PANHANDLE OIL AND GAS INC. Reports Fiscal Second Quarter And Six Months 2018 Results And Mid-Year Reserve Update
PANHANDLE OIL AND GAS INC. Reports Fiscal Second Quarter And Six Months 2018 Results And Mid-Year Reserve Update
OKLAHOMA CITY, May 7, 2018 /PRNewswire/ -- PANHANDLE OIL AND GAS INC. (NYSE: PHX) today reported financial and operating results for the Company's fiscal second quarter and six months ended March 31, 2018.
HIGHLIGHTS FOR THE PERIODS ENDED MARCH 31, 2018
-- Increased total equivalent production 25%, as compared to the quarter
ended March 31, 2017, and 31%, as compared to the six months ended March
31, 2017.
-- Generated second quarter 2018 net income of $1,070,176, $0.06 per
diluted share, as compared to a net income of $3,470,433, $0.21 per
diluted share, for the 2017 quarter.
-- Generated six-month 2018 net income of $14,855,115, $0.87 per diluted
share, as compared to a net income of $1,232,041, $0.07 per diluted
share, for the 2017 six months.
-- Generated free cash flow of $8,815,501 as cash from operating activities
of $15,359,982 for the 2018 six-month period was well in excess of
capital expenditures for drilling and equipping wells of $6,544,481.
-- Decreased lease operating expense (LOE) per Mcfe to $1.08 for the
six-month period, as compared to $1.26 in the prior year's six-month
period.
-- Reduced debt from $52.2 million, as of Sept. 30, 2017, to $43.5 million,
as of March 31, 2018, which has declined further to $42.0 million as of
April 30, 2018.
-- Generated 2018 second-quarter and six-month EBITDA ((1)) of $5,723,205
and $12,505,547, respectively.
((1) )EBITDA is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section.
MANAGEMENT COMMENTS
Paul F. Blanchard Jr., President and CEO, said, "Fiscal year-to-date capital investment has been focused in two areas: 1) approximately $4.0 million in the Eagle Ford, primarily for the completion of four wells in the first quarter that were drilled as part of last year's ten-well Eagle Ford drilling program, and 2) approximately $1.8 million for drilling activity on relatively small working interest wells in Oklahoma's STACK/Cana/SCOOP and southeastern Oklahoma Woodford plays. Year-to-date capital investments total $6.5 million, with $1.6 million invested in the second quarter.
"During this lower capital investing period, we have continued to direct our free cash flow toward the reduction of debt. As a result, the Company's debt has been reduced from $52.2 million at the beginning of fiscal 2018 to $43.5 million at the end of the second quarter. Subsequently, our debt at the end of April 2018 was reduced further to $42.0 million, which is a reduction of $10.2 million or approximately 20% during those 7 months.
"Activity on our mineral acreage in the Oklahoma plays has been robust this year. Drilling and completion operations are currently underway on 32 wells, primarily in STACK/Cana/SCOOP. However, this activity has been in units where we own small working interest participation rights, relative to our average ownership and therefore, does not require a significant capital commitment from us. This is in contrast to last year when our participation was in units where we owned much larger than average working interest participation rights. The year-to-year difference is simply the result of our exceptionally diverse and varied mineral ownership in the cores of these plays, where our rights vary from less than 1% in some drilling units up to 50% in others, and the specific units the operators select to drill at any point in time.
"Second quarter 2018 production, in comparison to first quarter, was impacted by three primary factors: 1) relatively steep early decline rates from new high working interest wells placed on production in the second half of 2017 and early 2018, plus temporary production drops associated with the transition of these wells from flowing efficiently up the production casing to requiring downhole equipment modifications to resume efficient flow, 2) the lack of material production from new wells during the quarter and 3) the production loss associated with the sale of 199 marginal working interest properties during the quarter.
"Drilling operations with one rig are planned to begin in mid-May on our Eagle Ford property, where the operator intends to drill six initial wells ($5.3 million capital requirement) from one pad, with the option to drill eight more wells ($10.0 million capital requirement) on two additional pads during calendar 2018. Production from this drilling is anticipated to begin in early fiscal 2019 when the first six-well pad is placed on line. The Company has hedged 126,000 barrels of oil in calendar 2019 at approximately $57.50 per barrel in conjunction with this drilling program as part of our strategy to protect returns on invested capital."
FISCAL SECOND QUARTER 2018 RESULTS
For the 2018 second quarter, the Company recorded net income of $1,070,176, or $0.06 per diluted share. This compares to a net income of $3,470,433, or $0.21 per diluted share, for the 2017 second quarter. Net cash provided by operating activities increased 44% to $8,161,399 for the 2018 second quarter, versus $5,664,914 for the 2017 second quarter. Capital expenditures totaled $1,559,601 in the 2018 second quarter, compared to $5,546,731 in the 2017 second quarter.
