Panhandle Oil and Gas Inc. Reports Fiscal 2015 Financial Results

OKLAHOMA CITY – Dec. 10, 2015 – PANHANDLE OIL AND GAS INC., the “Company,” (NYSE:PHX) today reported financial and operating results for the fiscal year ended Sept. 30, 2015, and for the fiscal fourth quarter, as well as provided an update on its bank line-of-credit borrowing base.

HIGHLIGHTS FOR THE YEAR ENDED SEPT. 30, 2015

  • Recorded fiscal year 2015 net income of $9,321,341, 0.56 per share, compared to a net income of $25,001,462, 1.49 per share, for fiscal 2014.
  • Posted total fiscal 2015 production of 13.7 billion cubic feet equivalent (Bcfe).
  • Increased fiscal year 2015 oil production 31% over 2014 volumes.
  • Generated cash from operating activities of $45.6 million for the year, well in excess of capital expenditures of $30.8 million.
  • Reduced debt $13 million during fiscal 2015.

Fiscal Year 2015 Results

For fiscal 2015, the Company recorded net income of $9,321,341, or $0.56 per share. This compared to net income of $25,001,462, or $1.49 per share, for fiscal 2014. Net cash provided by operating activities decreased 13% to $45.6 million for 2015 versus 2014, well in excess of capital expenditures in fiscal 2015, which totaled $30.8 million.

Total revenues for 2015 were $70,882,093, a decrease of 16% from $84,411,224 for 2014. Oil, NGL and natural gas sales revenues decreased $28,312,614 or 34% in 2015, as compared to 2014. This revenue decrease was a result of decreased oil, NGL and natural gas prices of 43%, 44% and 33%, respectively, and a 10% decrease in natural gas production, partially offset by increased oil and NGL production volumes of 31% and 2%, respectively. Overall results were a 3% decrease in Mcfe production volumes and a 32% decrease in the average sales price per Mcfe to $3.97, as compared to $5.88 in 2014.

Gains on derivative contracts in 2015 totaled $13.8 million in 2015 as compared to $.2 million in 2014.  The majority of these gains were for oil contracts put in place in fiscal 2014 to protect prices received for production from the Eagle Ford Shale properties.

Oil production increased 31% in 2015 to 453,125 barrels from 346,387 barrels in 2014; while gas production decreased 10% to 9,745,223 Mcf. Production from the Eagle Ford was principally responsible for the increased oil volumes. In addition, 210,960 barrels of NGL were produced in fiscal 2015, which was a 2% increase versus 2014. The decline in natural gas production was principally a result of natural decline in production from the Company’s Fayetteville Shale properties and significantly reduced natural gas drilling and completion activity Company wide.

Total costs and expenses increased $9.1 million or 19% in 2015 as compared to 2014. $3.6 million of the expense increase was in lease operating expenses, as we add additional wells to our producing inventory each year. For the last several years, the majority of wells added have been oil and NGL rich wells, particularly the Eagle Ford wells, which have higher operating costs than dry gas wells. DD&A per Mcfe of production for 2015 was $1.74, as compared to $1.55 in 2014, which resulted in an increase of $2.5 million in DD&A expense in 2015. Offsetting this was a decrease of $.6 million due to a 3% decrease in oil, NGL and natural gas production volumes collectively in 2015, compared to 2014. The rate increase was principally due to lower projected remaining reserve volumes brought about by lower product prices shortening the economic lives of many wells. A further impact of lower product prices in 2015, as compared to 2014, was an increase of $3.9 million in the provision for impairment to $5.0 million.  A significant number of smaller fields, primarily in Oklahoma, Kansas and Texas were responsible for the 2015 impairment charges.

