TPL - Texas Pacific Land Trust

[Sharad]

Is anyone currently invested in this trust? Does anyone have any thoughts now that they are starting water operations?

[ScottHall]

Is anyone currently invested in this trust? Does anyone have any thoughts now that they are starting water operations?

 

I am. I invested late last year after it finally clicking there's more to this business than most land traps.

[Sharad]

Is anyone currently invested in this trust? Does anyone have any thoughts now that they are starting water operations?

 

I am. I invested late last year after it finally clicking there's more to this business than most land traps.

 

I did a quick back of the envelope calculation, and think they could perhaps hit $250m-300m in annual earnings in the next two to three years based on their water investments, at the expense of their lean business model (they have already added 2 dozen new employees, and I expect this to continue to rise as they add water capacity). In a couple of years time, I could see buybacks ramping up quite heavily, and the trust might split the subshares to create more volume to vacuum up shares.

 

This is all contingent on improved activity in West Texas, and further infrastructure projects in the region, supporting increased production.

[ScottHall]

Is anyone currently invested in this trust? Does anyone have any thoughts now that they are starting water operations?

 

I am. I invested late last year after it finally clicking there's more to this business than most land traps.

 

I did a quick back of the envelope calculation, and think they could perhaps hit $250m-300m in annual earnings in the next two to three years based on their water investments, at the expense of their lean business model (they have already added 2 dozen new employees, and I expect this to continue to rise as they add water capacity). In a couple of years time, I could see buybacks ramping up quite heavily, and the trust might split the subshares to create more volume to vacuum up shares.

 

This is all contingent on improved activity in West Texas, and further infrastructure projects in the region, supporting increased production.

 

The margins of the water business so far are quite astounding. I wonder what normalized margins will be, at scale? I added a little a few days back.

[Hielko]

I have to admit that I always liked the story of TPL... but I never see how it's cheap. Even at 250M-300M annual earnings in a few years time we are still talking about a P/E between 18 and 22. Maybe if that would be earnings into perpetuity that would be okay for a land company, but I don't know about that... you have to figure that there isn't a unlimited amount of oil and gas. Is it reasonable to expect they will still making this kind of money in 10 or 20 years time?

[Foreign Tuffett]

I have to admit that I always liked the story of TPL... but I never see how it's cheap. Even at 250M-300M annual earnings in a few years time we are still talking about a P/E between 18 and 22. Maybe if that would be earnings into perpetuity that would be okay for a land company, but I don't know about that... you have to figure that there isn't a unlimited amount of oil and gas. Is it reasonable to expect they will still making this kind of money in 10 or 20 years time?

 

I think it's nearly impossible to answer that question with any degree of certainty. As we've all seen over the last decade, things can change extremely quickly in the US onshore E&P space. Right now the Permian is booming, ten years from now it may not be.

 

Shale oil wells have a rapid decline rate + a long tail of low BOE per day production. So you need drilling to continue at a certain level for production (and TPL's royalty revenues) to climb, or at least stay flat. How much future drilling will occur is largely dependent on the quality of TPL's acreage + how much quality acreage they have left + commodity prices + various idiosyncratic factors that may affect the Permian in general, and TPL's acreage in particular. Obviously no one can predict any of this precisely, but if you can just get the directionality right you can make a ton of $.

 

Contra Scott Hall, I don't think the idea of "normalized" margins in any part of the E&P space (which TPL has basically become a derivative of) is helpful. The only "normal" in commodity-based businesses is constant change.

[Sharad]

Makes you wonder...very well written article...I think there are analogies to TPL here...

 

https://www.theatlantic.com/magazine/archive/2017/05/frank-and-stevens-excellent-corporate-raiding-adventure/521436/

 

This is a cult stock, which is impossible analyze; which is significantly overvalued...this is literally dirt...DIRT...there is no 'business' here...

 

Sincerely,

ValueMaven

 

 

The "dirt" is now worth billions:

 

https://www.nhregister.com/business/article/Worthless-just-two-years-ago-Texas-sand-now-13074856.php

 

Edwards runs a frack-sand mine. And those silos mark the presence of his rivals, who suddenly seem to be popping up everywhere. As he turns 360 degrees under the blistering midday sun, he calls out their names one by one: "Badger ... Atlas ... High Roller ... Alpine ... Black Mountain ... Covia."

