Panhandle Oil and Gas Inc. Reports Fourth Quarter and Fiscal 2019 Results

OKLAHOMA CITY – PANHANDLE OIL AND GAS INC., “Panhandle” or the “Company,” (NYSE: PHX), today reported financial and operating results for the fourth quarter and fiscal year ended Sept. 30, 2019.  

Chad L. Stephens, Interim CEO, commented, “We are pleased to report the results reflected in our fourth quarter and full-year 2019 financials. Fiscal 2019 was, in many ways, a transitional year for Panhandle. We made significant progress in shifting our strategy to focus solely on minerals and royalties. Panhandle elected not to participate with a working interest in any wells proposed in fiscal 2019, and management made the strategic decision at the end of 2019 to cease participating with a working interest on any of our leasehold or mineral acreage going forward. 

“Royalty volumes continue to increase, particularly oil volumes. Royalty volumes now represent the highest percentage of our total volumes in the last 15 years. Our diverse portfolio continues to generate significant operating cash flow and margins. Our adjusted EBITDA grew 45% year over year, and we reduced our outstanding debt by 31% from $51.0 million to $35.4 million (while increasing our cash position to almost $10.0 million as of Dec. 12, 2019). The non-cash impairment and temporary increase in DD&A was associated with the Company’s strategic decision to cease working interest participation in new well development on our mineral and leasehold acreage.  

“Subsequent to Sept. 30, 2019, the Company closed on a sale of 530 net mineral acres for $3.4 million. Our first sizeable acquisition is scheduled to close in the first fiscal quarter of 2020 and we plan to fund that acquisition with cash on hand (from like-kind exchange sales) and an immaterial addition to our outstanding debt. We have begun to execute on and are pleased with the progress of the acquisition strategy we laid out when I was named Interim CEO. I am confident that Panhandle is well positioned to grow and generate incremental value for our shareholders as a participant in the consolidation of the mineral sector. 

Total return to shareholders for fiscal 2019 was $25.7 million through stock repurchases, dividends and debt reduction. This equates to an effective annualized yield of 11.3% for that period.” 

HIGHLIGHTS FOR THE PERIODS ENDED SEPT. 30, 2019 AND SUBSEQUENT EVENTS 

  • Recorded a net loss in fiscal 2019 of $40.7 million or $2.43 per share (due primarily to the non-cash impairment noted below), as compared to net income of $14.6 million or $0.86 per share in fiscal 2018. Adjusted pre-tax net income(1) in fiscal 2019 was $16.7 million or $1.00 per share, as compared to $5.8 million or $0.34 per share in fiscal 2018.
  • Adjusted EBITDA(1) grew 45% in fiscal 2019 to $37.6 million, as compared to $26.0 million in 2018, including a $19.0 million gain on asset sales in the adjusted EBITDA for the 2019 period. Adjusted EBITDA for the 2019 fourth quarter was $10.1 million, as compared to $5.6 million the 2018 fourth quarter.
  • Royalty interest oil, NGL and natural gas sales increased 5.0% to $14.0 million in fiscal 2019, as compared to $13.3 million for fiscal 2018. Royalty interest oil, NGL and natural gas volumes increased to 3,426,195 Mcfe in fiscal 2019, as compared to 3,387,074 in fiscal 2018.
  • Recorded a non-cash impairment of $76.8 million related to the removal of working interest PUD’s (mostly located in the Eagle Ford), which is consistent with the Company’s strategic decision to cease participating with a working interest on its leasehold and mineral assets going forward.
  • Reduced debt 31% from $51.0 million, as of Sept. 30, 2018, to $35.4 million, as of Sept. 30, 2019. Debt has been further reduced to $35.0 million, with $9.7 million of cash, as of Dec. 12, 2019.
  • Repurchased $7.5 million of stock during fiscal 2019 at an average price of $14.45 per share, of which $1.0 million was purchased in the fourth quarter.
  • Debt to adjusted EBITDA (TTM) ratio was 0.96x at Sept. 30, 2019.
  • The total capital returned to shareholders in fiscal 2019 was $25.7 million through stock repurchases, dividends and debt reduction. This equates to an effective annualized yield of approximately 11.3% for fiscal 2019(2).
  • On Nov. 14, 2019, Panhandle closed on the sale of 530 net mineral acres in Eddy County, N.M., for $3.4 million.
  • On Nov. 22, 2019, Panhandle signed a purchase agreement to acquire 704 net mineral acres in the core of the STACK for a purchase price of $9.65 million (subject to normal closing adjustments). The purchase is expected to close by the end of the calendar year and will be mostly funded with cash from our like-kind exchange sales.  
  1. This is a non-GAAP measure. Refer to the Non-GAAP Reconciliation section.
  2. Effective annualized yield is calculated based on the closing price of Panhandle’s common stock as reported on the NYSE as of Sept. 30, 2019, and may be different from the actual yield to any investor. Effective annualized yield is different from the cash return to shareholders because it includes items that are not realized in cash.

