14 thoughts on “BWS Initiates”

  5. Hey Everyone,

    Naturally this is absurd. Such is life in the modern investing environment. But in any case, I mentioned this a few posts back: does anyone have any takes on valuation? Obviously being here we have high expectations, but I’m curious what y’all think about it after the recent series runups.

    We live in a narrative driven world and the sky is seemingly the limit these days (combined monetary & fiscal policy, index effects, algos, the retail trade & FOMO, etc.). IIRC, Horizon’s TPL analyst indicated on a call a ways back (maybe a year or so?) that NAV was a strict multiple of, roughly, it’s all time high.

    I’m interested to see what happens in today’s final Trump era auctions — to gauge future Permian interest. And all of this is not to mention the clear tailwind catalysts we have at our disposal (e.g. corp structure => many investment structures’ mandates allow for ownership now, etc.).

    Thanks,

    -Jack

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  6. Regarding Market value: Current share price of $850 +/- seems to align with Market cap of 6.6B and the roughly 7.7M shares outstanding.

    Regarding enterprise value: Murray Stahl and the crew at HK put together a 2020 Q3 commentary (that was shared by a member of this forum) mostly about energy with facts that displace the everyday reporting and assertion & noise we hear out there about renewables and fossil.

    Here’s a link to the abridged summary of that report:
    https://horizonkinetics.com/app/uploads/Q3-Abridged-Summary-Review-Final-Draft_APPROVED.pdf. (Required reading for everyone on this TPLc forum 🙂

    If you agree with Murray’s Musings in the Q3 Commentary, and believe there will be continued demand for oil, the new visibility of TPL to Wall Street, ongoing US currency debasement…. TPLs zero debt and big cash reserves, an almost 900k land monopoly with only 30+/- employees….I think the stock is may just be a once-in-a-lifetime opportunity..(Did I just jinx it??)

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  9. Hey Everyone,

    Thanks for the thoughts, but I’m not sure we hammered out an opinion on actual valuation. I agree that share price = market cap / total shares outstanding, but this tells us very little beyond price.

    My thoughts about current valuation involve the following: (a) where we are in macro O&G demand/supply, (b) where we have been as far as valuation in the past in relation to the US shale cycle, (c) market sentiment (read: FOMO, retail trade (DDTG), etc.) & dynamics (read: global monetary & fiscal policies), (d) catalytic tailwinds.

    While obviously all of these are important factors, I’m more concerned with (b) in the long run. The Horizon Kinetics reports are always well researched and extremely informative. I was ecstatic to hear Murray say his back-of-envelope calculations implied $70/bbl for Saudi breakeven. I also liked hearing that their TPL analyst, James Davolos, thought NAV was a multiple of price at its ’19 high.

    But anyway, these are all bullish calls. Remember, HK began accumulating their position in the mid 90’s. In fact, I believe their first ever research report was on TPL. Note the change in investment thesis over time. Also, their cost basis is drastically different than those that got in within the last 6 – 8 years. Sure, they’ve a pattern of buying/selling but that’s all just reflecting onboarding/offboarding clients – standard practice. It’s not a signal, really. New restrictions aside, they couldn’t offload this massive position in an advantageous way even if they wanted to. Of course, the new corporate structure will give them a wealth of new avenues to effect that value realization moving forward (again, restrictions aside).

    In any case, I would argue that $800 – $900/sh is fully in line with the dynamics of the market prior to the mainly pandemic-induced shale bust. Yr-over-yr, looking at Q3 EBITDA, we should be priced somewhere around 75 – 80% of current px. S, roughly speaking, somewhere around $600/sh. But demand is still way down from pre-pandemic and we have quite a bit of headwind before reaching post-Covid. Check out rig counts: https://ycharts.com/indicators/us_rotary_rigs. Look at 1Y, 3Y, 5Y and 10Y views. We’ve still got a long ways to go before West Texas is firing on all cylinders again, that is, when shale plays should be demanding serious premiums (aka that multiple of NAV is speaking about before).

    Don’t take this as a complaint about sitting on massive gains — never attack your runners they say. I just want a sober take on the situation as-is.

    Thoughts?

    -Jack

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  10. Oh, I forgot to mention in my tl;dr above, I thought TPL’s investor presentation last year was extremely helpful with forward gauging. I believe it was about halfway through they had quite a few good visualizations of operator coverage by basin & required breakevens by $/bbl. IIRC, the majority were in the black at >= $50/bbl for both the Delaware & Midlands.

    There were also a few good ones depicting permitted vs. DUC vs producing by region & by operator. I think the rig count graph I linked to above along with the DUC count in the high quality Permian is a good fallback metric when worried about where we stand.

    But of course none of this reflects the impact the pandemic shale bust has had on regional players.

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    • Like you mentioned, the corporate presentation from last year was a good first step in getting information about OUR company from management. One of the big problems with TPL in the past, as you know, has been shareholder communication. We are all hoping with the new structure in place, that they will now share much more detailed information on quarterly reports, including conference calls with management. This will go a long way in us better understanding the instrinsic value of TPL Corporation.

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