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PHX Minerals Fiscal Q4 2020 Results

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   |    Thursday,December 10,2020

PHX Minerals Inc. reported financial and operating results for the fourth quarter and fiscal year ended Sept. 30, 2020.

Chad L. Stephens, President and CEO, commented, "In many respects, the COVID-19 pandemic impacted the energy industry harder than any other major sector of the U.S. economy in 2020. While natural gas and oil prices have rebounded recently, 2020 saw some of the largest price declines in decades causing producers to quickly shut-in production, slash capital investments and significantly reduce overhead including workforce reductions.

"Despite the impact of the pandemic, we have made significant progress throughout this year on the strategy we laid out in January to focus solely on minerals, high grade the asset base and maintain a flexible balance sheet. We are pleased to see our sequential quarter financial performance improve materially. For the full fiscal year, we have paid down our debt through operating cash flow by $6.7 million, or roughly 20%; controlled cash expenses, which are down approximately $4 million, or 19%; reaffirmed our bank borrowing base; closed on an acquisition for total consideration of $9.3 million and executed a common equity offering of 5.75 million shares to fund additional acquisitions. Since the Sept. 30, 2020, fiscal year end, we have also closed on or entered into a purchase and sales agreement to acquire additional minerals in the SCOOP and Haynesville plays for total cash consideration of $7.3 million. Additionally, we changed our name and logo to better align ourselves with our core strategy. When looking toward the horizon, we estimate we will have completely eliminated our debt within four years, using operating cash flows at current strip prices. The hedges we have in place protect operating cash flows and allow us to weather the volatility in the market. As we pay down debt, our financial position will get stronger and allow us to allocate more capital to our core growth strategy of making value accretive mineral acquisitions. We also believe that the current sector dislocation will provide us with additional opportunities to use our public company platform to be an active minerals consolidator over the next few years."

Highlights:

  • Production volumes for the fourth fiscal quarter of 2020 were 2,038 Mmcfe, up from 1,904 Mmcfe in the third fiscal quarter of 2020 and down from 2,555 Mmcfe in the fourth fiscal quarter of 2019.
  • Production volumes for the full fiscal year 2020 were 8,593 Mmcfe, down from 10,359 Mmcfe in the full fiscal year 2019.
  • Recorded a net loss in fiscal 2020 of $24.0 million or $1.41 per share, as compared to net loss of $40.7 million or $2.43 per share in fiscal 2019. Net loss in both years was primarily due to non-cash impairments. Adjusted pre-tax net income(1) in fiscal 2020 was $0.9 million or $0.05 per share, as compared to $16.7 million or $1.00 per share in fiscal 2019.
  • Adjusted EBITDA(1) for the fourth fiscal quarter of 2020 was $2.7 million, up from $1.2 million in the third fiscal quarter of 2020 and down from $9.5 million in the fourth fiscal quarter of 2019. This includes gain on sale of assets in the 2020 and 2019 fiscal fourth quarters of $0.7 million and $5.9 million, respectively.
  • Adjusted EBITDA(1) for the full fiscal year 2020 was $13.5 million, down from $36.9 million in the full fiscal year 2019. This includes gain on sale of assets in 2020 and 2019 of $4.0 million and $19.0 million, respectively.
  • Reduced debt 19% from $35.4 million as of Sept. 30, 2019, to $28.8 million, as of Sept. 30, 2020. Debt has been further reduced to $27.3 million as of Dec. 1, 2020.
  • Debt to adjusted EBITDA (TTM) ratio was 2.14x at Sept. 30, 2020.
  • On Oct. 8, 2020, the Company closed on the purchase of 297 net royalty acres in Grady County, Okla., and 257 net mineral acres and 12 net royalty acres in Harrison, Panola and Nacogdoches Counties, Texas, for a purchase price of $5.5 million and 153,375 shares of PHX common stock.
  • On Nov. 12, 2020, the Company closed on the purchase of 134 net mineral acres in San Augustine County, Texas, for a purchase price of $750,000.
  • On Dec. 4, 2020, the Company signed a purchase and sale agreement to purchase an additional 87 net mineral acres in San Augustine County, Texas, for a purchase price of $1 million, subject to customary closing adjustments. The Company expects this acquisition to close in the first fiscal quarter of 2021.
  • On Dec. 4, 2020, the Company entered into an Eighth Amendment to the Credit Facility, which reaffirmed the Company's borrowing base.
  • Approved a payment of a one cent per share dividend payable on March 5, 2021, to stockholders of record on Feb. 19, 2021.