FINANCIAL HIGHLIGHTS

 

 

Fourth Quarter Ended

 

 

Fourth Quarter Ended

 

 

Year Ended

 

 

Year Ended

 

 

 

Sept. 30, 2019

 

 

Sept. 30, 2018

 

 

Sept. 30, 2019

 

 

Sept. 30, 2018

 

    Working Interest Sales

 

$

5,253,699

 

 

$

8,549,466

 

 

$

25,418,411

 

 

$

35,055,167

 

    Royalty Interest Sales

 

$

2,941,962

 

 

$

3,479,734

 

 

$

13,991,625

 

 

$

13,330,168

 

Oil, NGL and Natural Gas Sales

 

$

8,195,661

 

 

$

12,029,200

 

 

$

39,410,036

 

 

$

48,385,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease Bonuses and Rental Income

 

$

594,700

 

 

$

500,542

 

 

$

1,547,078

 

 

$

1,580,997

 

Total Revenue

 

$

15,728,084

 

 

$

11,564,543

 

 

$

66,035,685

 

 

$

45,034,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOE per Mcfe

 

$

1.27

 

 

$

1.15

 

 

$

1.21

 

 

$

1.10

 

Production Tax per Mcfe

 

$

0.13

 

 

$

0.21

 

 

$

0.18

 

 

$

0.17

 

G&A Expense per Mcfe

 

$

1.05

 

 

$

0.71

 

 

$

0.83

 

 

$

0.60

 

Interest Expense per Mcfe

 

$

0.17

 

 

$

0.16

 

 

$

0.19

 

 

$

0.14

 

Total Expense per Mcfe (2)

 

$

2.62

 

 

$

2.23

 

 

$

2.41

 

 

$

2.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DD&A per Mcfe

 

$

2.50

 

 

$

1.45

 

 

$

1.76

 

 

$

1.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment

 

$

76,824,337

 

 

$

-

 

 

$

76,824,337

 

 

$

-

 

Net Income

 

$

(56,153,780

)

 

$

555,647

 

 

$

(40,744,938

)

 

$

14,635,669

 

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

 

$

2,650,922

 

 

$

870,183

 

 

$

16,690,239

 

 

$

5,826,844

 

Adjusted EBITDA (1)

 

$

9,470,758

 

 

$

5,588,487

 

 

$

36,882,611

 

 

$

25,969,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flow from Operations

 

$

6,672,733

 

 

$

5,285,992

 

 

$

21,005,684

 

 

$

26,943,894

 

CapEx - Drilling & Completing

 

$

176,367

 

 

$

3,847,038

 

 

$

3,526,007

 

 

$

11,590,135

 

CapEx - Mineral Acquisitions

 

$

542,403

 

 

$

10,361,092

 

 

$

5,662,869

 

 

$

11,327,371

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowing Base

 

 

 

 

 

 

 

 

 

$

70,000,000

 

 

$

80,000,000

 

Debt

 

 

 

 

 

 

 

 

 

$

35,425,000

 

 

$

51,000,000

 

Debt/Adjusted EBITDA (TTM) (1)

 

 

 

 

 

 

 

 

 

 

0.96

 

 

 

1.96

 

  1. This is a non-GAAP measure. Refer to the Non-GAAP Reconciliation section.
  2. Excludes DD&A and Impairment

OPERATING HIGHLIGHTS

 

Fourth Quarter Ended

 

 

Fourth Quarter Ended

 

 

Year Ended

 

 

Year Ended

 

 

Sept. 30, 2019

 

 

Sept. 30, 2018

 

 

Sept. 30, 2019

 

 

Sept. 30, 2018

 

Mcfe Sold

 

2,555,085

 

 

 

2,940,276

 

 

 

10,359,509

 

 

 

12,271,708

 

Average Sales Price per Mcfe

$

3.21

 

 

$

4.09

 

 

$

3.80

 

 

$

3.94

 

Oil Barrels Sold

 

75,934

 

 

 

83,117

 

 

 

329,199

 

 

 

336,565

 

Average Sales Price per Barrel

$

55.28

 

 

$

64.74

 

 

$

55.07

 

 

$

61.75

 

Gas Mcf Sold

 

1,786,167

 

 

 

2,088,258

 

 

 

7,086,761

 

 

 

8,721,262

 

Average Sales Price per Mcf

$

1.90

 

 

$

2.52

 

 

$

2.48

 

 

$

2.49

 

NGL Barrels Sold

 

52,219

 

 

 

58,886

 

 

 

216,259

 

 

 

255,176

 

Average Sales Price per Barrel

$

11.50

 

 

$

23.53

 

 

$

17.10

 

 

$

23.14

 

FOURTH QUARTER 2019 RESULTS

Oil, NGL and natural gas revenue decreased 32% in the 2019 quarter as production decreased 13% and product prices decreased 22% relative to the 2018 quarter. The 2019 quarter included a $1.1 million gain on derivative contracts as compared to a $1.0 million loss for the 2018 quarter.

