(Idea) Texas Pacific Land
Texas Pacific Land Corporation (TPL) was founded in 1888 as a trust dedicated to holding title to land owned by the Texas and Pacific Railway Company. The company’s stock has the distinction of being the second Warren Buffett ever bought.
In 2021, TPL reorganized from a publicly traded trust into a corporation. Its primary assets consist of 868,000 surface acres in West Texas concentrated in the Permian Basin, as well as nonparticipating perpetual oil and gas royalty interests under 456,000 acres of West Texas land. Its vast land holdings make it the largest royalty company in the Permian.
TPL owns land in the heart of the Permian’s Midland and Delaware sub-basins, as shown in the shaded areas of the map below.
Source: TPL February 2023 Investor Presentation.
Its surface and royalty ownership interests generate revenues tied to oil and natural gas development. TPL doesn’t produce or operate oil or gas wells on its own. Instead, it serves as a landlord for the E&Ps that operate on its acreage. Its average royalty rate in the Delaware Basin stands at 6.1%, and for the Midland Basin is 1.7%. The high rates in the Delaware will benefit TPL over the coming years, as the basin’s production growth is poised to exceed that of the Midland Basin.
TPL’s largest E&P partners are a “who’s who” of the major E&Ps that operate in the Permian. The top five in order are Exxon Mobil (XOM), Chevron (CVX), Conoco (COP), BP (BP), and EOG (EOG). These operators account for 64% of total royalty revenues. With blue-chip majors accounting for the lion’s share of royalty revenues, TPL is largely free of issues related to the creditworthiness of its business partners.
Aside from royalty payments, TPL generates revenues from the sale of materials used in infrastructure construction, the treatment of water associated with oil and gas production, and from easements and commercial leases on its surface land holdings. Its revenues are split roughly 70% from royalties, 25% from water services activities, and 5% from other surface activities.