Panhandle Oil and Gas Inc. Reports Third Quarter and Nine Months 2019 Results

OKLAHOMA CITY – PANHANDLE OIL AND GAS INC., the “Company,” (NYSE: PHX), today reported financial and operating results for the third quarter and nine months ended June 30, 2019. 

Paul F. Blanchard Jr., President and CEO, commented, “I am very pleased with Panhandle’s third quarter and year-to-date 2019 performance. We’ve generated significant cash flow and net income by executing our strategy of actively managing our mineral portfolio. Our proactive leasing effort continues to yield meaningful royalty production growth, biased toward oil production, which is supplemented by the lease bonuses we receive. We believe we are also generating material shareholder value through our targeted divestitures of mineral acreage and the largely tax-deferred redeployment of those proceeds into mineral acreage we deem to have lower risk from both a geologic and development timing perspective. In addition, we have materially paid down our debt and have improved our already ample liquidity, while repurchasing $6.5 million of our stock.”

HIGHLIGHTS FOR THE PERIODS ENDED JUNE 30, 2019

  • Net income in the first nine months of 2019 grew to $15.4 million or $0.92 per share, as compared to $14.1 million or $0.83 per share in the same period of 2018. Adjusted pre-tax net income(1) increased 183% in the first nine months of 2019 to $14.0 million or $0.83 per share, as compared to $5.0 million or $0.29 per share in the first nine months of 2018.
  • Net income in the 2019 quarter grew to $4.6 million or $0.28 per share, as compared to $0.8 million net loss or $(0.05) per share in the 2018 quarter. Adjusted pre-tax net income(1) for the 2019 third quarter was $4.0 million, as compared to $0.3 million the 2018 third quarter.
  • Adjusted EBITDA(1) grew 34% in the first nine months of 2019 to $27.4 million, as compared to $20.4 million in 2018, including a $13.1 million gain on asset sales in the adjusted EBITDA for the 2019 period. Adjusted EBITDA for the 2019 third quarter was $8.9 million, as compared to $5.4 million the 2018 third quarter.
  • Royalty interest oil, NGL and natural gas sales increased 12.2% to $11.0 million in the first nine months of 2019, as compared to $9.9 million for the same period last year.
  • The Company repurchased $6.5 million of stock during the first nine months of 2019 at an average price of $14.95 per share, of which, $2.5 million was purchased in the third quarter.
  • Reduced debt from $51.0 million, as of Sept. 30, 2018, to $41.5 million, as of June 30, 2019, which has declined further to $38.0 million, with $6.5 million of cash on hand, as of Aug. 8, 2019.
  • Debt to enterprise value and debt to adjusted EBITDA (TTM) were 16.26% and 1.26x, respectively, at June 30, 2019.
  • The total return to shareholders in the first nine months of 2019 was $18.0 million through stock repurchases, dividends and debt reduction. This equates to an effective annualized yield of approximately 11.2% for that period.

 (1) This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section.

Mr. Blanchard continued, “The results of the third quarter and nine months ended June 30, 2019, demonstrate Panhandle’s sustained commitment to generate long-term shareholder value through execution of its corporate strategy. We are focused on three primary strategic objectives: 1) managing our mineral ownership as a portfolio of assets to maximize value and generate optimal free cash flow, 2) maintaining a strong and flexible financial position and 3) rewarding our shareholders.”

Panhandle’s efforts to maximize value through managing its mineral portfolio in the third quarter include the sale of 166 net mineral acres in the Permian Basin in Texas for $4,018,031 or approximately $24,000 per net mineral acre and the acquisition of 313 net mineral acres in the Bakken play in North Dakota and the STACK play in Blaine County, Okla., for $3,310,691 or approximately $10,600 per net mineral acre.

For the first nine months the Company sold 372 net mineral acres in the Permian Basin in Texas and New Mexico for $13,114,969 or approximately $35,000 per net mineral acre and acquired 687 net mineral acres in the Bakken play in North Dakota and the STACK play in Oklahoma for $5,120,466 or approximately $7,500 per net mineral acre.

Since the end of the third quarter, Panhandle also sold an additional 383 net mineral and royalty acres in the Permian Basin for $5.0 million.

