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 ~~March 31, 2021~~September 30, 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 ~~April 30, 2021,~~October 31, 2022, the Registrant had ~~7,756,156~~7,704,496 shares of ~~common stock,~~Common Stock, $0.01 par value, outstanding.

TEXAS PACIFIC LAND CORPORATION

Form 10-Q

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

Table of Contents

Page No.

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

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

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

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

Notes to Condensed Consolidated Financial Statements

Item 2.

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

1014

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

1628

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

1729

Item 3.

Defaults Upon Senior Securities

1729

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)


		March 31, 2021		December 31, 2020			September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	310,655	$	281,046	Cash and cash equivalents	$	446,588	$	428,242
Accrued receivables, net		61,392		48,216
Accounts receivable and accrued receivables, net						Accounts receivable and accrued receivables, net	139,656		95,217
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,822		2,778		Prepaid expenses and other current assets	2,943		3,054
Tax like-kind exchange escrow		1,978		1,978

Total current assets	Total current assets	375,847		334,018		Total current assets	589,187		526,513

Real estate acquired						Real estate acquired	109,083		109,071
Property, plant and equipment, net	Property, plant and equipment, net	78,395		79,267		Property, plant and equipment, net	81,556		79,722
Real estate acquired		108,536		108,536
Royalty interests acquired, net	Royalty interests acquired, net	45,435		45,646		Royalty interests acquired, net	45,331		44,390
Operating lease right-of-use assets		2,314		2,473

Other assets	Other assets	3,275		1,695		Other assets	3,817		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)	0		0		Land (surface rights)	—		—
1/16th nonparticipating perpetual royalty interest	1/16th nonparticipating perpetual royalty interest	0		0		1/16th nonparticipating perpetual royalty interest	—		—
1/128th nonparticipating perpetual royalty interest	1/128th nonparticipating perpetual royalty interest	0		0		1/128th nonparticipating perpetual royalty interest	—		—
Total assets	Total assets	$	613,802	$	571,635	Total assets	$	828,974	$	764,064

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	12,367	$	12,530	Accounts payable and accrued expenses	$	30,726	$	18,008
Income taxes payable						Income taxes payable	8,262		29,083
Unearned revenue	Unearned revenue	5,298		3,997		Unearned revenue	4,611		3,809
Income taxes payable		16,183		4,054
Total current liabilities	Total current liabilities	33,848		20,581		Total current liabilities	43,599		50,900
Deferred taxes payable	Deferred taxes payable	38,581		38,728		Deferred taxes payable	38,108		38,948
Unearned revenue - non-current		21,891		22,171
Unearned revenue - noncurrent						Unearned revenue - noncurrent	21,434		20,449

Accrued liabilities	Accrued liabilities	2,893		2,150		Accrued liabilities	4,663		2,056
Operating lease liabilities		2,654		2,821
Total liabilities	Total liabilities	99,867		86,451		Total liabilities	107,804		112,353

Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	—		—
Equity:	Equity:					Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized, NaN outstanding as of March 31, 2021		0		—
Common stock, $0.01 par value; 7,756,156 shares authorized and outstanding as of March 31, 2021		78		—
Certificates of Proprietary Interest, par value $100 each; NaN outstanding as of December 31, 2020		—		0
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		—		0
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none outstanding as of September 30, 2022 and December 31, 2021						Preferred stock, $0.01 par value; 1,000,000 shares authorized, none outstanding as of September 30, 2022 and December 31, 2021	—		—
Common stock, $0.01 par value; 7,756,156 shares authorized and 7,708,845 and 7,744,695 outstanding as of September 30, 2022 and December 31, 2021, respectively						Common stock, $0.01 par value; 7,756,156 shares authorized and 7,708,845 and 7,744,695 outstanding as of September 30, 2022 and December 31, 2021, respectively	78		78
Treasury stock, at cost; 47,311 and 11,461 shares as of September 30, 2022 and December 31, 2021, respectively						Treasury stock, at cost; 47,311 and 11,461 shares as of September 30, 2022 and December 31, 2021, respectively	(72,926)		(15,417)
Additional paid-in capital						Additional paid-in capital	5,477		28
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(2,665)		(2,693)		Accumulated other comprehensive loss	(983)		(1,007)
Retained earnings	Retained earnings	516,522		—		Retained earnings	789,524		668,029
Net proceeds from all sources		—		487,877
Total equity	Total equity	513,935		485,184		Total equity	721,170		651,711
Total liabilities and equity	Total liabilities and equity	$	613,802	$	571,635	Total liabilities and equity	$	828,974	$	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
March 31,
2021 2020
Revenues:
Oil and gas royalties $ 49,533 $ 42,360
Water sales 12,956 26,967
Produced water royalties 12,549 12,506
Easements and other surface-related income 9,047 13,761
Land sales 0 900
Other operating revenue 70 100
Total revenues 84,155 96,594
Expenses:
Salaries and related employee expenses 9,979 10,620
Water service-related expenses 3,298 6,780
General and administrative expenses 2,806 2,959
Legal and professional fees 2,212 2,358
Depreciation, depletion and amortization 3,838 3,335
Total operating expenses 22,133 26,052
Operating income 62,022 70,542
Other income, net 5 826
Income before income taxes 62,027 71,368
Income tax expense (benefit):
Current 12,122 14,022
Deferred (147) (55)
Total income tax expense 11,975 13,967
Net income $ 50,052 $ 57,401
Other comprehensive income — periodic pension costs, net of income taxes of $8 and $4, respectively 28 13
Total comprehensive income $ 50,080 $ 57,414
Weighted average number of common shares/Sub-share Certificates outstanding 7,756,156 7,756,156
Net income per common share/Sub-share Certificate — basic and diluted $ 6.45 $ 7.40
Cash dividends per common share/Sub-share Certificate $ 2.75 $ 16.00


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues:
Oil and gas royalties	$	130,298	$	79,098	$	355,738	$	186,835
Water sales	24,426		19,554		65,518		44,983
Produced water royalties	19,129		15,140		52,668		43,147
Easements and other surface-related income	14,129		9,832		37,311		27,856
Land sales and other operating revenue	3,129		69		3,481		959
Total revenues	191,111		123,693		514,716		303,780

Expenses:
Salaries and related employee expenses	10,697		8,542		29,670		31,792
Water service-related expenses	6,348		3,650		13,045		10,499
General and administrative expenses	3,153		2,844		9,858		8,491
Legal and professional fees	2,106		1,551		4,988		4,904
Ad valorem taxes	2,835		—		6,856		—

Depreciation, depletion and amortization	3,917		3,866		12,223		11,562
Total operating expenses	29,056		20,453		76,640		67,248

Operating income	162,055		103,240		438,076		236,532

Other income, net	1,920		513		2,626		924
Income before income taxes	163,975		103,753		440,702		237,456



Income tax expense	34,138		19,916		94,071		46,521
Net income	$	129,837	$	83,837	$	346,631	$	190,935




Other comprehensive income — periodic pension costs, net of income taxes for the three and nine months ended September 30, 2022 and 2021 of $3, $8, $8, and $23, respectively	8		29		24		86
Total comprehensive income	$	129,845	$	83,866	$	346,655	$	191,021

Net income per share of common stock
Basic	$	16.83	$	10.82	$	44.84	$	24.62
Diluted	$	16.82	$	10.82	$	44.82	$	24.62

Weighted average number of shares of common stock outstanding
Basic	7,714,796		7,751,329		7,729,866		7,754,439
Diluted	7,720,221		7,751,329		7,733,505		7,754,439

Cash dividends per share of common stock	$	3.00	$	2.75	$	29.00	$	8.25

See accompanying notes to condensed consolidated financial statements.

Table of Contents

TEXAS PACIFIC LAND CORPORATION

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS

~~(in~~ (in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	346,631	$	190,935
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	(840)		(632)
Depreciation, depletion and amortization	12,223		11,562
Share-based compensation	5,616		—

Changes in operating assets and liabilities:
Operating assets, excluding income taxes	(45,065)		(35,377)
Operating liabilities, excluding income taxes	16,901		4,961
Income taxes payable	(20,821)		3,063
Cash provided by operating activities	314,645		174,512

Cash flows from investing activities:
Proceeds from sale of fixed assets	106		1,079
Acquisition of real estate	(12)		(10)
Acquisition of royalty interests	(1,662)		—
Purchase of fixed assets	(13,023)		(11,058)
Cash used in investing activities	(14,591)		(9,989)

Cash flows from financing activities:
Repurchases of common stock	(57,578)		(10,816)
Dividends paid	(224,130)		(63,970)
Cash used in financing activities	(281,708)		(74,786)

Net increase in cash, cash equivalents and restricted cash	18,346		89,737
Cash, cash equivalents and restricted cash, beginning of period	428,242		283,024
Cash, cash equivalents and restricted cash, end of period	$	446,588	$	372,761

Supplemental disclosure of cash flow information:
Income taxes paid	$	115,609	$	44,113
Supplemental non-cash investing and financing information:
Nonmonetary exchange of assets	$	4,174	$	—
(Decrease) increase in accounts payable related to capital expenditures	$	(868)	$	441
Share repurchases not yet settled	$	1,090	$	377
Issuance of common stock	$	—	$	78

