CKX LANDS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year endedDecember 31, 2021 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed onMarch 28, 2022 . 5
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Cautionary Statement This Management's Discussion and Analysis includes a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like "believe," "expect," "plan," "estimate," "anticipate," "intend," "project," "will," "predicts," "seeks," "may," "would," "could," "potential," "continue," "ongoing," "should" and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Form 10-Q. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or from our predictions, including those risks described in our Annual Report on Form 10-K, this Form 10-Q and in our other public filings. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise. OverviewCKX Lands, Inc. , aLouisiana corporation, began operations in 1930 under the nameCalcasieu Real Estate & Oil Co., Inc. It was originally organized as a spin-off by a bank operating in southwestLouisiana . 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 southwestLouisiana . 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, the effect of the COVID-19 pandemic and government responses to the pandemic on supply and demand, geopolitical conditions 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 Company's 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 inLouisiana with a focus on southwestLouisiana 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. 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 andBeauregard 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 three subdivisions. The three subdivisions are located on approximately 415 acres inCalcasieu Parish and approximately 160 acres inBeauregard Parish , and contain an aggregate of 39 lots. As ofSeptember 30, 2022 , 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. 6 -------------------------------------------------------------------------------- The Company is working to identify additional undeveloped acres owned by the Company inSouthwest Louisiana that would likewise be suitable for residential subdivisions. Results of Operations Summary of Results The Company's results of operations for the nine months endedSeptember 30, 2022 were driven primarily by an increase in oil and gas, timber and surface revenues offset by an increase in general and administrative expenses. The increase in general and administrative expenses is primarily due to the decision to award the officers, who previously served without pay, share-based compensation, an increase in payroll expenses, audit fees and legal fees.
Revenue - Three Months Ended
Total revenues for the three months endedSeptember 30, 2022 were$330,232 , an increase of approximately 90% when compared with the same period in 2021. Total revenue consists of oil and gas, timber, and surface revenues. Components of revenues for the three months endedSeptember 30, 2022 as compared to 2021, are as follows: Three Months Ended September 30, Change from Percent Change 2022 2021 Prior Year from Prior Year Revenues: Oil and gas$ 188,233 $ 108,208 $ 80,025 74.0 % Timber 87,904 11,936 75,968 636.5 % Surface 54,095 53,402 693 1.3 % Total revenues$ 330,232 $ 173,546 $ 156,686 90.3 % Oil and Gas Oil and gas revenues were 57% and 62% of total revenues for the three months endedSeptember 30, 2022 and 2021, respectively. A breakdown of oil and gas revenues for the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 is as follows: Three Months Ended September 30, Change from Percent Change 2022 2021 Prior Year from Prior Year Oil$ 170,376 $ 100,715 $ 69,661 69.2 % Gas 17,199 6,532 10,667 163.3 % Lease and geophysical 658 961 (303 ) (31.5 )% Total revenues$ 188,233 $ 108,208 $ 80,025 74.0 %
CKX received oil and/or gas revenues from 80 and 64 wells during the three
months ended
The following schedule summarizes barrels and MCF produced and average price per
barrel and per MCF for the three months ended
Three Months Ended
September 30,
2022 2021
Net oil produced (Bbl)(2) 1,585 1,653
Average oil sales price (per Bbl)(1,2)
2,084 1,991
Average gas sales price (per MCF)(1)
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Oil revenues increased for the three months ended September 30, 2022 , as
compared to the three months ended September 30, 2021 , by $69,661 . Gas revenues
increased for the three months ended September 30, 2022 , as compared to the same
period in 2021, by $10,667 . As indicated from the schedule above, the increase
in oil revenues was due to an increase in the average oil sales price per barrel
partially offset by a decrease in the net oil produced. The increase in gas
revenues was due to an increase in average gas sales price per MCF and an
increase in net gas produced.
Lease and geophysical revenues decreased for the three months ended September
30, 2022 , as compared to the three months ended September 30, 2021 , by $303 .
These revenues are dependent on oil and gas producers' activities, are not
predictable and can vary significantly from year to year.
Timber
Timber revenue was $87,904 and $11,936 for the three months ended September 30,
2022 and 2021, respectively. The increase in timber revenues was due to normal
business variations in timber customers' harvesting.