Our unique mineral holdings, including large positions of both leased and open minerals in key areas, provide us with several levers to continue to generate significant cash flow moving forward. Current initiatives include the marketing of additional high-value, but largely undeveloped, Permian Basin minerals for sale and a proactive marketing process to lease out Panhandle’s remaining unleased mineral acreage in the STACK and SCOOP plays. Much of this STACK and SCOOP acreage was previously held by the Company as unleased to allow for potential working interest participation. The leasing effort is expected to generate immediate cash flow from bonus payments and future cash flow from royalties. We are also continuing to pursue the acquisition of mineral acreage in the Bakken in North Dakota, the STACK and SCOOP plays in Oklahoma and the Eagle Ford play in Texas.

We believe that our active management of our mineral portfolio will create long-term shareholder value.

In regard to maintaining a strong and flexible financial position during the third quarter, the Company reduced its debt by $2.6 million to $41.5 million and increased its cash position by $1.0 million in the third quarter, representing debt net of cash of $40.0 million. For the nine months, debt was reduced $9.5 million to $41.5 million and our cash position increased by $1.0 million. Today, our debt stands at $38.0 million and our cash position is $6.5 million or debt net of cash of $31.5 million. This is a $19 million or 38% decrease of debt net of cash for the nine months of fiscal 2019. In our most recent semi-annual borrowing base redetermination, our bank group has elected to adjust our borrowing base to $70 million, effective Aug. 6, 2019. This is largely a reflection of their lowered outlook for natural gas prices. However, with the significant progress we have made in reducing our debt and increasing our cash holdings, our liquidity is currently greater than at the beginning of our fiscal year.

Lastly, during the third quarter, the Company repurchased approximately $2.5 million of its stock and for the nine months ended June 30, 2019, the Company repurchased approximately $6.5 million of its stock. Total return to shareholders for the nine months of 2019 was $18.0 million through stock repurchases, dividends and debt reduction. This equates to an effective annualized yield of 11.2% for that period.

OPERATING HIGHLIGHTS

 

 

Third Quarter Ended

 

 

Third Quarter Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

June 30, 2019

 

 

June 30, 2018

 

 

June 30, 2019

 

 

June 30, 2018

 

Mcfe Sold

 

2,618,369

 

 

 

2,967,340

 

 

 

7,804,424

 

 

 

9,331,427

 

Average Sales Price per Mcfe

$

3.74

 

 

$

3.78

 

 

$

4.00

 

 

$

3.90

 

Oil Barrels Sold

 

96,065

 

 

 

80,298

 

 

 

253,265

 

 

 

253,447

 

Average Sales Price per Barrel

$

57.50

 

 

$

66.15

 

 

$

55.01

 

 

$

60.77

 

Gas Mcf Sold

 

1,718,561

 

 

 

2,082,700

 

 

 

5,300,594

 

 

 

6,633,005

 

Average Sales Price per Mcf

$

2.00

 

 

$

2.21

 

 

$

2.68

 

 

$

2.48

 

NGL Barrels Sold

 

53,903

 

 

 

67,142

 

 

 

164,040

 

 

 

196,290

 

Average Sales Price per Barrel

$

15.33

 

 

$

19.20

 

 

$

18.88

 

 

$

23.02

 

 

FINANCIAL HIGHLIGHTS

 

 

Third Quarter Ended

 

 

Third Quarter Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

June 30, 2019

 

 

June 30, 2018

 

    Working Interest Sales

 

$

6,659,237

 

 

$

7,837,612

 

 

$

20,164,713

 

 

$

26,505,701

 

    Royalty Interest Sales

 

$

3,123,100

 

 

$

3,365,068

 

 

$

11,049,662

 

 

$

9,850,434

 

Oil, NGL and Natural Gas Sales

 

$

9,782,337

 

 

$

11,202,680

 

 

$

31,214,375

 

 

$

36,356,135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease Bonuses and Rental Income

 

$

229,075

 

 

$

484,298

 

 

$

952,378

 

 

$

1,080,455

 

Total Revenue

 

$

16,342,394

 

 

$

9,557,937

 

 

$

50,307,601

 

 

$

33,469,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOE per Mcfe

 

$

1.20

 

 

$

1.09

 

 

$

1.18

 

 

$

1.08

 

Production Tax per Mcfe

 

$

0.19

 

 

$

0.16

 

 

$

0.20

 

 

$

0.16

 

DD&A per Mcfe

 

