Forestar Group Inc (FOR) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2011 Forestar Group Earnings Conference Call. My name is Towanda, and I will be your coordinator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Chris Nines, CFO. Please proceed, sir.

Thank you, and good morning. I would like to welcome each of you who've joined us by conference call or webcast this morning to discuss Forestar's Fourth Quarter and Full Year 2011 results. I'm Chris Nines, Chief Financial Officer; and joining me on the call today is Jim DeCosmo, President and CEO. I would also like to welcome Anna Torma who joined Forestar as Senior Vice President of Corporate Affairs and will lead Forestar's Investor Relations efforts going forward.

Anna and I will work closely together over the next several months to ensure a smooth transition. Please feel free to reach out to Anna or me with any questions. As a reminder, this call is being webcast and copies of the earnings release and presentation slides are now available on the Investor Relations section of our website, at www.forestargroup.com.

Before we get started let me remind you to please review the warning statements in our press release and our slides, as we will make forward-looking statements during the presentations. In addition, our presentation will include non-GAAP financial measures. The reconciliation between GAAP and non-GAAP financial measures can be found at the back of our earnings release and presentation and on our website at www.forestargroup.com. Now let me turn the call over to Jim for some introductory remarks.

Thanks, Chris. And I want to welcome everybody who has joined us on the call this morning, and certainly want to welcome Anna Torma -- Anna Torma on board. Now we've generated a considerable amount of momentum in 2011 particularly in the last half. Now, at Forestar, we relentlessly focus on executing our strategic initiatives, and I'm proud to report that we've accomplished and surpassed many of our goals. Today we are uniquely positioned to take advantage of opportunities resulting from distressed market conditions.

Now for the next leg of the race, and to capitalize on our progress, we've developed strategic initiatives geared to accelerate value creation and realization. The key takeaway from the call is we are building positive momentum. We are building momentum in oil and gas, momentum in community development and momentum in multifamily.

Now to best illustrate our roadmap for the future, we are announcing several new strategic initiatives which we've appropriately entitled Triple in FOR, focusing on accelerating value realization, optimizing transparency and disclosure and raising our net asset value through strategic and disciplined investment. So as we look forward we see significant growth and value associated with delivering our strategic initiatives.

Considering value realization from our real estate and natural resources, proving up our net asset value, simply said, our job is to prove it up. In oil and gas, increasing production and reserve growth clearly reflects the execution of our strategy. We are increasing our participation in oil and gas production through working interest and into 2011 with over 180,000 net mineral acres in play in Louisiana and Texas, that's building a pipeline of future opportunities.

In real estate, we've experienced continued growth in residential lot sales primarily driven by our ability to deliver lots during a difficult housing market. Delivering lots in quality locations is a competitive advantage in today's credit constrained development business. Now given that 70% of our total real estate investments are in the major markets of Texas, we are well positioned to benefit going forward. We are timely promoting our water resources particularly groundwater interest which we expect to become part of a long-term solution for Texas' water needs.

And finally, executing our growth strategy is grounded in our commitment to making only strategic and disciplined investments that meet return expectations and generate near-term cash flow and earnings.

Now throughout this morning's update I think you'll see as I do. The momentum we've built proving up our assets and taking advantage of growth opportunity. I'll also provide additional color in our Triple in FOR initiatives.

But before I turn the call back over to Chris, I'm excited to announce that we've entered into an agreement that requires certain assets from our Temco and CL joint ventures with Cousins Properties which is the reason for postponing the earnings release and call. I want to review the acquisition. Let me say this investment is strategic to the core.

These are good communities with over 70% of assets in the major markets of Texas. We expect immediate cash flow -- positive cash flow and earnings, we don't anticipate any additional resources are going to be required for management, and we know these assets like the back of our hands. As you may be aware, our long-standing partner, Cousins Properties, a real estate investment trust made the strategic decision to exit the land business. Now we were the natural buyer for a number of reasons, most importantly, because community development is one of our core businesses.

Now we negotiated a price of $23.5 million for their net investment and 17 residential and mixed-use projects. The price represents about 50% of their book basis prior to the sale. Now Cousin's net share of the project represents just under 2,700 lots and 159 commercial acres. In 2011, these projects generated $19.8 million in sales from 456 residential lots and 20 commercial acres.

