TPL Declaration of Trust

There have been a number of questions on Seeking Alpha and Yahoo Conversations pertaining to 1) TPL’s dividend policy, 2) TPL entering into the water business, and 3) TPL’s recent (though not complete) land swap.

To me, it appears as if management is acting in accordance with the Declaration of Trust (linked above).  Here is why I think that…

Can TPL pay a dividend?  I thought they were a liquidating trust?

SEVENTH. Dividends to the certificate holders out of moneys derived from
royalties for coal and minerals, and from the net rents, issues and profits
derived from the use of the said lands, premises and property, and proceeds of
sale of said lands, premises and property, or of any part thereof, shall be made
by the trustees in their discretion whenever such moneys, net profits and
proceeds shall be sufficient for that purpose after providing for all taxes,
expenses, liabilities and engagements of the trust; but the trustees shall have
power in their discretion whenever it shall appear to them for the interests of
the certificate holders, to apply such parts of the funds derived as aforesaid,
which would otherwise be applicable to dividends, as they may think fit, to the
purchase of outstanding certificates under such proper regulations as they may
prescribe, and all certificates purchased under this power shall be forthwith
canceled. Dividends shall be payable only to the persons who are by the books of
the trustees shown to be certificate holders at the time the dividend shall be
payable and the books may be closed by the trustees for a reasonable time for
the payment of such dividend.

I thought TPL was a liquidating trust, why did are they spending money on the water business? 

TPL sold a bunch of land.  Why are they swapping for other properties and not buying back stock? 

     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.

WSJ: In Oil’s Huge Drop, All Signs Say Made in the U.S.A.

Investors remain skeptical that the OPEC meeting in Vienna on Dec. 6 will be able to turn the tide on oil supply enough to support prices.

A big reason why: the emergence of the U.S. oil industry as one of the world’s most important players. Ballooning shale production—American output has nearly doubled since the start of 2012—has made the U.S. a key supplier and exacerbated worries about a global glut of crude.

“I never thought I would hear these kinds of numbers coming out of the U.S.,” said Bob Yawger, director of the futures division at Mizuho Securities USA. “This is going to force OPEC’s hand.”

This summer, the U.S. surpassed Saudi Arabia and Russia as the largest crude-oil producer—a title it hadn’t held since 1973, according to the International Energy Agency. Monthly output in the U.S. was a record 11.65 million barrels a day in September and nearly the same amount in October, according to energy consulting firm Wood Mackenzie, while Saudi Arabia’s supply was nearly 11 million barrels a day last month and Russian production stood at 11.4 million a day.

“It used to be the world was divided into OPEC and non-OPEC,” said Daniel Yergin, vice chairman of IHS Markit, which projects the U.S. will be a net exporter of petroleum in the early 2020s. “Now it’s the world of the big three.”

If the price of oil drops too far, too fast, that could also hurt U.S. producers, especially in the shale patch. Most shale drillers now maintain they can break even at $50 or lower. But the falling prices have begun to eat into their profitability, and some may be forced to curtail spending next year and reduce ambitious growth plans if prices decline much more.

CIMAREX TO ACQUIRE DELAWARE PURE-PLAY RESOLUTE FOR $1.6 BILLION

$1.6B / 21k acres = $76,190/acre.

Resolute’s 21k acres compares well with TPL’s 24k net acre position though I’m learning that non-operating stakes are generally valued higher.

Anyhow, if we say TPL’s mineral rights are worth $1.6B, the rest of it is worth $2.85B with the stock price at $573.

Royalties were 42% of top line over the nine months ended 9/30/18 and for Q3 by itself.  If we take out the O&G top line from net income (meaning no expenses are attributed to it), we get to a projected quarterly after tax net income of $25.7MM/quarter and $102.6MM/year simply based on Q3 results.  ~$100MM in earnings per year implies a 28 P/E on all non-royalty income.

$63,195k before tax Q3 net income – $31,253k O&G top line = $31,942k projected net income before tax.  After tax, we can estimate it to be $25,657k or $3.30/share.

$25,657k x 4 = $102.6MM in earnings per year.

$2.85B remaining market cap / $102.6MM earnings = 27.7x estimated P/E.

Oh, and the land is worth something too…