Panhandle Oil and Gas Inc. Reports Fiscal 2014 First Quarter Results

OKLAHOMA CITY – Feb. 6, 2014 – PANHANDLE OIL AND GAS INC. (NYSE:PHX), the “Company,” today reported financial and operating results for the 2014 fiscal first quarter ending Dec. 31, 2013.

FIRST QUARTER 2014 HIGHLIGHTS

  • Recorded first quarter 2014 net income of $4,926,318, $0.59 per share, compared to net income of $2,148,298, $0.26 per share, for the 2013 first quarter.
  • Recorded highest quarterly Mcfe production in Company history of 3,509,270 Mcfe, compared to 3,008,365 Mcfe for the 2013 first quarter.
  • Increased quarterly oil production by 79% to 83,413 barrels, a Company record, compared to 46,656 barrels for the 2013 first quarter.
  • Increased quarterly NGL production by 21% to 37,140 barrels, compared to 30,674 barrels for the 2013 first quarter.
  • Fully funded capital expenditures of $9.9 million for drilling and equipping wells for the 2014 first quarter with cash generated by operating activities of $11.9 million during the quarter.
  • Reduced debt $2.3 million during the quarter to $6 million.

For the 2014 first quarter, the Company recorded net income of $4,926,318, $0.59 per share, compared to net income of $2,148,298, $0.26 per share, for the 2013 first quarter.  Net cash provided by operating activities increased 66% to $11,886,347 for the 2014 first quarter, compared to the 2013 first quarter.  Cash flow from operations fully funded all capital expenditures for the quarter of $11,498,717, which included $9,892,262 for drilling and equipping wells.  Drilling capital expenditures in fiscal 2014 principally were directed toward oily and NGL rich plays, principally in western and southern Oklahoma.  In addition, in the first quarter the Company made a small bolt-on acquisition of producing gas wells and associated acreage in the Fayetteville Shale for $1.6 million.

Total revenues for the 2014 quarter were $18,396,756, compared to $14,180,435 for the 2013 quarter.  Oil, NGL and natural gas sales increased $5,714,128 or 45% in the 2014 quarter, compared to the 2013 quarter, as a result of a 17% increase in Mcfe production and a 24% increase in the average per Mcfe sales price.  The average sales price per Mcfe of production during the 2014 first quarter was $5.26, compared to $4.24 for the 2013 first quarter.  Additionally, 2014 first quarter total costs and expenses were down slightly, and costs and expenses per Mcfe of production were down substantially to $3.20 as compared to $3.77 for the 2013 quarter.

Oil production increased 79% in the 2014 quarter to 83,413 barrels, compared to 46,656 barrels in the 2013 quarter. NGL production increased 21% in the 2014 quarter to 37,140 barrels, and natural gas production increased 9% for the 2014 quarter, compared to the 2013 quarter.

MANAGEMENT COMMENTS

Michael C. Coffman, President and CEO said, “Our first quarter financial and operational results again demonstrate that continuing to execute on the Company’s fundamental business strategies while maintaining a longer-term outlook will increase shareholder value. This quarter’s net income of $4,926,318 is a function of record production levels of oil and NGL’s and improved product prices.  The 2014 winter has driven natural gas prices to 3-year high levels, which we expect to moderate as we move into spring. However, these current prices and expected prices through 2014 should continue to have a positive effect on 2014 earnings.”

Coffman continued: “We have maintained the discipline to invest in quality, lower-risk drilling and acquisition opportunities, which are expected to earn reasonable rates of return. These oil and NGL rich, as well as natural gas projects, have allowed Panhandle to materially grow production and reserves over the last few years with no debt increases or shareholder dilution, and we have also been successful in reducing our costs per Mcfe of production, further adding to Company profitability.”

Paul Blanchard, Senior Vice President and COO said, “Panhandle is extremely well positioned to benefit from increasing natural gas prices. We have grown natural gas production, reserves and undeveloped opportunity materially through the trough in the gas market over the last several years. During that period the Company has invested $27 million in the acquisition of additional developed and undeveloped natural gas properties, principally in the core of the Fayetteville Shale. Our most recent acquisition consisted of developed and undeveloped properties in the Fayetteville Shale and was closed in the first quarter of fiscal 2014, for $1.6 million.

“Our oil production grew 79% in the first quarter of fiscal 2014 compared to the same period last year. This rate of oil production growth was largely the result of elevated oil drilling activity during the second half of fiscal 2013. The increased level of capital expenditures experienced in the current quarter was in part due to the cost associated with that activity. Our pace of oil well drilling thus far in 2014 has moderated from that level, which, when combined with the natural decline from new oil properties, is anticipated to result in a leveling off of oil production for the second quarter of fiscal 2014. Substantial oil and NGL drilling opportunity exists on our mineral holdings, and we anticipate development of those reserves will continue for many years.”

