OKLAHOMA CITY, Dec. 11, 2018 /PRNewswire/ -- PANHANDLE OIL AND GAS INC., the "Company," (NYSE: PHX), today reported financial and operating results for the fourth quarter and fiscal year ended Sept. 30, 2018.
Paul F. Blanchard Jr., President and CEO commented, "The fourth quarter and fiscal 2018 results reflect the execution of the Company's corporate strategy of maximizing shareholder value, maintaining a strong financial position and generating optimal cash flow. Panhandle generated $26.9 million of operating cash flow in fiscal 2018, of which $11.6 million was reinvested in drilling throughout core resource plays. The 2018 drilling program was primarily in the oil-rich Eagle Ford located in South Texas and the SCOOP and STACK plays located in western Oklahoma. The wells placed on production in 2018 exceeded the Company's internal rate of return threshold as we continue to invest in only the very best participation opportunities. We also invested an additional $11.3 million of operating cash flow acquiring mineral acreage in core resource plays in the Bakken in North Dakota and in the SCOOP and STACK in western Oklahoma. This is consistent with our strategy to acquire mineral acreage in the cores of resource plays with substantial undeveloped opportunities that meet or exceed our corporate return threshold. Even after these investments, the Company generated free cash flow and returned $3.9 million to shareholders through dividend payments and stock repurchases, while also paying down $1.2 million of debt. We are enthusiastic about our ability to generate significant cash flow moving forward given the flexibility that we have within our portfolio of assets and we will continue to be very diligent in our deployment of this cash flow with the focus of achieving the maximum value for our shareholders."
HIGHLIGHTS FOR THE YEAR ENDED SEPT. 30, 2018
- Net income increased to $14.6 million or $0.86 per share in fiscal year 2018 from $3.5 million or $0.21 per share in fiscal year 2017.
- Adjusted pre-tax net income(1) increased 78% to $5.8 million or $0.34 per share in fiscal 2018, as compared to $3.3 million or $0.19 per share in 2017.
- Adjusted EBITDA(1) grew 10% to $26 million in 2018 as compared to 2017.
- Total production increased 11% to 12.3 Bcfe in 2018, as compared to 11.1 Bcfe in 2017. Oil, NGL and natural gas production grew 8%, 47% and 6%, respectively.
- Average sales price per Mcfe in 2018 increased 9% to $3.94 per Mcfe, while the total cost per Mcfe (LOE, production taxes, DD&A, G&A and interest expense) in 2018 decreased 6% to $3.51 per Mcfe as compared to 2017.
- Year-end 2018 total proved oil and NGL reserves grew 9% and 23% respectively, or one million barrels in aggregate, while total proved natural gas reserves declined 1%.
- Estimated future net cash flows of year-end 2018 total proved reserves (at a 10% discount rate and SEC pricing) grew 62% to $204.6 million, from $126.0 million at year-end 2017.
- Year-end 2018 debt was $51 million. Debt to enterprise value and debt to adjusted EBITDA were 14.2% and 1.96, respectively, at year-end 2018.
- Twenty-three rigs are currently drilling on Panhandle acreage, with 125 additional rigs currently drilling within 2 miles of Panhandle acreage.
