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OFFON

TEXAS PACIFIC LAND CORPORATION

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

02/27/2020 | 05:41pm EDT
The following discussion and analysis should be read together with the factors
discussed in   Item 1A "Risk Factors"   and with the Consolidated 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 Trust's future performance. Words or phrases such as "does
not believe" and "believes," or similar expressions, when used in this Form 10-K
or other filings with the SEC, are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995.

Overview

The Trust was organized in 1888 and holds title to extensive tracts of land in
numerous counties in West Texas which were previously the property of the Texas
and Pacific Railway Company. We continue to manage those lands for the benefit
of the holders of Certificates of Proprietary Interest in the Trust (and/or
Sub-shares).

Our revenues are derived primarily from oil and gas 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 for, and sale price of, particular tracts of land is 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.

We are not an oil and gas producer. Rather, our oil and gas revenue is derived
from our oil and gas royalty interests. Thus, in addition to being subject to
fluctuations 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. We monitor reports from the operators, the
Texas Railroad Commission, and other private data providers to assure that we
are being paid the appropriate royalties.

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 saltwater disposal royalties, processing, storage and compression
facilities and roads.

TPWR focuses on providing 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.

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 10, "Business Segment Reporting"   in   Item 8. Financial Statements and
Supplementary Data   in this Annual Report on Form 10-K. 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").

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018


Revenues. Revenues increased $190.3 million, or 63.4% to $490.5 million for the
year ended December 31, 2019 compared to $300.2 million for the year ended
December 31, 2018. Net income increased $109.0 million, or 52.0%, to $318.7
million for the year ended December 31, 2019 compared to $209.7 million for the
year ended December 31, 2018.


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

                                                           Years Ended December 31,
                                                       2019                                   2018
Revenues:
Land and resource management:
Oil and gas royalties                        $   154,729         31  %    $ 123,834         41  %
Easements and other surface-related income        73,143         15  %       63,908         21  %
Sale of oil and gas royalty interests                  -          -  %       18,875          6  %
Land sales and other operating revenue           135,456         28  %        4,859          2  %
Total Land and resource management               363,328         74  %      

211,476 70 %


Water services and operations:
Water sales and royalties                         84,949         17  %       63,913         21  %
Easements and other surface-related income        42,219          9  %       24,831          9  %
Total Water service and operations               127,168         26  %       88,744         30  %
Total consolidated revenues                  $   490,496        100  %    $ 300,220        100  %

Net income:
Land and resource management                 $   258,366         81  %    $ 159,611         76  %
Water services and operations                     60,362         19  %       50,125         24  %
Total consolidated net income                $   318,728        100  %    $ 209,736        100  %



Land and Resource Management

Land and Resource Management segment revenues increased $151.9 million, or 71.8%, to $363.3 million for the year ended December 31, 2019 as compared with revenues of $211.5 million for the comparable period of 2018.


Oil and gas royalties. Oil and gas royalty revenue was $154.7 million for the
year ended December 31, 2019 compared to $123.8 million for the year ended
December 31, 2018, an increase of 24.9%. Oil royalty revenue was $128.7 million
for the year ended December 31, 2019 compared to $94.6 million for the
comparable period of 2018. This increase in oil royalty revenue is principally
due to the effect of a 48.3% increase in crude oil production subject to the
Trust's royalty interest partially offset by a 8.0% decrease in the average
price per royalty barrel of crude oil received during the year ended December
31, 2019 compared to the same period in 2018. Gas royalty revenue was $26.0
million for the year ended December 31, 2019, a decrease of 10.9% over the year
ended December 31, 2018 when gas royalty revenue was $29.2 million. This
decrease in gas royalty revenue resulted from a 49.3% decrease in the average
price received for the year ended December 31, 2019 as compared to the same
period of 2018, partially offset by a volume increase of 89.3% over the same
time period.

