Author Topic: TPL - Texas Pacific Land Trust  (Read 52764 times)

Arski

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Re: TPL - Texas Pacific Land Trust
« Reply #80 on: November 18, 2020, 02:06:09 PM »
Thanks, that was a great read and gave me some more clarity.


mattee2264

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Re: TPL - Texas Pacific Land Trust
« Reply #81 on: November 19, 2020, 12:42:25 AM »

 I think there is a certain degree of obsolescence risk. A lot of the early shale plays are far less productive and Permian probably will suffer the same eventual fate. That will be offset to some extent by higher prices but I am not sure it will be enough.

Arski

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Re: TPL - Texas Pacific Land Trust
« Reply #82 on: November 19, 2020, 04:19:31 AM »

I think there is a certain degree of obsolescence risk. A lot of the early shale plays are far less productive and Permian probably will suffer the same eventual fate. That will be offset to some extent by higher prices but I am not sure it will be enough.
TPL will definitely be hurt by current prices and it is really difficult to predict the future oil price, but I'm still optimistic about future prices because we are going to need oil for a really long time and of course there will be more green energy etc. - so prices should go down - but oil will be more scarce over a decade and will have a price of $60 or higher with quite some swings. Oil prices have risen from $40 in 2016 to $55 in 2019 and TPL grew a tremendous rates; 79% CAGR for FCF (2016-2019) and 42% CAGR for EBITDA (2014-2019).

Besides that, TPL owns 900,000 surface acres in Texas. Texas is growing bigger and bigger in population and while these probably aren't the places you want to live, there is more place needed for businesses for example, or water utilities, infrastructure, electricity etc. So more people want to use TPL's land.

Also a problem Texas is facing is water shortage and let TPL just be the one who can help solve these problems. So I see quite some upside in their water business alone. Even if oil prices will stay this low they should be able to grow with double digits.

Love to hear if people totally or in some part disagree with me.

SharperDingaan

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Re: TPL - Texas Pacific Land Trust
« Reply #83 on: November 19, 2020, 07:02:03 AM »
It's implied that todays TPL investment is long term (5-10 yrs) and strategic - over at least one full cycle. The secular analysis is valid, o/g is not going away over the next decade; but Permian basin consolidation suggests a go-forward approach of asset stripping via 'manufacturing'. All else equal, todays liquid rich production changing to gas rich production as the basin is drilled and depleted.

'Greening' simply means less liquids, and more gas demand over time. New vehicles that are electric/hybrid vs IC, reducing demand. Replacement electric grid, and more electricity to power those cars; produced by gas as the cleaner burning fuel. Rates of change, and adoption rates open to dispute - but more demand for gas over time. Permian basin gas 'by-product' reasonably assured of a market.

The 'downside' is that Permian oil is light, a gulf coast refiner needs to blend it with heavy oil to get a reasonable crack spread. Restrict the flow of heavy oil (VZ, Canada) and a refiner needs less Permian oil. The upside is close, and scalable, proximity to the refineries - allowing the refiner to inventory heavy oil, versus light.

Longer term, most would expect VZ (or alternatives) crude to come back online at some point, displacing cdn crude going into new Alberta refineries. Gulf coast refining cutting back over time as Alberta refineries takes some market share, and ageing plants are retired and not replaced.

Assume Alberta and Gulf Coast refiners are owned by the same entities. Displaced Gulf Coast throughput, earning a higher spread on 21st century Alberta plant, as variable cost/bbl is lower. Alberta offsetting the C02 via carbon trading and carbon sequester. Both Canada and the US demonstrating progress on climate change commitments.

Point? TPL is a great long-term strategic investment, but it's not because of the oil. It's the gas as growing by-product, and easy ability to 'manufacture' it.

