UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September 30, 2021~~March 31, 2022

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

For the transition period from ______ to ______

Commission File Number: 1-39804

Exact name of registrant as specified in its charter:

Texas Pacific Land Corporation


State or other jurisdiction of incorporation or organization:						IRS Employer Identification No.:
Delaware						75-0279735

Address of principal executive offices:

1700 Pacific Avenue, Suite 2900 Dallas, Texas 75201

Registrant’s telephone number, including area code:

(214) 969-5530

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock
(par value $.01 per share)

TPL

New York Stock Exchange

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

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

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


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

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

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

Yes ☐ No ☑

As of ~~October 29, 2021,~~April 30, 2022, the Registrant had ~~7,746,141~~7,741,720 shares of Common Stock, $0.01 par value, outstanding.

TEXAS PACIFIC LAND CORPORATION

Form 10-Q

For the Quarter Ended ~~September 30, 2021~~March 31, 2022

Table of Contents

Page No.

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021

Condensed Consolidated Statements of Income and Total Comprehensive Income for the ~~three and nine~~ Three Months ended~~months ended~~ ~~September 30, 2021~~March 31, 2022 and ~~2020~~2021

Condensed Consolidated Statements of Cash Flows for the ~~nine~~Three Months ended ~~months ended~~ ~~September 30, 2021~~March 31, 2022 and ~~2020~~2021

Notes to Condensed Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

1213

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2422

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

2523

Item 3.

Defaults Upon Senior Securities

2523

Item 4.

Mine Safety Disclosures

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

TEXAS PACIFIC LAND CORPORATION

CONDENSED CONSOLIDATEDBALANCE SHEETS

(in thousands, except shares and per share amounts)

(Unaudited)


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	372,761	$	281,046	Cash and cash equivalents	$	507,356	$	428,242
Accrued receivables, net		82,897		48,216
Accounts receivable and accrued receivables, net						Accounts receivable and accrued receivables, net	108,950		95,217
Prepaid expenses and other current assets	Prepaid expenses and other current assets	2,450		2,778		Prepaid expenses and other current assets	2,534		3,054
Tax like-kind exchange escrow		—		1,978

Total current assets	Total current assets	458,108		334,018		Total current assets	618,840		526,513

Real estate acquired						Real estate acquired	109,083		109,071
Property, plant and equipment, net	Property, plant and equipment, net	79,204		79,267		Property, plant and equipment, net	79,996		79,722
Real estate acquired		108,546		108,536
Royalty interests acquired, net	Royalty interests acquired, net	45,151		45,646		Royalty interests acquired, net	45,795		44,390
Operating lease right-of-use assets		1,990		2,473

Other assets	Other assets	2,618		1,695		Other assets	2,855		4,368
Real estate and royalty interests assigned through the Declaration of Trust, no value assigned:
Real estate and royalty interests assigned through the 1888 Declaration of Trust, no value assigned:						Real estate and royalty interests assigned through the 1888 Declaration of Trust, no value assigned:
Land (surface rights)	Land (surface rights)	—		—		Land (surface rights)	—		—
1/16th nonparticipating perpetual royalty interest	1/16th nonparticipating perpetual royalty interest	—		—		1/16th nonparticipating perpetual royalty interest	—		—
1/128th nonparticipating perpetual royalty interest	1/128th nonparticipating perpetual royalty interest	—		—		1/128th nonparticipating perpetual royalty interest	—		—
Total assets	Total assets	$	695,617	$	571,635	Total assets	$	856,569	$	764,064

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	18,020	$	12,530	Accounts payable and accrued expenses	$	12,644	$	18,008
Income taxes payable						Income taxes payable	49,980		29,083
Unearned revenue	Unearned revenue	3,965		3,997		Unearned revenue	4,655		3,809
Income taxes payable		7,117		4,054
Total current liabilities	Total current liabilities	29,102		20,581		Total current liabilities	67,279		50,900
Deferred taxes payable	Deferred taxes payable	38,096		38,728		Deferred taxes payable	38,542		38,948
Unearned revenue - noncurrent	Unearned revenue - noncurrent	20,707		22,171		Unearned revenue - noncurrent	20,300		20,449

Accrued liabilities	Accrued liabilities	4,377		2,150		Accrued liabilities	2,572		2,056
Operating lease liabilities		2,293		2,821
Total liabilities	Total liabilities	94,575		86,451		Total liabilities	128,693		112,353

Commitments and contingencies	Commitments and contingencies	—		—		Commitments and contingencies	—		—
Equity:	Equity:					Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none outstanding as of September 30, 2021		—		—
Common stock, $0.01 par value; 7,756,156 shares authorized and 7,748,344 outstanding as of September 30, 2021		78		—
Treasury stock, at cost; 7,812 shares as of September 30, 2021 and none outstanding as of December 31, 2020		(11,193)		—
Certificates of Proprietary Interest, par value $100 each; none outstanding as of December 31, 2020		—		—
Sub-share Certificates in Certificates of Proprietary Interest, par value $0.0333 each; outstanding 7,756,156 Sub-share Certificates as of December 31, 2020		—		—
Accumulated other comprehensive loss		(2,607)		(2,693)
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none outstanding as of March 31, 2022 and December 31, 2021						Preferred stock, $0.01 par value; 1,000,000 shares authorized, none outstanding as of March 31, 2022 and December 31, 2021	—		—
Common stock, $0.01 par value; 7,756,156 shares authorized and 7,745,290 and 7,744,695 outstanding as of March 31, 2022 and December 31, 2021, respectively						Common stock, $0.01 par value; 7,756,156 shares authorized and 7,745,290 and 7,744,695 outstanding as of March 31, 2022 and December 31, 2021, respectively	78		78
Treasury stock, at cost; 10,866 and 11,461 shares as of March 31, 2022 and December 31, 2021, respectively						Treasury stock, at cost; 10,866 and 11,461 shares as of March 31, 2022 and December 31, 2021, respectively	(14,617)		(15,417)
Additional paid-in capital						Additional paid-in capital	1,505		28
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(999)		(1,007)
Retained earnings	Retained earnings	614,764		—		Retained earnings	741,909		668,029
Net proceeds from all sources		—		487,877
Total equity	Total equity	601,042		485,184		Total equity	727,876		651,711
Total liabilities and equity	Total liabilities and equity	$	695,617	$	571,635	Total liabilities and equity	$	856,569	$	764,064

See accompanying notes to condensed consolidated financial statements.

Table of Contents

TEXAS PACIFIC LAND CORPORATION

CONDENSED CONSOLIDATEDSTATEMENTS OF INCOMEAND TOTAL COMPREHENSIVE INCOME

(in thousands, except shares and per share amounts)

(Unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Revenues:
Oil and gas royalties $ 79,098 $ 31,758 $ 186,835 $ 94,631
Water sales 19,554 12,139 44,983 47,525
Produced water royalties 15,140 12,246 43,147 37,863
Easements and other surface-related income 9,832 6,690 27,856 32,107
Land sales — 11,463 746 15,855
Other operating revenue 69 87 213 279
Total revenues 123,693 74,383 303,780 228,260
Expenses:
Salaries and related employee expenses 8,542 7,678 31,792 27,235
Water service-related expenses 3,650 2,260 10,499 11,205
General and administrative expenses 2,844 1,883 8,491 7,290
Legal and professional fees 1,551 1,987 4,904 6,955
Land sales expenses — 67 — 2,773
Depreciation, depletion and amortization 3,866 3,760 11,562 10,773
Total operating expenses 20,453 17,635 67,248 66,231
Operating income 103,240 56,748 236,532 162,029
Other income, net 513 1,287 924 2,296
Income before income taxes 103,753 58,035 237,456 164,325
Income tax expense 19,916 11,760 46,521 33,067
Net income $ 83,837 $ 46,275 $ 190,935 $ 131,258
Other comprehensive income — periodic pension costs, net of income taxes of $8, $4, $23 and $11, respectively 29 13 86 40
Total comprehensive income $ 83,866 $ 46,288 $ 191,021 $ 131,298
Weighted average number of common shares/Sub-share Certificates outstanding 7,751,329 7,756,156 7,754,439 7,756,156
Net income per common share/Sub-share Certificate — basic and diluted $ 10.82 $ 5.97 $ 24.62 $ 16.92
Cash dividends per common share/Sub-share Certificate $ 2.75 $ — $ 8.25 $ 16.00


	Three Months Ended March 31,
	2022		2021
Revenues:
Oil and gas royalties	$	104,172	$	49,533
Water sales	18,820		12,956
Produced water royalties	14,870		12,549
Easements and other surface-related income	9,192		9,047
Land sales and other operating revenue	281		70
Total revenues	147,335		84,155

Expenses:
Salaries and related employee expenses	9,385		9,979
Water service-related expenses	2,782		3,298
General and administrative expenses	3,000		2,806
Legal and professional fees	1,719		2,212
Ad valorem taxes	2,010		—

Depreciation, depletion and amortization	4,126		3,838
Total operating expenses	23,022		22,133

Operating income	124,313		62,022

Other income, net	76		5
Income before income taxes	124,389		62,027



Income tax expense	26,489		11,975
Net income	$	97,900	$	50,052




Other comprehensive income — periodic pension costs, net of income taxes of $2 and $8, respectively	8		28
Total comprehensive income	$	97,908	$	50,080

Net income per share of common stock
Basic	$	12.65	$	6.45
Diluted	$	12.64	$	6.45

Weighted average number of shares of common stock outstanding
Basic	7,741,365		7,756,156
Diluted	7,742,710		7,756,156

Cash dividends per share of common stock	$	3.00	$	2.75

See accompanying notes to condensed consolidated financial statements.

Table of Contents

TEXAS PACIFIC LAND CORPORATION

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS

~~(in~~ (in thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	97,900	$	50,052
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	(406)		(147)
Depreciation, depletion and amortization	4,126		3,838
Share-based compensation	1,505		—

Changes in operating assets and liabilities:
Operating assets, excluding income taxes	(12,959)		(13,657)
Operating liabilities, excluding income taxes	(3,328)		172
Income taxes payable	20,897		12,129
Cash provided by operating activities	107,735		52,387

Cash flows from investing activities:
Proceeds from sale of fixed assets	96		—
Acquisition of real estate	(13)		—
Acquisition of royalty interests	(1,637)		—
Purchase of fixed assets	(3,624)		(1,449)
Cash used in investing activities	(5,178)		(1,449)

Cash flows from financing activities:
Repurchases of common stock	(219)		—
Dividends paid	(23,224)		(21,329)
Cash used in financing activities	(23,443)		(21,329)

Net increase in cash, cash equivalents and restricted cash	79,114		29,609
Cash, cash equivalents and restricted cash, beginning of period	428,242		283,024
Cash, cash equivalents and restricted cash, end of period	$	507,356	$	312,633

Supplemental disclosure of cash flow information:
Income taxes paid	$	6,000	$	—
Supplemental non-cash investing and financing information:
Nonmonetary exchange of assets	$	4,174	$	—
(Decrease) increase in accounts payable related to capital expenditures	$	(619)	$	1,289

Issuance of common stock	$	—	$	78

Nine Months Ended
September 30,
2021 2020
Cash flows from operating activities:
Net income $ 190,935 $ 131,258
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes (632) (86)
Depreciation, depletion and amortization 11,562 10,773
Land sales revenue recognized on land exchanges — (1,415)
Changes in operating assets and liabilities:
Operating assets, excluding income taxes (35,377) 25,043
Operating liabilities, excluding income taxes 4,961 (1,159)
Income taxes payable 3,063 (2,555)
Cash provided by operating activities 174,512 161,859
Cash flows from investing activities:
Proceeds from sales of fixed assets 1,079 —
Acquisition of real estate (10) (3,966)
Acquisition of royalty interests — (16,945)
Purchase of fixed assets (11,058) (4,736)
Cash used in investing activities (9,989) (25,647)
Cash flows from financing activities:
Repurchases of common stock (10,816) —
Dividends paid (63,970) (124,098)
Cash used in financing activities (74,786) (124,098)
Net increase in cash, cash equivalents and restricted cash 89,737 12,114
Cash, cash equivalents and restricted cash, beginning of period 283,024 303,645
Cash, cash equivalents, and restricted cash, end of period $ 372,761 $ 315,759
Supplemental disclosure of cash flow information:
Income taxes paid $ 44,113 $ 35,719
Supplemental non-cash investing and financing information:
Fixed asset additions in accounts payable $ 441 $ 245
Share repurchases not yet settled $ 377 $ —
Issuance of common stock $ 78 $ —
Land exchange $ — $ 1,415

See accompanying notes to condensed consolidated financial statements.

