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~~2023

☐ 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,~~28, 2023, the Registrant had ~~7,756,156~~7,692,178 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~~2023

Table of Contents

Page No.

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of March 31, ~~2021~~2023 and December 31, ~~2020~~2022

Condensed Consolidated Statements of Income and Total Comprehensive Income for the ~~three~~ Three Months ended~~months ended~~ March 31, ~~2021~~2023 and ~~2020~~2022

Condensed Consolidated Statements of Cash Flows for the ~~three~~Three Months ended ~~months ended~~ March 31, ~~2021~~2023 and ~~2020~~2022

Notes to Condensed Consolidated Financial Statements

Item 2.

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

1016

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

1625

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

1726

Item 3.

Defaults Upon Senior Securities

1726

Item 4.

Mine Safety Disclosures

1726

Item 5.

Other Information

~~Other Information~~

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			March 31, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	310,655	$	281,046	Cash and cash equivalents	$	590,619	$	510,834
Accrued receivables, net		61,392		48,216
Accounts receivable and accrued receivables, net						Accounts receivable and accrued receivables, net	106,044		103,983
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,822		2,778		Prepaid expenses and other current assets	7,586		7,427
Tax like-kind exchange escrow	Tax like-kind exchange escrow	1,978		1,978		Tax like-kind exchange escrow	6,757		6,348
Prepaid income taxes						Prepaid income taxes	—		4,809
Total current assets						Total current assets	711,006		633,401
Real estate acquired						Real estate acquired	109,704		109,704
Property, plant and equipment, net						Property, plant and equipment, net	86,192		85,478
Royalty interests acquired, net						Royalty interests acquired, net	44,720		45,025

Total current assets		375,847		334,018
Property, plant and equipment, net		78,395		79,267
Real estate acquired		108,536		108,536
Royalty interests acquired, net		45,435		45,646
Operating lease right-of-use assets		2,314		2,473
Other assets	Other assets	3,275		1,695		Other assets	3,629		3,819
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	$	955,251	$	877,427

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	$	27,263	$	23,443
Ad valorem and other taxes payable						Ad valorem and other taxes payable	4,560		8,497
Income taxes payable						Income taxes payable	22,430		3,167
Unearned revenue	Unearned revenue	5,298		3,997		Unearned revenue	6,784		4,488
Income taxes payable		16,183		4,054
Total current liabilities	Total current liabilities	33,848		20,581		Total current liabilities	61,037		39,595
Deferred taxes payable	Deferred taxes payable	38,581		38,728		Deferred taxes payable	40,845		41,151
Unearned revenue - non-current		21,891		22,171
Accrued liabilities		2,893		2,150
Operating lease liabilities		2,654		2,821
Unearned revenue - noncurrent						Unearned revenue - noncurrent	22,395		21,708

Accrued liabilities - noncurrent						Accrued liabilities - noncurrent	1,923		2,086
Total liabilities	Total liabilities	99,867		86,451		Total liabilities	126,200		104,540

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
Accumulated other comprehensive loss		(2,665)		(2,693)
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none outstanding as of March 31, 2023 and December 31, 2022						Preferred stock, $0.01 par value; 1,000,000 shares authorized, none outstanding as of March 31, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value; 7,756,156 shares authorized and 7,693,320 and 7,695,679 outstanding as of March 31, 2023 and December 31, 2022, respectively						Common stock, $0.01 par value; 7,756,156 shares authorized and 7,693,320 and 7,695,679 outstanding as of March 31, 2023 and December 31, 2022, respectively	78		78
Treasury stock, at cost; 62,836 and 60,477 shares as of March 31, 2023 and December 31, 2022, respectively						Treasury stock, at cost; 62,836 and 60,477 shares as of March 31, 2023 and December 31, 2022, respectively	(108,794)		(104,139)
Additional paid-in capital						Additional paid-in capital	7,733		8,293
Accumulated other comprehensive income						Accumulated other comprehensive income	2,491		2,516
Retained earnings	Retained earnings	516,522		—		Retained earnings	927,543		866,139
Net proceeds from all sources		—		487,877
Total equity	Total equity	513,935		485,184		Total equity	829,051		772,887
Total liabilities and equity	Total liabilities and equity	$	613,802	$	571,635	Total liabilities and equity	$	955,251	$	877,427

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 March 31,
	2023		2022
Revenues:
Oil and gas royalties	$	89,130	$	104,172
Water sales	21,729		18,820
Produced water royalties	20,134		14,870
Easements and other surface-related income	14,969		9,192
Land sales and other operating revenue	400		281
Total revenues	146,362		147,335

Expenses:
Salaries and related employee expenses	10,593		9,385
Water service-related expenses	5,656		2,782
General and administrative expenses	3,552		2,967
Legal and professional fees	16,628		1,719
Ad valorem and other taxes	1,574		2,043
Land sales expenses	3		—
Depreciation, depletion and amortization	3,404		4,126
Total operating expenses	41,410		23,022

Operating income	104,952		124,313

Other income, net	5,389		76
Income before income taxes	110,341		124,389



Income tax expense	23,773		26,489
Net income	$	86,568	$	97,900




Other comprehensive (loss) income — periodic pension costs, net of income taxes of $6 and $2, respectively	(25)		8
Total comprehensive income	$	86,543	$	97,908

Net income per share of common stock
Basic	$	11.25	$	12.65
Diluted	$	11.24	$	12.64

Weighted average number of shares of common stock outstanding
Basic	7,693,084		7,741,365
Diluted	7,698,398		7,742,710

Cash dividends per share of common stock	$	3.25	$	3.00

See accompanying notes to condensed consolidated financial statements.

~~Table of Contents~~

~~TEXAS PACIFIC LAND CORPORATION~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

~~(Unaudited)~~

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~~ CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	86,568	$	97,900
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	(306)		(406)
Depreciation, depletion and amortization	3,404		4,126
Share-based compensation	2,473		1,505

Changes in operating assets and liabilities:
Operating assets, excluding income taxes	(2,076)		(12,959)
Operating liabilities, excluding income taxes	640		(3,328)
Income taxes payable	19,263		20,897
Prepaid income taxes	4,809		—

Cash provided by operating activities	114,775		107,735

Cash flows from investing activities:
Proceeds from sale of fixed assets	5		96
Acquisition of real estate	—		(13)
Acquisition of royalty interests	—		(1,637)
Purchase of fixed assets	(1,749)		(3,624)
Cash used in investing activities	(1,744)		(5,178)

Cash flows from financing activities:
Repurchases of common stock	(6,837)		(219)
Shares exchanged for tax withholdings	(939)		—
Dividends paid	(25,061)		(23,224)
Cash used in financing activities	(32,837)		(23,443)

Net increase in cash, cash equivalents and restricted cash	80,194		79,114
Cash, cash equivalents and restricted cash, beginning of period	517,182		428,242
Cash, cash equivalents and restricted cash, end of period	$	597,376	$	507,356

Supplemental disclosure of cash flow information:
Income taxes paid	$	—	$	6,000
Supplemental non-cash investing and financing information:
Nonmonetary exchange of assets	$	—	$	4,174
Increase (decrease) in accounts payable related to capital expenditures	$	2,024	$	(619)
Share repurchases not settled at the end of the period	$	266	$	—

See accompanying notes to condensed consolidated financial statements.

