Murray Stahl: Well I’ll give you two answers to that. First answer is, there are other shareholders Winland that don’t want to sell their shares in exchange for FRMO shares. So we don’t control everything. That’s number one. And I guess you could say in addition, you say it’s 2%. If you go back to the beginning, the first report that FRMO issued to the public, I don’t remember the number, there’s a small amount of capital on the balance sheet. It’s really small. And someone asked me almost the another question was just this. Look at the capital. It’s so small. How can they ever grow? Anything material? Well, look at the capital is today and look at the capital is then, and you have the answer to the question. Can’t judge it by the percent weight it is right now because if that was true, then the we didn’t — we weren’t selling shares to the public.
Could have argued you don’t have enough capital at the beginning. It was really a very small amount of money. You should raise more capital. So you have money to work with. People raised that point, and we didn’t regard it as the right approach. And we didn’t do it. I think we’re very happy we did it right now.
Steven Bregman: That was $10,000, if I recall properly and $0.00.
Murray Stahl: Something like that. There was something like that. Now $10,000 is a rounding error. When I say a rounding error, I really mean a rounding error, meaning that if it didn’t happen, if they ever dispute about $10,000 it’s not considered to be in a general company with our assets. $10,000 dispute is not even considered legally to be material. And there was a day when $10,000 was our capital. So when they tell you when you meet with accountant, they tell you $10,000 discrepancy, if you were to find one, we consider to be immaterial. It’s actually crazy when you think about it. I know that’s the truth, but we don’t have $10,000 discrepancies. But we did, and we think about, yes, it was $10,000 at the beginning. How could it not be material? But it isn’t. So those are the laws everybody has to abide by. Jeez, what’s next, Therese? Is she still there? Are you there? Hello?
Steven Bregman: If not, Murray, I can read the question.
Murray Stahl: Okay. Why don’t you read it.
Steven Bregman: In the absence of Therese until she returns.
Murray Stahl: Okay.
Steven Bregman: How does management think about the lack of clawbacks of Bitcoin Cash in the case of fraud and how that hinders adoption. By this, I don’t mean the Bitcoin blockchain being hacked, but rather the much more frequent occurrences of people having a Bitcoin seed phrases, addresses private keys and subsequently, their Bitcoin Cash itself stolen from them by tricking them into thinking they are a legitimate entity. Hacking uses personal computers, some other form of trickery or just happening to see them entering their seed phrase on a wallet over their shoulder at a coffee shop. When it comes to adoption despite over 10 years of development, Bitcoin appears to leave little room for error and no consumer protections, which makes it hard to imagine how mainstream Bitcoin adoption would work?
Asked another way, suppose one of the US Federal Reserve banks all wanted to publicly hold Bitcoin and asked Horizon Kinetics to advise on how that Bitcoin should be received, stored securely, possibly transferred at later times, how would you advise the banks? How would you advise a household with the lack of clawbacks, every storage mechanism and smart contract is just a bug of bounty reward waiting for someone to discover the code, exploit or social engineering that breaks it?
Murray Stahl: Okay. So that’s a good question. So let’s just reverse it though to answer it. In order to protect the consumers as suggested, you would have to have Bitcoin some enforcement agency, to be able to call it back, you would have to centralize it. So if because some people would argue, was it a legitimate payment? Or what is it a fraud? And somebody have to determine that. So you basically create a central authority that has the ability to make the rules and enforce them. You’ve now destroyed Bitcoin. So the way it works in the real world of decentralization is you’re — you have to be careful with your coins. So if you’re going to sit in Starbucks, as it suggests in the question, and someone is looking over your shoulder, if they’re really looking over your shoulder and they steal your money. I hate to be cool about it, so you’re a tough luck. Yes, Therese.
Therese Byars: I’m sorry. This call was dropped on my end. I don’t know where I was in this long time.
Murray Stahl: That’s okay. Steve just raised the question, and we’ll get that. I was in the middle of answering the question. Okay. So the last thing you want to do is create a centralized authority in Bitcoin. Yes, the seed words get stolen. Yes, the private keys get stolen. People are careless and just a myriad of ways. And I hate to be cool about it. It’s tough luck. Because the alternative, you’re back to centralized authority and now you’re giving enormous power to the real rascals. You don’t want that. So if you don’t want to take the chance, you have two options. You need to be very, very careful with your coins or you can be sloppy with your coins, and you’re going to have to accept the consequences. But for one I think speak for virtually everybody in the Bitcoin community, no one’s going to go for creating a protection.
So let’s say, the United States government imposed a rule saying, okay, we’re now going to take charge of the system.W ell, what happened, we would fork Bitcoin and if they couldn’t fork Bitcoin, they fork Bitcoin Cash or they couldn’t do anything. They just — because everybody knows what protocol is. It’d be a problem. And by the way, the amount of loss of coins through this can be mitigated by just using a reputable custodian like Coinbase. You don’t have to do any of that stuff on your own. So the market will figure out solutions. If you really want security, there are market solutions. The government is not one of those solutions. It’s the worst possible solution. So anyway, if the government tried to impose it, Bitcoin be forked or the protocol would just be rewritten or copied see nobody knows what the hacking mechanism, the antihacking mechanisms are at the big banks.
