Texas Pacific Land Corp

Previous wording

Statements in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding management’s expectations, hopes, intentions or strategies regarding the future. Words or phrases such as “expects” and “believes”, or similar expressions, when used in this Quarterly Report on Form 10-Q or other filings with the Securities and Exchange Commission (the “SEC”), are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding the Company’s future operations and prospects, the markets for real estate in the areas in which the Company owns real estate, applicable zoning regulations, the markets for oil and gas including actions of other oil and gas producers or consortiums worldwide such as the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (collectively referred to as “OPEC+”), expected competition, management’s intent, beliefs or current expectations with respect to the Company’s future financial performance and other matters. All forward-looking statements in this Report are based on information available to us as of the date this Report is filed with the SEC, and we assume no responsibility to update any such forward-looking statements, except as required by law. All forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, the factors discussed in Item 1A. “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2023, and in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q.

Current wording

Statements in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding management’s expectations, hopes, intentions or strategies regarding the future. Words or phrases such as “expects,” “anticipates,” “could,” “will,” “intends,” “may,” “might,” “plan,” “potential,” “should,” “would,” and “believes”, or similar expressions, when used in this Quarterly Report on Form 10-Q or other filings with the Securities and Exchange Commission (the “SEC”), are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding the Company’s future operations and prospects, the markets for real estate in the areas in which the Company owns real estate, applicable zoning regulations, the markets for oil and gas including actions of other oil and gas producers or consortiums worldwide such as the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (collectively referred to as “OPEC+”), expected competition, management’s intent, beliefs or current expectations with respect to the Company’s future financial performance and other matters. All forward-looking statements in this Quarterly Report are based on information available to us as of the date this Quarterly Report is filed with the SEC, and we assume no responsibility to update any such forward-looking statements, except as required by law. All forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, the factors discussed in Item 1A. “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2023, and in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q.

Previous wording

Texas Pacific Land Corporation (which, together with its subsidiaries as the context requires, may be referred to as “TPL”, the “Company”, “our”, “we” or “us”) is one of the largest landowners in the State of Texas with approximately 868,000 surface acres of land in West Texas, with the majority of our ownership concentrated in the Permian Basin. Additionally, we own a 1/128th nonparticipating perpetual oil and gas royalty interest (“NPRI”) under approximately 85,000 acres of land, a 1/16th NPRI under approximately 371,000 acres of land, and approximately 4,000 additional net royalty acres (normalized to 1/8th) (“NRA”), for a collective total of approximately 195,000 NRA, all located in the western part of Texas.

Current wording

Texas Pacific Land Corporation (which, together with its subsidiaries as the context requires, may be referred to as “TPL”, the “Company”, “our”, “we” or “us”) is one of the largest landowners in the State of Texas with approximately 869,000 surface acres of land, with the majority of our ownership concentrated in the Permian Basin. Additionally, we own a 1/128th nonparticipating perpetual oil and gas royalty interest (“NPRI”) under approximately 85,000 acres of land, a 1/16th NPRI under approximately 371,000 acres of land, and approximately 4,000 additional net royalty acres (normalized to 1/8th) (“NRA”), for a collective total of approximately 195,000 NRA, principally concentrated in the Permian Basin.

Previous wording

We are not an oil and gas producer. Our business activity is generated from surface and royalty interest ownership in West Texas, 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 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, produced water royalties, easements, and other surface-related revenue.

Current wording

We are not an oil and gas producer. Our business activity is generated from 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 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, produced water royalties, easements, and other surface-related revenue.

Previous wording

Average oil prices during 2024 have increased slightly compared to average oil prices during 2023. Oil prices continue to be impacted by certain actions by OPEC+, geopolitical factors, and evolving global supply and demand trends, among other factors. Average natural gas prices during 2024 have decreased compared to average natural gas prices during 2023. Global and domestic natural gas markets have experienced volatility due to macroeconomic conditions, infrastructure and logistical constraints, weather, and geopolitical issues, 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 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 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.

Current wording

Average oil prices during 2024 have increased modestly 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 have decreased compared to average natural gas prices during the same period last year. 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. Waha natural gas prices were negative throughout April and May 2024. 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 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.

