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, 2024		December 31, 2023
ASSETS
Cash and cash equivalents	$	533,914	$	725,169
Accounts receivable and accrued receivables, net	122,627		128,971
Prepaid expenses and other current assets	48,426		2,944
Tax like-kind exchange escrow	—		5,380
Prepaid income taxes	4,002		—
Total current assets	708,969		862,464
Real estate acquired	142,727		130,024
Property, plant and equipment, net	119,108		89,587
Royalty interests acquired, net	164,028		46,609
Intangible assets, net	35,773		21,025
Real estate and royalty interests assigned through the Declaration of Trust, no value assigned:
Land (surface rights)	—		—
1/16th nonparticipating perpetual royalty interest	—		—
1/128th nonparticipating perpetual royalty interest	—		—

Other assets	4,964		6,689
Total assets	$	1,175,569	$	1,156,398
LIABILITIES AND EQUITY
Accounts payable and accrued expenses	$	40,560	$	22,501
Ad valorem and other taxes payable	7,860		10,761
Income taxes payable	2,217		4,795
Unearned revenue	6,694		6,330
Total current liabilities	57,331		44,387
Deferred taxes payable	44,528		42,365
Unearned revenue - noncurrent	20,625		25,006

Accrued liabilities - noncurrent	953		1,444
Total liabilities	123,437		113,202

Commitments and contingencies	—		—
Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none outstanding as of September 30, 2024 and December 31, 2023	—		—
Common stock, $0.01 par value; 46,536,936 and 7,756,156 shares authorized as of September 30, 2024 and December 31, 2023, respectively, and 22,977,125 and 23,007,681 (as adjusted for stock split) outstanding as of September 30, 2024 and December 31, 2023, respectively	231		78
Treasury stock, at cost; 108,951 and 86,929 shares as of September 30, 2024 and December 31, 2023, respectively	(162,416)		(144,998)
Additional paid-in capital	16,391		14,613
Accumulated other comprehensive income	1,768		1,831
Retained earnings	1,196,158		1,171,672
Total equity	1,052,132		1,043,196
Total liabilities and equity	$	1,175,569	$	1,156,398

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,
	2024		2023		2024		2023
Revenues:
Oil and gas royalties	$	94,444	$	87,102	$	276,377	$	258,644
Water sales	36,211		26,422		113,987		85,799
Produced water royalties	27,727		20,849		76,034		61,824
Easements and other surface-related income	14,280		18,188		51,496		51,865
Land sales	901		5,406		2,145		6,806
Total revenues	173,563		157,967		520,039		464,938

Expenses:
Salaries and related employee expenses	14,030		11,499		39,262		32,688
Water service-related expenses	11,731		8,553		36,767		24,496
General and administrative expenses	4,029		3,859		12,626		10,738
Legal and professional fees	8,316		1,689		14,680		28,471
Ad valorem and other taxes	2,189		1,781		5,990		5,425
Land sales expenses	175		44		425		49
Depreciation, depletion and amortization	5,762		3,584		13,695		10,881
Total operating expenses	46,232		31,009		123,445		112,748

Operating income	127,331		126,958		396,594		352,190

Other income, net	8,086		7,979		31,249		20,239
Income before income taxes	135,417		134,937		427,843		372,429



Income tax expense	28,823		29,363		92,243		79,894
Net income	$	106,594	$	105,574	$	335,600	$	292,535




Other comprehensive loss — periodic pension costs, net of income taxes for the three and nine months ended September 30, 2024 and 2023 of $6, $7, $17, and $21, respectively	(21)		(26)		(63)		(77)
Total comprehensive income	$	106,573	$	105,548	$	335,537	$	292,458

Net income per share of common stock
Basic	$	4.64	$	4.58	$	14.60	$	12.69
Diluted	$	4.63	$	4.58	$	14.58	$	12.68

Weighted average number of shares of common stock outstanding
Basic	22,979,781		23,026,563		22,990,213		23,054,073
Diluted	23,012,169		23,045,323		23,016,733		23,072,955

