Open Letter to Board

The following is a letter from an institutional investor who prefers to remain anonymous. He probably doesn’t want to be tracked by private investigators..

Despite concluding the one-day trial, the fate of Proposition Four is not likely to be determined for a long time. As the judge mentioned, whichever party loses in his court will likely appeal the decision to the Delaware Supreme Court. Win or lose, there is one outcome from the trial and the events that preceded it that is certain, the reputations of management and the board of directors were severely damaged.

Let us recap the events and discoveries that led to the damaged reputations:

-To start with, by proceeding with the lawsuit, the board has ignored the wishes of shareholders who voted against Proposition 4 – the vote results were ~65% against.
-The board approved the use of, at least deceptive, and at worst untrue, statements in proxy statements.
-The board subpoenaed several shareholders of the company, which presumably caused those shareholders to incur legal costs in order to comply with the subpoenas.
-The board approved the hiring of a private investigator to investigate at least one of the company’s shareholders.
-It became abundantly clear that the intent of Proposition 4 was not to implement a stock split, but to provide acquisition currency to the company. It is not a stretch to say that the marketing of this proposition to investors was deceptive.
-The board’s capital allocation decisions were tarnished as it was revealed that one of the acquisition targets was a collection of assets from Occidental Petroleum – Occidental knows their drill plans better than anyone, which means the buyer of royalty assets from them are not likely getting the better end of the deal.
-The board and management look to be poor stewards of financial resources given the use of a private jet as a means of transportation to Delaware and hiring an army of attorneys and paralegals to show up in court.
-The deposition of the co-chairman came across as arrogant and indifferent as to the wishes of the shareholders.

Controversy has surrounded this board since its inception, as shareholders do not feel adequately represented. This point is clear from the last shareholder meeting in Dallas and should be clear from the shareholder representation in the courtroom this week. I do not know if the two co-chairs can rehabilitate their reputations with shareholders. That will be determined in the next election for directors. It may not be too late for the other directors to rehabilitate their reputations. Here are some suggestions for how to do it.

To start with I would:

-Not support an appeal if the defendants prevail.
-Ratify the de-classification vote. This was voted on by shareholders and passed. I could see delaying this until the meeting was fully concluded, but as the judge said, having another meeting date is moot at this point. Given this, ratify the de- classification of the board.
-Pay for the legal expenses of the shareholders you subpoenaed.
-Issue an apology for the shareholder you investigated.

Longer term I would:

-Cease searching for large acquisitions. Shareholders do not want the company executing large acquisitions.
-Given the above, it is likely that you can cut expenses associated with finding large transactions.
-Align management’s compensation with activities that they can control and not with metrics tied to the changing price of oil or completing acquisitions.

Being respectful and having a less arrogant tone when dealing with shareholders would also go a long way. I hope that you, as board members, take the above into account and repair your reputation with shareholders, which could lead to long board tenures for you. Contentious situations often cause parties to dig their heels in. I would encourage you to look at the vote of the shareholders, remember the comments from the annual meeting, appreciate how many shareholders took the time to attend the trial, and rise above any temptation to dig your heels in.

19 thoughts on “Open Letter to Board

  1. Everybody got its Delaware corporate structure. Now the company is saddled with a bunch of greedy “managers” who plan to get rich at the expense of shareholders.


  2. All good, rational, common sense suggestions … which is why this management team and board will ignore it.

    TPL is a trophy asset, yet investors are bailing like rats jumping off a sinking ship (down 33% YTD) because of the uncertainty surrounding this litigation and how it has shined a spotlight exposing the companies leadership as untrustworthy and poor stewards of investors capital.

    I’d rather be in an average business with good people, than a great business with bad people.


  3. Excellent letter, well thought out and presented. I’d also recommend that the Directors not be given “options” or restricted stock, which is a free ride on the real owners, but be required to purchase, out of their own funds, at least 100 shares of the stock. Only then, with their own capital on the line, are their interests aligned with ours.


    • The next annual meeting, which legally needs to happen within 13 months of the last one (I think they will stretch this a bit, but we’ll see), will be the big one as the two co-chairs (who are driving this madness) are up for re-election.


  4. Seems like a similar letter can be written directly to management. Back the co-chairs at your own risk…….Would be nice to see the CEO/CFO take some positions against the co-chairs. Just because the large acquisition strategy is dying a slow death, doesn’t mean that there are not other ways to create value. They could play a large roles in influencing the other directors and have long, profitable careers at TPL.


    • I think that management is really having delusions of grandeur and are the ones pushing to grow the company and are abetted by the Board that sees a big payday (cash & stock) if 4 passes.

      Liked by 1 person

  5. Management and the Board need to accept accountability for the downward trending share price ever since the Nov. meeting. Sure, there was bound to be some investor profit-taking, and the price of oil has declined, but even Barry remarked in his video deposition shown at the trial that disruption over Prop 4 is a contributing reason for the drop. Of course, he probably blames HK/SV for the disruption, but we know that the evil empire foolishly overstepped by introducing this uncertainty and the market damn well doesn’t like it. Great shepherds of shareholder value indeed!

    It was also referenced at the trial (in relation to the controversy around the date of record for voting) that half of all outstanding shares have changed hands since November. Yet another sign of increased volatility, especially with large institutional investors who may be losing confidence in management by the day and bailing out of TPL.

    I’m sure Glover will gloss over all of this at the upcoming 1Q earnings call, taking credit for what will (hopefully) be strong financial results due to his team’s “active management” prowess.


  6. Half has changed hands…Wow….I don’t think it can be any more clear that shareholders don’t want 4 to pass….I just don’t think they care…..


  7. Interesting….one would think that the reason to buy surface acreage is to facilitate drilling that would access their royalty acreage. However, TPL has no royalty acreage nor surface acreage in Andrews County.


  8. TPL is down 43% since it peaked in Nov. 7 2022. This is in contrast to a 9% S&P 500 return, not to mention the PBT royalty comp, which is up 24% since. This makes TPL the first S&P 500 constituent to go into recession. How long will this governance related contraction continue? BOD and management are actively destroying this business.

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