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Pope Resources Reports Second Quarter Net Income of $1.7 Million

July 30, 2008

POULSBO, Wash.--(BUSINESS WIRE)--July 30, 2008--Pope Resources (Nasdaq:POPE) reported net income of $1.7 million, or $0.36 per diluted ownership unit, on revenues of $11.3 million for the second quarter ended June 30, 2008. This compares to net income of $4.8 million, or $1.01 per diluted ownership unit, on revenues of $15.3 million for the comparable period in 2007.

Net income for the six months ended June 30, 2008 totaled $2.6 million, or $0.55 per diluted ownership unit, on revenues of $17.6 million. Net income for the corresponding period in 2007 totaled $5.7 million, or $1.19 per diluted ownership unit, on revenues of $22.1 million.

Cash flows provided by operations for the quarter ended June 30, 2008 were $5.1 million, compared to $7.7 million for the second quarter of 2007. For the six months ended June 30, 2008, cash flow from operations was $5.6 million, compared to $6.9 million for year-to-date 2007 results.

"Quarterly and year-to-date results as of June 30, 2008 are down significantly compared to 2007 performance due to deteriorating market conditions for both our Fee Timber and Real Estate segments as well as the decision to reduce our planned harvest by 33% this year," said David L. Nunes, President and CEO. "Notwithstanding the current market conditions, which we believe will extend well into 2009, we continue to focus on creating long-term value by investing in our real estate portfolio and deferring a significant proportion of our income by reducing our harvest below long-term sustainable harvest levels."

Operating income in the second quarter for Fee Timber declined 60%, from $7.3 million in 2007 to $2.9 million in 2008. This drop was driven primarily by a 36% reduction in our harvest volume, from 23 million board feet (MMBF) in 2007 to 14 MMBF in 2008, and a 20% decline in average realized log price, from $626 per thousand board feet (MBF) in 2007 to $501 per MBF in 2008. A portion of this reduction in average realized log price is a result of an effort to shift a greater proportion of our harvest into stands with a higher mix of lower-valued pulpwood. While average pulpwood log prices decreased by only 8% during the quarter, having a higher mix of pulpwood pulled down the overall average realized log price.

For the first six months of 2008, Fee Timber operating income declined 46%, from $9.7 million in 2007 to $5.2 million in 2008. This decline was driven by the compound effect of a 27% drop in harvest volumes, from 33 MMBF in 2007 to 24 MMBF in 2008, together with a 16% decrease in average realized log price, which dropped from $611 per MBF in 2007 to $516 per MBF in 2008. Through the first half of 2008, we harvested 65% of our planned annual harvest volume, compared to the first half of 2007, when we harvested 59% of the total annual harvest volume. Because management believes that downside risk for market conditions is greater than any upside potential in coming months, we continued our recent practice of front-loading our harvest volume into the first half of the year, with the result that quarterly harvest volumes for the remainder of 2008 will be lower in relation both to the first two quarters and to corresponding periods of 2007.

Our Timberland Management & Consulting segment posted an operating loss of $309,000 for the six months ended June 30, 2008, which was comparable to the $300,000 operating loss for the same period in 2007. These losses reflect the start up mode of our timber fund business activities.

The operating loss for our Real Estate segment for the first six months of the year improved by $317,000 due to a modest increase in raw land sales. Year-to-date operating losses for this segment were $706,000 for 2008 as compared to just over $1.0 million in 2007. Losses in both periods reflect the absence of significant property sales.

General & Administrative expenses for the first six months of 2008 were $837,000 lower compared to the prior year primarily because of professional service fees incurred in 2007 that did not recur in the current year.

As of June 30, 2008 Pope Resources held AAA-rated Student Loan Auction Rate Securities ("SLARS") with a par value of $15.7 million. This amount is $1.2 million less than our SLARS position at March 31, 2008, with the reduction due to redemptions by issuers at par value during the second quarter. SLARS are collateralized long-term debt instruments that for years have provided liquidity through a Dutch auction process. However, in February 2008 these auctions failed, resulting in a loss of liquidity for holders of these securities. In light of these auction failures, management determined it is sufficiently uncertain that these securities will be settled in cash within one year and, as a result, we have reclassified these investments on our balance sheet from current to long-term, with the exception of $1.1 million that is expected to be redeemed by its issuer in July at par plus accrued interest. We have recorded our estimate of the impairment of these securities to accumulated other comprehensive loss, which is a component of partners' capital, in the amount of $1.2 million, which we believe to be temporary in light of the issuers continuing to pay amounts due under the debt instruments and our intent and ability to hold these securities until we can recover our cost basis.

The financial schedules attached to this earnings release provide detail on individual segment results and operating statistics.

