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

Commission File Number: 1-39804

Exact name of registrant as specified in its charter:
Texas Pacific Land Corporation

State or other jurisdiction of incorporation or organization:IRS Employer Identification No.:
Delaware75-0279735

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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock
(par value $.01 per share)
TPLNew 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, the Registrant had 7,746,141 shares of Common Stock, $0.01 par value, outstanding.





TEXAS PACIFIC LAND CORPORATION
Form 10-Q
Quarter Ended September 30, 2021
Page No.
Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020


Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
TEXAS PACIFIC LAND CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and per share amounts)
(Unaudited)
September 30, 2021December 31, 2020
ASSETS
Cash and cash equivalents$372,761 $281,046 
Accrued receivables, net82,897 48,216 
Prepaid expenses and other current assets2,450 2,778 
Tax like-kind exchange escrow 1,978 
Total current assets458,108 334,018 
Property, plant and equipment, net 79,204 79,267 
Real estate acquired108,546 108,536 
Royalty interests acquired, net 45,151 45,646 
Operating lease right-of-use assets1,990 2,473 
Other assets2,618 1,695 
Real estate and royalty interests assigned through the Declaration of Trust, no value assigned:
Land (surface rights)  
1/16th nonparticipating perpetual royalty interest   
1/128th nonparticipating perpetual royalty interest  
Total assets$695,617 $571,635 
LIABILITIES AND EQUITY
Accounts payable and accrued expenses$18,020 $12,530 
Unearned revenue3,965 3,997 
Income taxes payable7,117 4,054 
Total current liabilities29,102 20,581 
Deferred taxes payable38,096 38,728 
Unearned revenue - noncurrent20,707 22,171 
Accrued liabilities4,377 2,150 
Operating lease liabilities2,293 2,821 
Total liabilities94,575 86,451 
Commitments and contingencies  
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)
Retained earnings614,764 — 
Net proceeds from all sources— 487,877 
Total equity601,042 485,184 
Total liabilities and equity$695,617 $571,635 
See accompanying notes to condensed consolidated financial statements.
1

Table of Contents

TEXAS PACIFIC LAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND TOTAL COMPREHENSIVE INCOME
(in thousands, except shares and per share amounts)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Revenues:
Oil and gas royalties$79,098 $31,758 $186,835 $94,631 
Water sales19,554 12,139 44,983 47,525 
Produced water royalties 15,140 12,246 43,147 37,863 
Easements and other surface-related income9,832 6,690 27,856 32,107 
Land sales 11,463 746 15,855 
Other operating revenue69 87 213 279 
Total revenues123,693 74,383 303,780 228,260 
Expenses:    
Salaries and related employee expenses8,542 7,678 31,792 27,235 
Water service-related expenses3,650 2,260 10,499 11,205 
General and administrative expenses2,844 1,883 8,491 7,290 
Legal and professional fees1,551 1,987 4,904 6,955 
Land sales expenses 67  2,773 
Depreciation, depletion and amortization3,866 3,760 11,562 10,773 
Total operating expenses20,453 17,635 67,248 66,231 
Operating income103,240 56,748 236,532 162,029 
Other income, net513 1,287 924 2,296 
Income before income taxes103,753 58,035 237,456 164,325 
Income tax expense19,916 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 outstanding7,751,329 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 

See accompanying notes to condensed consolidated financial statements.
2

Table of Contents

TEXAS PACIFIC LAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

Nine Months Ended
September 30,
 20212020
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 amortization11,562 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 taxes4,961 (1,159)
Income taxes payable3,063 (2,555)
Cash provided by operating activities174,512 161,859 
Cash flows from investing activities:  
Proceeds from sales of fixed assets1,079  
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 cash89,737 12,114 
Cash, cash equivalents and restricted cash, beginning of period283,024 303,645 
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.
3

Table of Contents
TEXAS PACIFIC LAND CORPORATION
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  
1.    Organization and Basis of Presentation

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 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, “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 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. 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 and the results of its operations for the three and nine months ended September 30, 2021 and 2020, respectively, and its cash flows for the nine months ended September 30, 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. The results for the interim periods shown in this report are not necessarily indicative of future financial results.

