the Permian Basin. The revenue streams of this segment consist primarily of royalties from oil and gas, revenues from easements and commercial leases, and land and material sales.
The Water Services and Operations segment encompasses the business of providing a full-service water offering to operators in the Permian Basin. The revenue streams of this segment primarily consist of revenue generated from sales of sourced and treated water as well as revenue from produced water royalties.
F-30
The following table presents segment financial results for Land and Resource Management (“LRM”) and Water Service and Operations (“WSO”) and the reconciliation to consolidated (“Cons”) financial results for the years ended December 31, 2025, 2024, and 2023 (in thousands):
| Years Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| LRM | WSO | Cons | LRM | WSO | Cons | LRM | WSO | Cons | |||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Oil and gas royalties | $ | 411,677 | $ | — | $ | 411,677 | $ | 373,331 | $ | — | $ | 373,331 | $ | 357,394 | $ | — | $ | 357,394 | |||||||||||||||||||||||||||||||||||
| Water sales | — | 169,701 | 169,701 | — | 150,724 | 150,724 | — | 112,203 | 112,203 | ||||||||||||||||||||||||||||||||||||||||||||
| Produced water royalties | — | 124,218 | 124,218 | — | 104,123 | 104,123 | — | 84,260 | 84,260 | ||||||||||||||||||||||||||||||||||||||||||||
| Easements and other surface-related income | 78,230 | 13,545 | 91,775 | 63,074 | 10,183 | 73,257 | 67,905 | 3,027 | 70,932 | ||||||||||||||||||||||||||||||||||||||||||||
| Land sales | 819 | — | 819 | 4,388 | — | 4,388 | 6,806 | — | 6,806 | ||||||||||||||||||||||||||||||||||||||||||||
| Total revenues | 490,726 | 307,464 | 798,190 | 440,793 | 265,030 | 705,823 | 432,105 | 199,490 | 631,595 | ||||||||||||||||||||||||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Salaries and related employee expenses | 29,184 | 28,741 | 57,925 | 27,493 | 26,128 | 53,621 | 21,945 | 21,439 | 43,384 | ||||||||||||||||||||||||||||||||||||||||||||
| Water service-related expenses | — | 53,528 | 53,528 | — | 46,124 | 46,124 | — | 33,566 | 33,566 | ||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 14,358 | 9,422 | 23,780 | 25,531 | 8,952 | 34,483 | 39,078 | 7,372 | 46,450 | ||||||||||||||||||||||||||||||||||||||||||||
| Depreciation, depletion and amortization | 44,555 | 17,978 | 62,533 | 10,968 | 14,194 | 25,162 | 3,073 | 11,684 | 14,757 | ||||||||||||||||||||||||||||||||||||||||||||
| Ad valorem and other taxes | 8,218 | 45 | 8,263 | 7,257 | 38 | 7,295 | 7,382 | 3 | 7,385 | ||||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 96,315 | 109,714 | 206,029 | 71,249 | 95,436 | 166,685 | 71,478 | 74,064 | 145,542 | ||||||||||||||||||||||||||||||||||||||||||||
| Operating income | 394,411 | 197,750 | 592,161 | 369,544 | 169,594 | 539,138 | 360,627 | 125,426 | 486,053 | ||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (552) | (138) | (690) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other income, net | 14,926 | 3,932 | 18,858 | 31,707 | 7,976 | 39,683 | 30,384 | 1,124 | 31,508 | ||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 408,785 | 201,544 | 610,329 | 401,251 | 177,570 | 578,821 | 391,011 | 126,550 | 517,561 | ||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | 86,370 | 42,583 | 128,953 | 86,350 | 38,511 | 124,861 | 84,305 | 27,611 | 111,916 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 322,415 | $ | 158,961 | $ | 481,376 | $ | 314,901 | $ | 139,059 | $ | 453,960 | $ | 306,706 | $ | 98,939 | $ | 405,645 |
Interest income by segment is included in other income, net in the table above.
The following tables present purchases of fixed assets, total assets, and property, plant and equipment, net by segment (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Purchases of Fixed Assets: | |||||||||||||||||
| Land and resource management | $ | 10,282 | $ | 279 | $ | 241 | |||||||||||
| Water services and operations | 55,666 | 29,144 | 15,190 | ||||||||||||||
| Total purchases of fixed assets | $ | 65,948 | $ | 29,423 | $ | 15,431 |
F-31
| December 31, 2025 | December 31, 2024 | ||||||||||
| Assets: | |||||||||||
| Land and resource management | $ | 1,332,180 | $ | 1,024,188 | |||||||
| Water services and operations | 291,098 | 223,832 | |||||||||
| Total consolidated assets | $ | 1,623,278 | $ | 1,248,020 | |||||||
| Property, plant and equipment, net: | |||||||||||
| Land and resource management | $ | 7,336 | $ | 4,805 | |||||||
| Water services and operations | 157,202 | 117,773 | |||||||||
| Total consolidated property, plant and equipment, net | $ | 164,538 | $ | 122,578 |
17. Subsequent Events
We evaluated events that occurred after the balance sheet date through the date these financial statements were issued, and the following events that met recognition or disclosure criteria were identified:
Dividends Declared
On February 10, 2026, our Board declared a quarterly cash dividend of $0.60 per share, payable on March 16, 2026 to stockholders of record at the close of business on March 2, 2026.
