Panhandle Oil and Gas Inc. Reports Fiscal Third Quarter and Nine Months 2016 Results and Operations Update

OKLAHOMA CITY – Aug. 8, 2016 – PANHANDLE OIL AND GAS INC. (NYSE: PHX) today reported financial and operating results for the Company’s fiscal third quarter and nine months ended June 30, 2016.

SIGNIFICANT ITEMS FOR THE PERIODS ENDED JUNE 30, 2016

  • Recorded net loss of $786,795 for the fiscal third quarter 2016, $0.05 per diluted share, as compared to net loss of $728,946, $0.04 per diluted share, for the 2015 quarter.
  • Recorded net loss of $11,024,074 for the 2016 nine months, $0.65 per diluted share, compared to net income of $10,209,022, $0.61 per diluted share, for the 2015 nine months.
  • Incurred noncash impairment provision for the 2016 nine months of $11,849,064.
  • Generated cash from operating activities of $13,058,724 for the 2016 nine months, well in excess of $3,359,518 of capital expenditures for drilling and equipping wells.
  • Received lease bonus proceeds of $4.3 million in the third quarter and $7.5 million in the first nine months of fiscal 2016.
  • Reported production for the 2016 third quarter and nine months of 2,887,821 Mcfe and 8,817,524 Mcfe, respectively.
  • Reduced debt $15.8 million from Sept. 30, 2015, to $49.2 million through June 30, 2016 (as of Aug. 8, 2016, balance is $44.8 million).

FISCAL THIRD QUARTER 2016 RESULTS

For the 2016 third quarter, the Company recorded a net loss of $786,795, or $0.05 per diluted share. This compared to a net loss of $728,946, or $0.04 per diluted share, for the 2015 third quarter. Net cash provided by operating activities decreased 74% to $2,492,074 for the 2016 third quarter, versus the 2015 third quarter. Capital expenditures for the 2016 fiscal quarter totaled $804,975 and continue to be principally directed toward oil and NGL rich plays in south central Oklahoma including the SCOOP and STACK plays.

Total revenues for the 2016 third quarter were $9,862,578, a 16% decrease from $11,748,888 for the 2015 quarter. Oil, NGL and natural gas sales decreased $4,077,692, or 36%, in the 2016 quarter, compared to the 2015 quarter, as a result of a 13% decrease in Mcfe production and a 26% decrease in the average per Mcfe sales price. The average sales price per Mcfe of production during the 2016 third quarter was $2.55, compared to $3.45 for the 2015 third quarter. The 2016 quarter included a $1.8 million loss on derivative contracts, as compared to a $1.4 million loss for the 2015 quarter. The Company will typically hedge 40-60% of its expected production volumes of oil and gas for a duration of up to one year. 

Oil production decreased 19% in the 2016 quarter to 88,732 barrels, versus 109,738 barrels in the 2015 quarter, while gas production decreased 12% to 2,112,567 Mcf for the 2016 quarter, compared to the 2015 quarter. In addition, 40,477 barrels of NGL were sold in the 2016 quarter, as compared to 41,737 barrels in the 2015 quarter. These production decreases are the result of normal well decline Company wide and the lack of new production coming on line. Capital expenditures for drilling, as highlighted above, continue to be depressed by the low product prices experienced over the last 18 months.

NINE MONTHS 2016 RESULTS

For the 2016 nine months, the Company recorded a net loss of $11,024,074, or $0.65 per diluted share. This compared to a net income of $10,209,022, or $0.61 per diluted share, for the 2015 nine months. Net cash provided by operating activities decreased 65% year over year to $13,058,724 for the 2016 nine months, versus $37,347,802 for the 2015 nine months. Again, cash flow from operations fully funded costs to drill and equip wells for the nine months. Capital expenditures for the 2016 nine months totaled $3,359,518. The Company recorded an $11.8 million noncash provision for impairment in the 2016 nine months, as compared to a $3.5 million provision in the 2015 period.

