On Water

The 1) wording around the opportunity and activity of the water business in the 10-K combined with 2) the capital spending on the water biz and 3) big hikes in executive comp are all signs (in my mind) that $TPL is going to get extremely aggressive with water.

This may be obvious to others but I think they are going to be more water-forward than most investors expect.

You don’t pay your top two dudes $2mm+ each to collect royalty checks and do small ticket land sales.  More is happening here…

8 thoughts on “On Water

  1. Hi all. I’m a bullish TPL long for a year now. Got put onto it by my one indisputably smart money manager acquaintance. I don’t know anything about oil, but I do know revenue increases with no debt when I see them. To add to the mix, here’s a twitter thread on new 10k by an oilbiz watcher (@ZP23zp23) I found interesting.

    1/ Some interesting takeaways from $TPL 10K..water business has grown from $8.1mm or 12% of rev in 2016 to $88.7mm or 30% of rev in 2018 generating over ~$6.50 in EPS (more than the entire company did in 2016).

    2/ Sold royalty interests for ~$23,200 per net royalty acre, turned around & bought more royalty acres then they sold for $13,300 per net royalty acre.. Sold 14k surface acres for $100mm, turned around & bought 18k surface acres for $81.516mm (Got to like that capital management)

    3/ Cash on BS increased to ~$15.40/share (surprised 1x dividend wasn’t higher).. Repurchased ~19,400 shares at avg $664 (wish they would’ve bought more in Dec).. Oil production +110% YoY, Gas production +178.5% YoY & still have 309 DUCs.. Net income margin on Land & Resource

    4/ Management Segment +1200bps YoY.. Not a big fan of the huge bonuses paid to executives but if they can continue to create value at the rate they have been for the company then I have no problem with it & it looks to be performance based.

    5/ With all the spending occurring in & around their acreage position the water business is just getting started would be surprised to see this business eclipse $200mm in rev annually which at today’s margins & share count would yield ~$14.50 in EPS alone.

    6/ Couple that with the increased drilling activity & 309 DUCs benefiting the royalty business & ur looking at a company with potential EPS power of ~$50/share in the near future.

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  2. I was put on to TPL a long time ago by Frank Curzio, Sr. who said it was a “get rich slow” stock. “Big growth subtext” sorta scares me, tpltblogger. Frank Jr, are you out there??

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    • Agree, it reads like the company is a “coiled spring”, and growth is happening in every part of the business. Royalties, easements, the new water business, the land swap, the royalty rights buying and selling, etc. Their prospects seem so much better now than they did even last year.

      Anyone else that has owned for years remembers the Annual Reports used to be a small pamplet. The one from last year was the more usual full size report, 65 pages in length. (One can see the change, just take a look on the TPL web page where they have annual reports going back many years.)

      Its no longer a sleepy “cash the royalty checks” company, that model has been replaced by the conservative and cash rich oil company. I am glad to see a more active management of the company since that is probably necessary to monetize the many TPL assets in a growth industry.

      Agree with the other comments, the two top guys have a rounding error sized position in TPL stock. Since they both have earned 3.2 million in compensation over the last three years, they could easily afford to own a larger position, and improve the optics here.

      (One theory on the low ownership is they are seeing better private placement deals than TPL stock. And want to diversify TPL employment risk.)

      Liked by 1 person

  3. Thanks for the comment, Ted. I didn’t buy it to “cash the royalty checks”. I bought it for the share buybacks & the potential of the Permian Basin. Depends on one’s time frame but I’m not sure I see oil as a long-term “growth industry”. I appreciate your comment & will consider it further but maybe I’m too old for growth stories 🙂

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