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

9 Months Ended

Sep. 30, 2024

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” and, with the 2021 Plan, collectively referred to herein as the “Plans”). In conjunction with the three-for-one stock split effected on March 26, 2024, the Plans were adjusted to increase the authorized number of shares that may be issued under the Plans. As of September 30, 2024, 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 prior to October 31, 2023 under the 2021 Directors Plan vested on the first anniversary of the award. Effective October 31, 2023, the 2021 Directors Plan was amended such that stock awards granted vest in full on the date of grant.

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 225,000 shares, which may consist, in whole or in part, of authorized and unissued shares, treasury shares, or shares reacquired by the Company in any manner. As of September 30, 2024, 136,238 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 nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,
	2024						2023
	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
Nonvested at beginning of period (1)	—	$	—	18,675	$	527	4,011	$	417	16,836	$	441
Granted (2)	—	—		12,655	481		—	—		8,544	641
Vested (3)	—	—		(7,812)	507		—	—		(5,592)	441
Cancelled and forfeited	—	—		(306)	528		—	—		—	—
Nonvested at end of period	—	$	—	23,212	$	509	4,011	$	417	19,788	$	528

(1)There were 4,011 RSAs unvested as of September 30, 2023. As of December 31, 2023, the 4,011 RSAs had either vested or had been forfeited. No additional RSAs have been granted under the 2021 plan.

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

(3)Of the 7,812 RSUs that vested during the nine months ended September 30, 2024, 2,948 RSUs were surrendered by employees to the Company upon vesting to settle tax withholdings.

The following table summarizes activity related to PSUs for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,
	2024			2023
	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)	12,738	$	595	7,182	$	452
Granted (2)	8,340	538		5,556	781
Vested	—	—		—	—
Cancelled and forfeited	—	—		—	—
Nonvested at end of period	21,078	$	573	12,738	$	595

(1)Nonvested PSUs as of January 1, 2024 include 6,369 RTSR (as defined below) PSUs and 6,369 FCF (as defined below) PSUs. If the maximum amount of the performance metrics described in the PSU agreements are achieved, the actual number of shares that will ultimately be awarded under the PSU agreements will exceed target PSUs by 100% (i.e., a collective 12,738 additional shares would be issued).

(2)The PSUs were granted on February 13, 2024 and include 4,170 RTSR PSUs (based on target) with a grant date fair value of $602 per share and 4,170 FCF PSUs (based on target) with a grant date fair value of $475 per share. If the maximum amount of the performance metrics described in the PSU agreements are achieved, the actual number of shares that will ultimately be awarded under the PSU agreements will exceed target PSUs by 100% (i.e., a collective 8,340 additional shares 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. Because 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. The inputs for the Monte Carlo simulation model are designated as Level 2 within the fair value hierarchy.

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 30,000 shares, which may consist, in whole or in part, of authorized and unissued shares, treasury shares, or shares reacquired by the Company in any manner. As of September 30, 2024, 24,219 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 nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,
	2024			2023
	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	1,134	$	781	2,097	$	427
Granted (1)	—	—		1,458	781
Vested	(1,134)	781		(2,097)	427
Cancelled and forfeited	—	—		—	—
Nonvested at end of period	—	$	—	1,458	$	781

(1)RSAs granted prior to October 31, 2023 vest on the first anniversary of the grant date.

In January 2024, the Company granted a total of 2,160 shares of Common Stock with a grant date fair value of $524 per share, which was the closing price of its Common Stock on the date of grant, to the members of the Company’s board of directors (the “Board”). The stock awards were vested in full on the date of grant.

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 September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Salaries and related employee expenses (employee awards)	$	2,935	$	2,502	$	7,855	$	7,217
General and administrative expenses (director awards)	—		287		1,134		895
Total share-based compensation expense (1)	$	2,935	$	2,789	$	8,989	$	8,112

(1)The Company recognized a tax benefit of $0.6 million related to share-based compensation for each of the three months ended September 30, 2024 and 2023. The Company recognized a tax benefit of $1.9 million and $1.7 million related to share-based compensation for the nine months ended September 30, 2024 and 2023, respectively.

As of September 30, 2024, there was $11.6 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 1.3 years.