Total revenues for the 2016 nine months were $28,911,794, a 50% decrease from $57,427,092 for the 2015 nine months. Oil, NGL and natural gas sales decreased $20,843,467 or 48% in the 2016 nine months, compared to the 2015 nine months, as a result of a 16% decrease in Mcfe production and a 38% decrease in the average per Mcfe sales price. The average sales price per Mcfe of production during the 2016 nine months was $2.56, compared to $4.13 for the 2015 nine months. The 2016 nine months included a $0.8 million loss on derivative contracts as compared to an $11.7 million gain for the 2015 period.

Oil production decreased 16% in the 2016 nine months to 285,854 barrels from 340,888 barrels in the 2015 nine months, while gas production decreased 1,140,359 Mcf, or 15%, compared to the 2015 nine months. In addition, 126,462 barrels of NGL were sold in the 2016 nine months, which was a 23% decrease compared to 2015 NGL volumes.

MANAGEMENT COMMENTS

Michael C. Coffman, President and CEO, said:Our 2016 fiscal third quarter results again demonstrated the value of Panhandle’s mineral acreage asset base. The $4.3 million of lease bonus proceeds generated in the third quarter, combined with the $3.2 million generated in the first half of the year, was a significant piece of our overall operating cash flow this year. We have been able to fund our operations, continue to pay a dividend and reduce debt $15.8 million this fiscal year. Additional monetization of certain assets continues, and we will analyze and exploit appropriate opportunities that fit with our operating strategies.

“Natural gas represents 72% of our Mcfe production volume, so recent natural gas price increases will add to our cash flows and also provide us the opportunity to add to our hedge book, which will help stabilize our future cash flows. In addition, drilling for gas has been proposed by a third party operator on one of our largest mineral acreage holding plays, the Southeast Oklahoma Woodford Shale. We have ample liquidity and plan to take appropriate advantage of the opportunity.”

Coffman continued: “We have been patient through this downturn, continuing to follow our proven operating strategies, which has positioned the Company to prosper as the industry begins a recovery.

Paul F. Blanchard, Senior Vice President and COO, said “The third quarter of 2016 saw significant activity and transition for Panhandle Oil and Gas. Leasing activity during the quarter resulted in proceeds of $4.3 million. Shortly after the quarter close, we sold a non-strategic group of assets for $3.9 million. The operator of our Cochran County, Texas, mineral block has scheduled drilling on our acreage to begin in the fourth quarter of 2016. A well on our Eagle Ford acreage was completed with improved completion techniques, which has yielded a significant increase in early production as compared to previous wells.  Also, we elected to participate in eight Southeastern Oklahoma Woodford Shale wells, with an average 27.4% net revenue interest. These wells have the potential to materially impact both our 2017 natural gas production and proved developed reserves.”

OPERATIONS UPDATE

Third quarter leasing activity included the leasing of 792 acres in the STACK play and extension area, yielding approximately $2.9 million, and 706 acres in an extension area of the SCOOP play, yielding approximately $1.3 million. The Company maintained all participation rights on its mineral acreage in the SCOOP core and the CANA core, which includes a significant portion of the STACK play. We also sold a package of wells that came from the dissolution of one of our partnerships for $3.9 million in mid-July. This package consisted of more than 1,700 wells, each with minimal interest, along with associated minerals and leasehold that were not strategic to the Company. Leasing activity and the sale of non-strategic wells yielded a combined total of $8.1 million.

Capital investment activity during the quarter was minimal, with notable activity being the drilling of two Bakken wells in the Ft. Berthold area of North Dakota. These wells have an average net revenue interest of approximately 5% per well and are scheduled to be completed in the fourth quarter.

The operator of the Company’s 34.5 square mile gross acreage block in Cochran County, Texas, has permitted a 1.5 mile horizontal San Andres well and a salt water disposal well with plans to commence operations during the fourth quarter. The Company owns 4,057 net mineral acres in the block and will receive a proportionately reduced 25% royalty as well as the right to participate in drilling wells with up to 10% working interest. With full participation, Panhandle would have an average 10% working interest and a 12.1% net revenue interest in wells drilled on the block.

In July 2016, we participated in the completion of the Flick A 6 well on our Eagle Ford acreage. This well was fracture stimulated with a significantly larger volume of sand than previous wells on our acreage. The well has been on production for 20 days and its cumulative production is materially higher than the average of the five most recent wells on our acreage, which were completed in late 2015.

