UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



~~[X]~~	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.~~
	~~For the quarterly period ended September 30, 2018~~

OR

~~[ ]~~	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.~~
	~~For the transition period from ______ to ______~~

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐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: 1-737

Exact name of registrant as specified in its charter:

Texas Pacific Land Trust

~~(Exact Name~~

State or other jurisdiction of ~~Registrant as Specified in Its Charter)~~incorporation or organization:

NOT APPLICABLE



~~NOT APPLICABLE~~ ~~(State or Other Jurisdiction of Incorporation~~ ~~or Organization)~~		~~75-0279735~~ ~~(I.R.S. Employer~~ ~~Identification No.)~~

~~1700 Pacific Avenue, Suite 2770, Dallas, Texas~~ ~~(Address of Principal Executive Offices)~~		~~75201~~ ~~(Zip Code)~~

~~(214) 969-5530~~IRS Employer Identification No.:

(75-0279735

Address of principal executive offices:

1700 Pacific Avenue, Suite 2900

Dallas, Texas 75201

Registrant’s ~~Telephone Number, Including Area Code)~~telephone number, including area code:

(214)969-5530

(Former ~~Name, Former Address~~name, former address and ~~Former Fiscal Year,~~former fiscal year, if ~~Changed Since Last Report)~~changed since last report:

1700 Pacific Avenue, Suite 2770

Dallas, Texas 75201

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

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

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



Large accelerated filerþ	☑	Accelerated filer¨	☐
Non-accelerated filer¨ (Do not check if a smaller reporting company)	☐	Smaller reporting company¨	☐
Emerging growth companyo	☐

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

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Sub-shares in Certificates of Proprietary Interest (par value $0.03-1/3 per share)	TPL	New York Stock Exchange

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ ☐No þ☑

As of ~~October~~July 31, ~~2018,~~2019, the Registrant had ~~7,774,394~~7,756,156 Sub-share Certificates outstanding.

TEXAS PACIFIC LAND TRUST

Form 10-Q

Quarter Ended ~~September~~June 30, ~~2018~~2019



		Page No.
PART I
FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018	1
	Condensed Consolidated Statements of Income and Total Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	2
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1110
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	1816
Item 4.	Controls and Procedures	1816

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	1917
Item 1A.	Risk Factors	1917
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mine Safety Disclosures	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
	Signatures	19
~~Item 3.~~	~~Defaults Upon Senior Securities~~	19
~~Item 4.~~	~~Mine Safety Disclosures~~	19
~~Item 5.~~	~~Other Information~~	19
~~Item 6.~~	~~Exhibits~~	20
	~~Signatures~~	21

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

TEXAS PACIFIC LAND TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except ~~acres,~~ shares and per share amounts)


	September 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
ASSETS

Cash and cash equivalents	$	110,617		$	79,580		$	155,401		$	119,647
Accrued receivables	39,615			17,773			68,011			48,750
Tax like-kind exchange escrow							35,120			3,799
Other assets	7,702			849			2,781			3,884
Prepaid income taxes	—			1,202			—			9,398
Property, plant and equipment, net of accumulated depreciation of $1,952 and $463 as of September 30, 2018 and December 31, 2017, respectively	57,989			19,516
Property, plant and equipment, net of accumulated depreciation of $5,575 and $3,012 as of June 30, 2019 and December 31, 2018, respectively							84,792			64,802
Real estate acquired	3,778			1,115			84,902			10,492
Royalty interests acquired							29,320			24,303
Operating lease right-of-use assets							3,285			—
Real estate and royalty interests assigned through the 1888 Declaration of Trust, no value assigned:
Land (surface rights) situated in eighteen counties in Texas – 877,467 acres and 877,633 acres as of September 30, 2018 and December 31, 2017, respectively	—			—
1/16th nonparticipating perpetual royalty interest in 373,777 acres	—			—
1/128th nonparticipating perpetual royalty interest in 85,414 acres	—			—
Land (surface rights)							—			—
1/16th nonparticipating perpetual royalty interest							—			—
1/128th nonparticipating perpetual royalty interest							—			—
Total assets	$	219,701		$	120,035		$	463,612		$	285,075

LIABILITIES AND CAPITAL

Accounts payable and accrued expenses	$	8,884		$	5,608		$	22,899		$	10,505
Income taxes payable	3,059			851			7,329			1,607
Deferred taxes payable	114			114			30,178			14,903
Unearned revenue	12,604			8,364			16,321			13,369
Operating lease liabilities							3,491			—
Total liabilities	24,661			14,937			80,218			40,384

Commitments and contingencies	—			—			—			—

Capital:
Certificates of Proprietary Interest, par value $100 each; none outstanding	—			—			—			—
Sub-share Certificates in Certificates of Proprietary Interest, par value $.03 1/3 each; outstanding 7,781,831 and 7,821,599 Sub-share Certificates as of September 30, 2018 and December 31, 2017, respectively	—			—
Sub-share Certificates in Certificates of Proprietary Interest, par value $.03 1/3 each; outstanding 7,756,156 and 7,762,414 Sub-share Certificates as of June 30, 2019 and December 31, 2018, respectively							—			—
Accumulated other comprehensive loss	(765		)	(804		)	(1,060		)	(1,078		)
Net proceeds from all sources	195,805			105,902			384,454			245,769
Total capital	195,040			105,098			383,394			244,691
Total liabilities and capital	$	219,701		$	120,035		$	463,612		$	285,075

See accompanying notes to condensed consolidated financial statements.

TEXAS PACIFIC LAND TRUST

CONDENSED CONSOLIDATED STATEMENTS OF INCOMEAND TOTAL COMPREHENSIVE INCOME

(in thousands, except shares and per share amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017		2018		2017		2019			2018		2019		2018
Income:
Revenues:
Oil and gas royalties	$	31,253	$	20,481	$	88,078	$	43,252	$	39,641		$	30,278	$	72,854	$	56,825
Easements and sundry income	22,068		23,454		66,845		51,247
Easements and other surface-related income									22,357			27,799		53,724		44,777
Water sales and royalties	18,178		7,917		47,428		19,584		20,430			15,643		43,413		29,250
Land sales	1,543		—		4,293		220		4,774			—		108,399		2,750
Other operating income	126		125		375		374
Total income	73,168		51,977		207,019		114,677
Other operating revenue									108			124		244		249
Total revenues									87,310			73,844		278,634		133,851

Expenses:
Salaries and related employee benefits	3,703		671		9,548		1,637
Salaries and related employee expenses									7,741			3,835		14,205		6,399
Water service-related expenses	3,707		201		7,601		211		5,723			2,588		10,301		3,894
General and administrative expenses	1,405		511		3,390		1,122		2,095			1,013		4,237		1,692
Legal and professional fees	556		1,011		1,623		2,630		7,858			420		9,641		1,067
Depreciation and amortization	706		209		1,519		313		1,451			483		2,655		813
Taxes, other than income taxes	130		66		387		183
Trustees’ compensation	2		2		6		6
Total expenses	10,209		2,671		24,074		6,102
Total operating expenses									24,868			8,339		41,039		13,865

Operating income	62,959		49,306		182,945		108,575		62,442			65,505		237,595		119,986

Other income	236		18		526		31		437			160		830		290
Income before income taxes	63,195		49,324		183,471		108,606		62,879			65,665		238,425		120,276
Income taxes	12,433		16,322		36,415		35,995
Income tax expense (benefit):
Current									19,018			13,162		33,566		23,982
Deferred									(5,725		)	—		15,275		—
Total income tax expense									13,293			13,162		48,841		23,982
Net income	$	50,762	$	33,002	$	147,056	$	72,611	$	49,586		$	52,503	$	189,584	$	96,294

Other comprehensive income — periodic pension costs, net of income taxes of $3, $9, $10, and $28, respectively	13		17		39		52
Other comprehensive income — periodic pension costs, net of income taxes of $2, $3, $5 and $7, respectively									9			13		18		26
Total comprehensive income	$	50,775	$	33,019	$	147,095	$	72,663	$	49,595		$	52,516	$	189,602	$	96,320

Weighted average number of Sub-share Certificates outstanding	7,786,692		7,851,916		7,797,262		7,872,554		7,756,156			7,803,162		7,757,199		7,808,064

Net income per Sub-share Certificate — basic and diluted	$	6.52	$	4.20	$	18.86	$	9.22	$	6.39		$	6.73	$	24.44	$	12.33

Cash dividends per Sub-share Certificate	$	—	$	—	$	4.05	$	1.35	$	—		$	—	$	6.00	$	4.05

See accompanying notes to condensed consolidated financial statements.

