Texas Pacific Land Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Share-Based Compensation

Share-Based Compensation

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

Incentive Plan for Employees

As of June 30, 2022, the Company has issued RSAs, RSUs and PSUs under the Texas Pacific Land Corporation 2021 Incentive Plan (the “2021 Plan”) to certain employees. The maximum aggregate number of shares of the Company’s common stock, par value $0.01 per share (“Common Stock”) that may be issued under the 2021 Plan is 75,000 shares and, as of June 30, 2022, 65,452 shares of Common Stock remained available under the 2021 Plan for future grants. Currently, all RSAs, RSUs, and PSUs granted under the 2021 Plan are entitled to receive dividends (for RSAs and RSUs, which are accrued and distributed to award recipients upon vesting) or have dividend equivalent rights. Dividends and dividend equivalent rights are subject to the same vesting conditions as the awards to which they relate and are forfeitable if the related awards are forfeited. The Company utilizes the closing stock price on the date of grant to determine the fair value of RSAs, RSUs and PSUs with a performance condition. For PSUs with a market condition, the Company utilizes a Monte Carlo simulation model to determine grant date fair value per share.

The following table summarizes activity related to RSAs and RSUs for the six months ended June 30, 2022:


	Restricted Stock Awards			Restricted Stock Units
	Number of RSAs	Grant-Date Fair Value per Share		Number of RSUs	Grant-Date Fair Value per Share
Outstanding at December 31, 2021 (1)	3,330	$	1,252	—	$	—
Granted (2)	—	—		3,824	1,105
Vested	—	—		—	—
Cancelled and forfeited	—	—		—	—
Outstanding at June 30, 2022	3,330	$	1,252	3,824	$	1,105

(1)RSAs were granted on December 29, 2021 with 1,993 shares vesting on December 29, 2022 and 1,337 shares vesting on December 29, 2023.

(2)These time-based awards were granted on February 11, 2022, to certain employees and vest in one-third increments over a three-year period.

The following table summarizes activity related to PSUs for the six months ended June 30, 2022:


	Performance Stock Units
	Number of PSUs	Weighted-Average Grant-Date Fair Value per Share
Outstanding at December 31, 2021	—	$	—
Granted (1)	2,394	1,355
Vested	—	—
Cancelled and forfeited	—	—
Outstanding at June 30, 2022	2,394	$	1,355

(1)Includes 1,197 RTSR (as defined below) PSUs with a grant date fair value of $1,605 per share and 1,197 FCF (as defined below) PSUs with a grant date fair value of $1,105 per share.

On February 11, 2022, the Company granted PSUs to certain employees. Each PSU has a value equal to one share of Common Stock. The PSUs will vest three years after grant if certain performance metrics are met, as follows: 50% of the PSUs may be earned based on the Company’s relative total stockholder return (“RTSR”) for the three-year period from January 2022 to January 2025 compared to the XOP Index, and 50% of the PSUs may be earned based on the cumulative free cash flow per share (“FCF”) over the three-year vesting period. As the RTSR PSU is a market-based award, its grant date fair value was determined using a Monte Carlo simulation model that uses the same input assumptions as the Black-Scholes model to determine the expected potential ranking of the Company against the XOP Index, i.e. the probability of satisfying the market condition defined in the award. Expected volatility in the model was estimated based on the volatility of historical stock prices over a period matching the expected term of the award. The risk-free interest rate was based on U.S. Treasury yield constant maturities for a term matching the expected term of the award.

Equity Plan for Non-Employee Directors

As of June 30, 2022, the Company had granted 699 RSAs to directors of the Company under the 2021 Non-Employee Director and Deferred Compensation Plan (the “2021 Directors Plan”). The maximum aggregate number of shares of Common Stock that may be issued under the 2021 Directors Plan is 10,000 shares, which may consist, in whole or in part, of authorized and unissued shares (if any), treasury shares, or shares reacquired by the Company in any manner. As of June 30, 2022, 9,301 shares of Common Stock remained available under the 2021 Directors Plan for future grants. Currently, all RSAs granted under the 2021 Directors Plan are entitled to receive dividends, which are accrued and distributed to award recipients upon vesting. Dividends are subject to the same vesting conditions as the awards to which they relate and are forfeitable if the related awards are forfeited. The Company utilizes the closing stock price on the date of grant to determine the fair value of the RSAs.

The following table summarizes activity related to the RSAs under the 2021 Directors Plan for the six months ended June 30, 2022:


	Restricted Stock Awards
	Number of RSAs	Grant-Date Fair Value per Share
Outstanding at December 31, 2021	—	$	—
Granted	784	1,277
Vested	—	—
Cancelled and forfeited	(85)	1,249
Outstanding at June 30, 2022 (1)	699	$	1,281

(1)On January 1, 2022, the Company granted 680 shares of restricted stock to directors. During the six months ended June 30, 2022, 85 shares were forfeited resulting from the departure of a director in March 2022, and an additional 104 shares of restricted stock were granted to new directors on April 15, 2022. The shares will vest on the first anniversary of the award.

Share-Based Compensation Expense

The following table summarizes our share-based compensation expense by line item in the condensed consolidated statements of income (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Salaries and related employee expenses (employee awards)	$	1,760	$	—	$	3,079	$	—
General and administrative expenses (director awards)	230		—		416		—
Total share-based compensation expense (1)	$	1,990	$	—	$	3,495	$	—

(1)The Company recognized a tax benefit of $0.4 million and $0.7 million related to share-based compensation for the three and six months ended June 30, 2022, respectively.

As of June 30, 2022, there was $9.0 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under existing share-based plans expected to be recognized over a weighted average period of 1.5 years.