 

Twelve months ago, none of them existed -- not even the mine owned by Edwards' employer, Hi-Crush Partners. It was the first of its kind here in West Texas. Day one was July 31, 2017. Ten others immediately followed. And another 10 or so are now hustling to get started.

 

Together, they will mine and ship some 22 million tons of sand this year to shale drillers all around them in the Permian Basin, the hottest oil patch on Earth. It is a staggering sum of sand, equal to almost a quarter of total U.S. supply. And within a couple years, industry experts say, the figure could climb to over 50 million tons.

 

David Cutbirth, the long-time mayor of the nearby town of Monahans, is dumbfounded by it all. Until the miners arrived, these dunes were a quasi-barren wasteland -- good only for weekend adventurers zipping around on buggies. And the price of sand was, well, zero. Today, it fetches $80 a ton, making this year's haul alone worth about $2 billion.

 

 

 

Correct me if I'm wrong, but TPL has never drilled the 1m acres of land it owns outright, 750k acres of which borders the N.M. counties in which XOM bought 250k acres for $6.6b from the Bass brothers (BOPCO).  With fracking, the sand, water, easements, and perpetual oil royalties all hold value (on the 450k acres it has "sold" in this fashion), let alone the oil on 1m virgin acres. While I understand everyone's hesitation, I'm unsure how everyone believes oil prices aren't now in their normal range ($65-85/barrel). The next few years will be very interesting, as the Delaware basin is only now being tapped in the same manner as the Midland basin within the overall Permian shale formation.

 

I'm long TPL. I believe there is still value to be had here.

[thepupil]

Makes you wonder...very well written article...I think there are analogies to TPL here...

 

https://www.theatlantic.com/magazine/archive/2017/05/frank-and-stevens-excellent-corporate-raiding-adventure/521436/

 

This is a cult stock, which is impossible analyze; which is significantly overvalued...this is literally dirt...DIRT...there is no 'business' here...

 

Sincerely,

ValueMaven

 

 

The "dirt" is now worth billions:

 

https://www.nhregister.com/business/article/Worthless-just-two-years-ago-Texas-sand-now-13074856.php

 

Edwards runs a frack-sand mine. And those silos mark the presence of his rivals, who suddenly seem to be popping up everywhere. As he turns 360 degrees under the blistering midday sun, he calls out their names one by one: "Badger ... Atlas ... High Roller ... Alpine ... Black Mountain ... Covia."

 

Twelve months ago, none of them existed -- not even the mine owned by Edwards' employer, Hi-Crush Partners. It was the first of its kind here in West Texas. Day one was July 31, 2017. Ten others immediately followed. And another 10 or so are now hustling to get started.

 

Together, they will mine and ship some 22 million tons of sand this year to shale drillers all around them in the Permian Basin, the hottest oil patch on Earth. It is a staggering sum of sand, equal to almost a quarter of total U.S. supply. And within a couple years, industry experts say, the figure could climb to over 50 million tons.

 

David Cutbirth, the long-time mayor of the nearby town of Monahans, is dumbfounded by it all. Until the miners arrived, these dunes were a quasi-barren wasteland -- good only for weekend adventurers zipping around on buggies. And the price of sand was, well, zero. Today, it fetches $80 a ton, making this year's haul alone worth about $2 billion.

 

 

 

Correct me if I'm wrong, but TPL has never drilled the 1m acres of land it owns outright, 750k acres of which borders the N.M. counties in which XOM bought 250k acres for $6.6b from the Bass brothers (BOPCO).  With fracking, the sand, water, easements, and perpetual oil royalties all hold value (on the 450k acres it has "sold" in this fashion), let alone the oil on 1m virgin acres. While I understand everyone's hesitation, I'm unsure how everyone believes oil prices aren't now in their normal range ($65-85/barrel). The next few years will be very interesting, as the Delaware basin is only now being tapped in the same manner as the Midland basin within the overall Permian shale formation.

 

I'm long TPL. I believe there is still value to be had here.

 

I think he was talking about Tejon Ranch.

 

EDIT: though it's not clear

[Sharad]

I don't think Value Maven stated anything wrong when he called Tejon or TPL literally dirt. At the time, it appeared that's all they were. I wasn't smart enough to see value in TPL back then. But, with new fracking techniques and a few dozen hours of research, 10-K/10-Q reading, etc., I feel like I can see some more value in TPL, and I have seen more value than I first thought I'd see. And, due to the structure of the trust, all of the cashflow TPL has will be returned to shareholders in the form of buybacks and dividends. With Horizon owning 25% of the company and many other long-time shareholders not selling, I think the pool of shares to repurchase continues to shrink as well.

