Panhandle Oil and Gas Inc. Reports Fiscal 2015 Financial Results

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

HIGHLIGHTS FOR THE YEAR ENDED SEPT. 30, 2015

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

Fiscal Year 2015 Results

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

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

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

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

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

Fiscal Fourth Quarter 2015 Results

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

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

Bank Line-of-Credit Update

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

Management Comments

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

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

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

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

FINANCIAL HIGHLIGHTS

Statements of Operations

	Three Months Ended Sept. 30,				Year Ended Sept. 30,
	2015		2014		2015		2014
Revenues:
Oil, NGL and natural gas sales	$	11,133,075	$	23,730,599	$	54,533,914	$	82,846,528
Lease bonuses and rentals		64,652		69,906		2,010,395		423,328
Gains (losses) on derivative contracts		2,115,551		3,758,509		13,822,506		247,414
Income from partnerships		141,723		328,431		515,278		893,954
		13,455,001		27,887,445		70,882,093		84,411,224
Costs and expenses:
Lease operating expenses		4,238,428		3,982,645		17,472,408		13,912,792
Production taxes		318,085		822,580		1,702,302		2,694,118
Exploration costs		36		15,877		48,404		86,017
Depreciation, depletion and amortization		6,141,070		6,334,272		23,821,139		21,896,902
Provision for impairment		1,476,431		665,933		5,009,191		1,096,076
Loss (gain) on asset sales and other		(371,408)		(22,709)		(398,994)		8,378
Interest expense		355,427		421,599		1,550,483		462,296
General and administrative		1,965,114		2,083,262		7,339,320		7,433,183
Bad debt expense (recovery)		180,499		-		180,499		-
		14,303,682		14,303,459		56,724,752		47,589,762
Income (loss) before provision (benefit)
for income taxes		(848,681)		13,583,986		14,157,341		36,821,462
Provision (benefit) for income taxes		39,000		4,286,000		4,836,000		11,820,000

Net income (loss)	$	(887,681)	$	9,297,986	$	9,321,341	$	25,001,462



Basic and diluted earnings per common share:
Net income (loss)	$	(0.05)	$	0.55	$	0.56	$	1.49


Weighted average shares outstanding:
Common shares		16,546,528		16,474,040		16,522,462		16,472,144
Unissued, vested directors' shares		251,005		258,905		246,442		255,039
		16,797,533		16,732,945		16,768,904		16,727,183

Dividends declared per share of
common stock and paid in period	$	0.04	$	0.04	$	0.16	$	0.16

Balance Sheets

	Sept. 30, 2015		Sept. 30, 2014
Assets
Current Assets:
Cash and cash equivalents	$	603,915	$	509,755
Oil, NGL and natural gas sales receivables,
net of allowance for uncollectable accounts		7,895,591		16,227,469
Refundable income taxes		345,897		-
Refundable production taxes		476,001		625,996
Derivative contracts, net		4,210,764		1,650,563
Other		252,016		354,828
Total current assets		13,784,184		19,368,611

Properties and equipment at cost, based on successful
efforts accounting:
Producing oil and natural gas properties		441,141,337		418,237,512
Non-producing oil and natural gas properties		8,293,997		10,260,717
Furniture and fixtures		1,393,559		1,317,725
		450,828,893		429,815,954
Less accumulated depreciation, depletion and
amortization		(228,036,803)		(204,731,661)
Net properties and equipment		222,792,090		225,084,293

Investments		2,248,999		1,936,421
Derivative contracts, net		-		251,279
Total assets	$	238,825,273	$	246,640,604

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable	$	2,028,746	$	7,034,773
Deferred income taxes		1,517,100		600,100
Income taxes payable		-		523,843
Accrued liabilities and other		1,330,901		1,290,858
Total current liabilities		4,876,747		9,449,574

Long-term debt		65,000,000		78,000,000
Deferred income taxes		39,118,907		37,363,907
Asset retirement obligations		2,824,944		2,638,470

Stockholders' equity:
Class A voting common stock, $.0166 par value; 24,000,000 shares
authorized, 16,863,004 issued at Sept. 30, 2015 and 2014		280,938		280,938
Capital in excess of par value		2,993,119		2,861,343
Deferred directors' compensation		3,084,289		3,110,351
Retained earnings		125,446,473		118,794,188
		131,804,819		125,046,820
Treasury stock, at cost; 302,623 shares at Sept. 30, 2015,
and 372,364 shares at Sept. 30, 2014		(4,800,144)		(5,858,167)
Total stockholders' equity		127,004,675		119,188,653
Total liabilities and stockholders' equity	$	238,825,273	$	246,640,604