Investment exceeds our return hurdle and is expected to generate better than a three cash multiple on a before-tax basis. In addition, we anticipate the transaction will generate favorable tax benefits. The transaction requires Forestar to record a $33 million non-cash impairment charge in the fourth quarter of 2011 in connection with Temco and CL Realty Venture Assets. Now we anticipate the transaction to close in the first quarter of this year.

We believe this is a good transaction for both Forestar and Cousins Properties, and we look forward to delivering the greatest value from every lot and every acre going forward. Now let me turn it back over to Chris who will review the fourth quarter as well as the full-year financials.

Thank you, Jim. In fourth quarter 2011 Forestar reported a net loss of $22.9 million or $0.65 per share compared with net income of $2.4 million or $0.07 per share in fourth quarter 2010. The full year 2011 Forestar reported net income of $7.2 million or $0.20 per share compared with net income of $5.1 million or $0.14 per share in 2010.

Included in our fourth quarter and full year 2011 results were non-cash asset impairment charges of $0.82 per share, after tax, which includes charges associated with entering into agreement to acquire certain assets from the CL Realty and Temco ventures in first quarter 2012.

In addition, our full year 2011 results include a gain of $1.12 per share from the sale of 57,000 acres of timberland. Our full year 2010 results include non-cash asset impairments of $0.20 per share after-tax, primarily associated with residential projects, located near Atlanta, Georgia; Forth worth, Texas; and a commercial track located near the Texas Gulf coast. In addition, our 2010 results include a $0.51 gain from the sale of 24,000 acres of timberlands.

Now, let me turn to our segment results. Mineral resources reported total segment earnings of $3.7 million in fourth quarter 2011 compared with $6.1 million in fourth quarter 2010, and segment earnings of $16 million for full year 2011 compared with $22.8 million in 2010. Included in our mineral resources results for full year 2011 were approximately $3.9 million in additional costs associated with the development of our water resources initiatives, principally related to groundwater leases in Central Texas.

Fiber resources reported total segment earnings of $0.1 million in fourth quarter 2011 compared with $1.2 million in fourth quarter 2010, and segment earnings of $1.9 million for full year 2011 compared with $5 million for full year 2010. The decline in fiber resources segment results is principally due to the sale of 74,000 acres of timberland in 2011 associated with our near-term strategic timberland sales initiatives and our retail land sales program.

Real estate reported a segment loss of $25 million in fourth quarter 2011 compared with a loss of $5.5 million in fourth quarter 2010 and a segment loss of $25.7 million for full year 2011 compared with a loss of $4.6 million in 2010. Included in our real estate segment earnings were $44.5 million in pre-tax non-cash asset impairment charges in the fourth quarter of 2011, and $45.2 million in full year 2011.

And as I mentioned earlier, this includes charges associated with entering into agreements to acquire certain assets from the CL Realty and Temco ventures in first quarter 2012. Total segment earnings were a loss of $21.2 million in fourth quarter 2011, compared with earnings of $1.8 million in fourth quarter 2010 and a total segment loss of $7.8 million for full year 2011, compared with earnings of $23.2 million in full year 2010.

Before I turn the call back over to Jim, I want to highlight the location and concentration of our asset impairments over the last several years.

This table highlights the historical impairments related to our single-family projects, including ventures over the last four years. Our investment in single-family projects in the major markets of Texas exceeds 85% of our total investment in single-family real estate.

However, only about 40% of the total impairments we have incurred related to single-family investment over the past four years are in Texas. In fact, the majority of our impairments were located in other markets, principally Georgia, Colorado and Florida. As you see in the table we've impaired our investment in Georgia and Florida markets by over 50% of the previous book basis, reflecting difficult local market conditions.

As a result, our single-family developments in these markets have a low basis even in today's market. The major markets of Texas where we have over 85% of our total single-family investment has outperformed the rest of the country during the downturn. As a result, we've impaired only 8% of our total single-family investment in Texas since 2007. Going forward we will continue to diligently review our projects for indications of impairment.

However, given the investment concentration in the major markets of Texas, and the significance of the impairments taken in other markets, we believe our portfolio of single-family residential projects are well positioned to take advantage of improving real estate markets. Now let me turn the call back to Jim, for some additional highlights.

