The hottest oil stock from the U.S. shale boom has never pumped a single barrel of crude.
Texas Pacific Land Trust, a listed land bank created out of a railroad bankruptcy more than a century ago, has climbed more than 2,200 percent since 2010, outperforming the stocks of shale oil producers, service companies and prospectors alike. It’s now worth more than $5 billion.
Its secret: vast tracts of mineral rights in the Permian Basin, the world’s hottest major oil region, earning revenues from the likes of Chevron Corp., which have to pay the trust when they produce from its land.
“This stock has been flying way underneath the radar for years,” said Eric Marshall, a Dallas-based fund manager at Hodges Capital Management Inc., an early investor and a top five shareholder, according to data compiled by Bloomberg. “The real activity in the Permian is now in the areas where they have the most acreage.”
Not everyone missed the rally.
In 1995, a low-profile fund named Horizon Kinetics LLC published research on the trust titled: “How to Buy 1 Million Acres of Fine Texas Grazing Land for $20.” The fund, whose CEO Murray Stahl declined to comment, has been in and out of the stock since the 1970s. It bought in in a big way in 2008, before the rally, and now holds 1.8 million shares worth about $1.2 billion, about 20 times its original stake, according to data compiled by Bloomberg.
Born in Failure
Like many American success stories, Texas Pacific began with a failure. In the 19th century era of Westward Expansion, Texas and Pacific Railway Co. was attempting to build a railroad from Marshall in its home state to San Diego. It was granted land under federal charter to build the line but after delays and financial difficulties the company went bankrupt in the 1880s.
The railway bankruptcy predates the Texas petroleum boom that started in 1901 with the discovery of Spindletop, the field that’s credited with leading the U.S. into the oil age.
Some 3.5 million acres, an area the size of Connecticut, were given to bondholders, placed in a trust to be sold off over time, with the proceeds going to repay creditors. The vehicle was listed in New York in 1927 with the mandate to buy back shares and pay dividends whenever land is sold, with the ultimate goal of liquidating itself.
For the first 100 years, though, much of the sun-baked land in west Texas was more desirable to prairie dogs and sand dune lizards than cash buyers. And after more than a century, the trust still retains almost 900,000 acres -- and crucially, mineral rights.