March 25, 2019
To the Shareholders of Biloxi Marsh Lands Corporation:
The following is a discussion of the results of operations of the Company for the year ended December 31, 2018. The annual revenue breakdown is as follows: 2018 revenue from oil and gas production from our fee lands was $21,398 compared to revenue of $103,032 in 2017. Dividend and interest income for 2018 was $115,035, compared to $105,771 for 2017. In 2018, the Company realized a cumulative gain from the sale of investment securities of $1,591,104 compared to a cumulative gain in the amount of $548,455 in 2017. The flow-through loss from B&L Exploration, LLC (B&L) reduced the Company’s annual revenue by $1,972,854 in 2018 compared to $741,597 in 2017. During the fourth quarter of 2018, the Company recognized a settlement gain in the amount of $86,967 with respect to its wetlands real property claim. Expenses for the year totaled $781,064 compared to prior year expenses of $743,914. For the year, the Company had a net loss of $850,545 or $.34 per share compared to a net loss of $666,368 or $.26 per share in 2017.
While 5 wells continue to produce from the Company’s fee lands in St. Bernard Parish, Louisiana, as of December 31, 2018, the combined net daily production accruing to the Company was minimal. Due to the minimal production from the Company’s fee lands, the Company opted not to commission a reserve study for the period ending December 31, 2018.
B&L Exploration has commissioned two independent reserve studies by separate reservoir engineering firms covering different properties in which B&L holds interests. These studies estimate that B&L’s proved reserves as of December 31, 2018 were approximately 2.4 billion cubic feet of natural gas (Bcfg), approximately 60.8 thousand barrels of oil (Mbbl) and approximately 8.8 Mbbl of natural gas liquids. Meanwhile, B&L’s Probable and Possible reserves as of December 31, 2018 are estimated to be approximately 1.6 Bcfg. This compares to B&L’s estimated proved reserves as of December 31, 2017 which were approximately 4.7 Bcfg, approximately 101 Mbbl of oil and approximately 26.6 Mbbl of natural gas liquids. (1)
(1) The reserve estimates were prepared in accordance with the definition and regulations of the U. S. Securities and Exchange Commission (SEC) defined in S-X Part 210.4-10 (a) as revised and adopted effective January 1, 2010.
Information reported by the Highlander well’s operator to the Louisiana Department of Natural Resources (LDNR) is available on LDNR’s Strategic Online Natural Resources Information System (SONRIS – www.sonris.com). B&L is contractually entitled to a 1.5% of 8/8ths overriding royalty interest (ORRI) in the mineral leases comprising the 9,000 acre – EOC-TUSC BL UDS SUA production unit from which the Highlander well is producing. This production unit is located in St. Martin Parish, Louisiana. Meanwhile, B&L’s South Texas operations were adversely affected during the second half of 2018 due to abnormal amounts of rainfall limiting access to well locations, thus affecting operational effectiveness.
B&L’s current net daily production is approximately 1,200 thousand cubic feet of natural gas (Mcfg) and 4 barrels of oil per day (BOPD). Currently, B&L’s main focus is South Texas and it is looking at opportunities that are weighted more toward oil as opposed to natural gas.
B&L was organized as a limited liability Company (LLC) under the laws of Louisiana in July of 2006. B&L’s members are BLMC and Lake Eugenie Land & Development, Inc. (LKEU), which have membership percentages of 75% and 25%, respectively.
As previously disclosed, on January 3, 2017 the Louisiana Coastal Protection and Restoration Authority (CPRA) released a draft of its 2017 Coastal Master Plan (CMP). Disturbingly, as released the draft of the 2017 CMP did not include all the coastal restoration projects that were included in CPRA’s 2012 CMP and did not include all the coastal restoration projects that are included in the U.S. Army Corps of Engineer’s Ecosystem Restoration Plan, which was an integral part of the de-authorization for the closure of the MR-GO ship channel. The issue at hand is that the Company’s property would not be eligible for future restoration dollars, if the area in which it is located is not included in the State’s current CMP. The Company took steps to have language included on page 162 of the 2017 CMP that does not preclude its property. Please see the following page on the Company’s website: https://biloximarshlandscorp.com/bmlc2/wp-content/uploads/2017/05/CPRA-2017-CMP-Page-162-Amended-Language-Adressing-the-Biloxi-Marsh-Complex-BMC.pdf.
The Company along with Lake Eugenie Land & Development, Inc. have assembled a team of scientists to study the Biloxi Marsh Complex (BMC) to demonstrate the BMC’s long-term sustainability by understanding its geologic stability and root causes of its degradation. Our team collected data in the field over the past 18 months using new observation stations as well as stations that were installed during 2003 and 2004. These stations provided our team with critical field data concerning accretion, erosion and elevation which form the basis for the attached project proposal: Leveraging Natural Resilience to Ensure the Long-Term Sustainability of the Biloxi Marsh Complex: An Integrated Project. The regional importance of the BMC due to its geographic location, its unique geological stability and its unique nearshore topography, among other factors, were taken into consideration while conceptualizing our integrated project. Leveraging Natural Resilience to Ensure the Long-Term Sustainability of the Biloxi Marsh Complex: An Integrated Project was submitted February 28, 2019 in response to CPRA’s request for New Projects to be considered for inclusion in the 2023 CMP. Our scientific experts’ report, Day et al., 2019, in prep., will be available shortly and will substantiate in detail our team’s conclusions. To obtain more information concerning coastal restoration, please visit our website: https://biloximarshlandscorp.com/biloxi-marsh-coastal-restoration/.
As previously reported, on June 15, 2012, the Company filed a claim (Biloxi Marsh Lands Corp., et al. v. United States; Case No. 12-382L) in the U.S. Court of Federal Claims against the U.S. Army Corps of Engineers (The Biloxi Case) seeking monetary damages for property damage and losses caused by the Mississippi River Gulf Outlet (MR-GO). In January of 2018, The Biloxi Case was consolidated with other similar landowners’ cases against the U.S. Army Corps of Engineers and will proceed as Biloxi Marsh Lands Corp., et al. v. United States, No. 12-382L. The U.S. has filed a motion for summary judgment on the issue of statute of limitations, and our attorneys filed a cross motion on the same issue. Following the government shutdown the court issued a new Scheduling Order stating that all briefs must be submitted by May 3, 2019. After receipt of all briefs to be filed, the court will schedule oral arguments on the statute of limitations issue. At this time, the Company cannot predict the timing of resolution or the outcome of this litigation process, but it is anticipated that this litigation process will take many years.
During 2017, the Company filed suit in Louisiana State District Court (34th Judicial District Court, Division D in St. Bernard Parish, LA) against Alta Mesa Holdings, LP (Alta Mesa) (Case No. 17-1104). We made claims under three separate causes of action: 1) Specific performance to remove the North Eros pipeline; 2) Property damages caused by installation, use and operations of the North Eros pipeline; 3) Specific performance to plug and abandon all wells, remove all associated equipment, facilities and fixtures from our property. We filed Motions for Summary Judgments on all three of the foregoing causes of action. On February 28, 2019 the court granted our motions on actions 1 and 2. Action 3 is pending a hearing scheduled for April 17, 2019. Trial on the costs associated with repairing the property damages is scheduled for September 9, 2019. As of this time, the Company is unable to forecast the amount of monetary damages that will be awarded, if any. Based on recent developments involving Alta Mesa’s parent company, Alta Mesa Resources, Inc. (NASDAQ: AMR) including class action litigation and expected significant non-cash impairment charges, as of this time, it is unclear whether Alta Mesa will have the financial ability to pay monetary damages.
During 2018, the Company accrued a settlement payment for its wetlands real property claim under the Halliburton Energy Services, Inc. and Transocean Ltd. Settlement Agreements. The payment was received in January 2019. The Company has been advised by our legal counsel that an additional limited recovery under the settlement is expected, but as of this time it is difficult to determine the timing and amount of the additional settlement.
The Company maintains a stock buyback program. On December 14, 2015, the board of directors authorized the additional purchase of up to 30,000 shares of the Company’s common stock. The purchases will be made from time to time on the open market at the sole discretion of the Company. All shares purchased will be held as treasury stock. As of December 31, 2018, the Company has acquired 22,020 shares.
On Wednesday, January 9, 2019, the Company paid a dividend to its shareholders of record at the close of business on Monday, December 31, 2018. This represents a total cash dividend payment of $251,301 or $.10 per share. Since 2002, the Company has paid approximately $55,980,000 in total dividends. With the Company’s fee land production depleting and no new wells being drilled on its fee lands, it will be difficult to maintain the level of dividends paid since 2002.
We encourage you to visit our website to obtain general information about the Company as well as historical annual reports and all press releases, and we strongly recommend that all interested parties become familiar with the information available on the Company’s website: www.biloximarshlandscorp.com.
Attracting third parties interested in exploring for and developing the minerals beneath our fee lands in St. Bernard Parish, Louisiana continues to prove difficult. This is due to a combination of factors which include the depth of prospects beneath our property, the current price of natural gas and the difficult business environment for oil and gas operators in Louisiana’s coastal zone. With our management team’s experience in the oil and gas sector, we are uniquely positioned to take advantage of changes in this business environment.
We have positioned the Company for the future with an experienced management team. B&L’s management and staff have knowledge and experience in the oil and gas sector, which uniquely positions it and the Company to seek and take advantage of opportunities as they present themselves. These opportunities may be within the boundaries of the Company’s fee lands or beyond. Meanwhile, the Company’s management continues to proactively address the myriad of issues affecting the Company’s property in St. Bernard Parish, Louisiana.
William B. Rudolf
President and Chief Executive Officer
Email: [email protected] (2)
(2) 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”, “could”, “should”, “outlook”, “possibly” and “anticipates” and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements.