# Texas Pacific Land (TPL) Financial Model Free Excel 3-statement financial model and company analysis for Texas Pacific Land. - Canonical: https://finamodel.com/companies/texas-pacific-land - Industry: Oil and Gas - Downloadable model: Yes - Excel download: https://finamodel.com/company-models/TPL.xlsx ## Model Purpose This model provides a comprehensive equity valuation and cash flow forecast to help an equity research analyst determine the intrinsic value of Texas Pacific Land Corporation based on its asset-light, high-margin royalty and surface rights business. ## Company Overview Texas Pacific Land Corporation (TPL) is one of the largest landowners in the State of Texas, holding approximately 880,000 acres of surface rights and extensive oil and gas royalty interests concentrated in the Permian Basin. The company does not drill or operate wells itself; instead, it generates revenue by granting access to its land and collecting royalties on oil, gas, and water extracted from or transported across its properties. TPL operates through two primary business segments: Land and Resource Management (approximately 55% of revenue) and Water Services and Operations (approximately 45% of revenue). All revenue is generated within the United States, specifically in Texas. The business model is exceptionally asset-light, functioning effectively as a toll bridge for Permian Basin energy development. TPL holds a unique, monopoly-like competitive position over its surface acreage, allowing it to capture high margins from operators who require access for drilling, pipelines, and water disposal. Recent major events include a 3-for-1 stock split executed in December 2025, a $450.7 million acquisition of 17,306 net royalty acres in the fourth quarter of 2025, and a $50 million strategic investment in Bolt Data & Energy to develop data centre infrastructure on TPL land. ## Revenue Deep Dive ### Land and Resource Management - **Oil and Gas Royalty Revenue** - **Driver Formula:** Royalty Production (Boe/day) x Days in Period x Average Realised Price ($/Boe) - **Historical Growth:** 10% to 15% CAGR in production volumes over the last 3 years. - **Key Levers:** Permian Basin drilling activity, well completion rates, and global commodity prices (WTI crude and Henry Hub natural gas). - **Pricing Dynamics:** Spot market pricing subject to regional differentials. - **Revenue Recognition:** Recognised when production is sold to a purchaser. - **Seasonality:** Minimal seasonality, though extreme winter weather in Texas can temporarily disrupt operator production. - **Easements and Other Surface-Related Income** - **Driver Formula:** Pipeline Miles + Wellbore Easements + Commercial Leases (fixed fees and volume-based tariffs) - **Historical Growth:** 15% to 20% CAGR. - **Key Levers:** Midstream infrastructure buildout and new well connections. - **Pricing Dynamics:** Contractual fixed fees and negotiated tariffs. - **Revenue Recognition:** Recognised over the term of the lease or upon execution of the easement agreement. - **Land Sales** - **Driver Formula:** Acres Sold x Price per Acre - **Historical Growth:** Highly volatile and lumpy (ranging from $2 million to $10 million annually). - **Key Levers:** Opportunistic sales to operators or commercial developers. - **Revenue Recognition:** Upfront upon closing of the sale. ### Water Services and Operations - **Water Sales** - **Driver Formula:** Sourced Water Volumes (bbl/day) x Price per bbl - **Historical Growth:** 20% to 30% CAGR. - **Key Levers:** Operator completion (fracking) activity requiring brackish or treated water. - **Pricing Dynamics:** Spot and short-term contractual pricing. - **Revenue Recognition:** Recognised upon delivery of water to the operator. - **Produced Water Royalties** - **Driver Formula:** Disposed Water Volumes (bbl/day) x Royalty Rate per bbl - **Historical Growth:** 25% to 35% CAGR. - **Key Levers:** Aging of existing wells (which produce more water over time) and new drilling. - **Pricing Dynamics:** Contractual royalty rates based on disposal volumes. - **Revenue Recognition:** Recognised as water is injected into disposal wells on TPL land. ## Cost Structure ### Variable Costs / COGS - **Line Items:** Water service-related expenses (electricity, maintenance for water wells, equipment rental). - **Gross Margin Range:** TPL does not report a traditional gross margin, but operating margins before corporate overhead typically exceed 90%. - **Key Input Costs:** Electricity for pumping water and basic maintenance