Panhandle Oil and Gas Inc. Reports Fourth Quarter and Fiscal 2014 Financial Results

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OKLAHOMA CITY – Dec. 10, 2014 – PANHANDLE OIL AND GAS INC., the “Company,” (NYSE:PHX) today reported financial and operating results for the fiscal fourth quarter and twelve months ended Sept. 30, 2014.

HIGHLIGHTS FOR THE YEAR ENDED SEPT. 30, 2014

Recorded 12-month net income of $25,001,462, or $1.49 per share, the largest in Company history, compared to a net income of $13,960,049, or $0.84 per share, for fiscal 2013.
Increased fiscal 2014 production by 9% over fiscal 2013 to 14.1 billion cubic feet equivalent (Bcfe), the largest in Company history.
Increased fiscal year 2014 oil production 48% over 2013 volumes.
Generated cash from operating activities of $52.6 million for the year, well in excess of drilling capital expenditures of $38.6 million.
Increased oil, NGL and natural gas sales revenues 37% in fiscal 2014 as compared to fiscal 2013.
Reduced debt $7.9 million during the fourth quarter of 2014.

Fiscal Year 2014 Results

For fiscal 2014, the Company recorded net income of $25,001,462, or $1.49 per share. This compared to net income of $13,960,049, or $0.84 per share, for fiscal 2013. Net cash provided by operating activities increased 41% to $52.6 million for fiscal 2014 versus 2013. Capital expenditures for drilling and equipping wells in fiscal 2014 totaled $38.6 million, of which $8 million was expended for drilling and equipping wells on the Eagle Ford acquisition properties with the remaining $30.6 million expended for drilling on legacy properties.

Total revenues for 2014 were $84,411,224, an increase of 34% from $62,889,120 for 2013. Oil, NGL and natural gas sales revenues increased $22,240,650 or 37% in 2014 as compared to 2013. This revenue increase was a result of increased oil and NGL production volumes of 48% and 86%, respectively, and increased oil, NGL and natural gas prices of 2%, 17% and 22%, respectively. Overall results were a 9% increase in Mcfe production volumes and a 26% increase in the average per Mcfe sales price. The average sales price per Mcfe of production during 2014 was $5.88 compared to $4.68 in 2013.

Oil production increased 48% in 2014 to 346,387 barrels from 234,084 barrels in 2013, while gas production was basically flat. Drilling expenditures over the prior 24-36 months targeting oil and NGL rich plays, principally in western Oklahoma and the Texas Panhandle, along with the producing wells acquired in the Eagle Ford, are responsible for the increased oil volumes. In addition, 207,688 barrels of NGL were produced in fiscal 2014, which was an 86% increase versus 2013.

Total costs and expenses increased $5.4 million or 13% in fiscal 2014 as compared to 2013. $2 million of the expense increase was in lease operating expenses, which continue to increase as we add additional wells to our producing list each year. The majority of these wells for the last several years have been oil and NGL rich wells, which have higher operating costs than dry gas wells. Production taxes increased $.9 million, which is a function of the higher oil, NGL and natural gas sales revenues recorded in fiscal 2014 compared to 2013. DD&A per Mcfe of production for 2014 was $1.55 as compared to $1.69 in 2013, which resulted in slightly lower DD&A expense in 2014, even with increased production of 9%. In fiscal 2013, the Company recorded a $.9 million gain on asset sales and other, the majority of which was the result of a payment received settling a class action lawsuit. There was no such gain recorded in 2014.

Fiscal Fourth Quarter 2014 Results

For the 2014 fourth quarter, the Company recorded net income of $9,297,986, or $0.55 per share. This compared to net income of $5,719,096, or $0.34 per share, for the 2013 fourth quarter. Net cash provided by operating activities increased 23% to $16,184,066 for the 2014 fourth quarter versus the 2013 fourth quarter, which substantially exceeded 2014 fourth quarter costs to drill and equip wells of $11,918,937.

Total revenues for the 2014 fourth quarter were $27,887,445, an increase of 52% from $18,396,254 for the 2013 quarter. Oil, NGL and gas sales revenue increased $5,811,657, or 32% in the 2014 quarter as compared to the 2013 quarter. This revenue increase was a result of increased oil and NGL volumes of 59% and 84%, respectively, and increased natural gas prices of 21%, offset somewhat by a 9% decrease in the average oil sales price to $91.83 per barrel. The above changes combined to increase the average sales price per Mcfe of production during the 2014 fourth quarter to $6.27, a 22% increase from $5.15 for the 2013 fourth quarter. Oil production increased in the 2014 quarter to 126,256 barrels, versus 79,387 barrels in the 2013 quarter, while gas production decreased 5% to 2,690,493 Mcf, and NGL production increased 84% to 55,849 barrels. Again, drilling expenditures over the prior 24-36 months targeting oil and NGL rich plays and the producing wells acquired in the Eagle Ford are responsible for the oil and NGL volume increases.

