CKX

Business Context and Reporting Period

Company: Calcasieu Real Estate and Oil Co., Inc. (CKX Lands, Inc.)
Filing Type: Form 10-K Annual Report
Reporting Period: Fiscal Year Ended December 31, 2001

The Company is a Louisiana-based entity incorporated in 1930, primarily engaged in the ownership and management of real estate and royalty interests in Southwest Louisiana. Its operations are divided into three segments: Oil and Gas, Agriculture, and Timber. The Company does not engage in exploration or production but earns income through royalties, rentals, and working interests in existing wells. As of January 31, 2002, there were 1,955,044 shares of common stock outstanding.

Key Financial Metrics

Segment Performance (2001 Revenues):

• Oil and Gas: $1,146,622 (Primary revenue source)
• Timber: $249,591
• Agriculture: $176,387

Liquidity and Debt: The Company maintains a strong liquid position with no long-term debt outstanding. It holds an unsecured line of credit of $750,000, which was undrawn as of December 31, 2001.

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 35.7% from 2000 to 2001. This was primarily driven by a 61.4% drop in gas production volumes, partially offset by higher average gas prices ($5.75/MCF in 2001 vs. $3.56/MCF in 2000).
• Profitability: Net income decreased 39.9% to $872,606. Earnings per share fell from $0.73 to $0.45.
• Timber Income: Timber revenues dropped 45.9% to $249,591 due to lower sales volume and prices, following an unusually high 2000 driven by fire-related cuttings.
• Cash Position: Cash and cash equivalents increased significantly to $1.42 million, attributed to the maturity of treasury bills at year-end that had not yet been reinvested.

Outlook, Risks, and Contingencies

Management Outlook:

• Oil and Gas: Revenues are expected to decrease in 2002 due to declining production from the North English Bayou field (depletion) and anticipated lower gas prices. New wells expected to come online in 2002 are unlikely to fully offset this decline.
• Agriculture: The Company is shifting from crop payments to cash rents and transferring more expenses to farmers. Future income remains dependent on crop production and government support programs.
• Timber: Management is more actively managing timber properties, though 2001 revenues were lower than the fire-driven spike in 2000.

Risks and Contingencies:

• Legal Proceedings: The Company is a co-defendant in a lawsuit regarding mineral interest prescription. Counsel cannot currently predict the outcome.
• Environmental Liability: The National Pollution Funds Center has notified the Company of joint and several liability for an environmental clean-up bill of $385,804. The Company is contesting this claim, asserting it is an innocent landowner as the damage occurred prior to its ownership.
• Customer Concentration: Three customers accounted for 72% of oil and gas revenues in 2001 (Neumin Production 30%, Riceland Petroleum 27%, Woodlawn Energy 15%).

Investor Verification Checklist

• Production Depletion: Verify the rate of decline in the North English Bayou field and the expected contribution of the three new wells scheduled for 2002.
• Environmental Claim: Monitor the status of the $385,804 National Pollution Funds Center claim and the Company's defense strategy.
• Legal Litigation: Track the progress of the mineral interest prescription lawsuit filed by previous landowners.
• Customer Dependency: Assess the stability of contracts with the top three oil and gas purchasers, which represent the majority of segment revenue.
• Dividend Sustainability: Confirm if the $0.25 per share dividend policy can be maintained given the projected revenue decline in 2002.