Seeking Alpha
Long/short equity, special situations, portfolio strategy, dividend investing
Profile| Send Message|
( followers)  

Summary

  • BLMC owns approximately 90,000 acres of marsh lands located in St. Bernard Parish, Louisiana. Revenues are derived from royalties and rental fees from oil and gas exploration and production.
  • BLMC recently completed a 67,500 share buyback, bringing total shares repurchased (since 2008) to 219,400 at an average cost of $12.62. Shares currently trade near $34/share.
  • BLMC has a 75% interest in B&L Exploration and is entitled to a 1.5% overriding royalty in Freeport McMoran's Highlander project. Flow testing is expected in 2014.

For perspective, let's begin by highlighting the size of Biloxi Marsh Lands (OTCPK:BLMC). This is a micro-cap stock with roughly 2.7 MM shares outstanding and a $93 MM market cap even after its 130% rise in the last year.

Share Repurchases

The recent share repurchases into treasury stock at avg. $12.62/share account for nearly 8% of the outstanding shares and displays management's confidence in the future while being disciplined enough to purchase opportunistically, not indiscriminately.

Royalties from Freeport McMoran's (NYSE:FCX) Highlander Project

The immediate catalyst is the royalty interest in the 56,000 acre Highlander project operated by Freeport's oil and gas division. BLMC has a 75% interest in B&L Exploration which contractually holds the 1.5% overriding royalty agreement. In BLMC's most recent quarterly results, we can see that Freeport has reported positive natural gas indications (as of April 24th) and expects flow testing in the second half of this year.

From BLMC's 2013 Annual Report:

In the event that the flow test is successful and the well is placed on production at rates estimated by FM O&G and/or its working interest partners, the revenue derived from the overriding royalty interest could be relatively significant to B&L.

In the event that this well flows natural gas and condensate at commercial rates from the Tuscaloosa sand interval, it could mean an increase in drilling activity throughout coastal Louisiana, including on the Company's fee lands.

In addition to the Highlander project, B&L is actively assembling additional acreage on which to explore and intends to place a portion of its working interests with third party industry partners to mitigate risk. It's clear that the company is investing in what it believes will drive shareholder value in the future, and one look at the YTD stock chart shows you that the market agrees.

It should also be noted that Freeport McMoran has been transforming itself from a global mining company to a global resource company. Nearly 25% of its revenues now come from oil and gas operations, highlighted by the late 2012 acquisitions of Plains Exploration Co. and McMoran Exploration Co. Freeport paid $9 billion for these oil and gas assets.

Dividend

BLMC has a history of paying dividends that can be seen here. The dividend has been paid annually in recent years and fluctuates with the price of natural gas and any gains/losses/income from the company's significant investment portfolio. (scroll to page 9)

Risks

1) The biggest risk I see to the company's profitability is a depressed natural gas market. Natural gas prices, and oil to a much lesser extent, need to maintain a price that makes extraction worth the rental fees that BLMC charges on its land.

2) The performance of the company's investment portfolio, comprised of corporate debt and equities.

3) The success or failure of the exploration activities in which BLMC has invested in and has royalty agreements.

4) The illiquidity of the shares could present a risk when entering or exiting a position.

Bottom Line

This relatively unknown company now has multiple sources of revenue and is well positioned for future growth. The value of its land alone is likely well in excess of its carrying value which could increase significantly with success from the Highlander project discussed above. The higher share price this year shows that the market has begun to discount the future earnings that these valuable land assets and royalties could produce. I remain long the stock and look forward to more gains as this hidden gem gathers more recognition.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Biloxi Marsh Lands: Major Catalyst Ahead