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7/23/2019 Pardee Resources Company 3rd Quarter 2015
1/7
P RDEE RESOURCES COMP NY
3RD QUARTER 2 0 1 5
Responsible Development of Natural Resource Properties
Integri ty Creativi ty Excel lence Respect Teamwork Family
7/23/2019 Pardee Resources Company 3rd Quarter 2015
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To Our Shareholders:
During the third quarter of 2015, Pardee Resources Company earned $1.63 per share, compared wi th
$6.08 per share earned in the thi rd quarter o f 2014, a decrease of 73.2% percent, as our operating results
continue to be impacted by the significant weakness in the energy markets. A meaningful increase in our
oil and gas production was not suffic ient to offset the sharp decline in prices, as the markets remain
hampered by oversupply. In contrast, coal prices weakened only moderately during the period, while
production was off 43% following the expected cessation of mining operations on our Courtney property,
as previously reported. Addit ionally, as described below, during the period we recognized a reduction in
pre-tax earnings totaling $1.31 million coming from three non-cash expenses: a dry hole expense in the
Gulf Coast, a minor adjustment of our natural gas reserves, and the bankruptcy of our coal lessee at
Courtney. Nevertheless, our cash f low remains strong, demonstrating the resiliency o f our business model
during these trying times. EBITDA, a common measure of operating cash flow, was $6.22 per share during
the quarter.
Oil & Gas Division:
A drop in active dri lling rigs in the Marcellus Region has led to a moderate production
decline during August and September; however, the Region remains significantly oversupplied, with the
lack of pipeline infrastructure leading to a steep price discount to the NYMEX averages. Several major
pipeline projects are nearing completion which should help to balance the markets in the months ahead.
We have significantly reduced our Gulf Coast dril ling activity due to current prices, and while we realized a
$258,000 dry hole expense during the period, our investment returns from the Gulf Coast remain
marginally positive. As part of our periodic updating of our Company-wide oil and natural gas reserves,
Ryder Scott, a Houston-based, independent oil and gas consulting firm, completed a reserve study dur ing
the quarter, leading to a $456,000 wri te-down of our reserve base, or less than 1%. While our oil and
natural gas production increased 18.7% during the period, our realized price fo r natural gas averaged
$1.98 per thousand cubic feet (Mcf), 45.3% below the $3.62 per Mcf realized during the thi rd quarter of
2014. Despite the current weakness, we remain confident that with time, natural gas prices will recover,
and meanwhile production from our properties remains strong, providing positive earnings and cash flow.
Coal & Minerals Division:
Total U.S. coal production fell 7% during the quarter versus 2014, due to a
confluence of negative factors, including a strong dollar which hampered exports, low natural gas prices
which led to fuel switching by utilities, and the permanent shut-down of several older coal fired power
plants as util ities react to the 2015-2016 deadline imposed by the Mercury and Air Toxics Standards
(MATS). The Central Appalachian Basin (CAPP), where Pardee's reserves are located, experienced an even
more severe 26% production decline. Due to the Basin's high cost structure and its geographic location, i t
has suffered a greater impact f rom plant closures, low natural gas prices, and weak export markets.
Leading CAPP producers have reduced ou tput as average coal prices have reached a 10-year low. These
adjustments are painful but necessary for the markets to rebalance and again reach equi librium.
Following the exhaustion of surface mine reserves, production on our Courtney property ceased earlier
this year. The lessee subsequently filed for bankruptcy protection, leading to the write-of f of $600,000 in
receivables this quarter. Despite this, it should be noted tha t overall, the Courtney property has delivered
an extraordinary return on investment since it was acquired in 2007. Many of our other coal properties
have favorable economics even in the present environment, and we are working on a number of initiatives
to increase production. We are heartened by the initial success of a new deep mine at our Pardee &.
Curtin property, which opened earlier this year and has recently increased tonnage output.
