March 18, 2010
To the Shareholders of Biloxi Marsh Lands Corporation:
We are pleased to report that 2009 was the fourteenth consecutive profitable year for your Company. Total revenue for the year ending December 31, 2009 was $23,008,898 compared to total revenue of $2,960,529 in 2008. The annual revenue breakdown is as follows: 2009 revenue from oil and gas activity was $22,041,872 compared to revenue of $3,247,721 in 2008. $21,460,469 in revenue categorized as Oil and Gas Royalty Settlement and $2,754,707 categorized as Interest Income Settlement were directly attributable to the settlement of the litigation pending since 2001 in the Louisiana State Court in St. Bernard Parish to determine the ownership of Sections 1, 2 and 3, Township 13 South, Range 16 East. It should be noted that the revenues received as the result of the settlement are onetime, non-recurring revenue items. During 2009 total revenues included a $2,615,703 loss emanating from the Gain (Loss) from Investment in Partnership category which represents the Company’s interest in B&L Exploration, LLC (BLX). This compares to a loss of $613,015 in the same category for the prior year. BLX was able to expense Depreciation, Depletion, and Amortization. BLMC’s share of this expense was $591,409 for 2009 and $855,599 for 2008. Dividend and interest income for 2009 was $362,442 compared to $330,394 for 2008. In 2009 we realized a cumulative gain from the sale of investment securities of $122,461 as compared to a cumulative loss from the sale of investment securities in the amount of $26,696 in 2008. Meanwhile, expenses for the year totaled $2,139,318 compared to $1,653,448 for the prior year. For the year, net earnings were $13,722,625 or $5.00 per share compared to $1,076,816 or $.39 per share in 2008.
The Company previously announced on July 14, 2009 that settlement agreements have been reached effective July 1, 2009 binding all of the parties to the litigation pending since 2001 in the Louisiana State Court in St. Bernard Parish to determine the ownership of Sections 1, 2 and 3, Township 13 South, Range 16 East. These settlement agreements have resulted in the dismissal of all litigation between the settling parties. In accordance with the settlement agreements, the Company received a onetime non-recurring settlement payment of $23,949,171. Also, under the terms and provisions of the settlement, in addition to receiving the settlement funds, the Company will remain the sole owner of the property and has the exclusive right to enter into oil, gas and mineral leases.
As a result of the receipt of the settlement funds and the end of the litigation, the Board of Directors declared a $2.00 per share special dividend payable on Wednesday, July 29, 2009 to shareholders of record as of the close of business on Friday, July 24, 2009. The settlement funds were taxable income to the Company, as they represent proceeds paid on natural gas production attributable to the disputed tracts.
It should be noted that the announced settlement does not involve the disputes raised in the pending litigation in State Court in St. Bernard Parish with the State of Louisiana regarding the State’s claims to certain waterbottoms owned by the Company. As of this time, there is approximately $15mm deposited in the various concursus accounts established to hold the funds relating to these disputes between the Company and the State of Louisiana.
As of December 31, 2009 the combined gross daily production rate from 3 wells operated by the Company’s mineral Lessees was approximately 6.7 million cubic feet (mmcf) of natural gas with net daily production accruing to the Company of approximately .68 mmcf. Combining this daily production with the Company’s proportional share of the daily production from the B&L Exploration, LLC (BLX) wells makes the total net daily production accruing to the Company as of December 31, 2009 approximately 1.25 mmcf per day.
BLX was organized as a limited liability company (LLC) under the laws of Louisiana in July of 2006. BLX’s Class A members are BLMC and Lake Eugenie Land & Development, Inc. (LKEU), which have membership percentages of 75% and 25% respectively. The Operating Agreement was amended on November 16, 2009 to create a Class B membership to allow for certain future projects at the discretion of the board of managers to be participated by either Class A or Class B members or a combination of the respective Classes. BLX’s Class B members are BLMC and LKEU, which have membership percentages of 90% and 10% respectfully.
We previously announced that BLX drilled and successfully completed the SL 19061 #1 Well. This well was placed on production January 8, 2010 and was producing at a rate of 2.75 mmcf per day as of March 1, 2010. BLX is the Operator of this well. In addition, we are pleased to announce that BLX participated in the drilling and completion of the Delacroix # 41 ST and the SL 1212 #1 in Plaquemines Parish, Louisiana. Each of these wells logged oil and gas pay within the UL-5 sand interval. BOPCO, L.P. is the Operator of these wells located within the Pointe A La Hache Field. BLX has a 25% working interest in each of these wells. Including these new discovery wells, as of March 1, 2010 the total net daily natural gas production accruing to the Company (Lessee wells on fee based lands and BLX wells) approximately 2.7 mmcf of natural and natural gas equivalents. BLMC owns a 75% interest in the BLX wells located in St. Bernard Parish and a 90% interest in the BLX wells located in Plaquemines, Parish. BLX’s future plans include participating in the drilling of additional wells during 2010 as well as formulate strategies to focus on the mineral potential under our fee based lands.
