Item 1. Financial Statements

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Item 1. Financial Statements

TEXAS PACIFIC LAND CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except shares and per share amounts)

(Unaudited)


	September 30, 2023		December 31, 2022
ASSETS
Cash and cash equivalents	$	654,158	$	510,834
Accounts receivable and accrued receivables, net	126,215		103,983
Prepaid expenses and other current assets	5,105		7,427
Tax like-kind exchange escrow	5,380		6,348
Prepaid income taxes	—		4,809
Total current assets	790,858		633,401
Real estate acquired	130,024		109,704
Property, plant and equipment, net	86,600		85,478
Royalty interests acquired, net	47,213		45,025

Intangible assets, net	21,308		—
Real estate and royalty interests assigned through the 1888 Declaration of Trust, no value assigned:
Land (surface rights)	—		—
1/16th nonparticipating perpetual royalty interest	—		—
1/128th nonparticipating perpetual royalty interest	—		—
Other assets	3,315		3,819
Total assets	$	1,079,318	$	877,427
LIABILITIES AND EQUITY
Accounts payable and accrued expenses	$	29,027	$	23,443
Ad valorem and other taxes payable	7,960		8,497
Income taxes payable	4,281		3,167
Unearned revenue	6,102		4,488
Total current liabilities	47,370		39,595
Deferred taxes payable	40,117		41,151
Unearned revenue - noncurrent	25,664		21,708

Accrued liabilities - noncurrent	1,609		2,086
Total liabilities	114,760		104,540

Commitments and contingencies	—		—
Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none outstanding as of September 30, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value; 7,756,156 shares authorized and 7,675,994 and 7,695,679 outstanding as of September 30, 2023 and December 31, 2022, respectively	78		78
Treasury stock, at cost; 80,162 and 60,477 shares as of September 30, 2023 and December 31, 2022, respectively	(133,852)		(104,139)
Additional paid-in capital	12,382		8,293
Accumulated other comprehensive income	2,439		2,516
Retained earnings	1,083,511		866,139
Total equity	964,558		772,887
Total liabilities and equity	$	1,079,318	$	877,427

See accompanying notes to condensed consolidated financial statements.

TEXAS PACIFIC LAND CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND TOTAL COMPREHENSIVE INCOME

(in thousands, except shares and per share amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Oil and gas royalties	$	87,102	$	130,298	$	258,644	$	355,738
Water sales	26,422		24,426		85,799		65,518
Produced water royalties	20,849		19,129		61,824		52,668
Easements and other surface-related income	18,188		14,129		51,865		37,311
Land sales and other operating revenue	5,406		3,129		6,806		3,481
Total revenues	157,967		191,111		464,938		514,716

Expenses:
Salaries and related employee expenses	11,499		10,697		32,688		29,670
Water service-related expenses	8,553		6,348		24,496		13,045
General and administrative expenses	3,903		3,120		10,787		9,761
Legal and professional fees	1,689		2,106		28,471		4,988
Ad valorem and other taxes	1,781		2,868		5,425		6,953

Depreciation, depletion and amortization	3,584		3,917		10,881		12,223
Total operating expenses	31,009		29,056		112,748		76,640

Operating income	126,958		162,055		352,190		438,076

Other income, net	7,979		1,920		20,239		2,626
Income before income taxes	134,937		163,975		372,429		440,702



Income tax expense	29,363		34,138		79,894		94,071
Net income	$	105,574	$	129,837	$	292,535	$	346,631




Other comprehensive (loss) income — periodic pension costs, net of income taxes for the three and nine months ended September 30, 2023 and 2022 of $7, $3, $21, and $8, respectively	(26)		8		(77)		24
Total comprehensive income	$	105,548	$	129,845	$	292,458	$	346,655

Net income per share of common stock
Basic	$	13.75	$	16.83	$	38.07	$	44.84
Diluted	$	13.74	$	16.82	$	38.04	$	44.82

Weighted average number of shares of common stock outstanding
Basic	7,675,521		7,714,796		7,684,691		7,729,866
Diluted	7,681,774		7,720,221		7,690,985		7,733,505

Cash dividends per share of common stock	$	3.25	$	3.00	$	9.75	$	29.00

See accompanying notes to condensed consolidated financial statements.