Previous wording

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 across southeastern New Mexico and western Texas. Exploration and production (“E&P”) companies operating in the Permian Basin continue to maintain robust drilling and development activity. Per the U.S. Energy Information Administration, Permian production is currently in excess of 6.0 million barrels per day, which is higher than the average daily production of any year prior to 2024.

Current wording

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 across southeastern New Mexico and western Texas. Exploration and production (“E&P”) companies operating in the Permian Basin continue to maintain robust drilling and development activity. Per the U.S. Energy Information Administration, Permian production is currently in excess of 6.0 million barrels per day, which is higher than the average daily production in this region for any year prior to 2024.

Previous wording

With our ownership concentration in the Permian Basin, our revenues are directly impacted by oil and gas pricing and drilling activity in the Permian Basin. Below are metrics for the three months ended March 31, 2024 and 2023:

Current wording

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. Below are metrics for the three and six months ended June 30, 2024 and 2023:

Previous wording

(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.

Current wording

(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. Waha Hub natural gas pricing data per Bloomberg. DUCs represent drilled but uncompleted wells. DUC classification is based on well data and date stamps provided by Enverus. DUCs are 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.

Previous wording

The metrics above show selected domestic benchmark oil and natural gas prices and approximate activity levels in the Permian Basin for the three months ended March 31, 2024 and 2023. Oil prices in 2024 to date have increased compared to the same period in 2023, while natural gas prices in 2024 to date have declined compared to the same period last year. Although E&P companies broadly continue to deploy capital at a measured pace, drilling and development activities across the Permian Basin have remained robust. 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, both directly and indirectly, our oil and gas royalties, produced water royalties, water sales, and other surface-related income.

Current wording

The metrics above show selected domestic benchmark oil and natural gas prices and approximate activity levels in the Permian Basin for the three and six months ended June 30, 2024 and 2023. Oil prices in 2024 to date have increased compared to the same period in 2023, while natural gas prices in 2024 to date have declined compared to the same period last year. E&P companies broadly continue to deploy capital at a measured pace as drilling and development activities across the Permian Basin have remained strong overall. 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, both directly and indirectly, our oil and gas royalties, produced water royalties, water sales, and other surface-related income.

Previous wording

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 March 31, 2024.

Current wording

We continuously review our levels of 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 June 30, 2024.

Previous wording

As of March 31, 2024, we had cash and cash equivalents of $837.1 million that we expect to utilize, along with cash flow from operations, to provide capital to support our business, to repurchase our common stock, par value $0.01 per share (the “Common Stock”) subject to market conditions, to pay dividends subject to the discretion of our board of directors (the “Board”), for potential acquisitions and for general corporate purposes. For the three months ended March 31, 2024, we paid $26.9 million in dividends to our stockholders and we repurchased $10.3 million of our Common Stock (including share repurchases not settled at the end of the period).

Current wording

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 share repurchases and dividends. As of June 30, 2024, we had cash and cash equivalents of $894.7 million that we expect to utilize, along with cash flow from operations, to provide capital to support our business, to repurchase our common stock, par value $0.01 per share (the “Common Stock”), subject to market conditions, to pay dividends subject to the discretion of our board of directors (the “Board”), for potential acquisitions and for general corporate purposes. For the six months ended June 30, 2024, we paid $53.8 million in dividends to our stockholders and we repurchased $16.6 million of our Common Stock (including share repurchases not settled at the end of the period).

Previous wording

During the three months ended March 31, 2024, we invested approximately $5.6 million in Texas Pacific Water Resources LLC projects to maintain and/or enhance our water sourcing assets.

Current wording

Additionally, during the six months ended June 30, 2024, we invested approximately $8.4 million to maintain and/or enhance our water sourcing assets.

Previous wording

For the three months ended March 31, 2024 and 2023, net cash provided by operating activities was $147.2 million and $114.8 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 flows used in operations generally consist of operating expenses associated with our revenue streams, general and administrative expenses and income taxes.

Current wording

For the six months ended June 30, 2024 and 2023, net cash provided by operating activities was $245.5 million and $199.3 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 flows used in operations generally consist of operating expenses associated with our revenue streams, general and administrative expenses and income taxes.

