Texas Pacific Land 10-Q 2024-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2024

or

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

For the transition period from ______ to ______

Commission File Number: 1-39804

Exact name of registrant as specified in its charter:

Texas Pacific Land Corporation

Address of principal executive offices:

1700 Pacific Avenue, Suite 2900 Dallas, Texas 75201

Registrant’s telephone number, including area code:

(214) 969-5530

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

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

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

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

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

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

Yes ☐ No ☑

As of July 31, 2024, the Registrant had 22,980,620 shares of Common Stock, $0.01 par value, outstanding.

TEXAS PACIFIC LAND CORPORATION

Form 10-Q

For the Quarter Ended June 30, 2024

Table of Contents

PART I. FINANCIAL INFORMATION

TEXAS PACIFIC LAND CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except shares and per share amounts)

(Unaudited)

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)

Showing the first 8K of 65K characters. Open the full section

Cautionary Statement Regarding Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding management’s expectations, hopes, intentions or strategies regarding the future. Words or phrases such as “expects,” “anticipates,” “could,” “will,” “intends,” “may,” “might,” “plan,” “potential,” “should,” “would,” and “believes”, or similar expressions, when used in this Quarterly Report on Form 10-Q or other filings with the Securities and Exchange Commission (the “SEC”), are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding the Company’s future operations and prospects, the markets for real estate in the areas in which the Company owns real estate, applicable zoning regulations, the markets for oil and gas including actions of other oil and gas producers or consortiums worldwide such as the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (collectively referred to as “OPEC+”), expected competition, management’s intent, beliefs or current expectations with respect to the Company’s future financial performance and other matters. All forward-looking statements in this Quarterly Report are based on information available to us as of the date this Quarterly Report is filed with the SEC, and we assume no responsibility to update any such forward-looking statements, except as required by law. All forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, the factors discussed in Item 1A. “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2023, and in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q.

The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 21, 2024 and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Period-to-period comparisons of financial data are not necessarily indicative, and therefore, should not be relied upon as indicators, of the Company’s future performance.

Overview

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 one of the largest landowners in the State of Texas with approximately 869,000 surface acres of land, 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) (“NRA”), for a collective total of approximately 195,000 NRA, principally concentrated in the Permian Basin.

The Company was originally organized under a Declaration of Trust, dated February 1, 1888, to receive and hold title to extensive tracts of land in the State of Texas, previously the property of the Texas and Pacific Railway Company. We completed our reorganization on January 11, 2021 from a business trust, Texas Pacific Land Trust, into Texas Pacific Land Corporation, a corporation formed and existing under the laws of the State of Delaware.

We are not an oil and gas producer. Our business activity is generated from surface and royalty interest ownership, primarily in the Permian Basin. Our revenues are derived from oil and gas royalties, water sales, produced water royalties, easements and other surface-related income and land sales. Due to the nature of our operations and concentration of our ownership in one geographic location, our revenue and net income are subject to substantial fluctuations from quarter to quarter and year to year. In addition to fluctuations in response to changes in the market price for oil and gas, our financial results are also subject to decisions by the owners and operators of not only the oil and gas wells to which our oil and gas royalty interests relate, but also to other owners and operators in the Permian Basin as it relates to our other revenue streams, principally water sales, produced water royalties, easements, and other surface-related revenue.

For a further overview of our business and business segments, see Item 1. “Business — General” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Market Conditions

