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Panhandle Oil And Gas Inc.
PANHANDLE OIL AND GAS INC. Reports Fiscal Third Quarter And Nine Months 2017 Results And Operations Update



Aug 11, 2017

PANHANDLE OIL AND GAS INC. (NYSE: PHX) reported financial and operating results for the Company's fiscal third quarter and nine months ended June 30, 2017.

HIGHLIGHTS FOR THE PERIODS ENDED JUNE 30, 2017

  • Increased total equivalent production 26%, as compared to the quarter ended March 31, 2017.
  • Generated fiscal third quarter 2017 net income of $1,260,758, $0.07 per diluted share, as compared to net loss of $786,795, $0.05 per diluted share, for the 2016 quarter.
  • Generated nine month 2017 net income of $2,492,799, $0.15 per diluted share, compared to net loss of $11,024,074, $0.65 per diluted share, for the 2016 nine months.
  • Collected lease bonus proceeds of $4.0 million in first nine months of fiscal 2017.
  • Generated cash from operating activities of $14,321,237 for the 2017 nine-month period as compared to $18,011,721 of capital expenditures for drilling and equipping wells.
  • Produced on average 32.5 Mmcfe/day for $3.38/Mcfe net realized price during the quarter.
  • Generated 2017 third-quarter and nine-month EBITDA (1) of $6,848,269 and $17,305,783, respectively.
    (1)     This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section.

MANAGEMENT COMMENTS

Commenting on the results, Paul F. Blanchard Jr., President and CEO, said, "This quarter was a solid one for Panhandle and highlights our focus on growing long-term shareholder value on a per-share basis.

"One of our foundational principles is to limit capital investments to projects we believe will generate appropriate risk-weighted returns for our shareholders. The application of this principle led to declining production during the recent downturn; however, this disciplined approach resulted in conservation of capital and material reductions in our debt. This strategy distinguishes Panhandle from many other oil and gas companies that are primarily focused on delivering production and reserve growth each quarter. Starting in late 2016, we began to see opportunities to make substantial investments in low-risk, high-return wells. We have taken advantage of those opportunities, and are now seeing the benefits of those decisions. The current quarter's gas production grew by 30% and oil production by 13%, resulting in overall production growth of 26%, as compared to the second quarter of 2017. This production growth was primarily responsible for reducing our breakeven cost structure by 12%, as compared to the prior quarter, which we believe is a reflection of the quality of these investments.

"We anticipate material production growth and significant reductions in our breakeven cost to continue in the fourth quarter as several additional high-quality, low-risk wells are expected to begin producing. Additionally, we are in the process of marketing and selling some of the company's existing high-cost production, which is anticipated to drive our cost structure down even further.

"Since the products we sell are subject to significant price volatility, another element of our value-generation strategy is to protect our investments and cash flows by hedging future oil and gas production.  Today, we have hedges in place for a majority of remaining 2017 natural gas production at an average floor of $3.06 per Mcf and an average ceiling of $3.34 per Mcf. We also have roughly one quarter of 2018 natural gas production hedged with an average floor of $3.20 per Mcf and an average ceiling of $3.59 per Mcf. A majority of our remaining 2017 oil production is hedged with an average floor of $50.48 per barrel and an average ceiling of $56.12 per barrel.

"We understand that the volatile commodity business we are in necessitates that we always have a debt structure that will withstand product price fluctuations. Our debt at the end of the third quarter was $50 million, yielding a conservative trailing twelve month debt to EBITDA (1) ratio of 2.07. Through the first three quarters of 2017, we financed $18.0 million of capital investments while only borrowing $5.5 million from our line of credit. A majority of those capital expenditures were focused on drilling for natural gas and NGLs.

"Given our investment principles, the volatility of the products we sell and the fact that we do not operate the wells in which we take an ownership interest, it is difficult to predict the timing of future investments and related production as is currently the case. However, we own material mineral and/or leasehold positions in several of the top resource plays in the United States including STACK/Cana, SCOOP, southeastern Oklahoma Woodford Shale, Eagle Ford Shale and Fayetteville Shale. These assets account for more than 570 Bcfe of undeveloped proved, probable and possible reserves. The identified undeveloped locations associated with these reserves are primarily located in the cores of those low risk resource plays. We are confident these assets will continue to deliver long-term, high-return growth for the Company.

"Beginning in third quarter 2017, we considerably ramped up our focus in sourcing and evaluating acquisition opportunities, and we plan to search actively for additional properties we believe will be accretive to the company's long-term value. We will focus on the acquisition of mineral holdings, but will also consider held-by-production leasehold properties with low risk and material upside."

     (1)     This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section.

FISCAL THIRD QUARTER 2017 RESULTS

For the 2017 third quarter, the Company recorded net income of $1,260,758, or $0.07 per diluted share. This compared to a net loss of $786,795, or $0.05 per diluted share, for the 2016 third quarter. Net cash provided by operating activities decreased 27% to $4,972,672 for the 2017 third quarter, versus $6,792,869 for the 2016 third quarter. Capital expenditures for the 2017 fiscal quarter totaled $10,290,467.

