Underwhelmed

tpltblogger18 Comments

The Conversion Committee recommended a conversion to C-Corp on January 22, 2020.  After two months and a day pass, the Trustess come out to say they will adopt the recommendation of the committee they were on(!!!).  With no further details other than, uh, um, Fall 2020 maybe.

Why are things taking so long?  How much money has been paid in legal bills?

Even in good news there is misery with this pair of “Trustees” who appear to be working in the interest of everybody but the owners of the trust.

 

 

18 thoughts on “Underwhelmed”

  2. The trustees have done some very suspect things as was brought out during the legal gyrations before they came to an agreement. I’m on board with throwing the bums out!

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  3. I think its almost certain they are going to use the coronavirus as an excuse, so don’t expect anything until the end of Q4 (in my opinion). I’m assuming the one thing that was not part of their legal settlement was a timeframe to decide on the conversion and the implementation. The trustees will use that to their full advantage. Ofcourse, the longer it takes, the more they have to pay Credit Suisse and Stifel, so they won’t be in a rush either.

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  4. This is a call to action!!!!! Action speak louder than bitching about the incompetent Trustees.

    Does any know have contact info for the Judge in the case?

    I will be happy to write the first letter and hopefully others will follow.

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  5. Everyone involved with this mess deserves a kick in this ass. All of us. I especially dislike both blue and white card parties for basically doing nothing but hang a black cloud. It’s wrong to blame one or the other. We are the suckers, and they all suck.

    The incompetency is stunning. We have activists that don’t know how to get anything done, and trustees we can’t trust. The suck factor has gone to 11.

    Is there anything defensible at this point, including the investment thesis?

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    • Re: the investment thesis, keep in mind the permian is roughly 30% of US oil production, the GOM is roughly 20%. These are the lowest cost barrels in the country. The other 50% of US oil production (and almost all of Canadian production) would be the most impacted if this low price environment continues for the medium term. Basic economics would imply that oil prices would rise in the medium term if that much supply is impacted.

      In the short term, ofcourse, production will be impacted in the permian as well, but to the point where the growth of production will reduce, not actual production. One other point, though not as significant, is that natural gas prices have started to rise in the permian because associated gas production is also expected to show a slowdown in the rate of growth.

      In the long term, supply and demand will come back to equilibrium and the lowest cost barrels in the market will always be around. The Ghawar field in Saudi Arabia has been through several worldwide economic fallouts, but anyone who owned a piece of it for the past 50 years would be very rich.

      All in my opinion, ofcourse. I better be right 🙂

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  6. Here is the email for the Judge in the case.

    If you are unhappy/disappointed by the actions of the 2 Trustees then take action.

    Maybe you feel, that you have two Trustees running the show and there should be third.

    Maybe you feel they are dragging their feet and disclosing the bare minimum (bare!!!!)

    Whatever your issue is – say something!!!!

    PLEASE POLITELY and PROFESSIONALLY EMAIL THE JUDGE

    District Judge Jane J. Boyle

    E-Mail: Boyle_Clerk@txnd.uscourts.gov

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  7. Well nothing like hitting somebody when they are down. Chevron to cut 2 billion from Permian budget. My guess is this takes TPL down pretty hard. Not to mention the pressure on all of the easement and water and disposal prices. My only hope is that horizon kinetics does not have to sell. If you look at their biggest positions they include GBTC, BAM and TPL which are obviously in the crapper

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    • Seriously, “hitting somebody when they are down”!!!! These Trustees are arrogant. The problem of lack of disclosure has been going on for a long time. Did you attend the meeting Dallas in May of 2019? Oh yea, they officially cancelled that meeting with 12 hours notice.

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      • @Alan, while I didn’t attend the meeting, I thought the replay (see Horizon’s website for it’s post on vimeo) was a good example of the underlying tension. However, the Q&A (roughly halfway in) that followed was good to hear. Eric Oliver offered some interesting information.

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    • @bsmith I seriously doubt they’ll sell. They’ve been accumulating shares since 1994 (afaik). Their current share count is ~22% of TPL’s total shares outstanding. With average daily volume, this would take several months of total vol to unload. We would know this well in advance via the corresponding filings. Yes, there is an argument to be made about redemptions, but I doubt that’ll be the case. In fact, a 13D (1) indicates they just recently (3/18/2020) raised an additional $40mm for one of their funds. Their cost basis is very low in relation to TPL’s price action over the last several years, so in the aggregate, they’re sitting on gains on said position even in this calamitous environment.

