The following discussion and analysis should be read together with the factors discussed in Item 1A. "Risk Factors" and with the Consolidated 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 Company's future performance. Words or phrases such as "does not believe" and "believes," or similar expressions, when used in this Form 10-K or other filings with theSEC , are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Overview TPL was originally organized in 1888 as a business trust to hold title to extensive tracts of land in numerous counties inWest Texas which were previously the property of theTexas andPacific Railway Company . As discussed in Item 1. "Business - General - Corporate Reorganization," onJanuary 11, 2021 , we completed our Corporate Reorganization from a business trust to a corporation changing our name fromTexas Pacific Land Trust toTexas Pacific Land Corporation . Our revenues are derived primarily from oil and gas royalties, sales of water and land, easements and commercial leases. Due to the nature of our operations, our revenue is subject to substantial fluctuations from quarter to quarter and year to year. The demand for, and sale price of, particular tracts of land is influenced by many factors beyond our control, including general economic conditions, the rate of development in nearby areas and the suitability of the particular tract for commercial uses prevalent in westernTexas . We are not an oil and gas producer. Rather, our oil and gas revenue is derived from our oil and gas royalty interests. Thus, in addition to fluctuating in response to the market prices for oil and gas, our oil and gas royalty revenues are also subject to decisions made by the owners and operators of the oil and gas wells to which our royalty interests relate as to investments in and production from those wells. We monitor reports from the operators, theTexas Railroad Commission , and other private data providers to assure that we are being paid the appropriate royalties. Our revenue from easements is primarily generated from pipelines transporting oil, gas and related hydrocarbons, power line and utility easements and subsurface wellbore easements. The majority of our easements have a thirty-plus year term but subsequently renew every ten years with an additional payment. Commercial lease revenue is derived primarily from saltwater disposal royalties, processing, storage and compression facilities and roads. TPWR provides full-service water offerings to operators in thePermian Basin . These services include, but are not limited to, water sourcing, produced-water gathering/treatment, infrastructure development, disposal solutions, water tracking, analytics and well testing services. TPWR's revenue streams principally consist of revenue generated from sales of sourced and treated water as well as revenues from produced water royalties.
COVID-19 Pandemic and Market Conditions
The increased supply of oil and gas by member nations of OPEC+ and the uncertainty caused by the global spread of COVID 19 led to declines in crude oil prices and a reduction in global demand for oil and gas in 2020. The full impact of these events, which resulted in production curtailments and/or conservation of capital by the owners and operators of the oil and gas wells to which the Company's royalty interests relate, is unknown at this time. These events have negatively affected the Company's business and results of operations for the year endedDecember 31, 2020 . During these uncertain times, we have continued to generate positive operating results and remain focused on meeting the operational needs of our customers while maintaining a safe and healthy work environment for our employees. Our existing information technology infrastructure has afforded us the opportunity to allow our corporate employees to work remotely. We have deployed additional safety and sanitization measures, including quarantine facilities for our field employees, if needed. In an effort to decrease ongoing operational costs, we have implemented certain cost reduction measures which include, but are not limited to, a reduction in contract labor, conversion of portions of our water sourcing infrastructure to electric power and negotiated price reductions and discounts with certain vendors. We continue to monitor our customer base and outstanding accounts receivable balances as a means of minimizing any potential collection issues. As a royalty owner, we have no capital expenditure or operating expense burden for development of wells. Furthermore, our water operations currently have limited capital expenditure requirements, the amount and timing of which are entirely within our control. 17 -------------------------------------------------------------------------------- Table of Contents The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted onMarch 27, 2020 . The Company evaluated the provisions and potential impacts of this legislation; however, there have been no significant impacts to the Company's results of operations or financial position resulting from the CARES Act for the year endedDecember 31, 2020 . Despite the uncertainty caused by the COVID-19 pandemic and the resulting record low oil prices and reduced demand, we believe our longevity in the industry and strong financial position provide us with the tools necessary to navigate these unprecedented times. We have no debt, a strong cash position (cash and cash equivalents were$281.0 million for the year endedDecember 31, 2020 ) and we continue to maintain our capital resource allocation discipline.
Liquidity and Capital Resources
Our principal sources of liquidity are revenues from oil and gas royalties, easements and other surface-related income, and water and land sales. Our primary liquidity and capital requirements are for capital expenditures related to our Water Services and Operations segment, working capital and general corporate needs.
