Texas Pacific Land Trust Announces Third Quarter 2020 Results

DALLAS--(BUSINESS WIRE)-- Texas Pacific Land Trust (NYSE: TPL) (the “Trust”) today announced financial and operating results for the third quarter ended September 30, 2020.

Results for the third quarter of 2020:

  • Net income of $46.3 million, or $5.97 per Sub-share Certificate, for the third quarter ended September 30, 2020 compared with $60.0 million, or $7.74 per Sub-share Certificate, for the third quarter ended September 30, 2019.
  • Revenues of $74.4 million for the third quarter ended September 30, 2020, compared with $98.5 million for the third quarter ended September 30, 2019.
  • Decreases of 17.0% in oil and gas royalty revenue, 44.2% in easements and other surface-related income and 43.9% in water sales and royalty revenue for the third quarter ended September 30, 2020 compared with the third quarter ended September 30, 2019.
  • EBITDA of $61.8 million for the third quarter ended September 30, 2020, compared with $77.4 million for the third quarter ended September 30, 2019.

Results for the nine months ended September 30, 2020:

  • Net income of $131.3 million, or $16.92 per Sub-share Certificate, for the nine months ended September 30, 2020 compared with $249.6 million (which included a $100 million land sale), or $32.18 per Sub-share Certificate, for the nine months ended September 30, 2019.
  • Revenues of $228.3 million for the nine months ended September 30, 2020, compared with $377.2 million for the nine months ended September 30, 2019 (which included a $100 million land sale).
  • Decreases of 14.8% in oil and gas royalty revenue, 20.2% in easements and other surface-related income and 27.0% in water sales and royalty revenue for the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019.
  • EBITDA of $175.1 million for the nine months ended September 30, 2020, compared with $318.5 million for the nine months ended September 30, 2019 (which included a $100 million land sale).

“While our third quarter results have improved over the second quarter of 2020, uncertainty in the current environment remains and continues to present challenges for the oil and gas industry,” said Tyler Glover, Chief Executive Officer of the Trust. “However, we remain confident that the Trust is financially and operationally well-equipped to continue navigating these challenges and are committed to maintaining our track record of capital discipline and optimal liquidity while ensuring the health and safety of our employees.”

Further details for the third quarter of 2020:

The Trust reported net income of $46.3 million for the third quarter ended September 30, 2020, a decrease of 22.9% compared to net income of $60.0 million for the third quarter ended September 30, 2019.

Oil and gas royalty revenue was $31.8 million for the third quarter ended September 30, 2020, compared with $38.3 million for the third quarter ended September 30, 2019, a decrease of 17.0%. Prices received for crude oil production decreased 31.9% while crude oil production subject to the Trust’s royalty interests increased 7.3% for the third quarter ended September 30, 2020 compared to the same period of 2019. Prices received for gas production increased 61.0% while gas production subject to the Trust’s royalty interests decreased 2.5% for the third quarter ended September 30, 2020 compared to the same period of 2019.

Easements and other surface-related income was $18.9 million for the third quarter ended September 30, 2020, a decrease of 44.2% compared with the third quarter ended September 30, 2019 when easements and other surface-related income was $33.9 million. The decrease in easements and other surface-related income was largely driven by decreases of $10.0 million in pipeline easement income and $2.0 million in permit income for the third quarter ended September 30, 2020 compared to the same period of 2019.

Water sales and royalty revenue was $12.1 million for the third quarter ended September 30, 2020, a decrease of 43.9% compared with the third quarter ended September 30, 2019 when water sales and royalty revenue was $21.7 million. This decrease was principally due to a 27.6% decrease in the number of barrels of sourced and treated water sold and a $0.8 million decrease in water royalties in the third quarter of 2020 compared to the same period of 2019.

The Trust recognized land sales revenue of $11.5 million for the third quarter ended September 30, 2020 and $4.6 million for the comparable period of 2019.

