March 18, 2011
To the Shareholders of Biloxi Marsh Lands Corporation:
We are pleased to report that 2010 was the fifteenth consecutive profitable year for your Company. Total revenue for the year ending December 31, 2010 was $7,069,909 compared to total revenue of $23,008,898 in 2009. The annual revenue breakdown is as follows: 2010 revenue from oil and gas activity was $7,030,933 compared to revenue of $22,041,872 in 2009. $5,205,463 in revenue categorized as Settlement Proceeds emanate from the settlement of all cases involving disputed ownership of water-bottoms between the Company and the State of Louisiana. It should be noted that revenues received as the result of the settlements are onetime, non-recurring revenue items. The non-recurring settlement revenues were $5,205,463 in 2010 compared to $23,949,171 in 2009. During 2010, total revenues included a $764,018 loss emanating from the Gain (Loss) from Investment in Partnership category which represents the Company’s investment in B&L Exploration, LLC (B&L). This compares to a loss of $2,615,703 in the same category for the prior year. B&L was able to expense Depreciation, Depletion, and Amortization. BLMC’s share of these expenses was $733,934 for 2010 and $855,599 for 2009. Dividend and interest income for 2010 was $327,475, compared to $362,442 for 2009. In 2010, we realized a cumulative gain from the sale of investment securities of $218,149 compared to a cumulative gain in the amount of $122,461 in 2009. Meanwhile, expenses for the year totaled $1,649,451 compared to $2,139,318 for the prior year. Expenses during 2010 included $116,236 for Consultants and $212,948 for Legal fees. A significant portion of the Consultants costs were related to monitoring the property for oil contamination from the BP – Deep Water Horizon oil spill. Meanwhile, the Legal fees were mostly related to the dispute with the State of Louisiana which was settled during 2010. For the year, net earnings were $3,934,262 or $1.44 per share compared to $13,722,625 or $5.00 per share in 2009.
The Company previously announced that all cases involving disputed water-bottoms between the Company and the State of Louisiana had reached an amicable settlement. The settlement does not involve resolving the issue of ownership of the disputed water-bottoms, it simply involves the sharing of past and future revenues emanating from each production unit which contained disputed water-bottoms. The Company maintains its claim to all of its titled acreage including any and all water-bottoms in dispute and will take all legal actions to protect its title. 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 $5,205,463. Also, under the terms and provisions of the settlement the Company and the State will share future revenues from production emanating from the production units which were the subject of the litigation.
The Meridian Resource Exploration, LLC recompleted the Biloxi Marsh Lands 1-2 well which returned to production during July of 2010. This well is located on the Company’s property. Meanwhile, B&L had three new wells placed on production during the year. The SL 19061 #1 well located in St. Bernard Parish, Louisiana and operated by B&L, was placed on production in January of 2010. B&L has a 41.875% working interest in the SL 19061 #1. The Delacroix #41ST and the SL 1212 #1 wells located in Point A La Hache Field in Plaquemines Parish, Louisiana in which B&L has non-operated working interests were placed on production during 2010. B&L has a 25% working interest in each of these wells with the Delacroix #41ST being placed on production during February and the SL 1212 #1 being placed on production during June of 2010.
As of December 31, 2010 the combined gross daily production rate from 5 wells operated by the Company’s mineral Lessees was approximately 11.0 million cubic feet (mmcf) of natural gas with net daily production accruing to the Company of approximately 1.6 mmcf. As of December 31, 2010, B&L’s net daily production was approximately 3.0 million cubic feet of natural gas equivalents (mmcfge) (15:1 oil to gas ratio) compared to approximately .782 mmcfge per day on December 31, 2009. Combining this daily production with the Company’s proportional share of the daily production from the B&L wells makes the total net daily production accruing to the Company as of December 31, 2010 approximately 4.02 mmcf per day compared to 1.3 mmcfge on December 31, 2009.
