Panhandle Oil and Gas Inc. Reports Fiscal Third Quarter and Nine Months 2014 Results

OKLAHOMA CITY – Aug. 7, 2014 – PANHANDLE OIL AND GAS INC. (NYSE: PHX) today reported financial and operating results for the Company’s fiscal third quarter and nine months ended June 30, 2014.

HIGHLIGHTS FOR THE PERIODS ENDED JUNE 30, 2014

  • Recorded nine month 2014 net income of $15,703,476, $1.88 per diluted share, compared to net income of $8,240,953, $0.99 per diluted share, for the 2013 nine months.
  • Recorded fiscal third quarter 2014 net income of $5,122,585, $0.61 per diluted share, as compared to $5,070,168, $0.61 per diluted share, for the 2013 quarter.
  • Generated cash from operating activities of $36,438,536 for the 2014 nine-month period, well in excess of $26,693,851 of capital expenditures for drilling and equipping wells.
  • Reported 2014 third-quarter and nine-month production of 3,309,394 Mcfe and 10,314,886 Mcfe, respectively, which were increases of 2% and 9%, respectively, over the same periods of fiscal 2013.
  • Continued to record increased oil production, 27% and 42% for the 2014 quarter and nine months, respectively, as compared to the same 2013 periods.
  • Continued to record increased natural gas liquids (NGL) production, 146% and 86% for the 2014 quarter and nine months, respectively, as compared to the same 2013 periods.
  • Closed largest acquisition in Company history on June 17, 2014.

FISCAL THIRD QUARTER 2014 RESULTS

For the 2014 third quarter, the Company recorded net income of $5,122,585, or $0.61 per diluted share.  This compared to net income of $5,070,168, or $0.61 per diluted share, for the 2013 third quarter.  Net cash provided by operating activities increased 68% to $14,705,184 for the 2014 third quarter, versus the 2013 third quarter.  Capital expenditures for drilling and completing wells for the 2014 fiscal quarter totaled $9,086,863 and continue to be principally directed toward oil and NGL rich plays in western and south central Oklahoma, the Texas Panhandle, and, subsequent to the acquisition, in the Eagle Ford Shale.  The 2014 quarter included a $1.4 million loss on derivative contracts as compared to a $1.7 million gain for the 2013 period.  The Company principally uses derivative contracts of less than one year duration to provide protection against significant declines in cash flows from fluctuations in the price of natural gas and, to a lesser extent, oil and will typically hedge around 50% of its expected production volumes.

Total revenues for the 2014 third quarter were $18,374,977, a 4% increase from $17,730,445 for the 2013 quarter.  Oil, NGL and natural gas sales increased $3,707,408 or 23% in the 2014 quarter, compared to the 2013 quarter, as a result of a 2% increase in Mcfe production and a 20% increase in the average per Mcfe sales price.  The average sales price per Mcfe of production during the 2014 third quarter was $5.90, compared to $4.90 for the 2013 third quarter.  Increases in the sales price of natural gas and higher sales volumes of high-value oil and NGL combined to improve the average sales price per Mcfe.

Oil production increased 27% in the 2014 quarter to 70,479 barrels versus 55,474 barrels in the 2013 quarter, while gas production of 2,508,346 Mcf for the 2014 quarter decreased 9% compared to the 2013 quarter.  In addition, 63,029 barrels of NGL were sold in the 2014 quarter as compared to 25,660 barrels in the 2013 quarter, an increase of 146%.

NINE MONTHS 2014 RESULTS

For the 2014 nine months, the Company recorded net income of $15,703,476, or $1.88 per diluted share.  This compared to net income of $8,240,953, or $0.99 per diluted share, for the 2013 nine months.  Net cash provided by operating activities increased 51% year over year to $36,438,536 for the 2014 nine months versus the 2013 nine months.  Again, cash flow from operations fully funded costs to drill and equip wells for the nine months.  Capital expenditures for the 2014 nine months totaled $113,509,546, which included $26,693,851 for drilling and equipping wells and acquisitions of $86,815,695.  The 2014 nine months included a $3.5 million loss on derivative contracts as compared to a $0.8 million gain for the 2013 period.

Total revenues for the 2014 nine months were $56,523,778, a 27% increase from $44,492,866 for the 2013 nine months.  Oil, NGL and natural gas sales increased $16,428,993 or 38% in the 2014 nine months, compared to the 2013 nine months, as a result of a 9% increase in Mcfe production and a 27% increase in the average per Mcfe sales price.  The average sales price per Mcfe of production during the 2014 nine months was $5.73, compared to $4.50 for the 2013 nine months.