Total production decreased 13% in the 2019 quarter, as compared to the 2018 quarter. Total production decreased due to the natural decline of the production base and, to a lesser extent, the result of non-core marginal property divestitures in 2018 and 2019. This was partially offset by the production from new royalty and working interest wells. The oil production decrease was primarily due to natural decline partially offset by production from the new seven-well program in the Eagle Ford that came online in March of 2019 (election to participate was made in fiscal 2018, prior to the Company’s change in strategy) 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 (STACK/SCOOP) 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 Arkoma STACK, Anadarko Basin Stack and, to a lesser extent, Fayetteville Shale.

The total production in the fourth 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 NRIs and were producing at high rates during that time. As with virtually all horizontal wells, production from these wells experienced significant hyperbolic declines during their first year. Such declines, along with materially lower capital expenditures during fiscal 2018 and fiscal 2019, accounted for a significant portion of the Company’s production decline experienced in the 2019 comparable periods.

In the fourth quarter of 2019, the Company sold working interests in Martin County, Texas, and mineral acreage in Reagan, Upton, Loving, Martin, Ward and Reeves Counties, Texas, for a gain of $5,858,701. The Company had no asset sales in the 2018 quarter.

The 17% increase in total cost per Mcfe in the 2019 quarter, relative to the 2018 quarter was primarily driven by higher G&A and lower production as noted above. The G&A expense increase was due to a one-time severance with the Company’s former CEO. In regard to the LOE increase, 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 declined in the 2019 quarter from their previous high rates.

The DD&A rate increase was principally due to the Company making the strategic decision at the end of fiscal 2019 to cease participating with a working interest on its mineral and leasehold acreage and to focus solely on growth through mineral acquisitions going forward. Based on this decision, the Company removed all working interest PUDs from the year-end 2019 reserve report which caused the DD&A rate to materially increase in the fourth quarter of 2019 as these volumes could no longer be used in the calculation of DD&A on our leasehold positions. This impact was noted predominantly on our Eagle Ford assets (approximate increase from previous quarters was $1.5 million). After the impairment on the Eagle Ford (noted below), we expect our DD&A rate going forward to be significantly lower.

Impairment was $76,824,337 in the fourth quarter of 2019. Impairment of $76,560,376 was recorded on our Eagle Ford assets. The remaining $263,961 of impairment was taken on various other assets. The impairment on the Eagle Ford assets was triggered by the Company making the strategic decision to cease participating with a working interest on its mineral and leasehold acreage going forward and, therefore, removing all working interest PUDs from the reserve reports. The removal of the PUDs caused the Eagle Ford assets to fail the step one test for impairment, as its undiscounted cash flows were not high enough to cover the book basis of the assets. These assets were written down to their fair market value as required by GAAP. No impairment was recorded during 2018.

The Company’s net income (loss) changed from net income of $0.6 million in the 2018 quarter to a net loss of $56.2 million in the 2019 quarter. The majority of the decrease was due to the non-cash impairment (as noted above), partially offset by gains on assets sales and derivative contracts. Adjusted pretax net income(1) was $2.7 million in the 2019 quarter, as compared to $0.9 million in the 2018 quarter.

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

FISCAL YEAR 2019 RESULTS

Oil, NGL and natural gas revenue decreased 19% in 2019 as production decreased 16% and product prices decreased 4%, relative to 2018. Fiscal 2019 total revenues included a $19 million gain on asset sales and also included a $6.1 million gain on derivative contracts as compared to a $4.9 million loss on derivative contracts for 2018.

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

In 2019, the Company sold 975 net mineral and royalty acres for $19.5 million and recorded a net gain on sales of $18.7 million. These sales represented 0.34% of the Company’s total net mineral acreage position. Panhandle had owned these minerals for many years, and the minerals had minimal remaining cost basis; therefore, most of the proceeds were recorded as gains. However, these transactions were structured as like-kind exchanges offsetting mineral purchases; as a result, most 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 $0.7 million.

The 20% increase in total cost per Mcfe in 2019 relative to 2018 was primarily driven by higher G&A and lower overall production as noted above. G&A expense increased mainly due to a one-time severance with the Company’s former CEO and compensation expenses tied to retirement clauses and other employee changes. In regard to the LOE increase, 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 declined from the initial high rates, but the fixed costs on these wells have remained steady. Interest expense and production taxes were also influenced, respectively, by higher bank interest rates and a production tax rate increase in Oklahoma, which was implemented in the last quarter of 2018.

