2Q19 10-Q

EDGAR link


Legal and professional expenses. Legal and professional fees were $7.9 million for the three months ended June 30, 2019 compared to $0.4 million for the comparable period of 2018. The increase in legal and professional fees for the three months ended June 30, 2019 compared to 2018 is principally due to approximately $6.5 million of legal and professional fees related to the proxy contest to elect a new Trustee. 

My back of the envelope analysis continues to suggest that the water business is a drag on margins though a positive contributor to net income.

Screen Shot 2019-08-07

Other notes:

  • $155MM in cash, $68MM in receivables
  • PP&E at $85MM vs $73MM.  Virtually all water business capex.  Is is really that long lived or should it be expensed?
  • Real estate aquired up to $85MM from $58MM last quarter.  Real estate activy this quarter is stated as “for the six months ended”.  Q1 was stated as “for the three months ended.”  Makes detangling purchases in this quarter harder to do.
    • I’m guessing this is on purpose
    • For the six months ended June 30, 2019, the Trust acquired approximately 21,671 acres (Culberson, Glasscock, Loving and Reeves Counties) of land in Texas for an aggregate purchase price of approximately $74.4 million, with an average of approximately $3,434 per acre.  AND   For the six months ended June 30, 2018, the Trust acquired approximately 2,884 acres (Mitchell and Upton County) of land in Texas for an aggregate purchase price of approximately $2.7 million, with an average of approximately $924 per acre.
      • For the three months ended March 31, 2019, the Trust acquired approximately 11,702 acres (Culberson and Reeves Counties) of land in Texas for an aggregate purchase price of approximately $47.2 million, with an average of approximately $4,033 per acre.  AND For the three months ended March 31, 2018, the Trust acquired approximately 641 acres (all in Upton County) of land in Texas for an aggregate purchase price of approximately $0.8 million, with an average of approximately $1,171 per acre.
  • Looks like 658 acres were sold for $4.774MM.  $7255/acre
  • Royalty interests acquired up $1.6MM on quarter
  • 297 DUC vs 313 at the end of first quarter

13 thoughts on “2Q19 10-Q

  1. Current management leaves a lot to be desired. It sucks when others mismanage your capital. Especially when you thought otherwise with no real information on what was being done.

    I hope it changes for the better.

    Liked by 3 people

      • Pepere,

        You are right, there will be legal fees for the month of July by TPL. Since July had a blizzard of legal motions, I would anticipate TPL fees to be in the 3 million ballpark. Add in the 2.4 million for the agreed to reimbursement for the investors’ legal fees, and 1.35 million as the reimbursement for the investors’ side proxy solicitation, and we will be near 7 million in legal fees showing up in Q3. The special committee work has the potential to cause more legal expenses for legal review and advice that takes place in Q3. And possibly into Q4 depending on what gets agreed to and what is needed to implement that may take legal resources.

        As my brother the lawyer says, “You should try hard to not feed us lawyers. We have an unlimited appetite for fees.”

        Liked by 2 people

      • I would imagine they had accrued for HK legal fees, given they settled before they reported. Shouldn’t the following already be accrued, given it was not included in the subsequent events note?

        Expense Reimbursement. Within three business days of the execution of the Settlement Agreement, the Trust will reimburse the Investor Group’s reasonable and documented out-of-pocket fees and expenses (including legal expenses) incurred to date in connection with the Investor Group’s solicitation of proxies from TPL shareholders and related litigation and the negotiation and execution of the Settlement Agreement up to an amount of $2.4 million in the aggregate. Upon the completion of the Conversion in the form recommended by the Committee in all material respects, the Trust will further reimburse the Investor Group for its remaining reasonable and documented out-of-pocket fees and expenses in an amount not to exceed $1.35 million in the aggregate.

        https://www.sec.gov/Archives/edgar/data/97517/000121390019014219/f8k073019_texaspacific.htm

        Liked by 1 person

  2. If you add back the extra $6.5mm spent on legal expenses for the proxy contest, Net Income for the Quarter becomes $56.1mm and EPS becomes $7.23. This would have been a 7.4% improvement over the previous quarter in 2018. Instead, TPL reported a 5% decline in the quarter ended 6/30/2019 compared to the year before. Except for the decline in WTI, there is no reason for TPL to have such a huge decline in their stock price since the stock traded in the $800s after news of the legal settlement hit on the morning of 7/31/19.

    Liked by 1 person

  3. Starting on the Annual Report in 2017, and the 10-Q starting Q1 2018, the reports started to include this under Liquidity and Capital Resources section:
    “The Trust’s principal sources of liquidity are its revenues from oil, gas and water royalties, easements and other surface-related income, and water and land sales. Our primary liquidity and capital requirements are for capital expenditures related to our Water Services and Operations segment, working capital and general corporate needs. As of June 30, 2019, we had cash and cash equivalents of $155.4 million that we expect to utilize, along with cash flow from operations, to provide capital to support the growth of our business, particularly the growth of TPWR, to repurchase additional Sub-shares subject to market conditions, and for general corporate purposes.” (Page 15-16 10-Q, Q2 2019).

    This part intrigues me: “…to repurchase additional Sub-shares subject to market conditions…” It makes me wonder if the reason why they haven’t purchased shares is because of ‘market conditions.’

    Is it plausible that they have decided that buying property or royalty interest is more profitable than repurchasing shares for the time being? I remember hearing someone say in the past that the lawyers advised TPL that they shouldn’t buy shares during the lawsuit/proxy fight, but I have no idea if this is actually substantiated. I also think that I remember reading in one of the lawsuits that the trust apologized for not buying shares, as it was an oversight while MM was sick. I think that was the #gondolatalk in Vail or Aspen…. Does anyone have any thoughts on this ‘market conditions’ addition?

    Liked by 1 person

  4. Being polite I would say 7.9 million in legal fees for 3 months of work and a mutual dismissal without prejudice is just brutally expensive. For 16 lawyers, thats a half a million apiece. Please, no more of this reckless spending of TPL trust money.

    Liked by 3 people

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