Easements and other surface-related income. Easements and other surface-related
income was $73.1 million for the year ended December 31, 2019, an increase of
14.5% compared to $63.9 million for the year ended December 31, 2018. Easements
and other surface-related income includes pipeline, power line and utility
easements, commercial leases, material sales and seismic and temporary permits.
The increase in easements and other surface-related income is principally
related to increases of $4.6 million in pipeline easement income and $3.5
million in commercial lease revenue for the year ended December 31, 2019
compared to the same period of 2018. Easements and other surface-related income
is unpredictable and may vary significantly from period to period.

Sale of oil and gas royalty interests. There were no sales of oil and gas
royalty interests for the year ended December 31, 2019. Revenue from the sale of
oil and gas royalty interests was $18.9 million for the year ended December 31,
2018, when the Trust sold nonparticipating perpetual royalty interests in
approximately 812 net royalty acres for an average price of approximately
$23,234 per net royalty acre.

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Land sales and other operating revenue. Land sales and other operating revenue
includes revenue generated from land sales and grazing leases. For the year
ended December 31, 2019, we sold approximately 21,986 acres of land for total
consideration of $113.0 million, or approximately $5,141 per acre. Additionally,
the Trust conveyed approximately 5,620 acres of land in exchange for
approximately 5,545 acres of land, all in Culberson County. As we had no cost
basis in the land conveyed, we recognized land sales revenue of $22.0 million
for the year ended December 31, 2019. For the year ended December 31, 2018, land
sales generated $4.4 million of income for selling approximately 171 acres at an
average price of $25,464 per acre.

Net income. Net income for the Land and Resource Management segment was $258.4
million for the year ended December 31, 2019 compared to $159.6 million for the
year ended December 31, 2018. As discussed above, revenues for the Land and
Resource Management segment increased $151.9 million for the year ended December
31, 2019 compared to the same period of 2018. Expenses, including income tax
expense, for the Land and Resource Management segment were $105.0 million and
$51.9 million for the years ended December 31, 2019 and 2018, respectively. The
increase in expenses was principally related to increased income tax expense
associated with the $130.7 million increase in land sales revenue, resulting in
additional income tax expense of approximately $27.4 million for the year ended
December 31, 2019 compared to the same period of 2018. Through §1031 exchanges,
income tax expense of approximately $19.8 million was eligible for deferral for
the year ended December 31, 2019. The remaining increase was principally related
to increased legal and professional fees and salaries and related employee
expenses. See further discussion of these expenses below under "Other Financial
Data - Consolidated."

Water Services and Operations

Water Services and Operations segment revenues increased $38.4 million, or 43.3%, to $127.2 million for the year ended December 31, 2019 as compared with revenues of $88.7 million for the comparable period of 2018.


Water sales and royalties. Water sales and royalty revenue was $85.0 million for
the year ended December 31, 2019, an increase of 32.9% compared with the year
ended December 31, 2018 when water sales and royalty revenue was $63.9 million.
This increase was principally due to a 44.0% increase in the number of barrels
of sourced and treated water sold during the year ended December 31, 2019 over
the same period in 2018, partially offset by decreased water royalties.

Easements and other surface-related income. Easements and other surface-related
income for the Water Services and Operations segment includes pipeline easement
royalties, commercial lease royalties and income from temporary permits. For the
year ended December 31, 2019, the combined revenue from these revenue streams
was $42.2 million as compared to $24.8 million for the year ended December 31,
2018. The increase in easements and other surface-related income was principally
related to an increase of $21.5 million in produced water royalties for the year
ended December 31, 2019 compared to the same period of 2018, partially offset by
a $4.1 million decrease in temporary permit income over the same time period.

Net income. Net income for the Water Services and Operations segment was $60.4
million for the year ended December 31, 2019 compared to $50.1 million for the
year ended December 31, 2018. As discussed above, revenues for the Water
Services and Operations segment increased $38.4 million for the year ended
December 31, 2019 compared to the same period of 2018. Expenses, including
income tax expense, for the Water Services and Operations segment were $66.8
million for the year ended December 31, 2019 as compared to $38.6 million for
the year ended December 31, 2018. The increase in expenses during 2019 is
primarily related to increased water service-related operating expenses,
principally fuel, repairs and maintenance and equipment rental related to
sourcing and transfer of water. The remaining increase was principally related
to increased salaries and related employee expenses as discussed further below
under "Other Financial Data - Consolidated."

