Hanging H Ranch
backstory:
ROY LINDSAY
Mr. Roy Orey Lindsay established The Hanging Ranch in the 60s and 70s in and around Pecos Texas.. Mr. Lindsay’s lifelong ambition, like many other West Texas pioneers, was to own as much land as possible to raise cattle. The dry climate and arid topography of Pecos and Reeves County Texas means that it takes a substantial amount of land in this area to raise cattle.
He worked hard to get the land that he got, he worked for the county; running a dirt moving business and he also had a dirt construction business, late in his life, but through the process of raising his family. He accumulated 67,000 deeded acres on a series of ranches that he owned that spanned 138,000 acres that went all the way from the border of New Mexico to Balmorhea, Texas, and spent the 92 miles from the northernmost point of his ranches to the southernmost point of the ranches.
INTERESTING THING:
The most interesting thing occurred in 2010, when the Hanging H Ranch became one of the richest places in the world because they began operating multiple oil and gas operations on the ranch with only 11 operators.
Now, Mr. Lindsay did not own a part of the minerals on the land because he wanted to just raise cows. However, the associated operations, and business opportunities related to oil and gas companies and operations on his land were substantial and included the sale of fresh water for hydraulic fracking, the disposal of salt water or produced water related to hydraulic fracking. The base/dirt materials, otherwise known as Caliche, that subsided on the land that is often used for the building of pad sites, roads and things like that. There were also easements and right of ways for pipelines and water lines,and for all the takeaways that came from the oil and gas operations. Both gas, oil, electric lines to build out, infrastructure electricity, and more. All those easements and land opportunities related to the land, when you have a large amount of land like Mr. Lindsay had, at 67,000 acres, the income from the operations of the oil and gas companies on the land became substantial.
So, as he passed away these oil and gas opportunities continued to flourish, along with the management and development of capital on the ranch. The income for oil and gas was increasing and continued increasing up until 2018.
UNHAPPY SHAREHOLDERS
Upon his death. The ranch was managed by several of the shareholders. First by his son, Jeff Lindsay, then his daughter Joan Lindsay, later after that, Susan Lindsay, who was a spouse of a deceased brother named John Lindsay, and then finally, before the receivership, it was managed for a number of years by Roy Lindsay Junior; otherwise known as Sonny Lindsay. Under management of Sonny Lindsay, one of the shareholders of the ranch, there were some problems that occurred; the first being that there was no communication with the Shareholders about what was going on and there was no distribution related to income from the ranch or very little distribution related to income from the ranch. And there was a trust for 51% of the Hanging H Ranch had been established, but it had never been funded or managed, so really it wasn’t a trust per se.
RECEIVER NEEDED
So, it was the decision of the 143rd district court and Judge Gibson along with the attorneys for the shareholders that the receiver should be brought in, and on October the 25th of 2018, they named Roy Jackson to be the receiver of the Hanging H Ranch. Upon being appointed, I was asked to deliver inventory to the court of everything that was there, including money, and then also establish the operation of the ranch and take over the day to day operations. I was also charged with making the ranch my full time job, so we went to court in January of 2019 and the judge decided that we would do mediation. There had been two prior mediations, which had both failed, but we were going to try to get a mediated settlement agreement.
RRIG WANTs THE RANCH
We had multiple parties that either wanted to buy the ranch, buy a portion of the ranch, or manage the ranch, so we met to decide what we were going to do. There was one company that made an offer for the assets of the Hanging H Ranch for 450 million dollars. So,the mediated settlement was going to allow the company to buy the ranch for $450 million dollars and achieve that sale by June of 2019.
So, we got into a letter of intent with that company. RRIG started doing their due diligence to buy the ranch, and in the meantime the receiver made an initial distribution out of funds that were in the bank to the shareholders and at that time the court established Southwest Bank to manage the trust without booting the shares of the trust, and mainly to be a holder of the money until the trust was funded and established.
I started putting money aside for the trust. So, 51 percent of all distributions that I was making was being put aside, and Southwest Bank held that in a money market account for the trust. At the same time, I started negotiating all of the land agreements on the ranch, negotiating right of way agreements related to all the land, started selling the water, and brought the employees together and created a team where we started managing the ranch on a day by day basis. On a monthly basis, starting in January of 2019, I started communicating, a monthly report, which I read into the court record every month to try to communicate with the shareholders how much money we were making, how much cash was in the bank, what some of the operational things that were going on on the ranch, and we started communicating that into the core record on a complete basis.
DUE DILIGENCE
Once we started doing that, we started our new due diligence. In June, RRIG communicated to us that they couldn’t close, but they were still seeking for funding and so they ended up asking for an extension, so we extended for them through July and into August of 2019, and then we ended up terminating their letter of intent to buy the ranch in September of 2019.
