waterbridge, the "sister company," is private and it's not clear to me what the deal is between the 2 entities. will the private company be siphoning off profits?
I agree with you that the relationship is not fully clear. The way I understand it is as follows:
- WaterBridge is the operating company under Five Point Energy that deals with all the water management.
- WaterBridge is effectively a client of LandBridge and they pay LandBridge for the use of their land where they operate their infrastructure.
- As of June 30, 2024, WaterBridge operates approximately 600,000bpd of water handling capacity on LandBridge surface.
My main concern is how much of LB revenue is being concentrated in WaterBridge since the relationship between both is so 'easy' (they are in the same building). As per their S1 filing (2023 data), there isn't a single client that accounts for more than 15% of their revenue. Although, 4 customers accounted for 55% of their consolidated revenue.
in your write-up you say: "revenue from water royalties between 200 and 300 million per year". is that royalty payments from waterbridge to landbridge? or, as a private entity held by the insiders, will waterbridge be keeping most of that?
"dividends to original shareholders" is insider selling. otoh, in the ipo announcement there's: "In addition to the Class A shares sold in the offering, LandBridge sold 750,000 Class A shares at a price of $17.00 per Class A share in a concurrent private placement to an accredited investor (the “concurrent private placement”). " that's reassuring.
Excellent article guys. I am also building a position (it hasn't given us any nice entry points since its IPO). During the earnings call, someone asked how a Harris-Walz administration could slow down future development in the industry. I guess no one knows but Kamala has been very vocal in the past about her opposition to fracking and I am not sure how this could play in the coming months.
the current administration has gone to great lengths to cap the price of gasoline. not just emptying the spr but also actions [or lack of actions] re theoretical russian and iranian and venezuelan oil sanctions. of course this is in the context of an upcoming election but it's hard for me to picture actions leading to substantial increases in gasoline prices.
virtue signaling is cheap when someone is running in a primary.
otoh, i would expect continuation and possibly increases in pursuit of the "green transition," e.g. tailpipe emissions, carbon restrictions on power plants and so on.
Thanks - solid write-up. I got some in the first few days, before it ran away. Very intriguing to see how it will play out. I am a little concerned about how confident to be about the data centres, given they are not experts in the sector & seem to be extrapolating that it will be desirable land for tech cos. But I hope that there is enough other revenue sources that it can work anyway. Hoping will be able to hold 'forever' like TPL and PSK.
I find your business model fascinating. Our land rights are different in this part of the world. So simply never seen this kind of business model applied here.
Thanks for the write-up. Seems like a compelling case.
As an outsider though, I don't know much about the overall picture. If we zoom out , how many places in America ticks all those boxes "cheap and abundant energy, water for cooling, access to fiber optic cables, and remote land" and how have you weighted/ranked them with respect to importance? E.g., If cheap and abundant energy is 5x more important than water access, why would the operators choose LB's land if they can build their data centers in another state with much cheaper energy but not as accessible water (but still accessible)? Cheers
We don’t know if any place that checks all these boxes as well as the Permian does. But even without data centers, LB is an attractive company long term.
Texas won't regulate to block the water crossing borders? That could be a serious threat if it happens.
I see TPL is partner in the prospectus. They have land but don't have the infrastructure and experience treating and re-using water? They just do royalties?
We don’t see any reason TX would block the water from NM. Also, TX has a very favorable regulatory environment regarding water. The state isn’t bound by all the same EPA regulations as other states are due to being grandfathered in from when it was its own republic.
At the 41 minute mark of this podcast, Gavin Baker discusses AI training data centers and that he believes the will end up being located on shale gas fields with power generation on those locations, providing a transitional period of time before enough nuclear power plants can be built.
Hi Six Bravo, thanks for the awesome analysis. You mentioned that current market cap is 4 times less than 10bln, implying ~2.5bln. Is it not much lower at ~730mln = 17.4mln shares of Class A * $42 price?
It is not the case that Class B shares (~55mln) have no economic rights and should be ignored when calculatung market cap?