The Company’s net income (loss) changed from net income of $14.6 million in 2018 to a net loss of $40.7 million in 2019. The majority of the decrease was due to the non-cash impairment (as noted above), partially offset by gains on assets sales and derivative contracts. The Company’s net income for the 2018 period was also materially impacted by the Tax Cuts and Jobs Act enacted in December 2017. Without the impairment, pretax net income would have been $22.6 million in 2019, as compared to a pretax net income of $1.9 million 2018.

The Company generated excess free cash flow, enabling a return of $10.1 million to shareholders through dividend payments and stock repurchases, while also paying down $15.6 million of debt under the Company’s credit facility. 

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

OPERATIONS UPDATE

At Sept. 30, 2019, we had a total of 120 gross wells (0.64 net wells) in progress across our mineral position and 72 gross active permitted wells. As of Nov. 20, 2019, there were 20 rigs operating on Panhandle acreage and 52 rigs operating within 2.5 miles of Panhandle’s acreage.

 

 

 

 

 

 

Bakken/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCOOP/

 

 

Three

 

 

Arkoma

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STACK

 

 

Forks

 

 

Stack

 

 

Permian

 

 

Fayetteville

 

 

Other

 

 

Total

 

As of 9/30/19:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Wells in Progress on PHX Acreage

 

 

54

 

 

 

11

 

 

 

19

 

 

 

7

 

 

 

-

 

 

 

29

 

 

 

120

 

Net Wells in Progress on PHX Acreage

 

 

0.16

 

 

 

0.02

 

 

 

0.03

 

 

 

0.25

 

 

 

-

 

 

 

0.18

 

 

 

0.64

 

Gross Active Permits on PHX Acreage

 

 

24

 

 

 

16

 

 

 

4

 

 

 

19

 

 

 

-

 

 

 

9

 

 

 

72

 

As of 11/20/19:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rigs Present on PHX Acreage

 

 

16

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4

 

 

 

20

 

Rigs Within 2.5 Miles of PHX Acreage

 

 

37

 

 

 

7

 

 

 

4

 

 

 

-

 

 

 

-

 

 

 

4

 

 

 

52

 

 

Leasing Activity

During fiscal 2019, Panhandle leased 1,785 net mineral acres for an average bonus payment of $855 and an average royalty of 21%.

 

 

 

 

 

 

Bakken/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCOOP/

 

 

Three

 

 

Arkoma

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STACK

 

 

Forks

 

 

Stack

 

 

Permian

 

 

Fayetteville

 

 

Other

 

 

Total

 

During Fiscal Year Ended 9/30/19:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Mineral Acres Leased

 

 

313

 

 

 

-

 

 

 

402

 

 

 

319

 

 

 

-

 

 

 

751

 

 

 

1,785

 

Average Bonus per Net Mineral Acre

 

$

1,558

 

 

 

-

 

 

$

395

 

 

$

1,308

 

 

 

-

 

 

$

347

 

 

$

855

 

Average Royalty per Net Mineral Acre

 

23%

 

 

 

-

 

 

19%

 

 

23%

 

 

 

-

 

 

19%

 

 

21%

 

Eagle Ford Activity

Seven Eagle Ford Shale wells began production at the end of the second quarter (election to participate was made in fiscal 2018, prior to the Company’s change in strategy). The Company’s average working interest in this group of wells is 10.8% (8% net revenue interest), as the wells are located partially on the Company’s 16% working interest (12% net revenue interest) acreage and partially on acreage Panhandle does not own. Four of the seven wells were hit by an offset frac in September 2019. Three wells have recovered to pre-frac rates, the fourth well sustained mechanical issues that are being remedied. Consistent with Panhandle’s strategy to focus solely on minerals and royalties, the Company will not participate in the drilling of new wells in the Eagle Ford.

ACQUISITION AND DIVESTITURE UPDATE

During fiscal 2019, Panhandle purchased 790 net mineral acres with a significant producing component at an average price of $7,253 per acre and sold 890 predominantly undeveloped net mineral and non-participating royalty interest (NPRI) acres at an average price of $21,138 per acre.

 

 

 

 

 

 

Bakken/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCOOP/

 

 

Three

 

 

Arkoma

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STACK

 

 

Forks

 

 

Stack

 

 

Permian

 

 

Fayetteville

 

 

Other

 

 

Total

 

During Fiscal Year Ended 9/30/19:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Mineral Acres Purchased

 

 

382

 

 

 

408

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

790

 

Price per Net Mineral Acre

 

$

4,958

 

 

$

9,400

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

$

7,253

 

Net Mineral/NPRI Acres Sold

 

 

-

 

 

 

-

 

 

 

-

 

 

 

890

 

 

 

-

 

 

 

-

 

 

 

890

 

Price per Net Mineral/NPRI Acre

 

 

-

 

 

 

-

 

 

 

-

 

 

$

21,138

 

 

 

-

 

 

 

-

 

 

$

21,138

 

On Nov. 14, 2019, Panhandle closed on the sale of 530 net mineral acres in Eddy County, N.M., for $3.4 million.