 

I've read a few comparisons of TPL to a tontine. It certainly feels like it, and the acreage/share continues to rise each year. In a few years time, a smaller pool of shares will own most of the same acreage TPL has currently, and most of the 1m "virgin" acres will remain flush with whatever oil they hold.

[Sportgamma]

On March 15, 2019, Horizon Kinetics, SoftVest Advisors, LLC, a Delaware limited liability company, SoftVest, L.P., a Delaware limited partnership, Eric Oliver (collectively, “SoftVest Reporting Persons”), ART-FGT Family Partners Limited, a Wyoming limited partnership, Tessler Family Limited Partnership, a Wyoming limited partnership and Allan R. Tessler (collectively, “Tessler Reporting Persons”) entered into a Cooperation Agreement (as described in Item 6 of this Schedule 13D) (the “Cooperation Agreement”) with respect to Shares beneficially owned by them. No Shares were purchased by any Reporting Person at such time pursuant to the Cooperation Agreement, and thus no funds were then used for such purposes.

 

ITEM 4. PURPOSE OF TRANSACTION

 

Prior to March 15, 2019, Horizon Kinetics purchased Shares solely for investment purposes and without plans or proposals which would result in any of the matters described in Items 4(a)-(j) of the Instructions to Schedule 13D. However, as a result of the Cooperation Agreement described above, Horizon Kinetics will engage with the trustees and other representatives of TPL, investors and other industry participants to discuss various opportunities to maximize the value of TPL for the benefit of holders of Shares. Such discussions may include (1) the conversion of TPL into a Delaware corporation subject to modern governance principles, as permitted by TPL’s declaration of trust, (2) focusing on the establishment of an experienced team around TPL’s new water business, with clearly defined goals and objectives, or otherwise considering the separation or sale of such business to a third party with a retained royalty, and (3) the addition of Mr. Oliver as a trustee of TPL. Horizon Kinetics believes that the trustees of TPL should now fully explore these options, as well as any other opportunities available to maximize value for holders of Shares. In addition, Horizon Kinetics believes that the Trust should be more transparent and frequent on its updates to holders of Securities (e.g. drilling updates, drilled and uncompleted well updates, water production, water injection volumes, and engineering reports).

 

On March 4, 2019, the trustees of TPL announced that they will call a special meeting of holders of Shares on May 8, 2019 for the election of a new trustee of TPL to fill the vacancy created by the resignation of Maurice Meyer III (such meeting, together with any adjournments, postponements or continuations thereof, the “Special Meeting”).

 

6

 

SoftVest Reporting Persons currently intends to nominate Mr. Oliver for election as trustee at the Special Meeting and, in connection therewith, solicit proxies from beneficial owners of Shares to vote for the election of Mr. Oliver as a trustee of TPL.

 

On March 15, 2019, Horizon Kinetics, SoftVest Reporting Persons and Tessler Reporting Persons entered into the Cooperation Agreement to support the election of Mr. Oliver as a trustee of TPL at the Special Meeting. The description of the Cooperation Agreement under Item 6 below is incorporated herein by reference.

 

Horizon Kinetics may also take other steps to increase value for the holders of Shares as well as pursue other plans or proposals that relate to, or would result in, any of the matters set forth in subparagraphs (a)-(j) of Item 4 of Schedule 13D (including those described in the second paragraph of this Item 4).

 

https://www.sec.gov/Archives/edgar/data/1519418/000151941819000008/sched13da.htm

[ValueMaven]

wow - what a few months does ... there is now a huge Activist fight in this company ... there is 1 seat open for a trustee and management is fighting back with all they have ... could be very interesting if either side wins  ...

[Sportgamma]

I wouldn't say it's "huge" but it is an interesting scenario. Because TPL is a trust and the trustees are practically hired for life, the "dissident" shareholders may have to wait for more than a decade for the next shareholder meeting...

[Sharad]

I wouldn't say it's "huge" but it is an interesting scenario. Because TPL is a trust and the trustees are practically hired for life, the "dissident" shareholders may have to wait for more than a decade for the next shareholder meeting...