Average oil prices during 2024 have increased modestly compared to average oil prices during the same period last year. Oil prices continue to be impacted by certain actions by OPEC+, geopolitics, and evolving global supply and demand trends, among other factors. Average natural gas prices during 2024 have decreased compared to average natural gas prices during the same period last year. Global and domestic natural gas markets have experienced volatility due to macroeconomic conditions, infrastructure and logistical constraints, weather, and geopolitics, among other factors. Since mid-2022, the Waha Hub located in Pecos County, Texas has at times experienced significant negative price differentials relative to Henry Hub, located in Erath, Louisiana, due in part to growing local Permian natural gas production and limited natural gas pipeline takeaway capacity. Waha natural gas prices were negative throughout April and May 2024. Midstream infrastructure is currently under construction by operators to provide additional takeaway capacity, though the impact on future basis differentials will be dependent on future natural gas production and other factors. Changes in global and domestic macro-economic conditions could result in additional shifts in oil and gas supply and demand in future periods. Although our revenues are directly and indirectly impacted by changes in oil and natural gas prices, we believe our royalty interests (which require no capital expenditures or operating expense burden from us for well development), strong balance sheet, and liquidity position will help us navigate through potential commodity price volatility.

Permian Basin Activity

The Permian Basin is one of the oldest and most well-known hydrocarbon-producing areas and currently accounts for a substantial portion of oil and gas production in the United States, covering approximately 86,000 square miles across southeastern New Mexico and western Texas. Exploration and production (“E&P”) companies operating in the Permian Basin continue to maintain robust drilling and development activity. Per the U.S. Energy Information Administration, Permian production is currently in excess of 6.0 million barrels per day, which is higher than the average daily production in this region for any year prior to 2024.

Due to our ownership concentration in the Permian Basin, our revenues are directly impacted by oil and gas pricing and drilling activity in the Permian Basin. Below are metrics for the three and six months ended June 30, 2024 and 2023:

(1) Commonly used definitions in the oil and gas industry provided in the table above are defined as follows: WTI Cushing represents West Texas Intermediate. Bbl represents one barrel of 42 U.S. gallons of oil. Mmbtu represents one million British thermal units, a measurement used for natural gas. Waha Hub natural gas pricing data per Bloomberg. DUCs represent drilled but uncompleted wells. DUC classification is based on well data and date stamps provided by Enverus. DUCs are based on wells that have a drilled/spud date stamp but do not have a completed or first production date stamp. Excludes wells that have been labeled plugged and abandoned or permit expired and wells drilled/spud more than five years ago.

(2) Permian Basin specific information per Enverus analytics. US weekly horizontal rig counts per Baker Hughes United States Rotary Rig Count for horizontal rigs. Statistics for similar data are also available from other sources. The comparability between these other sources and the sources used by the Company may differ.

The metrics above show selected domestic benchmark oil and natural gas prices and approximate activity levels in the Permian Basin for the three and six months ended June 30, 2024 and 2023. Oil prices in 2024 to date have increased compared to the same period in 2023, while natural gas prices in 2024 to date have declined compared to the same period last year. E&P companies broadly continue to deploy capital at a measured pace as drilling and development activities across the Permian Basin have remained strong overall. As we are a significant landowner in the Permian Basin and not an oil and gas producer, our revenue is affected by the development decisions made by companies that operate in the areas where we own royalty interests and land. Accordingly, these decisions made by others affect, both directly and indirectly, our oil and gas royalties, produced water royalties, water sales, and other surface-related income.

Liquidity and Capital Resources

Overview

Our principal sources of liquidity are cash and cash flows generated from our operations. Our primary liquidity and capital requirements are for capital expenditures related to our Water Services and Operations segment (the extent and timing of which are under our control), working capital and general corporate needs.

We continuously review our levels of liquidity and capital resources. If market conditions were to change and our revenues were to decline significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced. Should this occur, we could seek alternative sources of funding. We have no debt or credit facilities, nor any off-balance sheet arrangements, as of June 30, 2024.

As we evaluate our current capital structure, capital allocation priorities, business fundamentals, and investment opportunities, we have set a target cash and cash equivalents balance of approximately $700 million. Above this target, we will seek to deploy the majority of our free cash flow towards share repurchases and dividends. As of June 30, 2024, we had cash and cash equivalents of $894.7 million that we expect to utilize, along with cash flow from operations, to provide capital to support our business, to repurchase our common stock, par value $0.01 per share (the “Common Stock”), subject to market conditions, to pay dividends subject to the discretion of our board of directors (the “Board”), for potential acquisitions and for general corporate purposes. For the six months ended June 30, 2024, we paid $53.8 million in dividends to our stockholders and we repurchased $16.6 million of our Common Stock (including share repurchases not settled at the end of the period).

