Texas Pacific Land Corp (TPL)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operation (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Texas Pacific Land Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those factors presented in Part I, Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K. This section generally discusses the results of our operations for the year ended December 31, 2024 compared to the year ended December 31, 2023. For a discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Overview

TPL was originally organized in 1888 as a business trust to hold title to extensive tracts of land in the State of Texas that were previously the property of the Texas and Pacific Railway Company. On January 11, 2021, we completed our Corporate Reorganization from a business trust to a corporation and changed our name from Texas Pacific Land Trust to Texas Pacific Land Corporation.

Our business activity is generated from our surface and royalty interest ownership, primarily in the Permian Basin. Our revenues are derived from oil and gas royalties, water sales, produced water royalties, easements and other surface-related income and land sales. Due to the nature of our operations and concentration of our ownership in one geographic location, our revenue and net income are subject to substantial fluctuations from quarter to quarter and year to year. In addition to fluctuations in response to changes in the market price for oil and gas, our financial results are subject to decisions by not only the owners and operators of oil and gas wells to which our oil and gas royalty interests relate, but also to other owners and operators in the Permian Basin as it relates to our other revenue streams, principally water sales, produced water royalties, easements and other surface-related revenue.

Market Conditions

Average oil prices for the year ended December 31, 2024 were relatively flat compared to average oil prices during the same period last year. Oil prices continue to be impacted by certain actions by OPEC+, geopolitics, and evolving global supply and demand trends, among other factors. Average natural gas prices during 2024 decreased compared to average prior year natural gas prices. Global and domestic natural gas markets have experienced volatility due to macroeconomic conditions, infrastructure and logistical constraints, weather, and geopolitics, among other factors. Since mid-2022, the Waha Hub located in Pecos County, Texas has at times experienced significant negative price differentials relative to Henry Hub, located in Erath, Louisiana, due in part to growing local Permian natural gas production and limited natural gas pipeline takeaway capacity. Midstream infrastructure is currently being developed by operators to provide additional takeaway capacity, though the impact on future basis differentials will be dependent on future natural gas production and other factors. Changes in global and domestic macro-economic conditions could result in additional shifts in oil and gas supply and demand in future periods. Although our revenues are directly and indirectly impacted by changes in oil and natural gas prices, we believe our royalty interests (which require no capital expenditures or operating expense burden from us for well development), strong balance sheet, and liquidity position will help us navigate through potential commodity price volatility.

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 in 52 counties across southeastern New Mexico and western Texas. Exploration and production (“E&P”) companies active in the Permian have generally increased their drilling and development activity in 2024 compared to recent prior year activity levels. Per the U.S. Energy Information Administration (“EIA”), Permian production averaged approximately 6.3 million barrels per day during 2024, which represents the highest annual production ever. The EIA currently estimates that Permian oil production for December 2024 was approximately 6.5 million barrels per day.

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Due to our ownership concentration in the Permian Basin, our revenues are directly impacted by oil and gas pricing and drilling activity in the Permian Basin. The metrics below show selected benchmark oil and natural gas prices and approximate activity levels in the Permian Basin for the years ended December 31, 2024 and 2023:

(1)    Commonly used definitions in the oil and gas industry provided in the table above are defined as follows: WTI Cushing 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. DUC classification is based on well data and date stamps provided by Enverus. DUCs is based on wells that have a drilled/spud date stamp but do not have a completed or first production date stamp. Excludes wells that have been labeled plugged and abandoned or permit expired and wells drilled/spud more than five years ago.

(2)    Permian Basin specific information per Enverus analytics. US weekly horizontal rig counts per Baker Hughes United States Rotary Rig Count for horizontal rigs. Statistics for similar data are also available from other sources. The comparability between these other sources and the sources used by the Company may differ.

While average oil prices for the year ended December 31, 2024 were generally flat compared to the same period in 2023, Henry Hub and Waha Hub natural gas prices for the year ended December 31, 2024 declined compared to the same period last year. E&P companies generally have continued to deploy capital at a measured pace as drilling and development activities across the Permian Basin have remained strong overall. Although average rig counts during the year ended December 31, 2024 were lower compared to the same period last year, increased drilling and completion efficiencies have allowed operators to maintain robust levels of well development. 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 share of production volumes and produced water disposal volumes, but also directly impact our surface-related income and water sales.

Liquidity and Capital Resources

Overview

Our principal sources of liquidity are cash and cash flows generated from our operations. 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.

We continuously review our liquidity and capital resources. If market conditions were to change and our revenues were 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 had no debt, credit facilities, or any off-balance sheet arrangements as of December 31, 2024.

As we evaluate our current capital structure, capital allocation priorities, business fundamentals, and investment opportunities, we have set a target cash and cash equivalents balance of approximately $700 million. Above this target, we will seek to deploy the majority of our free cash flow towards dividends and share repurchases. As of December 31, 2024, we had cash and cash equivalents of $369.8 million that we expect to utilize, along with cash flow from operations, to provide capital to

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support our business, to pay dividends subject to the discretion of our Board, to repurchase shares of our Common Stock subject to market conditions, for potential acquisitions 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 at least the next 12 months.

Return of Capital to Shareholders

During the year ended December 31, 2024, we paid total dividends to our stockholders of $347.3 million, consisting of cumulative regular cash dividends of $5.11 per share and a special dividend of $10.00 per share. In addition, we repurchased $29.2 million of our Common Stock (including share repurchases not settled at the end of the period).

Acquisition Activity

We completed the following asset acquisitions and business combination during 2024:

•Acquired mineral interests across 7,490 NRA located primarily in the Midland Basin in Martin, Midland and other counties in Texas and New Mexico for cash consideration of $275.2 million, net of post-closing adjustments.

•Acquired mineral interests across 4,106 NRA located in Culberson County, Texas for a purchase price of $120.3 million, net of post-closing adjustments.

•Acquired 4,120 surface acres in Martin County, Texas along with other surface-related tangible and intangible assets in a business combination for total consideration of $45.0 million.

See Part I, Item 1, “Business — Recent Developments” for further discussion of our acquisition activity during 2024.

Development of New Solutions for Produced Water and Capital Expenditures

In May 2024, we announced our progress towards developing new solutions for produced water in the Permian Basin. Over the last few years, we have been working with a leading industrial technology and manufacturing firm to develop an energy-efficient desalination and treatment process and associated equipment that can recycle produced water into fresh water with quality standards appropriate for surface discharge and beneficial reuse. During the year ended December 31, 2024, we spent $9.9 million on this energy-efficient desalination and treatment process and equipment, of which $7.4 million was capitalized. See the discussion in Part I, Item 1, “Business — Business Segments” for additional information.

Additionally, during the year ended December 31, 2024, we invested approximately $21.7 million to maintain and/or enhance our water sourcing assets.

Cash Flows from Operating Activities

For the years ended December 31, 2024 and 2023, net cash provided by operating activities was $490.7 million and $418.3 million, respectively. Our cash flow provided by operating activities is primarily from oil, gas and produced water royalties, water and land sales, easements, and other surface-related income. Cash flow used in operations generally consists of operating expenses associated with our revenue streams, general and administrative expenses and income taxes.

The increase in cash flows provided by operating activities for the year ended December 31, 2024 compared to the same period of 2023 was primarily driven by an increase in operating income and changes in working capital requirements.

Cash Flows Used in Investing Activities

For the years ended December 31, 2024 and 2023, net cash used in investing activities was $471.7 million and $60.3 million, respectively. Our cash flows used in investing activities are primarily related to acquisitions and capital expenditures related to our water services and operations segment. Our acquisitions may include land, royalty interests and other similar tangible and intangible assets.

For further information regarding acquisitions during the year ended December 31, 2024, see “Acquisition Activity” above. Capital expenditures for the years ended December 31, 2024 and 2023 were $29.7 million and $15.0 million, respectively.

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Cash Flows Used in Financing Activities

For the years ended December 31, 2024 and 2023, net cash used in financing activities was $378.1 million and $144.6 million, respectively. Our cash flows used in financing activities principally consist of activities that return capital to our stockholders such as payments of dividends and repurchases of our Common Stock.

During the year ended December 31, 2024, we paid total dividends of $347.3 million, consisting of cumulative regular cash dividends of $5.11 per share and a special dividend of $10.00 per share. During the year ended December 31, 2023, we paid total dividends of $100.0 million consisting of cumulative regular cash dividends of $4.33 per share. We repurchased $29.2 million and $42.4 million of our Common Stock (in each case, including share repurchases not settled at the end of the period) during the years ended December 31, 2024 and 2023, respectively.