No one knows how many times they get hacked. All we know is they carry a lot of insurance. It happens a hell of a lot more frequently than it ever does in Bitcoin. So if you’re worried about it, take your coins move into a place like Coinbase or Fidelity, and now it’s their problem and they’ll deal with it. So that’s the market solution, not the government, in my opinion.
Therese Byars: Could management provide insights into the rationale that could be used for valuation of Texas Pacific Land Trust, the Land Corps, Land Holdings particularly in light of questions around the viability of ongoing and future developments. The surface land seems mostly raw and barren and has limited development potential. Specifically, I have concerns regarding the nominal lease rates such as the cheap per acre per month lease cost per cattle operations and the environmental challenges associated with the region, including limited water resources and sparse population density. How does TPL justify the perceived value creation potential of its extensive land portfolio under these considerations.
Murray Stahl: Okay. So it’s not my job to speak for TPL. So I’m going to answer the question the following way. I’m just going to talk about land in general. So a TPL acre, a neighboring rangers’ acre, they’re pretty much the same. So let’s talk about the land in the region. So one of the things that no one ever talks about is they think land is going to be developed because they’re going to bring in vast populations to people and build schools and hospitals and all sorts of other things. Not too many acres is that going to happen. So right now, in the Permian Basin produces 8 plus million barrels of oil a day, okay? Good by fracking. So you pump water and some propants, which are chemicals into the land and outcomes oil and gas.
The addition to oil and gas, what comes out of ground for every barrel of water you pump down there, it’s roughly 5 barrels of oil, which is called, I mean, 5 barrels of water, which is called produced water comes up. What are you going to do with it? You got to put it somewhere. You can’t transport it very far. It’s too expensive because water is heavy. You can make some efforts to recycle it, and it’s done in some cases, but it’s a lot of water and it’s very expensive. So what they do with this is they dispose of it by pumping it back into the ground. Now to give you an idea of the magnitude of the problem, I say a barrel of oil, very few people know what a barrel oil is, a barrel of oil or a barrel itself a barrel of water. It’s 42 gallons.
No one knows what a barrel looks like, if we do gallons, everyone knows what gallon looks like. So you take 8 million barrels times 42 million — 42 barrels per each barrel of oil, multiplied by doing this right, yes. So it’s 8 million barrels of oil, 42 gallons in a barrel. So now that’s 336 million per day times five. That’s 1.68 billion to be gallons of water had to be disposed of each and every day. So the value to land is what’s under the land. And the — there’s only a finite amount of land that can be used for that purpose, and we’re going to run out of land one day. So the price for injection in produced water keeps going up. It used to be, a couple of years ago, $0.01 a barrel. Now it might be $0.06 a barrel and $0.50 or even $1 a barrel on day is readily conceivable.
So if you start figuring in how much, let’s say, let’s say, an acre of land. And let’s say, for a year, I’m making up numbers, just to give you — show you how huge these aren’t real numbers. So let’s say you could pump 60,000 barrels of water into the ground every day for a finite period of time. Well, 60,000 barrels of water is in terms of gallons, 2.5 million gallons a day. So if you’re getting, let’s say, $0.01, well, let’s say you’re getting $0.10. So that’d be $6,000 a day. So you could do it for 365 days. Maybe they’ll do longer. So that’s $2,190,000 with no expense associated with just giving somebody right to put water on your property, underground. So let’s do it again. It’s 60,000 barrels a day, if that’s what the number was. It’s $0.10 a barrel.
$6,000 a day, times 365 days at $2,190,000. They can only do it for a year. The acre of land this has no meaningful assets on it, that acre of land, maybe you could buy it for $500. That’s what they valued at. But if only for a year, you get $2,190,000 and you still have the acre surface land is still there. Next thing, easements. Eventually you’re going to run out land and go further out? Well, you can’t put any more water in that acre, but you got to bring the water somewhere else and somebody has to have a pipeline that traverses your land and you get a lease on that. So the acres you save worth $500 an acre. Well, what do you think they’re going to charge somebody for right away. I think it’s $500 a year. Even it was that’s 100% return on capital.
What if it was $10,000 a year? What if have you had 400,000 acres and all you got was an easement, $10,000 a year. Well, it’s 400,000 acres of Class B land, $10,000 a year. That’s probably even $1,000 a month. See what that is, that’s $4 billion would it be cash flow with no expenses against it. This is the after the produced water. So I think those figures I can do other kind of things. I think those figures speak for themselves. People that know about them because the produced water problem only became a big deal a couple of years ago. And numbers have not gotten to the size and the price to dispose the barrels have not gotten to a level where it’s a problem. But it’s rapidly going in that direction. So that’s the value proposition among other things, I would say.
Therese Byars: Okay. In past commentary, management has talked about how low interest rates are essentially anomalous. Why would hire for longer interest rates and harder access to money be good for securities exchanges, equities and futures trading bonds, which are, by and large, traded on March?
