Panhandle Oil and Gas Inc. Reports Fiscal Second Quarter, Six Months 2015 Results and Mid-Year Reserve Update

OKLAHOMA CITY – May 7, 2015 – PANHANDLE OIL AND GAS INC. (NYSE: PHX) today reported financial and operating results for the Company’s fiscal second quarter and six months ended March 31, 2015.

HIGHLIGHTS FOR THE PERIODS ENDED MARCH 31, 2015

  • Recorded six month 2015 net income of $10,937,968, $0.65 per diluted share, compared to net income of $10,580,891, $0.63 per diluted share, for the 2014 six months.
  • Recorded fiscal second quarter 2015 net income of $704,207, $0.04 per diluted share, as compared to $5,654,573, $0.34 per diluted share, for the 2014 quarter.
  • Generated cash from operating activities of $27,653,916 for the 2015 six-month period, well in excess of $19,797,996 of capital expenditures for drilling and equipping wells.
  • Reported 2015 second-quarter and six-month production of 3,455,265 Mcfe and 7,192,748 Mcfe, respectively, which were a decrease of 1% and an increase of 3%, respectively, over the same periods of fiscal 2014.
  • Reduced debt $6.1 million, to $71.9 million, from Sept. 30, 2014.
  • Increased proved developed reserves, after production, to 116.1 Bcfe at March 31, 2015, from 115.2 Bcfe at Sept. 30, 2014.

FISCAL SECOND QUARTER 2015 RESULTS

For the 2015 second quarter, the Company recorded net income of $704,207, or $0.04 per diluted share. This compared to net income of $5,654,573, or $0.34 per diluted share, for the 2014 second quarter. Net cash provided by operating activities increased 27% to $12,468,427 for the 2015 second quarter, versus the 2014 second quarter. Capital expenditures for the 2015 fiscal quarter totaled $4,896,365 and continue to be principally directed toward oil and NGL rich plays in south central Oklahoma. In addition, the Company recorded a $1.2 million non-cash provision for impairment in the 2015 quarter, as compared to a $227,000 charge in the 2014 quarter.

Total revenues for the 2015 second quarter were $14,679,034, a 26% decrease from $19,752,045 for the 2014 quarter. Oil, NGL and natural gas sales decreased $8,670,752 or 41% in the 2015 quarter, compared to the 2014 quarter, as a result of a 1% decrease in Mcfe production and a 40% decrease in the average per Mcfe sales price. The average sales price per Mcfe of production during the 2015 second quarter was $3.60, compared to $6.04 for the 2014 second quarter. The 2015 quarter included a $1.9 million gain on derivative contracts, as compared to a $1.6 million loss for the 2014 quarter. The Company will typically hedge 40-60% of its expected production volumes of oil and gas for a duration of up to one year to provide protection against significant declines in cash flows from lower product prices.

Oil production increased 73% in the 2015 quarter to 114,567 barrels, versus 66,239 barrels in the 2014 quarter, while gas production of 2,475,777 Mcf for the 2015 quarter decreased 11%, compared to the 2014 quarter. In addition, 48,681 barrels of NGL were sold in the 2015 quarter, as compared to 51,670 barrels in the 2014 quarter. The increased oil production is a result of the Eagle Ford acquisition made in June 2014.

SIX MONTHS 2015 RESULTS

For the 2015 six months, the Company recorded net income of $10,937,968, or $0.65 per diluted share. This compared to net income of $10,580,891, or $0.63 per diluted share, for the 2014 six months. Net cash provided by operating activities increased 27% year over year to $27,653,916 for the 2015 six months, versus the 2014 six months. Again, cash flow from operations fully funded costs to drill and equip wells for the six months. Capital expenditures for the 2015 six months totaled $20,106,176, which included $19,797,996 for drilling and equipping wells and acquisitions of $308,180. The Company recorded a $3.4 million non-cash provision for impairment in the 2015 six months, as compared to a $430,000 charge in the 2014 period.

Total revenues for the 2015 six months were $45,678,204, a 20% increase from $38,148,801 for the 2014 six months. Oil, NGL and natural gas sales decreased $7,624,134, or 19%, in the 2015 six months, compared to the 2014 six months, as a result of a 3% increase in Mcfe production and a 21% decrease in the average per Mcfe sales price. The average sales price per Mcfe of production during the 2015 six months was $4.44, compared to $5.65 for the 2014 six months. The 2015 six months included a $13.2 million gain on derivative contracts as compared to a $2.1 million loss for the 2014 period.