In June 2024, the Board declared a special cash dividend of $10.00 per share of Common Stock. The special cash dividend was paid on July 15, 2024 to stockholders of record as of July 1, 2024.

In May 2024, we announced our progress towards developing innovative solutions for produced water in the Permian Basin. Over the last few years, we have been working with a leading industrial technology and manufacturing firm to develop an energy-efficient desalination and treatment process and associated equipment that can recycle produced water into fresh water with quality standards appropriate for surface discharge and beneficial reuse. With the Permian generating approximately 18 million barrels of produced water per day, this technology would provide an attractive and critical alternative to subsurface injection. TPL has successfully tested a pilot program in our research and development lab, and we are now working towards the next phase of constructing a facility with an initial capacity of 10,000 barrels of water per day. TPL filed an application patent for the desalination and treatment process and has secured exclusive use-rights for the equipment towards produced water applications. We are also in commercial discussions with the largest, most active oil and gas upstream operators as we look to provide critical, technology-driven solutions while also optimizing TPL’s economic interests and limiting capital expense. Cumulatively through June 30, 2024, we have spent $7.1 million on this new energy-efficient desalination and treatment process and equipment, of which $4.2 million has been capitalized ($3.6 million of which was capitalized during the six months ended June 30, 2024).

Additionally, during the six months ended June 30, 2024, we invested approximately $8.4 million to maintain and/or enhance our water sourcing assets.

We believe that cash from operations, together with our cash and cash equivalents balances, will be sufficient to meet ongoing capital expenditures, working capital requirements and other cash needs for the foreseeable future.

Cash Flows from Operating Activities

For the six months ended June 30, 2024 and 2023, net cash provided by operating activities was $245.5 million and $199.3 million, respectively. Our cash flow provided by operating activities is primarily from oil, gas and produced water

royalties, water and land sales, easements, and other surface-related income. Cash flows used in operations generally consist of operating expenses associated with our revenue streams, general and administrative expenses and income taxes.

The increase in cash flows provided by operating activities for the six months ended June 30, 2024 compared to the same period of 2023 was primarily driven by an increase in operating income and changes in working capital requirements during 2024 as compared to 2023.

Cash Flows Used in Investing Activities

For the six months ended June 30, 2024 and 2023, net cash used in investing activities was $9.6 million and $27.7 million, respectively. Our cash flows used in investing activities are primarily related to land acquisitions, acquisitions of intangible assets, such as subsurface easements, and capital expenditures related to our water services and operations segment.

Capital expenditures for the six months ended June 30, 2024 and 2023 were $12.2 million and $5.1 million, respectively. For further information regarding capital expenditures, see “Overview” above. Acquisitions of land totaled $1.0 million and $20.0 million for the six months ended June 30, 2024 and 2023, respectively. For further information regarding acquisitions of land, see Note 3, “Real Estate Activity” in the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Cash Flows Used in Financing Activities

For the six months ended June 30, 2024 and 2023, net cash used in financing activities was $71.7 million and $77.3 million, respectively. Our cash flows used in financing activities primarily consist of activities that return capital to our stockholders such as payment of dividends and repurchases of our Common Stock.

During the six months ended June 30, 2024 and 2023, we paid total dividends of $53.8 million and $50.0 million, respectively. During the six months ended June 30, 2024 and 2023, we repurchased $16.6 million and $26.2 million of our Common Stock, respectively (including share repurchases not settled at the end of the period).