$

1.67

 

 

$

1.56

 

 

$

1.51

 

 

$

1.51

 

G&A Expense per Mcfe

 

$

0.69

 

 

$

0.54

 

 

$

0.75

 

 

$

0.56

 

Interest Expense per Mcfe

 

$

0.20

 

 

$

0.14

 

 

$

0.20

 

 

$

0.14

 

Total Expense per Mcfe

 

$

3.95

 

 

$

3.49

 

 

$

3.84

 

 

$

3.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

4,604,236

 

 

$

(775,093

)

 

$

15,408,842

 

 

$

14,080,022

 

Adj. Pre-Tax Net Income (Loss) (1)

 

$

4,024,933

 

 

$

349,028

 

 

$

14,039,317

 

 

$

4,956,661

 

Adjusted EBITDA (1)

 

$

8,934,653

 

 

$

5,389,433

 

 

$

27,411,853

 

 

$

20,381,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flow from Operations

 

$

5,271,897

 

 

$

6,297,920

 

 

$

14,332,951

 

 

$

21,657,902

 

CapEx - Drilling & Equipping

 

$

(810,043

)

 

$

1,198,616

 

 

$

3,349,640

 

 

$

7,743,097

 

CapEx - Acquisitions

 

$

3,310,691

 

 

$

966,279

 

 

$

5,120,466

 

 

$

966,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowing Base

 

 

 

 

 

 

 

 

 

$

80,000,000

 

 

$

80,000,000

 

Debt

 

 

 

 

 

 

 

 

 

$

41,500,000

 

 

$

40,400,000

 

Debt/Adjusted EBITDA (TTM) (1)

 

 

 

 

 

 

 

 

 

 

1.26

 

 

 

1.41

 

Debt to Enterprise Value (1)

 

 

 

 

 

 

 

 

 

 

16.26

%

 

 

11.20

%

 

(1)This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section.

THIRD QUARTER 2019 RESULTS

Total production decreased 12% in the 2019 quarter, as compared to the 2018 quarter. Total production has decreased due to the natural decline of the production base and, to a lesser extent, the result of marginal property divestitures in 2018. This was partially offset by the production from new royalty and working interest wells. The oil production increase is primarily production from the new seven-well program in the Eagle Ford that came on line in March and the mineral acquisitions of Bakken oil-producing properties. The NGL production decrease is attributed to both natural production decline and operators electing to remove less NGL from the natural gas stream due to lower NGL prices. These decreases in the liquid-rich production from the prior year’s drilling program in the Anadarko Basin Woodford Shale and Eagle Ford Shale were partially offset by mineral acquisitions of producing properties in the Bakken. Decreased gas production was due to naturally declining production in the Anadarko Woodford, Arkoma Woodford and Fayetteville shales. These decreases were partially offset by production from mineral acquisitions in the Bakken.

The total production in the third quarter of 2018 was significantly higher due to our substantial 2017 drilling program in the Arkoma Woodford (8 wells), Anadarko Woodford (6 wells) and Eagle Ford (10 wells) shales, all of which began production in early 2018. Also, these wells had significantly higher than average NRI’s and were producing at high rates during that time. As with virtually all horizontal wells, production from these wells experienced significant declines during their first year. This decline, along with materially lower capital expenditures during fiscal 2018 and fiscal 2019, accounted for a material portion of the Company’s production decline experienced in the 2019 comparable periods.

Average daily production in the third quarter of 2019 increased 7% when compared to the second quarter of 2019. A material portion of the increase was due to new wells coming on line in the Eagle Ford and new production from our acquisitions in the Bakken.

Oil, NGL and natural gas revenue decreased 13% in the 2019 quarter as production decreased 12% and product prices decreased relative to the 2018 quarter. The 2019 quarter included a $2.3 million gain on derivative contracts as compared to a $2.1 million loss for the 2018 quarter.

In the third quarter of 2019, the Company sold mineral acreage in Martin County, Texas, for a gain of $4,017,787. In the 2018 quarter, the Company sold its working interest in several marginal properties in Oklahoma and Kansas for a loss of $195,076.

