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

 

$83MM of the $100MM

Looks like I was beat to the punch on this topic.  Here is the same question in the comments thread on the SA earnings release report.

 

For example, the Trust has redeployed approximately $83 million of the $100 million of the sale proceeds in a tax-free 1031 Exchange, creating 53,000 contiguous acres in the core of the Delaware Basin1, including highly strategic acreage on the Texas-New Mexico border. This position is leased by blue chip E&P operators with large capital development budgets and best-in-class safety and environmental implementation.

If $83MM has already been spent under 1031, does the reported gain get backed out of EPS next quarter?  If so, shouldn’t that have been reported in the press release?   There probably is a regulatory/accounting reason for reporting it in the manner that it was.  Can anyone help clear this up?

 

 

Earnings Analysis; Q1-19 vs Q1-18

The rows below should be pretty self explanatory.  Ultimately I wanted to get to earnings adjusted for asset sales.  “Operating” after tax EPS is calculated to be $7.40 for Q1-19 vs $5.29 for Q1-18.  Implies 39.8% growth.

Lower than normal “operating” margins stay with us.  Looks like an 82.0% margin on “operating” earnings in Q1-19 vs 90.6% in Q1-18.  Expenses over the same time peried (implied from data provided in the release) are estimated to be up 192%.

I’m impressed by the figures quoted immediately below.  Production growth marches on!

Oil and gas royalty revenue was $33.2 million for the first quarter ended March 31, 2019, compared with $26.5 million for the first quarter ended March 31, 2018, an increase of 25.1%. Crude oil and gas production subject to the Trust’s royalty interests increased 58.5% and 119.6%, respectively, in the first quarter ended March 31, 2019 compared to the first quarter ended March 31, 2018. While crude oil and gas production increased in the first quarter ended March 31, 2019 compared to March 31, 2018, the prices received for crude oil and gas production decreased 16.7% and 46.7%, respectively, over the same time period.

q1 vs q1

margin

The last column in the exhibit above should read 1Q19.

4Q Margin Compression

rude and crude

Rude and crude analysis warning.  I was looking at 4Q and was thinking that net income looked fairly light relative to revenue so I did a little digging and confirmed my suspicion.

The top analysis attempts to isolate the water business to determine profitability.  We start with net income and add taxes back in to get an EBT.  EBT is then reduced by TPL’s legacy “low expense” businesses (Royalty, Sundry, and Sales) to get towards earnings from the water business.  This new adjusted EBT number is further adjusted by adding back an estimate for the expenses (2x 2016 full year expenses) of the “low expense” businesses.  The result is something that might approximate income generated by the Water business.  Water’s reported top line can be compared to the water income estimate to get a picture of what Water’s expenses and margin look like.

The conclusion is that Water’s expenses were up significantly in 4Q which drove the estimated margin down to ~21%.  Lots of assumptions and brute force in here.  Everything highlighted in green is a custom creation.

The bottom analysis gets to ongoing margins more directly.  Here we compile the revenues from Royalty, Sundry, and Water and compare them to a “non-sale” income number that is generated by adding taxes and proceeds from asset sales back into net income.  Adjusted income / adjusted sales = margin of repeating buiness.  This analysis too points to materially lower margins in 4Q.

Where’s that margin going?

Update:  Quick update 15 minutes after posting.  Please take some time to look at the column all the way to the right.  Margin compression or not, $TPL is on fire.  Oh, and thank you Mr. Taxman.

 

4Q Earnings

Press Release

$8.06 per Sub-share Certificate!

A not often used tool in toolkit below.

Revenue from the sale of oil and gas royalty interests was $18.9 million for the year ended December 31, 2018. The Trust sold nonparticipating perpetual royalty interests in approximately 812 net royalty acres for an average price of approximately $23,234 per net royalty acre.

Back royalty sales out of earnings and you get to $43.8MM which is light to $50.8MM last quarter which (I guess) shouldn’t be surprising given a dip in realized oil prices.  Royalties were still up on the quarter nevertheless as barrels produced continued to rise the Permian.  Sundry top line was flat.  Water top line down was down 9.3% vs Q3 to $16.5MM.

I’m inclined not to panic about the dip in water revenues as the business is still in its infancy.  That said, my expectation was for modest growth given continued increases in Permian region oil production throughout the quarter.  More to come on that topic.

 


Texas Pacific Land Trust Announces Fourth Quarter 2018 Financial Results

DALLAS, TX (January 31, 2019) – Texas Pacific Land Trust (NYSE: TPL) today announced financial results for the fourth quarter ended December 31, 2018.

Results for the fourth quarter of 2018:

  • Net income of $62.7 million, or $8.06 per Sub-share Certificate, for the fourth quarter of 2018, compared with $24.6 million, or $3.14 per Sub-share Certificate, for the fourthquarter of 2017.

 

  • Revenues of $93.2 million for the fourth quarter of 2018, compared with $40.0 million for the fourth quarter of 2017.

