Spotlight on Mineral Rights

WSJ: The Underground Way to Earn a 10% Yield in Oil Stocks

Mineral rights entitle these firms, including Viper Energy Partners LP and Kimbell Royalty Partners LP, to the first cut of cash once oil and gas wells begin producing. The royalties they receive usually range from about 12% to 25%. Their place at the head of the line for payouts, plus the fact that they bear none of the drilling costs and keep collecting even if producers drill themselves bankrupt, have helped minerals owners outperform most other energy stocks in a year when investor sentiment has collapsed due to low oil and gas prices and profligate spending.

Mineral rights are a uniquely American asset class. In no other country are most mineral rights owned by ordinary citizens. It is also a highly fragmented asset class, akin to rental houses. The National Association of Royalty Owners estimates that there are more than 12 million private owners of mineral rights. Kimbell calculates the total market value of mineral rights at about $550 billion, of which public companies own just 2% or so.

The principal way to acquire mineral rights has usually been to inherit them. “Never sell your minerals” is a marketplace adage. These days, though, that bit of country wisdom is being cast aside by many who have inherited the rights to oil and gas royalties. The result is a consolidation by Wall Street of assets that have long been an integral part of intergenerational family wealth.

Wild that TPL wasn’t mentioned.  Thanks to a reader for the heads up on this article!

Forbes

Growth Stocks Trading At Reasonable Prices

In 1888, the Texas and Pacific Railway went bankrupt. Stockholders lost everything but bondholders ended up owning the railroad’s land holdings, now called the Texas Pacific Land Trust (TPL).

Based in Dallas, the trust, still traded on the New York Stock Exchange, owns about 900,000 acres of land in West Texas and rents it out for cattle grazing and oil exploration. It also actively buys and sells parcels of land.

For the past five years, this land trust has shown 48% average annual earnings growth; last year was even faster. Encouragingly, TPL has shown a profit each year in the past 15 years. Another strong point: It has enough cash to cover all of its debt.

The stock sells for 17 times earnings.

What debt?

 

If You’ve Got a Roadshow Meeting

Awesome deck.  I’m still absorbing.  Here are a few questions I’d ask:

1) Tell me about the 19 years.  How is that calculated?  How can I do it myself to verify?

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2) 7% of royalty acreage is developed.  What’s the pragmatic maximum that this figure can get to.  It can’t be 100%.

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3) When is that cash being returned?  And why is it in the slide deck as an ROC now?

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