Total revenues for the 2018 second quarter were $11,421,258, an 18% decrease from $13,964,288 for the 2017 quarter. Oil, NGL and natural gas sales increased $3,375,134 or 38% in the 2018 quarter, compared to the 2017 quarter, as a result of a 25% increase in Mcfe production and a 10% increase in the average per Mcfe sales price. The average sales price per Mcfe of production during the 2018 second quarter was $4.17, compared to $3.78 for the 2017 second quarter. Lease bonus income decreased $1,835,005 from $2,334,203 in the 2017 quarter to $499,198 in the 2018 quarter. Also, the 2018 quarter included a $1.3 million loss on derivative contracts, as compared to a $2.7 million gain for the 2017 quarter.
Gas production increased 21% to 2,107,921 Mcf for the 2018 quarter, compared to the 2017 quarter, while oil production increased 24% to 82,312 barrels versus 66,547 barrels. In addition, 56,747 barrels of NGL were sold in the 2018 quarter, as compared to 33,836 barrels in the 2017 quarter.
Total expenses increased $684,227 in the 2018 quarter as compared to the 2017 quarter. This increase was mainly driven by an increase in LOE, production tax and DD&A over the prior year quarter due to increased Mcfe production. Although LOE and DD&A expenses increased over the prior year quarter, the per Mcfe rates both declined comparatively.
SIX MONTHS 2018 RESULTS
For the 2018 six month period, the Company recorded net income of $14,855,115, or $0.87 per diluted share. This compares to net income of $1,232,041, or $0.07 per diluted share, for the 2017 six months. The 2018 six-month results include a $12,825,000 decrease in income tax as a result of the new tax law (see income tax below). Net cash provided by operating activities increased 64% year over year to $15,359,982 for the 2018 six months, versus the 2017 six months. This cash flow fully funded costs to drill and equip wells, as well as significantly pay down our debt. Capital expenditures for the 2018 six months totaled $6,544,481.
Total revenues for the 2018 six months were $23,911,784, a 14% increase from $21,000,931 for the 2017 six months. Oil, NGL and natural gas sales increased $7,363,335, or 41% in the 2018 six months, compared to the 2017 six months, as a result of a 31% increase in Mcfe production and an 8% increase in the average per Mcfe sales price. The average sales price per Mcfe of production during the 2018 six months was $3.95, compared to $3.65 for the 2017 six months. Lease bonus income decreased $2,576,004 from $3,172,161 in the 2017 six months to $596,157 in the 2018 six months. The 2018 six months included a $1.8 million loss on derivative contracts as compared to a $38,650 gain for the 2017 period.
Oil production increased 22% in the 2018 six month period to 173,149 barrels from 142,183 barrels in the 2017 six months, while gas production increased 951,704 Mcf, or 26%, compared to the 2017 six months. In addition, 129,148 barrels of NGL were sold in the 2018 six months, which was an 86% increase compared to 2017 NGL volumes.
Total expenses increased $1,717,779 in the 2018 period as compared to the 2017 period. This increase was mainly driven by an increase in LOE, production tax and DD&A over the prior year six months due to increased Mcfe production. Although LOE and DD&A expenses increased over the prior year six months, the per Mcfe rates both declined comparatively.
INCOME TAX
The provision (benefit) for income tax in the six-month period includes an adjustment of $12,825,000 (benefit) for net deferred tax liabilities as a result of the Tax Cuts and Jobs Act enacted in December 2017 which reduced income tax rates from 35% to 21%. This adjustment represents the Company's reasonable estimate of the effect of the change in future tax rates on deferred tax items at March 31, 2018. Pre-tax net income was $2,121,115 for the six-month period of 2018.
RESERVES UPDATE
March 31, 2018, mid-year proved reserves were 163.4 Bcfe, as calculated by DeGolyer and MacNaughton, the Company's independent consulting petroleum engineering firm. This was a decrease of 3%, compared to the 168.6 Bcfe of proved reserves at Sept. 30, 2017. SEC prices used for the March 31, 2018, report averaged $2.65 per Mcf for natural gas, $50.62 per barrel for oil and $22.79 per barrel for NGL, compared to $2.81 per Mcf for natural gas, $46.31 per barrel for oil and $17.55 per barrel for NGL at the Sept. 30, 2017, report. These prices reflect the net prices received at the wellhead. Total proved developed reserves decreased 3% to 107.9 Bcfe, as compared to Sept. 30, 2017, reserve volumes.