The Company commissioned T. J. Smith & Company, Inc., independent reservoir engineers, to complete a proved reserve study. This reserve study estimates that as of December 31, 2009 the Company’s “Developed Producing” (PDP) reserves are .613 billion cubic feet (bcf) of natural gas and estimates that the “Developed Non-Producing” (PDNP) reserves are .62 bcf, with the “Proved Un-Developed” (PUD) reserves being .576 bcf, totaling 1.951 bcf of estimated proved reserves (see “Appendix A” for definitions of reserve classifications). This represents a decline in our fee based land reserves of approximately .54 BCF. Additionally, this reserve study estimates that slightly more than 23% of the proved reserves directly attributable to the Company will deplete by the end of 2010.
Please find the following table showing the Company’s proved reserves as of December 31, 2009:
Proved Reserves as of December 31, 2009 (3), (5) ___________ _____
Developed Developed Proved
Producing (PDP) Non-Producing (PDNP) Un-Developed (PUD) Total
(Dollars in thousands)
Net Proved Reserves (1):
Natural Gas (BCF): .613 .62 .576 1.951
Estimated Future Net Revenues (before income taxes) (2):…………………. $ 7,033 (4)
Estimated Discounted Future Net Revenues (before income taxes) (2):……. $ 5,513 (4)
(1) In general, our engineers based their estimates of economically recoverable oil and natural gas reserves and of the future net revenues therefrom on a number of variable factors and assumptions, such as historical production from the subject properties, the assumed effects of regulation by governmental agencies and assumptions concerning future oil and natural gas prices, all of which may vary considerably from actual results. All such estimates are to some degree speculative, and classifications of reserves, that are based on the mechanical status of the completion, may also define the degree of speculation involved. For these reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any particular group of wells, classifications of such reserves based on risk of recovery and estimates of the future net revenues expected therefrom, prepared by different engineers or by the same engineers at different times, may vary substantially. Therefore, the actual production, revenues, and severance taxes with respect to reserves likely will vary from such estimates, and such variances could be material.
Estimates with respect to proved reserves that may be developed and produced in the future are often based on volumetric calculations and by analogy to similar types of reserves rather than actual production history. Estimates based on these methods are generally less reliable than those based on actual production history, and subsequent evaluation of the same reserves, based on production history, will result in variations, which may be substantial, in the estimated reserves.
In accordance with applicable requirements of the Commission, the estimated discounted future net revenues from estimated proved reserves are based on prices as of the date of the estimate. Actual future prices may be materially higher or lower. Actual future net revenues also will be affected by factors such as actual production, supply and demand for oil and natural gas, curtailments or increases in consumption by natural gas purchasers, changes in governmental regulations or taxation and the impact of inflation on costs.
(2) The Estimated Discounted Future Net Revenues represents the Estimated Future Net Revenues before income taxes discounted at 10%. For calculating The Estimated Future Net Revenues and the Estimated Discounted Future Net Revenues, we used the base product price based on the 12 month average price calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12 month period prior to December 31, 2009. The oil price of $61.18 per barrel is based on the West Texas Intermediate (WTI), Cushing, Oklahoma spot prices. The natural gas price of $3.87 per MMBtu is based on the Henry Hub gas daily prices.
(3) The Meridian Resource and Exploration, LLC and Manti Jamba, Ltd. separately operate the various producing wells. The Company has no control over operations and maintains only a landowner’s mineral royalty interest. Please see footnote (i) following the final paragraph of this letter for a warning concerning forward-looking information.
(4) The value of the proved reserves “Undiscounted, M$” and “Discounted at 10%, M$” includes a minimal amount of Oil and Condensate as well as Natural Gas Liquids.
(5) The majority of “Proved Reserves as of December 31, 2008” and the related “Estimated Revenues” are “Proved Undeveloped” (PUD). As is typical to PUD reserves there is currently no production related to this category and additional development drilling is necessary for production to commence.