During the fourth quarter of 2010 B&L successfully drilled and completed the Gautreaux #1 well located in Vermillion Parish, Louisiana. This well was completed in the Planulina Reservoir “B” sand. On October 31, 2010 during a twenty-four (24) hour flow test, the well flowed at a sustained rate of approximately 3.1 mmcfg per day and approximately 20 bbls of oil per day with a flowing tube pressure averaging approximately 3,425 psi with little or no pressure draw down. B&L is the current Operator of this well. Production facilities are completed and flowlines constructed. We are awaiting tie into an existing El Paso/Tennessee Gas sales pipeline tap. We anticipate that this well should be placed on production by the end of April 2011. B&L has a 41.875% working interest in this well. Additionally, during the fourth quarter of 2010 B&L participated in a non-operated working interest basis in the LL&E #1 well located in Terrebonne Parish, Louisiana. On November 8, 2010 electric logs were run indicating apparent pay sands in 5 separate intervals. This well is operated by Gulf South Operators Inc. and is currently being completed and fully evaluated. We will provide updates on LL&E #1 well as they become available. According to the Operator this well should be place on production by June of 2011.
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, 2010 the BLMC’s “Developed Producing” (PDP) reserves were 1.65 billion cubic feet (BCF) of natural gas and estimates that the “Developed Non-Producing” (PDNP) reserves were .642 BCF, totaling 2.29 BCF of estimated proved natural gas reserves. This represents an increase in our fee based land reserves of approximately .34 BCF. Additionally, this reserve study estimates that slightly more than 25% of the proved reserves will deplete by the end of 2011.
Please find the following table showing the Company’s proved reserves as of December 31, 2010:
Proved Reserves as of December 31, 2010 (3) ___________
Developed Developed
Producing (PDP) Non-Producing (PDNP) Total
(Dollars in thousands)
Net Proved Reserves (1):
Natural Gas (BCF): 1.65 .642 2.29
Estimated Future Net Revenues (before income taxes) (2):…………………. $ 9,576 (4)
Estimated Discounted Future Net Revenues (before income taxes) (2):……. $ 7,559 (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. 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 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. 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 o 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, 2010. The oil price of $79.43 per barrel is based on the West Texas Intermediate (WTI), Cushing, Oklahoma spot prices. The natural gas price of $4.376 per MMBtu is based on the Henry Hub gas daily prices.
(3) The Meridian Resource and Exploration, LLC (now owned by Alta Mesa Holdings, LP) and Manti Jamba, Ltd. separately operate the various producing wells. The Company has no control over operations and maintains only a landowner’s mineral royalty interest. Please see footnote (i) following the final paragraph of this letter for a warning concerning forward-looking information.
(4) The value of the proved reserves “Undiscounted, M$” and “Discounted at 10%, M$” includes a minimal amount of Oil and Condensate as well as Natural Gas Liquids.
A second proved reserve study completed by T. J. Smith & Company, Inc. for B&L estimates reserves as of December 31, 2010 of 2.3 billion cubic feet (BCF) of natural gas and 25 thousand barrels of oil (MBBL) which equates to “Estimated Future Net Revenues” of $8.72mm with an “Estimated Discounted Future Net Revenues” of $7.6mm (see note 2 above) compared to 2.2 BCF and 27 thousand barrels of oil (MBBL) at the end of 2009. The following note is included in T. J. Smith & Company’s Report: “The recently drilled LL&E No. 1 well located in Lapeyrouse field in Terrebonne Parish, Louisiana has not yet been completed and no tests have been performed. The well encountered several pay zones, some of which are considered PDNP based on log and core data. Other zones encountered by the well are potentially productive and may have significant value. Due to the poorer reservoir characteristics, these zones are not analogous to the proven zones seen by the well and until tests showing the zones to be commercially productive are conducted, we do not consider them proved and consequentially are not included them herein.” The reason this note is included in this President’s Report to Shareholders is to make investors aware that there is a probability that the LL&E No. 1 well may have significant reserves that are not included on T. J. Smith & Company Inc.’s Proved Reserve Report. While there is a probability of additional reserves, until each zone with “poorer reservoir characteristics” is successfully tested each zone cannot be classified as “proved” reserves, and while there is a probability of significant value in these zones, some or all of the zones may never be classified as proved reserves.