We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to the uncertainty created by the COVID-19 pandemic and/or the recent significant decline in oil prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced. Should this occur, we could seek alternative sources of funding, including potential future borrowing under a credit facility or other financing options. We have no debt or credit facilities as ofDecember 31, 2020 and have no immediate plans to enter in such arrangements. As ofDecember 31, 2020 , we had cash and cash equivalents of$281.0 million that we expect to utilize, along with cash flow from operations, to provide capital to support the growth of our business, particularly the growth of TPWR, to repurchase our Common Stock subject to market conditions, to pay dividends subject to the discretion of the Board and for general corporate purposes. We believe that cash from operations, together with our cash and cash equivalents balances, will be enough to meet ongoing capital expenditures, working capital requirements and other cash needs for the foreseeable future.
Results of Operations
We operate our business in two segments: Land andResource Management and Water Services and Operations. We eliminate any inter-segment revenues and expenses upon consolidation. We analyze financial results for each of our reportable segments. The reportable segments presented are consistent with our reportable segments discussed in Note 10, "Business Segment Reporting" in Item 8. "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. We monitor our reporting segments based upon revenue and net income calculated in accordance with accounting principles generally accepted inthe United States of America ("GAAP").
Our results of operations for the year ended
Year Ended
Revenues. Revenues decreased$187.9 million , or 38.3%, to$302.6 million for the year endedDecember 31, 2020 compared to$490.5 million for the year endedDecember 31, 2019 . Net income decreased$142.7 million , or 44.8%, to$176.0 million for the year endedDecember 31, 2020 compared to$318.7 million for the year endedDecember 31, 2019 . Revenues and net income for the year endedDecember 31, 2019 included a$100 million land sale. Excluding the impact of the 2019 land sale, revenues and net income (net of income tax) for the year endedDecember 31, 2019 were$390.5 million and$239.7 million , respectively. 18
-------------------------------------------------------------------------------- Table of Contents The following is an analysis of our operating results for the comparable periods by reportable segment (in thousands): Years Ended December 31, 2020 2019 Revenues: Land and resource management: Oil and gas royalties$ 137,948 46 %$ 154,729 31 % Easements and other surface-related income 39,478 13 % 73,143 15 % Land sales and other operating revenue 17,706 6 % 135,456 28 % Total Land and resource management 195,132 65 %
363,328 74 %
Water services and operations: Water sales and royalties 54,862 18 % 84,949 17 % Easements and other surface-related income 52,560 17 % 42,219 9 % Total Water services and operations 107,422 35 % 127,168 26 % Total consolidated revenues$ 302,554 100 %$ 490,496 100 % Net income: Land and resource management$ 127,977 73 %$ 258,366 81 % Water services and operations 48,072 27 % 60,362 19 % Total consolidated net income$ 176,049 100 %$ 318,728 100 % Land andResource Management Land andResource Management segment revenues decreased$168.2 million , or 46.3%, to$195.1 million for the year endedDecember 31, 2020 as compared with revenues of$363.3 million for the comparable period of 2019. Segment revenues for the year endedDecember 31, 2019 , include a$100 million land sale. Excluding the impact of the$100 million land sale, segment revenues for the year endedDecember 31, 2019 were$263.3 million . The decrease in Land andResource Management segment revenues is principally due to decreases in land sales and other operating revenue, easements and other surface-related income and oil and gas royalties, all of which are discussed below. Oil and gas royalties. Oil and gas royalty revenue was$137.9 million for the year endedDecember 31, 2020 compared to$154.7 million for the year endedDecember 31, 2019 , a decrease of 10.8%. Oil royalty revenue was$109.1 million for the year endedDecember 31, 2020 compared to$128.7 million for the comparable period of 2019. This decrease in oil royalty revenue is principally due to a 24.1% decrease in the average price per royalty barrel of crude oil received, partially offset by an 11.9% increase in crude oil production subject to our royalty interest during the year endedDecember 31, 2020 compared to the same period in 2019. Gas royalty revenue was$28.8 million for the year endedDecember 31, 2020 , an increase of 10.8% over the year endedDecember 31, 2019 when gas royalty revenue was$26.0 million . This increase in gas royalty revenue resulted from a volume increase of 27.4%, partially offset by a 6.8% decrease in the average price received for the year endedDecember 31, 2020 as compared to the same period of 2019. Easements and other surface-related income. Easements and other surface-related income was$39.5 million for the year endedDecember 31, 2020 , a decrease of 46.0% compared to$73.1 million for the year endedDecember 31, 2019 . Easements and other surface-related income includes pipeline, power line and utility easements, commercial leases, material sales and seismic and temporary permits. The decrease in easements and other surface-related income is principally related to a decrease of$29.8 million in pipeline easement income for the year endedDecember 31, 2020 compared to the same period of 2019. The amount of income derived from pipeline easements is a function of the term of the easement, the size of the easement and the number of easements entered into for any given period. The demand for pipeline easements is determined by capital decisions made by companies that operate in the areas where we own land. As such, easements and other surface-related income is unpredictable and may vary significantly from period to period. 