FINANCIAL HIGHLIGHTS
Statements of Operations
------------------------
Three Months Ended March 31, Six Months Ended March 31,
2018 2017 2018 2017
---- ---- ---- ----
Revenues: (unaudited) (unaudited)
Oil, NGL and natural gas
sales $12,266,036 $8,890,902 $25,153,455 $17,790,120
Lease bonuses and rentals 499,198 2,334,203 596,157 3,172,161
Gains (losses) on
derivative contracts (1,343,976) 2,739,183 (1,837,828) 38,650
---------- --------- ---------- ------
11,421,258 13,964,288 23,911,784 21,000,931
Costs and expenses:
Lease operating expenses 3,217,568 3,105,496 6,844,277 6,154,911
Production taxes 497,823 371,553 986,813 739,398
Depreciation, depletion and
amortization 4,241,078 4,105,655 9,516,902 8,939,918
Provision for impairment - 10,788 - 10,788
Loss (gain) on asset sales
and other 216,472 91,337 (79,186) 86,998
Interest expense 435,951 286,398 867,530 578,767
General and administrative 1,766,190 1,719,628 3,654,333 3,562,110
--------- --------- --------- ---------
10,375,082 9,690,855 21,790,669 20,072,890
---------- --------- ---------- ----------
Income (loss) before
provision (benefit) for
income taxes 1,046,176 4,273,433 2,121,115 928,041
Provision (benefit) for
income taxes (24,000) 803,000 (12,734,000) (304,000)
------- ------- ----------- --------
Net income (loss) $1,070,176 $3,470,433 $14,855,115 $1,232,041
========== ========== =========== ==========
Basic and diluted earnings
(loss) per common share $0.06 $0.21 $0.87 $0.07
===== ===== ===== =====
Basic and diluted weighted
average shares
outstanding:
Common shares 16,766,010 16,644,755 16,725,076 16,624,229
Unissued, directors'
deferred compensation
shares 205,867 277,167 267,005 277,200
------- ------- ------- -------
16,971,877 16,921,922 16,992,081 16,901,429
========== ========== ========== ==========
Dividends declared per
share of common stock and
paid in period $0.04 $0.04 $0.08 $0.08
===== ===== ===== =====
Balance Sheets
--------------
March 31, 2018 Sept. 30, 2017
-------------- --------------
Assets (unaudited)
Current assets:
Cash and cash equivalents $168,562 $557,791
Oil, NGL and natural gas
sales receivables (net of
allowance for
uncollectable accounts) 6,475,117 7,585,485
Refundable income taxes 792,315 489,945
Assets held for sale - 557,750
Derivative contracts, net - 544,924
Other 340,975 253,480
------- -------
Total current assets 7,776,969 9,989,375
Properties and equipment,
at cost, based on
successful efforts
accounting:
Producing oil and natural
gas properties 422,574,038 434,571,516
Non-producing oil and
natural gas properties 7,399,718 7,428,927
Other 1,510,982 1,067,894
--------- ---------
431,484,738 443,068,337
Less accumulated
depreciation, depletion
and amortization (240,207,008) (246,483,979)
------------ ------------
Net properties and
equipment 191,277,730 196,584,358
Investments 224,308 170,486
Total assets $199,279,007 $206,744,219
============ ============
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable $785,880 $1,847,230
Derivative contracts, net 1,881,022 -
Accrued liabilities and
other 1,378,284 1,690,789
--------- ---------
Total current liabilities 4,045,186 3,538,019
Long-term debt 43,500,000 52,222,000
Deferred income taxes 18,280,007 31,051,007
Asset retirement
obligations 2,895,355 3,196,889
Derivative contracts, net 89,337 28,765
Stockholders' equity:
Class A voting common
stock, $.0166 par value;
24,000,000 shares
authorized, 16,895,603
issued at March 31, 2018,
and 16,863,004 issued at
Sept. 30, 2017 281,481 280,938
Capital in excess of par
value 2,566,003 2,726,444
Deferred directors'
compensation 2,819,516 3,459,909
Retained earnings 126,837,723 113,330,216
----------- -----------
132,504,723 119,797,507
Less treasury stock, at
cost; 119,650 shares at
March 31, 2018, and
184,988 shares at Sept.