About Pope Resources

Pope Resources, a publicly traded limited partnership, and its subsidiaries Olympic Resource Management and Olympic Property Group, own or manage over 400,000 acres of timberland and development property in Washington and Oregon. In addition, we provide forestry consulting and timberland investment management services to third-party owners and managers of timberland in Washington, Oregon, and California. The company and its predecessor companies have owned and managed timberlands and development properties for more than 150 years. Additional information on the company can be found at www.poperesources.com. The contents of our website are not incorporated into this release or into our filings with the Securities and Exchange Commission.

This press release contains a number of projections and statements about our expected financial condition, operating results, business plans and objectives. These statements reflect management's estimates based on current goals and its expectations about future developments. Because these statements describe our goals, objectives, and anticipated performance, they are inherently uncertain, and some or all of these statements may not come to pass. Accordingly, they should not be interpreted as promises of future management actions or financial performance. Our future actions and actual performance will vary from current expectations and under various circumstances the results of these variations may be material and adverse. Some of the factors that may cause actual operating results and financial condition to fall short of expectations include conditions in the housing construction and wood-products markets that affect demand for our products; factors that affect our ability to anticipate and respond adequately to fluctuations in the market prices for our products; environmental and land use regulations that limit our ability to harvest timber and develop property; labor, equipment and transportation costs that affect our net income; and our ability to discover and to accurately estimate liabilities associated with our properties. Other factors are set forth in that part of our Annual Report on Form 10-K entitled "Risk Factors." Other issues that may have an adverse and material impact on our business, operating results, and financial condition include those risks and uncertainties discussed in our other filings with the Securities and Exchange Commission. Forward-looking statements in this release are made only as of the date shown above, and we cannot undertake to update these statements.

            Pope Resources, A Delaware Limited Partnership
                              Unaudited

         CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS
           (all amounts in $000's, except per unit amounts)

                                  Three months ended Six months ended
                                       June 30,           June 30,
                                      2008     2007     2008     2007

Revenues                          $ 11,252  $15,326  $17,592  $22,113
Costs and expenses:
 Cost of sales                      (6,289)  (6,294)  (8,968)  (9,131)
 Operating expenses                 (3,348)  (4,080)  (6,304)  (7,342)
                                  --------- -------- -------- --------
Operating income                     1,615    4,952    2,320    5,640
 Interest, net                         (77)      18       (8)      27
                                  --------- -------- -------- --------
Income before income taxes and
 minority interest                   1,538    4,970    2,312    5,667
Income tax expense                       -      (10)     (57)     (17)
                                  --------- -------- -------- --------
Income before minority interest      1,538    4,960    2,255    5,650
 Minority interest                     145     (145)     369       19
                                  --------- -------- -------- --------
Net income                         $ 1,683  $ 4,815  $ 2,624  $ 5,669
                                  ========= ======== ======== ========

Average units outstanding - Basic    4,583    4,685    4,601    4,675
                                  ========= ======== ======== ========
Average units outstanding -
 Diluted                             4,707    4,786    4,728    4,776
                                  ========= ======== ======== ========

Basic net income per unit          $  0.37  $  1.03  $  0.57  $  1.21
                                  ========= ======== ======== ========
Diluted net income per unit        $  0.36  $  1.01  $  0.55  $  1.19
                                  ========= ======== ======== ========
                     CONSOLIDATED BALANCE SHEETS
                       (all amounts in $000's)

                                                30-Jun-08   31-Dec-07
                                               ----------- -----------
Assets:
 Cash and cash equivalents                      $  11,553    $   2,174
 Auction rate securities, current                   1,050       30,775
 Other current assets                               3,479        2,095
 Roads and timber                                  93,446       94,635
 Properties and equipment                          45,527       47,054
 Auction rate securities, long term                13,496            -
 Other assets                                       1,397        2,592
                                               ----------- -----------
     Total                                      $ 169,948    $ 179,325
                                               =========== ===========
Liabilities and partners' capital:
 Current liabilities                            $   3,922    $   5,451
 Long-term debt, excluding current portion         28,094       29,385
 Other long-term liabilities                        1,970        2,042
                                               ----------- -----------
 Total liabilities                                 33,986       36,878
 Minority interest-ORM Timber Fund I, LP           44,644       45,803
 Partners' capital                                 92,472       96,644
 Accumulated other comprehensive loss              (1,154)           -
                                               ----------- -----------
     Total                                      $ 169,948    $ 179,325
                                               =========== ===========
   RECONCILIATION BETWEEN NET INCOME AND CASH FLOWS FROM OPERATIONS
                       (all amounts in $000's)

                               Three months ended   Six months ended
                                     June 30,            June 30,
                                 2008      2007      2008      2007