Table of Contents

TEXAS PACIFIC LAND CORPORATION

NOTES TO CONDENSEDCONSOLIDATEDFINANCIAL STATEMENTS

(UNAUDITED)

1. Organization and ~~Basis~~Description of ~~Presentation~~Business Segments

Organization

Texas Pacific Land Corporation (which, together with its subsidiaries as the context requires, may be referred to as “TPL”, the “Company”, “our”, “we” or “us”) is a Delaware corporation and one of the largest landowners in the State of Texas with approximately 880,000 surface acres of land in West Texas, with the majority of our ownership concentrated in the Permian Basin. Additionally, we own a 1/128th nonparticipating perpetual oil and gas royalty interest (“NPRI”) under approximately 85,000 acres of land, a 1/16th NPRI under approximately 371,000 acres of land, and approximately 4,000 additional net royalty acres (normalized to 1/8th) in the western part of Texas.

TPL’s income is derived primarily from oil, gas and produced water royalties, sales of water and land, easements and commercial leases of the land.

On January 11, 2021, we completed our reorganization from a business trust, organized under a Declaration of Trust dated February 1, 1888 (the “Declaration of Trust”), to a corporation (the “Corporate Reorganization”) and changed our name from Texas Pacific Land Trust (the “Trust”) to Texas Pacific Land Corporation. See further discussion of the Corporate Reorganization and its impact on our equity structure in Note 7,10, “Changes in Equity.” Any references in these condensed consolidated financial statements and notes to the Company, TPL, our, we, or us with respect to periods prior to January 11, 2021 are in reference to the Trust, and references to periods on or after that date ~~and thereafter~~ are in reference to Texas Pacific Land Corporation or TPL Corporation.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and on the same basis as the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. The condensed consolidated financial statements herein include all adjustments which are, in the opinion of management, necessary to fairly state the financial position of the Company as of ~~September 30, 2021~~March 31, 2022 and the results of its operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, and its cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. Such adjustments are of a normal nature and all intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, and accordingly these interim financial statements and footnotes should be read in conjunction with the audited financial statements and footnotes included in our Form 10-K for the year ended December 31, ~~2020.~~2021. The results for the interim periods shown in this report are not necessarily indicative of future financial results.

We operate our business in 2 segments: Land and Resource Management and Water Services and Operations. Our segments provide management with a comprehensive financial view of our key businesses. The segments enable the alignment of strategies and objectives of TPL and provide a framework for timely and rational allocation of resources within businesses. See Note 8.11, “Business Segment Reporting” for further information regarding our segments.

2. Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. In the event estimates and/or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.

Table of Contents

~~Cash, Cash Equivalents and Restricted Cash~~Share-based Compensation

The ~~following table provides~~Company utilizes the closing stock price on the date of grant to determine the fair value of service-vesting awards, which for the Company includes restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and performance stock units (“PSUs”) with a ~~reconciliation of cash, cash~~performance condition. For PSUs with a market condition, grant date fair value is determined using an advanced option-pricing model. Unvested awards are entitled to dividends or dividend equivalents which are accrued and ~~restricted cash reported within~~distributed to award recipients at the ~~condensed consolidated balance sheets that sum to~~time such awards vest. Dividends are forfeitable if the ~~total of the same such amounts shown~~related award is forfeited. For RSAs, RSUs and PSUs with performance conditions, forfeitures are recognized in the ~~condensed consolidated statements of cash flows (in thousands):~~

September 30, 2021 December 31, 2020
Cash and cash equivalents $ 372,761 $ 281,046
Tax like-kind exchange escrow — 1,978
Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 372,761 $ 283,024
period in which they occur. For PSU awards with market conditions, forfeitures are only recognized if the award recipient does not render the required service during the measurement period.

~~Treasury Stock~~

~~Treasury stock purchases~~For share-based compensation awards, the Company recognizes compensation expense in the financial statements over the awards’ vesting periods using the graded-vesting method for RSUs and RSAs. For PSU awards with performance conditions, the Company recognizes compensation expense ratably over the measurement period at such time as the awards are ~~accounted~~probable and estimable. For PSU awards with market conditions, the Company recognizes compensation expenses ratably over the measurement period whether the market condition is satisfied or not if the service for ~~under~~ the ~~cost method whereby the entire cost of the acquired stock~~award is ~~recorded as treasury stock and~~rendered. Share-based compensation is reported ~~as a separate line item on our condensed consolidated balance sheets.~~

~~Reclassifications~~

~~Certain financial information~~ on the ~~condensed~~ consolidated statements of income ~~for the three~~ and ~~nine months ended September 30, 2020 have been revised to conform to the current year presentation. These revisions include (i)~~total comprehensive income as a ~~reclassification~~component of ~~$12.2 million~~salaries and $37.9 million of produced water royalties revenue for the three and nine months ended September 30, 2020, respectively, previously included in easements and other surface-related income to a separate financial statement line item within revenues and (ii) a reclassification of approximately $0.1 million and $2.8 million of land salesrelated employee expenses for ~~the three~~employee awards and ~~nine months ended September 30, 2020, respectively, previously included~~ in ~~land sales to a separate financial statement line item within operating expenses. Land sales~~general and administrative expenses ~~include cost basis and closing costs associated with land sales.~~for director awards.

Recently Adopted Accounting Guidance

In ~~December 2019,~~July 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) ~~2019-12, “Income Taxes (Topic 740) — Simplifying the Accounting for Income Taxes.”~~ The ASU simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The Company adopted the guidance effective January 1, 2021. The adoption had minimal impact on the Company’s consolidated financial statements and disclosures.

~~Recently Issued Accounting Pronouncements~~

~~In July 2021, the FASB issued ASU~~ 2021-05, “Leases (Topic 842) Lessors – Certain Leases with Variable Lease Payments.” Under the ASU, a lessor ~~would classify~~classifies a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if the lease would have been classified as a sales-type lease or direct financing lease under ASC 842 classification criteria and the lessor would have otherwise recognized a day one loss. The ~~ASU is~~adoption of this guidance effective ~~for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The ASU is anticipated to have minimal to~~January 1, 2022, had no impact on our condensed consolidated financial statements and ~~disclosures upon adoption.~~disclosures.

3. Property, Plant and Equipment

Property, plant and equipment, net consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):


	March 31, 2022		December 31, 2021
Property, plant and equipment, at cost:
Water service-related assets	$	110,866	$	108,732
Furniture, fixtures and equipment	9,147		9,071
Other	598		598
Total property, plant and equipment, at cost	120,611		118,401
Less: accumulated depreciation	(40,615)		(38,679)
Property, plant and equipment, net	$	79,996	$	79,722

Depreciation expense was $3.8 million and $3.6 million for the three months ended March 31, 2022 and 2021, respectively.

Table of Contents

~~3. Property, Plant and Equipment~~

~~Property, plant and equipment, net consisted of the following as of September 30, 2021 and December 31, 2020 (in thousands):~~

September 30, 2021 December 31, 2020
Property, plant and equipment, at cost:
Water service-related assets (1)
$ 104,612 $ 97,699
Furniture, fixtures and equipment 9,195 6,125
Other 598 598
Property, plant and equipment at cost 114,405 104,422
Less: accumulated depreciation (35,201) (25,155)
Property, plant and equipment, net $ 79,204 $ 79,267

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

Depreciation expense was $3.7 million and $3.5 million for the three months ended September 30, 2021 and 2020, respectively. Depreciation expense was $10.9 million and $10.3 million for the nine months ended September 30, 2021 and 2020, respectively.

4. Real Estate Activity

As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020, the Company~~2021, TPL owned the following land and real estate (in thousands, except number of acres):

September 30,
2021 December 31,
2020
Number of Acres Net Book Value Number of Acres Net Book Value
Land (surface rights) (1)
823,452 $ — 823,482 $ —
Real estate acquired 57,049 108,546 57,041 108,536
Total real estate situated in Texas 880,501 $ 108,546 880,523 $ 108,536


	March 31, 2022			December 31, 2021
	Number of Acres	Net Book Value		Number of Acres	Net Book Value
Land (surface rights) (1)	823,445	$	—	823,452	$	—
Real estate acquired	57,146	109,083		57,129	109,071
Total real estate situated in Texas	880,591	$	109,083	880,581	$	109,071

(1)Real estate ~~originally~~ assigned through the 1888 Declaration of Trust.

~~Land Sales~~

There were no significant land sales or acquisitions for the three months ended March 31, 2022.

For the nine months ended September 30, 2021, we sold 30 acres of land in Texas for an aggregate sales price of $0.7 million, an average of approximately $25,000 per acre. For the nine months ended September 30, 2020, we sold 21,347 acres of land in Texas for an aggregate sales price of $14.5 million, an average of approximately $676 per acre. The aggregate sales price excludes a reduction of $2.7 million in land basis. Additionally, we recognized land sales revenue of $1.4 million for the nine months ended September 30, 2020 related to land exchanges where we had no cost basis in the land conveyed.

~~Land Acquisitions~~

For the nine months ended September 30, 2021, we acquired 8 acres of land in Texas for an aggregate purchase price of less than $0.1 million, an average of approximately $1,266 per acre. For the nine months ended September 30, 2020, we acquired 756 acres of land in Texas for an aggregate purchase price of approximately $3.9 million, an average of approximately $5,134 per acre.

~~Table of Contents~~

5. Oil and Gas Royalty Interests

As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we owned the following oil and gas royalty interests (in thousands):

Net Book Value
September 30, 2021 December 31, 2020
1/16th nonparticipating perpetual royalty interests $ — $ —
1/128th nonparticipating perpetual royalty interests — —
Royalty interests acquired 46,266 46,266
Total royalty interests, gross 46,266 46,266
Less: accumulated depletion (1,115) (620)
Total royalty interests, net $ 45,151 $ 45,646


	Net Book Value
	March 31, 2022		December 31, 2021
1/16th nonparticipating perpetual royalty interests	$	—	$	—
1/128th nonparticipating perpetual royalty interests	—		—
Royalty interests acquired	47,903		46,266
Total royalty interests, gross	$	47,903	$	46,266
Less: accumulated depletion	(2,108)		(1,876)
Total royalty interests, net	$	45,795	$	44,390

~~There were no oil and gas royalty interest transactions for~~

Acquisition

For the ~~nine~~three months ended ~~September 30, 2021. For the nine months ended September 30, 2020,~~March 31, 2022, we acquired oil and gas royalty interests in ~~1,017~~92 net royalty acres (normalized to 1/8th) for an aggregate purchase price of ~~$16.9~~$1.6 million, an average price of approximately ~~$16,668~~$17,750 per net royalty acre. There were no oil and gas royalty interest transactions for the three months ended March 31, 2021.

6. Share-Based Compensation

Incentive Plan for Employees

As of March 31, 2022, the Company has issued RSAs, RSUs and PSUs under the Texas Pacific Land Corporation 2021 Incentive Plan (the “2021 Plan”) to certain employees. The maximum aggregate number of shares of the Company’s common stock that may be issued under the 2021 Plan is 75,000 shares. As of March 31, 2022, 65,452 shares of the Company’s common stock remained available for future grants. Currently, all RSAs, RSUs, and PSUs granted under the 2021 Plan are entitled to receive dividends (for RSAs and RSUs, which are accrued and distributed to award recipients upon vesting) or have dividend equivalent rights. Dividends and dividend equivalent rights are subject to the same vesting conditions as the awards to which they relate and are forfeitable if the related awards are forfeited. The Company utilizes the closing stock price on the date of grant to determine the fair value of RSAs, RSUs and PSUs with a performance condition. For PSUs with a market condition, the Company utilizes a Monte Carlo simulation model to determine grant date fair value per share.

