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.
The Texas Pacific Land Trust Investor 