19 -------------------------------------------------------------------------------- Table of Contents Land sales and other operating revenue. Land sales and other operating revenue includes revenue generated from land sales and grazing leases. Land sales were$17.4 million and$135.0 million for the years endedDecember 31, 2020 and 2019, respectively. For the year endedDecember 31, 2020 , we sold 22,160 acres of land for an aggregate sales price of approximately$16.0 million , or approximately$721 per acre. Additionally, the Company recognized land sales revenue of$1.4 million for the year endedDecember 31, 2020 related to land exchanges where the Company had no cost basis in the land conveyed. For the year endedDecember 31, 2019 , we sold 21,986 acres of land for an aggregate sales price of approximately$113.0 million , or approximately$5,141 per acre. Additionally, the Company conveyed 5,620 acres of land in exchange for 5,545 acres of land. As we had no cost basis in the land conveyed, we recognized land sales revenue of$22.0 million for the year endedDecember 31, 2019 . Net income. Net income for the Land andResource Management segment was$128.0 million for the year endedDecember 31, 2020 compared to$258.4 million for the year endedDecember 31, 2019 . As discussed above, 2019 revenues for the Land andResource Management segment included a$100 million land sale. Excluding the impact of the 2019 land sale (net of income tax), net income for the year endedDecember 31, 2019 was$179.4 million . Expenses, including income tax expense, for the Land andResource Management segment were$67.1 million and$105.0 million for the years endedDecember 31, 2020 and 2019, respectively. The decrease in expenses during 2020 is principally related to a$36.7 million decrease in income tax expense for the year endedDecember 31, 2020 compared to the same period of 2019. The overall decrease of$36.7 million in income tax expense is principally due to$21.0 million in income tax expense associated with the$100 million land sale that occurred during the year endedDecember 31, 2019 and no comparable sale of assets having occurred during the same period of 2020. Expenses are discussed further below under "Other Financial Data - Consolidated."
Water Services and Operations
Water Services and Operations segment revenues decreased$19.7 million , or 15.5%, to$107.4 million for the year endedDecember 31, 2020 as compared with revenues of$127.2 million for the comparable period of 2019. The decrease in Water Services and Operations segment revenues is due to a decrease in water sales and royalty revenue, partially offset by an increase in easements and other surface-related income, which are discussed below. Water sales and royalties. Water sales and royalties include sales of water to operators and other customers as well as royalties received pursuant to legacy agreements with operators. Water sales and royalty revenue was$54.9 million for the year endedDecember 31, 2020 , a decrease of$30.1 million or 35.4%, compared with the year endedDecember 31, 2019 when water sales and royalty revenue was$85.0 million . The decrease in water sales is principally due to an 18.7% decrease in the average sales price per barrel of water, a 6.8% decrease in the number of barrels sold and a$7.0 million deferral of water sales related to "take or pay" arrangements during the fourth quarter of 2020. Additionally, water royalties under legacy agreements continue to decline as these agreements have been replaced with agreements between TPWR and operators. The revenues related to these legacy agreements decreased approximately$6.4 million during the year endedDecember 31, 2020 compared to the same period of 2019. Easements and other surface-related income. Easements and other surface-related income for the Water Services and Operations segment includes pipeline easement royalties, commercial lease royalties and income from temporary permits. For the year endedDecember 31, 2020 , the combined revenue from these revenue streams was$52.6 million as compared to$42.2 million for the year endedDecember 31, 2019 . The increase in easements and other surface-related income was principally related to an increase of$11.6 million in produced water royalties for the year endedDecember 31, 2020 compared to the same period of 2019, partially offset by a$1.2 million decrease in temporary permit income over the same time period. Net income. Net income for the Water Services and Operations segment was$48.1 million for the year endedDecember 31, 2020 compared to$60.4 million for the year endedDecember 31, 2019 . As discussed above, revenues for the Water Services and Operations segment decreased$19.7 million for the year endedDecember 31, 2020 compared to the same period of 2019. Expenses, including income tax expense, for the Water Services and Operations segment were$59.3 million for the year endedDecember 31, 2020 as compared to$66.8 million for the year endedDecember 31, 2019 . Expenses are discussed further below under "Other Financial Data - Consolidated."
