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OFFON

TEXAS PACIFIC LAND CORPORATION

(TPL)
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TEXAS PACIFIC LAND : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/05/2021 | 05:15pm EDT

Cautionary Statement Regarding Forward-Looking Statements


Statements in this Quarterly Report on Form 10-Q that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including statements regarding management's expectations, hopes, intentions or
strategies regarding the future. Words or phrases such as "expects" and
"believes", or similar expressions, when used in this Form 10-Q or other filings
with the Securities and Exchange Commission (the "SEC"), are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include
statements regarding the Company's future operations and prospects, the severity
and duration of the COVID-19 pandemic and related economic repercussions, the
markets for real estate in the areas in which the Company owns real estate,
applicable zoning regulations, the markets for oil and gas including actions of
other oil and gas producers or consortiums worldwide such as OPEC+, expected
competition, management's intent, beliefs or current expectations with respect
to the Company's future financial performance and other matters. All
forward-looking statements in this Report are based on information available to
us as of the date this Report is filed with the SEC, and we assume no
responsibility to update any such forward-looking statements, except as required
by law. All forward-looking statements are subject to a number of risks,
uncertainties and other factors that could cause our actual results,
performance, prospects or opportunities to differ materially from those
expressed in, or implied by, these forward-looking statements. These risks,
uncertainties and other factors include, but are not limited to, the factors
discussed in Item 1A. "Risk Factors" of Part I of our Annual Report on Form 10-K
for the year ended December 31, 2020, and in Part I, Item 2. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Part II, Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q.

The following discussion and analysis should be read together with (i) the
factors discussed in Item 1A. "Risk Factors" of Part I of our Annual Report on
Form 10-K for the year ended December 31, 2020, (ii) the factors discussed in
Part II, Item 1A. "Risk Factors," if any, of this Quarterly Report on Form 10-Q
and (iii) the Financial Statements, including the Notes thereto, and the other
financial information appearing elsewhere in this Report. Period-to-period
comparisons of financial data are not necessarily indicative, and therefore
should not be relied upon as indicators, of the Company's future performance.

Overview


Texas Pacific Land Corporation (which, together with its subsidiaries as the
context requires, may be referred to as "TPL", the "Company", "our", "we" or
"us") is one of the largest landowners in the State of Texas with approximately
880,000 acres of land, comprised of a number of separate tracts, located in 19
counties in West Texas, with the majority of our ownership concentrated in the
Permian Basin. Additionally, we own a 1/128th nonparticipating perpetual oil and
gas royalty interest ("NPRI") under approximately 85,000 acres of land and a
1/16th NPRI under approximately 371,000 acres of land in the western part of
Texas, as well as approximately 4,000 additional net royalty acres (normalized
to 1/8th).

We completed our reorganization from a business trust to a corporation (the
"Corporate Reorganization") on January 11, 2021, changing our name from Texas
Pacific Land Trust (the "Trust") to Texas Pacific Land Corporation. Any
references in this Quarterly Report on Form 10-Q to the Company, TPL, our, we,
or us with respect to periods prior to January 11, 2021 will be in reference to
the Trust, and references to periods on that date and thereafter will be in
reference to Texas Pacific Land Corporation or TPL Corporation. For further
information on the Corporate Reorganization, see   Note 7, "Changes in Equity"
in the notes to the condensed consolidated financial statements.

Our surface and royalty ownership allow steady revenue generation through the
entire value chain of oil and gas development. While we are not an oil and gas
producer, we benefit from various revenue sources throughout the life cycle of a
well. During the initial development phase where infrastructure for oil and gas
development is constructed, we receive fixed fee payments for use of our land
and revenue for sales of materials (caliche) used in the construction of the
infrastructure. During the drilling and completion phase, we generate revenue
for providing sourced water and/or treated produced water in addition to fixed
fee payments for use of our land. During the production phase, we receive
revenue from our oil and gas royalty interests and also revenues related to
saltwater disposal on our land. In addition, we generate revenue from pipeline,
power line and utility easements, commercial leases and seismic and temporary
permits principally related to a variety of land uses, including midstream
infrastructure projects and processing facilities as hydrocarbons are processed
and transported to market.

