Tough Day

tpltblogger22 Comments

Record high volume of 96,356.  Volume weighted average price was $504.11.  Last trade was 751 shares @ $467.21.  Down 24.89% in price on the day.

Hoping the Trustees will act honorably and enact much needed governance changes so that repurchases can commence.  Not holding my breath.

We’ll see what tomorrow brings.

22 thoughts on “Tough Day”

  1. My time horizon just got a lot longer lol. At least there is little bankruptcy risk. Eventually that oil is coming out of the ground, hopefully at much higher prices than today’s.

    Liked by 3 people

  2. What a stunning bloodbath in the Permian names. To see OXY, APA, FANG etc. crushed as much as 50% in one trading session is difficult to fathom. Just as the one-eyed man is king in the land of the blind, now is a time to own exposure with absolutely no debt, such as TPL. Like you, I fervently hope that they re-institute a buyback.

    Liked by 2 people

  8. More info from TPL Investor Relations:

    – In terms of the land sales / acquisitions, one of our public releases from April 2019 best describes the strategic rationale behind recent activity, please find an expert from that press release (note I have edited for clarity and brevity):

    “This transaction [sale to WPX] generated proceeds of approximately $100 million at an average price of $7,143 per acre in an area with high potential for drilling but with continued challenges from adjacent surface owners. The position sold was a non-contiguous “checkerboard,” and neighboring surface owners had historically obstructed development of the area. For these reasons.. the Trust was only receiving an estimated average of approximately $2.1 million in revenue over the last four years across the 14,000-acre position, which represents approximately $150 per acre.
    Selling this acreage position allowed the Trust to monetize a non-core asset and re-deploy those proceeds into highly strategic surface acquisitions, which will enhance near-term opportunities for the water business. For example, the Trust has redeployed approximately $83 million of the $100 million of the sale proceeds in a tax-free 1031 Exchange, creating 53,000 contiguous acres in the core of the Delaware Basin, including highly strategic acreage on the Texas-New Mexico border. This position is leased by blue chip E&P operators with large capital development budgets and best-in-class safety and environmental implementation.

    In the long term, this transaction also protected the Trust’s competitive advantage by engaging with a counterparty that would not be adversarial to TPL’s interest in growing the water business.”

    ***
    In terms of Tyler Glover (CEO) pay/bonus for 2019:

    I would encourage you to review his employment contract: (https://www.sec.gov/Archives/edgar/data/97517/000009751719000039/exhibit101employmentag.htm) which outlines how his bonus was determined (Net Income growth), and see the requirement for him to utilize approximately 25% of his bonus to purchase shares of TPL. I would also note TPL doesn’t have the ability to issue shares and is therefore unable to compensate its management team with equity – this is different than most other public businesses in the energy space.
    Additionally, we believe TPL is no longer a passive business and in order to maximize the value of TPL’s assets, including our water business and surface business, an active approach is required by management.

    Liked by 1 person

    • Determining CEO pay based on net income growth when it ABSOLUTELY is still primarily a passive business is ridiculous. Perhaps a portion could be tied to net income growth (or to growth in water EBITDA) but I’d rather CEO pay be tied to trading multiples and unit price appreciation/annual total return. Just because the Trust can’t issue shares/units does not mean they can’t tie compensation to share price performance. This would support 1.) maximizing controllable cashflow (i.e. opex and capex) to support buybacks or dividends (depending on if units are cheaply or richly valued in the market); 2.) encouraging management to focus time on active investor relations and investor outreach to drive the unit price higher. We already have a water team actively managing that business – CEO compensation should be tied to what’s in management’s control. Just another example of management and the Trustees milking the Trust for all its worth at the expense of unitholders…

      Liked by 3 people

  9. The past few days of frantic selling just go to show the importance of converting to a C-corp and building a long-term investor base. Between large institutional holders (i.e. less impulsively reactive) being more loathe to sell down share, inclusion in indices (i.e. some holders MUST hold shares to maintain the index basket), and continued buybacks I suspect TPL would hold up better through an environment like this where retail investors, day traders, and hedge fund investors are rushing to go to cash.

    I could be wrong but just my two cents.

    Thankful to see HK has resumed purchases. Now if the Trust gets back in to share buybacks then we might actually see some support.

    Liked by 2 people

  10. I bought some RCG today since 50% is in money market and treasuries. That and almost a million in TPL shares… seems like they have a lot of dry powder and will be able to use better than I will!

    Liked by 1 person

  11. Lifted a bit today. In a sense, might turn out to be good fortune that they did not buy back any shares last year, since they can use all that cash to buy back twice as many now! Start buybacks!!!!

    Liked by 2 people

  12. Hi All – What are the implications of this capital expenditure cut announced this afternoon by WPX? They were 14% of revenue in 2019 per the annual report. Is it reasonable to take the royalty revenue from WPX and multiple by ~ 60% (to take into account a approx 40% drop in oil from $50 to 30) and then multiply by 75% to get the new run-rate WPX Energy? So every hunderd dollars of revenue is now $45?

    Liked by 1 person

    • Omar – not quite. Existing production should continue to produce as long as the lifting and marketing costs are less than the price achieved. This is likely the case for most wells in the Permian, particularly if their produced water is being pipe gathered (pipe is cheaper on a go-forward cost to transport wastewater than truck hauling). However, the existing production will decline off fairly quickly due to the steeply declining nature of the wells’ production over time.

      In essence, the capital expenditures of producers like WPX, Chevron, and others stacks more of these wells on top of each other to build up the total production volume. A lower activity level might still be more than enough to offset the declines of the existing production, resulting in growing royalty revenue (albeit at a slower rate). You’d then take THAT number for total barrels and multiply it by 60% to approximate the impact of a drop from $50 to $30 oil.

      It’s also worth paying attention to what realized prices for the gas portion of the royalties are. Gas prices will likely stay low through the current uncertainty and economic downturn, but if supply drops off from lower US drilling and Asian demand for LNG rebounds, you could see higher realized values on the gas portion of royalties despite the lower activity levels and oil prices.

      Not sure if that helped make things clearer or made it harder to figure out!

      Liked by 1 person

  13. Well I have been buying below 350 – have bids in at 280-290 and 300 – never thought we would get there- I sure hope they can start buying in stock soon

    Liked by 3 people

    • I’m trying to make sense of all this. Comparing it to the XOP, which is down 68% YTD, TPL has fared better, down 60%. When TPL is beholden to the underlying driller capex, why can’t we see this catch up or even underperform given TPL has no ability to really actively create value itself as, primarily, a non-operator? One large holder, Hodges Capital, had it as its biggest position in at least one fund (HDPMX is the ticker). That mutual fund is down 51% YTD (puke!) vs. the Russell 2000 down 39% and the S&P 500 down 26%. If investors who own that mutual sell their mutual fund shares, doesn’t that result in even more TPL selling? One the Hodges people is on the committee so maybe they are restricted from selling in which case I guess they can’t be buying either. Does anyone know if all the committee members respective funds are restricted from buying? Presumably so since they have insider information which gets you back to – who is the incremental buyer here if the company is sitting it out and the larger holders are sitting it out?

      Liked by 1 person

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