Other Financial Data - Consolidated
Salaries and related employee expenses. Salaries and related employee expenses were$32.2 million for the year endedDecember 31, 2020 compared to$35.0 million for the comparable period of 2019. The decrease in salaries and related employee expenses during 2020 as compared to the same period of 2019 is principally due to decreased usage of contract labor. 20 -------------------------------------------------------------------------------- Table of Contents Water service-related expenses. Water service-related expenses were$14.2 million for the year endedDecember 31, 2020 compared to$20.8 million for the same period of 2019. This decrease in expenses was principally the result of a decrease in fuel, equipment rental and repairs and maintenance expenses and is directly related to cost saving measures implemented during 2020 and an approximately 6.8% decrease in the number of barrels of sourced and treated water sold, as previously discussed. Legal and professional fees. Legal and professional fees decreased$5.6 million to$10.8 million for the year endedDecember 31, 2020 from$16.4 million for the comparable period of 2019. Legal and professional fees for the year endedDecember 31, 2020 principally related to our Corporate Reorganization which was effective onJanuary 11, 2021 . Additionally, legal and professional fees for the year endedDecember 31, 2020 includes$1.35 million representing the final specified settlement payment due under the Settlement Agreement. See further discussion under Item 1. "Business - General - Corporate Reorganization." Legal and professional fees for the year endedDecember 31, 2019 principally related to the proxy contest to elect a new Trustee, the entry into and payments made under the Settlement Agreement datedJuly 30, 2019 and the CE Committee. Land sales expenses. Land sales expenses were$4.0 million for the year endedDecember 31, 2020 compared to$0.2 million for the comparable period of 2019. Land sales expenses represent expenses related to land sales and include cost basis and closing costs associated with land sales. Land sales expenses for the year endedDecember 31, 2020 include$3.9 million of cost basis. Depreciation, depletion and amortization. Depreciation, depletion and amortization was$14.4 million for the year endedDecember 31, 2020 compared to$8.9 million for the year endedDecember 31, 2019 . The increase in depreciation, depletion and amortization is principally related to the Company's investment in water service-related assets placed in service in 2020 and 2019 and to a lesser extent, additional depreciation expense related to the change in estimated useful lives of certain water service-related assets inJuly 2019 as discussed in Note 2, "Summary of Significant Accounting Policies - Change in Accounting Estimate."
