Forestar Group Inc (FOR) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Forestar Group Second Quarter 2010 Earnings Conference Call. My name is Jennifer and I'll be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question and answer session.

(Operator instructions)

I would now like to turn the conference over to your host for today, Chris Nines, Chief Financial Officer. Please proceed.

Thank you and good morning. This is Chris Nines, Chief Financial Officer of Forestar Group. I would like to welcome each of you who have joined us by conference call or webcast this morning to discuss the results for second quarter 2010. Joining me this morning is Jim DeCosmo, President and CEO of Forestar.

Let me remind you to please review the warning statements in our press release and our slides concerning the risks associated with forward-looking statements, as we will make forward-looking statements during this presentation.

This morning I will highlight our second quarter 2010 financial results. Following this review, Jim DeCosmo will address current market conditions and the key performance indicators for each of our segments. At the completion of our presentation, we will be happy to take your questions. Thanks again for your interest in Forestar.

Second quarter 2010 results were a net loss of approximately $3.3 million, or $0.09 per share, compared with net income of $50.9 million, or $1.41 per share in second quarter 2009, and a net loss of $3 million, or $0.08 per share, in first quarter 2010. Second quarter 2009 financial results include a gain of $1.37 per diluted share after tax from the sale of about 75,000 acres of timberland in Georgia and Alabama for approximately $120 million.

Now let me turn to our segment results. Our real estate operation reported segment earnings of $2.4 million in second quarter 2010, compared with $5 million in second quarter 2009, and $0.3 million in first quarter 2010. Our second quarter 2010 real estate segment earnings were impacted by almost $1 million in non-cash impairment charges associated with a real estate project located near Salt Lake City, UT.

Mineral resources segment earnings were $4.3 million in second quarter 2010, compared with $6.4 million in second quarter 2009, and $6.2 million in first quarter 2010. Our first quarter 2010 mineral resources segment results include $3.2 million in lease bonus payments associated with leasing over 2,100 net mineral acres for almost $1,500 per acre.

Second quarter 2010 mineral resources segment earnings were impacted by lower mineral leasing activity as exploration and production companies operating in our basins concentrated their efforts on drilling new wells to hold existing mineral leases and prove reserves, rather than invest in new mineral interests.

Fiber resources reported segment earnings of $1.1 million in second quarter 2010, compared with $3.3 million in second quarter 2009, and $1.4 million in first quarter 2010. Second quarter 2010 fiber resource segment earnings were affected by the sale of over 110,000 acres of timberland during 2009, as well as postponing harvest plans on approximately 74,000 acres of timberland currently held for sale as part of our near-term strategic initiatives.

Now let me turn the call back over to Jim, who will provide a market update and review the key performance indicators for each of our segments.

Thank you, Chris. I also want to welcome those who have joined us this morning for our second quarter 2010 conference call. Throughout the downturn, our strategy and initiatives have been focused on ensuring that Forestar is well positioned to take advantage of an economic recovery, which we expect to occur at different rates and times across market. We all experienced a continuous broadcast of mixed economic signals and commentary, both nationally and globally. We do operate within a global economy, yet the fundamental headwinds nationally continue to be a lack of confidence in job growth.

In our review and update this morning, we'll provide you with a number of illustrations and comments relative to the economic variability among markets. There are bright spots. Despite the economic challenges, we firmly believe our balance sheet, strategy, team, and portfolio of assets and projects at Forestar are well positioned to benefit going forward.

I'll start the review with real estate and housing conditions. These really are interesting times. If you have the ability and are in the market to buy a house, it's hard to imagine a better time. Housing affordability at 158 is significantly better than the baseline index of 100, which represents the monthly principal and interest payments equal to 25% of median income. Affordability is principally driven by historically low mortgage interest rates and house prices. However, mortgage loan underwriting standards are much higher today than during the boom years.

