Trustee Questionnaire

SoftVest 14A Filed 3/28/19


March 28, 2019

Texas Pacific Land Trust

1700 Pacific Avenue, Suite 2770

Dallas, Texas  75201


David E. Barry, Co-Chairman of the Trustees

John R. Norris III, Co-Chairman of the Trustees


Dear David and John,

I received this morning via e-mail a request from one of the two law firms representing Texas Pacific Land Trust to complete a 66-page “Trustee Questionnaire.”  I attach it to this letter in case you have not had a chance to previously review it.  Your advisors appear to be confused or misinformed.

As you both know, following the resignation of Maurice Meyer III as trustee on February 26, 2019, Allan Tessler immediately contacted you to discuss my potential nomination as trustee to fill the vacancy. The only information you requested from me at that time was a short bio, which I promptly delivered to you on February 28, 2019.

You did not ask for any questionnaire then, nor did you extend the courtesy of an interview before your decision to reject my nomination.  Instead, you publicly announced four days later, on March 4, 2019, your decision to nominate Preston Young to fill the newly-created vacancy.

Upon your March 4, 2019 announcement, I requested additional information about the process that you had followed to nominate someone to a life-tenured position as trustee of TPL. My request was simply ignored.

Given this record, I am confused as to why you would now — after previously summarily rejecting my candidacy in less than four days — want to try to re-write history by having your lawyers send to me the attached questionnaire.  You already made a decision regarding my nomination and your intent to oppose it.  In fact, your own advisors’ statements to the press over the last few days, including their statements to have been hired to run a “proxy contest,” further confirm this point.

Rest assured, I will directly provide to TPL investors all information they need from me in order to make an informed decision at the special meeting regarding my nomination.  Similarly, I hope that you make all proper disclosures regarding Mr. Young.

I also take this opportunity to question the wisdom of hiring two law firms, an investment bank and a public relations firm, in addition to a proxy solicitor, to mount an attack on three long-term investors that collectively own over 25% of TPL’s shares.  While your advisors seem quite eager to get their name in the press, I suggest that you explain to them the fact that we have had an ongoing dialogue for over a decade:  I have beneficially owned Shares since 2004, and Horizon since 1994.

I can understand the appeal in this day and age of trying to construct a narrative in which Horizon, Mr. Tessler and myself are portrayed as “activists” looking for a short term profit. But let me suggest that such approach is undermined by the basic facts of our situation.  I believe TPL investors deserve better.

Instead, I hope we can have a measured dialogue in which both sides can explain their view as to who will make for a better trustee and the substantive ideas underlying our respective platforms.  I also invite that we continue a direct dialogue, as we have in the past, instead of having to go through your multiple outside advisors.


/s/ Eric Oliver

SoftVest Advisors, L.L.C.

By: SoftVest Advisors Holdings, L.L.C.

By: Eric L. Oliver, President and Managing Member

Permian Conditions

Bloomberg: Shale Suffers Growing Pains That Could Slow U.S. Oil Production

Appears as if some of the first movers overplayed their hand a bit.

“Is there a parent-child relationship? Absolutely. Has it been there since time immemorial? Absolutely,” Diamondback Energy Inc. CEO Travis Stice said at the conference. “It’s our responsibility to account for the economics of the degradation between a parent and child well, and it’s our responsibility to dial that into our forecast.”

Stice said Diamondback hasn’t had to cut back its activity in response to those issues, like some of its peers who have had to widen spacing after production failed to live up to expectations.

“I think what you’re seeing is reserve reports coming out at the end of last year with a lot of negative performance revisions in there,” he said. “That’s really the first tell as an industry that you’ve overcapitalized your assets.”

RNB Energy: Negative Permian Gas Prices, But Is The Worse Yet To Come?

Bottlenecks persist.

Well, more than one maintenance event appears to have coincided with the cratering prices, so we’ll start with those. On March 18, the same day that negative prices emerged yet again, Kinder Morgan’s El Paso Natural Gas (EPNG) pipeline announced a force majeure that reduced capacity by about 200 MMcf/d on its Line 2000, which flows west out of the Permian. While this event was widely cited as a culprit, our analysis of flow data indicates that the gas previously flowing on Line 2000 has been largely re-routed to EPNG’s other two legs that flow west: Line 1600 and Line 1100. Re-routing gas sometimes requires producers to acquire additional transportation capacity to move their gas, which can mean that supply prices have to be bid lower to cover the additional cost of transport.

Chron: Pipeline additions boost Permian Basin prices

Two side to every story.

An extension to the Sunrise Pipeline added an estimated 120,000 barrels per of takeaway capacity from the Permian region earlier this year, boosting pipeline capacity to Cushing, the EIA said. Another pipeline delivering natural gas liquids from the Permian to the Gulf Coast, the Seminole-Red pipeline, was repurposed to deliver crude oil. Seminole-Red is expected to be fully operational by April, adding an estimated 200,000 barrels a day of takeaway capacity.