Cash dividends per share of common stock	$	11.17	$	1.08	$	13.51	$	3.24

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,
	2024		2023
Cash flows from operating activities:
Net income	$	335,600	$	292,535
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	13,695		10,881
Share-based compensation	8,989		8,112

Deferred taxes	2,163		(1,034)
Changes in operating assets and liabilities:
Operating assets, excluding income taxes	5,806		(19,554)
Operating liabilities, excluding income taxes	4,423		9,995
Income taxes payable	(2,578)		1,114
Prepaid income taxes	(4,002)		4,809

Cash provided by operating activities	364,096		306,858

Cash flows from investing activities:
Acquisition of royalty interests, net of post-close adjustments	(120,334)		(3,566)
Acquisition of a business	(45,000)		—
Deposit for acquisition	(42,952)		—
Acquisition of intangible assets	—		(21,403)
Acquisition of real estate	(1,026)		(20,320)
Purchase of fixed assets	(16,451)		(10,630)
Proceeds from sale of fixed assets	—		5
Cash used in investing activities	(225,763)		(55,914)

Cash flows from financing activities:
Dividends paid	(310,550)		(74,979)
Settlement of common stock repurchases	(22,795)		(32,325)
Shares exchanged for tax withholdings	(1,623)		(1,284)
Cash used in financing activities	(334,968)		(108,588)

Net increase in cash, cash equivalents and restricted cash	(196,635)		142,356
Cash, cash equivalents and restricted cash, beginning of period	730,549		517,182
Cash, cash equivalents and restricted cash, end of period	$	533,914	$	659,538

Supplemental disclosure of cash flow information:
Income taxes paid	$	96,648	$	74,984
Supplemental non-cash investing and financing information:

Increase in accounts payable related to capital expenditures	$	5,543	$	(243)

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

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 873,000 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 8,000 additional net royalty acres (normalized to 1/8th) (“NRA”) for a collective total of approximately 199,000 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”).

Increase in Authorized Shares of Common Stock

As of December 31, 2023, the Company had authorized shares consisting of 1,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”), and 7,756,156 shares of common stock, par value $0.01 per share (“Common Stock”). On March 1, 2024, we filed a Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Company (the “Certificate of Incorporation”) with the Secretary of State of the State of Delaware, pursuant to which the Certificate of Incorporation was amended and restated 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 March 26, 2024, we effected a three-for-one stock split in the form of a stock dividend of two shares of Common Stock for every share of Common Stock outstanding to stockholders of record as of March 18, 2024. All shares, stock awards, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance stock units (“PSUs”) and per share information have been retroactively adjusted to reflect the stock split. The three-for-one stock split was not applied to shares held as treasury stock. The shares of Common Stock retain 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.”

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, 2023. 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, 2024 and the results of its operations for the three and nine months ended September 30, 2024 and 2023, and its cash flows for the nine months ended September 30, 2024 and 2023. 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 Quarterly Report, and 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, 2023. The results for the interim periods shown in this Quarterly 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 14, “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 condensed consolidated balance sheets that correspond to the same such amounts shown in the condensed consolidated statements of cash flows as of September 30, 2024 and December 31, 2023 (in thousands):


	September 30, 2024		December 31, 2023
Cash and cash equivalents	$	533,914	$	725,169
Tax like-kind exchange escrow	—		5,380
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	533,914	$	730,549

Business Combinations and Asset Acquisitions

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 where the purchase price of the acquisition is allocated to the assets acquired on a relative fair value basis on the date of acquisition. We generally account for acquisitions of mineral and royalty interests as asset acquisitions. Inputs used to determine such fair values are primarily based upon internally-developed models, publicly-available drilling information, a risk-adjusted discount rate and publicly-available data regarding mineral transactions consummated by other buyers and sellers, as applicable. These fair values are considered 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 for 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 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.