Upon the termination of the letter of intent with RRIG, we continued to operate the ranch and we ended up having a neighbor named Seawolf pursue purchase of the ranch with an interesting kind of caveat that they would purchase the stock of the ranch rather than the assets. So, That would net the shareholders the same amount of money because Hanging H Ranch was a C corporation, so they missed one tax event where they wouldn’t have to be taxed on the sale of the company. If they would have sold the assets, like they were talking about doing to RRIG, they would have been taxed on the sale and then they would have been taxed on the distribution to the shareholders. Seawolf came along and wanted to purchase the shares of the company and not the assets, but they ended up lowering the purchase price to 357 million dollars, which was net of the distribution that would have been made if we sold the assets. We signed a Letter of intent with Seawolf in October of 2019 for 357 million dollars.
We did what’s called a Rule 11 to change the buyer from RRIG to any buyer and to change the 450 million dollar asset purchase to a 357 million dollar stock purchase. However, there was one of the shareholders that had decided they didn’t want to sell even though we were under a mediated settlement agreement. He tried to convince his shareholder siblings, and other family members not to sell the ranch, and in a meeting in front of Judge Gibson, ended up in a physical altercation with one of his other family members resulting in a fist fight and that shareholder being removed from the courthouse and put in jail. Which resulted in him signing the letter of intent to sell the ranch from jail, wearing appropriate jail attire. He was released from jail and we officially had a signed letter of intent to sell to Seawolf in October of 2019 and SeaWolf commenced their due diligence to purchase the ranch through the rest of 2019. And with a proposed closing day of March the 31st, 2020.
COVID
Unfortunately, as we were about to close in the middle of March 2020, the COVID pandemic hit the globe and we ended up with capital markets declining. SeaWolf was not able to procure their funding. and so they terminated the purchase of the ranch and forfeited their non-refundable escrow, as RRIG had done previously as well. Consequently, we were running the ranch during the global pandemic and continued to do so from March of 2020 until July of 2020 when finally, Water Bridge tried to put forth a letter of intent to buy the company, but had reduced the price to 210 million dollars from 357 million dollars. It may have been 280 million dollars. We had a second mediated settlement agreement in August of 2020, which called for Jeff Lindsey to get all the cattle operations, and obtain a grazing lease on the ranch. Lastly, we signed a letter of intent with Water Bridge to close the transaction by October of 2020.
WATERBRIDGE IS IN ON EVERY TRANSACTION
We had suspected, but did not know that Water Bridge was an equity partner of RRIG in their transaction. It is interesting to note that WaterBridge was the money behind every transaction leading up until the end. They were also an equity partner of Seawolf in the SeaWolf transaction. And in this case, Water Bridge, who wanted to put salt water disposal facilities on the ranch ended up trying to purchase the ranch, but because they had been an equity partner of Seawolf, SeaWolf proposed that there had been a partnership there that they were still tied to, and since they had not brought Seawolf into their independent transaction SeaWolf sued WaterBridge to halt them from buying the ranch without Seawolf, and they ended up fighting that out in court for the remainder of 2020. Finally, at the end of 2020, after Paying for two extensions, they terminated their letter of intent to purchase the ranch in December of 2020.
CONTINUE MANAGEMENT
In January of 2021, I continued to manage the ranch and we looked at alternatives to the receivership, the shareholders considered some sort of trust that the receiver would manage outside of the receivership. We looked at several different options. What was interesting was that they had come to, I think, maybe trust or know what the receiver was capable of, in such an effect, that they were comfortable with me, continuing to manage the ranch, because over the three years that I managed the ranch, I went back to the things that were wrong at the very beginning. I had been able to establish communication with the shareholders. I had distributed, at that time, over 84 million dollars in proceeds. So, those two things were going along and I was communicating in court on a regular basis. I was writing a report each and every month that I read into the court record, and I was clear on what my objectives were and the ranch was making a substantial profit each and every month as well. We had never had a month where we lost money.
We ended up managing the ranch and trying to figure out what we were going to do. Then in July of 2021 Waterbridge came back around and offered to buy the ranch for 210 million dollars. They ended up, starting their due diligence, with the intention of closing in October of 2021. And on this occasion, they were able to close the transaction in October of 2021 for 210 million dollars to WaterBridge.
CONCLUSION
Coming out of the transaction, there was a hold back because they’re buying the shares of the company, there was a hold back of funds that is to be distributed over a 36 month period after October 2021. Plus, there were various wrap up activities for the closing down of the company; such as filing income tax reports, so we set up a company called HH Investors. HH Investors manages the hold back in any activities related to the closing down of the Hanging H Ranch for the shareholders. The Receiver, Roy Jackson, still manages HH investors for the shareholders, does any follow-up, and any distributions that are necessary, today.