TEXAS PACIFIC LAND TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2018			2017			2019			2018
Cash flows from operating activities:
Net income	$	147,056		$	72,611		$	189,584		$	96,294
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	—			(337		)	15,275			—
Depreciation and amortization	1,519			313			2,655			813
Gain on disposal of fixed assets	(2		)	(4		)
Changes in operating assets and liabilities:
Accrued receivables and other assets	(28,704		)	(17,040		)
Operating assets, excluding income taxes							(21,518		)	(18,109		)
Prepaid income taxes	1,202			—			9,398			1,202
Accounts payable, accrued expenses and other liabilities	7,555			5,067
Operating liabilities, excluding income taxes							18,855			6,958
Income taxes payable	2,208			5,249			5,722			2,071
Cash provided by operating activities	130,834			65,859			219,971			89,229

Cash flows from investing activities:
Proceeds from sale of fixed assets	25			28			30			—
Acquisition of land	(2,663		)	—			(74,410		)	(2,663		)
Acquisition of royalty interests							(5,017		)	—
Purchase of fixed assets	(40,006		)	(7,970		)	(22,600		)	(31,564		)
Cash used in investing activities	(42,644		)	(7,942		)	(101,997		)	(34,227		)

Cash flows from financing activities:
Purchase of Sub-share Certificates in Certificates of Proprietary Interest	(25,501		)	(27,158		)	(4,353		)	(17,035		)
Dividends paid	(31,652		)	(10,681		)	(46,546		)	(31,652		)
Cash used in financing activities	(57,153		)	(37,839		)	(50,899		)	(48,687		)

Net increase in cash and cash equivalents	31,037			20,078
Cash and cash equivalents, beginning of period	79,580			49,418
Cash and cash equivalents, end of period	$	110,617		$	69,496
Net increase in cash, cash equivalents, and restricted cash							67,075			6,315
Cash, cash equivalents and restricted cash, beginning of period							123,446			79,580
Cash, cash equivalents, and restricted cash, end of period							$	190,521		$	85,895

Supplemental disclosure of cash flow information:
Income taxes paid	$	34,251		$	31,102		$	18,451		$	21,951

See accompanying notes to condensed consolidated financial statements.

TEXAS PACIFIC LAND TRUST

NOTES TO CONDENSEDCONSOLIDATEDFINANCIAL STATEMENTS

(UNAUDITED)


1.	Organization and Description of Business Segments

Texas Pacific Land Trust (which, together with its subsidiaries as the context requires, may be referred to as “Texas Pacific”, the “Trust”, “our”, “we” or “us”) is one of the largest landowners in the State of Texas with approximately ~~890,000~~900,000 acres of land in West Texas. Texas Pacific was organized under a Declaration of Trust, dated February 1, 1888, to receive and hold title to extensive tracts of land in the State of Texas, previously the property of the Texas and Pacific Railway Company, and to issue transferable Certificates of Proprietary Interest pro rata to the original holders of certain debt securities of the Texas and Pacific Railway Company.

The Trust is organized to manage land, including royalty interests, for the benefit of its owners. The Trust’s income is derived primarily from oil, gas and water ~~service-related~~ royalties, sales of water and land, easements and commercial leases of the land.

We operate our business in two segments: Land and Resource Management and Water ~~Service~~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 the Trust and provide a framework for timely and rational allocation of resources within businesses. See Note 8,9, “Business Segment Reporting” for further information regarding our segments.


2.	Summary of Significant Accounting Policies

Interim Unaudited Financial Information

The results for the interim periods shown in this report are not necessarily indicative of future financial results. The accompanying condensed consolidated financial statements include all adjustments necessary to present fairly the financial position of the Trust as of ~~September~~June 30, ~~2018~~2019 and the results of its operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and its cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Such adjustments are of a normal recurring nature.

Principles of Consolidation and 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 include our accounts and the accounts of our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements should be read in conjunction with the annual financial statements and notes thereto included in the Trust’s Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, which was filed with the SEC on February 28, ~~2018.~~2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~accounting principles generally accepted in the United States of America (“GAAP”)~~GAAP have been condensed or omitted from this report.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent asset 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.

Reclassifications

Certain financial information on the condensed consolidated balance sheets as of December 31, 2018 and condensed consolidated statements of income for the six months ended June 30, 2018 has been revised to conform to the current year presentation. These revisions include, but are not limited to, the classification of the tax like-kind exchange escrow from other assets to a separate balance sheet line item and certain expense items from one expense line item to another expense line item. Total assets and expenses were not affected by these reclassifications.

Cash, Cash Equivalents and Restricted Cash

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



	June 30, 2019		December 31, 2018
Cash and cash equivalents	$	155,401	$	119,647
Tax like-kind exchange escrow	35,120		3,799
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	190,521	$	123,446

Recently Adopted Accounting Guidance

~~Revenue from Contracts with Customers~~Leases

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. ~~2014-09, “Revenue Recognition (Topic 606): Revenue from Contracts with Customers.”~~ The ASU provides a five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU allows for a practical expedient for companies to exclude sales or similar taxes collected from customers from the transaction

price. Additionally, the ASU requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.

The most significant impact of the new standard relates to our accounting for easement agreements and to a lesser extent oil and gas royalties. Specifically, we recognize revenue for term easements upon execution of the easement agreements, and as a result, we no longer defer revenue on our term easements. Historically, oil and gas royalties have been adjusted for production taxes paid by operators with a charge to taxes, other than income taxes and a corresponding increase to revenue. We elected the practical expedient allowed by the ASU and exclude production taxes from revenue. Revenue recognition related to our land sales and other sundry income remains substantially unchanged. Adoption of the standard resulted in (i) the acceleration of easement and sundry income as unearned revenue decreased, (ii) a reduction in oil and gas royalty revenue with a corresponding reduction in taxes, other than income taxes, and (iii) an increase in income tax expense for the three and nine months ended September 30, 2017.

We adopted the new standard on January 1, 2018 applying the full retrospective method with optional practical expedients. Adoption of the standard using the full retrospective method required us to restate certain previously reported results as though the new standard had always been in effect.

~~Adoption of the standard related to revenue recognition impacted our previously reported results as follows (in thousands, except per share amounts):~~

As reported in prior year Retrospective Adjustment As reported in current year
Condensed Consolidated Statements of Income:
For the three months ended September 30, 2017
Revenue $ 42,476
$ 9,501
$ 51,977
Taxes, other than income taxes 797
(731 ) 66
Income taxes 12,687
3,635
16,322
Net income 26,405
6,597
33,002
Net income per Sub-share Certificate $ 3.36
$ 0.84
$ 4.20

For the nine months ended September 30, 2017
Revenue $ 94,054
$ 20,623
$ 114,677
Taxes, other than income taxes 2,219
(2,036 ) 183
Income taxes 27,945
8,050
35,995
Net income 58,002
14,609
72,611
Net income per Sub-share Certificate $ 7.37
$ 1.85
$ 9.22

Condensed Consolidated Balance Sheets:
As of December 31, 2017
Assets:
Accrued receivables $ 18,206
$ (433 ) $ 17,773
Deferred tax asset (liability) 6,992
(7,106 ) (114 )

Liabilities and Capital:
Unearned revenue $ 41,375
$ (33,011 ) $ 8,364
Other taxes payable 433
(433 ) —
Net proceeds from all sources 79,997
25,905
105,902

~~Presentation of Net Periodic Pension Cost~~

~~In March 2017, the FASB issued ASU No. 2017-07, “Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~.” This ASU requires employers to disaggregate the service cost component from the other components of net benefit cost in the income statement, provides explicit guidance on the presentation of the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. The service cost component is recorded within salaries and related employee benefits expense, and the other components of net benefit costs are recorded in other income.

We adopted the new standard on January 1, 2018 applying the retrospective method. Adoption of the standard using the retrospective method required us to restate certain previously reported results as though the new standard had always been in effect.

~~Effects on Operating Income and Other Income from Adoption of New Accounting Standards~~

Adoption of the standards related to revenue recognition and presentation of net periodic pension cost impacted our previously reported results for operating income and other income as follows (in thousands):

As reported in prior year Retrospective Adjustment As reported in current year
Condensed Consolidated Statements of Income:
For the three months ended September 30, 2017

Operating income ⁽¹⁾
$ 39,071
$ 10,235
$ 49,306
Other income 20
(2 ) 18

For the nine months ended September 30, 2017

Operating income ⁽¹⁾
$ 85,907
$ 22,668
$ 108,575
Other income 39
(8 ) 31


~~(1)~~	The retrospective adjustment amount includes approximately $10.2 million and $22.7 million for the three and nine months ended September 30, 2017, respectively, related to the adoption of the new revenue recognition guidance as discussed above. The retrospective adjustment amount related to the adoption of the presentation of net periodic pension cost had a minimal impact.

~~Impact of the 2017 Tax Cuts and Jobs Act on Certain Income Tax Effects~~

~~In March 2018, the FASB issued ASU 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118~~.” The amendments in this update provide guidance on when to record and disclose provisional amounts for certain income tax effects of the 2017 Tax Cuts and Jobs Act ("Tax Reform Act"). The amendments also require any provisional amounts or subsequent adjustments to be included in net income from continuing operations. Additionally, this ASU discusses required disclosures that an entity must make with regard to the Tax Reform Act. This ASU is effective immediately as new information is available to adjust provisional amounts that were previously recorded. The Trust has adopted this standard and will continue to evaluate indicators that may give rise to a change in our tax provision as a result of the Tax Reform Act.