30, 2017 (2,035,601) (3,089,968)
---------- ----------
Total stockholders' equity 130,469,122 116,707,539
----------- -----------
Total liabilities and
stockholders' equity $199,279,007 $206,744,219
============ ============
Condensed Statements of Cash Flows
----------------------------------
Six months ended March 31,
2018 2017
---- ----
Operating Activities (unaudited)
Net income (loss) $14,855,115 $1,232,041
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion and
amortization 9,516,902 8,939,918
Impairment - 10,788
Provision for deferred income taxes (12,771,000) (76,000)
Gain from leasing of fee mineral
acreage (595,946) (3,171,490)
Proceeds from leasing of fee
mineral acreage 610,552 3,191,075
Net (gain) loss on sale of assets 466,128 87,161
Directors' deferred compensation
expense 170,826 176,368
Fair value of derivative contracts 2,486,518 (384,566)
Restricted stock awards 347,838 317,633
Other (1,337) (835)
Cash provided (used) by changes in
assets and liabilities:
Oil, NGL and natural gas sales
receivables 1,110,368 136,669
Other current assets (87,495) 81,325
Accounts payable (73,066) (203,053)
Income taxes receivable (302,370) (792,488)
Other non-current assets (66,364) -
Accrued liabilities (306,687) (195,981)
-------- --------
Total adjustments 504,867 8,116,524
------- ---------
Net cash provided by operating
activities 15,359,982 9,348,565
Investing Activities
Capital expenditures (6,544,481) (7,721,254)
Investments in partnerships 7,493 (17,220)
Proceeds from sales of assets 1,129,705 718,700
--------- -------
Net cash provided (used) by
investing activities (5,407,283) (7,019,774)
Financing Activities
Borrowings under debt agreement 10,596,451 7,038,699
Payments of loan principal (19,318,671) (7,538,699)
Purchase of treasury stock (272,100) (407,677)
Payments of dividends (1,347,608) (1,340,656)
---------- ----------
Net cash provided (used) by
financing activities (10,341,928) (2,248,333)
=========== ==========
Increase (decrease) in cash and
cash equivalents (389,229) 80,458
Cash and cash equivalents at
beginning of period 557,791 471,213
------- -------
Cash and cash equivalents at end of
period $168,562 $551,671
======== ========
Supplemental Schedule of Noncash
Investing and Financing Activities
Additions to asset retirement
obligations $13,871 $32,236
======= =======
Gross additions to properties and
equipment $5,556,196 $10,867,308
Net (increase) decrease in accounts
payable for properties and
equipment additions 988,285 (3,146,054)
------- ----------
Capital expenditures and
acquisitions $6,544,481 $7,721,254
========== ==========
Proved Reserves
---------------
Proved Reserves SEC Pricing
---------------------------
March 31, 2018 Sept. 30, 2017
-------------- --------------
Proved Developed Reserves: (unaudited)
--------------------------
Barrels of NGL 1,615,186 1,768,425
Barrels of Oil 2,041,085 2,201,528
Mcf of Gas 86,008,174 87,861,043
Mcfe (1) 107,945,800 111,680,761
Proved Undeveloped Reserves:
----------------------------
Barrels of NGL 528,795 616,274
Barrels of Oil 2,832,003 3,308,139
Mcf of Gas 35,296,239 33,334,077
Mcfe (1) 55,461,027 56,880,555
Total Proved Reserves:
----------------------
Barrels of NGL 2,143,981 2,384,699
Barrels of Oil 4,873,088 5,509,667
Mcf of Gas 121,304,413 121,195,120
Mcfe (1) 163,406,827 168,561,316
10% Discounted Estimated Future
Net Cash Flows (before income
taxes):
-----------------------------
Proved Developed $ 109,399,362 $ 112,276,166
Proved Undeveloped 14,948,256 13,746,585
---------- ----------
Total $ 124,347,618 $ 126,022,751
=== =========== === ===========
SEC Pricing
-----------
Oil/Barrel $ 50.62 $ 46.31
Gas/Mcf $ 2.65 $ 2.81
NGL/Barrel $ 22.79 $ 17.55
Proved Reserves - Projected Future Pricing (2)
---------------------------------------------
10% Discounted Estimated
Future Proved Reserves
---------------
Net Cash Flows (before
income taxes): March 31, 2018 Sept. 30, 2017
---------------------- -------------- --------------
Proved Developed $ 143,317,737 $ 146,699,256
Proved Undeveloped 43,285,836 45,395,171
---------- ----------
Total $ 186,603,573 $ 192,094,427
=== =========== === ===========
(1) Crude oil and NGL
converted to natural gas
on a one barrel of crude
oil or NGL equals six Mcf
of natural gas basis
(2) Projected futures
pricing as of March 31,
2018, and Sept. 30, 2017,
basis adjusted to Company
wellhead price
OPERATING HIGHLIGHTS
--------------------
Second Quarter Ended Second Quarter Ended Six Months Ended Six Months Ended
March 31, 2018 March 31, 2017 March 31, 2018 March 31, 2017
-------------- -------------- -------------- --------------
Mcfe
Sold 2,942,275 2,351,207 6,364,087 4,868,621
Average
Sales
Price
per
Mcfe $4.17 $3.78 $3.95 $3.65
Oil
Barrels
Sold 82,312 66,547 173,149 142,183