Although Permian production is expected to grow, the additional pipelines will prevent Permian prices from falling to the same steep discounts that occurred in second and third quarters of 2018, the EIA said.


Company Proxy Released

Company Proxy

Just a quick skim so far but it seems like they went out of their way to vilify the Oliver crew.

These guys have been proposing alternatives all along and this is the first time we’re hearing of it? Where is the transparency?

Looks like Tessler had a buyer for the company. News to me.

TPL knew Oliver wanted the job before they selected Young.  How, when given the choice between Young and Oliver, do you pick a guy with 1) no O&G experience and 2) no shares held?

Young’s bio is impressive and the thought of him helping shape land strategy is appealing. But overall, the narrowness in decision making and the complete lack of transparency is really glaring.

The Principal Agent Problem

Reading between the lines, the Principal Agent Problem appears to be the main issue that the SoftVest/HK/Tessler group is trying to nip in the bud.  Here are some links on the age old problem.

Wikipedia: Principal–agent problem

The principal–agent problem, in political science and economics, (also known as agency dilemma or the agency problem) occurs when one person or entity (the “agent“) is able to make decisions and/or take actions on behalf of, or that impact, another person or entity: the “principal“.[1] This dilemma exists in circumstances where agents are motivated to act in their own best interests, which are contrary to those of their principals, and is an example of moral hazard.

Common examples of this relationship include corporate management (agent) and shareholders (principal), elected officials (agent) and citizens (principal), or brokers (agent) and markets (buyers and sellers, principals).[2] Consider a legal client (the principal) wondering whether their lawyer (the agent) is recommending protracted legal proceedings because it is truly necessary for the client’s well being, or because it will generate income for the lawyer. In fact the problem can arise in almost any context where one party is being paid by another to do something where the agent has a small or nonexistent share in the outcome, whether in formal employment or a negotiated deal such as paying for household jobs or car repairs.

HBS: Theory of the Firm

The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith (1776)

IBLJ: The Agency Problem of Lehman Brothers’ Board of Directors

One of the ways to reduce agency costs is to align an agent’s interest with a principal’s interest, because the agency problem arises due to divergent interests. For example, requiring directors to own company shares can motivate directors to work for the company’s best interest, rather than directors’ interest. However, because directors are monitors and advisors, not managers, tying directors’ compensation with the company’s financial success may compromise their ability to provide effective oversight.[20] For instance, a director may become unwilling to approve risky projects that will negatively affect the company’s short-term profits but create long-term value,[21] if he prefers immediate financial gains from the company.

Forbes: Solving The Principal Agent Problem: Apple Insists That Executives Must Hold Company Stock

Apple’s new policy requires executive officers to hold three times their annual base salary in stock, and executives have five years to satisfy the requirement. The document also restates the company’s existing policy of requiring the chief executive to hold 10 times his annual base salary and nonemployee directors to hold five times their annual retainers, policies that were mentioned in the January proxy.

Constitution Daily: On This Day: “No taxation without representation!”

“That it is inseparably essential to the freedom of a people, and the undoubted right of Englishmen, that no taxes be imposed on them, but with their own consent, given personally, or by their representatives. That the people of these colonies are not, and from their local circumstances cannot be, represented in the House of Commons in Great-Britain. That the only representatives of the people of these colonies, are persons chosen therein by themselves, and that no taxes ever have been, or can be constitutionally imposed on them, but by their respective legislatures,” read the passage.

Meeting Postponed

Texas Pacific Land Trust Postpones Special Meeting until May 22, 2019

Confirms Receipt of Nomination Notice from SoftVest

Shareholders are not Required to Take any Action at This Time

Business Wire

DALLAS — March 25, 2019

Texas Pacific Land Trust (NYSE: TPL) (the “Trust” or “Texas Pacific”) confirms that it has received a notice from SoftVest, L.P. nominating its own principal, Eric L. Oliver, as a candidate for election as trustee (the “Trustees”) at the Trust’s upcoming special meeting of holders of sub-share certificates (the “Special Meeting”).

In light of the nomination notice, the Trust has postponed the date of its Special Meeting, which was originally scheduled to be held on May 8, 2019, until May 22, 2019. The previously announced record date for the Special Meeting of March 28, 2019 remains unchanged. The postponement is intended to provide the Trustees with sufficient time to consider the nomination notice and give shareholders the opportunity to fully consider the changed circumstances in order to make an informed voting decision.

The Trustees and management have overseen expansive growth, which has created tremendous value for shareholders as evidenced by total shareholder returns of 484% since January 1, 2016 (through close of business on March 21, 2019), substantially outperforming its peers and the overall market.

The Trustees will present their formal recommendation regarding nominees in the Trust’s definitive proxy statement and other proxy materials, which will be filed with the Securities and Exchange Commission (the “SEC”) and mailed to all shareholders eligible to vote at the Special Meeting.

Shareholders are not required to take action at this time. Shareholders may direct any questions they have to the contact information at the end of this release.

