UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 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 State or other juris ...

Texas Pacific Land Corporation (NYSE:TPL) Q2 2022 Results Conference Call August 4, 2022 8:30 AM ET Company Participants Shawn Amini - Vice President, Finance and Investor Relations Ty Glover - President, CEO & Trustee Chris Steddum - CFO Conference Call Participants John Annis - Stifel, Nicolaus & Company Hamed Khorsand - BWS Financial Christopher Baker - Crédit Suisse Operator [Call Starts Abruptly] Pacific Land Corporation's Second Quarter 2022 Earnings Conference Call. This conference call is being reco ...

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, 2022 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 State or other jurisdicti ...

Financial Data and Key Metrics Changes - Total revenue for Q1 2022 was $147 million, remaining flat compared to Q4 2021 despite higher oil prices, with a modest decline in royalty production [16] - Adjusted EBITDA and net income for the quarter were $130 million and $98 million, respectively, with approximately $507 million in cash before the special dividend [18] Business Line Data and Key Metrics Changes - The surface leases, easements, and materials business (SLEM) saw an uptick in requests for new infrastructure and well pads, particularly in the Northern Delaware region, indicating future development activity [8] - The water segment performed solidly, although some frac jobs were deferred due to operators struggling to procure frac sand, with expectations for increased volumes throughout the year [9] Market Data and Key Metrics Changes - The company reported 200 gross spuds on its royalty acreage in Q1 2022, the highest level since the pandemic, indicating strong overall completions [9] - Crude oil price realizations remained strong, generally $1 or $2 less than WTI Midland, while gas realizations improved over the last six months [17] Company Strategy and Development Direction - The company announced a special dividend of $20 per share, in addition to a $100 million share repurchase plan, reflecting a strong return of capital to shareholders [7] - The company is exploring innovative projects, including behind-the-meter solar projects and discussions on utility-scale renewable projects, Bitcoin mining, and carbon capture [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the underlying business fundamentals remaining constructive, with expectations for continued growth in completions and water sales [7] - The management acknowledged challenges in the supply chain, particularly regarding frac sand, but remains confident in the long-term performance of the water business [24] Other Important Information - The company is advancing discussions on various innovative opportunities and has welcomed new board members to enhance its governance [13] - The company is committed to maintaining flexibility in capital allocation, balancing growth opportunities with shareholder returns [25] Q&A Session Summary Question: Can you offer color on Q1 oil production and overall production trends for the year? - Management noted that Q1 saw high levels of permitting and DUCs, indicating a positive outlook for production activity for the rest of the year [21] Question: What are the best opportunities for balancing growth versus return of capital? - Management indicated that while there are still deals available, the current high commodity prices have made them more cautious about acquisitions, focusing instead on buybacks and dividends [25] Question: Is the drilling activity driven by low inventory or price? - Management confirmed that there has been a drawdown of DUCs, and Q1 marked a quarter where operators began to replenish their inventory [28] Question: How does the sand-sourcing issue affect your customers? - Management stated that the sand-sourcing issue is widespread across the basin, affecting many operators, particularly smaller ones [29] Question: Can you elaborate on the $20 special dividend decision? - Management explained that the decision was influenced by strong cash flow generation and a desire to return excess capital in a high-price environment [36]

Financial Performance - Total revenues for the three months ended March 31, 2022, were $147.3 million, an increase of $63.2 million compared to $84.2 million in the same period of 2021[85]. - Net income for the three months ended March 31, 2022, was $97.9 million, up from $50.1 million in the same period of 2021, reflecting an increase of $47.8 million[85]. - Total consolidated revenues increased by 75.0% to $147.3 million for the three months ended March 31, 2022, compared to $84.2 million for the same period in 2021[97]. - Net income for the company increased by 95.5% to $97.9 million for the three months ended March 31, 2022, compared to $50.1 million for the same period in 2021[112]. - Adjusted EBITDA for the three months ended March 31, 2022 was $129.8 