2Q19 10-Q

EDGAR link

Legal and professional expenses. Legal and professional fees were $7.9 million for the three months ended June 30, 2019 compared to $0.4 million for the comparable period of 2018. The increase in legal and professional fees for the three months ended June 30, 2019 compared to 2018 is principally due to approximately $6.5 million of legal and professional fees related to the proxy contest to elect a new Trustee. 

My back of the envelope analysis continues to suggest that the water business is a drag on margins though a positive contributor to net income.

Screen Shot 2019-08-07

Other notes:

  • $155MM in cash, $68MM in receivables
  • PP&E at $85MM vs $73MM.  Virtually all water business capex.  Is is really that long lived or should it be expensed?
  • Real estate aquired up to $85MM from $58MM last quarter.  Real estate activy this quarter is stated as “for the six months ended”.  Q1 was stated as “for the three months ended.”  Makes detangling purchases in this quarter harder to do.
    • I’m guessing this is on purpose
    • For the six months ended June 30, 2019, the Trust acquired approximately 21,671 acres (Culberson, Glasscock, Loving and Reeves Counties) of land in Texas for an aggregate purchase price of approximately $74.4 million, with an average of approximately $3,434 per acre.  AND   For the six months ended June 30, 2018, the Trust acquired approximately 2,884 acres (Mitchell and Upton County) of land in Texas for an aggregate purchase price of approximately $2.7 million, with an average of approximately $924 per acre.
      • For the three months ended March 31, 2019, the Trust acquired approximately 11,702 acres (Culberson and Reeves Counties) of land in Texas for an aggregate purchase price of approximately $47.2 million, with an average of approximately $4,033 per acre.  AND For the three months ended March 31, 2018, the Trust acquired approximately 641 acres (all in Upton County) of land in Texas for an aggregate purchase price of approximately $0.8 million, with an average of approximately $1,171 per acre.
  • Looks like 658 acres were sold for $4.774MM.  $7255/acre
  • Royalty interests acquired up $1.6MM on quarter
  • 297 DUC vs 313 at the end of first quarter


Now that we are all friends again, can we restart the buybacks?

If I may be so bold, I suggest a dutch auction to get around rule 10b-18.

How does one put $150-$200MM to work in buybacks if total volume in the name is $7-10MM per day?

Any Rare Earths Under There?

WSJ: If You Want ‘Renewable Energy,’ Get Ready to Dig

A single electric-car battery weighs about 1,000 pounds. Fabricating one requires digging up, moving and processing more than 500,000 pounds of raw materials somewhere on the planet. The alternative? Use gasoline and extract one-tenth as much total tonnage to deliver the same number of vehicle-miles over the battery’s seven-year life.

When electricity comes from wind or solar machines, every unit of energy produced, or mile traveled, requires far more materials and land than fossil fuels. That physical reality is literally visible: A wind or solar farm stretching to the horizon can be replaced by a handful of gas-fired turbines, each no bigger than a tractor-trailer.

Building one wind turbine requires 900 tons of steel, 2,500 tons of concrete and 45 tons of nonrecyclable plastic. Solar power requires even more cement, steel and glass—not to mention other metals. Global silver and indium mining will jump 250% and 1,200% respectively over the next couple of decades to provide the materials necessary to build the number of solar panels, the International Energy Agency forecasts. World demand for rare-earth elements—which aren’t rare but are rarely mined in America—will rise 300% to 1,000% by 2050 to meet the Paris green goals. If electric vehicles replace conventional cars, demand for cobalt and lithium, will rise more than 20-fold. That doesn’t count batteries to back up wind and solar grids.

Risk/Reward in Water

Houston Chronicle: New laws could pump billions of dollars into Permian Basin’s rapidly growing water recycling industry

Probably not a space where you want to be half pregnant.

“A lot of it comes down to what level of control that the exploration and production company wants to have over water,’ Duman said. “There are extreme cases where some operators want to wash their hands clean of it and let a third-party company take care of it all. On the complete other end of the spectrum, you have companies like Pioneer Natural Resources that have their own water subsidiary that handles their volumes with dedicated resources.”

Water has become such a large business in the oilfield that it now has its own conferences. Earlier this month, hundreds of industry professionals attended the Produced Water Management Conference at the Westin Galleria in Houston where recycling was a frequent topic of conversation.

Looking ahead, the industry is ripe for consolidation. Midland oilfield water management company XRI bought the water recycling arm of Dallas-based Fountain Quail Energy Services in April. Financial terms of the deal were not disclosed but XRI CEO Matt Garbiel said the industry is looking to become more sustainable.

“Our customers are realizing very quickly how cost-effective our technology is compared to more costly saltwater disposal infrastructure and services,” Gabriel said. “It is an exciting time for our company to be at the forefront of reshaping water management in the energy industry through sustainable and economic water reuse solutions.”


In the 1920s, an oilfield accident near Big Lake, Texas sent billions of gallons of produced water to the surface, making the land unsuitable for vegetation and animal life. Known as the “Texon Scar,” the damage can still be seen from outer space nearly 100 years later.

“Any landowner will tell you that they’d rather have an oil spill on their land than a produced water spill,” Leyden said. “It’s much easier to clean up an oil spill. Produced water has salts and other compounds that are difficult to remove.”