Results of Operations - Consolidated

The following table shows our consolidated results of operations for the three and six months ended June 30, 2024 and 2023 (in thousands):

For the Three Months Ended June 30, 2024 as Compared to the Three Months Ended June 30, 2023

Consolidated Revenues and Net Income:

Total revenues increased 7.3%, to $172.3 million for the three months ended June 30, 2024 compared to $160.6 million for the three months ended June 30, 2023. This increase was principally related to a $7.4 million increase in oil and gas royalty revenue, a $4.5 million increase in produced water royalties, and a $3.0 million increase in water sales partially offset by decreases in easements and other surface-related income and land sales over the same period. Individual revenue line items are discussed below under “Segment Results of Operations.” Net income of $114.6 million for the three months ended June 30, 2024 was 14.1% higher than the comparable period of 2023 principally as a result of the increase in revenues discussed above.

Consolidated Expenses:

Salaries and related employee expenses. Salaries and related employee expenses were $12.8 million for the three months ended June 30, 2024 compared to $10.6 million for the comparable period of 2023. The increase in salaries and related employee expenses is principally related to market compensation adjustments that take effect annually at the start of the year.

Water service-related expenses. Water service-related expenses increased $4.5 million to $14.8 million for the three months ended June 30, 2024 compared to the same period of 2023. Certain types of water-related expenses, including, but not limited to, treatment, transfer, water purchases, repairs and maintenance, equipment rental, and fuel costs, will vary from period to period as our customers’ needs and requirements change. Right of way and other expenses will also vary from period to period depending upon location of customer delivery. The increase in water service-related expenses for the three months

ended June 30, 2024 compared to the same period of 2023 is principally related to increased water sales volumes as well as a focus on increasing water production from existing wells, which impacts repairs and maintenance expense, equipment rental and fuel costs. Additionally, research and development expenses related to development of a new energy-efficient method of produced water desalination and treatment were $1.0 million and $0.7 million for the three months ended June 30, 2024 and 2023, respectively. For further discussion of this new treatment method, see “Liquidity and Capital Resources — Overview.”

Legal and professional fees. Legal and professional fees were $2.3 million for the three months ended June 30, 2024 compared to $10.2 million for the comparable period of 2023. The decrease is principally related to a reduction in legal expenses associated with stockholder matters that occurred during the prior year.

Other income, net. Other income, net was $13.2 million and $6.9 million for the three months ended June 30, 2024 and 2023, respectively. The increase in other income, net is primarily related to increased interest income earned on our cash balances during 2024 resulting from higher cash balances and higher interest rates during this period. Additionally, during the three months ended June 30, 2024, we received $1.9 million of proceeds from a settlement with a title company regarding a defect in title to property acquired in a prior year.

Total income tax expense. Total income tax expense was $31.9 million and $26.8 million for the three months ended June 30, 2024 and 2023, respectively. The increase in income tax expense is primarily related to increased operating income resulting from increased consolidated revenues.

For the Six Months Ended June 30, 2024 as Compared to the Six Months Ended June 30, 2023

Consolidated Revenues and Net Income:

Total revenues increased to $346.5 million for the six months ended June 30, 2024 compared to $307.0 million for the six months ended June 30, 2023. This increase was principally due to an $18.4 million increase in water sales, a $10.4 million increase in oil and gas royalty revenue, and a $7.3 million increase in produced water royalties over the same period. Individual revenue line items are discussed below under “Segment Results of Operations.” Net income of $229.0 million for the six months ended June 30, 2024 was 22.5% higher than the comparable period of 2023, principally as a result of the increase in revenues discussed above.

Consolidated Expenses:

Salaries and related employee expenses. Salaries and related employee expenses were $25.2 million for the six months ended June 30, 2024 compared to $21.2 million for the same period of 2023. This increase in salaries and related employee expenses is principally related to an increase in market compensation adjustments that take effect annually at the start of the year.