On Nov. 22, 2019, Panhandle signed a purchase agreement to acquire 704 net mineral acres in Kingfisher, Canadian and Garvin Counties, Okla., for a purchase price of $9.65 million (subject to normal closing adjustments). The purchase is expected to close by the end of the calendar year and will be mostly funded with cash from our like-kind exchange sales.

RESERVES UPDATE

At Sept. 30, 2019, proved reserves were 106.4 Bcfe, as calculated by DeGolyer and MacNaughton, the Company’s independent consulting petroleum engineering firm. This was a 39% decrease, compared to the 173.6 Bcfe of proved reserves at Sept. 30, 2018. Total proved developed reserves decreased 19% to 89.4 Bcfe, as compared to Sept. 30, 2018, reserve volumes, mainly due to 2019 production and pricing and performance revisions. The performance revisions were principally due to lower performance of our high-interest Woodford natural gas wells drilled in 2017 in the Arkoma Stack and, to a lesser extent, lower performance of the Fayetteville Shale natural gas properties in Arkansas. Total proved undeveloped reserves decreased 46.9 Bcfe principally due to the Company implementing the new strategy of not participating with a working interest in future drilling programs, which resulted in the removal of undeveloped leasehold wells (including the Eagle Ford Shale wells) and lowering the net revenue interest on previously planned working interest wells on our mineral acreage to a royalty revenue interest only. SEC prices used for the Sept. 30, 2019, report averaged $2.48 per Mcf for natural gas, $54.40 per barrel for oil and $19.30 per barrel for NGL, compared to $2.56 per Mcf for natural gas, $62.86 per barrel for oil and $26.13 per barrel for NGL for the Sept. 30, 2018, report. These prices reflect net prices received at the wellhead.

BORROWING BASE

As is routine, our next scheduled borrowing base redetermination will be later in December 2019. Given the current commodity pricing environment and our strategic decision to remove all working interest proved undeveloped reserves from our reserve report, we anticipate a reduction in our borrowing base from its current level of $70 million. We do not know what the reduction will be at this time, but we do not expect that it will impact the liquidity needed to maintain our normal operating strategies.

FOURTH QUARTER EARNINGS CALL

Panhandle will host a conference call to discuss fourth quarter results at 5:00 p.m. EST on Dec. 12, 2019. Management’s discussion will be followed by a question and answer session with investors. To participate on the conference call, please dial 844-407-9500 (domestic) or 862-298-0850 (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 56823.

FINANCIALS

Statements of Operations

 

Three Months Ended Sept. 30,

 

 

Year Ended Sept. 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

Oil, NGL and natural gas sales

$

8,195,661

 

 

$

12,029,200

 

 

$

39,410,036

 

 

$

48,385,335

 

Lease bonuses and rental income

$

594,700

 

 

$

500,542

 

 

$

1,547,078

 

 

$

1,580,997

 

Gains (losses) on derivative contracts

$

1,079,022

 

 

$

(965,199

)

 

$

6,105,145

 

 

$

(4,932,068

)

Gain on asset sales

$

5,858,701

 

 

$

0

 

 

$

18,973,426

 

 

$

0

 

 

 

15,728,084

 

 

 

11,564,543

 

 

 

66,035,685

 

 

 

45,034,264

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

$

3,246,717

 

 

$

3,382,829

 

 

$

12,488,425

 

 

$

13,460,278

 

Production taxes

$

337,598

 

 

$

617,080

 

 

$

1,902,636

 

 

$

2,089,050

 

Depreciation, depletion and amortization

$

6,375,878

 

 

$

4,258,629

 

 

$

18,196,583

 

 

$

18,395,040

 

Provision for impairment

$

76,824,337

 

 

$

0

 

 

$

76,824,337

 

 

$

0

 

Interest expense

$

443,958

 

 

$

459,675

 

 

$

1,995,789

 

 

$

1,748,101

 

General and administrative

$

2,683,811

 

 

$

2,094,857

 

 

$

8,565,243

 

 

$

7,342,441

 

Loss on asset sales and other expense (income)

$

206,565

 

 

$

(8,174

)

 

$

288,610

 

 

$

102,685

 

 

 

90,118,864

 

 

 

10,804,896

 

 

 

120,261,623

 

 

 

43,137,595

 

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

 

(74,390,780

)

 

 

759,647

 

 

 

(54,225,938

)

 

 

1,896,669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

$

(18,237,000

)

 

$

204,000

 

 

$

(13,481,000

)

 

$

(12,739,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

(56,153,780

)

 

$

555,647

 

 

$

(40,744,938

)

 

$

14,635,669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per common share

$

(3.35

)

 

$

0.04

 

 

$

(2.43

)

 

$

0.86

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

16,362,493

 

