Fair settlement: The sun sets behind a pump jack in the American west’s ‘oil country’. Texas Pacific is shelving plans to issue new stock after shareholders thwarted the move, which will now be resolved in court. — Reuters
HOUSTON: One of the biggest landowners in Texas oil country doubled returns to investors in 2022. It’s starting the new year by suing some of them as a dispute over the future direction of the company spills into a Delaware court.
Texas Pacific Land Corp (TPL), a land bank created out of a 19th-century railroad bankruptcy, shelved plans to issue new stock last month after shareholders baulked at the implicit dilution of their holdings and the prospect of executives inexperienced in dealmaking looking for acquisitions.
Texas Pacific management has been vague about what it intends to do with the new shares but has taken its biggest holders to court so it can push through the issuance in February.
That puts a company in the odd position of suing investors, including entities run by two of its own directors, who’ve seen the stock swell more than 4,000% in the past decade and dividends almost triple in the past year to US$32 (RM142) a share.
“Going on an acquisition spree funded with the equity of TPL is something that has never happened in the history of the trust going back to when it was formed in the 1880s,” said Chadd Garcia, portfolio manager with Schwartz Investment Counsel, a top-10 Texas Pacific shareholder.
As a result of the dispute, the company “has the most disliked board and management.”
Texas Pacific’s unusual business model revolves around charging oil explorers access fees to its land, selling them the raw materials needed to drill wells, and taking a cut of the proceeds from crude and natural gas production.
The US$19bil (RM84.3bil) company has been this year’s second-best performer in the Russell 1000 Energy Index and is on course for its best annual performance since 2016.
Even Warren Buffett is a fan. Texas Pacific was the second stock Buffett ever bought. In his teens, he surmised that the land bank’s strategy of collecting fees while repurchasing stock was a long-term winner.
At Berkshire Hathaway Inc’s annual meeting in April, the billionaire investor said that as more oil was discovered in the Permian, the company’s approach “ought to work out well for anybody that sat around for a long time.”
Texas Pacific is “generally agnostic across the various capital allocation options, and the company strives to allocate capital to what we believe provides the highest return for our shareholders,” a spokesperson said, noting that executives have been saying for two years that they’re always looking for deals.
“With respect to potential mergers and acquisitions, it depends on a number of factors,” Shawn Amini, Texas Pacific’s vice-president of finance and investor relations, said. “Basically, we’re trying to solve the problem of deploying capital towards the uses with the highest returns.”
Shareholders have objected to management steps that would upend the company’s century-old business model and expressed scepticism about an executive team with little history of dealmaking.
Schwartz Investments’ Garcia and other investors were alarmed in November when four armed officers turned up at the annual meeting at the Renaissance Dallas Hotel.
Texas Pacific said it hired security because it expected the meeting “to be well attended and wanted to ensure safety for a large group.”
Texas Pacific planned to present the proposal to allow management to issue additional shares but postponed that amid investor opposition. — Bloomberg