million, compared to $69.8 million for the same period in 2021[112]. Revenue Breakdown - Oil and gas royalty revenue increased by $54.6 million to $104.2 million for the three months ended March 31, 2022, compared to $49.5 million in the same period of 2021[86]. - Oil and gas royalty revenue rose by 110.3% to $104.2 million for the three months ended March 31, 2022, compared to $49.5 million for the same period in 2021[99]. - Water sales revenue increased by 45.3% to $18.8 million for the three months ended March 31, 2022, compared to $13.0 million for the same period in 2021[105]. - Produced water royalties increased by 18.6% to $14.9 million for the three months ended March 31, 2022, compared to $12.5 million for the same period in 2021[106]. - Land and Resource Management segment revenues increased by 96.1% to $113.3 million for the three months ended March 31, 2022, compared to $57.8 million for the same period in 2021[98]. - Water Services and Operations segment revenues increased by 28.9% to $34.0 million for the three months ended March 31, 2022, compared to $26.4 million for the same period in 2021[104]. Pricing and Market Conditions - Average WTI Cushing price per barrel was $95.18 in Q1 2022, compared to $58.09 in Q1 2021, representing a 63.8% increase[73]. - Average Henry Hub price per mmbtu was $4.67 in Q1 2022, up from $3.50 in Q1 2021, indicating a 33.4% increase[73]. - The average realized price for oil increased to $94.24 per barrel for the three months ended March 31, 2022, compared to $55.53 per barrel for the same period in 2021[101]. Cash Flow and Expenditures - Cash and cash equivalents as of March 31, 2022, were $507.4 million, expected to support business growth and dividends[77]. - Cash flow from operating activities for Q1 2022 was $107.7 million, compared to $52.4 million in Q1 2021, marking a significant increase[79]. - Capital expenditures for Q1 2022 were approximately $5.2 million, up from $1.4 million in Q1 2021, reflecting increased investment in water services[81]. Dividends and Shareholder Returns - Dividends paid in Q1 2022 totaled $23.2 million, with a cash dividend of $3.00 per share, compared to $21.3 million and $2.75 per share in Q1 2021[84]. Operational Activity - Average monthly horizontal permits in the Permian Basin increased to 572 in Q1 2022 from 446 in Q1 2021, indicating a rise in drilling activity[73]. Taxation - Total income tax expense rose to $26.5 million for the three months ended March 31, 2022, compared to $12.0 million for the same period in 2021, primarily due to increased operating income[92]. Market Risk - There have been no material changes in the information related to market risk of the Company since December 31, 2021[117].

Financial Data and Key Metrics Changes - Texas Pacific Land Corporation (TPL) reported consolidated adjusted EBITDA of $130 million for Q4 2021, with total revenue of $147.2 million, a 98% year-over-year increase from $74.3 million in Q4 2020 [34][7] - Net income for Q4 2021 was $79 million or $10.21 per share, compared to $44.8 million or $5.77 per share in the same quarter of the prior year [35] - For the full year 2021, TPL's revenues reached $451 million, a 49% increase compared to the previous year, while total operating expenses only increased by 4% [15][34] Business Line Data and Key Metrics Changes - Oil and gas royalty production volumes were approximately 22,000 barrels of oil equivalent (Boe) per day in Q4 2021, up from 17,000 Boe per day in Q4 2020, reflecting a 15% growth in royalty production for the full year 2021 compared to 2020 [11][36] - Non-oil and gas royalty revenue streams saw significant growth, with source water royalties increasing by 24% and produced water royalties by 15% year-over-year [13] - The easements and surface-related income decreased modestly year-over-year due to producers focusing on existing infrastructure [14] Market Data and Key Metrics Changes - Commodity prices improved throughout 2021, with TPL's average commodity price realization over 80% higher than in 2020, benefiting from being completely unhedged [12] - The company noted strong development activity in the Permian Basin, particularly in its Loving, Northern Reeves, and Culberson acreage, with increased permitting and completion activities [16][17] Company Strategy and Development Direction - TPL aims to maintain momentum from 2021 into 2022, focusing on long-term value creation and attractive acquisition opportunities in the market [22][23] - The company is exploring next-generation opportunities, including soil carbon sequestration projects to generate carbon credits [21] - TPL's capital allocation strategy remains flexible, with the potential for stock buybacks and increased dividends depending on market conditions [24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued strong development activity in the Permian, despite some concerns about the pace of growth compared to 2021 [52] - The company is