Month: May 2019

White Card Has Questions Too

tpltblogger6 Comments

Investor Group Issues Questions To The Trustees Of Texas Pacific Land Trust

White card appears to have pulled no punches here.

If I had to pick two, these are the questions I find most relevant to the subject of the Trustees acting as proper stewards of the trust.

Why did you threaten us with blocking every proposal Mr. Oliver might bring as trustee if we didn’t settle with you?  How is such a statement consistent with your role as fiduciaries?

Why have you almost quit retiring shares? This has been a key component and tax efficient way to create shareholder value for over 130 years.

 

 

WaterBridge @ $3B

tpltblogger1 Comment

Singapore’s GIC Bets on Wastewater Company, Takes Stake at $3 Billion Valuation

Singapore sovereign-wealth fund GIC has bought a stake in WaterBridge Resources LLC in a deal that values the Houston-based handler of oil-drilling wastewater at nearly $3 billion including debt, according to people familiar with the matter.

GIC bought 20% of the company from Five Point Energy, a Texas investment firm that started WaterBridge in 2016 with $200 million of seed money, one of the people said.

The deal—and the lofty valuation for the three-year-old company—highlights the rising importance of businesses that handle the lakes worth of briny, polluted water that energy producers extract along with oil and gas when they hydraulically fracture shale and other rock formations. While big investors have flocked to West Texas for its prolific oil wells, they are now scrambling to manage the cruddy water spewing out of the wells at much greater volumes than crude.

Overseas sovereign-wealth.

Move to Adjourn; Not So Fast

tpltblogger6 Comments

Parliamentary proceedure says that a majority vote is needed to adjourn a meeting after a motion is made to do so.

Blue has said they will open and close the 5/22 meeting with no business taking place but my research (grain of salt alert) says there needs to be majority vote to ajourn.

The White Card has ammended it’s proxy to allow for voting on behalf of the proxied shares it controls.

As such, it looks like White will oppose any motion to adjourn and will then move to hold the Trustee vote.

I didn’t fully understand the nuances when I first posted this.

It is my guess that the vote happens on 5/22.

If you’re local, you might consider getting over there to witness it in person.

In light of the foregoing, to the extent that a holder of Shares has returned or returns a WHITE proxy card that is signed, dated and either marked “FOR” the election of Eric Oliver or not marked with respect to the Trustee Proposal, the persons named as proxies on the WHITE proxy card will vote such proxies:
 
●
in opposition of any (1) proposal or motion presented at the Special Meeting by any person (including the Trustees) to adjourn the Special Meeting, or (2) other proposal or motion that may be submitted to a vote of the holders of Shares at the Special Meeting that has the effect of delaying holding a vote on the Trustee Proposal; and
●
in favor of any proposal or motion that may be presented at the Special Meeting to a vote of holders of Shares that facilitates the submission of the Trustee Proposal to a vote of holders of Shares on May 22, 2019.
 
We do not believe that the incumbent Trustees have the power under the Trust’s Declaration of Trust to unilaterally postpone or cancel the Special Meeting, as it has already been properly called and noticed. Such postponement or cancellation requires prior approval of the holders of Shares.

It is our intent to take any appropriate action to submit the Election Proposal to a vote of the holders of Shares present in person or by proxy at the Special Meeting on May 22, 2019.  In that regard, and depending on actions that may be attempted to be taken by the incumbent Trustees at the Special Meeting, we may bring one or more procedural proposals or motions at the Special Meeting to, among other things, vote against any purported adjournment of the Special Meeting that is effected without a valid vote of holders of Shares, continue the Special Meeting, and elect a person from among the holders of Shares present to preside the Special Meeting if the incumbent Trustees cease to be present at the Special Meeting or otherwise refuse to preside the Special Meeting.
 
As we have previously noted, the proxy statement filed by the Trust in connection with the Special Meeting states that for purposes of the Special Meeting there will be a quorum if the holders of a majority of the outstanding Shares are present in person or by proxy.  We do not, however, believe that there is any basis in the Declaration of Trust or applicable law for the proposition that there is a quorum requirement at the Special Meeting.