Results of Operations - Consolidated

The following table shows our consolidated results of operations and our results of operations by reportable segment for Land and Resource Management (“LRM”) and Water Service and Operations (“WSO”) for the years ended December 31, 2024 and 2023 (in thousands):

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Consolidated Revenues and Net Income:

Total revenues increased $74.2 million, or 11.8%, to $705.8 million for the year ended December 31, 2024 compared to $631.6 million for the year ended December 31, 2023. This increase was principally due to the $38.5 million increase in water sales, the $19.9 million increase in produced water royalties and the $15.9 million increase in oil and gas royalty revenue in 2024 over 2023. Individual revenue line items are discussed below under “Segment Results of Operations.” Net income of $454.0 million for the year ended December 31, 2024 was 11.9% higher than 2023, principally as a result of the increase in total revenues, partially offset by an increase in operating expenses, as discussed below.

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Consolidated Expenses:

Salaries and related employee expenses. Salaries and related employee expenses were $53.6 million for the year ended December 31, 2024 compared to $43.4 million for 2023. The number of employees increased from 100 at December 31, 2023 to 111 as of December 31, 2024, which, when coupled with market compensation adjustments effective at the beginning of 2024, resulted in increased salary and related employee expenses for the year ended December 31, 2024 compared to 2023. Additionally, contract labor expenses for the year ended December 31, 2024 increased over 2023, principally as a result of the 34.3% increase in water sales over the same period.

Water service-related expenses. Water service-related expenses increased $12.6 million to $46.1 million for the year ended December 31, 2024 compared to 2023. Certain types of water service-related expenses, including, but not limited to, treatment, transfer, water purchases, repairs and maintenance, equipment rental, and fuel costs vary from period to period as our customers’ needs and requirements change. Right of way and other expenses also vary from period to period depending on the location of customer delivery. The increase in water service-related expenses for the year ended December 31, 2024 was principally related to a 34.3% increase in water sales over 2023, primarily as a result of increased water volumes. Research and development expenses related to development of a new energy-efficient method of produced water desalination and treatment were $2.5 million and $1.2 million for the years ended December 31, 2024 and 2023, respectively. For further discussion of this new treatment method, see “Liquidity and Capital Resources — Development of New Solutions for Produced Water and Capital Expenditures” above.

General and administrative expenses. General and administrative expenses decreased $12.0 million to $34.5 million for the year ended December 31, 2024 from $46.5 million for the same period of 2023. The decrease in general and administrative expenses during the year ended December 31, 2024 compared to the same period of 2023 was principally related to a reduction in legal and professional fees associated with stockholder matters that occurred during 2023.

Depreciation, depletion and amortization. Depreciation, depletion and amortization was $25.2 million for the year ended December 31, 2024 compared to $14.8 million for the year ended December 31, 2023. The increase is principally due to additional depletion expense associated with royalty interests acquired in August 2024 and October 2024, as well as additional amortization expense associated with intangible assets acquired in August 2023 and August 2024.

Other income, net. Other income, net was $39.7 million and $31.5 million for the years ended December 31, 2024 and 2023, respectively. The increase in other income, net was primarily related to increased interest income earned on our cash balances during 2024. Higher interest yields during the year ended December 31, 2024 contributed to the increase in interest income. Additionally, during the year ended December 31, 2024, we recorded a curtailment and settlement gain of $4.6 million related to the Company’s pension plan. See further discussion at Note 8, “Pension and Other Postretirement Benefits” in the notes to our consolidated financial statements included under Part II, Item 8, “Financial Statements and Supplementary Data.”

Total income tax expense. Total income tax expense was $124.9 million and $111.9 million for the years ended December 31, 2024 and 2023, respectively. The increase in income tax expense was primarily related to increased operating income resulting from increased consolidated revenues.

Segment Results of Operations

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

We evaluate the performance of our operating segments separately to monitor the different factors affecting financial results. The reportable segments presented are consistent with our reportable segments discussed in Note 15, “Business Segment Reporting” in the notes to our consolidated financial statements included under Part II, Item 8. “Financial Statements and Supplementary Data.” 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 oil and gas royalty revenue, and, in turn, our results of operations for the year ended December 31, 2024 have been impacted by lower average commodity prices compared to 2023. However, our oil and gas royalty revenues increased for the year ended December 31, 2024 due to increased royalty production. Additionally, revenues derived from water sales and produced water royalties for the year ended December 31, 2024 were also positively impacted by our active management of our surface and royalty interests in recent years.

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Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Land and Resource Management

Land and Resource Management segment revenues increased $8.7 million, or 2.0%, to $440.8 million for the year ended December 31, 2024 as compared to 2023. The increase in Land and Resource Management segment revenues was related to a $15.9 million increase in oil and gas royalty revenue, partially offset by a decrease in easements and other surface-related income of $4.8 million and a decrease in land sales of $2.4 million for the year ended December 31, 2024 compared to 2023.

Oil and gas royalties. Oil and gas royalty revenue was $373.3 million for the year ended December 31, 2024 compared to $357.4 million for the year ended December 31, 2023, an increase of 4.5%. Oil and gas royalties for the year ended December 31, 2023 included an $8.7 million recovery with an operator with respect to unpaid oil and gas royalties for older production periods. Excluding the impact of the $8.7 million recovery on 2023 revenue, oil and gas royalties for the year ended December 31, 2024 increased $24.6 million due to increased production volumes over 2023. Our share of production volumes increased to 26.8 thousand Boe per day for the year ended December 31, 2024 compared to 23.5 thousand Boe per day for 2023. The average realized prices decreased to $39.87 per Boe for the year ended December 31, 2024 from $42.58 per Boe for 2023.

The table below provides financial and operational data by royalty stream for the years ended December 31, 2024 and 2023:

(1)    Commonly used definitions in the oil and gas industry not previously defined: 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.

(2)    The metrics and dollars provided for the year ended December 31, 2023 exclude the impact of the $8.7 million recovery of oil and gas discussed above.

Easements and other surface-related income. Easements and other surface-related income was $63.1 million for the year ended December 31, 2024, a decrease of 7.1% compared to $67.9 million for the year ended December 31, 2023. Easements and other surface-related income includes revenue related to the use and crossing of our land for oil and gas

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exploration and production, renewable energy, and agricultural operations. The decrease in easements and other surface-related income was principally related to a decrease of $5.1 million in wellbore easements for the year ended December 31, 2024 compared to 2023. 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 “Permian Basin Activity” above for additional discussion of development activity in the Permian Basin during the year ended December 31, 2024.

Land sales. Land sales were $4.4 million and $6.8 million for the years ended December 31, 2024 and 2023, respectively. For the year ended December 31, 2024, we sold 439 acres of land for an aggregate sales price of $4.4 million. For the year ended December 31, 2023, we sold 18,061 acres of land for an aggregate sales price of approximately $6.8 million.

Net income. Net income for the Land and Resource Management segment increased to $314.9 million for the year ended December 31, 2024 compared to $306.7 million for 2023. Segment operating income increased $8.9 million for the year ended December 31, 2024 compared to 2023. The increase was principally due to a $15.9 million increase in oil and gas royalty revenue and a $13.5 million decrease in general and administrative expenses, partially offset by increased depletion expense and salaries and related employee expenses. Expenses are discussed further above under “Results of Operations — Consolidated.”

Water Services and Operations

Water Services and Operations segment revenues increased 32.9%, to $265.0 million for the year ended December 31, 2024 compared to $199.5 million for 2023. The increase in Water Services and Operations segment revenues was principally due to increases in water sales revenue and produced water royalties, which are discussed below. As discussed in “Market Conditions” and “Permian Basin Activity” 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.

Water sales. Water sales revenue increased $38.5 million, or 34.3% to $150.7 million for the year ended December 31, 2024 compared to 2023. The growth in water sales was principally due to an increase of 31.0% in water sales volumes for the year ended December 31, 2024 compared to the year ended December 31, 2023.

Produced water royalties. Produced water royalties are royalties received from the transfer or disposal of produced water on our land. Produced water royalties are contractual and not paid as a matter of right. We do not operate any saltwater disposal wells. Produced water royalties were $104.1 million for the year ended December 31, 2024 compared to $84.3 million in 2023. This increase was principally due to increased produced water volumes for the year ended December 31, 2024 compared to 2023.

Easements and other surface-related income. Easements and other surface-related income was $10.2 million for the year ended December 31, 2024, an increase of $7.2 million compared to $3.0 million for the year ended December 31, 2023. The increase in easements and other surface-related income primarily related to an increase in temporary permits for sourced water lines for the year ended December 31, 2024 compared to 2023.