Table of Contents

The following table summarizes activity related to RSAs for the three months ended March 31, 2022:


	Restricted Stock Awards
	Number of RSAs	Grant-Date Fair Value per Share
Outstanding at December 31, 2021	3,330	$	1,252
Granted	—	—
Vested	—	—
Cancelled and forfeited	—	—
Outstanding at March 31, 2022	3,330	$	1,252

RSAs were granted on December 29, 2021 with 1,993 shares vesting on December 29, 2022 and 1,337 shares vesting on December 29, 2023.

The following table summarizes activity related to RSUs for the three months ended March 31, 2022:


	Restricted Stock Units
	Number of RSUs	Grant-Date Fair Value per Share
Outstanding at December 31, 2021	—	$	—
Granted	3,824	1,105
Vested	—	—
Cancelled and forfeited	—	—
Outstanding at March 31, 2022	3,824	$	1,105

On February 11, 2022, the Company granted awards totaling 3,824 RSUs to certain employees. The grant date fair value was $1,105 per share. These time-based awards vest in one-third increments over a three-year period.

The following table summarizes activity related to PSUs for the three months ended March 31, 2022:


	Performance Stock Units
	Number of PSUs	Weighted-Average Grant-Date Fair Value per Share
Outstanding at December 31, 2021	—	$	—
Granted (1)	2,394	1,355
Vested	—	—
Cancelled and forfeited	—	—
Outstanding at March 31, 2022	2,394	$	1,355

(1)Includes 1,197 RTSR (as defined below) PSUs with a grant date fair value of $1,605 per share and 1,197 FCF (as defined below) PSUs with a grant date fair value of $1,105 per share.

On February 11, 2022, the Company granted PSUs to certain employees. Each PSU has a value equal to 1 share of common stock. The PSUs will vest three years after grant if certain performance metrics are met, as follows: 50% of the PSUs may be earned based on the Company’s relative total stockholder return (“RTSR”) for the three-year period from January 2022 to January 2025 compared to the XOP Index, and 50% of the PSUs may be earned based on the cumulative free cash flow per share (“FCF”) over the three-year vesting period. As the RTSR PSU is a market-based award, its grant date fair value was determined using a Monte Carlo simulation model that uses the same input assumptions as the Black-Scholes model to determine the expected potential ranking of the Company against the XOP Index, i.e. the probability of satisfying the market condition defined in the award. Expected volatility in the model was estimated based on the volatility of historical stock prices over a period matching the expected term of the award. The risk-free interest rate was based on U.S. Treasury yield constant maturities for a term matching the expected term of the award.

Table of Contents

Equity Plan for Non-Employee Directors

As of March 31, 2022, the Company had granted 595 RSAs to directors of the Company under the 2021 Non-Employee Director and Deferred Compensation Plan (the “2021 Directors Plan”). The maximum aggregate number of shares of common stock that may be issued under the 2021 Directors Plan is 10,000 shares, which may consist, in whole or in part, of authorized and unissued shares (if any), treasury shares, or shares reacquired by the Company in any manner. As of March 31, 2022, 9,405 shares of the Company’s common stock remained available for future grants. Currently, all RSAs granted under the 2021 Directors Plan are entitled to receive dividends, which are accrued and distributed to award recipients upon vesting. Dividends are subject to the same vesting conditions as the awards to which they relate and are forfeitable if the related awards are forfeited. The Company utilizes the closing stock price on the date of grant to determine the fair value of the RSAs.

The following table summarizes activity related to the RSAs under the 2021 Directors Plan for the three months ended March 31, 2022:


	Restricted Stock Awards
	Number of RSAs	Grant-Date Fair Value per Share
Outstanding at December 31, 2021	—	$	—
Granted	680	1,249
Vested	—	—
Cancelled and forfeited	(85)	1,249
Outstanding at March 31, 2022	595	$	1,249

On January 1, 2022, the Company granted 680 shares of restricted stock to our directors. During the three months ended March 31, 2022, 85 shares were forfeited resulting from the departure of a director. The shares will vest on the first anniversary of the award. The fair value as of the date of grant was $1,249 per share.

Share-Based Compensation Expense

The following table summarizes our share-based compensation expense by line item in the condensed consolidated statements of income (in thousands):


	Three Months Ended March 31,
	2022		2021
Salaries and related employee expenses (employee awards)	$	1,319	$	—
General and administrative expenses (director awards)	186		—
Total share-based compensation expense (1)	$	1,505	$	—

(1)The Company recognized a tax benefit of $0.3 million related to share-based compensation for the three months ended March 31, 2022.

As of March 31, 2022, there was $10.8 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under existing share-based plans expected to be recognized over a weighted average period of 1.8 years.

7. Income Taxes

The calculation of our effective tax rate is as follows for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands, except percentages):


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2021			2020			2021			2020				2022			2021
Income before income taxes	Income before income taxes	$	103,753		$	58,035		$	237,456		$	164,325		Income before income taxes	$	124,389		$	62,027
Income tax expense	Income tax expense	$	19,916		$	11,760		$	46,521		$	33,067		Income tax expense	$	26,489		$	11,975
Effective tax rate	Effective tax rate	19.2		%	20.3		%	19.6		%	20.1		%	Effective tax rate	21.3		%	19.3		%

~~The effective tax rates were lower than the U.S. federal statutory rate of 21% primarily due to statutory depletion allowed on mineral royalty income.~~

~~Table of Contents~~

~~7. Changes in Equity~~

~~The following tables present changes in our equity for the nine months ended September 30, 2021 and 2020 (in thousands, except shares and per share amounts):~~

Sub-share Certificates Common Stock Treasury Stock Accum. Other Comp. Loss Retained Earnings Net Proceeds from All Sources Total Equity
Shares Shares Amount Shares Amount
For the nine months ended September 30, 2021:
Balances as of December 31, 2020 7,756,156 — $ — — $ — $ (2,693) $ — $ 487,877 $ 485,184
Net income — — — — — — 50,052 — 50,052
Dividends paid ($2.75 per common share) — — — — — — (21,329) — (21,329)
Conversion of Sub-shares into shares of common stock (7,756,156) 7,756,156 78 — — — 487,799 (487,877) —
Other comprehensive income — — — — — 28 — — 28
Balances as of March 31, 2021 — 7,756,156 $ 78 — $ — $ (2,665) $ 516,522 $ — $ 513,935
Net income — — — — — — 57,046 — 57,046
Dividends paid ($2.75 per common share) — — — — — — (21,329) — (21,329)
Repurchases of common stock — (1,633) — 1,633 (2,504) — — — (2,504)
Other comprehensive income — — — — — 29 — — 29
Balances as of June 30, 2021 — 7,754,523 $ 78 1,633 $ (2,504) $ (2,636) $ 552,239 $ — $ 547,177
Net income — — — — — — 83,837 — 83,837
Dividends paid ($2.75 per common share) — — — — — — (21,312) — (21,312)
Repurchases of common stock — (6,179) — 6,179 (8,689) — — — (8,689)
Other comprehensive income — — — — — 29 — — 29
Balances as of September 30, 2021 — 7,748,344 $ 78 7,812 $ (11,193) $ (2,607) $ 614,764 $ — $ 601,042

Sub-share Certificates Accum. Other Comp. Loss Net Proceeds from All Sources Total Capital
For the nine months ended September 30, 2020:
Balances as of December 31, 2019 7,756,156 $ (1,461) $ 513,598 $ 512,137
Net income — — 57,401 57,401
Dividends paid ($16.00 per Sub-share) — — (124,098) (124,098)
Cumulative effect of accounting change — — (111) (111)
Other comprehensive income — 14 — 14
Balances as of March 31, 2020 7,756,156 $ (1,447) $ 446,790 $ 445,343
Net income — — 27,583 27,583
Cumulative effect of accounting change — — — —
Other comprehensive income — 13 — 13
Balances as of June 30, 2020 7,756,156 $ (1,434) $ 474,373 $ 472,939
Net income — — 46,275 46,275
Cumulative effect of accounting change — — — —
Other comprehensive income — 13 — 13
Balances as of September 30, 2020 7,756,156 $ (1,421) $ 520,648 $ 519,227

Table of Contents

For interim periods, our income tax expense and resulting effective tax rate are based upon an estimated annual effective tax rate adjusted for the effects of items required to be treated as discrete to the period, including changes in tax laws, changes in estimated exposures for uncertain tax positions, and other items.

8. Earnings Per Share

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares outstanding during the period. Diluted EPS is computed based upon the weighted average number of shares outstanding during the period plus unvested restricted stock and other unvested awards granted pursuant to our incentive and equity compensation plans. The computation of diluted EPS reflects the potential dilution that could occur if all outstanding awards under the incentive and equity compensation plans were converted into shares of common stock or resulted in the issuance of shares of common stock that would then share in the earnings of the Company. The number of dilutive securities is computed using the treasury stock method.

The following table sets forth the computation of EPS for three months ended March 31, 2022 and 2021 (in thousands, except number of shares and per share data):


	Three Months Ended March 31,
	2022		2021
Net income	$	97,900	$	50,052

Basic EPS:
Weighted average shares outstanding for basic EPS	7,741,365		7,756,156
Basic EPS	$	12.65	$	6.45

Diluted EPS:
Weighted average shares outstanding for basic EPS	7,741,365		7,756,156
Effect of Dilutive securities:
Incentive and equity compensation plans	1,345		—
Weighted average shares outstanding for diluted EPS	7,742,710		7,756,156
Diluted EPS	$	12.64	$	6.45

Restricted stock is included in the number of shares of common stock issued and outstanding, but omitted from the basic earnings per share calculation until such time as the shares of restricted stock vest. The RTSR PSUs are not included in the dilutive securities in the table above as they are anti-dilutive for the three months ended March 31, 2022.

9. Commitments

Litigation

Management is not aware of any legal, environmental or other commitments or contingencies that would have a material effect on the Company’s financial condition, results of operations or liquidity as of March 31, 2022.

Table of Contents

10. Changes in Equity

The following tables present changes in our equity for the three months ended March 31, 2022 and 2021 (in thousands, except shares and per share amounts):


	Common Stock			Additional Paid-in Capital		Treasury Stock			Accum. Other Comp. Inc/(Loss)		Retained Earnings		Total Equity
	Shares	Amount				Shares	Amount
For the three months ended March 31, 2022:
Balances as of December 31, 2021	7,744,695	$	78	$	28	11,461	$	(15,417)	$	(1,007)	$	668,029	$	651,711
Net income	—	—		—		—	—		—		97,900		97,900
Dividends paid — $3.00 per share of common stock	—	—		—		—	—		—		(23,224)		(23,224)
Share-based compensation, net of forfeitures	595	—		1,477		(595)	800		—		(796)		1,481
Periodic pension costs, net of income taxes of $2	—	—		—		—	—		8		—		8
Balances as of March 31, 2022	7,745,290	$	78	$	1,505	10,866	$	(14,617)	$	(999)	$	741,909	$	727,876


	Sub-share Certificates	Common Stock			Accum. Other Comp. Inc/(Loss)	Retained Earnings		Net Proceeds From All Sources		Total Equity
	Shares	Shares	Amount
For the three months ended March 31, 2021:
Balances as of December 31, 2020	7,756,156	—	$	—		$	(2,693)	$	—	$	487,877	$	485,184
Net income	—	—	—			—		50,052		—		50,052
Dividends paid — $2.75 per share of common stock	—	—	—			—		(21,329)		—		(21,329)
Conversion of Sub-shares into shares of common stock	(7,756,156)	7,756,156	78			—		487,799		(487,877)		—
Periodic pension costs, net of income taxes of $8	—	—	—			28		—		—		28
Balances as of March 31, 2021	—	7,756,156	$	78		$	(2,665)	$	516,522	$	—	$	513,935

Corporate Reorganization

On January 11, 2021, TPL completed its Corporate Reorganization, officially changing its name to Texas Pacific Land Corporation. To implement the Corporate Reorganization, the Trust and TPL Corporation entered into agreements and undertook and caused to be undertaken a series of transactions to effect the transfer to TPL Corporation of all of the Trust’s assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the Corporate Reorganization. The agreements entered into include a contribution agreement between the Trust and TPL Corporation. The Corporate Reorganization was a tax-free reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended.

