General Description
CKX Lands, Inc. is a Louisiana corporation organized in 1930 as Calcasieu Real Estate & Oil Co., Inc., to receive non-producing mineral royalties spun off by a Southwest Louisiana bank. Over the years, as some of the royalties yielded oil and gas income, the Company used the proceeds to purchase land. On May 17, 2005, the Company changed its name from Calcasieu Real Estate & Oil Co., Inc. to CKX Lands, Inc. The primary reason for the change was to help clarify that the Company is not directly involved in oil and gas exploration or operations. As used herein, the “Company” or “CKX” refers to CKX Lands, Inc.
The Company’s shares are listed on the NYSE Amex (previously known as American Stock Exchange), under the symbol CKX. As of March 22, 2012, there were 1,942,495 shares outstanding. The Company had a common equity public float of less than $75 million as of the last business day of the second fiscal quarter. Consequently, the Company is a small reporting company under the Securities Exchange Commission regulations.
As a reporting company, CKX is subject to the informational requirements of the Securities Exchange Act of 1934 (the “Exchange Act”) and accordingly files its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at (800) SEC-0330 for further information on the Public Reference Room. As an electronic filer, CKX’s public filings are maintained on the SEC’s Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
The Company owns land and mineral interests, all of which are located in Southwest Louisiana. The Company collects income from this land in the form of oil and gas royalties, agriculture rentals and timber sales. The Company is not involved in the exploration or production of oil and gas nor does it actively farm its lands. These activities are performed by others for royalties or rentals. Parts of the Company’s land are owned in indivision with other owners. The Company’s ownership share in most of this acreage is one-sixth. For convenience the owners jointly operate an entity known as Walker Louisiana Properties (“WLP”) to manage this acreage. Neither the Company nor Walker Louisiana Properties consider themselves to be in oil and gas producing activities inasmuch as: (1) they do not search for crude oil or natural gas in their natural states; (2) they do not acquire property for the purpose of exploration or the removing of oil and gas; and (3) they are not involved in construction, drilling and/or production activities necessary to retrieve oil and gas.
Oil and gas royalties are paid by the operators who own the wells. Timber income is paid by the highest bidder of the timber. There are several mills in the immediate area that compete for timber. All of the agriculture income comes from tenants who pay annual cash rents. The prices paid for oil, gas and timber depend on national and international market conditions. Oil and gas revenues were 90.80% of the Company’s total revenues in 2011 and 84.13% in 2010.
The source of all raw materials for the Company is the land itself. Timber income and agriculture income are renewable resources. All oil and gas income will eventually deplete, but we have no access to this data.
The Company does not spend any money on Research and Development.
The Company does not need government approval of its principal products or services except that the State of Louisiana must approve the size & location of all oil and gas producing units.
Employees
The Company has four employees, all of whom are part-time. There are three officers, and one clerical person. The Company is subject to no union contracts nor does the Company have any hospitalization, pension, profit sharing, option or deferred compensation programs. WLP has five full-time employees, and two of these employees are part-time employees of the Company. One employee of WLP is devoted full-time to agriculture, and one employee of WLP is devoted full-time to timber.
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Customers
The Company’s customers are those who have mineral leases on the Company’s property or purchase the timber in competitive bids or execute farming leases. The largest customers are the oil and gas operators under the mineral leases. During 2011, the Company received approximately 16.7% of its total revenues from Gulfmark Energy, 15.5% from Swift Energy Operating LLC, 12.7% from Riceland Petroleum Company, 6.5% from Kaiser-Francis Oil Company, and 6.1% from Cox & Perkins Exploration, Inc. Termination of cash receipts from any of these customers or underlying production would have a material adverse effect on the Company.
Environmental and Other Governmental Regulations
The operators of the wells are responsible for complying with environmental and other governmental regulations. However, should an operator abandon a well located on Company land without following prescribed procedure, the land owners could possibly be held responsible. The Company does not believe this would have a material effect on its financial condition.
Item 2.
PROPERTIES
The Company owns a total of 12,505 net acres in the Louisiana Parishes of Allen, Beauregard, Calcasieu, Cameron, Jefferson Davis, LaFourche, Sabine, St. Landry and Vermilion. Most of the acreage is in Southwest Louisiana. Much of this land is owned in indivision. Ownership is as follows:
2011
100.000%
Ownership
5,723 acres
40.000%
Ownership of 1,579 acres with Walker Louisiana Properties
632 acres
50.000%
Ownership of 443 acres with Prairie Land Company
221 acres
16.667%
Ownership of 35,575 acres comprising Walker Louisiana Properties
5,929 acres
Of the total 12,505 net acres owned by CKX, timberland comprises 9,117 acres, 2,251 acres are agricultural land, 943 acres are marsh land and 194 acres are future subdivision land.
