Month: September 2018

Love That Dirty Water

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Bloomberg: Drowning in Dirty Water, Permian Seeks $22 Billion Lifeline

Water is of critical importance in shale activities.  TPL happens to be sitting on ~900k acres of land from which water can be readily extracted and to which used water can be readily disposed.

Though the article doesn’t mention TPL’s newly (2017) formed water subsidiary, Texas Pacific Water Resources, my research indicates it is/will continue to be a player in the Texas/New Mexico water arena.

Not hard to envision a $300MM++ top line from TPWR one day soon.

I remind the reader that the above is conjecture.  Just personal estimates for me to get my thoughts together.  DYOR!

“Overall, the region will pull up enough water this year alone to cover all of Rhode Island nearly a foot deep. Wall Street is well aware of the threats posed by the Permian Basin’s pipeline and labor shortages, key side effects from the region’s rapid buildup. But investors “aren’t as well apprised of some of the other risks and challenges that could be just as material, if not more so,” said Gabriel Collins, a fellow in energy and the environment at Rice University

“I’d put water right at the top of that list,” he said.

How material? Spending on water management in the Permian Basin is likely to nearly double to more than $22 billion in just five years, according to industry consultant IHS Markit. The reason is twofold. The rig count is rising, and many of the “workhorse” disposal formations used for decades are starting to fill up, said Laura Capper, an industry consultant. That means explorers have to move water further to find a home for it.”

Cleaning out my closets. Another great read

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Texas and Pacific Railway and Texas Pacific Land Trust – a History of Railroads in Texas

Will continue to clean out my evernote notebook dedicate to TPL and deposit here.  This is a great read.

“Texas and Pacific Railway was created by federal charter in 1871. Its charter was to build a southern transcontinental railroad between Marshall, Texas and San Diego, California. Railroad companies were given land grants in exchange for building rail line, and the U.S. Congress granted T&P twenty sections of land per mile in California and forty sections per mile through the territory that is now Arizona and New Mexico. The State of Texas (where there were no federal lands) agreed to grant T&P twenty sections per mile for the portion of the line crossing Texas. The panic of 1873 caused financial difficulties, and by 1876 only 444 miles had been built. In 1879, Jay Gould bought the company and began laying track west. Gould merged T&P with Southern Pacific Railway, and by 1881 it had built a total of 972 miles of track, entitling it to 12.4 million acres of land. But because it had not built all of the line within the time required by its charter, T&P was awarded only 5,173,120 acres, later reduced to 4,917,074 acres – 3.5 million of that in Texas.

In 1888, the T&P went through bankruptcy and receivership, and the bondholders who financed the railroad were awarded the land in Texas that had been granted to T&P. The bondholders created a trust, Texas Pacific Land Trust, to liquidate those lands for the benefit of the bondholders, receiving 3.5 million acres of land. The certificates of trust issued to the bondholders were later listed on the New York Stock Exchange. The mineral estate under the land was spun off into a separate entity and later sold to Texaco, now Chevron. TPLT owns a royalty interest in almost 500,000 acres of its land.”

 

Meet the Shalennials (Bloomberg)

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Meet the Shalennials: CEOs Under 40 Making Millions in Texas Oil

“Glover joined Texas Pacific as a land man in 2011, the youngest person at the company by at least 15 years, he said. Texas Pacific had a market value then of just over $1 billion.
As the market woke up to the size of the company’s land holdings (a 1 million acre mix of surface and royalty rights), its value has surged to $6.4 billion to make it the best-performing major U.S. oil stock never to have pumped a barrel of crude. Glover is the chief executive officer, historically an administrative role.
“There is no way anyone could re-create an asset base like this today,” he said. “Because of the value of the land and resources we sit on now, more active management of Texas Pacific is a necessity.”

Glover did his homework and has been playing a good long game.  Historically, TPL hasn’t paid its employees much but there might be an argument to do so to keep Glover in the seat.  Unlike other employers in the area, TPL (I think!) does not have the ability to retain top talent with stock based comp.

 

1888 : Declaration of Trust (link to sec filing)

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Declaration of Trust

FIRST. The said Charles J. Canda, Simeon J. Drake and William Strauss and the survivors and survivor of them, and their successors or successor in the trust (hereinafter, for brevity, styled “the Trustees“), shall have and exercise the management, control and ownership (both legal and equitable) of the said lands, premises and property. They shall have all the powers in respect of said property of an absolute owner, as to selling, granting, leasing, alienating, improving, encumbering or otherwise disposing of the same or of any part or parcel thereof, and they may, whenever they shall deem it necessary or advisable for the protection or benefit of the property or any part thereof, purchase other lands and premises, and when purchased such other lands and premises shall be held and managed by the said trustees under the terms and provisions of this declaration of trust in the same manner as the lands and premises hereinbefore described are held and managed.