TEXAS PACIFIC LAND CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	292,535	$	346,631
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	(1,034)		(840)
Depreciation, depletion and amortization	10,881		12,223
Share-based compensation	8,112		5,616

Changes in operating assets and liabilities:
Operating assets, excluding income taxes	(19,554)		(45,065)
Operating liabilities, excluding income taxes	9,995		16,901
Income taxes payable	1,114		(20,821)
Prepaid income taxes	4,809		—

Cash provided by operating activities	306,858		314,645

Cash flows from investing activities:
Acquisition of intangible assets	(21,403)		—
Acquisition of real estate	(20,320)		(12)
Acquisition of royalty interests	(3,566)		(1,662)
Purchase of fixed assets	(10,630)		(13,023)
Proceeds from sale of fixed assets	5		106
Cash used in investing activities	(55,914)		(14,591)

Cash flows from financing activities:
Dividends paid	(74,979)		(224,130)
Repurchases of common stock	(32,325)		(57,578)
Shares exchanged for tax withholdings	(1,284)		—
Cash used in financing activities	(108,588)		(281,708)

Net increase in cash, cash equivalents and restricted cash	142,356		18,346
Cash, cash equivalents and restricted cash, beginning of period	517,182		428,242
Cash, cash equivalents and restricted cash, end of period	$	659,538	$	446,588

Supplemental disclosure of cash flow information:
Income taxes paid	$	74,984	$	115,609
Supplemental non-cash investing and financing information:
Nonmonetary exchange of assets	$	—	$	4,174
Increase in accounts payable related to capital expenditures	$	(243)	$	(868)
Share repurchases and associated excise taxes not settled at the end of the period	$	481	$	1,090


Operating lease right-of-use assets	$	—	$	1,364

See accompanying notes to condensed consolidated financial statements.

TEXAS PACIFIC LAND CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Description of Business Segments

Organization

Texas Pacific Land Corporation (which, together with its subsidiaries as the context requires, may be referred to as “TPL”, the “Company”, “our”, “we” or “us”) is a Delaware corporation and one of the largest landowners in the State of Texas with approximately 868,000 surface acres of land in West Texas, with the majority of our ownership concentrated in the Permian Basin. Additionally, we own a 1/128th nonparticipating perpetual oil and gas royalty interest (“NPRI”) under approximately 85,000 acres of land, a 1/16th NPRI under approximately 371,000 acres of land, and approximately 4,000 additional net royalty acres (normalized to 1/8th) in the western part of Texas.

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

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

Basis of Presentation

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

We operate our business in two segments: Land and Resource Management and Water Services and Operations. Our segments provide management with a comprehensive financial view of our key businesses. The segments enable the alignment of strategies and objectives of TPL and provide a framework for timely and rational allocation of resources within businesses. See Note 12, “Business Segment Reporting” for further information regarding our segments.

2. Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

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

Cash, Cash Equivalents and Restricted Cash

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

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


	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	654,158	$	510,834
Tax like-kind exchange escrow	5,380		6,348
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	659,538	$	517,182

Intangible Assets, Net

Intangible assets include a saltwater disposal easement and acquired groundwater rights. When the Company acquires intangible assets that are attached to real estate and/or other tangible assets, an allocation of the total purchase price, including any direct costs of the acquisition, is made at the date of acquisition based on the estimated relative fair values of the assets acquired.

Intangible assets are amortized on a straight-line basis over their estimated useful lives, with remaining useful lives from 15 to 20 years. Intangible assets are tested for recoverability whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In such event, the fair value of the asset is determined using an undiscounted cash flow analysis of the asset at the lowest level for which identifiable cash flows exist. If an impairment has occurred, a loss for the difference between the carrying value and the estimated fair value of the intangible asset is recognized in the statement of income.

