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Executives

John B. Hobbs - Vice President of Investor Relations

Rick R. Holley - Chief Executive Officer, President and Director

David W. Lambert - Chief Financial Officer and Senior Vice President

Analysts

Michael A. Roxland - BofA Merrill Lynch, Research Division

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Anthony Pettinari - Citigroup Inc, Research Division

Gail S. Glazerman - UBS Investment Bank, Research Division

Chip A. Dillon - Vertical Research Partners Inc.

Mark Wilde - Deutsche Bank AG, Research Division

Mark A. Weintraub - The Buckingham Research Group Incorporated

Steven Chercover - D.A. Davidson & Co., Research Division

Plum Creek Timber (PCL) Q1 2012 Earnings Call April 30, 2012 5:00 PM ET

Operator

Good afternoon. My name is Jamaria, and I will be your conference operator today. At this time, I would like to welcome everyone to the Plum Creek First Quarter 2012 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. John Hobbs, Vice President of Investor Relations. Sir, you may begin your conference.

John B. Hobbs

Thank you, Jamaria. Good afternoon, ladies and gentlemen, and welcome to the first quarter conference call for Plum Creek. I'm John Hobbs, Vice President of Investor Relations. Today, we have on the line Rick Holley, President and CEO; and David Lambert, Senior Vice President and CFO.

This call is open to all investors and members of the media. However, the Q&A portion of the call is intended for the professional investment community only. We ask that other participants please follow up with any questions by calling me at 1 (800) 858-5347. I encourage you to visit our website, www.plumcreek.com. There you will find our press release and supplemental financial statements for the first quarter of 2012.

Before we begin, I'd like to take this time to remind everyone that certain of our statements today will be forward looking, involving known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ from those expressed or implied. These risks and factors are routinely detailed in our filings with the Securities and Exchange Commission. Following today's prepared remarks, we'll open up the call for your questions.

Now I'll turn the call over to Rick.

Rick R. Holley

Good afternoon. Plum Creek performed well in the first quarter. We took advantage of attractive pulpwood markets in the U.S. South and began harvesting our recently acquired timber deed in the Gulf South region.

Our manufacturing segment continued to perform well with improving demand for panels and lumber. Performance in our timber business was generally as we expected, although pulpwood prices were better than we initially thought and sawlog prices a bit weaker.

Timing differences in sales from our Real Estate segment led us to the shortfall of our initial expectations for the quarter. This will resolve itself over the course of the year, so our outlook for the year with respect to both earnings and real estate sales remains unchanged.

We believe there's good case to be made for a long-term growth of wood products exports from the United States. Thanks to a combination of globally-priced competitive softwood fiber and growing demand in emerging markets. The impact of Chinese demand on West Coast markets has been meaningful over the last 2 years. We have always experienced and continue to expect significant short-term variation in Chinese demand from one period to the next. However, we believe that their economies' continued growth will require a long-term presence in North American timber and lumber markets to meet their economies' needs.

We continue to work to facilitate the development of export markets for both sawlogs and biomass, which will go to Western Europe, China, India and Turkey. Our goal is to bring this incremental demand to the geographic markets where we have a presence.

During the first quarter, we exported approximately 55,000 tons to China from Oregon, 30,000 tons to Turkey from the U.S. South. We believe that in 2012, we can grow our export sawlog business to 300,000 tons or more, roughly a 50% increase from 2011 levels.

We continue to actively manage our timberland portfolio. Late in the first quarter, we completed a large non-strategic timberland sale of approximately $84 million. The property sold consisted of 70,000 acres of Southern timberlands located primarily in the Florida panhandle. The price of over -- just over $1,200 per acre is a good value for these lands and reflects the young age of the forest, the local timber market and a higher proportion of hardwood lands when compared to Plum Creek's typical southern forest.

We continue to evaluate timberlands for both purchase and sale. During the quarter, we capped the bank markets to refinance our revolving credit agreement, and we replaced the maturing term loan agreement. As you can see from our press release, both financings were priced very attractively. The 5-year revolving credit agreement at LIBOR plus 1.25%, and the 7-year term loan priced an effective net interest cost of LIBOR plus 1%.

With these refinancings complete, we have a well-laddered debt maturity schedule at very attractive rates. Our balance sheet is in great shape, and we have excellent liquidity.

