Texas Pacific Land Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the supplied filing text does not provide a clear standalone fourth-quarter income statement or cash flow.
Business context
TPL owns approximately 874,000 surface acres and extensive perpetual oil and gas royalty interests in West Texas, primarily in the Permian Basin. It is not an oil and gas producer. Its two segments are Land and Resource Management and Water Services and Operations; revenues depend substantially on commodity prices, operator activity, and decisions by third parties.
Financial and operating performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $667.4 million | $451.0 million |
| Operating income | $562.3 million | $362.4 million |
| Operating margin | 84.3% | 80.4% |
| Net income | $446.4 million | $270.0 million |
| Basic / diluted EPS | $57.80 / $57.77 | $34.83 / $34.83 |
| Adjusted EBITDA | $591.8 million | $388.0 million |
| Cash from operations | $447.1 million | $265.2 million |
Revenue grew 48.0% and net income grew 65.3%. Oil and gas royalties were $452.4 million, up 57.9%; the company’s royalty production averaged 21.3 thousand Boe per day versus 18.6 thousand, while realized equivalent price rose to $60.81 per Boe from $44.14. Water Services and Operations revenue increased 22.9% to $160.4 million, including $84.7 million of water sales and $72.2 million of produced water royalties.
Cash and cash equivalents were $510.8 million at year-end, compared with $428.2 million. Current assets were $633.4 million and current liabilities $39.6 million. TPL reported no debt or credit facilities and no off-balance-sheet arrangements. Investing cash outflow was $21.4 million; financing cash outflow was $336.8 million. Capital expenditures were $19.0 million, including $18.6 million for water projects.
Material changes and capital returns
- Higher commodity prices and increased production were the main drivers of growth; water sales and produced-water royalties also rose with activity and volumes.
- Ad valorem tax expense was $8.7 million in 2022, compared with none reported in 2021, following a third party’s notice that it would no longer pay taxes associated with certain historical royalty interests. TPL accrued approximately $8.0 million payable and intends to seek reimbursement, but recovery is uncertain.
- TPL paid $12.00 per share in regular dividends and a $20.00 per share special dividend, totaling $247.3 million. It repurchased $87.9 million of stock during the year. A separate $250 million repurchase authorization became effective January 1, 2023.
- Water infrastructure electrification was an investment focus; cumulative electrification capital spending was $13.3 million through year-end.
Outlook, commentary, and risks
The filing gives no numerical revenue or earnings guidance. Management said it expects cash on hand and operating cash flow to cover foreseeable capital, working-capital, and other needs. Agreements to evaluate battery storage, carbon capture, bitcoin mining, solar, and other opportunities may support longer-term revenue, but management does not expect a significant near-term revenue contribution.
- Commodity-price volatility, Permian development pace, and operator production and investment decisions can materially affect royalties and water-related revenue.
- Four customers accounted for 51.8% of revenue: Occidental 17.3%, Chevron 14.2%, ConocoPhillips 10.2%, and EOG 10.1%.
- Water operations face competition, cost and supply-chain uncertainty, regulation, and potential effects from Texas Railroad Commission Seismic Response Areas restricting or redirecting disposal volumes.
- A Delaware Chancery Court action filed by TPL against stockholder-affiliated parties concerns voting commitments under the Stockholders’ Agreement. The case was in discovery, with trial scheduled for April 17, 2023.
- Management identified risks from inflation, geopolitical events, decarbonization trends, severe weather, cybersecurity, and possible changes in regulation. The company also disclosed uncertainty over reimbursement of ad valorem taxes.
Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. The audit report identified the $50.1 million oil and gas royalty accrual as a critical audit matter because estimating production, payment timing, and realized prices requires judgment.
Important facts for investors to verify
- How much future revenue and cash flow depends on oil and gas prices versus production volumes, and how sensitive results are to each.
- Whether the four-customer concentration remains near 51.8%, and how customer-level exposure affects royalty and water revenue.
- Developments in the ad valorem tax dispute, including amounts paid, accrued, and ultimately recovered from the third party.
- The outcome and financial implications of the Stockholders’ Agreement litigation.
- Actual returns and capital needs from the water business and new opportunity agreements; the filing provides no material near-term revenue estimate for those projects.
- Execution of the new $250 million repurchase authorization and the impact of the 1% federal excise tax on repurchases beginning in 2023.