The lands may be sold for cash, or partly for cash and partly on credit, and the trustees may, in their discretion, accept in payment, in lieu of money, certificates of proprietary interest issued under the terms hereof, at their current market price, not exceeding par, and the same when so received shall be canceled; provided, however, that nothing herein contained shall be construed to require the trustees to accept such certificates in payment for lands.

The trustees shall have power to purchase and acquire, in their discretion, any of the outstanding Income and Land Grant bonds and scrip of the Texas and Pacific Railway Company for the benefit of the trust, and they shall have full power and authority to borrow from time to time such sums of money as they shall deem necessary to enable them to purchase such bonds and scrip and also to pay taxes and other expenses connected with the trust, and to secure repayment of the sums so borrowed by a pledge or mortgage of the trust property or any part thereof. In case of such purchase or acquisition the certificate or certificates of proprietary interest under this trust representing the securities so purchased or acquired shall be canceled by the trustees, or, in their discretion, sold and disposed of for the benefit of the trust; and any and all second mortgage bonds of the Texas and Pacific Railway Company which said trustees may receive or acquire as holders of any Income and Land Grant bonds so purchased shall be held or disposed of by the trustees in their discretion for the benefit of the trust.

The trustees shall have power to employ such agents, attorneys and servants as they may think necessary and proper in the execution of their trust, and they shall not be liable for the default or misconduct or any act or omission whatsoever of any such agent, attorney or servant, provided said trustees are not guilty of willful carelessness and negligence in their selection or in providing for their selection; nor shall any of said trustees be liable for the default, negligence, misconduct or any act or omission whatsoever of any other of said trustees, but only for his own willful default, negligence or omission. The said trustees shall receive as compensation for their services, the sum of four thousand dollars per annum to be paid to the chairman and two thousand dollars per annum to be paid to each of the other two trustees.

All the powers of the trustees under this declaration of trust may be executed by a majority of the trustees. Any trustee may, by power of attorney, confer upon the other two trustees or either of them full power and authority to make, execute, acknowledge and deliver on his behalf deeds of conveyance of any of the trust property and any and all other instruments in writing relating thereto or any part thereof.

 

 

Shares repurchases declining

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shares out and change

I realize I’m jumping around.  But if you know TPL, you know that it is a trust that was designed to self liquidate.  The trust generally (not always!) applies marginal free cash flow to the repurchase of shares.

As shown above, the outstanding float of shares has decreased by over 50% since 1992.  On average, the trust repurchases 0.72% of itself every quarter.  This may seem like a large number but you have to consider that the 0.72% average is applied to an ever shrinking base.

As we can see by the trend of the orange line (% shares repurchased/quarter), recent repurchases are lower than average.  Ardent followers of TPL will know that this is due to the shares simply getting more expensive.  And when I say expensive, I mean expensive outright and as a % of top line revenue and net income (more on that another day).

 

 

More early HK

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Murray Stahl’s Horizon Kinetics on Texas Pacific Land Trust

“The report’s original estimation, almost 19 years ago when there were 15.4 million shares outstanding, was that by 2010, which was as far as the projection went, the share count would have shrunk to only 8.3 million. As of last September there were 8.6 million, so the model wasn’t all that far off.”

The above was written in 2014.  As of July 31 2018, there are 7,778,426 shares outstanding.

The early years : HK

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Horizon Kinetics: How to Buy 1 Million Acres of Fine Texas Grazing Land for $20.00

The report linked above is from the folks at Horizon Kinetics in New York.  HK was on the TPL train early and is still a top source of information and opinion.  This 23 year old report is great resource for understanding TPL at a base level.  Of note:

“Confidence in the relative safety of this investment resides in the capacity and predilection for share repurchases by a debt-free company selling very near the value of its tangible assets. Relative to the average industrial or service company, Texas Pacific is not subject to typical competitive forces nor to marginal changes in consumer and industrial demand. It has very stable base rents and, unlike most energy companies, which must support high fixed costs, its royalty revenues are purely additive, regardless of volume. Its basic business, land and oil, are classic inflation hedges.”

 

Purpose

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I’m going to use this space to compile resources and opinions on $TPL and relevant topics.

“Grasp the subject, the words will follow.” — Cato the Elder

 

 

Tags for search engines:
Texas Pacific Land Trust
Texas Pacific Water Resources
TPL
TPWR