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, 2023

Share-Based Payment Arrangement [Abstract]

The Company grants share-based compensation to employees under the Texas Pacific Land Corporation 2021 Incentive Plan (the “2021 Plan”) and to its non-employee directors under the 2021 Non-Employee Director Stock and Deferred Compensation Plan (the “2021 Directors Plan”). As of December 31, 2023, share-based compensation granted under the plans has included these award types: stock awards, RSAs, RSUs and PSUs. Currently, all awards granted under the plans are entitled to receive dividends (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. RSUs granted under the 2021 Plan vest in one-third increments and PSUs granted under the 2021 Plan cliff vest at the end of three years if the performance metrics are achieved (as discussed further below). RSAs granted under the 2021 Directors Plan vest on the first anniversary of the award. Effective October 31, 2023, the 2021 Directors Plan was amended to eliminate vesting requirements on stock awards granted after October 31, 2023.

Incentive Plan for Employees

The maximum aggregate number of shares of the Company’s 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, 2023, 55,089 shares of Common Stock remained available under the 2021 Plan for future grants.

The following table summarizes activity related to RSAs and RSUs under the 2021 Plan for the years ended December 31, 2023 and 2022:


	Years Ended December 31,
	2023						2022
	Restricted Stock Awards (1)			Restricted Stock Units (2)			Restricted Stock Awards (1)			Restricted Stock Units (2)
	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
Nonvested at beginning of period	1,337	$	1,252	5,612	$	1,323	3,330	$	1,252	—	$	—
Granted	—	—		2,848	1,924		—	—		5,612	1,323
Vested (3)	(1,297)	1,252		(1,864)	1,324		(1,993)	1,252		—	—
Cancelled and forfeited	(40)	1,252		(371)	1,602		—	—		—	—
Nonvested at end of period	—	$	—	6,225	$	1,581	1,337	$	1,252	5,612	$	1,323

(1)RSAs were granted on December 29, 2021: 1,993 shares vested on December 29, 2022, 40 shares were forfeited during 2023 and 1,297 shares vested on December 29, 2023.

(2)RSUs vest in one-third increments over a three-year period.

(3)Of the 3,161 shares that vested during the year ended December 31, 2023, 1,165 shares were surrendered upon vesting by employees to the Company to settle tax withholding obligations.

The following table summarizes activity related to PSUs for the years ended December 31, 2023 and 2022:


	Years Ended December 31,
	2023			2022
	Number of Target PSUs	Weighted-Average Grant-Date Fair Value per Share		Number of Target PSUs	Weighted-Average Grant-Date Fair Value per Share
Nonvested at beginning of period (1)	2,394	$	1,355	—	$	—
Granted (2)	1,852	2,342		2,394	1,355
Vested	—	—		—	—
Cancelled and forfeited	—	—		—	—
Nonvested at end of period	4,246	$	1,786	2,394	$	1,355

(1)The PSUs were granted on February 11, 2022 and include 1,197 RTSR (as defined below) PSUs (based on target) with a grant date fair value of $1,605 per share and 1,197 FCF (as defined below) PSUs (based on target) 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).

(2)The PSUs were granted on February 10, 2023 and include 926 RTSR PSUs (based on target) with a grant date fair value of $2,761 per share and 926 FCF PSUs (based on target) with a grant date fair value of $1,924 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 1,852 additional units would be issued).

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”) over the applicable three-year measurement period compared to the SPDR® S&P® Oil & Gas Exploration & Production ETF (“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

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, 2023, 8,793 shares of Common Stock remained available under the 2021 Directors Plan for future grants.

The following table summarizes activity related to the RSAs under the 2021 Directors Plan for the years ended December 31, 2023 and 2022:


		Years Ended December 31,
		2023				2022
	Restricted Stock Awards				Restricted Stock Awards
		Number of RSAs	Weighted-Average Grant-Date Fair Value per Share				Number of RSAs	Weighted-Average Grant-Date Fair Value per Share
Nonvested at beginning of period		699	$	1,281			—	$	—
Granted (1)		486	2,344				784	1,277
Vested		(807)	1,423				—	—
Cancelled and forfeited		—	—				(85)	1,249
Nonvested at end of period		378	$	2,344			699	$	1,281

(1)RSAs vest on the first anniversary of the grant date.

As noted above, there are no vesting requirements associated with stock awards granted under the 2021 Directors Plan effective for awards granted subsequent to October 31, 2023. In November 2023, the Company granted a total of 22 shares of Common Stock to two new members of the Company’s board of directors. The grant date fair value was $1,641 per share, the closing price of its Common Stock as of November 10, 2023.

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,
	2023		2022		2021
Salaries and related employee expenses (employee awards)	$	9,124	$	7,583	$	28
General and administrative expenses (director awards)	1,219		849		—
Total share-based compensation expense (1)	$	10,343	$	8,432	$	28

(1)The Company recognized a tax benefit of $2.2 million and $1.8 million related to share-based compensation for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, 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 1.1 years.