Average
Sales
Price
per
Barrel $63.20 $47.93 $58.28 $46.96
Mcf Sold 2,107,921 1,748,909 4,550,305 3,598,601
Average
Sales
Price
per Mcf $2.72 $2.89 $2.60 $2.72
NGL
Barrels
Sold 56,747 33,836 129,148 69,487
Average
Sales
Price
per
Barrel $23.60 $19.17 $25.00 $18.90
Quarter Oil Bbls Mcf Sold NGL Bbls
ended Sold Sold Mcfe Sold
------- -------- -------- -------- ---------
3/31/2018 82,312 2,107,921 56,747 2,942,275
12/31/2017 90,837 2,442,384 72,401 3,421,812
9/30/2017 93,027 2,330,838 65,034 3,279,204
6/30/2017 75,467 2,265,091 39,337 2,953,915
3/31/2017 66,547 1,748,909 33,836 2,351,207
The Company's derivative contracts in place for oil and natural gas at March 31, 2018, are outlined in its Form 10-Q for the period ending March 31, 2018.
Non-GAAP Reconciliation
This news release includes certain "non-GAAP financial measures" under the rules of the Securities and Exchange Commission, including Regulation G. These non-GAAP measures are calculated using GAAP amounts in our financial statements.
EBITDA Reconciliation
EBITDA is defined as net income (loss) plus interest expense, provision for impairment, depreciation, depletion and amortization of properties and equipment (which includes amortization of other assets), and provision (benefit) for income taxes. We believe that certain investors consider EBITDA a useful means of measuring our ability to meet our debt service obligations and evaluating our financial performance. EBITDA has limitations and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to a similarly titled measure of other companies. The following table provides a reconciliation of net income (loss) to EBITDA for the periods indicated.
Second Quarter
Ended Six Months Ended
March 31, 2018 March 31, 2018
-------------- --------------
Net
Income
(Loss) $1,070,176 $14,855,115
Plus:
Income
Tax
Expense
(Benefit) (24,000) (12,734,000)
Interest
Expense 435,951 867,530
DD&A 4,241,078 9,516,902
Impairment - -
--- ---
EBITDA $5,723,205 $12,505,547
========== ===========
Panhandle Oil and Gas Inc. (NYSE: PHX) is engaged in the exploration for and production of natural gas and oil. Additional information on the Company can be found at www.panhandleoilandgas.com.
Forward-Looking Statements and Risk Factors - This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include current expectations or forecasts of future events. They may include estimates of oil and gas reserves, expected oil and gas production and future expenses, projections of future oil and gas prices, planned capital expenditures for drilling, leasehold acquisitions and seismic data, statements concerning anticipated cash flow and liquidity, and Panhandle's strategy and other plans and objectives for future operations. Although Panhandle believes the expectations reflected in these and other forward-looking statements are reasonable, we can give no assurance they will prove to be correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Factors that could cause actual results to differ materially from expected results are described under "Risk Factors" in Part 1, Item 1 of Panhandle's 2017 Form 10-K filed with the Securities and Exchange Commission. These "Risk Factors" include the worldwide economic recession's continuing negative effects on the natural gas business; Panhandle's hedging activities may reduce the realized prices received for oil and natural gas sales; the volatility of oil and gas prices; the Company's ability to compete effectively against strong independent oil and gas companies and majors; the availability of capital on an economic basis to fund reserve replacement costs; Panhandle's ability to replace reserves and sustain production; uncertainties inherent in estimating quantities of oil and gas reserves and projecting future rates of production and the amount and timing of development expenditures; uncertainties in evaluating oil and gas reserves; unsuccessful exploration and development drilling; decreases in the values of our oil and gas properties resulting in write-downs; the negative impact lower oil and gas prices could have on our ability to borrow; drilling and operating risks; and our inability to control activities on our properties as the Company is a non-operator.
Do not place undue reliance on these forward-looking statements, which speak only as of the date of this release, as Panhandle undertakes no obligation to update this information. Panhandle urges you to carefully review and consider the disclosures made in this presentation and Panhandle's filings with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect Panhandle's business.
CONTACT: Paul F. Blanchard Jr., 405.948.1560; Website: www.panhandleoilandgas.com
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