Management Comments

Michael C. Coffman, President and CEO, said, “2014 was an exceptional year for Panhandle. Net income, production and reserves were at record setting levels. We also were able to close on the largest acquisition in Company history at the end of the fiscal third quarter. Our fourth quarter, with the full effect of the Eagle Ford production for the entire quarter, resulted in the largest quarterly net income in the Company’s history.

“Obviously, product prices have dropped significantly since the end of the fiscal year, which, should they continue at the current level throughout fiscal 2015, will affect the Company’s 2015 earnings and reduce our capital expenditure level. We have oil hedging in place through 2015 representing approximately 80% of our upper-end expectation of production from our Eagle Ford properties or approximately 50% of our total oil production. We also have hedging in place for a significant portion of our 2015 natural gas production. These hedges and expected cash flows from operations should provide the Company a relatively stable cash flow base for 2015.

“At the current time, it is difficult for us, as a non-operator, to be able to make a reasonable estimation of 2015 capital expenditures. However, with our good financial position and cash flows, we will deploy capital where necessary to take advantage of those drilling opportunities, which we anticipate will generate acceptable rates of return and grow value for our shareholders. As usual, our drilling capital expenditures for 2015 are expected to be funded from cash flow provided by operations and excess cash flow will be used to further reduce our bank debt.”

Paul Blanchard, Senior Vice President and COO, said, “Panhandle’s conservative financial and operating strategies, which have been in place for years, position the Company to operate in this less than favorable oil market. The Company’s low cost structure, hedging strategy, clean balance sheet, geographic diversity, product mix and focus on generating returns on capital invested will all contribute to our ability to successfully manage through this difficult commodity price cycle. While the duration of this period of low oil prices will impact the trajectory of production and reserve growth, we are confident the Company is well positioned to deliver long-term growth of shareholder value.”

FINANCIAL HIGHLIGHTS

Statements of Operations

	Three Months Ended Sept. 30,				Year Ended Sept. 30,
	2014		2013		2014		2013
Revenues:
Oil, NGL and natural gas sales	$	23,730,600	$	17,918,943	$	82,846,528	$	60,605,878
Lease bonuses and rentals		69,906		399,367		423,328		938,846
Gains (losses) on derivative contracts		3,758,509		(185,142)		247,414		611,024
Income from partnerships		328,431		263,086		893,954		733,372
		27,887,445		18,396,254		84,411,224		62,889,120
Costs and expenses:
Lease operating expenses		3,982,645		2,820,790		13,912,792		11,861,403
Production taxes		822,580		657,499		2,694,118		1,834,840
Exploration costs		15,877		(51,032)		86,017		9,795
Depreciation, depletion and amortization		6,334,272		4,855,581		21,896,902		21,945,768
Provision for impairment		665,933		304,829		1,096,076		530,670
Loss (gain) on asset sales and other		(22,709)		(679,572)		8,378		(942,959)
Interest expense		421,599		33,092		462,296		157,558
General and administrative		2,083,262		1,674,971		7,433,183		6,801,996
		14,303,459		9,616,158		47,589,762		42,199,071
Income before provision
for income taxes		13,583,986		8,780,096		36,821,462		20,690,049
Provision for income taxes		4,286,000		3,061,000		11,820,000		6,730,000

Net income	$	9,297,986	$	5,719,096	$	25,001,462	$	13,960,049



Basic and diluted earnings per common share:
Net income	$	0.55	$	0.34	$	1.49	$	0.84


Weighted average shares outstanding:
Common shares		16,474,040		16,440,932		16,472,144		16,481,584
Unissued, vested directors' shares		258,905		240,152		255,039		232,224
		16,732,945		16,681,084		16,727,183		16,713,808

Dividends declared per share of
common stock and paid in period	$	0.04	$	0.035	$	0.16	$	0.14

Balance Sheets

	Sept. 30, 2014		Sept. 30, 2013
Assets
Current Assets:
Cash and cash equivalents	$	509,755	$	2,867,171
Oil, NGL and natural gas sales receivables		16,227,469		13,720,761
Refundable production taxes		625,996		662,051
Derivative contracts		1,650,563		425,198
Other		354,828		129,998
Total current assets		19,368,611		17,805,179