Oil production increased 42% in the 2014 nine months to 220,131 barrels from 154,697 barrels in the 2013 nine months while gas production increased 16,816 Mcf compared to the 2014 nine months.  In addition, 151,839 barrels of NGL were sold in the 2014 nine months which was an 86% increase compared to 2013 NGL volumes.  Drilling expenditures over the last 18 months targeting the oil and NGL rich plays are responsible for the increased oil and NGL volumes.

MANAGEMENT COMMENTS

Michael C. Coffman, President and CEO, said:The 2014 third quarter was again an excellent financial, as well as operational, quarter.  Our continued focus on increasing production of oil and NGLs and the increase of average natural gas prices in fiscal 2014 have combined to increase Panhandle’s average per Mcfe sales price 27%, to $5.73, for the 2014 nine month period.”

Coffman continued: “The Eagle Ford acquisition was closed on June 17, thus only 14 days of production from these wells is included in third-quarter production numbers.  The fourth quarter of fiscal 2014 will include a full quarter of production from these assets, which will materially increase oil production and profitability for the fourth quarter.  And, with over 100 locations remaining to drill on the Eagle Ford acreage, these assets will continue to provide meaningful oil production for Panhandle for many years.

OPERATIONS UPDATE

Paul Blanchard, Senior Vice President and COO, said: “Our recently acquired Eagle Ford properties produced 845 Boe per day, net, in June 2014. The production was 83% oil, 9% NGL and 8% natural gas. Development activity is ongoing as planned on the property with one well drilling, one well waiting on completion and four wells currently being completed.”

Blanchard continued: “The consecutive quarter decline in natural gas production was largely attributable to wells placed on production in late 2013 and early 2014 experiencing the typical steep initial decline rates combined with a slowdown in gas wells being placed on production during the two recent quarters. Based on well proposals received and current drilling and completion activity, we anticipate new gas well production will accelerate to higher levels in coming quarters, which should result in an overall increase in natural gas production.”

FINANCIAL HIGHLIGHTS

Statements of Operations

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

2014

 

2013

 

2014

 

2013

Revenues:

(unaudited)

 

(unaudited)

Oil, NGL and natural gas sales

$

 19,534,545 

 

$

 15,827,137 

 

$

 59,115,928 

 

$

 42,686,935 

Lease bonuses and rentals

 

 137,476 

 

 

 24,146 

 

 

 353,422 

 

 

 539,479 

Gains (losses) on derivative contracts

 

 (1,427,165)

 

 

 1,714,832 

 

 

 (3,511,095)

 

 

 796,166 

Income from partnerships

 

 130,121 

 

 

 164,330 

 

 

 565,523 

 

 

 470,286 

 

 

 18,374,977 

 

 

 17,730,445 

 

 

 56,523,778 

 

 

 44,492,866 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

 2,961,750 

 

 

 3,105,709 

 

 

 9,930,147 

 

 

 9,040,613 

Production taxes

 

 593,941 

 

 

 460,902 

 

 

 1,871,538 

 

 

 1,177,341 

Exploration costs

 

 6,956 

 

 

 25,648 

 

 

 70,140 

 

 

 60,827 

Depreciation, depletion and amortization

 

 5,314,777 

 

 

 5,192,544 

 

 

 15,562,630 

 

 

 17,090,187 

Provision for impairment

 

 -

 

 

 7,400 

 

 

 430,143 

 

 

 225,841 

Loss (gain) on asset sales, interest and other

 

 44,594 

 

 

 29,789 

 

 

 71,783 

 

 

 (138,921)

General and administrative

 

 1,825,374 

 

 

 1,585,285 

 

 

 5,349,921 

 

 

 5,127,025 

 

 

 10,747,392 

 

 

 10,407,277 

 

 

 33,286,302 

 

 

 32,582,913 

Income before provision for income taxes

 

 7,627,585 

 

 

 7,323,168 

 

 

 23,237,476 

 

 

 11,909,953 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 2,505,000 

 

 

 2,253,000 

 

 

 7,534,000 

 

 

 3,669,000 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 5,122,585 

 

$

 5,070,168 

 

$

 15,703,476 

 

$

 8,240,953 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per common share

$

 0.61 

 

$

 0.61 

 

$

 1.88 

 

$

 0.99 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 8,237,020 

 

 

 8,163,520 

 

 

 8,235,186 

 

 

 8,247,642 

Unissued, directors' deferred compensation shares

 

 127,835 

 

 

 116,762 

 

 

 126,051 

 

 

 113,259 

 

 

 8,364,855 

 

 

 8,280,282 

 

 

 8,361,237 

 