 

 

16,761,420

 

 

 

16,575,160

 

 

 

16,746,928

 

Unissued, directors' deferred compensation shares

 

175,463

 

 

 

210,310

 

 

 

168,586

 

 

 

205,736

 

 

 

16,537,956

 

 

 

16,971,730

 

 

 

16,743,746

 

 

 

16,952,664

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

common stock and paid in period

$

0.04

 

 

$

0.04

 

 

$

0.16

 

 

$

0.16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheets

 

Sept. 30, 2019

 

 

Sept. 30, 2018

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

6,160,691

 

 

$

532,502

 

Oil, NGL and natural gas sales receivables (net of

 

4,377,646

 

 

 

7,101,629

 

allowance for uncollectable accounts)

 

 

 

 

 

 

 

Refundable income taxes

 

1,505,442

 

 

 

33,165

 

Derivative contracts, net

 

2,256,639

 

 

 

-

 

Other

 

177,037

 

 

 

578,880

 

Total current assets

 

14,477,455

 

 

 

8,246,176

 

 

 

 

 

 

 

 

 

Properties and equipment, at cost, based on

 

 

 

 

 

 

 

   successful efforts accounting:

 

 

 

 

 

 

 

Producing oil and natural gas properties

 

354,718,398

 

 

 

427,448,584

 

Non-producing oil and natural gas properties

 

14,599,023

 

 

 

12,563,519

 

Other

 

1,722,080

 

 

 

1,529,770

 

 

 

371,039,501

 

 

 

441,541,873

 

Less accumulated depreciation, depletion and amortization

 

(259,314,590

)

 

 

(243,257,472

)

Net properties and equipment

 

111,724,911

 

 

 

198,284,401

 

 

 

 

 

 

 

 

 

Investments

 

205,076

 

 

 

219,109

 

Derivative contracts, net

 

237,505

 

 

 

-

 

Total assets

$

126,644,947

 

 

$

206,749,686

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

665,160

 

 

$

881,130

 

Derivative contracts, net

 

-

 

 

 

3,064,046

 

Accrued liabilities and other

 

2,433,466

 

 

 

1,791,950

 

Total current liabilities

 

3,098,626

 

 

 

5,737,126

 

 

 

 

 

 

 

 

 

Long-term debt

 

35,425,000

 

 

 

51,000,000

 

Deferred income taxes

 

5,976,007

 

 

 

18,088,007

 

Asset retirement obligations

 

2,835,781

 

 

 

2,809,378

 

Derivative contracts, net

 

-

 

 

 

349,970

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Class A voting common stock, $0.01666 par value;

 

 

 

 

 

 

 

24,000,000 shares authorized, 16,897,306 issued at Sept. 30,

 

 

 

 

 

 

 

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

 

281,509

 

 

 

281,502

 

Capital in excess of par value

 

2,967,984

 

 

 

2,824,691

 

Deferred directors' compensation

 

2,555,781

 

 

 

2,950,405

 

Retained earnings

 

81,848,301

 

 

 

125,266,945

 

 

 

87,653,575

 

 

 

131,323,543

 

Less treasury stock, at cost; 558,051 shares at Sept. 30,

 

 

 

 

 

 

 

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

 

(8,344,042

)

 

 

(2,558,338

)

Total stockholders' equity

 

79,309,533

 

 

 

128,765,205

 

Total liabilities and stockholders' equity

$

126,644,947

 

 

$

206,749,686

 

Condensed Statements of Cash Flows

 

Year ended Sept. 30,

 

 

2019

 

 

2018

 

Operating Activities

 

 

Net income (loss)

$

(40,744,938

)

 

$

14,635,669

 

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

 

 

 

 

 

 

 

  by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

18,196,583

 

 

 

18,395,040

 

Impairment

 

76,824,337

 

 

 

-

 

Provision for deferred income taxes

 

(12,112,000

)

 

 

(12,963,000

)

Gain from leasing of fee mineral acreage

 

(1,546,298

)

 

 

(1,520,262

)

Proceeds from leasing of fee mineral acreage

 

1,565,649

 

 

 

1,564,225

 

Net (gain) loss on sale of assets

 

(18,730,197

)

 

 

660,597

 

Common stock contributed to ESOP

 

372,274

 

 

 

382,174

 

Common stock (unissued) to Directors' Deferred Compensation Plan

 

272,491

 

 

 

301,715

 

Fair value of derivative contracts

 

(5,908,160

)

 

 

3,930,175

 

Restricted stock awards

 

771,797

 

 

 

655,414

 

Other

 

19,085

 

 

 

6,326

 

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

 

 

 

 

 

 

 

Oil, NGL and natural gas sales receivables

 

2,723,983

 

 

 

483,856

 

Refundable income taxes

 

(1,472,277

)

 

 

456,780

 

Other current assets

 

21,116

 

 

 