We operate our business in two segments: Land and Resource Management and Water Services and Operations. Our segments provide management with a comprehensive financial view of our key businesses. The segments enable the alignment of strategies and objectives of TPL and provide a framework for timely and rational allocation of resources within businesses. See Note 8. “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.

4

Table of Contents
Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows (in thousands):
September 30, 2021December 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 

Treasury Stock

Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock and 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) a reclassification of $12.2 million 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 sales expenses for the three 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 expenses include cost basis and closing costs associated with land sales.

Recently Adopted Accounting Guidance

In December 2019, 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 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 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 no impact on our consolidated financial statements and disclosures upon adoption.

5

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, 2021December 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 cost114,405 104,422 
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 and December 31, 2020, the Company owned the following land and real estate (in thousands, except number of acres):
September 30,
2021
December 31,
2020
Number of AcresNet Book ValueNumber of AcresNet Book Value
Land (surface rights) (1)
823,452 $ 823,482 $ 
Real estate acquired57,049 108,546 57,041 108,536 
Total real estate situated in Texas880,501 $108,546 880,523 $108,536 
(1)     Real estate originally assigned through the Declaration of Trust.

Land Sales

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.

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5.    Royalty Interests

As of September 30, 2021 and December 31, 2020, we owned the following oil and gas royalty interests (in thousands):
Net Book Value
September 30, 2021December 31, 2020
1/16th nonparticipating perpetual royalty interests$ $ 
1/128th nonparticipating perpetual royalty interests   
Royalty interests acquired46,266 46,266 
Total royalty interests, gross46,266 46,266 
Less: accumulated depletion(1,115)(620)
Total royalty interests, net$45,151 $45,646 

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

6.    Income Taxes

The calculation of our effective tax rate is as follows for the three and nine months ended September 30, 2021 and 2020 (in thousands, except percentages):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Income before income taxes$103,753 $58,035 $237,456 $164,325 
Income tax expense$19,916 $11,760 $46,521 $33,067 
Effective tax rate19.2 %20.3 %19.6 %20.1 %

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.

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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 CertificatesCommon StockTreasury StockAccum. Other Comp. LossRetained EarningsNet Proceeds from All SourcesTotal Equity
SharesSharesAmountSharesAmount
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 CertificatesAccum. Other Comp. LossNet Proceeds from All SourcesTotal 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 
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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, 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 its Common Stock is 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

On May 3, 2021, our board of directors approved a stock repurchase program 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 December 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. For the nine months ended September 30, 2021, we repurchased 7,812 shares at an average per share amount of $1,433.

8.    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 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.

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Segment financial results were as follows for the three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Revenues:
Land and resource management
$86,792 $49,896 $211,823 $142,150 
Water services and operations
36,901 24,487 91,957 86,110 
Total consolidated revenues$123,693 $74,383 $303,780 $228,260 
Net income:
Land and resource management
$65,292 $34,359 $150,248 $92,197 
Water services and operations
18,545 11,916 40,687 39,061 
Total consolidated net income$83,837 $46,275 $190,935 $131,258 
Capital expenditures:
Land and resource management$4,528 $ $4,541 $121 
Water services and operations2,059 353 6,958 4,205 
Total capital expenditures$6,587 $353 $11,499 $4,326 
Depreciation, depletion and amortization:
Land and resource management
$363 $505 $1,299 $1,192 
Water services and operations
3,503 3,255 10,263 9,581 
Total depreciation, depletion and amortization$3,866 $3,760 $11,562 $10,773 

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

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9.    Oil and Gas Producing Activities

We measure our share of oil and gas produced in barrels of oil equivalent (“Boe”). One Boe equals one barrel of crude oil, condensate, NGLs (natural gas liquids) or approximately 6,000 cubic feet of gas. For three months ended September 30, 2021 and 2020, our share of oil and gas produced was approximately 19.5 and 15.7 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 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 and 531 DUC wells subject to our royalty interest as of September 30, 2021 and December 31, 2020, respectively.