materials. - **Scaling:** Costs scale linearly with water volumes but represent a tiny fraction of total revenue due to the royalty nature of the business. ### Operating Expenses - **Salaries and Related Employee Expenses:** Headcount-driven, relatively fixed, representing a low single-digit percentage of revenue. - **General and Administrative Expenses:** Includes insurance, IT, and corporate overhead. - **Legal and Professional Fees:** Can be volatile depending on ongoing litigation or title defence activities. - **Ad Valorem and Other Taxes:** Directly tied to the assessed value of royalty interests and surface land; scales with commodity prices and production. - **Depreciation, Depletion and Amortisation (DD&A):** Depletion of oil and gas royalty interests (calculated using the unit-of-production method) and depreciation of water infrastructure (straight-line over useful life). - **Stock-Based Compensation:** Typically 1% to 2% of revenue. ### Margin Profile - **EBITDA Margin:** 85% to 88% (consistently one of the highest in the S&P 500). - **Net Margin:** 60% to 64%. - **Margin Trend:** Stable to slightly expanding as high-margin water royalties grow as a percentage of the total revenue mix. ## Balance Sheet Structure - **Total Assets:** Approximately $1.5 billion to $2.0 billion. - **Key Asset Categories:** Cash and cash equivalents, oil and gas royalty interests, water systems and equipment, and land. Land is carried at historical cost from the 1800s, meaning it is massively understated relative to market value. - **Goodwill & Intangibles:** Minimal, as acquisitions are typically asset purchases (royalty acres). - **Working Capital Profile:** - **DSO:** 45 to 60 days (typical for oil and gas receivables). - **DPO:** 30 to 45 days. - **Net Working Capital:** Generally positive due to massive cash balances, though operating working capital is negligible. TPL funds growth entirely from operating cash flow. - **PP&E:** Primarily consists of water sourcing infrastructure, pipelines, and the new Orla desalination facility. Useful lives range from 5 to 30 years. ## Capital Expenditure & Investment - **Capex as % of Revenue:** 5% to 10% (historically lower, but elevated recently due to desalination investments). - **Maintenance vs. Growth:** 20% maintenance, 80% growth (focused on water treatment and data centre infrastructure). - **Major Programmes:** Construction of a 10,000 barrel-per-day produced water desalination facility in Orla, Texas. - **M&A Pattern:** Bolt-on acquirer of adjacent royalty interests (e.g., $450.7 million acquisition in the Midland Basin in late 2025). ## Debt & Capital Structure - **Total Debt:** $0 (fortress balance sheet). - **Net Debt:** Deeply negative (significant net cash position). - **Key Debt Instruments:** $500 million undrawn revolving credit facility established in late 2025. - **Share Repurchase Programme:** Active, though opportunistic. The company regularly retires shares using excess free cash flow. - **Dividend Policy:** Regular quarterly dividend (increased to $0.60 per share post-split in early 2026), supplemented by occasional large special dividends depending on commodity price windfalls. ## Cash Flow Characteristics - **OCF Conversion:** Operating Cash Flow typically equals 100% to 110% of Net Income due to non-cash DD&A add-backs. - **Free Cash Flow Margin:** 60% to 65% of total revenue. - **Major Non-Cash Items:** Depletion of royalty interests and depreciation of water assets. - **Working Capital Impact:** Minimal impact on cash flow generation. - **Cash Tax Rate:** Approximately 21% to 23%, closely mirroring the GAAP effective tax rate. ## Sheet Structure 1. **Assumptions**: Hardcoded drivers for production volumes, commodity prices, water volumes, and cost ratios. 2. **Scenarios**: Base, Bull, and Bear cases for WTI crude prices and Permian drilling activity. 3. **Revenue_Schedule**: Detailed build of Oil & Gas Royalties (Boe/d x Price), Water Sales, Produced Water Royalties, and Surface Income. 4. **Income_Statement**: Consolidated view mirroring the 10-K, ending in Net Income and EPS (adjusted for the 3-for-1 split). 5. **Balance_Sheet**: Assets (Cash, Receivables, PP&E, Royalty Interests) and Liabilities/Equity. 6. **Cash_Flow_Statement**: Indirect method starting from Net Income, detailing OCF, CFI (acquisitions and capex), and CFF (dividends and buybacks). 7. **Operating_Expenses**: Breakdown of salaries, G&A, legal fees, and ad valorem taxes. 8. **PPE_and_Depletion**: Waterfall schedule for water infrastructure depreciation and unit-of-production depletion for royalty interests. 