Texas Pacific Land Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Share-Based Compensation

Share-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Incentive Plan for Employees

As of December 31, 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, 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 December 31, 2022, 61,270 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 following table summarizes activity related to RSAs and RSUs for the years ended December 31, 2022 and 2021:


	Years Ended December 31,
	2022						2021
	Restricted Stock Awards			Restricted Stock Units			Restricted Stock Awards			Restricted Stock Units
	Number of RSAs	Weighted-Average Grant-Date Fair Value per Share		Number of RSUs	Weighted-Average Grant-Date Fair Value per Share		Number of RSAs	Weighted-Average Grant-Date Fair Value per Share		Number of RSUs	Weighted-Average Grant-Date Fair Value per Share
Outstanding at beginning of period (1)	3,330	$	1,252	—	$	—	—	$	—	—	$	—
Granted (2)	—	—		5,612	1,323		3,330	1,252		—	—
Vested (3)	(1,993)	1,252		—	—		—	—		—	—
Cancelled and forfeited	—	—		—	—		—	—		—	—
Outstanding at end of period	1,337	$	1,252	5,612	$	1,323	3,330	$	1,252	—	$	—

(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)On February 11, 2022, 3,824 RSUs were granted to certain employees with a grant date fair value per share of $1,105. On September 1, 2022, 1,788 RSUs were granted to certain employees with a grant date fair value per share of $1,790 per share. The RSUs vest in one-third increments over a three-year period.

(3)Of the 1,993 shares that vested on December 29, 2022, 756 shares were surrendered by employees to the Company to settle tax withholdings.

The following table summarizes activity related to PSUs for the year ended December 31, 2022:


	Performance Stock Units
	Number of Target 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 December 31, 2022	2,394	$	1,355

(1)Includes 1,197 RTSR (based on target) (as defined below) PSUs with a grant date fair value of $1,605 per share and 1,197 FCF (based on target) (as defined below) PSUs with a grant date fair value of $1,105 per share. If the maximum performance potential metrics described in the PSU agreements are achieved, the actual number of units that will ultimately be awarded under the PSU agreements will exceed target units by 100% (i.e., a collective 2,394 additional units would be issued).

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

During the year ended December 31, 2022, the Company granted 784 RSAs (of which 85 were forfeited during the year) to non-employee 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 December 31, 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 years ended December 31, 2022:


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

(1)On January 1, 2022, the Company granted 680 shares of restricted stock to directors. During the years ended December 31, 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 grant.

Share-Based Compensation Expense

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


	Years Ended December 31,
	2022		2021		2020
Salaries and related employee expenses (employee awards) (1)	$	7,583	$	28	$	—
General and administrative expenses (director awards)	849		—		—
Total share-based compensation expense (2)	$	8,432	$	28	$	—

(1)Based upon probability of achieving the maximum award under the performance condition PSUs, share-based compensation expense was recorded assuming achievement of the maximum units available under the award.

(2)The Company recognized a tax benefit of $1.8 million related to share-based compensation for the years ended December 31, 2022.

As of December 31, 2022, there was $8.6 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 1.2 years.