Prior to the market opening on January 11, 2021, the Trust distributed all of the shares of ~~Common Stock, par value $0.01,~~common stock of TPL Corporation ~~(the “Common Stock”)~~ to holders of sub-share certificates (“Sub-shares”)~~, par value of $0.03-1/3,~~ of the Trust, on a pro rata, one-for-one, basis in accordance with their interests in the Trust (the “Distribution”). As a result of the Distribution, TPL Corporation is now ~~an independent public company and~~a corporation with its ~~Common Stock is~~common stock listed under the symbol “TPL” on the New York Stock Exchange.

The Corporate Reorganization only affected our equity structure in that Sub-shares were replaced with shares of Common Stock and net proceeds from all sources were replaced with retained earnings on the condensed consolidated balance sheet.

Stock Repurchase Program

As our prior share repurchase program expired on December 31, 2021, there were no stock repurchases for the three months ended March 31, 2022. Repurchases of common stock of $0.2 million reported on the condensed consolidated statements of cash flows for the three months ended March 31, 2022 represent share repurchases executed and recorded during December 2021 but not settled until January 2022.

On ~~May 3, 2021,~~March 11, 2022, our board of directors approved a stock repurchase program to purchase up to an aggregate of ~~$20.0~~$100 million of shares of our outstanding ~~Common Stock.~~common stock. In connection with the stock repurchase program, the Company entered into a Rule 10b5-1 trading plan (the “Trading Plan”) that generally permits the Company to repurchase shares at times when it might otherwise be prevented from doing so under securities laws. Stock repurchases under the Trading Plan began April 18, 2022. The stock repurchase program ~~will expire~~expires on December 31, ~~2021 unless otherwise modified or earlier terminated by our board~~2022.

Table of directors at any time in its sole discretion. Repurchased shares will be held in treasury. For the nine months ended September 30, 2021, we repurchased 7,812 shares at an average per share amount of $1,433.Contents

8.11. Business Segment Reporting

During the periods presented, we reported our financial performance based on the following segments: Land and Resource Management and Water Services and Operations. Our segments provide management with a comprehensive financial view of our key businesses. The segments enable the alignment of our strategies and objectives and provide a framework for timely and rational allocation of resources within businesses. We eliminate any inter-segment revenues and expenses upon consolidation.

The Land and Resource Management segment encompasses the business of managing our approximately 880,000 surface acres of land and our oil and gas royalty interests in West Texas, principally concentrated in the Permian Basin. The revenue streams of this segment consist primarily of royalties from oil and gas, revenues from easements and commercial leases and land and material sales.

The Water Services and Operations segment encompasses the business of providing a full-service water offering to operators in the Permian Basin. The revenue streams of this segment primarily consist of revenue generated from sales of sourced and treated water as well as revenue from produced water royalties.

~~Table of Contents~~

Segment financial results were as follows for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Revenues:	Revenues:									Revenues:
Land and resource management	Land and resource management	$	86,792	$	49,896	$	211,823	$	142,150	Land and resource management	$	113,347	$	57,790
Water services and operations	Water services and operations	36,901		24,487		91,957		86,110		Water services and operations	33,988		26,365
Total consolidated revenues	Total consolidated revenues	$	123,693	$	74,383	$	303,780	$	228,260	Total consolidated revenues	$	147,335	$	84,155

Net income:	Net income:									Net income:
Land and resource management	Land and resource management	$	65,292	$	34,359	$	150,248	$	92,197	Land and resource management	$	81,156	$	39,513
Water services and operations	Water services and operations	18,545		11,916		40,687		39,061		Water services and operations	16,744		10,539
Total consolidated net income	Total consolidated net income	$	83,837	$	46,275	$	190,935	$	131,258	Total consolidated net income	$	97,900	$	50,052

Capital expenditures:	Capital expenditures:									Capital expenditures:
Land and resource management	Land and resource management	$	4,528	$	—	$	4,541	$	121	Land and resource management	$	122	$	—
Water services and operations	Water services and operations	2,059		353		6,958		4,205		Water services and operations	2,883		2,738
Total capital expenditures	Total capital expenditures	$	6,587	$	353	$	11,499	$	4,326	Total capital expenditures	$	3,005	$	2,738

Depreciation, depletion and amortization:	Depreciation, depletion and amortization:									Depreciation, depletion and amortization:
Land and resource management	Land and resource management	$	363	$	505	$	1,299	$	1,192	Land and resource management	$	536	$	494
Water services and operations	Water services and operations	3,503		3,255		10,263		9,581		Water services and operations	3,590		3,344
Total depreciation, depletion and amortization	Total depreciation, depletion and amortization	$	3,866	$	3,760	$	11,562	$	10,773	Total depreciation, depletion and amortization	$	4,126	$	3,838

The following table presents total assets and property, plant and equipment, net by segment as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 (in thousands):

September 30, 2021 December 31, 2020
Assets:
Land and resource management $ 570,800 $ 460,053
Water services and operations 124,817 111,582
Total consolidated assets $ 695,617 $ 571,635
Property, plant and equipment, net:
Land and resource management $ 6,786 $ 3,527
Water services and operations 72,418 75,740
Total consolidated property, plant and equipment, net $ 79,204 $ 79,267

1011

Table of Contents


	March 31, 2022		December 31, 2021
Assets:
Land and resource management	$	728,354	$	635,338
Water services and operations	128,215		128,726
Total consolidated assets	$	856,569	$	764,064

Property, plant and equipment, net:
Land and resource management	$	6,499	$	6,639
Water services and operations	73,497		73,083
Total consolidated property, plant and equipment, net	$	79,996	$	79,722

12. Oil and Gas Producing Activities

We measure our share of oil and gas produced in barrels of ~~oil equivalent~~equivalency (“~~Boe”~~BOEs”). One ~~Boe~~BOE equals one barrel of crude oil, condensate, NGLs (natural gas liquids) or approximately 6,000 cubic feet of gas. ~~For three months ended September 30,~~As of March 31, 2022 and 2021, ~~and 2020,~~ our share of oil and gas produced was approximately ~~19.5~~20.8 and ~~15.7~~16.4 thousand ~~Boe per day, respectively. For the nine months ended September 30, 2021 and September 30, 2020, our share of oil and gas produced was approximately 17.5 and 16.0 thousand Boe~~BOEs per day, respectively. Reserves related to our royalty interests are not presented because the information is unavailable.

There are a number of oil and gas wells that have been drilled but are not yet completed (“DUC”) where we have a royalty interest. The number of DUC wells is determined using uniform drilling spacing units with pooled interests for all wells awaiting completion. We have identified ~~508~~556 and ~~531~~452 DUC wells subject to our royalty interest as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

~~10.~~13. Subsequent Events

We evaluated events that occurred after the balance sheet date through the date these financial statements were issued, and the following events that met recognition or disclosure criteria were identified:

~~Dividend~~Dividends Declared

On ~~October 28, 2021,~~May 3, 2022, the board of directors declared a quarterly cash dividend of ~~$2.75~~$3.00 per share and a special dividend of $20.00 per share, both payable on ~~December~~June 15, ~~2021~~2022 to stockholders of record at the close of business on ~~December~~June 8, ~~2021.~~

2022.

*****

1112

Table of Contents

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~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. Words or phrases such as “expects” and “believes”, or similar expressions, when used in this Form 10-Q or other filings with the Securities and Exchange Commission (the “SEC”), are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding the Company’s future operations and prospects, the ~~severity and duration~~potential future impact of ~~the~~ COVID-19, ~~pandemic and related economic repercussions,~~ the markets for real estate in the areas in which the Company owns real estate, applicable zoning regulations, the markets for oil and gas including actions of other oil and gas producers or consortiums worldwide such as ~~OPEC+~~the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (collectively referred to as “OPEC+”), expected competition, management’s intent, beliefs or current expectations with respect to the Company’s future financial performance and other matters. All forward-looking statements in this Report are based on information available to us as of the date this Report is filed with the SEC, and we assume no responsibility to update any such forward-looking statements, except as required by law. All forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, the factors discussed in Item 1A. “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, 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~~in conjunction 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, ~~2020, (ii)~~2021 filed with the ~~factors discussed~~SEC on February 23, 2022 and the condensed consolidated financial statements and accompanying notes included, in Part ~~II,~~I, Item ~~1A. “Risk Factors,” if any,~~1 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.~~10-Q. Period-to-period comparisons of financial data are not necessarily indicative, and therefore should not be relied upon as indicators, of the Company’s future performance.

Overview

Texas Pacific Land Corporation (which, together with its subsidiaries as the context requires, may be referred to as “TPL”, the “Company”, “our”, “we” or “us”) is one of the largest landowners in the State of Texas with approximately 880,000 surface acres of land ~~comprised of a number of separate tracts, located in 19 counties~~ in West Texas, with the majority of our ownership concentrated in the Permian Basin. Additionally, we own a 1/128th nonparticipating perpetual oil and gas royalty interest (“NPRI”) under approximately 85,000 acres of land and a 1/16th NPRI under approximately 371,000 acres of land, ~~in the western part of Texas,~~ as well as approximately 4,000 additional net royalty acres (normalized to 1/8th)., all located in the western part of Texas.

We completed our reorganization from a business trust to a corporation (the “Corporate Reorganization”) on January 11, 2021, changing our name from Texas Pacific Land Trust (the “Trust”) to Texas Pacific Land Corporation. Any references in this Quarterly Report on Form 10-Q to the Company, TPL, our, we, or us with respect to periods prior to January 11, 2021 are in reference to the Trust, and references to periods on or after that date ~~and thereafter~~ are in reference to Texas Pacific Land Corporation or TPL Corporation. For further information on the Corporate Reorganization, see Note 7,10, “Changes in Equity” in the notes to the condensed consolidated financial statements.

Our business activity is generated from surface and royalty interest ownership allow steady revenue generation through the entire value chain of oil and gas development. While we are not an oil and gas producer, we benefit from various revenue sources throughout the life cycle of a well. During the initial development phase where infrastructure for oil and gas development is constructed, we receive fixed fee payments for use of our land and revenue for sales of materials (caliche) used in the construction of the infrastructure. During the drilling and completion phase, we generate revenue for providing sourced water and/or treated produced water in addition to fixed fee payments for use of our land. During the production phase, we receive revenue from our oil and gas royalty interests and also revenues related to saltwater disposal on our land. In addition, we generate revenue from pipeline, power line and utility easements, commercial leases and seismic and temporary permits principally related to a variety of land uses, including midstream infrastructure projects and processing facilities as hydrocarbons are processed and transported to market.

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

For a further overview of our business and business segments, see Item 1. “Business — General” in our Annual Report on Form 10-K for the year ended December 31, 2021.

1213

Table of Contents

for, and sale price of, particular tracts of land are 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 commercial uses prevalent in western Texas.

As our oil and gas revenue is derived from our oil and gas royalty interests, in addition to fluctuating 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.

Our revenue from easements is primarily generated from pipelines transporting oil, gas and related hydrocarbons, power line and utility easements and subsurface wellbore easements. The majority of our easements have a thirty-plus year term and subsequently renew every ten years with an additional payment. Commercial lease revenue is derived primarily from processing, storage and compression facilities and roads.

Texas Pacific Water Resources LLC (“TPWR”), a single member Texas limited liability company owned by the Company, provides full-service water offerings to operators in the Permian Basin. These services include, but are not limited to, water sourcing, produced-water gathering/treatment, infrastructure development, disposal solutions, water tracking, analytics and well testing services. TPWR's revenue streams principally consist of revenue generated from sales of sourced and treated water as well as revenues from produced water royalties. We are committed to sustainable water development. Our significant surface ownership in the Permian Basin provides TPWR with a unique opportunity to provide multiple full-service water offerings to operators.

During the nine months ended September 30, 2021, we invested approximately $7.0 million in TPWR projects to maintain and/or enhance water sourcing assets, of which $3.9 million related to electrifying our water sourcing infrastructure.

