Tessler Parties Exit Cooperation Agreement

https://www.sec.gov/Archives/edgar/data/97517/000114036120007305/formsc13da.htm

Looks like Tessler Parties are out of the Cooperation Agreement. Horizon and Softvest remain.  Would be a joy to see Tessler figure out another way to poke at the hornet’s nest.

March 27, 2020

Reference is made to that certain Cooperation Agreement (as amended, the “Cooperation Agreement“) by and among SoftVest Advisors, LLC (“SoftVest“), Horizon Kinetics LLC (“Horizon“), Tessler Family Limited Partnership (“TFLP“), and ART-FGT Family Partners Limited (“ART-FGT” and together with TFLP, the “Tessler Parties“) (collectively, the “Parties” and each, a “Party“).  Each of the Parties hereby mutually agree to terminate the Cooperation Agreement with respect to the Tessler Parties, effective immediately (the “Tessler Withdrawal“).

The undersigned Tessler Parties hereby wish to withdraw from the Cooperation Agreement and upon countersignature from SoftVest and Horizon, such withdrawal shall immediately become effective.  Upon such withdrawal, the undersigned Tessler Parties will no longer have any agreement, arrangement or understanding whatsoever with SoftVest or Horizon with respect to the acquisition, holding, voting or disposition of securities of Texas Pacific Land Trust (“TPL“).  Furthermore, upon such withdrawal, SoftVest and Horizon may vote or dispose of any securities of Texas Pacific Land Trust that they may beneficially own in their sole discretion, subject to any contractual obligations each may have to other third parties or to each other (including pursuant to the Cooperation Agreement).

The Cooperation Agreement shall otherwise remain in full force and effect between Horizon and SoftVest.  For the avoidance of doubt, Sections 6(d), 7, 8 and 9 of the Cooperation Agreement shall survive the withdrawal by the undersigned.

The Tessler Parties acknowledge that notwithstanding such withdrawal, the Tessler Parties may be subject to ongoing obligations to TPL under the Settlement Agreement dated July 30, 2019, as amended.

Underwhelmed

The Conversion Committee recommended a conversion to C-Corp on January 22, 2020.  After two months and a day pass, the Trustess come out to say they will adopt the recommendation of the committee they were on(!!!).  With no further details other than, uh, um, Fall 2020 maybe.

Why are things taking so long?  How much money has been paid in legal bills?

Even in good news there is misery with this pair of “Trustees” who appear to be working in the interest of everybody but the owners of the trust.

 

 

Done Deal

https://www.businesswire.com/news/home/20200323005276/en/

There’s your conversion.  Who’s on the board?

DALLAS–(BUSINESS WIRE)–The Trustees of Texas Pacific Land Trust (NYSE: TPL) (the “Trust”) announced today that the Trust has approved a plan to reorganize from its current structure to a corporation formed under Delaware law. The Trustees made their determination following careful consideration of the recommendation of the Conversion Exploration Committee of the Trust.

“The Trust’s present structure has suited the Trust’s needs and those of its shareholders for more than a century, but a Delaware corporate structure is more aligned with the expectations of today’s investors. A new corporate structure would better allow us to execute on business goals and capitalize on our enviable assets, resources and business potential,” said David E. Barry, a Trustee of the Trust. “With an enhanced governance framework in step with practices of publicly traded peer corporations, we expect a new corporate structure would enable value creation over time and drive value for stockholders.” John R. Norris III, Trustee of the Trust, added, “We are grateful to the members of the Committee for dedicating their time and attention to providing a thoughtful recommendation that informed this decision.”

Under the corporate reorganization plan, common stock of the new corporation would be distributed upon the consummation of the reorganization process to holders of sub-share certificates of proprietary interest of the Trust and traded on the New York Stock Exchange (NYSE). At or about such time, the sub-share certificates would be cancelled. The corporate reorganization is intended to be tax-free in the United States, and the corporation will be deemed a c-corporation for U.S. taxation purposes.

The Trust is presently aiming for the corporate reorganization to be effective by the end of the third quarter of 2020, but the Trust recognizes that unforeseen impacts of COVID-19 could extend this timeframe despite the Trust’s efforts. Barring any such unforeseen disruptions, further information regarding the corporate reorganization will be included in a registration statement on Form 10 to be filed by the corporation with the SEC as well as in other communications and disclosures anticipated to be made by the Trust and the corporation.

Tough Day

Record high volume of 96,356.  Volume weighted average price was $504.11.  Last trade was 751 shares @ $467.21.  Down 24.89% in price on the day.

Hoping the Trustees will act honorably and enact much needed governance changes so that repurchases can commence.  Not holding my breath.

