CKX LANDS, INC. 10-K

ITEM 5. MARKET FOR THE REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   The Company’s common stock trades on the NYSE American under the trading symbol CKX.    Common Stock   As of March 25, 2022, there were 1,942,495 shares outstanding. There were no sales of unregistered securities of the Company and no purchases of CKX equity securities by the Company during 2021.     Holders   On March 23, 2022, we had 325 stockholders of record.   6     Dividend Policy   The Company does not currently pay dividends on a regular basis.  In determining whether to declare a dividend, the Board of Directors takes into account the Company’s prior fiscal year’s cash flows from operations and the current economic conditions among other information deemed relevant.   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 2021 and 2020, the Company received no dividend reversions.   ITEM 6. [RESERVED]     ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.   Overview   CKX Lands, Inc., a Louisiana corporation, 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 mineral interests 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 a fifty percent undivided interest in approximately 35,575 acres in southwest Louisiana.   Today the Company’s income is derived from mineral royalties, timber sales and surface payments from its lands. CKX receives income from royalty interests and mineral leases related to oil and gas production, timber sales, land sales and surface rents. Although CKX is active in the management of its land and planting and harvesting its timber, CKX is passive in the production of income from oil and gas production in that CKX does not explore for oil and gas or operate wells. These oil and gas activities are performed by unrelated third parties.   CKX leases its property to oil and gas operators and collects income through its land ownership in the form of oil and gas royalties and lease rentals and geophysical revenues. The Company’s oil and gas income fluctuates as new oil and gas production is discovered on Company land and then ultimately depletes or becomes commercially uneconomical to produce. The volatility in the daily commodity pricing of a barrel of oil or a thousand cubic feet, or “MCF,” of gas will also cause fluctuations in the Company’s oil and gas income. These commodity prices are affected by numerous factors and uncertainties external to CKX’s business and over which it has no control, including the global supply and demand for oil and gas, and domestic and global economic conditions, among other factors.   CKX has small royalty interests in 20 different producing oil and gas fields. The size of each royalty interest is determined by the Company’s net ownership in the acreage unit for the well. CKX’s royalty interests range from 0.0045% 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 reserves under the Company’s current land holdings will be depleted.   Timber income is derived from sales of timber on Company lands. The timber income will fluctuate depending on our ability to secure stumpage agreements in the regional markets, timber stand age, and/or stumpage commodity prices. Timber is a renewable resource that the Company actively manages.   Surface income is earned from various recurring and non-recurring sources. Recurring surface income is earned from lease arrangements for farming, recreational and commercial uses. Non-recurring surface income can include such activities as pipeline right of ways, and temporary worksite rentals.   In managing its lands, the Company relies on and has established relationships with real estate, forestry, environmental and agriculture consultants as well as attorneys with legal expertise in general corporate matters, real estate, and minerals.   The Company actively searches for additional real estate for purchase in Louisiana with a focus on southwest Louisiana and on timberland and agricultural land. When evaluating unimproved real estate for purchase, the Company will consider numerous characteristics including but not limited to, timber fitness, agriculture fitness, future development opportunities and/or mineral potential. When evaluating improved real estate for purchase, the Company will consider characteristics including, but not limited to, geographic location, quality of existing revenue streams, and/or quality of the improvements.   7     The Company’s Board of Directors regularly evaluates a range of strategic alternatives that could increase shareholder value, and the Board and management conduct due diligence activities in connection with such alternatives. These include opportunities for growth though the acquisitions of land or other assets, business combinations, dispositions of assets and reinvestment of the proceeds, and other alternatives. We cannot assure you that the Board’s evaluations or the Company’s due diligence activities will result in any transaction or other course of action.   Recent Developments   In the first quarter of 2019, the Company began developing several ranchette-style subdivisions on certain of its lands in Calcasieu and Beauregard Parishes using existing road rights of way.  The Company has identified demand in those areas for ranchette-style lots, which consist of more than three acres each, and the Board of Directors and management believe this project will allow the Company to realize a return on its investment in the applicable lands after payment of expenses.  