Fiscal Fourth Quarter 2015 Results

For the 2015 fourth quarter, the Company recorded a net loss of $887,681, or $0.05 per share. This compared to net income of $9,297,986, or $0.55 per share, for the 2014 fourth quarter. Net cash provided by operating activities decreased 49% to $8,223,212 for the 2015 fourth quarter versus the 2014 fourth quarter. Fourth quarter 2015 cash from operating activities again exceeded costs to drill and equip wells of $7,187,276.

Total revenues for the 2015 fourth quarter were $13,455,001, a decrease of 52% from $27,887,445 for the 2014 quarter. Oil, NGL and gas sales revenue decreased $12,597,524, or 53% in the 2015 quarter, as compared to the 2014 quarter. This revenue decrease was a result of decreased oil, NGL and natural gas volumes of 11%, 15% and 16%, respectively, and decreased oil, NGL and natural gas prices of 52%, 54% and 37%, respectively. Average sales price per Mcfe of production during the 2015 fourth quarter was $3.46, a 45% decrease from $6.27 in the 2014 fourth quarter. Oil production decreased in the 2015 quarter to 112,237 barrels, versus 126,256 barrels in the 2014 quarter, while gas production decreased 16% to 2,261,236 Mcf, and NGL production decreased 15% to 47,738 barrels. Natural decline and significantly reduced capital expenditures to drill and complete new wells combined to reduce production volumes. Costs and expenses were flat quarter to quarter. Additionally, gains on derivative contracts were $2.1 million in the 2015 quarter compared to $3.8 million in the 2014 quarter.

Bank Line-of-Credit Update

On December 10, 2015, Panhandle’s bank line-of-credit borrowing base was set at $100 million. This compares to a current outstanding balance of $59.5 million. Availability under the line of $40.5 million is well in excess of projected needs. Based on currently expected product prices, the Company anticipates funding normal operations in 2016 from internally generated cash flow.

Management Comments

Michael C. Coffman, President and CEO, said, “It goes without saying that fiscal 2015 was an extremely difficult year in the energy industry. Both oil and natural gas prices were significantly reduced from 2014 average levels, and capital expenditure levels to drill wells were materially constrained as well. As has been Panhandle’s philosophy for many years, we chose the conservative path, spending only cash flow and reducing debt $13 million during the year.

“We have positioned Panhandle not only to survive this current down price cycle, but to be in a position to take advantage of opportunities that may be available should this downturn continue for an extended time. As always, we will continue to follow our proven conservative operating strategies and, coupled with patience, believe our long-term outlook is bright.”

Paul Blanchard, Senior Vice President and COO, said, “Panhandle continues to maintain a consistent investment philosophy driven by a risked rate-of-return analysis of each investment opportunity. We only invest in projects that are anticipated to earn meaningful returns. For the last several years this approach led to the Company to elect to invest in 65% to 70% of well proposals received. During 2015, the Company elected to participate in only 40% of proposals received. The decline in our capital investing led to modestly lower production in 2015, as compared to 2014.

“We believe this approach will serve our shareholders well over the long term as we choose not to invest in projects that are anticipated to provide no meaningful returns at today’s NYMEX futures pricing. Instead, we will preserve that capital to have it available to invest in high-quality assets that may become available at an opportune point in this downturn.”

FINANCIAL HIGHLIGHTS

Statements of Operations

 

 

Three Months Ended Sept. 30,

 

Year Ended Sept. 30,

 

 

2015

 

2014

 

2015

 

2014

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Oil, NGL and natural gas sales

 

$

 11,133,075 

 

$

 23,730,599 

 

$

 54,533,914 

 

$

 82,846,528 

Lease bonuses and rentals

 

 

 64,652 

 

 

 69,906 

 

 

 2,010,395 

 

 

 423,328 

Gains (losses) on derivative contracts

 

 

 2,115,551 

 

 

 3,758,509 

 

 

 13,822,506 

 

 

 247,414 

Income from partnerships

 

 

 141,723 

 

 

 328,431 

 

 

 515,278 

 

 

 893,954 

 

 

 

 13,455,001 

 

 

 27,887,445 

 