The 13% increase in total cost per MCFE in the 2019 quarter relative to the 2018 quarter was primarily driven by lower production as noted above. In the 2018 quarter there was significant production from lower cost wells (i.e. wells that have very high royalty interest in relation to their working interest). These wells had high initial production rates that drove the per Mcfe rate down across most expense categories. As expected, production on these wells has declined in the 2019 quarter from their previous high rates. Interest expense and production taxes were also influenced, respectively, by higher bank interest and production tax rates. G&A expense also increased due to compensation expenses tied to retirement clauses and other employee changes.

The Company’s net income (loss) changed from net loss of $0.8 million in the 2018 quarter to a net income of $4.6 million in the 2019 quarter. The majority of the increase was due to gains on assets sales and derivative contracts. Adjusted pre-tax net income (loss)(1) was $4.0 million in the 2019 quarter, as compared to $0.3 million in the 2018 quarter.

(1) This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section.

NINE MONTHS 2019 RESULTS

Total production decreased 16% in the 2019 period, as compared to the 2018 period. This decrease for the 2019 nine-month period, was due to factors consistent with those discussed above. Panhandle also elected not to participate with a working interest on 44 wells proposed on its mineral acreage.

Oil, NGL and natural gas revenue decreased 14% in the 2019 period as production decreased 16% and product prices increased only slightly, relative to the 2018 period. The 2019 period included a $5.0 million gain on derivative contracts as compared to a $4.0 million loss for the 2018 period.

In the 2019 period, the Company sold mineral acreage in Lea and Eddy Counties, N.M., and Martin County, Texas, for a gain of $13,114,725. These sales represented 0.14% of the Company’s total net mineral acreage position. Panhandle had owned these minerals for many years and they had minimal remaining cost basis and therefore, most of the proceeds were recorded as gains. However, these transactions were structured as like-kind exchanges offsetting mineral purchases and, as a result, most of income tax from the sales was deferred. In the 2018 period, the Company sold its working interest in several marginal properties in Oklahoma and Kansas for a loss of $660,597.

The 11% increase in total cost per MCFE in the 2019 period relative to the 2018 period was primarily driven by lower overall production as noted above. In the 2018 period, there were significant increases in production from lower cost wells (i.e. wells that have very high royalty interest in relation to their working interest). These wells had large initial production rates that drove the cost per Mcfe down across most expense categories. As expected, in the 2019 period the production on these wells has declined from their initial high rates. Interest expense and production taxes were also influenced, respectively, by higher bank interest rates and a production tax rate increase in Oklahoma during the 2019 period. G&A expense also increased due to non-recurring restricted stock and other compensation expenses tied to retirement clauses and other employee changes.

The Company’s net income increased $1.3 million in the 2019 period, as compared to the 2018 period. The 2018 period was materially impacted by the Tax Cuts and Jobs Act enacted in December 2017, and the 2019 period was materially impacted by the gain on asset sales and the mark-to-market gain on Panhandle’s derivatives. Adjusted pre-tax net income (1) was $14.0 million in the 2019 period, as compared to $5.0 million in the 2018 period.

The Company generated excess free cash flow, enabling a return of $8.5 million to shareholders through dividend payments and stock repurchases, while also paying down $9.5 million of debt.

(1) This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section.

BORROWING BASE UPDATE

On Aug. 6, 2019, Panhandle’s line-of-credit borrowing base was redetermined by the banks and reduced from $80 million to $70 million due to their lowered outlook for natural gas prices. The current outstanding balance is $38.0 million. Current availability under the line is $32.0 million and combined with approximately $6.5 million in cash, the total liquidity is $38.5 million. This level is expected to provide ample liquidity for the Company to continue to execute its normal operating strategies.

OPERATIONS UPDATE

Rig Activity

 

 

Wells in Progress

 

Rigs Present

 

Rigs Within

 

Permits on PHX

 

 

on

 

on

 

2.5 miles of

 

Acreage Trailing

 

 

PHX Acreage

 

PHX Acreage

 

PHX Acreage

 

Twelve Months

SCOOP / STACK

 

107

 

6

 

60

 

337

Arkoma

 

18

 

2

 

3

 

79

Bakken

 

59

 

2

 

12

 

30

Permian

 

6

 

0

 

2

 

57

Fayetteville

 

0

 

0

 

0

 

2

Other

 

24

 

0

 

4

 

109

Total

 

214

 

10

 

81

 

614

 

Leasing Activity

The Company leased out 152 net mineral acres at approximately $1,508 per acre in the quarter at an average royalty rate of 19.3%. Current initiatives include a proactive marketing process to lease out Panhandle’s remaining unleased mineral acreage in the STACK and SCOOP plays. Since the end of the quarter, Panhandle has leased a total of 83 acres for a total bonus of $221,310 at an average royalty rate of 25.0%.