Table of Contents

TEXAS PACIFIC LAND CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(UNAUDITED)~~(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~~874,000 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, Texas Pacific Land Trust (the “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 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 in reference to the Trust, and references to periods on that date and thereafter will be in reference to, into Texas Pacific Land Corporation, ~~or TPL Corporation.~~a corporation formed and existing under the laws of the state of Delaware (the “Corporate Reorganization”).

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.~~2022. 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~~2023 and the results of its operations ~~for the three months ended March 31, 2021 and 2020, respectively,~~ and its cash flows for the three months ended March 31, ~~2021~~2023 and ~~2020,~~2022, 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.~~2022. 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 condensed 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.

Cash,CashEquivalents and Restricted Cash

We consider investments in bank deposits, money market funds, and other highly-liquid cash investments, such as U.S. Treasury bills and commercial paper, with original maturities of three months or less to be cash equivalents. Our cash equivalents are considered Level 1 assets in the fair value hierarchy.

Table of Contents

~~Cash, Cash Equivalents and Restricted Cash~~

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the ~~condensed~~ consolidated balance sheets that sum to the total of the same such amounts shown in the ~~condensed~~ consolidated statements of cash flows as of March 31, 2023 and December 31, 2022 (in thousands):


		March 31, 2021		December 31, 2020			March 31, 2023		December 31, 2022
Cash and cash equivalents	Cash and cash equivalents	$	310,655	$	281,046	Cash and cash equivalents	$	590,619	$	510,834
Tax like-kind exchange escrow	Tax like-kind exchange escrow	1,978		1,978		Tax like-kind exchange escrow	6,757		6,348
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	312,633	$	283,024	Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	597,376	$	517,182

Reclassifications

Certain financial information on the condensed consolidated ~~statements~~balance sheet and condensed consolidated statement of income and total comprehensive income as of and for the three months ended March 31, ~~2020 have~~2022 has been revised to conform to the current year presentation. These revisions include a balance sheet reclassification of ~~$12.5 million~~$454,000 of ~~produced water royalties revenue~~other taxes payable previously included in accounts payable and accrued expenses to ad valorem and other taxes payable and an income statement reclassification of $33,000 of property taxes previously included in general and administrative expenses to ad valorem and other taxes 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.~~

~~Recently Adopted Accounting Guidance~~

~~In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) — Simplifying the Accounting for Income Taxes.”~~ The ASU simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The Company adopted the guidance effective January 1, 2021. The adoption had minimal impact on the Company’s consolidated financial statements and disclosures.2022.

3. Real Estate Activity

As of March 31, 2023 and December 31, 2022, TPL owned the following land and real estate (in thousands, except number of acres):


	March 31, 2023			December 31, 2022
	Number of Acres	Net Book Value		Number of Acres	Net Book Value
Land (surface rights) (1)	817,051	$	—	817,060	$	—
Real estate acquired	57,306	109,704		57,306	109,704
Total real estate situated in Texas	874,357	$	109,704	874,366	$	109,704

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

There were no significant land sales or acquisitions for the three months ended March 31, 2023 or 2022.

4. Property, Plant and Equipment

Property, plant and equipment, net consisted of the following as of March 31, ~~2021~~2023 and December 31, ~~2020~~2022 (in thousands):


	March 31, 2023		December 31, 2022
Property, plant and equipment, at cost:
Water service-related assets	$	128,675	$	125,166
Furniture, fixtures and equipment	9,937		9,718
Other	598		598
Total property, plant and equipment, at cost	139,210		135,482
Less: accumulated depreciation	(53,018)		(50,004)
Property, plant and equipment, net	$	86,192	$	85,478

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~~$3.0 million and ~~$3.2~~$3.8 million for the three months ended March 31, ~~2021~~2023 and ~~2020,~~2022, respectively.

~~4. Real Estate Activity~~

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

Table of Contents

March 31,
2021 December 31,
2020
Number of Acres Net Book Value Number of Acres Net Book Value
Land (surface rights) (1)
823,482 $ 0 823,482 $ 0
Real estate acquired 57,041 108,536 57,041 108,536
Total real estate situated in Texas 880,523 $ 108,536 880,523 $ 108,536

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

~~Land Sales~~

There were 0 land sales during the three months ended March 31, 2021. For the three months ended March 31, 2020, we sold 30 acres of land in Texas for an aggregate sales price of $0.9 million, an average of approximately $30,000 per acre.

~~Land Acquisitions~~

There were 0 land acquisitions during the three months ended March 31, 2021. For the three 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.

5. Oil and Gas Royalty Interests

As of March 31, ~~2021~~2023 and December 31, ~~2020,~~2022, we owned the following oil and gas royalty interests (in thousands):


		Net Book Value
		March 31, 2021		December 31, 2020			March 31, 2023		December 31, 2022
1/16th nonparticipating perpetual royalty interests	1/16th nonparticipating perpetual royalty interests	$	0	$	0	1/16th nonparticipating perpetual royalty interests	$	—	$	—
1/128th nonparticipating perpetual royalty interests	1/128th nonparticipating perpetual royalty interests	0		0		1/128th nonparticipating perpetual royalty interests	—		—
Royalty interests acquired	Royalty interests acquired	46,266		46,266		Royalty interests acquired	47,928		47,928
Total royalty interests, gross	Total royalty interests, gross	46,266		46,266		Total royalty interests, gross	47,928		47,928
Less: accumulated depletion	Less: accumulated depletion	(831)		(620)		Less: accumulated depletion	(3,208)		(2,903)
Total royalty interests, net	Total royalty interests, net	$	45,435	$	45,646	Total royalty interests, net	$	44,720	$	45,025

Acquisitions

There were no oil and gas royalty interest transactions ~~for~~during the three months ended March 31, ~~2021.~~ 2023.

For the three months ended March 31, ~~2020,~~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 $1.6 million, an average price of approximately ~~$16,659~~$17,750 per net royalty acre.

Depletion expense was $0.3 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively.

6. Share-Based Compensation

The Company grants share-based compensation to employees under the Texas Pacific Land Corporation 2021 Incentive Plan (the “2021 Plan”) and to its directors under the 2021 Non-Employee Director Stock and Deferred Compensation Plan (the “2021 Directors Plan”). Share-based compensation granted to date under the plans has included restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance-based units “(PSUs”). Currently, all awards granted under the plans are entitled to receive dividends (which are accrued and distributed to award recipients upon vesting) or have dividend equivalent rights. Dividends and dividend equivalent rights are subject to the same vesting conditions as the awards to which they relate and are forfeitable if the related awards are forfeited. RSUs granted under the 2021 Plan vest in one-third increments and PSUs granted under the 2021 Plan cliff vest at the end of three years if the performance metrics are achieved (as discussed further below). RSAs granted under the 2021 Directors Plan vest on the first anniversary of the award.