57,752

 

Accounts payable

 

105,217

 

 

 

(140,600

)

Other non-current assets

 

7,166

 

 

 

(62,295

)

Accrued liabilities

 

639,856

 

 

 

100,328

 

Total adjustments

 

61,750,622

 

 

 

12,308,225

 

Net cash provided by operating activities

 

21,005,684

 

 

 

26,943,894

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

Capital expenditures

 

(3,526,007

)

 

 

(11,590,135

)

Acquisition of minerals and overrides

 

(5,662,869

)

 

 

(11,327,371

)

Investments in partnerships

 

(1,648

)

 

 

3,354

 

Proceeds from sales of assets

 

19,515,735

 

 

 

1,085,137

 

Net cash provided (used) by investing activities

 

10,325,211

 

 

 

(21,829,015

)

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

Borrowings under debt agreement

 

16,642,481

 

 

 

29,017,800

 

Payments of loan principal

 

(32,217,481

)

 

 

(30,239,800

)

Purchase of treasury stock

 

(7,454,000

)

 

 

(1,219,228

)

Payments of dividends

 

(2,673,706

)

 

 

(2,698,940

)

Net cash provided (used) by financing activities

 

(25,702,706

)

 

 

(5,140,168

)

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

5,628,189

 

 

 

(25,289

)

Cash and cash equivalents at beginning of year

 

532,502

 

 

 

557,791

 

Cash and cash equivalents at end of year

$

6,160,691

 

 

$

532,502

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

Interest paid (net of capitalized interest)

$

2,031,762

 

 

$

1,730,461

 

Income taxes paid (net of refunds received)

$

103,279

 

 

$

(232,782

)

 

 

 

 

 

 

 

 

Supplemental Schedule of Noncash Investing and Financing Activities

 

 

 

 

 

 

 

Additions and revisions, net, to asset retirement obligations

$

27,782

 

 

$

17,216

 

 

 

 

 

 

 

 

 

Gross additions to properties and equipment

$

9,248,415

 

 

$

21,711,279

 

Net (increase) decrease in accounts payable for properties

 

 

 

 

 

 

 

and equipment additions

 

(59,539

)

 

 

1,206,227

 

Capital expenditures and acquisitions

$

9,188,876

 

 

$

22,917,506

 

Proved Reserves

 

Proved Reserves SEC Pricing

 

 

Sept. 30, 2019

 

 

Sept. 30, 2018

 

Proved Developed Reserves:

 

 

Barrels of NGL

 

1,747,242

 

 

 

2,085,706

 

Barrels of Oil

 

1,863,096

 

 

 

2,334,587

 

Mcf of Gas

 

67,713,193

 

 

 

83,151,954

 

Mcfe (1)

 

89,375,221

 

 

 

109,673,712

 

Proved Undeveloped Reserves:

 

 

 

 

 

 

 

Barrels of NGL

 

226,038

 

 

 

848,484

 

Barrels of Oil

 

516,994

 

 

 

3,649,835

 

Mcf of Gas

 

12,560,713

 

 

 

36,910,082

 

Mcfe (1)

 

17,018,905

 

 

 

63,899,996

 

Total Proved Reserves:

 

 

 

 

 

 

 

Barrels of NGL

 

1,973,280

 

 

 

2,934,190

 

Barrels of Oil

 

2,380,090

 

 

 

5,984,422

 

Mcf of Gas

 

80,273,906

 

 

 

120,062,036

 

Mcfe (1)

 

106,394,126

 

 

 

173,573,708

 

 

 

 

 

 

 

 

 

10% Discounted Estimated Future

 

 

 

 

 

 

 

Net Cash Flows (before income taxes):

 

 

 

 

 

 

 

Proved Developed

$

86,814,212

 

 

$

125,915,804

 

Proved Undeveloped

 

23,581,427

 

 

 

78,657,354

 

Total

$

110,395,639

 

 

$

204,573,158

 

SEC Pricing

 

 

 

 

 

 

 

Oil/Barrel

$

54.40

 

 

$

62.86

 

Gas/Mcf

$

2.48

 

 

$

2.56

 

NGL/Barrel

$

19.30

 

 

$

26.13

 

 

 

 

 

 

 

 

 

Proved Reserves - Projected Future Pricing (2)

 

 

 

 

 

 

 

 

 

10% Discounted Estimated Future

Proved Reserves

 

Net Cash Flows (before income taxes):

Sept. 30, 2019

 

 

Sept. 30, 2018

 

Proved Developed

$

99,204,697

 

 

$

155,728,130

 

Proved Undeveloped

 

27,518,415

 

 

 

104,462,753

 

Total

$

126,723,112

 

 

$

260,190,883

 

 

 

 

 

 

 

 

 

(1) Crude oil and NGL converted to natural gas on a one barrel of crude oil or NGL equals six Mcf of natural gas basis