We’ll see what tomorrow brings.

New Slide Deck

https://www.sec.gov/Archives/edgar/data/97517/000121390020005109/ea119151ex99-1_texaspacific.htm

Looks very similar to the old deck but with some new numbers.

It’s rich how they boast about repurchases on the first page of the presentation.

Would love to see some calls and communication of vision to go along with this presentation.  $4MM each means its time to step for the C-Suite to step up.  Big boy pay = big boy responsibilities.

10-K Published

https://www.sec.gov/Archives/edgar/data/97517/000009751720000017/tpl-20191231.htm

On January 22, 2020, the Committee announced that, following a deliberation process initiated in June 2019, the Committee recommended to the Trustees that the Trust convert from a trust into a Delaware C-corporation. The Committee analyzed reasons for and alternatives to conversion with support from a team of advisors to the Trust, including financial advisor Credit Suisse and outside legal counsel. The Committee’s deliberations focused particularly on tax, corporate, corporate governance, accounting and business implications of the proposed conversion.
On February 20, 2020, the Trust and the Investor Group entered into the First Amendment to Settlement Agreement (the “Settlement Agreement Amendment”). The Settlement Agreement Amendment provides that the Decision Period will extend through March 6, 2020.
The decision of whether to convert the Trust into a C-corporation is subject to the determination of the Trustees. The Committee recommended that, if the Trustees elect to authorize the conversion, the conversion should follow a process intended to ensure a smooth transition that would be tax-free to shareholders. As proposed, the Trust would transfer all its assets, including cash, land, Texas Pacific Water Resources (“TPWR”), and other assets, to a wholly-owned limited liability company subsidiary of the Trust (“TPL Holdco”). The Trust would then contribute all of the equity in TPL Holdco, holding all of the Trust’s assets, to a newly-created corporation (“TPL Corporation”). Shareholders of the Trust would receive an amount of shares in TPL Corporation proportional to their ownership of shares in the Trust. When this process as recommended is completed, shares of the Trust would be cancelled. Shareholders of the Trust would not need to take any action to receive the new shares in TPL Corporation.
The process recommended by the Committee would require filings with the SEC and approval of the listing of the new shares by the New York Stock Exchange (the “NYSE”).
Comp on page 24.  Seems excessive.
On August 8, 2019, the Trust entered into employment agreements (the “Agreements”) with Mr. Glover, its General Agent and Chief Executive Officer (the “Glover Agreement”), Mr. Packer, its General Agent and Chief Financial Officer (the “Packer Agreement”) and Mr. Parasnis, its Chief Commercial Officer and Executive Vice President (the “Parasnis Agreement”). The Agreements were effective as of July 1, 2019.
Under the Agreements, Mr. Glover and Mr. Packer will each receive a base salary of $800,000 per annum and Mr. Parasnis will receive a base salary of $700,000 per annum, subject to annual review, and be eligible for an annual cash bonus of up to 300% of such base salary for achievement of specified performance targets, except that with respect to Mr. Glover and Mr. Packer, the cash bonus for the calendar year 2019 will be at least 100% of the cash bonus paid with respect to 2018, as established by the Nominating, Compensation and Governance Committee of the Trust. Until the Trust establishes an equity compensation plan, Mr. Glover, Mr. Packer and Mr. Parasnis are required to use at least 25% of their cash bonuses (net of estimated taxes) to purchase shares of the Trust’s common stock. The term of each of the Glover Agreement and the Packer Agreement ends on December 31, 2020, with automatic one (1) year extensions unless notice not to renew is given by either party at least 120 days prior to the relevant end date. The term of the Parasnis Agreement ends on December 31, 2022, with automatic one (1) year extensions unless notice not to renew is given by either party at least 120 days prior to the relevant end date. Under the Parasnis Agreement, the cash bonus for 2019 is prorated for the period of employment during such year. Additionally, Mr. Parasnis is entitled to a retention bonus in the amount of $875,000, payable in three installments on March 15, 2020 and the second and third anniversaries of the effective date of the Parasnis Agreement and is eligible for a relocation allowance in the amount of $100,000 to cover his relocation to Dallas, Texas.
The team still owns 1600 shares combined.  Interests don’t appear aligned.
The HBS case in the making continues.
Doesn’t the comp agreement mandate share purcases?  Where are they?  Why are they all so slow to get skin in the game?
Under the Agreements, Mr. Glover and Mr. Packer will each receive a base salary of $800,000 per annum and Mr. Parasnis will receive a base salary of $700,000 per annum, subject to annual review, and be eligible for an annual cash bonus of up to 300% of such base salary for achievement of specified performance targets, except that with respect to Mr. Glover and Mr. Packer, the cash bonus for the calendar year 2019 will be at least 100% of the cash bonus paid with respect to 2018, as established by the Nominating, Compensation and Governance Committee of the Trust. Until the Trust establishes an equity compensation plan, Mr. Glover, Mr. Packer and Mr. Parasnis are required to use at least 25% of their cash bonuses (net of estimated taxes) to purchase shares of the Trust’s common stock. The term of each of the Glover Agreement and the Packer Agreement ends on December 31, 2020, with automatic one (1) year extensions unless notice not to renew is given by either party at least 120 days prior to the relevant end date. The term of the Parasnis Agreement ends on December 31, 2022, with automatic one (1) year extensions unless notice not to renew is given by either party at least 120 days prior to the relevant end date. Under the Parasnis Agreement, the cash bonus for 2019 is prorated for the period of employment during such year. Additionally, Mr. Parasnis is entitled to a retention bonus in the amount of $875,000, payable in three installments on March 15, 2020 and the second and third anniversaries of the effective date of the Parasnis Agreement and is eligible for a relocation allowance in the amount of $100,000 to cover his relocation to Dallas, Texas.
How does a CEO that makes $4MM a year get away with never talking to investors?  Big boy pay = big boy responsibilities.  Time to get with it, fellas.