A significant portion of our revenues is generated from our business activity in
the Permian Basin and derived primarily from oil, gas and produced water
royalties, sales of water and land, easements and commercial leases. Due to the
nature of our operations, our revenue is subject to substantial fluctuations
from quarter to quarter and year to year. The demand
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for, and sale price of, particular tracts of land are influenced by many factors
beyond our control, including general economic conditions, the rate of
development in nearby areas and the suitability of the particular tract for
commercial uses prevalent in western Texas.

As our oil and gas revenue is derived from our oil and gas royalty interests, in
addition to fluctuating in response to the market prices for oil and gas, our
oil and gas royalty revenues are also subject to decisions made by the owners
and operators of the oil and gas wells to which our royalty interests relate as
to investments in and production from those wells.

Our revenue from easements is primarily generated from pipelines transporting
oil, gas and related hydrocarbons, power line and utility easements and
subsurface wellbore easements. The majority of our easements have a thirty-plus
year term but subsequently renew every ten years with an additional payment.
Commercial lease revenue is derived primarily from processing, storage and
compression facilities and roads.

Texas Pacific Water Resources LLC ("TPWR"), a single member Texas limited
liability company owned by the Company, provides full-service water offerings to
operators in the Permian Basin. These services include, but are not limited to,
water sourcing, produced-water gathering/treatment, infrastructure development,
disposal solutions, water tracking, analytics and well testing services. TPWR's
revenue streams principally consist of revenue generated from sales of sourced
and treated water as well as revenues from produced water royalties. We are
committed to sustainable water development. Our significant surface ownership in
the Permian Basin provides TPWR with a unique opportunity to provide multiple
full-service water offerings to operators.

During the six months ended June 30, 2021, we invested approximately $4.9 million in TPWR projects to maintain and/or enhance water sourcing assets, of which $2.0 million related to electrifying our water sourcing infrastructure.

Market Conditions

COVID-19 Pandemic and Impact of Increased Demand in 2021


The uncertainty caused by the global spread of COVID-19 commencing in 2020,
among other factors, led to a significant reduction in global demand and prices
for oil. These events generally led to production curtailments and capital
investment reductions by the operators of the oil and gas wells to which the
Company's royalty interests relate. This slowdown in well development has
negatively affected the Company's business and operations for 2020 and 2021.
More recently, development activity has also been impacted by shortages in labor
and certain equipment as well as escalating costs. With current oil, natural
gas, and NGL prices broadly higher than the comparable period in 2020,
development activities in the Permian Basin have rebounded from the lows in
2020, and producer activity has improved, albeit at a pace still below
pre-pandemic levels. Future production and development activity will continue to
be influenced by changes in commodity prices and by the evolving economic and
health impact of COVID-19.

Though the global spread of COVID-19 and the associated economic impact are
still uncertain, COVID-19 containment measures have eased in certain regions
globally, and as a result, demand for oil and gas has begun to recover. However,
given recent increases in COVID-19 cases, any additional shut-downs could impact
this recovery. In addition, oil prices in 2021 have been supported by oil supply
cuts by the Organization of the Petroleum Exporting Countries ("OPEC") and
Russia (collectively referred to as "OPEC+"). Oil prices will continue to be
impacted by the global oil demand trends, particularly with COVID-19 and
potential containment measures, and the oil market support provided by OPEC+.
Although our revenues are directly and indirectly impacted by changes in oil
prices, we believe our royalty interests (which require no capital expenditures
or operating expense burden for well development), strong balance sheet, and
liquidity position will help us navigate through potential oil price volatility.

In 2020, we implemented certain cost reduction measures to manage costs with an
initial focus on negotiating price reductions and discounts with certain vendors
and reducing our usage of independent contract service providers. In 2021, we
continue to identify additional cost reduction opportunities. As part of our
longer-term water business strategy, we have invested in electrifying our water
sourcing infrastructure. The use of electricity instead of fuel-powered
generators to source and transport water is anticipated to reduce our dependence
on fuel, equipment rentals, and repairs and maintenance. Additionally, our
investment in automation has allowed us to curtail our reliance on independent
contract service providers to support our field operations.