I don't think that's necessarily a bad thing, in that mortgage standards and requirements were very lenient. New home inventory is at its lowest since 1968, a time when the population was 100 million less than today. Keep in mind, 210,000 units is a national-level figure. There'll be sub-markets that are virtually without inventory. Good from the standpoint of low inventory, however, a potential issue given an over-reaction and attempt to respond.

California, Nevada, Arizona, and Florida.

Nonetheless, there will be industry sectors and regions that will lead us out of this downturn. One of the states that is improving in health is Texas. As you can see on the chart on the right, Texas has recently started to generate positive job growth. It's almost universal across all the major markets of Texas, as evidenced by the chart on the right.

In addition, you can see from the housing market fundamentals that Texas generally has relatively solid housing fundamentals. Keep in mind, the months of inventory is based on a low run-rate. Using a normalized run-rate would materially alter the months of supply of housing.

With regard to foreclosure activity, the national average is 3.7% of housing inventory in foreclosure, with Florida experiencing the highest level, at 12.5%. As I have pointed out previously, approximately 75% of our real estate project investments are in the major markets of Texas.

Why did Texas housing fare so much better than other states? Well, there's two reasons. First, Texas restricts cash-outs and home equity loans to no more than 80% of a home's appraised value. Second, in most markets, there are few barriers to growth, geographically and politically.

Another reason is that Texas is a state that has aggressively competed for businesses and jobs. Most recently, CNBC rated Texas the number one state in the nation for doing business. There are many criteria, but the two main drivers are cost of doing business, and the quality and cost of labor and talent.

For example, just in the last month, Austin announced that Samsung will invest $3.6 billion in additional semiconductor capacity and generate an additional 500 jobs. Last week a press conference was held announcing that Formula One racing was coming to Austin, the only market in the US. The total capital investment has yet to be confirmed, but is believed to be substantial. This type of economic development in markets is ultimately what creates jobs and drives demand for real estate and housing.

If you recall from our call at the end of the first quarter, we had a few charts showing lot sales and inventory. My comment at that time was that a number of markets -- some markets and projects -- were getting very low in lot inventory. With little change in lot development in the last three months, inventories are even lower. If there is much pick-up in some locations or sub-markets, there's the potential that we could even witness gaps in lots and, subsequently, home sales. These are interesting times.

Real estate key performance indicators. Without the benefit of the housing income tax credit incentive, we sold 235 lots in the second quarter of this year, and that's up from the first quarter. As I just mentioned, it's a combination of low lot supply and, to a lesser extent, home buyer demand. Let me say, by no means does 235 lots meet our expectations. Yet, from a comparative perspective, it's encouraging. At our peak, we've sold more than 1,000 lots per quarter. Price was in line with the first quarter of this year, and down from the second quarter of last year. This is a lumpy business from quarter to quarter, so there's normally some mix and timing influence on the numbers.

We had less sales activity in commercial and land sales. However, worthy of note, we had one 703-acre land sale at almost $8,200 per acre, the tract north and east of Atlanta that was early in the entitlement process. The buyer owned the adjacent property, and was representing institutional capital. We remain committed to executing our land sales initiatives and continue to have discussions with potential buyers. We expect transactions will more than likely be smaller, consistent with timberland investors generally allocating smaller sums of capital to the asset class.

For the quarter, our real estate segment generated a little over $21.5 million in revenue and $2.4 million in earnings, after taking a $900,000 impairment.

Before shifting to our real estate pipeline, let me give you a brief update on the Marriott resort at our Cibolo Canyons project in San Antonio. The resort has now been open for about six months, and, as you would expect, revenue per available room and other resort sales continue to improve. Recall that we have the right to receive from the Special Public Improvement District 9% of room revenues and [1.5%] of other resort sales through 2034.

Annualized June receipts by the District were approximately $5 million. The District is an independent entity and still in the process of refining practices and policy. We expect to begin receiving our share of collections in the first quarter of 2011. However, given the full scope of the District's financial and management responsibilities, it's difficult to estimate the level of future receipts.

