Wisdom From the Comment Section

GG in response to the last post writes:

Per the most recent 10-K, one thing that HAS changed is that the trustees just seemed to have increased their paychecks from $2,000 per year to $104,000 per year. Egregious? No. But you should never have a scenario where the trustees are elected FOR LIFE and also in a position to vote their own salary increases….

Likewise, if the Trust is going to be doling out multi-millions in bonuses to executives, then there needs to be shareholder oversight into the people who make those decisions. Glover and Packer each took home a $1.8 million bonus. Totally ok from the perspective of increased income, but it’s problematic that shareholders do not have any say outside of the very-rare trustee votes (literally only when a trustee resigns or dies).

Much more important than who is being nominated to be a trustee, is the line from the sec filing “Such discussions may include (1) the conversion of TPL into a Delaware corporation subject to modern governance principles, as permitted by TPL’s declaration of trust”

Modern governance, and a real elected board that answers to shareholders would clearly be a step up from the current situation.

Three trustees with lifetime jobs does sound a bit narrow for modern times.

Trustee Challenge : Thoughts

While I reserve the right to change my opinion if new information arises, my gut instinct is that I’m on board with the Eric Oliver as trustee.  I’m writing to flesh out my thoughts.  I don’t pretend to have more information than anyone else; in fact, I’m behind the curve on crucial particulars as they relate to 1) the exact state and value of TPL’s mineral rights, 2) the potential of the water business (customer base, breadth of service, etc) and 3) what the future holds for the Permian.  I’m not in the oil industry and I live just about as far away from Texas as a US citizen can.  This is me building my mosaic as a qualitative investor.

  • HK is on board.  Out of any single party involved, HK has the greatest incentive (by virtue of amount held) to see that TPL’s value is maximized.
  • Change is hard.  Gut instinct and reactions to change can often be very negative.  We all know that TPL has had a good thing going for a long time and the operational history (liquidating and concentrating the equity base) of TPL is what attracted many of us to invest.
  • Circumstances have changed rapidly.  Those that can adapt to new realities usually come out on top.  What got you here won’t get you there.
  • Eric Oliver, as evidenced by his control of SoftVest, appears to be qualified for the job.  Again, HK’s tacit endorsement speaks volumes.
    • “Eric serves President of Midland Map Company, LLC a 55-year-old company that tracks lease and ownership changes throughout the Permian Basin of West Texas”.
    • SoftVest appears to control $30MM market value of TPL sub-shares
  • Allen Tessler and family appear to be an extremely accomplished and competent.
  • HK, Oliver, and Tessler all have stakes well in excess of current management.
  • I too have significant personal skin and the game and was relieved by reading the filing yesterday.  I’d admit to having grown quite worried about agency and succession issues after the resignation of Maurice Meyer.
    • I don’t write this to be dismissive of Preston Young who appears to be a very capable individual.
    • Nor do I wish to make light of the excellent stewardship of Tyler Glover, Robert Packer, John Norris, and David Packer.

I’m still not 100% (though I’m not sure it matters anyhow).  But as you can tell, I’m certainly leaning toward the direction of change.


Trustee Alternate



From time to time the Reporting Persons have engaged with the trustees and other representatives of TPL, investors and other industry participants to discuss various opportunities to maximize the value of TPL for the benefit of holders of Shares. Such discussions have included (1) the conversion of TPL into a Delaware corporation subject to modern governance principles, as permitted by TPL’s declaration of trust, (2) focusing on the establishment of an experienced team around TPL’s new water business, with clearly defined goals and objectives, or otherwise considering the separation or sale of such business to a third party with a retained royalty, and (3) the addition of Mr. Oliver as a trustee of TPL. The Reporting Persons believe that the trustees of TPL should fully explore these options, as well as any other opportunities available to maximize value for holders of Shares. In addition, the Reporting Persons believe that the Trust should be more transparent and frequent on its updates to holders of Securities (e.g. drilling updates, drilled and uncompleted well updates, water production, water injection volumes, and engineering reports).

Eric Oliver

Allan Tessler


XOM Shooting for $15

Bloomberg: Exxon Aims for $15-a-Barrel Costs in Giant Permian Operation

If I had a nickel for every XOM/Permian story published this week I’d have at least a buck.

Development, operating and land acquisition costs will be “in and around $15 a barrel,” he said on the sidelines of the CERAWeek Conference by IHS Markit in Houston. West Texas Intermediate futures traded at almost $59 on Thursday. “The way we are approaching it is very unique compared to most, if not really everybody out there, as far as the scale,” he said.

