2 thoughts on “Interview”

1. Dead link already – cannot find anything on his website except a discussion on the last quarter’s results…

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2. Copy: I was delighted to be able to talk to an employee of Texas Pacific Land (TPL) and to ask some questions about his views on the outlook for the business. Here is a summary of what he told me.

   No slowdown in growth of volumes expected

   No slowdown in the growth of volumes we have seen for the last five years is expected for at least the next two years.

   It’s difficult to forecast further out than this as typically producers communicate their schedules to TPL about two years in advance.

   Every month for the next two years, Cimarex and ConocoPhillips will have a new group of wells come online.

   For Chevron, Diamondback, Oxy and Devon, TPL is also forecasting increased production, with an average of one new set of wells for each of these producers coming online every two to four months for the next two years.

   Producers expanding pad sites

   Companies that constructed pad sites designed for one to three wells have been expanding their existing drill pads to add six to 10 more.

   This shows that they have seen good production on their existing wells. By drilling more wells in the same leaseholds, they aim to hit different intervals to get all the production they can out of a specific location.

   It’s common that operators will drill one to two wells in an area to ensure that they will have good production. Once they confirm that those had good results, they will typically come in and drill several more in that leasehold.

   The first two wells are usually one-mile laterals and the second set are usually two- or three-mile laterals. The second set of wells typically produces more volume.

   The pad site expansions started to happen in the 2nd half of 2019 and then many of these plans got postponed until recently due to Covid.

   While this does mean increased production, much of the existing infrastructure on the surface side has already been built out. There is likely to be faster growth on the oil & gas royalties and water business than for the SLEM (surface land easement materials) revenue. Operators are not having to make as much of an impact on the surface with new infrastructure since a lot of the infrastructure is already in place. However, as operators move further west, new infrastructure will have to be built out.

   Acquisitions

   Over the next couple of years, TPL is likely to be more aggressive in looking for acquisitions on the minerals side.

   Acquisitions won’t necessarily mean increased expenses. In the past, TPL has pursued strategic mineral acreage swaps to get more contiguous acreage rather than checker-boarded acreage.

   ETF of the Permian

   CEO, Tyler Glover, has said – half-jokingly, half-serious – that TPL is the ETF of the Permian Basin because its growth is largely dependent on the growth of the Permian Basin itself. Also TPL is unhedged so its oil & gas royalties revenue is dependent on the prices of oil & gas.

   Forecasting near-term revenue

   In order to get a gauge on forecasting near term revenue, investors can look at the forecast CapEx of the producers on TPL’s land. If you look at comments from Pioneer, Chevron, ConocoPhillips, Oxy, EOG, Cimarex, etc., these companies will typically specify CapEx by basin and will tell investors their expected CapEx for the Permian for that year.

   Written by Timothy Lamb

   Blog: http://www.retailbull.co.uk
   Twitter: @theretailbull

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