Eagle Ford Activity

Seven Eagle Ford Shale wells began production at the end of the second quarter. The Company’s average working interest in this group of wells is 10.8% (8% net revenue), as the wells are located partially on the Company’s 16% working interest (12% net revenue) acreage and partially on acreage Panhandle does not own. Third quarter production for the seven wells was 28,257 Boe net to Panhandle. Production continues to be in line with projections for the seven-well program.

ACQUISITION AND DIVESTITURE UPDATE

During the third quarter Panhandle acquired 313 net mineral acres in the core of the Bakken play in North Dakota and the STACK play in Blaine County, Okla., for $3,310,691 or approximately $10,600 per acre. Since the end of the third quarter, the Company has closed on the purchase of an additional 31 net mineral acres also in the core of the Bakken for $194,000. 

The Company sold 166 net mineral acres (predominately undeveloped) located in the Permian Basin in Texas in the third quarter to several private buyers for total net consideration of $4,018,031, or $24,000 per acre. Since the end of the third quarter, Panhandle also sold an additional 383 net mineral and royalty acres in the Permian Basin for $5.0 million.

The Company intends to continue to optimize its mineral portfolio through strategic sales and purchases. Panhandle is unique in the industry, in that the net book value of our entire 259,000-acre mineral portfolio is only $71 per acre. This affords the Company the opportunity to generate material net income and EBITDA on lease bonuses and the strategic sale of minerals.

THIRD QUARTER EARNINGS CALL

Panhandle will host a conference call to discuss third quarter results at 5:00 p.m. E.D.T. on Aug. 8, 2019. Management’s discussion will be followed by a question and answer session with investors. To participate on the conference call, please dial 877-407-9210 (domestic) or 201-689-8049 (international). A replay of the call will be available for 14 days after the call. The number to access the replay of the conference call is 877-481-4010 and the PIN for the replay is 49581.

FINANCIALS

Statements of Operations

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

(unaudited)

 

 

(unaudited)

 

Oil, NGL and natural gas sales

$

9,782,337

 

 

$

11,202,680

 

 

$

31,214,375

 

 

$

36,356,135

 

Lease bonuses and rental income

 

229,075

 

 

 

484,298

 

 

 

952,378

 

 

 

1,080,455

 

Gains (losses) on derivative contracts

 

2,313,195

 

 

 

(2,129,041

)

 

 

5,026,123

 

 

 

(3,966,869

)

Gain on asset sales

 

4,017,787

 

 

 

-

 

 

 

13,114,725

 

 

 

-

 

 

 

16,342,394

 

 

 

9,557,937

 

 

 

50,307,601

 

 

 

33,469,721

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

3,148,960

 

 

 

3,233,172

 

 

 

9,241,708

 

 

 

10,077,449

 

Production taxes

 

488,779

 

 

 

485,157

 

 

 

1,565,038

 

 

 

1,471,970

 

Depreciation, depletion and amortization

 

4,383,043

 

 

 

4,619,509

 

 

 

11,820,705

 

 

 

14,136,411

 

Interest expense

 

526,677

 

 

 

420,896

 

 

 

1,551,831

 

 

 

1,288,426

 

General and administrative

 

1,809,439

 

 

 

1,593,251

 

 

 

5,881,432

 

 

 

5,247,584

 

Loss on asset sales and other

 

66,260

 

 

 

190,045

 

 

 

82,045

 

 

 

110,859

 

 

 

10,423,158

 

 

 

10,542,030

 

 

 

30,142,759

 

 

 

32,332,699

 

Income (loss) before provision (benefit) for income taxes

 

5,919,236

 

 

 

(984,093

)

 

 

20,164,842

 

 

 

1,137,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

1,315,000

 

 

 

(209,000

)

 

 

4,756,000

 

 

 

(12,943,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

4,604,236

 

 

$

(775,093

)

 

$

15,408,842

 

 

$

14,080,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per common share

$

0.28

 

 

$

(0.05

)

 

$

0.92

 

 

$

0.83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

16,515,498

 