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7/23/2019 Pardee Resources Company 3rd Quarter 2015
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Timber & Surface Division: Both hardwood and softwood market prices continued to decline during the
quarter as the export markets weakened due to the strong dollar and softening demand f rom China,
Europe and Latin America. Meanwhile, the domestic housing market continues to improve with 2015
single-family new home sales through September up 17.6% versus the same period in 2014. We expect
timber markets to stabilize during the coming months as producers reduce output . Due to planned
harvest schedules, there was no production from our Virginia softwood properties during the quarter,
accounting for the majority of the 21.6% decline in Division revenues; however, softwood harvesting
operations are currently underway and should continue through year-end. The fire damage at our
Curtin, West Virginia sawmill is ful ly repaired, and we expect our lessee to regain lost production by
year-end, weather permitting.
Alternative Energy Division: Total solar energy capacity in the U.S. grew 14% during the first half of
2015, accounting for 40% of U.S. electric generation addit ions during the period. In order to maximize
our after-tax returns, our 2015 solar investments have focused on partnership interests which leverage
our abili ty to utilize the 30% Federal Investment Tax Credit. Consequently, the majori ty of our return is
through a reduction in corporate taxes rather than an increase in Division revenues. Therefore, even
though the Division's production and revenues in 2015 are roughly flat when compared to the same
quarter 2014, year-to-date solar investments of $2.1 million are expected to reduce our 2015 corporate
taxes by $1.6 million in addition to other benefits.
Strategic Focus: Given the current situation in the energy markets, we are reviewing all Company
expenses to insure that they are aligned with our businesses going forward, and we wil l reduce expenses
wherever possible. Looking forward, we remain focused on creating value for our shareholders through
the ownership and management of natural resources properties. Our conservative balance sheet,
together with our non-operating business model, provide us with the abi lity to both weather the current
downturn and pursue new investment opportunities for growth. During recent weeks, we have finalized
two such investmentsthe $17 million purchase o f Virginia softwood timberlands, and the $7 mill ion
investment in a surface, timber and mineral property in West Virginiaboth of which are more fu lly
described in recent press releases.
'Please see page 6 for an update of legal matters.
Sincerely yours.
Chairman
William G. Foulke
Corporate Office
Pardee Resources Company
1717 Arch Street, Suite 401 0
Philadelphia, PA 191 03
(215)405-1260
www pardee com
President & CEO
Carleton P Erdman
mailto:[email protected]://www.pardee.com/http://www.pardee.com/mailto:[email protected]7/23/2019 Pardee Resources Company 3rd Quarter 2015
4/7
Pardee Resources Company
Unaudited Consolidated Balance Sheets
(Dollars in Thousands)
ASSETS 09-30-15 12-31-14
Current Assets:
Cash & Cash Equivalents $14,751 $15,460
Accounts Receivable 8,389 10,117
Prepaid Taxes 801 0
Deferred Income Tax 483 483
Other 866 80 1
25,290 26,861
Fixed Assets: (Net o f Depl. & Deprec.)
Land & Right of Ways
24,789 23,627
Mineral Rights - Coal 29,297 29,717
Timber
5,162 5,476
Solar Equipment
27,392 28,231
Building & Structures 188 219
Timber Operations 43 45
Office Equipment 256 402
Automobiles 184 228
Other Fixed Assets
446
434
87,757 88,379
Investments:
Oil & Gas Investments (Net o f Depl. & Deprec.) 56,273 59,559
Equity Investments - Alternative Energy 2,020 0
Other 2,432 143
Total Assets $173.772 5174.942
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable
$1,576
$2,262
Taxes Payable
0
471
Other Liability
1,302
1,324
Non-recourse Bank Debt
5,272 5,566
Supplemental Pension Plan
215 215
Deferred Revenue
4,209
4,994
Deferred Taxes
18,778
18,778
31,352 33,610