Reclassifications

Certain financial information on the condensed consolidated balance sheet as of December 31, 2022 and condensed consolidated statement of income and total comprehensive income for the three and nine months ended September 30, 2022 has been revised to conform to the current year presentation. These revisions include a balance sheet reclassification of $454,000 of other taxes payable previously included in accounts payable and accrued expenses to ad valorem and other taxes payable and an income statement reclassification of $33,000 and $97,000 of property taxes previously included in general and administrative expenses to ad valorem and other taxes for the three and nine months ended September 30, 2022, respectively.

3. Real Estate Activity

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


	September 30, 2023			December 31, 2022
	Number of Acres	Net Book Value		Number of Acres	Net Book Value
Land (surface rights) (1)	798,999	$	—	817,060	$	—
Real estate acquired	69,447	130,024		57,306	109,704
Total real estate situated in Texas	868,446	$	130,024	874,366	$	109,704

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

Land Sales

For the nine months ended September 30, 2023, we sold 18,061 acres of land in Texas for an aggregate sales price of $6.8 million. For the nine months ended September 30, 2022, we sold 129 acres of land in Texas for an aggregate sales price of $3.3 million. There was no carrying value in the land associated with these sales.

Land Acquisitions

For the nine months ended September 30, 2023, we acquired 12,141 acres of land in Texas for an aggregate purchase price of $20.0 million. There were no significant land acquisitions for the nine months ended September 30, 2022.

4. Property, Plant and Equipment

Property, plant and equipment, net consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):


	September 30, 2023		December 31, 2022
Property, plant and equipment, at cost:
Water service-related assets	$	135,293	$	125,166
Furniture, fixtures and equipment	9,907		9,718
Other	598		598
Total property, plant and equipment, at cost	145,798		135,482
Less: accumulated depreciation	(59,198)		(50,004)
Property, plant and equipment, net	$	86,600	$	85,478

Depreciation expense was $3.0 million and $3.6 million for the three months ended September 30, 2023 and 2022, respectively. Depreciation expense was $9.3 million and $11.4 million for the nine months ended September 30, 2023 and 2022, respectively.

5. Oil and Gas Royalty Interests

As of September 30, 2023 and December 31, 2022, we owned the following oil and gas royalty interests (in thousands):


	September 30, 2023		December 31, 2022
Oil and gas royalty interests:
1/16th nonparticipating perpetual royalty interests (1)	$	—	$	—
1/128th nonparticipating perpetual royalty interests (1)	—		—
Royalty interests acquired, at cost	51,494		47,928
Total royalty interests	51,494		47,928
Less: accumulated depletion	(4,281)		(2,903)
Royalty interests, net	$	47,213	$	45,025

*(1)*Royalty interests assigned through the Declaration of Trust.

Acquisitions

For the nine months ended September 30, 2023, we acquired oil and gas royalty interests in 119 net royalty acres (normalized to 1/8th) for an aggregate purchase price of approximately $3.6 million. For the nine months ended September 30, 2022, we acquired oil and gas royalty interests in 92 net royalty acres (normalized to 1/8th) for an aggregate purchase price of approximately $1.7 million.

Depletion expense was $0.5 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively. Depletion expense was $1.4 million and $0.7 million for the nine months ended September 30, 2023 and 2022, respectively.

6. Intangible Assets

Intangible assets, net consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):


	September 30, 2023		December 31, 2022
Intangible assets, at cost:
Saltwater disposal easement	$	17,557	$	—
Groundwater rights acquired	3,846		—
Total intangible assets, at cost (1)	21,403		—
Less: accumulated amortization	(95)		—
Intangible assets, net	$	21,308	$	—

*(1)*The remaining weighted average amortization period for total intangible assets was 19.0 years as of September 30, 2023.

Acquisitions

For the nine months ended September 30, 2023, we acquired a saltwater disposal easement and groundwater rights in separate transactions for an aggregate cost of approximately $21.4 million. We had no intangible assets as of December 31, 2022.

Amortization of intangible assets was $0.1 million for the three and nine months ended September 30, 2023. The estimated future annual amortization expense of intangible assets is $0.4 million for the remainder of 2023, $1.1 million for 2024, $1.1 million for 2025, $1.1 million for 2026, $1.1 million for 2027, $1.1 million for 2028 and $15.4 million thereafter.