 

 

16,775,981

 

 

 

16,646,828

 

 

 

16,742,044

 

Unissued, directors' deferred compensation shares

 

170,066

 

 

 

206,202

 

 

 

183,206

 

 

 

205,867

 

 

 

16,685,564

 

 

 

16,982,183

 

 

 

16,830,034

 

 

 

16,947,911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

common stock and paid in period

$

0.04

 

 

$

0.04

 

 

$

0.12

 

 

$

0.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheets

 

June 30, 2019

 

 

Sept. 30, 2018

 

Assets

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,530,477

 

 

$

532,502

 

Oil, NGL and natural gas sales receivables (net of

 

5,503,962

 

 

 

7,101,629

 

allowance for uncollectable accounts)

 

 

 

 

 

 

 

Refundable income taxes

 

510,011

 

 

 

33,165

 

Derivative contracts, net

 

2,489,373

 

 

 

-

 

Other

 

1,438,138

 

 

 

578,880

 

Total current assets

 

11,471,961

 

 

 

8,246,176

 

 

 

 

 

 

 

 

 

Properties and equipment, at cost, based on

 

 

 

 

 

 

 

   successful efforts accounting:

 

 

 

 

 

 

 

Producing oil and natural gas properties

 

435,425,936

 

 

 

427,448,584

 

Non-producing oil and natural gas properties

 

12,518,885

 

 

 

12,563,519

 

Other

 

1,717,769

 

 

 

1,529,770

 

 

 

449,662,590

 

 

 

441,541,873

 

Less accumulated depreciation, depletion and amortization

 

(254,954,381

)

 

 

(243,257,472

)

Net properties and equipment

 

194,708,209

 

 

 

198,284,401

 

 

 

 

 

 

 

 

 

Investments

 

207,225

 

 

 

219,109

 

Derivative contracts, net

 

222,136

 

 

 

-

 

Total assets

$

206,609,531

 

 

$

206,749,686

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

563,642

 

 

$

881,130

 

Derivative contracts, net

 

-

 

 

 

3,064,046

 

Accrued liabilities and other

 

1,880,199

 

 

 

1,791,950

 

Total current liabilities

 

2,443,841

 

 

 

5,737,126

 

 

 

 

 

 

 

 

 

Long-term debt

 

41,500,000

 

 

 

51,000,000

 

Deferred income taxes

 

23,238,007

 

 

 

18,088,007

 

Asset retirement obligations

 

2,927,487

 

 

 

2,809,378

 

Derivative contracts, net

 

-

 

 

 

349,970

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Class A voting common stock, $0.0166 par value;

 

 

 

 

 

 

 

24,000,000 shares authorized, 16,897,306 issued at June 30,

 

 

 

 

 

 

 

2019, and 16,896,881 issued at Sept. 30, 2018

 

281,509

 

 

 

281,502

 

Capital in excess of par value

 

2,937,874

 

 

 

2,824,691

 

Deferred directors' compensation

 

2,481,109

 

 

 

2,950,405

 

Retained earnings

 

138,662,782

 

 

 

125,266,945

 

 

 

144,363,274

 

 

 

131,323,543

 

Less treasury stock, at cost; 508,582 shares at June 30,

 

 

 

 

 

 

 

2019, and 145,467 shares at Sept. 30, 2018

 

(7,863,078

)

 

 

(2,558,338

)

Total stockholders' equity

 

136,500,196

 

 

 

128,765,205

 

Total liabilities and stockholders' equity

$

206,609,531

 

 

$

206,749,686

 

 

Condensed Statements of Cash Flows

 

Nine months ended June 30,

 

 

2019

 

 

2018

 

Operating Activities

(unaudited)

 

Net income (loss)

$

15,408,842

 

 

$

14,080,022

 

Adjustments to reconcile net income (loss) to net cash provided

 

 

 

 

 

 

 

  by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

11,820,705

 

 

 

14,136,411

 

Provision for deferred income taxes

 

5,150,000

 

 

 

(12,947,000

)

Gain from leasing of fee mineral acreage

 

(951,832

)

 

 

(1,079,803

)

Proceeds from leasing of fee mineral acreage

 

967,337

 

 

 

1,102,818

 

Net (gain) loss on sale of assets

 

(13,114,725

)

 

 

660,597

 