Net income. Net income for the Water Services and Operations segment was $139.1 million for the year ended December 31, 2024 compared to $98.9 million for the year ended December 31, 2023. Segment operating income increased $44.2 million for the year ended December 31, 2024 compared to 2023. The increase was principally due to a $65.5 million increase in segment revenues which were partially offset by a $12.6 million increase in water service-related expenses and a $10.9 million increase in income tax expense. Expenses are discussed further above under “Results of Operations — Consolidated.”

Non-GAAP Performance Measures

In addition to amounts presented in accordance with GAAP, we also present certain supplemental non-GAAP performance measurements. These measurements are not to be considered more relevant or accurate than the measurements presented in accordance with GAAP. In compliance with the requirements of the 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.

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EBITDA, Adjusted EBITDA and Free Cash Flow

EBITDA is a non-GAAP financial measurement of earnings before interest expense, taxes, depreciation, depletion and amortization. The purpose of presenting EBITDA is to highlight earnings without finance, taxes, and depreciation, depletion and amortization expense, and its use is limited to specialized analysis. We calculate Adjusted EBITDA as EBITDA plus employee share-based compensation and less pension curtailment and settlement gain. The pension curtailment and settlement gain is related to a buyout by a third party of defined benefit obligations under our pension plan and the subsequent freezing of our pension plan, both of which occurred in the fourth quarter of 2024. We have excluded the pension curtailment and settlement gain from the calculation of Adjusted EBITDA as such gain is a non-recurring item and is not related to our core business. The purpose of presenting Adjusted EBITDA is to highlight earnings without non-cash activity such as share-based compensation and other non-recurring or unusual items, if applicable. We calculate free cash flow as Adjusted EBITDA less current income tax expense and capital expenditures. The purpose of presenting free cash flow is to provide an additional measure of operating performance. We have presented EBITDA, Adjusted EBITDA and free cash flow because we believe that these metrics are useful supplements to net income in analyzing the Company's operating performance. Our definitions of EBITDA, Adjusted EBITDA and free cash flow may differ from computations of similarly titled measures of other companies.

The following table presents a reconciliation of EBITDA, Adjusted EBITDA and free cash flow to net income for the years ended December 31, 2024 and 2023 (in thousands):

Off-Balance Sheet Arrangements

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

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 and estimates.

Accrual of Oil and Gas Royalties

The Company accrues oil and gas royalties. An accrual is necessary due to the time lag between the removal of crude oil and natural gas products from the respective mineral reserve locations and generation of the actual payment by operators. The oil and gas royalty accrual is based upon historical production volumes, estimates of the timing of future payments and recent market prices for oil and gas.

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Recent Accounting Pronouncements

For further information regarding recently issued accounting pronouncements, see Note 2, “Summary of Significant Accounting Policies” in the notes to our consolidated financial statements included under Part II, Item 8. “Financial Statements and Supplementary Data.”

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operation (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Texas Pacific Land Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements included in Part II, Item 8 of this Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those factors presented in Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K. This section generally discusses the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Overview

TPL was originally organized in 1888 as a business trust to hold title to extensive tracts of land in numerous counties in West Texas which were previously the property of the Texas and Pacific Railway Company. As discussed in Item 1. “Business — General — Corporate Reorganization,” on January 11, 2021, we completed our Corporate Reorganization from a business trust to a corporation changing our name from Texas Pacific Land Trust to Texas Pacific Land Corporation.

For an overview of our business and discussion of our business segments, see Item 1. “Business — General.”

Our business activity is generated from our surface and royalty interest ownership in West Texas, primarily in the Permian Basin. Our revenues are primarily derived from oil, gas and produced water royalties, sales of water and land, easements, and commercial leases. Due to the nature of our operations and concentration of our ownership in one geographic location, our revenue and net income are subject to substantial fluctuations from quarter to quarter and year to year. In addition to fluctuations in response to changes in the market price for oil and gas, our financial results are also subject to decisions by the owners and operators of not only the oil and gas wells to which our oil and gas royalty interests relate, but also to other owners and operators in the Permian Basin as it relates to our other revenue streams, principally water sales, easements and other surface-related revenue.

Market Conditions

Global Oil and Natural Gas Market Impact in 2023

Average oil and gas prices during 2023 have declined compared to average prices during 2022. Oil prices continue to be impacted by certain actions by OPEC+, geopolitical factors, and evolving global supply and demand trends, among other factors. Global and domestic natural gas markets have experienced volatility due to macroeconomic conditions, infrastructure and logistical constraints, weather, and geopolitical issues, among other factors. In 2023, domestic natural gas prices have declined in part to growing supply. Since mid-2022, the Waha Hub located in Pecos County, Texas has at times experienced significant negative price differentials relative to Henry Hub, located in Erath, Louisiana, due in part to growing local Permian natural gas production and limited natural gas pipeline takeaway capacity. Midstream infrastructure is currently under construction by operators to provide additional takeaway capacity, though the impact on future basis differentials will be dependent on future natural gas production and other factors. Changes in macro-economic conditions, including rising interest rates and lower global economic activity, could result in additional shifts in oil and gas supply and demand in future periods. Although our revenues are directly and indirectly impacted by changes in oil and natural gas prices, we believe our royalty interests (which require no capital expenditures or operating expense burden from us for well development), strong balance sheet, and liquidity position will help us navigate through potential commodity price volatility.

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 in 52 counties across southeastern New Mexico and western Texas. Exploration and production (“E&P”) companies active in the Permian have generally increased their drilling and development activity in 2023 compared to recent prior year activity levels. Per the U.S. Energy Information Administration (“EIA”), Permian production is approximately six million barrels per day, which is higher than the average daily production of any year prior to 2023.

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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 years ended December 31, 2023 and 2022:

(1)    Commonly used definitions in the oil and gas industry provided in the table above are defined as follows: WTI Cushing 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. DUC classification is based on well data and date stamps provided by Enverus. DUCs is based on wells that have a drilled/spud date stamp but do not have a completed or first production date stamp. Excludes wells that have been labeled plugged and abandoned or permit expired and wells drilled/spud more than five years ago.

(2)    Permian Basin specific information per Enverus analytics. US weekly horizontal rig counts per Baker Hughes United States Rotary Rig Count for horizontal rigs. Statistics for similar data are also available from other sources. The comparability between these other sources and the sources used by the Company may differ.

The metrics above show selected domestic benchmark oil and natural gas prices and approximate activity levels in the

Permian Basin for the years ended December 31, 2023 and 2022. Our oil and gas royalties are impacted by both oil and gas prices as well as production levels. Oil and gas prices in 2023 have declined compared to the comparable period in 2022. Despite declining commodity prices, drilling and development activities across the Permian generally remained strong in 2023. 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

Overview

Our principal sources of liquidity are cash and cash flows generated from our operations. 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.

We continuously review our liquidity and capital resources. If market conditions were to change and our revenues were 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, nor any off-balance sheet arrangements as of December 31, 2023.

As of December 31, 2023, we had cash and cash equivalents of $725.2 million that we expect to utilize, along with cash flow from operations, to provide capital to support our business, to repurchase our Common Stock subject to market conditions, to pay dividends subject to the discretion of our Board, for potential acquisitions and for general corporate purposes. For the year ended December 31, 2023, we paid $100.0 million in dividends to our stockholders and repurchased $42.4 million of our Common Stock (including the share repurchases not settled at the end of the period).

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We acquired intangible assets of $21.4 million during the year ended December 31, 2023, consisting of a SWD easement and groundwater rights. Additionally, we invested approximately $15.2 million in TPWR projects to maintain and/or enhance our water sourcing assets, of which $3.1 million related to water wells and related infrastructure acquired in conjunction with the acquisition of groundwater rights during the year ended December 31, 2023. The SWD easement covers approximately 49,000 acres and provides us future disposal opportunities to service injection customers seeking disposal solutions located outside of core basins. The groundwater rights provide us access to additional water volumes outside of our existing surface footprint to assist in managing fluctuations in customer demand.

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.

Cash Flows from Operating Activities

For the years ended December 31, 2023 and 2022, net cash provided by operating activities was $418.3 million and $447.1 million, respectively. Our cash flow provided by operating activities is primarily from oil, gas and produced water royalties, water and land sales, easements, and other surface-related income. Cash flow used in operations generally consists of operating expenses associated with our revenue streams, general and administrative expenses and income taxes.

The decrease in cash flows provided by operating activities for the year ended December 31, 2023 compared to the same period of 2022, was primarily related to changes in working capital requirements over the same time period.

