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Panhandle Sees Gain in Proved Reserves; Cuts Debt

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   |    Friday,May 08,2015

Panhandle Oil and Gas Inc. has reported financial and operating results for the Company's fiscal second quarter and six months ended March 31, 2015.

Highlights:

• Recorded six month 2015 net income of $10,937,968, $0.65 per diluted share, compared to net income of $10,580,891, $0.63 per diluted share, for the 2014 six months.
• Recorded fiscal second quarter 2015 net income of $704,207, $0.04 per diluted share, as compared to $5,654,573, $0.34 per diluted share, for the 2014 quarter.
• Generated cash from operating activities of $27,653,916 for the 2015 six-month period, well in excess of $19,797,996 of capital expenditures for drilling and equipping wells.
• Reported 2015 second-quarter and six-month production of 3,455,265 Mcfe and 7,192,748 Mcfe, respectively, which were a decrease of 1% and an increase of 3%, respectively, over the same periods of fiscal 2014.
• Reduced debt $6.1 million, to $71.9 million, from Sept. 30, 2014.
• Increased proved developed reserves, after production, to 116.1 Bcfe at March 31, 2015, from 115.2 Bcfe at Sept. 30, 2014.

Michael C. Coffman, President and CEO, said: "Fiscal 2015 continues to be a difficult time in the industry as product prices remain at depressed levels. Panhandle has, and will continue to, maintain its discipline and consistent long-term outlook and investment philosophies through this product price cycle. We have significantly reduced our capital expenditure level, choosing to participate with a working interest only in those wells that are expected to earn a reasonable rate of return based on anticipated product prices. As usual, we will generate royalty interests in wells drilled on our mineral acreage whether or not we take a working interest in the wells. Excess cash flow will continue to be used to further reduce our bank debt.

"We expect industry conditions to remain challenging at least throughout fiscal 2015. Panhandle's strong financial and operational position will provide us flexibility to be opportunistic in terms of acquiring assets or taking advantage of drilling opportunities when product prices will deliver reasonable returns and growth of shareholder value."

Operations Update

Paul Blanchard, Senior Vice President and COO, said: "Our mid-year 2015 proved developed reserves grew slightly to 116.1 Bcfe from 115.2 Bcfe at year-end 2014 as new reserves from drilling and a small positive performance revision more than offset production and a negative pricing revision due to falling commodity prices during the period.

"Our mid-year 2015 proved undeveloped (PUD) reserves declined 14.5% as compared to year-end 2014 primarily due to the movement of over 8 Bcfe out of the PUD and into proved developed producing resulting from drilling and development of those reserves. Because of the extremely low commodity price environment, the Company elected to add only PUD reserves for wells in progress at mid-year. No future PUD locations were added. The removal of locations that are no longer forecast to be drilled within 5 years and the pricing revision due to falling commodity prices also contributed to the decrease in PUD reserves. PUD reserves currently stand at 40% of total proved reserves."

Fiscal Second Quarter 2015 Results

For the 2015 second quarter, the Company recorded net income of $704,207, or $0.04 per diluted share. This compared to net income of $5,654,573, or $0.34 per diluted share, for the 2014 second quarter. Net cash provided by operating activities increased 27% to $12,468,427 for the 2015 second quarter, versus the 2014 second quarter. Capital expenditures for the 2015 fiscal quarter totaled $4,896,365 and continue to be principally directed toward oil and NGL rich plays in south central Oklahoma. In addition, the Company recorded a $1.2 million non-cash provision for impairment in the 2015 quarter, as compared to a $227,000 charge in the 2014 quarter.

Total revenues for the 2015 second quarter were $14,679,034, a 26% decrease from $19,752,045 for the 2014 quarter. Oil, NGL and natural gas sales decreased $8,670,752 or 41% in the 2015 quarter, compared to the 2014 quarter, as a result of a 1% decrease in Mcfe production and a 40% decrease in the average per Mcfe sales price. The average sales price per Mcfe of production during the 2015 second quarter was $3.60, compared to $6.04 for the 2014 second quarter. The 2015 quarter included a $1.9 million gain on derivative contracts, as compared to a $1.6 million loss for the 2014 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 to provide protection against significant declines in cash flows from lower product prices. 

Oil production increased 73% in the 2015 quarter to 114,567 barrels, versus 66,239 barrels in the 2014 quarter, while gas production of 2,475,777 Mcf for the 2015 quarter decreased 11%, compared to the 2014 quarter. In addition, 48,681 barrels of NGL were sold in the 2015 quarter, as compared to 51,670 barrels in the 2014 quarter. The increased oil production is a result of the Eagle Ford acquisition made in June 2014.

Six Months 2015 Results

For the 2015 six months, the Company recorded net income of $10,937,968, or $0.65 per diluted share. This compared to net income of $10,580,891, or $0.63 per diluted share, for the 2014 six months. Net cash provided by operating activities increased 27% year over year to $27,653,916 for the 2015 six months, versus the 2014 six months. Again, cash flow from operations fully funded costs to drill and equip wells for the six months. Capital expenditures for the 2015 six months totaled $20,106,176, which included $19,797,996 for drilling and equipping wells and acquisitions of $308,180. The Company recorded a $3.4 million non-cash provision for impairment in the 2015 six months, as compared to a $430,000 charge in the 2014 period.

Total revenues for the 2015 six months were $45,678,204, a 20% increase from $38,148,801 for the 2014 six months. Oil, NGL and natural gas sales decreased $7,624,134, or 19%, in the 2015 six months, compared to the 2014 six months, as a result of a 3% increase in Mcfe production and a 21% decrease in the average per Mcfe sales price. The average sales price per Mcfe of production during the 2015 six months was $4.44, compared to $5.65 for the 2014 six months. The 2015 six months included a $13.2 million gain on derivative contracts as compared to a $2.1 million loss for the 2014 period.

Oil production increased 54% in the 2015 six months to 231,150 barrels from 149,652 barrels in the 2014 six months, while gas production decreased 497,782 Mcf, or 9%, compared to the 2014 six months. In addition, 121,485 barrels of NGL were sold in the 2015 six months, which was a 37% increase compared to 2014 NGL volumes.

Reserves Update

March 31, 2015, mid-year proved reserves were 193.8 Bcfe, as calculated by the Company's consulting petroleum engineering firm, DeGolyer and MacNaughton. This was a decrease of 6.0%, compared to the 206.2 Bcfe of proved reserves at Sept. 30, 2014. SEC prices used for the March 31, 2015, report averaged $3.68 per Mcf for natural gas, $79.46 per barrel for oil and $27.25 per barrel for NGL, compared to $4.04 per Mcf for natural gas, $96.94 per barrel for oil and $31.45 per barrel for NGL for the Sept. 30, 2014, report. The above prices reflect net at the wellhead prices. Total proved developed reserves increased 0.7% to 116.1 Bcfe, as compared to Sept. 30, 2014, reserve volumes.