 

 70,882,093 

 

 

 84,411,224 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

 

 4,238,428 

 

 

 3,982,645 

 

 

 17,472,408 

 

 

 13,912,792 

Production taxes

 

 

 318,085 

 

 

 822,580 

 

 

 1,702,302 

 

 

 2,694,118 

Exploration costs

 

 

 36 

 

 

 15,877 

 

 

 48,404 

 

 

 86,017 

Depreciation, depletion and amortization

 

 

 6,141,070 

 

 

 6,334,272 

 

 

 23,821,139 

 

 

 21,896,902 

Provision for impairment

 

 

 1,476,431 

 

 

 665,933 

 

 

 5,009,191 

 

 

 1,096,076 

Loss (gain) on asset sales and other

 

 

 (371,408)

 

 

 (22,709)

 

 

 (398,994)

 

 

 8,378 

Interest expense

 

 

 355,427 

 

 

 421,599 

 

 

 1,550,483 

 

 

 462,296 

General and administrative

 

 

 1,965,114 

 

 

 2,083,262 

 

 

 7,339,320 

 

 

 7,433,183 

Bad debt expense (recovery)

 

 

 180,499 

 

 

 -

 

 

 180,499 

 

 

 -

 

 

 

 14,303,682 

 

 

 14,303,459 

 

 

 56,724,752 

 

 

 47,589,762 

Income (loss) before provision (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

for income taxes

 

 

 (848,681)

 

 

 13,583,986 

 

 

 14,157,341 

 

 

 36,821,462 

Provision (benefit) for income taxes

 

 

 39,000 

 

 

 4,286,000 

 

 

 4,836,000 

 

 

 11,820,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

 (887,681)

 

$

 9,297,986 

 

$

 9,321,341 

 

$

 25,001,462 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

 (0.05)

 

$

 0.55 

 

$

 0.56 

 

$

 1.49 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 

 16,546,528 

 

 

 16,474,040 

 

 

 16,522,462 

 

 

 16,472,144 

Unissued, vested directors' shares

 

 

 251,005 

 

 

 258,905 

 

 

 246,442 

 

 

 255,039 

 

 

 

 16,797,533 

 

 

 16,732,945 

 

 

 16,768,904 

 

 

 16,727,183 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share of

 

 

 

 

 

 

 

 

 

 

 

 

common stock and paid in period

 

$

 0.04 

 

$

 0.04 

 

$

 0.16 

 

$

 0.16 

Balance Sheets

 

 

Sept. 30, 2015

 

Sept. 30, 2014

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

 603,915 

 

$

 509,755 

Oil, NGL and natural gas sales receivables,

 

 

 

 

 

 

net of allowance for uncollectable accounts

 

 

 7,895,591 

 

 

 16,227,469 

Refundable income taxes

 

 

 345,897 

 

 

 -

Refundable production taxes

 

 

 476,001 

 

 

 625,996 

Derivative contracts, net

 

 

 4,210,764 

 

 

 1,650,563 

Other

 

 

 252,016 

 

 

 354,828 

Total current assets

 

 

 13,784,184 

 

 

 19,368,611 

 

 

 

 

 

 

 

Properties and equipment at cost, based on successful

 

 

 

 

 

 

efforts accounting:

 

 

 

 

 

 

Producing oil and natural gas properties

 

 

 441,141,337 

 

 

 418,237,512 

Non-producing oil and natural gas properties

 

 

 8,293,997 

 

 

 10,260,717 

Furniture and fixtures

 

 

 1,393,559 

 

 

 1,317,725 

 

 

 

 450,828,893 

 

 

 429,815,954 

Less accumulated depreciation, depletion and

 

 

 

 

 

 

amortization

 

 

 (228,036,803)

 

 

 (204,731,661)

Net properties and equipment

 

 

 222,792,090 

 

 

 225,084,293 

 

 

 

 

 

 

 

