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March 15, 2007

To the Shareholders of Biloxi Marsh Lands Corporation:

We are pleased to report that 2006 was the eleven consecutive profitable year for your company. Total revenue for the year ending December 31, 2006 was $14,979,801 compared to total revenue of $22,512,638 in 2005. The annual revenue breakdown is as follows: 2006 revenue from oil and gas activity was $14,040,006 compared to revenue of $21,258,421 in 2005. It should be noted that 2006 included 14 monthly natural gas production payments as compared to the normal 12 monthly payments (5 payments received during Q1-2006; 3 payments received during Q2-2006; 3 payments received during Q3-2006; 3 payments received during Q4-2006). The increased number of payments received during Q1-2006 was due to a timing difference and was a one time event due to the Company taking its gas “in kind” as of December of 2005. Dividend and interest income for 2006 was $814,173 compared to $289,711 for 2005. In 2006 we incurred a loss from the sale of investment securities in the amount of $59,088 as compared to a net gain of $945,085 in 2005. Meanwhile, expenses for the year totaled $1,821,754 compared to $1,567,184 for the prior year. The increase in expenses was mainly due to the contribution made to the Biloxi Marsh Disaster Relief Fund, the development of the Biloxi Marsh Stabilization and Restoration Plan and hurricane Katrina related expenses. For the year net earnings were $9,119,130 or $3.31 per share compared to $13,882,006 or $5.04 per share in 2005.

We reported at the end of last year that the company had approximately 82,000 acres open and available for exploration and development. This clearly indicated the need for management to takes steps to jumpstart drilling activity. We also reported that the company was employing a marketing effort which it hoped would result in future oil, gas and mineral agreements. On December 15, 2006 we announced the formation of B & L Exploration, LLC (BLX) of which the company owns 75%. We also announced the placement of our first five well drilling package with the Manti Group. The Manti Group is obligated to drill at least three of the five prospects and hopes to commence drilling the first well which is located on company property by the end of March 2007. The agreement between the company and the Manti Group and the execution of two accompanying 400 acre oil, gas and mineral leases evidences the initial success of our marketing efforts. The establishment of BLX signifies the more active management strategy we are employing to seek opportunities on our property as well as outside of the confines of our physical boundaries. While we can not guarantee the success of each newly drilled well, our goal is to use all of our available assets to obtain revenue interests in newly drilled wells with minimal related cash expenditures.

On January 25, 2007 we announced our participation in the NAPE Expo in Houston, Texas. With the assistance of BLX’s technical consultants we presented our acreage position showing deep regional Tuscaloosa exploration opportunities developed over the past 12 to 18 months using existing geological well control and 3D seismic data. We also presented additional prospects targeting the Tex W, Big Hum and Cris I sand intervals. We are pleased with the interest expressed during the NAPE Expo and are hopeful that our ongoing efforts will result in future oil, gas and mineral agreements.

At the end of last year we reported that The Meridian Resource and Exploration, LLC (TMR) had placed all of its wells back online that were shut-in as a result of hurricane Katrina with the exception of the BML 28-1 well. We are pleased to report that this well was place back online on June 9, 2006. As of December 31, 2006 the combined gross daily production rate from 13 wells was approximately 22 million cubic feet (mmcf) with net daily production accruing to the Company of approximately 2.4 mmcf.

The Company again commissioned T. J. Smith & Company, Inc., independent reservoir engineers, to complete a proved reserve study. Based upon this reserve study, the productive life of the wells range from 1 to 7 years with slightly more then 30% of the proved reserves depleting by the end of 2007. The same reserve study estimates that as of December 31, 2006 the Company’s “Developed Producing” proved reserves are 1.5221 billion cubic feet (bcf) of natural gas and estimates that the “Developed Non-Producing” proved reserves are .643 bcf, with the “Proved Un-Developed“ being .337 billion cubic feet, totaling 2.502 bcf of proved reserves (see “Appendix A” for definitions of reserve classifications). Please find the following table showing the Company’s proved reserves as of December 31, 2006:

Proved Reserves as of December 31, 2006 (3) ___________ _____

Developed Developed Proved
Producing Non-Producing Un-Developed Total
(dollars in thousands)
Net Proved Reserves (1):

Natural Gas (BCF)…………………… 1.5221 .643 .337 2.502

Estimated Future Net Revenues (before income taxes) (2) :…………………. $ 13,198

Estimated Discounted Future Net Revenues (before income taxes) (2):……. $ 10,474
(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 price as of December 31, 2006 which was $5.623 per mmcf of natural gas.

(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.

It should be noted that the “Estimated Revenues” in the foregoing table are based on the price of natural gas as of December 31, 2006. As of December 31, 2005 the price was $10.05 compared to $5.623 for December 31, 2006, a difference of $4.43 per mmcf of natural gas.

The production and reserves as stated in the foregoing paragraph are accruing and will accrue to the Company, not to the Biloxi Marsh Lands 1 Royalty, LLC or any acreage that is subject to adverse and competing title claims. It should also be noted that since the establishment of the Biloxi Marsh Lands 1 Royalty, LLC on November 29, 2002, the Company and the LLC are separate and distinct entities and operate as such. As previously disclosed, the purchase or sale of Biloxi Marsh Lands Corporation common stock after November 29, 2002 does not include the purchase or sale of ownership units in Biloxi Marsh Lands 1 Royalty, LLC.