Our business model and disciplined approach to capital resource allocation have helped us maintain our strong financial position while navigating the uncertainty of the current environment. Further, we continue to prioritize maintaining a safe and healthy work environment for our employees. Our information technology infrastructure allowed our corporate

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employees to transition to a remote work environment in March 2020 and we were
able to deploy additional safety and sanitation measures for our field
employees. As vaccination rates in the United States have risen, we have taken a
phased-in approach to returning employees to the office and continue to monitor
guidance provided by the Centers for Disease Control and Prevention as new
information becomes available. We continue to provide safety and sanitation
measures for all employees and maintain communication with employees regarding
any concerns they may have during the transition.

Permian Basin Activity


The Permian Basin is one of the oldest and most well-known hydrocarbon-producing
areas and currently accounts for a substantial portion of oil and gas production
in the United States, covering approximately 86,000 square miles and in 52
counties across southeastern New Mexico and western Texas. All of our assets are
located in West Texas.

With our ownership concentration in the Permian Basin, our revenues are directly
impacted by oil and gas pricing and drilling activity in the Permian Basin.
Below are metrics for the three and six months ended June 30, 2021 and 2020:

                                                      Three Months Ended                        Six Months Ended
                                                           June 30,                                 June 30,
                                                    2021                 2020               2021                2020
Oil and Gas Pricing Metrics:(1)
WTI average price per bbl                     $    66.19             $   27.96          $    62.21          $    36.58
Henry Hub average price per mmbtu             $     2.95             $    

1.70 $ 3.22 $ 1.80


Activity Metrics specific to the
Permian Basin:(1)(2)
Average monthly horizontal permits                         665                402                 558                 564
Average monthly horizontal wells
drilled                                                    386                171                 365                 372
Average weekly horizontal rig count                        220                198                 205                 291
DUCs as of June 30 for each applicable
year                                                     5,080              4,942               5,080               4,942

Total Average US weekly horizontal rig
count (2)                                                  408                353                 382                 528




(1) Commonly used definitions in the oil and gas industry provided in the table
above are defined as follows: WTI represents West Texas Intermediate. Bbl
represents one barrel of 42 U.S. gallons of oil. Mmbtu represents one million
British thermal units, a measurement used for natural gas. DUCs represent
drilled but uncompleted wells.

(2) Permian Basin specific information per Enverus analytics. US weekly horizontal rig counts per Baker Hughes United States Rotary Rig Count for horizontal rigs.


The metrics above demonstrate the shifts in activity in the Permian Basin for
the three and six months ended June 30, 2021 and 2020. While oil and gas prices,
which began declining in the first quarter of 2020 (prior to oil reaching record
lows in the second quarter of 2020), have rebounded through the first six months
of 2021, development, drilling and completion and production activities have not
returned to their previous levels. Operators continue to manage their capital
allocations by deploying at a decreased pace of development while oil demand
continues to recover. As we are a significant landowner in the Permian Basin and
not an oil and gas producer, our revenue is affected by the development
decisions made by companies that operate in the areas where we own royalty
interests and land. Accordingly, these decisions made by others affect not only
our production and produced water disposal volumes but also directly impact our
surface-related income and water sales.

Liquidity and Capital Resources


Our principal sources of liquidity are revenues from oil, gas and produced water
royalties, easements and other surface-related income and water and land sales.
Our primary liquidity and capital requirements are for capital expenditures
related to our Water Services and Operations segment (the extent and timing of
which are under our control), working capital and general corporate needs.

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We continuously review our liquidity and capital resources. If market conditions
were to change and our revenue was to decline significantly or operating costs
were to increase significantly, our cash flows and liquidity could be reduced.
Should this occur, we could seek alternative sources of funding. We have no debt
or credit facilities as of June 30, 2021.

As of June 30, 2021, we had cash and cash equivalents of $329.1 million that we
expect to utilize, along with cash flow from operations, to provide capital to
support the growth of our business, particularly the growth of TPWR, to
repurchase our Common Stock, par value $0.01, of TPL Corporation (the "Common
Stock") subject to market conditions, to pay dividends subject to the discretion
of the board of directors and for general corporate purposes. We believe that
cash from operations, together with our cash and cash equivalents balances, will
be sufficient to meet ongoing capital expenditures, working capital requirements
and other cash needs for the foreseeable future. For 2021, our board of
directors has approved repurchases of our Common Stock up to $20.0 million of
shares, and through June 30, 2021, we have repurchased $2.5 million of shares.

Results of Operations


We operate our business in two segments: Land and Resource Management and Water
Services and Operations. We eliminate any inter-segment revenues and expenses
upon consolidation.

We analyze financial results for each of our reportable segments. The reportable segments presented are consistent with our reportable segments discussed in

  Note 8. "Business Segment Reporting"   in the notes to the condensed
consolidated financial statements in this Quarterly Report on Form 10-Q. We
monitor our reporting segments based upon revenue and net income calculated in
accordance with accounting principles generally accepted in the United States of
America ("GAAP").

Our results of operations for the three and six months ended June 30, 2021, have
continued to be impacted by oil and gas activity in the Permian Basin not
returning to pre-pandemic levels. While our oil and gas royalty revenues have
benefited from increased oil prices during this time period, our water sales and
surface-related income continue to be impacted by the decreased pace of
activity.

For the three months ended June 30, 2021 as compared to the three months ended June 30, 2020


Revenues. Revenues increased $38.6 million, or 67.5%, to $95.9 million for the
three months ended June 30, 2021 compared to $57.3 million for the three months
ended June 30, 2020. Net income more than doubled to $57.0 million for the three
months ended June 30, 2021 compared to $27.6 million for the three months ended
June 30, 2020.

The following is an analysis of our operating results for the comparable periods by reportable segment (in thousands):

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                                                                           Three Months Ended June 30,
                                                                     2021                                  2020
Revenues:
Land and resource management:

Oil and gas royalty revenue                           $      58,204                60  %       $ 20,513                36  %
Easements and other surface-related income                    8,217                 9  %         11,499                20  %
Land sales and other operating revenue                          820                 1  %          3,585                 6  %
Total land and resource management revenue                   67,241                70  %         35,597                62  %

Water services and operations:
Produced water royalties                                     15,458                16  %         13,111                23  %
Water sales                                                  12,473                13  %          8,419                15  %
Easements and other surface-related income                      760                 1  %            157                 -  %
Total water services and operations revenue                  28,691                30  %         21,687                38  %
Total consolidated revenues                           $      95,932               100  %       $ 57,284               100  %

Net income:
Land and resource management                          $      45,443                80  %       $ 18,721                68  %
Water services and operations                                11,603                20  %          8,862                32  %
Total consolidated net income                         $      57,046               100  %       $ 27,583               100  %



Land and Resource Management

Land and Resource Management segment revenues increased $31.6 million to $67.2
million for the three months ended June 30, 2021 as compared with $35.6 million
for the comparable period of 2020. The increase in Land and Resource Management
segment revenues is principally due to an increase in oil and gas royalty
revenue, partially offset by decreases in easements and other surface-related
income, as discussed further below.

Oil and gas royalties. Oil and gas royalty revenue was $58.2 million for the
three months ended June 30, 2021 compared to $20.5 million for the three months
ended June 30, 2020. The table below provides financial and operational data by
royalty stream for the three months ended June 30, 2021 and 2020:
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                                                          Three Months Ended June 30,
                                                              2021                   2020
Our share of production volumes(1):
Oil (MBbls)                                                   683                      700
Natural gas (MMcf)                                          2,807                    2,108
NGL (MBbls)                                                   342                      379
Equivalents (MBoe)                                          1,493                    1,430
Equivalents per day (MBoe/d)                                 16.4                     15.7

Oil and gas royalty revenue (in thousands):
Oil royalties                                      $       42,577                 $ 16,777
Natural gas royalties                                       7,512                    1,062
NGL royalties                                               8,115                    2,674
Total oil and gas royalties                        $       58,204                 $ 20,513

Realized prices:
Oil ($/Bbl)                                        $        65.30                 $  25.09
Natural gas ($/Mcf)                                $         2.89                 $   0.54
NGL ($/Bbl)                                        $        25.64                 $   7.63
Equivalents ($/Boe)                                $        40.83                 $  15.02





(1)   Commonly used definitions in the oil and gas industry not previously
defined: Boe represents barrels of oil equivalent. MBbls represents one thousand
barrels of crude oil, condensate or NGLs. Mcf represents one thousand cubic feet
of natural gas. MMcf represents one million cubic feet of natural gas. MBoe
represents one thousand Boe. MBoe/d represents one thousand Boe per day.