Other Financial Data - Consolidated


Salaries and related employee expenses. Salaries and related employee expenses
were $35.0 million for the year ended December 31, 2019 compared to $18.4
million for the comparable period of 2018. The increase in salaries and related
employee expenses is directly related to the increase in the number of employees
from 64 employees as of December 31, 2018 to 94 as of December 31, 2019 as well
as additional contract labor expenses over the same time period.

Water service-related expenses. Water service-related expenses were $20.8
million for the year ended December 31, 2019 compared to $11.2 million for the
same period of 2018. This increase in expenses was principally the result of an
increase in fuel and repairs and maintenance expenses to source and transfer
water and is directly related to the 44.0% sales increase in the number of
barrels of sourced and treated water sold as previously discussed.

                                       15
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General and administrative expenses. General and administrative expenses
increased $5.1 million to $9.8 million for the year ended December 31, 2019 from
$4.7 million for the same period of 2018. The increase in general and
administrative expenses is principally related to increased expenses associated
with our independent contractor service providers, computer-related software and
services, and additional liability insurance.

Legal and professional expenses. Legal and professional fees increased $13.9
million to $16.4 million for the year ended December 31, 2019 from $2.5 million
for the comparable period of 2018. The increase in legal and professional fees
for the year ended December 31, 2019 compared to 2018 is principally due to
approximately $13.0 million of legal and professional fees related to the proxy
contest to elect a new Trustee, the entry into and payments made under the
settlement agreement dated July 30, 2019 and the conversion exploration
committee as disclosed in the Trust's Current Report on Form 8-K filed with the
SEC on July 30, 2019. We anticipate receiving a partial reimbursement of these
legal and professional fees under coverage provided by our director and officer
insurance policy. The amount of the reimbursement has not yet been determined.

Depreciation, depletion and amortization. Depreciation, depletion and
amortization was $8.9 million for the year ended December 31, 2019 compared to
$2.6 million for the year ended December 31, 2018. The increase in depreciation,
depletion and amortization is principally related to the Trust's investment in
water service-related assets placed in service in 2019 and the latter half of
2018 and to a lesser extent, additional depreciation expense related to the
change in estimated useful lives of certain water service-related assets as
discussed in   Note 2,     "    Summary of Significant Accounting Policies -
Change     i    n Accounting Estimate.  "

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017


Revenues. Revenues increased $145.6 million, or 94.1%, to $300.2 million for the
year ended December 31, 2018 compared to $154.6 million for the year ended
December 31, 2017. Net income increased $112.5 million, or 115.7% to $209.7
million for the year ended December 31, 2018 compared to $97.2 million for the
year ended December 31, 2017.

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

                                                           Years Ended December 31,
                                                       2018                                   2017
Revenues:
Land and resource management:
Oil and gas royalties                        $   123,834         41  %    $  58,418         38  %
Easements and other surface-related income        63,908         21  %       64,199         42  %
Sale of oil and gas royalty interests             18,875          6  %            -          -  %
Land sales and other operating revenue             4,859          2  %      

723 - %

                                                 211,476         70  %      123,340         80  %
Water services and operations:
Water sales and royalties                         63,913         21  %       25,536         16  %
Easements and other surface-related income        24,831          9  %        5,758          4  %
                                                  88,744         30  %       31,294         20  %
Total consolidated revenues                  $   300,220        100  %    $ 154,634        100  %

Net income:
Land and resource management                 $   159,611         76  %    $  78,468         81  %
Water services and operations                     50,125         24  %       18,763         19  %
Total consolidated net income                $   209,736        100  %    $  97,231        100  %



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Land and Resource Management


Land and Resource Management segment revenues increased $88.1 million, or 71.5%,
to $211.5 million for the year ended December 31, 2018 as compared with revenues
of $123.3 million for the comparable period of 2017.