3.	~~Recent Accounting Pronouncements~~

~~In February 2016, the FASB issued ASU No.~~ 2016-02, “Leases (Topic 842).” ~~This ASU requires~~which amended the existing lease accounting guidance to require lessees to recognize a right of use asset and lease liability on the balance sheet for all leases with terms greater than twelve months. We adopted the ~~exception of short-term leases. The~~ new ~~guidance will also require significant disclosures about~~leasing standard and all related amendments on January 1, 2019. We elected the ~~amount, timing and uncertainty of cash flows from leases. In January 2018, the FASB issued~~optional transition method provided by ASU No. ~~2018-01,~~2018-11, “~~Land Easement Practical Expedient~~Leases (Topic 842): Targeted Improvements” and as a result, have not restated our condensed consolidated financial statements for ~~Transition~~prior periods presented. We also elected the practical expedients permitted under the transition guidance that retain the lease classification and initial direct costs for any leases that existed prior to ~~Topic 842” that clarifies the application~~adoption of the ~~new lease guidance to land easements. The ASU allows an optional transition practical expedient, which if elected, would~~standard. In addition, we have not ~~require an entity to reassess~~reassessed the accounting treatment ~~on existing or expired land easements not previously accounted for as leases under the current lease guidance. Any new or modified land easements would be evaluated under the new lease guidance upon~~of contracts entered into prior to adoption of the new lease ~~standard. In July 2018,~~guidance.

As of June 30, 2019, we have recorded right-of-use assets of $3.3 million and lease liabilities for $3.5 million primarily related to operating leases in connection with our administrative offices located in Dallas and Midland, Texas. The office lease agreements require monthly rent payments and expire in December 2025 and August 2022, respectively. Operating lease expense is recognized on a straight-line basis over the ~~FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” and ASU No. 2018-11, “Leases (Topic 842) — Targeted Improvements” to set forth certain additional practical~~

~~expedients for lessors and to provide entities with an option to adopt the new~~ lease ~~standard with a cumulative effect at the adoption date without restating prior periods. The new~~term. Operating lease ~~standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, which~~cost for the ~~Trust is the first quarter~~three and six months ended June 30, 2019 was $0.2 million and $0.3 million, respectively.

Future minimum lease payments under these operating leases are as follows as of ~~2019. The Trust plans to adopt the new lease standard on January 1,~~June 30, 2019 with a cumulative effect at the adoption date. While the assessment of the impact this ASU will have on the consolidated financial statements is ongoing, the Trust does expect to recognize a right of use asset and lease liability for our operating lease commitments on the consolidated balance sheet, but does not expect a significant impact on our consolidated results of operations or cash flows.(in thousands):



2019 (excluding the six months ended June 30)	$	336
2020	781
2021	802
2022	705
2023	546
Thereafter	701
Total lease payments	3,871
Less: imputed interest	(380		)
Total operating lease liabilities	$	3,491

~~In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220).~~” This ASU allows for stranded tax effects in accumulated other comprehensive income resulting from the Tax Reform Act to be reclassified as retained earnings. This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Trust is currently evaluating the impact that ASU 2018-02 will have on our consolidated financial statements and disclosures.


3.	Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-14, “Compensation — Retirement Benefits — Defined Benefit Plans — General (Subtopic 715-20): Disclosure Framework — Changes to Disclosure Requirements for Defined Benefit Plans.” The ASU eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other post-retirement plans. The ASU is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Trust is currently evaluating the impact that ASU 2018-14 will have on our consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-15, “Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The ASU requires a customer in a cloud computing arrangement that is a service contract to follow existing

internal-use software guidance to determine which implementation costs to capitalize as an asset. The ASU is effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted, and may be applied retrospectively or as of the beginning of the period of adoption. The Trust is currently evaluating the impact that ASU 2018-15 will have on our consolidated financial statements and disclosures.


4.	Property, Plant and Equipment

Property, plant and equipment, net consisted of the following as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):



	June 30, 2019			December 31, 2018
Property, plant and equipment:
Water service-related assets ⁽¹⁾	$	83,955		$	62,919
Furniture, fixtures and equipment	5,814			4,297
Other	598			598
Property, plant and equipment at cost	90,367			67,814
Less: accumulated depreciation	(5,575		)	(3,012		)
Property, plant and equipment, net	$	84,792		$	64,802

September 30, 2018 December 31, 2017
Property, plant and equipment:
Water service-related assets ⁽¹⁾
$ 55,417
$ 18,193
Furniture, fixtures and equipment 3,927
1,786
Other 597
—
Property, plant and equipment at cost 59,941
19,979
Less: accumulated depreciation (1,952 ) (463 )
Property, plant and equipment, net $ 57,989
$ 19,516


~~(1)~~
~~Water service-related assets reflect assets related to brackish water sourcing and water re-use projects.~~

(1) Water service-related assets reflect assets related to water sourcing and water re-use projects.

Depreciation expense was ~~$0.7~~$1.4 million and ~~$1.5~~$0.5 million for the three ~~and nine~~ months ended ~~September~~June 30, 2019 and 2018, respectively. Depreciation expense was ~~$0.2~~$2.6 million and ~~$0.3~~$0.8 million for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017.~~2019 and 2018, respectively.


5.	Real Estate Activity

~~Land Sales~~

~~No value has been assigned to the land held by~~As of June 30, 2019 and December 31, 2018, the Trust other than parcels which have been acquired through foreclosure and a limited number of parcels which have been acquired. Consequently, no allowance for depletion is computed, and no charge to income is made, with respect thereto, and no cost is deducted from the proceeds of the land sales in computing gain or loss thereon.

~~During the nine months ended September 30, 2018 and 2017, we completed~~owned the following ~~sales of~~ land ~~parcels~~and real estate (in thousands, except number of acres):



	June 30, 2019			December 31, 2018
	Number of Acres	Net Book Value		Number of Acres	Net Book Value
Land (surface rights)	855,553	$	—	877,462	$	—
Real estate acquired	46,386	84,902		24,715	10,492
Total real estate situated in 19 counties in Texas	901,939	$	84,902	902,177	$	10,492

Date of sale Location Approximate number of acres sold Contract sale price
For the nine months ended September 30, 2018
February 2018 Loving County 40.0 $ 1,150
March 2018 Culberson County 80.0 1,600
August 2018 El Paso County 15.0 270
September 2018 Reeves County 31.8 1,273
Total 166.8 $ 4,293

For the nine months ended September 30, 2017
May 2017 Loving County 11.02
$ 220
Total 11.02
$ 220

No valuation allowance was necessary at June 30, 2019 and December 31, 2018.

Land Sales

For the six months ended June 30, 2019, the Trust sold approximately 21,909 acres (13,180 acres in Loving County, 5,598 acres in Culberson County, 1,651 acres in Hudspeth County, 843 acres in Reeves County, 636 acres in Midland County and approximately 1 acre in Glasscock County) of land in Texas for an aggregate sales price of approximately $108.4 million, with an average of approximately $4,948 per acre.

For the six months ended June 30, 2018, the Trust sold approximately 120 acres (80 acres in Culberson County and 40 acres in Loving County) of land in Texas for an aggregate sales price of approximately $2.8 million, with an average of approximately $22,917 per acre.

~~Real Estate Acquired~~Land Acquisitions

~~Real estate acquired included~~For the ~~following activity for the nine~~six months ended ~~September~~June 30, 2019, the Trust acquired approximately 21,671 acres (Culberson, Glasscock, Loving and Reeves Counties) of land in Texas for an aggregate purchase price of approximately $74.4 million, with an average of approximately $3,434 per acre.

For the six months ended June 30, 2018, the Trust acquired approximately 2,884 acres (Mitchell and ~~2017 (in thousands, except number~~Upton County) of ~~acres):~~land in Texas for an aggregate purchase price of approximately $2.7 million, with an average of approximately $924 per acre.

Nine Months Ended
September 30, 2018 Nine Months Ended
September 30, 2017
Acres Book Value Acres Book Value
Balance at January 1, 10,064.78
$ 1,115
10,064.78
$ 1,115
Acquisitions 2,883.68
2,663
—
—
Sales —
—
—
—
Balance at September 30, 12,948.46
$ 3,778
10,064.78
$ 1,115


6.	Royalty Interests

As of June 30, 2019 and December 31, 2018, the Trust owned the following oil and gas royalty interests (in thousands, except number of interests):



	Net Book Value
	June 30, 2019		December 31, 2018
1/16th nonparticipating perpetual royalty interests	$	—	$	—
1/128th nonparticipating perpetual royalty interests	—		—
Royalty interests acquired	29,320		24,303
Total royalty interests	$	29,320	$	24,303

No valuation allowance was necessary at June 30, 2019 and December 31, 2018.

For the six months ended June 30, 2019, the Trust acquired oil and gas royalty interests in approximately 1,247 net royalty acres (normalized to 1/8th) for an aggregate purchase price of $4.7 million, an average price of approximately $3,800 per net royalty acre.

There were no oil and gas royalty interest transactions for the six months ended June 30, 2018.


7.	Income Taxes

Effective January 1, 2018, the statutory Federal income tax rate for the Trust decreased from 35% to 21%. The Trust’s effective Federal income tax rate is less than the 21% statutory rate because taxable income is reduced by statutory percentage depletion allowed on mineral royalty income.