Rattler IPO Launched

tpltblogger4 Comments

Bloomberg: Rattler Midstream LP, a Subsidiary of Diamondback Energy, Inc., Announces Launch of Initial Public Offering

S-1

Diamondback spinning out it’s midstream business.  Won’t be an MLP.

We are a growth-oriented Delaware limited partnership formed in July 2018 by Diamondback to own, operate, develop and acquire midstream infrastructure assets in the Midland and Delaware Basinsof the Permian Basin, or the Permian, one of the most prolific oil producing areas in the world. Immediately following this offering, we expect to be the only publicly-traded, pure-play Permian midstream company focused on the Midland and Delaware Basins. We provide crude oil, natural gas and water-related midstream services (including fresh water sourcing and transportation and saltwater gathering and disposal) to Diamondback under long-term, fixed-fee contracts. As of March 31, 2019, the assets Diamondback has contributed to us include a total of 781 miles of pipeline across the Midland and Delaware Basins with a total of approximately 232,000 Bbl/d of crude oil gathering capacity, 2.720 MMBbl/d of permitted saltwater disposal, or SWD, capacity, 575,000 Bbl/d of fresh water gathering capacity, 80,000 Mcf/d of natural gas compression capability and 150,000 Mcf/d of natural gas gathering capacity. In addition to the midstream infrastructure assets that Diamondback contributed to us, we own equity interests in two long-haul crude oil pipelines, which, upon completion, will run from the Permian to the Texas Gulf Coast. We are critical to Diamondback’s growth plans because we provide a long-term midstream solution to its increasing crude oil, natural gas and water-related services needs through our robust infield gathering systems and SWD capabilities.

 

Saltwater gathering and disposal assets

Crude oil and natural gas cannot be produced without significant produced water transport and disposal capacity given the high water volumes produced alongside the hydrocarbons. Produced water volumes are of particular importance in the Delaware Basin where the average well produces four to six barrels of water for every one barrel of crude oil while the average Midland Basin well produces one to two barrels of water for every one barrel of crude oil. At the well site, crude oil and produced water are separated to extract the crude oil for sale and the produced water for proper disposal and recycling. As of March 31, 2019, we own strategically located produced water gathering pipeline systems spanning a total of approximately 414 miles that connect approximately 2,500 crude oil and natural gas producing wells to our SWD well sites. As of March 31, 2019, we have a total of 123 SWD wells with an aggregate capacity of 2.720 MMBbl/d located across the Midland and Delaware Basins. Diamondback has instituted a program in its operations in the Delaware Basin and Spanish Trail acreage in the Midland Basin to use treated water for 10% to 30% of the water used during completion operations, which may be between 5,500 and 16,500 Bbl/d per completion crew operating in each field, as Diamondback traditionally uses 55,000 Bbl/d per completion crew. We expect to realize increased margins for SWD as a result of this recycling program.

Fresh water sourcing and distribution assets

Our fresh water sourcing and distribution system, with storage capacity of 50.7 MMBbl as of March 31, 2019, is critical to Diamondback’s completion operations, and distributes water from fresh water wells sourced from the Capitan Reef formation, Edwards-Trinity, Pecos Alluvium and Rustler aquifers in the Permian. Our fresh water system consists of a combination of permanent buried pipelines, portable surface pipelines and fresh water storage facilities, as well as pumping stations to transport the fresh water throughout the pipeline network. To the extent necessary, we will move surface pipelines to service completion operations in concert with Diamondback’s drilling program. Having access to fresh water sources is an important element of the hydraulic fracturing process in the Delaware Basin because modern completion methods require significantly more fresh water relative to the Midland Basin. To hydraulically fracture a 10,000 foot well, Diamondback currently estimates that approximately 425,000 barrels of water are required in the Midland Basin and approximately 650,000 barrels of water are required in the Delaware Basin. Because hydraulic fracturing relies on substantial volumes of fresh water, we believe our fresh water distribution services will be in high demand as Diamondback proceeds with its full field development plan over the next several years.

I failed to find a clean revenue by segment breakout but growth (quote below) seems to be oriented towards water.  The company went from $39MM to $184MM in top line in 2018.  Will be interesting when they start reporting revenue and expense breakouts regularly.  Certainly provides some valuation clues to the extent we can can get similar info from TPL.