Exxon plans to deploy 55 rigs in the Permian this year, by far the most of any driller, as it aims to increase output in the region fivefold to about 1 million barrels a day by 2024. Its strategy also includes building its own takeaway infrastructure from separation tanks to pipelines, and it’s even joining a giant conduit project to make sure its oil doesn’t get stuck in bottlenecks that have depressed prices in West Texas.

Exxon’s Permian expansion pits it against U.S. rival Chevron Corp., which is also aiming for strong growth there. The San Ramon, California-based company announced plans last week for 900,000 barrels a day by 2023. Royal Dutch Shell Plc is “actively looking” for deals to bulk up its Permian operations, Wael Sawan, the company’s upstream director-in-waiting said this week. Even so, its production will increase about 30 percent a year.

Water Heating Up

Chron: University Lands to expand water services in the Permian Basin

The state-owned mineral leasing and royalty company University Lands is expanding its water services in West Texas as water becomes a multibillion dollar business in the arid Permian Basin

University Lands,which also manages water rights on state lands, recently signed a deal with Fountain Quail Energy Services of Irving for a number of water-related services in the Andrews County, said University Lands CEO Mark Houser.

University Lands manages the mineral, surface and water rights for 2.1 million acres of land in West Texas with the proceeds going to the Permanent University Fund, or PUF. Founded in 1876, the fund supports both The University of Texas System and the Texas A&M University System. PUF received more than $1 billion of income from mineral rights during fiscal year 2018, state figures show.

University Lands’ concern for conserving water is part of the reason that it awarded the water management contract to Fountain Quail, which has a particular expertise in oilfield water recycling.

Fountain Quail deployed the first prototype of its water recycling technology in the Barnett Shale of North Texas in 2004. The company offers water recycling equipment that can be installed permanently at a busy site as well as a mobile version that can be moved from site to site.

May Meeting / Evolving Governance

I’m inviting blog readers to share their thoughts on the topics of TPL’s 1) evolving governance and 2) evolving capital deployment strategy.

As a baseline, we’re used to land sales, royalty collections, and cancelled shares.  Recent events have brought us significant CAPEX, reduced share repurchases, and management changes.

I’m sensing that there are many different viewpoints on the issues above.  Thinking out loud, it may be possible to come up with a rough investor consensus that could be used by management to align expectations with reality.

For instance, if there is a clear preference for buybacks over dividends, it might make sense to formally communicate that.

My dream is to cut off any agency problems before they grow.

Maybe I’m crazy.

Email me if you’d prefer to stay out of the comment section.



Tact and Discipline

WSJ: Second Wave of U.S. Shale Revolution Is Coming, Says IEA

Not high on the Texas oilman’s trait list.   Don’t give away the store fellas.


Shale was largely behind the glut of American oil that flooded the market more than four years ago, leading oil prices to fall to $30 a barrel from more than a $100 a barrel in late 2014.

U.S. shale production in 2018 grew faster than it did during the boom years of 2011 to 2014, the IEA said last year.

The U.S. last year surpassed Russia and Saudi Arabia to become the world’s largest producer of crude oil, with output currently hovering around 12 million barrels a day.

U.S. crude production is expected to rise to 13.7 million barrels a day by the end of its five-year forecast period, the IEA said Monday.

“Annual gains will boost the U.S. to levels never seen in any country, in excess of maximum capacity in both Russia and Saudi Arabia,” the report noted.

Ex-Div Date is 3/7

Holders that go to bed tonight owning the stock for 3/8 settlement or before will get paid the div.

The total $6 div on the current market price of $740 get us to a div yield of 0.81%.

divs paid

Div Yield

divs cagr


A Tortoise Named Chevron

WSJ: Chevron, Exxon Mobil Tighten Their Grip on Fracking

In the next five years, Chevron expects to more than double its production in the Permian Basin in Texas and New Mexico to 900,000 barrels of oil and gas a day, the company announced at an investor event Tuesday. That’s a nearly 40% increase from its previous forecast.

“The shale game has become a scale game,” Chevron Chief Executive Mike Wirth said in an interview. “The race doesn’t go to the one who gets out of the starting blocks the fastest. The race goes to the one who steadily builds the strongest machine.”

Not to be outdone, Exxon on Tuesday announced plans to increase its Permian output to 1 million barrels of oil and gas a day by as early as 2024, a day before it was expected to disclose growth at its own investor meeting Wednesday. BP PLC,Royal Dutch Shell PLC and Occidental Petroleum Corp. are also focusing on the region.