Year Ended
Revenues. Revenues increased$190.3 million , or 63.4%, to$490.5 million for the year endedDecember 31, 2019 compared to$300.2 million for the year endedDecember 31, 2018 . Net income increased$109.0 million , or 52.0% to$318.7 million for the year endedDecember 31, 2019 compared to$209.7 million for the year endedDecember 31, 2018 . 21
-------------------------------------------------------------------------------- Table of Contents The following is an analysis of our operating results for the comparable periods by reportable segment (in thousands): Years Ended December 31, 2019 2018 Revenues: Land and resource management: Oil and gas royalties$ 154,729 31 %$ 123,834 41 % Easements and other surface-related income 73,143 15 % 63,908 21 % Sale of oil and gas royalty interests - - % 18,875 6 % Land sales and other operating revenue 135,456 28 % 4,859 2 % Total Land and resource management 363,328 74 %
211,476 70 %
Water services and operations: Water sales and royalties 84,949 17 % 63,913 21 % Easements and other surface-related income 42,219 9 % 24,831 9 % Total Water services and operations 127,168 26 % 88,744 30 % Total consolidated revenues$ 490,496 100 %$ 300,220 100 % Net income: Land and resource management$ 258,366 81 %$ 159,611 76 % Water services and operations 60,362 19 % 50,125 24 % Total consolidated net income$ 318,728 100 %$ 209,736 100 % Land andResource Management Land andResource Management segment revenues increased$151.9 million , or 71.8%, to$363.3 million for the year endedDecember 31, 2019 as compared with revenues of$211.5 million for the comparable period of 2018. The increase in Land andResource Management segment revenues is due to changes in oil and gas royalty revenue, easements and other surface-related income, sale of oil and gas royalty interests and land sales and other operating revenue, which are discussed below. Oil and gas royalties. Oil and gas royalty revenue was$154.7 million for the year endedDecember 31, 2019 compared to$123.8 million for the year endedDecember 31, 2018 , an increase of 24.9%. Oil royalty revenue was$128.7 million for the year endedDecember 31, 2019 compared to$94.6 million for the comparable period of 2018. This increase in oil royalty revenue is principally due to the effect of a 48.3% increase in crude oil production, subject to our royalty interest, partially offset by a 8.0% decrease in the average price per royalty barrel of crude oil received during the year endedDecember 31, 2019 compared to the same period in 2018. Gas royalty revenue was$26.0 million for the year endedDecember 31, 2019 , a decrease of 10.9% over the year endedDecember 31, 2018 when gas royalty revenue was$29.2 million . This decrease in gas royalty revenue resulted from a 49.3% decrease in the average price received for the year endedDecember 31, 2019 as compared to the same period of 2018, partially offset by a volume increase of 89.3% over the same time period. Easements and other surface-related income. Easements and other surface-related income was$73.1 million for the year endedDecember 31, 2019 , an increase of 14.5% compared to$63.9 million for the year endedDecember 31, 2018 . The increase in easements and other surface-related income is principally related to increases of$4.6 million in pipeline easement income and$3.5 million in commercial lease revenue for the year endedDecember 31, 2019 compared to the same period of 2018. The increase in commercial lease revenue for the year endedDecember 31, 2019 was primarily due to increased leasing activity compared to the same period of 2018. Easements and other surface-related income includes income from pipeline, power line and utility easements, commercial leases (primarily for facilities and roads), material sales and seismic and temporary permits. The amount of income derived from pipeline easements is a function of the term of the easement, the size of the easement and the number of easements entered into for any given period. The demand for pipeline easements is determined by capital decisions made by companies that operate in the areas we own land. As such, easements and other surface-related income is unpredictable and may vary significantly from period to period. 22 -------------------------------------------------------------------------------- Table of Contents Sale of oil and gas royalty interests. There were no sales of oil and gas royalty interests for the year endedDecember 31, 2019 . Revenue from the sale of oil and gas royalty interests was$18.9 million for the year endedDecember 31, 2018 , when we sold nonparticipating perpetual royalty interests in 812 net royalty acres for an average price of approximately$23,234 per net royalty acre. Land sales and other operating revenue. Land sales and other operating revenue includes revenue generated from land sales and grazing leases. For the year endedDecember 31, 2019 , we sold 21,986 acres of land for total consideration of$113.0 million , or approximately$5,141 per acre. Additionally, we conveyed 5,620 acres of land in exchange for 5,545 acres of land. As we had no cost basis in the land conveyed, we recognized land sales revenue of$22.0 million for the year endedDecember 31, 2019 . For the year endedDecember 31, 2018 , land sales generated$4.4 million of income for selling 171 acres at an average price of$25,464 per acre. Net income. Net income for the Land andResource Management segment was$258.4 million for the year endedDecember 31, 2019 compared to$159.6 million for the year endedDecember 31, 2018 . As discussed above, revenues for the Land andResource Management segment increased$151.9 million for the year endedDecember 31, 2019 compared to the same period of 2018. Expenses, including income tax expense, for the Land andResource Management segment were$105.0 million and$51.9 million for the years endedDecember 31, 2019 and 2018, respectively. The increase in expenses was principally related to increased income tax expense associated with the$130.7 million increase in land sales revenue, resulting in additional income tax expense of approximately$27.4 million for the year endedDecember 31, 2019 compared to the same period of 2018. Through §1031 exchanges, income tax expense of approximately$19.8 million was eligible for deferral for the year endedDecember 31, 2019 . The remaining increase was principally related to increased legal and professional fees and salaries and related employee expenses. See further discussion of these expenses below under "Other Financial Data - Consolidated."