7. 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 directors under the 2021 Non-Employee Director Stock and Deferred Compensation Plan (the “2021 Directors Plan”). Share-based compensation granted to date under the plans has included restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance-based units (“PSUs”). Currently, all awards granted under the plans are entitled to receive dividends (which are accrued and distributed to award recipients upon vesting) or have dividend equivalent rights. Dividends and dividend equivalent rights are subject to the same vesting conditions as the awards to which they relate and are forfeitable if the related awards are forfeited. RSUs granted under the 2021 Plan vest in one-third increments and PSUs granted under the 2021 Plan cliff vest at the end of three years if the performance metrics are achieved (as discussed further below). RSAs granted under the 2021 Directors Plan vest on the first anniversary of the award.

On October 31, 2023,the 2021 Plan was amended to revise the definitions of Cause, Change in Control, and Good Reason to align these definitions with the definitions provided in an employee’s employment agreement and any severance plan maintained by the Company. In addition, the related forms of Restricted Stock Unit Award Agreement, RTSR performance Unit Award Agreement and FCF/Share Performance Unit Award Agreement were adjusted.

On October 31, 2023, the 2021 Directors Plan was amended to (i) eliminate the one year vesting provision for annual grants and (ii) provide that certain plan administrative functions will be responsibility of the Compensation Committee of the Company’s board of directors, including determining grant recipients, establishing grant terms and conditions, and adopting certain amendments to the plan.

Incentive Plan for Employees

The maximum aggregate number of shares of the Company’s common stock, par value $0.01 per share (“Common Stock”) that may be issued under the 2021 Plan is 75,000 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 September 30, 2023, 54,718 shares of Common Stock remained available under the 2021 Plan for future grants.

The following table summarizes activity related to RSAs and RSUs under the 2021 Plan for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
	2023						2022
	Restricted Stock Awards			Restricted Stock Units			Restricted Stock Awards			Restricted Stock Units
	Number of RSAs	Weighted-Average Grant-Date Fair Value per Share		Number of RSUs	Weighted-Average Grant-Date Fair Value per Share		Number of RSAs	Weighted-Average Grant-Date Fair Value per Share		Number of RSUs	Weighted-Average Grant-Date Fair Value per Share
Nonvested at beginning of period (1)	1,337	$	1,252	5,612	$	1,323	3,330	$	1,252	—	$	—
Granted (2)	—	—		2,848	1,924		—	—		5,612	1,323
Vested (3)	—	—		(1,864)	1,324		—	—		—	—
Cancelled and forfeited	—	—		—	—		—	—		—	—
Nonvested at end of period	1,337	$	1,252	6,596	$	1,583	3,330	$	1,252	5,612	$	1,323

*(1)*RSAs were granted on December 29, 2021: 1,993 shares vested on December 29, 2022 and 1,337 shares will vest on December 29, 2023.

*(2)*RSUs vest in one-third increments over a three-year period.

*(3)*Of the 1,864 shares that vested during the nine months ended September 30, 2023, 669 shares were surrendered upon vesting by employees to the Company to settle tax withholdings.

The following table summarizes activity related to PSUs for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
	2023			2022
	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)	2,394	$	1,355	—	$	—
Granted (2)	1,852	2,342		2,394	1,355
Vested	—	—		—	—
Cancelled and forfeited	—	—		—	—
Nonvested at end of period	4,246	$	1,786	2,394	$	1,355

*(1)*The PSUs were granted on February 11, 2022 and include 1,197 RTSR (as defined below) PSUs (based on target) with a grant date fair value of $1,605 per share and 1,197 FCF (as defined below) PSUs (based on target) with a grant date fair value of $1,105 per share. If the maximum performance potential metrics described in the PSU agreements are achieved, the actual number of units that will ultimately be awarded under the PSU agreements will exceed target units by 100% (i.e., a collective 2,394 additional units would be issued).