 

 8,360,901 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share of

 

 

 

 

 

 

 

 

 

 

 

common stock and paid in period

$

 0.08 

 

$

 0.07 

 

$

 0.24 

 

$

 0.21 

Balance Sheets

 

June 30, 2014

 

Sept. 30, 2013

Assets

(unaudited)

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

 1,511,057 

 

$

 2,867,171 

Oil, NGL and natural gas sales receivables

 

 15,070,653 

 

 

 13,720,761 

Refundable income taxes

 

 3,160,243 

 

 

 -

Refundable production taxes

 

 760,947 

 

 

 662,051 

Derivative contracts, net

 

 -

 

 

 425,198 

Other

 

 3,660,589 

 

 

 129,998 

Total current assets

 

 24,163,489 

 

 

 17,805,179 

 

 

 

 

 

 

Properties and equipment, at cost, based on

 

 

 

 

 

   successful efforts accounting:

 

 

 

 

 

Producing oil and natural gas properties

 

 408,816,025 

 

 

 304,889,145 

Non-producing oil and natural gas properties

 

 9,544,840 

 

 

 8,932,905 

Other

 

 1,305,473 

 

 

 737,368 

 

 

 419,666,338 

 

 

 314,559,418 

Less accumulated depreciation, depletion and amortization

 

 (198,439,791)

 

 

 (186,641,291)

Net properties and equipment

 

 221,226,547 

 

 

 127,918,127 

 

 

 

 

 

 

Investments

 

 1,653,406 

 

 

 1,574,642 

Refundable production taxes

 

 159,845 

 

 

 540,482 

Total assets

$

 247,203,287 

 

$

 147,838,430 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

 8,031,138 

 

$

 8,409,634 

Derivative contracts, net

 

 1,944,091 

 

 

 -

Deferred income taxes

 

 9,100 

 

 

 127,100 

Income taxes payable

 

 -

 

 

 751,992 

Accrued liabilities and other

 

 1,111,910 

 

 

 1,011,865 

Total current liabilities

 

 11,096,239 

 

 

 10,300,591 

 

 

 

 

 

 

Long-term debt

 

 85,852,794 

 

 

 8,262,256 

Deferred income taxes

 

 37,308,907 

 

 

 31,226,907 

Asset retirement obligations

 

 2,855,520 

 

 

 2,393,190 

Derivative contracts, net

 

 62,138 

 

 

 -

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

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

 

 

 

 

 

24,000,000 shares authorized, 8,431,502 issued at June 30,

 

 

 

 

 

2014, and Sept. 30, 2013

 

 140,524 

 

 

 140,524 

Capital in excess of par value

 

 2,767,615 

 

 

 2,587,838 

Deferred directors' compensation

 

 3,026,134 

 

 

 2,756,526 

Retained earnings

 

 110,162,113 

 

 

 96,454,449 

 

 

 116,096,386 

 

 

 101,939,337 

Less treasury stock, at cost; 192,874 shares at June 30,

 

 

 

 

 

2014, and 200,248 shares at Sept. 30, 2013

 

 (6,068,697)

 

 

 (6,283,851)

Total stockholders' equity

 

 110,027,689 

 

 

 95,655,486 

Total liabilities and stockholders' equity

$

 247,203,287 

 

$

 147,838,430 

Condensed Statements of Cash Flows

 

Nine months ended June 30,

 

2014

 

2013

Operating Activities

(unaudited)

Net income

$

 15,703,476 

 

$

 8,240,953 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

  by operating activities:

 

 

 

 

 

Depreciation, depletion and amortization

 

 15,562,630 

 

 

 17,090,187 

Impairment

 

 430,143 

 

 

 225,841 

Provision for deferred income taxes

 

 5,964,000 

 

 

 2,651,000 

Exploration costs

 

 70,140 

 

 

 60,827 

Gain from leasing of fee mineral acreage

 

 (352,930)

 

 

 (538,133)

Net (gain) loss on sale of assets

 

 152,766 

 

 

 (208,750)

Income from partnerships

 

 (565,523)

 

 

 (470,286)

Distributions received from partnerships

 

 734,825 

 

 

 603,249 

Directors' deferred compensation expense

 

 269,608 

 

 

 288,759 

Restricted stock awards

 

 499,791 

 

 

 541,937 

Cash provided (used) by changes in assets and liabilities:

 

 

 

 

 

Oil, NGL and natural gas sales receivables

 

 (1,349,892)

 

 

 (3,885,005)

Fair value of derivative contracts

 

 2,431,427 

 

 

 (987,249)

Refundable production taxes

 

 281,741 

 

