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, 2020 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, 2020 , filed onMarch 25, 2021 . 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, and domestic and global economic conditions, among other factors. 5 -------------------------------------------------------------------------------- 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 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 opportunities that could maximize shareholder value, and the Board and management conduct due diligence activities in connection with such opportunities. 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. 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. 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 ofJune 30, 2021 , the Company has closed on the sale of 18 of the 39 lots. As of the date of this report the Company sold one additional lot, has one sale pending, and it is actively marketing the remaining lots. 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 six months endedJune 30, 2021 were driven primarily by a higher gain on the sale of land in the first six months of 2021, offset by lower general and administrative expenses. The higher gain on sale of land in the first six months of 2021 is due to the variable nature of land sales. The decrease in general and administrative expenses in the second quarter of 2021 was attributable to decreases in officer salaries, property management fees, legal fees and contract services offset by an increase in property taxes and transfer agent fees. 6 --------------------------------------------------------------------------------
Revenue - Three Months Ended
Total revenues for the three months endedJune 30, 2021 were$211,306 , an increase of approximately 12% when compared with the same period in 2020. Total revenue consists of oil and gas, timber, and surface revenues. Components of revenues for the three months endedJune 30, 2021 as compared to 2020, are as follows: Three Months Ended June 30, Change from Percent Change 2021 2020 Prior Year from Prior Year Revenues: Oil and gas$ 99,202 $ 67,929 $ 31,273 46.0 % Timber 49,414 3,747 45,667 1218.8 % Surface 62,690 117,021 (54,331 ) (46.4 )% Total revenues$ 211,306 $ 188,697 $ 22,609 12.0 % Oil and Gas Oil and gas revenues were 47% and 36% of total revenues for the three months endedJune 30, 2021 and 2020, respectively. A breakdown of oil and gas revenues for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 is as follows: Three Months Ended June 30, Change from Percent Change 2021 2020 Prior Year from Prior Year Oil$ 88,967 $ 61,234 $ 27,733 45.3 % Gas 8,740 6,085 2,655 43.6 % Lease and geophysical 1,495 610 885 145.1 % Total revenues$ 99,202 $ 67,929 $ 31,273 46.0 %
CKX received oil and/or gas revenues from 66 and 80 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
June 30,
2021 2020
Net oil produced (Bbl)(2) 1,569 1,534
Average oil sales price (per Bbl)(1,2)
2,828 3,441
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 three months endedJune 30, 2021 , as compared to the three months endedJune 30, 2020 , by$27,733 . Gas revenues increased for the three months endedJune 30, 2021 , as compared to the same period in 2020, by$2,655 . As indicated from the schedule above, the increase in oil revenues was due to an increase in the 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 average gas sales price per MCF partially offset by a decrease net gas produced. Lease and geophysical revenues increased for the three months endedJune 30, 2021 , as compared to the three months endedJune 30, 2020 , by$885 . 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$49,414 and$3,747 for the three months endedJune 30, 2021 and 2020, respectively. The increase in timber revenues was due to wet weather during the second quarter of fiscal 2020 that limited customers' ability to harvest timber. 7
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Surface Surface revenues decreased for the three months endedJune 30, 2021 , as compared to the three months endedJune 30, 2020 , by$54,331 . This decrease is due to a reduction in one-time right of way income.