Our share of crude oil, natural gas and NGL production volumes were 16.4
thousand Boe per day for the three months ended June 30, 2021 compared to 15.7
thousand Boe per day for the same period of 2020. The average realized prices
were $65.30 per barrel of oil, $2.89 per Mcf of natural gas, and $25.64 per
barrel of NGL, for a total equivalent price of $40.83 per Boe for the three
months ended June 30, 2021, an increase of 171.8% over a total equivalent price
of $15.02 per Boe for the same period of 2020.

Easements and other surface-related income. Easements and other surface-related
income was $8.2 million for the three months ended June 30, 2021, a decrease of
28.5% compared to $11.5 million for the three months ended June 30, 2020.
Easements and other surface-related income includes pipeline, power line and
utility easements, commercial leases and seismic and temporary permits. The
decrease in easements and other surface-related income is principally related to
a decrease of $3.8 million in pipeline easement income for the three months
ended June 30, 2021 compared to the same period of 2020. The amount of income
derived from pipeline easements is a function of the term of the easement, the
size of the easement and the number of easements entered into for any given
period. Easements and other surface-related income is dependent on development
decisions made by companies that operate in the areas where we own land and is
therefore, unpredictable and may vary significantly from period to period. See
"Market Conditions" above for additional discussion of development activity in
the Permian Basin during the three months ended June 30, 2021 relative to the
same time period of 2020.

Net income. Net income for the Land and Resource Management segment was $45.4
million for the three months ended June 30, 2021 compared to $18.7 million for
the three months ended June 30, 2020. The increase in net income is principally
due to the $31.6 million increase in segment revenues, partially offset by an
increase in segment expenses, including income tax expense. The increase in
segment revenues is principally due to an increase in oil and gas royalty
revenue, partially offset by decreases in easements and other surface-related
income, as discussed above. Total segment expenses were $21.8 million and $16.9
million for the three months ended June 30, 2021 and 2020, respectively. The
overall increase in segment expenses was principally related to increased income
tax expense and severance costs incurred for the three months ended June 30,
2021. Expenses are discussed further below under "Other Financial Data -
Consolidated."
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Water Services and Operations


Water Services and Operations segment revenues increased 32.3% to $28.7 million
for the three months ended June 30, 2021 as compared with $21.7 million for the
comparable period of 2020. The increase in Water Services and Operations segment
revenues is principally due to an increase in water sales revenue and produced
water royalties, which are discussed below. As discussed in "Market Conditions"
above, our segment revenues are directly influenced by development decisions
made by our customers and the overall activity level in the Permian Basin.
Accordingly, our segment revenues and sales volumes, as further discussed below,
will fluctuate from period to period based upon those decisions and activity
levels.

Produced water royalties. Produced water royalties are royalties received from
the transportation or disposal of produced water on our land. We do not operate
any salt water disposal wells. Produced water royalties were $15.5 million for
the three months ended June 30, 2021 compared to $13.1 million compared to the
same period in 2020. This increase is principally due to increased produced
water volumes for the three months ended June 30, 2021 compared to the same
period of 2020.

Water sales. Water sales revenue was $12.5 million for the three months ended
June 30, 2021, an increase of 48.2%, compared with the three months ended June
30, 2020 when water sales revenue was $8.4 million. This increase was
principally due to a 70.8% increase in the number of barrels of sourced and
treated water sold for the three months ended June 30, 2021 compared to the same
period in 2020.

Net income. Net income for the Water Services and Operations segment was $11.6
million for the three months ended June 30, 2021 compared to $8.9 million for
the three months ended June 30, 2020. As discussed above, segment revenues
increased 32.3% for the three months ended June 30, 2021 compared to the same
period of 2020. Total segment expenses, including income tax expense, were $17.1
million for the three months ended June 30, 2021 as compared to $12.8 million
for the three months ended June 30, 2020. The overall increase in segment
expenses during 2021 is principally related to increased income tax expense and
water service-related expenses, primarily fuel, repairs and maintenance and
equipment rental. Expenses are discussed further below under "Other Financial
Data - Consolidated."