The table below shows, for the years ended December 31, 2011 and December 31, 2010, the Company’s net gas produced in thousands of cubic feet (MCF), net oil produced in barrels (Bbl), and average sales prices relating to oil and gas attributable to the royalty interests of the Company.
Year Ended 12/31/11
Year Ended 12/31/10
Net gas produced (MCF)
Average gas sales price (per MCF)(1)
Net oil produced (Bbl)(2)
Average oil sales price (per Bbl)(1,2)
Notes to above schedule:
(1) Before deduction of production and severance taxes.
(2) Excludes plant products.
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Item 3.
LEGAL PROCEEDINGS
The Company was not involved in any legal proceedings as of December 31, 2011.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the three months ended December 31, 2011.
PART II
Item 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s Common Stock is traded on the NYSE Amex (previously known as American Stock Exchange) under the trading symbol CKX since its listing on December 8, 2003. Prior to the listing there was no established public trading market for the Common Stock, and there had been only limited and sporadic trading in the Common Stock, principally among its shareholders. On March 22, 2011, there were approximately 540 stockholders of record. The Company believes that there are approximately 600 beneficial owners of its Common Stock. There were no sales of unregistered securities of the Company and no purchases of equity securities of the Company during 2011 by the Company. The following table sets forth the high and low sales prices for the Common Stock by quarter during 2011 and 2010.
First
Quarter
Second
Third
Fourth
Common stock price per share 2011
Common stock price per share 2010
The Company has paid cash dividends since 1990. The Company is currently paying a quarterly dividend of 7¢ per share and intends to maintain quarterly dividends. From time to time, the Company may elect to pay an extra dividend. In determining if an extra dividend will be declared, the Board of Directors will take into consideration the Company’s current liquidity and capital resources and the availability of suitable timberland that has mineral potential. The Company did not pay an extra dividend to shareholders in 2011 or 2010. A summary of cash dividends is set forth in the table below.
First
Second
Third
Fourth
Year
Total
Cash Dividend per Share
2011
2010
Pursuant to a dividend reversion clause in the Company’s Articles of Incorporation, dividends not claimed within one year after a dividend becomes payable will expire and revert in full ownership to the Company and the Company’s obligation to pay such dividend will cease. During 2011 and 2010, the Company received $13,375 and none, respectively, in dividend reversions.
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Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
CKX Lands, Inc. began operations in 1930 under the name Calcasieu Real Estate & Oil Co., Inc. It was originally organized as a spin-off by a bank operating in Southwest Louisiana. The purpose of the spin-off was to form an entity to hold non-producing minerals which regulatory authorities required the bank to charge off. Over the years, as some of the mineral interests began producing, the Company used part of the proceeds to acquire land. In 1990, the Company made its largest acquisition when it was one of four purchasers who bought American Airline’s fifty percent undivided interest in approximately 35,000 acres in Southwest Louisiana.
Today most of the Company’s income is derived from mineral production on the land acquired over the years. CKX receives income from seismic permits, mineral leases and the landowner’s portion of any oil and gas production. CKX also receives income from agriculture rents and timber sales. The Company’s activities are passive in that it doesn’t explore for oil and gas, operate wells or farm land. All timber activities, including planting and harvesting, are contracted.
The Company’s income fluctuates as new oil and gas production is discovered on Company land and as wells deplete.
CKX has small interests in 40 different oil and gas fields. The size of the interest is determined by the Company’s net ownership in the acreage unit for the well. CKX’s interests range from 0.0033% for the smallest to 7.62% for the largest. As the Company does not own or operate the wells, it does not have access to any reserve information.
Eventually, the oil and gas under the Company’s current land holdings will be depleted. The Company is constantly looking for additional land to be purchased in southwest Louisiana. Preferably, the Company searches for timberland that has mineral potential.
Results of Operations
Fiscal Year 2011 Compared to Fiscal Year 2010
Revenues for 2011 were $1,984,914, an increase of 18.76% when compared with 2010 revenues of $1,671,354.
Oil and gas revenues increased by $396,083, or 28.17%, to $1,802,205 in 2011. Oil and gas revenues consist of royalty, lease rental and geophysical revenue. Royalty revenue increased by $371,894 or 31.89%, and lease rentals increased by $13,883 or 5.80%, from 2010. Geophysical revenues increased by $10,306 or 1302.91%, from 2010.