Operating lease right-of-use assets	$	1,364	$	—

Three Months Ended
March 31,
2021 2020
Cash flows from operating activities:
Net income $ 50,052 $ 57,401
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes (147) (55)
Depreciation, depletion and amortization 3,838 3,335
Changes in operating assets and liabilities:
Operating assets, excluding income taxes (13,657) (5,377)
Operating liabilities, excluding income taxes 172 3,909
Income taxes payable 12,129 9,426
Cash provided by operating activities 52,387 68,639
Cash flows from investing activities:
Acquisition of real estate 0 (3,890)
Acquisition of royalty interests 0 (16,936)
Purchase of fixed assets (1,449) (3,617)
Cash used in investing activities (1,449) (24,443)
Cash flows from financing activities:
Dividends paid (21,329) (124,098)
Cash used in financing activities (21,329) (124,098)
Net increase (decrease) in cash, cash equivalents and restricted cash 29,609 (79,902)
Cash, cash equivalents and restricted cash, beginning of period 283,024 303,645
Cash, cash equivalents, and restricted cash, end of period $ 312,633 $ 223,743
Supplemental disclosure of cash flow information:
Income taxes paid $ 0 $ 4,600
Supplemental non-cash investing and financing information:
Capital expenditure additions $ 1,289 $ 0
Issuance of common stock $ 78 $ 0

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, “Cha~~n ~~ges~~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 ~~will be~~are in reference to the Trust, and references to periods on or after that date ~~and thereafter will be~~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 ~~March 31, 2021~~September 30, 2022 and the results of its operations for the three and nine months ended ~~March 31,~~September 30, 2022 and 2021, ~~and 2020,~~ respectively, and its cash flows for the ~~three~~nine months ended ~~March 31,~~September 30, 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 Annual Report on 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 2two 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 ~~asset~~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):~~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.

March 31, 2021 December 31, 2020
Cash and cash equivalents $ 310,655 $ 281,046
Tax like-kind exchange escrow 1,978 1,978
Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 312,633 $ 283,024

~~Reclassifications~~

~~Certain~~Share-based compensation expense for RSUs and RSAs is recognized in the financial ~~information~~statements over the awards’ vesting periods using the graded-vesting method. Share-based compensation expense for PSU awards with performance conditions is recognized ratably over the measurement period at such time as the awards are probable and estimable. Share-based compensation expense for PSU awards with market conditions is recognized ratably over the measurement period whether the market condition is satisfied or not if the service for the award is rendered. Share-based compensation is reported on the condensed consolidated statements of income and total comprehensive income as a component of salaries and related employee expenses for ~~the three months ended March 31, 2020 have been revised to conform to the current year presentation. These revisions include a reclassification of $12.5 million of produced water royalties revenue~~employee awards and in general and administrative expenses for ~~the three months ended March 31, 2020 previously included in easements and other surface-related income to a separate financial statement line item within revenues.~~director awards.

Recently Adopted Accounting Guidance

In ~~December 2019,~~July 2021, the ~~FASB~~Financial Accounting Standards Board (the “FASB”) issued ~~ASU 2019-12,~~Accounting Standards Update (“ASU”) 2021-05, “~~Income Taxes~~Leases (Topic ~~740) — Simplifying~~842) Lessors – Certain Leases with Variable Lease Payments.” Under the ~~Accounting for Income Taxes.”~~ ~~The~~ ASU, ~~simplifies~~a lessor 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 ~~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~~lease would have been classified as a sales-type lease or direct financing lease under ASC 842 classification criteria and the ~~recognition~~lessor would have otherwise recognized a day one loss. The adoption 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~~this guidance, effective January 1, ~~2021. The adoption~~2022, had ~~minimal~~no impact on ~~the Company’s~~our condensed consolidated financial statements and disclosures.

3. ~~Property, Plant and Equipment~~

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

March 31, 2021 December 31, 2020
Property, plant and equipment, at cost:
Water service-related assets (1)
$ 100,399 $ 97,699
Furniture, fixtures and equipment 6,122 6,125
Other 598 598
Property, plant and equipment at cost 107,119 104,422
Less: accumulated depreciation (28,724) (25,155)
Property, plant and equipment, net $ 78,395 $ 79,267

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

~~Depreciation expense was $3.6 million and $3.2 million for the three months ended March 31, 2021 and 2020, respectively.~~

4. Real Estate Activity

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

~~Table of Contents~~


		March 31, 2021			December 31, 2020				September 30, 2022			December 31, 2021
		Number of Acres	Net Book Value		Number of Acres	Net Book Value			Number of Acres	Net Book Value		Number of Acres	Net Book Value
Land (surface rights) (1)	Land (surface rights) (1)	823,482	$	0	823,482	$	0	Land (surface rights) (1)	823,323	$	—	823,452	$	—
Real estate acquired	Real estate acquired	57,041	108,536		57,041	108,536		Real estate acquired	57,146	109,083		57,129	109,071
Total real estate situated in Texas	Total real estate situated in Texas	880,523	$	108,536	880,523	$	108,536	Total real estate situated in Texas	880,469	$	109,083	880,581	$	109,071

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

~~Land Sales~~

~~There were 0 land sales during~~For the ~~three~~nine months ended ~~March 31, 2021.~~September 30, 2022, we sold 129 acres of land in Texas for an aggregate sales price of $3.3 million, an average of approximately $25,300 per acre. For the ~~three~~nine months ended ~~March 31, 2020,~~September 30, 2021, we sold 30 acres of land in Texas for an aggregate sales price of ~~$0.9~~$0.7 million, an average of approximately ~~$30,000~~$25,000 per acre. There was no land basis associated with these sales. There were no significant land acquisitions for the nine months ended September 30, 2022.

~~Land Acquisitions~~

Table of Contents

4. Property, Plant and Equipment

Property, plant and equipment, net consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Property, plant and equipment, at cost:
Water service-related assets	$	119,277	$	108,732
Furniture, fixtures and equipment	9,633		9,071
Other	598		598
Total property, plant and equipment, at cost	129,508		118,401
Less: accumulated depreciation	(47,952)		(38,679)
Property, plant and equipment, net	$	81,556	$	79,722

~~There were 0 land acquisitions during~~

Depreciation expense was $3.6 million and $3.7 million for the three months ended ~~March 31, 2021. For~~September 30, 2022 and 2021, respectively. Depreciation expense was $11.4 million and $10.9 million for the ~~three~~nine months ended ~~March 31, 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.~~September 30, 2022 and 2021, respectively.

5. Oil and Gas Royalty Interests

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


	Net Book Value
	September 30, 2022		December 31, 2021
1/16th nonparticipating perpetual royalty interests	$	—	$	—
1/128th nonparticipating perpetual royalty interests	—		—
Royalty interests acquired	47,928		46,266
Total royalty interests, gross	47,928		46,266
Less: accumulated depletion	(2,597)		(1,876)
Total royalty interests, net	$	45,331	$	44,390

Net Book Value
March 31, 2021 December 31, 2020
1/16th nonparticipating perpetual royalty interests $ 0 $ 0
1/128th nonparticipating perpetual royalty interests 0 0
Royalty interests acquired 46,266 46,266
Total royalty interests, gross 46,266 46,266
Less: accumulated depletion (831) (620)
Total royalty interests, net $ 45,435 $ 45,646

Acquisition

~~There were no oil and gas royalty interest transactions for~~For the ~~three~~nine months ended ~~March 31, 2021. For the three months ended March 31, 2020,~~September 30, 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~~approximately $1.7 million. There were no oil and gas royalty interest transactions for the nine months ended September 30, 2021.

Depletion expense was $0.3 million ~~an average price of approximately $16,659 per net royalty acre.~~and $0.1 million for the three months ended September 30, 2022 and 2021, respectively. Depletion expense was $0.7 million and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively.

6. Share-Based Compensation

Incentive Plan for Employees

As of September 30, 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, par value $0.01 per share (“Common Stock”) that may be issued under the 2021 Plan is 75,000 shares and, as of September 30, 2022, 63,664 shares of Common Stock remained available under the 2021 Plan 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

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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.

The following table summarizes activity related to RSAs and RSUs for the nine months ended September 30, 2022:


	Restricted Stock Awards			Restricted Stock Units
	Number of RSAs	Grant-Date Fair Value per Share		Number of RSUs	Grant-Date Fair Value per Share
Outstanding at December 31, 2021 (1)	3,330	$	1,252	—	$	—
Granted (2)	—	—		5,612	1,323
Vested	—	—		—	—
Cancelled and forfeited	—	—		—	—
Outstanding at September 30, 2022	3,330	$	1,252	5,612	$	1,323

(1)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.

(2)On February 11, 2022, 3,824 RSUs were granted to certain employees with a grant date fair value per share of $1,105. On September 1, 2022, 1,788 RSUs were granted to certain employees with a grant date fair value per share of $1,790 per share. The RSUs vest in one-third increments over a three-year period.

The following table summarizes activity related to PSUs for the nine months ended September 30, 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 September 30, 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 one 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.

