Royal Oils

Laurentian Research at Seeking Alpha: 

The Oil Royalty Companies: Get An Exposure To Rising Oil Price At Half Of The Risk

Good article here on interest types and valuations.  Great primer to understand an important part of TPL’s business.

 If buying“even slivers of royalty interests can dramatically improve the economic life of a field“, then it naturally follows that a portfolio purely of royalty interests, unblemished by cost-burdened working interests, is supposed to deliver superior economics. If you can have all the good stuff, nothing but the good stuff, why bother to own the inferior stuff? The good stuff here is the royalty interest, while the inferior stuff is the working interest.

This is where the royalty companies come in.

TPL differs from most if not all of the trust below by virtue of its surface land ownership.  Royalties are an important part of the TPL circus but they certainly aren’t the only act.

The oil royalty trusts typically produce from and gradually deplete the royalty-interest-bearing properties without asset replacement until their exhaustion. Examples of the royalty trusts include Texas Pacific Land Trust (TPL), BP Prudhoe Bay Royalty Trust (BPT), Sabine Royalty Trust (SBR), Permian Basin Royalty Trust (PBT), San Juan Basin Royalty Trust (SJT), SandRidge Permian Trust (PER), Enduro Royalty Trust (NDRO), MV Oil Trust (MVO), Pacific Coast Oil Trust (ROYT), VOC Energy Trust (VOC), Cross Timbers Royalty Trust (CRT), Chesapeake Granite Wash Trust (CHKR), North European Oil Royalty Trust (NRT), SandRidge Mississippian Trust II (SDR), SandRidge Mississippian Trust I (SDT), ECA Marcellus Trust I (ECT), Mesa Royalty Trust (MTR), Hugoton Royalty Trust (OTCQX:HGTXU), and Marine Petroleum Trust (MARPS).

The authors give TPL it’s due later in the article.   Nice of them to make an exception.

Asset durability

Fee simple mineral title and overriding royalty interest last forever, while net profit interest and volumetric production payment expire along with the underlying leasehold (see here). Perpetual ownership enhances the intrinsic value of the royalty interest immensely.

Texas Pacific Land Trust (TPL) is one of the largest landowners in Texas with 890,000 acres in the much-prized West Texas, which were previously held by the Texas and Pacific Railway Company. By retaining perpetual non-participating oil and gas royalty interests, the trust generates revenue from royalties from oil and gas and from pipeline easements and leases. The trust also generates revenue from royalties on sales of water and direct sales of water. Generally, we avoid trusts, but Texas Pacific’s sheer size makes it an exception (Fig. 7).

Fig. 7. The land holdings of Texas Pacific Land Trust