*(2)*The PSUs were granted on February 10, 2023 and include 926 RTSR PSUs (based on target) with a grant date fair value of $2,761 per share and 926 FCF PSUs (based on target) with a grant date fair value of $1,924 per share. If the maximum performance potential metrics described in the PSU agreements are achieved, the actual number of units that will ultimately be awarded under the PSU agreements will exceed target units by 100% (i.e., a collective 1,852 additional units would be issued).

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 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 PSU is a market-based award, its 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 award. Expected volatility in the model was estimated based on the volatility of historical stock prices over a period matching the expected term of the award. The risk-free interest rate was based on U.S. Treasury yield constant maturities for a term matching the expected term of the award.

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 10,000 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 September 30, 2023, 8,815 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 nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
	2023			2022
	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	699	$	1,281	—	$	—
Granted (1)	486	2,344		784	1,277
Vested	(699)	1,281		—	—
Cancelled and forfeited	—	—		(85)	1,249
Nonvested at end of period	486	$	2,344	699	$	1,281

*(1)*RSAs vest on the first anniversary of the grant date.

Share-Based Compensation Expense

The following table summarizes our share-based compensation expense by line item in the condensed consolidated statements of income (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Salaries and related employee expenses (employee awards)	$	2,502	$	1,910	$	7,217	$	4,989
General and administrative expenses (director awards)	287		211		895		627
Total share-based compensation expense (1)	$	2,789	$	2,121	$	8,112	$	5,616

*(1)*The Company recognized a tax benefit of $0.6 million and $0.4 million related to share-based compensation for the three months ended September 30, 2023 and 2022, respectively. The Company recognized a tax benefit of $1.7 million and $1.2 million related to share-based compensation for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, there was $11.4 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 1.3 years.

8. Income Taxes

The calculation of our effective tax rate is as follows for the three and nine months ended September 30, 2023 and 2022 (in thousands, except percentages):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Income before income taxes	$	134,937		$	163,975		$	372,429		$	440,702
Income tax expense	$	29,363		$	34,138		$	79,894		$	94,071
Effective tax rate	21.8		%	20.8		%	21.5		%	21.3		%

For interim periods, our income tax expense and resulting effective tax rate are based upon an estimated annual effective tax rate adjusted for the effects of items required to be treated as discrete to the period, including changes in tax laws, changes in estimated exposures for uncertain tax positions, and other items.

9. 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 restricted stock and other unvested 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 three and nine months ended September 30, 2023 and 2022 (in thousands, except number of shares and per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	105,574	$	129,837	$	292,535	$	346,631

Basic earnings per share:
Weighted average shares outstanding for basic earnings per share	7,675,521		7,714,796		7,684,691		7,729,866
Basic earnings per share	$	13.75	$	16.83	$	38.07	$	44.84

Diluted earnings per share:
Weighted average shares outstanding for basic earnings per share	7,675,521		7,714,796		7,684,691		7,729,866
Effect of dilutive securities:
Incentive and equity compensation plans	6,253		5,425		6,294		3,639
Weighted average shares outstanding for diluted earnings per share	7,681,774		7,720,221		7,690,985		7,733,505
Diluted earnings per share	$	13.74	$	16.82	$	38.04	$	44.82

Restricted stock is included in the number of shares of Common Stock issued and outstanding, but omitted from the basic EPS calculation until such time as the shares of restricted stock vest. Certain stock awards granted are not included in the dilutive securities in the table above as they are anti-dilutive for the three and nine months ended September 30, 2023.

10. 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 September 30, 2023.

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. Since the completion of our Corporate Reorganization, we have received notice from a third party that they no longer intend 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 September 30, 2023.

Ongoing Arbitration with an Operator

As part of an ongoing arbitration between TPL and an operator with respect to underpayment of oil and gas royalties resulting from improper deductions of post-production costs for periods before and through April 2022, the operator has agreed to pay $8.7 million to TPL. This amount has been recorded as a receivable and included in oil and gas royalty revenue in the condensed consolidated income statement for the nine months ended September 30, 2023.