Incentive Plan for 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, which may consist, in whole or in part, of authorized and unissued (if any), treasury shares, or shares reacquired by the Company in any manner. As of March 31, 2023, 54,718 shares of Common Stock remained available under the 2021 Plan for future grants.

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The following table summarizes activity related to RSAs and RSUs under the 2021 Plan for the three months ended March 31, 2023 and 2022 (in thousands, except number of shares and units, and per share amounts):


	Three Months Ended March 31,
	2023						2022
	Restricted Stock Awards			Restricted Stock Units			Restricted Stock Awards			Restricted Stock Units
	Number of RSAs	Weighted-Average Grant-Date Fair Value per Share		Number of RSUs	Weighted-Average Grant-Date Fair Value per Share		Number of RSAs	Weighted-Average Grant-Date Fair Value per Share		Number of RSUs	Weighted-Average Grant-Date Fair Value per Share
Nonvested at beginning of period (1)	1,337	$	1,252	5,612	$	1,323	3,330	$	1,252	—	$	—
Granted (2)	—	—		2,848	1,924		—	—		3,824	1,105
Vested (3)	—	—		(1,270)	1,105		—	—		—	—
Cancelled and forfeited	—	—		—	—		—	—		—	—
Nonvested at end of period	1,337	$	1,252	7,190	$	1,600	3,330	$	1,252	3,824	$	1,105

(1)The RSAs were granted on December 29, 2021: 1,993 shares vested on December 29, 2022 and 1,337 shares will vest on December 29, 2023.

(2)The RSUs were granted on February 10, 2023 and vest in one-third increments over a three-year period.

(3)Of the 1,270 shares that vested on February 11, 2023, 488 shares were surrendered by employees to the Company to settle tax withholdings.

The following table summarizes activity related to PSUs for the three months ended March 31, 2023 and 2022 (in thousands, except number of units and per share amounts):


	Performance Stock Units
	Three Months Ended March 31,
	2023			2022
	Number of Target PSUs	Weighted-Average Grant-Date Fair Value per Share		Number of Target PSUs	Weighted-Average Grant-Date Fair Value per Share
Nonvested at beginning of period (1)	2,394	$	1,355	—	$	—
Granted (2)	1,852	2,342		2,394	1,355
Vested	—	—		—	—
Cancelled and forfeited	—	—		—	—
Nonvested at end of period	4,246	$	1,786	2,394	$	1,355

(1)The PSUs were granted on February 11, 2022 and include 1,197 RTSR (as defined below) PSUs (based on target) with a grant date fair value of $1,605 per share and 1,197 FCF (as defined below) PSUs (based on target) with a grant date fair value of $1,105 per share. If the maximum performance potential metrics described in the PSU agreements are achieved, the actual number of units that will ultimately be awarded under the PSU agreements will exceed target units by 100% (i.e., a collective 2,394 additional units would be issued).

(2)The PSUs were granted on February 10, 2023 and include 926 RTSR PSUs (based on target) with a grant date fair value of $2,761 per share and 926 FCF PSUs (based on target) with a grant date fair value of $1,924 per share. If the maximum performance potential metrics described in the PSU agreements are achieved, the actual number of units that will ultimately be awarded under the PSU agreements will exceed target units by 100% (i.e., a collective 1,852 additional units would be issued).

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”) over the applicable three-year measurement period 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

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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

The maximum aggregate number of shares of Common Stock that may be issued under the 2021 Directors Plan is 10,000 shares, which may consist, in whole or in part, of authorized and unissued shares (if any), treasury shares, or shares reacquired by the Company in any manner. As of March 31, 2023, 8,815shares of Common Stock remained available under the 2021 Directors Plan for future grants.

The following table summarizes activity related to the RSAs under the 2021 Directors Plan for the three months ended March 31, 2023 and 2022 (in thousands, except number of shares and per share amounts):


	Restricted Stock Awards
	Three Months Ended March 31,
	2023			2022
	Number of RSAs	Weighted-Average Grant-Date Fair Value per Share		Number of RSAs	Weighted-Average Grant-Date Fair Value per Share
Nonvested at beginning of period	699	$	1,281	—	$	—
Granted (1)	486	2,344		680	1,249
Vested	(595)	1,249		—	—
Cancelled and forfeited	—	—		(85)	1,249
Nonvested at end of period	590	$	2,189	595	$	1,249

(1)The RSAs were granted on January 1, 2023 and will vest on the first anniversary of the grant.

Share-Based Compensation Expense

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


	Three Months Ended March 31,
	2023		2022
Salaries and related employee expenses (employee awards)	$	2,156	$	1,319
General and administrative expenses (director awards)	317		186
Total share-based compensation expense (1)	$	2,473	$	1,505

(1)The Company recognized a tax benefit of $0.5 million and $0.3 million related to share-based compensation for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, there was $17.1 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 1.7 years.

7. Income Taxes

The calculation of our effective tax rate is as follows for the three months ended March 31, ~~2021~~2023 and ~~2020~~2022 (in thousands, except percentages):

Three Months Ended
March 31,
2021 2020
Income before income taxes $ 62,027 $ 71,368
Income tax expense $ 11,975 $ 13,967
Effective tax rate 19.3 % 19.6 %

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

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	Three Months Ended March 31,
	2023			2022
Income before income taxes	$	110,341		$	124,389
Income tax expense	$	23,773		$	26,489
Effective tax rate	21.5		%	21.3		%

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

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 months ended March 31, 2023 and 2022 (in thousands, except number of shares and per share data):


	Three Months Ended March 31,
	2023		2022
Net income	$	86,568	$	97,900

Basic earnings per share:
Weighted average shares outstanding for basic earnings per share	7,693,084		7,741,365
Basic earnings per share	$	11.25	$	12.65

Diluted earnings per share:
Weighted average shares outstanding for basic earnings per share	7,693,084		7,741,365
Effect of dilutive securities:
Incentive and equity compensation plans	5,314		1,345
Weighted average shares outstanding for diluted earnings per share	7,698,398		7,742,710
Diluted earnings per share	$	11.24	$	12.64

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. Certain stock awards granted are not included in the dilutive securities in the table above as they are anti-dilutive for the three months ended March 31, 2023 and March 31, 2022.

9. Commitments and Contingencies

Litigation

Management is not aware of any legal, environmental or other commitments or contingencies that would have a material effect on the Company’s financial condition, results of operations or liquidity as of March 31, 2023.

Prior to January 1, 2022, ad valorem taxes with respect to our historical royalty interests were paid directly by third parties pursuant to an existing arrangement. Since the completion of our Corporate Reorganization, we have received notice

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from certain third parties that they no longer intend to pay the ad valorem taxes related to such historical royalty interests. In order to protect the historical royalty interests from any potential tax liens for non-payment of ad valorem taxes, we have accrued and/or paid such ad valorem taxes since January 1, 2022. While we intend to seek reimbursement from the third parties for such taxes, we are unable to estimate the amount and/or likelihood of such reimbursement, and accordingly, no loss recovery receivable has been recorded as of March 31, 2023.