Now David will talk about the quarter and our outlook for you.

David W. Lambert

Thank you, Rick. Our first quarter results of $0.18 were about $0.05 below the midpoint of our guidance range, while the reduction is attributable to the timing of sales from our Real Estate segment. We closed on $100 million of sales during the quarter rather than the $120 million as we initially expected.

Northern Resources' $6 million operating profit was slightly lower than the $7 million reported in the fourth quarter. Harvest volumes and mix were at planned levels and were similar to the fourth quarter. Our northern sawlog prices were largely unchanged from the fourth quarter.

Export log markets in Oregon improved from their fourth quarter lows. Our export volume of 55,000 tons was approximately 17% of our Oregon sawlog harvest. The variability in Chinese sawlog demand we witnessed over the past 6 months has continued, and we have seen demand from the Chinese markets slow considerably in April. Log inventories that built the Chinese ports during the fourth quarter of 2011 are declining, but are not yet at a level where buyers need to replenish inventory. Our trading partners expect demand to be fairly low for much of the second quarter, remain seasonally weak during the monsoon season before picking up in later -- in the later half of the third quarter.

Despite the slowdown in export demand, domestic sawlog prices have increased over the past several weeks as some sawmills in the region are faced with the low log inventories. At this point, domestic sawlog prices exceed those of the export market, and we expect nearly all of our second quarter sawlog harvest will be delivered to domestic customers.

We expect our average northern sawlog prices to increase about $2 per ton during the second quarter.

Pulpwood markets in the Lake States in the Northeast continued to experience good demand. This combined with localized supply constraints moved prices up an average of $1 per ton to $42 during the first quarter. As the second quarter progresses, we expect improving logging conditions in the Northeast to expand the available timber supply. As a result, we expect our average pulpwood prices to decline modestly during the second quarter, down about $1 to $2 per ton.

The second quarter is always a seasonally weak period for the Northern Resources segment, as thawing spring weather turns logging roads muddy and limits timberland access. The second quarter harvest reflects these conditions, and we expect to harvest between 800,000 and 900,000 tons of timber during the quarter. About 2/3 of it should be sawlogs.

Turning to the Southern segment. The Southern Resources' $21 million operating profit was $2 million higher than the fourth quarter's $19 million profit. Our total harvest was similar to the fourth quarter's level. Sawlog prices were generally stable in most markets with the exception of Florida and Georgia. Continued dry weather and favorable logging conditions pressured prices down modestly. As a result, our average sawlog price in the South rounded down $1 per ton.

The timber deed acquisition we completed in late January will contribute significant volume to our Southern timber harvest over the coming 8 years. It will be cash accretive in 2012 and beyond. We are pleased with the results from our first 2 months of operations. The harvest from these lands was integrated into our operations with almost no additional costs. We expect to harvest approximately 700,000 tons from the timber deed this year, adding approximately $13 million of cash flow. However, we expect it will be neutral to earnings because the incremental volume will have a higher book value than the rest of our timber operations. Earnings accretion from the acquisition will grow in future periods.

We have experienced some gains in saw timber prices in the past few weeks, and note more optimism expressed by our sawmill customers than we've seen in the past 3 years. We expect sawlog prices to improve $1 to $2 per ton from their first quarter level, and expect pulpwood prices to hold steady at $10 per ton. We expect to increase our sawlog harvest by about 300,000 tons during the second quarter while keeping our pulpwood harvest steady at about 1.8 million tons.

As always, we will continue to adjust our harvest plans in response to market conditions, deferring harvest in weak markets to protect value and temporarily increasing harvest in attractive markets to capture value.

In our Real Estate segment, we completed $100 million of sales during the first quarter. As expected, land basis was much higher than typical, 63% of sales. This led to a lower-than-typical reported income margin of 30% for the segment. More typical income margins were in the 50% to 60% range. Adjusted EBITDA margins were 93%, consistent with last year's first quarter margin of 92%. As Rick mentioned, our first quarter results included an $84 million non-strategic timberland sale of approximately 70,000 acres, primarily in the panhandle of Florida.

The balance of the sales consisted of approximately 4,400 acres of small non-strategic lands capturing $1,115 per acre, approximately 1,150 acres of conservation properties that captured $1,560 per acre and about 4,000 acres of recreational lands that captured about $2,150 per acre.

