Jump to content

TPL - Texas Pacific Land Trust


Recommended Posts

I know some people follow TPL because FRMO owns it.

 

"Texas Pacific Land Trust (NYSE: TPL)

announced today that it has entered into a contract for the sale of approximately 19,607 acres of land in Upton/Crane Counties, Texas for aggregate consideration of $19,840,000. The Trust will retain its oil and gas royalty interests in the acres being sold. The closing of the transaction is scheduled for January 15, 2015."

 

Original filing: http://stockbase.com/company/0000097517/filing/0000932440-14-000357

Link to post
Share on other sites
  • Replies 126
  • Created
  • Last Reply

Top Posters In This Topic

Top Posters In This Topic

Posted Images

Has anyone done a valuation on this? Or should I dig for Murray Stahl's 2005 (?) writeup?

 

At current price the earnings/FCF yield is very low. And the earnings/FCF are at fracking bubble levels that will drop with the current oil crisis. So based on earnings/FCF it seems overpriced against the top cycle numbers - double whammy.

 

That leaves us with asset based valuations. The land can be valued at some price, but like Buffett explicitly said about TPL - it's not liquid, so most valuations are overoptimistic. You can only sell few better parcels at reasonable prices.

 

My guess would be to wait until this crashes again to cheap baseline valuation. But perhaps someone has done conservative valuation that this is cheap even now?

Link to post
Share on other sites

For those of you unfamiliar with West Texas.... This land is completely, totally worthless except for its oil.  Calling this land barren is being generous. With only the most minor exceptions, the only land they sell is for operators to use for oil processing equipment, so don't take those numbers and multiply it across all their acreage.

 

In short, do not let yourself get seduced by any low dollar per acre valuations, the only valuations you should be concerned with is how much land is sitting on oil, everything else is noise.

Link to post
Share on other sites

For those of you unfamiliar with West Texas.... This land is completely, totally worthless except for its oil.  Calling this land barren is being generous. With only the most minor exceptions, the only land they sell is for operators to use for oil processing equipment, so don't take those numbers and multiply it across all their acreage.

 

In short, do not let yourself get seduced by any low dollar per acre valuations, the only valuations you should be concerned with is how much land is sitting on oil, everything else is noise.

 

I think NoCalledStrikes makes a good point here. The majority of this company's profits come from oil. It's basically an oil business with no capex requirements, so a royalty business.

 

The stock seems to price in a lot right now, even with its recent decline. I'd be interested at some point but unless I came across some particularly compelling piece of info, this is a pass for me for now.

 

 

Link to post
Share on other sites

Any thoughts on the magnitude or timing of the benefit mentioned in Horizon Kinetics Jan 14 Commentary?

 

Although the Research Select strategy has held Trust shares since 2007, and even though theshares just about doubled during 2013, the position was added to late last year. The reason was an announcement, this past June, that Chevron and Cimarex, which both own land in Culberson County, Texas that was problematic to drill separately, combined their acreage in a joint venture so as to establish a major drilling program. This is located in what is known as the Delaware Basin, where, because of horizontal drilling technology, there now appear to be vast reserves of economically extractable oil and gas. Much of this is on former Trust acreage in which it retains a royalty interest in any production. The size of this program suggests that it has the potential to markedly increase the Trust’s revenues. Moreover, with this revenue increase, not only will the Trust be able to accelerate its share repurchases, it might also curtail land sales, such that the growth rate of acreage per share can accelerate yet further.

 

104,000 acres in the Chevron/Cimarex JV, although I don't know how much is on TPL royalties acreage.

 

The latest Cimarex investor presentation spends a fair amount of time on the Culberson county acreage.

 

It would be interesting to estimate the potential benefit from this, and see how much it could mitigate from the coming decrease in royalties from existing production. See if it is meaningful or not to an investment thesis.

 

Cimarex.pdf

Link to post
Share on other sites
  • 2 weeks later...

Attached xls is a high level summary of how I am thinking about TPL. I know just enough to be dangerous.

 

A couple assumptions I'm working off of are:

-total bbls/mcf produced (received through royalties) will not fall dramatically, even at $50-60bbl oil. The Permian seems to be among the best o&g acreage in the country. Yes, companies are dramatically throttling back 2015 capex budgets but that may shift production from what would have been sharp growth to mitigated growth.