We have elected to participate in eight significant interest wells in the Southeastern Oklahoma Woodford Shale in Coal County, Okla. The wells will be operated by a major international oil and gas company that has ongoing successful operations in the field. Panhandle will have an average working interest of 20% and an average net revenue interest of 27.4% in the wells. The wells are projected to commence drilling in mid-August 2016 and to begin producing late in calendar year 2016 or early 2017. Assuming the activity takes place as planned and the wells perform as projected, the Company expects 2017 natural gas production volumes and proved developed reserves to increase materially.

FINANCIAL HIGHLIGHTS

Statements of Operations

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

2016

 

2015

 

2016

 

2015

Revenues:

(unaudited)

 

(unaudited)

Oil, NGL and natural gas sales

$

 7,365,898 

 

$

 11,443,590 

 

$

 22,557,372 

 

$

 43,400,839 

Lease bonuses and rentals

 

 4,281,095 

 

 

 1,663,402 

 

 

 7,188,152 

 

 

 1,945,743 

Gains (losses) on derivative contracts

 

 (1,782,903)

 

 

 (1,443,472)

 

 

 (842,726)

 

 

 11,706,955 

Income (loss) from partnerships

 

 (1,512)

 

 

 85,368 

 

 

 8,996 

 

 

 373,555 

 

 

 9,862,578 

 

 

 11,748,888 

 

 

 28,911,794 

 

 

 57,427,092 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

 3,520,196 

 

 

 4,071,634 

 

 

 10,274,085 

 

 

 13,233,980 

Production taxes

 

 196,733 

 

 

 362,548 

 

 

 747,714 

 

 

 1,384,217 

Exploration costs

 

 1,157 

 

 

 19,911 

 

 

 30,106 

 

 

 48,368 

Depreciation, depletion and amortization

 

 5,959,482 

 

 

 5,729,460 

 

 

 18,963,017 

 

 

 17,680,069 

Provision for impairment

 

 -

 

 

 132,118 

 

 

 11,849,064 

 

 

 3,532,760 

Loss (gain) on asset sales and other

 

 14,554 

 

 

 (18,459)

 

 

 (228,018)

 

 

 (27,586)

Interest expense

 

 331,117 

 

 

 383,047 

 

 

 1,034,027 

 

 

 1,195,056 

General and administrative

 

 1,570,134 

 

 

 1,565,575 

 

 

 5,133,657 

 

 

 5,374,206 

Bad debt expense (recovery)

 

 -

 

 

 -

 

 

 19,216 

 

 

 -

 

 

 11,593,373 

 

 

 12,245,834 

 

 

 47,822,868 

 

 

 42,421,070 

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

 

 (1,730,795)

 

 

 (496,946)

 

 

 (18,911,074)

 

 

 15,006,022 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

 (944,000)

 

 

 232,000 

 

 

 (7,887,000)

 

 

 4,797,000 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

 (786,795)

 

$

 (728,946)

 

$

 (11,024,074)

 

$

 10,209,022 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per common share

$

 (0.05)

 

$

 (0.04)

 

$

 (0.65)

 

$

 0.61 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 16,582,416 

 

 

 16,514,435 

 

 

 16,575,117 

 

 

 16,504,512 

Unissued, directors' deferred compensation shares

 

 263,649 

 

 

 246,893 

 

 

 259,382 

 

 

 256,084 

 

 

 16,846,065 

 

 

 16,761,328 

 

 

 16,834,499 

 

 

 16,760,596 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share of

 

 

 

 

 

 

 

 

 

 

 

common stock and paid in period

$

 0.04 

 

$

 0.04 

 

$

 0.12 

 

$

 0.12 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheets

 

June 30, 2016

 

Sept. 30, 2015

Assets

(unaudited)

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

 506,541 

 

$

 603,915 

Oil, NGL and natural gas sales receivables (net of

 

 4,404,084 

 

 

 7,895,591 

allowance for uncollectable accounts)

 

 

 

 

 

Deferred income taxes

 

 529,900 

 

 

 -

Refundable income taxes

 

 -

 

 

 345,897 

Assets held for sale

 

 1,456,851 

 

 