Further details for the nine months ended September 30, 2020:

The Trust reported net income of $131.3 million for the nine months ended September 30, 2020, a decrease of 47.4% compared to net income of $249.6 million for the nine months ended September 30, 2019, which included a $100 million land sale. Excluding the impact of the 2019 land sale (net of income tax), net income for the nine months ended September 30, 2019 was $170.6 million.

Oil and gas royalty revenue was $94.6 million for the nine months ended September 30, 2020, compared with $111.1 million for the nine months ended September 30, 2019, a decrease of 14.8%. Prices received for crude oil and gas production decreased 23.8% and 9.0%, respectively, in the nine months ended September 30, 2020 compared to the same period of 2019. The decrease in prices received was partially offset by increased crude oil and gas production subject to the Trust’s royalty interests, which increased 9.3% and 16.4%, respectively, in the nine months ended September 30, 2020 compared to the same period of 2019.

Easements and other surface-related income was $70.0 million for the nine months ended September 30, 2020, a decrease of 20.2% compared with the nine months ended September 30, 2019 when easements and other surface-related income was $87.6 million. The decrease in easements and other surface-related income was largely driven by a decrease of $19.6 million in pipeline easement income partially offset by an increase of $5.7 million in commercial lease revenue (largely due to an increase in saltwater disposal royalties) for the nine months ended September 30, 2020 compared to the same period of 2019.

Water sales and royalty revenue was $47.5 million for the nine months ended September 30, 2020, a decrease of 27.0% compared with the nine months ended September 30, 2019 when water sales and royalty revenue was $65.1 million. This decrease was principally due to a 10.5% decrease in the number of barrels of sourced and treated water sold and a $5.8 million decrease in water royalties for the nine months ended September 30, 2020 compared to the same period in 2019.

The Trust recognized land sales revenue of $15.9 million for the nine months ended September 30, 2020 and $113.0 million for the comparable period of 2019. Land sales revenue for the nine months ended September 30, 2019, included a $100 million land sale consummated in January 2019.

COVID-19 Pandemic and Market Conditions Update

The uncertainty surrounding the severity and duration of the COVID-19 pandemic, as well as dramatic declines in crude oil prices due in part to the global spread of COVID-19, has caused volatility in the global financial markets including the oil and gas industry. Significant mitigation measures, such as shelter-in place orders, travel bans and business restrictions, among other things, established to reduce the global, national and local spread of COVID-19, have further affected the supply and demand for crude oil. While uncertainty remains around COVID-19 mitigation measures and re-opening efforts, we believe demand is beginning to recover.

These events have negatively affected, and are expected to continue to negatively affect, the Trust’s business and results of operations. Should additional oil and gas wells be shut in, production continue to be curtailed or the owners and operators of the oil and gas wells to which the Trust’s royalty interests relate continue to decrease investment in response to lower commodity prices and conservation of capital, we would expect the Trust’s royalty income and demand for our water services to remain at the reduced levels that the Trust has experienced during the second and third quarters of 2020 and may decline further.

Given the dynamic nature of these events, we cannot reasonably estimate the period of time that the COVID-19 pandemic and related market conditions will persist, or the extent of the impact they will have on the Trust’s business or results of operations and financial condition.

Conversion of the Trust

As previously announced on March 23, 2020, our Trustees approved a plan to reorganize the Trust from its current structure to a corporation formed under the laws of the State of Delaware. We continue to progress towards the conversion. On June 15, 2020, the Trust announced the new corporation will be named Texas Pacific Land Corporation (“TPL Corp”) and the persons selected to serve as directors on the Board of Directors of TPL Corp. Additionally, a draft registration statement on Form 10 has been submitted to the Securities and Exchange Commission for review, on a non-public basis. The Trust continues to make progress toward effecting its planned corporate reorganization into a Delaware corporation and, currently anticipates to be in a position to move forward with the reorganization by the end of the fourth quarter of 2020.

