Texas Pacific Land Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. TPL owns approximately 880,000 acres in West Texas, with most holdings in the Permian Basin, and earns revenue from oil and gas royalties, water services, easements, leases and land sales. The company completed its reorganization from a business trust to a corporation on January 11, 2021.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $84.2 million | $96.6 million |
| Operating income | $62.0 million | $70.5 million |
| Net income | $50.1 million | $57.4 million |
| Diluted net income per share | $6.45 | $7.40 |
| Cash provided by operating activities | $52.4 million | $68.6 million |
- Revenue declined 12.9% and net income declined 12.8%. Operating margin was approximately 73.7%, compared with 73.0%; net margin was approximately 59.5%, compared with 59.4%.
- Cash and cash equivalents were $310.7 million at March 31, 2021; cash, cash equivalents and restricted cash totaled $312.6 million. Current assets were $375.8 million and current liabilities were $33.8 million.
- TPL reported no debt or credit facilities. Investing activities used $1.4 million, chiefly for fixed assets; financing activities used $21.3 million for dividends. Capital expenditures reported by segment were $2.7 million, primarily for water projects.
- Total liabilities were $99.9 million. The filing reports no off-balance-sheet arrangements.
Material changes and operating drivers
- Oil and gas royalties rose to $49.5 million from $42.4 million. Gas royalties increased 136.8% to $15.3 million, mainly on higher realized gas prices and modestly higher production. Oil royalties fell 4.6% to $34.2 million as lower production more than offset higher realized prices.
- Water sales fell 52.0% to $13.0 million, reflecting 40.7% lower sales volumes and a 20.4% lower average price. Produced water royalties were essentially unchanged at $12.5 million.
- Land and Resource Management revenue increased 2.0% to $57.8 million; Water Services and Operations revenue decreased 34.0% to $26.4 million. Water Services and Operations segment net income fell to $10.5 million from $18.3 million, while Land and Resource Management segment net income was $39.5 million versus $39.1 million.
- Easements and other surface-related income decreased to $9.0 million from $13.8 million. Management cited a $4.9 million decline in pipeline easement income. There were no land or royalty-interest acquisitions in Q1 2021, versus $20.8 million of such acquisitions in Q1 2020; no land sales occurred in Q1 2021.
- Operating cash flow declined by $16.3 million, primarily due to lower receipts from water sales and easements. Q1 2020 dividends included annual and special distributions; Q1 2021 dividends were a quarterly $2.75 per share, so the reported dividend totals are not directly comparable.
Outlook, risks and notable items
- No numerical revenue or earnings guidance was provided. Management said it expected lingering COVID-19 and oil-market impacts to continue affecting 2021 results, while noting its strong cash position and that cash and operating flows should meet foreseeable needs.
- Management cited lower Permian development activity despite a recovery in oil and gas prices. Q1 2021 regional drilling and completion activity remained below Q1 2020 levels. Winter Storm Uri disrupted production and new-well development; higher prices tempered the effect on results.
- Results remain exposed to commodity prices, operator drilling and production decisions, water demand, and variable easement and land income. Management described cost reductions, including lower contractor use and water-operations costs, and investment in electrification and automation.
- On May 3, 2021, the board declared a $2.75-per-share quarterly dividend payable June 15, 2021, and authorized repurchases of up to $20 million through December 31, 2021. These were subsequent events, not Q1 cash uses.
- The filing reported no material pending legal proceedings and no material changes to previously disclosed risk factors. The company identified accrual of oil and gas royalties as a critical accounting estimate; actual results may differ from estimates.
Key facts for investors to verify
- Whether oil and gas prices and operator activity sustain royalty revenue, particularly given lower oil production and continued activity below Q1 2020 levels.
- Whether water-sales volume and pricing recover, and whether water projects generate returns commensurate with ongoing investment.
- How much easement income varies across future quarters; management notes that pipeline easement revenue is unpredictable.
- Whether the announced dividend and buyback are completed as described, and their effect on cash available for investment and distributions.
- The effects of the corporate reorganization on subsequent-period reporting and per-share comparisons; Q1 2021 statements reflect the conversion of sub-shares into common shares.