Properties and equipment at cost, based on successful
efforts accounting:
Producing oil and natural gas properties		418,237,512		304,889,145
Non-producing oil and natural gas properties		10,260,717		8,932,905
Furniture and fixtures		1,317,725		737,368
		429,815,954		314,559,418
Less accumulated depreciation, depletion and
amortization		(204,731,661)		(186,641,291)
Net properties and equipment		225,084,293		127,918,127

Investments		1,936,421		1,574,642
Derivative contracts		251,279		-
Refundable production taxes		-		540,482
Total assets	$	246,640,604	$	147,838,430

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable	$	7,034,773	$	8,409,634
Deferred income taxes		600,100		127,100
Income taxes payable		523,843		751,992
Accrued liabilities and other		1,290,858		1,011,865
Total current liabilities		9,449,574		10,300,591

Long-term debt		78,000,000		8,262,256
Deferred income taxes		37,363,907		31,226,907
Asset retirement obligations		2,638,470		2,393,190

Stockholders' equity:
Class A voting common stock, $.0166 par value; 24,000,000 shares
authorized, 16,863,004 issued at Sept. 30, 2014 and 2013		280,938		140,524
Capital in excess of par value		2,861,343		2,587,838
Deferred directors' compensation		3,110,351		2,756,526
Retained earnings		118,794,188		96,454,449
		125,046,820		101,939,337
Treasury stock, at cost; 372,364 shares at Sept. 30, 2014,
and 400,496 shares at Sept. 30, 2013		(5,858,167)		(6,283,851)
Total stockholders' equity		119,188,653		95,655,486
Total liabilities and stockholders' equity	$	246,640,604	$	147,838,430

Condensed Statements of Cash Flows

		Year ended Sept. 30,
	2014		2013
Operating Activities
Net income (loss)	$	25,001,462	$	13,960,049
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation, depletion and amortization		21,896,902		21,945,768
Impairment		1,096,076		530,670
Provision for deferred income taxes		6,610,000		4,767,000
Exploration costs		86,017		9,795
Gain from leasing of fee mineral acreage		(422,818)		(936,701)
Net (gain) loss on sales of assets		149,062		(208,750)
Income from partnerships		(893,954)		(733,372)
Distributions received from partnerships		1,129,324		917,718
Common stock contributed to ESOP		341,125		308,450
Common stock (unissued) to Directors'
Deferred Compensation Plan		353,825		377,520
Restricted stock awards		659,320		683,968
Cash provided (used) by changes in assets
and liabilities:
Oil, NGL and natural gas sales receivables		(2,506,708)		(5,370,896)
Fair value of derivative contracts		(1,476,644)		(597,469)
Refundable income taxes		-		325,715
Refundable production taxes		576,537		294,881
Other current assets		(224,830)		73,508
Accounts payable		252,860		298,191
Income taxes payable		(284,149)		751,992
Accrued liabilities		279,195		4,072
Total adjustments		27,621,140		23,442,060
Net cash provided by operating activities		52,622,602		37,402,109

Investing Activities
Capital expenditures, including dry hole costs		(38,612,788)		(26,765,785)
Acquisition of working interest properties		(83,253,952)		-
Acquisition of minerals and overrides		(56,250)		(783,750)
Proceeds from leasing of fee mineral acreage		477,144		1,023,368
Investments in partnerships		(597,149)		(724,118)
Proceeds from sales of assets		92,000		870,610
Net cash used in investing activities		(121,950,995)		(26,379,675)

Financing Activities
Borrowings under debt agreement		99,846,333		11,569,652
Payments of loan principal		(30,108,589)		(18,182,381)
Purchases of treasury stock		(122,044)		(1,214,638)
Payments of dividends		(2,661,723)		(2,326,995)
Excess tax benefit on stock-based compensation		17,000		15,000
Net cash provided by (used in) financing activities		66,970,977		(10,139,362)
Increase (decrease) in cash and cash equivalents		(2,357,416)		883,072
Cash and cash equivalents at beginning of year		2,867,171		1,984,099
Cash and cash equivalents at end of year	$	509,755	$	2,867,171

		Year ended Sept. 30,
	2014		2013
Supplemental Disclosures of Cash Flow
Information

Interest paid (net of capitalized interest)	$	380,451	$	157,558
Income taxes paid, net of refunds received	$	5,477,147	$	870,295

Supplemental schedule of noncash
investing and financing activities:
Additions and revisions, net, to asset
retirement obligations	$	225,453	$	161,065

