OKLAHOMA CITY, Feb. 8, 2018 /PRNewswire/ -- PANHANDLE OIL AND GAS INC. (NYSE: PHX) today reported financial and operating results for the Company's fiscal first quarter ended Dec. 31, 2017.
HIGHLIGHTS FOR THE PERIOD ENDED DEC. 31, 2017
- Increased total equivalent production 36%, as compared to the quarter ended Dec. 31, 2016.
- Generated first quarter 2018 net income of $13,784,939, $0.81 per diluted share, as compared to a net loss of $2,238,392, $0.13 per diluted share, for the 2017 quarter.
- Generated cash from operating activities of $7,198,583, which exceeded capital expenditures of $4,984,880.
- Decreased lease operating expense (LOE) per Mcfe to $1.06, as compared to $1.21 in the prior year quarter.
- Reduced debt to $50.4 million, as of Dec. 31, 2017, which has continued to decline to $48.0 million as of Jan. 31, 2018.
- Generated EBITDA (1) of $6,782,342 in the first quarter of 2018, as compared to $1,781,240 in the 2017 first quarter.
(1) This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section.
MANAGEMENT COMMENTS
Paul F. Blanchard Jr., President and CEO, said, "Panhandle has unique assets in its 255,000 net acres of perpetual mineral holdings, of which 198,000 net mineral acres are currently not producing. With these assets we have unique flexibility, in that we can evaluate and decide which of the following options we believe will create the most long-term shareholder value: 1) participate with a proportionate working interest in wells drilled on our holdings, 2) lease our mineral acreage and receive an upfront cash bonus plus royalty income from the production generated or 3) sell the mineral holdings outright.
"These unique assets and our unique flexibility distinguish Panhandle from other public oil and gas companies, including other mineral-based companies, and provide Panhandle's management team with unique opportunities to create long-term shareholder value. Our large unleased mineral holdings and our willingness to deploy capital in the drilling of low-risk, high-return wells drilled on these holdings provide this advantage. When we deploy capital in drilling, we receive royalty revenue as the mineral owner, in addition to the working interest a typical operator receives. Additionally, when we elect not to invest capital in drilling, we lease our mineral rights and receive an upfront cash lease bonus and royalty revenue from ensuing production. Both options provide an economic advantage over typical operators, who do not own mineral rights. In general, mineral-based companies do not invest in drilling on their mineral holdings and instead distribute their cash flow to their owners. As a result, they miss the opportunity for low-risk, high-return investments in working interests, which we believe maximizes the value of the mineral holdings.
"First quarter 2018 production increased 4% over the previous quarter to 37.2 Mmcfe per day, a 36% increase as compared to the 2017 quarter. The price we received for our production on a per Mcfe basis improved 6%, while our LOE per Mcfe decreased 12%, as compared to the 2017 quarter.
"The growth in production and reduction in LOE per Mcfe were largely the result of our capital investment campaign in 2017 and the first quarter of 2018. For the 2017 drilling program, the Company calculated a finding cost of approximately $0.97 per Mcfe based on a 6:1 conversion factor and a finding cost of approximately $0.84/Mcfe based on a 2017 average product price equivalence conversion. First quarter 2018 capital investments totaled approximately $5.0 million and were primarily directed toward the three low-risk resource plays that were the focus of the 2017 program: the Eagle Ford Shale, the southeastern Oklahoma Woodford Shale and the STACK/Cana Woodford Shale. Disposition of marginal wells with high LOE also contributed to the reduction in LOE, while having minimal impact on our cash flow.
"A total of 13 wells are currently being drilled on our mineral holdings in Oklahoma. We have a royalty interest in 10 of those wells, a working interest in one and have not yet elected on the remaining two. Seven of the wells are in the STACK/Cana area, five are in the SCOOP area and one is in the southeastern Oklahoma Woodford. There is currently no drilling underway in our two Permian projects. The operator of the Andrews and Winkler Counties, Texas, acreage has drilled a Barnett Shale well that is in the process of being completed, and the operator of our Cochran County, Texas, acreage has six wells producing a total of 473 Boe per day gross (22 Boe net to Panhandle) with one well drilled, but not yet completed.