Maksim, thank you for your kind words. The (LB) IPO was for about 20.1% of the company according to the S-1 so you have to multiply the share value times about 72 mil shares to get the correct market cap. The economic interest comment caught my attention too when I first looked into the company but after my heart stopped racing I realized the market cap was higher than it appeared at first glance. Thanks again for the comment!
I've been seeing a lot of news about nuclear-powered data centers lately, which got me thinking: is building a 1GW data center near the Basin really more cost-effective than in Northern Virginia? I did some napkin math and would love to hear others' thoughts. Land is a lot cheaper in Texas. When it comes to electricity, using gas in the Basin appears to cost about 40% of what nuclear would in Virginia. However, the cost of purifying water in the Basin is nearly 3x higher per cubic meter. Despite that, since power is the bigger factor in operating expenses, building in the Basin still seems to be 50% cheaper than in Virginia. And of course, land is much cheaper in Texas. Anyone have insights to share?
Thanks Ken! Over time, price of land, power and water will inversely follow availability. Availability of all three is rapidly decreasing in places like Northern Virginia. So while we also believe it’s currently cheaper in the PB, in the future it will likely be vastly so.
Excellent. Thank you.
Seriously JP, we have learned much from you so…thank you!
waterbridge, the "sister company," is private and it's not clear to me what the deal is between the 2 entities. will the private company be siphoning off profits?
I agree with you that the relationship is not fully clear. The way I understand it is as follows:
- WaterBridge is the operating company under Five Point Energy that deals with all the water management.
- WaterBridge is effectively a client of LandBridge and they pay LandBridge for the use of their land where they operate their infrastructure.
- As of June 30, 2024, WaterBridge operates approximately 600,000bpd of water handling capacity on LandBridge surface.
My main concern is how much of LB revenue is being concentrated in WaterBridge since the relationship between both is so 'easy' (they are in the same building). As per their S1 filing (2023 data), there isn't a single client that accounts for more than 15% of their revenue. Although, 4 customers accounted for 55% of their consolidated revenue.
in your write-up you say: "revenue from water royalties between 200 and 300 million per year". is that royalty payments from waterbridge to landbridge? or, as a private entity held by the insiders, will waterbridge be keeping most of that?
also, lb rec'd ~$271million in its ipo a bit over a mo ago. is anything known about how that money will be used?
Strengthening the balance sheet and paying a dividend to original shareholders is what the company has said.
"dividends to original shareholders" is insider selling. otoh, in the ipo announcement there's: "In addition to the Class A shares sold in the offering, LandBridge sold 750,000 Class A shares at a price of $17.00 per Class A share in a concurrent private placement to an accredited investor (the “concurrent private placement”). " that's reassuring.
That’s a way of looking at it.
The plan is for waterbridge to go public soon. That should clear some things up when investors get access to both companies.
https://ir.landbridgeco.com/financials/sec-filings/default.aspx
The S-1 is found here, correct?
Bravo guys. You may have discovered a roy’AI’lty play! 😉
Lol, nice. Less discovered and more introduced to the idea via one of our heroes in the space, Murray Stahl.
Excellent article guys. I am also building a position (it hasn't given us any nice entry points since its IPO). During the earnings call, someone asked how a Harris-Walz administration could slow down future development in the industry. I guess no one knows but Kamala has been very vocal in the past about her opposition to fracking and I am not sure how this could play in the coming months.
the current administration has gone to great lengths to cap the price of gasoline. not just emptying the spr but also actions [or lack of actions] re theoretical russian and iranian and venezuelan oil sanctions. of course this is in the context of an upcoming election but it's hard for me to picture actions leading to substantial increases in gasoline prices.
virtue signaling is cheap when someone is running in a primary.
otoh, i would expect continuation and possibly increases in pursuit of the "green transition," e.g. tailpipe emissions, carbon restrictions on power plants and so on.
bwtfdik?
Thanks, Button! The run up in price has been unfortunate. Politics, positive or negative, is uninvestible in our opinion.
Fracking ban is usually limited to Federal lands not private.
An important distinction.