Revenues. Revenues increased by $145 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017, primarily due to the contribution of fresh water assets by Diamondback on January 1, 2018 (which could not be segregated prior to that date), resulting in an additional $77.0 million in revenue. SWD services revenues increased by $44.5 million, crude oil gathering revenues increased by $8.4 million and natural gas gathering revenues increased by $3.5 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017, while surface revenues remained relatively unchanged during that same period. Each of the increases in revenues was primarily due to additional asset contributions and asset buildouts, which led to continued increases of volume throughput. In addition, on January 31, 2018, Diamondback purchased certain real estate assets for approximately $110.0 million and contributed them to us effective as of that date. These real estate assets generated $11.8 million in revenue during the year ended December 31, 2018.

NGL Energy Buys Mesquite Disposals Unlimited for $890MM

tpltblogger

NGL Energy Partners LP Announces Combination with Mesquite

The assets consist of a fully interconnected produced water pipeline transportation and disposal system in Eddy and Lea Counties, New Mexico, and Loving County, Texas.  At closing the Mesquite system will have 35 salt water disposal wells in total, representing over 1 million barrels per day of disposal capacity expected by year-end 2019. The majority of volumes on Mesquite’s system are contracted under long-term acreage dedications and minimum volume commitments. Additionally, approximately 95% of the current system volumes are delivered via pipeline.

Meaty slide deck to go with the deal 

 

We’ll See You in Dallas!

tpltblogger5 Comments

Investor Group Further Comments On Efforts Of Trustees Of Texas Pacific Land Trust To Delay Shareholder Vote

Strong statements from the White card who intends to make the vote happen on 5/22.

In your vehemence to win a proxy contest, you seem to have forgotten that as trustees of a 19th century-created trust, you can be held personally accountable for operating outside the narrow confines of the authority and delegation of power granted to you under a six-page deed from 1888.  By your own choice, you are not directors of a modern corporation with broad charter powers and expansive director exculpatory provisions.

Bottom line:

  • We believe there are no legitimate reasons for you to attempt to delay the shareholder vote on a new trustee — only excuses. 
  • Since March 4, 2019, when you nominated Preston Young, you have had an abundance of TIME to communicate your message to shareholders.
  • You have had an abundance of MONEY — the bank of shareholder capital expended for the most part in an impermissible manner in our view — to protect your lifetime trustee appointments. 
  • You have WITHHELD the NOBO list and directed your solicitors to bombard shareholders with evening solicitation phone calls. That was not enough.
  • You continue to SPEND lavishly on social media—Google, Twitter and Facebook ads—, on lawyers, ad agents, solicitors and private investigators, to spread your vicious character attacks on us, long-term shareholders who wish to propose more open governance. Your own senior executives have privately expressed their embarrassment at your tactics.
  • We believe most shareholders are simply tired of your messages and are ready to have their votes counted. 
  • We will see you at 10 am on May 22, 2019 in Dallas, Texas, and we intend that the holders present in person or by proxy at the special meeting will have a final say on this matter.

Glass Lewis Goes Cook

tpltblogger7 Comments

14A Filing

ISS concludes that Cook has more board experience and warns that the vote shouldn’t be considered a referendum on C-corp conversion.

I’d argue the vote is a referendum on 1) alignment of interests (Trustees aligned with sub-unit holders) and 2) trust/verification in the competence of those in power to manage the asset to its full utility.

I admit to being surprised that neither ISS nor Glass Lewis were interested in the prospect of a representative from a large shareholder block with extremely high subject matter expertise getting under the hood.  That said, their verdicts make sense when you give them some thought.

Oliver is a dark horse with no large-institution board experience (though heading the investment committee at Texas Mutual w/ $6.5B AUM seems very relevant).  Cook has Oliver beat from a formulaic “board ready” perspective and is saying the right things in regards to term limits.  ISS and GL have more to lose than to gain in this battle by virtue of its size.  This isn’t one where they stick their necks out.  Limited upside to doing so.  No one ever got fired for buying IBM.

If I’m tasked with finding the next board member for MCD, JNJ, MSFT, etc and the choice is between Cook and Oliver, Cook clearly has the leg up.  I don’t think we’re trying to find that guy though.  ISS and GL are grading apples; TPL’s trustee seat, by virtue of the situation we are in, requires an orange.