Thanks, Chris. Let me share with you just a few of the substantive highlights for 2011. Number one; our proven reserves PV-10 value increased to 81%, or $36.7 million compared with year-end 2010, while at the same time, our share of oil production was up 32%. In 2011, 36 new wells were completed, increasing the total to 530 producing wells at year end. And we also put 68,000 net mineral acres in play, and that's the pipeline for future leasing and exploration opportunity.

Number two. We sold 1,117 residential lots, that's a 39% increase compared to 2010 and at a time when housing starts continue to wane. In addition, we sold 112 acres of undeveloped residential track, for an average of $35,000 per acre which represents over 370 undeveloped or paper lots. Even with increased lot sales, our pipeline remains strong with builder option contracts remaining above 1,350 lots.

Number three, we sold over 17,000 acres of undeveloped land for $40.5 million as part of our retail land sales program averaging $2,400 an acre. Number four, we received $8.7 million from the Cibolo Canyons special improvement district in 2011, that's a reflection of improved cash flow and stabilization of receipts at the district level.

Our strategic investments in 2011 included about $63 million in several highly-desirable projects primarily in Texas. Acquisitions include a non-performing loan secured by 900 acres in Houston, 180 fully-developed lots in a mixed-use project also in Houston; and three multifamily development sites, and we timely started construction on our [Permesa] multifamily site in Austin earlier this year.

The clubhouse is now completed, pre-leasing is underway, and we expect the first rentals to be delivered this spring. In addition, we essentially completed the timberland sales associated with our previous strategic initiatives announced in 2009 by selling 57,000 acres of timberlands for $87 million. Now we also repurchased almost a million shares of our common stock. So now, let me turn to our fourth quarter 2011 highlights which further illustrate the recent pick up in momentum.

During the fourth quarter we moved the ball down the field and we put a few in the end zone. Number one, our share of oil production was up nearly 80% compared with fourth quarter of 2010, as 20 additional wells came online producing royalty interests. Number two, residential lot sales totaled 309. That's a 65% year-over-year increase. Number three, we sold 13,200 acres of undeveloped land for approximately $2,300 per acre. And number four, receipt from the Cibolo Canyons Special Improvement District totaled $6.6 million for the quarter and $8.7 million for the year.

Now, let's take a look at our minerals, oil and gas resources. Strong oil markets are driving exploration and production globally as well as in our basin. Oil pricing remained firm in the fourth quarter supported by demand growth from emerging markets and potential geopolitical risks.

However, natural gas prices remain under pressure due to record high inventories, and the impact of mild weather, or I should say, certainly, a mild winter. The current natural gas pricing in E&P companies are principally focused on oil and gas liquids -- oil and natural gas liquids, I should say, and as a result the leasing activity related to natural gas is down in comparison to previous years as operators target capital toward oil and liquid opportunity.

Now let me review with you the formations and basins which generated the production and reserve growth in 2011. As you can see the key takeaway is new production is diversified across the number of formations and basins. We've seen significant momentum in drilling activity in East Texas and Louisiana throughout 2011. New well completions totaled 36 across many of our target formations. 11 new natural gas wells in several formations including Austin Chalk, the Bossier, the Barnett Shale and the Niobrara, and 25 new oil wells, primarily, in the Upper Wilcox formation.

This is an area I highlighted in the third quarter earnings call where Forestar negotiated working interest options providing an opportunity to generate incremental value. Now the next slide illustrates how increased oil production is beginning to create meaningful momentum in our royalties. This slide is all about a significant step up in royalties while leasing activity pauses. As you can see, our share of oil production is up almost 80% in the fourth quarter compared to the fourth quarter of 2010 and is one of the major drivers -- one of the major drivers in a 60% increase in royalties.

However, the improvement in the fourth quarter in 2011 was more than offset by a few acres leased and water operating expenses. And, as a result, our fourth quarter mineral resources were $2.1 million below the year-ago level, and for the year about $6.8 million lower than 2010.

Now the next slide shows momentum we are seeing in oil drilling and production. Let me start with the bottom line. Drilling activity and production growth is accelerating. Well completions and production continue to rise significantly during the fourth quarter, positioning the business for continued growth. The chart on the left illustrates the increase in active well counts over the last five quarters, and the chart on the right shows a marked increase in our share of oil production over the last four years.

The oil and gas team is gaining traction in executing our strategy, generating increased production and reserves. Our interest in oil production increased 150,000 barrels during 2011 and that's up 32% compared to 2010 and up almost 50% in fourth quarter as compared to the same quarter in 2010.