Ongoing Arbitration with an Operator.

10. Changes in Equity

The following tables present changes in our equity for the three months ended March 31, ~~2021~~2023 and ~~2020~~2022 (in thousands, except shares and per share amounts):


	Common Stock			Treasury Stock			Additional Paid-in Capital		Accum. Other Comp. Income (Loss)		Retained Earnings		Total Equity
	Shares	Amount		Shares	Amount
For the three months ended March 31, 2023:
Balances as of December 31, 2022	7,695,679	$	78	60,477	$	(104,139)	$	8,293	$	2,516	$	866,139	$	772,887
Net income	—	—		—	—		—		—		86,568		86,568
Dividends paid — $3.25 per share of common stock	—	—		—	—		—		—		(25,061)		(25,061)
Share-based compensation, net of forfeitures	1,756	—		(1,756)	3,033		(560)		—		(103)		2,370
Repurchases of common stock	(3,627)	—		3,627	(6,749)		—		—		—		(6,749)
Shares exchanged for tax withholdings	(488)	—		488	(939)		—		—		—		(939)
Periodic pension costs, net of income taxes of $6	—	—		—	—		—		(25)		—		(25)
Balances as of March 31, 2023	7,693,320	$	78	62,836	$	(108,794)	$	7,733	$	2,491	$	927,543	829,051

Sub-share Certificates Common Stock
Number of shares Number of shares Par Value Accum. Other Comp. Loss Retained Earnings Net Proceeds from All Sources Total Equity
For the three months ended March 31, 2021:
Balances as of December 31, 2020 7,756,156 0 $ 0 $ (2,693) $ 0 $ 487,877 $ 485,184
Net income — — — — 50,052 — 50,052
Dividends paid ($2.75 per common share) — — — — (21,329) — (21,329)
Conversion of Sub-shares into shares of common stock (7,756,156) 7,756,156 78 — 487,799 (487,877) 0
Other comprehensive income — — — 28 — — 28
Balances as of March 31, 2021 0 7,756,156 $ 78 $ (2,665) $ 516,522 $ 0 $ 513,935


	Common Stock			Treasury Stock			Additional Paid-in Capital		Accum. Other Comp. Income (Loss)		Retained Earnings		Total Equity
	Shares	Amount		Shares	Amount
For the three months ended March 31, 2022:
Balances as of December 31, 2021	7,744,695	$	78	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

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

~~Corporate Reorganization~~Stock Repurchase Program

On ~~January 11, 2021, TPL completed its Corporate Reorganization, officially changing its name~~November 1, 2022, our board of directors approved a stock repurchase program to ~~Texas Pacific Land Corporation. To implement the Corporate Reorganization, the Trust and TPL Corporation entered into agreements and undertook and caused~~purchase up to ~~be undertaken a series~~an aggregate of ~~transactions to effect the transfer to TPL Corporation~~$250 million 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, 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 itsour outstanding Common Stock ~~is listed under the symbol “TPL” on the New York Stock Exchange.~~which became effective January 1, 2023.

The ~~Corporate Reorganization only affected our equity structure~~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 ~~that Sub-shares were replaced~~compliance with ~~shares~~Rule 10b-18 promulgated under the Securities Exchange Act of ~~Common Stock~~1934, as amended, privately negotiated transactions, and/or other transactions at the Company’s discretion, including under a Rule 10b5-1 trading plan implemented by the Company, and ~~net proceeds from all sources were replaced with retained earnings on the condensed consolidated balance sheet.~~

will be subject to market conditions, applicable legal requirements and other factors.

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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~~874,000 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.

Segment financial results were as follows for the three months ended March 31, ~~2021~~2023 and ~~2020~~2022 (in thousands):


		Three Months Ended March 31,				Three Months Ended March 31,
		2021		2020				2023		2022
Revenues:	Revenues:						Revenues:
Land and resource management	Land and resource management	$	57,790	$	56,658		Land and resource management	$	104,023	$	113,347
Water services and operations	Water services and operations	26,365		39,936			Water services and operations	42,339		33,988
Total consolidated revenues	Total consolidated revenues	$	84,155	$	96,594		Total consolidated revenues	$	146,362	$	147,335

Net income:	Net income:						Net income:
Land and resource management	Land and resource management	$	39,513	$	39,118		Land and resource management	$	65,343	$	81,156
Water services and operations	Water services and operations	10,539		18,283			Water services and operations	21,225		16,744
Total consolidated net income	Total consolidated net income	$	50,052	$	57,401		Total consolidated net income	$	86,568	$	97,900

Capital expenditures:	Capital expenditures:						Capital expenditures:
Land and resource management	Land and resource management	$	0	$	88		Land and resource management	$	175	$	122
Water services and operations	Water services and operations	2,738		3,529			Water services and operations	3,598		2,883
Total capital expenditures	Total capital expenditures	$	2,738	$	3,617		Total capital expenditures	$	3,773	$	3,005

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	$	618	$	536
Water services and operations	Water services and operations	3,344		2,998			Water services and operations	2,786		3,590
Total depreciation, depletion and amortization	Total depreciation, depletion and amortization	$	3,838	$	3,335		Total depreciation, depletion and amortization	$	3,404	$	4,126

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The following table presents total assets and property, plant and equipment, net by segment as of March 31, ~~2021~~2023 and December 31, ~~2020~~2022 (in thousands):


		March 31, 2021		December 31, 2020			March 31, 2023		December 31, 2022
Assets:	Assets:					Assets:
Land and resource management	Land and resource management	$	501,516	$	460,053	Land and resource management	$	814,927	$	735,193
Water services and operations	Water services and operations	112,286		111,582		Water services and operations	140,324		142,234
Total consolidated assets	Total consolidated assets	$	613,802	$	571,635	Total consolidated assets	$	955,251	$	877,427

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	$	5,904	$	5,998
Water services and operations	Water services and operations	75,108		75,740		Water services and operations	80,288		79,480
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	$	86,192	$	85,478

9.12. Oil and Gas Producing Activities

We measure our share of oil and gas produced in barrels of equivalency (“~~BOEs”~~Boes”). 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, ~~2021~~2023 and ~~March 31, 2020,~~2022, our share of oil and gas produced was approximately ~~16.4~~20.9 and ~~16.5~~20.8 thousand ~~BOEs~~Boes per day, respectively. Reserves related to our royalty interests are not presented because the information is unavailable.

There are a number of oil and gas wells that have been drilled but are not yet completed (“DUC”) where we have a royalty interest. The number of DUC wells is determined using uniform drilling spacing units with pooled interests for all wells awaiting completion. We have identified ~~541~~565 and ~~531~~584 DUC wells subject to our royalty interest as of March 31, ~~2021~~2023 and December 31, ~~2020,~~2022, 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~~2, 2023, our board of directors declared a quarterly cash dividend of ~~$2.75~~$3.25 per share, payable on June 15, ~~2021~~2023 to stockholders of record at the close of business on June 8, ~~2021.~~2023.