As previously reported, there is currently pending a possessory action suit which was filed by the Corporation on or about November 2, 2001 as the result of disturbances in the Corporation’s possession of Sections 1, 2 & 3, T13S, R16E due to protective oil, gas & mineral leases granted to Manti Resources, Inc. (Manti) by particular Manuel Molero family members and also to Louis and Gustave Carmedelle family entities. Further disturbance in possession is the result of seismic permit/lease options and protective leases granted by the same parties to The Meridian Resource & Exploration LLC (Meridian) for disputed and productive acreage outside of the Manti lease. The Manuel Molero family members filed a declaratory judgment action with regard to the same acreage, which action was consolidated with the Corporation’s possessory action. Additionally, Manti, which is producing two wells within a geographical unit on the acreage in conflict, filed a concursus proceeding, and deposited funds into the registry of the court representing royalties attributable to the conflict acreage in the producing unit. Meanwhile, Meridian has filed concursus proceedings with respect to additional producing units formed which contain conflict acreage. Consolidation of the concursus proceedings with the possessory action and declaratory judgment action above mentioned has been granted by the court. Management intends to vigorously pursue the Corporations’ possessory action and vigorously defend the Molero family members’ declaratory judgment action.

During 2005, significant legal discovery was taken by the parties and a trial date on the Corporation’s possessory action had been set by the Court. Unfortunately, as a result of Hurricane Katrina, the Courthouse for St. Bernard Parish was severely damaged and the trial date for the Corporation’s possessory action has been indefinitely continued.

The Carmadelle entities continued their strategy of attempting to have the trial court determine an issue related to title. Their latest attempt was their third attempt. The matter was once again appealed and the Corporation’s position was upheld by the Appellate Court and, in early February 2006, the Louisiana Supreme Court upheld the Corporation’s position for a third time. During 2006, the parties continued to engage in discovery efforts such as document production and depositions. Also in 2006, the Carmedelle entities filed an additional lawsuit once again seeking to have the trail court determine title issues. Management intends to vigorously defend the suit.

In addition to the above described competing claims to the subject acreage, there are also competing claims between the Company and the State of Louisiana regarding certain tracts within each producing unit (“Concursus Proceedings”). The object of the Concursus Proceedings is to determine whether the State or the Company is entitled to the royalty on production attributable to the disputed acreage. The judgments ultimately rendered in these proceedings will order the distribution of royalty proceeds currently being deposited into the Registry of the Court. There is no potential in the Concursus Proceedings for rendition of an adverse judgment requiring the payment of Company funds. As of December 31, 2006, the Company’s potential share of the funds deposited in the various concursus’ accounts is approximately 42 million dollars.

The timing of the resolution of the competing claims in the Concursus Proceedings is being impacted substantially by the effects of Hurricane Katrina on St. Bernard Parish. While the courthouse has been declared open and while judges have returned to their offices, the parish remains without sufficient facilities to support a trial. This is particularly true with respect to trials that may take multiple days to complete as the Concursus Proceedings undoubtedly will. At the present time, there is no way to know how long it will take for the judicial system in St. Bernard Parish to resume normal operations. We are advised that, because the courthouse is formally open for business, the Supreme Court is not likely to consider establishing alternate locations outside of St. Bernard Parish for the trial of cases pending in that parish. For these reasons, as of the date of this report, there is no way to forecast a timetable for the conclusion of the Concursus Proceedings.

Prior to 2004, the Company has paid one dividend each year. During 2006 the Board of Directors paid two dividends totaling $4.00 per share of outstanding common stock or $11,017,712. While we will continue dividend payment, without a significant increase in the price of natural gas above the December 31, 2006 price level ($5.62/mmcf) or the addition of proved reserves it is not realistic to expect that the 2006 payment level will be obtainable in 2007.

Prior to Hurricane Katrina we retained the services of T. Baker Smith, Inc to develop The Biloxi Marsh Stabilization and Restoration Plan. Due to Hurricane Katrina we extended the scope of this project and retained additional technical experts to assist in formulating the plan. While we sustained land loss during hurricanes Katrina and Rita the results of the study commissioned by the company indicates that the land loss was not substantial. With this said, stabilization and restoration of our property is a major concern. 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. As of this time, we believe that the most likely source of funding for meaningful restoration projects may be associated with US Army Corps of Engineers de-authorization and subsequent closure of the Mississippi River Gulf Outlet (MRGO). We are participating in this process and other governmental restoration initiatives. The Biloxi Marsh Stabilization and Restoration Plan is a valuable tool to foster our participation and guide any future spending on restoration projects. A complete copy of The Biloxi Marsh Stabilization and Restoration Plan is available on our website www.biloximarshlandscorp.com

We remind our shareholders that St. Bernard Parish, Louisiana, the Parish where our property is located, was indescribably devastated by Hurricane Katrina and is struggling to recover. To assist in the Parish’s rebuilding the Company has established and funded the Biloxi Marsh Disaster Relief Fund Corporation. Detailed information about the fund is available on its website www.selarelief.com. During 2006 the fund applied for and received IRS 501 (c) (3) tax exempt status making all contributions to the fund tax deductible. Those living outside the hurricane affected zone and all interested parties are asked to remember the people of St. Bernard Parish, Louisiana by donating to the Biloxi Marsh Disaster Relief Fund Corporation. You may send a check to the fund at the company’s address or contribute using a credit card on the Fund’s website: www.selarelief.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.

In last year’s President’s report we advised that we retained a geologist and geophysicist to determine the extent of our opportunities and to give senior management better understanding of the strategic course the Company should take. We believe that the formation of BLX demonstrates our commitment to moving the company forward while positioning it for the future. Simply to rest on the good fortune of past few years and wait for opportunities to come to us is not acceptable to your Board of Directors. We are pleased with the placement of the first five well package that will give the company a revenue interest in at least three newly drilled wells. We are hopeful that the majority of these wells will be successfully completed leading to the addition of proved reserves.


William B. Rudolf
President and Chief Executive Officer
Metairie, Louisiana
Email: [email protected]


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.