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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 June 30, 2016

 

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		75-0279735
(State or Other Jurisdiction of Incorporation		(I.R.S. Employer
or Organization)		Identification No.)

 

1700 Pacific Avenue, Suite 2770, Dallas, Texas				75201
(Address of Principal Executive Offices)				(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, 2015, 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

 

JUNE 30, 2016

 

 

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, 2015, (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 June 30, 2016 Compared to the Quarter Ended June 30, 2015

 

Earnings per Sub-share certificate were $1.26 for the second quarter of 2016, compared to $.90 for the second quarter of 2015. Total operating and investing revenues were $16,196,110 for the second quarter of 2016 compared to $11,795,134 for the second quarter of 2015, an increase of 37.3%. This increase in revenue and earnings was due primarily to increases in easements and sundry income and, to a lesser extent, oil and gas royalty revenue.

 

 

Oil and gas royalty revenue was $6,866,702 for the second quarter of 2016, compared to $5,699,594 for the second quarter of 2015, an increase of 20.5%. Oil royalty revenue was $5,503,313 for the second quarter of 2016, an increase of 28.6% from the second quarter of 2015 when oil royalty revenue was $4,279,109. Crude oil production subject to the Trust’s royalty interest increased 68.2% in the second quarter of 2016 compared to the second quarter of 2015. This increase in production was partially offset by a 23.5% decrease in the average price per royalty barrel of crude oil during the second quarter of 2016 compared to the second quarter of 2015. Gas royalty revenue was $1,363,389 for the second quarter of 2016, a decrease of 4.0% from the second quarter of 2015 when gas royalty revenue was $1,420,485. This decrease in gas royalty revenue resulted from a price decrease of 27.7% in the second quarter of 2016 compared to the second quarter of 2015, which was partially offset by a volume increase of 32.6%.

 

No land sales occurred in the second quarter of 2016. In the second quarter of 2015, the Trust sold approximately 320 acres for a total of $160,000, or approximately $500 per acre.

 

Easements and sundry income was $9,198,970 for the second quarter of 2016, an increase of 58.5% compared to the second quarter of 2015 when easements and sundry income was $5,802,945. This increase resulted primarily from increases in pipeline easement income, sundry income and, to a lesser extent, seismic permit income. The Trust is currently moving toward the use of term easements (in lieu of perpetual) which will require us to gradually recognize the income for easements over the life of the agreement, in lieu of recognizing it all at the beginning of the term of the easement. This was the primary reason for the 123.9% increase in unearned revenue. This category of income is unpredictable and may vary significantly from quarter to quarter.

 

Other income, including interest on investments, was $130,438 for the second quarter of 2016 compared to $132,595 for the second quarter of 2015, a decrease of 1.6%. Grazing lease income was $122,234 for the second quarter of 2016, compared to $109,068 for the second quarter of 2015, an increase of 12.1%. 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 second quarter of 2016 was $2,360, a decrease of 85.5% compared to the second quarter of 2015 when interest on notes receivable was $16,268. This decrease is primarily due to principal prepayments received on notes due to the Trust. As of June 30, 2016, notes receivable for land sales were $111,781 compared to $850,672 at June 30, 2015, a decrease of 86.9%. Interest income earned from investments was $5,844 for the second quarter of 2016, compared to $7,259 for the second quarter of 2015, a decrease of 19.5%. 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 $394,217 for the second quarter of 2016 compared to $342,302 for the second quarter of 2015, an increase of 15.2%. This increase is primarily attributable to an increase in oil production taxes which resulted from the increase in oil royalty revenue discussed above.

 

General and administrative expenses were $698,423 for the second quarter of 2016 compared to $503,799 for the second quarter of 2015, an increase of 38.6%. This increase was primarily due to an ongoing project to enhance the information systems of the Trust and, to a lesser extent, increases in non-recurring legal fees and employment expenses.