(1) | This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section. |
OPERATING HIGHLIGHTS | |||||||||||||||
Fourth Quarter Ended | Fourth Quarter Ended | Year Ended | Year Ended | ||||||||||||
Sept. 30, 2018 | Sept. 30, 2017 | Sept. 30, 2018 | Sept. 30, 2017 | ||||||||||||
MCFE Sold | 2,940,282 | 3,279,204 | 12,271,708 | 11,101,739 | |||||||||||
Average Sales Price per MCFE | $ | 4.09 | $ | 3.70 | $ | 3.94 | $ | 3.60 | |||||||
Barrels of Oil Sold | 83,118 | 93,027 | 336,565 | 310,677 | |||||||||||
Average Sales Price per Barrel | $ | 64.74 | $ | 46.75 | $ | 61.75 | $ | 46.27 | |||||||
MCF of Natural Gas Sold | 2,088,258 | 2,330,838 | 8,721,262 | 8,194,529 | |||||||||||
Average Sales Price per MCF | $ | 2.52 | $ | 2.71 | $ | 2.49 | $ | 2.70 | |||||||
Barrels of NGL Sold | 58,886 | 65,034 | 255,176 | 173,858 | |||||||||||
Average Sales Price per Barrel | $ | 23.53 | $ | 22.85 | $ | 23.14 | $ | 19.87 | |||||||
FINANCIAL HIGHLIGHTS | ||||||||||||||||
Fourth Quarter | Fourth Quarter | Year Ended | Year Ended | |||||||||||||
Sept. 30, 2018 | Sept. 30, 2017 | Sept. 30, 2018 | Sept. 30, 2017 | |||||||||||||
Oil, NGL and Natural Gas Sales | $ | 12,029,200 | $ | 12,147,894 | $ | 48,385,335 | $ | 39,935,912 | ||||||||
Working Interest | $ | 8,549,466 | $ | 9,193,709 | $ | 35,055,167 | $ | 29,969,017 | ||||||||
Royalty Interest | $ | 3,479,734 | $ | 2,954,185 | $ | 13,330,168 | $ | 9,966,895 | ||||||||
Lease Bonus Income | $ | 500,542 | $ | 1,157,545 | $ | 1,580,997 | $ | 5,149,297 | ||||||||
Total Revenue | $ | 11,564,543 | $ | 12,896,932 | $ | 45,034,264 | $ | 46,335,049 | ||||||||
LOE per Mcfe | $ | 1.15 | $ | 0.96 | $ | 1.10 | $ | 1.14 | ||||||||
Production Tax per Mcfe | $ | 0.21 | $ | 0.13 | $ | 0.17 | $ | 0.14 | ||||||||
DD&A per Mcfe | $ | 1.45 | $ | 1.45 | $ | 1.50 | $ | 1.66 | ||||||||
G&A Expense per Mcfe | $ | 0.71 | $ | 0.64 | $ | 0.60 | $ | 0.67 | ||||||||
Interest Expense per Mcfe | $ | 0.16 | $ | 0.12 | $ | 0.14 | $ | 0.11 | ||||||||
Total Expense per Mcfe | $ | 3.68 | $ | 3.30 | $ | 3.51 | $ | 3.72 | ||||||||
Net Income | $ | 555,647 | $ | 1,039,134 | $ | 14,635,669 | $ | 3,531,933 | ||||||||
Adjusted Pre-Tax Net Income (1) | $ | 870,183 | $ | 2,400,372 | $ | 5,826,844 | $ | 3,276,503 | ||||||||
Adjusted EBITDA (1) | $ | 5,588,487 | $ | 8,186,064 | $ | 25,969,985 | $ | 23,612,179 | ||||||||
Cash Flow from Operations | $ | 5,285,992 | $ | 6,436,955 | $ | 26,943,894 | $ | 20,758,192 | ||||||||
CapEx - Drilling & Equipping | $ | 3,847,038 | $ | 7,796,176 | $ | 11,590,135 | $ | 25,807,897 | ||||||||
CapEx - Acquisitions | $ | 10,361,092 | $ | - | $ | 11,327,371 | $ | - | ||||||||
Borrowing Base | $ | 80,000,000 | $ | 80,000,000 | ||||||||||||
Debt | $ | 51,000,000 | $ | 52,222,000 | ||||||||||||
Debt/Adjusted EBITDA (1) | 1.96 | 2.21 | ||||||||||||||
Debt to Enterprise Value (1) | 14.16 | % | 11.63 | % | ||||||||||||
(1) | This is a Non-GAAP measure. Refer to the Non-GAAP Reconciliation section. |
FOURTH QUARTER AND FISCAL YEAR 2018 REVIEW
Total production increased 11% in 2018 as compared to 2017. The increase was driven by strong production growth in early 2018 from several higher than average working interest wells in the southeastern Oklahoma Woodford, STACK and Eagle Ford that began producing in late 2017. Production for the last three quarters of 2018 was essentially flat as new production from royalty and relatively lower working interest wells offset the natural decline of the production base. However, higher value oil and NGL made up 29% of total production in 2018 versus 26% in 2017, as NGL production surged 47% in 2018, primarily from new production in SCOOP and STACK.
Oil, NGL and natural gas revenue increased 21% year-over-year in 2018 as production increased 11% and product prices increased 9% relative to 2017. Fourth quarter 2018 oil, NGL and natural gas revenue was essentially flat compared to the fourth quarter of 2017, as higher product prices offset lower production. Lease bonus revenue decreased to $1.6 million in 2018 from $5.1 million in 2017 as leasing of the Company's mineral acreage surrounding core resource plays slowed.
