TEXAS PACIFIC LAND CORPORATION Form 10-Q For the Quarter Ended March 31, 2025

Texas Pacific Land Corporation Reports Strong First Quarter Results

Texas Pacific Land Corporation (TPL), one of the largest landowners in Texas, has released its financial results for the first quarter of 2025. The company, which generates revenue from oil and gas royalties, water sales, produced water royalties, easements, and land sales, has reported impressive performance despite some challenges in the broader market.

Overview of Financial Performance

For the three months ended March 31, 2025, TPL reported total revenues of $196.0 million, up from $174.1 million in the same period of 2024. Net income for the quarter was $120.7 million, compared to $114.4 million in the prior year period.

The company’s two main business segments, Land and Resource Management (LRM) and Water Services and Operations (WSO), both contributed to the strong financial results. The LRM segment, which includes oil and gas royalties, easements, and land sales, generated $126.6 million in revenue, up from $111.5 million in the first quarter of 2024. The WSO segment, which focuses on water sales and produced water royalties, reported $69.4 million in revenue, an increase from $62.7 million in the prior year period.

Revenue and Profit Trends

The increase in total revenues was primarily driven by growth in oil and gas royalties, water sales, and produced water royalties. Oil and gas royalties, which make up the largest portion of TPL’s revenue, increased by $19.1 million to $111.2 million, as the company’s share of production rose to 31.1 thousand barrels of oil equivalent (Boe) per day, up from 24.8 thousand Boe per day in the first quarter of 2024.

Water sales revenue increased by $1.7 million to $38.8 million, due to a 14.0% increase in water sales volumes. Produced water royalties also grew, rising from $23.0 million in the first quarter of 2024 to $27.7 million in the current quarter, reflecting increased produced water volumes.

While total revenues increased, the company’s operating expenses also rose, up $7.8 million to $45.9 million. This was primarily driven by higher salaries and related employee expenses, as well as increased depreciation, depletion, and amortization costs. Despite the higher expenses, TPL’s net income still grew by $6.3 million compared to the first quarter of 2024.

Strengths and Weaknesses

One of TPL’s key strengths is its diversified revenue streams, which include not only oil and gas royalties, but also water-related services and surface-level activities like easements and land sales. This diversification helps to mitigate the impact of volatility in any single revenue source, such as oil and gas prices.

Another strength is the company’s strong balance sheet and liquidity position, with $460.4 million in cash and cash equivalents as of March 31, 2025. This provides TPL with the financial flexibility to invest in growth opportunities, such as the development of its new energy-efficient desalination and water treatment facility, while also returning capital to shareholders through dividends and share repurchases.

However, a potential weakness is the company’s geographic concentration in the Permian Basin. While this region has been a prolific source of oil and gas production, it also exposes TPL to the risks and fluctuations of a single, albeit large, market. Changes in drilling activity, oil and gas prices, or pipeline capacity in the Permian Basin can have a significant impact on the company’s financial performance.

Outlook and Future Prospects

Looking ahead, the outlook for TPL appears positive, as the company continues to benefit from robust activity in the Permian Basin. Drilling and development activity in the region remains strong, with average monthly horizontal permits, wells drilled, and rig counts all remaining elevated compared to the prior year period.

However, the company’s financial results could be impacted by several factors, including changes in global and domestic macroeconomic conditions, actions by OPEC+ and other oil and gas producers, and the ongoing development of midstream infrastructure in the Permian Basin to address natural gas pipeline takeaway capacity constraints.

To mitigate these risks, TPL is focused on diversifying its revenue streams and investing in new technologies, such as its energy-efficient desalination and water treatment facility. This project, which is expected to be completed later in 2025, will allow the company to recycle produced water into fresh water for surface discharge and beneficial reuse, reducing the industry’s reliance on freshwater sources.

Overall, TPL’s strong first quarter performance, diversified business model, and healthy financial position position the company well to navigate potential market volatility and capitalize on future growth opportunities in the Permian Basin and beyond.

Key Financial Highlights

• Total revenues for the first quarter of 2025 were $196.0 million, up from $174.1 million in the same period of 2024.
• Net income for the quarter was $120.7 million, compared to $114.4 million in the prior year period.
• Oil and gas royalties, the largest revenue source, increased by $19.1 million to $111.2 million.
• Water sales revenue grew by $1.7 million to $38.8 million, and produced water royalties increased from $23.0 million to $27.7 million.
• Operating expenses rose by $7.8 million to $45.9 million, primarily due to higher salaries and related employee expenses, as well as increased depreciation, depletion, and amortization costs.
• The company had $460.4 million in cash and cash equivalents as of March 31, 2025, providing financial flexibility for investment and shareholder returns.

Conclusion

Texas Pacific Land Corporation has delivered strong financial results in the first quarter of 2025, demonstrating the resilience of its diversified business model and the continued robust activity in the Permian Basin. While the company faces some risks related to its geographic concentration and potential market volatility, its strong balance sheet, focus on innovation, and commitment to returning capital to shareholders position it well for the future.