10.    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 Declared

On October 28, 2021, the board of directors declared a quarterly cash dividend of $2.75 per share payable on December 15, 2021 to stockholders of record at the close of business on December 8, 2021.




*****
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Cautionary Statement Regarding Forward-Looking Statements
 
Statements in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding management’s expectations, hopes, intentions or strategies regarding the future. 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 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+, 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, and in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q.

The following discussion and analysis should be read together with (i) the factors discussed in Item 1A. “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020, (ii) the factors discussed in Part II, Item 1A. “Risk Factors,” if any, of this Quarterly Report on Form 10-Q and (iii) the Financial Statements, including the Notes thereto, and the other financial information appearing elsewhere in this Report. Period-to-period comparisons of financial data are not necessarily indicative, and therefore should not be relied upon as indicators, of the 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 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).

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 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, “Changes in Equity” in the notes to the condensed consolidated financial statements.

Our surface and royalty 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 in the Permian Basin and 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, our revenue is subject to substantial fluctuations from quarter to quarter and year to year. The demand
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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

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 the oil and gas wells to which the Company’s royalty interests relate. This slowdown in well development has negatively affected 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. In addition, oil prices in 2021 have been supported by oil supply cuts by the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (collectively referred to as “OPEC+”). 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.

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
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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 and continue to monitor guidance provided by the Centers for Disease Control and Prevention as new information becomes available. We continue to provide safety and sanitation measures for all employees and maintain communication with employees regarding any concerns they may have during the transition.

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 of our assets are located in West Texas.

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 and 2020:

Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Oil and Gas Pricing Metrics:(1)
WTI Cushing average price per bbl$70.58 $40.89 $65.05 $38.04 
Henry Hub average price per mmbtu$4.35 $2.00 $3.61 $1.87 
Activity Metrics specific to the Permian Basin:(1)(2)
Average monthly horizontal permits527389573502
Average monthly horizontal wells drilled405189376316
Average weekly horizontal rig count235121215235
DUCs as of September 30 for each applicable year
4,5194,6834,5194,683
Total Average US weekly horizontal rig count (2)
450217405424
(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.

(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 and 2020. While 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), have rebounded through the first nine months of 2021, development, drilling and completion and production activities broadly across the Permian have not returned to their pre-pandemic levels. Operators continue to manage their capital allocations by deploying at a decreased pace of development while oil demand continues to recover. 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.

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Liquidity and Capital Resources
 
Our principal sources of liquidity are revenues from oil, gas and produced water royalties, easements and other surface-related income and water and land sales. 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 as of September 30, 2021.

As of September 30, 2021, we had cash and cash equivalents of $372.8 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. 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. For 2021, our board of directors has approved repurchases of our Common Stock up to $20.0 million of shares, and through September 30, 2021, we have repurchased $11.2 million of shares.

Results of Operations

We operate our business in two 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 of our reportable segments. The reportable segments presented are consistent with our reportable segments discussed in Note 8. “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, have continued to be impacted by oil and gas activity in the Permian Basin not returning to pre-pandemic levels. While our oil and gas royalty revenues have benefited from increased oil prices during this time period, our water sales and surface-related income continue to be impacted by the decreased pace of activity.

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.

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

Three Months Ended September 30,
20212020
Revenues:
Land and resource management:
Oil and gas royalty revenue$79,098 64 %$31,758 43 %
Easements and other surface-related income7,625 %6,588 %
Land sales and other operating revenue69 — %11,550 15 %
Total land and resource management revenue86,792 70 %49,896 67 %
Water services and operations:
Water sales19,554 16 %12,139 16 %
Produced water royalties15,140 12 %12,246 17 %
Easements and other surface-related income2,207 %102 — %
Total water services and operations revenue36,901 30 %24,487 33 %
Total consolidated revenues$123,693 100 %$74,383 100 %
Net income:
Land and resource management
$65,292 78 %$34,359 74 %
Water services and operations
18,545 22 %11,916 26 %
Total consolidated net income$83,837 100 %$46,275 100 %

Land and Resource Management

Land and Resource Management segment revenues increased $36.9 million to $86.8 million for the three months ended September 30, 2021 as compared with $49.9 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, as discussed further below.