11. Changes in Equity

The following tables present changes in our equity for the nine months ended September 30, 2023 and 2022 (in thousands, except shares and per share amounts):


	Common Stock			Treasury Stock			Additional Paid-in Capital		Accum. Other Comp. Income (Loss)		Retained Earnings		Total Equity
	Shares	Amount		Shares	Amount
For the nine months ended September 30, 2023:
Balances as of December 31, 2022	7,695,679	$	78	60,477	$	(104,139)	$	8,293	$	2,516	$	866,139	$	772,887
Net income	—	—		—	—		—		—		86,568		86,568
Dividends paid — $3.25 per share of common stock	—	—		—	—		—		—		(25,061)		(25,061)
Share-based compensation, net of forfeitures	1,756	—		(1,756)	3,033		(560)		—		(103)		2,370
Repurchases of common stock, including excise taxes of $67	(3,627)	—		3,627	(6,749)		—		—		—		(6,749)
Shares exchanged for tax withholdings	(488)	—		488	(939)		—		—		—		(939)
Periodic pension costs, net of income taxes of $6	—	—		—	—		—		(25)		—		(25)
Balances as of March 31, 2023	7,693,320	78		62,836	(108,794)		7,733		2,491		927,543		829,051
Net income	—	—		—	—		—		—		100,393		100,393
Dividends paid — $3.25 per share of common stock	—	—		—	—		—		—		(24,966)		(24,966)
Share-based compensation, net of forfeitures	—	—		—	—		2,849		—		(43)		2,806
Repurchases of common stock, including excise taxes of $165	(14,175)	—		14,175	(19,708)		—		—		—		(19,708)
Periodic pension costs, net of income taxes of $8	—	—		—	—		—		(26)		—		(26)
Balances as of June 30, 2023	7,679,145	78		77,011	(128,502)		10,582		2,465		1,002,927		887,550
Net income	—	—		—	—		—		—		105,574		105,574
Dividends paid — $3.25 per share of common stock	—	—		—	—		—		—		(24,952)		(24,952)
Share-based compensation, net of forfeitures	594	—		(594)	990		1,800		—		(38)		2,752
Repurchases of common stock, including excise taxes of $50	(3,564)	—		3,564	(5,995)		—		—		—		(5,995)
Shares exchanged for tax withholdings	(181)	—		181	(345)		—		—		—		(345)
Periodic pension costs, net of income taxes of $7	—	—		—	—		—		(26)		—		(26)
Balances as of September 30, 2023	7,675,994	$	78	80,162	$	(133,852)	$	12,382	$	2,439	$	1,083,511	$	964,558


	Common Stock			Treasury Stock			Additional Paid-in Capital		Accum. Other Comp. Income (Loss)		Retained Earnings		Total Equity
	Shares	Amount		Shares	Amount
For the nine months ended September 30, 2022:
Balances as of December 31, 2021	7,744,695	$	78	11,461	$	(15,417)	$	28	$	(1,007)	$	668,029	$	651,711
Net income	—	—		—	—		—		—		97,900		97,900
Dividends paid — $3.00 per share of common stock	—	—		—	—		—		—		(23,224)		(23,224)
Share-based compensation, net of forfeitures	595	—		(595)	800		1,477		—		(796)		1,481
Periodic pension costs, net of income taxes of $2	—	—		—	—		—		8		—		8
Balances as of March 31, 2022	7,745,290	78		10,866	(14,617)		1,505		(999)		741,909		727,876
Net income	—	—		—	—		—		—		118,894		118,894
Dividends paid — $3.00 per share of common stock	—	—		—	—		—		—		(23,188)		(23,188)
Special dividends paid — $20.00 per share of common stock	—	—		—	—		—		—		(154,586)		(154,586)
Share-based compensation, net of forfeitures	104	—		(104)	140		1,851		—		(180)		1,811
Repurchases of common stock	(17,478)	—		17,478	(25,534)		—		—		—		(25,534)
Periodic pension costs, net of income taxes of $2	—	—		—	—		—		8		—		8
Balances as of June 30, 2022	7,727,916	78		28,240	(40,011)		3,356		(991)		682,849		645,281
Net income	—	—		—	—		—		—		129,837		129,837
Dividends paid — $3.00 per share of common stock	—	—		—	—		—		—		(23,132)		(23,132)
Share-based compensation, net of forfeitures	—	—		—	—		2,121		—		(30)		2,091
Repurchases of common stock	(19,071)	—		19,071	(32,915)		—		—		—		(32,915)
Periodic pension costs, net of income taxes of $3	—	—		—	—		—		8		—		8
Balances as of September 30, 2022	7,708,845	$	78	47,311	$	(72,926)	$	5,477	$	(983)	$	789,524	$	721,170