SD


« Last Edit: November 19, 2020, 09:03:03 AM by SharperDingaan »

bizaro86

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Re: TPL - Texas Pacific Land Trust
« Reply #84 on: November 19, 2020, 07:47:06 AM »
It's implied that todays TPL investment is long term (5-10 yrs) and strategic - over at least one full cycle. The secular analysis  is valid, o/g is not going away over the next decade; but Permian basin consolidation suggests a go-forward approach of asset stripping via 'manufacturing'. All else equal, todays liquid rich production changing to gas rich production as the basin is drilled and depleted.

'Greening' simply means less liquids, and more gas demand over time. New vehicles that are electric/hybrid vs IC, reducing demand. Replacement electric grid, and more electricity to power those cars; produced by gas as the cleaner burning fuel. Rates of change, and adoption rates open to dispute - but more demand for gas over time. Permian basin gas 'by-product' reasonably assured of a market.

The 'downside' is that Permian oil is light, a gulf coast refiner needs to blend it with heavy oil to get a reasonable crack spread. Restrict the flow of heavy oil (VZ, Canada) and a refiner needs less Permian oil. The upside is close, and scalable, proximity to the refineries - allowing the refiner can inventory heavy oil, versus light.

Longer term, most would expect VZ (or alternatives) crude to come back online at some point, displacing cdn crude going into new Alberta refineries. Gulf coast refining cutting back over time as Alberta refineries takes some market share, and ageing plants are retired and not replaced.

Assume Alberta and Gulf Coast refiners are owned by the same entities. Displaced Gulf Cost throughput, earning a higher spread on 21st century Alberta plant, as variable cost/bbl is lower. Alberta offsetting the C02 via carbon trading and carbon sequester, Both Canada and the US demonstrating progress on climate change commitments.

Point? TPL is a great long-term strategic investment, but it's not because of the oil. It's the gas as growing by-product, and easy ability to 'manufacture' it.

SD

I evaluated building refining assets in AB for one of Canada's largest oil companies. This was a few years ago, but the economics were terrible. Even if we assume refining utilization goes back up post covid such that refining investment makes sense, buying US refineries and upgrading them to heavy was way cheaper. And that was in an environment where US refineries were expensive to buy.

Unless you think the AB government is going to subsidize more new refineries I think its very unlikely any get built. And given how heartland has worked out so far I doubt there is much appetite for that.

SharperDingaan

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Re: TPL - Texas Pacific Land Trust
« Reply #85 on: November 19, 2020, 08:41:20 AM »
Agreed re Alberta refineries, but this was pre Covid, pre Saudi-Alberta discussion, and pre Biden. Todays 'stars' line up very differently, and if the Keystone build is to continue, there has to be some flexibility. Rational parties, with common interests, aught to be able to come up with something. https://www.theglobeandmail.com/business/article-saudi-company-eyes-alberta-for-petrochemical-facility-as-province/

Our own thoughts are that upstream/downstream/sequesture integration is inevitable, and that it will come with carbon trading. Ultimately, the additional cost of that pollution makes the business case for investment in carbon removal. The various green lobbies become your friends, not your enemies.

Generational thing, but the old guard is a steadily declining minority.
Times are changing.

SD



« Last Edit: November 19, 2020, 08:58:33 AM by SharperDingaan »

Arski

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Re: TPL - Texas Pacific Land Trust
« Reply #86 on: November 19, 2020, 10:58:34 AM »
I don't understand how this will impact TPL. Can you give some easy words clarity for me?

SharperDingaan

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Re: TPL - Texas Pacific Land Trust
« Reply #87 on: November 19, 2020, 01:58:40 PM »
Frac ban applies to federal land only, TPL is private land. They can frac all they want.
TPL land is on the Permian o/g basin, frac base decline rates are typically 30-40%/yr. Liquids displaced by gas/water cut.
Assume a 3 yr payback (conservative), initial 1,000 bbl/d production, 1st yr base decline of 45%, 35% 2nd yr, 30% 3rd yr. Average 15%/yr water cut, 6:1 oil/gas conversion.

