Some new analysis on Seeking Alpha is linked above. Along with the analysis comes with a spicy comment section. Lots of long term bulls mixed in with a few heroes that sold and plan to reload at the “bottom”. Godspeed.
The article concludes that TPL will be ok (my words) as long as the price of oil stays reasonable. “Reasonable” happens if OPEC/Saudi cuts production to take some supply out of the market.
While it’s fair to think about TPL as a strong derivative of oil, it is also worth thinking about the long game. What is the terminal value of the land? What drives that terminal value? What about solar? Migration/settling patterns? Water? New oil extraction technology? Defense? 900k acres of arid land in the good old USA.
I’m not hanging my hat on OPEC playing ball.
Some quotes from the article:
You see that the volume effects are actually far outweighing the price effects, which is potentially worrying should the reverse happen:
-Because they compound, a lower oil price directly leads to lower royalty revenue per barrel, but also to less barrels produced.
-Insofar as the present explosion in the natural gas price is caused by production cuts in oil, it doesn’t provide much of a compensation as volume effects will counterbalance the price effects.
So OPEC is our friend here, they have learned an (expensive) lesson in 2015 and will try to limit output to support prices. As we already mentioned, there is considerable support from the price of natural gas:
And this at least provides some compensation from the loss from oil, but we should keep in mind that the gas price is rather volatile. Whether the present spike is going to last remains very much to be seen, although there are signs a tighter market is a more structural feature, as SA contributor Atlas Research has argued.
That is, if the world economy doesn’t slow down big time, and OPEC instigates production cuts and gas prices stay high, the damage to TLP could be fairly modest.
Unless we’re entering a really prolonged bear market in oil with no help from OPEC cutting whatsoever affecting not only prices but also production volumes of oil and gas in the Permian (and planned pipeline investments), we see no reason to get particularly worried about TPL. That scenario isn’t impossible, but we think it’s fairly remote.
More likely is that OPEC will cut production, and prices will stabilize or recover a bit. In this case, we’ll probably won’t see any production volume effect and we would argue that the price effect is already fully priced in, especially given the very firm natural gas price of late.
Still, the decline of the share price is understandable as production volume growth is likely to be more muted going forward, but this is a process that takes quite a lot of time to produce any meaningful impact, and what happens between now and then is anybody’s guess.
In short, we think at current prices offer a first entry point for a fairly unique kind of company.