Potlatch Corporation

Background:
Potlatch Corporation, headquartered in Spokane, Washington, is a mid-sized integrated forest products company with roughly 1.5 million acres of timberland in Idaho, Minnesota, and Arkansas. They are the largest private landowner in both Idaho and Minnesota and one of the largest in Arkansas. Potlatch’s 670,000 acres in Idaho contains extensive wildlife habitat including over 1,500 miles of fish-bearing streams and it is well integrated with federal and state public lands. The 320,000 acres in Minnesota are more fragmented but also include important natural habitats and are well integrated with public lands. The 470,000 acres in Arkansas include some important naturally regenerating pine stands, a threatened habitat type in the south.

During the 1990s technology boom, the stock of many traditional resource companies performed relatively poorly. Integrated forest products companies in particular lagged the indices and Wall Street began to assert pressure to improve performance. Of particular interest was the underlying value of the timberlands of these companies which was not reflected in their stock price. Throughout the industry, management began to look for ways to realize this value. Some companies separated their manufacturing facilities from the land base or sold the land outright. There was also much consolidation through mergers and acquisition. Potlatch, however, is taking a significantly different approach, choosing to remain independent and hang on to the bulk of their landbase. One of Potlatch’s strategies has been to monetize non-timber values inherent in their land base through the sale of Working Forest Conservation Easements – in which they retain the timber rights but are paid to transfer the development and recreation rights and preserve some sensitive sites.

LTC Conservation Advisory Services Role:
In 2001, Potlatch contracted Lyme to undertake an initial “Scoping Study” of its Idaho timberlands. The idea was to assess the environmental and other values that the lands provided to the public, identify potential funding sources for easement and/or fee sales, interview potential non-profit and public agency partners, and make recommendations to Potlatch. This preliminary consultancy led to a longer term advisory relationship and the design of a transaction partnership between Potlatch and The Trust for Public Land (TPL). While the initial vision included protecting nearly the entire 670,000 acres with easements, given the intense competition for limited funding in Idaho, this was deemed unrealistic. As a result, the program was reduced to focus on Potlatch’s 80,000 acres in the St. Joe watershed where Potlatch is the principle private landowner.

Lyme, Potlatch and TPL assisted the State of Idaho in getting enrolled in the federal Forest Legacy program which provided a source of funds. The St. Joe Initiative has been structured in five phases based on realistic Forest Legacy and matching private fundraising goals. To date, 25,000 acres have been protected, with roughly another 25,000 acres scheduled in 2005 and the balance over the next two years. Lyme’s role has been to provide technical and strategic advice on easement design, appraisals, partnerships, public and private fundraising, and public relations.

Potlatch also retained Lyme to undertake similar advisory roles in Minnesota and Arkansas. In Minnesota, again working with TPL, and with Forest Legacy and state funding, Potlatch is selling an easement over 4,800 acres of timberland in the Brainerd Lakes area. The first phase of this project totaling 3,200 acres is scheduled to close in 2005, with the remainder closing in 2006. These forestlands are adjacent to the Pillsbury and Crow Wing State Forests and located in a fast developing part of the state. Similar projects in Minnesota’s Border Lakes and Arrowhead Regions, with TPL and The Nature Conservancy, are in the planning stages.

In Arkansas, The Nature Conservancy is interested in Potlatch’s naturally regenerating pine lands because this habitat type, and the myriad species found there, has largely been replaced with plantations elsewhere in the south. The opportunity to protect this ecosystem type on a landscape scale is highly unusual. Although this project is again in the planning stages, the idea is that Potlatch, through the sale of a conservation easement, would retain the timber rights but convey the development rights and the right to convert the land to a plantation.

In addition to providing advice on specific land conservation dispositions, Lyme’s relationship with Potlatch has evolved into a close partnership. Lyme has been well placed to advise Potlatch on many general environmental and resource management issues. Potlatch has made a strong commitment to sustainable forestry and environmental responsibility, believing that, not only is it the right thing to do, but that it provides them with a marketing advantage in a highly competitive industry.

Potlatch’s Environmental Management System (EMS), which is certified to ISO 14001 standards, provides a solid framework for meeting its many environmental responsibilities. In addition, Potlatch is the first U.S. based publicly traded integrated forest products company to achieve third party certification of their forest practices under the guidelines of the Forest Stewardship Council (FSC) – the certification program developed and favored by environmental groups. Potlatch received this certification on its 670,000 acres in Idaho in 2004 and its 470,000 acres in Arkansas in 2005. The 319,000 acre Minnesota land-base is likely to follow in the near future. Potlatch’s irrigated hybrid poplar farm in Eastern Oregon is also certified to the FSC standard. In addition, forest management on Potlatch’s entire 1.5 million acres of forest ownership and its poplar operation are certified under the guidelines of the American Forest and Paper Association’s Sustainable Forestry Initiative (SFI) and the ISO 14001 standard.