A perpetual royalty on the most productive oil basin in the world — Texas Pacific Land owns 880,000 acres of West Texas surface rights that generate growing cash flows with zero production risk and near-zero operating costs
Murray Stahl
Horizon Kinetics
Est. ~38.1% of total portfolio
“Murray Stahl: 'Texas Pacific Land is one of those rare businesses where the competitive advantage is literally built into the land. You cannot replicate 880,000 acres of Permian Basin surface rights.'”
The Business
- Texas Pacific Land Corporation owns ~880,000 acres of land in West Texas, primarily in the Permian Basin, making it one of the largest private landowners in the state
- Revenue streams include oil and gas royalties (1/128th to 1/16th overriding royalties on minerals beneath the surface), water sales for hydraulic fracturing operations, easements for pipelines, and surface leases
- The company operates with approximately 100 employees and requires minimal capital expenditure — it is essentially a toll booth on Permian Basin activity
- FY2025 revenue was $798M with 92% gross margins and 74% operating margins, generating $450M in free cash flow
Why They Own It
“Murray Stahl: 'Texas Pacific Land is one of those rare businesses where the competitive advantage is literally built into the land. You cannot replicate 880,000 acres of Permian Basin surface rights.'”
- TPL owns 880,000 acres of surface rights in the Permian Basin — a perpetual, irreplaceable asset that generates royalties and water revenue with no production risk
- The business operates at 74% operating margins with ~100 employees, making it one of the most capital-efficient businesses in the world
- Water services revenue is growing rapidly as fracking operations require massive amounts of water — TPL is the dominant water provider in West Texas
- FY2025: $798M revenue, $481M net income, $450M free cash flow — a royalty stream that grows with Permian Basin activity
- The land position is irreplaceable — there are no more 880,000-acre parcels of Permian Basin surface rights available for purchase
What the investor sees
TPL trades at roughly $525/share with a $36B market cap, or approximately 75x earnings. The premium valuation reflects the perpetual, growing nature of the royalty streams and the irreplaceability of the land asset. Stahl's thesis is that traditional valuation metrics understate TPL's value because the cash flows are permanent — they don't require reinvestment, don't deplete, and grow with Permian Basin development. Water revenue is the key growth driver, expanding as producers drill more horizontal wells requiring millions of gallons per completion.
Financial Snapshot
$798M
revenue FY2025
$481M
net income
$6.97
eps
74%
operating margin
$450M
free cash flow
13% YoY
revenue growth
92%
gross margin
~880,000
land acres
The Moat
- Irreplaceable land position — 880,000 acres of Permian Basin surface rights cannot be replicated by any competitor
- Zero production risk — TPL collects royalties regardless of commodity prices, drilling costs, or production failures
- Water monopoly — dominant water provider for Permian Basin fracking operations, with no substitute available at scale
- Near-zero operating costs — ~100 employees, minimal capex, 74% operating margins
- Perpetual duration — the land asset does not deplete, does not require reinvestment, and generates cash flows indefinitely
What Could Go Wrong
Permian Basin activity decline — if oil prices fall sharply or drilling activity slows, royalty and water revenue would decline
Extreme valuation — at 75x earnings, any negative surprise could cause significant multiple compression
Regulatory risk — federal or state regulations on fracking, water usage, or drilling could impact TPL's revenue streams
Concentration risk — revenue is entirely dependent on one geographic region (Permian Basin, West Texas)
Climate transition — long-term shift away from fossil fuels could reduce the value of oil-related royalty streams
Catalysts
- Water revenue growth — increasing demand for water per well as lateral lengths extend and drilling activity rises
- Share buybacks — TPL repurchases shares aggressively, reducing share count and increasing per-share value
- Dividend growth — regular and special dividends increasing with cash flow growth
- New surface lease revenue — data centers, solar farms, and other uses of West Texas land provide additional revenue optionality
- Permian Basin remains the most economic oil basin globally, ensuring sustained drilling activity even at lower oil prices
In Their Own Words
“Murray Stahl: 'The beauty of a royalty business is that it has no operating costs, no capital expenditure requirements, and no commodity price risk on the royalty portion. It's as close to a perpetual free cash flow machine as exists.'”
“Murray Stahl: 'We look for businesses with infinite duration cash flows. When you own the land, you own the optionality on everything that happens on that land — forever.'”
“Murray Stahl: 'The water business at TPL is vastly underappreciated. Fracking requires 10-15 million gallons per well, and TPL is the dominant water provider in the most active drilling basin in the world.'”