Combining the Company’s portion of the proved reserves in both studies makes the estimated proved reserves accruing to the Company to approximately 3.7 BCF of natural gas and 22.5 MBBL of oil, equating to approximately 4.01 BCFE or natural gas equivalents (15:1 ratio). This compares to total proved reserves allocated to the Company as December 31, 2009 of approximately 4.08 BCFE (15:1 ratio). Please see the note concerning the LL&E No. 1 Well in the foregoing paragraph.
During 2008 the Company, through its subsidiary B&L, entered into negotiations with the Whitney National Bank to affect a line of credit to be used for general corporate purposes. As a result B&L currently has available to it a line of credit in the amount of $5mm. As of December 31, 2009 and 2010, B&L utilized $1,400,000 and $0.00 of the credit line respectively.
On October 1, 2008 we announced our plans to repurchase up to 27,500 shares of our common stock. As of December 31, 2010 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.
B&L was organized as a limited liability Company (LLC) under the laws of Louisiana in July of 2006. B&L’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. B&L’s Class B members are BLMC and LKEU, which have membership percentages of 90% and 10% respectfully.
Four years ago, the Company returned to its custom of paying one dividend per calendar year. During its meeting held on December 14, 2010, the Board of Directors declared a $1.25 per share dividend payable on Thursday, December 30, 2010 to shareholders of record as of the close of business on Friday, December 24, 2010. This represents a total cash dividend payment of $3,426,785 or $1.25 per share. Since 2002, the Company has paid slightly more than $50,000,000 in total dividends. With our fee land based production depleting and no new wells being drilling on our fee lands as of this time, it will be difficult to maintain the level of dividends paid since 2002, but with $9.6mm in undiscounted proved reserves an appropriate level of dividend can be expected until these reserves deplete (see paragraph 6 and accompanying table above) or new discoveries are made. With this said, using 3D seismic data in our possession, we are constantly working on developing the minerals located below our fee lands. Meanwhile, we are focusing on developing reserves outside of our fee acreage position through our investment in B&L. B&L in its current infancy stage as a startup exploration Company should not be viewed as a dividend producing entity.
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 .
In regards to the Deep Water Horizon drilling rig explosion and resulting BP oil spill.
We are thankful that the spill has been stopped and the company’s property is no longer threatened by a continued oil leak. As of the date of this Report, it appears little, if any, of BLMC’s property was contaminated with oil from the spill. It should be noted the Company expended significant time and money monitoring the property for oil contamination. We have filed a claim against BP for recovery of these costs as well as other related claims for damages and plan to file suit if we are not paid in short order.
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 .
We are pleased with the fact that our fee based land reserves increase slightly from 1.951 BCFG as of December 31, 2009 to 2.29 BCFG as of December 31, 2010 . Our increased daily production and accompanying increased revenues are of particular importance. We are more pleased with the results of B&L’s drilling program. With three new wells placed on production during 2010 and two new discovery wells awaiting placement on production, last year represented a good year for B&L. We plan to continue B&L’s drilling program and have three additional wells scheduled to be drilled during 2011 and are evaluating additional prospects. Meanwhile, we continue to work on developing both shallow and deep prospects on the Company’s property. We are particularly focused on our deep Tuscaloosa Project. Using 3D seismic data in our possession, our technical team has identified several massive structures that could yield significant natural gas and condensate reserves. There is no guarantee that we will be successful in developing our Tuscaloosa Project or if Tuscaloosa wells will ever be drilled resulting in discoveries, but we are fully committed and will continue our efforts to attract partners interested in this Project. Management is committed to explore every avenue to create value for our shareholders. We have been successful over the past fifteen years and we will work diligently and aggressively to continue our success.
Sincerely,
William B. Rudolf
President and Chief Executive Officer
Metairie, Louisiana
Email: [email protected]
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.