Equity Plan for Non-Employee Directors

As of September 30, 2022, the Company had granted 699 RSAs to non-employee 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 September 30, 2022, 9,301shares of Common Stock remained available under the 2021 Directors Plan 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

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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 nine months ended September 30, 2022:


	Restricted Stock Awards
	Number of RSAs	Grant-Date Fair Value per Share
Outstanding at December 31, 2021	—	$	—
Granted	784	1,277
Vested	—	—
Cancelled and forfeited	(85)	1,249
Outstanding at September 30, 2022 (1)	699	$	1,281

(1)On January 1, 2022, the Company granted 680 shares of restricted stock to directors. During the nine months ended September 30, 2022, 85 shares were forfeited resulting from the departure of a director in March 2022, and an additional 104 shares of restricted stock were granted to new directors on April 15, 2022. The shares will vest on the first anniversary of the award.

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Salaries and related employee expenses (employee awards)	$	1,910	$	—	$	4,989	$	—
General and administrative expenses (director awards)	211		—		627		—
Total share-based compensation expense (1)	$	2,121	$	—	$	5,616	$	—

(1)The Company recognized a tax benefit of $0.4 million and $1.2 million related to share-based compensation for the three and nine months ended September 30, 2022, respectively.

As of September 30, 2022, there was $10.1 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 1.4 years.

7. Income Taxes

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


		Three Months Ended March 31,							Three Months Ended September 30,						Nine Months Ended September 30,
		2021			2020				2022			2021			2022			2021
Income before income taxes	Income before income taxes	$	62,027		$	71,368		Income before income taxes	$	163,975		$	103,753		$	440,702		$	237,456
Income tax expense	Income tax expense	$	11,975		$	13,967		Income tax expense	$	34,138		$	19,916		$	94,071		$	46,521
Effective tax rate	Effective tax rate	19.3		%	19.6		%	Effective tax rate	20.8		%	19.2		%	21.3		%	19.6		%

~~The~~For interim periods, our income tax expense and resulting effective tax ~~rates were lower than~~rate are based upon an estimated annual effective tax rate adjusted for the ~~U.S. federal statutory rate~~effects of ~~21% due primarily~~items required to ~~statutory depletion allowed on mineral royalty income.~~be treated as discrete to the period, including changes in tax laws, changes in estimated exposures for uncertain tax positions, and other items.

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The Inflation Reduction Act

On August 16, 2022, the Inflation Reduction Act (the “IRA”) was signed into law and includes a number of tax-related provisions, including (i) a 15-percent book minimum tax (“corporate AMT”) on adjusted financial statement income once the three year average of adjusted financial statement income is greater than $1.0 billion, (ii) certain clean energy tax incentives in the form of tax credits, and (iii) a one-percent excise tax on certain corporate stock buybacks (effective beginning January 1, 2023). The Company is evaluating the IRA and does not currently anticipate that the IRA will have a significant impact on the Company’s financial position or results of operations.

7.8. 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 the three and nine months ended September 30, 2022 and 2021 (in thousands, except number of shares and per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	129,837	$	83,837	$	346,631	$	190,935

Basic EPS:
Weighted average shares outstanding for basic EPS	7,714,796		7,751,329		7,729,866		7,754,439
Basic EPS	$	16.83	$	10.82	$	44.84	$	24.62

Diluted EPS:
Weighted average shares outstanding for basic EPS	7,714,796		7,751,329		7,729,866		7,754,439
Effect of dilutive securities:
Incentive and equity compensation plans	5,425		—		3,639		—
Weighted average shares outstanding for diluted EPS	7,720,221		7,751,329		7,733,505		7,754,439
Diluted EPS	$	16.82	$	10.82	$	44.82	$	24.62

Restricted stock is included in the number of shares of Common Stock issued and outstanding, but omitted from the basic EPS calculation until such time as the shares of restricted stock vest.

9. Commitments

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 September 30, 2022.

Prior to January 1, 2022, 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, 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. As of September 30, 2022, the Company has recorded an accrual of approximately $6.9 million for ad valorem taxes and intends to pay such taxes when they become due. While we intend to seek reimbursement from the third party following payment of such taxes, we are unable to determine the likelihood of such reimbursement, and accordingly, no loss recovery receivable has been recorded as of September 30, 2022.

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10. Changes in Equity

The following tables present changes in our equity for the ~~three~~nine months ended ~~March 31,~~September 30, 2022 and 2021 ~~and 2020~~ (in thousands, except shares and per share amounts):


	Common Stock			Treasury Stock			Additional Paid-in Capital		Accum. Other Comp. Inc/(Loss)		Retained Earnings		Total Equity
	Shares	Amount		Shares	Amount
For the nine months ended September 30, 2022:
Balances as of December 31, 2021	7,744,695	$	78	11,461	$	(15,417)	$	28	$	(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	—		(595)	800		1,477		—		(796)		1,481
Periodic pension costs, net of income taxes of $2	—	—		—	—		—		8		—		8
Balances as of March 31, 2022	7,745,290	78		10,866	(14,617)		1,505		(999)		741,909		727,876
Net income	—	—		—	—		—		—		118,894		118,894
Dividends paid — $3.00 per share of common stock	—	—		—	—		—		—		(23,188)		(23,188)
Special dividends paid — $20.00 per share of common stock	—	—		—	—		—		—		(154,586)		(154,586)
Share-based compensation, net of forfeitures	104	—		(104)	140		1,851		—		(180)		1,811
Repurchases of common stock	(17,478)	—		17,478	(25,534)		—		—		—		(25,534)
Periodic pension costs, net of income taxes of $2	—	—		—	—		—		8		—		8
Balances as of June 30, 2022	7,727,916	$	78	28,240	$	(40,011)	$	3,356	$	(991)	$	682,849	$	645,281
Net income	—	—		—	—		—		—		129,837		129,837
Dividends paid — $3.00 per share of common stock	—	—		—	—		—		—		(23,132)		(23,132)
Share-based compensation, net of forfeitures	—	—		—	—		2,121		—		(30)		2,091
Repurchases of common stock	(19,071)	—		19,071	(32,915)		—		—		—		(32,915)
Periodic pension costs, net of income taxes of $3	—	—		—	—		—		8		—		8
Balances as of September 30, 2022	7,708,845	$	78	47,311	$	(72,926)	$	5,477	$	(983)	$	789,524	$	721,170


		Sub-share Certificates	Common Stock									Sub-share Certificates				Common Stock				Treasury Stock					Accum. Other Comp. Inc/(Loss)		Retained Earnings		Net Proceeds From All Sources			Total Equity
		Number of shares	Number of shares	Par Value		Accum. Other Comp. Loss		Retained Earnings		Net Proceeds from All Sources			Total Equity			Shares	Shares	Amount			Shares			Amount							Total Equity
For the three months ended March 31, 2021:
For the nine months ended September 30, 2021:															For the nine months ended September 30, 2021:
Balances as of December 31, 2020	Balances as of December 31, 2020	7,756,156	0	$	0	$	(2,693)	$	0	$	487,877		$	485,184	Balances as of December 31, 2020	7,756,156	—	$	—			$	—		$	—	$	(2,693)	$	—		$	487,877	$	485,184
Net income	Net income	—	—	—		—		50,052		—			50,052		Net income	—	—	—				—			—		—		50,052			—		50,052
Dividends paid ($2.75 per common share)		—	—	—		—		(21,329)		—			(21,329)
Dividends paid — $2.75 per share of common stock															Dividends paid — $2.75 per share of common stock	—	—	—				—			—		—		(21,329)			—		(21,329)
Conversion of Sub-shares into shares of common stock	Conversion of Sub-shares into shares of common stock	(7,756,156)	7,756,156	78		—		487,799		(487,877)			0		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
Periodic pension costs, net of income taxes of $8															Periodic pension costs, net of income taxes of $8	—	—	—				—			—		28		—			—		28
Balances as of March 31, 2021	Balances as of March 31, 2021	0	7,756,156	$	78	$	(2,665)	$	516,522	$	0		$	513,935	Balances as of March 31, 2021	—	7,756,156	78				—			—		(2,665)		516,522			—		513,935
Net income															Net income	—	—	—				—			—		—		57,046			—		57,046
Dividends paid — $2.75 per share of common stock															Dividends paid — $2.75 per share of common stock	—	—	—				—			—		—		(21,329)			—		(21,329)
Repurchases of common stock															Repurchases of common stock	—	(1,633)	—				1,633			(2,504)		—		—			—		(2,504)
Periodic pension costs, net of income taxes of $8															Periodic pension costs, net of income taxes of $8	—	—	—				—			—		29		—			—		29
Balances as of June 30, 2021															Balances as of June 30, 2021	—	7,754,523	78				1,633			(2,504)		(2,636)		552,239			—		547,177
Net income															Net income	—	—	—				—			—		—		83,837			—		83,837
Dividends paid — $2.75 per share of common stock															Dividends paid — $2.75 per share of common stock	—	—	—				—			—		—		(21,312)			—		(21,312)
Repurchases of common stock															Repurchases of common stock	—	(6,179)	—				6,179			(8,689)		—		—			—		(8,689)
Periodic pension costs, net of income taxes of $8															Periodic pension costs, net of income taxes of $8	—	—	—				—			—		29		—			—		29
Balances as of September 30, 2021															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 three months ended March 31, 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 — — (110) (110)
Other comprehensive income — 13 — 13
Balances as of March 31, 2020 7,756,156 $ (1,448) $ 446,791 $ 445,343

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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 is 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 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.~~Repurchase Program

On March 11, 2022, our board of directors approved a stock repurchase program to purchase up to an aggregate of $100 million of shares of our outstanding Common Stock during 2022. 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 expires on December 31, 2022. For the nine months ended September 30, 2022, we repurchased $58.4 million (including share repurchases not yet settled).