$16/Share Div Payout

*Texas Pacific Land Trust Declares Cash Div of $10/Sub-Shr, an Increase of $8.25 Over Cash Div Paid in 2019 >TPL

*Texas Pacific Land Trust Declares Special Div of $6/Sub-Shr, an Increase of $1.75 Over Special Div Paid in 2019 >TPL

$16 x 7,756,156 = $124MM payout.

$250MM on balance sheet as of 9/30.  Plus another ~$60MM generated in 4Q ($91MM cash rev – $23MM op ex -$6MM cash tax =$62MM) less payout implies that ~$186MM remains.  $24/share held back.

https://www.businesswire.com/news/home/20200224005312/en/Texas-Pacific-Land-Trust-Declares-Regular-Special

DALLAS–(BUSINESS WIRE)–Texas Pacific Land Trust (NYSE: TPL) announced today that its Trustees have declared a cash dividend of $10.00 per sub-share, an increase of $8.25 over the cash dividend paid in 2019, payable March 16, 2020 to sub-shareholders of record at the close of business on March 9, 2020. This is the 17th consecutive year that the regular dividend has increased. Additionally, the Trustees declared a special dividend of $6.00 per sub-share, an increase of $1.75 over the special dividend paid in 2019, payable March 16, 2020 to sub-shareholders of record at the close of business on March 9, 2020.

Does $10/sub share (regular dividend raised 5.7x) set you up for a $1/share div post split?  Hard to take that regular div bar down.  ~$77MM/year will now no longer be used towards repurchases.

Produced Water

High Country News: There’s a new boom in the Permian Basin — wastewater

In five years, the Permian is forecast to generate 32 million barrels of produced water per day, up from four million a day currently. By 2030, that number could rise to 38 million barrels daily, analysts say. And it will be increasingly difficult to dispose of the wastewater. Industry analysts say the basin will eventually run out of suitable places to drill disposal wells — another incentive for oil and gas operators to recycle.

From the Raymond James report linked above:

In our forecast and this piece, we have placed an undue focus on the Permian basin, particularly the Delaware. While most readers will know it is the heart of U.S. oil activity, there is a particular reason why it is top of mind for produced water. New wells in the Delaware Basin are coming online with water-oil-ratios as high as 10-to-1, a level of water production typically exhibited in a decades-old conventional well. Across the basin, initial WORs of 4 or even 6-to-1 are viewed as “normal.” This is in contrast to other prolific shale basins such as the Midland, Eagle Ford, and Bakken, where WORs start at a 1-2x range, and expand slowly to 2-5x. In the graph on the left, we forecast water production grows to over 32 million barrels per day by 2025, for a CAGR of 10% over the period. As the Permian basin shifts further into manufacturing mode, the water growth we project will create the need for nearly 1,000 additional salt water disposal wells by 2030. Even taking an impossibly bullish outlook with water recycling (100% of frac water coming from recycling), we will still need ~750 additional disposal wells in the Permian Basin (more on this below). By 2030, we predict there will be a total need for ~1750 salt water disposal wells, assuming 80% utilization. While many companies involved in SWDs cite 80% as their target utilization, water pressure at the surface and in the formation can limit disposal capabilities, meaning demand for SWDs may be closer to 3,000 under realistic utilization assumptions. This incremental demand for SWDs we estimate represents a $7-$9 billion dollar investment in the Permian Basin alone.