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 revenue, 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, approximately 392 acres are leased to, and operated by, an environmental solution (“ES”) company that operates a nonhazardous oilfield solids waste disposal site. The ES company pays a 7.5% royalty, on revenue generated, to the Company. The Company reports this 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. When determining the fair values of assets acquired, management made estimates, judgements 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 costs analysis. These fair values are considered Level 3 assets in the fair value hierarchy. There was no goodwill recorded on this acquisition.

The Company’s determination of the fair value attributable to the Acquired Assets based on the fair value at the acquisition date is preliminary. Certain data necessary to complete the purchase price allocation is subject to change. We expect to complete the purchase price allocation prior to December 31, 2024, during which time the value of the assets may be revised as appropriate. The following table presents the allocation of fair value by asset class as of August 20, 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

The Company incurred $0.1 million of transaction-related costs related to this asset acquisition during the nine months ended September 30, 2024 and such costs are included in general and administrative expenses in the condensed consolidated statements of income.

From August 20, 2024 through September 30, 2024, revenues and operating expenses from the business combination were approximately $0.7 million and $0.1 million, respectively, and are included in our condensed consolidated statements of income. Pro forma financial information is not disclosed as the acquisition was deemed not to have a material impact on our results of operations.

4. Real Estate Activity

As of September 30, 2024 and December 31, 2023, TPL owned the following land and real estate (in thousands, except number of acres):


	September 30, 2024			December 31, 2023
	Number of Acres	Net Book Value		Number of Acres	Net Book Value
Land (surface rights) (1)	798,991	$	—	798,999	$	—
Real estate acquired	74,124	142,727		69,447	130,024
Total real estate	873,115	$	142,727	868,446	$	130,024

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

Land Acquisitions

During the nine months ended September 30, 2024, we acquired 4,120 acres in a business combination with a fair value of $12.1 million and 640 acres of land for an aggregate purchase price of $1.0 million. See further discussion of the business combination at Note 3, “Assets Acquired in a Business Combination.” During the nine months ended September 30, 2023, we acquired 12,141 acres of land for an aggregate purchase price of $20.0 million.

Land Sales

For the nine months ended September 30, 2024, we sold 91 acres of land for an aggregate sales price of $2.1 million. For the nine months ended September 30, 2023, we sold 18,061 acres of land for an aggregate sales price of $6.8 million.

5. Property, Plant and Equipment

Property, plant and equipment, net consisted of the following as of September 30, 2024 and December 31, 2023 (in thousands):


	September 30, 2024		December 31, 2023
Property, plant and equipment, at cost:
Water service-related assets (1)	$	175,269	$	136,340
Furniture, fixtures and equipment	10,018		9,801
Other	598		598
Total property, plant and equipment, at cost	185,885		146,739
Less: accumulated depreciation	(66,777)		(57,152)
Property, plant and equipment, net	$	119,108	$	89,587

*(1)*Includes $17.2 million of assets acquired in a business combination. For further information, see Note 3, “Assets Acquired in a Business Combination.”

Depreciation expense was $3.4 million and $3.0 million for the three months ended September 30, 2024 and 2023, respectively. Depreciation expense was $9.7 million and $9.3 million for the nine months ended September 30, 2024 and 2023, respectively.

6. Oil and Gas Royalty Interests

As of September 30, 2024 and December 31, 2023, we owned the following oil and gas royalty interests (in thousands):


	September 30, 2024		December 31, 2023
Oil and gas royalty interests:
1/16th nonparticipating perpetual royalty interests (1)	$	—	$	—
1/128th nonparticipating perpetual royalty interests (1)	—		—
Royalty interests acquired, at cost	171,828		51,494
Total royalty interests	171,828		51,494
Less: accumulated depletion	(7,800)		(4,885)
Royalty interests, net	$	164,028	$	46,609

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

During the nine months ended September 30, 2024, we acquired oil and gas royalty interests in 4,106 NRA in Culberson County, Texas for a purchase price of approximately $120.3 million, net of post-close adjustments, in an all-cash transaction. The acquisition was completed in conjunction with another entity that assigned a share of its interest in a purchase and sales agreement with an unaffiliated seller to the Company. Each party paid a pro-rata share of the purchase price and closing costs to the seller.