The majority of the increase is driven by drilling production in the Upper Wilcox formation located in the West Gordon field in Beauregard Parish, Louisiana. So let's take a look at this recent activity beginning with how we are leveraging our seismic data in Louisiana.

By expanding our portfolio of seismic data in our basins, we are better equipped to generate additional prospects for leases and exploration, and to the extent possible, we will incorporate working interest options and new agreements expected to provide an opportunity to capture additional value, or should I say, the greatest value from every acre.

This is a chart I shared with you last quarter, highlighting our marketing promotions of oil and gas opportunities in Louisiana. Now since the beginning of the year we successfully placed over 68,000 net mineral acres in the play, and it's primarily through seismic and exploration agreements which are highlighted in orange and blue.

We've also received over 26,000 acres of 3D seismic data for evaluations and we expect to receive another 51,000 acres this year. Now if we were to purchase this data, the estimated cost will be about $24 million. Highlighted in green is the West Gordon Field, a highly-productive oil field and a good example of one of our targets which is the focus of the next slide.

The headline for this slide is our interest in just eight wells generate a PV-10 value of $20.5 million. As I began to share with you last quarter, we expect our working interest investments in the West Gordon Field to provide us with additional future income. The green-highlighted area on the map represents about 2,800 net mineral acres playing for 160-acre drilling units which you can see are outlined in black.

Now according to the operator, the development plan continues to call for 16 wells, and I'll remind you that based on our analysis using $90 oil, our 25% net royalty interest should yield Forestar an average of about $4.5 million per well. Today eight wells are currently producing highlighted -- excuse me -- today eight wells are currently producing, which are highlighted by the red dot. One well is being completed, one well is being drilled and two wells are permitted while three wells are planned for future permitting and drilling.

To date, we have elected to take a 25% non-operating working interest position in three wells. We fully expect to meet our return criteria and provide upside to our future production and reserves. To illustrate the point, we've included the year-end 2011 Proven Reserves of eight West Gordon wells. As you can see, half the planned wells generate a PV-10 value of $20.5 million, that's the present value of the future cash flows using a 10% discount rate.

Although West Gordon remains particularly compelling, remind you that we are targeting 180,000 net mineral acres for additional oil and gas prospects which I'll highlight on the following slide.

We are focused on building a pipeline of prospects. I shared this map with you last quarter. These are target formations for future oil and gas prospects totaling about 180,000 net mineral acres, roughly 45% of our Texas and Louisiana ownership. The acreage is diversified across several target zones and formations with the Wilcox having the greatest concentration.

Another key point on this slide is that a majority of our targets are focused on liquids and, to a lesser extent, natural gas. We are beginning to see solid momentum from our strategy and initiatives and believe substantial opportunities still lie ahead. The next slide highlights our recent -- our results to date and continued focus on accelerating the realization of value from our mineral resources.

The slide simply says, over 200% increase in the reserves since 2009. We are encouraged to report solid momentum and reserve growth in 2011. Our audited year of proved developed reserves of $81 million is up 79% or $37 million from 2010, with 74% of the PV-10 value represented by oil. Total future net revenues for proven reserves are estimated at $133 million. That's a 73% increase from the year end 2010. The increase in production reserves was primarily driven by proved developed oil reserves which increased to a little over 1 million barrels of oil at year end 2011. That's up 75% from year end 2010.

In fact, most of the reserve increase in 2011 is driven by just eight Upper Wilcox wells. And this is the key take away. Our reserve replacement ratio at year-end 2011 is 246% with 100% of the increase coming from organic replacements. We believe this momentum in production and reserve demonstrates the execution of our strategy and the ability of our oil and gas team to drive exploration and development results.

Now, I want to illustrate how we will continue to enhance mineral value creation and realization over the next few years. This slide illustrates the value components associated with oil and gas exploration. We will continue to promote and participate in exploration development of our mineral holdings. This entails leasing our minerals to third parties and generating lease bonus payments, delay rentals and royalties.

Now where conditions warrant, we will enter into seismic and option agreement, investing in working interest and consider drilling our minerals. In 2012 our efforts will continue to target a number of zones in formations, including the Wilcox, Austin Chalk, Tuscaloosa Marine Shale, the Bossier, Haynesville and Pettit, just to name a few.

