Texas Pacific Land Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024, compared with the three months ended March 31, 2023, unless otherwise stated. TPL owns about 868,000 surface acres and approximately 195,000 net royalty acres, primarily in the Permian Basin. It is a landowner and royalty holder, not an oil and gas producer, and reports Land and Resource Management and Water Services and Operations segments.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $174.1 million | $146.4 million | +19.0% |
| Operating income | $136.0 million | $105.0 million | +29.6% |
| Net income | $114.4 million | $86.6 million | +32.2% |
| Diluted EPS | $4.97 | $3.75 | +32.5% |
| Operating margin | 78.1% | 71.7% | Up 6.4 percentage points |
| Net margin | 65.7% | 59.2% | Up 6.5 percentage points |
| Operating cash flow | $147.2 million | $114.8 million | +$32.5 million |
- Revenue growth included water sales of $37.1 million (+70.9%), oil and gas royalties of $92.1 million (+3.4%), produced water royalties of $23.0 million (+14.3%), and easements and other surface-related income of $20.6 million (+37.9%).
- Water sales and produced water royalties supported segment growth: Water Services and Operations revenue rose 48.0% to $62.7 million, while Land and Resource Management revenue increased 7.2% to $111.5 million. Segment net income was $33.4 million and $81.0 million, respectively.
- Cash and cash equivalents were $837.1 million at March 31, 2024, versus $725.2 million at December 31, 2023. The company reported no debt, credit facilities, or off-balance-sheet arrangements. Total liabilities were $136.7 million.
- Cash provided by operating activities was $147.2 million; investing cash outflow was $2.2 million and financing cash outflow was $38.5 million. Financing outflows included $26.9 million in dividends and $10.3 million in stock repurchases. Segment capital expenditures were $5.7 million; the filing also reports a $3.4 million increase in accounts payable related to capital expenditures.
- Management’s non-GAAP measures were Adjusted EBITDA of $152.0 million and Free Cash Flow of $114.5 million. These are company-defined supplemental measures, not GAAP measures.
- Quarterly dividends were $1.17 per share. On May 6, 2024, the board declared another $1.17 quarterly dividend, payable June 17, 2024.
Material changes and notable items
- Revenue increased 19.0%, principally from water sales (+$15.4 million), easements and other surface-related income (+$5.7 million), oil and gas royalties (+$3.0 million), and produced water royalties (+$2.9 million).
- Operating expenses declined to $38.1 million from $41.4 million, largely because legal and professional fees fell to $4.1 million from $16.6 million. The prior-year amount included legal expenses associated with stockholder matters.
- Q1 2023 oil and gas royalty revenue included an $8.7 million settlement for older production periods. Excluding that settlement, royalty revenue increased $11.7 million year over year, principally on higher production. TPL’s share of production rose to 24.8 thousand Boe per day from 20.9 thousand; realized price declined to $42.71 per Boe from $44.76.
- Water service-related expenses rose 80.5% to $10.2 million, reflecting higher sales volumes, demand for faster delivery, treatment and transfer costs, and repairs and maintenance. Management said meeting demand also increased revenue and operating income.
- Other income increased to $9.9 million from $5.4 million, mainly because of interest income on higher cash balances and higher interest rates. Board stock awards vested immediately under the amended director plan produced a one-time increase in Q1 general and administrative expense.
- TPL effected a three-for-one stock split on March 26, 2024; share and per-share figures in the financial statements were retroactively adjusted. The company also increased its authorized common shares in March.
Outlook, risks, and contingencies
- The filing provides no specific earnings or revenue guidance. Management said cash and operating cash flow should be sufficient for foreseeable capital expenditures, working capital, and other cash needs.
- Management describes Permian drilling and development as robust but notes activity and customer decisions can fluctuate. Results are exposed to oil and natural gas prices, production levels, operator development choices, and demand for water and surface access. The filing reports average WTI of $77.50 per barrel versus $75.93 a year earlier, while Henry Hub averaged $2.15 per Mmbtu versus $2.64.
- Management highlighted natural gas price volatility and sometimes significant negative Waha Hub differentials, partly associated with Permian production growth and limited pipeline takeaway capacity. New infrastructure is under construction, but its future impact is uncertain.
- TPL has accrued or paid certain ad valorem taxes on historical royalty interests after a third party stopped paying them. The company intends to seek reimbursement but cannot estimate the amount or likelihood, and has recorded no recovery receivable.
- Management reported no material legal, environmental, or other contingencies expected to affect financial condition, results, or liquidity. In separate stockholder litigation, the Delaware Supreme Court affirmed a ruling in TPL’s favor on February 27, 2024. The filing states there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether Permian production, oil and gas prices, and operator activity sustain royalty growth, particularly given lower natural gas prices and the prior-year royalty settlement.
- Whether water sales growth and water-related costs develop as demand and delivery requirements change, and whether segment profitability is maintained.
- The amount and collectability of the disputed historical ad valorem tax reimbursement; no receivable has been recognized.
- Capital spending and cash returns, including the pace of water infrastructure investment, the remaining stock-repurchase authorization, and future dividends.
- Share-count and per-share comparisons following the three-for-one stock split, as well as the effect of share-based awards on dilution.