Meeting Notes

tpltblogger24 Comments

The following notes were sent to me by an investor who attended the meeting today. Many thanks to him for being so thorough and objective.

The Meeting

Only item on agenda was Prop 4 – voting opened for anyone to change votes – only one stockholder present requested ballot to change vote. Voting was closed and it was announced that results would be announced at the conclusion of the lawsuit. 

It was reinforced that the lawsuit was solely about the stockholder agreement and not the merits of Prop 4. If TPL wins the votes would revert to in support of the board. If TPL loses the lawsuit then Prop 4 would fail.

I asked after the meeting what was the plan if it failed and Barry indicated there was none at this time.

Barry (meeting chair) did open up the floor for questions and discussion on Prop 4 and everyone had opportunities to ask questions. No one was shut down. There were some questions relating to the litigation they could not answer (understandable). There appeared to be mutual frustration from all about the cost of the lawsuit.

2022 meeting was adjourned and closed. Longest meeting ever!

General Observations

If you walked into the room and did not know anything about the litigation or dispute on Prop 4, you would never expect all the discombobulation we have gone through. I believe most folks would believe as I do, the meeting and Q&A after were very professional and informative.

Valuation & Stock Price

Management acknowledged that TPL trades at significant premium and its valuation is a factor of an assortment of things including future value of existing and future well sites, cash flow, etc…

There was some discussion about expected life span of Permian Basin and well performance.

There was also discussion about the mechanics of making S&P 500 or 400. The general thought seemed to be we are right on the Cusp. Discussion related to the process, the mix of companies, market disappointment we didn’t make the cut last time.

Lower oil prices as well as the litigation were also acknowledged as putting downward pressure on stock price.

Debt

TPL has no debt and no debt facility. Management has the stated position (from the comments I heard) that using equity is better than debt. They also shared that there are costs for having debt faculties even if you don’t use them.

Prop 4

Management position was that issuing of treasury shares above and beyond the stock split was not dilutive. Treasury share authorization was to be able to quickly respond to acquisition opportunities and that the net effect of the assets purchased would be a wash vs shares issued so that no dilution would occur.  

Having the Treasury Stock approved and available makes it easier to secure acquisitions. Management’s opinion is that having to get stockholder approval to do an acquisition after a deal is signed was not a good way to do it (my words) as the time it takes to get it approved and the uncertainty of approval would make potential acquisition targets less willing to engage TPL.

Acquisitions

They stated there were no serious discussions or acquisition targets at the moment but they were out looking for opportunities.

Concern is that it takes 4 months to issue shares and if they came across a deal, they felt that the delay in issuing shares for an acquisition along with uncertainty that the additional shares would be issued would hamper ability to successfully bid on opportunities that present themselves.

Water Business

I asked about water business and Board expressed frustration at the rumors that it was not making money. It is making about $170 million a year which more than pays for total TPL overhead of $80 million and still provides significant margin. This being the case I can certainly understand the frustration that has been observed when they get asked about overhead costs.

General Administrative Costs

They addressed that the operations now are much more involved than years back with the need for auditors and support staff just to manage the administrative tasks related to the larger amount of activity (wells, solar farms, etc…) on TPL land.

Treasury Resources

Currently TPL has about 40,000 shares in treasury (from buy backs) and just a bit under $500 million in excess cash (above and beyond what they need for working capital which they like to keep at $100 million)

Real Estate

There was some discussion on real estate policies and how they were managing it. As a real estate guy I found this to be spot on.

Conclusion & My Quick Thoughts

Overall, I think Chair and Management handle themselves very well and professionally in contrast to what I expected and apparently in contrast to previous meeting which I was not at. Someone who had been at previous meeting shared similar observations. 

Management did seem to be very seasoned and although they used buzz words, formulas and phrases, I understood most of them. This impasse may be more about how the Board & Management communicate to shareholders than actual policy.

I hope that once we are done with this matter, everyone can regroup and come up with a clear plan that all can buy in on.

24 thoughts on “Meeting Notes”

  1. “They also shared that there are costs for having debt faculties even if you don’t use them.” – Commitment fees for facilities are approx 1% (negotiable to some extent – partly driven by Regulatory Capital cost of setting aside the Commitment) of any undrawn Commitment (i.e. loan size) annually and that is a cash outflow (but no cash outflow associated with equity). That doesn’t sound like an extremely strong argument to me from a cost of capital perspective.