Interest levels and prices for rural land were stable and continue to be similar to levels we have experienced over the past several quarters. We expect second quarter segment revenue to be seasonally slow and expect stronger closings in the second half of the year. Second quarter sales are expected to be between $40 million and $45 million, and we expect land basis to be between 20% and 30% of sales.

Our expectations for the year haven't changed, and we continue to expect sales to fall between $275 million and $325 million, and land basis to be approximately 40% of sales in 2012.

Our manufacturing segment posted a $4 million operating profit, up $1 million from the fourth quarter. Improving commercial and industrial demand for both plywood and medium density fiberboard increased the profitability of our panel products. Sales volumes in each of our product lines increased between 16% and 21% depending on the market. Our lumber prices increased approximately 3%. Plywood prices increased 2%, and MDF prices were largely unchanged.

We expect underlying business conditions to improve gradually in our markets and expect second quarter profits will improve slightly from the first quarter levels. We expect second quarter interest expense to be similar to the first quarter's expense and taxes to be neutral. We continue to expect net income to be between $1 and $1.25 per share for the year, and our second quarter results between $0.15 and $0.20 per year. Rick?

Rick R. Holley

Overall, we continue to feel pretty good about 2012. The broader economy does appear to be improving. Our own experience in our panel businesses suggest to us that a wide range of companies, from furniture and fixture manufacturers to trucking companies, to recreational vehicle manufacturers are experiencing demand growth. This combined with improving consumer confidence, historically low interest rates and a slowly improving housing activity gives us more confidence that business conditions will continue to improve as the year progresses.

As we mentioned during our Analyst Day, we expect fundamentally improved results this year compared to 2011. We expect cash flow to grow in 2012 by around $50 million. Now we'll open it up to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from George Staphos with Bank of America Merrill Lynch.

Michael A. Roxland - BofA Merrill Lynch, Research Division

This is actually Mike Roxland in for George. Just quickly on the manufacturing segment, is there anything that was unexpected during the quarter? I know it's neither here nor there, but pricing came in a bit weaker than we were expecting. Results also seem to be a bit weaker than what some of your competitors have posted given the run-up in wood products prices. I just want to get your thoughts what you saw transpire during the quarter.

Rick R. Holley

Well, we actually thought that especially our panels business did quite well. I mean, prices were up just a bit. We had much higher volumes and therefore, profitability was above certainly where we expected it to be for the quarter. Our lumber business did not do as well as some of the other lumber businesses you've read about because it's kind of a non-commodity lumber business. It makes pine boards go into the Home Depots of the world, and prices there did not change as dramatically as prices for southern yellow pine, lumber products and more commodity products here on the coast. So in good times, we maybe don't get as much uplift in our lumber business but in bad times, we've made money where others haven't. So I think it's just the nature of the markets that we serve.

Michael A. Roxland - BofA Merrill Lynch, Research Division

With respect to -- do you have contracts on those products such that, is there a lag that you're seeing the benefit of the run-up in lumber, maybe a quarter or 2 out?

Rick R. Holley

No, not really. I mean, we price it at time of shipment so -- to customers. I mean, we might have a contract, but it's for x volume that's going to ship next week. So these are not long-term contracts where they reprice quarterly, that sort of thing, like we do in some of our supply agreements in the log business.

Michael A. Roxland - BofA Merrill Lynch, Research Division

Got you. And this last question. Wondering if you can give us a sense of what the log decks look like sequentially. I think in the last call, Rick, you'd mentioned that or suggested that the log decks in the U.S. South were potentially elevated certainly relative to the North. So I just wanted to get a sense what they look like today.

Rick R. Holley

I think in say the Georgia, Florida area because there are so many logs available due to the dry weather. I think log decks, they can fill in pretty readily. Whereas on the West side of the South: Louisiana, Arkansas and Mississippi where we've had more rainfall, log decks are a little bit shorter on supply, both paper and lumber mills. So I think there's a little bit more concern by customers on that side as compared to the Gulf, the Atlantic South. And in Oregon, we've seen the same thing. We've had some wet weather and therefore, log decks are a little shorter than they were and therefore, that's why we've seen some pickup in domestic prices here.

