Texas Pacific Land Corp (TPL) stock intrinsic value fair value estimate & owner earnings analysis

Texas Pacific Land Corporation owns roughly 880,000 acres of land plus a large book of oil-and-gas royalty interests, almost all concentrated in the Permian Basin of West Texas and southeastern New Mexico. It is not an oil and gas producer — other companies pay to drill and produce on land TPL owns or under royalty interests it holds, and TPL collects a percentage of the resulting revenue without spending anything on drilling itself. Alongside this royalty stream, TPL sells and sources water used in drilling and disposes of the water that comes back up with the oil (produced water), and periodically sells surface acreage or grants easements (for pipelines, power lines, etc.) across its land. Three cases In a downturn case, modeled on the actual 2020 shock (oil prices collapsed and TPL's per-share owner earnings fell by roughly 40% that year), near-term earnings decline sharply as operators pull back drilling and completions, before stabilizing at a lower, more muted level of Permian activity for the following decade. The larger, less commodity-sensitive water business — which barely existed in 2020 and now accounts for about a fifth of revenue — provides a partial offset versus the last downturn. In the case we view as most likely, recent activity levels continue: modest further royalty-interest purchases funded from the company's own cash flow (as it has done almost every year, without ever needing to borrow), a still-growing but decelerating water business, and production volumes that keep growing somewhat faster than the region's rig count because operators have become steadily more efficient at completing wells. Growth tapers over the decade as the acreage base matures. In the upside case, the pace of royalty-interest acquisitions and water-business expansion seen in 2024-2025 continues for several more years before decelerating, supported by a newly arranged $500 million line of credit that gives the company room to keep buying without diluting shareholders. Beyond the ten-year horizon we assume earnings simply continue at whatever level each case reaches, without further growth assumed. TPL owns this land outright with essentially no cost of upkeep, and the Permian Basin has a long remaining production life, so the case for the royalty stream persisting indefinitely at a flat level, rather than declining, rests on the durability of the underlying land ownership rather than on any specific new growth driver. One fact worth flagging: 2025 illustrated how resilient this model can be — the average number of drilling rigs working the Permian fell about 13% year over year, yet TPL's own royalty production volumes still grew about 29%, because operators completed wells more efficiently and TPL kept adding to its royalty acreage. The flip side is that the inventory of drilled-but-not-yet-completed wells in the basin — the backlog that feeds near-term production — also fell about 13% in 2025, which is worth watching as a signal for whether that volume growth continues. TPL carries no debt. It signed a new $500 million revolving credit line in October 2025 that remained completely undrawn at year end — it exists as flexibility to fund further acquisitions, not as a financing need. That means our estimate of what the business is worth translates directly into a per-share value without any subtraction for debt. Because a real share of TPL's revenue still depends on oil and gas prices and on decisions by drilling operators TPL doesn't control, the margin-of-safety price is set meaningfully below our estimate of what the business is worth, to allow for a period like 2020 repeating. Accounting note: depreciation and the amortization of past acquisitions are added back in full when computing owner earnings (as they are non-cash), while only the portion of capital spending needed to sustain the existing business — not the discretionary spending on new royalty and land acquisitions used to grow it — is subtracted from owner earnings.