PRODUCTION

 

First Quarter Ended

 

First Quarter Ended

 

Dec. 31, 2013

 

Dec. 31, 2012

Mcfe Sold

 

3,509,270

 

 

3,008,365

Average Sales Price per Mcfe

$

5.26

 

$

4.24

Oil Barrels Sold

 

83,413

 

 

46,656

Average Sales Price per Barrel

$

93.66

 

$

83.86

Mcf Sold

 

2,785,952

 

 

2,544,385

Average Sales Price per Mcf

$

3.41

 

$

3.11

NGL Barrels Sold

 

37,140

 

 

30,674

Average Sales Price per Barrel

$

31.35

 

$

30.31

 

Quarter ended

 

Oil Bbls Sold

 

Mcf Sold

 

NGL Bbls Sold

 

Mcfe Sold

12/31/2013

 

83,413

 

2,785,952

 

37,140

 

3,509,270

9/30/2013

 

79,387

 

2,820,079

 

30,373

 

3,478,639

6/30/2013

 

55,474

 

2,742,996

 

25,660

 

3,229,800

3/31/2013

 

52,567

 

2,778,869

 

25,190

 

3,245,411

12/31/2012

 

46,656

 

2,544,385

 

30,674

 

3,008,365

The Company’s derivative contracts in place for natural gas at Dec. 31, 2013, are outlined in its Form 10-Q for the period ending Dec. 31, 2013.

FINANCIAL HIGHLIGHTS

Statements of Operations

 

Three Months Ended Dec. 31,

 

2013

 

2012

Revenues:

(unaudited)

Oil, NGL and natural gas sales

$

 18,473,082 

 

$

 12,758,954 

Lease bonuses and rentals

 

 196,229 

 

 

 374,392 

Gains (losses) on derivative contracts

 

 (496,901)

 

 

 892,693 

Income from partnerships

 

 224,346 

 

 

 154,396 

 

 

 18,396,756 

 

 

 14,180,435 

Costs and expenses:

 

 

 

 

 

Lease operating expenses

 

 3,315,397 

 

 

 3,296,562 

Production taxes

 

 571,564 

 

 

 303,553 

Exploration costs

 

 38,755 

 

 

 19,767 

Depreciation, depletion and amortization

 

 5,308,019 

 

 

 5,639,020 

Provision for impairment

 

 202,991 

 

 

 154,965 

Loss (gain) on asset sales, interest and other

 

 (77,455)

 

 

 43,186 

General and administrative

 

 1,873,167 

 

 

 1,898,084 

 

 

 11,232,438 

 

 

 11,355,137 

Income before provision for income taxes

 

 7,164,318 

 

 

 2,825,298 

 

 

 

 

 

 

Provision for income taxes

 

 2,238,000 

 

 

 677,000 

 

 

 

 

 

 

Net income

$

 4,926,318 

 

$

 2,148,298 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per common share

$

 0.59 

 

$

 0.26 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding:

 

 

 

 

 

Common shares

 

 8,231,902 

 

 

 8,250,109 

Unissued, directors' deferred compensation shares

 

 123,061 

 

 

 122,285 

 

 

 8,354,963 

 

 

 8,372,394 

Balance Sheets

 

Dec. 31, 2013

 

Sept. 30, 2013

Assets

(unaudited)

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

 294,961

 

$

 2,867,171

Oil, NGL and natural gas sales receivables

 

 14,677,736

 

 

 13,720,761

Refundable production taxes

 

 708,506

 

 

 662,051

Derivative contracts

 

 -

 

 

 425,198

Other

 

 165,811

 

 

 129,998

Total current assets

 

 15,847,014

 

 

 17,805,179

 

 

 

 

 

 

Properties and equipment, at cost, based on

 

 

 

 

 

   successful efforts accounting:

 

 

 

 

 

Producing oil and natural gas properties

 

 314,483,789

 

 

 304,889,145

Non-producing oil and natural gas properties

 

 8,873,666

 

 

 8,932,905

Furniture and fixtures

 

 737,929

 

 

 737,368

 

 

 324,095,384

 

 

 314,559,418

Less accumulated depreciation, depletion and amortization

 

 (191,820,197)

 

 

 (186,641,291)

Net properties and equipment

 

 132,275,187

 

 

 127,918,127

 

 

 

 

 

 

Investments

 

 1,663,320

 

 

 1,574,642

Refundable production taxes

 

 440,203

 

 

 540,482

Total assets

$

 150,225,724

 

$

 147,838,430

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

 7,168,398

 

$

 8,409,634

Derivative contracts

 

 466,772

 

 

 -

Deferred income taxes

 

 84,100

 

 

 127,100

Income taxes payable

 

 1,840,342

 

 

 751,992

Accrued liabilities and other

 

 1,203,080

 

 

 1,011,865

Total current liabilities

 

 10,762,692

 

 

 10,300,591

 

 

 

 

 

 