In its May 10, 2019 report, Glass Lewis concludes that: 1

“upon a full and objective review of the arguments put forward by the Dissidents and the Trust, we ultimately see a stronger case for shareholders to support the election of General Cook. While he may lack expertise in the various business activities presently occurring on TPL’s land, in our view, General Cook has much broader and more impressive experience as a board member, including service on large public and private company boards, as well as a proven track record of advocating for and practicing good corporate governance, which we believe makes him the better choice for TPL shareholders at this time.”

In its analysis, Glass Lewis further noted that:

“the upcoming shareholder vote should not be construed as a referendum on whether the Trust should immediately pursue a C-Corp conversion, in our opinion. Rather, we believe this proxy contest, like most others, comes down to which nominee is better suited to serve on the board and more likely to represent and advocate for the best long-term interests and rights of all shareholders.”

 

 

Open Thread: Valuation

tpltblogger10 Comments

A couple of readers have asked that I start up a valuation thread.  No wrong answers here if you’d like to add your thoughts.  I’d particularly like to hear how you handle asset valuation vs income from assets; I’ve seen a fair amount of double counting.

I’ll start with a quicky that I wrote after the Q: “I calculate the “non-sale” (no sale income included) EBTDA to be $73MM.  $73MM taxed at 20% = $58.4MM or $234MM/year.  20x = $4.67B.  30x = $7B.  Current mkt cap is $6.13B.  Implied multiple = 26x.  Again, very back of the envelope.”

 

White Looks to Make 5/22 a GO

tpltblogger7 Comments

SEC 14A

Full text below and at the link above.  White’s base position is defined as such: “We do not believe that the incumbent Trustees have the power under the Trust’s Declaration of Trust to unilaterally postpone or cancel the Special Meeting, as it has already been properly called and noticed. Such postponement or cancellation requires prior approval of the holders of Shares.”  

In short, White is going to jump in before the adjournment proceedure described by Blue and will attemp to force the Trustee election vote.

Hope you didn’t tear up those plane tickets.

 

ATTENTION TEXAS PACIFIC LAND TRUST INVESTORS!
May 10, 2019
Fellow Texas Pacific Land Trust Shareholder:
 
As you are aware, the incumbent Trustees of TPL have called and noticed a special meeting of shareholders to vote on the election of a new trustee.  The special meeting is scheduled to be held on May 22, 2019 at 10:00 a.m., Central Time, in Room 20502 of the offices of Sidley Austin LLP at 2021 McKinney Avenue, Suite 2000, Dallas, Texas 75201.
 
After two months of wasteful spending of TPL shareholders’ property in waging a proxy campaign in opposition to our nomination of Eric Oliver as trustee, the incumbent Trustees have resorted to a last-minute effort to delay the vote by recently announcing that on May 22, 2019 they intend to convene and immediately adjourn the special meeting until June 6, 2019.
 
We believe that only the shareholders have the power to effect any adjournment or other form of postponement or delay of the special meeting.
 
We will be present at the special meeting on May 22, 2019 with the WHITE proxy cards you have delivered to us, and intend to take any procedural steps required to bring to a vote the election of TPL’s third trustee, as required by TPL’s Declaration of Trust.  We encourage you to read the supplement to our proxy statement found on the reverse side of this letter for additional information.
 
We look forward to seeing many of you in Dallas at the special meeting on May 22, and thank you for your continuing support.
 
Sincerely,
HORIZON KINETICS LLC     SOFTVEST, L.P.     ART-FGT FAMILY PARTNERS

 

This is Supplement No. 1, dated May 10, 2019, to the Proxy Statement dated April 8, 2019 of SoftVest, L.P. and the other Participants named therein (the “Original Proxy Statement”).
 
The Trustees of Texas Pacific Land Trust (the “Trust”) have called and noticed a special meeting of holders of sub-share certificates of proprietary interest (“Shares”) to (1) elect a Trustee to fill the vacancy left by Mr. Maurice Meyer III (the “Trustee Proposal”) and (2) transact any other business that may properly come before such special meeting.  Such special meeting, as already called and noticed, will occur on May 22, 2019 at 10:00 a.m. Central Time in Room 20502 of the offices of Sidley Austin LLP at 2021 McKinney Avenue, Suite 2000, Dallas, TX 75201 (the “Special Meeting”).
 