About Texas Pacific Land Trust

Texas Pacific Land Trust is one of the largest landowners in the State of Texas with approximately 880,000 acres of land in West Texas. The Trust was organized under a Declaration of Trust to receive and hold title to extensive tracts of land in the State of Texas, previously the property of the Texas and Pacific Railway Company, and to issue transferable Certificates of Proprietary Interest pro rata to the holders of certain debt securities of the Texas and Pacific Railway Company. Texas Pacific Land Trust’s trustees are empowered under the Declaration of Trust to manage the lands with all the powers of an absolute owner. Texas Pacific Land Trust is not a REIT.

Forward-Looking Statements

This news release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding the Trust’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 Trust owns real estate, applicable zoning regulations, the markets for oil and gas, the proposed reorganization of the Trust into a corporation, production limits on prorated oil and gas wells ized by the Railroad Commission of Texas, expected competition, management’s intent, beliefs or current expectations with respect to the Trust’s future financial performance and other matters. We assume no responsibility to update any such forward-looking statements.

REPORT OF OPERATIONS

(in thousands, except share and per share amounts) (unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2020

 

2019

 

2020

 

2019

Revenues:

 

 

 

 

 

 

 

 

Oil and gas royalties

 

$

31,758

 

 

$

38,259

 

 

$

94,631

 

 

 

$

111,113

 

Easements and other surface-related income

 

18,936

 

 

33,911

 

 

69,970

 

 

 

87,635

 

Water sales and royalties

 

12,139

 

 

21,654

 

 

47,525

 

 

 

65,067

 

Land sales

 

11,463

 

 

4,621

 

 

15,855

 

 

 

113,020

 

Other operating revenue

 

87

 

 

85

 

 

269

 

 

 

329

 

Total revenues

 

74,383

 

 

98,530

 

 

228,250

 

 

 

377,164

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Salaries and related employee expenses

 

7,678

 

 

8,537

 

 

27,235

 

 

 

22,742

 

Water service-related expenses

 

2,260

 

 

5,122

 

 

11,205

 

 

 

15,423

 

General and administrative expenses

 

1,883

 

 

2,864

 

 

7,290

 

 

 

6,877

 

Legal and professional fees

 

1,987

 

 

5,558

 

 

6,955

 

 

 

15,198

 

Land sales expenses

 

67

 

 

 

 

2,773

 

 

 

225

 

Depreciation, depletion and amortization

 

3,760

 

 

2,631

 

 

10,773

 

 

 

5,286

 

Total operating expenses

 

17,635

 

 

24,712

 

 

66,231

 

 

 

65,751

 

 

 

 

 

 

 

 

 

 

Operating income

 

56,748

 

 

73,818

 

 

162,019

 

 

 

311,413

 

 

 

 

 

 

 

 

 

 

Other income, net

 

1,287

 

 

941

 

 

2,306

 

 

 

1,771

 

Income before income taxes

 

58,035

 

 

74,759

 

 

164,325

 

 

 

313,184

 

Income tax expense (benefit):

 

 

 

 

 

 

 

 

Current

 

11,146

 

 

9,918

 

 

33,153

 

 

 

43,485

 

Deferred

 

614

 

 

4,819

 

 

(86

)

 

 

20,093

 

Total income tax expense

 

11,760

 

 

14,737

 

 

33,067

 

 

 

63,578

 

Net income

 

$

46,275

 

 

$

60,022

 

 

$

131,258

 

 

 

$

249,606

 

 

 

 

 

 

 

 

 

 

Net income per Sub-share Certificate - basic and diluted

 

$

5.97

 

 

$

7.74

 

 

$

16.92

 

 

 

$

32.18

 

 

 

 

 

 

 

 

 

 

Weighted average number of Sub-share Certificates outstanding

 

7,756,156

 

 

7,756,156

 

 

7,756,156

 

 

 

7,756,643

 

SEGMENT OPERATING RESULTS

(in thousands) (unaudited)

 

 

 

Three Months Ended
September 30,

 

 

2020

 

2019

Revenues:

 

 

 

 

 

 

 

 

Land and resource management:

 

 

 

 

 

 

 

 

Oil and gas royalties

 

$

31,758

 

 

43

%

 

$

38,259

 

 