Other Financial Data - Consolidated


Salaries and related employee expenses. Salaries and related employee expenses
were $13.3 million for the three months ended June 30, 2021 compared to $8.9
million for the comparable period of 2020. The increase in salaries and related
employee expenses for the three months ended June 30, 2021 as compared to the
same period of 2020 is principally due to approximately $4.7 million of
severance costs.

Water service-related expenses. Water service-related expenses were $3.6 million
for the three months ended June 30, 2021 compared to $2.2 million for the
comparable period of 2020. The increase in expenses during 2021 is primarily
related to increased fuel, repairs and maintenance and equipment rental expenses
related to the 70.8% increase in the number of barrels of sourced and treated
water sold.

Legal and professional expenses. Legal and professional fees were $1.1 million
for the three months ended June 30, 2021 compared to $2.6 million for the
comparable period of 2020. Legal and professional fees for the three months
ended June 30, 2020 principally related to the conversion exploration committee
and planning and preparation for the Corporate Reorganization. The Corporate
Reorganization was completed in January 2021.

Land sales expenses. There were no land sales expenses for the three months
ended June 30, 2021 compared to $2.7 million in land sales expenses for the
comparable period of 2020. Land sales expenses represent expenses related to
land sales and include cost basis and closing costs associated with land sales.
Land sales expenses for the three months ended June 30, 2020 include $2.7
million of cost basis.

For the six months ended June 30, 2021 as compared to the six months ended June 30, 2020


Revenues. Revenues increased $26.2 million, or 17.0%, to $180.1 million for the
six months ended June 30, 2021 compared to $153.9 million for the six months
ended June 30, 2020. Net income increased $22.1 million, or 26.0%, to $107.1
million for the six months ended June 30, 2021 compared to $85.0 million for the
six months ended June 30, 2020.


The following is an analysis of our operating results for the comparable periods by reportable segment (in thousands):

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                                                                Six Months Ended June 30,
                                                              2021                          2020
Revenues:

Land and resource management:


Oil and gas royalty revenue                      $    107,737             60  %    $  62,873        40  %
Easements and other surface-related income             16,404              9  %       24,797        16  %
Land sales and other operating revenue                    890              -  %        4,585         3  %
Total land and resource management revenue            125,031             

69 % 92,255 59 %


Water services and operations:
Produced water royalties                               28,007             16  %       25,617        17  %
Water sales                                            25,429             14  %       35,386        24  %
Easements and other surface-related income              1,620              1  %          620         -  %
Total water services and operations revenue            55,056             31  %       61,623        41  %
Total consolidated revenues                      $    180,087            

100 % $ 153,878 100 %


Net income:
Land and resource management                     $     84,956             79  %    $  57,839        68  %
Water services and operations                          22,142             21  %       27,145        32  %
Total consolidated net income                    $    107,098            

100 % $ 84,984 100 %

Land and Resource Management


Land and Resource Management segment revenues increased 35.5% to $125.0 million
for the six months ended June 30, 2021 as compared with $92.3 million for the
comparable period of 2020. The increase in Land and Resource Management segment
revenues is principally due to an increase in oil and gas royalty revenue,
partially offset by decreases in easements and other surface-related income, as
discussed further below.

Oil and gas royalties. Oil and gas royalty revenue was $107.7 million for the
six months ended June 30, 2021 compared to $62.9 million for the six months
ended June 30, 2020. The table below provides financial and operational data by
royalty stream for the six months ended June 30, 2021 and 2020:
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                                                         Six Months Ended June 30,
                                                             2021                 2020
Our share of production volumes:
Oil (MBbls)                                                 1,328                 1,423
Natural gas (MMcf)                                          5,516                 4,506
NGL (MBbls)                                                   725                   768
Equivalents (MBoe)                                          2,973                 2,942
Equivalents per day (MBoe/d)                                 16.4                  16.2

Oil and gas royalty revenue (in thousands):
Oil royalties                                      $       76,826              $ 52,683
Natural gas royalties                                      14,872                 3,518
NGL royalties                                              16,039                 6,672
Total oil and gas royalties                        $      107,737              $ 62,873