Market Conditions

~~COVID-19 Pandemic and~~ Global Oil Market Impact in ~~2021~~2022

The uncertainty caused by the global spread of COVID-19 commencing in 2020, among other factors, led to a significant reduction in global demand and prices for oil. These events generally led to production curtailments and capital investment reductions by the operators of theAverage oil and gas ~~wells~~prices during the first quarter of 2022 were meaningfully higher compared to ~~which~~average prices during most of the ~~Company’s royalty interests relate. This slowdown in well development has negatively affected~~previous quarterly periods over the Company’s business and operations for 2020 and 2021. More recently, development activity has also been impacted by shortages in labor and certain equipment as well as escalating costs which have generally impacted operators in the Permian Basin. While labor and resource shortages and rising costs have not directly impacted us yet, these shortages and rising costs could potentially impact our future operating activity. With current oil, natural gas, and NGL prices broadly higher than the comparable period in 2020, development activities in the Permian Basin have rebounded from the lows in 2020, and producer activity has increased, albeit at a pace still below pre-pandemic levels. Future production and development activity will continue to be influenced by changes in commodity prices and by the evolving economic and health impact of COVID-19.

Though the global spread of COVID-19 and the associated economic impact are still uncertain, COVID-19 containment measures have eased in certain regions globally, and as a result, demand for oil and gas has begun to recover. However, COVID-19 continues to impact certain regions domestically and globally, and any additional containment measures, now or in the future, could impede a recovery.last decade. In ~~addition,~~2021, oil prices ~~in 2021 have been~~were supported by oil supply cuts by OPEC+. Oil demand in 2021 broadly trended higher throughout the ~~Organization~~year, which also helped support strengthening oil prices. Beginning in March 2022, Russia’s incursion into Ukraine created volatility in global supply of numerous commodities, including oil. In response, the US has implemented numerous measures to help mitigate potential supply shortfalls and high oil prices, most notably by releasing millions of barrels of crude oil from its Strategic Petroleum ~~Exporting Countries (“OPEC”) and Russia (collectively referred~~Reserve. The confluence of these major events have contributed to ~~as “OPEC+”).~~increased fluctuations in oil prices during 2022. Although our revenues are directly and indirectly impacted by changes in oil prices, we believe our royalty interests (which require no capital expenditures or operating expense burden from us for well development), strong balance sheet, and liquidity position will help us navigate through potential oil price volatility.

In 2020, we implemented certain cost reduction measures to manage costs with an initial focus on negotiating price reductions and discounts with certain vendors and reducing our usage of independent contract service providers. In 2021, we continue to identify additional cost reduction opportunities. As part of our longer-term water business strategy, we have invested in electrifying our water sourcing infrastructure. The use of electricity instead of fuel-powered generators to source and transport water is anticipated to further reduce our dependence on fuel, equipment rentals, and repairs and maintenance. Additionally, our investment in automation has allowed us to curtail our reliance on independent contract service providers to support our field operations.COVID-19 Pandemic

Our business model and disciplined approach to capital resource allocation have helped us maintain our strong financial position while navigating the uncertainty of the current environment. Further, we continue to prioritize maintaining a

~~Table of Contents~~

safe and healthy work environment for our employees. Our information technology infrastructure allowed our corporate employees to transition to a remote work environment starting in March 2020 and we were able to deploy additional safety and sanitation measures for our field employees. As vaccination rates in the United States have risen, we have taken a phased-in approach to returning employees to the office andWe continue to monitor ~~guidance provided by~~ the ~~Centers for Disease Control~~COVID-19 pandemic as cases and ~~Prevention as~~hospitalizations have dropped significantly in 2022. We are following local government mandates, where applicable, and will continue to revise and refine our on-site work to ensure business continuity and the safety and wellbeing of our employees. The full extent to which the Pandemic impacts our business will depend on future developments that are highly uncertain and cannot be predicted, including new information ~~becomes available. We continue to provide safety~~that may emerge concerning the severity and ~~sanitation measures for all employees and maintain communication with employees regarding any concerns they may have during~~new variants of the ~~transition.~~virus.

Permian Basin Activity

The Permian Basin is one of the oldest and most well-known hydrocarbon-producing areas and currently accounts for a substantial portion of oil and gas production in the United States, covering approximately 86,000 square miles in 52 counties across southeastern New Mexico and western Texas. ~~All~~Exploration and production (“E&P”) firms active in the Permian have generally guided towards increased drilling and development activity in 2022 compared to prior year activity levels. Per the U.S. Energy Information Administration (“EIA”), Permian production is currently in excess of ~~our assets are located in West Texas.~~five million barrels per day, which is higher than the average daily production of every year prior to 2022. Despite record Permian production volumes, E&P companies continue to experience challenges with labor and supply chains related to drilling and completion activities, which could negatively impact overall production.

With our ownership concentration in the Permian Basin, our revenues are directly impacted by oil and gas pricing and drilling activity in the Permian Basin. Below are metrics for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Oil and Gas Pricing Metrics:(1)	Oil and Gas Pricing Metrics:(1)									Oil and Gas Pricing Metrics:(1)
WTI Cushing average price per bbl	WTI Cushing average price per bbl	$	70.58	$	40.89	$	65.05	$	38.04	WTI Cushing average price per bbl	$	95.18	$	58.09
Henry Hub average price per mmbtu	Henry Hub average price per mmbtu	$	4.35	$	2.00	$	3.61	$	1.87	Henry Hub average price per mmbtu	$	4.67	$	3.50

Activity Metrics specific to the Permian Basin:(1)(2)	Activity Metrics specific to the Permian Basin:(1)(2)									Activity Metrics specific to the Permian Basin:(1)(2)
Average monthly horizontal permits	Average monthly horizontal permits	527		389		573		502		Average monthly horizontal permits	572		446
Average monthly horizontal wells drilled	Average monthly horizontal wells drilled	405		189		376		316		Average monthly horizontal wells drilled	465		343
Average weekly horizontal rig count	Average weekly horizontal rig count	235		121		215		235		Average weekly horizontal rig count	265		189
DUCs as of September 30 for each applicable year		4,519		4,683		4,519		4,683
DUCs as of March 31 for each applicable year										DUCs as of March 31 for each applicable year	3,924		4,617

Total Average US weekly horizontal rig count (2)	Total Average US weekly horizontal rig count (2)	450		217		405		424		Total Average US weekly horizontal rig count (2)	575		350

(1) Commonly used definitions in the oil and gas industry provided in the table above are defined as follows: WTI Cushing represents West Texas Intermediate. Bbl represents one barrel of 42 U.S. gallons of oil. Mmbtu represents one million British thermal units, a measurement used for natural gas. DUCs represent drilled but uncompleted wells.

Table of Contents

(2) Permian Basin specific information per Enverus analytics. US weekly horizontal rig counts per Baker Hughes United States Rotary Rig Count for horizontal rigs.

The metrics above demonstrate the shifts in activity in the Permian Basin for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020. While oil~~2021. Oil and gas prices ~~which began declining~~ in the first quarter of ~~2020 (prior to oil reaching record lows in the second quarter of 2020),~~2022 have rebounded ~~through~~strongly compared to the ~~first nine months of 2021, development,~~comparable period in 2021. Development, drilling, ~~and~~ completion, and production activities ~~broadly~~ across the Permian broadly have ~~not returned~~also significantly improved in the first quarter of 2022 compared to ~~their pre-pandemic levels. Operators~~the prior year, although operators currently continue to ~~manage their~~deploy capital ~~allocations by deploying~~ at a ~~decreased pace of development while oil demand continues to recover.~~measured, albeit increased, pace. As we are a significant landowner in the Permian Basin and not an oil and gas producer, our revenue is affected by the development decisions made by companies that operate in the areas where we own royalty interests and land. Accordingly, these decisions made by others affect not only our production and produced water disposal volumes but also directly impact our surface-related income and water sales.

~~Table of Contents~~Liquidity

~~Liquidity~~ and Capital Resources

Overview

Our principal sources of liquidity are ~~revenues~~cash and cash flows generated from ~~oil, gas and produced water royalties, easements and other surface-related income and water and land sales.~~our operations. Our primary liquidity and capital requirements are for capital expenditures related to our Water Services and Operations segment (the extent and timing of which are under our control), working capital and general corporate needs.

We continuously review our liquidity and capital resources. If market conditions were to change and our revenues were to decline significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced. Should this occur, we could seek alternative sources of funding. We have no debt or credit facilities, nor any off-balance sheet arrangements as of ~~September 30, 2021.~~March 31, 2022.

As of ~~September 30, 2021,~~March 31, 2022, we had cash and cash equivalents of ~~$372.8~~$507.4 million that we expect to utilize, along with cash flow from operations, to provide capital to support the growth of our business, to repurchase our common stock ~~par value $0.01 (the “Common Stock”)~~ subject to market conditions, to pay dividends subject to the discretion of our board of directors and for general corporate purposes. For the three months ended March 31, 2022, we paid $23.2 million in dividends to our stockholders. We believe that cash from operations, together with our cash and cash equivalents balances, will be sufficient to meet ongoing capital expenditures, working capital requirements and other cash needs for the foreseeable future.

During the three months ended March 31, 2022, we invested approximately $2.9 million in TPWR projects to maintain and/or enhance water sourcing assets, of which $0.9 million related to electrifying our water sourcing infrastructure.

Cash Flows from Operating Activities

For the three months ended March 31, 2022 and 2021, net cash provided by operating activities was $107.7 million and $52.4 million, respectively. Our cash flow provided by operating activities is primarily from oil, gas and produced water royalties, water and land sales, and easements and other surface-related income. Cash flow used in operations generally consists of operating expenses associated with our ~~board~~revenue streams, general and administrative expenses and income taxes.

The increase in cash flows provided by operating activities for the three months ended March 31, 2022 compared to the same period of ~~directors has approved repurchases~~2021, was primarily related to increased prices and volumes of oil and gas production and was partially offset by increased working capital requirements.

Cash Flows Used in Investing Activities

For the three months ended March 31, 2022 and 2021, net cash used in investing activities was $5.2 million and $1.4 million, respectively. Our cash flows used in investing activities are primarily related to capital expenditures related to our ~~Common Stock up~~water services and operations segment and acquisitions of royalty interests.

Capital expenditures increased $2.2 million for the three months ended March 31, 2022 compared to ~~$20.0~~the same period of 2021. Acquisitions of royalty interests increased approximately $1.6 million for the three months ended March 31, 2022 compared to the same period 2021.

Table of ~~shares,~~Contents

Cash Flows Used in Financing Activities

For the three months ended March 31, 2022 and ~~through September 30,~~2021, net cash used in financing activities was $23.4 million and $21.3 million, respectively. Our cash flows used in financing primarily consist of activities which return capital to our stockholders such as payment of dividends.

During the three months ended March 31, 2022, we paid total dividends of $23.2 million consisting of cumulative paid cash dividends of $3.00 per share. During the three months ended March 31, 2021, we ~~have repurchased $11.2~~paid total dividends of $21.3 million consisting of ~~shares.~~cumulative cash dividends of $2.75 per share.

Results of Operations

The following table shows our consolidated results of operations for the three months ended March 31, 2022 and 2021 (in thousands):


	Three Months Ended March 31,
	2022		2021
Revenues:
Oil and gas royalties	$	104,172	$	49,533
Water sales	18,820		12,956
Produced water royalties	14,870		12,549
Easements and other surface-related income	9,192		9,047
Land sales and other operating revenue	281		70
Total revenues	147,335		84,155

Expenses:
Salaries and related employee expenses	9,385		9,979
Water service-related expenses	2,782		3,298
General and administrative expenses	3,000		2,806
Legal and professional fees	1,719		2,212
Ad valorem taxes	2,010		—

Depreciation, depletion and amortization	4,126		3,838
Total operating expenses	23,022		22,133

Operating income	124,313		62,022

Other income, net	76		5
Income before income taxes	124,389		62,027



Income tax expense	26,489		11,975
Net income	$	97,900	$	50,052

For the Three Months Ended March 31, 2022 as Compared to the Three Months Ended March 31, 2021

Consolidated Revenues and Net Income:

Total revenues and net income increased $63.2 million and $47.8 million, respectively, for the three months ended March 31, 2022 compared to the same period for the three months ended March 31, 2021. These increases were principally due to the $54.6 million increase in oil and gas royalty revenue and the $5.9 million increase in water sales over the same period. Individual revenue line items are discussed below under “Segment Results of Operations.”

