Texas Pacific Land Earns Rent On Others' Drilling

Hello business enthusiasts,

Welcome back to Business Knowledge, where every week we look at one public company that sells something forgettable and earns serious money from it. We tell the story, then dissect the habit worth stealing for your own business.

• Company in focus today: Texas Pacific Land Corporation, Dallas (NYSE: TPL)
• What they sell: Access to West Texas land, taking a cut of the oil and gas other companies pump from it, plus water
• Read this twice if: You own something other businesses need to use, and you keep being offered one-time payments for it

In today's issue, we look at a railroad's leftover land that was supposed to be sold off acre by acre until nothing remained. You'll learn how to find the assets in your business that could earn a cut of someone else's work, all in about 5 minutes.

The trust that was meant to disappear

In 1888, a land trust sold West Texas acres for $2.36 each. In 2025, the same company paid about $3,850 an acre to buy land back.

That is about 1,600 times the original price. The number is real, and the reason it is real is the whole business.

The Texas & Pacific Railway was chartered in 1871 to build a line from east Texas to San Diego. It never got there. The Panic of 1873 froze its funding, and the railroad entered receivership in 1885, still holding millions of acres Texas had granted it for laying track.

Three trustees and one job

On February 1, 1888, bondholders placed about 3.5 million acres into the Texas Pacific Land Trust. Three trustees (Charles Canda, Simeon Drake, and William Strauss) were told to sell the land slowly and pay the proceeds out. Once the last acre was gone, the trust would close.

Selling was slow. In its first year the trust got an average of $2.36 an acre, and by 1900 the price hadn't moved. West Texas was dry grazing country with few buyers.

The trust could never issue new shares. Every share it bought back left the remaining owners a bigger claim on whatever was left. A teenage Warren Buffett bought in during the early 1940s and did the math, recalling in 2022: "If I lived to be 100, I would own the whole place."

What was under the grass

In February 1920, a crew near Westbrook in Mitchell County struck oil. The well, W.H. Abrams No. 1, was named after the trust's general agent, and it marked the first commercial oil discovery in what became the Permian Basin.

In 1954 the trust moved its mineral rights into a separate company, later bought by Texaco. It kept perpetual royalties on part of the land, including a 1/16 cut (6.25% of production) on roughly 371,000 gross acres. Oil companies would do the drilling and carry the costs, and the trust would take its share either way.

The best business collects rent on work other people do.

Royalty: a share of what is produced from your land, paid by the operator, who carries every cost of producing it.

How the rent adds up

Horizontal drilling and fracking reached the Permian after 2010, and the old royalty acres woke up. In 2025, Texas Pacific Land reported revenue of $798.2 million and net income of $481.4 million.

Oil and gas royalties brought in $411.7 million of that, from wells the company did not drill. It ended the year holding net cash, with its $500 million credit line untouched.

Water is the second rent. After Tyler Glover, who joined as a landman in 2011, became CEO in 2016, the company formed a water business in 2017.

It sells water to drillers and collects a royalty on the salty water that comes back up and gets moved across or pumped under its land. In 2025 that segment earned $307.5 million, including $124.2 million in produced-water royalties.

Scattered land, wider reach

The trust never owned one neat block. Texas granted railroad land in alternating square-mile sections, so Texas Pacific's acres sit in a checkerboard across the basin.

That looked like a weakness for a century. For water, it became reach: Glover said in 2024 that more than 70% of the company's source-water sales go to wells off its own acreage.

The rent has a catch. Texas Pacific decides nothing about when or where wells get drilled, and its three biggest customers made up roughly 40% of revenue in 2025. The average price it received for its oil and gas fell 44% between 2022 and 2025, from $60.81 to $34.18 per barrel of oil equivalent, and only rising volumes kept revenue climbing.

The newest tenant wants power

Data centers need cooling water and a power supply, and the Permian has both on the same ground. In June 2026 the company agreed to supply land and brackish water to Chevron for a power plant serving a data center in Reeves County, the Motley Fool reported.

Glover told investors that "virtually every major hyperscaler and AI lab" (the giant cloud companies and AI developers) is evaluating large projects in Texas. At about 54 times earnings in June 2026, the share price already assumes a lot of that arrives.

Put a meter on your own land

If you are a business owner, here are some takeaways:

• List who profits from what you own. Take an hour to write down every asset (a customer list, a location, a piece of software, a patent) and every outside business that makes money by using it. It worked if at least one of them pays you nothing today.
• Quote a cut next time someone offers to buy. When a partner asks to purchase an asset outright, send back a one-page per-use or per-unit fee alongside the sale price. Budget two hours for the fee sheet, and you'll know it worked when the other side starts negotiating the rate.
• Stop selling your acres cheap. For a century the trust sold land and kept the royalties, and the royalties turned out to be worth far more.
• Spend thirty minutes marking which of your one-time sales could also carry an ongoing fee. It worked if you find one; you can reprice it before its next renewal.
• Test the rent against a bad year. Model what happens if your partners' activity drops by 40%, the way oil prices fell for Texas Pacific. If you still cover your fixed costs, the rent is safe enough to build on.

The trust was set up to sell its last acre and shut down. Today it buys land, because every acre it holds keeps collecting from drillers who haven't arrived yet.