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Murray Stahl's Horizon Kinetics on Texas Pacific Land Trust

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Jan 18, 2014
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Texas Pacific Land Trust (the “Trust”) will be the last example of a company that despite being much higher in price than it was a year ago, is actually cheaper. The Trust was actually Horizon Kinetics’ first research report. At that time, in early 1995, it traded at $4.00 per share. At yearend 2013, the shares closed at $99.99, which works out to about a 19% annualized return.


The original valuation model was based upon the Trust’s mandate to repurchase shares with available cash flow, which it has been doing since, believe it or not, 1888. In 1995, the Trust owned 1 million acres of land in west Texas and used the proceeds from periodic land sales, along with modest revenues from grazing fees and oil royalties, to repurchase shares. Because the shares were too cheap, this being perhaps the longest”time”horizon security one can identify, more and more acres would come to be embodied in each share as they were repurchased, for a very low”risk form of internal compounding. The report’s original estimation, almost 19 years ago when there were 15.4 million shares outstanding, was that by 2010, which was as far as the projection went, the share count would have shrunk to only 8.3 million. As of last September there were 8.6 million, so the model wasn’t all that far off.


Although the Research Select strategy has held Trust shares since 2007, and even though the shares 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.


Source: Horizon Kinetics Market Commentary - 4th Quarter, 2013

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