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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.

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


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020				2022		2021		2022		2021
Revenues:	Revenues:						Revenues:
Land and resource management	Land and resource management	$	57,790	$	56,658		Land and resource management	$	147,215	$	86,792	$	393,947	$	211,823
Water services and operations	Water services and operations	26,365		39,936			Water services and operations	43,896		36,901		120,769		91,957
Total consolidated revenues	Total consolidated revenues	$	84,155	$	96,594		Total consolidated revenues	$	191,111	$	123,693	$	514,716	$	303,780

Net income:	Net income:						Net income:
Land and resource management	Land and resource management	$	39,513	$	39,118		Land and resource management	$	108,188	$	65,292	$	285,418	$	150,248
Water services and operations	Water services and operations	10,539		18,283			Water services and operations	21,649		18,545		61,213		40,687
Total consolidated net income	Total consolidated net income	$	50,052	$	57,401		Total consolidated net income	$	129,837	$	83,837	$	346,631	$	190,935

Capital expenditures:	Capital expenditures:						Capital expenditures:
Land and resource management	Land and resource management	$	0	$	88		Land and resource management	$	114	$	4,528	$	339	$	4,541
Water services and operations	Water services and operations	2,738		3,529			Water services and operations	1,694		2,059		11,816		6,958
Total capital expenditures	Total capital expenditures	$	2,738	$	3,617		Total capital expenditures	$	1,808	$	6,587	$	12,155	$	11,499

Depreciation, depletion and amortization:	Depreciation, depletion and amortization:						Depreciation, depletion and amortization:
Land and resource management	Land and resource management	$	494	$	337		Land and resource management	$	567	$	363	$	1,632	$	1,299
Water services and operations	Water services and operations	3,344		2,998			Water services and operations	3,350		3,503		10,591		10,263
Total depreciation, depletion and amortization	Total depreciation, depletion and amortization	$	3,838	$	3,335		Total depreciation, depletion and amortization	$	3,917	$	3,866	$	12,223	$	11,562

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


		March 31, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Assets:	Assets:					Assets:
Land and resource management	Land and resource management	$	501,516	$	460,053	Land and resource management	$	676,205	$	635,338
Water services and operations	Water services and operations	112,286		111,582		Water services and operations	152,769		128,726
Total consolidated assets	Total consolidated assets	$	613,802	$	571,635	Total consolidated assets	$	828,974	$	764,064

Property, plant and equipment, net:	Property, plant and equipment, net:					Property, plant and equipment, net:
Land and resource management	Land and resource management	$	3,287	$	3,527	Land and resource management	$	6,197	$	6,639
Water services and operations	Water services and operations	75,108		75,740		Water services and operations	75,359		73,083
Total consolidated property, plant and equipment, net	Total consolidated property, plant and equipment, net	$	78,395	$	79,267	Total consolidated property, plant and equipment, net	$	81,556	$	79,722

9.12. Oil and Gas Producing Activities

We measure our share of oil and gas produced in barrels of ~~equivalency~~oil equivalent (“~~BOEs”~~Boe”). One ~~BOE~~Boe equals one barrel of crude oil, condensate, NGLs (natural gas liquids) or approximately 6,000 cubic feet of gas. ~~As of March 31,~~For three months ended September 30, 2022 and 2021, ~~and March 31, 2020,~~ our share of oil and gas produced was approximately ~~16.4~~23.4 and ~~16.5~~19.5 thousand ~~BOEs~~Boe per day, respectively. For the nine months ended September 30, 2022 and September 30, 2021, our share of oil and gas produced was approximately 21.3 and 17.5 thousand Boe per day, respectively. Reserves related to our royalty interests are not presented because the information is unavailable.

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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 ~~541~~548 and ~~531~~452 DUC wells subject to our royalty interest as of ~~March 31, 2021~~September 30, 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 ~~May 3, 2021, the~~November 1, 2022, our board of directors declared a quarterly cash dividend of ~~$2.75~~$3.00 per share, payable on ~~June~~December 15, ~~2021~~2022 to stockholders of record at the close of business on ~~June~~December 8, ~~2021.~~2022.

Stock Repurchase Program

On ~~May 3, 2021,~~November 1, 2022, our board of directors approved a stock repurchase program to purchase up to an aggregate of ~~$20.0~~$250 million ~~of shares~~ of our outstanding common ~~stock. Acquisitions pursuant~~stock to be effective beginning January 1, 2023.

The Company intends to purchase stock under the repurchase program opportunistically with funds generated by cash from operations. This repurchase program may be suspended from time to time, modified, extended or discontinued by the board of directors at any time. Purchases under the stock repurchase program may be made through a combination of open market repurchases in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, privately negotiated transactions, and/or other transactions at the Company’s ~~discretion. In connection with the stock repurchase program, the Company intends to enter into~~discretion, including under a Rule 10b5-1 trading plan that ~~would generally permit~~may be implemented by 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 sharesand will be ~~held in treasury.~~subject to market conditions, applicable legal requirements and other factors.

*****

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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 Quarterly Report on 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 ~~Securities and Exchange Commission(the“SEC”),~~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 ~~will be~~are in reference to the Trust, and references to periods on or after that date ~~and thereafter will be~~are in reference to Texas Pacific Land Corporation or TPL Corporation. For further information on the Corporate Reorganization, see Note ~~7, “Changes~~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, material sales 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, produced water royalties, 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.

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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 but 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 three months ended March 31, 2021, we invested approximately $2.7 million in TPWR projects to maintain and/or enhance water sourcing assets.~~

Market Conditions

~~COVID-19 Pandemic~~Global Oil and Natural Gas Market Impact ~~of Increased Supply by OPEC+~~in 2022

~~The uncertainty caused by the global spread of COVID-19, together with the increased supply of~~Average oil and gas prices during the third quarter of 2022 were meaningfully higher compared to average prices during most of the previous quarterly periods over the last decade. In 2021, oil prices were supported by ~~member nations~~oil supply cuts by OPEC+. Oil demand in 2021 broadly trended higher throughout the year, which also helped support strengthening oil prices. Beginning in March 2022, Russia’s incursion into Ukraine created volatility in global supply of ~~OPEC+, led~~numerous commodities, including oil. In response, the US has implemented various measures to ~~declines in~~help mitigate potential supply shortfalls and high oil prices, most notably by releasing millions of barrels of crude oil ~~prices and a reduction in global demand for oil and gas beginning in the first quarter of 2020. These events led~~from its Strategic Petroleum Reserve. In October 2022, OPEC+ pledged to further reduce their collective production ~~curtailments and/or conservation of capital~~quota by ~~the owners and operators of the oil and gas wells to which the Company’s royalty interests relate. These events negatively affected the Company’s business and operations for 2020.~~two million barrels per day. The ~~lingering impact~~confluence of these major events ~~continues~~has contributed to ~~reduce the demand for~~fluctuations in oil prices during 2022. Global and domestic natural gas markets have also experienced volatility due to macroeconomic conditions, infrastructure and logistical constraints, and geopolitical issues, among other factors. US natural gas prices at Henry Hub, location in Erath, Louisiana, have strengthened in 2021 and 2022 due in part to liquified natural gas prices (“LNG”) exports and local demand for power, heating, and industrial activity. In 2022, the Waha Hub located in Pecos County, Texas, at times experienced significant negative price differentials relative to Henry Hub due in part to growing local Permian natural gas production gas and limited natural gas pipeline takeaway capacity. Inflation remains elevated and continues to significantly impact current labor costs and supplies. Changes in macro-economic conditions, including rising interest rates and lower global economic activity, could result in additional shifts in demand and supply in future periods. Although our revenues are directly and indirectly impacted by changes in oil prices, we ~~expect that these events~~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 ~~continue to affect our financial results in 2021.~~help us navigate through potential oil price volatility.

In response to these events, we implemented certain cost reduction measures during 2020 and continue to identify additional cost reduction opportunities in 2021, thus reducing our operating expenses. Our immediate focus was negotiating price reductions and discounts with certain vendors and reducing our usage of independent contract service providers. 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 translates into reduced fuel, equipment rental and repairs and maintenance costs. This strategy not only reduces our current expenses but affords us the ability to continue cost savings in the future. 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 primary focus has always been,~~We continue to monitor the COVID-19 pandemic. We are following local government mandates, where applicable, and will continue to ~~be, on maintaining a safe~~revise and ~~healthy~~refine our on-site work ~~environment for~~to ensure business continuity and the safety and well-being of our employees. ~~Our~~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 ~~technology infrastructure has afforded us~~that may emerge concerning the ~~opportunity to allow our corporate employees to work remotely~~severity, and ~~we have deployed additional safety and sanitation measures for our field employees.~~new variants, of the virus.

Despite the uncertainty caused by these events, we believe our longevity in the industry, strong financial position and our capital resource allocation discipline have equipped us with the tools necessary to continue navigating through the uncertainty.

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 ~~and~~in 52 counties across southeastern New Mexico and western Texas. ~~All~~Exploration and production (“E&P”) companies active in the Permian have generally increased their drilling and development activity to-date in 2022 compared to recent 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 any 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.