Water Services and Operations
Water Services and Operations segment revenues increased$38.4 million , or 43.3%, to$127.2 million for the year endedDecember 31, 2019 as compared with revenues of$88.7 million for the comparable period of 2018. The increase in Water Services and Operations segment revenues is due to increases in water sales and royalty revenue and easements and other surface-related income, which are discussed below. Water sales and royalties. Water sales and royalty revenue was$85.0 million for the year endedDecember 31, 2019 , an increase of 32.9% compared with the for the year endedDecember 31, 2018 when water sales and royalty revenue was$63.9 million . This increase was principally due to a 44.0% increase in the number of barrels of sourced and treated water sold during the year endedDecember 31, 2019 over the same period in 2018, partially offset by decreased water royalties. Easements and other surface-related income. Easements and other surface-related income for the Water Services and Operations segment includes pipeline easement royalties, commercial lease royalties and income from temporary permits. For the year endedDecember 31, 2019 , the combined revenue from these revenue streams was$42.2 million as compared to$24.8 million for the year endedDecember 31, 2018 . The increase in easements and other surface-related income was principally related to an increase of$21.5 million in produced water royalties for the year endedDecember 31, 2019 compared to the same period of 2018, partially offset by a$4.1 million decrease in temporary permit income over the same time period. Net income. Net income for the Water Services and Operations segment was$60.4 million for the year endedDecember 31, 2019 compared to$50.1 million for the year endedDecember 31, 2018 . As discussed above, revenues for the Water Services and Operations segment increased$38.4 million for the year endedDecember 31, 2019 compared to the same period of 2018. Expenses, including income tax expense, for the Water Services and Operations segment were$66.8 million for the year endedDecember 31, 2019 as compared to$38.6 million for the year endedDecember 31, 2018 . The increase in expenses during 2019 is primarily related to increased water service-related operating expenses, principally fuel, repairs and maintenance and equipment rental related to sourcing and transfer of water. The remaining increase was principally related to increased salaries and related employee expenses as discussed further below under "Other Financial Data - Consolidated."
Other Financial Data - Consolidated
Salaries and related employee expenses. Salaries and related employee expenses were$35.0 million for the year endedDecember 31, 2019 compared to$18.4 million for the comparable period of 2018. The increase in salaries and related employee expenses is directly related to the increase in the number of employees from 64 employees as ofDecember 31, 2018 to 94 as ofDecember 31, 2019 as well as additional contract labor expenses over the same time period. 23 -------------------------------------------------------------------------------- Table of Contents Water service-related expenses. Water service-related expenses were$20.8 million for the year endedDecember 31, 2019 compared to$11.2 million for the same period of 2018. This increase in expenses was principally the result of an increase in fuel and repairs and maintenance expenses to source and transfer water and is directly related to the 44.0% sales increase in the number of barrels of sourced and treated water sold as previously discussed. General and administrative expenses. General and administrative expenses increased$4.9 million to$9.6 million for the year endedDecember 31, 2019 from$4.7 million for the same period of 2018. The increase in general and administrative expenses is principally related to increased expenses associated with our independent contractor service providers, computer-related software and services, and additional liability insurance. Legal and professional fees. Legal and professional fees increased$13.9 million to$16.4 million for the year endedDecember 31, 2019 from$2.5 million for the comparable period of 2018. The increase in legal and professional fees for the year endedDecember 31, 2019 compared to 2018 is principally due to approximately$13.0 million of legal and professional fees related to the proxy contest to elect a new Trustee, the entry into and payments made under the Settlement Agreement datedJuly 30, 2019 and the CE Committee. Depreciation, depletion and amortization. Depreciation, depletion and amortization was$8.9 million for the year endedDecember 31, 2019 compared to$2.6 million for the year endedDecember 31, 2018 . The increase in depreciation, depletion and amortization is principally related to the Company's investment in water service-related assets placed in service in 2019 and the latter half of 2018 and to a lesser extent, additional depreciation expense related to the change in estimated useful lives of certain water service-related assets inJuly 2019 . Cash Flow Analysis
Year Ended
Cash flows provided by operating activities for the years endedDecember 31, 2020 and 2019 were$207.0 million and$342.8 million , respectively. Cash flows provided by operating activities for the year endedDecember 31, 2019 included proceeds from a$100 million land sale consummated inJanuary 2019 . The decrease in cash flows provided by operating activities was primarily related to decreased proceeds from land sales, oil and gas royalties, easements and other surface-related payments received and water sales and royalties collected during the year endedDecember 31, 2020 . Cash flows used in investing activities were$26.0 million compared to$111.7 million for the years endedDecember 31, 2020 and 2019, respectively. Acquisitions of land and purchases of fixed assets decreased a combined$97.7 million for the year endedDecember 31, 2020 compared to the same period of 2019. This decrease was partially offset by the$11.9 million increase in the acquisition of royalty interests during the same comparison periods. Cash flows used in financing activities were$201.7 million compared to$50.9 million for the years endedDecember 31, 2020 and 2019, respectively. During the year endedDecember 31, 2020 , we paid total dividends of$201.7 million consisting of a regular cash dividend of$10.00 per Sub-share and special dividends aggregating$16.00 per Sub-share. During the year endedDecember 31, 2019 , we paid total dividends of$46.5 million consisting of a regular cash dividend of$1.75 per Sub-share and a special dividend of$4.25 per Sub-share.