Stock Repurchase Program

On November 1, 2022, our board of directors approved a stock repurchase program, which became effective January 1, 2023, to purchase up to an aggregate of $250 million of our outstanding Common Stock.

The Company intends to purchase stock under the repurchase program opportunistically with funds generated by cash from operations. This repurchase program may be suspended from time to time, modified, extended or discontinued by the board of directors 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 will be subject to market conditions, applicable legal requirements and other factors.

12. Business Segment Reporting

During the periods presented, we reported our financial performance based on the following segments: Land and Resource Management and Water Services and Operations. Our segments provide management with a comprehensive financial view of our key businesses. The segments enable the alignment of our strategies and objectives and provide a framework for timely and rational allocation of resources within businesses. We eliminate any inter-segment revenues and expenses upon consolidation.

The Land and Resource Management segment encompasses the business of managing our approximately 868,000 surface acres of land and our oil and gas royalty interests in West Texas, 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.

The following table presents segment financial results for the three and nine months ended September 30, 2023 and 2022 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Land and resource management	$	109,933	$	147,215	$	315,276	$	393,947
Water services and operations	48,034		43,896		149,662		120,769
Total consolidated revenues	$	157,967	$	191,111	$	464,938	$	514,716

Net income:
Land and resource management	$	82,884	$	108,188	$	217,860	$	285,418
Water services and operations	22,690		21,649		74,675		61,213
Total consolidated net income	$	105,574	$	129,837	$	292,535	$	346,631

Capital expenditures:
Land and resource management	$	47	$	114	$	191	$	339
Water services and operations	5,196		1,694		10,196		11,816
Total capital expenditures	$	5,243	$	1,808	$	10,387	$	12,155

Depreciation, depletion and amortization:
Land and resource management	$	703	$	567	$	2,233	$	1,632
Water services and operations	2,881		3,350		8,648		10,591
Total depreciation, depletion and amortization	$	3,584	$	3,917	$	10,881	$	12,223

The following table presents total assets and property, plant and equipment, net by segment as of September 30, 2023 and December 31, 2022 (in thousands):


	September 30, 2023		December 31, 2022
Assets:
Land and resource management	$	900,508	$	735,193
Water services and operations	178,810		142,234
Total consolidated assets	$	1,079,318	$	877,427

Property, plant and equipment, net:
Land and resource management	$	5,464	$	5,998
Water services and operations	81,136		79,480
Total consolidated property, plant and equipment, net	$	86,600	$	85,478

13. Oil and Gas Producing Activities

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 three months ended September 30, 2023 and 2022, our share of oil and gas produced was approximately 21.8 and 23.4 thousand Boe per day, respectively. For the nine months ended September 30, 2023 and 2022, our share of oil and gas produced was approximately 22.6 and 21.3 thousand Boe per day, respectively. Reserves related to our royalty interests are not presented because the information is unavailable.

There are a number of oil and gas wells that have been drilled but are not yet completed (“DUC”) where we have a royalty interest. The number of DUC wells is determined using uniform drilling spacing units with pooled interests for all wells awaiting completion. We have identified 596 and 584 DUC wells subject to our royalty interest as of September 30, 2023 and December 31, 2022, respectively.

14. 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 October 31, 2023, our board of directors declared a quarterly cash dividend of $3.25 per share, payable on December 15, 2023 to stockholders of record at the close of business on December 1, 2023.

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