Stifel is acting as financial advisor, Sidley Austin LLP is acting as legal counsel and MacKenzie Partners is acting as proxy solicitor to the Trust.

New 14A From TPL Management

14A at Edgar

Management Holdings

Looks like the content from the annual report which is typically more in depth than the 10k.

Some detail on the water biz is included:

In 2018, the Trust reported $209.7 million of net income, the highest in its 131 year history. This was due to a 94.1% increase in gross revenue to $300.2 million in 2018 compared to $154.6 million in 2017. Net income per Sub-share certificate increased 117.5% to $26.93 in 2018 compared to $12.38 in 2017. These increases in revenue and net income are due to a continued increase in development activity in the Permian Basin and the Trust’s strategic focus to maximize revenue from its approximately 900,000 acres of land.

Part of that strategic focus involved the creation of Texas Pacific Water Resources LLC (“TPWR”) in June 2017. Drilling and completion activity in the Permian Basin continues to rise as operators are increasing their focus on development of leaseholds throughout the basin. Longer well laterals combined with large water load frac design, due to high proppant (sand or similar particulate) load and carrying limits, continue to drive the need for increased water demand for fracturing activities. TPWR, a wholly owned subsidiary of the Trust, focuses on providing a full-service water offering to operators in the Permian Basin. These services include brackish (briny, non-potable) water sourcing, produced-water gathering/treatment/recycling, infrastructure development/construction, disposal, water tracking, analytics and well testing services. TPWR is committed to sustainable water development with significant focus on the large-scale implementation of recycled water operations.

As of December 31, 2018, TPWR continues to build out its water production, storage and delivery infrastructure system in the Permian Basin. TPWR has entered into multiple sourcing contracts with oil and gas operators throughout the basin to provide water to the operators. While several projects are currently functional, construction is ongoing to add additional capacity.

TPWR also performs produced water treatment services for multiple operators. This service is typically performed using a TPWR constructed mobile water treatment system which is capable of treating up to 40,000 bbls/day. We anticipate adding additional treatment systems throughout the course of 2019.

During the year ended December 31, 2018, the Trust invested approximately $35.2 million in TPWR projects to develop brackish water sourcing and treatment system assets. In its first full fiscal year of operation, TPWR generated $88.7 million in gross revenue consisting of $63.9 million in water sales and royalties and $24.8 million in easements and sundry income.

Also, PR contacts have been listed:



Abernathy MacGregor

Sydney Isaacs

(713) 343-0427


Investor Relations:

MacKenzie Partners

Paul Schulman

(212) 929-5364

Bloomberg Writes Again

Bloomberg: Texas Land Bank Draws Investor Ire After CEO Pay Rises 10-Fold

Looks like this is a terminal only article right now so I won’t do my normal block quotation routine.

It is notable that Eric Marshall at Hodges commented in the article about executive comp as being “surprising.”  That’s another large holder that isn’t pleased.

Tim Schwartz commented that he is in the corner of HK management and will go with company’s proposed plan at the meeting in May.

Form 4

HK Edgar Filing

It’s very possible that I’m wrong about this but it looks like HK is going to have to file a Form 4 on a daily basis (if they trade) given their new “insider” status after Friday’s filings.  I don’t run stocks but my experience with similar issues tells me that this filing is likely an operational PITA for the team.  It seems like a small thing but I bet doing this type of work was considered in the calculus of nominating an alternate trustee.  Again, its small, but it points to the decision having been well considered.

Just my gut…


Bloomberg: Hedge Fund Challenges $6 Billion Texas Land Bank in Activist Play

Not sure I’d qualify a party that 1) has a 20yr+ history with a stock and 2) controls ~25% of the float as an “activist”.  Term seems too strong.  The rest of the article linked above is a good recap of what we’ve seen play out in recent SEC filings.

Horizon Kinetics LLC, which owns a 23 percent stake, has urged the trust to modernize its structure and appoint Eric L. Oliver after the previous trustee stepped down due to ill health. Texas Pacific said March 4 that its trustees nominated Preston Young for the position.

Chief Executive Officer Tyler Glover, in an email Monday, defended the company, pointing to a more than 40 percent increase in its stock price in the last year. He called it an “impressive market performance” he credited to “active management of our expansive asset base and other steps taken to position the Trust for continued growth.”

In its filing, Horizon Kinetics wrote that it wants to make Texas Pacific a Delaware corporation “subject to modern governance principles” and better develop a division that supplies the oil fields with water, it said.

Oliver, Horizon’s choice as a trustee, is one of the shareholders who signed the cooperation agreement through his SoftVest Advisors LLC, as is financier Allan R. Tessler, who owns stock through several entities. Horizon also wants management to provide more information to shareholders such as drilling updates, water production and engineering reports.

The fund “believes that the Trust should be more transparent and frequent on its updates to holders of securities,” it said in the filing. A Horizon spokesman declined to comment beyond the filing.