9. **Equity_and_Dividends**: Tracking share count (post-split), regular dividends, special dividends, and share repurchases. 10. **DCF_Valuation**: Unlevered free cash flow build, WACC calculation, and terminal value based on a perpetuity growth rate. ## Key Financial Relationships 1. `Oil and Gas Royalty Revenue = Royalty Production (Boe/d) * Days in Period * Average Realised Price ($/Boe)` 2. `Water Sales Revenue = Water Sales Volumes (bbl/d) * Days in Period * Average Realised Price per bbl` 3. `Produced Water Royalties = Produced Water Volumes (bbl/d) * Days in Period * Royalty Rate per bbl` 4. `Total Segment Revenues = Oil and Gas Royalty Revenue + Water Sales Revenue + Produced Water Royalties + Easements and Surface Income + Land Sales` 5. `Depletion Expense = (Current Period Production (Boe) / Total Proved Reserves (Boe)) * Net Capitalised Costs of Royalty Interests` 6. `Ad Valorem Taxes = Oil and Gas Royalty Revenue * Historical Ad Valorem Tax Rate (%)` 7. `Adjusted EBITDA = Net Income + Income Tax Expense + DD&A + Stock-Based Compensation` 8. `Free Cash Flow = Operating Cash Flow - Capital Expenditures` 9. `Dividends Paid = Regular Dividend per Share * Shares Outstanding + Special Dividends` 10. `Ending Cash Balance = Beginning Cash Balance + Free Cash Flow - Dividends Paid - Share Repurchases - Acquisitions` ## Cross-Sheet Dependencies - The **Assumptions** sheet dictates the volume and pricing inputs on the **Revenue_Schedule**. - The **Revenue_Schedule** feeds the top line of the **Income_Statement** and drives the volume inputs for the **PPE_and_Depletion** sheet. - The **Income_Statement** generates Net Income, which is the starting point for the **Cash_Flow_Statement**. - The **PPE_and_Depletion** sheet calculates DD&A, which feeds back into the **Income_Statement** as an expense and the **Cash_Flow_Statement** as a non-cash add-back. - The **Cash_Flow_Statement** calculates the net change in cash, which links to the Cash line item on the **Balance_Sheet**. - The **Equity_and_Dividends** sheet calculates total dividends paid, which flows into the financing section of the **Cash_Flow_Statement**. ## Sign Convention - **Income Statement:** Revenues are positive. Expenses (including taxes and DD&A) are negative. - **Balance Sheet:** Assets are positive. Liabilities and Equity are positive. - **Cash Flow Statement:** Net Income is positive. Non-cash add-backs (DD&A) are positive. Increases in assets are negative (cash outflow). Increases in liabilities are positive (cash inflow). Capex and dividends are negative. ## Things Most Likely to Go Wrong - Failing to account for the December 2025 3-for-1 stock split will result in per-share metrics (EPS, DPS, share price) being misstated by a factor of three. - Modelling depletion as a straight-line expense rather than a unit-of-production expense will distort margins during periods of fluctuating production. - Overestimating land sales by using a historical average; this line item is highly opportunistic and should be modelled conservatively or at zero in the terminal year. - Applying statutory corporate tax rates without accounting for state-level taxes (Texas franchise tax) will slightly understate the tax burden. - Assuming realised commodity prices equal WTI or Henry Hub benchmarks; the model must include a historical differential to account for Permian basin pricing dynamics. - Projecting significant debt interest expense; TPL operates with zero debt, and the revolver is strictly for liquidity backup. - Misunderstanding the cost structure by applying traditional E&P lifting costs; TPL pays zero drilling or lease operating expenses (LOE). - Extrapolating special dividends as a recurring yield; the model must separate the regular $0.60 quarterly dividend from variable special payouts. ## Validation Checks - Adjusted EBITDA margin must remain between 80% and 90%; flag if it drops below 80%. - Free Cash Flow conversion (FCF / Revenue) should consistently exceed 60%. - Total Assets must equal Total Liabilities plus Shareholders' Equity in every forecast period. - Debt balance should remain at zero unless a major acquisition scenario is toggled. - Depletion expense must scale proportionally with oil and gas royalty production volumes. - The effective tax rate should remain stable between 21% and 23%. - Capex as a percentage of revenue should not exceed 10% unless a specific infrastructure project (like the desalination plant) is active. ## Key Assumptions (Default