Condensed Statements of Cash Flows



		Year ended Sept. 30,
	2015		2014
Operating Activities
Net income (loss)	$	9,321,341	$	25,001,462
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation, depletion and amortization		23,821,139		21,896,902
Impairment		5,009,191		1,096,076
Provision for deferred income taxes		2,672,000		6,610,000
Exploration costs		48,404		86,017
Gain from leasing of fee mineral acreage		(2,007,993)		(422,818)
Net (gain) loss on sales of assets		-		149,062
Income from partnerships		(515,278)		(893,954)
Distributions received from partnerships		736,280		1,129,324
Common stock contributed to ESOP		185,113		341,125
Common stock (unissued) to Directors'
Deferred Compensation Plan		302,353		353,825
Restricted stock awards		895,127		659,320
Bad debt expense (recovery)		180,499		-
Cash provided (used) by changes in assets
and liabilities:
Oil, NGL and natural gas sales receivables		8,151,379		(2,506,708)
Fair value of derivative contracts		(2,308,922)		(1,476,644)
Refundable income taxes		(345,897)		-
Refundable production taxes		149,995		576,537
Other current assets		102,812		(224,830)
Accounts payable		(343,186)		252,860
Income taxes payable		(523,843)		(284,149)
Accrued liabilities		40,500		279,195
Total adjustments		36,249,673		27,621,140
Net cash provided by operating activities		45,571,014		52,622,602

Investing Activities
Capital expenditures, including dry hole costs		(30,800,625)		(38,612,788)
Acquisition of working interest properties		(308,180)		(83,253,952)
Acquisition of minerals and overrides		-		(56,250)
Proceeds from leasing of fee mineral acreage		2,053,900		477,144
Investments in partnerships		(533,580)		(597,149)
Proceeds from sales of assets		-		92,000
Net cash used in investing activities		(29,588,485)		(121,950,995)

Financing Activities
Borrowings under debt agreement		25,833,116		99,846,333
Payments of loan principal		(38,833,116)		(30,108,589)
Purchases of treasury stock		(242,313)		(122,044)
Payments of dividends		(2,669,056)		(2,661,723)
Excess tax benefit on stock-based compensation		23,000		17,000
Net cash provided by (used in) financing activities		(15,888,369)		66,970,977
Increase (decrease) in cash and cash equivalents		94,160		(2,357,416)
Cash and cash equivalents at beginning of year		509,755		2,867,171
Cash and cash equivalents at end of year	$	603,915	$	509,755

		Year ended Sept. 30,
	2015		2014
Supplemental Disclosures of Cash Flow
Information

Interest paid, net of capitalized interest	$	1,558,885	$	380,451
Income taxes paid, net of refunds received	$	3,009,939	$	5,477,147

Supplemental schedule of noncash
investing and financing activities:
Additions and revisions, net, to asset
retirement obligations	$	70,529	$	225,453

Gross additions to properties and equipment	$	26,183,115	$	120,284,639
Net (increase) decrease in accounts payable for
properties and equipment additions		4,925,690		1,638,351
Capital expenditures, including dry hole costs	$	31,108,805	$	121,922,990

OPERATING HIGHLIGHTS



	Fourth Quarter Ended	Fourth Quarter Ended	Year Ended	Year Ended
	Sept. 30, 2015	Sept. 30, 2014	Sept. 30, 2015	Sept. 30, 2014
MCFE Sold	3,221,086	3,783,123	13,729,733	14,098,009
Average Sales Price per MCFE	$3.46	$6.27	$3.97	$5.88
Barrels of Oil Sold	112,237	126,256	453,125	346,387
Average Sales Price per Barrel	$44.18	$91.83	$53.12	$93.68
MCF of Natural Gas Sold	2,261,236	2,690,493	9,745,223	10,773,559
Average Sales Price per MCF	$2.43	$3.88	$2.73	$4.05
Barrels of NGL Sold	47,738	55,849	210,960	207,688
Average Sales Price per Barrel	$14.10	$30.48	$18.25	$32.31

Quarterly Production Levels

Quarter ended	Oil Bbls Sold	MCF Sold	NGL Bbls Sold	MCFE Sold
9/30/15	112,237	2,261,236	47,738	3,221,086
6/30/15	109,738	2,407,049	41,737	3,315,899
3/31/15	114,567	2,475,777	48,681	3,455,265
12/31/14	116,583	2,601,161	72,804	3,737,483
9/30/14	126,256	2,690,493	55,849	3,783,123
6/30/14	70,479	2,508,346	63,029	3,309,394
3/31/14	66,239	2,788,768	51,670	3,496,222
12/31/13	83,413	2,785,952	37,140	3,509,270

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

	Production volume	Indexed
Contract period	covered per month	pipeline	Fixed price
Natural gas costless collars
January - December 2015	100,000 Mmbtu	NYMEX Henry Hub	$3.50 floor / $4.10 ceiling
January - December 2015	70,000 Mmbtu	NYMEX Henry Hub	$3.25 floor / $4.00 ceiling
December 2015 - May 2016	80,000 Mmbtu	NYMEX Henry Hub	$2.50 floor / $3.10 ceiling

Natural gas fixed price swaps
January - September 2016	80,000 Mmbtu	NYMEX Henry Hub	$2.43

Oil costless collars
July - December 2015	10,000 Bbls	NYMEX WTI	$80.00 floor / $86.50 ceiling

Oil fixed price swaps
April - December 2015	5,000 Bbls	NYMEX WTI	$94.56
July - December 2015	7,000 Bbls	NYMEX WTI	$93.91

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

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

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

Panhandle Oil and Gas Inc. Reports Fiscal 2015 Financial Results

Panhandle Oil and Gas Inc. Reports Fiscal 2015 Financial Results

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