 

Results of Operations for the Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015

 

Earnings per Sub-share certificate were $2.16 for the first six months of 2016, compared to $3.58 for the first six months of 2015. Total operating and investing revenues were $28,094,213 for the first six months of 2016 compared to $46,534,487 for the first six months of 2015, a decrease of 39.6%. This decrease in revenue and earnings was due primarily to decreases in land sales, which were partially offset by an increase in easements and sundry income and gas royalty revenue.

 

 

Oil and gas royalty revenue was $12,477,453 for the first six months of 2016, compared to $12,224,859 for the first six months of 2015, an increase of 2.1%. Oil royalty revenue was $9,445,507 for the first six months of 2016, a decrease of 0.7% from the first six months of 2015 when oil royalty revenue was $9,512,694. Crude oil production subject to the Trust’s royalty interest increased 51.1% in the first six months of 2016 compared to the first six months of 2015. This increase in production was offset by a 34.3% decrease in the average price per royalty barrel of crude oil during the first six months of 2016 compared to the first six months of 2015. Gas royalty revenue was $3,031,946 for the first six months of 2016, an increase of 11.8% from the first six months of 2015 when gas royalty revenue was $2,712,165. This increase in gas royalty revenue resulted from a volume increase of 43.7% in the first six months of 2016 compared to the first six months of 2015, which was partially offset by a price decrease of 22.4%.

 

During the first six months of 2016, the Trust sold approximately 8.56 acres of land for a total of $86,000, or approximately $10,047 per acre. In the first six months of 2015, the Trust sold approximately 20,632 acres for a total of $20,428,000, or approximately $990 per acre.

 

Easements and sundry income was $15,269,943 for the first six months of 2016, an increase of 12.2% compared to the first six months of 2015 when easements and sundry income was $13,605,939. This increase resulted primarily from increases in sundry income, sundry lease rental income, and seismic permit income. The Trust is currently moving toward the use of term easements (in lieu of perpetual) which will require us to gradually recognize the income for easements over the life of the agreement, in lieu of recognizing it all at the beginning of the term of the easement. This was the primary reason for the 123.9% increase in unearned revenue. This category of income is unpredictable and may vary significantly from quarter to quarter.

  

Other income, including interest on investments, was $260,817 for the first six months of 2016 compared to $275,689 for the first six months of 2015, a decrease of 5.4%. Grazing lease income was $244,309 for the first six months of 2016, compared to $229,042 for the first six months of 2015, an increase of 6.7%. 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 first six months of 2016 was $4,723, a decrease of 85.6% compared to the first six months of 2015 when interest on notes receivable was $32,695. This decrease is primarily due to principal prepayments received on notes due to the Trust. As of June 30, 2016, notes receivable for land sales were $111,781 compared to $850,672 at June 30, 2015, a decrease of 86.9%. Interest income earned from investments was $11,785 for the first six months of 2016, compared to $13,952 for the first six months of 2015, a decrease of 15.5%. 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 $740,801 for the first six months of 2016 compared to $718,580 for the first six months of 2015, an increase of 3.1%. This increase is primarily attributable to an increase in gas production taxes which resulted from the increase in gas royalty revenue discussed above.    

 

General and administrative expenses were $1,447,528 for the first six months of 2016 compared to $1,111,263 for the first six months of 2015, an increase of 30.3%. This increase was primarily due to an ongoing project to enhance the information systems of the Trust and, to a lesser extent, an increase in non-recurring legal fees and employment expenses.

 

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, 2015.

 

 

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, 2015.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

(c)	During the second quarter of 2016, 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
April 1, through April 30, 2016			9,226			$	149.83				–				–
May 1, through May 31, 2016			19,984			$	159.32				–				–
June 1, through June 30, 2016			22,337			$	168.22				–				–
Total			51,547	*		$	161.48				–				–

 

* The Trust purchased and retired 51,547 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: August 4, 2016		By:	/s/ David M. Peterson
			David M. Peterson, General Agent and
			Chief Executive Officer
Date: August 4, 2016		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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