 

 253,048 

Other current assets

 

 (25,098)

 

 

 78,889 

Accounts payable

 

 443,438 

 

 

 (48,038)

Income taxes receivable

 

 (3,160,243)

 

 

 325,715 

Income taxes payable

 

 (751,992)

 

 

 50,854 

Accrued liabilities

 

 100,229 

 

 

 (80,584)

Total adjustments

 

 20,735,060 

 

 

 15,952,261 

Net cash provided by operating activities

 

 36,438,536 

 

 

 24,193,214 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Capital expenditures, including dry hole costs

 

 (26,693,851)

 

 

 (20,576,359)

Acquisition of working interest properties

 

 (86,759,445)

 

 

 -

Acquisition of minerals and overrides

 

 (56,250)

 

 

 (783,750)

Proceeds from leasing of fee mineral acreage

 

 381,280 

 

 

 557,196 

Investments in partnerships

 

 (248,066)

 

 

 (607,702)

Proceeds from sales of assets

 

 92,000 

 

 

 870,610 

Net cash used in investing activities

 

 (113,284,332)

 

 

 (20,540,005)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Borrowings under debt agreement

 

 95,112,044 

 

 

 9,353,651 

Payments of loan principal

 

 (17,521,506)

 

 

 (10,663,399)

Purchase of treasury stock

 

 (122,044)

 

 

 (1,214,638)

Payments of dividends

 

 (1,995,812)

 

 

 (1,746,217)

Excess tax benefit on stock-based compensation

 

 17,000 

 

 

 15,000 

Net cash provided by (used in) financing activities

 

 75,489,682 

 

 

 (4,255,603)

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 (1,356,114)

 

 

 (602,394)

Cash and cash equivalents at beginning of period

 

 2,867,171 

 

 

 1,984,099 

Cash and cash equivalents at end of period

$

 1,511,057 

 

$

 1,381,705 

 

 

 

 

 

 

Supplemental Schedule of Noncash Investing and Financing Activities

 

 

 

 

 

Additions to asset retirement obligations

$

 370,536 

 

$

 119,166 

 

 

 

 

 

 

Gross additions to properties and equipment

$

 109,182,119 

 

$

 21,660,852 

Net (increase) decrease in accounts payable for properties

 

 

 

 

 

and equipment additions

 

 4,327,427 

 

 

 (300,743)

Capital expenditures and acquisitions, including dry hole costs

$

 113,509,546 

 

$

 21,360,109 

OPERATING HIGHLIGHTS

 

Third Quarter Ended

 

Third Quarter Ended

 

Nine Months Ended

 

Nine Months Ended

 

June 30, 2014

 

June 30, 2013

 

June 30, 2014

 

June 30, 2013

Mcfe Sold

 

3,309,394

 

 

3,229,800

 

 

10,314,886

 

 

9,483,576

Average Sales Price per Mcfe

$

5.90

 

$

4.90

 

$

5.73

 

$

4.50

Oil Barrels Sold

 

70,479

 

 

55,474

 

 

220,131

 

 

154,697

Average Sales Price per Barrel

$

97.90

 

$

88.02

 

$

94.74

 

$

86.73

Mcf Sold

 

2,508,346

 

 

2,742,996

 

 

8,083,066

 

 

8,066,250

Average Sales Price per Mcf

$

4.20

 

$

3.75

 

$

4.11

 

$

3.35

NGL Barrels Sold

 

63,029

 

 

25,660

 

 

151,839

 

 

81,524

Average Sales Price per Barrel

$

33.51

 

$

25.79

 

$

32.99

 

$

27.22

 

Quarter ended

 

Oil Bbls Sold

 

Mcf Sold

 

NGL Bbls Sold

 

Mcfe Sold

6/30/2014

 

70,479

 

2,508,346

 

63,029

 

3,309,394

3/31/2014

 

66,239

 

2,788,768

 

51,670

 

3,496,222

12/31/2013

 

83,413

 

2,785,952

 

37,140

 

3,509,270

9/30/2013

 

79,387

 

2,820,079

 

30,373

 

3,478,639

6/30/2013

 

55,474

 

2,742,996

 

25,660

 

3,229,800

The Company’s derivative contracts in place for natural gas at June 30, 2014, are outlined in its Form 10-Q for the period ending June 30, 2014.

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 2013 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; our 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; uncertainties in evaluating oil and gas reserves; unsuccessful exploration and development drilling; decreases in the values of our oil and gas properties resulting in write-downs; the negative impact lower oil and gas prices could have on our ability to borrow; drilling and operating risks; and we cannot control activities on our 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, and 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.