~~Stock Repurchase Program~~

On May 3, 2021, our board of directors approved a stock repurchase program to purchase up to an aggregate of $20.0 million of shares of our outstanding common stock. Acquisitions pursuant to 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 a Rule 10b5-1 trading plan that would generally permit the Company to repurchase shares at times when it might otherwise be prevented from doing so under securities laws. The stock repurchase program will expire on December 31, 2021 unless otherwise modified or earlier terminated by our board of directors at any time in its sole discretion. Repurchased shares will be held in treasury.

~~*****~~

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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 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,~~2022, 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)~~2022 filed with the ~~factors discussed~~SEC on February 22, 2023 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~~874,000 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. The Company was originally organized under a Declaration of Trust, dated February 1, 1888, to receive and hold title to extensive tracts of land in the State of Texas, previously the property of the Texas and Pacific Railway Company.

We completed our reorganization on January 11, 2021 from a business trust, Texas Pacific Land Trust, into Texas Pacific Land Corporation, a corporation formed and existing under the laws of the state of Delaware (the “Corporate Reorganization”).

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 in reference to the Trust, and references to periods on that date and thereafter will be in reference to Texas Pacific Land Corporation or TPL Corporation. For further information on the Corporate Reorganization, see ~~Note 7, “Changes in~~ ~~Equity”~~ ~~in the notes to the condensed consolidated financial statements.~~

~~Our surface and royalty ownership allow steady revenue generation through the entire value chain of oil and gas development. While we~~ are not an oil and gas producer, we benefit from various revenue sources throughout the life cycle of a well. During the initial development phase where infrastructure for oil and gas development is constructed, we receive fixed fee payments for use of our land and revenue for sales of materials (caliche) used in the construction of the infrastructure. During the drilling and completion phase, we generate revenue for providing sourced water and/or treated produced water in addition to fixed fee payments for use of our land. During the production phase, we receive revenue from our oil and gas royalty interests and also revenues related to saltwater disposal on our land. In addition, we generate revenue from pipeline, power line and utility easements, commercial leases, 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~~producer. Our business activity is generated from ~~our business activity~~surface and royalty interest ownership in West Texas, primarily in the Permian ~~Basin and~~Basin. Our revenues are primarily 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, 2022.

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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 and Impact of Increased Supply by OPEC+~~

~~The uncertainty caused by the global spread of COVID-19, together with the increased supply of~~Average oil and gas ~~by member nations of OPEC+, led to declines in crude oil~~ prices ~~and a reduction in global demand for oil and gas beginning in~~during the first quarter of ~~2020. These events led~~2023 have declined compared to quarterly average prices during 2022. Oil prices have been impacted by certain actions by OPEC+, uneven global supply and demand trends, and Russia’s incursion into Ukraine, among other factors. Global and domestic natural gas markets have experienced volatility due to macroeconomic conditions, infrastructure and logistical constraints, weather, and geopolitical issues, among other factors. Since mid-2022, the Waha Hub located in Pecos County, Texas has at times experienced significant negative price differentials relative to Henry Hub, located in Erath, Louisiana, due in part to growing local Permian natural gas production ~~curtailments and/or conservation of capital~~and limited natural gas pipeline takeaway capacity. Midstream infrastructure is currently under construction by operators to provide additional takeaway capacity, though the ~~owners~~impact on future basis differentials will be dependent on future natural gas production and ~~operators of the~~other factors. Industry supply chains and labor supply remain constrained, which has contributed to elevated inflation, among other factors. Changes in macro-economic conditions, including rising interest rates and lower global economic activity, could result in additional shifts in oil and gas ~~wells to which the Company’s~~supply and demand in future periods. Although our revenues are directly and indirectly impacted by changes in oil and natural gas prices, we believe our royalty interests ~~relate. These events negatively affected the Company’s business~~(which require no capital expenditures or operating expense burden from us for well development), strong balance sheet, and ~~operations for 2020. The lingering impact of these events continues to reduce the demand for oil in 2021, and we expect that these events~~liquidity position will ~~continue to affect our financial results in 2021.~~help us navigate through potential commodity 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.

Our primary focus has always been, and will continue to be, on maintaining a safe and healthy work environment for our employees. Our information technology infrastructure has afforded us the opportunity to allow our corporate employees to work remotely and we have deployed additional safety and sanitation measures for our field employees.

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 in 2023 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.~~5.5 million barrels per day, which is higher than the average daily production of any year prior to 2023.

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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 months ended March 31, ~~2021~~2023 and ~~2020:~~2022:


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2023		2022
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	$	75.93	$	95.18
Henry Hub average price per mmbtu	Henry Hub average price per mmbtu	$	3.50	$	1.90	Henry Hub average price per mmbtu	$	2.64	$	4.67

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	680		572
Average monthly horizontal wells drilled	Average monthly horizontal wells drilled	343		575		Average monthly horizontal wells drilled	535		465
Average monthly horizontal rig count		189		384
Average weekly horizontal rig count						Average weekly horizontal rig count	338		265
DUCs as of March 31 for each applicable year	DUCs as of March 31 for each applicable year	4,617		4,921		DUCs as of March 31 for each applicable year	4,986		3,924

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)	697		575

(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. Statistics for similar data are also available from other sources. The comparability between these other sources and the sources used by the Company may differ.

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 three months ended March 31, 2023 and 2022. Oil and gas prices in 2023 to date have decreased compared to the comparable period in 2022. Although E&P companies broadly continue to deploy capital at a measured pace, drilling and development activities across the Permian have remained robust through the first quarter of 2020 to the first quarter of 2021. While oil and gas prices, which began declining in the first quarter of 2020 (prior to oil reaching record lows in the second quarter of 2020), have rebounded in the first quarter of 2021, development, drilling and completion and production activities have not returned 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.2023. As we are a

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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

~~Liquidity and Capital Resources~~Overview

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

We continuously review our liquidity and capital resources. If market conditions were to change and our ~~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.~~2023.

As of March 31, ~~2021,~~2023, we had cash and cash equivalents of ~~$310.7~~$590.6 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 (the “Board”) and for

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general corporate purposes. For the three months ended March 31, 2023, we repurchased $6.7 million of our Common Stock (including share repurchases not settled at the end of the period), and we paid $25.1 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.

During the three months ended March 31, 2023, we invested approximately $3.6 million in Texas Pacific Water Resources LLC (“TPWR”) projects to maintain and/or enhance water sourcing assets.

Cash Flows from Operating Activities

For the three months ended March 31, 2023 and 2022, net cash provided by operating activities was $114.8 million and $107.7 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 three months ended March 31, 2023 compared to the same period of 2022 was primarily related to the decrease in income tax payments during 2023 as compared to 2022.

Cash Flows Used in Investing Activities

For the three months ended March 31, 2023 and 2022, net cash used in investing activities was $1.7 million and $5.2 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 decreased $1.9 million for the three months ended March 31, 2023 compared to the same period of 2022. Acquisitions of royalty interests decreased approximately $1.6 million for the three months ended March 31, 2023 compared to the same period of 2022.