Operator

Our next question is from Joshua Barber with Stifel, Nicolaus.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

I'm wondering if you guys could explain to us a little bit, the mechanism with the timber deed now that it's -- I guess, you're using the credit line of the term loan to finance it. How does that pay down as you're recognizing the interest and the cash flow from that? Will that just be you're paying down a portion of that term loan and then returning the excess cash in the form of a dividend, or does it all sweep to pay down the credit line initially?

David W. Lambert

There is no sweep or tie to the credit line. We just finance the timber deed using the credit line upfront, and there is no scheduled payments. So cash flows from that can be used for any form.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Okay, but would you be planning to actually use some of that to pay down, or would you -- I mean, assuming 8 years from now when the deed is finished, you would have the line paid down. Is that correct?

David W. Lambert

Yes. I mean, we look at our debt profile and try to keep it at appropriate levels at all times and that, but we would expect to pay down some of that over that time period.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So there would be some form of cash that's either returned in the form of dividend and the rest would basically be going for principal repayments?

Rick R. Holley

That's correct.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Sorry to belabor that point. When it comes to the Real Estate sales, is there a target acreage mix that you guys have to sell for this year? And what would you expect the mix between non-strategic, both large and small, versus HBU development and rural real estate for the rest of the year?

Rick R. Holley

Yes. The mix, we would expect virtually no development lands sold. Most of the development activities, as you know, is really going to an entitlement process. And as those markets come back and these properties are entitled, they'll be sold at that point in time. If you look at the mix of non-strategic and higher and better use, I suspect it's upward conservation there as well as probably 1/2 HBU and conservation, and 1/2 will be non-strategic as far as acreage go. And again, generally the HBU are a little higher value therefore, there'll be a little higher proportion of our total revenue.

Operator

Our next question is from Anthony Pettinari with Citi.

Anthony Pettinari - Citigroup Inc, Research Division

When we look at your first quarter results and the second quarter guidance implies you'll earn roughly $0.35 in the first half. Your full year earnings seem somewhat back-end loaded given full year guidance. And I'm wondering if you could tell us how you think about the distribution of earnings as we move through the year. And is there any risk that as earnings are maybe more weighted to the second half, does that reduce your margin of error in terms of executing land sales or in the timberlands business, or does that present any kind of potential risk to full year guidance in your view?

Rick R. Holley

No, I don't think so. Otherwise, we would've changed guidance. We're still very confident at the $1 to $1.25. You can take the high end of that range, that means in the second half, we're going to do kind of $0.90, $0.95 per share. And I think it's probably fair to say -- and part of it will have to do with closings of the some of the Real Estate activities, which again are always second half -- more heavily loaded the second half. But for sake of argument, 1/2 of it in the third quarter and 1/2 of it in the fourth quarter. Again, first half is always a bit slower due to some of the activities, the spring break up in the second quarter, so we have lower timber sales activities. And it's always better in the third and fourth quarter. So we see more revenue from the timber businesses in the second half, and Real Estate is always a second half business so...

David W. Lambert

If you look at our first 2 quarters of the year, the first quarter was somewhat penalized on an earnings basis just due to the high basis associated with our land sale activity. So that makes from an earnings standpoint, the second half look much more back-end loaded as far as when the earnings come. But from a cash flow, it's not going to be as distorted.

Anthony Pettinari - Citigroup Inc, Research Division

Okay, that's helpful. And then in terms of the export volumes, I think you referenced 300,000 tons. And I think in the Analyst Day, you had said maybe potential volumes of around 400,000 tons, and I'm just wondering if I'm getting that correct. Is the delta there just slower Chinese activity and Chinese buying? And maybe relative to kind of the end of last year, is it safe to say that maybe the domestic market's been a little bit stronger and export market's been a little bit weaker, or can you just talk about that kind of dynamic?

David W. Lambert

Yes, you do have the numbers right. We had guided to 400,000 originally. We are seeing some softness in the Chinese market right now. And so assuming that we're delivering all of our logs domestically here in the second quarter, they're kind of outbidding the Chinese. That accounts for a little bit of that. We were able to grow our volumes to Turkey from the U.S. South here in the first quarter, and we'll look to try to advance that. But we still feel very comfortable advancing our total export volume for the year, but maybe not quite as high as our initial guidance.