During the nine months ended September 30, 2023, we acquired oil and gas royalty interests in 119 NRA for an aggregate purchase price of approximately $3.6 million. There were no sales of oil and gas royalty interests during the nine months ended September 30, 2024 and 2023, respectively.

Depletion expense was $1.9 million and $0.5 million for the three months ended September 30, 2024 and 2023, respectively. Depletion expense was $2.9 million and $1.4 million for the nine months ended September 30, 2024 and 2023, respectively.

7. Intangible Assets

Intangible assets, net consisted of the following as of September 30, 2024 and December 31, 2023 (in thousands):


	September 30, 2024		December 31, 2023
Intangible assets, at cost:
Saltwater disposal easement	$	17,557	$	17,557
Contracts acquired in a business combination (1)	15,700		—
Groundwater rights acquired	3,846		3,846
Total intangible assets, at cost (2)	37,103		21,403
Less: accumulated amortization	(1,330)		(378)
Intangible assets, net	$	35,773	$	21,025

*(1)*See further discussion in Note 3, “Assets Acquired in a Business Combination.”

*(2)*The remaining weighted average amortization period for total intangible assets was 15.8 years as of September 30, 2024.

Amortization of intangible assets was $0.4 million and $1.0 million for the three and nine months ended September 30, 2024, respectively. 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 $0.6 million for the remainder of 2024, $2.3 million for each year of 2025 through 2029, and $23.7 million thereafter.

8. 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, with the 2021 Plan, collectively referred to herein as the “Plans”). In conjunction with the three-for-one stock split effected on March 26, 2024, the Plans were adjusted to increase the authorized number of shares that may be issued under the Plans. As of September 30, 2024, share-based compensation granted under the Plans has included these award types: stock awards, RSAs, RSUs and 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 prior to October 31, 2023 under the 2021 Directors Plan vested on the first anniversary of the award. Effective October 31, 2023, the 2021 Directors Plan was amended such that stock awards granted vest in full on the date of grant.

Incentive Plan for Employees

The maximum aggregate number of shares of the Company’s Common Stock that may be issued under the 2021 Plan is 225,000 shares, which may consist, in whole or in part, of authorized and unissued shares, treasury shares, or shares reacquired by the Company in any manner. As of September 30, 2024, 136,238 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, 2024 and 2023:


	Nine Months Ended September 30,
	2024						2023
	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)	—	$	—	18,675	$	527	4,011	$	417	16,836	$	441
Granted (2)	—	—		12,655	481		—	—		8,544	641
Vested (3)	—	—		(7,812)	507		—	—		(5,592)	441
Cancelled and forfeited	—	—		(306)	528		—	—		—	—
Nonvested at end of period	—	$	—	23,212	$	509	4,011	$	417	19,788	$	528

*(1)*There were 4,011 RSAs unvested as of September 30, 2023. As of December 31, 2023, the 4,011 RSAs had either vested or had been forfeited. No additional RSAs have been granted under the 2021 plan.

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

*(3)*Of the 7,812 RSUs that vested during the nine months ended September 30, 2024, 2,948 RSUs were surrendered by employees to the Company upon vesting to settle tax withholdings.

The following table summarizes activity related to PSUs for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,
	2024			2023
	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)	12,738	$	595	7,182	$	452
Granted (2)	8,340	538		5,556	781
Vested	—	—		—	—
Cancelled and forfeited	—	—		—	—
Nonvested at end of period	21,078	$	573	12,738	$	595

*(1)*Nonvested PSUs as of January 1, 2024 include 6,369 RTSR (as defined below) PSUs and 6,369 FCF (as defined below) PSUs. If the maximum amount of the performance metrics described in the PSU agreements are achieved, the actual number of shares that will ultimately be awarded under the PSU agreements will exceed target PSUs by 100% (i.e., a collective 12,738 additional shares would be issued).