Cash Flows Used in Financing Activities

For the three months ended March 31, 2023 and 2022, net cash used in financing activities was $32.8 million and $23.4 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 three months ended March 31, 2023, we paid total dividends of $25.1 million consisting of cumulative paid cash dividends of $3.25 per share. During the three months ended March 31, 2022, we paid total dividends of $23.2 million consisting of cumulative paid cash dividends of $3.00 per share. We repurchased $6.7 million of our Common Stock (including

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share repurchases not settled at the end of the period) during the three months ended March 31, 2023. There were no share repurchases during the three months ended March 31, 2022.

Results of Operations - Consolidated

The following table shows our consolidated results of operations for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Revenues:
Oil and gas royalties	$	89,130	$	104,172
Water sales	21,729		18,820
Produced water royalties	20,134		14,870
Easements and other surface-related income	14,969		9,192
Land sales and other operating revenue	400		281
Total revenues	146,362		147,335

Expenses:
Salaries and related employee expenses	10,593		9,385
Water service-related expenses	5,656		2,782
General and administrative expenses	3,552		2,967
Legal and professional fees	16,628		1,719
Ad valorem and other taxes	1,574		2,043
Land sales expenses	3		—
Depreciation, depletion and amortization	3,404		4,126
Total operating expenses	41,410		23,022

Operating income	104,952		124,313

Other income, net	5,389		76
Income before income taxes	110,341		124,389



Income tax expense	23,773		26,489
Net income	$	86,568	$	97,900

For the Three Months Ended March 31, 2023 as Compared to the Three Months Ended March 31, 2022

Consolidated Revenues and Net Income:

Total revenues decreased $1.0 million, or 0.7%, to $146.4 million for the three months ended March 31, 2023 compared to $147.3 million for the three months ended March 31, 2022. This decrease was principally due to the $15.0 million decrease in oil and gas royalty revenue, mostly offset by the combined increase of $8.2 million in produced water royalties and water sales over the same period. Net income of $86.6 million for the three months ended March 31, 2023 was 11.6% lower than the comparable period of 2022. The decrease in net income for the three months ended March 31, 2023 compared to the same period of 2022 was driven by the $18.4 million increase in operating expenses principally resulting from the $14.9 million increase in legal and professional fees during the same time period as discussed further below under “Consolidated Expenses.” 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 $10.6 million for the three months ended March 31, 2023 compared to $9.4 million for the comparable period of 2022. The increase in salaries and related employee expenses is principally related to an increase in number of employees and market compensation adjustments made subsequent to March 31, 2022.

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Water service-related expenses. Water service-related expenses increased $2.9 million to $5.7 million for the three months ended March 31, 2023 compared to the same period of 2022. Certain types of water-related expenses, including, but not limited to, transfer, treatment, and electricity, will vary from period to period as our customers’ needs and requirements change. Water purchase and transfer costs for the three months ended March 31, 2023 increased primarily due to heightened sales activity compared to the same period of 2022. Additionally, fuel and equipment rental expenses increased due to increased sales activity in areas that are not electrified.

Legal and professional fees. Legal and professional fees were $16.6 million for the three months ended March 31, 2023 compared to $1.7 million for the comparable period of 2022. The increase is principally related to legal expenses associated with stockholder matters. See further discussion in Part II, Other Information — Item 1. Legal Proceedings.

Ad valorem and other taxes. Ad valorem and other taxes were $1.6 million for the three months ended March 31, 2023, compared to $2.0 million for three months ended March 31, 2022. Prior to January 1, 2022, the ad valorem taxes with respect to our historical royalty interests were paid directly by third parties pursuant to an existing arrangement. Since the completion of our Corporate Reorganization on January 11, 2021, we have received notice from certain third parties that they no longer intend to pay the ad valorem taxes related to such historical royalty interests. While we continue to believe the obligation to pay these ad valorem taxes should belong to the third parties, we have accrued and/or paid an estimate of such taxes in order to protect the royalty interests from any potential tax liens for nonpayment of ad valorem taxes. While we intend to seek reimbursement from the third parties following payment of such taxes, we are unable to determine the amount and/or likelihood of such reimbursement, and accordingly, have not recorded a loss recovery receivable as of March 31, 2023.

Other income, net. Other income, net was $5.4 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively. The increase in other income, net is primarily related to increased interest income earned on our cash balances as interest yields have risen during the first three months of 2023 compared to the first three months of 2022.

Total income tax expense. Total income tax expense was $23.8 million and $26.5 million for the three months ended March 31, 2023 and 2022, respectively. The decrease in income tax expense is primarily related to decreased operating income resulting from decreased oil and gas royalty revenue and increased operating expenses.

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 months ended March 31, ~~2021~~2023 have been ~~negatively~~ impacted by ~~the lingering reduction in demand for~~declining commodity prices compared to 2022. Our oil and ~~Winter Storm Uri. These combined circumstances~~gas royalty revenues have ~~affected not only our production~~decreased due to lower commodity prices during this time period. The decline in oil and gas royalty revenues has been mostly offset by increases in revenues derived from easements and other surface-related income, produced water ~~volumes, but also directly impacted our surface-related income~~royalties, and water sales, ~~as discussed further below.~~which have been positively impacted by ongoing development activity in the Permian Basin.

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For the ~~three months ended~~Three Months Ended March 31, ~~2021~~2023 as ~~compared~~Compared to the ~~three months ended~~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, 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, 2020.2022

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 %


	Three Months Ended March 31,
	2023				2022
Revenues:
Land and resource management:




Oil and gas royalties	$	89,130	61	%	$	104,172	71	%
Easements and other surface-related income	14,493		10	%	8,894		6	%
Land sales and other operating revenue	400		—	%	281		—	%
Total land and resource management revenue	104,023		71	%	113,347		77	%

Water services and operations:
Water sales	21,729		15	%	18,820		13	%
Produced water royalties	20,134		14	%	14,870		10	%
Easements and other surface-related income	476		—	%	298		—	%
Total water services and operations revenue	42,339		29	%	33,988		23	%
Total consolidated revenues	$	146,362	100	%	$	147,335	100	%

Net income:
Land and resource management	$	65,343	75	%	$	81,156	83	%
Water services and operations	21,225		25	%	16,744		17	%
Total consolidated net income	$	86,568	100	%	$	97,900	100	%

Land and Resource Management

Land and Resource Management segment revenues ~~increased $1.1~~decreased $9.3 million, or ~~2.0%~~8.2%, to ~~$57.8~~$104.0 million for the three months ended March 31, ~~2021~~2023 as compared ~~with $56.7 million for~~to the comparable period of ~~2020.~~2022. The ~~increase~~decrease in Land and Resource Management segment revenues is principally due to a $15.0 million decrease in oil and gas royalties for three months ended March 31, 2023 compared to the same period of 2022.