    “There was some discussion on real estate policies and how they were managing it.” – could you provide more colour on this please?

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    • Discussion was relating to selling off stray parcels and aquiring parcels adjoining existing. Securing properties close to transmission lines (to sell solar energy to grid), road ways, etc… Buying out corner parcels which TPL may surround, etc… Shared concerns about adjoining parcels being sold to new owners who may be less neighborly and may fuss (my words) about uses TPL has on its parcels. A bit more but all of this is dead on for real estate people.

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      • There is more than enough cash to do all of the above if such things make sense.

        They don’t need to 6x the share count to pick off corner parcels.

        Liked by 1 person

  2. Appreciate your comments…but your conclusion is concerning.

    “ I hope that once we are done with this matter, everyone can regroup and come up with a clear plan that all can buy in on.”

    The problem is management has abused shareholders, with this stupid legal fight, incorrect information during the voting, and a long history of keeping shareholders in the dark. So many things are so wrong they have done. For years!

    Playing games with votes you don’t like by filing lawsuits is getting old. This is the second time they have done this crap. It’s costing us a lot of money.

    Frankly, the original trustees are in the wrong company….they would make excellent dictators in a third world country.

    There isn’t a middle ground anymore. This is a cage fight. And I hope to see them gone, and the directors that support them in exchange for a cushy job.

    Liked by 2 people

    • I agree> Now that only Judge Laster’s verdict is left, they see the handwriting on the wall and want to ‘Play Nice”. but it won’t work. The damage is done. They have alienated us shareholders, wasted our money on legal fees, bloated the company’s payroll beyond what it has needed to survive for over a hundred years, and grossly enriched themselves at our expense.

      I, for one, am not buying it. They want to bury the hatchet knowing that they will lose the lawsuit and want us to forget about the last 3 years of agony they have heaped on us.

      They have to GO, period.

      Liked by 1 person

  3. 50% of the water business income is made up of produced water royalties (I.e.: mailbox money), so I’m highly skeptical that the fresh water SALES biz stands on its own and justifies the 30+ employees working under TPWR (not to mention whatever else is hiding in “Employee Related” expenses and G&A. These guys have spent well over $100 MM on fresh water assets and are planning another $13 MM this year. As one user pointed out in a post the other day…we could have spun this water business out to a service company that would have spent their own capital and paid us a royalty.

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  4. My biggest concern is related to the acquisitions discussion.

    First of all, the company is never short of cash. And what allows you to move faster than cash? Treasury shares? That doesn’t square for me. What size of acquisitions are they looking for?

    Which is then related to, what makes them think they can orchestrate non-dilutive acquisitions? And in what sphere of business? The track record of acquisitions is abysmal I would venture to guess. What makes them think they can overcome gravity there. And if they are acquiring things of less value that TPL itself it’s absolutely dilutive even if technically accretive.

    When I hear talk like that the only thing that comes to mind are Charlie Munger’s classic words “put me down as skeptical”.

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  5. The clear plan needs to be to remove the chainsaw this year when his term is up. Running a meeting professionally is one minor aspect of running a $15bn publicly traded company. You cannot be a failure at communication with shareholders when you have a team of people who’ whose job it is to collaborate with you to provide a service of investor relations.

    We have people on the board, Stahl and Oliver, who bring significant value to the table, yet they cannot participate. What kind of board is this? Sounds more like an anarchy with the chairman at the helm.

    Want true value to be unlocked without management spinning the truth and trying to pull a fast one on shareholders? Vote out Barry at this year’s annual meeting.

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  6. I come to the conclusion after reading that summary is that perhaps, a slight chance, that the management is indeed trying to do good for the shareholders, but have gone to the point where they are so diluted to think that they geniunely know better and that shareholders should just fk off and let them do their thing to “create value” for shareholders.

    The issue is that, (if the prior assumption is true) shareholders are business owners, and we in extended ways are his direct boss. As managers of the company, if they disagree with the way WE see fit for the company, they can present their case to us. However, if we dislike it, the correct action would have been just to let it be and let us “destroy” our own capital by not listening to their advice. Its one thing to argue a case for good cause, its another to sue shareholders with their own money.