Investments

 

 

 2,248,999 

 

 

 1,936,421 

Derivative contracts, net

 

 

 -

 

 

 251,279 

Total assets

 

$

 238,825,273 

 

$

 246,640,604 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

 2,028,746 

 

$

 7,034,773 

Deferred income taxes

 

 

 1,517,100 

 

 

 600,100 

Income taxes payable

 

 

 -

 

 

 523,843 

Accrued liabilities and other

 

 

 1,330,901 

 

 

 1,290,858 

Total current liabilities

 

 

 4,876,747 

 

 

 9,449,574 

 

 

 

 

 

 

 

Long-term debt

 

 

 65,000,000 

 

 

 78,000,000 

Deferred income taxes

 

 

 39,118,907 

 

 

 37,363,907 

Asset retirement obligations

 

 

 2,824,944 

 

 

 2,638,470 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Class A voting common stock, $.0166 par value; 24,000,000 shares

 

 

 

 

 

 

authorized, 16,863,004 issued at Sept. 30, 2015 and 2014

 

 

 280,938 

 

 

 280,938 

Capital in excess of par value

 

 

 2,993,119 

 

 

 2,861,343 

Deferred directors' compensation

 

 

 3,084,289 

 

 

 3,110,351 

Retained earnings

 

 

 125,446,473 

 

 

 118,794,188 

 

 

 

 131,804,819 

 

 

 125,046,820 

Treasury stock, at cost; 302,623 shares at Sept. 30, 2015,

 

 

 

 

 

 

and 372,364 shares at Sept. 30, 2014

 

 

 (4,800,144)

 

 

 (5,858,167)

Total stockholders' equity

 

 

 127,004,675 

 

 

 119,188,653 

Total liabilities and stockholders' equity

 

$

 238,825,273 

 

$

 246,640,604 

Condensed Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended Sept. 30,

 

 

2015

 

2014

Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$

 9,321,341 

 

$

 25,001,462 

Adjustments to reconcile net income (loss) to net

 

 

 

 

 

 

cash provided by operating activities:

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

 23,821,139 

 

 

 21,896,902 

Impairment

 

 

 5,009,191 

 

 

 1,096,076 

Provision for deferred income taxes

 

 

 2,672,000 

 

 

 6,610,000 

Exploration costs

 

 

 48,404 

 

 

 86,017 

Gain from leasing of fee mineral acreage

 

 

 (2,007,993)

 

 

 (422,818)

Net (gain) loss on sales of assets

 

 

 -

 

 

 149,062 

Income from partnerships

 

 

 (515,278)

 

 

 (893,954)

Distributions received from partnerships

 

 

 736,280 

 

 

 1,129,324 

Common stock contributed to ESOP

 

 

 185,113 

 

 

 341,125 

Common stock (unissued) to Directors'

 

 

 

 

 

 

Deferred Compensation Plan

 

 

 302,353 

 

 

 353,825 

Restricted stock awards

 

 

 895,127 

 

 

 659,320 

Bad debt expense (recovery)

 

 

 180,499 

 

 

 -

Cash provided (used) by changes in assets

 

 

 

 

 

 

and liabilities:

 

 

 

 

 

 

Oil, NGL and natural gas sales receivables

 

 

 8,151,379 

 

 

 (2,506,708)

Fair value of derivative contracts

 

 

 (2,308,922)

 

 

 (1,476,644)

Refundable income taxes

 

 

 (345,897)

 

 

 -

Refundable production taxes

 

 

 149,995 

 

 

 576,537 

Other current assets

 

 

 102,812 

 

 

 (224,830)

Accounts payable

 

 

 (343,186)

 

 

 252,860 

Income taxes payable

 

 

 (523,843)

 

 

 (284,149)

Accrued liabilities

 

 

 40,500 

 

 

 279,195 

Total adjustments

 

 

 36,249,673 

 

 

 27,621,140 

Net cash provided by operating activities

 