*(2)*The PSUs were granted on February 13, 2024 and include 4,170 RTSR PSUs (based on target) with a grant date fair value of $602 per share and 4,170 FCF PSUs (based on target) with a grant date fair value of $475 per share. If the maximum amount of the performance metrics described in the PSU agreements are achieved, the actual number of shares that will ultimately be awarded under the PSU agreements will exceed target PSUs by 100% (i.e., a collective 8,340 additional shares 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 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. Because 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. 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 30,000 shares, which may consist, in whole or in part, of authorized and unissued shares, treasury shares, or shares reacquired by the Company in any manner. As of September 30, 2024, 24,219 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, 2024 and 2023:


	Nine Months Ended September 30,
	2024			2023
	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	1,134	$	781	2,097	$	427
Granted (1)	—	—		1,458	781
Vested	(1,134)	781		(2,097)	427
Cancelled and forfeited	—	—		—	—
Nonvested at end of period	—	$	—	1,458	$	781

*(1)*RSAs granted prior to October 31, 2023 vest on the first anniversary of the grant date.

In January 2024, the Company granted a total of 2,160 shares of Common Stock with a grant date fair value of $524 per share, which was the closing price of its Common Stock on the date of grant, to the members of the Company’s board of directors (the “Board”). The stock awards were vested 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 condensed consolidated statements of income (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Salaries and related employee expenses (employee awards)	$	2,935	$	2,502	$	7,855	$	7,217
General and administrative expenses (director awards)	—		287		1,134		895
Total share-based compensation expense (1)	$	2,935	$	2,789	$	8,989	$	8,112

*(1)*The Company recognized a tax benefit of $0.6 million related to share-based compensation for each of the three months ended September 30, 2024 and 2023. The Company recognized a tax benefit of $1.9 million and $1.7 million related to share-based compensation for the nine months ended September 30, 2024 and 2023, respectively.

As of September 30, 2024, there was $11.6 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.

9. Other Income, Net

Other income, net, includes interest earned on our cash balances and miscellaneous income (expense).

Other income, net for the three and nine months ended September 30, 2024 and 2023 was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Other income, net:
Interest earned on cash and cash equivalents, net	$	7,913	$	7,850	$	28,475	$	19,849

Miscellaneous income (expense), net (1)	173		129		2,774		390
Total other income, net	$	8,086	$	7,979	$	31,249	$	20,239

*(1)*During the nine months ended September 30, 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.

10. Income Taxes

The calculation of our effective tax rate was as follows for the three and nine months ended September 30, 2024 and 2023 (in thousands, except percentages):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Income before income taxes	$	135,417		$	134,937		$	427,843		$	372,429
Income tax expense	$	28,823		$	29,363		$	92,243		$	79,894
Effective tax rate	21.3		%	21.8		%	21.6		%	21.5		%

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.

11. 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, 2024 and 2023 (in thousands, except number of shares and per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net income	$	106,594	$	105,574	$	335,600	$	292,535

Basic earnings per share:
Weighted average shares outstanding for basic earnings per share	22,979,781		23,026,563		22,990,213		23,054,073
Basic earnings per share	$	4.64	$	4.58	$	14.60	$	12.69

Diluted earnings per share:
Weighted average shares outstanding for basic earnings per share	22,979,781		23,026,563		22,990,213		23,054,073
Effect of dilutive securities:
Incentive and equity compensation plans	32,388		18,760		26,520		18,882
Weighted average shares outstanding for diluted earnings per share	23,012,169		23,045,323		23,016,733		23,072,955
Diluted earnings per share	$	4.63	$	4.58	$	14.58	$	12.68

Restricted stock, if any, 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 were anti-dilutive for the three and nine months ended September 30, 2023. There were no anti-dilutive securities for the three and nine months ended September 30, 2024.

12. 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, 2024, 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 September 30, 2024.

