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PHX Minerals Fiscal Second Quarter 2022 Results

Share Print Bookmark    |    Wednesday,May 18,2022

PHX Minerals Inc. reported financial and operating results for the second fiscal quarter ended March 31, 2022.

Highlights:

• Royalty production volumes for the second fiscal quarter of 2022 increased 26% to a record 1,548 Mmcfe, and total production volumes for the second fiscal quarter of 2022 increased 16% to 2,460 Mmcfe compared to the first fiscal quarter of 2022.
• 82% of royalty production volumes and 78% of total production volumes in the second fiscal quarter of 2022 were attributable to natural gas.
• 108 gross (0.48 net) wells converted to PDP, including 35 gross (0.04 net) in the SCOOP and 31 gross (0.33 net) in the Haynesville, during the second fiscal quarter of 2022.
• 134 gross (0.60 net) wells in progress as of March 31, 2022.
• Net loss in the second fiscal quarter of 2022 was ($4.0) million, or ($0.12) per share, compared to net income of $6.7 million, or $0.20 per share, in the first fiscal quarter of 2022.
• Pretax net income excluding non-cash derivative gains (losses) ⁽¹⁾ in the second fiscal quarter of 2022 was $7.8 million, or $0.23 per share, compared to $2.9 million, or $0.09 per share, in the first fiscal quarter of 2022.
• Adjusted EBITDA⁽¹⁾ of $5.8 million for the second fiscal quarter of 2022, increased from $3.6 million in the second fiscal quarter of 2021 and from $4.4 million in the first fiscal quarter of 2022.
• Total debt as of March 31, 2022, equaled $24.0 million and debt to adjusted EBITDA (TTM) ⁽¹⁾ ratio was 1.23x at March 31, 2022.
• During the second quarter of fiscal year 2022, PHX closed on an acquisition of 825 net royalty acres located in the SCOOP play of Oklahoma and the Haynesville play of East Texas and Louisiana for approximately $9.3 million in cash.
• Since March 31, 2022, PHX has closed on an additional acquisition of 185 net royalty acres located in the SCOOP play of Oklahoma and the Haynesville play of Louisiana for approximately $1.5 million in cash. PHX has an additional 983 net royalty acres pending acquisition and under purchase and sale agreements, which the Company expects to close by the end of May 2022 for approximately $9.4 million in cash.
• PHX announced that the quarterly dividend increased to $0.02 per share, a 33% increase, payable on June 3, 2022, to stockholders of record on May 19, 2022

Chad L. Stephens, President and CEO, commented, "We are very pleased to report excellent financial results for our second quarter. First, I would like to recognize our employees for their dedication and hard work, for they are our greatest resource. None of our accomplishments would have been achieved without them.

"Royalty volumes increased by over 20% on a quarter over quarter basis for the second consecutive quarter to a record 1.55 Bcfe, and non-operated working interest volumes continue to decline as a percentage of total volumes to 37% and will continue to become less material going forward. Higher sales volumes along with the serendipitous commodity price environment provided a 32% increase quarter over sequential quarter in adjusted EBITDA.

"Our active mineral acquisition program has closed a year-to-date total of $25.6 million in transactions with another $9.4 million scheduled to close by the end of May - all in our core focus areas in the SCOOP of southern Oklahoma and the Haynesville. These recent acquisitions are in areas of active drilling and will drive our increasing royalty volumes and cash flow over the coming quarters. Additionally, the Board approved a 33% increase in our quarterly dividend payable in June 2022, which highlights our confidence in our financial strength and earnings power of our growing asset base. PHX remains committed to increasing our return of capital to stockholders via future dividends as we grow our asset base."

Fiscal Q2 Results Summary

The Company recorded a second fiscal quarter 2022 net loss of ($4,020,455), or ($0.12) per share, as compared to a net loss of ($499,723), or ($0.02) per share, in the second fiscal quarter 2021. The change in net loss was principally the result of unrealized losses associated with the Company's derivative contracts, offset by increased natural gas, oil and NGL sales and gains on asset sales.

Natural gas, oil and NGL revenue increased $6,438,040, or 77%, for the second quarter 2022, compared to the corresponding 2021 quarter due to increases in natural gas, oil and NGL prices of 77%, 63% and 71%, respectively, and an increase in natural gas and NGL volumes of 10% and 8%, respectively, partially offset by an 8% decrease in oil volumes.

The production increase in royalty volumes during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, resulted from acquired wells in the Haynesville Shale and SCOOP plays coming online. The decrease in working interest volumes resulted from naturally declining production in high-interest wells in the Arkoma Stack and the divestiture of low-value legacy working interests in Oklahoma.

The Company had a net loss on derivative contracts of ($12,983,406) in the second fiscal 2022 quarter, as compared to a net loss of ($2,348,143) in the second fiscal 2021 quarter, of which ($11,772,640) is unrealized with respect to the second fiscal 2022 quarter. Realized net loss on derivative contracts for the second fiscal 2022 quarter excludes $2,493,481 of cash paid to settle off-market derivative contracts. The change in net loss on derivative contracts was principally due to the Company's natural gas and oil collars and fixed price swaps being less beneficial in the quarter ended March 31, 2022, in relation to their respective contracted volumes and prices, as compared to the corresponding 2021 quarter.