The Trust structured the $100.0 million land sale consummated in January 2019 as a §1031 exchange for federal income tax purposes. As a result, the current federal income tax liability and expense were each reduced by approximately $15.3 million during the six months ended June 30, 2019, while the deferred federal income tax liability and expense increased by the same amount.


7.8.	Capital

The Sub-share Certificates (“Sub-shares”) and the Certificates of Proprietary Interest are freely interchangeable in the ratio of one Certificate of Proprietary Interest for 3,000 Sub-shares or 3,000 Sub-shares for one Certificate of Proprietary Interest.

Dividends

On March 15, 2019, we paid $46.5 million in dividends representing a regular cash dividend of $1.75 per Sub-share and a special dividend of $4.25 per Sub-share for sub-shareholders of record at the close of business on March 8, 2019.

On March 16, 2018, we paid $31.7 million in dividends representing a regular cash dividend of $1.05 per Sub-share and a special dividend of $3.00 per Sub-share for sub-shareholders of record at the close of business on March 9, 2018.

On March 16, 2017, we paid $10.7 million in dividends representing a cash dividend of $0.35 per Sub-share and a special dividend of $1.00 per Sub-share for sub-shareholders of record at the close of business on March 9, 2017.

Repurchases of Sub-shares

During the ~~nine~~six months ended ~~September~~June 30, 2019, we purchased and retired 6,258 Sub-shares. During the six months ended June 30, 2018, we purchased and retired ~~39,768 Sub-shares. During the nine months ended September 30, 2017, we purchased and retired 88,272~~29,062 Sub-shares.


8.9.	Business Segment Reporting

During the periods presented, we reported our financial performance based on the following segments: Land and Resource Management and Water ~~Service~~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 the Trust 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 approximately ~~890,000~~900,000 acres of land and related resources in West Texas owned by the Trust. 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 ~~Service~~Services and Operations segment encompasses the business of providing a full-service water offering to operators in the Permian Basin as well as managing agreements with energy companies and oilfield service businesses to allow such companies to explore for water, drill water wells, construct water-related infrastructure and purchase water sourced from land that we own. The revenue streams of this segment consist of revenue generated from direct sales of sourced and treated water as well as revenues from royalties on water service-related activity.

Segment financial results were as follows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenues:
Land and resource management	$	58,688	$	52,376	$	219,147	$	95,129
Water services and operations	28,622		21,468		59,487		38,722
Total consolidated revenues	$	87,310	$	73,844	$	278,634	$	133,851

Net income:
Land and resource management	$	37,194	$	40,505	$	160,311	$	73,315
Water services and operations	12,392		11,998		29,273		22,979
Total consolidated net income	$	49,586	$	52,503	$	189,584	$	96,294

Capital expenditures:
Land and resource management	$	881	$	303	$	1,415	$	1,555
Water services and operations	12,472		19,420		21,185		30,009
Total capital expenditures	$	13,353	$	19,723	$	22,600	$	31,564

Depreciation and amortization:
Land and resource management	$	261	$	100	$	438	$	170
Water services and operations	1,190		383		2,217		643
Total depreciation and amortization	$	1,451	$	483	$	2,655	$	813

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Revenues:
Land and resource management $ 47,513
$ 42,343
$ 142,642
$ 93,209
Water service and operations 25,655
9,634
64,377
21,468
Total consolidated revenues $ 73,168
$ 51,977
$ 207,019
$ 114,677

Net income:
Land and resource management $ 36,385
$ 27,424
$ 109,700
$ 59,535
Water service and operations 14,377
5,578
37,356
13,076
Total consolidated net income $ 50,762
$ 33,002
$ 147,056
$ 72,611

Capital expenditures
Land and resource management $ 909
$ 1,682
$ 2,464
$ 2,188
Water service and operations 7,533
2,678
37,542
5,782
Total capital expenditures $ 8,442
$ 4,360
$ 40,006
$ 7,970

Depreciation and amortization:
Land and resource management $ 160
$ 104
$ 330
$ 123
Water service and operations 546
105
1,189
190
Total depreciation and amortization $ 706
$ 209
$ 1,519
$ 313

The following table presents total assets and property, plant and equipment, net by segment as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):



	June 30, 2019		December 31, 2018
Assets:
Land and resource management	$	337,941	$	198,922
Water services and operations	125,671		86,153
Total consolidated assets	$	463,612	$	285,075

Property, plant and equipment, net:
Land and resource management	$	4,739	$	3,720
Water services and operations	80,053		61,082
Total consolidated property, plant and equipment, net	$	84,792	$	64,802

September 30, 2018 December 31, 2017
Assets:
Land and resource management $ 141,934
$ 97,549
Water service and operations 77,767
22,486
Total consolidated assets $ 219,701
$ 120,035

Property, plant and equipment, net
Land and resource management $ 3,567
$ 1,449
Water service and operations 54,422
18,067
Total consolidated property, plant and equipment, net $ 57,989
$ 19,516

9.10. Oil and Gas Producing Activities

There are a number of oil and gas wells that have been drilled but are not yet completed (“DUC”) where the Trust has a royalty interest. Currently, the Trust has identified ~~303~~297 DUC wells subject to our royalty interest. The process of identifying these wells is ongoing and we anticipate updates going forward to be affected by a number of factors including, but not limited to, ongoing changes/updates to our identification process, changes/updates by Drilling Info (our main source of information in identifying these wells) in their identification process, the eventual completion of these DUC wells, and additional wells drilled but not completed by companies operating where we have a royalty interest.


~~10.~~11.	Subsequent Events

We evaluate events that occur after the balance sheet date but before consolidated financial statements are, or are available to be issued to determine if a material event requires our amending the consolidated financial statements or disclosing the event. We evaluated subsequent events through the filing date we issued these consolidated financial statements and ~~did not identify any~~identified the following subsequent ~~events~~event requiring disclosure.

On July 30, 2019, the Trust and current Trustees John R. Norris III and David E. Barry entered into a settlement agreement (the “Settlement Agreement”) with Horizon Kinetics LLC, Horizon Kinetics Asset Management LLC, Murray Stahl, SoftVest, L.P., SoftVest Advisors, LLC, Eric L. Oliver, ART-FGT Family Partners Limited, Tessler Family Limited Partnership and Allan R. Tessler (the “Investor Group”) with respect to the previous proxy contest mounted by the Investor Group and the pending litigation between the parties. Pursuant to the Settlement Agreement, the parties agreed: (i) to dismiss the pending litigation captioned Case 3:19-cv-01224-B Texas Pacific Land Trust et al v. Oliver in the U.S. District Court for the Northern District of Texas in Dallas, (ii) that the third Trustee position will remain vacant at least until the end of the Restricted Period (as defined in the Settlement Agreement), (iii) to add three new members, including Mr. Stahl and Mr. Oliver, to the Conversion Exploration Committee (the “Committee”), which was formed in June, 2019 to evaluate the conversion of the Trust into a C-corporation (the “Conversion”), (iv) the Committee will continue to be governed by its charter dated June 23, 2019, as amended and restated on July 30, 2019, and will complete its work by December 31, 2019, unless the Committee otherwise determines, (v) if the Committee recommends a plan of Conversion and proposes the approval of the Trust’s sub-shareholders, the Investor Group will be required to (1) vote all of the Sub-shares beneficially owned by it in favor of such Conversion at a special meeting called therefor by the Trustees, and (2) privately and publicly support such Conversion through a press release as an exempt solicitation, (vi) if the Trustees decide to implement such plan of Conversion in the form recommended by the Committee in all material respects, (1) the Investor Group will be prohibited from challenging such Conversion in court or otherwise prior to the end of the Restricted Period, and (2) the parties will grant mutual general releases in one another’s favor upon completion of such Conversion, and (vii) to other customary terms of settlement. The foregoing description of the Settlement Agreement is qualified by the full text of such agreement, which is attached as an exhibit to the Trust’s Current Report on Form 8-K filed, filed with the SEC on July 31, 2019 and incorporated by reference herein.

*****


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding management’s expectations, hopes, intentions or strategies regarding the future. Forward-looking statements include statements regarding the Trust’s future operations and prospects, the markets for real estate in the areas in which the Trust owns real estate, applicable zoning regulations, the markets for oil and gas, production limits on prorated oil and gas wells authorized by the Railroad Commission of Texas, expected competition, the pending proxy contest, the impacts thereof and other possible changes in composition of the Trustees, management’s intent, beliefs or current expectations with respect to the Trust’s future financial performance and other matters. All forward-looking statements in this Report are based on information available to us as of the date this Report is filed with the Securities and Exchange Commission(the“SEC”), and we assume no responsibility to update any such forward-looking statements, except as required by law. All forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, the factors discussed in Item 1A. “Risk Factors” of Part I ofour Annual Reporton Form 10-Kfor the year ended December 31, ~~2017,~~2018, and in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q.