On May 8, 2019, the incumbent Trustees announced that they intend to convene and then adjourn, without conducting any business, the Special Meeting, and reconvene on June 6, 2019.
 
The Participants (as defined in the Original Proxy Statement) believe that without the affirmative vote of a majority of Shares present in person or by proxy at the Special Meeting, the incumbent Trustees do not have the power under the Trust’s Declaration of Trust, dated February 1, 1888, to either adjourn or postpone the Special Meeting, or try in any manner to further delay or postpone a vote on the Election Proposal.
 
In light of the foregoing, to the extent that a holder of Shares has returned or returns a WHITE proxy card that is signed, dated and either marked “FOR” the election of Eric Oliver or not marked with respect to the Trustee Proposal, the persons named as proxies on the WHITE proxy card will vote such proxies:
 
●
in opposition of any (1) proposal or motion presented at the Special Meeting by any person (including the Trustees) to adjourn the Special Meeting, or (2) other proposal or motion that may be submitted to a vote of the holders of Shares at the Special Meeting that has the effect of delaying holding a vote on the Trustee Proposal; and
●
in favor of any proposal or motion that may be presented at the Special Meeting to a vote of holders of Shares that facilitates the submission of the Trustee Proposal to a vote of holders of Shares on May 22, 2019.
 
We do not believe that the incumbent Trustees have the power under the Trust’s Declaration of Trust to unilaterally postpone or cancel the Special Meeting, as it has already been properly called and noticed. Such postponement or cancellation requires prior approval of the holders of Shares.

It is our intent to take any appropriate action to submit the Election Proposal to a vote of the holders of Shares present in person or by proxy at the Special Meeting on May 22, 2019.  In that regard, and depending on actions that may be attempted to be taken by the incumbent Trustees at the Special Meeting, we may bring one or more procedural proposals or motions at the Special Meeting to, among other things, vote against any purported adjournment of the Special Meeting that is effected without a valid vote of holders of Shares, continue the Special Meeting, and elect a person from among the holders of Shares present to preside the Special Meeting if the incumbent Trustees cease to be present at the Special Meeting or otherwise refuse to preside the Special Meeting.
 
As we have previously noted, the proxy statement filed by the Trust in connection with the Special Meeting states that for purposes of the Special Meeting there will be a quorum if the holders of a majority of the outstanding Shares are present in person or by proxy.  We do not, however, believe that there is any basis in the Declaration of Trust or applicable law for the proposition that there is a quorum requirement at the Special Meeting.

Meeting Delay Process + The General Commits to 3yr Term

tpltblogger3 Comments

14A from Blue

This is how it happens:

6.         When and where will the Special Meeting take place?

The Special Meeting will be convened on May 22, 2019, at 10:00 a.m. Central Time in the offices of Sidley Austin LLP at 2021 McKinney Avenue, Suite 2000, Dallas, TX 75201, but will be adjourned—without conducting any further business or holding discussions related to the proposals to be voted upon—to be reconvened at 10:00 a.m. Central Time on June 6, 2019, at the same location.

7.         How does the adjournment process work?

After convening the Special Meeting on May 22, 2019, the Trust will immediately, and without conducting any further business or holding discussions related to the proposals to be voted upon, adjourn the meeting. This will preserve the record date of March 28, 2019, and ensures that Holders who have already voted are not required to submit another proxy card.

Also, General kept true to his promise of a three year term limit.

Trustees

Texas Pacific Land Trust.

1700 Pacific Avenue, Suite 2770

Dallas, TX 75201

Gentlemen:

If I should be elected as a Trustee of Texas Pacific Land Trust (the “Trust”) at the 2019 special meeting of shareholders, I hereby tender my resignation as a Trustee of the Trust effective on the third anniversary of such election.

Very truly yours,

Donald G. Cook

The Fine Print

tpltblogger5 Comments

Two items brought up by readers in the past 24 hours:

#1: White card lays down a footnote to make clear their opinion on where the vote stands.  We start with an excerpt from the letter that Barry and Norris sent to HK and Tessler:

While we were pleased to receive the recommendation from ISS yesterday, we understand that this will remain a close election.1

Here is the corresponding footnote.