"We have approved the drilling of 19 gross wells and the re-fracturing of one of our Eagle Ford wells, none of which have yet started. These projects are estimated to be a net investment of $1.7 million. We are currently evaluating an additional 23 well proposals on our holdings. These wells have a total projected net cost of $1.3 million.
"Leasing activity was slow in the first quarter, generating approximately $100,000 of lease bonus revenue. However, the Company received an additional $430,000 in lease bonus revenue in January 2018. This actively managed leasing program will continue to be a part of optimizing the value of our assets and pulling that value forward. In addition, the Company will consider selling mineral holdings if we believe it is in the best long-term interest of our shareholders. For example, late in the fourth quarter of 2017, we received an attractive negotiated offer for the sale of a relatively small number of largely undeveloped mineral acres with closing set for early 2018. The buyer was unable to close, and Panhandle retained the $462,500 deposit. Although the sale did not close, we believe it further represents the flexibility we have in our quest to maximize long-term shareholder value.
"We are beginning to see the tangible results from the marginal property divestiture program we instituted in 2017. Thus far, we have sold 230 gross marginal wells that accounted for approximately 5.3% of the Company's LOE, but only approximately 0.7% of our cash flow from producing properties. We are planning to market an additional 232 gross marginal wells. If these wells are sold, the Company will have sold 462 gross working interest wells or 21% of our total gross working interest well count. If the full 462 gross working interest wells are sold the Company's LOE would decrease by approximately 9.6%, while our cash flow from producing properties would only decrease approximately 1.8% based on prior year activity."
FISCAL FIRST QUARTER 2018 RESULTS
For the 2018 first quarter, the Company recorded net income of $13,784,939, or $0.81 per diluted share. This compared to a net loss of $2,238,392, or $0.13 per diluted share, for the 2017 first quarter. The 2018 first quarter results include a $12,652,000 decrease in income tax as a result of new tax law (see income tax below). Net cash provided by operating activities increased 95% to $7,198,584 for the 2018 first quarter, versus $3,683,651 for the 2017 first quarter. Capital expenditures totaled $4,984,880 in the 2018 first quarter, compared to $2,174,523 in the 2017 quarter.
Total revenues for the 2018 first quarter were $12,490,526, a 78% increase from $7,036,643 for the 2017 quarter. Oil, NGL and natural gas sales increased $3,988,201 or 45% in the 2018 quarter, compared to the 2017 quarter, as a result of a 36% increase in Mcfe production and a 6% increase in the average per Mcfe sales price. The average sales price per Mcfe of production during the 2018 first quarter was $3.77, compared to $3.54 for the 2017 first quarter. Also, the 2018 quarter included a $0.5 million loss on derivative contracts, as compared to a $2.7 million loss for the 2017 quarter.
Gas production increased 32% to 2,442,384 Mcf for the 2018 quarter, compared to the 2017 quarter, while oil production increased 20% to 90,837 barrels versus 75,636 barrels. In addition, 72,401 barrels of NGL were sold in the 2018 quarter, as compared to 35,651 barrels in the 2017 quarter.
Total expenses increased $1,033,552 in the 2018 quarter as compared to the 2017 quarter. This increase was mainly driven by an increase in LOE and DD&A of $1,018,855 over the prior year quarter due to increased Mcfe production. Although LOE and DD&A expenses increased over the prior year quarter, their per Mcfe rates both declined comparatively.
INCOME TAX
The provision (benefit) for income tax in this quarter includes an adjustment of $12,652,000 (benefit) for net deferred tax liabilities whose rates were adjusted from 35% to 21% as a result of the Tax Cuts and Jobs Act enacted in December 2017. This adjustment represents the Company's reasonable estimate of the change in future tax rates on deferred tax balances at Dec. 31, 2017. Pre-tax net income was $1,074,939 for the first quarter of 2018.
