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?

Man, those audit and compensation committees are really loaded up and set for healthy decision making.

I’m trying to stay balanced here but it’s obvious I’m not doing a good job. 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.

9 thoughts on “Company Proxy Released

  1. Wow….so much is wrong with TPL management and governance processes.

    Thanks to this, I see there have been at least two discussions about buying all of TPL by two different oil and gas companies, HK has been in discussions with TPL for years about incorporation changes, and they pick somebody other than Oliver, with no O &G experience, even knowing Oliiver wanted the job.

    It is truly mind boggling! As a shareholder, these kind of important facts need to be transparent and shared. The picture for me is a lot more clear. Too many deals going on with no visability in dark rooms.

    Sunlight and transparency is a great disinfectant. Oliver has my vote for certain now!

    Liked by 1 person

  2. I agree there must be changes. Current trustee structure is in no way close to what it should be for a 6 billion market cap company.

    I sure hope the trustees aren’t hiding something. After this proxy it doesn’t look good for the Trustee. They made their own proxy look vote for Eric.

    Liked by 1 person

  3. We desperately need change. I know how I am going to vote. This is in my opinion bull $#^/!

    Thanks for everyone sharing their thoughts and observations. A breath of fresh air.

    Liked by 1 person

  4. It is a fascinating read through the timeline/background provided in the TPL proxy. I wonder if there was some requirement to include this information as it shines a light on the astounding lack of transparency to all the interaction by the Trustees with HK and SoftVest over the last three years.
    Much of that interaction was based around SoftVest’s proposal of converting TPL into a master limited partnership (MLP) that was determined by the Trustees (after consultation with a “large global law firm”) to not be in the best interest of the Trust and its shareholders because of “negative tax implications of converting to an MLP.” Interesting. See below are the advantages and disadvantages of MLP, courtesy of Investopedia. I have no idea if this would have made sense for TPL, but it sure seems like something that shareholders should have been made aware of.

    Tax Advantages of MLPs
    An MLP is treated as a limited partnership for tax purposes. A limited partnership has a pass-through, or flow-through, tax structure, meaning that all profits and losses are passed through to the limited partners. In other words, the MLP itself is not liable for corporate taxes on its revenues, as most incorporated businesses are; instead, its owners/unitholders/investors are only personally liable for income taxes on their portions of the MLP’s earnings. This offers a significant tax advantage; profits are not subject to the double taxation scenario in which corporations pay corporate income taxes, and then shareholders must also pay personal taxes on the income from their stocks. Further, deductions such as depreciation and depletion are also passed on to the limited partners. Limited partners can use these deductions to reduce their taxable income.

    Quarterly distributions from the MLP are not unlike quarterly stock dividends. But they are treated as a return of capital, as opposed to income, so the unitholder doesn’t pay income tax on them. Most of the earnings are tax-deferred until the units are actually sold; and then, they’re taxed at the lower capital gains rate rather than at the higher personal income rate. This offers significant additional tax benefits.

    More MLP Advantages
    MLPs are known for offering slow investment opportunities, which stems from the fact that they’re often in slow-growing industries, like pipeline construction. This means low risk. Because they earn a stable income that is often based on long-term service contracts, MLPs are conducive to offering steady cash flows, which lead to consistent cash distributions. Those cash distributions usually grow slightly faster than inflation, and for limited partners, 80%-90% of them are often tax-deferred. Overall, this enables MLPs to offer attractive income yields (often substantially higher than the average dividend yield of equities). And the flow-through entity status, by avoiding double taxation, leads to more capital being available for future projects, which makes the MLP firm more competitive in its industry.

    For the limited partner, cumulative cash distributions usually exceed the capital gains taxes required to be paid once all units are sold.

    There are benefits for using MLPs for estate planning, too. If a unitholder gifts or transfers the MLP unit to beneficiaries, both will avoid paying taxes during the time of transfer; the cost basis will be readjusted based on the market price during the time of the transfer. If the unitholder dies and the units pass to heirs, their fair market value is determined to be the value as of the date of death, and the prior distributions are not taxed.

    MLP Downsides
    Perhaps the biggest disadvantage to being a limited partner in an MLP is that you will have to file the infamous Schedule K-1 form. This is a much more complicated animal than a 1099-DIV, which means you will have to pay your accountant more on an annual basis even if you didn’t sell any units (for cash distributions). And K-1 forms are notorious for arriving late, to the despair of many tax preparers. An added problem: Some MLPs operate in more than one state, which means you might have to file in several states, which will increase your costs.

    Another tax-related negative is that you can’t use a net loss to offset other income. Any net losses must be carried forward to the following year. When you eventually sell all your units, a net loss can then be used as a deduction against other income.

    A final negative is limited upside potential (historically), but this is to be expected from an investment that’s going to produce a gradual yet reliable income stream.

    Liked by 1 person

  5. Thanks Jeff. My gut says MLPing TPL doesn’t makes much sense w/ the corp tax rate so low. I’d personally prefer 1) good governance and 2) continued buybacks. That’s it.

    Like

  6. Thanks TPLguy for covering this story in such detail. I agree with all, the attitude of the trustees must not be tolerated, we are in the 21st century after all. Will we small subshareholders be able to vote online like in a modern day company or do we have to deliver the ballot personally by horse at TPL’s headquarters in Western Texas?

    Liked by 1 person

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