Oil production increased 54% in the 2015 six months to 231,150 barrels from 149,652 barrels in the 2014 six months, while gas production decreased 497,782 Mcf, or 9%, compared to the 2014 six months. In addition, 121,485 barrels of NGL were sold in the 2015 six months, which was a 37% increase compared to 2014 NGL volumes.

RESERVES UPDATE

March 31, 2015, mid-year proved reserves were 193.8 Bcfe, as calculated by the Company’s consulting petroleum engineering firm, DeGolyer and MacNaughton. This was a decrease of 6.0%, compared to the 206.2 Bcfe of proved reserves at Sept. 30, 2014. SEC prices used for the March 31, 2015, report averaged $3.68 per Mcf for natural gas, $79.46 per barrel for oil and $27.25 per barrel for NGL, compared to $4.04 per Mcf for natural gas, $96.94 per barrel for oil and $31.45 per barrel for NGL for the Sept. 30, 2014, report. The above prices reflect net at the wellhead prices. Total proved developed reserves increased 0.7% to 116.1 Bcfe, as compared to Sept. 30, 2014, reserve volumes.

MANAGEMENT COMMENTS

Michael C. Coffman, President and CEO, said:Fiscal 2015 continues to be a difficult time in the industry as product prices remain at depressed levels. Panhandle has, and will continue to, maintain its discipline and consistent long-term outlook and investment philosophies through this product price cycle. We have significantly reduced our capital expenditure level, choosing to participate with a working interest only in those wells that are expected to earn a reasonable rate of return based on anticipated product prices. As usual, we will generate royalty interests in wells drilled on our mineral acreage whether or not we take a working interest in the wells. Excess cash flow will continue to be used to further reduce our bank debt.”

Coffman continued: “We expect industry conditions to remain challenging at least throughout fiscal 2015. Panhandle’s strong financial and operational position will provide us flexibility to be opportunistic in terms of acquiring assets or taking advantage of drilling opportunities when product prices will deliver reasonable returns and growth of shareholder value.

OPERATIONS UPDATE

Paul Blanchard, Senior Vice President and COO, said: “Our mid-year 2015 proved developed reserves grew slightly to 116.1 Bcfe from 115.2 Bcfe at year-end 2014 as new reserves from drilling and a small positive performance revision more than offset production and a negative pricing revision due to falling commodity prices during the period.

“Our mid-year 2015 proved undeveloped (PUD) reserves declined 14.5% as compared to year-end 2014 primarily due to the movement of over 8 Bcfe out of the PUD and into proved developed producing resulting from drilling and development of those reserves. Because of the extremely low commodity price environment, the Company elected to add only PUD reserves for wells in progress at mid-year. No future PUD locations were added. The removal of locations that are no longer forecast to be drilled within 5 years and the pricing revision due to falling commodity prices also contributed to the decrease in PUD reserves. PUD reserves currently stand at 40% of total proved reserves.”

FINANCIAL HIGHLIGHTS

Statements of Operations

 

Three Months Ended March 31,

 

Six Months Ended March 31,

 

2015

 

2014

 

2015

 

2014

Revenues:

(unaudited)

 

(unaudited)

Oil, NGL and natural gas sales

$

 12,437,549 

 

$

 21,108,301 

 

$

 31,957,249 

 

$

 39,581,383 

Lease bonuses and rentals

 

 253,050 

 

 

 19,717 

 

 

 282,341 

 

 

 215,946 

Gains (losses) on derivative contracts

 

 1,900,162 

 

 

 (1,587,029)

 

 

 13,150,427 

 

 

 (2,083,930)

Income from partnerships

 

 88,273 

 

 

 211,056 

 

 

 288,187 

 

 

 435,402 

 

 

 14,679,034 

 

 

 19,752,045 

 

 

 45,678,204 

 

 

 38,148,801 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

 4,376,996 

 

 

 3,653,000 

 

 

 9,162,346 

 

 

 6,968,397 

Production taxes

 

 399,157 

 

 

 706,033 

 

 