Consolidated Expenses:

Salaries and related employee expenses. Salaries and related employee expenses were $9.4 million for the three months ended March 31, 2022 compared to $10.0 million for the comparable period of 2021. Salaries and related employee

Table of Contents

expenses for the three months ended March 31, 2021 included a $2.0 million severance accrual. Salaries and related employee expenses for the three months ended March 31, 2022 include $1.3 million of share-based compensation expense.

Water service-related expenses. Water service-related expenses decreased to $2.8 million for the three months ended March 31, 2022 from $3.3 million for the same period of 2021. This decrease in expenses was principally the result of a decrease in fuel and equipment rental expenses due to our investment in electrifying our water sourcing infrastructure.

Legal and professional fees. Legal and professional fees decreased $0.5 million to $1.7 million for the three months ended March 31, 2022 from $2.2 million for the comparable period of 2021. Legal and professional fees for the three months ended March 31, 2021 were higher principally due to legal expenses associated with our Corporate Reorganization which was completed on January 11, 2021.

Ad valorem taxes. For the three months ended March 31, 2022, the Company recorded an accrual of approximately $2.0 million for ad valorem taxes. Prior to January 1, 2022, the ad valorem taxes with respect to our historical royalty interests were paid directly by certain third parties pursuant to an existing arrangement. Since the completion of our Corporate Reorganization on January 11, 2021, we have received notice from one such third party that they no longer intend to pay the ad valorem taxes related to such historical royalty interests. While we continue to believe the obligation to pay these ad valorem taxes should belong to the third party, we are accruing an estimate of such taxes and intend to pay the taxes when they become due in order to protect the royalty interests from any potential tax liens for nonpayment of future ad valorem taxes.

Total income tax expense. Total income tax expense was $26.5 million and $12.0 million for the three months ended March 31, 2022 and 2021, respectively. The increase in income tax expense is primarily related to increased operating income resulting from increased revenues from oil and gas royalties and water sales.

Segment Results of Operations

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

We ~~analyze financial results for each~~evaluate the performance of our ~~reportable segments.~~operating segments separately to monitor the different factors affecting financial results. The reportable segments presented are consistent with our reportable segments discussed in Note 8.11, “Business Segment Reporting” in the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. We monitor our reporting segments based upon revenue and net income calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Our results of operations for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022 have ~~continued to be impacted by~~benefited from a rebound in oil and gas activity in the Permian Basin ~~not returning~~and commodity prices compared to ~~pre-pandemic levels.~~2021. While our oil and gas royalty revenues have benefited from increased ~~oil~~royalty production and higher commodity prices during this time period, our ~~water sales and~~ surface-related income ~~continue~~continues to be impacted by the ~~decreased~~development pace of ~~activity.~~operators in the Permian.

~~For the three months ended September 30, 2021 as compared to the three months ended September 30, 2020~~

~~Revenues~~. Revenues increased $49.3 million, or 66.3%, to $123.7 million for the three months ended September 30, 2021 compared to $74.4 million for the three months ended September 30, 2020. Net income increased 81.2% to $83.8 million for the three months ended September 30, 2021 compared to $46.3 million for the three months ended September 30, 2020.

1517

Table of Contents

For the Three Months Ended March 31, 2022 as Compared to the Three Months Ended March 31, 2021

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 March 31,
		2021				2020					2022				2021
Revenues:	Revenues:									Revenues:
Land and resource management:	Land and resource management:									Land and resource management:

Oil and gas royalty revenue	Oil and gas royalty revenue	$	79,098	64	%	$	31,758	43	%	Oil and gas royalty revenue	$	104,172	71	%	$	49,533	59	%
Easements and other surface-related income	Easements and other surface-related income	7,625		6	%	6,588		9	%	Easements and other surface-related income	8,894		6	%	8,187		10	%
Land sales and other operating revenue	Land sales and other operating revenue	69		—	%	11,550		15	%	Land sales and other operating revenue	281		—	%	70		—	%
Total land and resource management revenue	Total land and resource management revenue	86,792		70	%	49,896		67	%	Total land and resource management revenue	113,347		77	%	57,790		69	%

Water services and operations:	Water services and operations:									Water services and operations:
Water sales	Water sales	19,554		16	%	12,139		16	%	Water sales	18,820		13	%	12,956		15	%
Produced water royalties	Produced water royalties	15,140		12	%	12,246		17	%	Produced water royalties	14,870		10	%	12,549		15	%
Easements and other surface-related income	Easements and other surface-related income	2,207		2	%	102		—	%	Easements and other surface-related income	298		—	%	860		1	%
Total water services and operations revenue	Total water services and operations revenue	36,901		30	%	24,487		33	%	Total water services and operations revenue	33,988		23	%	26,365		31	%
Total consolidated revenues	Total consolidated revenues	$	123,693	100	%	$	74,383	100	%	Total consolidated revenues	$	147,335	100	%	$	84,155	100	%

Net income:	Net income:									Net income:
Land and resource management	Land and resource management	$	65,292	78	%	$	34,359	74	%	Land and resource management	$	81,156	83	%	$	39,513	79	%
Water services and operations	Water services and operations	18,545		22	%	11,916		26	%	Water services and operations	16,744		17	%	10,539		21	%
Total consolidated net income	Total consolidated net income	$	83,837	100	%	$	46,275	100	%	Total consolidated net income	$	97,900	100	%	$	50,052	100	%

Land and Resource Management

Land and Resource Management segment revenues increased ~~$36.9~~$55.6 million, or 96.1%, to ~~$86.8~~$113.3 million for the three months ended ~~September 30, 2021~~March 31, 2022 as compared ~~with $49.9 million for~~to the comparable period of ~~2020.~~2021. The increase in Land and Resource Management segment revenues is principally due to an increase in oil and gas royalty revenue, as discussed further below.

~~Table of Contents~~

Oil and gas royalties. Oil and gas royalty revenue was ~~$79.1~~$104.2 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$31.8~~$49.5 million for the three months ended ~~September 30, 2020.~~March 31, 2021, an increase of 110.3%. The table below provides financial and operational data by royalty stream for the three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:

Three Months Ended September 30,
2021 2020
Our share of production volumes(1):
Oil (MBbls) 810 658
Natural gas (MMcf) 3,111 2,477
NGL (MBbls) 469 374
Equivalents (MBoe) 1,798 1,445
Equivalents per day (MBoe/d) 19.5 15.7
Oil and gas royalty revenue (in thousands):
Oil royalties $ 52,081 $ 24,111
Natural gas royalties 11,528 3,286
NGL royalties 15,489 4,361
Total oil and gas royalties $ 79,098 $ 31,758
Realized prices:
Oil ($/Bbl) $ 67.32 $ 38.35
Natural gas ($/Mcf) $ 4.01 $ 1.43
NGL ($/Bbl) $ 35.69 $ 12.62
Equivalents ($/Boe) $ 46.07 $ 23.02

Table of Contents


	Three Months Ended March 31,
	2022		2021
Our share of production volumes(1):
Oil (MBbls)	796		646
Natural gas (MMcf)	3,279		2,709
NGL (MBbls)	528		383
Equivalents (MBoe)	1,871		1,480
Equivalents per day (MBoe/d)	20.8		16.4

Oil and gas royalty revenue (in thousands):
Oil royalties	$	71,681	$	34,249
Natural gas royalties	16,175		7,360
NGL royalties	16,316		7,924
Total oil and gas royalties	$	104,172	$	49,533

Realized prices:
Oil ($/Bbl)	$	94.24	$	55.53
Natural gas ($/Mcf)	$	5.33	$	2.94
NGL ($/Bbl)	$	33.42	$	22.36
Equivalents ($/Boe)	$	58.31	$	35.04

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

Our share of crude oil, natural gas and NGL production volumes was ~~19.5~~20.8 thousand Boe per day for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~15.7~~16.4 thousand Boe per day for the same period of ~~2020.~~2021. The average realized prices were ~~$67.32~~$94.24 per barrel of oil, ~~$4.01~~$5.33 per Mcf of natural gas, and ~~$35.69~~$33.42 per barrel of NGL, for a total equivalent price of ~~$46.07~~$58.31 per Boe for the three months ended ~~September 30, 2021, doubling~~March 31, 2022, an increase of $23.27 per Boe compared to the total equivalent price of ~~$23.02~~$35.04 per Boe for the same period of ~~2020.~~2021.

Easements and other surface-related ~~income~~income.. Easements and other surface-related income was ~~$7.6~~$8.9 million for the three months ended ~~September 30, 2021,~~March 31, 2022, an increase of ~~15.7%~~8.6% compared to ~~$6.6~~$8.2 million for the three months ended ~~September 30, 2020.~~March 31, 2021. Easements and other surface-related income includes pipeline, power line and utility easements, commercial leases and seismic and temporary permits. The increase in easements and other surface-related income is principally related to increases of $1.5 million in ~~well bore~~pipeline easement income, $0.9 million in power line and utility easements, and $0.6 million in material sales for the three months ended ~~September 30, 2021~~March 31, 2022 compared to the same period of ~~2020.~~2021. These increases were partially offset by a $2.4 million decrease in commercial lease revenue for the three months ended March 31, 2022. Easements and other surface-related income is dependent on development decisions made by companies that operate in the areas where we own land and is, therefore, unpredictable and may vary significantly from period to period. See “Market Conditions” above for additional discussion of development activity in the Permian Basin during the three months ended ~~September 30, 2021 relative to the same time period of 2020.~~March 31, 2022.

~~Land sales and other operating revenue.~~ Land sales and other operating revenue includes revenue generated from land sales and grazing leases. There were no land sales for the three months ended September 30, 2021. Land sales were $11.5 million for the three months ended September 30, 2020. For the three months ended September 30, 2020, we sold approximately 20,820 acres of land for an aggregate sales price of approximately $10.1 million, or approximately $483 per

~~Table of Contents~~

~~acre. Additionally, we recognized land sales revenue of $1.4 million for the three months ended September 30, 2020 related to land exchanges where we had no cost basis in the land conveyed.~~

Net income. Net income for the Land and Resource Management segment was ~~$65.3~~$81.2 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$34.4~~$39.5 million for the three months ended ~~September 30, 2020. The increase in net income is principally due to the $36.9 million increase in segment revenues, partially offset by an increase in segment expenses,~~March 31, 2021. Expenses, including income tax ~~expense. Total~~expense, for the Land and Resource Management segment ~~expenses~~ were ~~$21.5~~$32.2 million and ~~$15.5~~$18.3 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. The ~~overall~~ increase in ~~segment~~ expenses ~~was~~during 2022 is principally related to ~~increased~~a $12.9 million increase in income tax expense for the three months ended ~~September 30,~~March 31, 2022 compared to the same period of 2021. Expenses are discussed further ~~below~~above under ~~“Other Financial Data — Consolidated.~~“Results of Operations.”

Table of Contents

Water Services and Operations

Water Services and Operations segment revenues increased ~~50.7%~~28.9%, to ~~$36.9~~$34.0 million for the three months ended ~~September 30, 2021~~March 31, 2022 as compared with ~~$24.5~~revenues of $26.4 million for the comparable period of ~~2020.~~2021. The increase in Water Services and Operations segment revenues is ~~principally~~ due to ~~an increase~~increases in water sales ~~revenue~~ and produced water ~~royalties, which are discussed below.~~royalty revenue. As discussed in “Market Conditions” above, our segment revenues are directly influenced by development decisions made by our customers and the overall activity level in the Permian Basin. Accordingly, our segment revenues and sales volumes, as further discussed below, will fluctuate from period to period based upon those decisions and activity levels.