Stockholders' Equity:
Common Stock
775
775
Additional Paid in Capital
15,530
14,327
Retained Earnings
147,769
147,858
Treasury Stock
(21,654)
(21,628)
142,420
141,332
Total Liabilities & Equity
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7/23/2019 Pardee Resources Company 3rd Quarter 2015
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Pardee Resources Com pan y
Unaudited Consolidated Income Statements
(Dollars in Thousands)
Current
Year
Quarter
Ended
09-30-15
Prior
Year
Quarter
Ended
09-30-14
Divisional Revenues:
Coal & Minerals
Oil & Gas
Timber & Surface
Alternative Energy
$3,379
2,226
1,273
1,432
$5,826
3,348
1,615
1,441
8,310 12,230
Divisional Expenses:
Coal & Minerals
Oil & Gas
Timber & Surface
Alternative Energy
995
2,518
829
603
614
2,014
733
529
4,945 3,890
Net Operating Income $3,365 $8,340
Interest and Other Income
General and Administrative
Interest Expense
10
(1,582)
(75)
11
(1,623)
(80)
Income Before Taxes
$1 ,718 $6 ,648
Taxes
601
2,381
NET INCOME
$1,117
$4,267
EARNINGS PER SHARE
$1.63
$6 .08
EBITDA PER SHARE
(earnings before interest, taxes, depreciation,
amortization and dry hole/write-down expense)
_ $6.22
$12.73
Weighted Average Number of
Common Shares Outstanding
684,995
701,629
Common Dividend Per Share
$1.80 $1.75
Total Shareholder Return (dividend paid
plus change in stock price)
Nine Nine
Months Months
Ended Ended
09-30-15 09-30-14
$11,795 $16,647
5,912 10,147
3,401 4,118
3,583
3,416
24,691 34,328
1,928 1,896
7,350 5,774
2,234 2,167
1,712 1,587
13,224 11,424
$11 ,467 $22 ,904
33
32
(5,686)
(5,315)
(228) (200)
$5,586
$17 ,421
1,955 6,259
$ 3 ,6 3 1
$11,162
$ 5 .3 0 $ 1 5 .9 1
$18.80
$33.68
684.995
701.629
$5.40 $5.25
-17.92% 31.95%
7/23/2019 Pardee Resources Company 3rd Quarter 2015
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Pardee Resources Com pan y
Comparison Data Sheet
Current Prior
EBITDA - Mil lions
(earnings before interest, taxes, depreciat ion,
amortization and dry hole /write -do wn expense)
$4.26 $8.93
-52.3%
Year Year
%
Year
Year
%
Quarter Quarter Change
To Date To Date Change
Coal & Minerals
Revenues - Millions
$3.38 $5.83 -42.0%
$11.80 $16.65 -29.1%
Production - Coal Tons - Millions
1.06 1.86 -43.0%
3.60 5.08 -29.1%
Royalty/Coal Ton
$2.79
$2.97 -6.1% $2.92 $3.11 -6.1%
Oil & Gas
Revenues - Mill ions
$2.23 $3.35 -33.4% $5.91 $10.15 -41.8%
Production - Bcfe 0.89 0.75 18.7% 2.36 2.03 16.3%
Price/Mcf
$1.98 $3.62 -45.3% $2.12 $4.12 -48.5%
Timber & Surface
Revenues - Mill ions $1.27 $1.62 -21.6% $3.40
$4.12 -17.5%
Production - Board feet - Mill ions 3.66 3.54 3.4% 9.52 9.50 0.2%
Stumpage Price/Thousand Bd. Ft. $269 $305
-11.8%
$280 $288 -2.8%
Product ion - Softwood Tons - Thousands 0.00 17.28 -100.0% 0.00 38.63 -100.0%
Stumpage Price/Ton Softwood
-
$15.70 n/a
-
$15.78 n/a
Production - Hardwood Tons - Thousands 17.91 18.20 -1.6%
51.10
55.06
-7.2%
Stumpage Price/Ton Hardwood
$2.84
$2.51 13.1%
$2.71 $2.42
12.0%
Alternative Energy
Revenues - Mill ions $1.43
$1.44
-0.7%
$3.58 $3.42 4.7%
Production - k /w - Millions 5.74 5.51 4.2% 14.44 13.73 5.2%
Electric Sales Price / k /w $0,112
$0,114 -1.8%
$0,114 $0,116 -1.7%
SREC Price/Credit
$137 $148 -7.4% $133
$133
0.0%
NET DIVISIONAL OPERATING INCOME:
(Dollars in Millions)
Coal & Minerals $2.38
$5.21 -54.3%
$9.87 $14.75 -33.1%
Oil & Gas
(0.29) 1.33 -121.8%
(1.44) 4.37 -133.0%
Timber & Surface
0.44 0.88 -50.0%
1.17 1.95
-40.0%
Alternative Energy 0.83
0.91 -8.8%
1.87 1.83 2.2%
Net Operating Income $ 33 6
$8.33 -59.7%
$11.47
$22.90
-49.9%
et Operating Income
-59.7%
$11.47
-49.9%
Current Prior
$12.88 $23.63 -45.5%
7/23/2019 Pardee Resources Company 3rd Quarter 2015
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FORWARD-LOOKING STATEMENTS
Certain o f the statements contained herein (other than statements of historical facts) are forward-
looking statements. Such forward-looking statements include estimates and assumptions related to the
Company's growth, reserves, the state of future markets for natural resource and renewable products,
and the abil ity of the Company to sell its natural resource and renewable products on a prof itable basis.