We ended the second quarter of 2010 with a little over 200,000 undeveloped acres, 29,670 acres in entitlement, and over 14,000 acres entitled, and a little over 22,150 acres in some stage of development, yielding our total portfolio of just under 250,000 acres. We received one entitlement for the quarter.

The name of the project is called Harper's Preserve in Houston, TX, formerly known as Woodlake Village. The 840-acre joint venture project will yield 1,722 lots and about 72 acres for commercial uses, principally multi-family. Harper's is in a good location, adjacent to The Woodlands, one of the strongest selling master-plan communities in the nation, and close to build-out. The Woodlands is the headquarters to a number of oil and gas corporations, and is one of the major employment centers in Houston.

In addition, Harper's is located in close proximity to shopping, medical, good schools, and with good access to nearby transportation arteries. We have strong interest from a number of builders, and expect to begin putting lots on the ground in the near future. Like many of our projects, the plan is to have three builders focused on providing high-quality, value housing in the $170,000 to $250,000 price-point range.

Shifting gears to fiber. Revenue and earnings are in line with the first quarter of 2010 and down from the second quarter of 2009 principally due to the reduction of over 100,000 acres last year and the postponement of harvest on 75,000 acres we have held for sale. Volume of pulp wood and saw timber is generally in line with the first quarter of 2010, and down from the second quarter of 2009 due to the lower acreage and the postponement.

On the price front, pulpwood and saw timber prices are both up over the second quarter of 2009, or in line, and also in line with the first quarter of 2010. In our basin, the pulpwood markets continue to hold up reasonably well. Saw timber demand has declined as a result of the expiration of the housing income tax credit program.

Shifting gears to minerals, oil, and gas. The long-term and global fundamentals are compelling. Emerging countries and economies are expected to generate incremental demand for energy. In fact, the International Energy Agency recently reported that China was the largest consumer of energy last year -- 4% more than here in the US.

In addition, MIT released an interim report of the future of natural gas, forecasting an increasing share of US energy mix over the next several decades, especially in electricity generation, given the abundance of natural gas and a smaller carbon footprint.

The report forecasts natural gas to play a leading role in reducing greenhouse gas emissions largely by replacing older inefficient coal plants. US energy policy dialogue continues to emphasize clean, self-sufficient, and sustainable sources of energy. Domestic onshore natural gas should be a significant part of that solution.

Short-term, oil is underpinned by a globally managed supply and an expectation of global economic growth. Natural gas, principally a domestic fuel source, is faced with elevated inventory supply and soft demand. As a result, lower natural gas prices have generally motivated operators in our basin to focus investments on drilling-to-hold leases and develop reserves.

Obviously, BP's issue in the Gulf of Mexico will have impacts on the oil and gas industry. At a minimum, new regulation will add costs and delays to offshore activities, and potentially onshore as well. It would appear today that onshore domestic energy resources will be viewed as lower cost and risk than their offshore counterparts.

Moving on to our mineral, oil, and gas KPIs. As leases begin to approach their expirations, E&P companies in East Texas and the East Texas Basin have focused capital on drilling-to-hold leases. As a result, we had no lease bonus in the second quarter, and segment earnings are down approximately $2 million year-over-year and in comparison to the first quarter of this year.

Natural gas volume is up considerably compared to the second quarter of 2009 and the first quarter of 2010. The majority of the incremental volume is associated with nine Barnett Shale wells that went to sale at our Summer Creek joint venture project in Ft. Worth. The pick-up in volume is an example of the potential of good shale or resource wells.

Net of venture Q2 2010, or Q2 this year, natural gas volume is up 47% over the first quarter of 2010. Natural gas price at $4.60 is in line with the first quarter of this year. Both oil production and price is in line with the first quarter of this year.

available for lease, leased, or held by production; in addition, Industry Haynesville-Bossier drilling activity, wells permitted, drilling, and producing. As the map illustrated, we've been diligent in tracking the progress of the Haynesville-Bossier trend, ensuring that we're in position to take advantage of opportunity.