- used $55/bbl oil, nat gas prices about the same as 2014; and essentially flat production volumes in 2015

- My understanding is that  the sundry income is not 1st order related to oil and gas prices. Rather the largest part of this line item is a fee paid for a right of way/easement. So long as the pipeline/road is there, the fee will be paid. My assumption is this will not be significantly reduced due to oil price declines. There is pipeline capacity being added in the Permian in 2015. I don't know whether any part of the pipes will be on TPL land. My thought is that this income stream will be flat in a low case scenario.

 

Working off those assumptions, 2015 cash flow may be about $27.5mm. I think it would be an attractive price to purchase the income producing stream for about $275m (see attached). Including the $30m in cash balance, we arrive at about $300m value. That leaves about $700m in value for the ~900k acres of land with surface rights.  ($1,000m mcap - $300m other = $700m).

 

That works out to be about $770/acre of west texas land. Average sales price has been about $515/acre over the last 4 years but very lumpy depending on what was sold.

 

It doesn't seem like low enough of a price yet, based on how I'm thinking about it.

 

Any other thoughts?

TPL_high_level_summary.xlsx

Link to post
Share on other sites

I'd say you are thinking about the land incorrectly. The value of 95% of the land is whatever absolutely bare worthless land in texas sells for. $50 an acre? $100 an acre? I don't know. But it definitely is not $800. Timber REITs create good timberland for $1500 and there is no way you'd buy an acre of desert  scrubland for 1/2 that. The land has no real value except for some way OTM option that someone comes up with something to do with it.

 

The value of the land is the

 

income it generates (sundry + royalties)

+bare land value

 

I would personally capitalize the long lived royalties with a higher multiple than 10. These are diversified across a big swath of land and on a commodity that will be used for a very long time and the underlying fields have been producing for a really long time. It's not like this is a coal royalty MLP.  If I wanted  to be uber bulled up I'd say 15 or 20 or even 25. Also I see low probability upside in that this thing is very tax inefficient, could it convert to an MLP? but I'm guessing that the first 200 years of precedent would prevent that.

 

So I'd say you are too low on your royalty multiple, and way too high on your ex royalty ex sundry income land value. I'd want to pay $0 for that for it to be interesting.

 

I'd say $400MM-$900MM for royalty (ya it's a big range) + sundry and $0-$100MM for land.

 

 

 

 

Link to post
Share on other sites

thepupil  +1

 

1. It is essential to break out the barren $100/acre land with the potentially high value land. 

2. I would also then suggest breaking out the 1/16 royalty land from the 1/64 royalty land as everything else being equal, the 1/16 land is worth 4 times more than the 1/64. 

 

 

Link to post
Share on other sites

I remember looking to short this around $170 and just never pulled the trigger.  I just don't see how investors who purchased this at $240 are going to get any reasonable kind of return. 

 

You probably need to assign almost no value to the land given it is not liquid at all and the opportunity costs of sitting and waiting are massive.  Even if you get the stock trading at a discount to the asset values the returns are limited to the reduction in share count. 

 

This is the kind of stock I would buy at 50% under NPV which in this case might be around $750mm implying a buy price of around $40.  That also happens to be the average price of the stock in 2011/2012 when one could argue the future looked a lot brighter. 

 

I personally don't see the appeal.

Link to post
Share on other sites

the appeal is you have royalties and pipeline easements that seem to perpetually surprise to the upside. And you own a greater % of those each year. But the problem with that is as the stock goes up and up then the share count reduction becomes less potent and at some point becomes value destructive.

 

I'd probably be a buyer if it went down another 40%, but that's true of a whole lot of stocks and the cult of Stahl probably won't let that happen.

Link to post
Share on other sites

the appeal is you have royalties and pipeline easements that seem to perpetually surprise to the upside. And you own a greater % of those each year. But the problem with that is as the stock goes up and up then the share count reduction becomes less potent and at some point becomes value destructive.

 

I'd probably be a buyer if it went down another 40%, but that's true of a whole lot of stocks and the cult of Stahl probably won't let that happen.

 

Isn't that appeal the equivalent of buying some good total-return bond fund (maybe Gundlach) and reinvesting the dividends?  Or buying some Oaktree convertible bond fund and reinvesting the dividends.

 

The total return on TPL from 1980 to 2012 was about 6% a year.  This stock goes through very long stretches of almost no movement and buying it after it's jumped up 3-4x in a few years seems to bet strongly against previous history. 

 

It will be interesting to continue watching.

Link to post
Share on other sites

http://www.horizonkinetics.com/docs/TexasPacificLandTrust%20TPL%20CRRMay95.pdf

 

It's instructive to read the original report at a MCAP of $63MM. Shares have been basically halved while net income multiplied 10 fold.