The following discussion and analysis should be read together with (i) the factors discussed in Item 1A. “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, (ii) the factors discussed in Part II, Item 1A. “Risk Factors,” if any, of this Quarterly Report on Form 10-Q and (iii) the Financial Statements, including the Notes thereto, and the other financial information appearing elsewhere in this Report. Period-to-period comparisons of financial data are not necessarily indicative, and therefore should not be relied upon as indicators, of the Trust’s future performance. Words or phrases such as “expects” and “believes”, or similar expressions, when used in this Form 10-Q or other filings with the SEC, are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Overview

Texas Pacific Land Trust (which together with its subsidiaries as the context requires, may be referred to as “Texas Pacific”, the “Trust”, “our”, “we” or “us”) is one of the largest landowners in the State of Texas with approximately ~~890,000~~900,000 acres of land in West Texas. We were organized under a Declaration of Trust, dated February 1, 1888, to receive and hold title to extensive tracts of land in ~~numerous counties in West~~the State of Texas, previously the property of the Texas and Pacific Railway Company. Our Trustees are empowered under the Declaration of Trust to manage the lands with all the powers of an absolute owner.

Our revenues are derived primarily from oil, gas and ~~water service-related~~water-related royalties, sales of water and land, easements and ~~leases of the land.~~commercial leases. Due to the nature of our operations, our revenue is subject to substantial fluctuations from quarter to quarter and year to year. ~~We are a passive seller of land and do not actively solicit sales of land. In addition, the~~The demand for, and sale price of, particular tracts of land is influenced by many factors beyond our control, including general economic conditions, the rate of development in nearby areas and the suitability of the particular tract for ~~the ranching~~commercial uses prevalent in western Texas.

We are not an oil and gas producer. Rather, our oil and gas revenue is derived from our ~~retained perpetual non-participating~~ oil and gas royalty interests. Thus, in addition to being subject to fluctuations in response to the market prices for oil and gas, our oil and gas royalty revenues are also subject to decisions made by the owners and operators of the oil and gas wells to which our royalty interests relate as to investments in and production from those wells. We monitor production reports byfrom the ~~oil~~operators, the Texas Railroad Commission, and ~~gas companies~~other private data providers to assure that we are being paid the appropriate royalties. ~~We review conditions in the agricultural industry in the areas in which our lands are located and seek to keep as much of our lands as possible under lease to local ranchers.~~

Our revenue from easements is primarily generated from ~~easement contracts covering activities such as~~pipelines transporting oil, gas and ~~gas pipelines~~related hydrocarbons, power line and utility easements, and subsurface wellbore easements. ~~The majority~~Since the second quarter of 2016, our easements typically have a ten-year term. ~~We also enter into agreements with operators~~Commercial lease revenue is derived primarily from processing, storage and ~~mid-stream companies to lease land from us, primarily for~~compression facilities and roads.

In prior years, we entered into agreements with energy companies and oilfield service businesses to allow such companies to explore for water, drill water wells, construct water-related infrastructure and purchase water sourced from land

that we own. Energy businesses use water for their oil and gas projects while non-energy businesses (i.e., water management service companies) operate water facilities to produce and sell water to energy businesses. We collect revenue from royalties and water sales under these legacy agreements.

Demand for water solutions is expected to grow as drilling and completion activity in the Permian Basin continues to increase. In response to that anticipated demand, the Trust formed Texas Pacific Water Resources LLC (“TPWR”) in June 2017. TPWR, a single member LLC and wholly owned subsidiary of the Trust, focuses on providing full-service water offerings to operators in the Permian Basin. These services include, ~~brackish~~but are not limited to, water sourcing, produced-water gathering/treatment/recycling, infrastructure ~~development/construction,~~development, disposal solutions, water tracking, analytics and well testing services. TPWR is committed to sustainable water development with significant focus on the large-scale implementation of recycled water operations.

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Trust invested approximately ~~$27.7~~$21.0 million in TPWR projects to develop ~~brackish~~ water sourcing and water re-use assets.

Results of Operations

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

We analyze financial results for each of our reportable segments. The reportable segments presented are consistent with our reportable segments discussed in Note 8,9, “Business Segment Reporting” in Item 1. Financial Statements in this Quarterly Report on Form 10-Q. We monitor our reporting segments based upon revenue and net income calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

For the three months ended ~~September~~June 30, ~~2018~~2019 as compared to the three months ended ~~September~~June 30, ~~2017~~2018

Revenues. Revenues increased ~~$21.2~~$13.5 million, or ~~40.8%~~18.2%, to ~~$73.2~~$87.3 million for the three months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$52.0~~$73.8 million for the three months ended ~~September~~June 30, ~~2017.~~2018. Net income ~~increased $17.8~~decreased $2.9 million, or ~~53.8%~~5.6%, to ~~$50.8~~$49.6 million for the three months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$33.0~~$52.5 million for the three months ended ~~September~~June 30, ~~2017.~~2018.

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


	Three months ended September 30,								Three Months Ended June 30,
	2018				2017				2019				2018
Revenues:
Land and resource management:
Oil and gas royalties	$	31,253	43	%	$	20,481	39	%	$	39,641	46	%	$	30,278	41	%
Easements and sundry income	14,591		20	%	21,737		42	%
Land sales and other income	1,669		2	%	125		—	%
Easements and other surface-related income									14,165		16	%	21,974		30	%
Land sales and other operating revenue									4,882		6	%	124		—	%
	47,513		65	%	42,343		81	%	58,688		68	%	52,376		71	%
Water service and operations:
Water services and operations:
Water sales and royalties	18,178		25	%	7,917		15	%	20,430		23	%	15,643		21	%
Easements and sundry income	7,477		10	%	1,717		4	%
Easements and other surface-related income									8,192		9	%	5,825		8	%
	25,655		35	%	9,634		19	%	28,622		32	%	21,468		29	%
Total consolidated revenues	$	73,168	100	%	$	51,977	100	%	$	87,310	100	%	$	73,844	100	%

Net income:
Land and resource management	$	36,385	72	%	$	27,424	83	%	$	37,194	75	%	$	40,505	77	%
Water service and operations	14,377		28	%	5,578		17	%
Water services and operations									12,392		25	%	11,998		23	%
Total consolidated net income	$	50,762	100	%	$	33,002	100	%	$	49,586	100	%	$	52,503	100	%

Land and Resource Management

Land and Resource Management segment revenues increased ~~$5.2~~$6.3 million, or ~~12.2%~~12.1%, to ~~$47.5~~$58.7 million for the three months ended ~~September~~June 30, ~~2018~~2019 as compared with ~~$42.3~~$52.4 million for the comparable period of ~~2017.~~2018.

Oil and gas royalties. Oil and gas royalty revenue was ~~$31.3~~$39.6 million for the three months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$20.5~~$30.3 million for the three months ended ~~September~~June 30, ~~2017.~~2018. Oil royalty revenue was ~~$24.1~~$33.1 million for the three months ended ~~September~~June 30, 2019, an increase of 34.0% over the three months ended June 30, 2018 ~~compared to $17.0 million for the comparable period of 2017.~~when oil royalty revenue was $24.7 million. This increase in oil royalty revenue is principally due to ~~the combined effect of~~ a ~~98.9%~~41.3% increase in crude oil production subject to the Trust’s royalty interest, ~~and~~partially offset by a ~~31.0% increase~~4.8% decrease in the average price per royalty barrel of crude oil received during the three months ended ~~September~~June 30, ~~2018~~2019 compared to the same period in ~~2017.~~2018. Gas royalty revenue was ~~$7.1~~$6.5 million for the three months ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~102.8%~~17.3% over the three months ended ~~September~~June 30, ~~2017~~2018 when gas royalty revenue was ~~$3.5~~$5.6 million. This increase in gas royalty revenue resulted principally from a volume increase of ~~174.7%~~120.2% for the three months ended ~~September~~June 30, ~~2018~~2019 as compared to the same period of ~~2017,~~2018, partially offset by a ~~26.5%~~43.5% decrease in the average price ~~received. Additionally, oil and gas royalties for~~received over the ~~three months ended September 30, 2017 included $7.7 million related to an arbitration settlement with Chevron U.S.A., Inc. (the “Chevron Settlement”) in September 2017.~~same period.

Easements and ~~sundry~~other surface-related income. Easements and ~~sundry~~other surface-related income was ~~$14.6~~$14.2 million for the three months ended ~~September~~June 30, ~~2018,~~2019, a decrease of ~~32.9%~~35.5% compared to ~~$21.7~~$22.0 million for the three months ended ~~September~~June 30, ~~2017.~~2018. Easements and ~~sundry~~other surface-related income includes pipeline, ~~easement income,~~power line and utility easements, commercial leases, material sales, and seismic and temporary ~~permit income, lease rental income and income from material sales.~~permits. The decrease in easements and ~~sundry~~other surface-related income is principally related to ~~the~~a 41.6% decrease in pipeline easement income ~~which decreased 42.5%~~ to ~~$9.1~~$9.9 million for the three months ended ~~September~~June 30, ~~2018 compared to~~2019 from $16.9 million for the three months ended ~~September~~June 30, ~~2017.~~2018. Easements and ~~sundry~~other surface-related income is unpredictable and may vary significantly from period to period. Effective January 1, 2018, the Trust adopted the new revenue recognition accounting standard using the full retrospective method, and no longer defers revenue on its term easements. See more discussion in Note 2, “Summary of Significant Accounting Policies — Recently Adopted Accounting Guidance” for further discussion and analysis of impact on our condensed consolidated financial statements.