 

 45,571,014 

 

 

 52,622,602 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

Capital expenditures, including dry hole costs

 

 

 (30,800,625)

 

 

 (38,612,788)

Acquisition of working interest properties

 

 

 (308,180)

 

 

 (83,253,952)

Acquisition of minerals and overrides

 

 

 -

 

 

 (56,250)

Proceeds from leasing of fee mineral acreage

 

 

 2,053,900 

 

 

 477,144 

Investments in partnerships

 

 

 (533,580)

 

 

 (597,149)

Proceeds from sales of assets

 

 

 -

 

 

 92,000 

Net cash used in investing activities

 

 

 (29,588,485)

 

 

 (121,950,995)

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

Borrowings under debt agreement

 

 

 25,833,116 

 

 

 99,846,333 

Payments of loan principal

 

 

 (38,833,116)

 

 

 (30,108,589)

Purchases of treasury stock

 

 

 (242,313)

 

 

 (122,044)

Payments of dividends

 

 

 (2,669,056)

 

 

 (2,661,723)

Excess tax benefit on stock-based compensation

 

 

 23,000 

 

 

 17,000 

Net cash provided by (used in) financing activities

 

 

 (15,888,369)

 

 

 66,970,977 

Increase (decrease) in cash and cash equivalents

 

 

 94,160 

 

 

 (2,357,416)

Cash and cash equivalents at beginning of year

 

 

 509,755 

 

 

 2,867,171 

Cash and cash equivalents at end of year

 

$

 603,915 

 

$

 509,755 

 

 

 

 

Year ended Sept. 30,

 

 

2015

 

2014

Supplemental Disclosures of Cash Flow

 

 

 

 

 

 

Information

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid, net of capitalized interest

 

$

 1,558,885 

 

$

 380,451 

Income taxes paid, net of refunds received

 

$

 3,009,939 

 

$

 5,477,147 

 

 

 

 

 

 

 

Supplemental schedule of noncash

 

 

 

 

 

 

investing and financing activities:

 

 

 

 

 

 

Additions and revisions, net, to asset

 

 

 

 

 

 

retirement obligations

 

$

 70,529 

 

$

 225,453 

 

 

 

 

 

 

 

Gross additions to properties and equipment

 

$

 26,183,115 

 

$

 120,284,639 

Net (increase) decrease in accounts payable for

 

 

 

 

 

 

properties and equipment additions

 

 

 4,925,690 

 

 

 1,638,351 

Capital expenditures, including dry hole costs

 

$

 31,108,805 

 

$

 121,922,990 

OPERATING HIGHLIGHTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fourth Quarter Ended

 

Fourth Quarter Ended

 

Year Ended

 

Year Ended

 

Sept. 30, 2015

 

Sept. 30, 2014

 

Sept. 30, 2015

 

Sept. 30, 2014

MCFE Sold

3,221,086

 

3,783,123

 

13,729,733

 

14,098,009

Average Sales Price per MCFE

$3.46

 

$6.27

 

$3.97

 

$5.88

Barrels of Oil Sold

112,237

 

126,256

 

453,125

 

346,387

Average Sales Price per Barrel

$44.18

 

$91.83

 

$53.12

 

$93.68

MCF of Natural Gas Sold

2,261,236

 

2,690,493

 

9,745,223

 

10,773,559

Average Sales Price per MCF

$2.43

 

$3.88

 

$2.73

 

$4.05

Barrels of NGL Sold

47,738

 

55,849

 

210,960

 

207,688

Average Sales Price per Barrel

$14.10

 

$30.48

 

$18.25

 

$32.31

Quarterly Production Levels

Quarter ended

 

Oil Bbls Sold

 

MCF Sold

 

NGL Bbls Sold

 

MCFE Sold

9/30/15

 

112,237

 

2,261,236

 

47,738

 

3,221,086

6/30/15

 

109,738

 

2,407,049

 