Current status - 42 drilling rigs working in an area of interest that we define as Sabine, St. Augustine, Shelby, Nacogdoches, and Angelina counties; 38 rigs were drilling Bossier-Haynesville wells, 35 wells have been drilled, and 40 wells are waiting on completion.

Let me point out a few notable wells and other activity in the area. I'll start with the first call-out box at about 12 o'clock and move clockwise, and my quotes with be with regards to initial production rates. First, Devon's Kardell well, that reported 31 million Mcf per day. Devon's proposed Spoon unit, Crimson's Grizzly and Kodiak unit, and Crimson's Grizzly 1H well, currently on flow-back, and a well we expect to receive just over a 6% net royalty interest, our first royalty from a Haynesville-Bossier well. Assuming the drilling plan is executed, we expect to have a similar interest in the previous two units I mentioned.

The next well is an EnCana Blackstone 1H at 32 million Mcf per day -- that's the highest rates we have seen reported. The next well is Goodrich Petroleum, drilling in Angelina County -- a fairly big step-out and a part of their Angelina River trend in a county where we own approximately 42,000 net mineral acres. And last, EOG has a series of wells ranging from a low of less than 1 million to over 31 million Mcf per day.

E&P companies are generally estimating Haynesville-Bossier EURs, or Expected Ultimate Recoveries, in a range of 4.5 Bcf per well to over 10 Bcf, but generally use 6.5 Bcf as a base case. Given that the play is still early in development and a very wide range of expected recoveries, confirmation of EURs and extent will take time.

As you can see, we're beginning to see more activity in and around our minerals, and would expect that trend to continue. The larger leaseholders will likely begin drilling some portion of our Sabine and St. Augustine acreage in the latter half of this year or the first half of 2011. We're encouraged by the progress and will keep you informed of all future activity.

Now, in keeping with our value realization strategy and given recent trends, the minerals team is proactively generating prospects that we believe will be attractive, given the current market conditions. Generating and promoting prospects is simply leveraging the team's knowledge and reputation in the industry. Our team, using available geologic, seismic and well log data and other exploration and production tools will develop drilling prospects on our acreage to drive the valuation and further development of our mineral assets. Going forward, we expect the leasing activity to be challenging, yet we remain committed to proactively promoting and leveraging all of our resources.

In closing, almost on a daily basis, we see mixed signals and operate within a fragile economy. Yet, looking through this recovery, however it may be described, we are firm believers in the long-term fundamental drivers of our business. Although population and household formation may have slowed, they have not stopped. In fact, given a number of markets and sub-markets with low housing inventories and potentially pent-up demand, we're encouraged.

Minerals, oil, and gas. We continue to see positive trends relating to the Haynesville-Bossier. As operators continue to gain experience and optimize technology, they'll reduce cost and approve drilling and completion techniques that ultimately equate to improved economics and recoveries. We're encouraged by the recent developments in our basin, and we remain focused on realizing the value from all of our natural resources.

We believe our balance sheet, strategy, team, and portfolio of projects and assets at Forestar are well positioned to take advantage of opportunities and to benefit from our investments and markets to have the economic foundation to lead in a recovery.

Once again, I want to thank you for joining us on the call this morning, and now I'd like to open it up for questions.

(Operator instructions.). Your first question comes from the line of Anna Torma from Soleil Securities. Please proceed.

Good morning. I was wondering -- thanks very much for the detail on the Texas housing market. I think that's kind of consistent with what we've been hearing from the builders, that although we've seen this demand slow meaningfully in May and June nationally, Texas is actually seeing some improvement. And I was just wondering if you could give us a little bit more color, if that's consistent with what you're seeing as we look sort of into the third quarter here so far, in terms of trying to figure out where your lot sales might go?

