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Panhandle Keeps Activity Minimal in Fiscal Q3; Drills Two Bakken Wells

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   |    Tuesday,August 09,2016

Panhandle Oil & Gas Inc. reported financial and operating results for the Company's fiscal third quarter and nine months ended June 30, 2016.

Key Points:

• 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.
• 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).

Operations Update

SCOOP/STACK

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.

Bakken/North Dakota

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.

Eagle Ford

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.

Woodford

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.

Quarterly

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 Oklahomaincluding the SCOOP and STACK plays.

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 Month 2016 Results

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.

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."