FINANCIAL HIGHLIGHTS
|
Statements of Operations | |||||
|
Three Months Ended Dec. 31, | |||||
|
2017 |
2016 | ||||
|
Revenues: |
(unaudited) | ||||
|
Oil, NGL and natural gas sales |
$ |
12,887,419 |
$ |
8,899,218 | |
|
Lease bonuses and rentals |
96,959 |
837,958 | |||
|
Gains (losses) on derivative contracts |
(493,852) |
(2,700,533) | |||
|
12,490,526 |
7,036,643 | ||||
|
Costs and expenses: |
|||||
|
Lease operating expenses |
3,626,709 |
3,049,415 | |||
|
Production taxes |
488,990 |
367,845 | |||
|
Depreciation, depletion and amortization |
5,275,824 |
4,834,263 | |||
|
Loss (gain) on asset sales and other |
(295,658) |
(4,339) | |||
|
Interest expense |
431,579 |
292,369 | |||
|
General and administrative |
1,888,143 |
1,842,482 | |||
|
11,415,587 |
10,382,035 | ||||
|
Income (loss) before provision (benefit) for income taxes |
1,074,939 |
(3,345,392) | |||
|
Provision (benefit) for income taxes |
(12,710,000) |
(1,107,000) | |||
|
Net income (loss) |
$ |
13,784,939 |
$ |
(2,238,392) | |
|
Basic and diluted earnings (loss) per common share |
$ |
0.81 |
$ |
(0.13) | |
|
Basic and diluted weighted average shares outstanding: |
|||||
|
Common shares |
16,685,032 |
16,604,149 | |||
|
Unissued, directors' deferred compensation shares |
263,255 |
274,035 | |||
|
16,948,287 |
16,878,184 | ||||
|
Dividends declared per share of common stock and paid in period |
$ |
0.04 |
$ |
0.04 | |
|
Dividends declared per share of common stock and to be paid in quarter ended March 31 |
0.04 |
0.04 | |||
|
Balance Sheets | |||||
|
Dec. 31, 2017 |
Sept. 30, 2017 | ||||
|
Assets |
(unaudited) |
||||
|
Current assets: |
|||||
|
Cash and cash equivalents |
$ |
568,427 |
$ |
557,791 | |
|
Oil, NGL and natural gas sales receivables (net of allowance for uncollectable accounts) |
7,355,784 |
7,585,485 | |||
|
Refundable income taxes |
465,371 |
489,945 | |||
|
Assets held for sale |
- |
557,750 | |||
|
Derivative contracts, net |
- |
544,924 | |||
|
Other |
312,733 |
253,480 | |||
|
Total current assets |
8,702,315 |
9,989,375 | |||
|
Properties and equipment, at cost, based on successful efforts accounting: |
|||||
|
Producing oil and natural gas properties |
435,482,235 |
434,571,516 | |||
|
Non-producing oil and natural gas properties |
7,424,270 |
7,428,927 | |||
|
Other |
1,497,079 |
1,067,894 | |||
|
444,403,584 |
443,068,337 | ||||
|
Less accumulated depreciation, depletion and amortization |
(249,047,342) |
(246,483,979) | |||
|
Net properties and equipment |
195,356,242 |
196,584,358 | |||
|
Investments |
242,083 |
170,486 | |||
|
Total assets |
$ |
204,300,640 |
$ |
206,744,219 | |
|
Liabilities and Stockholders' Equity |
|||||
|
Current liabilities: |
|||||
|
Accounts payable |
$ |
1,063,042 |
$ |
1,847,230 | |
|
Derivative contracts, net |
334,877 |
- | |||
|
Accrued liabilities and other |
1,783,169 |
1,690,789 | |||
|
Total current liabilities |
3,181,088 |
3,538,019 | |||
|
Long-term debt |
50,400,000 |
52,222,000 | |||
|
Deferred income taxes |
18,313,007 |
31,051,007 | |||
|
Asset retirement obligations |
3,223,872 |
3,196,889 | |||
|
Derivative contracts, net |
- |
28,765 | |||
|
Stockholders' equity: |
|||||
|
Class A voting common stock, $.0166 par value; 24,000,000 shares authorized, 16,863,004 issued at Dec. 31, 2017, and Sept. 30, 2017 |