Anthony Pettinari - Citigroup Inc, Research Division

Okay. And in terms of your earlier housing starts estimate, I think that you were operating off of 700,000. Is that -- are you still comfortable with that, or do you see maybe a little bit of upside to that domestically?

Rick R. Holley

I think based on some of the more recent activities we've seen, we're probably closer to 750,000 than 700,000. And as you know, a lot of it is going to be driven by multi-family, so call it 550,000 at single or 250,000 at multi-family and 500,000 of single-family kind of numbers.

Operator

Our next question is from Gail Glazerman with UBS.

Gail S. Glazerman - UBS Investment Bank, Research Division

Sticking on exports for a moment. My guess is the 17% in the first quarter, can you just remind -- out of Oregon, can you just remind us what the 2011 average was?

David W. Lambert

2011 was very close to that 17% of total shipments. We did almost 200,000 tons.

Gail S. Glazerman - UBS Investment Bank, Research Division

Okay. And as you're ramping up exports from the South, can you help us give a sense of the relative profitability versus the domestic sale versus that export sale?

Rick R. Holley

I think the least the volume that we sell into the 30,000 tons we sold to Turkey, we get a few dollars a ton more for that volume that we're getting into the domestic market, that's why we're serving. And this is after the additional costs that we incurred, taking it down to the ports where it gets loaded on ships and delivered so...

Gail S. Glazerman - UBS Investment Bank, Research Division

Okay. And in terms of the weakness in China a couple of years ago or, I guess, this time and last year, you were seeing your domestic customers also benefiting as they were exporting lumber. Have you seen an impact on the West Coast lumber market as Chinese purchases have ramped down, and it hit than more amongst the lumber?

David W. Lambert

It's hard to tell because in the first few months of this year, we still saw lumber shipments going off the West Coast exceeding what they did in the same period last year. So I think the lumber markets as well as our log markets were still moving in the first quarter.

Rick R. Holley

And then Oregon in particular, we have benefited from that. There was an earlier question about export and domestic activities. And right now, export logs demand a higher price than logs sold to the Chinese market, what few logs the Chinese are looking for right now. So I think some of it has to do with many of the domestic sawmills in Oregon had been cutting for the Chinese market, so they still have some pretty good demand even though the U.S. market remains pretty muted. So we still see some of the activity. I haven't seen any numbers recently to see how it is, even though it's up year-over-year, but I'm not sure it is up first quarter versus fourth quarter of last year. I haven't seen those numbers yet.

Operator

Our next question is from Chip Dillon with Vertical Research.

Chip A. Dillon - Vertical Research Partners Inc.

When you look at the timber deed, could you tell us if any of the EBITDA in the current quarter came from that? It looks like the cash flow statement shows $98 million as being the outflow. So my guess is that might have been netted against what you got in the quarter, or is there another way to look at that?

David W. Lambert

Yes. In the quarter, we sold about 60,000 tons from the timber deed so that rate will be going up, so it's probably just a little bit over $1 million of cash flow.

Chip A. Dillon - Vertical Research Partners Inc.

Got you. And so the 700,000 number that we saw in the press release, that's for the whole year, so we -- or is that in addition to the 60,000 in the first quarter?

David W. Lambert

That is for the whole year, including the first quarter activity.

Chip A. Dillon - Vertical Research Partners Inc.

Got you. And I think it goes without saying. But if you look at the refinancing, you announced or you did in March. Maybe you have there somewhere, is there -- are you -- I would assume you don't have any real maturities for, what, maybe another several years, or when is the next big maturity?

David W. Lambert

We have a modest maturity that comes due in 2013 next year, a little piece in the first quarter and another piece in the fourth quarter. It's small enough that we could roll it onto our existing lines or go out into the market at that point.

Chip A. Dillon - Vertical Research Partners Inc.

And then anything much after that?

David W. Lambert

No. Then there's a whole year off, no maturities due in 2014.

Operator

Our next question is for Mark Wilde with Deutsche Bank.

Mark Wilde - Deutsche Bank AG, Research Division

I wondered, Rick, if you could just give us a little more color on what did happen in real estate versus your expectations, because it doesn't seem like you're expecting a big bounce in the second quarter. So it doesn't seem like it's just a matter of some sales getting deferred for 2 weeks or 4 weeks or 6 weeks, but it looks like maybe there was something beyond that?