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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 ~~March 31, 2021~~September 30, 2022 and ~~2020:~~2021:


		Three Months Ended March 31,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020			2022		2021		2022		2021
Oil and Gas Pricing Metrics:(1)	Oil and Gas Pricing Metrics:(1)					Oil and Gas Pricing Metrics:(1)
WTI average price per bbl		$	58.09	$	45.34
WTI Cushing average price per bbl						WTI Cushing average price per bbl	$	93.06	$	70.58	$	98.96	$	65.05
Henry Hub average price per mmbtu	Henry Hub average price per mmbtu	$	3.50	$	1.90	Henry Hub average price per mmbtu	$	8.03	$	4.35	$	6.74	$	3.61

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	446		721		Average monthly horizontal permits	634		527		627		573
Average monthly horizontal wells drilled	Average monthly horizontal wells drilled	343		575		Average monthly horizontal wells drilled	524		405		498		376
Average monthly horizontal rig count		189		384
DUCs as of March 31 for each applicable year		4,617		4,921
Average weekly horizontal rig count						Average weekly horizontal rig count	353		235		313		215
DUCs as of September 30 for each applicable year						DUCs as of September 30 for each applicable year	4,651		4,519		4,651		4,519

Total Average US weekly horizontal rig count (2)	Total Average US weekly horizontal rig count (2)	350		703		Total Average US weekly horizontal rig count (2)	692		450		643		405

(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 ~~represents~~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~~show selected domestic benchmark oil and natural gas prices and approximate activity levels in the Permian Basin ~~from~~for the ~~first quarter of 2020 to the first quarter of~~three and nine months ended September 30, 2022 and 2021. ~~While oil~~Oil and gas prices ~~which began declining~~ in 2022 to-date have significantly increased compared to the ~~first quarter of 2020 (prior~~comparable period in 2021. Although E&P companies broadly continue to ~~oil reaching record lows in the second quarter of 2020), have rebounded in the first quarter of 2021, development,~~deploy capital at a measured pace, drilling and ~~completion and production~~development activities across the Permian have ~~not returned~~generally improved in 2022 compared to ~~their previous levels. Operators are cautiously managing their capital allocations by deploying at a decreased pace of development while oil demand begins to recover.~~the prior year. 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.

~~Winter Storm Uri, in February 2021, created operational issues in the Permian Basin which impacted not only production from existing wells, but development~~

Liquidityand completion of new wells. As discussed above, we generate revenue through each phase of the life cycle of a well. While Winter Storm Uri directly impacted production and produced water disposal volumes, the effects on our results were tempered by increased oil and gas prices during the first quarter of 2021.Capital Resources

Overview

~~Liquidity and Capital Resources~~

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 ~~revenue was~~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, including potential future borrowing under a credit facility or other financing options.~~funding. We have no debt or credit facilities, nor any off-balance sheet arrangements as of ~~March 31, 2021 and have no immediate plans to enter into such arrangements.~~September 30, 2022.

As of ~~March 31, 2021,~~September 30, 2022, we had cash and cash equivalents of ~~$310.7~~$446.6 million that we expect to utilize, along with cash flow from operations, to provide capital to support the growth of our business, ~~particularly the growth of TPWR,~~ to repurchase our ~~Common Stock~~common stock, par value $0.01 per share (the “Common Stock”) subject to market conditions, to pay dividends subject to the discretion of ~~the~~our board of directors and for

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general corporate purposes. For the nine months ended September 30, 2022, we repurchased $58.4 million of our Common Stock, and we paid $224.1 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.

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During the nine months ended September 30, 2022, we invested approximately $11.8 million in Texas Pacific Water Resources LLC (“TPWR”) projects to maintain and/or enhance water sourcing assets, of which $6.4 million related to electrifying our water sourcing infrastructure.

Cash Flows from Operating Activities

For the nine months ended September 30, 2022 and 2021, net cash provided by operating activities was $314.6 million and $174.5 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 revenue streams, general and administrative expenses and income taxes.

The increase in cash flows provided by operating activities for the nine months ended September 30, 2022 compared to the same period of 2021, was primarily related to increased prices and volumes of oil and gas production and was partially offset by increased tax payments.

Cash Flows Used in Investing Activities

For the nine months ended September 30, 2022 and 2021, net cash used in investing activities was $14.6 million and $10.0 million, respectively. Our cash flows used in investing activities are primarily related to capital expenditures related to our water services and operations segment and acquisitions of royalty interests.

Capital expenditures increased $2.0 million for the nine months ended September 30, 2022 compared to the same period of 2021. Acquisitions of royalty interests increased approximately $1.7 million for the nine months ended September 30, 2022 compared to the same period 2021.

Cash Flows Used in Financing Activities

For the nine months ended September 30, 2022 and 2021, net cash used in financing activities was $281.7 million and $74.8 million, respectively. Our cash flows used in financing primarily consist of activities which return capital to our stockholders such as payment of dividends and repurchases of our Common Stock.

During the nine months ended September 30, 2022, we paid total dividends of $224.1 million consisting of cumulative paid cash dividends of $9.00 per share and special dividends of $20.00 per share. During the nine months ended September 30, 2021, we paid total dividends of $64.0 million consisting of cumulative cash dividends of $8.25 per share. We repurchased $58.4 million and $11.2 million of our Common Stock (including share repurchases not yet settled) during the nine months ended September 30, 2022 and 2021, respectively.

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Results of Operations - Consolidated

The following table shows our consolidated results of operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues:
Oil and gas royalties	$	130,298	$	79,098	$	355,738	$	186,835
Water sales	24,426		19,554		65,518		44,983
Produced water royalties	19,129		15,140		52,668		43,147
Easements and other surface-related income	14,129		9,832		37,311		27,856
Land sales and other operating revenue	3,129		69		3,481		959
Total revenues	191,111		123,693		514,716		303,780

Expenses:
Salaries and related employee expenses	10,697		8,542		29,670		31,792
Water service-related expenses	6,348		3,650		13,045		10,499
General and administrative expenses	3,153		2,844		9,858		8,491
Legal and professional fees	2,106		1,551		4,988		4,904
Ad valorem taxes	2,835		—		6,856		—

Depreciation, depletion and amortization	3,917		3,866		12,223		11,562
Total operating expenses	29,056		20,453		76,640		67,248

Operating income	162,055		103,240		438,076		236,532

Other income, net	1,920		513		2,626		924
Income before income taxes	163,975		103,753		440,702		237,456



Income tax expense	34,138		19,916		94,071		46,521
Net income	$	129,837	$	83,837	$	346,631	$	190,935

For the Three Months Ended September 30, 2022 as Compared to the Three Months Ended September 30, 2021

Consolidated Revenues and Net Income:

Total revenues increased $67.4 million, or 54.5%, to $191.1 million for the three months ended September 30, 2022 compared to $123.7 million for the three months ended September 30, 2021. This increase was principally due to the $51.2 million increase in oil and gas revenue and the combined increase of $8.9 million in water sales and produced water royalties over the same period. Net income of $129.8 million for the three months ended September 30, 2022 was 54.9% higher than the comparable period of 2021. The increase in net income was driven by the 57.0% increase in operating income resulting from the 54.5% increase in total revenues during the same time 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 $10.7 million for the three months ended September 30, 2022 compared to $8.5 million for the comparable period of 2021. Stock compensation expense for the three months ended September 30, 2022 was $1.9 million. As noted in Note 2, “Summary of Significant Accounting Policies — Share-Based Compensation,” the Company’s accounting method election to recognize share-based compensation expense using the graded-vesting method results in an acceleration of stock compensation expense in the grant year for awards with vesting periods in excess of one year. Prior to December 2021, the Company did not have an equity incentive plan and did not pay compensation in equity.

Water service-related expenses. Water service-related expenses were $6.3 million for the three months ended September 30, 2022 compared to $3.7 million for the same period of 2021. Certain types of water-related expenses, including,

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but not limited to, transfer, treatment, electricity, etc., will vary period to period as our customers’ needs and requirements change. Transfer and treatment expenses increased for the three months ended September 30, 2022 compared to the same period of 2021 principally as a result of heightened sales activity during the same period. Additionally, the Company’s ongoing initiative to electrify its water sourcing infrastructure resulted in increased electricity expense for the three months ended September 30, 2022 compared to the same period of 2021. Fuel expenses decreased as a result of lower utilization of fuel for the three months ended September 30, 2022 compared to the same period of 2021, but the reduction was tempered by the increase in the price of fuel over the same period.

Ad valorem taxes. For the three months ended September 30, 2022, the Company recorded an accrual of approximately $2.8 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 partythat 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. While we intend to seek reimbursement from the third party following payment of such taxes, we are unable to determine the likelihood of such reimbursement, and accordingly, have not recorded a loss recovery receivable as of September 30, 2022.

Other income, net. Other income, net was $1.9 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively. Interest income earned on our cash balances has increased as interest yields have risen during 2022.

Total income tax expense. Total income tax expense was $34.1 million and $19.9 million for the three months ended September 30, 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.

