Texas Pacific Land Corporation Announces Fourth Quarter and Full Year Results
Texas Pacific Land Corporation (NYSE: TPL) (the “Company” or “TPL”) announced its financial and operating results for the fourth quarter and full year of 2021.
Fourth Quarter 2021 Highlights
- Net income of $79.0 million, or $10.21 per share (both basic and diluted)
- Revenues of $147.2 million
- Adjusted EBITDA(1) of $130.3 million
- Royalty production of 22.0 thousand barrels of oil equivalent per day
- Quarterly cash dividend of $2.75 per share paid on December 15, 2021
Full Year 2021 Highlights
- Net income of $270.0 million, or $34.83 per share (both basic and diluted)
- Revenues of $451.0 million
- Adjusted EBITDA(1) of $388.0 million
- Royalty production of 18.6 thousand barrels of oil equivalent per day
- Total cash dividends of $11.00 per share paid during 2021
- Completed corporate reorganization from a business trust to a Delaware corporation effective January 11, 2021 (the “Corporate Reorganization”)
- Released inaugural Environmental, Social and Governance (“ESG”) disclosure
(1) Reconciliations of Non-GAAP measures are provided in the tables below.
“We produced strong operating results across our vertically integrated business as the positive momentum from the prior quarter continued into the fourth quarter of 2021,” said Tyler Glover, Chief Executive Officer of the Company. “For the fourth quarter of 2021, TPL achieved record consolidated adjusted EBITDA and royalty production amid robust activity levels on our royalty acreage and supportive commodity prices. In addition, our source water sales had another strong quarter, with revenues now approaching pre-pandemic levels. The consistency of our performance throughout commodity cycles reflects the quality of our underlying assets, the benefits of our active management approach, and the advantages of a vertically integrated business model. Looking forward to 2022, as the US domestic energy industry continues to advance and with recent oil prices at levels we have not seen in almost a decade, TPL is well positioned to capture value across multiple high-margin, high-quality revenue streams.”
Financial Results for the Fourth Quarter of 2021
The Company reported net income of $79.0 million for the fourth quarter of 2021, an increase of 76.5% compared to net income of $44.8 million for the fourth quarter of 2020.
Our total revenues increased $72.9 million for the fourth quarter of 2021 compared to the same period of 2020, largely driven by the $56.3 million increase in oil and gas royalty revenue. Our share of production was approximately 22.0 thousand barrels of oil equivalent (“Boe”) per day for the fourth quarter of 2021 compared to 17.0 thousand Boe per day for the same period of 2020. The average realized price was $51.53 per Boe for the fourth quarter of 2021, compared to $29.09 per Boe for the comparable period of 2020. Water sales increased $15.4 million for the fourth quarter of 2021 compared to the fourth quarter of 2020 principally due to a 21% increase in the number of barrels of sourced and treated water. Additionally, the fourth quarter of 2020 had been impacted by an approximately $7.0 million deferral of water sales revenue related to take or pay contracts. Our revenue streams are directly impacted by development and operating decisions in the Permian Basin made by our customers and by commodity prices, among other factors.
Our total operating expenses of $21.3 million for the fourth quarter of 2021 increased $2.2 million compared to the same period of 2020. The increase is principally due to a $3.3 million increase in salaries and related employee benefits. Additionally, income tax expense for the fourth quarter of 2021 includes a $19.4 million out-of-period tax adjustment related to incorrect tax treatment of depletion related to our oil and gas royalty interests in historical annual prior periods and current year quarterly periods.
Financial Results for the Year Ended December 31, 2021
The Company reported net income of $270.0 million for the year ended December 31, 2021, an increase of 53.4% compared to net income of $176.0 million for the year ended December 31, 2020.
Our total revenues increased $148.4 million for the year ended December 31, 2021 compared to the same period of 2020, largely driven by the $148.5 million increase in oil and gas royalty revenue. Our share of production was approximately 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 price was $44.14 per Boe for the year ended December 31, 2021 compared to $24.29 per Boe for the comparable period of 2020. Our revenue streams are directly impacted by commodity prices and development and operating decisions made by our customers and vary as the pace of development and oil demand varies.
Our total operating expenses of $88.6 million for the year ended December 31, 2021 increased 3.8% compared to the same period of 2020. The increase was principally due to increased salaries and related employee expenses which, for the year ended December 31, 2021, included $6.7 million of expense related to severance costs. Additionally, general and administrative expenses increased $2.0 million related to increased board of director fees resulting from our Corporate Reorganization in January 2021. These increases were partially offset by a $4.0 million decrease in land sales expenses and a $3.5 million decrease in legal and professional fees as the Corporate Reorganization was completed in January 2021.
Total income tax expense was $93.0 million and $43.6 million for the years ended December 31, 2021 and 2020, respectively. Income tax expense for the year ended December 31, 2021 includes an out of period tax adjustment of $19.4 million recorded during the fourth quarter of 2021 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.
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 Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (collectively referred to 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 and 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 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.
Quarterly Dividend Declared
On February 11, 2022, our board of directors declared a quarterly cash dividend of $3.00 per share payable on March 15, 2022 to stockholders of record at the close of business on March 8, 2022.
Stock Repurchase Program
The Company repurchased $8.7 million and $19.9 million of shares of our common stock during the three months and year ended December 31, 2021, respectively.
Source: Business Wire