Cash Flows Used in Investing Activities

For the years ended December 31, 2023 and 2022, net cash used in investing activities was $60.3 million and $21.4 million, respectively. Our cash flows used in investing activities are primarily related to land acquisitions, intangible assets such as subsurface easements, and capital expenditures related to our water services and operations segment.

Acquisitions of intangible assets and land increased $21.4 million and $19.7 million, respectively, for the year ended December 31, 2023 compared to the same period of 2022 and were partially offset by a decrease of $4.2 million in capital expenditures during the same time period.

Cash Flows Used in Financing Activities

For the years ended December 31, 2023 and 2022, net cash used in financing activities was $144.6 million and $336.8 million, respectively. Our cash flows used in financing principally consist of activities which return capital to our stockholders such as payment of dividends and repurchases of our Common Stock.

During the year ended December 31, 2023, we paid total dividends of $100.0 million, consisting of cumulative paid cash dividends of $13.00 per share. During the year ended December 31, 2022, we paid total dividends of $247.3 million consisting of cumulative cash dividends of $12.00 per share and a special dividend of $20.00 per share. We repurchased $42.4 million and $87.9 million of our Common Stock (including share repurchases not settled at the end of the period) during the years ended December 31, 2023 and 2022, respectively.

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Results of Operations - Consolidated

The following table shows our consolidated results of operations for the years ended December 31, 2023, 2022, and 2021 (in thousands):

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Consolidated Revenues and Net Income:

Total revenues decreased $35.8 million, or 5.4%, to $631.6 million for the year ended December 31, 2023 compared to $667.4 million for the year ended December 31, 2022. This decrease was principally due to the $95.0 million decrease in oil and gas royalty revenue and was partially offset by the combined increase of $39.5 million in water sales and produced water royalties, and the $22.9 million increase in easements and other surface-related income, over the same period. Individual revenue line items are discussed below under “Segment Results of Operations.” Net income of $405.6 million for the year ended December 31, 2023 was 9.1% lower than the comparable period of 2022, principally as a result of both the decrease in revenues discussed above and the increase in operating expenses discussed further below under “Consolidated Expenses.”

Consolidated Expenses:

Salaries and related employee expenses. Salaries and related employee expenses were $43.4 million for the year ended December 31, 2023 compared to $41.4 million for the comparable period of 2022. The increase in salaries and related employee expenses is principally related to market compensation adjustments.

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Water service-related expenses. Water service-related expenses increased $16.1 million to $33.6 million for the year ended December 31, 2023 compared to the same period of 2022. Certain types of water service-related expenses, including, but not limited to, transfer, treatment, and water purchases, will vary from period to period as our customers’ needs and requirements change. Water sales, which increased 32.4% during 2023, were impacted not only by increased customer volumes, but also by higher demand within shorter time commitments and resulted in increased water purchase, treatment and transfer expenses. While these dynamics in demand resulted in a 92.2% increase in water service-related expenses for the year ended December 31, 2023 compared to the same period of 2022, the operational decision to meet these demands resulted in increased revenues and operating income over the same time period.

General and administrative expenses. General and administrative expenses increased $1.6 million to $14.9 million for the year ended December 31, 2023 from $13.3 million for the same period of 2022. The increase in general and administrative expenses during the year ended December 31, 2023 compared to the same period of 2022 was principally related to increased expenses for technology applications and increased board fees due to the expansion of our board to 10 directors in April 2022.

Legal and professional fees. Legal and professional fees were $31.5 million for the year ended December 31, 2023 compared to $8.7 million for the comparable period of 2022. The increase is principally related to legal expenses associated with stockholder matters. See further discussion in Part I - Item 3. Legal Proceedings.

Ad valorem and other taxes. Ad valorem and other taxes were $7.4 million for the year ended December 31, 2023, compared to $8.9 million for the comparable period of 2022. Ad valorem taxes for the year ended December 31, 2022 included payments for prior year ad valorem tax liabilities which had not been paid by the third party responsible for those ad valorem taxes. Prior to January 1, 2022, the ad valorem taxes with respect to our historical royalty interests were paid directly by third parties pursuant to an existing arrangement. Since the completion of our Corporate Reorganization on January 11, 2021, we have received notice from a third party that it no longer intends to pay the ad valorem taxes related to such historical royalty interests. While we continue to believe the obligation to pay these ad valorem taxes should belong to the third party, we have accrued and/or paid an estimate of such taxes in order to protect the royalty interests from any potential tax liens for nonpayment of ad valorem taxes. While we intend to seek reimbursement from the third party following payment of such taxes, we are unable to determine the amount and/or likelihood of such reimbursement, and accordingly, have not recorded a loss recovery receivable as of December 31, 2023.

Other income, net. Other income, net was $31.5 million and $6.5 million for the years ended December 31, 2023 and 2022, respectively. The increase in other income, net is primarily related to increased interest income earned on our cash balances during 2023. Higher cash balances and interest yields during this period contributed to the increase in interest income.

Total income tax expense. Total income tax expense was $111.9 million and $122.5 million for the years ended December 31, 2023 and 2022, respectively. The decrease in income tax expense is primarily related to decreased operating income resulting from decreased oil and gas royalty revenue and increased operating expenses.

Segment Results of Operations

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

We evaluate the performance of our operating segments separately to monitor the different factors affecting financial results. The reportable segments presented are consistent with our reportable segments discussed in Note 14, “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”).

Our oil and gas royalty revenue, and, in turn, our results of operations for the year ended December 31, 2023 have been impacted by lower average commodity prices compared to 2022. The decline in oil and gas royalty revenues has been partially offset by increases in revenues derived from water sales, easements and other surface-related income, and produced water royalties which have been positively impacted by ongoing development activity in the Permian Basin.

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Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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

Land and Resource Management

Land and Resource Management segment revenues decreased $74.9 million, or 14.8%, to $432.1 million for the year ended December 31, 2023 as compared to the same period of 2022. The decrease in Land and Resource Management segment revenues is due to a $95.0 million decrease in oil and gas royalties for the year ended December 31, 2023 compared to the same period of 2022. The decrease in oil and gas royalty revenue was partially offset by a $23.3 million increase in easements and other surface-related income over the same time period.

Oil and gas royalties. Oil and gas royalty revenue was $357.4 million for the year ended December 31, 2023 compared to $452.4 million for the year ended December 31, 2022, a decrease of 21.0%. Oil and gas royalties for the year ended December 31, 2023 included an $8.7 million recovery, discussed further in the following paragraph. Excluding the $8.7 million recovery, oil and gas royalties decreased $103.7 million due to lower average commodity prices during the year ended December 31, 2023 compared to the same period of 2022. The average realized prices declined 30.0% to $42.58 per Boe for the year ended December 31, 2023 from $60.81 per Boe for the same period of 2022. Our share of crude oil, natural gas and NGL production volumes was 23.5 thousand Boe per day for the year ended December 31, 2023 compared to 21.3 thousand Boe per day for the same period of 2022.

As part of an ongoing arbitration between TPL and an operator with respect to underpayment of oil and gas royalties resulting from improper deductions of post-production costs by the operator for production periods before and through June 2023, the operator has agreed to pay $10.1 million to TPL, comprised of $8.7 million of unpaid oil and gas royalties, $0.9 million of interest and $0.5 million of damages (the “O&G Settlement”). The full amount of $10.1 million has been recorded as a receivable, $8.7 million has been included in oil and gas royalty revenue and the remaining $1.4 million has been recorded as other income in the consolidated financial statements for the year ended December 31, 2023. The Company received payment from the operator for the full amount in January 2024.

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The table below provides financial and operational data by royalty stream for the years ended December 31, 2023 and 2022 and excludes the O&G Settlement discussed above:

(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.

(2)    The metrics provided exclude the impact of the $8.7 million of oil and gas royalties from the O&G Settlement discussed above.

Easements and other surface-related income. Easements and other surface-related income was $67.9 million for the year ended December 31, 2023, an increase of 52.4% compared to $44.6 million for the year ended December 31, 2022. Easements and other surface-related income includes revenue related to the use and crossing of our land for oil and gas exploration and production, renewable energy, and agricultural operations. The increase in easements and other surface-related income is principally related to increases of $13.6 million in pipeline easements and $5.3 million in material sales (caliche and sand) for the year ended December 31, 2023 compared to the same period of 2022. 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 year ended December 31, 2023.

Land sales and other operating revenue. Land sales and other operating revenue was $6.8 million and $10.0 million for the years ended December 31, 2023 and 2022, respectively. For the year ended December 31, 2023, we sold 18,061 acres of land for an aggregate sales price of $6.8 million. For the year ended December 31, 2022, we sold 6,392 acres of land for an aggregate sales price of approximately $9.7 million.

