Activist?

Bloomberg: Hedge Fund Challenges $6 Billion Texas Land Bank in Activist Play

Not sure I’d qualify a party that 1) has a 20yr+ history with a stock and 2) controls ~25% of the float as an “activist”.  Term seems too strong.  The rest of the article linked above is a good recap of what we’ve seen play out in recent SEC filings.

Horizon Kinetics LLC, which owns a 23 percent stake, has urged the trust to modernize its structure and appoint Eric L. Oliver after the previous trustee stepped down due to ill health. Texas Pacific said March 4 that its trustees nominated Preston Young for the position.

Chief Executive Officer Tyler Glover, in an email Monday, defended the company, pointing to a more than 40 percent increase in its stock price in the last year. He called it an “impressive market performance” he credited to “active management of our expansive asset base and other steps taken to position the Trust for continued growth.”

In its filing, Horizon Kinetics wrote that it wants to make Texas Pacific a Delaware corporation “subject to modern governance principles” and better develop a division that supplies the oil fields with water, it said.

Oliver, Horizon’s choice as a trustee, is one of the shareholders who signed the cooperation agreement through his SoftVest Advisors LLC, as is financier Allan R. Tessler, who owns stock through several entities. Horizon also wants management to provide more information to shareholders such as drilling updates, water production and engineering reports.

The fund “believes that the Trust should be more transparent and frequent on its updates to holders of securities,” it said in the filing. A Horizon spokesman declined to comment beyond the filing.

Wisdom From the Comment Section

GG in response to the last post writes:

Per the most recent 10-K, one thing that HAS changed is that the trustees just seemed to have increased their paychecks from $2,000 per year to $104,000 per year. Egregious? No. But you should never have a scenario where the trustees are elected FOR LIFE and also in a position to vote their own salary increases….

Likewise, if the Trust is going to be doling out multi-millions in bonuses to executives, then there needs to be shareholder oversight into the people who make those decisions. Glover and Packer each took home a $1.8 million bonus. Totally ok from the perspective of increased income, but it’s problematic that shareholders do not have any say outside of the very-rare trustee votes (literally only when a trustee resigns or dies).

Much more important than who is being nominated to be a trustee, is the line from the sec filing “Such discussions may include (1) the conversion of TPL into a Delaware corporation subject to modern governance principles, as permitted by TPL’s declaration of trust”

Modern governance, and a real elected board that answers to shareholders would clearly be a step up from the current situation.

Three trustees with lifetime jobs does sound a bit narrow for modern times.

Trustee Challenge : Thoughts

While I reserve the right to change my opinion if new information arises, my gut instinct is that I’m on board with the Eric Oliver as trustee.  I’m writing to flesh out my thoughts.  I don’t pretend to have more information than anyone else; in fact, I’m likely behind the curve on crucial particulars as they relate to 1) the exact state and value of TPL’s mineral rights, 2) the potential of the water business (customer base, breadth of service, etc) and 3) what the future holds for the Permian.  I’m not in the oil industry and I live just about as far away from Texas as a US citizen can.  This is me building my mosaic as a qualitative investor.

  • HK is on board.  Out of any single party involved, HK has the greatest incentive (by virtue of amount held) to see that TPL’s value is maximized.
  • Change is hard.  Gut instinct and reactions to change can often be very negative.  We all know that TPL has had a good thing going for a long time and the operational history (liquidating and concentrating the equity base) of TPL is what attracted many of us to invest.
  • Circumstances have changed rapidly.  Those that can adapt to new realities usually come out on top.  What got you here won’t get you there.
  • Eric Oliver, as evidenced by his control of SoftVest, appears to be qualified for the job.  Again, HK’s tacit endorsement speaks volumes.
    • “Eric serves President of Midland Map Company, LLC a 55-year-old company that tracks lease and ownership changes throughout the Permian Basin of West Texas”.
    • SoftVest appears to control $30MM market value of TPL sub-shares
  • Allen Tessler and family appear to be an extremely accomplished and competent.
  • HK, Oliver, and Tessler all have stakes well in excess of current management.
  • I too have significant personal skin and the game and was relieved by reading the filing yesterday.  I’d admit to having grown quite worried about agency and succession issues after the resignation of Maurice Meyer.
    • I don’t write this to be dismissive of Preston Young who appears to be a very capable individual.
    • Nor do I wish to make light of the excellent stewardship of Tyler Glover, Robert Packer, John Norris, and David Packer.

I’m still not 100% (though I’m not sure it matters anyhow).  But as you can tell, I’m certainly leaning toward the direction of change.

Trustee Alternate

EDGAR: 14A

All EDGAR

From time to time the Reporting Persons have engaged with the trustees and other representatives of TPL, investors and other industry participants to discuss various opportunities to maximize the value of TPL for the benefit of holders of Shares. Such discussions have included (1) the conversion of TPL into a Delaware corporation subject to modern governance principles, as permitted by TPL’s declaration of trust, (2) focusing on the establishment of an experienced team around TPL’s new water business, with clearly defined goals and objectives, or otherwise considering the separation or sale of such business to a third party with a retained royalty, and (3) the addition of Mr. Oliver as a trustee of TPL. The Reporting Persons believe that the trustees of TPL should fully explore these options, as well as any other opportunities available to maximize value for holders of Shares. In addition, the Reporting Persons believe that the Trust should be more transparent and frequent on its updates to holders of Securities (e.g. drilling updates, drilled and uncompleted well updates, water production, water injection volumes, and engineering reports).

Eric Oliver

Allan Tessler