Texas Pacific Land (TPL) - 2021 Q3 - Quarterly Report

PART I Financial Statements (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][41] - The company operates in two segments: Land and Resource Management, and Water Services and Operations[24] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - 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] Market Conditions 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] 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] Liquidity and Capital Resources 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][76] - 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][44] Results of Operations 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) 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] - Land sales were zero in Q3 2021, compared to $11.5 million in Q3 2020[88] Nine-Month Comparison (YTD 2021 vs YTD 2020) 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] - 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] Cash Flow Analysis 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] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - No changes in internal control over financial reporting occurred during the quarter that would have a material effect[129] PART II OTHER INFORMATION Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Exhibits 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] - The financial statements and cover page data are provided in iXBRL format[136]