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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________

 

FORM 10-Q

 

_____________________

 

(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2015

 

OR

 

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ______ to ______

 

Commission File Number: 1-737

 

Texas Pacific Land Trust

(Exact Name of Registrant as Specified in Its Charter)

 

NOT APPLICABLE (State or Other Jurisdiction of Incorporation or Organization)		75-0279735 (I.R.S. Employer Identification No.)
1700 Pacific Avenue, Suite 2770, Dallas, Texas (Address of Principal Executive Offices)		75201 (Zip Code)

 

(214) 969-5530

(Registrant’s Telephone Number, Including Area Code)

 

__________________________________________________________________

(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):

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☑

 

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Cautionary Statement Regarding Forward-Looking Statements

 

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.

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

TEXAS PACIFIC LAND TRUST

BALANCE SHEETS

  

 

See accompanying notes to financial statements.

 

 

TEXAS PACIFIC LAND TRUST

STATEMENTS OF INCOME AND TOTAL COMPREHENSIVE INCOME

(Unaudited)

 

  

See accompanying notes to financial statements.

 

 

TEXAS PACIFIC LAND TRUST

STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

See accompanying notes to financial statements.

 

 

TEXAS PACIFIC LAND TRUST

 

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2015

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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.

 

Liquidity and Capital Resources

 

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.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

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

 

 

Item 4.

Controls and Procedures

 

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.

 

 

PART II

OTHER INFORMATION

 

Item 1A.

Risk Factors

 

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.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

(c)	During the third quarter of 2015, the Trust repurchased Sub-share certificates as follows:

 

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		–	–

  

* The Trust purchased and retired 38,031 Sub-shares in the open market.

 

 

Item 6.

Exhibits

 

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

 

 

 

SIGNATURES

 

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.

 

 

		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

 

  

INDEX TO EXHIBITS

  

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

 

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