Previous wording

The increase in cash flows provided by operating activities for the three months ended March 31, 2024 compared to the same period of 2023 was primarily related to an increase in operating income and changes in working capital requirements during 2024 as compared to 2023.

Current wording

The increase in cash flows provided by operating activities for the six months ended June 30, 2024 compared to the same period of 2023 was primarily driven by an increase in operating income and changes in working capital requirements during 2024 as compared to 2023.

Previous wording

For the three months ended March 31, 2024 and 2023, net cash used in investing activities was $2.2 million and $1.7 million, respectively. Our cash flows used in investing activities are primarily related to acquisitions of land, acquisitions of intangible assets, such as subsurface easements, and capital expenditures related to our water services and operations segment.

Current wording

For the six months ended June 30, 2024 and 2023, net cash used in investing activities was $9.6 million and $27.7 million, respectively. Our cash flows used in investing activities are primarily related to land acquisitions, acquisitions of intangible assets, such as subsurface easements, and capital expenditures related to our water services and operations segment.

Previous wording

For the three months ended March 31, 2024 and 2023, net cash used in financing activities was $38.5 million and $32.8 million, respectively. Our cash flows used in financing activities primarily consist of activities which return capital to our stockholders such as payment of dividends and repurchases of our Common Stock.

Current wording

For the six months ended June 30, 2024 and 2023, net cash used in financing activities was $71.7 million and $77.3 million, respectively. Our cash flows used in financing activities primarily consist of activities that return capital to our stockholders such as payment of dividends and repurchases of our Common Stock.

Previous wording

During the three months ended March 31, 2024 and 2023, we paid total dividends of $26.9 million and $25.1 million, respectively. During the three months ended March 31, 2024 and 2023, we repurchased $10.3 million and $6.7 million of our Common Stock, respectively (including share repurchases not settled at the end of the period).

Current wording

During the six months ended June 30, 2024 and 2023, we paid total dividends of $53.8 million and $50.0 million, respectively. During the six months ended June 30, 2024 and 2023, we repurchased $16.6 million and $26.2 million of our Common Stock, respectively (including share repurchases not settled at the end of the period).

Previous wording

The following table shows our consolidated results of operations for the three months ended March 31, 2024 and 2023 (in thousands):

Current wording

The following table shows our consolidated results of operations for the three and six months ended June 30, 2024 and 2023 (in thousands):

Previous wording

Total revenues increased 19.0%, to $174.1 million for the three months ended March 31, 2024 compared to $146.4 million for the three months ended March 31, 2023. This increase was principally related to a $15.4 million increase in water sales, a $5.7 million increase in easements and other surface-related income, a $3.0 million increase in oil and gas royalty revenue and a $2.9 million increase in produced water royalties over the same period. Individual revenue line items are discussed below under “Segment Results of Operations.” Net income of $114.4 million for the three months ended March 31, 2024 was 32.2% higher than the comparable period of 2023 principally as a result of the increase in revenues discussed above.

Current wording

Total revenues increased 7.3%, to $172.3 million for the three months ended June 30, 2024 compared to $160.6 million for the three months ended June 30, 2023. This increase was principally related to a $7.4 million increase in oil and gas royalty revenue, a $4.5 million increase in produced water royalties, and a $3.0 million increase in water sales partially offset by decreases in easements and other surface-related income and land sales over the same period. Individual revenue line items are discussed below under “Segment Results of Operations.” Net income of $114.6 million for the three months ended June 30, 2024 was 14.1% higher than the comparable period of 2023 principally as a result of the increase in revenues discussed above.

Previous wording

Salaries and related employee expenses. Salaries and related employee expenses were $12.5 million for the three months ended March 31, 2024 compared to $10.6 million for the comparable period of 2023. The increase in salaries and related employee expenses is principally related to market compensation adjustments that take effect annually at the start of the year.

Current wording

Salaries and related employee expenses. Salaries and related employee expenses were $12.8 million for the three months ended June 30, 2024 compared to $10.6 million for the comparable period of 2023. The increase in salaries and related employee expenses is principally related to market compensation adjustments that take effect annually at the start of the year.