 -

Refundable production taxes

 

 -

 

 

 476,001 

Derivative contracts, net

 

 -

 

 

 4,210,764 

Other

 

 182,779 

 

 

 252,016 

Total current assets

 

 7,080,155 

 

 

 13,784,184 

 

 

 

 

 

 

Properties and equipment, at cost, based on

 

 

 

 

 

   successful efforts accounting:

 

 

 

 

 

Producing oil and natural gas properties

 

 433,025,959 

 

 

 441,141,337 

Non-producing oil and natural gas properties

 

 7,593,698 

 

 

 8,293,997 

Other

 

 1,069,658 

 

 

 1,393,559 

 

 

 441,689,315 

 

 

 450,828,893 

Less accumulated depreciation, depletion and amortization

 

 (246,216,837)

 

 

 (228,036,803)

Net properties and equipment

 

 195,472,478 

 

 

 222,792,090 

 

 

 

 

 

 

Investments

 

 163,918 

 

 

 2,248,999 

Total assets

$

 202,716,551 

 

$

 238,825,273 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

 1,499,739 

 

$

 2,028,746 

Derivative contracts, net

 

 1,690,516 

 

 

 -

Deferred income taxes

 

 -

 

 

 1,517,100 

Income taxes payable

 

 659,319 

 

 

 -

Accrued liabilities and other

 

 1,212,155 

 

 

 1,330,901 

Total current liabilities

 

 5,061,729 

 

 

 4,876,747 

 

 

 

 

 

 

Long-term debt

 

 49,200,000 

 

 

 65,000,000 

Deferred income taxes

 

 30,821,907 

 

 

 39,118,907 

Asset retirement obligations

 

 2,928,176 

 

 

 2,824,944 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

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

 

 

 

 

 

24,000,000 shares authorized, 16,863,004 issued at June 30,

 

 

 

 

 

2016, and Sept. 30, 2015

 

 280,938 

 

 

 280,938 

Capital in excess of par value

 

 3,085,815 

 

 

 2,993,119 

Deferred directors' compensation

 

 3,321,583 

 

 

 3,084,289 

Retained earnings

 

 112,414,741 

 

 

 125,446,473 

 

 

 119,103,077 

 

 

 131,804,819 

Less treasury stock, at cost; 277,378 shares at June 30,

 

 

 

 

 

2016, and 302,623 shares at Sept. 30, 2015

 

 (4,398,338)

 

 

 (4,800,144)

Total stockholders' equity

 

 114,704,739 

 

 

 127,004,675 

Total liabilities and stockholders' equity

$

 202,716,551 

 

$

 238,825,273 

Condensed Statements of Cash Flows

 

Nine months ended June 30,

 

2016

 

2015

Operating Activities

(unaudited)

Net income (loss)

$

 (11,024,074)

 

$

 10,209,022 

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

 

 

 

 

 

  by operating activities:

 

 

 

 

 

Depreciation, depletion and amortization

 

 18,963,017 

 

 

 17,680,069 

Impairment

 

 11,849,064 

 

 

 3,532,760 

Provision for deferred income taxes

 

 (10,344,000)

 

 

 2,854,000 

Exploration costs

 

 30,106 

 

 

 48,368 

Gain from leasing of fee mineral acreage

 

 (7,187,377)

 

 

 (1,973,773)

Net (gain) loss on sale of assets

 

 (271,080)

 

 

 -

Income from partnerships

 

 (8,996)

 

 

 (373,555)

Distributions received from partnerships

 

 33,201 

 

 

 535,400 

Directors' deferred compensation expense

 

 247,835 

 

 

 232,088 

Restricted stock awards

 

 644,783 

 

 

 740,043 

Bad debt expense (recovery)

 

 19,216 

 

 

 -

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

 

 

 

 

 

Oil, NGL and natural gas sales receivables

 

 3,472,291 

 

 

 6,771,690 

Fair value of derivative contracts

 

 5,901,280 

 

 

 (3,500,264)

Refundable production taxes

 

 476,001 

 

 

 40,035 

Other current assets

 

 69,237 

 

 

 158,431 

Accounts payable

 

 (698,593)

 

 

 148,384 

Income taxes receivable

 