These forward-looking statements are subject to change and uncertainty which are, in many instances,
beyond the Company's control and have been made based upon management's expectations and beliefs
concerning future developments and their potential effect on the Company. There can be no assurance
tha t future developments will be in accordance wi th management's expectations or that the effect of
future developments on the Company wil l be those anticipated by management. Actual financial results
including revenue growth and earnings results could differ materially from those anticipated by the
Company depending on the outcome of certain factors, which may include, among others, changes in the
wholesale prices for timber, oil, natural gas, coal and renewables; increases in property acquisition costs;
adverse weather conditions; failures of our lessees to mine, drill and harvest at rates we currently
anticipate; differences between actual reserves and estimated amounts; legislative changes or
government regulations which make it more difficul t or expensive to sell our renewable products, to
extract or harvest our natural resource products or impose greater financial burdens on the users of such
products; and unanticipated costs fo r remediation and reclamation.
Kings Do me
As we have previously reported, a legal challenge has been made to the Company's long time ownership
of the Kings Dome mineral servitude and this issue remains unresolved. In 2012, the Company settled
with one o f the two plaintiffs in this litigation fo r an immaterial amount. We expect the case with the
remaining plaintiff t o be set for tr ial in 2016. While the Company continues to vigorously defend itself in
this litigation, i t cannot currently predict the manner and timing of the final resolution o f this matter.
Lexin gton v. Zinn
On December 7, 2007 Lexington Land Development, LLC ( Lexington ) filed an action against certain
parties in East Baton Rouge Parish, Louisiana. Lexington claims that their 48 acre parcel was
contaminated by a Shell Pipeline Company ( Shell ) release and the oil and gas exploration and
production activities of other various defendants including Zinn Petroleum Company ( Zinn ). Lexington
seeks various remedies, including remediation and damages. Pardee is not a defendant in this case;
however, Pardee has a minority interest in certain leases and wells operated by Zinn, and, under joint
operating agreements, Pardee and certain other interest owners are responsible for their respective
shares of any damages or judgments sustained by Zinn. While Zinn is vigorously defending itself in the
matter, this action is subject to substantial uncertainties concerning the outcome of material factual and
legal issues related to the litigation. Accordingly, we cannot currently predict the manner and timing of
the resolution of these matters and are unable to estimate the amount o f any possible losses which
could be material.
'Not ice of ntent to Sue
On December 8, 2014, one of the Company's subsidiaries received a notice letter from various
environmental groups alleging violations of the Clean Water Act at one of the subsidiary's properties in
West Virginia. The notice let ter alleges that certain pollutants have been discharged from that location
and expresses the intention of these groups to file suit against the subsidiary after a statutory waiting
period, which has passed. The Company is in the process of evaluating the allegations set forth in this
notice letter. If a lawsuit is filed, the Company believes that i t has defenses to the claims in the notice.
Given the preliminary stage, it is not possible to estimate any potential loss related to these claims.
We wil l promptly advise our shareholders of any significant developments concerning these matters.
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