Cold Winds

It could have been a signature quarter. The quarter that could have turned the page. The quarter that could have shed some sunlight and happiness on our governance malaise.

Instead, cold, icy clouds moved in and blocked out the sun.

What could have been. Sunny day! Everything was working. Record production. Record royalties. Water business comes alive! Here comes the sun!

And then all of the sudden. A $19mm cloud full of freezing rain and cold wind appears on the horizon. Poor accounting controls. Bad depletion accounting! A ~$2.50 per share drag on EPS. A miss below estimates!

Ouch! Who’s accountable? Was this discovered before or after the comp agreements were finalized?

The ETF of the Permian deserves better.

They have the golden goose in a headlock.

The material weakness identified by management relates to the design of internal controls over the periodic evaluation of historical tax returns for uncertain tax positions in accounting for income taxes. As a result of this design gap, management did not timely identify the incorrect tax treatment of depletion related to our oil and gas royalty interests in our filed income tax returns related to prior periods until the fourth quarter of 2021. The material weakness led to the understatement of income tax expense and income taxes payable for the years ended December 31, 2018, 2019, and 2020 and the quarterly periods ended March 31, 2021, June 30, 2021, and September 30, 2021. Management evaluated the effects of the out-of-period adjustment related to prior periods, both quantitatively and qualitatively, and concluded that this adjustment was not material to the Company’s financial position or results of operations for the current or any prior periods. As of December 31, 2021, this material weakness had not been remediated. During the first quarter of 2022, we implemented a remediation plan to update the design and implementation of controls to remediate the above-mentioned deficiency and enhance the Company’s internal control environment. If our remedial measures are insufficient, or if additional material weakness or significant deficiencies in our internal control over financial reporting or in our disclosure controls occur in the future, our future consolidated financial statements or other information filed with the SEC may contain material misstatements and could require a restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations or cause investors to lose confidence in our reported financial information, leading to a decline in the market value of our securities.

11 thoughts on “Cold Winds

  1. Surely its the “activists” that are accountable for distracting them by trying implement some semblance of corporate governance. Ocean’s Three had to spend sleepless nights to figure out how to stay in their positions and loot the company. The poor guys didn’t have time to implement proper financial controls.

    Liked by 3 people

  2. indeed this is disappointing considering crude oil is hitting near the 100 mark again… Exxon Mobil, Chevron are hitting fresh highs… while our good old unique royalty company which benefits from the rising crude prices is touching its 1Y lows…. perhaps TPL is a company thats “so good that any idiot can run it” as coined by Peter Lynch, certainly the board are full of selfish managers who are trying to milk the last drops of this cow before I hope eventually they all get booted to hell

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  3. Just read the info on the call and noticed that Cris Steddum referred to a Stephanie Busse as “our CEO”. He also stated that the restatement–‘in perspective, you are talking about $10 mil, $12 mil, $13 mil over the course of 3 years, against billions of dollar in revenues” is not material!!!
    Not sure what company he is talking about but these comments are irresponsible.
    Stephanie Busse is not our CEO
    We need to know the exact number and when it was ‘discovered’
    He needs to recalculate the revenues
    IT is material……2.50 per share is important to any investor


  4. As I understand it, they said the tax treatment of depletion will not lead to a re-statement of previous years financials. Also, the 10-K said that they have have closed the gap in internal controls. They have a new public accountant. Although important, it’s not a big worry for me moving forward.

    As I recall, they said Mr. McGinnis’ resignation and the de-staggering of the board is in the hands of the Nominating and Governance Committee, which has three independent directors: General Donald G. Cook is the Chair, as well as Donna E. Epps and Murray Stahl (“the company’s largest shareholder”).

    The Nominating and Corporate Governance Committee has 90 days (almost until end of March, as I appreciate it) to bring their recommendations to the full board (and this morning they said that “lack of public disclosure is not an indication of a lack of progress”).

    In my opinion, it’s high time to resolve this corporate governance overhang. My view is based on the fact that Mr. McGinnis received less than 50% of the shareholder votes cast. If I was a member of the committee, I wouldn’t spend much time wrestling with this decision and / or recommendation.

    Liked by 1 person

    • I don’t think they are wrestling with the decision so much as they are wrestling with each other. Management knows McGinnis is a friendly, they don’t want to lose an ally. Stahl is outnumbered 2 to 1, but he is such a large shareholder he might be able to throw his weight around a little more. We’ll see.

      Liked by 1 person

      • We already know how Murray feels. It was publicly disclosed that he voted against McGinnis.

        We don’t have insight into how Don Cook and Donna Epps feel at this moment. But, we know that:

        First, if there was unanimous agreement with Murray, then this wouldn’t take 90 days, let alone 90 minutes.

        Second, the McGinnis bs was known to the whole board going into the vote, and yet Donna and Don remained comfortable with McGinnis’ nomination. So why would they be any less comfortable with him now?

        Third, additional wrinkle here for Donna and Don is that they are both up for re-election this year. So do they go against Murray and risk him voting them out? Or do they side with David Barry and pray that he prevails?

        Liked by 1 person

        • I need to learn to never underestimate the depravity of barry and norris, nor mindless following of their hand pick lackeys. BUT, its hard to imagine the board would vote to keep dana without a lawsuit against MS and Oliver. Otherwise, aren’t those votes legal if the shareholder agreement is not enforced?

          There is no doubt that B&N have gathered the cabal together in some dark forest. Most assuredly they are casting spells, I just don’t think its to resurrect Dana. btw, in my mind I see Cookie stirring the cauldron, I am just hoping that I don’t get a picture of B&N dancing around naked.


  5. Interesting:

    “In the Delaware, overall operator development seems to be a bit more skewed towards the New Mexico side…”

    “Our produced water volumes have moderated somewhat recently, as we see producers focus heavily on the New Mexico side of the Northern Delaware.”

    I wonder if this is a short term phenomenon or a long term shift away from TX to NM?


  6. Shawn of investor relations got back to me on when we can expect a resolution to Dana and Declassify.
    He did not want to say anything prior to earnings release that might scoop that release. Understandable. Here is his response:

    “The 90 days is for the Dana issue. He’s submitted his resignation. Now it’s up to the Nominating and Governance Committee (NGC) to make a recommendation, after which the broader Board will also act. The NGC consists of 3 independent directors, and management is not part of that committee. I think you can expect a resolution here in the next couple months.

    The declassification is also with the NGC. I don’t have a ton of great insights into those conversations or the exact timing there. Prior to TPL’s conversion to a c-corp, the declassified structure is something that the Company looked at, so I don’t think they’re starting from scratch. I’d imagine that once the Dana item is resolved, then full attention can be dedicated towards declassification.”

    Liked by 2 people

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