Realized prices:
Oil ($/Bbl)                                        $        60.55              $  38.78
Natural gas ($/Mcf)                                $         2.91              $   0.84
NGL ($/Bbl)                                        $        23.91              $   9.39
Equivalents ($/Boe)                                $        37.94              $  22.38



Our share of crude oil, natural gas and NGL production volumes were 16.4
thousand Boe per day for the six months ended June 30, 2021 compared to 16.2
thousand Boe per day for the same period of 2020. The average realized prices
were $60.55 per barrel of oil, $2.91 per Mcf of natural gas, and $23.91 per
barrel of NGL, for a total equivalent price of $37.94 per Boe for the six months
ended June 30, 2021, an increase of 69.5% over a total equivalent price of
$22.38 per Boe for the same period of 2020.

Easements and other surface-related income. Easements and other surface-related
income was $16.4 million for the six months ended June 30, 2021, a decrease of
33.8% compared to $24.8 million for the six months ended June 30, 2020.
Easements and other surface-related income includes pipeline, power line and
utility easements, commercial leases and seismic and temporary permits. The
decrease in easements and other surface-related income is principally related to
a decrease of $8.7 million in pipeline easement income to $3.7 million for the
six months ended June 30, 2021 from $12.4 million for the six months ended June
30, 2020. The amount of income derived from pipeline easements is a function of
the term of the easement, the size of the easement and the number of easements
entered into for any given period. Easements and other surface-related income is
dependent on development decisions made by companies that operate in the areas
where we own land and is therefore, unpredictable and may vary significantly
from period to period. See "Market Conditions" above for additional discussion
of development activity in the Permian Basin during the six months ended June
30, 2021 relative to the same time period of 2020.

Net income. Net income for the Land and Resource Management segment was $85.0
million for the six months ended June 30, 2021 compared to $57.8 million for the
six months ended June 30, 2020. The increase in net income is principally due to
the $32.8 million increase in segment revenues, partially offset by an increase
in segment expenses, including income tax expense. The increase in segment
revenues is principally due to an increase in oil and gas royalty revenue,
partially offset by decreases in easements and other surface-related income, as
discussed above. Total segment expenses were $40.1 million and $34.4 million for
the six months ended June 30, 2021 and 2020, respectively. The overall increase
in segment expenses was principally related to increased income tax expense
related to increased operating income. Expenses are discussed further below
under "Other Financial Data - Consolidated."
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Water Services and Operations

Water Services and Operations segment revenues decreased 10.7% to $55.1 million
for the six months ended June 30, 2021 as compared with $61.6 million for the
comparable period of 2020. The decrease in Water Services and Operations segment
revenues is principally due to a decrease in water sales revenue, which is
discussed below. As discussed in "Market Conditions" above, our segment revenues
are directly influenced by development decisions made by our customers and the
overall activity level in the Permian Basin. Accordingly, our segment revenues
and sales volumes, as further discussed below, will fluctuate from period to
period based upon those decisions and activity levels.

Produced water royalties. Produced water royalties are royalties received from
the transportation or disposal of produced water on our land. We do not operate
any salt water disposal wells. Produced water royalties were $28.0 million for
the six months ended June 30, 2021 compared to $25.6 million compared to the
same period in 2020. This increase is principally due to increased produced
water volumes for the six months ended June 30, 2021 compared to the same period
of 2020.

Water sales. Water sales revenue decreased $10.0 million to $25.4 million for the six months ended June 30, 2021 compared to the same period of 2020, principally due to a 16.5% decrease in the number of barrels of sourced and treated water sold.


Net income. Net income for the Water Services and Operations segment was $22.1
million for the six months ended June 30, 2021 compared to $27.1 million for the
same period in 2020. As discussed above, segment revenues decreased 10.7% for
the six months ended June 30, 2021 compared to the same period of 2020. Total
segment expenses, including income tax expense, were $32.9 million for the six
months ended June 30, 2021 as compared to $34.5 million for the six months ended
June 30, 2020. The overall decrease in segment expenses during 2021 is
principally related to decreased water service-related expenses, primarily
equipment rental, fuel and income tax expense. Expenses are discussed further
below under "Other Financial Data - Consolidated."