Q4 2020 Results

Natural gas, oil and NGL revenue decreased 38% in the 2020 quarter as production decreased 20% and product prices decreased 23%, relative to the 2019 quarter. The 2020 quarter included a $1.5 million loss on derivative contracts as compared to a $1.1 million gain for the 2019 quarter.

Total production decreased 20% in the 2020 quarter, as compared to the 2019 quarter. Total production decreased due to naturally declining production in the Eagle Ford, Arkoma Stack, STACK and, to a lesser extent, the Fayetteville, production downtime in high interest wells in the Arkoma Stack, postponement of workovers due to prevailing economic conditions in high interest wells in the Eagle Ford, and asset sales in 2019 and 2020 in the Permian Basin in Texas and New Mexico. These decreases were slightly offset by a ten-well drilling program in the Bakken that came online in November 2019 and mineral acquisitions of Bakken and STACK producing properties in late 2019.

In the fourth quarter of 2020, the Company sold open and non-producing net mineral acres in northwest Oklahoma for a gain of $717,640. 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 34% decrease in total cost per Mcfe in the 2020 quarter, relative to the 2019 quarter, was primarily driven by a decrease in DD&A. DD&A decreased $3,855,882, or 60%, in the 2020 quarter to $1.24 per Mcfe, as compared to $2.50 per Mcfe in the 2019 quarter. Of the decrease, $1,293,263 was a result of production decreasing 20% in the 2020 quarter. Also, DD&A decreased $2,562,619 as a result of a $1.26 decrease in the DD&A rate per Mcfe (due to impairments taken at the end of fiscal 2019 and the 2020 second quarter), which lowered the basis of the assets. The rate decrease was partially offset by lower natural gas, oil and NGL prices utilized in the reserve calculations during the 2020 quarter, as compared to the 2019 quarter, shortening the economic life of wells.

No impairment charge was recorded during the 2020 quarter. In the fourth quarter of 2019, impairment was $76,824,337, of which $76,560,376 was recorded on the 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.

The Company's net income (loss) changed from net loss of $56.2 million in the 2019 quarter to a net loss of $1.8 million in the 2020 quarter. The change was primarily due to the non-cash impairment (as noted above) in 2019, as well as lower expenses in 2020, partially offset by lower gain on asset sales and loss on derivative contracts in 2020. Adjusted pretax net income(1) was $2.7 million in the 2019 quarter, as compared to $0.1 million adjusted pretax net loss(1) in the 2020 quarter.

Fiscal Year 2020 Results

Natural gas, oil and NGL revenue decreased 41% in 2020 as production decreased 17% and product prices decreased 28%, relative to 2019. Fiscal 2020 total revenues included a $4.0 million gain on asset sales and also included a $0.9 million gain on derivative contracts, as compared to a $19.0 million gain on asset sales and $6.1 million gain on derivative contracts for 2019.

Total production decreased 17% in 2020, as compared to 2019. This decrease for 2020 was due to factors consistent with those discussed above. The Company also elected not to participate with a working interest in any wells proposed on its mineral acreage during 2020 or 2019.

In 2020, the Company sold 530 net mineral acres in Eddy County, N.M., for a gain on sales of $3.3 million. The Company also sold 5,925 open and non-producing net mineral acres in northwest Oklahoma for a net gain on sales of $0.7 million. In 2019, the Company sold 975 net mineral and royalty acres for a net gain on sales of $18.7 million.

The 13% decrease in total cost per Mcfe in 2020, relative to 2019, was primarily driven by a decrease in DD&A as noted above.

The Company's net loss changed from net loss of $40.7 million in 2019 to a net loss of $24.0 million in 2020. The majority of the loss in 2019 and 2020 was due to the non-cash impairments. In 2020, net loss was also driven by lower natural gas, oil and NGL sales due to lower commodity prices and decreased production.

During the year, the Company paid down $6.7 million of debt under the Company's credit facility.

Ops Update

At Nov. 20, 2020, the Company had a total of 115 gross wells (0.51 net wells) in progress across its mineral positions and 107 gross active permitted wells. As of Nov. 20, 2020, there were four rigs operating on the Company's acreage and 32 rigs operating within 2.5 miles of its acreage.


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