 345,897 

 

 

 -

Income taxes payable

 

 659,319 

 

 

 518,003 

Accrued liabilities

 

 (118,403)

 

 

 (272,899)

Total adjustments

 

 24,082,798 

 

 

 27,138,780 

Net cash provided by operating activities

 

 13,058,724 

 

 

 37,347,802 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Capital expenditures, including dry hole costs

 

 (3,359,518)

 

 

 (23,613,349)

Acquisition of working interest properties

 

 -

 

 

 (308,180)

Proceeds from leasing of fee mineral acreage

 

 7,494,570 

 

 

 2,018,707 

Investments in partnerships

 

 50,126 

 

 

 (313,053)

Proceeds from sales of assets

 

 627,547 

 

 

 -

Net cash provided (used) by investing activities

 

 4,812,725 

 

 

 (22,215,875)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Borrowings under debt agreement

 

 8,560,234 

 

 

 23,013,234 

Payments of loan principal

 

 (24,360,234)

 

 

 (35,513,234)

Purchase of treasury stock

 

 (117,165)

 

 

 (242,313)

Payments of dividends

 

 (2,007,658)

 

 

 (2,001,150)

Excess tax benefit on stock-based compensation

 

 (44,000)

 

 

 27,000 

Net cash provided (used) by financing activities

 

 (17,968,823)

 

 

 (14,716,463)

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 (97,374)

 

 

 415,464 

Cash and cash equivalents at beginning of period

 

 603,915 

 

 

 509,755 

Cash and cash equivalents at end of period

$

 506,541 

 

$

 925,219 

 

 

 

 

 

 

Supplemental Schedule of Noncash Investing and Financing Activities

 

 

 

 

 

Additions to asset retirement obligations

$

 8,156 

 

$

 52,017 

 

 

 

 

 

 

Gross additions to properties and equipment

$

 3,529,104 

 

$

 22,686,530 

Net (increase) decrease in accounts payable for properties

 

 

 

 

 

and equipment additions

 

 (169,586)

 

 

 1,234,999 

Capital expenditures and acquisitions, including dry hole costs

$

 3,359,518 

 

$

 23,921,529 

OPERATING HIGHLIGHTS

 

Third Quarter Ended

 

Third Quarter Ended

 

Nine Months Ended

 

Nine Months Ended

 

June 30, 2016

 

June 30, 2015

 

June 30, 2016

 

June 30, 2015

Mcfe Sold

 

2,887,821

 

 

3,315,899

 

 

8,817,524

 

 

10,508,647

Average Sales Price per Mcfe

$

2.55

 

$

3.45

 

$

2.56

 

$

4.13

Oil Barrels Sold

 

88,732

 

 

109,738

 

 

285,854

 

 

340,888

Average Sales Price per Barrel

$

38.91

 

$

51.20

 

$

35.35

 

$

56.07

Mcf Sold

 

2,112,567

 

 

2,407,049

 

 

6,343,628

 

 

7,483,987

Average Sales Price per Mcf

$

1.60

 

$

2.17

 

$

1.72

 

$

2.82

NGL Barrels Sold

 

40,477

 

 

41,737

 

 

126,462

 

 

163,222

Average Sales Price per Barrel

$

12.93

 

$

14.30

 

$

11.95

 

$

19.46

 

Quarter ended

 

Oil Bbls Sold

 

Mcf Sold

 

NGL Bbls Sold

 

Mcfe Sold

6/30/2016

 

88,732

 

2,112,567

 

40,477

 

2,887,821

3/31/2016

 

90,760

 

2,014,139

 

37,934

 

2,786,303

12/31/2015

 

106,362

 

2,216,922

 

48,051

 

3,143,400

9/30/2015

 

112,237

 

2,261,236

 

47,738

 

3,221,086

6/30/2015

 

109,738

 

2,407,049

 

41,737

 

3,315,899

The Company’s derivative contracts in place for natural gas at June 30, 2016, are outlined in its Form 10-Q for the period ending June 30, 2016.

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; 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 we cannot control activities on our properties as the Company is a non-operator.

Do not place undue reliance on these forward-looking statements, which speak only as of the date of this release, 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.