Previous wording

Legal and professional fees. Legal and professional fees were $4.1 million for the three months ended March 31, 2024 compared to $16.6 million for the comparable period of 2023. The decrease is principally related to a reduction in legal expenses associated with stockholder matters that occurred during the prior year.

Current wording

Legal and professional fees. Legal and professional fees were $2.3 million for the three months ended June 30, 2024 compared to $10.2 million for the comparable period of 2023. The decrease is principally related to a reduction in legal expenses associated with stockholder matters that occurred during the prior year.

Previous wording

Other income, net. Other income, net was $9.9 million and $5.4 million for the three months ended March 31, 2024 and 2023, respectively. The increase in other income, net is primarily related to increased interest income earned on our cash balances during 2024. Higher cash balances and higher interest rates during this period contributed to the increase in interest income.

Current wording

Other income, net. Other income, net was $13.2 million and $6.9 million for the three months ended June 30, 2024 and 2023, respectively. The increase in other income, net is primarily related to increased interest income earned on our cash balances during 2024 resulting from higher cash balances and higher interest rates during this period. Additionally, during the three months ended June 30, 2024, we received $1.9 million of proceeds from a settlement with a title company regarding a defect in title to property acquired in a prior year.

Previous wording

Total income tax expense. Total income tax expense was $31.6 million and $23.8 million for the three months ended March 31, 2024 and 2023, respectively. The increase in income tax expense is primarily related to increased operating income resulting from increased consolidated revenues.

Current wording

Total income tax expense. Total income tax expense was $31.9 million and $26.8 million for the three months ended June 30, 2024 and 2023, respectively. The increase in income tax expense is primarily related to increased operating income resulting from increased consolidated revenues.

Previous wording

Water service-related expenses. Water service-related expenses increased $4.6 million to $10.2 million for the three months ended March 31, 2024 compared to the same period of 2023. Certain types of water-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. The increase in water service-related expenses for the three months ended March 31, 2024 is principally related to the 70.9% increase in water sales over the same period of 2023. Water sales were impacted not only by increased customer volumes, but also by higher demand within shorter time commitments, and resulted in increased water treatment, purchase and transfer expenses. Additionally, a focus on increasing water production from existing wells resulted in increased repairs and maintenance expense. While these dynamics in demand resulted in an 80.5% increase in water service-related expenses for the three months ended March 31, 2024 compared to the same period of 2023, the operational decision to meet these demands resulted in increased revenues and operating income over the same time period.

Current wording

Water service-related expenses. Water service-related expenses increased $9.1 million to $25.0 million for the six months ended June 30, 2024 compared to the same period of 2023. Certain types of water-related expenses, including, but not limited to, treatment, transfer, water purchases, repairs and maintenance, equipment rental, and fuel costs, will vary from period to period as our customers’ needs and requirements change. Right of way and other expenses will also vary from period to period depending upon location of customer delivery. The increase in water service-related expenses for the six months ended June 30, 2024 is principally related to the 31.0% increase in water sales over the same period of 2023 primarily as a result of increased customer volumes. Additionally, a focus on increasing water production from existing wells resulted in increased repairs and maintenance expense, equipment rental, and fuel costs. Research and development expenses related to development of a new energy-efficient method of produced water desalination and treatment were $1.4 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively. For further discussion of this new treatment method, see “Liquidity and Capital Resources — Overview.”

Previous wording

General and administrative expenses. General and administrative expenses increased $1.4 million to $4.9 million for the three months ended March 31, 2024 compared to the same period of 2023. During the three months ended March 31, 2024, stock awards that were vested in full on the grant date were granted to members of the Company’s Board which resulted in immediate recognition of the grant date fair value of the awards on the date of grant. See further discussion of this change in Note 7, “Share-Based Compensation” in the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. The increased board compensation expense for the three months ended March 31, 2024 resulting from this policy change is a one-time event.

Current wording

General and administrative expenses. General and administrative expenses increased $1.7 million to $8.6 million for the six months ended June 30, 2024 compared to the same period of 2023. During the six months ended June 30, 2024, stock awards that were vested in full on the grant date were granted to members of the Board which resulted in immediate recognition of the fair value of the awards on the date of grant. See further discussion of this change in Note 7, “Share-Based Compensation” in the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. The increased board compensation expense for the six months ended June 30, 2024 resulting from this policy change is a one-time event. Additionally, expenses for corporate insurance, resulting from increased coverages and insurance rates, and technology applications for the six months ended June 30, 2024 increased over the same period of 2023.