Good morning to you, Anna, as well. Anna, we were certainly encouraged by our lot sales in the second quarter. We continue to see builder interest in a majority of our projects. It's somewhat difficult to forecast exactly what their propensity is going to be to take down the lots, but based on what we're seeing, for whatever demand is out there, there's not a lot of inventory to choose from. And, fortunately, we're in markets with projects where there continues to be some pretty significant interest by the builders. So given all the mixed signals, and I talked about several of them throughout the prepared comments, it'd be very hard to predict or forecast. But I would just tell you that we continue to see activity and interest and we're encouraged.

Okay, great. Thanks, that's helpful. And then the other thing is on lot pricing. Are you starting to see any pressure or push-back on lot prices? A lot of the builders have been talking about wanting to see lower prices as they try to remain disciplined on their return requirements in the challenging markets that they have.

Anna, I feel pretty confident in saying that there's probably not a builder out there that isn't asking for lower prices. That's to be expected. I think it's just a function of what's selling in the communities and at what price points and what the demand is. You know, if demand has subsided and there's competition or competing projects in our housing within the sub-market, then we'll move prices accordingly.

So it's -- we try to look through the builders and understand what's happening in the sub-markets and with the buyers. The builders are certainly part of the equation, and that's who we sell to, and they're our customer. But ultimately, we're going to make decisions on lot prices that are more of a reflection of not what the builder's asking for, but really what the market can sustain.

Okay, great. Thanks. That's helpful. I'll step back in the queue and let other people ask.

Thank you, Anna.

And your next question comes from the line of Mark Weintraub from Buckingham Research. Please proceed.

Thank you. Good morning, Jim. First, just a little bit more color, perhaps, on that slide 14 on those wells, or some clarifications. One, I just want to understand, what does it mean when you say that the Grizzly 1H is currently on flow-back? What does that mean, exactly? From a timing perspective, when will we know what the well can do, etc.?

Yes, that's very close to having some reasonable estimate for initial production rates for the well. So, assuming that they make a public comment or release what that is, as many of them are in the area, that's a comment that would lead you to believe that they should be very close to being able to determine the initial production rate.

Okay. And if I understand correctly, that's on your property, that well?

We'll have an interest in it. A well doesn't have to be on your property per se, but the unit needs to cover some part of your mineral ownership.

Okay. And so both the Grizzly and the Kodiak units fit that criteria?

Yes.

And so how many wells in total -- let's say this were to be a productive area, how many wells in total might conceivably be built where you would get participating interest in the Grizzly and Kodiak units?

Well, your question was "conceivably," so I'll keep it within that context, Mark, in that the operators don't necessarily inform us exactly what their plans are. I think often you'll see that, within a unit, if they're going to develop a unit, you may see wells ultimately on an 80-acre spacing, or even tighter, or it could be larger, just depending on the characteristics of the unit and what's it going to take to recover and be able to extract the gas that's in place or that's economically recoverable. So it's a difficult question for me to ask, but it's encouraging and certainly heading in the right direction.

Well, perhaps me asking it differently -- so what amount of acreage would be encompassed in, broadly speaking, the Grizzly or Kodiak areas?

Mark, I don't know the acreage off the top of my head, but you can tell from that map that it's certainly not big chunks of mineral ownership. It's going to be much smaller. But, of course, to the comment that I made with regards to the Crimson Grizzly well, it wasn't a lot of property, yet it was enough to be able to earn us a little over 6% royalty in that one well.

Okay. And then, where you have Devon Energy, the proposed West Spoon unit, would that be -- is that a similar situation, where you would be a participant, or is it on your property, or what would be the likely scenario there?

Which one was that, Mark?

The Devon Energy West Spoon unit.

Yes, depending upon where they begin to drill on that well and that unit and how much they drill, we could potentially participate in that as well.

Okay, and shifting gears. On the timberlands, you mentioned the 74,000 acres where you are not harvesting because it's in the sale process. Can you give us any update on -- I think you mentioned that it was going to be piecemeal, rather than, kind of, one or two larger chunks. But can you give us any more color on what's happening in that process? And then any thoughts as to what you would do with proceeds if you were to sell a significant amount of that land anytime soon?