Water service-related expenses. Water service-related expenses increased $9.1 million to $25.0 million for the six months ended June 30, 2024 compared to the same period of 2023. Certain types of water-related expenses, including, but not limited to, treatment, transfer, water purchases, repairs and maintenance, equipment rental, and fuel costs, will vary from period to period as our customers’ needs and requirements change. Right of way and other expenses will also vary from period to period depending upon location of customer delivery. The increase in water service-related expenses for the six months ended June 30, 2024 is principally related to the 31.0% increase in water sales over the same period of 2023 primarily as a result of increased customer volumes. Additionally, a focus on increasing water production from existing wells resulted in increased repairs and maintenance expense, equipment rental, and fuel costs. Research and development expenses related to development of a new energy-efficient method of produced water desalination and treatment were $1.4 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively. For further discussion of this new treatment method, see “Liquidity and Capital Resources — Overview.”

General and administrative expenses. General and administrative expenses increased $1.7 million to $8.6 million for the six months ended June 30, 2024 compared to the same period of 2023. During the six months ended June 30, 2024, stock awards that were vested in full on the grant date were granted to members of the Board which resulted in immediate recognition of the fair value of the awards on the date of grant. See further discussion of this change in Note 7, “Share-Based Compensation” in the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. The increased board compensation expense for the six months ended June 30, 2024 resulting from this policy change is a one-time event. Additionally, expenses for corporate insurance, resulting from increased coverages and insurance rates, and technology applications for the six months ended June 30, 2024 increased over the same period of 2023.

Legal and professional fees. Legal and professional fees were $6.4 million for the six months ended June 30, 2024 compared to $26.8 million for the same period of 2023. The decrease is principally related to a reduction in legal expenses associated with stockholder matters that occurred during the prior year.

Other income, net. Other income, net was $23.2 million and $12.3 million for the six months ended June 30, 2024 and 2023, respectively. The increase in other income, net is primarily related to increased interest income earned on our cash balances during 2024 resulting from higher cash balances and interest rates during this period. Additionally, during the six months ended June 30, 2024, we received $1.9 million of proceeds from a settlement with a title company regarding a defect in title to property acquired in a prior year.

Total income tax expense. Total income tax expense was $63.4 million and $50.5 million for the six months ended June 30, 2024 and 2023, respectively. The increase in income tax expense is primarily related to increased operating income resulting from increased consolidated revenues.

Segment Results of Operations

We operate our business in two reportable segments: Land and Resource Management and Water Services and Operations. We eliminate any inter-segment revenues and expenses upon consolidation.

We evaluate the performance of our operating segments separately to monitor the different factors affecting financial results. The reportable segments presented are consistent with our reportable segments discussed in Note 13, “Business Segment Reporting” in the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. We monitor our reporting segments based upon revenue and net income calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Our results of operations for the three and six months ended June 30, 2024 continue to benefit from activity in the Permian Basin. Our oil and gas royalty revenues have increased due to year to date increased royalty production. Additionally, revenues derived from water sales, produced water royalties, and easements and other surface-related income have also been positively impacted by our active management of our surface and royalty interests in recent years.

For the Three Months Ended June 30, 2024 as Compared to the Three Months Ended June 30, 2023

The following is an analysis of our operating results for the comparable periods by reportable segment (in thousands):

Land and Resource Management

Land and Resource Management segment revenues increased $2.7 million to $104.0 million for the three months ended June 30, 2024 as compared to the same period of 2023. The increase in Land and Resource Management segment revenues is related to a $7.4 million increase in oil and gas royalty revenue, partially offset by a $3.7 million decrease in easements and other surface-related income for the three months ended June 30, 2024 compared to the same period of 2023.

Oil and gas royalties. Oil and gas royalty revenue was $89.8 million for the three months ended June 30, 2024 compared to $82.4 million for the three months ended June 30, 2023, an increase of 9.0%. Oil and gas royalties increased $7.4 million due to higher realized oil and NGLs (natural gas liquids) pricing for the three months ended June 30, 2024 compared to the same period of 2023. The average realized price increased 8.9% to $41.44 per barrels of oil equivalent (“Boe”) for the three months ended June 30, 2024 from $38.04 per Boe for the three months ended June 30, 2023. Our share of production was 24.9 thousand per Boe per day for the three months ended June 30, 2024 and 2023.