18. Supplemental Oil and Gas Reserve Information (Unaudited)
The Company’s oil and gas reserves are attributable solely to properties within the United States.
Our Share of Oil and Gas Produced
We measure our share of oil and gas produced in barrels of oil equivalent (“Boe”). One Boe equals one barrel of crude oil, condensate, NGLs (natural gas liquids) or approximately 6,000 cubic feet of gas. For the years ended December 31, 2025, 2024, and 2023 our share of oil and gas produced was approximately 34.6, 26.8, and 23.5 thousand Boe per day, respectively.
Capitalized Oil and Gas Costs
Aggregate capitalized costs related to oil and gas production activities with applicable accumulated depletion are as follows (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Oil, natural gas and NGL interests | |||||||||||
| Proved | $ | 369,282 | $ | 150,984 | |||||||
| Unproved | 528,155 | 296,087 | |||||||||
| Total oil, natural gas and NGL interests | 897,437 | 447,071 | |||||||||
| Accumulated depletion | (57,413) | (14,670) | |||||||||
| Net oil, natural gas and NGL interests capitalized | $ | 840,024 | $ | 432,401 |
The Company owns approximately 224,000 NRA as of December 31, 2025. Of our total NRA, approximately 191,000 was acquired in 1888 and was recorded with no value. The remaining approximately 33,000 NRA have been acquired over recent years and are included in royalty interests acquired on the consolidated balance sheet. See additional discussion in Note 4, “Oil and Gas Royalty Interests.”
F-32
Costs Incurred in Oil and Gas Activities
Costs incurred in oil, natural gas and NGL acquisition and development activities are as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Acquisition costs | |||||||||||||||||
| Proved | $ | 218,298 | $ | 121,018 | $ | 3,566 | |||||||||||
| Unproved | 232,068 | 274,559 | — | ||||||||||||||
| Total acquisition costs (1) | $ | 450,366 | $ | 395,577 | $ | 3,566 |
*(1)*Total acquisition costs include post-close adjustment from seller related to prior year asset acquisition.
Results of Operations from Oil and Gas Producing Activities
The following table sets forth the revenues and expenses related to the production and sale of oil and gas (in thousands). It does not include any general and administrative costs and, therefore, is not necessarily indicative of the net operating results of the Company’s oil and gas operations.
| Years Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Oil and gas revenues (1) | $ | 411,677 | $ | 373,331 | $ | 357,394 | ||||||||||||||
| Ad valorem taxes | (7,906) | (6,952) | (7,200) | |||||||||||||||||
| Depletion expense | (42,743) | (9,785) | (1,982) | |||||||||||||||||
| Income tax expense | (79,137) | (76,917) | (75,284) | |||||||||||||||||
| Results of operations from oil and gas | $ | 281,891 | $ | 279,677 | $ | 272,928 |
*(1)*Oil and gas revenues are reported net of production taxes.
Analysis of Changes in Oil and Gas PDP Reserves
PDP reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods, or in which the cost of the required equipment is relatively minor compared to the cost of a new well. The Company’s oil and gas properties are located in the Permian Basin.
The PDP reserve estimates and their associated future net cash flows were prepared by Ryder Scott Company, L.P. (“Ryder Scott”), an independent third-party petroleum engineering firm, as of December 31, 2025. The reserve report covers only PDP reserves and does not include undeveloped minerals or royalties. The oil and gas PDP reserve estimates represent the Company’s net ownership interest in its proved properties and were estimated in accordance with guidelines established by the SEC. Reserve studies were not prepared for periods prior to December 31, 2024. Accordingly, comparative reserve information for those periods was derived from the December 31, 2024, reserve report by rolling volumes backwards from 2024 to 2022 to reflect historical production. Therefore, no revisions of prior estimates were recorded for these periods.