Oil and gas royalties. Oil and gas royalty revenue was $123.8 million for the
year ended December 31, 2018 compared to $58.4 million for the year ended
December 31, 2017, an increase of 112.0%. Oil royalty revenue was $94.6 million
for the year ended December 31, 2018 compared to $36.9 million for the
comparable period of 2017. This increase in oil royalty revenue is principally
due to the combined effect of a 110.0% increase in crude oil production, subject
to the Trust's royalty interest, and a 21.6% increase in the average price per
royalty barrel of crude oil received during the year ended December 31, 2018
compared to the same period in 2017. Gas royalty revenue was $29.2 million for
the year ended December 31, 2018, an increase of 111.4% over the year ended
December 31, 2017 when gas royalty revenue was $13.8 million. This increase in
gas royalty revenue resulted from a volume increase of 178.5% for the year ended
December 31, 2018 as compared to the same period of 2017, partially offset by a
24.2% decrease in the average price received. Additionally, oil and gas
royalties for the year ended December 31, 2017 included $7.7 million related to
the settlement of an arbitration with Chevron U.S.A., Inc. in September 2017. No
such settlement was received for the year ended December 31, 2018.

Easements and other surface-related income. Easements and other surface-related
income was $63.9 million for the year ended December 31, 2018, a slight decrease
compared to $64.2 million for the year ended December 31, 2017. Easements and
other surface-related income includes pipeline easement income, seismic and
temporary permit income, lease rental income and income from material sales.
Easements and other surface-related income is unpredictable and may vary
significantly from period to period. The slight decrease in easements and other
surface-related income is principally related to a decrease in material sales,
partially offset by an increase in pipeline easement income. Material sales
decreased 22.3% to $5.6 million for the year ended December 31, 2018 compared to
the same period of 2017. Pipeline easement income increased 3.7% to $43.1
million for the year ended December 31, 2018 compared to the year ended December
31, 2017. Effective January 1, 2018, upon the Trust's adoption of the new
revenue recognition accounting standard, we no longer defer revenue on our term
easements.

Sale of oil and gas royalty interests. Revenue from the sale of oil and gas
royalty interests was $18.9 million for the year ended December 31, 2018. The
Trust sold nonparticipating perpetual royalty interests in approximately 812 net
royalty acres for an average price of approximately $23,234 per net royalty
acre.

Land sales and other operating revenue. Land sales and other operating income
includes revenue generated from land sales and grazing leases. For the year
ended December 31, 2018, we sold approximately 171 acres of land for total
consideration of $4.4 million, or approximately $25,464 per acre. For the year
ended December 31, 2017, land sales generated $0.2 million of income for selling
approximately 11 acres at an average price of $20,000 per acre. Grazing lease
income was approximately $0.5 million for both years ended December 31, 2018 and
2017.

Net income. Net income for the Land and Resource Management segment was $159.6
million for the year ended December 31, 2018 compared to $78.5 million for the
year ended December 31, 2017. As discussed above, revenues for the Land and
Resource Management segment increased $88.1 million for the year ended December
31, 2018 compared to the same period of 2017. Expenses for the Land and Resource
Management segment were $51.9 million and $44.9 million for the years ended
December 31, 2018 and 2017, respectively. The increase in expenses was
principally related to increased salary expense and general and administrative
expenses. See further discussion of these expenses below under "Other Financial
Data - Consolidated."

Water Services and Operations

Water Services and Operations segment revenues increased $57.4 million, or 183.6%, to $88.7 million for the year ended December 31, 2018 as compared with revenues of $31.3 million for the comparable period of 2017.


Water sales and royalties. Water sales and royalty revenue for the year ended
December 31, 2018 of $63.9 million was more than double the amount of revenue
for the comparable period of 2017. This increase is due primarily to the Trust
commencing the development of water sourcing, partially offset by a decrease in
the royalties received from existing legacy agreements.