For the Nine Months Ended September 30, 2022 as Compared to the Nine Months Ended September 30, 2021

Consolidated Revenues and Net Income:

Total revenues increased $210.9 million, or 69.4%, to $514.7 million for the nine months ended September 30, 2022 compared to $303.8 million for the nine months ended September 30, 2021. This increase was principally due to the $168.9 million increase in oil and gas revenue and the combined increase of $30.1 million in water sales and produced water royalties over the same period. Net income of $346.6 million for the nine months ended September 30, 2022 was 81.5% higher than the comparable period of 2021, principally due to the 85.2% increase in operating income. 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 $29.7 million for the nine months ended September 30, 2022 compared to $31.8 million for the comparable period of 2021. Salaries and related employee expenses during 2021 included $6.7 million of severance costs, while there were no severance costs during the same period of 2022. This decrease in expense for 2022 was partially offset by $5.0 million of stock compensation expense for the nine months ended September 30, 2022 related to employee stock awards granted under the Company’s equity incentive plan. As noted in Note 2, “Summary of Significant Accounting Policies — Share-Based Compensation,” the Company’s accounting method election to recognize share-based compensation expense using the graded-vesting method results in an acceleration of stock compensation expense in the grant year for awards with vesting periods in excess of one year. Prior to December 2021, the Company did not have an equity incentive plan and did not pay compensation in equity.

Water service related expenses. Water service-related expenses were $13.0 million for the nine months ended September 30, 2022 compared to $10.5 million for the same period of 2021. Certain types of water-related expenses, including, but not limited to, transfer, treatment, electricity, etc., will vary period to period as our customers’ needs and requirements change. Transfer and treatment expenses increased for the nine months ended September 30, 2022 compared to the same period of 2021 principally as a result of heightened sales activity during the same period. Additionally, the Company’s ongoing initiative to electrify its water sourcing infrastructure resulted in increased electricity expense for the nine months ended September 30, 2022 compared to the same period of 2021. Fuel and equipment rental expenses decreased as a result of lower utilization of fuel and rental of equipment for the nine months ended September 30, 2022 compared to the same period of 2021, but the reduction was tempered by the increase in the price of fuel over the same period.

General and administrative expenses. General and administrative expenses increased $1.4 million to $9.9 million for the nine months ended September 30, 2022 from $8.5 million for the same period of 2021. The increase in general and

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administrative expenses during the nine months ended September 30, 2022 compared to the same period of 2021 was principally related to increased charitable contributions, travel expenses, and board of director fees and expenses, primarily resulting from our contribution of approximately $0.3 million to the Permian Basin Area Foundation in support of the initiative to renovate Hogan Park in Midland, Texas, travel returning to pre-pandemic levels, and the expansion of the Company’s board of directors from nine members to ten members.

Ad valorem taxes. For the nine months ended September 30, 2022, the Company recorded an accrual of approximately $6.9 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 partythat 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. While we intend to seek reimbursement from the third party following payment of such taxes, we are unable to determine the likelihood of such reimbursement, and accordingly, have not recorded a loss recovery receivable as of September 30, 2022.

Depreciation, depletion and amortization. Depreciation, depletion and amortization was $12.2 million for the nine months ended September 30, 2022 compared to $11.6 million for the nine months ended September 30, 2021. The increase in depreciation, depletion and amortization is principally related to our investment in water service-related assets placed in service in 2022 and, to a lesser extent, increased depletion related to our oil and gas royalty interests.

Other income, net. Other income, net was $2.6 million and $0.9 million for the nine months ended September 30, 2022 and 2021, respectively. Interest income earned on our cash balances has increased as interest yields have risen during 2022.

Total income tax expense. Total income tax expense was $94.1 million and $46.5 million for the nine months ended September 30, 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, water sales, and produced water royalties.

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”).

~~As previously discussed above under “Market Conditions,” our~~Our results of operations for the three and nine months ended ~~March 31, 2021~~September 30, 2022 have ~~been negatively impacted by the lingering reduction~~benefited directly and indirectly from a rebound in ~~demand for~~ oil and ~~Winter Storm Uri. These combined circumstances~~gas activity in the Permian Basin and increases in commodity prices compared to 2021. Our oil and gas royalty revenues have ~~affected not only our~~increased due to increased royalty production and higher commodity prices during this time period. Additionally, revenues derived from easements and other surface-related income, water sales, and produced water ~~volumes, but~~royalties have also ~~directly~~generally been positively impacted ~~our surface-related income and water sales as discussed further below.~~by ongoing development activity in the Permian Basin.

For the ~~three months ended March 31, 2021~~Three Months Ended September 30, 2022 as ~~compared~~Compared to the ~~three months ended March 31, 2020~~

~~Revenues. Revenues decreased $12.4 million, or 12.9%, to $84.2 million for the three months ended March 31,~~Three Months Ended September 30, 2021 compared to $96.6 million for the three months ended March 31, 2020. Net income decreased $7.3 million, or 12.8%, to $50.1 million for the three months ended March 31, 2021 compared to $57.4 million for the three months ended March 31, 2020.

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

Three Months Ended March 31,
2021 2020
Revenues:
Land and resource management:
Oil and gas royalties $ 49,533 59 % $ 42,360 44 %
Easements and other surface-related income 8,187 10 % 13,298 14 %
Land sales and other operating revenue 70 — % 1,000 1 %
57,790 69 % 56,658 59 %
Water services and operations:
Water sales 12,956 15 % 26,967 28 %
Produced water royalties 12,549 15 % 12,506 13 %
Easements and other surface-related income 860 1 % 463 — %
26,365 31 % 39,936 41 %
Total consolidated revenues $ 84,155 100 % $ 96,594 100 %
Net income:
Land and resource management $ 39,513 79 % $ 39,118 68 %
Water services and operations 10,539 21 % 18,283 32 %
Total consolidated net income $ 50,052 100 % $ 57,401 100 %

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	Three Months Ended September 30,
	2022				2021
Revenues:
Land and resource management:




Oil and gas royalty revenue	$	130,298	68	%	$	79,098	64	%
Easements and other surface-related income	13,788		7	%	7,625		6	%
Land sales and other operating revenue	3,129		2	%	69		—	%
Total land and resource management revenue	147,215		77	%	86,792		70	%

Water services and operations:
Water sales	24,426		13	%	19,554		16	%
Produced water royalties	19,129		10	%	15,140		12	%
Easements and other surface-related income	341		—	%	2,207		2	%
Total water services and operations revenue	43,896		23	%	36,901		30	%
Total consolidated revenues	$	191,111	100	%	$	123,693	100	%

Net income:
Land and resource management	$	108,188	83	%	$	65,292	78	%
Water services and operations	21,649		17	%	18,545		22	%
Total consolidated net income	$	129,837	100	%	$	83,837	100	%

Land and Resource Management

Land and Resource Management segment revenues increased ~~$1.1~~$60.4 million, or ~~2.0%~~69.6%, to ~~$57.8~~$147.2 million for the three months ended ~~March 31, 2021~~September 30, 2022 as compared ~~with $56.7 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 ~~gas royalty revenue, partially offset by decreases in easements~~oil and ~~other surface-related income and, to a lesser extent, oil~~gas royalty revenue, as discussed further below.

Oil and gas royalties. Oil and gas royalty revenue was $130.3 million for the three months ended September 30, 2022 compared to $79.1 million for the three months ended September 30, 2021, an increase of 64.7%.

The table below provides financial and operational data by royalty stream for the three months ended September 30, 2022 and 2021:

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	Three Months Ended September 30,
	2022		2021
Our share of production volumes(1):
Oil (MBbls)	928		810
Natural gas (MMcf)	3,582		3,111
NGL (MBbls)	626		469
Equivalents (MBoe)	2,151		1,798
Equivalents per day (MBoe/d)	23.4		19.5

Oil and gas royalty revenue (in thousands):
Oil royalties	$	83,374	$	52,081
Natural gas royalties	26,362		11,528
NGL royalties	20,562		15,489
Total oil and gas royalties	$	130,298	$	79,098

Realized prices:
Oil ($/Bbl)	$	94.03	$	67.32
Natural gas ($/Mcf)	$	7.96	$	4.01
NGL ($/Bbl)	$	35.51	$	35.69
Equivalents ($/Boe)	$	63.42	$	46.07

~~Oil~~(1)Commonly used definitions in the oil and gas ~~royalties~~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 23.4 thousand Boe per day for the three months ended September 30, 2022 compared to 19.5 thousand Boe per day for the same period of 2021. The average realized prices were $94.03 per barrel of oil, $7.96 per Mcf of natural gas, and $35.51 per barrel of NGL, for a total equivalent price of $63.42 per Boe for the three months ended September 30, 2022, an increase of 37.7% per Boe compared to the total equivalent price of $46.07 per Boe for the same period of 2021.

Easements and other surface-related income.~~. Oil~~ Easements and ~~gas royalty revenue~~other surface-related income was ~~$49.5~~$13.8 million for the three months ended ~~March 31, 2021~~September 30, 2022, an increase of 80.8% compared to ~~$42.4~~$7.6 million for the three months ended ~~March 31, 2020. Oil royalty~~September 30, 2021. Easements and other surface-related income includes wellbore easements, pipeline easements, commercial leases, material sales, power line and utility easements, and temporary permits. The increase in easements and other surface-related income is principally related to increases of $2.2 million in wellbore easements, $1.3 million in pipeline easements, $1.1 million in material sales, and $1.1 million in commercial leases for the three months ended September 30, 2022 compared to the same period of 2021. 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, 2022.