The 6% decline in total cost per MCFE in 2018 relative to 2017 was primarily driven by lower DD&A and LOE. New lower cost production put on line in late 2017 and in 2018, as well as the marginal property sales in the last two years, were the primary factors in this decrease. Fourth quarter 2018 total cost per Mcfe increased 12% as compared to fourth quarter 2017. This increase was driven mainly by significant increases in production in the 2017 quarter from lower cost wells (wells that had very high royalty interest in relation to their working interest). These wells had large initial production rates that drove the per Mcfe rate down on most expense categories. In the 2018 quarter, as expected, the production on these wells has declined from their initial rates.
The Company's net income increased $11.1 million in 2018 as compared to 2017. This was materially impacted by the Tax Cuts and Jobs Act enacted in December 2017 and the mark-to-market loss on Panhandle's derivatives. Adjusted pre-tax net income (1) was $5.8 million in 2018, as compared to $3.3 million in 2017.
The Company generated free cash flow and returned $3.9 million to shareholders through dividend payments and stock repurchases while also paying down $1.2 million of debt.
OPERATIONS UPDATE
Eagle Ford
There is one drilling rig active on Panhandle's Eagle Ford acreage block. It is currently drilling the sixth well on a seven-well pad. The Company's average working interest in this group of wells is 10.8%, as the wells are located partially on the Company's 16% working interest (12% net revenue) acreage and partially on acreage Panhandle does not own. All seven wells are projected to begin producing simultaneously in March 2019. After this pad is drilled, the operator plans to continue to drill on the Company's 16% working interest acreage with the one-rig continuous program throughout calendar 2019.
Oklahoma
Drilling activity on the Company's Oklahoma mineral acreage continues to be strong, with 22 rigs currently active on royalty interest wells and eight working interest (0.8% average per well) wells currently being completed. The majority of the activity is in SCOOP and STACK with 16 royalty interest wells drilling and the eight working interest wells being completed. The remainder of the activity is in western Oklahoma and the southeastern Oklahoma Woodford. Two 5.9% working interest (4.4% net revenue interest) wells in the southeastern Oklahoma Woodford are scheduled to begin drilling in December 2018.
Bakken
The 20 drilled uncompleted wells that were part of the Company's Bakken mineral acquisition in August have now been completed and are producing 86 Boe per day net to Panhandle. This is significant as the wells are producing at a materially higher rate than projected in our acquisition evaluation and came on more rapidly than we had projected. We currently have no working or royalty interest wells drilling in the Bakken.
ACQUISITION AND DIVESTITURE UPDATE
Panhandle re-entered the mineral acquisition market in 2018 with mineral purchases in the cores of the Bakken in North Dakota and the SCOOP and STACK plays in Oklahoma. The Company acquired a total of 4,306 net mineral acres for $11.3 million or an average of approximately $2,600 per net mineral acre. These acquisitions are consistent with Panhandle's strategy to acquire mineral acreage in the cores of resource plays with substantial undeveloped opportunities that meet or exceed our corporate return threshold.
As part of the Company's program to reduce costs, Panhandle sold 324 marginal properties in 2018. This sale contributed to the reduction in LOE per Mcfe in 2018.
The Company also closed on the first notable mineral acreage sale in its history on Nov. 30, 2018, with the sale of 206 net mineral acres in Lea and Eddy Counties, N.M. The sale price of $9.3 million (before closing adjustments) is approximately $45,000 per acre. Including the lease bonus, royalty income and sale price, those 206 acres have generated $11,328,000 in revenue, or approximately $55,000 per acre, for Panhandle in total. This sale was consistent with Panhandle's strategy to divest of mineral rights when the amount negotiated exceeds the Company's projected total value. This sale represents 0.08% of the Company's total net mineral acreage position, 0.7% of total production and 0.9% of total revenues for fiscal year 2018. This sale also includes 1.2% of our total proved reserves as of Sept. 30, 2018.
Paul F. Blanchard Jr. commented, "Panhandle's primary goal is to manage its portfolio of mineral and leasehold acreage and use its financial flexibility to maximize shareholder value on a per share basis over the long term while minimizing risks. Assets include perpetual ownership of 259,000 net mineral acres held principally in Oklahoma, New Mexico, Texas, North Dakota and Arkansas, as well as leasehold rights held primarily in the Eagle Ford and Oklahoma. Going forward, each quarter we intend to report on our progress relative to this strategy."