280,938 |
280,938 | |||
|
Capital in excess of par value |
2,186,538 |
2,726,444 | |||
|
Deferred directors' compensation |
3,568,293 |
3,459,909 | |||
|
Retained earnings |
125,767,547 |
113,330,216 | |||
|
131,803,316 |
119,797,507 | ||||
|
Less treasury stock, at cost; 154,044 shares at Dec. 31, 2017, and 184,988 shares at Sept. 30, 2017 |
(2,620,643) |
(3,089,968) | |||
|
Total stockholders' equity |
129,182,673 |
116,707,539 | |||
|
Total liabilities and stockholders' equity |
$ |
204,300,640 |
$ |
206,744,219 | |
|
Condensed Statements of Cash Flows | |||||
|
Three months ended Dec. 31, | |||||
|
2017 |
2016 | ||||
|
Operating Activities |
(unaudited) | ||||
|
Net income (loss) |
$ |
13,784,939 |
$ |
(2,238,392) | |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|||||
|
Depreciation, depletion and amortization |
5,275,824 |
4,834,263 | |||
|
Provision for deferred income taxes |
(12,738,000) |
(1,107,000) | |||
|
Gain from leasing of fee mineral acreage |
(96,843) |
(837,732) | |||
|
Proceeds from leasing of fee mineral acreage |
98,692 |
847,578 | |||
|
Net (gain) loss on sale of assets |
272,236 |
- | |||
|
Directors' deferred compensation expense |
108,384 |
105,818 | |||
|
Restricted stock awards |
194,050 |
180,412 | |||
|
Other |
(3,237) |
298 | |||
|
Cash provided (used) by changes in assets and liabilities: |
|||||
|
Oil, NGL and natural gas sales receivables |
229,701 |
(239,558) | |||
|
Fair value of derivative contracts |
851,036 |
2,516,263 | |||
|
Other current assets |
(59,253) |
145,640 | |||
|
Accounts payable |
(86,404) |
(90,474) | |||
|
Income taxes receivable |
24,574 |
(14,166) | |||
|
Other non-current assets |
(79,552) |
- | |||
|
Accrued liabilities |
(577,564) |
(419,299) | |||
|
Total adjustments |
(6,586,356) |
5,922,043 | |||
|
Net cash provided by operating activities |
7,198,583 |
3,683,651 | |||
|
Investing Activities |
|||||
|
Capital expenditures |
(4,984,880) |
(2,174,523) | |||
|
Investments in partnerships |
5,393 |
(17,571) | |||
|
Proceeds from sales of assets |
557,750 |
- | |||
|
Net cash provided (used) by investing activities |
(4,421,737) |
(2,192,094) | |||
|
Financing Activities |
|||||
|
Borrowings under debt agreement |
8,272,575 |
4,436,304 | |||
|
Payments of loan principal |
(10,094,795) |
(4,836,304) | |||
|
Purchase of treasury stock |
(272,100) |
(407,677) | |||
|
Payments of dividends |
(671,890) |
(670,104) | |||
|
Net cash provided (used) by financing activities |
(2,766,210) |
(1,477,781) | |||
|
Increase (decrease) in cash and cash equivalents |
10,636 |
13,776 | |||
|
Cash and cash equivalents at beginning of period |
557,791 |
471,213 | |||
|
Cash and cash equivalents at end of period |
$ |
568,427 |
$ |
484,989 | |
|
Supplemental Schedule of Noncash Investing and Financing Activities |
|||||
|
Dividends declared and unpaid |
$ |
675,718 |
$ |
670,255 | |
|
Additions to asset retirement obligations |
$ |
12,026 |
$ |
594 | |
|
Gross additions to properties and equipment |
$ |
4,287,096 |
$ |
3,370,574 | |
|
Net (increase) decrease in accounts payable for properties and equipment additions |
697,784 |
(1,196,051) | |||
|
Capital expenditures and acquisitions |
$ |
4,984,880 |
$ |
2,174,523 | |