actively addressing seismicity issues in the Permian, with a focus on sustainable solutions and maintaining communication with operators [54][25] - Management highlighted the importance of their contract structure, which allows TPL to generate fees regardless of produced water disposal challenges [30] Other Important Information - TPL's Board raised the base dividend by $0.25 to $3 per share, reflecting confidence in the company's financial health [38] - The company ended Q4 2021 with $428 million in cash and no debt, indicating a strong balance sheet [37] Q&A Session Summary Question: Insights on return of capital and growth balance - Management indicated flexibility in capital allocation, considering stock buybacks if the stock price remains dislocated, while also having raised the regular dividend [44] Question: Corporate governance and board evaluation process - The Nomination and Governance Committee is handling the evaluation of board changes, with a 90-day timeframe for recommendations [47] Question: Business outlook for the next 6-12 months - Management noted that while strong growth is expected, it may not reach robust double-digit levels due to a slowdown in completion activity [52] Question: Tax misstatement details - Management explained that a misstatement regarding depletion was identified and corrected, with plans to implement controls to prevent future occurrences [57] Question: Strategies for accessing currently unused land - TPL is focused on facilitating easier access for operators to develop their land rather than financing drilling programs [60] Question: Future stock buyback intentions - Management stated that while no new buyback program has been announced, it is under consideration depending on market conditions [61] Question: Growth drivers for oil and gas production - The significant growth in production was attributed to high completion activity in Q2 and Q3 of 2021, with a cautious outlook on organic growth moving forward [68]

Company Overview - Texas Pacific Land Corporation owns approximately 880,000 surface acres of land in West Texas and various oil and gas royalty interests across approximately 456,000 acres[11][13]. - As of December 31, 2021, the company owned 880,581 acres of surface estate and additional royalty interests under 454,671 acres of land in West Texas[94]. - The company’s stock is traded on the NYSE under the ticker symbol "TPL," with 219 registered holders as of January 31, 2022[101]. Financial Performance - For the year ended December 31, 2021, total revenues were $450.96 million, a 48.9% increase from $302.56 million in 2020[18]. - Net income for 2021 was $269.98 million, representing a 53.2% increase from $176.05 million in 2020[18]. - Cash flows from operating activities increased to $265.2 million in 2021 from $207.0 million in 2020, primarily due to higher oil and gas prices and production volumes[119][120]. - Operating income for the year ended December 31, 2021, was $362.39 million, compared to $217.26 million in 2020, indicating improved operational efficiency[125][126]. - EBITDA for the year ended December 31, 2021, was $379.27 million, compared to $234.06 million in 2020[153]. - Adjusted EBITDA for 2021 was $387.98 million, an increase from $239.11 million in 2020[153]. Revenue Breakdown - Oil and gas royalty revenue for the Land and Resource Management segment was $286.47 million in 2021, accounting for 64% of total segment revenue[24]. - Oil and gas royalty revenue reached $286.47 million in 2021, up from $137.95 million in 2020, reflecting a significant recovery in commodity prices[125][126]. - Water Services and Operations segment revenue increased to $130.57 million in 2021, up from $107.42 million in 2020, driven by a 14.7% increase in sourced and treated barrels sold[31]. - Land and Resource Management segment revenues rose by $125.2 million, or 64.2%, to $320.39 million in 2021 compared to $195.14 million in 2020[139]. - Average realized prices for oil increased to $66.62 per barrel in 2021 from $41.13 per barrel in 2020, while natural gas prices rose to $3.67 per Mcf from $1.24 per Mcf[142]. Investments and Capital Allocation - The company invested approximately $11.7 million in Texas Pacific Water Resources LLC projects in 2021, with $6.4 million allocated to electrifying water sourcing infrastructure[32]. - The company has invested in electrifying its water sourcing infrastructure to reduce dependence on fuel and improve operational efficiency[110]. - Total cash and cash equivalents as of December 31, 2021, were $428.2 million, which the company plans to use for business growth, stock repurchases, and dividends[118]. - The company repurchased $19.9 million of shares and paid $85.3 million in dividends during the year ended December 31, 2021[118][124]. Governance and Corporate Structure - The Company converted from a business trust to a Delaware corporation, enhancing governance for stockholders[42]. - The board of directors