 1,021,669 

 

 

 1,277,597 

Exploration costs

 

 3,105 

 

 

 24,429 

 

 

 28,457 

 

 

 63,184 

Depreciation, depletion and amortization

 

 5,811,590 

 

 

 4,939,834 

 

 

 11,950,609 

 

 

 10,247,853 

Provision for impairment

 

 1,208,645 

 

 

 227,152 

 

 

 3,400,642 

 

 

 430,143 

Loss (gain) on asset sales and other

 

 (7,145)

 

 

 104,644 

 

 

 (9,127)

 

 

 27,189 

Interest expense

 

 409,276 

 

 

 -

 

 

 812,009 

 

 

 -

General and administrative

 

 1,850,203 

 

 

 1,651,380 

 

 

 3,808,631 

 

 

 3,524,547 

 

 

 14,051,827 

 

 

 11,306,472 

 

 

 30,175,236 

 

 

 22,538,910 

Income before provision (benefit) for income taxes

 

 627,207 

 

 

 8,445,573 

 

 

 15,502,968 

 

 

 15,609,891 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

 (77,000)

 

 

 2,791,000 

 

 

 4,565,000 

 

 

 5,029,000 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 704,207 

 

$

 5,654,573 

 

$

 10,937,968 

 

$

 10,580,891 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per common share

$

 0.04 

 

$

 0.34 

 

$

 0.65 

 

$

 0.63 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 16,514,435 

 

 

 16,473,344 

 

 

 16,504,512 

 

 

 16,468,522 

Unissued, directors' deferred compensation shares

 

 266,066 

 

 

 252,102 

 

 

 265,503 

 

 

 251,424 

 

 

 16,780,501 

 

 

 16,725,446 

 

 

 16,770,015 

 

 

 16,719,946 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share of

 

 

 

 

 

 

 

 

 

 

 

common stock and paid in period

$

 0.04 

 

$

 0.04 

 

$

 0.08 

 

$

 0.08 

Balance Sheets

 

March 31, 2015

 

Sept. 30, 2014

Assets

(unaudited)

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

 586,982 

 

$

 509,755 

Oil, NGL and natural gas sales receivables

 

 9,639,059 

 

 

 16,227,469 

Refundable production taxes

 

 599,371 

 

 

 625,996 

Derivative contracts, net

 

 10,490,170 

 

 

 1,650,563 

Other

 

 328,249 

 

 

 354,828 

Total current assets

 

 21,643,831 

 

 

 19,368,611 

 

 

 

 

 

 

Properties and equipment, at cost, based on

 

 

 

 

 

   successful efforts accounting:

 

 

 

 

 

Producing oil and natural gas properties

 

 434,412,916 

 

 

 418,237,512 

Non-producing oil and natural gas properties

 

 8,805,553 

 

 

 10,260,717 

Other

 

 1,381,454 

 

 

 1,317,725 

 

 

 444,599,923 

 

 

 429,815,954 

Less accumulated depreciation, depletion and amortization

 

 (216,596,904)

 

 

 (204,731,661)

Net properties and equipment

 

 228,003,019 

 

 

 225,084,293 

 

 

 

 

 

 

Investments

 

 2,037,067 

 

 

 1,936,421 

Derivative contracts, net

 

 -

 

 

 251,279 

Total assets

$

 251,683,917 

 

$

 246,640,604 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

 5,094,559 

 

$

 7,034,773 

Deferred income taxes

 

 1,015,100 

 

 

 600,100 

Income taxes payable

 

 1,027,237 

 

 

 523,843 

Accrued liabilities and other

 

 886,574 

 

 

 1,290,858 

Total current liabilities

 

 8,023,470 

 

 

 9,449,574 

 

 

 

 

 

 

Long-term debt

 

 71,923,589 

 

 

 78,000,000 

Deferred income taxes

 

 39,646,907 

 

 

 37,363,907 

Asset retirement obligations

 

 2,735,026 

 

 

 2,638,470 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

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

 

 

 

 

 

24,000,000 shares authorized, 16,863,004 issued at March 31,

 

 

 

 

 

2015, and Sept. 30, 2014

 

 280,938 

 

 

 280,938 

Capital in excess of par value

 

 2,932,208 

 

 

 2,861,343 

Deferred directors' compensation

 

