Texas Pacific Land owns about 873,000 surface acres in the Permian Basin, which it leases to energy producers. – Texas Pacific Land
The remnants of a railroad that went bankrupt in 1888 have become one of the highest-flying stocks in the oil patch—and one of the top performers in any sector this year.
Shares of Texas Pacific Land (TPL) have roughly tripled in 2024 despite languishing oil prices, thanks to a new approach the 100-employee firm has taken to wringing money from its acres in America’s most prolific drilling region, the Permian Basin.
Texas Pacific has built a lucrative business selling water to frackers in the West Texas desert and then giving them places to dispose of the wastewater that rushes to the surface along with oil.
It has also been adding battery firms, wind farms, solar arrays, bitcoin miners and carbon-sequestration projects to its list of tenants.
And it still covers its property taxes by selling hunting and grazing rights over country made famous in novels by Cormac McCarthy and Larry McMurtry.
Texas Pacific’s inclusion in the S&P 500 (^GSPC) this week has given another boost to the shares. Its stock market value has swelled to about $35 billion as the shares have become required holdings of the huge funds that track the broad index.
For most of its 136 years on the New York Stock Exchange, Texas Pacific was a trust, set up to liquidate a failed railway’s landholdings. The structure meant few funds could own its shares, which had been awarded to Texas and Pacific Railway bondholders.
Even after Texas Pacific became a corporation in 2021, Wall Street ignored it. A lone equity analyst—from a Dallas bank—called in to Texas Pacific’s quarterly earnings call earlier this month.
“We don’t use banks much,” said Ty Glover, Texas Pacific’s 39-year-old chief executive. “It’s hard to get coverage if you don’t use banks.”
Texas Pacific has no debt or credit lines, and doesn’t employ investment bankers to buy or sell land. When Glover joined in 2011, as its first oil-and-gas landman, there were hardly any computers.
Glover was surprised by the office typewriters as well as maps printed on big rolls of parchment paper that managers colored on to track Texas Pacific’s vast holdings.
The line and lands reserved in 1873 for the construction of the Texas and Pacific Railway. – Library of Congress
The extent of the acreage, and its concentration in what was emerging as the epicenter of U.S. oil production, shocked Glover too.
A century after it was created, Texas Pacific still owned about one-third of the 3.5 million acres that the government had given the railroad as it laid track.
Though the very first Permian Basin well had been drilled on its land in 1920, the trust was run more like an agricultural concern than an oil business. It spun off the mineral rights to the oil and gas beneath its land in the 1950s, retaining a small royalty interest.
The trust’s manager was content to sell parcels slowly as El Paso and Midland sprawled deeper into the desert. “There’s no real point in hyping or promoting this,” he told The Wall Street Journal in 1998.
When Glover joined there was reason to be excited. Energy producers had combined horizontal drilling and hydraulic fracturing, and crude production was surging.
Glover was promoted to CEO in 2016 and got to work modernizing the firm’s paper filing system and hiring employees with expertise in energy, law, engineering and hydrology. It started using drones, satellite imagery and change-detection software while dispatching employees into the desert to cut down on trespassing. A billing department replaced its old honor system for collecting royalty and lease payments.
For years, drillers had avoided Texas Pacific because it took the firm too long to do anything with its skeleton staff. Some started drilling and installing infrastructure without paying, Glover said.
“Just having the proper staff to keep up with the pace that the industry was moving at created a ton of revenue,” he said.
Texas Pacific Land collects lease payments for roads, pipelines and other infrastructure that energy producers install on its property. – Texas Pacific Land
Texas Pacific also started a water company to supply oil producers.
That created a new revenue stream and enabled drilling in dry areas. More drilling meant Texas Pacific could lease additional property for access roads, pipelines and power lines. It opened rock pits and sold producers caliche, a natural cement used to build the roads.
“It opened up a lot of acreage that I don’t think would have otherwise been developed,” Glover said.
Instead of only selling, Texas Pacific has become a land buyer. Recent purchases include mineral rights, which give it a greater cut of the oil and gas production, as well as land beyond drilling zones where wastewater can be injected underground.
Shareholders pushed Texas Pacific to convert to a corporation, which it did in 2021. That made the stock eligible for indexes.
Hamed Khorsand, principal at BWS Financial, became one of the few stock analysts to track Texas Pacific when it became a corporation. The stock did even better than he expected, and he dropped his coverage in September as it soared beyond his lofty price target.
“It got to the point where I didn’t know what to do with it,” he said.
After he was promoted to CEO, Ty Glover hired employees with expertise in energy, law, engineering and hydrology. – NYSE
The success has sparked imitators. Shares of LandBridge (LB), another big Permian property owner, have more than tripled since their initial public offering in late June. LandBridge said earlier this month that it would pay $245 million for the 46,000-acre Wolf Bone Ranch in West Texas, giving it a total of 272,000 acres.
While oil production has propelled Texas Pacific’s rise, investors are looking for natural gas to fuel further growth.
There isn’t enough pipeline capacity to carry away the huge volumes of gas unearthed as a byproduct of oil drilling. In recent years, the regional price of the power-generation fuel sometimes has gone negative, meaning that drillers essentially pay someone to take it.
Cheap gas has attracted bitcoin miners, and investors are counting on energy-hungry data centers to follow.
“It’s still a little early to say,” Glover said. “Where we can create some value there is to package the land with access to power, water and fiber and put that in front of a developer, kind of like what we’ve done with the oil-and-gas industry.”