39

%

Easements and other surface-related income

 

6,588

 

 

9

%

 

22,111

 

 

22

%

Land sales and other operating revenue

 

11,550

 

 

15

%

 

4,706

 

 

5

%

 

 

49,896

 

 

67

%

 

65,076

 

 

66

%

Water services and operations:

 

 

 

 

 

 

 

 

Water sales and royalties

 

12,139

 

 

16

%

 

21,654

 

 

22

%

Easements and other surface-related income

 

12,348

 

 

17

%

 

11,800

 

 

12

%

 

 

24,487

 

 

33

%

 

33,454

 

 

34

%

Total consolidated revenues

 

$

74,383

 

 

100

%

 

$

98,530

 

 

100

%

 

 

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

Land and resource management

 

$

34,359

 

 

74

%

 

$

43,911

 

 

73

%

Water services and operations

 

11,916

 

 

26

%

 

16,111

 

 

27

%

Total consolidated net income

 

$

46,275

 

 

100

%

 

$

60,022

 

 

100

%

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

 

2020

 

2019

Revenues:

 

 

 

 

 

 

 

 

Land and resource management:

 

 

 

 

 

 

 

 

Oil and gas royalties

 

$

94,631

 

 

41

%

 

$

111,113

 

 

29

%

Easements and other surface-related income

 

31,385

 

 

14

%

 

59,761

 

 

16

%

Land sales and other operating revenue

 

16,124

 

 

7

%

 

113,349

 

 

30

%

 

 

142,140

 

 

62

%

 

284,223

 

 

75

%

Water services and operations:

 

 

 

 

 

 

 

 

Water sales and royalties

 

47,525

 

 

21

%

 

65,067

 

 

17

%

Easements and other surface-related income

 

38,585

 

 

17

%

 

27,874

 

 

8

%

 

 

86,110

 

 

38

%

 

92,941

 

 

25

%

Total consolidated revenues

 

$

228,250

 

 

100

%

 

$

377,164

 

 

100

%

 

 

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

Land and resource management

 

$

92,197

 

 

70

%

 

$

204,222

 

 

82

%

Water services and operations

 

39,061

 

 

30

%

 

45,384

 

 

18

%

Total consolidated net income

 

$

131,258

 

 

100

%

 

$

249,606

 

 

100

%

 

 

 

 

 

 

 

 

 

NON-GAAP PERFORMANCE MEASURES AND DEFINITIONS

In addition to amounts presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”), we also present certain supplemental non-GAAP measurements. These measurements are not to be considered more relevant or accurate than the measurements presented in accordance with GAAP. In compliance with requirements of the Securities and Exchange Commission (“SEC”), our non-GAAP measurements are reconciled to net income, the most directly comparable GAAP performance measure. For all non-GAAP measurements, neither the SEC nor any other regulatory body has passed judgment on these non-GAAP measurements.

EBITDA

EBITDA is a non-GAAP financial measurement of earnings before interest, taxes, depreciation, depletion and amortization. Its purpose is to highlight earnings without finance, taxes, and depreciation, depletion and amortization expense, and its use is limited to specialized analysis. We have presented EBITDA because we believe that it is a useful supplement to net income as an indicator of operating performance.

The following table presents a reconciliation of net income to EBITDA for the three and nine months ended September 30, 2020 and 2019 (in thousands):

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2020

 

2019

 

2020

 

2019

Net income

 

$

46,275

 

 

$

60,022

 

 

$

131,258

 

 

$

249,606

 

Add:

 

 

 

 

 

 

 

 

Income tax expense

 

11,760

 

 

14,737

 

 

33,067

 

 

63,578

 

Depreciation, depletion and amortization

 

3,760

 

 

2,631

 

 

10,773

 

 

5,286

 

EBITDA

 

$

61,795

 

 

$

77,390

 

 

$

175,098

 

 

$

318,470

 

 

 

 

 

 

 

 

 

 

 

Chris Steddum
Vice President, Finance and Investor Relations
(214) 969-5530

Source: Texas Pacific Land Trust