Net income                     $  1,683  $  4,815  $  2,624  $  5,669
Added back:
  Depletion                       1,083     2,038     1,738     2,749
  Timber depletion on HBU sale        -         -       126         -
  Depreciation and
   amortization                     197       197       385       399
  Other non-cash additions         (178)       87       (26)      373
  Cost of land sold               2,344        14     2,517        46
                               --------- --------- --------- ---------
                               $  5,129  $  7,151  $  7,364  $  9,236
                               --------- --------- --------- ---------

  Change in working capital
   balances                          13       567    (1,725)   (2,329)
                               --------- --------- --------- ---------
  Cash flows provided by (used
   in) operations              $  5,142  $  7,718  $  5,639  $  6,907
                               ========= ========= ========= =========


                                         SEGMENT INFORMATION
                                       (all amounts in $000's)

                               Three months ended   Six months ended
                                     June 30,            June 30,
                                 2008      2007      2008      2007

Revenues:
  Pope Resources               $  7,341  $ 13,085  $ 12,793  $ 19,259
  ORM Timber Fund I, LP           2,747     1,529     2,855     1,547
      Total Fee Timber           10,088    14,614    15,648    20,806
  Timberland Management &
   Consulting (TM&C)                254       356       478       708
  Real Estate                       910       356     1,466       599
                               --------- --------- --------- ---------
      Total                      11,252    15,326    17,592    22,113
Operating income/(loss):
  Pope Resources                  2,933     6,854     5,285     9,273
  ORM Timber Fund I, LP              15       435       (56)      421
      Total Fee Timber            2,948     7,289     5,229     9,694
  TM&C                             (111)     (169)     (309)     (300)
  Real Estate                      (206)     (462)     (706)   (1,023)
  General & administrative       (1,016)   (1,706)   (1,894)   (2,731)
                               --------- --------- --------- ---------
      Total                    $  1,615  $  4,952  $  2,320  $  5,640
                               ========= ========= ========= =========


                                         SELECTED STATISTICS

                               Three months ended   Six months ended
                               30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07
Log sale volumes (thousand
 board feet):
 Sawlogs
  Douglas-fir                     8,928    15,991    16,129    23,106
  Whitewood                       1,230     2,922     1,742     3,713
  Cedar                             392       575       460       635
  Hardwood                          451       878       652     1,007
 Pulp
  All species                     3,461     2,241     4,987     4,185
                               --------- --------- --------- ---------
  Total                          14,462    22,607    23,970    32,646
                               ========= ========= ========= =========

Average price realizations
 (per thousand board feet):
 Sawlogs
  Douglas-fir                       525       638       546       630
  Whitewood                         416       477       432       480
  Cedar                           1,222     1,333     1,227     1,320
  Hardwood                          671       945       661       910
 Pulp
  All species                       366       398       363       430
  Overall                           501       626       516       611

Owned timber acres              114,000   140,000   114,000   140,000
Acres under management          291,000   293,000   291,000   293,000
Capital expenditures ($000's)  $    301  $  3,101  $  2,286  $  4,410
Depletion ($000's)                1,083     2,038     1,864     2,749
Depreciation ($000's)               197       197       385       399
Debt to total capitalization         24%       25%       24%       25%
                    QUARTER TO QUARTER COMPARISONS
               (Amounts in $000's except per unit data)

                                               Q2 2008 vs. Q2 2008 vs.
                                                Q2 2007     Q1 2008

                                                  Total       Total
                                               ----------- -----------

Net income:
  2nd Quarter 2008                               $  1,683    $  1,683
  1st Quarter 2008                                                941
  2nd Quarter 2007                                  4,815
                                               ----------- -----------
     Variance                                    $ (3,132)   $    742

Detail of earnings variance:
Fee Timber
  Log price realizations (A)                     $ (1,787)   $   (529)
  Log volumes (B)                                  (5,091)      2,665
  Depletion                                           955        (428)
  Production costs                                  1,392      (1,136)
  Other Fee Timber                                    190          95
Timberland Management & Consulting
  Management fee changes                              (11)        (17)
  Other Timberland Mgmnt & Consulting                  69         104
Real Estate
  Land sales                                          373         441
  Depletion                                             -         126
  Other Real Estate                                  (117)       (273)
General & administrative costs                        690        (138)
Interest expense                                       78          31
Other (taxes, minority int., interest inc.)           127        (199)
                                               ----------- -----------
Total change in earnings                         $ (3,132)   $    742
                                               =========== ===========


(A) Price variance calculated by extending the change in average
     realized price by current period volume.

(B) Volume variance calculated by extending change in sales volume by
     the average log sales price for the comparison period.

CONTACT: Pope Resources
Tom Ringo, VP & CFO, 360-697-6626
Fax 360-697-1156
SOURCE: Pope Resources

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