tpl20150831_10q.htm

(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 ☑

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, 2014, 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.

	September 30,			December 31,
	2015			2014
	(Unaudited)
ASSETS
Cash and cash equivalents	$	46,170,691		$	26,814,759
Accrued receivables		4,074,716			3,220,020
Other assets		67,881			114,491
Prepaid income taxes	–				815,937
Notes receivable for land sales		139,114			923,115
Water wells, vehicles, furniture, and equipment – at cost less accumulated depreciation		162,666			89,107
Real estate acquired: (10,065 acres at September 30, 2015 and 10,125 acres at December 31, 2014)		1,114,601			1,125,059
Real estate and royalty interests assigned through the 1888 Declaration of Trust, no value assigned:

Land (surface rights) situated in eighteen counties in Texas – 878,309 acres in 2015 and 899,149 acres in 2014	–			–

1/16 nonparticipating perpetual royalty interest in 373,777 acres in 2015 and 2014	–			–

1/128 nonparticipating perpetual royalty interest in 85,414 acres in 2015 and 2014	–			–
	$	51,729,669		$	33,102,488
LIABILITIES AND CAPITAL
Accounts payable and accrued expenses	$	837,316		$	828,672
Income taxes payable		2,875,296			406,945
Other taxes payable		235,391			159,301
Unearned revenue		2,350,617			3,940,353
Deferred taxes		55,503			293,140
Pension plan liability		762,601			754,260
Total liabilities		7,116,724			6,382,671
Capital:
Certificates of Proprietary Interest, par value $100 each; outstanding 0 certificates	–			–
Sub-share Certificates in Certificates of Proprietary Interest, par value $.03 1/3 each; outstanding: 8,174,086 Sub-shares in 2015 and 8,322,399 Sub-shares in 2014	–			–
Other comprehensive loss		(1,280,870	)		(1,352,794	)
Net proceeds from all sources		45,893,815			28,072,611
Total capital		44,612,945			26,719,817
	$	51,729,669		$	33,102,488

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Income:
Oil and gas royalties	$	6,060,645	$	7,707,981	$	18,285,504	$	22,813,548
Land sales		1,888,635		323,125		22,316,635		1,993,730
Easements and sundry income		10,091,161		6,581,105		23,697,100		16,612,578
Other income		139,017		140,508		400,753		491,356
		18,179,458		14,752,719		64,699,992		41,911,212

Expenses:
Taxes, other than income taxes		362,556		433,748		1,081,136		1,308,128
General and administrative expenses		590,984		444,173		1,702,248		1,382,550
		953,540		877,921		2,783,384		2,690,678
Operating income		17,225,918		13,874,798		61,916,608		39,220,534
Interest income earned from investments		7,290		3,749		21,243		10,473

Income before income taxes		17,233,208		13,878,547		61,937,851		39,231,007
Income taxes		5,771,859		4,512,504		20,894,401		12,700,879
Net income	$	11,461,349	$	9,366,043	$	41,043,450	$	26,530,128

Other comprehensive income – periodic pension costs, net of income taxes of $12,909, $4,527, $38,728, and $13,582 respectively		23,975		8,408		71,924		25,224
Total comprehensive income	$	11,485,324	$	9,374,451	$	41,115,374	$	26,555,352

Average number of sub-share certificates and equivalent sub-share certificates outstanding		8,190,757		8,406,403		8,226,185		8,425,346

Basic and dilutive earnings per sub-share certificate on net income	$	1.40	$	1.11	$	4.99	$	3.15
Cash dividends per sub-share certificate	$	–	$	–	$	.29	$	.27

	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities:
Net income	$	41,043,450		$	26,530,128
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes		(237,637	)		(1,028,281	)
Depreciation and amortization		13,799			17,593
(Gain) loss on disposal of fixed assets		(712	)		5,083
Changes in operating assets and liabilities:
Accrued receivables and other assets		(797,628	)		(797,568	)
Prepaid income taxes		815,937		–
Notes receivable for land sales		784,001			2,964,790
Accounts payable, accrued expenses and other liabilities		(1,424,737	)		699,122
Income taxes payable		2,468,351			762,532
Net cash provided by operating activities		42,664,824			29,153,399

Cash flows from investing activities:
Proceeds from sale of fixed assets		25,000			21,000
Purchase of fixed assets		(111,646	)		(51,901	)
Net cash used in investing activities		(86,646	)		(30,901	)

Cash flows from financing activities:
Purchase of Sub-share Certificates in Certificates of Proprietary Interest		(20,819,786	)		(13,957,183	)
Dividends paid		(2,402,460	)		(2,280,300	)
Net cash used in financing activities		(23,222,246	)		(16,237,483	)

Net increase in cash and cash equivalents		19,355,932			12,885,015

Cash and cash equivalents, beginning of period		26,814,759			13,239,211

Cash and cash equivalents, end of period	$	46,170,691		$	26,124,226

(1)

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of Texas Pacific Land Trust (the “Trust”) as of September 30, 2015 and the results of its operations for the three month and nine month periods ended September 30, 2015 and 2014, respectively, and its cash flows for the nine month period ended September 30, 2015 and 2014, respectively. The financial statements and footnotes included herein should be read in conjunction with the Trust’s annual financial statements as of December 31, 2014 and 2013 and for each of the years in the three year period ended December 31, 2014 included in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2014. Beginning with the second quarter of 2015, the Trust updated the format of the revenue section in the Statements of Income and Total Comprehensive Income to provide more detail regarding revenue sources.