Previous wording

Our results of operations for the three months ended March 31, 2024 continue to benefit from activity in the Permian Basin. Our oil and gas royalty revenues have increased due to increased royalty production. Additionally, revenues derived from water sales, easements and other surface-related income, and produced water royalties have also been positively impacted by our active management of our surface and royalty interests.

Current wording

Our results of operations for the three and six months ended June 30, 2024 continue to benefit from activity in the Permian Basin. Our oil and gas royalty revenues have increased due to year to date increased royalty production. Additionally, revenues derived from water sales, produced water royalties, and easements and other surface-related income have also been positively impacted by our active management of our surface and royalty interests in recent years.

Previous wording

Land and Resource Management segment revenues increased $7.5 million, or 7.2%, to $111.5 million for the three months ended March 31, 2024 as compared to the same period of 2023. The increase in Land and Resource Management segment revenues is related to a $3.6 million increase in easements and other surface-related income and a $3.0 million increase in oil and gas royalty revenue for three months ended March 31, 2024 compared to the same period of 2023.

Current wording

Land and Resource Management segment revenues increased $2.7 million to $104.0 million for the three months ended June 30, 2024 as compared to the same period of 2023. The increase in Land and Resource Management segment revenues is related to a $7.4 million increase in oil and gas royalty revenue, partially offset by a $3.7 million decrease in easements and other surface-related income for the three months ended June 30, 2024 compared to the same period of 2023.

Previous wording

Easements and other surface-related income. Easements and other surface-related income was $18.1 million for the three months ended March 31, 2024, an increase of 25.0% compared to $14.5 million for the three months ended March 31, 2023. 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 $5.7 million in pipeline easements and was partially offset by decreases in wellbore easements and material sales for the three months ended March 31, 2024 compared to the same period of 2023. The amount of income derived from pipeline easements is a function of the term of the easement, the size of the easement, and the number of easements entered into for any given period. Easements and other surface-related income is dependent on development decisions made by companies that operate in the areas where we own land and is, therefore, unpredictable and may vary significantly from period to period. See “Market Conditions” above for additional discussion of development activity in the Permian Basin during the three months ended March 31, 2024.

Current wording

Easements and other surface-related income. Easements and other surface-related income was $14.2 million for the three months ended June 30, 2024, a decrease of $3.7 million compared to $17.9 million for the three months ended June 30, 2023. 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 decrease in easements and other surface-related income is principally related to decreases of $1.6 million in wellbore easements and $0.6 million in material sales for the three months ended June 30, 2024 compared to the same period of 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 “Market Conditions” above for additional discussion of development activity in the Permian Basin during the three months ended June 30, 2024.

Previous wording

Net income. Net income for the Land and Resource Management segment increased 23.9% to $81.0 million for the three months ended March 31, 2024 compared to $65.3 million for the three months ended March 31, 2023. Segment operating income increased $17.4 million for the three months ended March 31, 2024 compared to the same period of 2023, largely driven by the $12.4 million decrease in legal and professional fees and the $7.5 million increase in segment revenues. Expenses are discussed further above under “Results of Operations - Consolidated.”

Current wording

Net income. Net income for the Land and Resource Management segment increased 15.1% to $80.1 million for the three months ended June 30, 2024 compared to $69.6 million for the three months ended June 30, 2023. Segment operating income increased $10.0 million for the three months ended June 30, 2024 compared to the same period of 2023, largely driven by the $7.9 million decrease in legal and professional fees and the $2.7 million increase in segment revenues. Expenses are discussed further above under “Results of Operations - Consolidated.”

Previous wording

Water Services and Operations segment revenues increased 48.0% to $62.7 million for the three months ended March 31, 2024 as compared with revenues of $42.3 million for the same period of 2023. 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.

Current wording

Water Services and Operations segment revenues increased 15.2% to $68.3 million for the three months ended June 30, 2024 as compared with revenues of $59.3 million for the same period of 2023. 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.

