TPL Q2 2025: Production Growth Offsets Lower Oil Prices

Texas Pacific Land Corp. (TPL) is one of the largest landowners in Texas, with a unique business model centered on the Permian Basin, one of the world's most prolific oil-producing regions. Instead of drilling for oil itself, TPL primarily generates revenue by collecting royalties from oil and gas produced on its land, managing water services for energy companies, and leasing its surface rights.

In its latest quarterly report filed with the SEC, the company provides a detailed look at its financial health for the second quarter of 2025. Let's delve into the numbers to see how TPL is performing and what the key trends are.

A Shifting Revenue Stream

For the second quarter ending June 30, 2025, TPL reported total revenues of $187.5 million, an 8.8% increase from $172.3 million in the same period last year. This growth, however, masks some significant shifts within its two primary business segments: Land and Resource Management (LRM) and Water Service and Operations (WSO).

• Oil & Gas Royalties Powering Growth: The LRM segment, which includes these royalties, was the star performer. Oil and gas royalty revenue rose to $95.0 million from $89.8 million. Interestingly, this was driven entirely by higher production volumes. TPL's share of oil production surged by 25% to 1,209 thousand barrels (MBbls). This volume growth was strong enough to more than offset a 21% drop in the average realized oil price per barrel ($63.99 in Q2 2025 vs. $80.93 in Q2 2024).
• A Surge in Surface Income: Easements and other surface-related income more than doubled, jumping to $36.2 million from $16.6 million. This highlights the immense value of TPL's surface acreage in the bustling Permian Basin.
• Water Operations See a Downturn: The WSO segment faced headwinds. Revenue from water sales fell sharply by 37% to $25.6 million. While produced water royalties (fees collected for handling water that comes up with oil and gas) grew by 21% to $30.7 million, it wasn't enough to offset the decline in direct water sales.

From Revenue to Profit

The flow diagram below provides a visual breakdown of how TPL's revenue sources are allocated across costs and expenses to arrive at its net income for the quarter.

Despite mixed revenue performance, TPL's profitability remained robust. Operating income climbed to $143.8 million, up from $133.2 million a year ago. Net income saw a modest increase, reaching $116.1 million ($5.05 per share) compared to $114.6 million ($4.98 per share) in Q2 2024.

A key item to note is the sharp rise in Depreciation, Depletion, and Amortization (DD&A), a non-cash expense that reflects the using-up of assets. This expense more than tripled to $13.7 million from $4.1 million. The increase is primarily tied to the depletion of acquired royalty interests, which impacts net income but not the company's cash-generating ability.

This is why looking at a metric like Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization, adjusted for certain items) can be useful. TPL's Adjusted EBITDA grew to $166.2 million from $153.2 million, demonstrating strong underlying operational performance.

A Strong Balance Sheet and Shareholder Returns

TPL continues to be a cash-generating powerhouse. The company ended the quarter with $543.9 million in cash and cash equivalents, a significant increase from $369.8 million at the end of 2024.

This financial strength allows for substantial returns to shareholders.

• In the first six months of 2025, TPL paid out $74.2 million in dividends.
• Following the quarter's end, the board declared another quarterly dividend of $1.60 per share.
• The company did not repurchase any shares in the first half of 2025, a shift from the same period in 2024 when it bought back $16.6 million of its stock.

In conclusion, TPL's second-quarter results showcase the resilience of its land and royalty-focused business model. While facing lower commodity prices and a slump in water sales, the company leveraged surging production volumes and its valuable surface rights to deliver top-line growth and solid profitability. TPL's ability to generate significant cash flow allows it to continue rewarding shareholders while navigating the dynamic conditions of the energy market. The key challenge ahead will be to manage the volatility in its water business while capitalizing on the continued development of its vast Permian holdings.