 

It's not just the trustees, but the senior officers (CEO, CFO) that are hired for life. Here is an excerpt from the 10-K:

 

The Trustees hold office until their death, resignation or disqualification. In November 2016, the Trustees appointed Tyler Glover and Robert J. Packer as Co-General Agents of the Trust. The General Agent, Chief Executive Officer and Secretary and the General Agent and Chief Financial Officer hold office until their death, resignation, discharge or retirement. No Trustee or executive officer was selected to be an officer pursuant to any arrangement or understanding between him and any other person or persons other than the Trustees acting solely in their capacity as such.

 

Source: https://www.sec.gov/Archives/edgar/data/97517/000009751719000015/tpl12-31x201810k.htm  (emphasis mine)

 

 

IMHO, it's unconscionable that the trust has been willing to continue to modernize the compensation for the trustees and senior officers, but have not modernized the Trust's charter simultaneously. Also notable is the low number of subshares trustees and senior officers own of the entity. I'm not sure how anyone can trust they have shareholders' best interests in mind. You can probably guess which way I'm leaning with my votes.

[ValueMaven]

This is becoming very interesting ...

 

It's amazing how much the company is fighting back!  This is getting nasty

 

I actually picked some up this afternoon ... the whole '1 share left' theory is very interesting -- ie: as the Trust buys-back stock ... what the heck happens? 

 

-VM

[Gregmal]

Ive followed and owned this forever but my issue here is that at some point it seems that there is just so much money here that evil instinct will kick in and turn this into just another company. What I mean is that part of my original intrigue was that there is no real management, no business, no nothing really. Just sell a little land, buyback stock, and that is it. As the company's assets have proved dynamic and profitable to a greater degree than any expected, now all of a sudden you have operating businesses, G&A cost, proxy fights and people making business decisions that could backfire. Not sure how I feel about that.

[ValueMaven]

Very true - but management seems to be aggressively fighting back, while the Acitivsts have much clearer plans etc. I'd love to know what you think here in terms of upside and downside etc ... TPL is really such a unique security ... only 4 shareholder meetings in 30 years .. what the heck?!

[Gregmal]

I will preface my statement with the disclaimer that I hate management teams that don't appreciate their own mortality. TPL is/was a monster, with or without them. So I've been massively turned off by the credit they want to give themselves for the performance. I also dont like the degree to which they move forward with hostility, towards the company's largest shareholder; all while they themselves own little stock.

 

At the same time, to me it appears the dissident wants to orchestrate a conversion of sorts; again, I liked this how it was.

 

Water rights? I've looked at quite a few companies in this space; and its just a very tough, capital intensive business. I dont like that they are now speculating on new land purchases. If it aint broke, dont fix it. TPL was a gem. It's literally gone full cycle. From off the radar under appreciated, to.. well, something those with and those without vested interested are fighting over... all trying to push something that I am not sure I agree with.

 

Just my 2c. I'd love to offer upside/downside for you. But my thesis never really relied on that if that makes sense. This was just a great place to be, in a dynamic set of off the radar assets that had optionality. Now to me, the optionality is limited because of the risks that this gets fucked up. I think the easy money has been made and while I still appreciate what this is, I can't really say that what its become is what I appreciated it for.

[Gamecock-YT]

Story got picked up by the FT:

 

https://www.ft.com/content/7a355406-5fc4-11e9-a27a-fdd51850994c

 

 

Personally, story just reeks of the trustees trying to avoid their gravy train coming to an end.

[ValueMaven]

This is really turning into one of the nastiest activist fights I have ever seen.  It is very clear to me that the Trust's management has milked this company -- and then some!!  They need to go.

 

This really is one of the most unique securities in the world.  I am voting for Eric Oliver without question.  The more I study this - the more exposure I want.  I just wonder how much shareholder capital is being BURNT through this whole stupid process? 

 

Others?  Thoughts?

[ValueMaven]

the more I study this 'trust' the more amazed I really am.  In 1932 there were 500M shares O/S, now there are only ~7.7M  shares and net income has exploded recently.  Part of me feels like I am very late to the story here - the other part says that the fun is really just starting as NI explodes higher, conversion to a C-Corp, and possibly even more aggressive buybacks.  No question in my mind Eric Oliver is the right person for the job here.  Sure there is price risk, not really business risk - but with over $100M on the B/S and literally no debt, management needs to start buying back more stock.  Maybe even a 10-1 stock adjustment. 

