DESCRIPTION OF MITIGATION BANKING OPPORTUNITIES
CAMP COOLEY RANCH
SUMMARY
Camp Cooley Ranch is an
approximately 11,000 acre ranch located in central Texas. While the ranch has historically produced
significant revenues from traditional sources found in this region, such as
through cattle and mineral extraction, it is now clear that the ranch has
tremendous and profitable eco-development opportunities. What follows below is a general description
of how these opportunities work, the potential to derive revenue from these
opportunities, timing and other critical components of such a program. Generally speaking, the eco-development
opportunity for Camp Cooley Ranch is described as “mitigation banking”.
MITIGATION BANKING – HOW IT WORKS
The concept of mitigation banking
began in the early 90’s and became prominent in the mid-1990’s. It is now a well accepted program utilized in
all 50 states and supported by significant Federal Regulations known as “the Mitigation
Rule”.
Mitigation is a required
component when a public or private developer, municipal organization,
quasi-governmental organization such as an airport, seaport, water district and highway department impact a sensitive eco-system such as a
wetland, stream or threatened habitat. Federal
and state regulations demand that when a wetland or stream, for example, is
impacted by a developmental project, a permit for such undertaking will be
required. A condition of obtaining such
a permit will be that “in exchange” for the loss of acres of wetlands or linear
feet of stream, the permittee will be required to offset or “mitigate” for this
loss with compensatory wetlands or improved streams on another location. Since April of 2008, consistent with the
mitigation “Rule”, permittees must first utilize a wetland mitigation bank as
the preferred means for wetland or stream mitigation.
A mitigation bank is a
pre-approved area of wetlands or streams which have been preserved, enhanced,
and/or restored and these activities are put into a sponsor-driven “bank” – a regulatorily
approved amount of credits representing the amount of wetlands or streams
improved and placed into the bank.
Once the bank is approved, the
sponsor of the bank then holds these wetland and stream credits for sale as
mitigation to offset future regional impacts resulting from projects like
highway development, water reservoirs and other similar impacting
projects. The improved wetlands and
streams then become a permanent fixture on the land, protected by a permanent
easement or similar land use protection device. This easement may then be donated and a charitable contribution may be
obtained.
THE VALUE OF THESE CREDITS
In the region around the Camp
Cooley Ranch, the market value of these credits is significant. For wetlands sold to a large end user from a
bank, an acre of wetland mitigation could sell on a bulk basis for as little as
$15,000 or as high as $28,000. Likewise,
stream restoration credits sell for an average of $250 per linear foot of
improved stream mitigation.
MITIGATION INVENTORY LOCATED AT CAMP COOLEY RANCH
Various portions of the ranch are
prime candidates for wetland and stream mitigation. This is particularly the case for two
reasons. On one hand, areas along the
Navasota River floodplain are seasonally flooded and are virtually unusable for
grazing and show no history of use for ecological restoration for the
extraction of oil or gas. On the other
hand, this 1,500 acre+/- floodplain is ideally located and shows all of the
necessary characteristics for the successful formation of a large wetland along
the river and within the boundaries of the existing floodplain.
Likewise, there are 19 linear
miles of streams running through the ranch at various locations. (Stream restoration is counted on a two-sided
basis such that there is a potential for 38 miles of stream restoration
credits.) Some, but not all of these
streams are excellent candidates for restoration credits and by doing so, would
not impact or obstruct either grazing or mineral extraction activities
historically located on Camp Cooley Ranch. As such, both the wetland and stream mitigation possibilities on the
ranch literally represent tens of millions of dollars in added value to the
ranch owner or a subsequent purchaser.
Our company, Womble Carlyle
Ecology Innovations, LLC (“WCEI”), has entered into a contractual agreement
with the existing Camp Cooley Ranch owner to develop these mitigation banking
opportunities. It is anticipated that
these opportunities will be developed with the present ranch owner or could
transfer to a subsequent purchaser under similar contractual conditions.
THE FINAL DETAILS
Under the present agreement with
the ranch owner, WCEI has agreed to undertake future development of the mitigation
bank project as it identifies end-users for the mitigation credits. WCEI is in the process of undertaking this
effort at the present time. Credits from
a mitigation bank can be “presold” in the form of an option by agreement
between the end-user and the bank sponsor – WCEI. This is the approach that WCEI is undertaking
jointly on behalf of itself and the ranch owner at the present time.
Thereafter, as a mitigation bank purchase
is agreed upon, WCEI will undertake design, development and construction of the
appropriate eco-restoration efforts at an approximate cost of $3 to $5 million
dollars. Ultimately, all revenue
produced from the sale of credits will be split on a 50/50 basis between WCEI,
the ranch owner or a subsequent party involved with the Camp Cooley Ranch.
The schedule (4.2) below, is an excerpt from the agreement with
the ranch owner agreement and illustrates the potential of revenue from the
Camp Cooley Ranch mitigation.
SCHEDULE 4.2
CAMP COOLEY RANCH
HYPOTHETICAL OWNER’S PRO FORMA
Assumptions
v
Proceeds:
$22,500,000 ($5,000,000 in Year 2 and $8,750,000 in each of Years 3 and 4)
v
Site
Work Costs: $3,500,000 (hard and soft costs of developing the Mitigation
Project)
v
Maintenance
and Monitoring Costs: $100,000 per annum commencing Year 4 and continuing
through Year 8, payable from Reserves. Maintenance and Monitoring Period ends
at Year 8 and all unused Reserves are thereupon distributed.
v
Project
Account Costs: Nominal amounts that are not reflected in pro forma
v
Split
of first $5,000,000-- 75% to Owner/25% to Sponsor; split of second $5,000,000--
25% to Owner, 75% to Sponsor;
thereafter 50% to each of Owner and Sponsor
v
Reserve:
5% of Proceeds
v
Interest:
Distributed annually 50% to Owner and 50% to Sponsor (not reflected on pro
forma)
v
THIS SCHEDULE 4.2 IS A HYPOTHETICAL
ILLUSTRATION OF THE ALLOCATION OF PROCEEDS IN ACCORDANCE WITH SECTION 4.2. THE
ASSUMPTIONS MADE IN
THIS SCHEDULE 4.2 ARE
PURELY HYPOTHETICAL AND ARE NOT A PROJECTION OF A LIKELY SCENARIO. NO
REPRESENTATION WHATSOEVER IS MADE WITH RESPECT TO ANY OF THE ASSUMPTIONS IN
SCHEDULE 4.2 OR ANY PROJECTIONS, ESTIMATES, BUDGETS OR FORWARD LOOKING
INFORMATION, WHETHER SET FORTH IN THIS SCHEDULE 4.2 OR NOT, REFERENCE BEING
MADE TO THE DISCLAIMER IN SECTION 30.6.
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Proceeds 5,000,000 8,750,000 8,750,000
Reserve
Withholding 250,000 437,500 437,500
Net Proceeds
Available for
Distribution 4,750,000 8,312,500 8,312,500
Reserves Available
for Distribution
Sponsor's Share i 1,187,500 5,343,750 4,156,250 312,500
Owner's Share 3,562,500 2,968,750 4,156,250 312,500
Cumulative
Distribution to 3,562,500 6,531,250 10,687,500 11,000,000
Owner
_____________________
i Note Sponsor’s Proceeds
are used to pay all Site Work Costs.
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