Net income. Net income for the Land and Resource Management segment decreased 16.0% to $306.7 million for the year ended December 31, 2023 compared to $365.0 million for the comparable period in 2022. Segment operating income decreased $98.2 million for the year ended December 31, 2023 compared to the same period of 2022, largely driven by the $95.0 million decrease in oil and gas royalty revenue. Expenses are discussed further above under “Results of Operations.”

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Water Services and Operations

Water Services and Operations segment revenues increased 24.3%, to $199.5 million for the year ended December 31, 2023 as compared with $160.4 million for the comparable period of 2022. The increase in Water Services and Operations segment revenues is principally due to increases 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.

Water sales. Water sales revenue increased $27.5 million, or 32.4% to $112.2 million for the year ended December 31, 2023 compared to the same period of 2022. The growth in water sales is principally due to an increase of 21.8% in water sales volumes for the years ended December 31, 2023 compared to the year ended December 31, 2022.

Produced water royalties. Produced water royalties are royalties received from the transfer or disposal of produced water on our land. Produced water royalties are contractual and not paid as a matter of right. We do not operate any salt water disposal wells. Produced water royalties were $84.3 million for the year ended December 31, 2023 compared to $72.2 million for the same period in 2022. This increase is principally due to increased produced water volumes for the year ended December 31, 2023 compared to the same period of 2022.

Net income. Net income for the Water Services and Operations segment was $98.9 million for the year ended December 31, 2023 compared to $81.3 million for the year ended December 31, 2022. Segment operating income increased $22.0 million for the year ended December 31, 2023 compared to the same period of 2022. The increase is principally due to the $39.0 million increase in segment revenues which were partially offset by the $16.1 million increase in water service-related expenses and the $5.4 million increase in income tax expense. Expenses are discussed further above under “Results of Operations.”

Non-GAAP Performance Measures

In addition to amounts presented in accordance with GAAP, we also present certain supplemental non-GAAP performance measurements. These measurements are not to be considered more relevant or accurate than the measurements presented in accordance with GAAP. In compliance with the requirements of the 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, Adjusted EBITDA and Free Cash Flow

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 calculate Adjusted EBITDA as EBITDA excluding employee share-based compensation. Its purpose is to highlight earnings without non-cash activity such as share-based compensation and/or other non-recurring or unusual items. We calculate Free Cash Flow as Adjusted EBITDA less current income tax expense and capital expenditures. Its purpose is to provide an additional measure of operating performance. We have presented EBITDA, Adjusted EBITDA and Free Cash Flow because we believe that these metrics are useful supplements to net income in analyzing the Company's operating performance. Our definitions of Adjusted EBITDA and Free Cash Flow may differ from computations of similarly titled measures of other companies.

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The following table presents a reconciliation of net income to EBITDA, Adjusted EBITDA and Free Cash Flow for the years ended December 31, 2023, 2022, and 2021 (in thousands):

Off-Balance Sheet Arrangements

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

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 Company accrues oil and gas royalties. An accrual is necessary due to the time lag between the removal of crude oil and natural gas products from the respective mineral reserve locations and generation of the actual payment by operators. The oil and gas royalty accrual is based upon historical production volumes, 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.”

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operation (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Texas Pacific Land Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements included in Part II, Item 8 of this Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those factors presented in Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K. This section generally discusses the results of our operations for the year ended December 31, 2022 compared to the year ended December 31, 2021. For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Overview

TPL was originally organized in 1888 as a business trust to hold title to extensive tracts of land in numerous counties in West Texas which were previously the property of the Texas and Pacific Railway Company. As discussed in Item 1. “Business — General — Corporate Reorganization,” on January 11, 2021, we completed our Corporate Reorganization from a business trust to a corporation changing our name from Texas Pacific Land Trust to Texas Pacific Land Corporation.

For an overview of our business and discussion of our business segments, see Item 1. “Business — General.”

Our business activity is generated from our surface and royalty interest ownership in West Texas, primarily in the Permian Basin. Our revenues are derived from oil, gas and produced water royalties, sales of water and land, easements and commercial leases. Due to the nature of our operations and concentration of our ownership in one geographic location, our revenue and net income are subject to substantial fluctuations from quarter to quarter and year to year. In addition to fluctuations in response to changes in the market price for oil and gas, our financial results are also subject to decisions by the owners and operators of not only the oil and gas wells to which our oil and gas royalty interests relate, but also to other owners and operators in the Permian Basin as it relates to our other revenue streams, principally water sales, easements and other surface-related revenue.

Market Conditions

Global Oil and Natural Gas Market Impact in 2022

Average oil and gas prices during 2022 were strong compared to average prices in previous years over the last decade. Oil prices were impacted by continued oil supply cuts by OPEC+, an uneven global demand recovery, and Russia’s incursion into Ukraine, among other factors. In response to high oil prices during 2022, the United States (“US”) implemented various measures to help mitigate potential supply shortfalls and high oil prices, most notably by releasing millions of barrels of crude oil from its Strategic Petroleum Reserve. The confluence of these major events has contributed to fluctuations in oil prices during 2022. Global and domestic natural gas markets have also experienced volatility due to macroeconomic conditions, infrastructure and logistical constraints, and geopolitical issues, among other factors. US natural gas prices at Henry Hub, located in Erath, Louisiana, have strengthened in 2021 and 2022 due in part to liquified natural gas prices (“LNG”) exports and local demand for power, heating, and industrial activity. In 2022, the Waha Hub located in Pecos County, Texas, at times experienced significant negative price differentials relative to Henry Hub due in part to growing local Permian natural gas production gas and limited natural gas pipeline takeaway capacity. Inflation remains elevated and continues to significantly impact current labor costs and supplies. Changes in macro-economic conditions, including rising interest rates and lower global economic activity, could result in additional shifts in demand and supply in future periods. 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 from us for well development), strong balance sheet, and liquidity position will help us navigate through potential oil price volatility.

COVID-19 Pandemic

We continue to monitor the COVID-19 pandemic. We are following local government mandates, where applicable, and will continue to revise and refine our on-site work to ensure business continuity and the safety and well-being of our employees. The full extent to which the pandemic impacts our business will depend on future developments that are highly

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uncertain and cannot be predicted, including new information that may emerge concerning the severity, and new variants, of the virus.

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 in 52 counties across southeastern New Mexico and western Texas. Exploration and production (“E&P”) companies active in the Permian have generally increased their drilling and development activity in 2022 compared to recent prior year activity levels. Per the U.S. Energy Information Administration (“EIA”), Permian production is currently in excess of five million barrels per day, which is higher than the average daily production of any year prior to 2022. Despite record Permian production volumes, E&P companies continue to experience challenges with labor and supply chains related to drilling and completion activities, which could negatively impact overall production.

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 years ended December 31, 2022 and 2021:

(1)    Commonly used definitions in the oil and gas industry provided in the table above are defined as follows: WTI Cushing 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. Statistics for similar data are also available from other sources. The comparability between these other sources and the sources used by the Company may differ.

The metrics above show selected domestic benchmark oil and natural gas prices and approximate activity levels in the

Permian Basin for the years ended December 31, 2022 and 2021. Our oil and gas royalties are impacted by both oil and gas prices as well as production levels. Oil and gas prices in 2022 have significantly increased compared to the comparable period in 2021. Although E&P companies broadly continue to deploy capital at a measured pace, drilling and development activities across the Permian have generally improved in 2022 compared to the prior year. 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

Overview

Our principal sources of liquidity are cash and cash flows generated from our operations. 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 revenues were 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, nor any off-balance sheet arrangements as of December 31, 2022.

As of December 31, 2022, we had cash and cash equivalents of $510.8 million that we expect to utilize, along with cash flow from operations, to provide capital to support the growth of our business, to repurchase our Common Stock subject to market conditions, to pay dividends subject to the discretion of our Board and for general corporate purposes. For the year ended December 31, 2022, we repurchased $87.9 million of our Common Stock (including share repurchases not yet settled), and we paid $247.3 million in dividends to our stockholders. 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.

During the year ended December 31, 2022, we invested approximately $18.6 million in Texas Pacific Water Resources LLC (“TPWR”) projects to maintain and/or enhance water sourcing assets, of which $6.9 million related to electrifying our water sourcing infrastructure.

Cash Flows from Operating Activities

For the years ended December 31, 2022 and 2021, net cash provided by operating activities was $447.1 million and $265.2 million, respectively. Our cash flow provided by operating activities is primarily from oil, gas and produced water royalties, water and land sales, and easements and other surface-related income. Cash flow used in operations generally consists of operating expenses associated with our revenue streams, general and administrative expenses and income taxes.

