UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________

FORM 10-Q

_____________________

OR

Commission File Number: 1-737

Texas Pacific Land Trust

(Exact Name of Registrant as Specified in Its Charter)

(214) 969-5530

(Registrant’s Telephone Number, Including Area Code)

__________________________________________________________________

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☑

Cautionary Statement Regarding Forward-Looking Statements

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. Forward-looking statements include statements regarding the Trust’s future operations and prospects, the markets for real estate in the areas in which the Trust owns real estate, applicable zoning regulations, the markets for oil and gas, production limits on prorated oil and gas wells authorized by the Railroad Commission of Texas, expected competition, management’s intent, beliefs or current expectations with respect to the Trust’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 Securities and Exchange Commission, 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, 2013, 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.

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements

TEXAS PACIFIC LAND TRUST

BALANCE SHEETS

See accompanying notes to financial statements.

TEXAS PACIFIC LAND TRUST

STATEMENTS OF INCOME AND TOTAL COMPREHENSIVE INCOME

(Unaudited)

See accompanying notes to financial statements.

TEXAS PACIFIC LAND TRUST

STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to financial statements.

TEXAS PACIFIC LAND TRUST

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

Supplemental cash flow information for the nine month periods ended September 30, 2014 and 2013 is summarized as follows:

The following discussion and analysis should be read together with (i) 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, 2013, (ii) the factors discussed in Part II, Item 1A “Risk Factors,” if any, of this Quarterly Report on Form 10-Q and (iii) the Financial Statements, including the Notes thereto, and the other financial information appearing elsewhere in this Report. Period-to-period comparisons of financial data are not necessarily indicative, and therefore should not be relied upon as indicators, of the Trust’s future performance. Words or phrases such as “does not believe” and “believes”, or similar expressions, when used in this Form 10-Q or other filings with the Securities and Exchange Commission, are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Results of Operations for the Quarter Ended September 30, 2014 Compared to the Quarter Ended September 30, 2013

Earnings per Sub-share certificate were $1.11 for the third quarter of 2014, compared to $1.10 for the third quarter of 2013. Total operating and investing revenues were $14,756,468 for the third quarter of 2014 compared to $14,936,609 for the third quarter of 2013, a decrease of 1.2%. This decrease in revenue was due primarily to a decrease in land sales, and to a lesser extent, a decrease in interest income from notes receivable. These decreases were offset by an increase in easement and sundry income, and oil and gas royalty revenue.

In the third quarter of 2014, the Trust sold approximately 117.25 acres for a total of $323,125, or approximately $2,756 per acre. In the third quarter of 2013, the Trust sold approximately 10,180 acres for a total of $5,201,600, or approximately $511 per acre.

Rentals, royalties and sundry income were $14,410,639 during the third quarter of 2014, compared to $9,608,435 for the third quarter of 2013, an increase of 50.0%. This increase resulted primarily from increases in easement and sundry income, and oil and gas royalty revenue.

Oil and gas royalty revenue was $7,707,981 for the third quarter of 2014, compared to $5,853,309 for the third quarter of 2013, an increase of 31.7%. Oil royalty revenue was $6,356,459 for the third quarter of 2014, an increase of 30.2% from the third quarter of 2013 when oil royalty revenue was $4,884,118. Crude oil production subject to the Trust’s royalty interest increased 50.9% in the third quarter of 2014 compared to the third quarter of 2013. This increase in production was partially offset by a 13.8% decrease in the average price per royalty barrel of crude oil during the third quarter of 2014 compared to the third quarter of 2013. Gas royalty revenue was $1,351,522 for the third quarter of 2014, an increase of 39.5% from the third quarter of 2013 when gas royalty revenue was $969,191. This increase in gas royalty revenue resulted from a volume increase of 43.5% in the third quarter of 2014 compared to the third quarter of 2013, which more than offset a price decrease of 2.8%.

Easement and sundry income was $6,581,105 for the third quarter of 2014, an increase of 81.0% compared to the third quarter of 2013 when easement and sundry income was $3,635,615. This increase resulted primarily from increases in pipeline easement income, seismic permit income, and sundry income caused by an increase in drilling and exploration activity on land owned by the Trust. This category of income is unpredictable and may vary significantly from quarter to quarter.

Interest income, including interest on investments, was $22,704 for the third quarter of 2014 compared to $126,574 for the third quarter of 2013, a decrease of 82.1%. Interest on notes receivable for the third quarter of 2014 was $18,955, a decrease of 84.7% compared to the third quarter of 2013 when interest on notes receivable was $123,831. This decrease resulted primarily from the early payoff of several notes due to the Trust. As of September 30, 2014, notes receivable for land sales were $923,116 compared to $4,232,313 at September 30, 2013, a decrease of 78.2%. Interest income earned from investments was $3,749 for the third quarter of 2014, an increase of 36.7% from the third quarter of 2013. Interest on investments is affected by such variables as cash on hand for investment and the rate of interest on short-term investments.