The financial and operational data by royalty stream is presented in the table below for the three months ended June 30, 2024 and 2023:

*(1)*Commonly used definitions in the oil and gas industry not previously defined: MBbls represents one thousand barrels of crude oil, condensate or NGLs. Mcf represents one thousand cubic feet of natural gas. MMcf represents one million cubic feet of natural gas. MBoe represents one thousand Boe. MBoe/d represents one thousand Boe per day.

Easements and other surface-related income. Easements and other surface-related income was $14.2 million for the three months ended June 30, 2024, a decrease of $3.7 million compared to $17.9 million for the three months ended June 30, 2023. Easements and other surface-related income includes revenue related to the use and crossing of our land for oil and gas exploration and production, renewable energy, and agricultural operations. The decrease in easements and other surface-related income is principally related to decreases of $1.6 million in wellbore easements and $0.6 million in material sales for the three months ended June 30, 2024 compared to the same period of 2023. Easements and other surface-related income is dependent on development decisions made by companies that operate in the areas where we own land and is, therefore, unpredictable and may vary significantly from period to period. See “Market Conditions” above for additional discussion of development activity in the Permian Basin during the three months ended June 30, 2024.

Net income. Net income for the Land and Resource Management segment increased 15.1% to $80.1 million for the three months ended June 30, 2024 compared to $69.6 million for the three months ended June 30, 2023. Segment operating income increased $10.0 million for the three months ended June 30, 2024 compared to the same period of 2023, largely driven by the $7.9 million decrease in legal and professional fees and the $2.7 million increase in segment revenues. Expenses are discussed further above under “Results of Operations - Consolidated.”

Water Services and Operations

Water Services and Operations segment revenues increased 15.2% to $68.3 million for the three months ended June 30, 2024 as compared with revenues of $59.3 million for the same period of 2023. The increase in Water Services and Operations segment revenues is principally due to increases in water sales revenue and produced water royalties, which are discussed below. As discussed in “Market Conditions” above, our segment revenues are directly influenced by development decisions made by our customers and the overall activity level in the Permian Basin. Accordingly, our segment revenues and sales volumes, as further discussed below, will fluctuate from period to period based upon those decisions and activity levels.

Water sales. Water sales revenue increased $3.0 million to $40.7 million for the three months ended June 30, 2024, compared to the same period of 2023. The growth in water sales is principally due to an increase of 9.5% in water sales volumes for the three months ended June 30, 2024, compared to the same period of 2023.

Produced water royalties. Produced water royalties are received from the transfer or disposal of produced water on our land. Produced water royalties are contractual and not paid as a matter of right. We do not operate any salt water disposal wells. Produced water royalties were $25.3 million for the three months ended June 30, 2024 compared to $20.8 million for the same period in 2023. This increase is principally due to increased produced water volumes for the three months ended June 30, 2024 compared to the same period of 2023.

Easements and other surface-related income. Easements and other surface-related income was $2.4 million for the three months ended June 30, 2024, an increase of $1.6 million compared to the same period in 2023. The increase in easements and other surface-related income primarily relates to an increase in temporary permits for sourced water lines for the three months ended June 30, 2024, compared to the same period in 2023.

Net income. Net income for the Water Services and Operations segment was $34.5 million for the three months ended June 30, 2024 compared to $30.8 million for the three months ended June 30, 2023. Segment operating income increased $3.0 million for the three months ended June 30, 2024 compared to the same period of 2023. The increase is principally due to the $9.0 million increase in segment revenues partially offset by the $4.5 million increase in water service-related expenses. Expenses are discussed further above under “Results of Operations - Consolidated.”