13. Changes in Equity

The following tables present changes in our equity for the nine months ended September 30, 2024 and 2023 (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
For the nine months ended September 30, 2024:
Balances as of December 31, 2023	23,007,681	$	78	$	(144,998)	$	14,613	$	1,831	$	1,171,672	$	1,043,196
Net income	—	—		—		—		—		114,417		114,417
Issuance of common stock related to stock split	—	153		—		(153)		—		—		—
Dividends paid — $1.17 per share of common stock	—	—		—		—		—		(26,907)		(26,907)
Share-based compensation, net of forfeitures	8,373	—		4,698		(1,297)		—		15		3,416
Repurchases of common stock and related excise taxes	(20,106)	—		(10,445)		—		—		—		(10,445)
Shares exchanged for tax withholdings	(2,469)	—		(1,207)		—		—		—		(1,207)
Periodic pension costs, net of income taxes of $6	—	—		—		—		(21)		—		(21)
Balances as of March 31, 2024	22,993,479	231		(151,952)		13,163		1,810		1,259,197		1,122,449
Net income	—	—		—		—		—		114,589		114,589
Dividends paid — $1.17 per share of common stock	—	—		—		—		—		(26,894)		(26,894)
Share-based compensation, net of forfeitures	—	—		—		2,700		—		(58)		2,642
Repurchases of common stock and related excise taxes	(10,087)	—		(6,344)		—		—		—		(6,344)
Periodic pension costs, net of income taxes of $5	—	—		—		—		(21)		—		(21)
Balances as of June 30, 2024	22,983,392	231		(158,296)		15,863		1,789		1,346,834		1,206,421
Net income	—	—		—		—		—		106,594		106,594
Dividends paid — $1.17 per share of common stock	—	—		—		—		—		(26,915)		(26,915)
Special dividends paid — $10.00 per share of common stock	—	—		—		—		—		(229,834)		(229,834)
Share-based compensation, net of forfeitures	1,599	—		2,430		528		—		(521)		2,437
Repurchases of common stock and related excise taxes	(7,387)	—		(6,134)		—		—		—		(6,134)
Shares exchanged for tax withholdings	(479)	—		(416)		—		—		—		(416)
Periodic pension costs, net of income taxes of $6	—	—		—		—		(21)		—		(21)
Balances as of September 30, 2024	22,977,125	$	231	$	(162,416)	$	16,391	$	1,768	$	1,196,158	$	1,052,132


	Common Stock			Treasury Stock		Additional Paid-in Capital		Accum. Other Comp. Income (Loss)		Retained Earnings		Total Equity
	Shares	Amount
For the nine months ended September 30, 2023:
Balances as of December 31, 2022	23,087,037	$	78	$	(104,139)	$	8,293	$	2,516	$	866,139	$	772,887
Net income	—	—		—		—		—		86,568		86,568
Dividends paid — $1.08 per share of common stock	—	—		—		—		—		(25,061)		(25,061)
Share-based compensation, net of forfeitures	5,268	—		3,033		(560)		—		(103)		2,370
Repurchases of common stock and related excise taxes	(10,881)	—		(6,749)		—		—		—		(6,749)
Shares exchanged for tax withholdings	(1,464)	—		(939)		—		—		—		(939)
Periodic pension costs, net of income taxes of $6	—	—		—		—		(25)		—		(25)
Balances as of March 31, 2023	23,079,960	78		(108,794)		7,733		2,491		927,543		829,051
Net income	—	—		—		—		—		100,393		100,393
Dividends paid — $1.08 per share of common stock	—	—		—		—		—		(24,966)		(24,966)
Share-based compensation, net of forfeitures	—	—		—		2,849		—		(43)		2,806
Repurchases of common stock and related excise taxes	(42,525)	—		(19,708)		—		—		—		(19,708)
Periodic pension costs, net of income taxes of $8	—	—		—		—		(26)		—		(26)
Balances as of June 30, 2023	23,037,435	78		(128,502)		10,582		2,465		1,002,927		887,550
Net income	—	—		—		—		—		105,574		105,574
Dividends paid — $1.08 per share of common stock	—	—		—		—		—		(24,952)		(24,952)
Share-based compensation, net of forfeitures	1,782	—		990		1,800		—		(38)		2,752
Repurchases of common stock and related excise taxes	(10,692)	—		(5,995)		—		—		—		(5,995)
Shares exchanged for tax withholdings	(543)	—		(345)		—		—		—		(345)
Periodic pension costs, net of income taxes of $7	—	—		—		—		(26)		—		(26)
Balances as of September 30, 2023	23,027,982	$	78	$	(133,852)	$	12,382	$	2,439	$	1,083,511	$	964,558

Increase in Authorized Shares of Common Stock

On March 1, 2024, the Company increased its authorized shares of capital stock to 47,536,936, consisting of 1,000,000 shares of Preferred Stock and 46,536,936 shares of Common Stock. For further information see Note 1, “Organization and Description of Business Segments.”

