Earnings Call

Transcript

My favorite part:

At March 31, 2021, Texas Pacific at a robust inventory of 541 drill but uncompleted wells wells or DUCs and 488 permits providing clear visibility in the future royalty earnings. New DUCs grew from 91 in the fourth quarter to a 152 new ducks in the first quarter providing line of sight into future production. New permits grew from a 139 in the fourth quarter to a 176 in the first quarter. As of March 31, 17% of all Permian rigs were located on TPL drilling spacing units or DSU’s up from 11% of Permian rigs as of December 31. In terms of spuds, TPL DSU’s accounted for 18% of total spuds across the Permian during the first quarter. 14% of all permits approved by the Texas Railroad Commission in the first quarter intersect TPL DSU’s Importantly, most of our net royalty acres are concentrated within the Northern Delaware region and core of the – Basin. This diverse exposure represents a significant competitive advantage for TPL Overall, our oil and gas royalties are only 10% developed with the Delaware Basin being less developed than the Midland Basin. Within the Texas portion of the Delaware, TPL accounted for 49% of all spuds during the first quarter.We believe this gives us more runway to grow our royalties over time compared to our peers, as the Delaware should continue to support a high pace of growth in production. In addition to our oil and gas royalties, we also have surface ownership of our land. Over the past decade, technological advances in exploration and development have unlocked a tremendous amount of additional reserves contributing to a rapid build out of oil and gas infrastructure across the basin. These activities and others provide TPL enormous optionality to generate additional cash flows utilizing our surface assets.

I could have used more Q&A but overall I’d call this first call a win. Presenters were impressive and well prepared. Confidence building. I get the sense that cash is being kept on the balance sheet for opportunistic lifts. The little engine that was in the business of going out of business appears to be going the other way.

1Q21 Earnings

10-Q

Press Release

I was coaching first base when I heard my phone whistle its notifcation for the earnings press release.  During a pitching change I quickly skimmed the document.  When the batter stepped in I got so distracted thinking about the $20MM buyback number that I sent my runner to steal 2nd with a runner already on that bag.  Thankfully the third base coach, who probably owns BSM, saw my folly and called his runner.  Some bad thows later and it all ended up ok.  But $20MM?

My expectations for the quarter were pretty light due to the tough winter conditions and pandemic hangover but I expected more from the buy back.  Is this management telling us the price is too high?

The quarter ended with $310MM (~$40/share) in cash on the balance sheet.  Do I get a dividend?  M&A inbound?

Water was challenging.  What’s the plan there?

 

Mutual Funds

Open End:

VTSMX, NAESX, VEXMX, PRDSX, and FSMAX are all recent (as of 3/31) buyers of 30k+ shares (each) of TPL.

VTSMX alone bought 131,880 shares. That is 1.7% of total outstanding shares if you are keeping score at home.

Though not a recent buyer, PRPFX owns 70K. TPL is the second largest position in the portfolio.

ETF:

VB, VTI, VDE, VXF, and INFL all hold greater than 10k shares

Some of the portfolios above are benchmarked to indicies maintained by CRSP, MSCI, S&P, Dow Jones, and Wilshire. Mostly extended market and complete market benchmarks.

Earnings Call

Yes. You read that right.

Texas Pacific Land Corporation (NYSE: TPL) (the “Company” or “TPL”) announced today that the Company will release first quarter 2021 financial results after the market closes on Thursday, May 6, 2021. A conference call will be held on Friday, May 7, 2021 at 8:30 a.m. Eastern Time.

New CFO and New Auditor

Texas Pacific Land Corporation Announces Chris Steddum to Succeed Robert Packer as Chief Financial Officer :: Texas Pacific Land Corporation (TPL)

Texas Pacific Land Corporation (NYSE: TPL) (the “Company” or “TPL”) today announced that, effective May 31, 2021, Chief Financial Officer Robert Packer will retire after a distinguished 10-year career with the Company. Chris Steddum, TPL’s current Vice President, Finance and Investor Relations, will succeed Mr. Packer as the Company’s Chief Financial Officer. The Company has also appointed Stephanie Buffington, TPL’s current Vice President, Accounting, to the newly created role of Chief Accounting Officer. Both appointments will become effective on June 1, 2021. Mr. Packer will serve as an advisor to the Company through the end of the year to ensure a smooth transition.

In addition to these leadership changes, TPL also announced that it has retained Deloitte & Touche LLP (“Deloitte”) to serve as its Independent Registered Public Accounting Firm for the calendar year ending in 2021. The Company’s long time auditors Lane Gorman Trubitt, LLC informed the Company that the firm would not stand for re-election. The Company’s Audit Committee conducted an extensive selection process which included evaluating factors such as: audit quality, technical competency, industry expertise, use of technology and methods of communication. The Audit Committee selected Deloitte from several other well qualified candidates.