Rick R. Holley

Yes. Mark, there was no large transaction. There were a number of smaller ones at least we had kind of in the high end of our guidance, as we started the year that quite frankly just didn't happen. And so we put those kind of on the sidelines and would expect to make that up in the second half. But as David mentioned in his comments, there's still a lot of prospecting for properties. Everybody is looking for the best deal they can get. The sweet spot is $250,000, so that's kind of what people want to pay because it's all equity, and so that's kind of the market today. And again, at least, our real estate people feel very comfortable with this guidance that we have given you. And unfortunately, it's going to be more second half, which typically it is because people kind of kick in the tires kind of -- and through the second quarter as we get into the early summer months, where they're out in somebody's lands especially in Wisconsin, some of these places. And then you start transacting and then take 30, 60, 90 days to close some of these things, and so it ends up being a third or fourth quarter sale.

Mark Wilde - Deutsche Bank AG, Research Division

Okay. Is there anything that just the level of bidding activity on that Florida sale tells you about, in terms of the amount of capital that's out there chasing timberland right now?

Rick R. Holley

There were a lot of -- there was a lot of interest in the sale. There were several bids for the sale, and so there still appears to be a lot of capital. And as we mentioned in the call, this was a bit different. It wasn't your typical. It was younger stuff. It was -- over 30% of it was hardwoods where on average, Plum Creek land, our hardwoods percent was like 20%. It was like 20 tons per acre, and our average is 2.5x that much on all lands, so it was a much different type of transaction. So at $1,200 an acre, we felt it was a very good deal. And if you took those other factors out, it would be equivalent to about $1,500, $1,600 an acre. So there was quite a bit of interest but because of the hardwood component at the end of the day, people are looking elsewhere but still appears to be a lot of capital out there looking at timber assets.

Mark Wilde - Deutsche Bank AG, Research Division

Okay, that's helpful. And then can you just help us is as we think forward over the next few years, if we get a pickup in the lumber demand and lumber prices, how long does that really take to kind of flow through to earnings on timberland because I know that you're always selling forward 6 to 12 months. So can you just kind of help us think about that?

Rick R. Holley

I think it's going to be pretty immediate. And I think as we shared with all of you before, there's a direct correlation to lumber production and log prices. So I think as you start to see lumber production ramp up with improving demand obviously, you're going to see log prices. And 1/2 of our timber is -- less than 1/2 of it is committed under any kind of supply agreement. So I think we're going to see a pretty immediate impact, if you start to see lumber production increase in the South or even in the Pacific Northwest.

Mark Wilde - Deutsche Bank AG, Research Division

Okay. And then we've had some outages, some pretty unfortunate ones up in British Columbia in the last couple of weeks. I'm just curious as to whether this is having any ripple into the Northwest timber markets.

David W. Lambert

I think it's too early from a timber market perspective. But what we are starting to see is lumber prices advancing as a result of some of these outages. And last year at the U.S. South, its lumber values were trading really at a steep discount to the Western values -- Chinese dynamics. But we've seen the Southern lumber prices advance through the first quarter continuing to advance quite smartly in the second quarter. So lumber pricing started to create more of an umbrella, where they have a significant ability to pay for logs. Once we return to a little bit more normal weather patterns in the South and you have a pickup in demand, then I think we're going to be ready to realize the cash flows and earnings on the timber side.

Mark Wilde - Deutsche Bank AG, Research Division

Okay. And then just finally, Rick, I wondered if you could say a few words about the addition of Larry Selzer to your board, that seemed like a very strong addition to me with his -- all of his connections into the conservation community.

Rick R. Holley

Well, we're always looking at -- for quality board members. And as we go through the matrix, one of the shortcomings we had is anybody representing the conservation environmental community. And I knew Larry just from just passing and in different conferences I've seen him at. He's a very good business person at The Conservation Fund. And I do transact business by timberlands -- operate timberlands and quite frankly on a smaller scale, do a lot of the same things that Plum Creek has done, and he's very highly regarded in the conservation world. So when we approached him and he was willing to do this, I thought it was just a coup for Plum Creek. And I think it will be good for Larry and his organization as well, so we're very pleased to have him.