Murray Stahl: So that’s not really relevant to trading. What’s relevant to trading is that somebody has to have the securities and either they like the risk to have or they don’t like the risk to have, don’t like the risk to have. They have to transact. The value is always trading and changing, and they have position size limits. So they have to adjust them. So whatever interest rates are, there is plenty of room for trading. So if interest rates are higher when the interest rates were low, what do you need bond features for to if they’re not going to raise interest rates, you don’t need bond futures. They are going to raise interest rates now you need bond features you have to protect against losses. So every scenario you can possibly imagine in the world of security is high interest rates, low interest rates and everything in between is an opportunity to trade.
And the trading keeps going up and up and up. But there is more transactions that could be done by the same amount of equipment. That’s the story of changes. It’s really very simple.
Therese Byars: What are management’s thoughts on growing use of NGLs in US feeding refineries in place of crude? And how this affects TPL. Also, what is the mix of TPL’s crude versus natural gas production?
Murray Stahl: Okay. So first of all, in TPL. So TPL, there is three things. There is oil, conventional oil conventional natural gas and NGLs. NGLs are natural gas liquids. Natural gas is what’s called dry gas. Natural gas liquid is wet gas. So a lot of times, you can either liquefy it, which means lowering temperature or sometimes it comes out of the ground wet. It’s already liquefied. So just to define the terms. So if you look at on a barrel equivalent basis, so you can convert all these things on a BTU basis, natural gas, natural gas lipids, oil, of course, to barrel of oil equivalents. You’ll see in the TPL financial statements. They state their production in barrel of oil equipment and people think that all they do is produce oil.
But really, there’s a lot of natural gas liquids and a lot of natural gas. So what’s happening is, I introduced a new term here, it’s called the gas cut. So in the beginning, many years ago, the gas cut was low. Oil is, so trades at a higher price than natural gas. So natural gas is a very low price and a barrel of oil equivalent. So what’s happening is we’re running out of high oil cut places to drill going to lower oil cut. So it’s going to be harder and harder to get oil. And as a consequence, you have to use more and more natural gas and more and more natural gas liquids, which all things be equal, should lift the price. But TPL because capital expenditures just have these oil royalties, it’s going to go on for a very, very long time. In my opinion, well of next century.
And even then, a lot of the oil will still be in the ground and with better technology, you can be captured. So I think it’s some of the best property on the planet.
Therese Byars: How might the emergence of abundant natural hydrogen reserves impact the viability of investing in traditional hydrocarbon-based energy services. Overall, what are management’s thoughts on natural hydrogen as an energy source? And how do you reason about the likely effect from FRMO’s oil investments?
Murray Stahl: I don’t worry about. It’s — if it happens at all, it’s in the vast distant future. And what’s going to happen is it’s really a question of volume. So could you produce hydrogen|? Sure. Your power motor vehicle hydrogen? Sure. The question is, how much volume are you going to put into a vehicle and you’re going to have a more extensive storage network. You have a more extensive pipeline network. Do you really want that? And so the issue with oil is we built the pipelines when there really wasn’t an impediment into building pipelines. Land was cheap. Now you want to build pipelines for hydrogens. Well, you got the same problem is building high-speed rail, great idea, but you’re going to have to take over land by eminent domain, and it’s going to cost a lot of money.
And that’s be added into the cost of converting your hydrogen economy. And so expensive, not because it’s so difficult to design hydrogen fuels. You can’t get the infrastructure built. Just like if you want to save on motor vehicles, it’s a great idea to have more mass transit, have high-speed rail or just rail. Okay. Wouldn’t it be a great idea to build a railroad from San Francisco to San Diego. And the federal government appropriated $60 billion for the purpose. And nothing got built. Reason nothing got built is because you first have the appropriate land to get the right away. And you got to pay market, you even get a government order that the owner has to sell. You would be looking to build a high-speed rail from San Francisco to San Diego.
You’re talking about $3 trillion. No one is doing it. You’d never recover your investment. That — those are the impediments. It’s the infrastructure necessary, which is never discussed. So I don’t worry about stuff like that. Incidentally, while we’re on the subject, if I can add something to my remarks same problem with solar, same problem with wind. You have to put the solar panels over a vast area. Okay. So it’s going to be have to be in this remote area. You’re going to find cheap land. Now you have to build transmission towers and transmission lines to get the energy produced, ignoring the intermittency of it from where it’s produced to where you need it, which is where people live in the cities. Okay, try getting that right away. Windmills, same thing, try getting that right away.
And I’ve never seen in the popular press any articles talk about that. And by the by you’re not even going to save an oil production either because it’s the same concept as making solar panels. So how do you get to silicon to put in the solar panel. You have to get quartz and you have to smelt it to change it from silicon dioxide, which is what quartz is to pure silicon. So you have to raise the temperature to something like 2,300 degrees centigrade. So what do you do? You end up, you end up burning a lot of coal to accommodate that. So you put some solar panels up and never count that. In China, they’re burning coal to make the solar panels, which is why the electronic goods are made in China because there, you can do it, say, really saving the environment, I think not.
