One of the best Permian investments doesn’t produce any oil

By Kevin Crowley on 1/10/2020

HOUSTON (Bloomberg) - Texas Pacific Land Trust, a land bank that doesn’t produce oil, is one of the best ways for investors to gain exposure to the world’s largest shale field, according to Stifel Financial Corp.

The publicly traded trust owns royalties, surface rights and water in the Permian Basin of West Texas. Drillers have to pay the trust to operate on its land, which means that Texas Pacific profits from surging oil production without pumping a single barrel of crude.

The company “offers investors full exposure to the most profitable business segments across the entire Permian value chain,” Stifel analysts led by Derrick Whitfield said in a note to clients, initiating coverage with a buy rating.

The shale boom transformed the Permian from an overlooked backwater into the world’s hottest drilling region. But many producers there have delivered little in the way of returns for investors as companies put all their revenue back into new wells to boost output. Texas Pacific has bucked that trend.

“We believe TPL is the best single ETF to own for Permian exposure,” Stifel said.

The downside of buying now is that others have already noticed Texas Pacific’s attributes. The stock has soared 569% in the past four years, far outpacing oil prices.

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