The increase in cash flows provided by operating activities for the years ended December 31, 2022 compared to the same period of 2021, was primarily related to increased prices and volumes of oil and gas production and was partially offset by increased income tax payments.

Cash Flows Used in Investing Activities

For the years ended December 31, 2022 and 2021, net cash used in investing activities was $21.4 million and $15.0 million, respectively. Our cash flows used in investing activities are primarily related to capital expenditures related to our water services and operations segment and acquisitions of royalty interests.

Capital expenditures increased $3.7 million for the year ended December 31, 2022 compared to the same period of 2021. Acquisitions of royalty interests increased approximately $1.7 million for the years ended December 31, 2022 compared to the same period 2021.

Cash Flows Used in Financing Activities

For the years ended December 31, 2022 and 2021, net cash used in financing activities was $336.8 million and $104.9 million, respectively. Our cash flows used in financing principally consist of activities which return capital to our stockholders such as payment of dividends and repurchases of our Common Stock.

During the year ended December 31, 2022, we paid total dividends of $247.3 million, consisting of cumulative paid cash dividends of $12.00 per share and special dividends of $20.00 per share. During the year ended December 31, 2021, we paid total dividends of $85.3 million consisting of cumulative cash dividends of $11.00 per share. We repurchased $87.9 million and $19.9 million of our Common Stock (including share repurchases not yet settled) during the years ended December 31, 2022 and 2021, respectively.

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Results of Operations - Consolidated

The following table shows our consolidated results of operations for the years ended December 31, 2022, 2021, and 2020 (in thousands):

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Consolidated Revenues and Net Income:

Total revenues increased $216.5 million, or 48.0%, to $667.4 million for the year ended December 31, 2022 compared to $451.0 million for the year ended December 31, 2021. This increase was principally due to the $166.0 million increase in oil and gas royalties and the combined increase of $31.1 million in water sales and produced water royalties over the same period. Net income of $446.4 million for the year ended December 31, 2022 was 65.3% higher than the comparable period of 2021. The increase in net income was driven by the 55.2% increase in operating income resulting from the 48.0% increase in total revenues and the 3.9% improvement in operating margin to 84.3% for the year ended December 31, 2022 compared to the prior year. Individual revenue line items are discussed below under “Segment Results of Operations.”

Consolidated Expenses:

Salaries and related employee expenses. Salaries and related employee expenses were $41.4 million for the year ended December 31, 2022 compared to $40.0 million for the comparable period of 2021. Stock compensation expense for the

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year ended December 31, 2022 was $7.6 million. As noted in Note 2, “Summary of Significant Accounting Policies — Share-Based Compensation,” the Company recognizes share-based compensation expense using the graded-vesting method which impacts the timing of the recognition of stock compensation expense for stock awards with vesting periods in excess of one year. Prior to December 2021, the Company did not have an equity incentive plan and did not pay compensation in equity. Salaries and related employee expenses for the year ended December 31, 2021 included $6.7 million of severance costs.

Water service-related expenses. Water service-related expenses increased $4.2 million to $17.5 million for the year ended December 31, 2022 compared to the same period of 2021. Transfer and treatment expenses for the year ended December 31, 2022 increased primarily due to heightened sales activity compared to the same period of 2021. Since the beginning of 2021, we have invested $13.3 million of capital in electrifying our water-related infrastructure to minimize our reliance on diesel-powered generators. Electricity expense for the year ended December 31, 2022 increased principally due to increased usage of our electrified infrastructure and rising electricity costs compared to the same period of 2021. This increase in electricity expense was partially offset by decreases in fuel and equipment rental expenses during the same time period.

General and administrative expenses. General and administrative expenses increased $1.6 million to $13.4 million for the year ended December 31, 2022 from $11.8 million for the same period of 2021. The increase in general and administrative expenses during the year ended December 31, 2022 compared to the same period of 2021 was principally related to increases in charitable contributions, corporate insurance and board expenses due to the expansion of our board to 10 directors.

Legal and professional fees. Legal and professional fees were $8.7 million for the year ended December 31, 2022 compared to $7.3 million for the comparable period of 2021. The increase is principally related to legal expenses associated with stockholder matters.

Ad valorem taxes. For the year ended December 31, 2022, the Company recorded an expense of $8.7 million for ad valorem taxes. Prior to January 1, 2022, ad valorem taxes with respect to our historical royalty interests were paid directly by certain third parties pursuant to an existing arrangement. Since the completion of our Corporate Reorganization on January 11, 2021, we have received notice from one such third party that they no longer intend to pay the ad valorem taxes related to such historical royalty interests. While we continue to believe the obligation to pay these ad valorem taxes should belong to the third party, we have accrued an estimate of such taxes and intend to pay the taxes when they become due in order to protect the royalty interests from any potential tax liens for nonpayment of future ad valorem taxes. While we intend to seek reimbursement from the third party following payment of such taxes, we are unable to determine the likelihood of such reimbursement, and accordingly, have not recorded a loss recovery receivable as of December 31, 2022.

Other income, net. Other income, net was $6.5 million and $0.6 million for the years ended December 31, 2022 and 2021, respectively. Interest income earned on our cash balances increased as interest yields rose during 2022.

Total income tax expense. Total income tax expense was $122.5 million and $93.0 million for the years ended December 31, 2022 and 2021, respectively. The increase in income tax expense is primarily related to increased operating income resulting from increased revenues from oil and gas royalties and water sales.

Segment Results of Operations

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

We evaluate the performance of our operating segments separately to monitor the different factors affecting financial results. The reportable segments presented are consistent with our reportable segments discussed in Note 12, “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”).

Our results of operations for the year ended December 31, 2022 have benefited directly and indirectly from a rebound in oil and gas activity in the Permian Basin and increases in commodity prices compared to 2021. Our oil and gas royalties have increased due to increased royalty production and higher commodity prices during this time period. Additionally, revenues derived from easements and other surface-related income, water sales, and produced water royalties have also generally been positively impacted by ongoing development activity in the Permian Basin.

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

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

Land and Resource Management

Land and Resource Management segment revenues increased $186.6 million, or 58.2%, to $507.0 million for the year ended December 31, 2022 as compared with revenues of $320.4 million for the comparable period of 2021. The increase in Land and Resource Management segment revenues is principally due to the $166.0 million increase in oil and gas royalties for the year ended December 31, 2022 compared to the comparable period of 2021.

Oil and gas royalties. Oil and gas royalties were $452.4 million for the year ended December 31, 2022 compared to $286.5 million for the year ended December 31, 2021, an increase of 57.9%.

The table below provides financial and operational data by royalty stream for the years ended December 31, 2022 and 2021:

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(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 was 21.3 thousand Boe per day for the year ended December 31, 2022 compared to 18.6 thousand Boe per day for the same period of 2021. The average realized prices were $94.69 per barrel of oil, $6.19 per Mcf of natural gas, and $34.25 per barrel of NGL, for a total equivalent price of $60.81 per Boe for the year ended December 31, 2022, an increase of $16.67 per Boe compared to the total equivalent price of $44.14 per Boe for the same period of 2021.

Easements and other surface-related income. Easements and other surface-related income was $44.6 million for the year ended December 31, 2022, an increase of 35.5% compared to $32.9 million for the year ended December 31, 2021. Easements and other surface-related income includes revenue related to the use and crossing of our land for oil and gas exploration and production, renewable energy, and agricultural operations. The increase in easements and other surface-related income is principally related to increases of $4.5 million in wellbore easements, $3.7 million in material sales, and $2.8 million in pipeline easement income for the year ended December 31, 2022 compared to the same period of 2021. 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 year ended December 31, 2022.

Land sales and other operating revenue. Land sales and other operating revenue includes revenue generated from land sales and grazing leases and was $10.0 million and $1.0 million for the years ended December 31, 2022 and 2021, respectively. For the year ended December 31, 2022, we sold 6,392 acres of land for an aggregate sales price of $9.7 million or approximately $1,515 per acre. For the year ended December 31, 2021, we sold 30 acres of land for an aggregate sales price of approximately $0.7 million, or approximately $25,000 per acre.

Net income. Net income for the Land and Resource Management segment was $365.0 million for the year ended December 31, 2022 compared to $208.9 million for the year ended December 31, 2021. Expenses, including income tax expense, for the Land and Resource Management segment were $141.9 million and $111.5 million for the years ended December 31, 2022 and 2021, respectively. The increase in expenses during 2022 is principally related to a $24.0 million

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increase in income tax expense for the year ended December 31, 2022 compared to the same period of 2021. Expenses are discussed further above under “Results of Operations.”