Easements and other surface-related income. Easements and other surface-related
income for the Water Services and Operations segment includes pipeline easement
royalties, commercial lease royalties and income from temporary permits. For
                                       17
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the year ended December 31, 2018, the combined revenue from these revenue streams was $24.8 million as compared to $5.8 million for the year ended December 31, 2017.


Net income. Net income for the Water Services and Operations segment was $50.1
million for the year ended December 31, 2018 compared to $18.8 million for the
year ended December 31, 2017. As discussed above, revenues for the Water
Services and Operations segment increased $57.4 million for the year ended
December 31, 2018 compared to the same period of 2017. Expenses for the Water
Services and Operations segment were $38.6 million for the year ended December
31, 2018 as compared to $12.5 million for the year ended December 31, 2017. The
increase in expenses during 2018 is directly related to the formation and
commencement of operations of TPWR during the second quarter of 2017 and
operating expenses related to the water sourcing and water re-use projects
placed in service in 2018 and late 2017. See further discussion of these
expenses below under "Other Financial Data - Consolidated."

Other Financial Data - Consolidated


Salaries and related employee expenses. Salaries and related employee expenses
were $18.4 million for the year ended December 31, 2018 compared to $3.8 million
for the comparable period of 2017. The increase in salaries and related employee
expenses is directly related to the increase in the number of employees from 26
employees as of December 31, 2017 to 64 as of December 31, 2018 as well as an
increase in contract labor expenses over the same time period.

Water service-related expenses. Water service-related expenses of $11.2 million
for the year ended December 31, 2018, include expenses for equipment rental,
propane and fuel and other equipment-related expenses associated with water
sourcing and water re-use projects placed in service in 2018 and late 2017. The
Trust incurred only minimal water service-related expenses during the year ended
December 31, 2017.

General and administrative expenses. General and administrative expenses
increased $3.2 million to $4.7 million for the year ended December 31, 2018 from
$1.5 million for the same period of 2017. The increase in general and
administrative expenses is primarily due to additional liability insurance and
equipment costs as a result of the formation and commencement of operations of
TPWR during the second quarter of 2017.

Legal and professional expenses. Legal and professional fees decreased $1.0
million to $2.5 million for the year ended December 31, 2018 from $3.5 million
for the comparable period of 2017. Legal and professional fees for the year
ended December 31, 2017 included consulting fees related to a strategic review
of the Trust.

Depreciation and amortization. Depreciation and amortization was $2.6 million
for the year ended December 31, 2018 compared to $0.4 million for the year ended
December 31, 2017. The increase in depreciation and amortization is principally
related to the Trust's investment in water service-related assets during 2017
and 2018.

Cash Flow Analysis

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018


Cash flows provided by operating activities for the years ended December 31,
2019 and 2018 were $342.8 million and $195.4 million, respectively. This
increase in operating cash flows is principally due to increases in proceeds
from land sales, oil and gas royalties, easements and other surface-related
payments received and water sales and royalties during the year ended December
31, 2019 compared to the year ended December 31, 2018.

Cash flows used in investing activities were $111.7 million compared to $81.5
million for the years ended December 31, 2019 and 2018, respectively. The
increased use of investing cash flows is principally due to our acquisition of
approximately 21,671 acres of land in Culberson, Glassock, Loving and Reeves
Counties, Texas for approximately $74.4 million during the year ended December
31, 2019. This increase was partially offset by a $19.3 million decrease in
acquisitions of royalty interests and a $15.7 million reduction in capital
expenditures during the year ended December 31, 2019 as compared to the same
period of 2018.