In addition, as part of our growth strategy, we routinely evaluate opportunities to improve up the value of our minerals and expand our reserve disclosures. Now, in connection with that strategy, we intend to and evaluate opportunities to grow both organically as well as through opportunistic joint ventures, partnerships and acquisitions and other strategic transactions.

We recognize that a material value creation tool is to have the ability to operate wells in lower-risk-proven formation. We have very capable oil and gas teams in place; we do have a breadth of experience in many US basins.

Shifting gears to our fiber result, where we are building momentum through sustainable harvest and maximizing recreational lease activities. In the fourth quarter fiber resources segment earnings were down about $1.1 million from the fourth quarter of 2010, and were $3.2 million lower in 2011, compared with the previous year. In both cases, the decline was principally due to lower volume, reflective of our timberland sale. However, average harvest [breaker] remains steady.

Now during the quarter we sold over 49,000 tons of fiber, and over 320,000 tons for the year. Keep in mind, fiber is just one of the multiple dimensions of value we pursue from our land and our resources. For example, nearly 99% of our available land is leased for recreational and hunting purposes.

Pulpwood prices in the fourth quarter rose seasonally, with saw log prices up over 42%, but that's due to a higher component of larger saw logs while pulpwood increased over 12% from the previous quarter.

Now let's turn to real estate where the story remains focused on building momentum by increased residential lot sales. Our real estate portfolio is benefiting from Texas economic and housing market conditions. In housing we continue to see improving market fundamentals in Texas, and as I've shared with you in the past, we believe the Texas markets will be some of the first to recover from the downturn. As you can see on the bottom right, Forestar has over $452 million invested in real estates in the major markets of Texas, with 55 residential and mixed-use projects representing over 70% of our total investment in real estate at year-end 2011.

The table on the bottom-left illustrates that Texas continues to outperform the vast majority of the rest of the country in many of the critical segments related to housing. In short, the key to housing recovery is jobs and confidence, and in Texas it's headed in the right direction on both counts.

Now let's take a quick look at how Forestar in Texas residential lot and new home inventories have continued to tighten during this downturn. We are benefiting from declining lot supply and minimal development activity. Given new inventories the Texas markets are better positioned for lot demand than many other regions in the US. In most markets new home inventories now stand well below normalized levels, particularly in Texas, and this is especially true in highly desirable communities.

In addition, there's been minimal lot development since 2007. Quality residential lot inventory in Texas is getting very low. Forestar's lot inventory in Texas has declined about 40% since 2007 and is going to require additional development to meet future demands Nonetheless we recognize the fragility of the housing and economic recovery, and we will continue to mitigate risk with conservative underwriting and substantive builder contract.

Let's turn to our real estate segments result, which reflect the improving underlying fundamentals. Reported real estate segment results in 2011 which include a $45 million non-cash impairment, before tax, were down compared with 2010. Now excluding these items, real estate results improved substantially in 2011, reflecting how residential lot sales and increasing contribution for income producing properties, and increased undeveloped land sales. 2011 residential lot sales of 1,117 is 39% above 2010 despite lackluster new home construction.

We also made acquisitions designed to elevate market share, strengthen our position, and deliver near-term value to our business and shareholders. In addition, we acquired three multifamily development sites located in Austin, Dallas and Denver, as part of our initiative to grow this business.

The next slide illustrates momentum building in lot sales. Our lot sales are headed in the right direction. Residential lot sales activity increased in the fourth quarter while lot sales margin increased to almost $17,500 per lot. Looking at a yearly comparison, we can see that lot sales are nearly 74% above 2009 trough levels in 2011, but still well below the previous peak levels of $3,600.

Now I'll tell you that the direction is good, but we still have a ways to go before returning to a normalized level. As you would expect, about 90% of the lot sales were in Texas where we continue to pick up market share. In addition, our backlog or pipeline of lots under contract remained full at over 1,350 lots at the end of the quarter and virtually all lots under development are under contract. Increased lot sales coupled with a growing pipeline is an indication of declining lot inventories. Given today's credit constraints residential development have an ability to deliver lots is a key to Forestar's advantage.

Next, an update on the Cibolo Canyons Special Improvement District. We are seeing district cash flow receipts stabilizing. Distribution from the Cibolo district substantially picked up in 2011. As we've previously stated Forestar is entitled to receive from the Cibolo Canyons Special Improvement District the 90% hotel occupancy tax and 1.5% sales and use tax generated by the JW Marriott Resort & Spa.

