March 24, 2017
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, 2016. The annual revenue breakdown is as follows: 2016 revenue from oil and gas production from our fee lands was $81,859 compared to revenue of $285,136 in 2015.
Dividend and interest income for 2016 was $120,371, compared to $147,311 for 2015. In 2016, the Company realized a cumulative gain from the sale of investment securities of $895,344 compared to a cumulative gain in the amount of $2,195,981 in 2015. During 2016, the Company recognized a settlement gain in the amount of $235,663. For the year 2016, total revenues were reduced by $1,594,923 from the Company’s investment in B&L Exploration, LLC (B&L). This compares to a reduction in revenues of $1,682,847 from B&L in the prior year. Expenses for the year totaled $814,362 and were lower than the prior year’s expenses of $932,941.
For the year, the Company had a net loss of $1,043,325 or $.41 per share compared to net income of $66,419 or $.03 per share in 2015.
The end of the year proved reserve study commissioned by the Company and completed by an independent reservoir engineering firm estimates that as of December 31, 2016 the Company’s total Proved Developed Producing (PDP) reserves were .014 billion cubic feet of natural gas (Bcfg) and 1,900 barrels of oil.
Conversely, B&L has commissioned two independent reserve studies by separate reservoir engineering firms covering different wells. These studies estimate that B&L’s total proved reserves as of December 31, 2016 were approximately 10.8 Bcfg, approximately 257 thousand barrels of oil (Mbbl) and approximately 18.0 Mbbl of natural gas liquids which compared to 10.0 Bcfg, approximately 184 Mbbl of oil and approximately 5.5 Mbbl of natural gas liquids as of December 31, 2015. It should be noted that a significant component of B&L’s proved reserves as of December 31, 2016 are Proved Undeveloped (PUD). These PUD reserves are partially attributed to B&L’s leasehold interest in a federal offshore Louisiana block and partially attributed to B&L’s Lago Verde project in South Texas. As is necessary with all PUD reserves, a well or wells must be drilled and completed to fully develop these PUD reserves.
As of December 31, 2016, the combined net daily production accruing to the Company from 6 wells operated by the Company’s mineral lessees was approximately .028 million cubic feet of natural gas (Mmcfg) and 2 barrels of oil per day (BOPD). The foregoing production includes four wells producing from S/L 16158 in which the Company owns a small interest. Meanwhile, as of December 31, 2016, B&L’s net daily production from 7 wells was approximately 2.14 Mmcfg, 46 BOPD and 6 barrels of natural gas liquids per day.
As previously reported, the Company received a settlement payment during 2013 for its wetlands real property claim under the BP Deepwater Horizon Economic and Property Damages Settlement Program. During 2016, the Company received additional settlement payments of $235,663. As of this time, the Company has been advised by our legal counsel that there is no anticipated additional settlement recovery.
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 previously reported, the Company has filed a claim against the US Army Corps of Engineers (USACE) for property damages and losses caused by the Mississippi River Gulf Outlet (MR-GO). We will continue to aggressively pursue this claim and will keep our shareholders advised as things progress.
Based on information available from the Louisiana Department of Natural Resources, the Highlander discovery well produced approximately 50 MMcfg per day during December 2016. B&L has been assigned and is contractually entitled to a 1.5% of 8/8ths overriding royalty interest (ORRI) in the Highlander discovery well and in all mineral leases acquired and maintained by Freeport-McMoRan Oil & Gas (FM O&G) within the Area of Mutual Interest (AMI) between B&L and FM O&G covering FM O&G’s Highlander Project Area located in Assumption, Iberia, Iberville, St. Martin, and St. Mary Parishes, Louisiana. During its meeting held on January 31, 2017, the State of Louisiana, Office of Conservation amended its original unit order concerning the Plan of Development for wells drilled within the 9,000 acre EOC-TUSC BL UDS SUA (production unit from which the Highlander discovery well is producing). The original unit order required that the Operator spud the second unit well by February 6, 2017. The amended unit order extends the obligation to spud the second unit well to February 6, 2019. As of this time, B&L is only guaranteed its ORRI within the 9,000 acre EOC-TUSC BL UDS SUA unit during the period of time that the Highlander discovery well continues to produce or development wells are drilled and then placed on production.