Water sales. Water sales revenue was ~~$19.6~~$18.8 million for the three months ended ~~September 30, 2021,~~March 31, 2022, an increase of ~~61.1%~~$5.9 million or 45.3%, compared with the three months ended ~~September 30, 2020~~March 31, 2021 when water sales revenue was ~~$12.1~~$13.0 million. ~~This~~The increase ~~was~~in water sales is principally due to ~~a 60.4% increase in the number of barrels of sourced and treated water~~increased average pricing for the three months ended ~~September 30, 2021~~March 31, 2022, compared to the same period of 2021. Average pricing in ~~2020.~~2022 has generally returned to pre-pandemic levels, while pricing in 2021 continued to be impacted by the lows in 2020 brought on by COVID-19.

Produced water royalties.Produced water royalties are royalties received from the transportation or disposal of produced water on our land. We do not operate any ~~salt water~~saltwater disposal wells. Produced water royalties were ~~$15.1~~$14.9 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$12.2~~$12.5 million ~~compared to~~for the same period in ~~2020.~~2021. This increase is principally due to increased produced water volumes for the three months ended ~~September 30, 2021~~March 31, 2022 compared to the same period of ~~2020.~~2021.

Easements and other surface-related income. Easements and other surface-related income was ~~$2.2~~$0.3 million for the three months ended ~~September 30, 2021, an increase~~March 31, 2022, a decrease of ~~$2.1~~$0.6 million compared to ~~$0.1~~$0.9 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The ~~increase~~decrease in easements and other surface-related income ~~related~~relates to ~~an increase~~a decrease in temporary permits for sourced water lines for the three months ended ~~September 30, 2021~~March 31, 2022 compared to the same period in ~~2020.~~2021.

Net income. Net income for the Water Services and Operations segment was ~~$18.5~~$16.7 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$11.9~~$10.5 million for the three months ended ~~September 30, 2020.~~March 31, 2021. As discussed above, revenues for the Water Services and Operations segment ~~revenues~~ increased ~~50.7%~~28.9% for the three months ended ~~September 30, 2021~~March 31, 2022 compared to the same period of ~~2020. Total segment expenses,~~2021. Expenses, including income tax expense, for the Water Services and Operations segment were ~~$18.4~~$17.2 million for the three months ended ~~September 30, 2021~~March 31, 2022 as compared to ~~$12.6~~$15.8 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The overall increase in segment expenses during ~~2021~~2022 is principally related to increased income tax expense ~~and water service-related expenses, primarily fuel, equipment rental and repairs and maintenance.~~as a result of increased segment operating income during the same time period. Expenses are discussed further ~~below~~above under ~~“Other Financial Data — Consolidated.”~~

~~Other Financial Data — Consolidated~~

~~Salaries and related employee expenses~~. Salaries and related employee expenses were $8.5 million and $7.7 million for the three months ended September 30, 2021 and 2020, respectively. The increase in salaries and related employee expenses for the three months ended September 30, 2021 compared to the same period“Results of ~~2020 is principally due to an increase in contract labor expenses.~~

~~Water service-related expenses~~. Water service-related expenses were $3.7 million for the three months ended September 30, 2021 compared to $2.3 million for the comparable period of 2020. The increase in expenses during 2021 is primarily due to increased fuel, equipment rental and repairs and maintenance expenses related to higher water sales volume, as discussed above.

~~General and administrative expenses.~~ ~~General and administrative expenses were $2.8 million for the three months ended September 30, 2021 compared to $1.9 million for the comparable period of 2020. The increase in general and~~

~~Table of Contents~~

administrative expenses during the three months ended September 30, 2021 compared to the same period of 2020 is principally related to increases in board of director fees resulting from our Corporate Reorganization in January 2021.

~~Other income, net.~~ Other income, net was $0.5 million and $1.3 million for the three months ended September 30, 2021 and 2020, respectively. Other income, net for the three months ended September 30, 2020, includes a $1.2 million accrued insurance reimbursement related to legal fees incurred in 2019 associated with the proxy contest.Operations.”

Non-GAAP Performance Measures

In addition to amounts presented in accordance with GAAP, we also present certain supplemental non-GAAP measurements. These measurements are not to be considered more relevant or accurate than the measurements presented in accordance with GAAP. In compliance with the requirements of the SEC, our non-GAAP measurements are reconciled to net income, the most directly comparable GAAP performance measure. For all non-GAAP measurements, neither the ~~nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020~~SEC nor any other regulatory body has passed judgment on these non-GAAP measurements.

~~Revenues~~. Revenues increased $75.5 million, or 33.1%, to $303.8 million for the nine months ended September 30, 2021 compared to $228.3 million for the nine months ended September 30, 2020. Net income increased 45.5% to $190.9 million for the nine months ended September 30, 2021 compared to $131.3 million for the nine months ended September 30, 2020.EBITDA and Adjusted EBITDA

~~The following~~EBITDA is ~~an analysis~~a non-GAAP financial measurement of earnings before interest, taxes, depreciation, depletion and amortization. Its purpose is to highlight earnings without finance, taxes, and depreciation, depletion and amortization expense, and its use is limited to specialized analysis. We calculate Adjusted EBITDA as EBITDA excluding the impact of certain non-cash, non-recurring and/or unusual, non-operating items, including, but not limited to: employee share-based compensation, conversion costs related to our Corporate Reorganization, and severance costs. We have presented EBITDA and Adjusted EBITDA because we believe that both are useful supplements to net income in analyzing operating ~~results for the comparable periods by reportable segment (in thousands):~~performance.

Nine Months Ended September 30,
2021 2020
Revenues:
Land and resource management:
Oil and gas royalty revenue $ 186,835 62 % $ 94,631 41 %
Easements and other surface-related income 24,029 8 % 31,385 14 %
Land sales and other operating revenue 959 — % 16,134 7 %
Total land and resource management revenue 211,823 70 % 142,150 62 %
Water services and operations:
Water sales 44,983 15 % 47,525 21 %
Produced water royalties 43,147 14 % 37,863 17 %
Easements and other surface-related income 3,827 1 % 722 — %
Total water services and operations revenue 91,957 30 % 86,110 38 %
Total consolidated revenues $ 303,780 100 % $ 228,260 100 %
Net income:
Land and resource management $ 150,248 79 % $ 92,197 70 %
Water services and operations 40,687 21 % 39,061 30 %
Total consolidated net income $ 190,935 100 % $ 131,258 100 %

~~Land and Resource Management~~

Land and Resource Management segment revenues increased 49.0% to $211.8 million for the nine months ended September 30, 2021 as compared with $142.2 million for the comparable period of 2020. The increase in Land and Resource Management segment revenues is principally due to an increase in oil and gas royalty revenue, partially offset by decreases in land sales and easements and other surface-related income, as discussed further below.

~~Table of Contents~~

~~Oil and gas royalties~~. Oil and gas royalty revenue was $186.8 million for the nine months ended September 30, 2021 compared to $94.6 million for the nine months ended September 30, 2020, an increase of $92.2 million. The table below provides financial and operational data by royalty stream for the nine months ended September 30, 2021 and 2020:

Nine Months Ended September 30,
2021 2020
Our share of production volumes:
Oil (MBbls) 2,139 2,081
Natural gas (MMcf) 8,627 6,983
NGL (MBbls) 1,194 1,142
Equivalents (MBoe) 4,771 4,387
Equivalents per day (MBoe/d) 17.5 16.0
Oil and gas royalty revenue (in thousands):
Oil royalties $ 128,907 $ 76,794
Natural gas royalties 26,400 6,804
NGL royalties 31,528 11,033
Total oil and gas royalties $ 186,835 $ 94,631
Realized prices:
Oil ($/Bbl) $ 63.12 $ 38.64
Natural gas ($/Mcf) $ 3.31 $ 1.05
NGL ($/Bbl) $ 28.54 $ 10.45
Equivalents ($/Boe) $ 41.01 $ 22.59

Our share of crude oil, natural gas and NGL production volumes was 17.5 thousand Boe per day for the nine months ended September 30, 2021 compared to 16.0 thousand Boe per day for the same period of 2020. The average realized prices were $63.12 per barrel of oil, $3.31 per Mcf of natural gas, and $28.54 per barrel of NGL, for a total equivalent price of $41.01 per Boe for the nine months ended September 30, 2021, an increase of 81.5% over a total equivalent price of $22.59 per Boe for the same period of 2020.

~~Easements and other surface-related income~~. Easements and other surface-related income was $24.0 million for the nine months ended September 30, 2021, a decrease of 23.4% compared to $31.4 million for the nine months ended September 30, 2020. Easements and other surface-related income includes pipeline, power line and utility easements, commercial leases and seismic and temporary permits. The decrease in easements and other surface-related income is principally related to a decrease of $9.7 million in pipeline easement income to $5.6 million for the nine months ended September 30, 2021 from $15.3 million for the nine months ended September 30, 2020. The amount of income derived from pipeline easements is a function of the term of the easement, the size of the easement and the number of easements entered into for any given period. Easements and other surface-related income is dependent on development decisions made by companies that operate in the areas where we own land and is therefore, unpredictable and may vary significantly from period to period. See “Market Conditions” above for additional discussion of development activity in the Permian Basin during the nine months ended September 30, 2021 relative to the same time period of 2020.

~~Land sales and other operating revenue.~~

Land sales and other operating revenue includes revenue generated from land sales and grazing leases. Land sales were $0.7 million and $15.9 million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021, we sold 30 acres of land for an aggregate sales price of $0.7 million or approximately $25,000 per acre. For the nine months ended September 30, 2020, we sold approximately 21,347 acres of land for an aggregate sales price of approximately $14.5 million, or approximately $676 per acre. Additionally, we recognized land sales revenue of $1.4 million for the nine months ended September 30, 2020 related to land exchanges where we had no cost basis in the land conveyed.

Table of Contents

~~Net~~The following table presents a reconciliation of net income~~. Net income~~ to EBITDA and Adjusted EBITDA for the ~~Land and Resource Management segment increased 63.0% to $150.2 million for the nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 compared to $92.2 million for the comparable period in 2020. The increase in net income is principally due to the $69.7 million increase in segment revenues, partially offset by an increase in segment expenses, including income tax expense. The increase in segment revenues is principally due to an increase in oil and gas royalty revenue, partially offset by decreases in land sales and easements and other surface-related income, as discussed above. Total segment expenses were $61.6 million and $50.0 million for the nine months ended September 30, 2021 and 2020, respectively. The overall increase in segment expenses was principally due to increased income tax expense related to increased operating income. Expenses are discussed further below under “Other Financial Data — Consolidated.”(in thousands):

~~Water Services and Operations~~

Water Services and Operations segment revenues increased 6.8% to $92.0 million for the nine months ended September 30, 2021 as compared with $86.1 million for the comparable period of 2020. The increase in Water Services and Operations segment revenues is principally due to increases in produced water royalties and easements and other surface-related income, partially offset by a decrease in water sales revenue, which is discussed below. As discussed in “Market Conditions” above, our segment revenues are directly influenced by development decisions made by our customers and the overall activity level in the Permian Basin. Accordingly, our segment revenues and sales volumes, as further discussed below, will fluctuate from period to period based upon those decisions and activity levels.

~~Water sales~~. Water sales revenue decreased $2.5 million to $45.0 million for the nine months ended September 30, 2021 compared to the same period of 2020. While sourced and treated water sales volumes have increased approximately 12.5% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, the average sales price per barrel of water in 2021 is still below pre-pandemic pricing.

~~Produced water royalties.~~ Produced water royalties are royalties received from the transportation or disposal of produced water on our land. We do not operate any salt water disposal wells. Produced water royalties were $43.1 million for the nine months ended September 30, 2021 compared to $37.9 million compared to the same period in 2020. This increase is principally due to increased produced water volumes for the nine months ended September 30, 2021 compared to the same period of 2020.

~~Easements and other surface-related income~~. Easements and other surface-related income was $3.8 million for the nine months ended September 30, 2021, an increase of $3.1 million compared to $0.7 million for the nine months ended September 30, 2020. The increase in easements and other surface-related income relates to an increase in temporary permits for sourced water lines for the nine months ended September 30, 2021 compared to the same period in 2020.

~~Net income~~. Net income for the Water Services and Operations segment was $40.7 million for the nine months ended September 30, 2021 compared to $39.1 million for the same period in 2020. As discussed above, segment revenues increased 6.8% for the nine months ended September 30, 2021 compared to the same period of 2020. Total segment expenses, including income tax expense, were $51.3 million for the nine months ended September 30, 2021 as compared to $47.0 million for the nine months ended September 30, 2020. The overall increase in segment expenses during 2021 is principally related to increased corporate overhead allocations related to our Corporate Reorganization. Expenses are discussed further below under “Other Financial Data — Consolidated.”

~~Other Financial Data — Consolidated~~

~~Salaries and related employee expenses~~. Salaries and related employee expenses were $31.8 million for the nine months ended September 30, 2021 compared to $27.2 million for the comparable period of 2020. The increase in salaries and related employee expenses during 2021 as compared to the same period of 2020 is principally due to $6.7 million of severance costs, partially offset by decreased usage of contract labor by our Water Services and Operations segment.

~~Water service-related expenses~~. Water service-related expenses were $10.5 million for the nine months ended September 30, 2021 compared to $11.2 million for the comparable period of 2020. The decrease in expenses during 2021 is primarily related to decreased field logistical expenses and equipment rental expenses.

~~General and administrative expenses.~~ General and administrative expenses increased $1.2 million to $8.5 million for the nine months ended September 30, 2021 from $7.3 million for the same period of 2020. The increase in general and administrative expenses during the nine months ended September 30, 2021 compared to the same period of 2020 was principally related to increased board of director fees resulting from our Corporate Reorganization in January 2021.

~~Table of Contents~~

~~Legal and professional expenses~~. Legal and professional fees were $4.9 million for the nine months ended September 30, 2021 compared to $7.0 million for the comparable period of 2020. Legal and professional fees for the nine months ended September 30, 2020 were principally higher due to legal expenses associated with our Corporate Reorganization.

~~Land sales expenses.~~ There were no land sales expenses for the nine months ended September 30, 2021 compared to $2.8 million for the comparable period of 2020. Land sales expenses represent expenses related to land sales and include cost basis and closing costs associated with land sales. Land sales expenses for the nine months ended September 30, 2020 include $2.7 million of cost basis.

~~Depreciation, depletion and amortization~~. Depreciation, depletion and amortization was $11.6 million for the nine months ended September 30, 2021 compared to $10.8 million for the nine months ended September 30, 2020. The increase in depreciation, depletion and amortization is principally related to our investment in water service-related assets placed in service in 2021 and, to a lesser extent, increased depletion related to our oil and gas royalty interests.

~~Other income, net.~~ Other income, net was $0.9 million and $2.3 million for the nine months ended September 30, 2021 and 2020, respectively. Other income, net for the nine months ended September 30, 2020, includes a $1.2 million accrued insurance reimbursement related to legal fees incurred in 2019 associated with the proxy contest.

~~Cash Flow Analysis~~

~~For the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020~~

Cash flows provided by operating activities for the nine months ended September 30, 2021 and 2020 were $174.5 million and $161.9 million, respectively. The increase in cash flows provided by operating activities was primarily related to increased prices and volumes of oil and gas production and the associated working capital resulting from such activity during the nine months ended September 30, 2021.

Cash flows used in investing activities were $10.0 million compared to $25.6 million for the nine months ended September 30, 2021 and 2020, respectively. Acquisitions of land and royalty interests were nominal for the nine months ended September 30, 2021 compared to $20.9 million for the nine months ended September 30, 2020. This decline in land and royalty acquisitions was partially offset by an increase in purchases of fixed assets.

Cash flows used in financing activities were $74.8 million compared to $124.1 million for the nine months ended September 30, 2021 and 2020, respectively. During the nine months ended September 30, 2021, we paid total dividends of $64.0 million consisting of cumulative paid cash dividends of $8.25 per share. During the nine months ended September 30, 2020, we paid total dividends of $124.1 million consisting of an annual cash dividend of $10.00 per Sub-share and a special dividend of $6.00 per Sub-share.

~~Off-Balance Sheet Arrangements~~

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


	Three Months Ended March 31,
	2022		2021
Net income	$	97,900	$	50,052
Add:
Income tax expense	26,489		11,975
Depreciation, depletion and amortization	4,126		3,838
EBITDA	128,515		65,865
Add:
Employee share-based compensation	1,319		—
Conversion costs related to corporate reorganization	—		1,973
Severance costs	—		2,000

Adjusted EBITDA	$	129,834	$	69,838

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures of contingent assets and liabilities. For a full discussion of our accounting policies please refer to Note 2 to the Consolidated Financial Statements included in our ~~2020~~2021 Annual Report on Form 10-K filed with the SEC on February 25, 2021. Our most critical accounting policies and estimates include our accrual of oil and gas royalties. 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. 23, 2022.

There have been no material changes to our critical accounting policies or in the estimates and ~~estimates~~assumptions underlying those policies, from ~~the information~~those provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our ~~2020~~2021 Annual Report on Form 10-K.

~~Table of Contents~~

New Accounting Pronouncements

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

2321

Table of Contents

Item 3. Quantitative and Qualitative Disclosures AboutMarket ~~Risk~~Risk.

There have been no material changes in the information related to market risk of the Company since December 31, ~~2020.~~2021.

Item 4. Controls and ~~Procedures~~Procedures.

~~Pursuant to Rule 13a-15 under the Exchange Act,~~

Our management, ~~of the Company~~ under the supervision and with the participation of ~~Tyler Glover,~~ the Company’s Chief Executive Officer (“CEO”) and ~~Chris Steddum, the Company’s~~ Chief Financial Officer ~~carried out~~(“CFO”), performed an evaluation of the effectiveness of the ~~design and operation of the~~ Company’s disclosure controls and procedures (as defined in Rules 13a-15 under the Exchange Act) as of the end of the ~~Company’s fiscal quarter~~period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, ~~Mr. Glover~~our CEO and ~~Mr. Steddum~~CFO have concluded that the Company’s disclosure controls and procedures ~~are~~were not effective, ~~in timely alerting them to material information relating~~due solely to the material weakness in our internal control over financial reporting related to income taxes as described below.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Plan for Remediation of Material Weakness

As of December 31, 2021, management determined that there was a design gap in our controls regarding the periodic evaluation of historical tax returns and tax positions for income taxes. As a result of this design gap, we did not timely identify the incorrect tax treatment of depletion related to our oil and gas royalty interests in our filed income tax returns related to prior periods until the fourth quarter of 2021. The material weakness did not result in any restatements of our consolidated financial statements or disclosures for any prior period.

We are committed to remediating the control deficiency that gave rise to the material weakness. Management is responsible for implementing changes and improvements to internal control over financial reporting and for remediating the control deficiencies that gave rise to the material weakness.

We have developed a plan to remediate the material weakness in internal control over financial reporting related to our controls over income taxes, which consists of:

•Quarterly evaluation of tax positions taken by the Company ~~required~~by our personnel and third-party tax professional; and

•Enhanced monitoring activities related to changes in tax laws and regulations which may impact the Company.

As of the end of the first quarter of 2022, management has effectively designed, implemented and tested the operating effectiveness of controls related to the periodic evaluation of historical tax returns and tax positions for income taxes. However, this material weakness will not be ~~included~~considered remediated until management has concluded, through testing, that the controls described above have operated effectively for a minimum of two quarters.

Changes in Internal Controls During the ~~Company’s periodic SEC filings.~~First Quarter of 2022

~~There~~Other than the changes described above, there have been no other changes in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents

PART II

OTHER INFORMATION

Item 1.Legal Proceedings.

~~The Company~~

TPL is not involved in any material pending legal proceedings.

Item 1A.Risk ~~Factors~~Factors.

There have been no material changes in the risk factors previously disclosed in response to Part I, Item 1A. “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 filed with the SEC on February ~~25, 2021.~~23, 2022.

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

~~During~~

The Company did not repurchase any shares of common stock during the three months ended ~~September 30, 2021, the Company repurchased shares as follows:~~

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 through July 31, 2021 2,059 $ 1,489 2,059
August 1 through August 31, 2021 2,350 1,433 2,350
September 1 through September 30, 2021 1,770 1,273 1,770
Total(1)
6,179 $ 1,406 6,179 $ 8,807,130

(1) Repurchases were made pursuant to a stock repurchase program, approved by our board of directors on May 3, 2021, to purchase up to an aggregate of $20.0 million of shares of our outstanding Common Stock. In connection with the stock repurchase program, the Company entered into a Rule 10b5-1 trading plan that generally permits the Company to repurchase shares at times when it might otherwise be prevented from doing so under securities laws. The stock repurchase program will expire on DecemberMarch 31, ~~2021 unless otherwise modified or earlier terminated by our board of directors at any time in its sole discretion. Repurchased shares will be held in treasury.~~2022.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4.Mine Safety ~~Disclosures~~Disclosures.

Not ~~applicable~~applicable.

Item 5. Other Information

None

2523

Table of Contents

Item 6. Exhibits

EXHIBIT INDEX


EXHIBIT NUMBER						DESCRIPTION

31.1*						Rule 13a-14(a) Certification of Chief Executive 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 Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2021~~March 31, 2022 formatted in 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 Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2021,~~March 31, 2022, formatted in iXBRL.

* Filed or furnished herewith.

2624

Table of Contents

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 CORPORATION

(Registrant)

Date:

~~November~~May 4, ~~2021~~2022

By:

/s/ Tyler Glover

Tyler Glover
President, Chief Executive Officer and Director

~~Chief Executive Officer~~

Date:

~~November~~May 4, ~~2021~~2022

By:

/s/ Chris Steddum

Chris Steddum

Chief Financial Officer

2725


	September 30, 2021			December 31, 2020
	Number of Acres	Net Book Value		Number of Acres	Net Book Value
Land (surface rights) (1)	823,452	$	—	823,482	$	—
Real estate acquired	57,049	108,546		57,041	108,536
Total real estate situated in Texas	880,501	$	108,546	880,523	$	108,536



	Sub-share Certificates	Accum. Other Comp. Loss		Net Proceeds from All Sources		Total Capital
For the nine months ended September 30, 2020:
Balances as of December 31, 2019	7,756,156	$	(1,461)	$	513,598	$	512,137
Net income	—	—		57,401		57,401
Dividends paid ($16.00 per Sub-share)	—	—		(124,098)		(124,098)
Cumulative effect of accounting change	—	—		(111)		(111)
Other comprehensive income	—	14		—		14
Balances as of March 31, 2020	7,756,156	$	(1,447)	$	446,790	$	445,343
Net income	—	—		27,583		27,583
Cumulative effect of accounting change	—	—		—		—
Other comprehensive income	—	13		—		13
Balances as of June 30, 2020	7,756,156	$	(1,434)	$	474,373	$	472,939
Net income	—	—		46,275		46,275
Cumulative effect of accounting change	—	—		—		—
Other comprehensive income	—	13		—		13
Balances as of September 30, 2020	7,756,156	$	(1,421)	$	520,648	$	519,227


	Nine Months Ended September 30,
	2021				2020
Revenues:
Land and resource management:




Oil and gas royalty revenue	$	186,835	62	%	$	94,631	41	%
Easements and other surface-related income	24,029		8	%	31,385		14	%
Land sales and other operating revenue	959		—	%	16,134		7	%
Total land and resource management revenue	211,823		70	%	142,150		62	%

Water services and operations:
Water sales	44,983		15	%	47,525		21	%
Produced water royalties	43,147		14	%	37,863		17	%
Easements and other surface-related income	3,827		1	%	722		—	%
Total water services and operations revenue	91,957		30	%	86,110		38	%
Total consolidated revenues	$	303,780	100	%	$	228,260	100	%

Net income:
Land and resource management	$	150,248	79	%	$	92,197	70	%
Water services and operations	40,687		21	%	39,061		30	%
Total consolidated net income	$	190,935	100	%	$	131,258	100	%


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 through July 31, 2021	2,059	$	1,489	2,059
August 1 through August 31, 2021	2,350	1,433		2,350
September 1 through September 30, 2021	1,770	1,273		1,770
Total(1)	6,179	$	1,406	6,179	$	8,807,130