Oil and gas royalties. Oil and gas royalties were $89.1 million for the three months ended March 31, 2023 compared to $104.2 million for the three months ended March 31, 2022, a decrease of 14.4%. Oil and gas royalties for the three months ended March 31, 2023 included an ~~increase~~$8.7 million recovery, defined and discussed further in the following paragraph. Excluding the $8.7 million, oil and gas royalties decreased $23.7 million due to lower average commodity prices in the first quarter of 2023 compared to the first quarter of 2022. The average realized price declined 23.2% to $44.76 per barrel of oil equivalent (“Boe”) in the first quarter of 2023 from $58.31 per Boe in the first quarter of 2022. Our share of production remained relatively consistent at 20.9 thousand Boe per day for the first quarter of 2023 compared to 20.8 thousand Boe per day for the same period of 2022.

As part of an ongoing arbitration between TPL and an operator with respect to underpayment of oil and gas royalties resulting from improper deductions of post-production costs for periods before and through April 2022, the operator has agreed to pay $8.7 million to TPL (the “$8.7 Million Stipulation”). This amount has been recorded as a receivable and included in oil and gas royalty revenue ~~partially offset by decreases~~ in ~~easements~~the condensed consolidated income statement and ~~other surface-related income and, to a lesser extent, oil royalty revenue as discussed further below.~~in the table above for the three months ended March 31, 2023.

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The financial and operational data by royalty stream presented in the table below for the three months ended March 31, 2023 and 2022 excludes the $8.7 Million Stipulation discussed above:


	Three Months Ended March 31,
	2023		2022
Our share of production volumes (1) (2):
Oil (MBbls)	792		796
Natural gas (MMcf)	3,306		3,279
NGL (MBbls)	539		528
Equivalents (MBoe)	1,882		1,871
Equivalents per day (MBoe/d)	20.9		20.8

Oil and gas royalty revenue (in thousands) (2):
Oil royalties	$	56,894	$	71,681
Natural gas royalties	10,956		16,175
NGL royalties	12,615		16,316
Total oil and gas royalties	$	80,465	$	104,172

Realized prices (2):
Oil ($/Bbl)	$	75.23	$	94.24
Natural gas ($/Mcf)	$	3.58	$	5.33
NGL ($/Bbl)	$	25.28	$	33.42
Equivalents ($/Boe)	$	44.76	$	58.31

~~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.

(2)~~. Oil~~The metrics provided exclude the impact of the $8.7 Million Stipulation discussed above.

Easements and ~~gas royalty revenue~~other surface-related income. Easements and other surface-related income was ~~$49.5~~$14.5 million for the three months ended March 31, ~~2021~~2023, an increase of 63.0% compared to ~~$42.4~~$8.9 million for the three months ended March 31, 2020. Oil royalty revenue was $34.2 million for the three months ended March 31, 2021, a decrease of 4.6% compared to 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 realized price per royalty barrel during the three months ended March 31, 2021 compared to the same period in 2020. Gas royalty revenue was $15.3 million for the three months ended March 31, 2021, an increase of 136.8% compared to the three months ended March 31, 2020 when gas royalty revenue was $6.5 million. This increase in gas royalty revenue is principally due to a 121.1% increase in our average realized price 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 compared to the same period in 2020.

~~Easements and other surface-related income. Easements and other surface-related income was $8.2 million for the three months ended March 31, 2021, a decrease of 38.4% compared to $13.3 million for the three months ended March 31, 2020.~~2022. Easements and other surface-related income includes ~~pipeline, power line~~revenue related to the use and ~~utility easements, commercial leases, material sales~~crossing of our land for oil and ~~seismic~~gas exploration and ~~temporary permits.~~production, renewable energy, and agricultural operations. The ~~decrease~~increase in easements and other surface-related income is principally related to ~~a decrease~~increases of ~~$4.9~~$2.1 million in material sales, $1.7 million in pipeline ~~easement income to $1.2~~easements, and $1.3 million in commercial leases for the three months ended March 31, ~~2021 from $6.1 million for~~2023 compared to the ~~three months ended March 31, 2020. The amount~~same period 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.~~2022. Easements and other surface-related income is dependent on development decisions made by companies that operate in the areas where we own land and is, therefore, unpredictable and may vary significantly from period to period. See “Market Conditions” above for additional discussion of ~~decreased~~ development activity in the Permian Basin during the three months ended March 31, ~~2021 relative to the same time period of 2020.~~2023.

Net ~~income~~income.. Net income for the Land and Resource Management segment was ~~$39.5~~$65.3 million for the three months ended March 31, ~~2021~~2023 compared to ~~$39.1~~$81.2 million for the three months ended March 31, ~~2020.~~2022. Expenses, including income tax expense, for the Land and Resource Management segment were $38.7 million and $32.2 million for three months ended March 31, 2023 and 2022, respectively. The ~~increase in net income is principally due to the $1.1 million increase in segment revenues, partially offset by a slight~~ increase in segment expenses ~~including income tax expense. The~~during 2023 is principally related to a $14.8 million increase in ~~segment revenues is principally due to an increase in gas royalty revenue, partially offset by decreases in easements~~legal and ~~other surface-related income and oil royalty revenues, as discussed above. Total segment expenses were $18.3 million and $17.6 million~~professional fees for the three months ended March 31, ~~2021 and 2020, respectively. The overall increase in segment expenses was principally related~~2023 compared to ~~increased income tax expense, depletion expense related to our royalty interests and increased board~~the same period of ~~director expenses associated with our Corporate Reorganization.~~2022. Expenses are discussed further ~~below~~above under ~~“Other Financial Data — Consolidated.~~“Results of Operations.”

Water Services and Operations

Water Services and Operations segment revenues ~~decreased 34.0%~~increased 24.6%, to ~~$26.4~~$42.3 million for the three months ended March 31, ~~2021~~2023 as compared with ~~$39.9~~revenues of $34.0 million for the comparable period of ~~2020.~~2022. The ~~decrease~~increase in Water Services and Operations segment revenues is ~~principally~~ due to ~~a decrease~~increases in produced water royalties and water sales revenue, which isare discussed below. As discussed in “Market Conditions” above, our segment revenues are directly influenced by development decisions

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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 $2.9 million, or 15.5% to $21.7 million for the three months ended March 31, ~~2021, a decrease~~2023, compared to the same period of ~~$14.0 million or 52.0%, compared with the three months ended March 31, 2020 when~~2022. The increase in water sales ~~revenue was $27.0 million. This decrease was~~is principally due to ~~a 40.7% decrease~~an increase of approximately 20.1% 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~~volumes for the three months ended March 31, ~~2021~~2023, compared to the same period ~~in 2020.~~of 2022.

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~~saltwater disposal wells. Produced water royalties were ~~$12.5~~$20.1 million for the three months ended March 31, ~~2021 and 2020.~~2023 compared to $14.9 million for the same period in 2022. This increase is principally due to increased produced water volumes for the three months ended March 31, 2023 compared to the same period of 2022.