 2,951,400 

 

 

 3,110,351 

Retained earnings

 

 128,399,133 

 

 

 118,794,188 

 

 

 134,563,679 

 

 

 125,046,820 

Less treasury stock, at cost; 330,636 shares at March 31,

 

 

 

 

 

2015, and 372,364 shares at Sept. 30, 2014

 

 (5,208,754)

 

 

 (5,858,167)

Total stockholders' equity

 

 129,354,925 

 

 

 119,188,653 

Total liabilities and stockholders' equity

$

 251,683,917 

 

$

 246,640,604 

Condensed Statements of Cash Flows

 

Six months ended March 31,

 

2015

 

2014

Operating Activities

(unaudited)

Net income

$

 10,937,968 

 

$

 10,580,891 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

  by operating activities:

 

 

 

 

 

Depreciation, depletion and amortization

 

 11,950,609 

 

 

 10,247,853 

Impairment

 

 3,400,642 

 

 

 430,143 

Provision for deferred income taxes

 

 2,698,000 

 

 

 1,453,000 

Exploration costs

 

 28,457 

 

 

 63,184 

Gain from leasing of fee mineral acreage

 

 (281,124)

 

 

 (215,704)

Net (gain) loss on sale of assets

 

 -

 

 

 152,766 

Income from partnerships

 

 (288,187)

 

 

 (435,402)

Distributions received from partnerships

 

 395,852 

 

 

 547,028 

Directors' deferred compensation expense

 

 169,464 

 

 

 189,506 

Restricted stock awards

 

 531,243 

 

 

 262,174 

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

 

 

 

 

 

Oil, NGL and natural gas sales receivables

 

 6,588,410 

 

 

 (3,384,957)

Fair value of derivative contracts

 

 (8,588,328)

 

 

 1,717,527 

Refundable production taxes

 

 26,625 

 

 

 264,048 

Other current assets

 

 26,579 

 

 

 (55,727)

Accounts payable

 

 (41,635)

 

 

 46,051 

Income taxes payable

 

 503,394 

 

 

 113,890 

Accrued liabilities

 

 (404,053)

 

 

 (242,919)

Total adjustments

 

 16,715,948 

 

 

 11,152,461 

Net cash provided by operating activities

 

 27,653,916 

 

 

 21,733,352 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Capital expenditures, including dry hole costs

 

 (19,797,996)

 

 

 (17,606,988)

Acquisition of working interest properties

 

 (308,180)

 

 

 (1,550,205)

Acquisition of minerals and overrides

 

 -

 

 

 (56,250)

Proceeds from leasing of fee mineral acreage

 

 286,844 

 

 

 237,733 

Investments in partnerships

 

 (208,312)

 

 

 (201,898)

Proceeds from sales of assets

 

 -

 

 

 92,000 

Net cash used in investing activities

 

 (20,027,644)

 

 

 (19,085,608)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Borrowings under debt agreement

 

 18,894,612 

 

 

 8,312,545 

Payments of loan principal

 

 (24,971,023)

 

 

 (10,574,801)

Purchase of treasury stock

 

 (120,611)

 

 

 (122,044)

Payments of dividends

 

 (1,333,023)

 

 

 (1,330,215)

Excess tax benefit on stock-based compensation

 

 (19,000)

 

 

 16,000 

Net cash provided by (used in) financing activities

 

 (7,549,045)

 

 

 (3,698,515)

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 77,227 

 

 

 (1,050,771)

Cash and cash equivalents at beginning of period

 

 509,755 

 

 

 2,867,171 

Cash and cash equivalents at end of period

$

 586,982 

 

$

 1,816,400 

 

 

 

 

 

 

Supplemental Schedule of Noncash Investing and Financing Activities

 

 

 

 

 

Additions to asset retirement obligations

$

 32,728 

 

$

 84,786 

 

 

 

 

 

 

Gross additions to properties and equipment

$

 18,207,598 

 

$

 17,290,125 

Net (increase) decrease in accounts payable for properties

 

 

 

 

 

and equipment additions

 

 1,898,578 

 

 

 1,923,318 

Capital expenditures and acquisitions, including dry hole costs

$

 20,106,176 

 

$

 19,213,443 

Proved Reserves

 

SEC Pricing

 

