https://ir.stockpr.com/tpltrust/sec-filings-email/content/0001104659-24-040537/tm2410038d1_ex99-1.htm

Most comprehensive presentation to date (I think). Very well done.

https://www.texastribune.org/2024/03/26/texas-geothermal-energy-oil-and-gas/?utm_campaign=trib-social-buttons&utm_source=copy&utm_medium=social

Businesses such as Sage and government researchers say there’s a lot more geothermal power to be had by pumping fluid through hot rock where there is no natural water. With technological advances, a government analysis predicts geothermal power in the U.S. could grow to 90 gigawatts by 2050. That would have been enough to power the entire Texas grid during last summer’s highest-demand day.

3 for 1

https://ir.stockpr.com/tpltrust/sec-filings-email/content/0001104659-24-031960/tm248254d1_8k.htm

The “deal currency” continues to underperform XLE and major indexes.

https://ir.stockpr.com/tpltrust/sec-filings-email/content/0001839882-24-005810/tpl-8ka_022824.htm

https://courts.delaware.gov/Opinions/Download.aspx?id=360530

Busy couple days!

Yesterday was the court date for the appeal. Couple quotes from a Bloomberg article last night (behind a paywall).

The company had a long history as a trust, and it wanted to convert to a Delaware corporation so it could “avail itself of the flexibility of the corporate form,” such as being able to issue equity, Thompson Bayliss of Abrams & Bayliss LLP said.

“Share authorizations were top of mind,” and the “ultra-sophisticated” shareholders who opposed a proposal to issue additional shares were aware of those discussions as well as their obligations, he said.

“They knew what they were doing when they traded stockholder-level influence for board-level influence in a form of agreement that’s quite common to settle proxy contests,” Bayliss said.

The investors argue the Chancery Court erred when in finding that they had traded away their voting rights on an action that “fundamentally changes the nature of everyone’s ownership” of Texas Pacific, said Christopher Duffy of Vinson & Elkins LLP, representing the investors.

The proposed share authorization is “absolutely recapitalization,” Duffy said, leading to some back-and-forth with the justices over the definition of the word. He argued the dictionary definitions of recapitalization favor the investors.

But Vice Chancellor J. Travis Laster, “instead of stopping at the dictionary definition and instead of finding that our interpretation fit neatly and unambiguously within it,” resorted to his “gut sense” of the word to rule against the investors, Duffy said.

Justice Gary Traynor said Laster’s opinion noted that the Supreme Court previously found that recapitalization “has no generally accepted meaning.”

“What are we to do with that?” he asked Duffy.

In other news, the 4Q earnings call took place this morning. https://seekingalpha.com/article/4672388-texas-pacific-land-corporation-tpl-q4-2023-earnings-call-transcript.

The transcript is a good read and Glover was well measured in his remarks. I think it is a positive step that the company is confronting the frustrations of investors.

The bad news (my interpretation) is that the company thinks the stock is rich. Management leans on “cash flow per share” as a key metric in evaluating capital allocation (and getting paid). In short (again, my interpretation), they think that this is the top of the mountain as far as O&G technology goes and that asset valuations will not increase. Instead, they are of the opinion that FCF can be grown by incremental deal making.

Investors in this company typically have a long time preference. The time preference of the C-suite appears low. It all makes sense. Careers have short spans and seats are hot. People want to get paid and create reasons to keep getting paid. I get it. Just don’t expect the stock to be a “compounder” with that mentality. The agency problem lives on.

Appeal opening brief, the answering brief, and the reply to the answering brief are all attached.

The reply to the reply (doc 3) makes it pretty clear that a deal is or was in the works. See page 6.

Let me know what you find.

10-K

Earnings press release

Strong but flattening earnings profile over the quarter and year. If the equity base was meaningfully concentrating, higher EPS would take care of itself (and management would be regarded as independent thinking, high quality stewards of capital). Alas it isn’t.

$725MM in cash on the balance sheet or $95/share if you’re keeping score at home. Hopefully they roll T-Bills better than they manage water expenses.

Cash on balance sheet is 6.2% of market cap. Your ownership stake could be passively 6.2% larger if capital was returned efficiently.

The board solution was to put “special meeting” up for a vote this fall even though we voted for it last fall. Thanks. No word on “written consent”. ISS probably won’t like that.

The Company also announced that on February 12, 2024, the Nominating and Corporate Governance Committee recommended to the full Board that the Board consider including in the 2024 proxy materials a proposal granting stockholders the right to call a special meeting for approval at the Company’s 2024 Annual Meeting. Pursuant to the recommendation of the Nominating and Corporate Governance Committee, the Company is currently evaluating the appropriate parameters for such right, with the intent to make a final recommendation to the full Board prior to the release of the proxy materials for the Company’s 2024 Annual Meeting of Stockholders.

https://courts.delaware.gov/Forms/Download.aspx?id=226278

https://courts.delaware.gov/calendars/list.aspx?ag=Supreme%20Court&sec=Calendars

The billable hours continue as the Empire and the Resistance are set to meet again in Delaware on February 21.

An astute reader writes:

“The Delaware Supreme Court hears cases every Wednesday. As is typical by Supreme Courts in most states, briefs have been filed before the case is heard. Appeals cannot bring up anything outside of the original lawsuit except in unusual situations with outcome deterministic consequences such as if a document with decision changing implications has been found after the original trial.

The Supreme Court of Delaware also releases decisions on cases every Wednesday. By tracking this site we should be able to have visibility into when a decision will be released.”

I will post the briefs for this session should they happen to cross my path.

Here we stand, three months (less five days) since the last shareholder meeting. Nine months remain until the next meeting. 

At the last meeting, proposals for stockholder rights to call a special meeting AND stockholder ability to act by written consent were both passed by a majority of votes. Boards don’t typically act quickly but I sense the clock is ticking on these proposals.

Ignoring the proposals, as is TPL board tradition, will continue to provoke the ire of proxy voting advisors which could have a substantial impact on the next round of elections with 6 out of 10 board members up for re-elections. 

With substantial time needed for preparations for the next meeting (proxy statement prep, proposal vetting, etc), the actual time to act is limited to a fairly small ~6 month window. I’m on the edge of my seat!

Womp womp. 

Bulldog Investors, LLP filed a 13D last night declaring their ownership. With the filing came in exhibit containing a proposal for shareholder approval of share issuance.

Reading between the lines, the proposal appears to me to be an appeal to avoid the inevitable litigation that would accompany a largely unwanted deal.

It remains clear that management and investors have very different incentives and have very different priorities.

I wonder if Bulldog smells a deal coming on the heels of the sealed filing outlined in the prior blog post?

Will management use the ever-weakening-poor-governance-tainted currency that is TPL stock to engage in a deal? What return will they get on that currency?

Also note that cash returns (dividend, repurchases) are minimal. Cash is being hoarded. Management is has deals on the brain. Will the return on those deals meet the significant ROI hurdle that was proven by decades of TPL stock repurchases? Almost certainly not.

Entrenchment appears to be first priority.

Is it cooking?

Rundown of events:

-TPL wins judgement in court

-Defendants file for appeal and include a request for a stay of activity (no new shares)

-TPL (on Jan 5) files their opposition to the stay. Part of that opposition is a sealed affidavit of Chris Steddum, CFO.

-It costs me $46 a click to get court docs but not this time because the affidavit is SEALED.

What’s so secret? What does the sealed affidavit contain? Is the company cooking something up?

What kind of outfit is going to take payment for itself or for assets in the form of a stock of a company that sues its shareholders regularly? A desperate one, probably.

The defendants appeal and ask for a stay.