Land sales and other ~~income~~operating revenue. Land sales and other ~~income~~operating revenue includes revenue generated from land sales and grazing leases. For the three months ended ~~September~~June 30, ~~2018,~~2019, we sold approximately ~~46.83~~658 acres of land for total consideration of ~~$1.5~~$4.8 million, or approximately ~~$32,953~~$7,260 per acre. There were no land sales for the three months ended ~~September~~June 30, ~~2017.~~2018.

Net income. Net income for the Land and Resource Management segment was ~~$36.4~~$37.2 million for the three months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$27.4~~$40.5 million for the three months ended ~~September~~June 30, ~~2017.~~2018. As discussed above, revenues for the Land and Resource Management segment increased ~~$5.2~~$6.3 million for the three months ended ~~September~~June 30, ~~2018~~2019 compared to the same period of ~~2017.~~2018. Expenses, including income tax expense, for the Land and Resource Management segment were ~~$11.1~~$21.5 million and ~~$14.9~~$11.9 million for the three months ended ~~September~~June 30, 2019 and 2018, ~~and 2017,~~ respectively. ~~This decrease~~The increase in expenses was principally ~~due~~related to ~~the decrease in income tax expense~~approximately $6.7 million of expenses related to the ~~change in the federal income tax rate from 35%~~proxy contest to ~~21% effective January 1, 2018 and an overall decrease in legal and professional fees. For~~elect a new Trustee for the three months ended ~~September~~June 30, ~~2017, we incurred consulting fees related to a strategic review of the Trust.~~2019. No such ~~consulting fees~~expenses were incurred for the three months ended ~~September~~June 30, 2018. ~~See~~The remaining increase was principally related to salaries and related employee expenses as discussed further ~~discussion of these expenses~~ below under “Other Financial Data — Consolidated.”

Water ~~Service~~Services and Operations

Water ~~Service~~Services and Operations segment revenues increased ~~$16.0 million, or 166.3%,~~33.3% to ~~$25.7~~$28.6 million for the three months ended ~~September~~June 30, ~~2018~~2019 as compared with ~~$9.6~~$21.5 million for the comparable period of ~~2017.~~2018.

Water sales and royalties. Water sales and royalty ~~revenues~~revenue was $20.4 million for the three months ended ~~September~~June 30, 2019, an increase of $4.8 million or 30.6%, compared with the three months ended June 30, 2018 ~~of $18.2 million were more than double the amount of~~when water sales and royalty revenue ~~for the comparable period of 2017.~~was $15.6 million. This increase iswas principally due to ~~the Trust commencing development of brackish water sourcing, partially offset by~~ a ~~decrease~~39.8% sales increase in the ~~royalties received from existing legacy agreements.~~number of barrels of sourced and treated water sold in the three months ended June 30, 2019 as compared to the same period in 2018.

Easements and ~~sundry~~other surface-related income. Easements and ~~sundry~~other surface-related income for the Water ~~Service~~Services and Operations segment includes pipeline easement royalties, commercial lease royalties and income from temporary permits. For the three months ended ~~September~~June 30, ~~2018,~~2019, the combined ~~revenue~~income from these revenue streams was ~~$7.5~~$8.2 million, an increase of 40.6%, as compared to ~~$1.7~~$5.8 million for the three months ended ~~September~~June 30, ~~2017.~~2018.

Net income. Net income for the Water ~~Service~~Services and Operations segment was ~~$14.4~~$12.4 million for the three months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$5.6~~$12.0 million for the three months ended ~~September~~June 30, ~~2017.~~2018. As discussed above, revenues for the Water ~~Service~~Services and Operations segment increased ~~$16.0~~33.3% for the three months ended June 30, 2019 compared to the same period of 2018. Expenses, including income tax expense, for the Water Services and Operations segment were $16.2 million for the three months ended ~~September~~June 30, ~~2018~~2019 as compared to ~~the same period of 2017. Expenses for the Water Service and Operations segment were $11.3 million and $4.1~~$9.5 million for the three months ended ~~September~~June 30, ~~2018 and 2017, respectively.~~2018. The increase in expenses during ~~2018~~2019 is ~~directly~~principally related to ~~the formation and commencement of operations of TPWR during the second quarter of 2017 and~~increased water service operating expenses, primarily fuel and equipment rental related to ~~the brackish water~~increased sourcing and ~~water re-use projects placed in service in 2018~~transfer of water. The remaining increase was principally related to increased salaries and ~~late 2017. See~~related employee expenses and depreciation and amortization expense as discussed further ~~discussion of these water service-related operating expenses~~ below under “Other Financial Data — Consolidated.”

Other Financial Data — Consolidated

Salaries and related employee ~~benefits~~expenses. Salaries and related employee ~~benefits~~expenses were ~~$3.7~~$7.7 million for the three months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$0.7~~$3.8 million for the comparable period of ~~2017.~~2018. The increase in salaries and related employee ~~benefits~~expenses is directly related to the increase in the number of employees from 1747 employees as of ~~September~~June 30, ~~2017~~2018 to 5878 as of ~~September~~June 30, ~~2018~~2019 and additional contract labor expenses for the three months ended ~~September~~June 30, ~~2018~~2019 compared to the same period of ~~2017.~~2018.

Water service-related expenses. Water service-related expenses ~~of $3.7~~were $5.7 million for the three months ended ~~September~~June 30, ~~2018, include~~2019 compared to $2.6 million for the comparable period of 2018. This increase in expenses ~~for~~was principally the result of an increase in equipment rental ~~propane~~ and fuel to source and other equipment-related expenses associated with the brackish water sourcing and water re-use projects placed in service in 2018 and late 2017. The Trust incurred minimal water service-related expenses during the three months ended September 30, 2017.transfer water.

General and administrative expenses. General and administrative expenses increased ~~$0.9~~$1.1 million to ~~$1.4~~$2.1 million for the three months ended ~~September~~June 30, ~~2018~~2019 from ~~$0.5~~$1.0 million for the same period of ~~2017.~~2018. The increase in general and administrative expenses is primarily due to ~~additional liability insurance~~increased expenses related to a change in our principal independent contractor service provider and ~~equipment costs as~~$0.2 million of expenses related to the proxy contest to elect a ~~result of the opening of an additional office in Midland, Texas for our TPWR operations~~new Trustee during the ~~second quarter of 2017.~~three months ended June 30, 2019.

Legal and professional expenses. Legal and professional fees ~~decreased $0.4 million to $0.6~~were $7.9 million for the three months ended ~~September~~June 30, ~~2018 from $1.0~~2019 compared to $0.4 million for the comparable period of ~~2017. Legal~~2018. The increase in legal and professional fees for the three months ended ~~September~~June 30, ~~2017 included consulting~~2019 compared to 2018 is principally due to approximately $6.5 million of legal and professional fees related to the proxy contest to elect a ~~2017 strategic review of the Trust.~~new Trustee.

Depreciation and amortization. Depreciation and amortization was ~~$0.7~~$1.5 million for the three months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$0.2~~$0.5 million for the three months ended ~~September~~June 30, ~~2017.~~2018. The increase in depreciation and amortization is principally related to the Trust’s investment in water service-related assets ~~during 2017~~placed in service in 2019 and the latter half of 2018.

For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018

Revenues. Revenues ~~increased $92.3 million, or 80.5%, to $207.0~~more than doubled, from $133.9 million for the ~~nine~~six months ended ~~September~~June 30, 2018 ~~compared~~ to ~~$114.7~~$278.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019. Net income increased ~~$74.4~~$93.3 million, or ~~102.5%~~96.9%, to ~~$147.1~~$189.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$72.6~~$96.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

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


	Nine Months Ended September 30,								Six Months Ended June 30,
	2018				2017				2019				2018
Revenues:
Land and resource management:
Oil and gas royalties	$	88,078	43	%	$	43,252	38	%	$	72,854	25	%	$	56,825	43	%
Easements and sundry income	49,896		24	%	49,363		43	%
Land sales and other income	4,668		2	%	594		—	%
Easements and other surface-related income									37,650		14	%	35,305		26	%
Land sales and other operating revenue									108,643		39	%	2,999		2	%
	142,642		69	%	93,209		81	%	219,147		78	%	95,129		71	%
Water service and operations:
Water services and operations:
Water sales and royalties	47,428		23	%	19,584		17	%	43,413		16	%	29,250		22	%
Easements and sundry income	16,949		8	%	1,884		2	%
Easements and other surface-related income									16,074		6	%	9,472		7	%
	64,377		31	%	21,468		19	%	59,487		22	%	38,722		29	%
Total consolidated revenues	$	207,019	100	%	$	114,677	100	%	$	278,634	100	%	$	133,851	100	%

Net income:
Land and resource management	$	109,700	75	%	$	59,535	82	%	$	160,311	85	%	$	73,315	76	%
Water service and operations	37,356		25	%	13,076		18	%
Water services and operations									29,273		15	%	22,979		24	%
Total consolidated net income	$	147,056	100	%	$	72,611	100	%	$	189,584	100	%	$	96,294	100	%

Land and Resource Management

Land and Resource Management segment revenues increased ~~$49.4~~$124.0 million, or ~~53.0%~~130.4%, to ~~$142.6~~$219.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 as compared with ~~$93.2~~$95.1 million for the comparable period of ~~2017.~~2018.