Surface
Surface revenues increased for the three months ended
Revenue - Nine Months Ended
Total revenues for the nine months endedSeptember 30, 2022 were$822,362 , an increase of approximately$282,633 when compared with the same period in 2021. Total revenue consists of oil and gas, timber, and surface revenues. Components of revenues for the nine months endedSeptember 30, 2022 as compared to 2021, are as follows: Nine Months Ended September 30, Change from Percent Change 2022 2021 Prior Year from Prior Year Revenues: Oil and gas$ 412,375 $ 257,555 $ 154,820 60.1 % Timber sales 198,283 114,877 83,406 72.6 % Surface revenue 211,704 167,297 44,407 26.5 % Total revenues$ 822,362 $ 539,729 $ 282,633 52.4 % Oil and Gas
Oil and gas revenues were 50% and 48% of total revenues for the nine months
ended
Nine Months Ended September 30,
Change from Percent Change
2022 2021 Prior Year from Prior Year
Oil $ 367,208 $ 226,161 $ 141,047 62.4 %
Gas 41,624 28,193 13,431 47.6 %
Lease and geophysical 3,543 3,201 342 10.7 %
Total revenues $ 412,375 $ 257,555 $ 154,820 60.1 %
CKX received oil and/or gas revenues from 87 and 70 wells during the nine months
ended
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The following schedule summarizes barrels and MCF produced and average price per
barrel and per MCF for the nine months ended
Nine Months Ended
September 30,
2022 2021
Net oil produced (Bbl)(2) 3,734 3,975
Average oil sales price (per Bbl)(1,2)
6,692 9,275
Average gas sales price (per MCF)(1)
(1) Before deduction of production costs and severance taxes (2) Excludes plant products
Oil revenues increased for the nine months endedSeptember 30, 2022 , as compared to the nine months endedSeptember 30, 2021 , by$141,047 . Gas revenues increased for the nine months endedSeptember 30, 2022 , as compared to the same period in 2021, by$13,431 . As indicated from the schedule above, the increase in oil revenues was due to an increase in the average oil sales price per barrel partially offset by a decrease in net oil produced. The increase in gas revenues was due to an increase in the average price per MCF partially offset by a decrease in net gas produced. Lease and geophysical revenues increased for the nine months endedSeptember 30, 2022 , as compared to the nine months endedSeptember 30, 2021 , by$342 . These revenues are dependent on oil and gas producers' activities, are not predictable and can vary significantly from year to year. Timber Timber revenue was$198,283 and$114,877 for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase in timber revenues was due to normal business variation in timber customers' harvesting. Surface Surface revenues increased for the nine months endedSeptember 30, 2022 , as compared to the nine months endedSeptember 30, 2021 , by$44,407 . This increase is due to multiple one-time oil and gas delay rentals from operators to postpone commencement of drilling during the primary term of lease, income from multiple one-time right of way payments, and new surface leases.
Costs and Expenses - Three and Nine Months Ended
Oil and gas costs increased for the three and nine months ended
Timber costs increased for the three months endedSeptember 30, 2022 , as compared to the three months endedSeptember 30, 2021 , by$261 . Timber costs decreased for the nine months endedSeptember 30, 2022 , as compared to the nine months endedSeptember 30, 2021 , by$1,767 . Timber costs are related to timber revenue. General and administrative expenses increased for the three months endedSeptember 30, 2022 , as compared to the three months endedSeptember 30, 2021 , by$270,053 . This is primarily due to the decision to award the officers, who previously served without pay, share-based compensation and an increase in payroll expenses. General and administrative expenses increased for the nine months endedSeptember 30, 2022 , as compared to the nine months endedSeptember 30, 2021 by$788,294 . This is primarily due to the officer compensation described above,and in increase in payroll expenses, auditing fees and legal fees.
Gain on Sale of Land - Three and Nine Months Ended
Gain on sale of land was$5,667 and$261,316 for the three months endedSeptember 30, 2022 and 2021, respectively. Gain on sale of land was$5,667 and$851,582 for the nine months endedSeptember 30, 2022 and 2021, respectively. For the nine months endedSeptember 30, 2021 , this consisted of a gain on sale of seventeen pieces of land including fourteen lots in subdivisions and unimproved land.
Liquidity and Capital Resources
Sources of Liquidity
Current assets totaled
As of
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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 (used in) provided by operating activities was
Net cash (used in) provided by investing activities was ($26,421 ) and$988,570 for the nine months endedSeptember 30, 2022 and 2021, respectively. For the nine months endedSeptember 30, 2022 , this primarily resulted from purchases of mutual funds of$2,791 , purchases of property, plant and equipment of$12,835 and costs of reforesting timber of$16,462 offset by proceeds from the sale of fixed assets of$5,667 . For the nine months endedSeptember 30, 2021 , this primarily resulted from proceeds from the sale of fixed assets of$1,010,482 offset by purchases of mutual funds of$199 , purchases of land of$4,063 and costs of reforesting timber of$17,650 .
Net cash used in financing activities was
Significant Accounting Polices and Estimates
There were no changes in our significant accounting policies and estimates
during the nine months ended
Recent Accounting Pronouncements
See Note 1, Basis of Presentation and Recent Accounting Pronouncements, to our condensed financial statements included in this report for information regarding recently issued accounting pronouncements that may impact our financial statements.
Off-Balance Sheet Arrangements
During the nine months ended
ITEM 3. NOT APPLICABLE
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