Water Services and Operations

Water Services and Operations segment revenues increased 22.9%, to $160.4 million for the year ended December 31, 2022 as compared with revenues of $130.6 million for the comparable period of 2021. The increase in Water Services and Operations segment revenues is due to increases 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.

Water sales. Water sales revenue increased $17.0 million, or 25.0% to $84.7 million for the year ended December 31, 2022 compared to the same period of 2021. The increase in water sales is principally due to an increase of approximately 10.3% in sourced and treated water sales volumes for the years ended December 31, 2022 compared to the year ended December 31, 2021.

Produced water royalties. Produced water royalties are received from the transfer or disposal of produced water on our land. Produced water royalties are contractual and not paid as a matter of right. We do not operate any salt water disposal wells. Produced water royalties were $72.2 million for the year ended December 31, 2022 compared to $58.1 million for the same period in 2021. This increase is principally due to increased produced water volumes for the year ended December 31, 2022 compared to the same period of 2021.

Easements and other surface-related income. Easements and other surface-related income was $3.5 million for the year ended December 31, 2022, a decrease of $1.2 million compared to $4.7 million for the year ended December 31, 2021. The decrease in easements and other surface-related income relates to a decrease in temporary permits for sourced water lines for the year ended December 31, 2022 compared to the same period in 2021.

Net income. Net income for the Water Services and Operations segment was $81.3 million for the year ended December 31, 2022 compared to $61.1 million for the year ended December 31, 2021. As discussed above, revenues for the Water Services and Operations segment increased 22.9% for the year ended December 31, 2022 compared to the same period of 2021. Expenses, including income tax expense, for the Water Services and Operations segment were $79.1 million for the year ended December 31, 2022 as compared to $69.5 million for the year ended December 31, 2021. The overall increase in segment expenses during 2022 is principally related to a $5.4 million increase in income tax expense and a $4.2 million increase in water service-related expenses resulting from increased segment revenue and operating income during the same time period. Expenses are discussed further above under “Results of Operations.”

Non-GAAP Performance Measures

In addition to amounts presented in accordance with 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 the requirements of the 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 and Adjusted 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 calculate Adjusted EBITDA as EBITDA excluding employee share-based compensation, conversion costs related to our Corporate Reorganization, and severance costs. Its purpose is to highlight earnings without non-cash activity such as share-based compensation and/or other non-recurring or unusual items such as conversion and severance costs. We have presented EBITDA and Adjusted EBITDA because we believe that both are useful supplements to net income in analyzing operating performance.

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The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA for the years ended December 31, 2022, 2021, and 2020 (in thousands):

Off-Balance Sheet Arrangements

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

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 Company 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 production volumes, 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.”

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operation (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Texas Pacific Land Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements included in Part II, Item 8 of this Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in these forward looking statements as a result of various factors, including, but not limited to, those factors presented in Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K. This section generally discusses the results of our operations for the year ended December 31, 2021 compared to the year ended December 31, 2020. For a discussion of the year ended December 31, 2020 compared to the year ended December 31, 2019, please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Overview

TPL was originally organized in 1888 as a business trust to hold title to extensive tracts of land in numerous counties in West Texas which were previously the property of the Texas and Pacific Railway Company. As discussed in Item 1. “Business — General — Corporate Reorganization,” on January 11, 2021, we completed our Corporate Reorganization from a business trust to a corporation changing our name from Texas Pacific Land Trust to Texas Pacific Land Corporation.

For an overview of our business and discussion of our business segments, see Item 1. “Business — General.”

Our business activity is generated from our surface and royalty interest ownership in West Texas, primarily in the Permian Basin. Our revenues are derived from oil, gas and produced water royalties, sales of water and land, easements and commercial leases. Due to the nature of our operations and concentration of our ownership in one geographic location, our revenue and net income are subject to substantial fluctuations from quarter to quarter and year to year. In addition to fluctuations in response to changes in the market price for oil and gas, our financial results are also subject to decisions by the owners and operators of not only the oil and gas wells to which our oil and gas royalty interests relate, but also to other owners and operators in the Permian Basin as it relates to our other revenue streams, principally water sales, easements and other surface-related revenue.

Market Conditions

COVID-19 Pandemic and Global Oil Market Impact 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 oil demand and prices. 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. Production and activity curtailments were generally most pronounced in 2020 as many nations around the world implemented economic and social interventions in response to COVID-19. Development activity in the Permian Basin was likewise reduced, and our operations were commensurately negatively impacted. In 2021, oil market fundamentals improved as economic and social interventions subsided in some nations and as OPEC+ enacted and maintained oil supply cuts. With current oil, natural gas, and NGL prices higher than the comparable period in 2020, development activities in the Permian Basin have rebounded from the lows in 2020 and producer activity has increased, albeit at a pace still below pre-pandemic levels. Development activity on our royalty surface acreage likewise significantly improved in 2021 compared to the prior year. More recently, development activity has also been impacted by shortages in labor and certain equipment as well as escalating costs. While labor and resource shortages and rising costs have not directly impacted us thus far, these shortages and rising costs could potentially impact our future operating activity. 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. However, COVID-19 continues to impact certain regions domestically and globally, and any additional containment measures, now or in the future, could impede a recovery. 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 from us 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 continued to identify additional cost reduction opportunities. As part of our longer-term water business strategy, we have

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invested in electrifying our water sourcing infrastructure. The use of electricity instead of fuel-powered generators to source and transport water is anticipated to further 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 employees to transition to a remote work environment starting 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 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 years ended December 31, 2021 and 2020:

(1)    Commonly used definitions in the oil and gas industry provided in the table above are defined as follows: WTI Cushing 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. Statistics for similar data are also available from other sources. The comparability between these other sources and the sources used by the Company may differ.

The metrics above demonstrate the shifts in activity in the Permian Basin for the years ended December 31, 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 in 2021, development, drilling and completion and production activities broadly across the Permian have not returned to their pre-pandemic 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.

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Liquidity and Capital Resources

Overview

Our principal sources of liquidity are cash and cash flows generated from our operations. 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.

We continuously review our liquidity and capital resources. If market conditions were to change and our revenues were 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, nor any off-balance sheet arrangements as of December 31, 2021.

As of December 31, 2021, we had cash and cash equivalents of $428.2 million that we expect to utilize, along with cash flow from operations, to provide capital to support the growth of our business, to repurchase our Common Stock subject to market conditions, to pay dividends subject to the discretion of our Board and for general corporate purposes. For the year ended December 31, 2021, we repurchased $19.9 million of shares and paid $85.3 million in dividends to our stockholders. 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.

Cash Flows from Operating Activities

For the years ended December 31, 2021 and 2020, net cash provided by operating activities was $265.2 million and $207.0 million, respectively. Our cash flow provided by operating activities is primarily from oil, gas and produced water royalties, easements and other surface-related income and water and land sales. Cash flow used in operations generally consists of operating expenses associated with our revenue streams, general and administrative expenses and income taxes.

The increase in cash flows provided by operating activities for the year ended December 31, 2021 compared to the same period of 2020, was primarily related to increased prices and volumes of oil and gas production and was partially offset by increased working capital needs resulting from such activity.

Cash Flows Used in Investing Activities

For the years ended December 31, 2021 and 2020, net cash used in investing activities was $15.0 million and $26.0 million, respectively. Our cash flows used in investing activities are primarily related to acquisitions of land and royalty interests and capital expenditures related to our water services and operations segment.

Acquisitions of land and royalty interests decreased approximately $20.4 million for the year ended December 31, 2021 compared to the same period 2020. This decrease was partially offset by increased capital expenditures for the year ended December 31, 2021 compared to the same period of 2020.

Cash Flows Used in Financing Activities

For the years ended December 31, 2021 and 2020, net cash used in financing activities was $104.9 million and $201.7 million, respectively. Our cash flows used in financing primarily consist of activities which return capital to our shareholders such as dividends and repurchases of our Common Stock.

During the year ended December 31, 2021, we paid total dividends of $85.3 million consisting of cumulative paid cash dividends of $11.00 per share and repurchased Common Stock for $19.9 million (including share repurchases not yet settled as of December 31, 2021). During the year ended December 31, 2020, we paid total dividends of $201.7 million consisting of a regular cash dividend of $10.00 per Sub-share and special dividends aggregating $16.00 per Sub-share.