Alright. Mark, I would tell you that generally the last half of 2009 got pretty slow, and I think that probably was the case for the early part of this year. We have experienced more interest and a little bit more activity, and we continue to stay connected to potential buyers. So it appears as though, based on the conversations and discussions that we have that sometimes get pretty far along, that there's more interest and there has been some capital raised that would have interest in some of these assets.

So in saying that, I'll tell you, it looks like it's picked up a little bit. But until we have some definitive news, I'm going to be a little bit reluctant. You know, this is somewhat of a tenuous time, you know. Until you get these things under contract and get them closed, you need to be careful with your comments.

Fair enough.

Right. Now, in saying that, though, if we do generate some sales and some cash proceeds, as we've said before, as part of our initiatives, the first thing we want to do is make sure that the company's financials are sound, that the balance sheet is sound, and that we've got appropriate debt levels. And then considering if there's any additional liquidity or sources of cash, then we use it in a way that's in the best interest of the shareholders, and invest in a way that provides the greatest return, whether that is in stock or other parts of our business.

Okay. And when you're talking about buyers, is this primarily being marketed to TIMOs, or are these also a lot of other types of buyers who could participate?

Mark, as we had outlined early on when we announced initiatives, there were three buyer groups that were of the most interest. There's institutional capital that's principally interested in timber. There are those that are a little bit more focused on conservation opportunities. Those entities are still out there and we think that that's still a viable buyer group. And then the third would be high net-worth individuals who have interest in investing in timberland assets. And we think that all three of those groups are still viable.

I don't want to overstay my welcome with questions, but just two real quick ones or you can tell me to move on and I can come back.

No, you're fine.

First would be on the Cibolo, with the five -- how much of that technically would be due to you? I'm just trying to understand. There's a formula that is used to calculate how much money you should be getting, and then there's the $5 million number you threw out. How are those connected?

Well, the number that I shared with you, Mark, is based on the receipts from the District from the resort. Once those receipts are in the hands of the District, they've got to make decisions the best way to use and manage all of their cash. I will tell you that it's very hard to determine at this time because the District, much like the resort, is for the most part still in start-up and is looking to get stabilized.

If you think about the District's responsibilities, obviously, you know, we're a large part of that, with what we're due from either bond issues and/or receipts from the resort. But keep in mind that they issued, I don't know, a $23 million bond last year that they've got to service, and so I think it's important for the District, as they continue to refine their practices and principles, to get the District stabilized, so to speak, but they have other responsibilities.

Well, just help me out a little bit more here then. So as I understand it, there are certain monies which are due to you, monies that you spent and you're to get reimbursed at some later date, which it sounds like a lot of this is related to that.

Yes, and that's separate from the hot tax and sales and use.

Right. And so what's going to -- presumably what's going to the District has got to be more than what the -- you know, the tax, etc., which you're supposed to get paid out on is, or you're kind of always chasing your tail. What am I missing here?

Mark, I don't think you're missing anything. What's difficult for me at this time is to speak on behalf of the District. It's an independent district, as they all are, and we have a number of other districts, and I think this is fairly similar to what we experience when they're starting up. I mean, they want to make sure that whatever their obligations and commitments are in the management of their financial and fiduciary responsibilities, are consistent and that they don't over-commit themselves.

Okay. And very last, and this should be real quick, if you've got it handy. Do you have cash-flow from operations for the quarter and cash from investing for the quarter?

Yes. I'll let Chris speak to that. I'll tell you that if you look at the business in the second quarter at a very high level, Mark, it was basically cash-flow break-even all-in.

Yes. Cash from operations in the second quarter was basically a positive at just under $1 million. And our investment in real estate development and acquisitions for the quarter was $4.2 million.

Okay. Thanks, Chris.

You're welcome.

Thank you, Mark.

And your next question comes from the line of Eric Anderson from Hartford Financial. Please proceed.

Yes, good morning. I wonder if I could just follow up Mark's comment on the Crimson that you were referring to. The term "flow-back" -- does that basically mean that the frack water is being withdrawn from it? From the fracking process?

Yes. It's very near the end of the completion process, and it should soon be managed in a way that the Crimson can ultimately determine what the initial production rates are going to be.

So that initially, it's affected by just the materials that were injected into fracking it.

Yes.

I was -- just as you mention it -- jumped on their website, and they've got a presentation that they put out last month that is quite detailed. In fact, it's 39 pages long. They talk about acreage in that area. They've got something that they call the Gobi, that's right next to the Crimson and also very close to the Kardell. And it looks to me like it's all one unit of acreage. So the fact that you're in one of those units, does that imply that you're also in something also called the Gobi?

I haven't seen that presentation specifically. You know, obviously, we look at a lot of data and a lot of reports, and I've got systems access data from a number of places, and there's lots and lots of units, and there's a number of wells. What we've tried to do, Eric, is to focus on that activity in those units that have the most impact or potential impact on us.

Okay. So, for example, just to pick a number out of the air, let's say that this, in their map, let's say that it equals 5,000 acres. Within that one 5,000 acres you could have multiple drilling units potentially?

Yes.

Okay. All right. So just the fact that you're on one of them doesn't necessarily imply that you're on another. I guess it would depend if the laterals are going through it or touching your acreage?

Correct. But it's going to be defined. When the units are put together and permitted, the depths and the laterals are all part of that permit at that time. All mineral owners will be either included or excluded based on their mineral ownership and lease status and everything else.

Okay. Now that 6% interest that you say you're going to receive. Do you get that without having to share any of the costs?

Yes. It's a pure royalty interest.

So that's a pretty sweet upside then.

Yes, Eric, I've told everybody, if I could figure out how to clone this business, we'd have 10 of them.

It all goes back to location, though, right?

Absolutely. Absolutely. Depends on location, the change in technology, price, a number of things. You know, clearly, the advancements in the training in the Haynseville-Bossier are very encouraging, but -- it's typically or generally what we've focused on here quite a bit, but we monitor the activities of all other plays and formations as well.

Moving further, I guess it's south, is where really the bulk of your acreage is in that county, it looks like most of it is leased. Is that to a variety of operators, or is there one or two big ones that have sort of grabbed a lot of acreage sort of south of where we're just talking about?

Most of those leases were in 2008, Eric, kind of in front of the play. And I think it's consistent with -- if you look at all of East Texas, there's probably six or eight principal players, or operators, I should say.

Like the EOGs and the EnCanas of the world?

Yes. If you looked at East Texas and the E&P companies that have operated in there, you're going to see a recurrence of about a half dozen names, and it's going to be EOG and EnCana and Petrohawk and -

Devon.

- Crimson's probably one of the smaller ones, and Goodrich, and those are the common names. There's a slide that we produced, I think it's probably three or four quarters ago, Eric, that at the bottom of the slide is the principal E&P operators that we lease to and that are operating in these basins.

Yes, I think I do remember that. Alright. And one last question. I was looking through a company called Cabot's materials a while back, and they had a presentation that they put out back in March, and they talked about -- I don't know if it's their well or a competitor's well, but it was in Shelby County. And the name of the well, which caught my eye, was the Temple Inland No. 4, and it had an initial production rate of 8.8 million cubic feet of gas per day in Shelby County. I assume that, with a name like Temple Inland, it's yours? Or is that a bad assumption?

Eric, if I'm thinking about the right well, I think that was a pretty good Cotton Valley well, and if it's got Temple Inland on it, then, yes, that's our minerals.

Because you've got a little bit of orange, I guess, in that Shelby area. It's hard to tell with this slide. But it says it's held by production, so -- you know, it could be yours, but...

Yes. If it's Temple Inland, then it's ours.

But going forward, if you lease it, it's going to say "Forestar"?

Correct.

Okay. Alright, well, thanks for the update. I think this slide is very helpful.

And thank you, Eric.

Your next question comes from the line of Al Sebastian from Prospect Advisors. Please proceed.