 

Clearly the original thesis was correct. I don't think a bond fund can do that. The oil linked royalty on diverse acreage with even more oil than expected + the right to run pipelines through that land was a lot more valuable than anyone expected.

 

But going forward I wouldn't want to count on similar growth.

Link to post
Share on other sites
  • 1 year later...

 

I would like to reopen this idea…Apache recently announced a significant new finding in the Southern Delaware Basin, of which TPL holds substantial interests in the region.  As Apache builds out across the region, TPL will effectively charge a small, very, very small fee for all sorts of services in which Apache needs for E&P development in the region.  This could take 10, 20 or even 30 years to playout at this point. 

 

Access to pipelines: you MUST pay TPL, access to water rights for fracking extraction: you MUST pay TPL, Access to road creation: you MUST pay TPL, To drill: You Must pay TPL…and the thesis goes on and on. 

 

So, effectively, how do you value a company which has no meaningful operations, no debt, 4 employees, basically cashes checks, and is mandated simply to buyback stock and pay a modest dividend???  TPL has retired approximately 92 million shares since 1888 and given this new finding, one could argue the rate of return could be material from here.  A parabolic rate of return at this point? 

 

I have no position in the stock – the name is highly, illiquidity, only trading about $10mm dollars worth of stock everyday.

 

Apache PR:  http://investor.apachecorp.com/releasedetail.cfm?ReleaseID=988060

 

Link to post
Share on other sites
  • 1 month later...

This is one of the most challenging and interesting securities to value.  I was informed that Jefferies is in the market bidding for a meaningful portion of stock…possible for an Activist looking to break TPL up into an MLP/REIT.  You could also see a reverse split to improve trading liquidity…which TPL did once before in 2007 I believe.  Of course the rise in the stock price is actually BAD, as the company acquires less and less shares through its pre-mandated buyback program.  This name isn’t for the faint of heart however, as the fundamentals are very unclear at this point.  I’ve heard bull cases for the name to go up 10X over the next 20years, as well as the bear-case.  It’s worth keeping an eye on the name if the market ever seriously corrects, and TPL falls 30% - 50% to start acquiring.  I have no position in TPL but find it a interesting self-liquidating land trust. 

 

Question to the board – what other self-liquidating companies are you following?

 

Link to post
Share on other sites
  • 3 weeks later...

http://www.horizonkinetics.com/docs/Q4%202016%20Commentary_Final.pdf

 

The most complex STOCK (notice how I did not use BUSINESS, as TPL is effectively dirt and rocks) to analyze was recently mentioned during HK's 4th Quarter investor letter....HK owns around ~25% of this STOCK's outstanding market-cap...

 

Who knows...I am avoiding this right now - but find the STORY fascinating

Link to post
Share on other sites

Does anyone think Horizon's trading activity is a bit strange?

https://www.sec.gov/Archives/edgar/data/97517/000151941816000030/sched13da.htm

 

They continued to buy and sell every day, and they buy at a slightly higher price than they sell.  :o

 

Why is HK not subject to the short-swing profit rule?  They own more than 10% therefore every sale should be able to be matched up to the lowest buy price in the last six months and the profit would go back to the company. 

Link to post
Share on other sites
  • 3 months later...

Makes you wonder...very well written article...I think there are analogies to TPL here...

 

https://www.theatlantic.com/magazine/archive/2017/05/frank-and-stevens-excellent-corporate-raiding-adventure/521436/

 

This is a cult stock, which is impossible analyze; which is significantly overvalued...this is literally dirt...DIRT...there is no 'business' here...

 

Sincerely,

ValueMaven

Link to post
Share on other sites

Makes you wonder...very well written article...I think there are analogies to TPL here...

 

https://www.theatlantic.com/magazine/archive/2017/05/frank-and-stevens-excellent-corporate-raiding-adventure/521436/

 

This is a cult stock, which is impossible analyze; which is significantly overvalued...this is literally dirt...DIRT...there is no 'business' here...

 

Sincerely,

ValueMaven

 

I understand the similarities in that both companies clearly are operating on extraordinarily long time horizons (as far as shareholder returns and patience are concerned), but based on that article, I think much less patience is required for TPL investors. TPL's revenues are skyrocketing from all the recent drilling on their lands. So while that multi generational patience might still be needed for Tejon investors before they see value accrue through the income statement, with TPL, that's very much happening right now. Revenues were up this past quarter by around 140% iirc...

Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now



×
×
  • Create New...