Author Topic: TPL - Texas Pacific Land Trust  (Read 39497 times)

JAllen

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TPL - Texas Pacific Land Trust
« on: December 23, 2014, 08:14:26 AM »
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


Liberty

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Re: TPL - Texas Pacific Land Trust
« Reply #1 on: December 23, 2014, 08:20:22 AM »
Recent stock peak was market by publication of this very bullish story, which made it known to many people:

http://www.businessinsider.com/texas-pacific-land-trust-2014-8

Of course, soon after publication it fell almost 40%, but that's how this goes...

Jurgis

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Re: TPL - Texas Pacific Land Trust
« Reply #2 on: December 24, 2014, 09:20:37 AM »
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?
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NoCalledStrikes

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Re: TPL - Texas Pacific Land Trust
« Reply #3 on: December 24, 2014, 12:02:32 PM »
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.

ScottHall

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Re: TPL - Texas Pacific Land Trust
« Reply #4 on: December 24, 2014, 12:57:19 PM »
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.


Grossbaum

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Re: TPL - Texas Pacific Land Trust
« Reply #5 on: December 30, 2014, 02:57:16 PM »
Any thoughts on the magnitude or timing of the benefit mentioned in Horizon Kinetics Jan 14 Commentary?

Quote
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 Trustís 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.


tytthus

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Re: TPL - Texas Pacific Land Trust
« Reply #6 on: December 31, 2014, 04:56:04 AM »
Are TPL's royalties based on volumes or dollar amount sold?  I suspect dollar amount, but it's worth asking.

wellmont

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Re: TPL - Texas Pacific Land Trust
« Reply #7 on: December 31, 2014, 08:39:12 AM »
this is the kind of thing you throw a half percent at in 2009 type scenarios...

Grossbaum

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Re: TPL - Texas Pacific Land Trust
« Reply #8 on: January 09, 2015, 11:48:46 AM »
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?
« Last Edit: January 09, 2015, 11:52:47 AM by Grossbaum »

thepupil

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Re: TPL - Texas Pacific Land Trust
« Reply #9 on: January 09, 2015, 12:09:23 PM »
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.