The Company has completed and recorded plats for two subdivisions and obtained approval to complete a third subdivision during the first quarter of 2021.  The three subdivisions are located on approximately 415 acres in Calcasieu Parish and approximately 160 acres in Beauregard Parish and contain an aggregate of 39 lots.  As of December 31, 2021, the Company has closed on the sale of 21 of the 39 lots. As of the date of this report no sales were pending, and the Company is actively marketing the remaining lots.   The Company is working to identify additional undeveloped acres owned by the Company in Southwest Louisiana that would likewise be suitable for residential subdivisions.   Summary of Fiscal Year 2021 Results   The Company’s results of operations for the year ended December 31, 2021, were driven primarily by a higher gain on the sale of land in 2021 and an increase in overall revenue of 11% as compared to fiscal year 2020. The higher gain on sale of land in 2021 is due to the variable nature of land sales. The increase in revenue is due in part to higher commodity prices for oil and gas as the energy market recovers from the effects of the pandemic.   Results of Operations - for the years ended December 31, 2021 and 2020   Revenue   Total revenues for 2021 were $744,545, an increase of approximately 11% when compared with 2020 revenues of $671,944. Total revenue consists of oil and gas, timber, and surface revenues. Components of revenues for the year ended December 31, 2021 as compared to 2020, are as follows:       Years Ended December 31,                       2021     2020     Change from Prior Year     Percent Change from Prior Year   Revenues:                                 Oil and gas   $ 364,907     $ 257,247     $ 107,660       41.9 % Timber sales     151,102       134,720       16,382       12.2 % Surface revenue     228,536       279,977       (51,441 )     (18.4 )% Total revenues   $ 744,545     $ 671,944     $ 72,601       10.8 %   Oil and Gas   Oil and gas revenues were 49% and 38% of total revenues for 2021 and 2020, respectively. A breakdown of oil and gas revenues for the years ended December 31, 2021, as compared to 2020 are as follows:       Years Ended December 31,                       2021     2020     Change from Prior Year     Percent Change from Prior Year   Oil   $ 324,198     $ 228,571     $ 95,627       41.8 % Gas     36,957       26,361       10,596       40.2 % Lease and geophysical     3,752       2,315       1,437       62.1 % Total revenues   $ 364,907     $ 257,247     $ 107,660       41.9 %   CKX received oil and/or gas revenues from 73 and 94 wells during the years ended December 31, 2021 and 2020, respectively.   8     The following schedule summarizes barrels and MCF produced and average price per barrel and per MCF for the years ended December 31, 2021 and 2020:       Years Ended       December 31,       2021     2020   Net oil produced (Bbl)(2)     5,072       5,043   Average oil sales price (per Bbl)(1,2)   $ 63.92     $ 45.32   Net gas produced (MCF)     10,410       12,376   Average gas sales price (per MCF)(1)   $ 3.55     $ 2.13                     (1) Before deduction of production costs and severance taxes           (2) Excludes plant products                   Oil revenues increased for the year ended December 31, 2021, as compared to 2020, by $95,627. Gas revenues increased for the year ended December 31, 2021, as compared to 2020, by $10,596. As indicated from the schedule above, the increase in oil revenues was due to an increase in net oil produced and an increase in the average oil sales price per barrel. The increase in gas revenues was due to an increase in the average price per MCF offset by a decrease in net gas produced.   The following eight fields produced 96.42% of the Company’s oil and gas revenues in 2021. The following table shows the number of barrels of oil (Bbl Oil) and MCF of gas (MCF Gas) produced from these fields.   Field   Bbl Oil (1)     MCF Gas   South Bear Head Creek     1,260       2,476   Reeves     881       163   Gonzales County     840       493   Castor Creek     680       0   Cowards Gully     500       109   South Lake Charles     348       3,143   Lake Arthur     77       1,893   North Indian Village     334       1,565     The following eight fields produced 92.31% of the Company’s oil and gas revenues in 2020. The following table shows the number of barrels of oil (Bbl Oil) and MCF of gas (MCF Gas) produced from these fields.   Field   Bbl Oil (1)     MCF Gas   Gonzales County     1,591       691   South Bear Head Creek     1,161       3,418   Reeves     590       367   Castor Creek     512       0   South Lake Charles     270       2,877   Cowards Gully     336       153   Lake Arthur     77       2,158   North Indian Village     171       1,440     The Company was a lessor in the following non-producing mineral leases:   Activity   2021     2020   Bonus lease     0       1   Delay lease     1       0   Gross acres     230       200   Net acres     38       33     Lease and geophysical revenues increased for the year ended December 31, 2021, as compared to 2020, by $1,437. These revenues are dependent on oil and gas producers’ activities, are not predictable and can vary significantly from year to year.   9     Timber   Timber revenues were 20% of total revenues for 2021 and 2020, respectively. Timber revenues increased for the year ended December 31, 2021, as compared to the year ended December 31, 2020, by $16,382. The increase in timber revenues was due to recognition of expired stumpage agreements.   