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.”
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.
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.’’