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Oil and gas royalties. Oil and gas royalty revenue was $79.1 million for the three months ended September 30, 2021 compared to $31.8 million for the three months ended September 30, 2020. The table below provides financial and operational data by royalty stream for the three months ended September 30, 2021 and 2020:

Three Months Ended September 30,
20212020
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 royalties11,528 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 

(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 thousand Boe per day for the three months ended September 30, 2021 compared to 15.7 thousand Boe per day for the same period of 2020. The average realized prices were $67.32 per barrel of oil, $4.01 per Mcf of natural gas, and $35.69 per barrel of NGL, for a total equivalent price of $46.07 per Boe for the three months ended September 30, 2021, doubling the total equivalent price of $23.02 per Boe for the same period of 2020.

Easements and other surface-related income. Easements and other surface-related income was $7.6 million for the three months ended September 30, 2021, an increase of 15.7% compared to $6.6 million for the three 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 increase in easements and other surface-related income is principally related to increases in well bore easements and material sales for the three months ended September 30, 2021 compared to the same period of 2020. 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.

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
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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 million for the three months ended September 30, 2021 compared to $34.4 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, including income tax expense. Total segment expenses were $21.5 million and $15.5 million for the three months ended September 30, 2021 and 2020, respectively. The overall increase in segment expenses was principally related to increased income tax expense for the three months ended September 30, 2021. Expenses are discussed further below under “Other Financial Data — Consolidated.”

Water Services and Operations

Water Services and Operations segment revenues increased 50.7% to $36.9 million for the three months ended September 30, 2021 as compared with $24.5 million for the comparable period of 2020. The increase in Water Services and Operations segment revenues is principally due to an increase in water sales revenue and produced water royalties, which are 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 was $19.6 million for the three months ended September 30, 2021, an increase of 61.1%, compared with the three months ended September 30, 2020 when water sales revenue was $12.1 million. This increase was principally due to a 60.4% increase in the number of barrels of sourced and treated water for the three months ended September 30, 2021 compared to the same period in 2020.

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 $15.1 million for the three months ended September 30, 2021 compared to $12.2 million compared to the same period in 2020. This increase is principally due to increased produced water volumes for the three 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 $2.2 million for the three months ended September 30, 2021, an increase of $2.1 million compared to $0.1 million for the three months ended September 30, 2020. The increase in easements and other surface-related income related to an increase in temporary permits for sourced water lines for the three months ended September 30, 2021 compared to the same period in 2020.

Net income. Net income for the Water Services and Operations segment was $18.5 million for the three months ended September 30, 2021 compared to $11.9 million for the three months ended September 30, 2020. As discussed above, segment revenues increased 50.7% for the three months ended September 30, 2021 compared to the same period of 2020. Total segment expenses, including income tax expense, were $18.4 million for the three months ended September 30, 2021 as compared to $12.6 million for the three months ended September 30, 2020. The overall increase in segment expenses during 2021 is principally related to increased income tax expense and water service-related expenses, primarily fuel, equipment rental and repairs and maintenance. 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 $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 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
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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.

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

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.

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

Nine Months Ended September 30,
20212020
Revenues:
Land and resource management:
Oil and gas royalty revenue$186,835 62 %$94,631 41 %
Easements and other surface-related income24,029 %31,385 14 %
Land sales and other operating revenue959 — %16,134 %
Total land and resource management revenue211,823 70 %142,150 62 %
Water services and operations:
Water sales44,983 15 %47,525 21 %
Produced water royalties43,147 14 %37,863 17 %
Easements and other surface-related income3,827 %722 — %
Total water services and operations revenue91,957 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.

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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,
20212020
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 royalties26,400 6,804 
NGL royalties31,528 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.

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Net income. Net income for the Land and Resource Management segment increased 63.0% to $150.2 million for the nine months ended September 30, 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.”

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.

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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.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures of contingent assets and liabilities. For a full discussion of our accounting policies please refer to Note 2 to the Consolidated Financial Statements included in our 2020 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. There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2020 Annual Report on Form 10-K.

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New Accounting Pronouncements