The Gray Lady Speaks

How a ‘Monster’ Texas Oil Field Made the U.S. a Star in the World Market

Last year alone, the Permian’s production rose by a million barrels a day, and it could surpass the Ghawar field in Saudi Arabia, the world’s biggest, within three years. Now producing four million barrels a day, the Permian generates more oil than any of the 14 members of OPEC except Saudi Arabia and Iraq.

As many as 15 oil and gas pipelines serving the Permian are expected to be completed by the middle of 2020, potentially increasing exports from the Gulf of Mexico fourfold to eight million barrels a day after 2021, according to a recent Morningstar Commodities Research report.

“I will have work here forever,” said Mike Wilkinson, a truck driver who came from Dallas a year ago and moved into a trailer with his teenage daughter. “As hard a place as this is to look at, they are going to need guys like me to move equipment around here for years to come.”

With a major acquisition in New Mexico last year, Exxon Mobil became the most active driller in the basin, and projects that it will increase production fivefold by 2025. Also growing rapidly here, Chevron estimates that one in six of every barrels it produces globally will come from the Permian by 2021.

“For Shell, the Permian is absolutely critical,” said Gretchen Watkins, president of Shell Oil. “The Permian is massive; it’s a game changer for U.S. shale. It is the powerhouse field.”

Wayback Machine – Dallas Morning News

The most unusual stock tip I’ve ever gotten

This article from 2012 was linked today in the Yahoo Finance TPL conversation board.  A good one for the archives!

Chief executive Roy Thomas, who offices in downtown Dallas on Pacific Avenue, said the trust still holds about 1 million acres in 20 counties in West Texas. He explained that in the early years after the trust was established, the land was difficult to sell because of its location in the middle of nowhere.

Then the West Texas oil boom hit the Permian Basin in the early 1900s, and this land became more valuable because of the oil and gas royalties. So the trustees back then and now have been in no hurry to sell it.

Even today, he said, the company sells only a few thousand acres every year but makes a bundle in oil and gas royalties. Texas Pacific booked $34 million in revenue last year, and about $14 million came from royalties. That is a 50 percent increase in revenue from the previous year.

“Buying back shares and retiring them is really the main thing we do with our cash flow,” Thomas said. “We only retire shares. The trust is prohibited from reissuing shares or giving me shares because someone thinks I’m doing a good job.”

 

 

 

Safe Haven

Bloomberg: U.S. Shale Becomes Oil Industry’s Safe Haven as Prices Languish

The cost of shale production has fallen so much since then that it’s becoming a safe haven for major oil companies in times of volatile prices, providing rapid, reliable growth and quick returns even with crude trading for just over $50 a barrel, down by almost a third since the start of October.

ConocoPhillips said Monday it’s spending half its 2019 budget in the continental U.S., while Chevron Corp. is investing more at home than it’s done for more than a decade, with $3.6 billion going to the Permian Basin alone. Anadarko Petroleum Corp. and Hess Corp., both global operators, plan to increase spending on their American assets more than 40 percent.

Oil’s recent collapse caused “some different allocation going on within the budget,” Conoco Chief Executive Officer Ryan Lance said on Bloomberg TV. “We’re putting more toward our U.S. unconventional position,” he said, referring to shale.

Production growth “slows down at $50 but I don’t think it stops at $50, and it certainly continues if prices get back to $60,” Lance said. Skeptics thought shale “wouldn’t last long, but it’s here, it’s a huge resource and it’s going to be resilient and long lasting.”

 

Water

Harvard Quietly Amasses California Vineyards—and the Water Underneath

This post is a bit off our normally beaten path but the parallels are interesting.

 

The university’s endowment manager, Harvard Management Co., was stealthily building a sizable grape-growing business on the Central Coast through entities including Brodiaea. With the land, it was acquiring rights to vast sources of water in a region where the earth’s warming is making the resource an ever-more-valuable asset.