Long-term debt

 

 6,000,000

 

 

 8,262,256

Deferred income taxes

 

 31,595,907

 

 

 31,226,907

Asset retirement obligations

 

 2,477,441

 

 

 2,393,190

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

Class A voting common stock, $.0166 par value;

 

 

 

 

 

24,000,000 shares authorized, 8,431,502 issued at Dec. 31, 2013, and Sept. 30, 2013

 

 140,524

 

 

 140,524

Capital in excess of par value

 

 2,456,303

 

 

 2,587,838

Deferred directors' compensation

 

 2,870,595

 

 

 2,756,526

Retained earnings

 

 100,052,495

 

 

 96,454,449

 

 

 105,519,917

 

 

 101,939,337

Less treasury stock, at cost; 194,830 shares at Dec. 31,

 

 

 

 

 

2013, and 200,248 shares at Sept. 30, 2013

 

 (6,130,233)

 

 

 (6,283,851)

Total stockholders' equity

 

 99,389,684

 

 

 95,655,486

Total liabilities and stockholders' equity

$

 150,225,724

 

$

 147,838,430

Condensed Statements of Cash Flows

 

Three months ended Dec. 31,

 

2013

 

2012

Operating Activities

(unaudited)

Net income

$

 4,926,318 

 

$

 2,148,298 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

  by operating activities:

 

 

 

 

 

Depreciation, depletion and amortization

 

 5,308,019 

 

 

 5,639,020 

Impairment

 

 202,991 

 

 

 154,965 

Provision for deferred income taxes

 

 326,000 

 

 

 338,000 

Exploration costs

 

 38,755 

 

 

 19,767 

Gain from leasing of fee mineral acreage

 

 (196,133)

 

 

 (373,440)

Income from partnerships

 

 (224,346)

 

 

 (154,396)

Distributions received from partnerships

 

 279,363 

 

 

 194,147 

Directors' deferred compensation expense

 

 114,069 

 

 

 114,164 

Restricted stock awards

 

 127,976 

 

 

 257,877 

Cash provided (used) by changes in assets and liabilities:

 

 

 

 

 

Oil, NGL and natural gas sales receivables

 

 (956,975)

 

 

 115,645 

Fair value of derivative contracts

 

 891,970 

 

 

 (936,914)

Refundable production taxes

 

 53,824 

 

 

 212,834 

Other current assets

 

 (35,813)

 

 

 47,528 

Accounts payable

 

 414,267 

 

 

 (361,777)

Income taxes receivable

 

 -

 

 

 319,735 

Income taxes payable

 

 1,088,350 

 

 

 -

Accrued liabilities

 

 (472,288)

 

 

 (577,210)

Total adjustments

 

 6,960,029 

 

 

 5,009,945 

Net cash provided by operating activities

 

 11,886,347 

 

 

 7,158,243 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Capital expenditures, including dry hole costs

 

 (9,892,262)

 

 

 (6,864,399)

Acquisition of working interest properties

 

 (1,550,205)

 

 

 -

Acquisition of minerals and overrides

 

 (56,250)

 

 

 (330,000)

Proceeds from leasing of fee mineral acreage

 

 216,773 

 

 

 384,790 

Investments in partnerships

 

 (143,695)

 

 

 (243,519)

Net cash used in investing activities

 

 (11,425,639)

 

 

 (7,053,128)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Borrowings under debt agreement

 

 2,280,280 

 

 

 4,171,662 

Payments of loan principal

 

 (4,542,536)

 

 

 (4,591,890)

Purchase of treasury stock

 

 (122,044)

 

 

 (116,632)

Payments of dividends

 

 (664,618)

 

 

 (580,991)

Excess tax benefit on stock-based compensation

 

 16,000 

 

 

 15,000 

Net cash provided by (used in) financing activities

 

 (3,032,918)

 

 

 (1,102,851)

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 (2,572,210)

 

 

 (997,736)

Cash and cash equivalents at beginning of period

 

 2,867,171 

 

 

 1,984,099 

Cash and cash equivalents at end of period

$

 294,961 

 

$

 986,363 

 

 

 

 

 

 

Supplemental Schedule of Noncash Investing and Financing Activities

 

 

 

 

 

Dividends declared and unpaid

$

 663,654 

 

$

 583,438 

Additions to asset retirement obligations

$

 53,653 

 

$

 42,156 

 

 

 

 

 

 

Gross additions to properties and equipment

$

 9,843,214 

 

$

 5,218,194 

Net (increase) decrease in accounts payable for properties

 

 

 

 

 

and equipment additions

 

 1,655,503 

 

 

 1,976,205 

Capital expenditures and acquisitions, including dry hole costs

$

 11,498,717 

 

$

 7,194,399 

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 2013 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; our hedging activities may reduce the realized prices received for natural gas sales; the volatility of oil and gas prices; Panhandle’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 we cannot 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, and 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.