Five years ago, Exxon, Chevron, BP, Shell and Occidental collectively made up about 9% of crude production from modern fracking techniques in the Permian. In October, the latest period for which relevant figures are available, they made up about 16%, according to data on ShaleProfile, an industry analytics platform.

Meanwhile, the big companies are just getting started. Exxon is now the largest operator in the Permian, with almost 50 rigs. The company estimates its Permian wells can generate a 10% rate of return at an oil price of $35 a barrel. While many companies reduced fracking activity in the fourth quarter of last year, Exxon increased it significantly to over 80 wells, more than double the total in the fourth quarter of 2017, according to Rystad Energy.

Chevron is raising its production guidance to 900,000 barrels of oil and gas a day by 2023. Last year, it predicted 650,000 barrels a day by 2023. The company is boosting production without adding to its rig count, a testament to how size can lead to greater efficiencies.

Chevron employed what could be described as a tortoise-and-hare strategy in the Permian. While smaller companies at times paid more than $40,000 an acre to gain rights to prime drilling opportunities, Chevron held on to land it already owned in the region, which decades ago was one of the world’s biggest traditional oil fields, without having to join in the buying frenzy.

Couple more similar articles:


‘Society needs us to make these investments,’ Woods says


Within hours of each other on Tuesday, the two largest energy companies in America announced they want to pump almost 2 million barrels a day combined in the Permian Basin of west Texas and New Mexico, a higher amount than most OPEC nations. Chevron plans to reach 900,000 barrels a day by 2023, while Exxon aims for 1 million by 2024.

“Our position in the Permian just continues to get better and underpins our resource base,” Chevron Chief Executive Officer Mike Wirth said in New York. The value of the company’s Permian position has doubled over the past two years with reserve additions, he said.

New Trustee


The trustees of Texas Pacific Land Trust (the “Trust”) have nominated Preston Young for election as a trustee to fill the vacancy created by the resignation of Maurice Meyer III. Mr. Young is a Regional Managing Partner for Stream Realty Partners in Houston, Texas. In accordance with the Declaration of Trust that governs the Trust, the Trust will call a special meeting of holders of sub-share certificates of the Trust, to be held in Dallas, Texas, on May 8, 2019. The Trust is in the process of preparing proxy materials for the special meeting, which will be mailed to holders of record as of March 28, 2019.

Meet Preston

Preston Young serves as Regional Managing Partner for Stream where he jointly spearheads the firm’s strategic initiatives across its existing platform and markets identified for future expansion. In addition, he oversees the firm’s initiatives concerning asset management, acquisition and development activities for its principal and strategic clients.

Mr. Young also leads the firm’s Houston office, where the service and principal portfolio exceeds 42.0 million square feet, thereby positioning Stream as one of Houston’s leading commercial real estate organizations. During his tenure, Stream has consistently been ranked as one of the “Best Places to Work” by the Houston Business Journal and “Top Workplaces” by the Houston Chronicle.

Mr. Young serves as Chairman of the Board for the St. John Paul II Foundation for Life and Family. Additionally, he is a member of the Board of Trustees for the Free Enterprise Institute and is on the Board of Directors for both the Business Ethics Forum and Catholic Charities of the Archdiocese of Galveston-Houston. At Texas A&M University, Mr. Young serves as an Advisory Board Member for Mays Business School and is a member of the 12th Man Foundation’s Champions Council.

Before joining Stream, Mr. Young served in the capital markets division at Trammell Crow Company.

That happened fast.  Guessing he was waiting in the wings.  Go get ’em Preston!

The Parent-Child Problem

WSJ: Shale Companies, Adding Ever More Wells, Threaten Future of U.S. Oil Boom

Good read on technology and science at play in the Permian.  This is a reminder that a great deal of what is happening (in my estimation) is still experimental.

Known in the industry as the “parent-child” well problem, the issue is surfacing in shale hot spots across the U.S. as companies ramp up production. Most of the tens of thousands of planned new wells will be child wells—wells drilled close to an already producing well.

It is one of the primary reasons why thousands of shale wells drilled in the past five yearsare producing less oil and gas than companies forecast to investors, a Wall Street Journal examination of drilling data has found.

Shale producers across the country are finding “you can get a lot of interference, one well to the other,” said billionaire Harold Hamm, who founded shale driller Continental Resources Inc., in an interview last year. “Laying out a whole lot of wells can get you in trouble,” he said. Mr. Hamm was discussing other companies, not Continental.

Many of the largest shale producers, including Devon Energy Corp. , EOG Resources Inc.and Concho Resources Inc., have disclosed they are facing the problem. Some have begun drilling wells farther apart to get around it, which means they have fewer total wells to drill on their land.