March 23, 2020
To the Shareholders of Biloxi Marsh Lands Corporation:
The following is a discussion of the results of Company’s operations for the year ending December 31, 2019. The Company’s annual revenue breakdown is as follows: 2019 revenue from oil and gas production for its fee lands was $18,982 compared to revenue of $21,398 in 2018. The flow-through loss from B&L Exploration, LLC (B&L Exploration) reduced the Company’s annual revenue by $2,290,999 in 2019 compared to $1,972,854 in 2018. The flow-through loss of $2,290,999 includes $849,431 of the amortization of intangible drilling costs capitalized in prior years. Dividend and interest income for 2019 was $101,240, compared to $115,035 for 2018. In 2019, the Company realized a cumulative loss from the sale of investment securities of $191,428 compared to a cumulative gain in the amount of $1,591,104 in 2018. Fee land income, unrelated to oil and gas activities, was $143,322 for 2019 compared to $67,605 for 2018. This increase was mainly due to the lease of Company owned water-bottoms for oyster harvesting. Unfortunately, the ability to harvest oysters was adversely affected by the prolonged opening of the Bonne Carre Spillway decreasing water salinity in prime oyster harvesting areas. Expenses for the year totaled $812,005 compared to the prior year’s expenses of $781,064. For the year, the Company had a net loss of $3,030,888 or $1.21 per share compared to a net loss of $850,545 or $.34 per share in 2018.
While 4 wells continue to produce from the Company’s fee lands in St. Bernard Parish, Louisiana the combined net daily production accruing to the Company was minimal as of December 31, 2019. 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, 2019.
B&L Exploration has commissioned three independent reserve studies by separate reservoir engineering firms covering different properties in which B&L Exploration holds interests. These studies estimate that B&L Exploration’s proved reserves as of December 31, 2019 were approximately 1.13 billion cubic feet of natural gas (Bcfg), and approximately 60.0 thousand barrels of oil (Mbbl). Meanwhile, B&L Exploration’s Probable and Possible reserves as of December 31, 2019 are estimated to be approximately 1.22 Bcfg. This compares to B&L Exploration’s estimated proved reserves as of December 31, 2018 which were approximately 2.4 Bcfg, approximately 60.8 Mbbl of oil and approximately 6.7 Mbbl of natural gas liquids. (1) As of December 31, 2018 a portion of B&L Exploration’s proved reserves were Proved Undeveloped (PUD). Using the SEC mandated price for natural gas as of December 31, 2019, the economics of the PUD locations have become marginal. This diminishes the probability that these PUD locations would be drilled during 2020, thus these PUD reserves were removed from B&L Exploration’s proved reserve report for the period ending December 31, 2019.
(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 Exploration 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 Exploration’s South Texas operations continue with the 5K No. 1 well being placed on production during the second quarter of 2019.
B&L Exploration’s current net daily production is approximately 900 thousand cubic feet of natural gas (Mcfg) and 14 barrels of oil per day (BOPD). B&L Exploration was organized as a limited liability company (LLC) under the laws of Louisiana in July of 2006. The Company owns a 75% membership interest in B&L Exploration, LLC.
During 2019 B&L Resources, LLC (B&L Resources) was formed as a Texas limited liability company, of which the Company owns a 50% membership interest. B&L Resources acquired a 562.3 acre leasehold position in Heyser Field located in Calhoun County, Texas during 2019. B&L Resources is in the process of acquiring additional acreage contiguous to this lease. This project’s goal is the recovery of residual oil and natural gas by using horizontal well technology. Upon the anticipated closing of the acquisition, B&L Resources should be able to book proved reserves.
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 an 18 month period 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 our report New Information Supporting the Stabilization and Restoration of the Biloxi Marsh Complex, A Unique and Distinct Ecosystem. We have presented this report to several governmental and non-governmental agencies, most importantly the Louisiana Coastal Protection and Restoration Authority (CPRA). The Company’s main objective is to have the BMC included in Louisiana’s next Coastal Master plan. A copy of this report is available on our website through the following link: https://biloximarshlandscorp.com/bmlc2/wp-content/uploads/2019/10/New-Information-Supporting-the-Stabilization-Restoration-of-the-Biloxi-Marsh-A-Unique-and-Distinct-Ecosystem-2.pdf
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). The U.S. Department of Justice filed a motion for summary judgment on the issue of statute of limitations, and our attorneys filed a cross motion on the same issue. On July 29, 2019, the case was transferred to Judge Ryan T. Holte. The hearing with the U.S. Department of Justice has been delayed and we are awaiting a new scheduling order. 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 time.
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, et al. (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 claims which have been granted. During the first quarter of this year we joined High Mesa Holdings, LP as a defendant. Trial on the costs associated with repairing the property damage was originally scheduled for September 9, 2019 then continued until January 27, 2020. On September 11, 2019, one of the parties, Alta Mesa Holdings, LP, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Subsequently, on January 24, 2020 High Mesa Holdings, LP and The Meridian Resource and Exploration, LLC filed Chapter 7 bankruptcy. While the Company intends to pursue all avenues of recovery, including filing in the bankruptcy proceedings, the Company believes that it is highly unlikely that any substantial recovery will be attained.
During March 2019, the Company completed its previously announced stock buyback program authorized on December 14, 2015.
On Wednesday, January 15, 2020, the Company paid a dividend to its shareholders of record at the close of business on Monday, December 31, 2019. This represents a total cash dividend payment of $250,503 or $.10 per share. Since 2002, the Company has paid approximately $56,231,000 in total dividends.
We encourage you to visit our website to obtain general information about the Company, its efforts in the coastal restoration arena, as well as historical annual reports and all press releases. We strongly recommend that all interested parties become familiar with the information available on the Company’s website: www.biloximarshlandscorp.com.
As stated in last year’s annual President’s letter, 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.
Management believes that the current significant drop in commodity prices combined with the panic taking place throughout all the financial markets could create opportunities as we move through this tumultuous period. The Company’s management is proactively seeking opportunities of all kinds on and off of our fee lands in St. Bernard Parish. Our entry into the business of oyster harvesting from our water-bottoms in St. Bernard Parish is an example of management diversifying usage of our fee lands. Meanwhile, through its membership interests in the foregoing mentioned limited liability companies, management is attempting to take advantage of the significantly lower cost of entry by acquiring oil and gas interests that are not related to our fee lands in St. Bernard Parish, Louisiana. This diversification should help position the Company in a positive manner over the long term.
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.