In 2012 B&L obtained a mineral lease in a federal offshore block located in shallow water on the intercontinental shelf offshore of Louisiana. B&L currently holds a 60% working interest in this lease. With the current lower commodity pricing environment, B&L and its 40% working interest partner are working together to determine if a plan of development is attractive. As of this time, there is no assurance that a well will be spud. If a well is not spud prior to the lease expiration date, this lease will expire in October of 2017 and the associated PUD reserves will not be included in future reserve reports.
B&L’s Welder No.1 well continues to produce better than originally anticipated. Meanwhile, the Welder No. 3 well was successfully reworked and hydraulically fractured during the second quarter of 2016 and, as a result, this well is producing at increased flow rates. B&L recently drilled and is commencing completion operations on the Welder No. 4 well located within its Lago Verde project area.
As previously reported, dating back to 2011 B&L began assembling a mineral lease position in Allen and Beauregard Parishes, Louisiana targeting the Wilcox sand interval. In October of 2014, B&L placed the majority of the working interest with Petro Harvester Oil & Gas LLC allowing B&L to recover the majority of its investment in this mineral lease position. Due to the crash of oil prices beginning in November of 2014, Petro Harvester opted not to pursue this project and returned the leases to B&L. During 2016, all leases within this project area expired. The release of this lease position had no impact to B&L’s proved reserves and allows B&L to concentrate its financial resources on other projects.
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.
During its meeting held on December 16, 2016, the board of directors declared a dividend of $.10 per outstanding share of common stock payable on Wednesday, January 4, 2017 to shareholders of record at the close of business on Friday, December 30, 2016. This represents a total cash dividend payment of $253,503 or $.10 per share. Since 2002, the Company has paid approximately $55,477,000 in total dividends. With the Company’s fee land based 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.
The Company has engaged Postlethwaite & Netterville, APAC (P&N) to provide financial statement services for the year ending December 31, 2016. P&N is one of the leading firms in the Gulf South. For over 65 years, P&N has delivered accounting, tax, consulting and technology services that address its clients’ important financial and operational challenges. Today, P&N is more than 600 employees strong, with nine offices in Texas and Louisiana, and is consistently ranked among the top 100 accounting firms in the U.S. by INSIDE Public Accounting magazine.
Please remember to visit our website, www.biloximarshlandscorp.com, to obtain general information about the Company 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 .
In last year’s President’s letter we reported that B&L’s management was keenly aware of lower commodity prices and the challenges created by those lower prices. During 2016, B&L’s management took steps to reduce its G&A expense, capital expenditure budget and allocate capital to projects with lower capital requirements. B&L’s management continues to be pleased with the results from its Lago Verde Project in south Texas. During the second half of 2016, B&L’s actions to increase production from the Welder No. 3 were successful and the Welder No. 4 well was recently drilled and completion operations have commenced. B&L’s management believes there should be an opportunity to drill additional wells on its Lago Verde project during 2017 and beyond.
The Company’s revenue from its fee lands has declined significantly and development of our minerals beneath our lands 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 environment for oil and gas operators in the state of Louisiana. The combination of these factors is making it more challenging for us to attract companies willing to explore for oil and gas in St. Bernard Parish, Louisiana. Nonetheless, we believe that we are positioning the Company for growth through B&L’s drilling program in south Texas. 2017 will again prove to be a challenging year due to continued low commodity prices and political environment in Louisiana. With a strong balance sheet, no debt and our investment in B&L, we continue to be well positioned for the upcoming year.
William B. Rudolf
President and Chief Executive Officer
[i] 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.