Good morning, gentlemen.

Good morning, Al.

Hi. Just briefly, can you give us some guidance on what you expect general and administrative expenses to be for the year, and also share-based compensation?

That's difficult. What I can say, Al, is that as it relates to any G&A expense or OpEx expense, it's a focus for us to continue to examine and reduce that cost wherever we can. The share-based comp is a number that's going to move around based on stock price. So that's really a tough one, Al.

Well, I guess, I mean, I'm a little bit surprised that share-based compensation is up from last -- well, maybe relative to last year, I guess, maybe your share price is higher the first half of this year versus the first half of last year. Your G&A is up about 5% from last year, when you exclude the $3.2 million associated with the advisory services.

Yes, and Al, that's principally share-based comp, and it's a function of cash-settle awards that are based on, you know, the movement of stock price and the stock price is up. It's a little bit of an awkward thing, but that's unfortunately the way it has to be accounted for.

And then, turning to your commercial tract sales, your average price per acre was down quite a bit there from historically what you've sold commercial acres for. Is there a particular reason for that? Can you give a little bit of granularity on the average price you realized for the quarter there?

Yes, Al, I don't know exactly what that piece is. I know that it was very small. It's more than likely a piece of cleanup. The commercial pad, it could have been the last piece of a commercial pad site and it was, you know, it's time to clean it up. We run into the same thing with lots from time to time, where you've got 2 or 3 lots left in a section or a phase that have been there for some time, and it's time to clean them up and move them on. So I don't think it's a reflection of a new price for commercial acreage, if that's your -- if that answers your question.

And turning again to your mineral assets, when one takes a look at some of the transactions that occur for the shale gas leases that are being purchased, do you give any thought to actually just -- I mean, and also, basically your market cap is about $500 million-plus, a little over $500 million plus your debt, so your enterprise value is, you know, $700 million, a little bit more. But when you look at the transactions that have occurred for shale gas assets and what's being paid on a per-acre basis for the leases, do you give any thought to actually selling outright some of your leases?

Selling leases. Al, I'll tell you what we continually evaluate is the best way to create and deliver value and realize value from all of these assets and the resources that we have. I can assure you, Al, that whatever is in the best interest of our strategy and the shareholders is what we're going to do. You've got to be very careful with that. If you sell them too early, you know, lease rates in front of the Haynesville-Bossier were $200 to $300 an acre. And where it's proven up, especially around Louisiana, you saw transaction prices of, you know, north of $15,000 an acre.

So potentially when something is mature, you may sell some of your rights, if you will. But even today, with the team we have in place, Al, you know, we're going to try to segregate the value of the Haynesville-Bossier from the Travis Peak from the James Lime from the Cotton Valley or whatever the case may be. So I think it's a fair question, Al, but what I can assure you of is that, for whatever the value or potential value that is there, we're going to do all that we can to make sure that we realize it. And I -- to the point that we certainly don't want to give anything away.

And just one last question, an update on your transformation program. You haven't bought in any stock. At what point do you think about buying in the stock? What are the conditions necessary for you to consider that?

Yes, I'll answer that in much the same way that I responded to Mark's question, Al, in that based on the balance sheet and the liquidity that we have, if we feel like we've got liquidity for investment, then we're going to look at stock the same way we would as any other potential use of cash and invest in such a way that it drives the greatest return to shareholders.

Okay. And that would also include in terms of putting more, you know, investing more in the business, putting more lots in the ground, etc., you would also evaluate putting capital to use, and an alternative would be to buy in your stock.

I think that's fair. I think that's very fair, Al. One of the things -- with regards to putting lots on the ground, I think it's important that we realize that if you stop putting lots on the ground, then you're potentially going to gap out and your business is going to slow down to stop. So that's more normal operating uses of cash, if you will.

Okay. Thank you.

Thank you, Al.

In closing, I just wanted to thank everybody who joined us this morning on the call or the webcast, and once again, thank you for your interest in Forestar. Have a good day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.