Net income. Net income for the Water Services and Operations segment was ~~$10.5~~$21.2 million for the three months ended March 31, ~~2021~~2023 compared to ~~$18.3~~$16.7 million for the three months ended March 31, ~~2020.~~2022. As discussed above, revenues for the Water Services and Operations segment ~~revenues decreased 34.0%~~increased 24.6% for the three months ended March 31, ~~2021~~2023 compared to the same period of ~~2020. Total segment expenses,~~2022. Expenses, including income tax expense, for the Water Services and Operations segment were ~~$15.8~~$21.1 million for the three months ended March 31, ~~2021~~2023 as compared to ~~$21.6~~$17.2 million for the three months ended March 31, ~~2020.~~2022. The overall ~~decrease~~increase in segment expenses during ~~2021~~2023 is principally related to ~~decreased~~a $2.9 million increase in water service-related expenses ~~primarily equipment rental, fuel~~ and ~~repairs and maintenance and~~a $1.3 million increase in income tax ~~expense.~~expense resulting from increased segment revenue and operating income during the same time period. Expenses are discussed further ~~below~~above under ~~“Other Financial Data — Consolidated.”~~

~~Table~~“Results of ~~Contents~~

~~Other Financial Data — Consolidated~~

~~Salaries and related employee expenses~~. Salaries and related employee expenses were $10.0 million for the three months ended March 31, 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.

~~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.Operations.”

~~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~~Non-GAAP Performance Measures

In addition to amounts presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”), we also present certain supplemental non-GAAP performance 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.

~~For the three months ended March 31, 2021 as compared to the three months ended March 31, 2020~~EBITDA, Adjusted EBITDA and Free Cash Flow

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 employee share-based compensation. Its purpose is to highlight earnings without non-cash activity such as share-based compensation and/or other non-recurring or unusual items. We calculate Free Cash ~~flows provided by~~Flow as Adjusted EBITDA less current income tax expense and capital expenditures. Its purpose is to provide an additional measure of operating ~~activities for~~performance. We have presented EBITDA, Adjusted EBITDA and Free Cash Flow because we believe that these metrics are useful supplements to net income in analyzing the ~~three months ended March 31, 2021~~Company's operating performance. Our definitions of Adjusted EBITDA 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~~Free Cash Flow may differ from ~~water sales and easements and~~computations of similarly titled measures of 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.~~companies.

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The following table presents a reconciliation of net income to EBITDA, Adjusted EBITDA and Free Cash Flow for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Net income	$	86,568	$	97,900
Add:
Income tax expense	23,773		26,489
Depreciation, depletion and amortization	3,404		4,126
EBITDA	113,745		128,515
Add:
Employee share-based compensation	2,156		1,319



Adjusted EBITDA	$	115,901	$	129,834
Less:


Current income tax expense	(24,079)		(26,895)
Capital expenditures	(3,773)		(3,005)
Free Cash Flow	$	88,049	$	99,934

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~~2022 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. 22, 2023.

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~~2022 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.~~2022.

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 March 31, 2023.

There have been no changes during the quarter ended March 31, 2023 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.~~proceedings other than the item disclosed below.

On November 23, 2022, TPL filed a complaint in Delaware Chancery Court (“the Court”) against Horizon Kinetics, LLC, Horizon Kinetics Asset Management LLC, SoftVest Advisors LLC, and SoftVest, L.P. (collectively, the “Stockholder Defendants”) under the caption Texas Pacific Land Corporation v. Horizon Kinetics LLC, Horizon Kinetics Asset Management LLC, SoftVest Advisors, LLC, and SoftVest L.P. (C.A. No. 2022-1066-JTL) (the “Action”). Horizon Kinetics LLC and Horizon Kinetics Asset Management LLC are affiliated with Murray Stahl, a member of the Board, and Softvest Advisors, LLC and SoftVest L.P. are affiliated with Eric Oliver, a member of the Board. TPL filed the Action to resolve a disagreement with the Stockholder Defendants over their voting commitments pursuant to the Stockholders’ Agreement with the Company. A trial was held on April 17, 2023 and a post-trial briefing schedule is being developed by the Court.

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~~2022 filed with the SEC on February ~~25, 2021.~~22, 2023.

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 March 31, ~~2021.~~2023, 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(1)
January 1 through January 31, 2023	940	$	2,114	940
February 1 through February 28, 2023	1,006	1,889		1,006
March 1 through March 31, 2023	1,681	1,702		1,681
Total	3,627	$	1,861	3,627	$	243,251,575

(1)On November 1, 2022, our Board approved a stock repurchase program to purchase up to an aggregate of $250 million of our outstanding Common Stock 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 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, including under a Rule 10b5-1 trading plan implemented by the Company, and will be subject to market conditions, applicable legal requirements and other factors.

Item 3. Defaults Upon Senior Securities

Not applicable

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

Not ~~applicable~~applicable.

Item 5.Other ~~Information~~

Information.

~~None~~

(c) On March 15, 2023, Murray Stahl on behalf of himself and Horizon Kinetics Asset Management LLC, over which Mr. Stahl has a controlling interest, adopted a Rule 10b5-1 Self-Directed Trading Plan for the purpose of establishing a purchase plan (the “Purchase Plan”) for the Common Stock that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)(1) promulgated under the Securities Exchange Act of 1934, as amended. The trading period of the Purchase Plan will commence after the later of (1) 90 days from execution of the Purchase Plan or (2) two business days following the public

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disclosure of TPL’s financial results on Form 10-Q for the quarter ended March 31, 2023 and will cease upon the earlier of September 15, 2023 or the acquisition of 567 shares of Common Stock.

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Item 6. Exhibits and Financial Statement Schedules.

EXHIBIT INDEX

~~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~~2023 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,~~2023, 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~~

3, 2023

By:

/s/ Tyler Glover

Tyler Glover
President, Chief Executive Officer and Director

~~Chief Executive Officer~~

Date:

May ~~6, 2021~~

3, 2023

By:

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

~~Robert J. Packer,~~

Chris Steddum
Chief Financial Officer

1929


	March 31, 2021			December 31, 2020
	Number of Acres	Net Book Value		Number of Acres	Net Book Value
Land (surface rights) (1)	823,482	$	0	823,482	$	0
Real estate acquired	57,041	108,536		57,041	108,536
Total real estate situated in Texas	880,523	$	108,536	880,523	$	108,536


	Sub-share Certificates	Common Stock
	Number of shares	Number of shares	Par Value		Accum. Other Comp. Loss		Retained Earnings		Net Proceeds from All Sources		Total Equity
For the three months ended March 31, 2021:
Balances as of December 31, 2020	7,756,156	0	$	0	$	(2,693)	$	0	$	487,877	$	485,184
Net income	—	—	—		—		50,052		—		50,052
Dividends paid ($2.75 per common share)	—	—	—		—		(21,329)		—		(21,329)
Conversion of Sub-shares into shares of common stock	(7,756,156)	7,756,156	78		—		487,799		(487,877)		0
Other comprehensive income	—	—	—		28		—		—		28
Balances as of March 31, 2021	0	7,756,156	$	78	$	(2,665)	$	516,522	$	0	$	513,935