Stock Repurchase Program

On November 1, 2022, our 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. This 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.

For the nine months ended September 30, 2024 and 2023, we repurchased shares of our Common Stock in amounts totaling $22.7 million and $32.2 million, respectively.

14. 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 873,000 surface acres of land and our approximately 199,000 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.

The following table presents segment financial results for the three and nine months ended September 30, 2024 and 2023 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenues:
Land and resource management	$	106,648	$	109,933	$	322,165	$	315,276
Water services and operations	66,915		48,034		197,874		149,662
Total consolidated revenues	$	173,563	$	157,967	$	520,039	$	464,938

Net income:
Land and resource management	$	71,870	$	82,884	$	232,970	$	217,860
Water services and operations	34,724		22,690		102,630		74,675
Total consolidated net income	$	106,594	$	105,574	$	335,600	$	292,535

Capital expenditures:
Land and resource management	$	66	$	47	$	210	$	191
Water services and operations	9,767		5,196		21,784		10,196
Total capital expenditures	$	9,833	$	5,243	$	21,994	$	10,387

Depreciation, depletion and amortization:
Land and resource management	$	2,135	$	703	$	3,641	$	2,233
Water services and operations	3,627		2,881		10,054		8,648
Total depreciation, depletion and amortization	$	5,762	$	3,584	$	13,695	$	10,881

The following table presents total assets and property, plant and equipment, net by segment as of September 30, 2024 and December 31, 2023 (in thousands):


	September 30, 2024		December 31, 2023
Assets:
Land and resource management	$	954,411	$	975,136
Water services and operations	221,158		181,262
Total consolidated assets	$	1,175,569	$	1,156,398

Property, plant and equipment, net:
Land and resource management	$	4,937	$	5,322
Water services and operations	114,171		84,265
Total consolidated property, plant and equipment, net	$	119,108	$	89,587

15. 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 each of the three months ended September 30, 2024 and 2023, our share of oil and gas produced was approximately 28.3 and 21.8 thousand Boe per day, respectively. For the nine months ended September 30, 2024 and 2023, our share of oil and gas produced was approximately 26.0 and 22.6 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 where we have a royalty interest that have been permitted but are still awaiting drilling and completion activity. In addition, we have also identified oil and gas wells where we have a royalty interest that have been drilled but are not yet completed (“DUC”). These permitted and DUC wells represent potential near-term candidates for further development by operators towards ultimately being placed into production. We have identified 496 permitted gross wells (an estimated 6.9 net wells) and 673 DUC wells (an estimated 11.8 net wells) subject to our royalty interest as of September 30, 2024. The number of permitted and DUC wells is determined using uniform drilling spacing units with pooled interests for all wells awaiting completion.

16. 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:

Royalty Interest Acquisition

On October 2, 2024, we acquired approximately 7,490 NRA located primarily in the Midland Basin in Martin, Midland and other counties, with over 80% of the acquired interests adjacent to or overlapping existing TPL surface and royalty acreage for total cash consideration of $276.4 million, $43.0 million of which represented a deposit held in escrow as of September 30, 2024 and recorded in prepaid expenses and other current assets on the condensed consolidated balance sheet and reported as a cash outflow in the investing section of the condensed consolidated statements of cash flows.

Dividends Declared

On November 4, 2024, our Board declared a quarterly cash dividend of $1.60 per share, payable on December 16, 2024 to stockholders of record at the close of business on December 2, 2024.

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