Keep on Rockin’ Me Baby

Steven Miller on SA: How Texas Pacific Land’s Proxy Fight Made Me A Dissident

Steven has been an active voice on the topic of TPL on the Seeking Alpha website in recent years.

Judging by the comment thread, can the vote even be close?  Sentiment appears to be with the White card.

There are nevertheless similarities between the current governance system of the Trust and a totalitarian system of government. The current trustees essentially have lifetime appointments. The Trust has had only four public meetings in the last 30 years. Information about wells drilled, the water business, and the recent land swap has been sparse or nonexistent, much to the frustration of shareholders. This has caused a continued sense that the trustees are hiding something.

For me, this misgiving started when a report came out that water was being piped from the Trusts land into New Mexico, a report that was never answered, as far as I have been able to determine. The trustees furthermore chose to nominate a general rather than the candidate that a significant block of investors have nominated. The trustees continue to demonize the opposing candidate, who has chosen not to strike back in kind.

Mr. Oliver is not a perfect candidate, and I still have questions both about his background and a statement or two he has made, but he has raised significant issues and has proposed solutions to them. He wants more transparency. He wants a change in governance. General Cook has announced support for term limits, but this came long after Mr. Oliver pressed the issue. The General has been fighting a defensive battle from the outset.

The trustees’ social media blitz irritates me, as does their insistence on taking credit for passive income. The Trust may call me a dissident for supporting Mr. Oliver, and they may be right to do so, but not for reasons they think.

Ruminations

Steven Miller on SA: Texas Pacific Land Trust: Review Of The Quarter And Ruminations About The Future

Good read here.  The article includes a good synopsis of recent price and trust performance along with some practical thoughts about the future.

Steven is still long but isn’t optimistic about near term prices due to a forecast flattening earnings and overdone investor optimism.  Miller does seem positive about the long term trajectory of TPL.

The water business is new and growing; it already contributes 18.1% of the revenue. How long can the growth continue? The Permian Basin Oil & Gas Magazine reported last May that producers are able to satisfy most drilling requirements with local uses of water. “That and the influx of water treatment companies have made the market ‘brutally competitive.’” The Trust has managed to thrive in that competitive environment to date, but it may not have a large moat.

Projecting a stock price remains quite speculative. Given the increased focus investors have on cash flow and the projected fall in revenues, I do not expect the stock price to rise much from its current point. On the other hand, the pipelines are coming. Management is proactive. The Trust will continue buying back shares, per its charter. Management is doing something interesting with selling and buying land. The Trust remains a favorite among far-sighted investors. All these factors will keep the stock from sinking too far. Taking into account both the short-term bears and the long-term bulls, I project the stock to move sideways in a channel between $500 and $600 per sub-share (the Trust’s unique name for “shares”) for the next two quarters.

Revenues for the next quarter are projected to drop. A corresponding drop in stock price is entirely possible, but long-term investors will likely use any opportunity to buy shares. The Trust will continue to buy back shares as well. Therefore, barring any catalyst, I am looking for the stock to trade in a range of $500 to $600 for the next two quarters. Traders could well find some nice opportunities in that price range. Should management have another surprise announcement, the stock could well soar again far beyond that range.