 

May 22nd is a critical day for this company.  I really wonder how much is being spent blocking shareholders from getting representation

 

BTW - does anyone have Horizon's 2005 research update on TPL?  I've found a lot of interesting material, but that one is missing from my files.  Thanks!

 

-VM

[Sharad]

https://www.sec.gov/Archives/edgar/data/97517/000121390019008010/defa14a050819_texaspacific.htm

 

They delayed the vote to June 6th.  ::)

[ValueMaven]

The Trust is an utter JOKE and wasting a massive amount of shareholder capital which could be used to aggressively buyback stock here. 

[Sharad]

The Trust is an utter JOKE and wasting a massive amount of shareholder capital which could be used to aggressively buyback stock here.

 

It's getting worse. They have now decided to delay the rescheduled June 22, 2019 meeting to a to be determined future date. I have never seen anything like this:

 

Texas Pacific Land Trust Files Lawsuit Against Eric Oliver for Securities Law Violations

BusinessWire

Texas Pacific Land Trust (NYSE: TPL) (the "Trust") today announced that it has filed a lawsuit (the "Lawsuit") in the United States District Court for the Northern District of Texas against Eric L. Oliver for violations of federal securities laws in connection with the proxy contest Mr. Oliver initiated to be elected as a trustee of TPL. The Trust also announced that the special meeting of shareholders previously scheduled to be convened on May 22, 2019, and to be adjourned until June 6, 2019, has been postponed until further notice.

 

The Lawsuit alleges that Mr. Oliver made material misstatements and failed to disclose material information relevant to shareholders and that Mr. Oliver has acted in concert with an undisclosed group including Santa Monica Partners, Universal Guaranty Life Insurance Company and potentially other third parties. The declaratory and injunctive relief sought in the Lawsuit seeks to compel Mr. Oliver to provide complete and accurate information about his actions and his past in order to allow shareholders to make a fully informed decision.

 

"We have repeatedly raised serious questions about Mr. Oliver's background and potential conflicts of interest, to which he has refused to provide an adequate reply," said Trustee David E. Barry. "Election of an unqualified or conflicted trustee could cause significant harm to the Trust and its shareholders, so we have no choice but to ask the Court to help us protect shareholders' interests. We have postponed the special meeting to ensure that shareholders have the opportunity to cast a fully informed vote."

 

Shareholders will be notified of the exact date, time, and location of the rescheduled Special Meeting at a later date.

 

Sidley Austin LLP is representing the Trust.

 

Forward-Looking Statements

 

This release may contain statements that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this release, other than statements of historical fact, are "forward-looking statements" for purposes of these provisions, including statements regarding Texas Pacific's future operations and prospects, the markets for real estate in the areas in which Texas Pacific 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 competitions, management's intent, beliefs or current expectations with respect to Texas Pacific's future financial performance and other matters. Texas Pacific cautions readers that various factors could cause its actual financial and operational results to differ materially from those indicated by forward-looking statements made from time-to-time in news releases, reports, proxy statements and other written communications, as well as oral statements made from time to time by representatives of Texas Pacific. The following factors, as well as any other cautionary language included in this release, provide examples of risks, uncertainties and events beyond our control that may cause Texas Pacific's actual results to differ materially from the expectations Texas Pacific describes in such forward-looking statements: global economic conditions; market prices of oil and gas; the demand for water services by operators in the Permian Basin; the impact of government regulation; the impact of competition; the continued service of key management personnel; and other risks and uncertainties disclosed in Texas Pacific's annual reports on Form 10-K and quarterly reports on Form 10-Q. We undertake no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other factors that affect the subject of these statements, except where we are expressly required to do so by law.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20190521005896/en/

 

SOURCE: Texas Pacific Land Trust

[ValueMaven]

Has anyone been following this really, really stupid saga???  I cant wrap my head around what is going on here...

[Sunrider]

Has anyone been following this really, really stupid saga???  I cant wrap my head around what is going on here...

 

Quite simple. Entrenched management (trustees are appointed for life) has been called out for their not very good management by activist investors. One of three trustee seats came up, management nominated someone they like, activists want someone they think is better. Now they are suing each other. My view is that the activists are right and the company would be better of with a trustee who understands capital allocation - also, it seems to be the case that the trustees are not empowered to spend trust cash for proxy contests, which they now have ...