Values) | Assumption | Default Value | Unit | Rationale | |---|---|---|---| | Oil & Gas Royalty Production | 37.5 | kBoe/d | Based on Q4 2025 exit rate. | | Average Realised Price | 34.18 | $/Boe | Based on FY2025 actual average. | | Water Sales Volumes | 1.0 | M bbl/d | Based on Q4 2025 actuals. | | Produced Water Royalty Volumes | 4.8 | M bbl/d | Based on Q4 2025 actuals. | | Easements & Surface Income Growth | 5.0 | % | Conservative growth based on mature Permian infrastructure. | | Salaries & Related Expenses | 3.5 | % of Rev | Historical average reflecting asset-light model. | | G&A Expenses | 4.0 | % of Rev | Historical average. | | Ad Valorem Taxes | 4.5 | % of O&G Rev | Based on historical assessed property tax rates. | | Capital Expenditures | 70.0 | $ Millions | Midpoint of FY2025 guidance for water infrastructure. | | Effective Tax Rate | 22.0 | % | Blended federal and state statutory rates. | | Regular Quarterly Dividend | 0.60 | $/Share | Declared rate for Q1 2026 (post-split). | | Discount Rate (WACC) | 8.5 | % | Reflects zero debt capital structure and equity risk premium. | | Terminal Growth Rate | 2.0 | % | Long-term inflation expectation for terminal value. | ## Data Sources & Benchmarks - **Filings:** SEC EDGAR (Form 10-K, 8-K earnings releases), TPL Investor Relations website. - **Peers for Benchmarking:** Viper Energy (VNOM), Black Stone Minerals (BSM), Sitio Royalties (STR). - **Industry Data:** EIA (Energy Information Administration) for Permian Basin rig counts and production data; WTI and Henry Hub spot pricing data. - **Consensus Estimates:** Bloomberg or FactSet for forward commodity price curves and analyst production estimates. ## Sources - Texas Pacific Land Corporation Q4 and Full Year 2025 Earnings Release (February 18, 2026). - Texas Pacific Land Corporation 2024 Annual Report on Form 10-K. - Texas Pacific Land Corporation Investor Presentations (August 2025 and February 2026). - Seeking Alpha: Texas Pacific Land Corporation Analysis (February 2026). - StockInsights: TPL FY24 Q4 Earnings Call Transcript. --- ## Frequently asked questions ### What is Texas Pacific Land Corporation's primary business model? Texas Pacific Land Corporation (TPL) is a major landowner in Texas, generating revenue by granting access to its 880,000 acres of surface rights and collecting royalties on extracted oil, gas, and water. The company operates an asset-light model, essentially functioning as a toll bridge for Permian Basin energy development without drilling or operating wells itself. ### How does Texas Pacific Land Corporation generate its revenue? TPL generates revenue primarily through its Land and Resource Management segment, which accounts for approximately 55% of revenue, and its Water Services and Operations segment, making up about 45%. These revenues stem from royalties on oil, gas, and water, as well as fees for surface access and water disposal, all within the Permian Basin. ### What is Texas Pacific Land Corporation's capital expenditure strategy? TPL's capital expenditure strategy is heavily growth-oriented, with 80% allocated to growth and 20% to maintenance. Recent significant investments include the construction of a 10,000 barrel-per-day produced water desalination facility in Orla, Texas, and strategic bolt-on acquisitions of adjacent royalty interests. ### What are the key balance sheet characteristics of Texas Pacific Land Corporation? TPL's balance sheet shows total assets between $1.5 billion and $2.0 billion, with land carried at historical cost, which significantly understates its current market value. The company generally maintains positive net working capital due to substantial cash balances and funds all its growth entirely from operating cash flow. ### Can I download an Excel financial model for Texas Pacific Land Corporation? Yes, an Excel financial model for Texas Pacific Land Corporation (TPL) is available for download. This model offers a comprehensive equity valuation and cash flow forecast, covering a forecast horizon from FY2026 through FY2030. ### What gives Texas Pacific Land Corporation a competitive advantage in its market? Texas Pacific Land Corporation holds a unique, monopoly-like competitive position due to its extensive surface acreage in the Permian Basin. This allows the company to capture high margins from energy operators who require access for drilling, pipelines, and water disposal, leveraging its asset-light business model. [Interactive forecast calculator](https://finamodel.com/companies/texas-pacific-land/forecast)