From the WSJ Archives

Texas Pacific Land Trust Offers A Get-Rich-Slow Opportunity

Oldy but goody here from 1998.  The modern owner has to wonder if Bregman’s quote around a “creeping buyout” will hold true from here.

“People are going to become less interested in ‘concept’ stocks that sell at hope times greed times infinity,” says Mr. Shaefer, who is also editor of the Investor’s Edge newsletter, which has pushed Texas Pacific. Instead, investors will “be looking for real underlying asset value in the companies they own.”

Mr. Shaefer says his fund bought an undisclosed stake in Texas Pacific in January 1997 at $27.63 a share, and he doesn’t plan to sell until the stock reaches at least $80. By his calculations, the underlying assets are worth about $100 a share right now.

At its current rate, the trust is buying back stock more quickly than it’s selling land. Between 1980 and 1995, the trust reduced its number of outstanding shares by 34% but reduced its land inventory only 8%, from 1.2 million acres to 1.1 million acres.

Steven Bregman, president of Horizon Asset Management in New York, has researched Texas Pacific for his firm’s Contrarian Research Report and believes the stock is worth buying. “It’s cheap,” he says. “As long as you want to hold it for a decade, you put it away and forget about it and get rich slowly.”

The buybacks, says Mr. Bregman, are “like a creeping buyout. It’s a snowball effect.”

 

 

History Lesson : Mineral Interest Sale

Fun read at Findlaw.com

In the late 1800’s, TPLT was given several million surface acres by the Texas Legislature in exchange for constructing the Trans-Texas Railroad. In 1954, TPLT obtained a declaratory judgment in a Texas district court authorizing it to create a subsidiary company, TXL Oil Corporation, for the purpose of conveying to that company all of TPLT’s mineral interests. On December 10, 1954, TPLT conveyed to TXL all of its mineral interests underlying its 2 million surface acres. Under this conveyance, TXL reserved all of its surface acres as well as a non-participating royalty interest in those lands under an oil and gas lease to third parties. In 1962, TXL sold all of the mineral interests to Texaco, Inc., and Texaco, Inc. conveyed these mineral interests to Texaco Exploration and Production, Inc. (TEPI) in 1991. Texaco, Inc. and/or TEPI owned and operated the mineral interests until 2002 when they were acquired by Chevron U.S.A. in the merger between Chevron Corporation and Texaco, Inc.

Anyone know what happened with the proceeds?

Mental Models: a Changing of the Guard

A Tontine!

A Tontine is an investment plan for raising capital, devised in the 17th century and relatively widespread in the 18th and 19th centuries. It combines features of a group annuity and a lottery. Each subscriber pays an agreed sum into the fund, and thereafter receives an annuity. As members die, their shares devolve to the other participants, and so the value of each annuity increases.

Posts like the one above reflect the old mental model of TPL.  (Though I never tire about thinking about tontines.  Tontines are the investment/insurance product that that the world doesn’t know it needs.)

Anyhow, the old mental model goes like this: TPL sells land and collects miscellaneous income.  Proceeds are used to repurchase and cancel shares.  The guy to hold the last share out wins whatever is left.

I’d argue that the new mental model is more growth oriented:  TPL is growing a water business which to me seems ripe for a spin-off (tax free!) or a sale at some point.  Royalty interests are growing in value at a pace far greater than inflation (thanks technology!).  Land not used for water has many uses in other oil extraction and logistics activities.  The stock is painfully illiquid and hard to repurchase (thus lower repurchases).  The company pays a dividend and has signaled an intention to make it regular.  What we have here is an asset rich growth stock! 

All signs point to liquidation and repurchase being pretty low on the priority list.  Growing (top line, bottom line, capex, head count, etc) appears to be the main focus.

How are you reconciling the two? I admit to having some trouble as I worry/think about the growth trajectory/asset value tops of the land and its associated income product (though these two things are a circular value).  Does TPL not do its best for the trust if it doesn’t sell all or materially all of its assets at the top?  Is there a new agency problem that needs to be explored with the growth? Employees don’t want to fire themselves; the internal incentive to liquidate has to be lower.  In my estimation, we’ve got a beautiful push/pull going on.  It’s going to be fun watching from here on out.

 

 

Another Good Overview (link)

Keith Schaefer: The Biggest Failure in US Shale is Also The Most Profitable

This website is very sales-y but Schaefer does a good job summarizing the basics of $TPL.

 

The quote below isn’t entirely correct as I’ve come to learn that Texas Pacific Water Resources (TPWR) is becoming more of a regular presence on the conference/ marketing scene and rightly so.

If you are looking to attend a Texas Pacific Land Trust session at an oil and gas conference you will be disappointed.

They won’t be there.

You aren’t going to be able to read an analyst report on this company either.  Nobody follows them since there are no investment banking fees to be earned here.

Even press releases from these guys are few and far between.  They announce quarterly earnings and that’s it.

The corporate website is functional and nothing more.