(7)

The Trust invests cash in excess of daily requirements primarily in bank deposit and savings accounts and certificates of deposit with maturities of ninety days or less. Such investments are deemed to be highly liquid debt instruments and classified as cash equivalents for purposes of the statements of cash flows.

Supplemental cash flow information for the nine month periods ended September 30, 2015 and 2014 is summarized as follows:

	2015		2014

Income taxes paid	$	17,886,479	$	12,980,210

(8)

ASC 280, “Segment Reporting,” establishes standards for the way public business enterprises are to report information about operating segments. In accordance with ASC 280, the Trust utilizes the management approach as a basis for identifying reportable segments. The management approach is based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. The Trust’s management views its operations as one segment and believes the only significant activity is managing the land which was conveyed to the Trust in 1888 and any other land thereafter acquired. The Trust’s management makes decisions about resource allocation and performance assessment based on the same financial information presented in these financial statements. Managing the land includes sales and leases of such land, and the retention of oil and gas royalties.

(9)

In May 2014, the FASB issued ASU 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 31, 2017, including interim periods within that reporting period. The Trust is currently evaluating the new guidance to determine the impact it will have on our financial statements.

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, 2014, (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, 2015 Compared to the Quarter Ended September 30, 2014

Earnings per Sub-share certificate were $1.40 for the third quarter of 2015, compared to $1.11 for the third quarter of 2014. Total operating and investing revenues were $18,186,748 for the third quarter of 2015 compared to $14,756,468 for the third quarter of 2014, an increase of 23.2%. This increase in revenue and earnings was due primarily to increases in easements and sundry income and land sales. These increases were partially offset by a decrease in oil royalty revenue.

Oil and gas royalty revenue was $6,060,645 for the third quarter of 2015, compared to $7,707,981 for the third quarter of 2014, a decrease of 21.4%. Oil royalty revenue was $4,371,573 for the third quarter of 2015, a decrease of 31.2% from the third quarter of 2014 when oil royalty revenue was $6,356,459. Crude oil production subject to the Trust’s royalty interest increased 23.5% in the third quarter of 2015 compared to the third quarter of 2014. This increase in production was offset by a 44.3% decrease in the average price per royalty barrel of crude oil during the third quarter of 2015 compared to the third quarter of 2014. Gas royalty revenue was $1,689,072 for the third quarter of 2015, an increase of 25.0% from the third quarter of 2014 when gas royalty revenue was $1,351,522. This increase in gas royalty revenue resulted from a volume increase of 70.2% in the third quarter of 2015 compared to the third quarter of 2014, which more than offset a price decrease of 26.5%.

In the third quarter of 2015, the Trust sold approximately 267.85 acres of land for a total of $1,888,635, or approximately $7,051 per acre. 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.

Easements and sundry income was $10,091,161 for the third quarter of 2015, an increase of 53.3% compared to the third quarter of 2014 when easements and sundry income was $6,581,105. This increase resulted primarily from an increase in pipeline easement income, which was partially offset by a decrease in sundry income. This category of income is unpredictable and may vary significantly from quarter to quarter.

Other income, including interest on investments, was $146,307 for the third quarter of 2015 compared to $144,257 for the third quarter of 2014, an increase of 1.4%. Grazing lease income was $133,333 for the third quarter of 2015, compared to $121,553 for the third quarter of 2014, an increase of 9.7%. This increase is primarily attributable to a delay in getting a lease renewed in the second quarter of 2015 due to a land sale. Interest on notes receivable for the third quarter of 2015 was $5,684, a decrease of 70.0% compared to the third quarter of 2014 when interest on notes receivable was $18,955. This decrease is primarily due to principal prepayments received on notes due to the Trust. As of September 30, 2015, notes receivable for land sales were $139,114 compared to $923,116 at September 30, 2014, a decrease of 84.9%. Interest income earned from investments was $7,290 for the third quarter of 2015, compared to $3,749 for the third quarter of 2014, an increase of 94.5%. 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 $362,556 for the third quarter of 2015 compared to $433,748 for the third quarter of 2014, a decrease of 16.4%. This decrease is primarily attributable to a decrease in oil production tax which resulted from the decrease in oil royalty revenue discussed above.

General and administrative expenses were $590,984 for the third quarter of 2015 compared to $444,173 for the third quarter of 2014, an increase of 33.1%. This increase was primarily due to increases in legal expenses, employment expenses, and a project that began in the current quarter to enhance the information systems of the Trust.

