From Bloomberg
Texas Pacific Land Trust, one of the Permian Basin’s biggest landowners, is facing off against one of its largest shareholders over who will fill an open trustee job.
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.”
The standoff, reminiscent of activist campaigns sweeping publicly listed U.S. stocks, was publicized in an SEC filing Friday by Horizon Kinetics. The investor said in the filing that it has signed a cooperation agreement with fellow Texas Pacific investors to explore options to “maximize the value” of the shares. Such language is often used by activist shareholders when they want management to change strategy or sell the company.
Texas Pacific is a little-known land bank created out of a railroad bankruptcy more than a century ago that has become one of the hottest investments in the U.S. shale boom. Its purpose was to sell land in West Texas to repay bondholders of the doomed Texas Pacific railway. Its value exploded in 2015 when investors realized it held some of the world’s finest shale oil land in the heart of the Permian Basin, and also owned mineral royalties.
The trust has a market value of $5.9 billion, meaning a dollar invested a decade ago is worth about $36 today. It posted $62.6 million of net income in the fourth quarter, more than double the same period a year earlier, partly due to oil prices and its water business. But the real value of the company’s assets is the 888,333 acres it controls in 18 counties, according to its website.
A large swathe of its land in West Texas is close to the New Mexico border, a prolific oil-producing zone and near where Chevron Corp. operates. The U.S. oil giant this month announced a plan to roughly triple Permian production to 900,000 barrels a day by 2023, potentially benefiting neighboring landowners by acreage swaps and royalty payments.
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.
Activist Campaigns
There are about a dozen activist campaigns focused on U.S. energy stocks right now, mostly wanting to create more shareholder value out of the shale boom that has delivered record oil and gas production but little in the way of investor returns.
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.