Other Financial Data - Consolidated


Salaries and related employee expenses. Salaries and related employee expenses
were $23.3 million for the six months ended June 30, 2021 compared to $19.6
million for the comparable period of 2020. The increase in salaries and related
employee expenses during 2021 as compared to the same period of 2020 is
principally due to $6.7 million of severance costs, partially offset by
decreased usage of contract labor by our Water Services and Operations segment.

Water service-related expenses. Water service-related expenses were $6.8 million
for the six months ended June 30, 2021 compared to $8.9 million for the
comparable period of 2020. The decrease in expenses during 2021 is primarily
related to decreased equipment rental and fuel expenses related to the 16.5%
decrease in the number of barrels of sourced and treated water sold and ongoing
cost saving measures as discussed above in "Market Conditions."

Legal and professional expenses. Legal and professional fees were $3.4 million
for the six months ended June 30, 2021 compared to $5.0 million for the
comparable period of 2020. Legal and professional fees for the six months ended
June 30, 2021 principally related to the completion of our Corporate
Reorganization effective January 11, 2021. Legal and professional fees for the
six months ended June 30, 2020 principally related to the conversion exploration
committee and planning and preparation for the Corporate Reorganization.

Land sales expenses. There were no land sales expenses for the six months ended
June 30, 2021 compared to $2.7 million for the comparable period of 2020. Land
sales expenses represent expenses related to land sales and include cost basis
and closing costs associated with land sales. Land sales expenses for the six
months ended June 30, 2020 include $2.7 million of cost basis.

Depreciation, depletion and amortization. Depreciation, depletion and
amortization was $7.7 million for the six months ended June 30, 2021 compared to
$7.0 million for the six months ended June 30, 2020. The increase in
depreciation, depletion and amortization is principally related to our
investment in water service-related assets placed in service in 2021 and 2020
and, to a lesser extent, increased depletion related to our oil and gas royalty
interests.

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Cash Flow Analysis

For the six months ended June 30, 2021 as compared to the six months ended June 30, 2020


Cash flows provided by operating activities for the six months ended June 30,
2021 and 2020 were $96.5 million and $104.1 million, respectively. The decrease
in cash flows provided by operating activities was primarily related to
increased working capital resulting from increased oil and gas activity during
the six months ended June 30, 2021.

Cash flows used in investing activities were $4.5 million compared to $25.3
million for the six months ended June 30, 2021 and 2020, respectively.
Acquisitions of land and royalty interests were $20.9 million for the six months
ended June 30, 2020. Acquisition of land was insignificant for the six months
ended June 30, 2021.

Cash flows used in financing activities were $45.2 million compared to $124.1
million for the six months ended June 30, 2021 and 2020, respectively. During
the six months ended June 30, 2021, we paid total dividends of $42.7 million
consisting of cumulative paid cash dividends of $5.50 per share. During the six
months ended June 30, 2020, we paid total dividends of $124.1 million consisting
of an annual cash dividend of $10.00 per Sub-share and a special dividend of
$6.00 per Sub-share.

Off-Balance Sheet Arrangements

The Company has not engaged in any off-balance sheet arrangements.

Critical Accounting Policies and Estimates


This discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these financial statements
requires us to make judgments, estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses and disclosures of
contingent assets and liabilities. For a full discussion of our accounting
policies please refer to Note 2 to the Consolidated Financial Statements
included in our 2020 Annual Report on Form 10-K filed with the SEC on February
25, 2021. Our most critical accounting policies and estimates include our
accrual of oil and gas royalties. We continually evaluate our judgments,
estimates and assumptions. We base our estimates on the terms of underlying
agreements, historical experience and other factors that we believe are
reasonable based on the circumstances, the results of which form our
management's basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates. There have been no material changes to our critical
accounting policies and estimates from the information provided in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in our 2020 Annual Report on Form 10-K.

New Accounting Pronouncements

For further information regarding recently issued accounting pronouncements, see

  Note 2, "Summary of Significant Accounting Policies"   in the notes to the
consolidated financial statements included in   Item 1. "Financial Statements"
in this Quarterly Report on Form 10-Q.

                                       22

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