For the Six Months Ended June 30, 2024 as Compared to the Six Months Ended June 30, 2023

The following is an analysis of our operating results for the comparable periods by reportable segment (in thousands):

Land and Resource Management

Land and Resource Management segment revenues increased $10.2 million to $215.5 million for the six months ended June 30, 2024 as compared with $205.3 million for the comparable period of 2023. The increase in Land and Resource Management segment revenues is principally due to the $10.4 million increase in oil and gas royalty revenue for the six months ended June 30, 2024 compared to the same period of 2023.

Oil and gas royalties. Oil and gas royalty revenue was $181.9 million for the six months ended June 30, 2024 compared to $171.5 million for the six months ended June 30, 2023, an increase of $10.4 million. Oil and gas royalties for the six months ended June 30, 2023 included an $8.7 million recovery with an operator with respect to unpaid oil and gas royalties for older production periods. Excluding the impact of the $8.7 million recovery on 2023 revenue, oil and gas royalties for the six months ended June 30, 2024 increased $19.1 million over the six months ended June 30, 2023 due to higher production volumes and average oil and NGL realized prices over the same periods. Our share of production increased to 24.9 thousand Boe per day for the six months ended June 30, 2024 compared to 22.9 thousand Boe per day for the same period of 2023. The average realized prices increased to $42.07 per Boe for the six months ended June 30, 2024 from $41.08 per Boe for the same period of 2023.

The table below provides financial and operational data by royalty stream for the six months ended June 30, 2024 and 2023:

*(1)*The metrics and dollars provided for the six months ended June 30, 2023 exclude the impact of the $8.7 million settlement of oil and gas royalties discussed above.

Net income. Net income for the Land and Resource Management segment increased $26.1 million to $161.1 million for the six months ended June 30, 2024 compared to $135.0 million for the six months ended June 30, 2023. Segment operating income increased $27.4 million for the six months ended June 30, 2024 compared to the same period of 2023, largely driven by the $20.3 million decrease in legal and professional fees and the $10.4 million increase in oil and gas royalty revenue. Expenses are discussed further above under “Results of Operations — Consolidated.”

Water Services and Operations

Water Services and Operations segment revenues increased 28.9% to $131.0 million for the six months ended June 30, 2024 as compared with revenues of $101.6 million for the same period of 2023. The increase in Water Services and Operations segment revenues is principally due to increases in water sales revenue and produced water royalties, which are discussed below. As discussed in “Market Conditions” above, our segment revenues are directly influenced by development decisions made by our customers and the overall activity level in the Permian Basin. Accordingly, our segment revenues and sales volumes, as further discussed below, will fluctuate from period to period based upon those decisions and activity levels.

Water sales. Water sales revenue increased $18.4 million, or 31.0% to $77.8 million for the six months ended June 30, 2024 compared to the same period of 2023. The growth in water sales is principally due to an increase of 25.5% in water sales volumes for the six months ended June 30, 2024 compared to the same period of 2023.

Produced water royalties. Produced water royalties are royalties received from the transfer or disposal of produced water on our land. Produced water royalties are contractual and not paid as a matter of right. We do not operate any salt water disposal wells. Produced water royalties were $48.3 million for the six months ended June 30, 2024 compared to $41.0 million for the comparable period of 2023. This increase is principally due to increased produced water volumes for the six months ended June 30, 2024 compared to the same period of 2023.

Easements and other surface-related income. Easements and other surface-related income was $4.9 million for the six months ended June 30, 2024, an increase of $3.6 million compared to $1.3 million for the six months ended June 30, 2023. The increase in easements and other surface-related income primarily relates to an increase in temporary permits for sourced water lines for the six months ended June 30, 2024 compared to the same period in 2023.