Based on another proved reserve study completed by T. J. Smith & Company, Inc., as of December 31, 2009 the BLX’s estimated proved reserves were 2.2 billion cubic feet (bcf) of natural gas and 27 thousand barrels of oil (mbbl) which equates to “Estimated Future Net Revenues” of $6.61mm with an “Estimated Discounted Future Net Revenues” of $5.66mm (see note 2 above). Based upon the Company’s proportional ownership in the BLX wells, as of December 31, 2009 the portion of the estimated reserves allocated to the Company was 1.762 BCF of natural gas and 24.3 MBBL of oil. Combining the Company’s portion of the proved reserves in both studies makes the estimated proved reserves accruing to the Company to 3.712 BCF of natural gas and 24.3 MBBL of oil, equating to 3.955 BCFE or natural gas equivalents (10:1 ratio). This compares to total proved reserves allocated to the Company as December 31, 2008 of 3.57 BCF, an increase year over year of .385 BCFE
During 2008 the Company, through its subsidiary BLX, entered into negotiations with the Whitney National Bank to affect a line of credit to be used for general corporate purposes. As a result BLX currently has available to it a line of credit in the amount of $5mm. As of December 31, 2008 and 2009, BLX utilized $300,000 and $1,400,000 respectively.
On October 1, 2008 we announced our plans to repurchase up to 27,500 shares of our common stock. As of December 31, 2009 we have been successful in purchasing a total of 13,000 shares of common stock. As of this time, we plan to continue to repurchase our common stock until we fulfill our goal of acquiring 27,500 shares.
Three years ago, the Company returned to its custom of paying one dividend per calendar year. However, due to the settlement of the litigation we paid two dividends during 2009. On July 29, 2009 the Company paid a dividend of $2.00 per share and again on December 30, 2009 the Company paid an additional dividend of $1.00 per share, totaling $3.00 per share or $8,224,284. It is anticipated that the custom of paying one dividend per calendar year will be followed in 2010. Since 2002, the Company has paid slightly more than $47,000,000 in total dividends.
In the past we have reported that the Company developed The Biloxi Marsh Stabilization and Restoration Plan. After Hurricane Katrina we extended the scope of this project and retained additional technical experts to assist in formulating The Biloxi Marsh Stabilization and Restoration Plan. To enhance the surface of our property, management is working closely with local, state and federal officials in an attempt to influence any restoration projects that may take place on or near the Company’s property. Our efforts have resulted in bringing the need to stabilize and restore the marshes of St. Bernard Parish, Louisiana the forefront of the coastal restoration debate. This is evidenced by restoration projects such as the closure of the Mississippi River Gulf Outlet (MRGO) and the Violet – Mississippi River diversion, as well as my appointment to the Governor’s Advisory Commission on Coastal Protection, Restoration and Conservation. A complete copy of The Biloxi Marsh Stabilization and Restoration Plan is available on our website www.biloximarshlandscorp.com .
Please remember to visit our website, www.biloximarshlandscorp.com to obtain general information about the Company as well as recent historical annual reports and all historical press releases. We strongly recommend that all interested parties become familiar with the information available on the Company’s website: www.biloximarshlandscorp.com .
At this time last year we were hopeful that the downturn in the oil and gas industry would allow us to identify opportunities that were not available to us in a more robust business environment. We believe that the recent success of BLX demonstrates that we have been able to take advantage of opportunities which became available. Due to the one time non-recurring influx of cash from the settlement of the litigation, we decided to accelerate BLX’s drilling program during the third and fourth quarters of 2009. The goal of this accelerated drilling program was to mitigate our income tax liabilities while increasing our proved reserves. With our fee based land production declining, we are pleased with the results of BLX’s drilling program. Not only has the drilling program more than replaced our proved reserves and kept our daily production steady, it has diversified our proved reserve base by the addition of oil production as well as expanding geographic area from which our production emanates. During 2010 we plan to continue to attempt to increase our proved reserves through our investment in BLX, while developing strategies that hopefully will increase drilling activity on our fee based lands.
William B. Rudolf
President and Chief Executive Officer
PLEASE SEE PDF “BUTTON” ABOVE FOR ENTIRE RELEASE INCLUDING FINANCIAL TABLES
This letter contains forward-looking statements regarding oil and gas discoveries, oil and gas exploration, development and production activities and reserves. Accuracy of the forward-looking statements depends on assumptions about events that change over time and is thus susceptible to periodic change based on actual experience and new developments. The Company cautions readers that it assumes no obligation to update or publicly release any revisions to the forward-looking statements in this report. Important factors that might cause future results to differ from these forward-looking statements include: variations in the market prices of oil and natural gas; drilling results; unanticipated fluctuations in flow rates of producing wells; oil and natural gas reserves expectations; the ability to satisfy future cash obligations and environmental costs; additional drilling, and general exploration and development risks and hazards. Readers are cautioned not to place undue reliance on forward-looking statements made by or on behalf of the Company. Each such statement speaks only as of the day it was made. The factors described above cannot be controlled by the Company. When used in this report, the words “hopeful”, “believes”, “estimates”, “plans”, “expects”, “should”, “outlook”, and “anticipates” and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements.