Month: May 2019

ISS Rules in Favor of Blue Card; White Presses for a Vote

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“… a public track record that seems to reflect direct efforts to improve the governance of the companies on whose boards he has served. Cook brings substantial experience as a public company board member, as well as chairman of the San Antonio chapter of the National Association of Corporate Directors. In fact, he appears to have played an integral part in the effort to de-classify the board of Crane [Co]. At Crane’s first annual meeting after Cook became the chairman of the Nominating and Governance Committee, the company granted shareholders a vote on whether to de-classify its board, which shareholders approved. Cook’s track record appears to reflect a willingness and ability to push for corporate governance changes that benefit shareholders.”

Looks like their conviction was off the charts with all the “seems” and “appears” in there.

White had a tough day but doubles down on its call for a vote.

“We continue to regret the depths to which the TPL incumbent Trustees and management have sunk in order to try to tarnish the business reputation of their largest shareholders, while spending millions of dollars in shareholder money to preserve their lifetime jobs.

“Once again, we call on the incumbent Trustees to immediately commit today to bring this matter to a shareholder vote on May 22, 2019, as currently scheduled. We have now repeatedly asked for this simple public commitment from the trustees given our increasing concern that they are considering delaying the vote if they believe Eric Oliver will otherwise be elected trustee. The incumbent Trustees’ continuing silence on this matter is very alarming to us and should be to all shareholders.”

Getting too late to postpone in my opinion.  We’ll be two weeks out in about four hours.  Postponement now, in my opinion, would be a big GFY to all of the ‘non-card’ individual and institutional investors that have carved out midweek time to fly in and attend.  Blue probably just making White sweat here by not publicly re-committing to the set date as there is limited upside for them to do so.

May 22nd at Law Offices of the Trust

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Can they commit to it?

Letter from White card group

“Many shareholders are making travel plans to attend the scheduled meeting. They – and every other shareholder – deserve to know that the incumbents are committed to holding a vote, as scheduled, at 10:00amon May 22nd regardless of who is ahead in the vote count at that time. We are asking the incumbents to publicly commit todayto bring this matter to a vote on May 22.

Keep on Rockin’ Me Baby

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Steven Miller on SA: How Texas Pacific Land’s Proxy Fight Made Me A Dissident

Steven has been an active voice on the topic of TPL on the Seeking Alpha website in recent years.

Judging by the comment thread, can the vote even be close?  Sentiment appears to be with the White card.

There are nevertheless similarities between the current governance system of the Trust and a totalitarian system of government. The current trustees essentially have lifetime appointments. The Trust has had only four public meetings in the last 30 years. Information about wells drilled, the water business, and the recent land swap has been sparse or nonexistent, much to the frustration of shareholders. This has caused a continued sense that the trustees are hiding something.

For me, this misgiving started when a report came out that water was being piped from the Trusts land into New Mexico, a report that was never answered, as far as I have been able to determine. The trustees furthermore chose to nominate a general rather than the candidate that a significant block of investors have nominated. The trustees continue to demonize the opposing candidate, who has chosen not to strike back in kind.

Mr. Oliver is not a perfect candidate, and I still have questions both about his background and a statement or two he has made, but he has raised significant issues and has proposed solutions to them. He wants more transparency. He wants a change in governance. General Cook has announced support for term limits, but this came long after Mr. Oliver pressed the issue. The General has been fighting a defensive battle from the outset.

The trustees’ social media blitz irritates me, as does their insistence on taking credit for passive income. The Trust may call me a dissident for supporting Mr. Oliver, and they may be right to do so, but not for reasons they think.

Dallas Morning News Reports

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Dallas Morning News: Texas Pacific Land Trust has sky-high returns in the Permian. Why isn’t that enough?

The challengers counter that a trust created in 1888 — and designed to pay off investors in the bankrupt Texas Pacific Railway Co. — is not appropriate for a publicly traded company worth billions of dollars.

The trust is not just liquidating the land that secured the railroad’s defaulted bonds, as originally intended. It’s created a water operating company, made complex royalty trades and reinvested nearly $100 million annually, the investor group wrote in a presentation.  

There’s no precedent for such a company to be structured as a business trust, it said. Nor is there “any logical justification, in our view, to forgo disclosures, controls and governance of a modern operating corporation,” the group wrote.

Instead of being run by diverse directors serving staggered terms, TPL is led by three trustees effectively appointed for life. One spot opened after Maurice Meyer III, a trustee since 1991, resigned in February because of health problems. Meyer died in late March.

TPL has held just four shareholder meetings in 30 years, the investors wrote in a letter to shareholders. And company leaders, including trustees and top management, hold just 1,600 shares, less than 0.03% of the outstanding stock.

That small stake runs counter to the common practice of requiring leaders of public companies to hold meaningful shares — to have real “skin in the game.”

WPX Enjoying TPL Land

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WPX 5/2/19 call transcript

Audio (signup needed)      43:30 is a good start

Your next question comes from the line of Neal Dingmann from SunTrust.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division – MD [35]

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Clay, for you or Rick, you guys have done a great job of just creating value around your midstream. And my question is around sort of on a go forward, do you still see a number of other ways to create internal midstream value, whether it’s with the water system or Howard JV or any of the other things you have?

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Richard E. Muncrief, WPX Energy, Inc. – CEO & Chairman of the Board [36]

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Yes, Neal, it’s — we do have the water system core, there’s a lot of value there, the JV, there’s a lot of value there. But the other thing I think that a lot of folks don’t understand is once you have shown an established a track record for value creation and investing at the right time and monetizing at the right time, you get more opportunities coming your way. And so that’s one of the things that we really focused on is just looking at opportunities and seeing how that — if that fits with us and can live within our capital budget. And we’re going to be, once again for — don’t want to sound like a broken record, but we’re going to be very, very disciplined around that. But we do see, from time to time some opportunities present themselves that are very intriguing. So I think on the water and the JV, we’ll continue. They’re still somewhat, I think, immature. I’m really excited about the recycling capabilities that we now have and that’s a growing part of our business. So I think you’ll just continue to see value growth in both those arenas, with water gathering and the JV, so.

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Clay M. Gaspar, WPX Energy, Inc. – President & COO [37]

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I’ll just add a quick comment. Completely agree with Rick’s thoughts around water all the other things we’ve talked about around the gas that we’ve been ahead of the market on. These light barrel business, I mean clearly, we’ve got that box checked as well. If I think about the announcement from last quarter, the TPLT, the surface acreage, that opens up a whole new arena of value creation for us. On the call I believe I tried to convey how important in value creating this $100 million investment is going to be to the company. I mean I tell you, as we stand today, we clearly see time and time again opportunities coming our way because of that position that we hold. Multiple times over potential value creation of what we have invested in it. So it lines up exactly with what Rick was talking about, what your question was around our culture of thinking about forward value creation in creative ways.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division – MD [38]

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Great, no, I figured as much. And then just a follow-up. Clay, you strategically added that surface acreage around Stateline [last week]. Could you just maybe comment on the benefits you’re seeing from that? And has anything changed or you think you’ll continue to see just sort of the fruits of that labor?

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Clay M. Gaspar, WPX Energy, Inc. – President & COO [39]

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Yes, Neal, that’s exactly what I was talking about. The TPLT, maybe a little bit inside speak on the surface acreage. We invested $100 million last quarter to buy 14,000 acres over the heart of our Stateline field. How that’s materializing in value, I can tell you it’s dealing with other surface owners, making sure that all of this value creation Rick was just talking about around the water business and the recycling, that is imperative that you have a strong land position, because otherwise the surface owners can essentially hold you hostage to a lot of the decisions you’d like to make. But it’s also really showing value in our conversations peer to peer with other operators. They see the value creation opportunity that we have. And the opportunity that we’re seeing for trade, working deals with some of our partners, I think those things are continuing to flow our direction, really on the back of this surface acreage acquisition.

The Shape of Water

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Rigzone: The Largest Challenge to Permian Field Development

“The number of completed Permian wells continues to increase, and water disposal volumes are forecast to double by 2022,” WoodMac said in the statement.

“This produces increasingly large volumes of water. Even with 100 percent water re-use for completions, which is unlikely, the current salt water disposal infrastructure is expected to hit capacity in the near future. Additionally, increased water trucking has created traffic jams and damaged roads,” WoodMac added.

“Water disposal costs can account for a third of total lease operating expenses in the Permian. Producers simply cannot afford to cut corners on water management,” WoodMac continued.

In the post, WoodMac stated that the water midstream space is “ripe” for mergers and acquisitions and revealed that it expects the pace of water-related infrastructure deals in the Permian to “pick up considerably” in 2019.

“The water midstream space is screaming out for capital in the Permian. The infrastructure business is in its early stages of development and offers numerous possibilities for revenue streams,” WoodMac said.

HK Makes Their Stance on Water Clear

hk water

White Card Warns

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Investor Group Issues Open Letter To Shareholders Of Texas Pacific Land Trust

Dear Fellow TPL Shareholders:

We’ve come a long way from the nomination of Preston Young – who, in our estimation, was inexperienced and conflicted by multiple undisclosed business relationships with Trustee Barry – to General Cook agreeing with us that lifetime appointments are an archaic system of government for this prized asset.  However, we believe General Cook’s palm branch of committing to a three year term is too little, too late.

The past few weeks have been surreal as we witnessed the incumbent Trustees launch an all-out war on a group of large, long term investors, labeling us as dissidents.  It begs the question WHY?  Are the incumbents relying on bad outside advice or are they driven by a selfish desire to protect their life-tenured positions at any cost?  Maybe it’s a little of both.  But one thing we know for sure is this type of behavior is NOT good for TPL and its shareholders.

At this time we are deeply concerned that the incumbents will stop at nothing to prevent Eric Oliver from being elected Trustee.  We expect more token governance window dressings in the coming weeks as proxies roll in.  The incumbent Trustees may even have an epiphany and offer term limits for themselves or, if all else fails, fully agree with us and proceed with a slow C-Corp conversion that is actually aimed at temporarily keeping Eric Oliver outside the boardroom.  Nothing will surprise us.

Indeed, we now strongly believe that if it becomes clear that Eric Oliver will receive the most votes, the incumbent Trustees and their advisors will concoct one or more excuses to adjourn or even postpone (again) the special meeting scheduled for later this month.  After all, any prolonged election contest will continue the wasteful spending of money in lawyers, bankers, proxy solicitors, social media ads, web designers and press agents that comes out of shareholders pockets, not management’s.

We call on the incumbent Trustees to immediately commit to hold a vote on May 22, 2019, consistent with the notice of meeting previously published.  The time for last-minute empty campaign promises has come and gone.  Now it is time to submit this matter to a vote and let the shareholders decide.

Sincerely,

SOFTVEST, L.P.      HORIZON KINETICS LLC           ART-FGT FAMILY PARTNERS

I’ve thrown this term around in jest before but this is all taking on the feeling of a hostage situation.

Remember:

In the event of the death, resignation or disqualification of any of the trustees a successor shall be elected at a special meeting of the certificate holders by a majority in the amount of the certificate holders present in person or by proxy at such meeting whose names shall have been registered in the books of the trustees at least fifteen days before such meeting, and the remaining trustees and the trustee so resigning, or the executor or executors of any deceased trustee, shall make, execute and deliver to the successor so elected such proper deeds or instruments of conveyance as shall be necessary in order to vest in him the same title which his predecessor had in and to the lands and premises aforesaid.

Proxy Tactics

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Last night’s term limit gambit could have been number one in a list of tactics available to the Blue card.  Given the White card’s mathematical advantage (SV/HK group has 25% of total and some larger percent of the vote that actually shows up), look for Blue to get creative in the coming three weeks.  Some possibilities:

  • Candidate replacement; serves to push back the meeting and change the narrative
  • Another excuse for to push back the meeting (a creative legal team can come up with something)
  • A meeting venue or time change. Goal will be to make the meeting appear uncomfortable to attend
  • A seemingly clear cut vote gets brought into the snake pit
  • Long-shot legal action against the dissenting group (stall and smear tactic)
  • Last minute attempt to disqualify the opposing candidate

Objectively, all of this equates to a higher cash burn.

FT Reports

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FT: Activists target US oil patch’s trustees for life

Alternate version

The dissidents say the trust suffers from poor corporate governance and a lack of. Accusing the incumbent trustees of a “total disregard for investors’ view and rights”, they allege TPL’s management “has demonstrated poor judgment” in arranging land sales in recent years.

“We think it’s time for modern corporate government,” Mr Oliver said in a video directed at TPL shareholders. “We think it’s time for term limits. We think it’s time to expand the board.”

Mr Liekefett disagrees. “They have outperformed Apple and Amazon and 99 per cent of the New York Stock Exchange,” he said. “How do you attack a company with that kind of performance? You can’t, so you come up with other pretexts. This is all they’ve got.”