Thanks - solid write-up. I got some in the first few days, before it ran away. Very intriguing to see how it will play out. I am a little concerned about how confident to be about the data centres, given they are not experts in the sector & seem to be extrapolating that it will be desirable land for tech cos. But I hope that there is enough other revenue sources that it can work anyway. Hoping will be able to hold 'forever' like TPL and PSK.
Thanks, Tom! Data centers or not, we believe LB could be a great
long term play. We are planning on holding a long time too.
I find your business model fascinating. Our land rights are different in this part of the world. So simply never seen this kind of business model applied here.
Thanks for chiming in with your perspective!
The ability for individualist to own mineral rights has been a great boon to Americas. It also makes an elegant business.
Anyone knows whatsup with the Class B shares and Five Point holding 80% of all voting rights but no economic rights? Page 197 of S-1
Thanks for the write-up. Seems like a compelling case.
As an outsider though, I don't know much about the overall picture. If we zoom out , how many places in America ticks all those boxes "cheap and abundant energy, water for cooling, access to fiber optic cables, and remote land" and how have you weighted/ranked them with respect to importance? E.g., If cheap and abundant energy is 5x more important than water access, why would the operators choose LB's land if they can build their data centers in another state with much cheaper energy but not as accessible water (but still accessible)? Cheers
We don’t know if any place that checks all these boxes as well as the Permian does. But even without data centers, LB is an attractive company long term.
Enjoyed this one quite a bit.
Thanks, Devin! Congrats on the recent going-paid announcement. We highly recommend your work with Invariant and The Preferred Podcast.
Fascinating write up.
Texas won't regulate to block the water crossing borders? That could be a serious threat if it happens.
I see TPL is partner in the prospectus. They have land but don't have the infrastructure and experience treating and re-using water? They just do royalties?
We don’t see any reason TX would block the water from NM. Also, TX has a very favorable regulatory environment regarding water. The state isn’t bound by all the same EPA regulations as other states are due to being grandfathered in from when it was its own republic.
p.30-32 on LandBridge <-- from Horizon Kinetics - 2nd Quarter Commentary - July 2024
https://horizonkinetics.com/whats-new/#2nd-quarter-2024-commentary
As always, HK is ahead and shoulders above the crowd (us).
Love this company. Great writeup. But too much debt and valuation is insane
A respectable opinion. Thanks for reading the piece and sharing your thoughts!
At the 41 minute mark of this podcast, Gavin Baker discusses AI training data centers and that he believes the will end up being located on shale gas fields with power generation on those locations, providing a transitional period of time before enough nuclear power plants can be built.
https://open.spotify.com/show/22fi0RqfoBACCuQDv97wFO
Awesome find. We’ll give it a listen.
Hi Six Bravo, thanks for the awesome analysis. You mentioned that current market cap is 4 times less than 10bln, implying ~2.5bln. Is it not much lower at ~730mln = 17.4mln shares of Class A * $42 price?
It is not the case that Class B shares (~55mln) have no economic rights and should be ignored when calculatung market cap?
Maksim, thank you for your kind words. The (LB) IPO was for about 20.1% of the company according to the S-1 so you have to multiply the share value times about 72 mil shares to get the correct market cap. The economic interest comment caught my attention too when I first looked into the company but after my heart stopped racing I realized the market cap was higher than it appeared at first glance. Thanks again for the comment!
I've been seeing a lot of news about nuclear-powered data centers lately, which got me thinking: is building a 1GW data center near the Basin really more cost-effective than in Northern Virginia? I did some napkin math and would love to hear others' thoughts. Land is a lot cheaper in Texas. When it comes to electricity, using gas in the Basin appears to cost about 40% of what nuclear would in Virginia. However, the cost of purifying water in the Basin is nearly 3x higher per cubic meter. Despite that, since power is the bigger factor in operating expenses, building in the Basin still seems to be 50% cheaper than in Virginia. And of course, land is much cheaper in Texas. Anyone have insights to share?
Thanks Ken! Over time, price of land, power and water will inversely follow availability. Availability of all three is rapidly decreasing in places like Northern Virginia. So while we also believe it’s currently cheaper in the PB, in the future it will likely be vastly so.