Fiscal Year 2018 Strategy Update

Manage Mineral and Leasehold Assets as a Portfolio to Maximize Value and Generate Optimal Cash Flow

  • Selectively participate with working interest on existing holdings in the highest quality, low-risk projects that are projected to exceed our corporate return threshold.
    • Working interest wells which began producing in 2017 and 2018 exceeded the Company’s pre-tax rate of return threshold.
    • The 2018 working interest participation rate was 35% of proposed wells versus pre-fiscal 2016 historical rates of 65-70% participation, demonstrating Panhandle’s commitment to only make investments in our very best participation opportunities.
  • Aggressively lease out mineral holdings outside areas of potential working interest participation.
    • The Company generated $14.8 million in lease bonus proceeds from 2016 through 2018. The Company leased out 2,304 acres of minerals in 2018 for $1.6 million in lease bonus at an average royalty of 23.4%.
  • Grow the mineral holdings by acquiring mineral acreage, in the cores of resource plays, with substantial undeveloped opportunities that meet or exceed our corporate return threshold.
    • Panhandle re-entered the mineral acquisition market in 2018 with mineral purchases in the cores of the Bakken in North Dakota and the SCOOP and STACK plays in Oklahoma.
  • Divest minerals with limited optionality and mineral rights when the amount negotiated exceeds our projected total value.
    • The Company closed on the first notable mineral acreage sale in its history on November 30, 2018, with the sale of 206 net mineral acres in Lea and Eddy Counties, New Mexico. The sale price was $9.3 million (before closing adjustments) or approximately $45,000 per acre.

Maintain Strong Financial Position

  •  Allocate capital for highest shareholder returns.
    • $11.6 million to core resource play drilling
    • $11.3 million to core resource play acquisitions
    • $2.7 million to regular cash dividends
    • $1.2 million to stock repurchases
    • $1.2 million to debt repayment
  • Drive operational efficiency, minimize G&A expense.
    • As part of Panhandle’s program to reduce costs, the Company sold 324 marginal properties in 2018. This sale contributed to the reduction in LOE per Mcfe in 2018.
  • Maintain conservative leverage ratio to ensure the ability to survive and thrive in all business and commodity cycles.
    • Year-end 2018 debt/adjusted EBITDA was 1.96.
  • Hedge to manage commodity risk and to protect balance sheet.
    • Hedge for up to two years to protect investment returns. Current oil hedging is through June 2020.

Reward Shareholders

  • Continue to pay regular dividends.
    • Panhandle has paid a regular dividend for more than 50 consecutive years. The current dividend rate is $0.16 per year and is paid quarterly.
  • Pay special dividends when the Company has capital availability beyond the needs of the business.
  • Repurchase shares when the stock trades at a material discount to the Company’s estimate of intrinsic value.
    • Board of directors recently modified the share repurchase program to allow more flexibility.
    • $1.5 million share repurchase program that automatically renews to this level when exhausted (evergreen).
    • The Company’s current intent is to start repurchasing shares again once the blackout period is over.