Directors' deferred compensation expense

 

197,820

 

 

 

233,573

 

Fair value of derivative contracts

 

(6,125,525

)

 

 

3,819,639

 

Restricted stock awards

 

606,232

 

 

 

501,626

 

Other

 

15,848

 

 

 

5,113

 

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

 

 

 

 

 

 

 

Oil, NGL and natural gas sales receivables

 

1,597,667

 

 

 

1,095,996

 

Other current assets

 

(859,258

)

 

 

77,124

 

Accounts payable

 

3,270

 

 

 

(125,261

)

Income taxes receivable

 

(476,846

)

 

 

279,975

 

Other non-current assets

 

6,949

 

 

 

(52,644

)

Accrued liabilities

 

86,467

 

 

 

(130,284

)

Total adjustments

 

(1,075,891

)

 

 

7,577,880

 

Net cash provided by operating activities

 

14,332,951

 

 

 

21,657,902

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

Capital expenditures

 

(3,349,640

)

 

 

(7,743,097

)

Acquisition of minerals and overrides

 

(5,120,466

)

 

 

(966,279

)

Investments in partnerships

 

(1,648

)

 

 

3,379

 

Proceeds from sales of assets

 

13,114,969

 

 

 

1,085,137

 

Net cash provided (used) by investing activities

 

4,643,215

 

 

 

(7,620,860

)

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

Borrowings under debt agreement

 

15,053,345

 

 

 

13,529,879

 

Payments of loan principal

 

(24,553,345

)

 

 

(25,352,099

)

Purchase of treasury stock

 

(6,465,186

)

 

 

(272,100

)

Payments of dividends

 

(2,013,005

)

 

 

(2,023,500

)

Net cash provided (used) by financing activities

 

(17,978,191

)

 

 

(14,117,820

)

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

997,975

 

 

 

(80,778

)

Cash and cash equivalents at beginning of period

 

532,502

 

 

 

557,791

 

Cash and cash equivalents at end of period

$

1,530,477

 

 

$

477,013

 

 

 

 

 

 

 

 

 

Supplemental Schedule of Noncash Investing and Financing Activities

 

 

 

 

 

 

 

Additions to asset retirement obligations

$

27,782

 

 

$

15,452

 

 

 

 

 

 

 

 

 

Gross additions to properties and equipment

$

8,149,347

 

 

$

8,150,830

 

Net (increase) decrease in accounts payable for properties

 

 

 

 

 

 

 

and equipment additions

 

320,759

 

 

 

558,546

 

Capital expenditures and acquisitions

$

8,470,106

 

 

$

8,709,376

 

 

Hedge Position as of Aug. 8, 2019
 

Period

 

Product

 

Volume Mcf/Bbl

 

 

Swap Price

 

 

Collar Average Floor Price

 

 

Collar Average Ceiling Price

 

2019

 

Natural Gas

 

 

2,000,000

 

 

$

2.98

 

 

 

 

 

 

 

 

 

2020

 

Natural Gas

 

 

1,260,000

 

 

$

2.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

Crude Oil

 

 

40,000

 

 

 

 

 

 

$

60.00

 

 

$

70.38

 

2019

 

Crude Oil

 

 

60,000

 

 

$

57.91

 

 

 

 

 

 

 

 

 

2020

 

Crude Oil

 

 

48,000

 

 

 

 

 

 

$

58.75

 

 

$

66.79

 

2020

 

Crude Oil

 

 

72,000

 

 

$

57.98

 

 

 

 

 

 

 

 

 

Non-GAAP Reconciliation

This news release includes certain “non-GAAP financial measures” under the rules of the Securities and Exchange Commission, including Regulation G. These non-GAAP measures are calculated using GAAP amounts in our financial statements. 

Adjusted EBITDA Reconciliation 

Adjusted EBITDA is defined as net income (loss) plus interest expense, provision for impairment, depreciation, depletion and amortization of properties and equipment, including amortization of other assets, provision (benefit) for income taxes and unrealized (gains) losses on derivative contracts. We recognize that certain investors consider adjusted EBITDA a useful means of measuring our ability to meet our debt service obligations and evaluating our financial performance. Adjusted EBITDA has limitations and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of adjusted EBITDA may not be comparable to a similarly titled measure of other companies. The following table provides a reconciliation of net income (loss) to adjusted EBITDA for the periods indicated.

