3Q 10-Q

Filing

Some observations in no particular order:

  • “During the nine months ended September 30, 2019, we purchased and retired 6,258 Sub-shares. During the nine months ended September 30, 2018, we purchased and retired 39,768 Sub-shares.”
  • DUC wells now 424 vs 369 at the end of Q2.  15% jump.  Someone has been busy.
  • $250MM in cash on the balance sheet
  • $87MM in PP&E.  34% growth YTD
  • Water has made $65MM top line YTD.  Up 37% from same period last year.  Top line is generally supposed to grow faster than PP&E, right?
  • $24.7MM in operating expenses during the quarter.  2.4x vs same quarter last year
  • “For the nine months ended September 30, 2019, the Trust sold approximately 21,986 acres (13,180 acres in Loving County, 5,675 acres in Culberson County, 1,651 acres in Hudspeth County, 843 acres in Reeves County, 636 acres in Midland County and approximately 1 acre in Glasscock County) of land in Texas for an aggregate sales price of approximately $113.0 million, with an average of approximately $5,141 per acre.”
  • “For the nine months ended September 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.”
  • I wish we had more details on rationale and benefits of the land swap above.  Flat in acres, took out some $$ (great), but is ending acreage accretive to the grand plan?  How so?
  • EBITDA language from the press release did not carry over to the Q
  • “Legal and professional fees were $5.6 million for the three months ended September 30, 2019 compared to $0.6 million for the comparable period of 2018. The increase in legal and professional fees for the three months ended September 30, 2019 compared to 2018 is principally due to approximately $4.9 million of legal and professional fees related to the proxy contest to elect a new Trustee, the entry into and payments made under the settlement agreement dated July 30, 2019 and the conversion exploration committee as disclosed in the Trust’s Current Report on Form 8-K filed with the SEC on July 30, 2019. We anticipate receiving a partial reimbursement of these legal and professional fees under coverage provided by our director and officer insurance policy. The amount of the reimbursement has not yet been determined.”
  • I’m surprised the D&O underwriter wrote a policy given the Trust structure of the company and it’s (now abused) governance limitations.  I’m guessing they regret it
  • “Salaries and related employee expenses were $8.5 million for the three months ended September 30, 2019 compared to $4.1 million for the comparable period of 2018. The increase in salaries and related employee expenses is directly related to the increase in the number of employees from 58 employees as of September 30, 2018 to 89 as of September 30, 2019 and additional contract labor expenses for the three months ended September 30, 2019 compared to the same period of 2018.”
  • “Texas Pacific is not involved in any material pending legal proceedings.”  ??

 

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

Q is Out

SEC Filing

Notes (no guarantee that any of this is right):

  • “Simple” balance sheets and ISs are a thing of the tax now as we have tax escrow, depreciated PP&E, and acquisition carrying values to navigate
  • Balance sheet at $405MM is 5.7x that of a year ago.  New property goes on BS at cost.  Old stuff has no accounting value.  Quickly getting on WB’s radar for its excellent price to book
  • Rude and crude water margin calculator shows margin expansion for the quarter. Again, this assumes all expense increases after ’16 are water related.  Certainly not perfect
  • I calculate the “non-sale” (no sale income included) EBTDA to be $73MM.  $73MM taxed at 20% = $58.4MM or $234MM/year.  20x = $4.67B.  30x = $7B.  Current mkt cap is $6.13B.  Implied multiple = 26x.  Again, very back of the envelope
  • The statement of cashflows seems kinda useless now as one has to immediately back out asset sales from CFO
  • Repurchases down 35% from first quarter last year.  Divs up 47%.  I don’t want dividends; I want my % stake increased
  • Water PP&E went from $62.9MM at year end to $71.6MM.  A total increase of $8.7MM.   Total buybacks in the quarter were $4.3MM
  • Fixed asset purchases of $9.3MM in Q1 (assuming mostly water equipment) are pretty close to my calculated $11MM in water EBTDA.  Fixed asset purchases don’t hit expense line.  How long does this last?  How long are the useful lives of water assets?
  • Legal and professional fees increased 175.6% to $1.8 million for the three months ended March 31, 2019 from $0.6 million for the comparable period of 2018. The increase in legal and professional fees for the three months ended March 31, 2019 compared to 2018 is principally due to increased legal and professional fees related to land transactions, new water agreements and proxy fees.”
    • Can we get a more granular breakout?
  • Compensation up 2.5x YoY

q1 analysis