Texas Pacific Land Corporation (NYSE: TPL) — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. TPL owns approximately 880,000 acres in West Texas, with most in the Permian Basin, and earns revenue from oil and gas royalties, produced-water royalties, water sales, easements, leases, and land sales. It completed its reorganization from a business trust to a corporation on January 11, 2021.
Financial performance
Amounts are in millions of dollars except per-share data and where noted.
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Revenue | $95.9 | $57.3 | $180.1 | $153.9 |
| Operating income | $71.3 | $34.7 | $133.3 | $105.3 |
| Net income | $57.0 | $27.6 | $107.1 | $85.0 |
| Diluted earnings per share | $7.36 | $3.56 | $13.81 | $10.96 |
| Operating cash flow | Not separately reported | Not separately reported | $96.5 | $104.1 |
Q2 revenue rose 67.5% and net income more than doubled year over year; H1 revenue increased 17.0% and net income increased 26.0%. The filing reports no debt or credit facilities at June 30. Cash and cash equivalents were $329.1 million, versus $281.0 million at December 31, 2020. Total assets were $633.8 million and total liabilities $86.7 million.
- Q2 revenue mix: Oil and gas royalties $58.2 million; produced-water royalties $15.5 million; water sales $12.5 million; and easements and other surface-related income $9.0 million.
- H1 revenue mix: Oil and gas royalties $107.7 million; produced-water royalties $28.0 million; water sales $25.4 million; and easements and other surface-related income $18.0 million.
- Cash flows, H1: Operating activities provided $96.5 million; investing activities used $4.5 million; financing activities used $45.2 million, including $42.7 million of dividends and $2.5 million of share repurchases.
- Capital returns: Dividends were $2.75 per share in each quarter, or $5.50 per share for H1. The board authorized up to $20 million of repurchases; $2.5 million had been repurchased by June 30.
Material changes versus comparable periods
- Q2 oil and gas royalty revenue increased to $58.2 million from $20.5 million, primarily reflecting higher realized prices. Equivalent realized price rose to $40.83 per Boe from $15.02; production averaged 16.4 thousand Boe per day versus 15.7 thousand.
- Q2 water sales increased 48.2%, with sourced and treated water volumes up 70.8%; produced-water royalties also increased. For H1, however, water sales declined $10.0 million to $25.4 million as volumes fell 16.5%, and Water Services and Operations revenue declined 10.7%.
- H1 easements and other surface-related income declined 33.8% to $18.0 million, principally because pipeline easement income fell $8.7 million. Land sales revenue was $0.7 million versus $4.4 million in H1 2020.
- H1 operating cash flow decreased $7.6 million year over year, which management attributed primarily to increased working capital associated with higher oil and gas activity. Investing outflows fell from $25.3 million to $4.5 million, mainly because the prior-year period included land and royalty-interest acquisitions.
Outlook, commentary, risks, and unusual items
- Management said oil, natural gas, and NGL prices had rebounded and Permian activity had improved from 2020 lows, but development remained below pre-pandemic levels. Future results depend on commodity prices and third-party operator decisions affecting drilling, production, water volumes, and surface-related activity.
- COVID-19 uncertainty, possible renewed containment measures, OPEC+ supply actions, labor and equipment shortages, and rising costs were identified as factors that could affect activity and results. Revenue may fluctuate substantially from quarter to quarter.
- Management expects operating cash flow and cash balances to cover foreseeable capital, working-capital, and other needs. It provided no specific earnings or revenue guidance. H1 investment in water projects was approximately $4.9 million, including $2.0 million for electrification of water-sourcing infrastructure.
- Q2 salaries and related employee expenses included approximately $4.7 million of severance costs; H1 included $6.7 million. The corporate reorganization was completed in January 2021. The filing reports no material pending legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements.
- On August 3, 2021, the board declared a $2.75-per-share quarterly dividend payable September 15, 2021.
Key facts for investors to verify
- How sustained commodity prices and operator activity translate into royalty revenue and production volumes.
- Whether water sales and easement income recover, given their declines in the H1 comparison and sensitivity to Permian development.
- Working-capital movements and operating cash flow conversion as activity changes.
- Severance costs, water-business spending, the remaining repurchase authorization, and future dividend decisions.
- Management’s stated risks around COVID-19, commodity markets, OPEC+, and operating-cost pressures.