 

Third Quarter Ended

 

 

Third Quarter Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

June 30, 2019

 

 

June 30, 2018

 

 

June 30, 2019

 

 

June 30, 2018

 

Net Income (Loss)

$

4,604,236

 

 

$

(775,093

)

 

$

15,408,842

 

 

$

14,080,022

 

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (gains) losses on derivatives

 

(1,894,303

)

 

 

1,333,121

 

 

 

(6,125,525

)

 

 

3,819,639

 

    Income Tax Expense (Benefit)

 

1,315,000

 

 

 

(209,000

)

 

 

4,756,000

 

 

 

(12,943,000

)

    Interest Expense

 

526,677

 

 

 

420,896

 

 

 

1,551,831

 

 

 

1,288,426

 

    DD&A

 

4,383,043

 

 

 

4,619,509

 

 

 

11,820,705

 

 

 

14,136,411

 

    Impairment

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Adjusted EBITDA

$

8,934,653

 

 

$

5,389,433

 

 

$

27,411,853

 

 

$

20,381,498

 

 

Adjusted Pre-Tax Net Income (Loss) Reconciliation 

Adjusted pre-tax net income (loss) is defined as net income (loss) plus provision (benefit) for income taxes and unrealized (gains) losses on derivative contracts. We recognize that certain investors consider adjusted pre-tax net income (loss) a useful means of evaluating our financial performance. Adjusted pre-tax net income (loss) has limitations and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of adjusted pre-tax net income (loss) may not be comparable to a similarly titled measure of other companies. The following table provides a reconciliation of net income (loss) to adjusted pre-tax net income (loss) for the periods indicated.
 

 

Third Quarter Ended

 

 

Third Quarter Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

June 30, 2019

 

 

June 30, 2018

 

 

June 30, 2019

 

 

June 30, 2018

 

Net Income (Loss)

$

4,604,236

 

 

$

(775,093

)

 

$

15,408,842

 

 

$

14,080,022

 

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (gains) losses on derivatives

 

(1,894,303

)

 

 

1,333,121

 

 

 

(6,125,525

)

 

 

3,819,639

 

    Income Tax Expense (Benefit)

 

1,315,000

 

 

 

(209,000

)

 

 

4,756,000

 

 

 

(12,943,000

)

Adjusted Pre-Tax Net Income (Loss)

$

4,024,933

 

 

$

349,028

 

 

$

14,039,317

 

 

$

4,956,661

 

Enterprise Value Calculation

 

Third Quarter Ended

 

 

Third Quarter Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

June 30, 2019

 

 

June 30, 2018

 

 

June 30, 2019

 

 

June 30, 2018

 

Market Value

$

213,708,961

 

 

$

320,469,522

 

 

$

213,708,961

 

 

$

320,469,522

 

Debt

 

41,500,000

 

 

 

40,400,000

 

 

 

41,500,000

 

 

 

40,400,000

 

Enterprise Value

$

255,208,961

 

 

$

360,869,522

 

 

$

255,208,961

 

 

$

360,869,522

 

 

Panhandle Oil and Gas Inc. (NYSE: PHX) Oklahoma City-based, Panhandle Oil and Gas Inc. is an oil and natural gas mineral and leasehold acreage-focused capital allocator seeking the highest per share returns while maintaining a conservative net leverage ratio to ensure survivability and prosperity in all business and mineral commodity price cycles. The capital allocation tools include: (i) aggressive leasing of its mineral holdings; (ii) acquisition of mineral acreage, in the cores of resource plays, with substantial undeveloped opportunities that meet or exceed our corporate return threshold; (iii) divestiture of minerals with limited optionality and mineral rights when the amount negotiated exceeds our projected total value; (iv) selective participation in working interest wells on its existing holdings in the highest quality, low-risk projects that are projected to exceed our corporate return threshold; (v) payment of quarterly dividends, with optionality for special dividends when available capital exceeds operational requirements and has no other higher shareholder return option for an extended time period; and (vi) repurchase of common shares when the share price trades at a material discount to the Company's estimated intrinsic value. 

Panhandle’s principal properties are located in Oklahoma, Arkansas, Texas, New Mexico and North Dakota. 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 2018 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 oil and natural gas sales; the volatility of oil and gas prices; the Company’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 our inability to 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, as 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.