Results of Operations for the Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014

Earnings per Sub-share certificate were $4.99 for the first nine months of 2015, compared to $3.15 for the first nine months of 2014. Total operating and investing revenues were $64,721,235 for the first nine months of 2015 compared to $41,921,685 for the first nine months of 2014, an increase of 54.4%. This increase in revenue and earnings was due primarily to increases in land sales and easements and sundry income. These increases were partially offset by decreases in oil and gas royalty revenue and other income.

Oil and gas royalty revenue was $18,285,504 for the first nine months of 2015, compared to $22,813,548 for the first nine months of 2014, a decrease of 19.8%. Oil royalty revenue was $13,884,267 for the first nine months of 2015, a decrease of 23.1% from the first nine months of 2014 when oil royalty revenue was $18,053,132. Crude oil production subject to the Trust’s royalty interest increased 37.2% in the first nine months of 2015 compared to the first nine months of 2014. This increase in production was offset by a 44.0% decrease in the average price per royalty barrel of crude oil during the first nine months of 2015 compared to the first nine months of 2014. Gas royalty revenue was $4,401,237 for the first nine months of 2015, a decrease of 7.5% from the first nine months of 2014 when gas royalty revenue was $4,760,416. This decrease in gas royalty revenue resulted from a price decrease of 32.4% in the first nine months of 2015 compared to the first nine months of 2014, which was partially offset by a volume increase of 36.7%.

During the first nine months of 2015, the Trust sold approximately 20,900 acres of land for a total of $22,316,635, or approximately $1,068 per acre. In 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.

Easements and sundry income was $23,697,100 for the first nine months of 2015, an increase of 42.6% compared to the first nine months of 2014 when easements and sundry income was $16,612,578. This increase resulted primarily from increases in pipeline easement income and sundry income, which were partially offset by decreases in seismic permit income and sundry lease rental income. This category of income is unpredictable and may vary significantly from quarter to quarter.

Other income, including interest on investments, was $421,996 for the first nine months of 2015 compared to $501,829 for the first nine months of 2014, a decrease of 15.9%. Grazing lease income was $362,375 for the first nine months of 2015, compared to $368,103 for the first nine months of 2014, a decrease of 1.6%. Interest on notes receivable for the first nine months of 2015 was $38,378, a decrease of 68.9% compared to the first nine months of 2014 when interest on notes receivable was $123,253. This decrease is primarily due to principal prepayments received on notes due to the Trust. As of September 30, 2015, notes receivable for land sales were $139,114 compared to $923,116 at September 30, 2014, a decrease of 84.9%. Interest income earned from investments was $21,243 for the first nine months of 2015, compared to $10,473 for the first nine months of 2014, an increase of 102.8%. 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 $1,081,136 for the first nine months of 2015 compared to $1,308,128 for the first nine months of 2014, a decrease of 17.4%. This decrease is primarily attributable to a decrease in oil and gas production taxes which resulted from the decrease in oil and gas royalty revenue discussed above.

General and administrative expenses were $1,702,248 for the first nine months of 2015 compared to $1,382,550 for the first nine months of 2014, an increase of 23.1%. This increase was primarily due to increases in employment expenses, legal expenses and a project that began in the current quarter to enhance the information systems of the Trust.

The Trust’s principal sources of liquidity are revenues from oil and gas royalties, easements and sundry income, and 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.

There have been no material changes in the information related to market risk of the Trust since December 31, 2014.

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 Robert J. Packer, the Trust’s 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 and Mr. Packer concluded that the Trust’s disclosure controls and procedures are effective in timely alerting them 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.

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, 2014.

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.

Period	Total Number of Sub-shares Purchased		Average Price Paid per Sub-share		Total Number of Sub-shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Sub-shares that May Yet Be Purchased Under the Plans or Programs
July 1, through July 31, 2015		20,060	$	142.58	–	–
August 1, through August 31, 2015		9,287	$	130.40	–	–
September 1, through September 30, 2015		8,684	$	140.16	–	–
Total		38,031*	$	139.06	–	–

	32.2	Certification of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	101.INS	XBRL Instance

	101.SCH	XBRL Taxonomy Extension Schema

	101.CAL	XBRL Taxonomy Extension Calculation

	101.DEF	XBRL Taxonomy Extension Definition

	101.LAB	XBRL Taxonomy Extension Labels

	101.PRE	XBRL Taxonomy Extension Presentation

	TEXAS PACIFIC LAND TRUST (Registrant)
Date: November 5, 2015	By:	/s/ David M. Peterson
		David M. Peterson, General Agent, Authorized Signatory and Chief Executive Officer



Date: November 5, 2015	By:	/s/ Robert J. Packer
		Robert J. Packer, Chief Financial Officer

EXHIBIT NUMBER		DESCRIPTION

31.1		Rule 13a-14(a) Certification of Chief Executive Officer.

31.2		Rule 13a-14(a) Certification of Chief Financial Officer.

32.1		Certification of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation

101.DEF		XBRL Taxonomy Extension Definition

101.LAB		XBRL Taxonomy Extension Labels

101.PRE		XBRL Taxonomy Extension Presentation

Large Accelerated Filer	☑	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller reporting company	☐