    I know my words will not make it to management, nor do they care, but my sincere advice for them is to:

    1) cease all legal action and from this moment stop wasting another penny of shareholder money

    2) restore discipline and retires shares and continue with the old business model of buying back shares after collecting royalties. After reading the book “The outsiders: eight unconventional CEOs”, i truly believe the most important job as a CEO is to allocate capital efficiently. Buying back shares has done miracles for shareholders in the past, when in doubt, buy back shares!

    3) Should an opportunity for acquisition arise, let it be put to a vote with relevant facts presented to shareholders in a discreet manner. Yes, I can fully understand the “seller not taking TPL seriously without ready cash” or “opportunity is gone” or “people will figure it out and front run us” or “[insert whatever other reason]”. If that opportunity is gone, so be it, we were happy the day before the opportunity existed, we will be happy without it as long as the business continue to be ran as it was before.

    the 15M spent in legal fees is gone. I understand, its a lesson that I think management should take to heart. If you really want to act in our best interests, you will stop paying lawyers for this. 15M can probably buy a decent office space somewhere in Houston and we could actually see some rental income going forward….

    Even for all that we have been through, I want to believe there is hope for humanity and that you guys came from a good heart. I can overlook what has happened to date and wish for a geniune stockholder-agent relationship going forward.

    A lot of shareholders have held the stock for multiple decades, and for some people, it represents a significant part of their portfolio. Without further disruption, I believe TPL can go down as a poster example for American capitalism. For the love of our people and country, please consider your next action.

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      • I doubt it is a communications issue. It is a philosophical (or incentive/ego) issue. They have always wanted to do deals and always believed the stock price is expensive. You can infer this by the lack of open market purchases from management. I believed that reading the Outsiders would help them, so I sent them copies a year or so ago. Either it went on the shelf, or they learned some bad lessons.

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    • Thank you! That says they are implementing the declassification of the Board Article V Directors, Section 5.1 Term and Classes, Paragraph (B) “…provided that the division of directors into classes shall terminate at the 2025 annual meeting of stockholders…” [Page 5]. I notice it is signed “the undersigned has executed this Amended and Restated Certificate of Incorporation on this 18th day of May, 2023.”

      So this is the current SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TEXAS PACIFIC LAND CORPORATION

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        • Here is the full paragraph, it will take until 2025 for the Directors elected to 3 year terms at the 2021 and 2022 Annual Meetings to complete their 3 year terms.

          (B) The directors, other than those who may be elected by the holders of any series of Preferred Stock as specified in the related Preferred Stock Designation, shall be and are divided, with respect to the time for which they severally hold office, into three classes, with the term of the class designated as the “third class” of directors in the Amended and Restated Certificate of Incorporation effective on January 11, 2021, expiring at the 2023 annual meeting of stockholders, and the terms of the classes elected
          at the annual meeting of stockholders held in 2021 and 2022, respectively, expiring at the 2024 and 2025 annual meeting of stockholders; provided that the division of directors into classes shall terminate at the 2025 annual meeting of stockholders. Notwithstanding the preceding sentence, but subject to the rights of any series of Preferred Stock to elect directors separately as a class, each director elected by the stockholders after the 2022 annual meeting of stockholders shall serve for a term expiring at the first annual meeting of stockholders held after such director’s election. Each director shall hold office until his or her successor shall have been duly elected and qualified, subject, however, to such director’s earlier death, resignation, disqualification or removal.

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  9. I wonder if the board has thought about buying cattle to graze on the land. we do have leases to ranchers who must think the land has some value. They seem to be in the process of trying to think of ways to spend the earning rather then pay the stockholders the oil brings in. They gets megabuks for suing some of the stockholders using company funds to do so, Isnt that fun. What will they think of next.

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  11. As I implied in my reply to ‘Vote Them out’ above, they want to shake hands, forget all they’ve done AGAINST us, and say that we’re friends as if all is well now. Not one shred of common sense governance has come forth from this cabal, and the only thing they focused on was how to pad their wallets.

    Some misdeeds are too big to ‘forgive and forget’, and their actions are at the top of that list.

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