Revenue - Six Months Ended
Total revenues for the six months endedJune 30, 2021 were$366,182 , a decrease of approximately$2,906 when compared with the same period in 2020. Total revenue consists of oil and gas, timber, and surface revenues. Components of revenues for the six months endedJune 30, 2021 as compared to 2020, are as follows: Six Months Ended June 30, Change from Percent Change 2021 2020 Prior Year from Prior Year Revenues: Oil and gas$ 149,347 $ 182,979 $ (33,632 ) (18.4 )% Timber sales 102,941 11,635 91,306 784.8 % Surface revenue 113,894 174,474 (60,580 ) (34.7 )% Total revenues$ 366,182 $ 369,088 $ (2,906 ) (0.8 )% Oil and Gas Oil and gas revenues were 41% and 50% of total revenues for the six months endedJune 30, 2021 and 2020, respectively. A breakdown of oil and gas revenues for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 is as follows: Six Months Ended June 30, Change from Percent Change 2021 2020 Prior Year from Prior Year Oil$ 125,446 $ 157,459 $ (32,013 ) (20.3 )% Gas 21,661 24,062 (2,401 ) (10.0 )% Lease and geophysical 2,240 1,458 782 53.6 % Total revenues$ 149,347 $ 182,979 $ (33,632 ) (18.4 )%
CKX received oil and/or gas revenues from 69 and 80 wells during the six months
ended
The following schedule summarizes barrels and MCF produced and average price per
barrel and per MCF for the six months ended
Six Months Ended
June 30,
2021 2020
Net oil produced (Bbl)(2) 2,322 3,120
Average oil sales price (per Bbl)(1,2)
7,284 10,839
Average gas sales price (per MCF)(1)
(1) Before deduction of production costs and severance taxes (2) Excludes plant products
Oil revenues decreased for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 , by$32,013 . Gas revenues decreased for the six months endedJune 30, 2021 , as compared to the same period in 2020, by$2,401 . As indicated from the schedule above, the decrease in oil revenues was due to a decrease in the net oil produced partially offset by an increase in the average oil sales price per barrel. The decrease in gas revenues was due to a decrease in net gas produced partially offset by an increase in the average price per MCF. Lease and geophysical revenues increased for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 , by$782 . These revenues are dependent on oil and gas producers' activities, are not predictable and can vary significantly from year to year. 8 --------------------------------------------------------------------------------
Timber Timber revenue was$102,941 and$11,635 for the six months endedJune 30, 2021 and 2020, respectively. The increase in timber revenues was due to wet weather during the six months of fiscal 2020 that limited customers' ability to harvest timber and recognition of an expired stumpage agreement. Surface Surface revenues decreased for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 , by$60,580 . This decrease is due to a reduction in one-time right of way income.
Costs and Expenses - Three and Six Months Ended
Oil and gas costs decreased for the three and six months endedJune 30, 2021 as compared to the three and six months endedJune 30, 2020 by$1,627 , and$5,143 , respectively. These variances are due to the normal variations in year to year costs. Timber costs increased for the three months endedJune 30, 2021 , as compared to the three months endedJune 30, 2020 , by$3,501 . Timber costs increased for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 , by$2,008 . Timber costs are related to timber revenue. General and administrative expenses decreased for the three months endedJune 30, 2021 , as compared to the three months endedJune 30, 2020 , by$44,771 . This is primarily due to a decrease in officer salaries, property management fees, legal fees and contract services offset by an increase in insurance fees. General and administrative expenses decreased for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 by$84,810 . This is primarily due to a decrease in officer salaries, property management fees, legal fees and contract services offset by an increase in property taxes and transfer agent fees.
Gain on Sale of Land - Three and Six Months Ended
Gain on sale of land was$184,045 and$220,800 for the three months endedJune 30, 2021 and 2020, respectively. Gain on sale of land was$590,265 and$253,907 for the six months endedJune 30, 2021 and 2020, respectively. For the six months endedJune 30, 2021 , this consisted of a gain on sale of fourteen pieces of land including twelve lots in subdivisions and unimproved land. For the six months endedJune 30, 2020 , this consisted of a gain on sale of four pieces of land including three lots in subdivisions and one sale to local government for roadway construction.
Liquidity and Capital Resources
Sources of Liquidity
Current assets totaled
As of
In the opinion of management, cash and cash equivalents are adequate for projected operations and possible land acquisitions.
Analysis of Cash Flows Net cash provided by (used in) operating activities was ($64,018 ) and$92,042 for the six months endedJune 30, 2021 andJune 30, 2020 , respectively. The change was attributable primarily to the increase in net income offset by the increase on the gain on the sale of land. Net cash provided by investing activities was$730,999 and$194,818 for the six months endedJune 30, 2021 and 2020, respectively. For the six months endedJune 30, 2021 , this primarily resulted from proceeds from the sale of fixed assets of$745,237 offset by purchases of mutual funds of$124 and costs of reforesting timber of$14,114 . For the six months endedJune 30, 2020 , this primarily resulted from purchases of certificates of deposit of$1,985,465 and purchases of mutual funds of$3,175 , offset by proceeds from maturity of certificates of deposit of$1,929,000 and the proceeds from the sale of fixed assets of$254,458 .
Significant Accounting Polices and Estimates
There were no changes in our significant accounting policies and estimates during the six months endedJune 30, 2021 from those set forth in "Significant Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 9
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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 six months endedJune 30, 2021 , we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements.
ITEM 3. NOT APPLICABLE
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