Oil and gas royalties. Oil and gas royalty revenue was ~~$88.1~~$72.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$43.3~~$56.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Oil royalty revenue was ~~$69.0~~$59.5 million for the ~~nine~~six months ended ~~September~~June 30, 2019, an increase of 32.6% over the six months ended June 30, 2018 ~~compared to $33.4 million for the comparable period of 2017.~~when oil royalty revenue was $44.9 million. This increase in oil royalty revenue is principally due to ~~the combined effect of~~ a ~~115.2%~~49.0% increase in crude oil production subject to the Trust’s royalty interest, ~~and~~partially offset by a ~~24.2% increase~~10.5% decrease in the average price per royalty barrel of crude oil received during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to the same period in ~~2017.~~2018. Gas royalty revenue was ~~$19.1~~$13.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~94.5%~~11.6% over the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 when gas royalty revenue was ~~$9.8~~$11.9 million. This increase in gas royalty revenue resulted from a volume increase of ~~156.8%~~119.9% for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 as compared to the same period of ~~2017,~~2018, partially offset by a ~~24.8%~~45.2% decrease in the average price ~~received. Additionally, oil and gas royalties for~~received over the ~~nine months ended September 30, 2017 included $7.7 million related to the Chevron Settlement in September 2017.~~same period.

Easements and ~~sundry~~other surface-related income. Easements and ~~sundry~~other surface-related income was ~~$49.9~~$37.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~1.1%~~6.6% compared to ~~$49.4~~$35.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Easements and ~~sundry~~other surface-related income includes pipeline, ~~easement income,~~power line and utility easements, commercial leases, material sales, and seismic and temporary ~~permit income, lease rental income and income from material sales.~~permits. The increase in easements and ~~sundry~~other surface-related income is principally related to the increase in ~~material sales~~pipeline easement income which increased ~~29.6%~~7.4% to ~~$4.9~~$26.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 from ~~$3.7~~$24.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Easements and ~~sundry~~other surface-related income is unpredictable and may vary significantly from period to period. Effective January 1, 2018, the Trust adopted the new revenue recognition accounting standard using the full retrospective method, and no longer defers revenue on its term easements. See more discussion in Note 2, “Summary of Significant Accounting Policies — Recently Adopted Accounting Guidance” for further discussion and analysis of impact on our condensed consolidated financial statements.

Land sales and other ~~income~~operating revenue. Land sales and other ~~income~~operating revenue includes revenue generated from land sales and grazing leases. For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we sold approximately ~~167~~21,909 acres of land for total consideration of ~~$4.3~~$108.4 million, or approximately ~~$25,734~~$4,948 per acre. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we sold approximately ~~11.02~~120 acres of land for total consideration of ~~$0.2~~$2.8 million, or approximately ~~$20,000~~$22,917 per acre.

Net income. Net income for the Land and Resource Management segment was ~~$109.7~~$160.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$59.5~~$73.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. As discussed above, revenues for the Land and Resource Management segment increased ~~$49.4~~$124.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to the same period of ~~2017.~~2018. Expenses, including income tax expense, for the Land and Resource Management segment were ~~$32.9~~$58.8 million and ~~$33.7~~$21.8 million for the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, ~~and 2017,~~ respectively. ~~This decrease~~The increase in expenses was principally ~~due~~related to ~~the decrease in~~increased income tax expense associated with 2019 land sales totaling $108.4 million. Total consolidated income tax expense of $48.8 million for the six months ended June 30, 2019 includes $15.3 million which is eligible for deferral as a result of our classification of the land sale as a §1031 tax exchange. The remaining increase was principally related to ~~the change in the federal income tax rate from 35% to 21% effective January 1, 2018 partially offset by~~ increased legal and professional fees, salaries and related employee ~~benefits~~expenses and general and administrative ~~expenses. See~~expenses as discussed further ~~discussion of these expenses~~ below under “Other Financial Data — Consolidated.”

Water ~~Service~~Services and Operations

Water ~~Service~~Services and Operations segment revenues increased ~~$42.9~~$20.8 million, or ~~199.9%~~53.6%, to ~~$64.4~~$59.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 as compared with ~~$21.5~~$38.7 million for the comparable period of ~~2017.~~2018.

Water sales and royalties. Water sales and royalty ~~revenues~~revenue was $43.4 million for the ~~nine~~six months ended ~~September~~June 30, 2019, an increase of $14.2 million or 48.4%, compared with the six months ended June 30, 2018 ~~of $47.4 million were more than double the amount of~~when water sales and royalty revenue ~~for the comparable period of 2017.~~was $29.2 million. This increase iswas principally due to ~~the Trust commencing the development of brackish water sourcing, partially offset by~~ a ~~decrease~~46.7% sales increase in the ~~royalties received from existing legacy agreements.~~number of barrels of sourced and treated water sold in the six months ended June 30, 2019 as compared to the same period in 2018.

Easements and ~~sundry~~other surface-related income. Easements and ~~sundry~~other surface-related income for the Water ~~Service~~Services and Operations segment includes pipeline easement royalties, commercial lease royalties and income from temporary permits. For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the combined ~~revenue~~income from these revenue streams was ~~$16.9~~$16.1 million as compared to ~~$1.9~~$9.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018, an increase of 69.7%.

Net income. Net income for the Water ~~Service~~Services and Operations segment was ~~$37.4~~$29.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$13.1~~$23.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. As discussed above, revenues for the Water ~~Service~~Services and Operations segment increased ~~$42.9~~$20.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to the same period

of ~~2017.~~2018. Expenses, including income tax expense, for the Water ~~Service~~Services and Operations segment were ~~$27.0~~$30.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 as compared to ~~$8.4~~$15.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The increase in expenses during ~~2018~~2019 is ~~directly~~principally related to ~~the formation and commencement of operations of TPWR during the second quarter of 2017 and~~increased water service operating expenses, principally fuel and equipment rental related to ~~the brackish water~~ sourcing and ~~water re-use projects placed in service in 2018~~transfer of water. The remaining increase was principally related to increased salaries and ~~late 2017. See~~related employee expenses as discussed further ~~discussion of these water service-related operating expenses~~ below under “Other Financial Data — Consolidated.”

Other Financial Data — Consolidated

Salaries and related employee ~~benefits~~expenses. Salaries and related employee ~~benefits~~expenses were ~~$9.5~~$14.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$1.6~~$6.4 million for the comparable period of ~~2017.~~2018. The increase in salaries and related employee ~~benefits~~expenses is directly related to the increase in the number of employees from 1747 employees as of ~~September~~June 30, ~~2017~~2018 to 5878 as of ~~September~~June 30, ~~2018~~2019 and additional contract labor expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to the same period of ~~2017.~~2018.

Water service-related expenses. Water service-related expenses ~~of $7.6~~were $10.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018, include~~2019 compared to $3.9 million for the comparable period of 2018. This increase in expenses ~~for~~was principally related to an increase in equipment rental ~~propane~~ and fuel to source and other equipment-related expenses associated with the brackish water sourcing and water re-use projects placed in service in 2018 and late 2017. The Trust incurred only minimal water service-related expenses during the nine months ended September 30, 2017.transfer water.

General and administrative expenses. General and administrative expenses increased ~~$2.3~~$2.5 million to ~~$3.4~~$4.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 from ~~$1.1~~$1.7 million for the same period of ~~2017.~~2018. The increase in general and administrative expenses is primarily due to ~~additional liability insurance~~increased expenses associated with our independent contractor service providers, a contribution of $0.3 million to the Texas Parks and ~~equipment costs as~~Wildlife Foundation to benefit the Balmorhea State Park in West Texas, expenses related to land transactions and $0.2 million of expenses related to the proxy contest to elect a ~~result of the formation and commencement of operations of TPWR~~new Trustee during the ~~second quarter of 2017.~~six months ended June 30, 2019.

Legal and professional expenses. Legal and professional fees ~~decreased 38.3% to $1.6~~were $9.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018 from $2.6~~2019 compared to $1.1 million for the comparable period of ~~2017. Legal~~2018. The increase in legal and professional fees for the ~~nine~~six months ended ~~September~~June 30, ~~2017 included consulting~~2019 compared to 2018 is principally due to approximately $7.3 million of legal and professional fees related to the proxy contest to elect a ~~2017 strategic review of the Trust.~~new Trustee.

Depreciation and amortization. Depreciation and amortization was ~~$1.5~~$2.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$0.3~~$0.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The increase in depreciation and amortization is principally related to the Trust’s investment in water service-related assets ~~during 2017~~placed in service in 2019 and the latter half of 2018.

Cash Flow Analysis

For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018

Cash flows provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018 ~~and 2017~~ were ~~$130.8~~$220.0 million and ~~$65.9~~$89.2 million, respectively. This increase in operating cash flows is principally due to increases in proceeds from land sales, oil and gas royalties collected, easements and ~~sundry~~other surface-related payments received and water sales and royalties collected during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

Cash flows used in investing activities were ~~$42.6~~$102.0 million compared to ~~$7.9~~$34.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The increased use of investing cash flows is principally due to our ~~investment~~acquisition of ~~$37.2~~approximately 21,671 acres of land in Culberson, Glasscock, Loving and Reeves Counties, Texas for approximately $74.4 million ~~in water service-related assets~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019.