Year Ended
Cash flows provided by operating activities for the years endedDecember 31, 2019 and 2018 were$342.8 million and$195.4 million , respectively. This increase in operating cash flows is principally due to increases in proceeds from land sales, oil and gas royalties, easements and other surface-related payments received and water sales and royalties during the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 . Cash flows used in investing activities were$111.7 million compared to$81.5 million for the years endedDecember 31, 2019 and 2018, respectively. The increased use of investing cash flows is principally due to our acquisition of 21,671 acres of land inTexas for approximately$74.4 million during the year endedDecember 31, 2019 . This increase was partially offset by a$19.3 million decrease in acquisitions of royalty interests and a$15.7 million reduction in capital expenditures during the year endedDecember 31, 2019 as compared to the same period of 2018. Cash flows used in financing activities were$50.9 million compared to$70.0 million for the years endedDecember 31, 2019 and 2018, respectively. During the year endedDecember 31, 2019 , we paid total dividends of$46.5 million consisting of a regular cash dividend of$1.75 per Sub-share and a special dividend of$4.25 per Sub-share. During the year 24 -------------------------------------------------------------------------------- Table of Contents endedDecember 31, 2018 , we paid total dividends of$31.7 million consisting of a regular cash dividend of$1.05 per Sub-share and a special dividend of$3.00 per Sub-share. During the years endedDecember 31, 2019 and 2018, we paid$4.4 million and$38.4 million , respectively, to repurchase Sub-shares.
Off-Balance Sheet Arrangements
The Company has not engaged in any off-balance sheet arrangements.
Contractual Obligations
As ofDecember 31, 2020 , the Company's contractual obligations were as follows (in thousands): Payment Due by Period Less than 1-3 3-5 More than Contractual Obligations Total 1 Year Years Years 5 Years Long-term debt obligations $ - $ -
$ - $ - $ - Capital lease obligations
- - - - - Operating lease obligations (1) 3,097 796 1,234 1,067 - Purchase obligations - - - - - Other long-term liabilities reflected on the Company's balance sheet under GAAP - - - - - Total$ 3,097 $ 796 $ 1,234 $ 1,067 $ -
(1)Includes office leases for our corporate office in
Effects of Inflation
We do not believe that inflation has had a material impact on our operating results. We cannot assure you, however, that future increases in our costs will not occur or that any such increases that may occur will not adversely affect our results of operations.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. It is our opinion that we fully disclose our significant accounting policies in the Notes to the Consolidated Financial Statements. Consistent with our disclosure policies, we include the following discussion related to what we believe to be our most critical accounting policies that require our most difficult, subjective or complex judgment.
Accrual of Oil and Gas Royalties
The Company accrues oil and gas royalties. An accrual is necessary due to the time lag between the production of oil and gas and generation of the actual payment by operators. The oil and gas royalty accrual is based upon historical payments, estimates of the timing of future payments and recent market prices for oil and gas. New Accounting Pronouncements
For further information regarding recently issued accounting pronouncements, see Note 2, "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data."
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