Houston Chronicle by Jordan Blum May 23, 2019
The Texas Pacific Land Trust was formed in the late 19th century to hold and manage millions of acres left after a cross-country railroad went bust. A large amount of that land, it turned out, was in the heart of what we now know as the Permian Basin.
Those holdings in the fastest-growing oil and gas basin in the world has vaulted the value of the trust from $300 million in 2012 to nearly $7 billion today, ranking its shares among the best performing on Wall Street. They also have made Texas Pacific the focal point of what is arguably the fiercest shareholder battle in the energy sector.
The trust, headquartered in Dallas, has an unusual structure dating back to the 1880s, with a board operated by just three trustees who serve lifetime appointments. One of the three died in March, creating a rare opportunity for hedge fund investors to launch a proxy fight to pick the next trustee. Their stated goal: Transform the trust into a traditional corporation with a larger board and modern governance practices to run what has essentially become an oil company.
The trust’s leadership, however has balked, arguing that most shareholders have held the stock for generations, enjoying steady dividend checks, but now fearing that conversion to a corporation could lead to its sale. Both sides have accused each other of conflicts of interest and questioned motivations as the fight has become more heated and personal.
The 130-year-old Texas Pacific Land Trust is the result of a failed railroad that was planned to stretch from Texas to California. Construction was ceased just east of El Paso, leading to the formation of the trust to manage the railroad’s 3.5 million acres and slowly sell off the land. About 900,000 acres — mostly in the Permian — remain.
“If we were debating 900,000 acres on the surface of the moon, we wouldn’t be having these conversations,†said Eric Oliver, the opposition trustee candidate who runs the Abilene mineral royalties hedge fund SoftVest LP. “But we’re talking about 900,000 acres of arguably the lowest cost for barrel of oil in the world, so the stakes are much higher.â€
The contest was expected to come to a head on June 6 with an already delayed shareholders’ vote for the next trustee. But that vote was put on hold indefinitely Tuesday when the trustees sued Oliver, accusing him and his allies of federal securities laws violations for making false and misleading statements to investors.
The opposition, in turn, has accused the trustees of tampering with the integrity of the corporate voting system through multiple delays. On Wednesday, the dissident shareholders met and declared Oliver the new trustee, although Texas Pacific said it adamantly disputes the claim.
Two sides of story
The companies operating on the trust’s land are some of the industry’s top oil producers, including the California energy major Chevron and Houston firms EOG Resources, Apache Corp., Anadarko Petroleum and Occidental Petroleum, which is now in the middle of acquiring Anadarko for $38 billion.
More:
https://www.houstonchronicle.com/business/energy/article/How-a-sleepy-Texas-trust-turned-into-Permian-oil-13877207.php