F-33
The following table presents changes in estimated PDP reserves and was prepared in accordance with the rules and regulations of the SEC:
| Crude Oil and Condensate (MBbls)****(1) | Natural Gas (MMcf)****(1) | Natural Gas Liquids (MBbls)****(1) | Total (MBoe)****(1) | ||||||||||||||||||||
| Net PDP reserves at December 31, 2022 | 16,233 | 99,996 | 15,329 | 48,228 | |||||||||||||||||||
| Extensions and discoveries | 6,858 | 31,196 | 5,010 | 17,067 | |||||||||||||||||||
| Acquisition of reserves | 89 | 664 | 102 | 302 | |||||||||||||||||||
| Production | (3,701) | (14,528) | (2,453) | (8,575) | |||||||||||||||||||
| Net PDP reserves at December 31, 2023 | 19,479 | 117,328 | 17,988 | 57,022 | |||||||||||||||||||
| Extensions and discoveries | 5,587 | 23,483 | 3,824 | 13,324 | |||||||||||||||||||
| Acquisition of reserves | 2,378 | 13,317 | 2,042 | 6,639 | |||||||||||||||||||
| Production | (4,118) | (17,074) | (2,841) | (9,804) | |||||||||||||||||||
| Net PDP reserves at December 31, 2024 | 23,326 | 137,054 | 21,013 | 67,181 | |||||||||||||||||||
| Extensions and discoveries | 5,376 | 30,285 | 4,636 | 15,059 | |||||||||||||||||||
| Acquisition of reserves | 3,352 | 13,876 | 2,237 | 7,902 | |||||||||||||||||||
| Production | (4,936) | (23,359) | (3,784) | (12,613) | |||||||||||||||||||
| Revisions | (2,927) | (9,844) | 154 | (4,413) | |||||||||||||||||||
| Net PDP reserves at December 31, 2025 | 24,191 | 148,012 | 24,256 | 73,116 | |||||||||||||||||||
| Net PDP reserves | |||||||||||||||||||||||
| December 31, 2022 | 16,233 | 99,996 | 15,329 | 48,228 | |||||||||||||||||||
| December 31, 2023 | 19,479 | 117,328 | 17,988 | 57,022 | |||||||||||||||||||
| December 31, 2024 | 23,326 | 137,054 | 21,013 | 67,181 | |||||||||||||||||||
| December 31, 2025 | 24,191 | 148,012 | 24,256 | 73,116 | |||||||||||||||||||
*(1)*Commonly used definitions in the oil and gas industry not previously defined: MBbls represents one thousand barrels of crude oil, condensate or NGLs. MMcf represents one million cubic feet of natural gas. MBoe represents one thousand Boe.
Standardized Measure of Oil and Gas
The standardized measure of discounted future net cash flows before income taxes related to the oil and gas PDP reserves of the interests is as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Future cash inflows | $ | 2,357,725 | $ | 2,566,234 | $ | 2,150,816 | |||||||||||
| Future production costs | (175,564) | (191,879) | (157,805) | ||||||||||||||
| Future income taxes | (297,366) | (423,633) | (422,629) | ||||||||||||||
| Future net cash flows | 1,884,795 | 1,950,722 | 1,570,382 | ||||||||||||||
| Less: 10% annual discount | (869,261) | (942,086) | (748,864) | ||||||||||||||
| Standard measure of discounted future net cash flows | $ | 1,015,534 | $ | 1,008,636 | $ | 821,518 |
Reserve estimates and future cash flows are based on the average market prices for sales of oil and natural gas adjusted for basis differentials, on the first calendar day of each month during the year. The average prices used for 2025, 2024, and 2023 were $65.34, $76.32, and $78.21 per barrel for crude oil and $1.93, $2.13, and $2.64 per Mcf for natural gas, respectively.
Future production costs are computed primarily by the Company’s petroleum engineers by estimating the expenditures to be incurred in producing the oil and gas PDP reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. A discount factor of 10% was used to reflect the timing of future net cash flows.
F-34
The standardized measure of discounted future net cash flows is not intended to represent the replacement cost or fair value of the properties. An estimate of fair value would also take into account, among other things, the recovery of reserves not presently classified as proved, anticipated future changes in prices and costs, and a discount factor more representative of the time value of money and the risks inherent in oil and gas reserve estimates.
Changes in Standardized Measure of Oil and Gas
Changes in the standardized measure of discounted future net cash flows before income taxes related to the oil and gas PDP reserves of the interests are as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Standardized measure - beginning of year | $ | 1,008,636 | $ | 821,518 | $ | 995,621 | |||||||||||
| Sales, net of production costs | (403,771) | (366,379) | (350,194) | ||||||||||||||
| Net changes of prices and production costs related to future production | (196,250) | 10,003 | (426,381) | ||||||||||||||
| Extensions and discoveries | 327,777 | 330,825 | 441,343 | ||||||||||||||
| Acquisition of reserves | 153,962 | 125,918 | 5,827 | ||||||||||||||
| Revisions of previous quantity estimates | (81,728) | — | — | ||||||||||||||
| Net change in income taxes | 57,530 | 1,424 | 51,996 | ||||||||||||||
| Accretion of discount | 122,839 | 104,269 | 126,879 | ||||||||||||||
| Changes in timing and other | 26,539 | (18,942) | (23,573) | ||||||||||||||
| Standardized measure - end of year | $ | 1,015,534 | $ | 1,008,636 | $ | 821,518 |
F-35
Previous: Item 16. Form 10-K Summary.