Cash flows used in financing activities were $50.9 million compared to $70.0
million for the years ended December 31, 2019 and 2018, respectively. During the
year ended December 31, 2019, the Trust paid total dividends of $46.5 million
consisting of a regular cash dividend of $1.75 per Sub-share and a special
dividend of $4.25 per Sub-share. During the year ended December 31, 2018, the
Trust paid total dividends of $31.7 million consisting of a regular cash
dividend of $1.05 per Sub-share and a special dividend of $3.00 per Sub-share.
During the years ended December 31, 2019 and 2018, the Trust paid $4.4 million
and $38.4 million, respectively, to repurchase Sub-shares.
                                       18
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Year Ended December 31, 2018 Compared to Year Ended December 31, 2017


Cash flows provided by operating activities for the years ended December 31,
2018 and 2017 were $195.4 million and $93.8 million, respectively. This increase
in operating cash flows is principally due to increases in oil and gas royalties
collected, easements and other surface-related payments received and water sales
and royalties collected during the year ended December 31, 2018 over the year
ended December 31, 2017.

Cash flows used in investing activities were $81.5 million compared to $18.7
million for the years ended December 31, 2018 and 2017, respectively. The
increased use of investing cash flows is principally due to our investment of
$44.7 million in water service-related assets during 2018, an increase of $27.0
million over our investment during 2017. Additionally, for the year ended
December 31, 2018 we acquired $24.3 million of royalty interests and $9.4
million of land acquisitions. There were no such acquisitions of royalty
interests and land for the year ended December 31, 2017.

Cash flows used in financing activities were $70.0 million compared to $44.9
million for the years ended December 31, 2018 and 2017, respectively. During the
year ended December 31, 2018, the Trust paid total dividends of $4.05 per
Sub-share totaling $31.7 million. During the year ended December 31, 2017, the
Trust paid total dividends of $1.35 per Sub-share totaling $10.7 million.

Liquidity and Capital Resources

The Trust's principal sources of liquidity are its revenues from oil and gas 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, working capital and
general corporate needs. As of December 31, 2019, we had a cash and cash
equivalents balance of $303.6 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 additional Sub-shares subject to
market conditions, and for general corporate purposes. We believe that cash from
operations, together with our cash and cash equivalents balances, will be enough
to meet ongoing capital expenditures, working capital requirements and other
cash needs for the foreseeable future.

Off-Balance Sheet Arrangements

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

Contractual Obligations

As of December 31, 2019, the Trust's known contractual obligations were as follows (in thousands):

Payment Due by Period

                                                                  Less than           1-3              3-5            More than
Contractual Obligations                           Total            1 Year            Years            Years            5 Years
Long-term debt obligations                      $     -          $      -          $     -          $     -          $      -
Capital lease obligations                             -                 -                -                -                 -
Operating lease obligations (1)                   3,793               696            1,493            1,088               516
Purchase obligations                                  -                 -                -                -                 -
Other long-term liabilities reflected on
the Trust's balance sheet under GAAP                  -                 -                -                -                 -
Total                                           $ 3,793          $    696          $ 1,493          $ 1,088          $    516


(1)Includes office leases for our corporate office in Dallas, Texas which expires in 2025 and for our office in Midland, Texas which expires in 2022.

                                       19
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Effects of Inflation


We do not believe that inflation has had a material impact on our operating
results. We cannot assure you, however, that future increases in our costs will
not occur or that any such increases that may occur will not adversely affect
our results of operations.

Critical Accounting Policies and Estimates


The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements. It is our
opinion that we fully disclose our significant accounting policies in the Notes
to the Consolidated Financial Statements. Consistent with our disclosure
policies, we include the following discussion related to what we believe to be
our most critical accounting policies that require our most difficult,
subjective or complex judgment.

Accrual of Oil and Gas Royalties


The Trust accrues oil and gas royalties. An accrual is necessary due to the time
lag between the production of oil and gas and generation of the actual payment
by operators. The oil and gas royalty accrual is based upon historical payments,
estimates of the timing of future payments and recent market prices for oil and
gas.

New Accounting Pronouncements

For further information regarding recently issued accounting pronouncements, see

Note 2, "Summary of Significant Accounting Policies" in Item 8. Financial Statements and Supplementary Data .

© Edgar Online, source Glimpses

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