Intro
Texas Pacific Land is a fascinating company. You're not going to often hear stories about how a failed railroad turned into one of the best plays in the oil and gas business. That is exactly what Texas Pacific Land did. I have been holding Texas Pacific Land shares for a couple of years, and yes, I am a happy investor given the performance. The YTD performance with +80% in just a bit more than 2 months caused me to write this article.
Before I repeat myself, please check out my deep dive, which I originally published in November 2023. The main thesis still holds true today and you will learn a lot about the company.
Texas Pacific Land Stock Analysis & Deep Dive
Invest at your own risk; this is not financial advice! This is not a recommendation to buy or sell any securities discussed in the article.
Texas Pacific Land (TPL) is one of the largest landowners in the Permian Basin, the region with some of the largest oil and gas supplies in North America. TPL owns 882,000 acres, which is 3,600 square km for my European friends. In case you wonder: These are nice numbers, but what does this look like in reality? This is about the same size as Rhode Island, or 4x the size of Berlin.
Unlike companies such as Chevron or Buffett’s favorite Occidental Petroleum, TPL does not dig its own wells and does not have the large capital expenditures that come with developing new wells. These companies are “digging” on the land, which is owned by TPL, and in turn, TPL gets a small share of the oil & gas, called royalties. Exxon, Occidental, Chevron, and Coterra make up half of the wells.
These royalties are coming from oil, gas, and increasingly water. Fracking is very water-intensive, and TPL provides both the fresh water and the capabilities to deal with the dirty water.
Invest at your own risk; this is not financial advice! This is not a recommendation to buy or sell any securities discussed in the article.
The fundamentals
As I wrote in my deep dive before, TPL is one of the most profitable companies in the world. TPL managed to turn a laughably high 60% of revenue into net income last year.
Free Cash Flow is equally high and almost the same as net income. The recent larger investments in the water business drove capital expenditures to a higher level than before.
The cash flow is used to either pay nice dividends or buy back shares.
The company has no debt and $145 million in cash and short-term investments. The largest asset, the great amount of land that was put into the trust in 1888, is carried at exactly 0. Zero is the original cost of land. This is probably the largest form of understatement that you can find in any company.
The year 2025 was a decent year, and the growth in revenue and net income was driven by the increase in the water services segment.
The stock price development
The last two years could not have been more different.
2024
This was a fantastic year as a shareholder. The stock went up and knew no boundaries. Between January 1st and December 31st, it increased an astonishing 127%. The increase in water royalties made investors/traders believe in the next big thing for TPL, and TPL was seen as more of an infrastructure platform than just a “boring” royalty play.
2025
After the fantastic party of 2024, a hangover year followed in 2025. The stock was down 20% over the year and had an in-year drawdown of 39% based on the heights in May. One reason was the continued decline in oil prices.
The other one is the decline in rig counts, which might lead to a lower oil output going forward. At the same time, the valuation multiples reached very high levels, and gravity took over. Eventually, all stocks come down.
2026
So what caused the rocket to start this year so much? It’s AI. And no, I am not joking. There is actual AI fantasy in the shares of TPL. Former Alphabet/Google CEO Erik Schmidt’s new Bolt Data & Energy startup wants to build data centers in West Texas. He teamed up with TPL, and TPL has some compelling features indeed: The land, the means of energy (cheap gas and windmills), and, very importantly, the water. Data centers are very thirsty, and as part of the deal, TPL has the right of first refusal to supply water for these data center(s).
If this works out, TPL is so much more than just a royalty company, but also a player in the fast-growing data center market.
Then we have the whole craziness in Venezuela, Iran, and it feels like: Everywhere in the world right now. Oil prices are going through the roof, and TPL will profit from that. Drilling activity in the Permian Basin could rise as a result, and the higher oil price helps to convert the same amount of barrels into more dollars.
If you apply an average oil price of $90 per barrel for 2026 compared to the $65 per barrel in 2025, you are getting a significant boost in both revenue and net income. Given that the drilling activity would stay the same, that would boost revenue by $72 million for oil royalties alone ($422 million vs. $305 million). If we assume, for simplicity, that this flows directly into net income (minus a 22% tax), net income increases by $56 million, or 12% relative to 2025. That’s fantastic, given that TPL just profits from this rise in both revenue and net income purely from a rise in the market price of oil.
Valuation
What do we make of this nice arrangement of drivers: A global energy crisis with spiking oil and gas prices, new dreams of becoming a player in the data center business, paired with a rally in the stock price?
As usual: Valuation is key. Even the best company can be too expensive to buy. Let’s have a look at TPL’s valuation:
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