Cash flows used in financing activities were ~~$57.2~~$50.9 million compared to ~~$37.8~~$48.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. During the ~~nine~~six months ended ~~September~~June 30, 2019, the Trust paid total dividends of $46.5 million consisting of a regular cash dividend of $1.75 per Sub-share Certificate (“Sub-share”) and a special dividend of $4.25 per Sub-share to each sub-shareholder of record at the close of business on March 8, 2019. During the six months ended June 30, 2018, the Trust paid total dividends of $31.7 million consisting of a regular cash dividend of $1.05 per Sub-share ~~Certificate (“Sub-share”)~~ and a special dividend of $3.00 per Sub-share to each sub-shareholder of record at the close of business on March 9, 2018. During the nine months ended September 30, 2017, the Trust paid total dividends of $10.7 million consisting of a cash dividend of $0.35 per Sub-share and a special dividend of $1.00 per Sub-share to each sub-shareholder of record at the close of business on March 9, 2017.

Liquidity and Capital Resources

The Trust’s principal sources of liquidity are its revenues from oil, gas and water ~~service-related~~ royalties, easements and ~~sundry~~other surface-related income, and water and land sales.

Our primary liquidity and capital requirements are for capital expenditures related to our ~~water service~~Water Services and ~~operations~~Operations segment, working capital and general corporate needs. As of ~~September~~June 30, ~~2018,~~2019, we had cash and cash equivalents of ~~$110.6~~$155.4 million that we expect to utilize, along with cash flow from operations, to provide capital to support the growth of our business, particularly the growth of TPWR, to repurchase additional Sub-shares subject to market conditions, and for general corporate purposes. We believe that cash from operations, together with our cash and cash equivalents balances, will be enough to meet ongoing capital expenditures, working capital requirements and other cash needs for the foreseeable future.

Off-Balance Sheet Arrangements

The Trust has not engaged in any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures of contingent assets and liabilities. For a full discussion of our accounting policies please refer to Note 2 to the Consolidated Financial Statements included in our ~~2017~~2018 Annual Report on Form 10-K filed with the SEC on February 28, ~~2018.~~2019. Our most critical accounting policies and estimates include: ~~valuation~~accrual of ~~real estate acquired through foreclosure~~oil and gas royalties and gain on recognition on land sales. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, historical experience and other factors that we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our ~~2017~~2018 Annual Report on Form 10-K.

New Accounting Pronouncements

For further information regarding recently issued accounting pronouncements, see Note 3, “Recent Accounting Pronouncements” in the notes to the consolidated financial statements included in Item 1. Financial Statements in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures AboutMarket Risk

There have been no material changes in the information related to market risk of the Trust since December 31, ~~2017.~~2018.

Item 4. Controls and Procedures

Pursuant to Rule 13a-15, management of the Trust under the supervision and with the participation of Tyler Glover, the Trust’s Chief Executive Officer, and Robert J. Packer, the Trust’s Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Trust’s disclosure controls and procedures as of the end of the Trust’s fiscal quarter covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, Mr. Glover and Mr. Packer concluded that the Trust’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Trust required to be included in the Trust’s periodic SEC filings.

There have been no changes in the Trust’s internal control over financial reporting during the Trust’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

Texas Pacific is not involved in any material pending legal ~~proceedings.~~proceedings, except as described below.

In March 2019, the Investor Group launched a proxy contest relating to their nomination of a candidate for election as trustee to fill the vacancy resulting from the resignation of Maurice Meyer III. In connection with the proxy contest, on May 21, 2019, the Trust filed a lawsuit against Eric L. Oliver captioned Case 3:19-cv-01224-B Texas Pacific Land Trust et al v. Oliver in the U.S. District Court for the Northern District of Texas. The lawsuit alleged violations of federal securities laws in Mr. Oliver’s campaign to become the Trust’s next trustee and asked the court to require that Mr. Oliver correct misstatements and omissions in such campaign. Mr. Oliver asserted numerous counterclaims against Mr. Norris and Mr. Barry based on negligence, gross negligence, breach of fiduciary duty and waste, in addition to claiming that the Trustees lacked authority to cancel or postpone a scheduled shareholder meeting. On July 30, 2019, the lawsuit and the proxy contest were settled upon the execution by the parties of a settlement agreement. See Note 11, “Subsequent Events” in the notes to the consolidated financial statements included in Item 1. Financial Statements in this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

There have been no material changes in the risk factors previously disclosed in response to Item 1A. “Risk Factors” of Part I of the Trust’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

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

~~During~~The Trust did not repurchase any Sub-shares during the three months ended ~~September~~June 30, ~~2018, the Trust repurchased Sub-shares as follows:~~2019.

Period
Total
Number of
Sub-shares
Purchased

Average
Price Paid
per
Sub-share

Total Number
of Sub-shares
Purchased as
Part of Publicly
Announced Plans
or Programs

Maximum
Number (or
Approximate
Dollar Value) of
Sub-shares that
May Yet Be
Purchased Under
the Plans or
Programs
July 1 through July 31, 2018 4,111
$ 767.01
—
—
August 1 through August 31, 2018 4,839
795.31
—
—
September 1 through September 30, 2018 1,756
834.18
—
—
Total 10,706
$ 790.82
—
—


~~(1)~~	~~The Trust purchased and retired 10,706 Sub-shares in the open market during the three months ended September 30, 2018.~~

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits

EXHIBIT INDEX



EXHIBIT NUMBER		DESCRIPTION

31.1*		Rule 13a-14(a) Certification of Chief Executive ~~Officer~~Officer..

31.2*		Rule 13a-14(a) Certification of Chief Financial Officer.

32.1*		Certification of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*		The following information from the Trust’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2018~~2019 formatted in ~~XBRL (eXtensible~~iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Income and Total Comprehensive Income, (iii) Condensed Consolidated Statements of Cash Flows and (iv) Notes to Condensed Consolidated Financial Statements.
104		The cover page from the Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in iXBRL.


*	Filed or furnished herewith.

SIGNATURES

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



		TEXAS PACIFIC LAND TRUST
		(Registrant)

Date:	~~November~~August 7, ~~2018~~2019	By:	/s/ Tyler Glover
			Tyler Glover, General Agent and
			Chief Executive Officer



Date:	~~November~~August 7, ~~2018~~2019	By:	/s/ Robert J. Packer
			Robert J. Packer, General Agent and
			Chief Financial Officer

2119



		As reported in prior year		Retrospective Adjustment			As reported in current year
Condensed Consolidated Statements of Income:
For the three months ended September 30, 2017
	Revenue	$	42,476	$	9,501		$	51,977
	Taxes, other than income taxes	797		(731		)	66
	Income taxes	12,687		3,635			16,322
	Net income	26,405		6,597			33,002
	Net income per Sub-share Certificate	$	3.36	$	0.84		$	4.20

For the nine months ended September 30, 2017
	Revenue	$	94,054	$	20,623		$	114,677
	Taxes, other than income taxes	2,219		(2,036		)	183
	Income taxes	27,945		8,050			35,995
	Net income	58,002		14,609			72,611
	Net income per Sub-share Certificate	$	7.37	$	1.85		$	9.22

Condensed Consolidated Balance Sheets:
As of December 31, 2017
	Assets:
	Accrued receivables	$	18,206	$	(433	)	$	17,773
	Deferred tax asset (liability)	6,992		(7,106		)	(114		)

	Liabilities and Capital:
	Unearned revenue	$	41,375	$	(33,011	)	$	8,364
	Other taxes payable	433		(433		)	—
	Net proceeds from all sources	79,997		25,905			105,902



	September 30, 2018			December 31, 2017
Property, plant and equipment:
Water service-related assets ⁽¹⁾	$	55,417		$	18,193
Furniture, fixtures and equipment	3,927			1,786
Other	597			—
Property, plant and equipment at cost	59,941			19,979
Less: accumulated depreciation	(1,952		)	(463		)
Property, plant and equipment, net	$	57,989		$	19,516



Date of sale	Location	Approximate number of acres sold	Contract sale price
For the nine months ended September 30, 2018
February 2018	Loving County	40.0	$	1,150
March 2018	Culberson County	80.0	1,600
August 2018	El Paso County	15.0	270
September 2018	Reeves County	31.8	1,273
Total		166.8	$	4,293

For the nine months ended September 30, 2017
May 2017	Loving County	11.02	$	220
Total		11.02	$	220



	Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017
	Acres	Book Value		Acres	Book Value
Balance at January 1,	10,064.78	$	1,115	10,064.78	$	1,115
Acquisitions	2,883.68	2,663		—	—
Sales	—	—		—	—
Balance at September 30,	12,948.46	$	3,778	10,064.78	$	1,115



Period	Total Number of Sub-shares Purchased	Average Price Paid per Sub-share		Total Number of Sub-shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Sub-shares that May Yet Be Purchased Under the Plans or Programs
July 1 through July 31, 2018	4,111	$	767.01	—	—
August 1 through August 31, 2018	4,839	795.31		—	—
September 1 through September 30, 2018	1,756	834.18		—	—
Total	10,706	$	790.82	—	—