1         SoftVest, L.P., Horizon Kinetics LLC and ART-FGT Family Partners disagree with this statement.

 

#2:  The following two statements can be found in the recently published 10-Q.  The two, when read together, indicate that the Trust didn’t repurchase any shares in all of April.  A few possibilities come to mind: 1) the Trust is somehow restricted on the stock due to the pending vote, 2) the Trust is dedicating marginal cash to PP&E, or 3) Trust management is avoiding further concentrating the ownership stakes of those that they consider dissidents.  Must be a pretty big deal to deviate from a capital return strategy that is decades/centuries in the making and we know the balance sheet is anything but cash poor.

Sub-share Certificates in Certificates of Proprietary Interest, par value $.03 1/3 each; outstanding 7,756,156 and 7,762,414 Sub-share Certificates as of March 31, 2019 and December 31, 2018, respectively

As of April 30, 2019, the Registrant had 7,756,156 Sub-share Certificates outstanding.

Without Our Cooperation

tpltblogger9 Comments

5/8 Update from White Card

Lots going on in this one. White reacts to the vote being postponed and shares a letter from their pals John and Dave (who can’t be bothered to spell Tessler’s first name right).

White still wants to vote on 5/22. Will be interesting to see the HOW here.

On behalf of all shareholders as well as ourselves, we fully reserve the right to move forward with a vote on the election of a new trustee on May 22, 2019, as previously scheduled.

Trustees Barry and Norris write to HK and Tessler (but no Oliver) and show both an olive branch and a middle finger. 

John and I will be both in New York this Friday and we believe we should use the opportunity to meet.

Even if you should be truly unconcerned about all the unanswered questions about Mr. Oliver’s experience and track record, you surely realize that your best case scenario means that you’d end up with only one out of three trustees.  Consequently, even if you’d prevail in the election contest, you could not achieve any of your ultimate goals without our cooperation until another vacancy opens up (and it may be another decade until that happens). 

 

 

Hostage Situation: Day 1

tpltblogger20 Comments

Meeting postponed.

It’s ironic that the General, who bills himself as a pro-governance candidate, is allowing himself to be party to all of this.

“We have heard very clearly from shareholders their desire for the Trust to provide greater transparency,” said Trustee David E. Barry. “In that light, we believe it is especially important for all shareholders to have the opportunity to fully review the Proxy Supplement.”

Q is Out

tpltblogger3 Comments

SEC Filing

Notes (no guarantee that any of this is right):

  • “Simple” balance sheets and ISs are a thing of the tax now as we have tax escrow, depreciated PP&E, and acquisition carrying values to navigate
  • Balance sheet at $405MM is 5.7x that of a year ago.  New property goes on BS at cost.  Old stuff has no accounting value.  Quickly getting on WB’s radar for its excellent price to book
  • Rude and crude water margin calculator shows margin expansion for the quarter. Again, this assumes all expense increases after ’16 are water related.  Certainly not perfect
  • I calculate the “non-sale” (no sale income included) EBTDA to be $73MM.  $73MM taxed at 20% = $58.4MM or $234MM/year.  20x = $4.67B.  30x = $7B.  Current mkt cap is $6.13B.  Implied multiple = 26x.  Again, very back of the envelope
  • The statement of cashflows seems kinda useless now as one has to immediately back out asset sales from CFO
  • Repurchases down 35% from first quarter last year.  Divs up 47%.  I don’t want dividends; I want my % stake increased
  • Water PP&E went from $62.9MM at year end to $71.6MM.  A total increase of $8.7MM.   Total buybacks in the quarter were $4.3MM
  • Fixed asset purchases of $9.3MM in Q1 (assuming mostly water equipment) are pretty close to my calculated $11MM in water EBTDA.  Fixed asset purchases don’t hit expense line.  How long does this last?  How long are the useful lives of water assets?
  • “Legal and professional fees increased 175.6% to $1.8 million for the three months ended March 31, 2019 from $0.6 million for the comparable period of 2018. The increase in legal and professional fees for the three months ended March 31, 2019 compared to 2018 is principally due to increased legal and professional fees related to land transactions, new water agreements and proxy fees.”
    • Can we get a more granular breakout?
  • Compensation up 2.5x YoY

q1 analysis