Land sales and other operating revenue ~~was $34.2~~. Land sales and other operating revenue includes revenue generated from land sales and grazing leases. Land sales were $3.1 million for the three months ended ~~March 31, 2021, a decrease of 4.6% compared to~~September 30, 2022. For the three months ended March 31, 2020 when oil royalty revenue was $35.9 million. This decrease in oil royalty revenue is principally due to a 10.6% decrease in crude oil production subject to our royalty interests, partially offset by a 6.7% increase in our average realizedSeptember 30, 2022, we sold approximately 122 acres of land for an aggregate sales price of approximately $3.1 million, or $25,100 per ~~royalty barrel during~~acre. There were no land sales for the three months ended ~~March 31, 2021 compared to~~September 30, 2021.

Net income. Net income for the ~~same period in 2020. Gas royalty revenue~~Land and Resource Management segment was ~~$15.3~~$108.2 million for the three months ended ~~March 31, 2021, an increase of 136.8%~~September 30, 2022 compared to $65.3 million for the three months ended ~~March 31, 2020 when gas~~September 30, 2021. As discussed above, segment revenues increased 69.6% for the three months ended September 30, 2022 compared to the same period of 2021. Segment expenses, including income tax expense, were $39.0 million and $21.5 million for the three months ended September 30, 2022 and 2021, respectively. The increase in segment expenses during 2022 was principally related to a $13.6 million

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increase in income tax expense and a $2.8 million increase in ad valorem taxes for the three months ended September 30, 2022 compared to the same period of 2021. Expenses are discussed further above under “Results of Operations - Consolidated.”

Water Services and Operations

Water Services and Operations segment revenues increased 19.0%, to $43.9 million for the three months ended September 30, 2022 as compared with revenues of $36.9 million for the comparable period of 2021. The increase in Water Services and Operations segment revenues is due to increases in water sales and produced water 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 ~~$6.5~~$24.4 million for the three months ended September 30, 2022, an increase of 24.9% compared with the three months ended September 30, 2021 when water sales revenue was $19.6 million. ~~This~~The increase in ~~gas royalty revenue~~water sales is principally due to a ~~121.1%~~10.3% increase in ~~our average realized price~~the number of barrels of sourced and treated water sold for ~~gas production and, to a lesser extent, a 7.1% increase in gas production subject to our royalty interests during~~ the three months ended ~~March 31, 2021~~September 30, 2022, compared to the same period of 2021.

Produced water royalties. Produced water royalties are royalties received from the transfer or disposal of produced water on our land. Produced water royalties are contractual and not paid as a matter of right. We do not operate any saltwater disposal wells. Produced water royalties were $19.1 million for the three months ended September 30, 2022 compared to $15.1 million for the same period in ~~2020.~~2021. This increase is principally due to increased produced water volumes for the three months ended September 30, 2022 compared to the same period of 2021.

Easements and other surface-related income. Easements and other surface-related income was ~~$8.2~~$0.3 million for the three months ended ~~March 31, 2021, a decrease of 38.4%~~September 30, 2022 compared to ~~$13.3~~$2.2 million for the three months ended ~~March 31, 2020.~~September 30, 2021. The decrease in easements and other surface-related income relates to a decrease in temporary permits for sourced water lines for the three months ended September 30, 2022 compared to the same period in 2021.

Net income. Net income for the Water Services and Operations segment increased $3.1 million to $21.6 million for the three months ended September 30, 2022 compared to $18.5 million for the three months ended September 30, 2021. As discussed above, segment revenues increased 19.0% for the three months ended September 30, 2022 compared to the same period of 2021. Segment expenses, including income tax expense, were $22.3 million for the three months ended September 30, 2022 as compared to $18.4 million for the three months ended September 30, 2021. The overall increase in segment expenses during 2022 is principally related to a $3.3 million increase in operating expenses and a $0.6 million increase in income tax expense as a result of increased segment operating income during the same time period. Expenses are discussed further above under “Results of Operations - Consolidated.”

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For the Nine Months Ended September 30, 2022 as Compared to the Nine Months Ended September 30, 2021

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


	Nine Months Ended September 30,
	2022				2021
Revenues:
Land and resource management:




Oil and gas royalty revenue	$	355,738	69	%	$	186,835	62	%
Easements and other surface-related income	34,728		7	%	24,029		8	%
Land sales and other operating revenue	3,481		1	%	959		—	%
Total land and resource management revenue	393,947		77	%	211,823		70	%

Water services and operations:
Water sales	65,518		13	%	44,983		15	%
Produced water royalties	52,668		10	%	43,147		14	%
Easements and other surface-related income	2,583		—	%	3,827		1	%
Total water services and operations revenue	120,769		23	%	91,957		30	%
Total consolidated revenues	$	514,716	100	%	$	303,780	100	%

Net income:
Land and resource management	$	285,418	82	%	$	150,248	79	%
Water services and operations	61,213		18	%	40,687		21	%
Total consolidated net income	$	346,631	100	%	$	190,935	100	%

Land and Resource Management

Land and Resource Management segment revenues increased 86.0% to $393.9 million for the nine months ended September 30, 2022 as compared with $211.8 million for the comparable period of 2021. The increase in Land and Resource Management segment revenues is principally due to increases in oil and gas royalty revenue and easements and other surface-related income, as discussed further below.

Oil and gas royalties. Oil and gas royalty revenue was $355.7 million for the nine months ended September 30, 2022 compared to $186.8 million for the nine months ended September 30, 2021, an increase of $168.9 million.

The table below provides financial and operational data by royalty stream for the nine months ended September 30, 2022 and 2021:

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	Nine Months Ended September 30,
	2022		2021
Our share of production volumes:
Oil (MBbls)	2,538		2,139
Natural gas (MMcf)	9,773		8,627
NGL (MBbls)	1,660		1,194
Equivalents (MBoe)	5,827		4,771
Equivalents per day (MBoe/d)	21.3		17.5

Oil and gas royalty revenue (in thousands):
Oil royalties	$	239,021	$	128,907
Natural gas royalties	60,187		26,400
NGL royalties	56,530		31,528
Total oil and gas royalties	$	355,738	$	186,835

Realized prices:
Oil ($/Bbl)	$	98.62	$	63.12
Natural gas ($/Mcf)	$	6.66	$	3.31
NGL ($/Bbl)	$	36.81	$	28.54
Equivalents ($/Boe)	$	63.93	$	41.01

Our share of crude oil, natural gas and NGL production volumes was 21.3 thousand Boe per day for the nine months ended September 30, 2022 compared to 17.5 thousand Boe per day for the same period of 2021. The average realized prices were $98.62 per barrel of oil, $6.66 per Mcf of natural gas, and $36.81 per barrel of NGL, for a total equivalent price of $63.93 per Boe for the nine months ended September 30, 2022, an increase of 55.9% over a total equivalent price of $41.01 per Boe for the same period of 2021.

Easements and other surface-related income. Easements and other surface-related income was $34.7 million for the nine months ended September 30, 2022, an increase of 44.5% compared to $24.0 million for the nine months ended September 30, 2021. Easements and other surface-related income includes pipeline easements, wellbore easements, material sales, commercial leases, power line and utility easements, ~~commercial leases, material sales and seismic~~ and temporary permits. The ~~decrease~~increase in easements and other surface-related income is principally related to ~~a decrease~~increases of ~~$4.9~~$4.4 million in wellbore easements, $4.0 million in pipeline easement income, ~~to $1.2~~and $2.1 million in material sales for the ~~three~~nine months ended ~~March 31, 2021 from $6.1 million for~~September 30, 2022 compared to the ~~three~~nine months ended ~~March 31, 2020.~~September 30, 2021. 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 ~~decreased~~ development activity in the Permian Basin during the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 relative to the same time period of ~~2020.~~2021.

Land sales and other operating revenue. Land sales and other operating revenue includes revenue generated from land sales and grazing leases. Land sales were $3.3 million and $0.7 million for the nine months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022, we sold 129 acres of land for an aggregate sales price of approximately $3.3 million, or $25,300 per acre. For the nine months ended September 30, 2021, we sold approximately 30 acres of land for an aggregate sales price of approximately $0.7 million, or approximately $25,000 per acre.

Net income. Net income for the Land and Resource Management segment ~~was $39.5~~increased 90.0% to $285.4 million for the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 compared to ~~$39.1~~$150.2 million for the ~~three months ended March 31, 2020.~~comparable period in 2021. The increase in net income is principally due to the ~~$1.1~~$182.1 million increase in segment revenues, partially offset by ~~a slight~~an increase in segment expenses, including income tax expense. The increase in segment revenues is principally due to anthe $168.9 million increase in oil and gas royalty revenue, ~~partially offset by decreases in easements and other surface-related income and oil royalty revenues,~~ as discussed above. Total segment expenses were ~~$18.3~~$108.5 million and ~~$17.6~~$61.6 million for the ~~three~~ nine

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months ended ~~March 31,~~September 30, 2022 and 2021, ~~and 2020,~~ respectively. The ~~overall~~ increase in segment expenses was principally related to ~~increased~~a $42.1 million increase in income tax expense ~~depletion expense~~ related to ~~our royalty interests~~increased operating income and ~~increased board~~a $6.9 million increase in ad valorem taxes for the nine months ended September 30, 2022 compared to the same period of ~~director expenses associated with our Corporate Reorganization.~~2021. Expenses are discussed further ~~below~~above under ~~“Other Financial Data~~“Results of Operations — Consolidated.”