Surface   Surface revenues were 31% and 42% of total revenues for 2021 and 2020, respectively. Surface revenues decreased for the year ended December 31, 2021, as compared to 2020, by $51,441. This decrease is due to reductions in one time right of way income.     Costs and Expenses   Oil and gas costs increased for the year ended December 31, 2021 as compared to 2020 by $12,306. These variances are due to the normal variations in year to year costs, which correlate directly with variations in revenues.   Timber costs increased for the year ended December 31, 2021 as compared to 2020 by $2,275. This is primarily due to increased timber management costs.   General and administrative expenses increased for the year ended December 31, 2021 as compared to 2020 by $46,351. This is primarily due to increased commissions and transaction fees and legal fees, partially offset by a decrease in officer salaries and property management expense.   Gain on Sale of Land and Equipment   Gain on sale of land was $1,025,735 and $354,577 for the years ended December 31, 2021 and 2020, respectively. For the year ended December 31, 2021, this consisted of 19 tracts of land including 13 lots in subdivisions and one sale to a local government for a water plant. For the year ended December 31, 2020, this consisted of a gain on sale of eight tracts of land including six lots in subdivisions and one sale to local government for roadway construction.   Outlook for Fiscal Year 2022   The Company will continue to consider and evaluate commercial, agricultural and timber lands, and other business opportunities for acquisitions and to evaluate its current holdings for divestiture. The Company will consider purchases outside of southwest Louisiana and will consider developing its properties for commercial or residential purposes.     The Company will continue to actively market its timber. Weather in 2021 was generally better for timber harvesting than in 2020. Due to damage to the Company’s timber stands from Hurricanes Laura and Delta in 2020, the Company sold some of its timber in 2021 at salvage prices. Stumpage prices have remained depressed when compared to recent historical prices but seem to be improving. The Company will seek to enter into additional stumpage agreements.   The Company began directly managing its lands in 2017, except for approximately 5,030 acres of timber property in which the Company owns an undivided 1/6 interest, which is managed by Walker Louisiana Properties. The Company believes direct land management and continuing economic activity in southwest Louisiana may be a catalyst for increased surface revenue.   Liquidity and Capital Resources   Sources of Liquidity   The Company’s current assets totaled $7,998,849 and current liabilities equaled $261,236 at December 31, 2021.   As of December 31, 2021, and 2020, the Company had no outstanding debt.   In the opinion of management, cash and cash equivalents are adequate for projected operations and possible land acquisitions.   The Company’s Board of Directors regularly evaluates a range of strategic alternatives that could increase shareholder value, and the Board and management conduct due diligence activities in connection with such alternatives. These include opportunities for growth though the acquisitions of land or other assets or business combinations, dispositions of assets and reinvestment of the proceeds, and other alternatives. The cost and terms of any financing to be raised in conjunction with any growth opportunity, including the Company’s ability to raise debt or equity capital on terms and at costs satisfactory to the Company, and the effect of such opportunities on the Company’s balance sheet, are critical considerations in any such evaluation.   Analysis of Cash Flows   Net cash provided by (used in) operating activities changed by $403,838 to ($263,673) for the year ended December 31, 2021, compared to $140,165 for the year ended December 31, 2020. The change in cash provided by (used in) operating activities was attributable primarily to the increase in net income and the change on the gain on the sale of land.   Net cash provided by investing activities was $1,210,291 and $3,042,801 for the year ended December 31, 2021, and 2020, respectively.  For the year ended December 31, 2021, this included proceeds from the sale of fixed assets of $1,233,197, partially offset by purchases of mutual funds of $237, costs of reforesting timber of $18,606 and purchases of land of $4,063. For the year ended December 31, 2020, this included proceeds from maturity of certificates of deposit of $4,682,920 and proceeds from the sale of fixed assets of $359,082 offset by purchases of certificates of deposit of $1,985,920, purchases of mutual funds of $3,960, and costs of reforesting timber of $9,321.   10     Net cash used in financing activities was $0 and $0 for the year ended December 31, 2021, and 2020, respectively.   Significant Accounting Policies   For a discussion of significant accounting policies, see Note 1 in the notes to our audited financial statements included elsewhere in this Form 10-K.   Off Balance Sheet Arrangements   We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).   ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   Disclosure in response to this item is not required of a smaller reporting company .