Start of yr 4. The well is paid for, but it is now producing primarily gas.
Oil production is 250 bbl/d [1000*(1-.45)*(1-.35)*(1-.30)]. Gas production is 2,484 MCF/d [1000*(.45-.15)*(1+(.35-.15))*(1+(.30-.15)) x 6]

Without a market for that gas, the well is either shut in or the gas flared off. But if there WERE a market for the gas (ie: new power generation for overnight vehicle charging)? - the well becomes a money spinner.

SD

« Last Edit: November 20, 2020, 02:48:06 PM by SharperDingaan »

NoCalledStrikes

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Re: TPL - Texas Pacific Land Trust
« Reply #88 on: November 20, 2020, 12:08:40 PM »

I think there is a certain degree of obsolescence risk. A lot of the early shale plays are far less productive and Permian probably will suffer the same eventual fate. That will be offset to some extent by higher prices but I am not sure it will be enough.
TPL will definitely be hurt by current prices and it is really difficult to predict the future oil price, but I'm still optimistic about future prices because we are going to need oil for a really long time and of course there will be more green energy etc. - so prices should go down - but oil will be more scarce over a decade and will have a price of $60 or higher with quite some swings. Oil prices have risen from $40 in 2016 to $55 in 2019 and TPL grew a tremendous rates; 79% CAGR for FCF (2016-2019) and 42% CAGR for EBITDA (2014-2019).

Besides that, TPL owns 900,000 surface acres in Texas. Texas is growing bigger and bigger in population and while these probably aren't the places you want to live, there is more place needed for businesses for example, or water utilities, infrastructure, electricity etc. So more people want to use TPL's land.

Also a problem Texas is facing is water shortage and let TPL just be the one who can help solve these problems. So I see quite some upside in their water business alone. Even if oil prices will stay this low they should be able to grow with double digits.

Love to hear if people totally or in some part disagree with me.

This land is barren. It can barely support jack rabbits. You might run one head of cattle per 15 acre. Even if you found a business seeking a square mile of unoccupied land in the middle of nowhere, the buyer would have a hundred parcels to choose from.

MrB

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Re: TPL - Texas Pacific Land Trust
« Reply #89 on: November 24, 2020, 04:18:07 AM »

I think there is a certain degree of obsolescence risk. A lot of the early shale plays are far less productive and Permian probably will suffer the same eventual fate. That will be offset to some extent by higher prices but I am not sure it will be enough.
TPL will definitely be hurt by current prices and it is really difficult to predict the future oil price, but I'm still optimistic about future prices because we are going to need oil for a really long time and of course there will be more green energy etc. - so prices should go down - but oil will be more scarce over a decade and will have a price of $60 or higher with quite some swings. Oil prices have risen from $40 in 2016 to $55 in 2019 and TPL grew a tremendous rates; 79% CAGR for FCF (2016-2019) and 42% CAGR for EBITDA (2014-2019).

Besides that, TPL owns 900,000 surface acres in Texas. Texas is growing bigger and bigger in population and while these probably aren't the places you want to live, there is more place needed for businesses for example, or water utilities, infrastructure, electricity etc. So more people want to use TPL's land.

Also a problem Texas is facing is water shortage and let TPL just be the one who can help solve these problems. So I see quite some upside in their water business alone. Even if oil prices will stay this low they should be able to grow with double digits.

Love to hear if people totally or in some part disagree with me.

This land is barren. It can barely support jack rabbits. You might run one head of cattle per 15 acre. Even if you found a business seeking a square mile of unoccupied land in the middle of nowhere, the buyer would have a hundred parcels to choose from.
In our analysis TPL's landbank value is similar to companies like Sears and Dillards; 80% of the value sits in 20% of the properties. Valuable land around El Paso and then generally speaking have good tracks where the county averages are pretty high. Point being that you don't have to dig to deep to find that not all their land is barren.
Having said that in light of the current valuation the land alone does not get you there.
« Last Edit: November 24, 2020, 07:40:12 AM by MrB »