During 2011 we received approximately $8.7 million in distributions from the district, including $6.5 million in the fourth quarter. To date, we received $10.2 million in disbursements from the district which include a mix of taxes collected in the last two years, but primarily in 2011. The District is beginning to stabilize and we are encouraged by the step-up in distributions. At year end, our investment basis in the resort is down to $35 million. To date all HOT & Sales and Use tax receipts have been recorded as basis recovery.

Now let me begin to highlight our Triple in FOR initiatives on the following slide. We are sharply focused on proving up and growing our net asset value. To prove up and grow the net asset value we've developed new strategic initiatives titled, Triple in FOR. We have three major goals over the next several years. First, accelerating value realization of our real estate natural resources; this is a triple-play story -- a triple in residential lot sales; a triple in oil and gas production; and a triple in our total segment earnings.

Second, optimize transparency and disclosure by reported -- in our reported oil and gas and groundwater interest. And third, raising our net asset value through strategic and disciplined investment to help prove up our asset value and exceed return expectations. In addition, create additional value by accelerating our investment lower-risk oil and gas opportunities and developing a capital-efficient high return multifamily business.

Earlier in the call I reviewed the Cousins transaction, which is a great start on the third initiative. Now let me give you a recent example of accelerating value in 2012. Accelerating and harvesting value, we announced in January the sale of our 25% interest in Palisades West which is an office joint venture project here in Austin.

Our partners were Cousins Properties and Dimensional Fund Advisors, or DFA. DFA had an option to purchase our interest in the fourth quarter of 2012. Now given the circumstances, we took advantage of an opportunity to accelerate the realization of value. You can see the economics are pretty straightforward. We had a little over $20 million invested and realized the gain on sale of $12 million and received about $4 million in distributions over the last three years.

The purchase price was driven by almost 100% occupancy and a strong cap rate coupled with high quality tenant in a quality location which is key. In total, we generated about $16 million in profit on our $20 million investment. Now given that we began investing early in 2007 and began leasing in 2009 during a difficult economic period, I'd say the property performed very well.

As our other properties reached their full economic value and as market conditions warrant, as with Palisades, we will harvest value. Barring any unforeseen anomalies, we'd expect that two of our multifamily projects would reach their economic maturity in 2012.

In closing, I like our products, markets and basin, and coupled with our team, I really like our prospect. First, we are sharply focused on continuing to build momentum by increasing our oil and gas production reserves.

Second, as housing markets recover, we will leverage our capability to capture additional market share and value. And third we anticipate capitalizing on investments and acquisitions that contribute to near-term cash flow and earnings.

I'm encouraged by the progress our businesses are making. I'm even more encouraged by the determination of our team. We look forward to updating you on these initiatives and celebrating the milestones we reach as we continue to accelerate momentum. We built a strong foundation underneath Forestar, it is now time to capitalize on our position. In closing, I want to thank you for joining us this morning, and for your interest in Forestar. And now I'd like to open up the call for questions.

(Operator Instructions).

You have a question from the line of Eric Anderson with Hartford Financial. Please proceed.

Yes, good morning. I wanted to compliment you on your continued sort of evolution on disclosing more and more information with each quarterly conference call, and I think the number of slides in today's presentation is almost a record here. So keep up the good work and along those lines, on page 20, you've got a slide that looks at the various formations that companies are looking for in your Texas area, and I'm a little unclear as to your actual acreage that you've got that would be in each targeted area.

For example, some of the shaded areas, I don't know if they're going over some of your acreage, so you really can't see if -- you know, if there is -- if you do have acres that are part of those formations, which I think you do. So maybe you could just clarify a little bit what we are looking at on slide number 20.

Eric, thank you for your comments, and I would tell you that when you look at the chart, the acres that we identify in the call-out is the acres that we have identified that are prospective for those various formations. For example, in the Bossier, we identified about 10,700 acres that we think is prospective, and you can see that just in the north -- west part of Angelina County. So the key numbers and estimates are in the call-out boxes underneath the formation names.

Okay. So then some of that shaded area could actually be sitting on top of the acres?

Yes.

Okay. All right that makes some sense. Then I wonder, if you could just sort of -- you know, if you go back to slide number 18, you know, that goes back to your West Gordon Field development and I believe it was a number of quarters ago that you'd entered into that agreement to, in essence, trade access for, you know, the seismic work, and you're showing, you know, where that covers.

