It’s hard not to marvel at growth in royalty barrels of oil (and the MCF of gas) that TPL has seen since 2008. Royalty oil barrels have seen a 26.4% CAGR over the past 9 years while GAS MCF has grown 28.6% on an annualized basis. As impressive as that is, growth recently has been going parabolic as detailed in the 2017 annual report.
Oil and gas royalty revenue was $61.3 million for the year ended December 31, 2017 compared to $30.0 million for the year ended December 31, 2016, up 104.4%. Oil royalty revenue was $38.8 million, up 76.3% and gas royalty revenue was $14.8 million, up 85.3%. Additionally, oil and gas royalty revenue for the year ended December 31, 2017 included $7.7 million related to an arbitration settlement with Chevron U.S.A., Inc.
Crude oil production increased 43.8% in 2017 compared to 2016. The average price received in 2017 was $47.33 per barrel, compared to $38.60 in 2016. Gas production increased 59.8% in 2017. The average price of gas received increased to $3.56 per MCF in 2017 from $3.07 in 2016. State oil and gas production taxes were $2.9 million in 2017 compared to $1.6 million in 2016.
Of course this can’t last forever but it is reasonable to expect continued growth for some intermediate period. Along with that growth will come top line growth if oil prices continue to play ball.
As detailed in the 2Q 10Q, 2018 will obviously be another leap.
Oil and gas royalties. Oil and gas royalty revenue was $30.3 million for the three months ended June 30, 2018 compared to $12.2 million for the three months ended June 30, 2017. Oil royalty revenue was $24.7 million for the three months ended June 30, 2018 compared to $8.8 million for the comparable period of 2017. This increase in oil royalty revenue is principally due to the combined effect of a 117.0% increase in crude oil production subject to the Trust’s royalty interest, and a 29.4% increase in the average price per royalty barrel of crude oil during the three months ended June 30, 2018 compared to the same period in 2017. Gas royalty revenue was $5.6 million for the three months ended June 30, 2018, an increase of 63.0% over the three months ended June 30, 2017 when gas royalty revenue was $3.4 million. This increase in gas royalty revenue resulted from a volume increase of 138.0% for the three months ended June 30, 2018 as compared to the same period of 2017, partially offset by a 31.7% decrease in the average price received.
Yes, you read that right. 117% increase in oil production. Where could we go from here?
Thinking about revenue, if we assume 2Q production growth to be equal that for all of 2017, we could get to a total annual royalty barrel number of 1,776,913. At a price of $61.20 (29% above last year), ballpark oil top line comes out at $109MM.
10% growth sequentially on that for the next 4 years gets us to $120MM (2019), $132MM (2020), $144MM (2021), and $159MM (2022). When 2018 estimates are included, that is $664MM cumulatively. Or about 11% of market cap.
That’s just oil. And at 10% growth. And for 5 years.
Tack on another ~30% to that number for gas and you get to $863MM. That gets you to 14% of market cap.
This is all before the taxman takes his (now reduced!) bite.
Nevertheless, the outlook for buybacks appears bright.
Author’s note: I probably screwed this up. Let me know where I went wrong. Also, let me know if you think my assumptions are terrible.
Special thanks to JackFutures from SeekingAlpha for sharing his many data series!
2 thoughts on “Historical Royalty Production”
Another great analysis of pertinent data points. Thank you! Take it a step further and go out on a limb: what would be your (conservative) estimated EPS and price per share over the next five years if the growth in revenue assumptions play out (assuming a continued buyback of 2-3% of shares annually by the trust)?
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I think your anaysis is on target. The price in the stock clearly is reflecting the eightfold increase in royalty revenue since 2011. Agree this growth cannot continue forever, but given the large land holdings, and the multiple pay zones that have yet to be fulky explored/exploited, it seems likely we will see dramatic yearly growth numbers in royalty revenue for some time.
When you consider the stocks of oil explorers in the Permanian, and then hold your nose over the large amounts of debt they carry, the surprisingly low net profit margins, dilution of shares seems often, and the cost they bear to make oil production happen, its very clear TPL is an exception. No debt, few staff, share count being reduced, and a net profit margin that is amazing all suggest TPL will outperform for years.
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