In a warming planet, few resources will be more affected than water, as more-frequent droughts, storms and changes in evaporation alter a flow critical for drinking, farming and industry.

Even though there aren’t many ways to make financial investments in water, investors are starting to place bets. Buying arable land with access to it is one way. In California’s Central Coast, “the best property with the best water will sell for record-breaking prices,” says JoAnn Wall, a real-estate appraiser who specializes in vineyards, “and properties without adequate water will suffer in value.”

 

 

HK Interview in Value Investor Insight

Active Voice

When we first bought into this in 1995, we basically signed on for a 5% or so return from stock buybacks and the dividend, with pretty much infinite call options on what they could make happen with the land. Maybe people wanted to develop it. Maybe there was oil there that could one day be economically extracted.  We didn’t really know, but we liked the potential odds.

HK has the same questions as the rest of us.

With respect to capital allocation, an increasingly important question for TPL
is how it will deploy its increasing earnings.  The trust has been repurchasing and
cancelling shares for 120 years, but there’s a limit to the number of open-market purchases that can be made when average daily trading volume is less than 20,000 shares. With capital-expenditure requirements limited, it’s not a stretch to conclude we’re going to see a big increase in dividend payments. The dividend yield is still very low on a $600 share price, but in February of this year the Trustees raised the regular dividend from 35 cents per share to $1.05, and paid an additional special dividend of $3 per share. One doesn’t require a graph to infer the near-term slope of the line. We wouldn’t be surprised if over time TPL qualified for a dividend ETF or a REIT ETF.

 

7x Bakken

USGS: Permian’s Wolfcamp is largest potential oil and gas resource ever assessed

The region in the Permian’s western Delaware Basin holds more than twice as much oil as the largest previous assessment – the Wolfcamp shale in the Permian’s separate Midland Basin southeast of Midland. That study was completed two years ago.

To put the new results into perspective, the Delaware Basin’s Wolfcamp and Bone Spring plays would hold almost seven times as much oil as North Dakota’s Bakken shale.

The Wolfcamp shale and overlying Bone Spring in the Permian’s booming Delaware Basin hold an estimate 46.3 billion barrels of oil, 281 trillion cubic feet of natural gas, and 20 billion barrels of natural gas liquids, according to the U.S. Geological Survey’s new assessment.

USGS Press Release

Don’t Mess With Texas

Bloomberg: Texas Is About to Create OPEC’s Worst Nightmare

Fairly sensational headline but some good soundbites.  The pain trade that nobody/everybody expects is for Saudi to keep pumping.  Yes, I know it exhausts their fields and plays havoc with revenue for their massive social programs but it didn’t stop them in ’15/’16.

Now growth is speeding up. In Houston, the U.S. oil capital, shale executives are trying out different superlatives to describe what’s coming. “Tsunami,’’ they call it. A “flooding of Biblical proportions’’ and “onslaught of supply’’ are phrases that get tossed around. Take the hyperbolic industry talk with a pinch of salt, but certainly the American oil industry, particularly in the Permian, has raised a buzz loud enough to keep OPEC awake.

Only a few months ago, the consensus was that the Permian and U.S. oil production more widely was going to hit a plateau this past summer. It would flat-line through the rest of this year and 2019 due to pipeline constraints, only to start growing again — perhaps — in early 2020.

If that had happened, Saudi Arabia would’ve had an easier job, most likely avoiding output cuts next year because production losses in Venezuela and sanctions on Iran would have done the trick.

Instead, August saw the largest annual increase in U.S. oil production in 98 years, according to government data. The American energy industry added, in crude and other oil liquids, nearly 3 million barrels, roughly the equivalent of what Kuwait pumps, than it did in the same month last year. Total output of 15.9 million barrels a day was more than Russia or Saudi Arabia.

“The narrative has shifted significantly,’’ said John Coleman, a Houston-based oil consultant at Wood Mackenzie Ltd. “Six months ago, the market expected the bottleneck to ease in the first quarter of 2020. Now, it expects it in the second to third quarter of 2019.’’