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Results of Operations

The following table shows our consolidated results of operations for the years ended December 31, 2021, 2020, and 2019 (in thousands):

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Consolidated Revenues and Net Income:

Total revenues and net income increased $148.4 million and $93.9 million, respectively, for the year ended December 31, 2021 compared to the same period for the year ended December 31, 2020. These increases were principally due to the $148.5 million increase in oil and gas royalty revenue over the same period. Individual revenue line items are discussed below under “Segment Results of Operations.”

Consolidated Expenses:

Salaries and related employee expenses. Salaries and related employee expenses were $40.0 million for the year ended December 31, 2021 compared to $32.2 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 and a $1.4 million increase in pension costs, partially offset by decreased usage of contract labor by our Water Services and Operations segment.

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Water service-related expenses. Water service-related expenses decreased to $13.2 million for the year ended December 31, 2021 from $14.2 million for the same period of 2020. This decrease in expenses was principally the result of a decrease in equipment rental and field logistical expenses. While fuel expenses for the years ended December 31, 2021 and 2020 were relatively constant, we began to realize fuel savings during the second half of 2021 as a result of our investment in electrifying our water sourcing infrastructure. We expect these fuel savings to positively impact our expenses in future periods.

General and administrative expenses. General and administrative expenses increased $2.0 million to $11.8 million for the year ended December 31, 2021 from $9.8 million for the same period of 2020. The increase in general and administrative expenses during the year ended December 31, 2021 compared to the same period of 2020 was principally related to increased board of director fees resulting from our Corporate Reorganization in January 2021.

Legal and professional fees. Legal and professional fees decreased $3.5 million to $7.3 million for the year ended December 31, 2021 from $10.8 million for the comparable period of 2020. Legal and professional fees for the year ended December 31, 2020 were higher principally due to legal expenses associated with the 2019 proxy contest and our Corporate Reorganization.

Land sales expenses. There were no land sales expenses for the year ended December 31, 2021 compared to $4.0 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 year ended December 31, 2020 include $3.9 million of cost basis related to 2020 land sales.

Depreciation, depletion and amortization. Depreciation, depletion and amortization was $16.3 million for the year ended December 31, 2021 compared to $14.4 million for the year ended December 31, 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 increased depletion related to our oil and gas royalty interests.

Other income, net. Other income, net was $0.6 million and $2.4 million for the year ended December 31, 2021 and 2020, respectively. Other income, net for the year ended December 31, 2020, included a $1.2 million accrued insurance reimbursement related to legal fees incurred in 2019 associated with the proxy contest.

Total income tax expense. Total income tax expense was $93.0 million and $43.6 million for the years ended December 31, 2021 and 2020, respectively. During the quarter ended December 31, 2021, the Company recorded an out of period tax adjustment of $19.4 million to current income tax expense and income taxes payable, $13.0 million of which related to historical annual periods and $6.4 million of which related to current year quarterly periods. For further discussion, please see Note 8, “Income Taxes” in Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Segment Results of Operations

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

We evaluate the performance of our operating segments separately to monitor the different factors affecting financial results. The reportable segments presented are consistent with our reportable segments discussed in Note 12, “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”).

Our results of operations for the year ended December 31, 2021 have benefited from a rebound in oil and gas activity in the Permian Basin and commodity prices from depressed levels in 2020. While our oil and gas royalty revenues have benefited from increased royalty production and higher commodity prices during this time period, our water sales and surface-related income continue to be impacted by the reduced overall development pace compared to pre-pandemic levels.

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

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

Land and Resource Management

Land and Resource Management segment revenues increased $125.2 million, or 64.2%, to $320.4 million for the year ended December 31, 2021 as compared with revenues of $195.1 million for the comparable period of 2020. The increase in Land and Resource Management segment revenues is due to increases in oil and gas royalties, which more than doubled for the year ended December 31, 2021 compared to the comparable period of 2020.

Oil and gas royalties. Oil and gas royalty revenue was $286.5 million for the year ended December 31, 2021 compared to $137.9 million for the year ended December 31, 2020, an increase of 107.7%. The table below provides financial and operational data by royalty stream for the years ended December 31, 2021 and 2020:

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(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 was 18.6 thousand Boe per day for the year ended December 31, 2021 compared to 16.2 thousand Boe per day for the same period of 2020. The average realized prices were $66.62 per barrel of oil, $3.67 per Mcf of natural gas, and $31.56 per barrel of NGL, for a total equivalent price of $44.14 per Boe for the year ended December 31, 2021, an increase of $19.85 per Boe compared to the total equivalent price of $24.29 per Boe for the same period of 2020.

Easements and other surface-related income. Easements and other surface-related income was $32.9 million for the year ended December 31, 2021, a decrease of 16.7% compared to $39.5 million for the year ended December 31, 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 decreases of $9.4 million in pipeline easement income and $1.3 million in power line and utility easements for the year ended December 31, 2021 compared to the same period of 2020. These decreases were partially offset by a $4.1 million increase in commercial lease revenue for the year ended December 31, 2021. 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 year ended December 31, 2021.

Land sales and other operating revenue. Land sales and other operating revenue includes revenue generated from land sales and grazing leases. Land sales were $0.7 million and $17.4 million for the years ended December 31, 2021 and 2020, respectively. For the year ended December 31, 2021, we sold 30 acres of land for an aggregate sales price of $0.7 million or approximately $25,000 per acre. For the year ended December 31, 2020, we sold 22,160 acres of land for an aggregate sales price of approximately $16.0 million, or approximately $721 per acre. Additionally, we recognized land sales revenue of $1.4 million for the year ended December 31, 2020 related to land exchanges where we had no cost basis in the land conveyed.

Net income. Net income for the Land and Resource Management segment was $208.9 million for the year ended December 31, 2021 compared to $128.0 million for the year ended December 31, 2020. Expenses, including income tax expense, for the Land and Resource Management segment were $111.5 million and $67.2 million for the years ended December

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31, 2021 and 2020, respectively. The increase in expenses during 2021 is principally related to a $46.2 million increase in income tax expense for the year ended December 31, 2021 compared to the same period of 2020. Expenses are discussed further above under “Results of Operations.”

Water Services and Operations

Water Services and Operations segment revenues increased 21.5%, to $130.6 million for the year ended December 31, 2021 as compared with revenues of $107.4 million for the comparable period of 2020. The increase in Water Services and Operations segment revenues is due to increases in water sales and produced water royalty revenue. 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.

Water sales. Water sales and royalty revenue was $67.8 million for the year ended December 31, 2021, an increase of $12.9 million or 23.5%, compared with the year ended December 31, 2020 when water sales and royalty revenue was $54.9 million. The increase in water sales is principally due to a 14.7% increase in the number of sourced and treated barrels sold. Additionally, water sales for the year ended December 31, 2020, was impacted by a approximately $7.0 million deferral of water sales revenue related to take or pay contracts.

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 saltwater disposal wells. Produced water royalties were $58.1 million for the year ended December 31, 2021 compared to $50.6 million for the same period in 2020. This increase is principally due to increased produced water volumes for the year ended December 31, 2021 compared to the same period of 2020.

Easements and other surface-related income. Easements and other surface-related income was $4.7 million for the year ended December 31, 2021, an increase of $2.8 million compared to $1.9 million for the year ended December 31, 2020. The increase in easements and other surface-related income relates to an increase in temporary permits for sourced water lines for the year ended December 31, 2021 compared to the same period in 2020.

Net income. Net income for the Water Services and Operations segment was $61.1 million for the year ended December 31, 2021 compared to $48.1 million for the year ended December 31, 2020. As discussed above, revenues for the Water Services and Operations segment increased 21.5% for the year ended December 31, 2021 compared to the same period of 2020. Expenses, including income tax expense, for the Water Services and Operations segment were $69.5 million for the year ended December 31, 2021 as compared to $59.3 million for the year ended December 31, 2020. The overall increase in segment expenses during 2021 is principally related to increased income tax expense as a result of increased segment operating income during the same time period. The remaining increase in segment expenses is principally a result of an increase in the segment’s share of all corporate overhead expenses impacted by the Corporate Reorganization in 2021. Expenses are discussed further above under “Results of Operations.”

Non-GAAP Performance Measures

In addition to amounts presented in accordance with 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 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 and Adjusted 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 calculate Adjusted EBITDA as EBITDA excluding the impact of certain non-cash, non-recurring and/or unusual, non-operating items, including, but not limited to: proxy and conversion costs related to our Corporate Reorganization, severance costs, and land sales deemed significant. We have presented EBITDA and Adjusted EBITDA because we believe that both are useful supplements to net income in analyzing operating performance.

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The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA for the years ended December 31, 2021, 2020, and 2019 (in thousands):

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 Company 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 production, 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.”