Operator

Our next question is from Mike Weintraub with Buckingham Research.

Mark A. Weintraub - The Buckingham Research Group Incorporated

I just want first to clarify when you were talking about the Florida lands that you sold, and your average lands had more hardwood -- sorry, had less hardwood and were not quite as young, were you talking relative to your other Florida lands or your lands in total?

Rick R. Holley

Just lands in the U.S. South.

Mark A. Weintraub - The Buckingham Research Group Incorporated

In the U.S. South. How would you characterize, I guess, you have about 450,000 acres of Florida lands remaining? Presumably some of that's development properties, et cetera. How would you characterize the 450,000 acres you have remaining? And what was this 70,000 part of what you had acquired from Rayonier back when?

Rick R. Holley

Well, we haven't acquired lands from Rayonier, but some of this had been -- we acquired a few years ago in a transaction with another small timber company. But I think the Florida panhandle, we would consider in Florida probably our least desirable lands, not that they're not desirable to somebody else. But given the quality of these lands, the age of these lands and the market there's a bit then, we felt this was good and that's why we called it non-strategic, not a long-term hold for Plum Creek, and that's why we sold it. It would not represent the majority of our lands in Florida. They would be more productive than these lands are and in a different age class as well.

Mark A. Weintraub - The Buckingham Research Group Incorporated

Okay. So you don't have a lot more in the Florida panhandle per se?

Rick R. Holley

No, we don't.

Mark A. Weintraub - The Buckingham Research Group Incorporated

Okay. And second, you talked about the Chinese demand having slowed considerably in April. I guess, we'd heard from a few others that they were seeing things getting a little bit better. So is it your view that you really haven't seen that in May yet? And then just as a follow-on, given that you have reduced somewhat your expectations on export sales for the year, are -- is that -- and you've kept guidance the same. Is that because it's being offset by strength in domestic, or it's just the small enough factor that really doesn't change where you come out?

Rick R. Holley

Well, we're going to move the same amount of volume in Oregon. It will just go to domestic market versus the export market. And that's really the delta, it's all Chinese demand. And I hope we're being a bit conservative there, and it's better than we think. But we had some people in China here a month ago, and the ports had a lot of wood in them. There's one port that was pretty shy, but there was a lot of inventory over there. And I'll get through that inventory pretty quickly. And that's why I think everybody's become a little more bullish about the second half of the year, and we think it will improve quite a bit too. But in the meantime, domestic prices are better than export prices anyway. So even if Chinese demand was here, at these prices, we would sell the wood to the domestic market.

Operator

Our next question is from Steve Chercover with D.A. Davidson.

Steven Chercover - D.A. Davidson & Co., Research Division

Actually, Mark Weintraub anticipated my question on China, so I'll just move to another one which is unrelated. Have depressed natural gas prices had any impact on your biomass sales to domestic clients?

Rick R. Holley

Not really that we've seen, although a lot of these large paper mills, rather than burning even bark, now are burning natural gas because it's so much cheaper. But we haven't seen any meaningful impact to that yet.

Steven Chercover - D.A. Davidson & Co., Research Division

And if natural gas remains depressed and we actually switched to being net exporters with LNG, would that jeopardize any of your export markets?

Rick R. Holley

I don't think so. You're probably referring to Western Europe and Western Europe using wood pellets as a renewable energy source, so they can offset their usage of coal. It's all about price, and there's huge incentives now for them to use renewable energy, which the wood pellets obviously qualify, so I think those incentives they get will more than offset any price differential. And natural gas in Europe, as you know, is quite a bit more expensive than it is here in the United States. So geez, we should be using more natural gas here, but it's so expensive in Europe. It really doesn't make sense for them. That's why they still use coal. They're also looking at renewable energy sources. So I really don't think it's going to have any impact.

Steven Chercover - D.A. Davidson & Co., Research Division

But part of the key is, I guess, their green brownie points for reusing renewable?

Rick R. Holley

Exactly.

Operator

And at this time, there are no further questions. I would now like to turn it over to Mr. John Hobbs for any closing remarks.

John B. Hobbs

Well, thank you very much for being with us today, and we look forward to speaking with you next quarter.

Operator

Ladies and gentlemen, thank you for your participation in today's conference call. You may now disconnect.

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