 

(2) Projected futures pricing as of Sept. 30, 2019, and Sept. 30, 2018, basis adjusted to Company wellhead price

 

Hedge Position as of Dec. 12, 2019

Period

 

Product

 

Volume Mcf/Bbl

 

 

Swap Price

 

 

Collar Average Floor Price

 

 

Collar Average Ceiling Price

 

2020

 

Natural Gas

 

 

70,000

 

 

 

 

 

 

$

2.20

 

 

$

2.59

 

2020

 

Natural Gas

 

 

1,350,000

 

 

$

2.78

 

 

 

 

 

 

 

 

 

2021

 

Natural Gas

 

 

30,000

 

 

$

2.66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

Crude Oil

 

 

8,000

 

 

 

 

 

 

$

60.00

 

 

$

70.38

 

2019

 

Crude Oil

 

 

12,000

 

 

$

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 have included a presentation of adjusted EBITDA because 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.

 

Fourth Quarter Ended

 

 

Fourth Quarter Ended

 

 

Year Ended

 

 

Year Ended

 

 

Sept. 30, 2019

 

 

Sept. 30, 2018

 

 

Sept. 30, 2019

 

 

Sept. 30, 2018

 

Net Income (Loss)

$

(56,153,780

)

 

$

555,647

 

 

$

(40,744,938

)

 

$

14,635,669

 

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (gains) losses on derivatives

 

217,365

 

 

 

110,536

 

 

 

(5,908,160

)

 

 

3,930,175

 

    Income Tax Expense (Benefit)

 

(18,237,000

)

 

 

204,000

 

 

 

(13,481,000

)

 

 

(12,739,000

)

    Interest Expense

 

443,958

 

 

 

459,675

 

 

 

1,995,789

 

 

 

1,748,101

 

    DD&A

 

6,375,878

 

 

 

4,258,629

 

 

 

18,196,583

 

 

 

18,395,040

 

    Impairment

 

76,824,337

 

 

 

-

 

 

 

76,824,337

 

 

 

-

 

    Former CEO Severance

 

668,883

 

 

 

-

 

 

 

668,883

 

 

 

-

 

Adjusted EBITDA

$

10,139,641

 

 

$

5,588,487

 

 

$

37,551,494

 

 

$

25,969,985

 

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 have included a presentation of adjusted pre-tax net income (loss) because 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.

 

Fourth Quarter Ended

 

 

Fourth Quarter Ended

 

 

Year Ended

 

 

Year Ended

 

 

Sept. 30, 2019

 

 

Sept. 30, 2018

 

 

Sept. 30, 2019

 

 

Sept. 30, 2018

 

Net Income (Loss)

$

(56,153,780

)

 

$

555,647

 

 

$

(40,744,938

)

 

$

14,635,669

 

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment

$

76,824,337

 

 

$

0

 

 

$

76,824,337

 

 

$

0

 

Unrealized (gains) losses on derivatives

 

217,365

 

 

 

110,536

 

 

 

(5,908,160

)

 

 

3,930,175

 

   Income Tax Expense (Benefit)

 

(18,237,000

)

 

 

204,000

 

 

 

(13,481,000

)

 

 

(12,739,000

)

Adjusted Pre-Tax Net Income (Loss)

$

2,650,922

 

 

$

870,183

 

 

$

16,690,239

 

 

$

5,826,844

 

 

Panhandle Oil and Gas Inc. (NYSE: PHX) Oklahoma City-based, Panhandle Oil and Gas Inc. is an oil and natural gas mineral company with a strategy to proactively pursue the acquisition of additional minerals in our core areas of focus. Panhandle owns approximately 258,000 net mineral acres principally located in Oklahoma, North Dakota, Texas, New Mexico and Arkansas. Approximately 71% of this mineral count is unleased and undeveloped. Additional information on the Company can be found at www.panhandleoilandgas.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release 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. Words such as “anticipates,” “plans,” “estimates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions may be used to identify forward-looking statements. Forward-looking statements are not statements of historical fact and reflect Panhandle’s current views about future events. Forward-looking statements may include, but are not limited to, statements relating to: our future financial and operating results; our ability to execute our business strategies; estimations and the respective values of oil, NGL and natural gas reserves; the level of production on our properties and the future expenses associated therewith; projections and volatility of future realized oil and natural gas prices; planned capital expenditures associated with our mineral, leasehold and non-operated working interests; statements concerning anticipated cash flow and liquidity; and our 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. Such forward-looking statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company. These forward-looking statements involve certain risks and uncertainties that could cause the results to differ materially from those expected by the Company’s management. Information concerning these risks and other factors can be found in the Company’s filings with the Securities and Exchange Commission, including its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, available on the Company's website or the SEC’s website at www.sec.gov.

Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in forward-looking statements. The forward-looking statements in this press release are made as of the date hereof, and the Company does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.