Several readers have emailed me with wishes for a Big Four accounting firm. Here it is.

Congratulations Mr. Steddum! No debt or options, thanks!

Talk to Chuck

SCHM, SCHV, SCHX, and SCHB have all taken positions in TPL as of late. SCHM, which has the largest position by shares, is focused on the Dow Jones US Mid-Cap Total Stock Market Index and appears to be passive.

In addition to Schwab, a couple of Manulife large and mid-cap ETFs have also positioned TPL.

S&P 500?

Many have written to me to ask about index inclusion. I’m no expert, but here are some resources:

Hot off the press: Unadjusted market cap minimum for the S&P500 is $11.8B

$11.8B / 7,756,156 shares (is it bad that I that number by heart?) = $1,521.37

S&P500 overview

To be eligible for S&P 500 index inclusion, a company should be a U.S. company, have a market capitalization of at least USD 9.8 billion, be highly liquid, have a public float of at least 10% of its shares outstanding, and its most recent quarter’s earnings and the sum of its trailing four consecutive quarters’ earnings must be positive.

The committee meets monthly. At each meeting, the Index Committee reviews pending corporate actions that may affect index constituents, statistics comparing the composition of the indices to the market, companies that are being considered as candidates for addition to an index, and any significant market events.

Index methodology

Liquidity.
• S&P Composite 1500. Using composite pricing and volume, the ratio of annual dollar value traded (defined as average closing price multiplied by historical volume over the last 365 calendar days) to float-adjusted market capitalization should be at least 1.00, and the stock should trade a minimum of 250,000 shares in each of the six months leading up to the evaluation date.

With 252 trading days, the stock needs (1.00 / 252) = 0.4% of shares traded per day on average. See last post for more context on that.

Again, not an expert but it seems like TPL is on its way. Poke holes in the comments! Not trying to spike the football on the current run. As a long time investor, being back to $900 next week would not shock me. This stock jumps. But over the long run, will it get into the 500?

Post Conversion Volume

A rough approximation of daily $ traded value (closing price x volume) and, by extension, percentage of market cap traded shows (though its been hard to miss) that volume is up substantially post conversion. With volume at 70k shares at mid day and the price bouncing off ATH, today will be a another big one.

CVX Ramp Up

https://www.rigzone.com/news/wire/chevron_ceo_reveals_permian_surprise-09-mar-2021-164840-article/

Chevron plans to ramp up investment in North America’s biggest oil field through 2025, reversing the pandemic-driven production decline, the company said in an investor presentation Tuesday. Chief Executive Officer Mike Wirth surprised investors by restoring the million-barrel Permian target only a year after it disappeared from the company’s guidance as Covid-19 crashed energy markets.

4Q20 and 2020 Earnings

10-K & Press Release

  • Share buybacks back! at discretion of board
  •  7,756,156 shares out as of 1/31/21
  • Quarterly dividends going forward. Starting at $2.75/share. 1% regular div yield
  • $44.8mm net income; $5.77/share
  • Income down $24.3mm vs $4Q19. Primary driver of that was $20.4mm reduction in land sales
  • First month WTI futures were $35.82, $45.10, and $48.46 to close Oct, Nov, and Dec 20 respectively. Compare with 2019 at $54.15, $55.41, and $61.12 over the same three months.
  • Expenses $6.1mm lower Q4 to Q4
  • Water top line down, primarily on price, but so are expenses. Will be interesting to see where water goes from here given consolidation and the long term thinking touted by the E&Ps
  • Largest customer OXY is slowly de-levering and has found some stable ground
  • Search for new compensation consultant being undertaken by comp committee
  • Are the independent directors not paid enough at $24k a piece?
  • $281mm in cash on the balance sheet. Will be ~$250mm after March dividend payment. $250mm = 2.9% of market cap
  • BOE:  2019 = 13,700.  2020 = 16,200 
  • DUC:  2019 = 486.  2020 = 531

     

 

Welcome, ETFs

PBSM (0.14%), OSCV (1.06%), IUSS (0.09%), MGMT (2.77%) all appear to have taken positions in Texas Pacific Land Corp as of late. OSCV, IUSS, and MGMT appear to be an actively managed funds. PBSM is a passive fund that tracks the MSCI USA Small Cap Index. The commonality amongst all of these funds is a focus on small cap stocks.

To be sure, these are tiny positions and are in no way responsible for the recent move in share price. That said, these ETFs report positioning daily so as to facilitate create/redeems. Traditional MFs (active and passive) and some active ETFs are not required to report as frequently. We’ll get more clarity after 3/31 filings roll in.

Fun fact: As of this writing, the market cap of TPL is $9.1B. There are currently 36 constituents in the S&P500 with market capitalizations smaller than that of TPL.