was established as part of the corporate reorganization, replacing the previous governance structure of trustees[180]. - The Company has instituted a governance framework for overseeing ESG strategies, with annual reviews to assess updates or improvements[41]. - The Board has adopted a Code of Business Conduct and Ethics applicable to all members, ensuring compliance and ethical standards[205]. Internal Controls and Compliance - A material weakness in internal controls over financial reporting was identified, particularly related to accounting for income taxes[64]. - The company identified a material weakness in internal control over financial reporting related to the evaluation of historical tax returns and tax positions, which could lead to material misstatements[163]. - Deloitte & Touche LLP concluded that the company did not maintain effective internal control over financial reporting as of December 31, 2021, due to the identified material weakness[167]. - Management has proposed remediation activities, including implementing controls to evaluate the technical merits of existing tax positions on a quarterly basis[165]. Market and Economic Conditions - The Company’s revenues from oil and gas royalties are dependent on market prices, which are subject to significant fluctuations due to various factors[51]. - The Company’s land sales are subject to substantial fluctuations influenced by national and local economic conditions and development rates[53]. - Oil and gas prices rebounded in 2021, positively impacting oil and gas royalty revenues after a decline in 2020[51]. - Development activity in the Permian Basin significantly improved in 2021 compared to 2020, although it remains below pre-pandemic levels[108]. Employee and Safety Policies - The Company had 92 full-time employees as of December 31, 2021, emphasizing the importance of attracting and retaining skilled professionals[43]. - The Company aims for zero occupational injuries and has implemented safety policies compliant with OSHA standards[46]. Risks and Challenges - The company may face adverse effects from global health threats, such as COVID-19, which could lead to increased operating costs and impact earnings, cash flow, and financial condition[66]. - The Corporate Reorganization may not achieve expected strategic and financial benefits, potentially impacting business operations[67]. - The company faces risks related to stockholder activism, which could hinder business strategy execution and impact trading value[79]. - The stock price may experience significant fluctuations due to various factors, including changes in operating results and market conditions[80].

Financial Data and Key Metrics Changes - Total consolidated revenues increased by 66% year-over-year, reaching $123.7 million in Q3 2021 compared to $74.4 million in Q3 2020 [38] - Net income for Q3 2021 was $83.8 million, or $10.82 per share, up from $46.3 million, or $5.97 per share in the same quarter of the prior year [37] - Adjusted EBITDA for Q3 2021 was $107.6 million, compared to $62.3 million for the same period last year, reflecting an improved adjusted EBITDA margin of 87% [11][38] Business Line Data and Key Metrics Changes - Royalty daily production increased by 24%, reaching approximately 19.5 thousand barrels of oil equivalent per day in Q3 2021, up from 15.7 thousand barrels in Q3 2020 [38] - Water revenue was $36.9 million in Q3 2021, up from $24.5 million in the prior year, driven by increases in both source water sales volumes and produced water royalty volumes [40] Market Data and Key Metrics Changes - The company reported a significant increase in permitting activity, indicating a positive trend for Q4 2021 and into 2022, with strong permitting from major operators like Chevron [50] - The company has a market share of approximately 30% of Northern Delaware source water volumes, with the capability to deliver over 800,000 barrels of water per day [25] Company Strategy and Development Direction - The company emphasizes its vertically integrated business model, which has allowed it to create multiple high-quality cash flow streams from its legacy asset base [9][12] - The focus remains on acquiring high-quality integrated assets that include surface, minerals, and water components, with a cautious approach to potential acquisitions [62] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the business, highlighting the ability to fully benefit from rising commodity prices as the company remains unhedged [39] - The management team is optimistic about the future, citing strong relationships with operators and a positive outlook for activity in the Delaware Basin [55][56] Other Important Information - The company declared a cash dividend of $2.75 per common share, with year-to-date dividends totaling $8.25 per share [43] - The company has completed $11.2 million of share repurchases and has $8.8 million remaining on the current repurchase authorization [43] Q&A Session Summary Question: Activity trends in Q4 and 2022 based on permit data - Management noted strong permitting activity in Q3, with a positive outlook for Q4 and 2022 based on the backlog of permits [50] Question: Current opportunities in the A&D market - Management indicated that while the bid-ask spread for high-quality deals has been wider, it is starting to narrow, leading to more opportunities in the market [51][52] Question: Return of capital strategy with strong cash position - Management emphasized the importance of maintaining a healthy cash balance and indicated that returning capital to shareholders could be considered if opportunities do not materialize [53] Question: Impact of changing dynamics in the Permian on negotiations - Management stated that consolidation among legacy operators has been positive for the company, enhancing relationships and prioritizing acreage [55] Question: Expectations for increasing Delaware Basin acreage in 2022 - Management confirmed strong permitting activity in the Delaware Basin and indicated expectations for increased activity going forward [56] Question: Strategic outlook for cash deployment - Management reiterated a focus on high-quality integrated assets and the importance of retaining cash for the right opportunities [62] Question: Potential for special dividends or expanded buyback - Management acknowledged that if the opportunity set does not materialize, both special dividends and increased buybacks could be considered [63] Question: Next-gen wind and solar opportunities - Management highlighted ongoing discussions regarding renewable energy opportunities, emphasizing the importance of relationships with operators [65]

PART I [Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements for Texas Pacific Land Corporation, including Balance Sheets, Statements of Income, and Cash Flows, along with notes on reorganization and accounting policies Condensed Consolidated Balance Sheet Highlights (in thousands) | | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$695,617** | **$571,635** | | Cash and cash equivalents | $372,761 | $281,046 | | **Total Liabilities** | **$94,575** | **$86,451** | | **Total Equity** | **$601,042** | **$485,184** | Condensed Consolidated Statement of Income Highlights (in thousands) | | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | **$123,693** | **$74,383** | **$303,780** | **$228,260** | | Operating Income | $103,240 | $56,748 | $236,532 | $162,029 | | **Net Income** | **$83,837** | **$46,275** | **$190,935** | **$131,258** | | Net Income per Share | $10.82 | $5.97 | $24.62 | $16.92 | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Cash provided by operating activities | $174,512 | $161,859 | | Cash used in investing activities | $(9,989) | $(25,647) | | Cash used in financing activities | $(74,786) | $(124,098) | | **Net increase in cash** | **$89,737** | **$12,114** | - On January 11, 2021, the company completed a tax-free reorganization from a business trust to a Delaware corporation[22](index=22&type=chunk)[41](index=41&type=chunk) - The company operates in two segments: Land and Resource Management, and Water Services and Operations[24](index=24&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, detailing business overview, market conditions, and segment performance, highlighting strong recovery in oil and gas royalty revenues and a robust liquidity position [Overview](index=16&type=section&id=Overview) TPL is one of the largest landowners in Texas, primarily in the Permian Basin, generating revenue from land use fees, water sales, and royalties across the oil and gas development value chain without being a producer - TPL is one of the largest landowners in Texas with approximately **880,000 acres**, primarily in the Permian Basin[57](index=57&type=chunk) - The company's business model generates revenue from various sources throughout the life cycle of an oil and gas well, including land use fees, water sales, and royalties, without being a producer[59](index=59&type=chunk) - Texas Pacific Water Resources LLC (TPWR), a subsidiary, provides full-service water offerings to operators in the Permian Basin, including sourcing, treatment, and disposal solutions[64](index=64&type=chunk) [Market Conditions](index=17&type=section&id=Market%20Conditions) Market conditions in 2021 show a rebound in Permian Basin development activity due to higher commodity prices, though still below pre-pandemic levels, with operators managing capital cautiously amid labor and equipment shortages - Development activity in the Permian Basin has rebounded from 2020 lows due to higher commodity prices, but remains below pre-pandemic levels as operators manage capital cautiously[66](index=66&type=chunk) Permian Basin Activity Metrics | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | WTI Cushing avg price/bbl | $70.58 | $40.89 | $65.05 | $38.04 | | Henry Hub avg price/mmbtu | $4.35 | $2.00 | $3.61 | $1.87 | | Avg weekly horizontal rig count | 235 | 121 | 215 | 235 | - The company has invested in electrifying its water sourcing infrastructure to reduce dependence on fuel and equipment rentals, thereby lowering operating costs[68](index=68&type=chunk) [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with **$372.8 million** in cash and cash equivalents and no debt as of September 30, 2021, allocating capital to business growth, stock repurchases, and dividends - As of September 30, 2021, the company had cash and cash equivalents of **$372.8 million** and no debt or credit facilities[75](index=75&type=chunk)[76](index=76&type=chunk) - A stock repurchase program of up to **$20.0 million** was approved in May 2021, with **$11.2 million** worth of shares repurchased through September 30, 2021[76](index=76&type=chunk)[44](index=44&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) This sub-section provides a detailed comparison of operating results for the three and nine-month periods ending September 30, 2021, versus the same periods in 2020, driven by a significant increase in oil and gas royalty revenue [Three-Month Comparison (Q3 2021 vs Q3 2020)](index=19&type=section&id=Three-Month%20Comparison%20(Q3%202021%20vs%20Q3%202020)) For Q3 2021, total revenues increased **66.3%** to **$123.7 million**, and net income rose **81.2%** to **$83.8 million**, primarily driven by a doubling of oil and gas royalty revenue and a **50.7%** increase in Water Services and Operations revenue Consolidated Results - Q3 2021 vs Q3 2020 (in thousands) | | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | **$123,693** | **$74,383** | **+66.3%** | | **Net Income** | **$83,837** | **$46,275** | **+81.2%** | Oil and Gas Royalty Revenue & Production - Q3 Comparison | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Total Royalty Revenue | $79.1M | $31.8M | | Production (MBoe/d) | 19.5 | 15.7 | | Realized Price ($/Boe) | $46.07 | $23.02 | - Water sales revenue increased **61.1%** to **$19.6 million** in Q3 2021, driven by a **60.4%** increase in the volume of sourced and treated water sold[92](index=92&type=chunk) - Land sales were zero in Q3 2021, compared to **$11.5 million** in Q3 2020[88](index=88&type=chunk) [Nine-Month Comparison (YTD 2021 vs YTD 2020)](index=23&type=section&id=Nine-Month%20Comparison%20(YTD%202021%20vs%20YTD%202020)) For the nine months ended September 30, 2021, revenues increased **33.1%** to **$303.8 million**, and net income grew **45.5%** to **$190.9 million**, primarily due to a **97.4%** surge in oil and gas royalty revenue Consolidated Results - Nine Months 2021 vs 2020 (in thousands) | | Nine Months 2021 | Nine Months 2020 | % Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | **$303,780** | **$228,260** | **+33.1%** | | **Net Income** | **$190,935** | **$131,258** | **+45.5%** | Oil and Gas Royalty Revenue & Production - Nine-Month Comparison | Metric | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Total Royalty Revenue | $186.8M | $94.6M | | Production (MBoe/d) | 17.5 | 16.0 | | Realized Price ($/Boe) | $41.01 | $22.59 | - Easements and other surface-related income decreased **23.4%** to **$24.0 million**, primarily due to a **$9.7 million** drop in pipeline easement income[105](index=105&type=chunk) - Land sales revenue fell sharply to **$0.7 million** in the first nine months of 2021 from **$15.9 million** in the same period of 2020[106](index=106&type=chunk) [Cash Flow Analysis](index=26&type=section&id=Cash%20Flow%20Analysis) For the nine months ended September 30, 2021, cash from operations increased to **$174.5 million**, while cash used in investing and financing activities decreased due to lower acquisitions and dividend payments Cash Flow Summary (in millions) | Cash Flow Activity | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Operating | $174.5 | $161.9 | | Investing | $(10.0) | $(25.6) | | Financing | $(74.8) | $(124.1) | - Dividends paid totaled **$64.0 million** (**$8.25 per share**) in the first nine months of 2021, compared to **$124.1 million** (**$16.00 per share**, including a special dividend) in the same period of 2020[122](index=122&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in its market risk disclosures since December 31, 2020 - There have been no material changes in the information related to the market risk of the Company since December 31, 2020[127](index=127&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the quarter, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures are effective[128](index=128&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that would have a material effect[129](index=129&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not involved in any material pending legal proceedings - The Company is not involved in any material pending legal proceedings[131](index=131&type=chunk) [Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes have occurred in