Ag Blunder

Pardee Resources' agricultural efforts in California, primarily involving specialized crops like table grapes, can be argued to be a relative waste of corporate resources and capital because they represent a high-risk, high-overhead deviation from the company's core low-overhead resource ownership model, and expose it to acute, unhedgable regional risks.

While the company has reported some profitable seasons for its California table grape operations, the investment platform as a whole creates significant capital deployment inefficiencies and drags on the resource-light structure typical of resource ownership.

Argument for Waste of Resources and Capital

The case for the California agricultural investment being a poor use of capital centers on three primary factors: Deviation from Core Competency, Exposure to California-Specific Risks, and Poor Capital Allocation.

1. Operational Deviation and High Overhead

Pardee Resources' primary business is the passive ownership and leasing of natural resource assets (coal, timber, oil & gas, mineral rights). This is a capital-light, royalty-driven model. Investing in agriculture, particularly high-value specialty crops like table grapes, involves a fundamentally different, high-overhead operating model.

• Requires Specialized Management: Pardee's team is built for managing mineral rights, oil leases, and timber harvests—not running sophisticated, permanent farming operations. While they use a local operator, they still must dedicate internal management time, legal review, and financial oversight to a direct operating liability, which is an inefficient use of scarce corporate resources compared to simply collecting a royalty check from an energy producer.
• Operating Complexity: Unlike timber (which is managed over decades with minimal intervention), table grapes and permanent crops require intensive, hands-on, year-round maintenance (pruning, harvesting, disease management, etc.). This complexity increases the G&A (General and Administrative) burden for a company not otherwise structured for this level of detail.

2. Acute California-Specific Risks

The California Central Valley, where these assets are typically located, presents acute, unmitigatable risks that threaten to destroy capital and resources:

• Water Risk: California agriculture faces the highest water scarcity risk in the US. Regulations under the Sustainable Groundwater Management Act (SGMA) are drastically reducing available groundwater, which directly threatens the long-term viability and value of high-water-use specialty crops like grapes. This risk is effectively unhedgable and could render multi-million-dollar farmland tracts nearly worthless.
• Labor and Regulatory Risk: California has some of the most stringent and costly labor and environmental regulations in the US. This drives up operating costs and exposes the investment to potential labor disputes and unpredictable regulatory changes, further stressing the company's operating budget.

3. Poor Capital Allocation at Scale

Pardee's investments in agriculture are often small (e.g., $$1.6$ million for a 40-acre tract). In the context of a company whose primary assets are massive coal reserves, oil and gas holdings, and large timber tracts, these small farming investments are a diversification effort that is too small to materially impact overall revenue but large enough to distract management and allocate capital to high-risk, low-synergy projects.

• Opportunity Cost: The capital committed to agricultural land development ($1.6 million for the initial tract) could have been used to purchase royalties or mineral rights in core areas (e.g., Appalachian coal, Permian Basin oil/gas) that align with the company's expertise and long-term, low-cost model, yielding a higher risk-adjusted return.

In essence, the argument is that the move into California agriculture, especially table grapes, exposes Pardee to a specialized, high-labor, and water-stressed operating environment that is structurally incompatible with its core identity as a passive, low-overhead resource rights owner, making it a waste of capital and managerial focus.