41,737

 

3,315,899

3/31/15

 

114,567

 

2,475,777

 

48,681

 

3,455,265

12/31/14

 

116,583

 

2,601,161

 

72,804

 

3,737,483

9/30/14

 

126,256

 

2,690,493

 

55,849

 

3,783,123

6/30/14

 

70,479

 

2,508,346

 

63,029

 

3,309,394

3/31/14

 

66,239

 

2,788,768

 

51,670

 

3,496,222

12/31/13

 

83,413

 

2,785,952

 

37,140

 

3,509,270

Derivative contracts in place as of December 1, 2015)
(prices below reflect the Company’s net price from the listed pipelines)

 

 

Production volume

 

Indexed

 

 

Contract period

 

covered per month

 

pipeline

 

Fixed price

Natural gas costless collars

 

 

 

 

 

 

January - December 2015

 

100,000 Mmbtu

 

NYMEX Henry Hub

 

$3.50 floor / $4.10 ceiling

January - December 2015

 

70,000 Mmbtu

 

NYMEX Henry Hub

 

$3.25 floor / $4.00 ceiling

December 2015 - May 2016

 

80,000 Mmbtu

 

NYMEX Henry Hub

 

$2.50 floor / $3.10 ceiling

 

 

 

 

 

 

 

Natural gas fixed price swaps

 

 

 

 

 

 

January - September 2016

 

80,000 Mmbtu

 

NYMEX Henry Hub

 

$2.43

 

 

 

 

 

 

 

Oil costless collars

 

 

 

 

 

 

July - December 2015

 

10,000 Bbls

 

NYMEX WTI

 

$80.00 floor / $86.50 ceiling

 

 

 

 

 

 

 

Oil fixed price swaps

 

 

 

 

 

 

April - December 2015

 

5,000 Bbls

 

NYMEX WTI

 

$94.56

July - December 2015

 

7,000 Bbls

 

NYMEX WTI

 

$93.91

 

 

 

 

 

 

 

Panhandle Oil and Gas Inc. (NYSE: PHX) is engaged in the exploration for and production of natural gas and oil. Additional information on the Company can be found at www.panhandleoilandgas.com.

Forward-Looking Statements and Risk Factors This report includes “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include current expectations or forecasts of future events. They may include estimates of oil and gas reserves, expected oil and gas production and future expenses, projections of future oil and gas prices, planned capital expenditures for drilling, leasehold acquisitions and seismic data, statements concerning anticipated cash flow and liquidity and Panhandle’s strategy and other plans and objectives for future operations. Although Panhandle believes the expectations reflected in these and other forward-looking statements are reasonable, we can give no assurance they will prove to be correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Factors that could cause actual results to differ materially from expected results are described under “Risk Factors” in Part 1, Item 1 of Panhandle’s 2015 Form 10-K filed with the Securities and Exchange Commission. These “Risk Factors” include the worldwide economic recession’s continuing negative effects on the natural gas business; Panhandle’s hedging activities may reduce the realized prices received for natural gas sales; the volatility of oil and gas prices; Panhandle’s ability to compete effectively against strong independent oil and gas companies and majors; the availability of capital on an economic basis to fund reserve replacement costs; Panhandle’s ability to replace reserves and sustain production; uncertainties inherent in estimating quantities of oil and gas reserves and projecting future rates of production and the amount and timing of development expenditures; unsuccessful exploration and development drilling; decreases in the values of Panhandle’s oil and gas properties resulting in write-downs; the negative impact lower oil and gas prices could have on the Company’s ability to borrow; drilling and operating risks; and Panhandle cannot control activities on its properties as the Company is a non-operator.

Do not place undue reliance on these forward-looking statements, which speak only as of the date of this release. Panhandle undertakes no obligation to update this information. Panhandle urges you to carefully review and consider the disclosures made in this presentation and Panhandle’s filings with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect Panhandle’s business.