Quarterly / Earnings Reports | First Quarter (1Q) Update | Drilling Activity

Panhandle OIl & Gas Reports Quarterly Results

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   |    Wednesday,February 05,2020

Panhandle Oil & Gas reported financial and operating results for the first quarter ended Dec. 31, 2019.  

Chad L. Stephens, CEO, commented, “Please find herein the results reflected in our first quarter 2020 financials. We continue to make progress in our transition to a minerals- and royalty-focused company despite the current challenges created by depressed natural gas prices. We closed on the purchase of our previously announced $9.3 million mineral acquisition in the core of the STACK, mostly funded with cash from our like-kind exchanges. We continue to evaluate opportunities in the liquids-rich areas of the STACK/SCOOP and Bakken. As we stated in our last earnings release, the results from this strategy shift will not happen overnight, but we continue to be confident that Panhandle is well positioned, with an attractive asset base and a resilient balance sheet, to succeed in generating incremental value for our shareholders” 

Summary

• Net income was $1.9 million or $0.11 per share in fiscal year 2020, as compared to net income of $12.7 million or $0.75 per share in fiscal 2019.
• Adjusted pre-tax net income(1) in fiscal 2020 was $3.9 million or $0.23 per share, as compared to $10.1 million or $0.60 per share in fiscal 2019.
• Adjusted EBITDA(1) in fiscal 2020 was $7.2 million, as compared to $14.5 million in 2019, including $3.3 and $9.1 million gains on asset sales in the adjusted EBITDA for the 2020 and 2019 periods, respectively.
• Reduced debt from $35.4 million, as of Sept. 30, 2019, to $35.0 million, as of Dec. 31, 2019. Net debt has been further reduced to approximately $33.75 million as of Feb. 5, 2020.
• Debt to adjusted EBITDA (TTM) ratio was 1.16x at Dec. 31, 2019.
• Sale of 530 net mineral acres in Eddy County, N.M., for $3.4 million was closed by Panhandle on Nov. 14, 2019.
• Purchase of 700 net mineral acres in Kingfisher, Canadian and Garvin Counties, Okla., was closed by Panhandle on Dec. 18, 2019, for a purchase price of $9.3 million (after normal closing adjustments). This purchase was primarily funded with cash from our like-kind exchange sales. 

Ops Update

During the quarter ended Dec. 31, 2019, we converted 97 gross/0.32 net wells in progress to producing wells. Our inventory of wells in progress increased to 125 gross wells but decreased on a net well basis to 0.49 wells, as new drilling occurred on acreage where we have a lower ownership stake. Permits outstanding decreased as permits were converted to wells in progress and operator permitting activity slowed during the quarter.

Fiscal Q1 2020 Results

Oil, NGL and natural gas revenue decreased 38% in the 2020 quarter as production decreased 18% and product prices decreased 25% relative to the 2019 quarter. The 2020 quarter included a $0.8 million loss on derivative contracts as compared to a $4.5 million gain for the 2019 quarter.

Total production decreased 18% in the 2020 quarter, as compared to the 2019 quarter. Total production decreased due to the natural decline of the production base and, to a lesser extent, the result of non-core marginal property divestitures in 2019 and 2020. This decrease was partially offset by the production from new royalty wells completed and/or acquired. The oil production decrease is a result of naturally declining production in the Eagle Ford Shale and STACK and mineral sales in Martin County, Texas, and Lea and Eddy Counties, N.M. These decreases were partially offset by seven new wells in the Eagle Ford that began producing in third quarter 2019 and by mineral acquisitions in the Bakken. NGL production decrease is attributed to natural production decline and operators electing to remove less NGL from the natural gas stream due to lower NGL prices and, to a lesser extent, the sale of minerals in New Mexico. Decreased natural gas production is due to naturally declining production in the Anadarko STACK, Arkoma Stack and Fayetteville Shale.

In the first quarter of 2020, the Company sold 530 net mineral acres in Eddy County, N.M, for $3.4 million. At the time of sale, the assets were mostly amortized and therefore had minimal net book value. Almost all of the value received was a gain on the sale of assets ($3.3 million) in the first quarter of 2020.  In the 2019 quarter, the Company sold mineral acreage in Lea and Eddy Counties, N.M., for a gain of $9.1 million.

The 2.5% increase in total cost per Mcfe in the 2020 quarter, relative to the 2019 quarter was primarily driven by higher G&A, partially offset by lower DD&A, interest expenses and production taxes as noted above. The G&A expense increase was primarily the result of higher technical consulting, legal expenses and timing of billings of work performed by outside firms. The increase in technical consulting was due to increased cost for geologic and engineering fees. The increase in legal was primarily due to additional work provided pertaining to the Company’s strategy change.

The DD&A rate decrease was mainly due to the impairment taken on the Eagle Ford at the end of fiscal 2019, which lowered the basis of the assets. The rate decrease was partially offset by lower oil, NGL and natural gas prices utilized in the reserve calculations during the 2020 quarter, as compared to the 2019 quarter, shortening the economic life of wells.  This resulted in lower projected remaining reserves on a significant number of wells causing increased units of production DD&A.

The interest rate decrease was mainly attributable to lower average outstanding debt balance during the 2020 quarter as compared to the 2019 quarter. The decrease in production tax rate was primarily due to lower product prices during the 2020 quarter.  

The Company’s net income decreased from net income of $12.7 million in the 2019 quarter to net income of $1.9 million in the 2020 quarter. The majority of the decrease was due to the decreased production, lower oil, NGL and natural gas prices and decreased gains on assets sales and derivative contracts. Pretax net income (loss) without gain on asset sales and gains (losses) on derivative contracts would have been ($308,880) and $2,703,222 for 2020 and 2019, respectively. Adjusted pretax net income(1) was $3.9 million in the 2020 quarter, as compared to $10.1 million in the 2019 quarter.