Gross additions to properties and equipment	$	120,284,639	$	29,261,285
Net (increase) decrease in accounts payable for
properties and equipment additions		1,638,351		(1,711,750)
Capital expenditures, including dry hole costs	$	121,922,990	$	27,549,535

OPERATING HIGHLIGHTS

	Fourth Quarter Ended	Fourth Quarter Ended	Year Ended	Year Ended
	Sept. 30, 2014	Sept. 30, 2013	Sept. 30, 2014	Sept. 30, 2013
MCFE Sold	3,783,123	3,478,639	14,098,009	12,962,215
Average Sales Price per MCFE	$6.27	$5.15	$5.88	$4.68
Barrels of Oil Sold	126,256	79,387	346,387	234,084
Average Sales Price per Barrel	$91.83	$100.98	$93.68	$91.56
MCF of Natural Gas Sold	2,690,493	2,820,079	10,773,559	10,886,329
Average Sales Price per MCF	$3.88	$3.20	$4.05	$3.31
Barrels of NGL Sold	55,849	30,373	207,688	111,897
Average Sales Price per Barrel	$30.48	$28.89	$32.31	$27.67

Quarterly Production Levels

Quarter ended	Oil Bbls Sold	MCF Sold	NGL Bbls Sold	MCFE Sold
9/30/14	126,256	2,690,493	55,849	3,783,123
6/30/14	70,479	2,508,346	63,029	3,309,394
3/31/14	66,239	2,788,768	51,670	3,496,222
12/31/13	83,413	2,785,952	37,140	3,509,270
9/30/13	79,387	2,820,079	30,373	3,478,639
6/30/13	55,474	2,742,996	25,660	3,229,800
3/31/13	52,567	2,778,869	25,190	3,245,411
12/31/12	46,656	2,544,385	30,674	3,008,365

Derivative contracts in place as of December 1, 2014)
(prices below reflect the Company’s net price from the listed pipelines)

	Production volume	Indexed
Contract period	covered per month	pipeline	Fixed price
Natural gas costless collars
July - December 2014	140,000 Mmbtu	NYMEX Henry Hub	$3.75 floor / $4.50 ceiling
November 2014 - April 2015	100,000 Mmbtu	NYMEX Henry Hub	$3.75 floor / $4.25 ceiling
January - March 2015	100,000 Mmbtu	NYMEX Henry Hub	$4.00 floor / $5.00 ceiling
January - March 2015	30,000 Mmbtu	NYMEX Henry Hub	$4.00 floor / $4.60 ceiling
January - December 2015	100,000 Mmbtu	NYMEX Henry Hub	$3.50 floor / $4.10 ceiling
January - December 2015	70,000 Mmbtu	NYMEX Henry Hub	$3.25 floor / $4.00 ceiling
April - September 2015	70,000 Mmbtu	NYMEX Henry Hub	$3.50 floor / $4.05 ceiling
April - October 2015	50,000 Mmbtu	NYMEX Henry Hub	$3.50 floor / $4.00 ceiling
May - October 2015	70,000 Mmbtu	NYMEX Henry Hub	$3.50 floor / $3.95 ceiling

Natural gas fixed price swaps
July - December 2014	140,000 Mmbtu	NYMEX Henry Hub	$4.11
October - December 2014	40,000 Mmbtu	NYMEX Henry Hub	$4.61

Oil costless collars
January - December 2014	4,000 Bbls	NYMEX WTI	$85.00 floor / $100.00 ceiling
July - December 2014	5,000 Bbls	NYMEX WTI	$90.00 floor / $97.00 ceiling
July - December 2015	10,000 Bbls	NYMEX WTI	$80.00 floor / $86.50 ceiling

Oil fixed price swaps
January - December 2014	3,000 Bbls	NYMEX WTI	$94.50
June - December 2014	4,000 Bbls	NYMEX WTI	$99.40
July - December 2014	4,000 Bbls	NYMEX WTI	$95.25
July - December 2014	5,000 Bbls	NYMEX WTI	$94.20
January - March 2015	6,000 Bbls	NYMEX WTI	$92.85
January - June 2015	7,000 Bbls	NYMEX WTI	$96.80
January - June 2015	5,000 Bbls	NYMEX WTI	$97.40
January - June 2015	4,000 Bbls	NYMEX WTI	$97.25
April - December 2015	5,000 Bbls	NYMEX WTI	$94.56
July - December 2015	7,000 Bbls	NYMEX WTI	$93.91

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 2014 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; 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. 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.

Panhandle Oil and Gas Inc. Reports Fourth Quarter and Fiscal 2014 Financial Results

Panhandle Oil and Gas Inc. Reports Fourth Quarter and Fiscal 2014 Financial Results

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