 

  • Increases of 177.0% in water sales and royalty revenue, 135.8% in oil and gas royalty revenue and 17.0% in easements and sundry income for the fourth quarter of 2018, compared with the fourth quarter of 2017.

Results for the year ended December 31, 2018:

  • Net income of $209.7 million, or $26.93 per Sub-share Certificate, for the year ended December 31, 2018, compared with $97.2 million, or $12.38 per Sub-share Certificate, for the year ended December 31, 2017.
  • Revenues of $300.2 million for the year ended December 31, 2018, compared with $154.6 million for the year ended December 31, 2017.
  • Increases of 150.3% in water sales and royalty revenue, 112.0% in oil and gas royalty revenue (144.2% excluding the arbitration settlement with Chevron U.S.A., Inc. (the “Chevron Settlement”) in September 2017) and 26.8% in easements and sundry income for the year ended December 31, 2018, compared with the year ended December 31, 2017.

Further details for the fourth quarter of 2018:

Oil and gas royalty revenue was $35.8 million for the fourth quarter of 2018, compared with $15.2 million for the fourth quarter of 2017, an increase of 135.8%. Crude oil and gas production subject to the Trust’s royalty interests increased 98.5% and 225.0%, respectively, in the fourth quarter of 2018 compared to the fourth quarter of 2017. In addition, the prices received for crude oil production increased 15.4% in the fourth quarter of 2018 compared to the same quarter of 2017 while prices received for gas production decreased 21.2% over the same time period.

Easements and sundry income was $21.9 million for the fourth quarter of 2018, an increase of 17.0% compared with the fourth quarter of 2017 when easements and sundry income was $18.7 million. This increase resulted primarily from an increase in pipeline easement income and lease rental income, partially offset by a decrease in permit income and material sales for the fourth quarter of 2018 compared to the fourth quarter of 2017. Pipeline easement income increased $4.3 million in the fourth quarter of 2018 compared to the same quarter of 2017.

Water sales and royalty revenue was $16.5 million for the fourth quarter of 2018, an increase of 177.0% compared with the fourth quarter of 2017 when water sales and royalty revenue was $6.0 million.

Revenue from the sale of oil and gas royalty interests was $18.9 million for the fourth quarter of 2018. The Trust sold nonparticipating perpetual royalty interests in approximately 812 net royalty acres for an average price of approximately $23,234 per net royalty acre.

Further details for the year ended December 31, 2018:

Oil and gas royalty revenue was $123.8 million for the year ended December 31, 2018, compared with $58.4 million for the year ended December 31, 2017, an increase of 112.0% (144.2% excluding the $7.7 million Chevron Settlement received in September 2017). Crude oil and gas production subject to the Trust’s royalty interests increased 110.0% and 178.5%, respectively, in the year ended December 31, 2018 compared to the year ended December 31, 2017. In addition, the prices received for crude oil production increased 21.6% in the year ended December 31, 2018 compared to the year ended December 31, 2017, while prices received for gas production decreased 24.2% over the same time period. The changes in production and price for the year ended December 31, 2018 compared to the year ended December 31, 2017 exclude the effect of the Chevron Settlement.

Easements and sundry income was $88.7 million for the year ended December 31, 2018, an increase of 26.8% compared with the year ended December 31, 2017 when easements and sundry income was $70.0 million. This increase resulted primarily from increases in pipeline easement income, lease rental income and permit income for the year ended December 31, 2018 compared to the same period of 2017. Pipeline easement income increased $8.0 million for the year ended December 31, 2018 compared to the same period of 2017.

Water sales and royalty revenue was $63.9 million for the year ended December 31, 2018, an increase of 150.3% compared with the year ended December 31, 2017 when water sales and royalty revenue was $25.5 million.

Revenue from the sale of oil and gas royalty interests was $18.9 million for the year ended December 31, 2018. The Trust sold nonparticipating perpetual royalty interests in approximately 812 net royalty acres for an average price of approximately $23,234 per net royalty acre.

Land sales revenue was $4.4 million for the year ended December 31, 2018. The Trust sold approximately 171 acres of land for an average price of approximately $25,464 per acre. Land sales revenue was $0.2 million for the year ended December 31, 2017.

Texas Pacific Land Trust Announces Fourth Quarter 2018 Financial Results

Valuation Checkup

Trailing 12mo EPS stands at $21.79 as of 9/30/18.

12mo trailing eps

Since the quarter printed, we’ve seen the Trailing 12mo Earnings multiple contract from 39.6x to 26.3x.

26.3x is below the long term mean of 28.8x but comfortably inside one standard deviation from the mean (17.4x).

px and pe

It appears that TPL’s multiple had a bit of a regime shift in late 2005.  After that point, P/Es were generally higher with an average of 36.1x.  Though the P/E also appears more volatile, the standard deviation of the smaller sample is 10.9x vs 11.4x for the entire history displayed.

Fair value at long term P/E mean = $21.79 x 28.8x = $628

Fair value at 9/2005 through current P/E mean = $21.79 x 36.1x = $726

Source: Bloomberg