10-K: Texas Pacific Land Corporation Reports Strong 2024 Results Driven by Permian Basin Activity

Texas Pacific Land Corporation (TPL) announces increased revenues and net income for 2024, fueled by growth in both its Land and Resource Management and Water Services and Operations segments.

Summary

• Texas Pacific Land Corporation (TPL) reported a revenue increase of $74.2 million, or 11.8%, reaching $705.8 million for the year ended December 31, 2024, compared to $631.6 million in 2023.
• The increase was primarily driven by a $38.5 million increase in water sales, a $19.9 million increase in produced water royalties, and a $15.9 million increase in oil and gas royalty revenue.
• Net income for 2024 was $454.0 million, an 11.9% increase compared to 2023, attributed to higher revenues partially offset by increased operating expenses.
• The Land and Resource Management segment saw revenues increase by $8.7 million, or 2.0%, to $440.8 million, driven by higher oil and gas royalty revenue.
• Oil and gas royalty revenue increased by 4.5% to $373.3 million, with production volumes rising to 26.8 thousand Boe per day from 23.5 thousand Boe per day in 2023.
• The average realized price decreased by 6.4% to $39.87 per Boe.
• The Water Services and Operations segment experienced a 32.9% revenue increase to $265.0 million, driven by higher water sales and produced water royalties.
• Water sales revenue increased by 34.3% to $150.7 million, with a 31.0% increase in water sales volumes.
• Produced water royalties increased to $104.1 million due to higher produced water volumes.
• The company spent $9.9 million on developing new solutions for produced water, including an energy-efficient desalination and treatment process.
• Capital expenditures for 2024 were $29.7 million, primarily related to the Water Services and Operations segment.
• TPL returned capital to shareholders through $347.3 million in dividends and $29.2 million in share repurchases.
• The company completed acquisitions of mineral interests and surface acres for a total investment of $440.5 million.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and strategic initiatives for future growth. The company's unique position in the Permian Basin and commitment to shareholder value contribute to the positive sentiment.

Positives

• Increased revenue and net income demonstrate strong financial performance.
• Growth in both Land and Resource Management and Water Services and Operations segments indicates diversified revenue streams.
• Higher production volumes in oil and gas royalties and water sales reflect increased activity in the Permian Basin.
• Investment in new water treatment technologies positions the company for future growth and sustainability.
• Return of capital to shareholders through dividends and share repurchases enhances shareholder value.
• Strategic acquisitions expand the company's asset base and revenue opportunities.

Negatives

• The average realized price per Boe decreased by 6.4%, impacting oil and gas royalty revenue.
• Easements and other surface-related income decreased by 7.1% in the Land and Resource Management segment.
• Land sales decreased from $6.8 million to $4.4 million.
• Increased operating expenses partially offset revenue gains.

Risks

• Fluctuations in oil and gas prices can impact revenue from oil and gas royalties.
• Reliance on third-party operators for oil and gas production and water disposal volumes poses a risk.
• Competition in the water service business in the Permian Basin could affect market share and pricing.
• Cybersecurity incidents or attacks could disrupt operations and compromise data.
• Supply chain risks may lead to shortages and price increases, affecting operations and development activities.
• The market price of the Common Stock may fluctuate significantly.

Future Outlook

The company expects to continue optimizing long-term value creation and profitability, fostering responsible stewardship of its assets, providing quality customer service, and engaging with and advocating for employee and stakeholder interests. They also plan to continue exploring new opportunities related to renewable energy, environmental sustainability, and technology.

Management Comments

• Our mission is to pursue a thoughtful, long-term approach towards optimizing and building upon the commercial and environmental virtues of our extensive lands and resources.
• We remain focused on optimizing long-term value creation and profitability, fostering responsible stewardship of our assets, providing quality customer service, and engaging with and advocating for employee and stakeholder interests.

Industry Context

TPL's performance is closely tied to the activity in the Permian Basin, one of the most prolific hydrocarbon-producing areas in the United States. The company's unique position as a significant landowner provides a competitive advantage in the water services business. The company is also exploring opportunities in renewable energy and environmental sustainability, aligning with broader industry trends towards decarbonization.

Comparison to Industry Standards

• TPL's Land and Resource Management segment has few direct peers due to its unique combination of sizable land ownership and commercial sophistication.
• The company competes with other landowners in the Permian Basin, but its scale and expertise provide a competitive edge.
• In the water service business, TPL competes with other providers but benefits from its extensive land ownership, which reduces the need to negotiate with multiple landowners.
• The report benchmarks TPL's performance against the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) for total shareholder return.

Related Party Transactions

• On August 27, 2024, the Company announced the acquisition of oil and gas mineral interests in 4,106 total net royalty acres located in Culberson County, Texas for $120.3 million, net of post-closing adjustments (the Mineral Interest Acquisitions).
• The Mineral Interest Acquisitions were completed in conjunction with Brigham Royalties Fund I Holdco, L.L.C., a subsidiary of Brigham Royalties.
• Robert Roosa, a member of the Board, is a partner in, and serves as the Chief Executive Officer of, Brigham Royalties.
• Brigham Royalties originally identified the opportunity and, because of the size and concentration, invited us to participate.
• Following the execution of the purchase and sale agreements (totaling 7,416 net royalty acres) related to the Mineral Interest Acquisitions, a 55.4% interest in each was assigned to our subsidiary.
• Each party paid a pro-rata share of the purchase price and closing costs.
• We directly paid an aggregate of approximately $1.1 million in commissions to six Brigham Royalties employees, which was equal to the bonuses those employees would have received with respect to the Mineral Interest Acquisitions had they been completed by Brigham Royalties.
• Those fees were significantly less than commissions we would have paid to other third parties for similar services.
• We performed our own diligence and valuation, and the Mineral Interest Acquisitions were approved by the Audit Committee and full Board with Mr. Roosa abstaining.
• We did not pay any fees or commissions to Brigham Royalties or Mr. Roosa in connection with, and we do not have any further relationship with Brigham Royalties with respect to the Mineral Interest Acquisitions.

Stakeholder Impact

• Shareholders benefit from increased dividends and share repurchases.
• Employees benefit from competitive pay and benefits, tuition reimbursement, and a safe workplace.
• Customers benefit from quality water services and solutions.
• Communities benefit from responsible stewardship of assets and engagement with local stakeholders.

Next Steps

• Continue to develop new solutions for produced water in the Permian Basin.
• Maintain and enhance water sourcing assets.
• Deploy free cash flow towards dividends and share repurchases.
• Evaluate potential acquisitions.
• Monitor and manage risks related to oil and gas prices, cybersecurity, and supply chains.

Key Dates