Taxes, other than income taxes, were $433,748 for the third quarter of 2014 compared to $339,356 for the third quarter of 2013, an increase of 27.8%. This increase is attributable to an increase in oil and gas production taxes which resulted from the increase in oil and gas royalty revenue discussed above.

General and administrative expenses were $444,173 for the third quarter of 2014 compared to $493,338 for the third quarter of 2013, a decrease of 10.0%. This decrease was primarily due to decreases in employment expenses and legal expenses.

Results of Operations for the Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013

Earnings per Sub-share certificate were $3.15 for the first nine months of 2014, compared to $2.28 for the first nine months of 2013. Total operating and investing revenues were $41,921,685 for the first nine months of 2014 compared to $31,617,396 for the first nine months of 2013, an increase of 32.6%. This increase in revenue and earnings was primarily due to increases in oil and gas royalty revenue and easement and sundry income, which were partially offset by decreases in land sales and interest income from notes receivable.

During the first nine months of 2014, the Trust sold approximately 1,512 acres for a total of $1,993,730, or approximately $1,319 per acre. In the first nine months of 2013, the Trust sold approximately 10,280 acres for a total of $5,533,188, or approximately $538 per acre.

Rentals, royalties, and sundry income were $39,794,229 for the first nine months of 2014, compared to $25,664,004 for the first nine months of 2013, an increase of 55.1%. This increase resulted primarily from increases in oil and gas royalty revenue and easement and sundry income.

Oil and gas royalty revenue was $22,813,548 for the first nine months of 2014, compared to $16,205,783 for the first nine months of 2013, an increase of 40.8%. Oil royalty revenue was $18,053,132 for the first nine months of 2014, an increase of 35.8% from the first nine months of 2013 when oil royalty revenue was $13,289,630. The average price per royalty barrel of crude oil during the first nine months of 2014 was 1.5% higher than the average price prevailing during the first nine months of 2013. In addition, crude oil production subject to the Trust’s royalty interest increased 33.8% in the first nine months of 2014 compared to the first nine months of 2013. Gas royalty revenue was $4,760,416 for the first nine months of 2014, an increase of 63.2% from the first nine months of 2013 when gas royalty revenue was $2,916,153. This increase in gas royalty revenue resulted from both volume and price increases of 42.9% and 14.4%, respectively, in the first nine months of 2014 compared to the first nine months of 2013.

Easement and sundry income was $16,612,578 for the first nine months of 2014, an increase of 83.1% compared to the first nine months of 2013 when easement and sundry income was $9,070,832. This increase resulted primarily from increases in pipeline easement income, sundry income, and seismic permit income caused by an increase in drilling and exploration activity on land owned by the Trust. This category of income is unpredictable and may vary significantly from quarter to quarter.

Interest income, including interest on investments, was $133,726 for the first nine months of 2014 compared to $420,204 for the first nine months of 2013, a decrease of 68.2%. Interest on notes receivable for the first nine months of 2014 was $123,253, a decrease of 70.0% compared to the first nine months of 2013 when interest on notes receivable was $411,281. This decrease resulted primarily from the early payoff of several notes due to the Trust. As of September 30, 2014, notes receivable for land sales were $923,116 compared to $4,232,313 at September 30, 2013, a decrease of 78.2%. Interest income earned from investments was $10,473 for the first nine months of 2014, an increase of 17.4% from the first nine months of 2013. Interest on investments is affected by such variables as cash on hand for investment and the rate of interest on short-term investments.

Taxes, other than income taxes, were $1,308,128 for the first nine months of 2014 compared to $965,059 for the first nine months of 2013, an increase of 35.5%. This increase is attributable to an increase in oil and gas production taxes which resulted from the increase in oil and gas royalty revenue discussed above.

General and administrative expenses were $1,382,550 for the first nine months of 2014 compared to $1,655,034 for the first nine months of 2013, a decrease of 16.5%. This decrease was primarily due to decreases in employment expenses and legal expenses.

Liquidity and Capital Resources

The Trust’s principal sources of liquidity are revenues from oil and gas royalties, easement and sundry income, and receipts of interest and principal payments on the notes receivable arising from land sales. In the past, those sources have generated more than adequate amounts of cash to meet the Trust’s needs and, in the opinion of management, should continue to do so in the foreseeable future.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the information related to market risk of the Trust since December 31, 2013.

Item 4.     Controls and Procedures

Pursuant to Rule 13a-15, management of the Trust under the supervision and with the participation of David M. Peterson, the Trust’s Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Trust’s disclosure controls and procedures as of the end of the Trust’s fiscal quarter covered by this Report on Form 10-Q. Based upon that evaluation, Mr. Peterson concluded that the Trust’s disclosure controls and procedures are effective in timely alerting him to material information relating to the Trust required to be included in the Trust’s periodic SEC filings.

There have been no changes in the Trust’s internal control over financial reporting during the Trust’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1A.     Risk Factors

There have been no material changes in the risk factors previously disclosed in response to Item 1A “Risk Factors” of Part I of the Trust’s Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

* The Trust purchased and retired 38,306 Sub-shares in the open market.

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INDEX TO EXHIBITS