Previous wording

Water sales. Water sales revenue increased $15.4 million, or 70.9% to $37.1 million for the three months ended March 31, 2024, compared to the same period of 2023. The growth in water sales is principally due to an increase of 51.3% in water sales volumes for the three months ended March 31, 2024, compared to the same period of 2023.

Current wording

Water sales. Water sales revenue increased $3.0 million to $40.7 million for the three months ended June 30, 2024, compared to the same period of 2023. The growth in water sales is principally due to an increase of 9.5% in water sales volumes for the three months ended June 30, 2024, compared to the same period of 2023.

Previous wording

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 $23.0 million for the three months ended March 31, 2024 compared to $20.1 million for the same period in 2023. This increase is principally due to increased produced water volumes for the three months ended March 31, 2024 compared to the same period of 2023.

Current wording

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 $25.3 million for the three months ended June 30, 2024 compared to $20.8 million for the same period in 2023. This increase is principally due to increased produced water volumes for the three months ended June 30, 2024 compared to the same period of 2023.

Previous wording

Net income. Net income for the Water Services and Operations segment was $33.4 million for the three months ended March 31, 2024 compared to $21.2 million for the three months ended March 31, 2023. Segment operating income increased $13.7 million for the three months ended March 31, 2024 compared to the same period of 2023. The increase is principally due to the $20.3 million increase in segment revenues. Expenses are discussed further above under “Results of Operations - Consolidated.”

Current wording

Net income. Net income for the Water Services and Operations segment was $34.5 million for the three months ended June 30, 2024 compared to $30.8 million for the three months ended June 30, 2023. Segment operating income increased $3.0 million for the three months ended June 30, 2024 compared to the same period of 2023. The increase is principally due to the $9.0 million increase in segment revenues partially offset by the $4.5 million increase in water service-related expenses. Expenses are discussed further above under “Results of Operations - Consolidated.”

Previous wording

Oil and gas royalties. Oil and gas royalty revenue was $92.1 million for the three months ended March 31, 2024 compared to $89.1 million for the three months ended March 31, 2023, an increase of 3.4%. Oil and gas royalties for the three months ended March 31, 2023 included an $8.7 million settlement with an operator with respect to unpaid oil and gas royalties for older production periods. Excluding the $8.7 million settlement, oil and gas royalties increased $11.7 million due to higher production volume for the three months ended March 31, 2024 compared to the same period of 2023. Our share of production increased to 24.8 thousand per barrels of oil equivalent (“Boe”) per day for the three months ended March 31, 2024 compared to 20.9 thousand Boe per day for the same period of 2023. The average realized price declined 4.6% to $42.71 per Boe for the three months ended March 31, 2024 from $44.76 per Boe for the three months ended March 31, 2023.

Current wording

Oil and gas royalties. Oil and gas royalty revenue was $181.9 million for the six months ended June 30, 2024 compared to $171.5 million for the six months ended June 30, 2023, an increase of $10.4 million. Oil and gas royalties for the six months ended June 30, 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 six months ended June 30, 2024 increased $19.1 million over the six months ended June 30, 2023 due to higher production volumes and average oil and NGL realized prices over the same periods. Our share of production increased to 24.9 thousand Boe per day for the six months ended June 30, 2024 compared to 22.9 thousand Boe per day for the same period of 2023. The average realized prices increased to $42.07 per Boe for the six months ended June 30, 2024 from $41.08 per Boe for the same period of 2023.

Previous wording

(2)The metrics provided for the three months ended March 31, 2023 exclude the impact of the $8.7 million settlement of oil and gas royalties discussed above.

Current wording

(1)The metrics and dollars provided for the six months ended June 30, 2023 exclude the impact of the $8.7 million settlement of oil and gas royalties discussed above.

Previous wording

The following table presents a reconciliation of net income to EBITDA, Adjusted EBITDA and Free Cash Flow for the three months ended March 31, 2024 and 2023 (in thousands):

Current wording

The following table presents a reconciliation of net income to EBITDA, Adjusted EBITDA and Free Cash Flow for the three and six months ended June 30, 2024 and 2023 (in thousands):