In addition to, sort of, the West Gordon Field sort of the conclusion of that, what else might come out of that agreement that you struck? Because I think that was somewhat unusual, you know, back when you announced it.

Yes, Eric, if you're referring to the seismic and exploration agreement, the comment that I made is that, we've already received about 26,000 acres of 3D seismic information and expect to receive another 51,000 acres.

That's got a number of benefits. First and foremost is that there's really no cost to us to acquire that data. So just as soon as we get the data we will start to evaluate and analyze, to develop future prospects and I think that West Gordon is a really good example of the type of prospects that we are looking for, and back to the previous chart that we looked as we identified, I think we've got probably north of 40,000 acre of prospective Wilcox. So those are certainly some of the benefits.

Also a part of those agreements, the other party has the opportunity under certain terms and conditions to lease and to take more for themselves, and of course we will have an opportunity to -- well, not an opportunity but we also receive a lease bonus as well as royalty in certain cases, as an option to participating -- to participate in working interest.

So is the West Gordon field then sort of an outgrowth of that exploration, seismic agreement? Or is that -- was that sort of set up before?

It was kind of -- Eric, it was more set up before.

Okay. But you're thinking that -- I mean with the seismic data yourself, are you in a position to really develop the prospects or do you really need to take that to one of the operators that you list down below, like an Anadarko, a Goodrich or a Devon and say, you know, we've got this seismic that's been shot, would you like to possibly take a look at it and maybe we can come to some agreements? How does it work?

Eric, it -- Eric, I think it's very much dependent upon the formation of the play and the prospect. There will be certain cases where it's a lower cost and low-risk capital that we may want to exercise and operate ourselves. And in other cases I think it would be more prudent to secure a partner or a venture partner and/or sell part of the interest, so it's really dependent upon the risk and the capital required in the formation of opportunity.

All right, and my last question is more of a big-picture question. When you're having meetings, how do you decide in terms of where you're going to allocate your capital between, you know, the minerals business and kind of the core real estate business?

Eric, we actually have a very nice issue in that within Forestar we have a number of opportunities within real estate. Whether it's community development the multifamily and/or the oil and gas, we are seeing a number of really good opportunities, but at the end of the day our capital allocation is really going to be driven by what creates the most value for the business for the shareholders and generates the best returns on a risk-adjusted basis.

So that's the way that we approach capital allocation and capital investments. That's the -- that's the strategy, and that's the continued position we'll take going forward.

Okay. I appreciate it. Thanks very much.

And thank you, Eric.

Your next question comes from the line of Mark Weintraub, with Buckingham Research. Please proceed.

Thank you. On slide 32 you reference, you know, the tripling goals. Is there a timeframe that we should be thinking about for when you hope to get to these levels?

Yes, Mark, what I would tell you is that this is a four-year plan, and what we look at is the, you know, the first four years of being a public company versus the next four, and we are targeting a triple, but I would tell you that the real focus is on one year at a time.

I think it's important that you have long-term goals and initiatives, but to be very focused on the short term, and making sure that we are delivering and executing the strategy.

But when you say a four-year plan, does that mean that -- in your planning, I don't know if compensation is tied to this, or what type of links that there might be, but is it that this is where you're hoping to get by 2015, or this is what you're targeting to average during the next four-year period?

It's generally targeting the average for the four-year period, Mark.

Okay. Would acquisitions potentially be included in getting you to these targets, or is this what you are striving to achieve organically from what you've got?

Mark, it would include acquisitions but I would tell you that a majority of the improvement is from the existing assets and portfolio that's in play, but there is an acquisition component.

And maybe with that in mind, you also did a $250 million mixed-shelf offering today. Can you give us a little bit more color on the thought process behind that?

Sure. I'll let Chris comment on that, if you don't mind, Mark?

Sure.

Yes, my only comments would be that, you know, today we have no plans to issue any securities, but we believe the shale provides us with the optimal financial flexibility to fund the activities going forward including growth opportunities. So it just gives us increased financial flexibility and gives us accelerated access to the capital market, you know, when the market conditions are favorable in the future.

Okay. Thank you.

Thank you, Mark. That's our last question, and once again we want to thank everybody for joining us on the call this morning, and I wish everybody a great day.

Thank you for joining today's conference. That concludes the presentation. You may now disconnect, and have a wonderful day.