Total revenues for the 2017 third quarter were $12,437,186, a 26% increase from $9,864,090 for the 2016 quarter. Oil, NGL and natural gas sales increased $2,632,000 or 36% in the 2017 quarter, compared to the 2016 quarter, as a result of a 33% increase in the average per Mcfe sales price and a 2% increase in Mcfe production. The average sales price per Mcfe of production during the 2017 third quarter was $3.38, compared to $2.55 for the 2016 third quarter. The 2017 quarter included a $1.6 million gain on derivative contracts, as compared to a $1.8 million loss for the 2016 quarter.

Gas production increased 7% to 2,265,091 Mcf for the 2017 quarter, compared to the 2016 quarter, while oil production decreased 15% in the 2017 quarter to 75,467 barrels, versus 88,732 barrels in the 2016 quarter. In addition, 39,337 barrels of NGL were sold in the 2017 quarter, as compared to 40,477 barrels in the 2016 quarter.

NINE MONTHS 2017 RESULTS

For the 2017 nine months, the Company recorded net income of $2,492,799, or $0.15 per diluted share. This compared to a net loss of $11,024,074, or $0.65 per diluted share, for the 2016 nine months. Net cash provided by operating activities decreased 30% year over year to $14,321,237 for the 2017 nine months, versus the 2016 nine months. Capital expenditures for the 2017 nine months totaled $18,011,721. The Company recorded a $10,788 non-cash provision for impairment in the 2017 nine months, as compared to an $11.8 million provision in the 2016 period.

Total revenues for the 2017 nine months were $33,438,117, a 16% increase from $28,902,798 for the 2016 nine months. Oil, NGL and natural gas sales increased $5,230,646 or 23% in the 2017 nine months, compared to the 2016 nine months, as a result of a 39% increase in the average per Mcfe sales price somewhat offset by an 11% decrease in Mcfe production. The average sales price per Mcfe of production during the 2017 nine months was $3.55, compared to $2.56 for the 2016 nine months. The 2017 nine months included a $1,658,347 gain on derivative contracts, as compared to an $842,726 loss for the 2016 period.

Oil production decreased 24% in the 2017 nine months to 217,650 barrels from 285,854 barrels in the 2016 nine months, while gas production decreased 479,936 Mcf, or 8%, compared to the 2016 nine months. In addition, 108,824 barrels of NGL were sold in the 2017 nine months, which was a 14% decrease compared to 2016 NGL volumes.

OPERATIONS UPDATE

Drilling and completion activities continue on five significant projects. Three are in the cores of low-risk resource plays, and two are higher risk plays in the Permian.

In the southeastern Oklahoma Woodford Shale, Panhandle participated in eight significant wells operated by BP, with an average 20% working interest and 27.4% net revenue interest. Four of the wells began producing late in the second quarter of 2017 and the remaining four began producing during the third quarter. Together, these eight wells produced at the combined net rate of 6.9 Mmcf per day in the most recent 30 day period. Activity is increasing in this play as the application of new technology has greatly improved well performance and economics. Panhandle has a 4.8% NRI in an additional well in the play that has been drilled and is anticipated to begin producing in the fourth quarter. Panhandle has an additional 1,411 gross undeveloped locations identified in this play, with 3P net reserves of 221 Bcfe.

A total of ten wells have been drilled on our Eagle Ford leasehold during 2017, and the drilling rig has now been released. We own an average 13.2% working interest and 9.9% net revenue interest in these wells. The first two wells began producing in late April and continue to exceed expectations, with gross production of 110 Mboe combined in the first 60 days.  Four of the remaining wells are currently being completed and are anticipated to begin producing in the first half of August. The remaining four wells are scheduled to be completed in September and are expected to begin producing in October. An additional 96 Eagle Ford infill development locations have been identified on our acreage.

In the STACK/Cana play, the Company is participating with a 17.5% working interest and a 16.25% net revenue interest in six Woodford Shale wells operated by Cimarex Energy. All six wells have been completed and are in the early stages of completion fluid recovery. The wells are expected to be producing at their peak rates within the next 30 days and are anticipated to materially increase the Company's daily production rate.  Panhandle currently has an additional 1,135 gross undeveloped locations identified in STACK/SCOOP/Cana with 3P net reserves of 166 Bcfe.

In the Permian Basin, QEP is producing its second Woodford Shale test well on our contiguous 43.6-square-mile mineral holdings in Andrews and Winkler Counties, Texas. After 57 days on sales the well has cumulative production of 16,200 Boe and is currently producing 239 Boe per day. Like the first test well on the acreage block, this well has not confirmed the economic viability of the play. Panhandle elected not to participate in both wells with a working interest and therefore has only a royalty interest with no capital invested.

Also in the Permian Basin, Element Petroleum is evaluating the San Andres formation on and around our contiguous 34.5-square-mile gross acreage block in Cochran County, Texas. Panhandle has leased 4,050 net mineral acres to Element and has a proportionately reduced 25% royalty. We also have the right to participate with 10% working interest in each unit as initial unit wells are proposed. With full participation, Panhandle would have a 10% working interest and a 12.1% net revenue interest in these new units on the 34.5-square-mile block. Element is continuing to evaluate the play with two wells producing, one waiting on completion, one being drilled and nine additional wells planned. The two producing wells have combined cumulative production as follows: 30 day - 1.1 Mboe, 60 day - 8.4 Mboe and 90 day - 16.0 Mboe.

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For more information:

Organization:
Panhandle Oil And Gas Inc.
www.panhandleoilandgas.com


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