the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020[132](index=132&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's stock repurchase activity during Q3 2021, where **6,179 shares** were repurchased at an average price of **$1,406 per share** under a **$20.0 million** program, with **$8.8 million** remaining available Share Repurchases for Q3 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2021 | 2,059 | $1,489 | | August 2021 | 2,350 | $1,433 | | September 2021 | 1,770 | $1,273 | | **Total** | **6,179** | **$1,406** | - The repurchases were made under a stock repurchase program approved on May 3, 2021, for up to **$20.0 million**, with **$8,807,130** remaining available under the plan as of the end of the quarter[133](index=133&type=chunk) [Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and iXBRL data files for financial statements - Exhibits filed include Rule 13a-14(a) and Section 906 certifications for the CEO and CFO[136](index=136&type=chunk) - The financial statements and cover page data are provided in iXBRL format[136](index=136&type=chunk)

Financial Data and Key Metrics Changes - For Q2 2021, the company reported net income of $57 million or $7.36 per share, compared to $27.6 million or $3.56 per share in Q2 2020, primarily due to increased oil and gas royalty revenue [16][17] - Total revenue for Q2 2021 was $95.9 million, up from $57.3 million in the same quarter last year, with oil and gas royalty revenue increasing 184% to $58.2 million [17][18] - Average realized oil price was approximately $65 per barrel in Q2 2021, compared to approximately $25 per barrel during the same period last year [17] Business Line Data and Key Metrics Changes - Production during Q2 2021 averaged approximately 16,400 barrels of oil equivalent per day, roughly flat sequentially from Q1 2021 [7] - Produced water royalty revenues increased over 20% sequentially from Q1 2021, benefiting from a one-time catch-up payment [10] - Water revenue was $27.9 million in Q2 2021, up from $21.5 million in the prior year, driven by increases in both source water and produced water royalty volumes [18] Market Data and Key Metrics Changes - The company had 565 gross drilled but uncompleted wells (DUCs) and 474 gross permits as of June 30, indicating ongoing activity in the Permian Basin [8] - The company noted that producers remain disciplined, with activity levels not yet at pre-COVID levels but still active in developing leaseholds [8] Company Strategy and Development Direction - The company positions itself as an "ETF for the Permian Basin," benefiting from multiple cash flow streams throughout the life cycle of a well [12][13] - The management expressed confidence in the asset quality underlying royalties and extensive surface acreage, believing it will create long-term value despite uncertainties related to COVID-19 and commodity prices [14] Management's Comments on Operating Environment and Future Outlook - Management indicated that they expect production in the second half of 2021 to be at least on par with the first half, supported by a robust level of current inventory [9][30] - The management emphasized the importance of maintaining a low leverage profile and expressed a preference for capitalizing with cash rather than debt, although they would consider debt for excellent opportunities [34] Other Important Information - The company declared a cash dividend of $2.75 per share, payable on September 15, with year-to-date dividends totaling $5.50 per share [21] - The company joined the Russell 1000 Index, marking a significant milestone [22] Q&A Session Summary Question: Capital allocation approach and attractive opportunities - Management stated they are always looking for deals but are very selective, benefiting from a strong cash position that allows for optionality in capital allocation [25][26] Question: Maintenance scenario for net wells - Management indicated that approximately seven net wells would be needed to maintain production levels, with a robust inventory supporting this [27][30] Question: Willingness to go into debt for valuable assets - Management expressed a preference for maintaining a low leverage profile but would consider debt for excellent opportunities [34] Question: Changes in activity or new production customers - Management noted that consolidation in the industry has led to new relationships with operators, enhancing their exposure [35] Question: Expectations for activity based on permit scrapes - Management reported robust permitting activity, particularly from major operators, supporting ongoing development [42] Question: Trajectory of capture rates for water businesses - Management highlighted strong capture rates for both source water and produced water, with growth expected to continue [44][45] Question: Appetite to hedge production profile - Management stated they have historically managed the business without hedges, allowing them to fully benefit from favorable commodity prices [46][48]