Net income. Net income for the Water Services and Operations segment was $67.9 million for the six months ended June 30, 2024 compared to $52.0 million for the six months ended June 30, 2023. Segment operating income increased $16.7 million for the six months ended June 30, 2024 compared to the same period of 2023. The increase is principally due to the $29.3 million increase in segment revenues and was partially offset by the $9.1 million increase in water service-related expenses. Expenses are discussed further above under “Results of Operations — Consolidated.”

Non-GAAP Performance Measures

In addition to amounts presented in accordance with GAAP, we also present certain supplemental non-GAAP performance measurements. These measurements are not to be considered more relevant or accurate than the measurements presented in accordance with GAAP. In compliance with the requirements of the SEC, our non-GAAP measurements are reconciled to net income, the most directly comparable GAAP performance measure. For all non-GAAP measurements, neither the SEC nor any other regulatory body has passed judgment on these non-GAAP measurements.

EBITDA, Adjusted EBITDA and Free Cash Flow

EBITDA is a non-GAAP financial measurement of earnings before interest expense, taxes, depreciation, depletion and amortization. Its purpose is to highlight earnings without finance, taxes, and depreciation, depletion and amortization expense, and its use is limited to specialized analysis. We calculate Adjusted EBITDA as EBITDA plus employee share-based compensation. Its purpose is to highlight earnings without non-cash activity such as share-based compensation and other non-recurring or unusual items, if applicable. We calculate Free Cash Flow as Adjusted EBITDA less current income tax expense and capital expenditures. Its purpose is to provide an additional measure of operating performance. We have presented EBITDA, Adjusted EBITDA and Free Cash Flow because we believe that these metrics are useful supplements to net income in analyzing the Company's operating performance. Our definitions of Adjusted EBITDA and Free Cash Flow may differ from computations of similarly titled measures of other companies.

The following table presents a reconciliation of net income to EBITDA, Adjusted EBITDA and Free Cash Flow for the three and six months ended June 30, 2024 and 2023 (in thousands):

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures of contingent assets and liabilities. For a full discussion of our accounting policies please refer to Note 2 to the Consolidated Financial Statements included in our 2023 Annual Report on Form 10-K filed with the SEC on February 21, 2024.

There have been no material changes to our critical accounting policies or in the estimates and assumptions underlying those policies, from those provided in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2023 Annual Report on Form 10-K.

New Accounting Pronouncements

For further information regarding recently issued accounting pronouncements, see Note 2, “Summary of Significant Accounting Policies” in the notes to the condensed consolidated financial statements included in Item 1. “Financial Statements” in this Quarterly Report on Form 10-Q.

There have been no material changes in the information related to market risk of the Company disclosed in Part II, Item 7A. “Quantitative and Qualitative Disclosure about Market Risk” set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 21, 2024.

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15 under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2024.

There have been no changes during the quarter ended June 30, 2024 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

TPL is not involved in any material pending legal proceedings.

There have been no material changes in the risk factors previously disclosed in response to Part I, Item 1A. “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 21, 2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended June 30, 2024, the Company repurchased shares of its Common Stock as follows:

*(1)*On November 1, 2022, our Board approved a stock repurchase program to purchase up to an aggregate of $250.0 million of our outstanding Common Stock effective beginning January 1, 2023. The Company intends to purchase Common 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 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.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

(c) Rule 10b5-1 Trading Arrangements

On May 15, 2024, Murray Stahl, a member of our Board of Directors, on behalf of himself and accounts managed by Horizon Kinetics Asset Management LLC over which Mr. Stahl has a controlling interest, adopted a “10b5-1 trading arrangement,” as defined in Item 408 of Regulation S-K that is intended to satisfy the affirmative defense of Rule 10b5-1(c) promulgated under the Exchange Act, for the purchase of up to 738 shares of Common Stock. This 10b5-1 trading arrangement begins August 15, 2024 and is scheduled to expire on the earlier of (i) December 13, 2024 or (ii) the acquisition of 738 shares of Common Stock.

EXHIBIT INDEX

• Filed or furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.