      To note, BAM & GBTC are minimal positions in relation to TPL. I believe TPL occupies somewhere around 30% of their aggregate portfolio holdings. In addition, another 13D (2) states “[t]his Schedule 13D does not include approximately 23,362 Shares of TPL held personally by senior portfolio managers of Horizon and their families”, which means they also hold (if relatively small in relation to HK’s portfolios) on behalf of their personal accounts. Note that (1) states that all sales — don’t be alarmed, continue reading — of TPL were due to “client direction or account limitation”. You’ll see as well that the sales were minimal in share count and fully offset by purchases. Moreover, they even released another Form 4 today, indicating more purchases at the current trading range!

      One last thing, HK released a market update (3) yesterday, discussing the overall downturn as of the Coronavirus & Saudi/Russia impacts. On pages 4-5, they specifically cover the Saudi/Russia spat. I suggest reading it. Note the following: “…perpetual ‘non-participating’ royalty assets with no debt and minimal operating expenses are the best possible assets to invest through a full cycle—specifically, royalties in the lowest cost and largest basin in the country (Permian) with well capitalized, best-in class-operators (Chevron, Exxon, Shell, EOG). As energy prices recover, activity will concentrate in the best acreage and likely be consolidated by the best operators.” NPRA’s, no debt, minimal opex, lowest cost & largest basin (Permian) exposure….hmmmmm; who could they be referencing? TPL — saying without saying.

      Anyhow, all this was just a long-winded way of contending that Horizon Kinetics will not liquidate their position. They are in it for the long haul. And everything that’s going on with TPL right now is because of HK’s actions over the last couple of years in the first place. They have deep conviction, no doubt.

      (1): https://www.sec.gov/Archives/edgar/data/1410109/000141010920000001/xslFormDX01/primary_doc.xml
      (2): https://www.sec.gov/Archives/edgar/data/97517/000105682320000045/formsc13da.htm
      (3): https://horizonkinetics.com/wp-content/uploads/Horizon-Kinetics_Update_FINAL_03202020.pdf

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    • Chevron 20% capex cut probably won’t affect TPL too drastically as Anardarko was the biggest customer last year with 14% of revenue. There’s no figure in recent 10-K for Chevron’s 2019 revenue into TPL, but here’s the previous two years:

      During 2017, we received 10% of our total revenues which included $15.1 million of oil and gas royalty revenue — from Chevron U.S.A., Inc.
       
      During 2018, we received approximately 16% of our total revenues (prior to deferrals), which included $27.1 million of oil and gas royalty revenue and $18.9 million of revenue from sales of oil and gas royalty interests, from Chevron U.S.A., Inc.

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  8. Given that they have to file a Form 10 to complete their conversion, it will be subject to review and demand for changes by regulators. These reviews typically take a month or a month and half. Who knows how long it will take given the CV-19 situation. While I am no fan of the trustees, I imagine the timeline accounts for this new uncertainty.

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  9. I couldn’t find this posted in the comments anywhere recently, so I thought I’d share: https://horizonkinetics.com/wp-content/uploads/TPL-March-Market-Update-March-13-2020.pdf. Some highlights:

    “It should be recognized that the current energy prices are simply not sustainable [. …] Even OPEC countries and Russia are straining federal budgets at these levels given their dependence on petro-dollars to fund the national budgets. As an example, many estimate that the Saudis need $88 Brent to fully fund their government.”

    “[Per TPL,] the focus should be twofold i.) acreage quality and ii.) operator quality.”

    “Should there be a severe and or sustained turndown here, it will setup for an eventual supply
    shock that is a mirror of the present situation. It should also be noted, that dire as this may be, in the
    event that there is a solvency issue amongst these operators, the TPL royalties are perpetual. Hence, a
    U.S. energy collapse and subsequent oil price surge, would ultimately drive production right back to
    these acres at materially higher prices.”

    I haven’t had time to digest everything they’ve put out recently, but it’s worth looking &/or listening thru the last few weeks of stuff HK has released.

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  10. Oh, and I forgot the best part, the $40 avg being debatable (and certainly unknowable with certainty at this point):

    “If we assume that oil averages $40 in 2020, then gradually recovers to $55 over the next 2 years, and only maintains this price levels longer term (no higher), the NAV of the royalties alone is a multiple of the current market price.”

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