Water Services and Operations

Water Services and Operations segment revenues ~~decreased 34.0%~~increased 31.3% to ~~$26.4~~$120.8 million for the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 as compared with ~~$39.9~~$92.0 million for the comparable period of ~~2020.~~2021. The ~~decrease~~increase in Water Services and Operations segment revenues is principally due to ~~a decrease~~increases in water sales revenue and produced water royalties, which isare 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 $13.0~~increased $20.5 million, or 45.7% to $65.5 million for the ~~three~~nine months ended March 31, 2021, a decrease of $14.0 million or 52.0%, compared with the three months ended March 31, 2020 when water sales revenue was $27.0 million. This decrease was principally due to a 40.7% decrease in the number of barrels of sourced and treated water sold and, to a lesser extent, a 20.4% decrease in the average sales price per barrel of water for the three months ended March 31, 2021September 30, 2022 compared to the same period of 2021. The increase in ~~2020.~~water sales is principally due to an increase of approximately 20.2% in sourced and treated water sales volumes for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Produced water royalties. Produced water royalties are royalties received from the ~~transportation~~transfer or disposal of produced water on our land. Produced water royalties are contractual and not paid as a matter of right. We do not operate any salt water disposal wells. Produced water royalties were ~~$12.5~~$52.7 million for the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 compared to $43.1 million compared to the same period in 2021. This increase is principally due to increased produced water volumes for the nine months ended September 30, 2022 compared to the same period of 2021.

Easements and ~~2020.~~other surface-related income. Easements and other surface-related income was $2.6 million for the nine months ended September 30, 2022, a decrease of $1.2 million compared to $3.8 million for the nine months ended September 30, 2021. The decrease in easements and other surface-related income relates to a decrease in temporary permits for sourced water lines for the nine months ended September 30, 2022 compared to the same period in 2021.

Net income. Net income for the Water Services and Operations segment was ~~$10.5~~$61.2 million for the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 compared to ~~$18.3~~$40.7 million for the ~~three months ended March 31, 2020.~~same period in 2021. As discussed above, segment revenues ~~decreased 34.0%~~increased 31.3% for the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 compared to the same period of ~~2020.~~2021. Total segment expenses, including income tax expense, were ~~$15.8~~$59.6 million for the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 as compared to ~~$21.6~~$51.3 million for the ~~three~~nine months ended ~~March 31, 2020.~~September 30, 2021. The overall ~~decrease~~increase in segment expenses during ~~2021~~2022 is principally related to ~~decreased water service-related expenses, primarily equipment rental, fuel and repairs and maintenance and~~a $5.4 million increase in income tax ~~expense.~~expense related to increased segment operating income during the same time period. Segment operating expenses increased $2.9 million during 2022 compared to 2021. Expenses are discussed further ~~below~~above under ~~“Other Financial Data~~“Results of Operations — Consolidated.”

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 SEC nor any other regulatory body has passed judgment on these non-GAAP measurements.

EBITDA and Adjusted EBITDA

EBITDA is 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 performance.

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~~Other Financial Data — Consolidated~~

~~Salaries~~The following table presents a reconciliation of net income to EBITDA and ~~related employee expenses. Salaries and related employee expenses were $10.0 million~~Adjusted EBITDA for the three and nine months ended ~~March 31,~~September 30, 2022 and 2021 compared to $10.6 million for the comparable period of 2020. The decrease in salaries and related employee expenses during 2021 as compared to the same period of 2020 is principally due to decreased usage of contract labor by our Water Services and Operations segment.(in thousands):

~~Water service-related expenses~~. Water service-related expenses were $3.3 million for the three months ended March 31, 2021 compared to $6.8 million for the comparable period of 2020. The decrease in expenses during 2021 is primarily related to decreased equipment rental, fuel and repairs and maintenance expenses related to the 40.7% decrease in the number of barrels of sourced and treated water sold and ongoing cost saving measures as discussed above in “Market Conditions.”


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	129,837	$	83,837	$	346,631	$	190,935
Add:
Income tax expense	34,138		19,916		94,071		46,521
Depreciation, depletion and amortization	3,917		3,866		12,223		11,562
EBITDA	167,892		107,619		452,925		249,018
Add:
Employee share-based compensation	1,910		—		4,989		—
Conversion costs related to corporate reorganization	—		—		—		2,026
Severance costs	—		—		—		6,680

Adjusted EBITDA	$	169,802	$	107,619	$	457,914	$	257,724

~~General and administrative expenses~~. General and administrative expenses decreased $0.2 million to $2.8 million for the three months ended March 31, 2021 from $3.0 million for the same period of 2020. The decrease in general and administrative expenses during the three months ended March 31, 2021 compared to the same period of 2020 is primarily related to decreases associated with independent contract service providers and travel expenses, partially offset by increased board of director fees resulting from our Corporate Reorganization in January 2021.

~~Legal and professional expenses~~. Legal and professional fees were $2.2 million for the three months ended March 31, 2021 compared to $2.4 million for the comparable period of 2020. Legal and professional fees for the three months ended March 31, 2021 principally related to the completion of our Corporate Reorganization effective January 11, 2021. Legal and professional fees for the three months ended March 31, 2020 principally related to the conversion exploration committee and planning and preparation for the Corporate Reorganization.

~~Depreciation, depletion and amortization~~. Depreciation, depletion and amortization was $3.8 million for the three months ended March 31, 2021 compared to $3.3 million for the three months ended March 31, 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 2020 and, to a lesser extent, increased depletion related to our oil and gas royalty interests.

~~Cash Flow Analysis~~

~~For the three months ended March 31, 2021 as compared to the three months ended March 31, 2020~~

Cash flows provided by operating activities for the three months ended March 31, 2021 and 2020 were $52.4 million and $68.6 million, respectively. The decrease in cash flows provided by operating activities was primarily related to decreased proceeds from water sales and easements and other surface-related payments received during the three months ended March 31, 2021.

Cash flows used in investing activities were $1.4 million compared to $24.4 million for the three months ended March 31, 2021 and 2020, respectively. Acquisitions of land and royalty interests were $20.8 million for the three months ended March 31, 2020. There were no acquisitions of land or royalty interests during the three months ended March 31, 2021.

Cash flows used in financing activities were $21.3 million compared to $124.1 million for the three months ended March 31, 2021 and 2020, respectively. During the three months ended March 31, 2021, we paid total dividends of $21.3 million consisting of a quarterly cash dividend of $2.75 per share. During the three months ended March 31, 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.~~

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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.

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.

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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.

Evaluation of Disclosure Controls and 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 ~~Robert J. Packer, 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. Packer~~CFO have concluded that the Company’s disclosure controls and procedures ~~are~~were effective ~~in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC filings.~~as of September 30, 2022.

There have been no changes during the quarter ended September 30, 2022 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.

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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

~~The Company did not repurchase any Sub-shares or any shares of Common Stock during~~

During the three months ended September 30, 2022, 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, 2022	5,545	$	1,631	5,545
August 1 through August 31, 2022	6,622	1,749		6,622
September 1 through September 30, 2022	6,904	1,779		6,904
Total(1)	19,071	$	1,726	19,071	$	41,551,105

(1)Repurchases were made pursuant to a stock repurchase program, approved by our board of directors on March 11, 2022 and announced on March 14, 2022, to purchase up to an aggregate of $100.0 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.~~2022 unless otherwise modified or earlier terminated by our board of directors at any time in its sole discretion.

Stock Repurchase Program

On November 1, 2022, our board of directors approved a stock repurchase program to purchase up to an aggregate of $250 million of our outstanding common stock to be effective beginning January 1, 2023.

Item 3. Defaults Upon Senior Securities

Not applicable

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

Not ~~applicable~~applicable.

Item 5. Other Information

None

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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 ~~March 31, 2021~~September 30, 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 ~~March 31, 2021,~~September 30, 2022, formatted in iXBRL.

* Filed or furnished herewith.

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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:

~~May 6, 2021~~

November 2, 2022

By:

/s/ Tyler Glover

Tyler Glover
President, Chief Executive Officer and Director

~~Chief Executive Officer~~

Date:

~~May 6, 2021~~

November 2, 2022

By:

/s/ ~~Robert J. Packer~~Chris Steddum

~~Robert J. Packer,~~

Chris Steddum
Chief Financial Officer

1931


	Three Months Ended March 31,
	2021				2020
Revenues:
Land and resource management:
Oil and gas royalties	$	49,533	59	%	$	42,360	44	%
Easements and other surface-related income	8,187		10	%	13,298		14	%
Land sales and other operating revenue	70		—	%	1,000		1	%
	57,790		69	%	56,658		59	%
Water services and operations:
Water sales	12,956		15	%	26,967		28	%
Produced water royalties	12,549		15	%	12,506		13	%
Easements and other surface-related income	860		1	%	463		—	%
	26,365		31	%	39,936		41	%
Total consolidated revenues	$	84,155	100	%	$	96,594	100	%

Net income:
Land and resource management	$	39,513	79	%	$	39,118	68	%
Water services and operations	10,539		21	%	18,283		32	%
Total consolidated net income	$	50,052	100	%	$	57,401	100	%