Portfolio Manager’s Update – March 2019

The oil markets continued to firm over the past month with WTI prices back above $60/bbl. We have regularly used $60 as a long term target for domestic oil prices and we believe that is the optimum price to balance world oil supply/demand, and to for the Permian Basin to remain the most important source of production.

The key issues driving oil prices have been the OPEC strategy to cut slightly the supply from member states and from Russia as a partner, sanctions on Iranian production, problems in Libya, and the economic disaster of socialist Venezuela.

We believe that over the next six months all these players will simply wait to see what develops. OPEC will wait until the second half of the year to decide whether or not to continue the cuts. Most other producers and operators will also probably wait and watch prices until new volumes begin to flow out of the Permian later this year. Should this scenario play out, it would mean that prices will continue to firm in the near term. Toward the end of the year when Permian volumes do appear, if prices stay at current prices or higher, producers or operators that have the capacity and the capital will begin again to source new crude. If prices soften as we expect with new Texas production, those plans for alternative regions will be put off again and the Permian will dominate the oil agenda for the next several years. The Fund is positioned to profit in this most likely case.

Texas Pacific Land Trust, is performing very well on its own profit news and despite the news of a looming proxy battle over the Trustee seat vacated by the death of longtime chairman Maurice Meyer. As one of the largest shareholders, we believe in what the management has done historically, and what they will do in the future. Concerning this current issue, we believe the management will continue to act in the best interest of the shareholders. We will follow up with more detailed communications to our investors throughout the process.