The 11% increase in total cost per Mcfe in the second fiscal 2022 quarter, relative to the second fiscal 2021 quarter, was primarily driven by an increase in general and administrative costs, or G&A, and depreciation, depletion and amortization, or DD&A. G&A increased $684,788, or 33%, in the second fiscal 2022 quarter compared to the corresponding 2021 quarter due to legal expenses associated with reincorporating in the state of Delaware, increased transaction activity and restricted stock expense. DD&A increased $343,299, or 19%, in the second fiscal 2022 quarter to $0.86 per Mcfe, as compared to $0.77 per Mcfe in the second fiscal 2021 quarter. Of the DD&A increase, $217,604 was a result of a $0.09 increase in the DD&A rate per Mcfe, and $125,695 of such increase resulted from production increasing 7% in the second fiscal 2022 quarter.

Six Months Ended March 31, 2022 Results

The Company recorded net income of $2,661,794, or $0.08 per share, in the fiscal six-month period ended March 31, 2022 (the "fiscal six-month 2022 period"), as compared to a net loss of ($1,096,443), or ($0.05) per share, in the corresponding 2021 period. The change in net income was principally the result of increased natural gas, oil and NGL sales and lease bonuses and rental income, and decreased DD&A and interest expense, partially offset by an increase in losses on derivative contracts, lease operating expense, or LOE, transportation, gathering and marketing expenses, production taxes and a reduction in income tax benefit.

Natural gas, oil and NGL sales increased $13,700,225, or 93%, for the fiscal six-month 2022 period, compared to the corresponding 2021 period, due to increases in natural gas, oil and NGL prices of 103%, 74% and 88%, respectively, and an increase in natural gas and NGL volumes of 8% and 8%, respectively, partially offset by a decrease in oil volumes of 13%.

Natural gas volumes increased during the fiscal six-month 2022 period, as compared to the corresponding 2021 period, primarily as a result of new wells associated with recent acquisitions in the Haynesville Shale and SCOOP plays coming online. These gas volumes were partially offset by naturally declining production in high-interest wells in the Arkoma Stack and divestitures in the Fayetteville. NGL production also increased as a result of new wells brought online in the SCOOP, as well as increased production from liquids-rich gas wells in the Anadarko Granite Wash. The decrease in oil production was a result of naturally declining production in working interest wells in the Eagle Ford play and royalty wells in the Bakken play, due to the Company's strategy of no longer participating with working interests in new drilling in the Eagle Ford, and reduced drilling activity in the Bakken, as well as naturally declining production in high-interest wells brought online in the STACK during fiscal year 2021. Oil production decreases were partially offset by new wells in the SCOOP.

The Company had a net loss on derivative contracts of ($10,147,238) in the fiscal six-month 2022 period, as compared to a net loss of ($2,602,179) in the corresponding 2021 period, of which ($7,222,140) is unrealized with respect to the fiscal six-month 2022 period. Realized net loss on derivative contracts for the fiscal six-month 2022 period excludes $5,181,572 of cash paid to settle off-market derivative contracts. The change in net loss on derivative contracts was principally due to the Company's natural gas and oil collars and fixed price swaps being less beneficial in the fiscal six-month 2022 period in relation to their respective contracted volumes and prices, as compared to the corresponding 2021 period.

The 6% increase in total cost per Mcfe in the fiscal six-month 2022 period, relative to the corresponding 2021 period, was primarily driven by an increase in G&A and production tax, partially offset by a decrease in DD&A. G&A increased $1,049,248, or 28%, in the fiscal six-month 2022 period compared to the corresponding 2021 period due to legal expenses associated with reincorporating in the state of Delaware, increased transaction activity and restricted stock expense. DD&A decreased $333,590, or 8%, in the fiscal six-month 2022 period to $0.81 per Mcfe, as compared to $0.92 per Mcfe in the corresponding 2021 period. Of the DD&A decrease, $533,366 was a result of an $0.11 decrease in the DD&A rate per Mcfe, partially offset by an increase of $199,776 resulting from production increasing 5% in the fiscal six-month 2022 period compared to the corresponding 2021 period. The DD&A rate per Mcfe decrease was mainly due an increase in reserves during the fiscal six-month 2022 period, as compared to the corresponding 2021 period.

Ops Update

During the second fiscal quarter of 2022, the Company converted 108 gross (0.48 net) wells to producing status, including 35 gross (0.04 net) in the SCOOP and 31 gross (0.33 net) in the Haynesville.

At March 31, 2022, the Company had a total of 134 gross wells (0.60 net wells) in progress across its mineral positions and 52 gross (0.23 net) active permitted wells. As of March 31, 2022, 18 rigs were operating on the Company's acreage with 86 rigs operating within 2.5 miles of its acreage.