March 31, 2015

 

Sept. 30, 2014

Proved Developed Reserves:

 

(unaudited)

Barrels of NGL

 

 1,550,459

 

 

 1,564,859

Barrels of Oil

 

 2,705,502

 

 

 2,890,678

Mcf of Gas

 

 90,537,553

 

 

 88,512,767

Mcfe (1)

 

 116,073,319

 

 

 115,245,989

Proved Undeveloped Reserves:

 

 

 

 

 

Barrels of NGL

 

 1,477,371

 

 

 1,475,322

Barrels of Oil

 

 4,313,209

 

 

 4,678,901

Mcf of Gas

 

 42,998,613

 

 

 53,979,593

Mcfe (1)

 

 77,742,093

 

 

 90,904,931

Total Proved Reserves:

 

 

 

 

 

Barrels of NGL

 

 3,027,830

 

 

 3,040,181

Barrels of Oil

 

 7,018,711

 

 

 7,569,579

Mcf of Gas

 

 133,536,166

 

 

 142,492,360

Mcfe (1)

 

 193,815,412

 

 

 206,150,920

 

 

 

 

 

 

10% Discounted Estimated Future

 

 

 

 

 

Net Cash Flows (before income taxes):

 

 

 

 

 

Proved Developed

$

 194,916,693

 

$

 234,799,797

Proved Undeveloped

 

 84,117,435

 

 

 135,228,020

Total

$

 279,034,128

 

$

 370,027,817

SEC Pricing

 

 

 

 

 

Oil/Barrel

$

 79.46

 

$

 96.94

Gas/Mcf

$

 3.68

 

$

 4.04

NGL/Barrel

$

 27.25

 

$

 31.45

 

 

 

 

 

 

Proved Reserves - NYMEX Futures Pricing (2)

 

 

 

 

 

 

10% Discounted Estimated Future

Proved Reserves

Net Cash Flows (before income taxes):

March 31, 2015

 

Sept. 30, 2014

Proved Developed

$

 144,083,316

 

$

 210,517,588

Proved Undeveloped

 

 42,532,715

 

 

 104,966,219

Total

$

 186,616,031

 

$

 315,483,807

 

 

 

 

 

 

(1) Crude oil and NGL converted to natural gas on a one barrel of crude oil or NGL equals six Mcf of natural gas basis

(2) NYMEX Futures Pricing as of March 31, 2015, basis adjusted to Company wellhead price

OPERATING HIGHLIGHTS

 

Second Quarter Ended

 

Second Quarter Ended

 

Six Months Ended

 

Six Months Ended

 

March 31, 2015

 

March 31, 2014

 

March 31, 2015

 

March 31, 2014

Mcfe Sold

 

3,455,265

 

 

3,496,222

 

 

7,192,748

 

 

7,005,492

Average Sales Price per Mcfe

$

3.60

 

$

6.04

 

$

4.44

 

$

5.65

Oil Barrels Sold

 

114,567

 

 

66,239

 

 

231,150

 

 

149,652

Average Sales Price per Barrel

$

45.67

 

$

92.74

 

$

58.38

 

$

93.26

Mcf Sold

 

2,475,777

 

 

2,788,768

 

 

5,076,938

 

 

5,574,720

Average Sales Price per Mcf

$

2.64

 

$

4.74

 

$

3.13

 

$

4.08

NGL Barrels Sold

 

48,681

 

 

51,670

 

 

121,485

 

 

88,810

Average Sales Price per Barrel

$

13.82

 

$

33.53

 

$

21.23

 

$

32.62

 

Quarter ended

 

Oil Bbls Sold

 

Mcf Sold

 

NGL Bbls Sold

 

Mcfe Sold

3/31/2015

 

114,567

 

2,475,777

 

48,681

 

3,455,265

12/31/2014

 

116,583

 

2,601,161

 

72,804

 

3,737,483

9/30/2014

 

126,256

 

2,690,493

 

55,849

 

3,783,123

6/30/2014

 

70,479

 

2,508,346

 

63,029

 

3,309,394

3/31/2014

 

66,239

 

2,788,768

 

51,670

 

3,496,222

The Company’s derivative contracts in place for natural gas at March 31, 2015, are outlined in its Form 10-Q for the period ending March 31, 2015.

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; 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.