Panhandle Oil and Gas Inc. Reports Fiscal Third Quarter and Nine Months 2015 Results and Operations Update

OKLAHOMA CITY – Aug. 6, 2015 – PANHANDLE OIL AND GAS INC. (NYSE: PHX) today reported financial and operating results for the Company’s fiscal third quarter and nine months ended June 30, 2015.

HIGHLIGHTS FOR THE PERIODS ENDED JUNE 30, 2015

  • Recorded nine-month 2015 net income of $10,209,022, $0.61 per diluted share, compared to net income of $15,703,476, $0.94 per diluted share, for the 2014 nine months.
  • Recorded fiscal third quarter 2015 net loss of $728,946, $0.04 per diluted share, as compared to net income $5,122,585, $0.31 per diluted share, for the 2014 quarter.
  • Generated cash from operating activities of $37,347,802 for the 2015 nine-month period, well in excess of $23,613,349 of capital expenditures for drilling and equipping wells.
  • Reported 2015 third-quarter and nine-month production of 3,315,899 Mcfe and 10,508,647 Mcfe, respectively, which were flat and a 2% increase, respectively, over the same periods of fiscal 2014.
  • Reduced debt $12.5 million from Sept. 30, 2014, to $65.5 million.

FISCAL THIRD QUARTER 2015 RESULTS

For the 2015 third quarter, the Company recorded net loss of $728,946, or $0.04 per diluted share.  This compared to net income of $5,122,585, or $0.31 per diluted share, for the 2014 third quarter.  Net cash provided by operating activities decreased 35% to $9,693,886 for the 2015 third quarter, versus the 2014 third quarter.  Capital expenditures for drilling and completing wells for the quarter totaled $3,815,353 and continue to be principally directed to drilling of wells in south central Oklahoma and the completion of wells drilled in 2014 in the Bakken.  The 2015 quarter and the 2014 quarter both included losses on derivative contracts of $1.4 million.  Actual cash receipts from derivative contracts in the 2015 quarter were $3.6 million with the change in the fair market value for derivatives during the 2015 quarter being $(5.0) million (pre-tax).  The Company principally uses derivative contracts of less than one year duration to provide protection against significant declines in cash flows from fluctuations in the price of natural gas and to a lesser extent oil.  The Company has typically hedged around 50% of its expected production volumes.

Total revenues for the 2015 third quarter were $11,748,888, a 36% decrease from $18,374,977 for the 2014 quarter.  Oil, NGL and natural gas sales decreased $8,090,955 or 41% in the 2015 quarter, compared to the 2014 quarter, resulting from flat production volumes and a 42% decrease in the average per Mcfe sales price.  The average sales price per Mcfe of production during the 2015 third quarter was $3.45, compared to $5.90 for the 2014 third quarter.  The sales prices of natural gas and oil both declined 48% while NGL declined 57% as compared to the 2014 quarter.

The Company closed on several leases of our mineral acreage in the quarter, which generated $1.7 million of lease bonus revenue.  The largest of these leases was in West Texas and generated $1.2 million of lease bonus.

Oil production increased 56% in the 2015 quarter to 109,738 barrels, versus 70,479 barrels in the 2014 quarter while gas production of 2,407,049 Mcf for the 2015 quarter decreased 4% compared to the 2014 quarter.  In addition, 41,737 barrels of NGL were sold in the 2015 quarter as compared to 63,029 barrels in the 2014 quarter, a decrease of 34%.

NINE MONTHS 2015 RESULTS

For the 2015 nine months, the Company recorded net income of $10,209,022, or $0.61 per diluted share.  This compared to net income of $15,703,476, or $0.94 per diluted share, for the 2014 nine months.  Net cash provided by operating activities increased 2% year over year to $37,347,802 for the 2015 nine months, versus the 2014 nine months.  Once again, cash flow from operations fully funded costs to drill and equip wells for the nine months.  Capital expenditures for the 2015 nine months totaled $23,921,529, which included $23,613,349 for drilling and equipping wells and acquisitions of $308,180.  The 2015 nine months included an $11.7 million gain on derivative contracts as compared to a $3.5 million loss for the 2014 period.

Total revenues for the 2015 nine months were $57,427,092, a 2% increase from $56,523,778 for the 2014 nine months.  However, oil, NGL and natural gas sales decreased $15,715,089 to $43,400,839, or 27% in the 2015 nine months, compared to the 2014 nine months, as the net result of a 2% increase in Mcfe production and a 28% decrease in the average per Mcfe sales price.  The average sales price per Mcfe of production during the 2015 nine months was $4.13, compared to $5.73 for the 2014 nine months.

Oil production increased 55% in the 2015 nine months to 340,888 barrels from 220,131 barrels in the 2014 nine months while gas production decreased 599,079 Mcf compared to the 2014 nine months.  In addition, 163,222 barrels of NGL were sold in the 2015 nine months, which was a 7% increase compared to 2014 NGL volumes.  The Eagle Ford acquisition made in June 2014 continues to be the basis for 2015 increased oil production; while normal decline in production and significantly decreased dry natural gas drilling are responsible for the gas production decline.

MANAGEMENT COMMENTS

Michael C. Coffman, President and CEO, said:Difficult times due to low product prices continue to depress our industry.  Panhandle has been through several of these cycles during its almost 90-year history and will undoubtedly see more in the future.  We have always strived to maintain a conservative management philosophy and a simple financial structure which has served Panhandle well, especially during the lean times.”

Coffman continued: “We will continue to focus on the longer-term outlook and are in the enviable position of being able to deploy drilling capital only when and where we can expect to earn a reasonable rate of return, as we have no need to drill to hold acreage.  The Company continues to maintain the flexibility to be opportunistic in acquiring assets that would be accretive to shareholder value.  Further, our geographic and play diversity and product mix position the Company to manage its way through this difficult price cycle.  We will continue to reduce our debt with available excess cash flow.

OPERATIONS UPDATE

Paul Blanchard, Senior Vice President and COO, said: “The Company entered into a land lease agreement in the Permian Basin in Andrews and Winkler Counties, Texas, during the third quarter. We leased out approximately 2,400 net mineral acres in 40+ sections (square miles) that have multiple well stacked pay potential in the Wolfcamp, Strawn, Atoka, Barnett and Woodford. The lease generated $1.2 million in cash bonus for Panhandle during the quarter, and the Company will receive a 25% royalty from the leased property. Additionally, Panhandle has the right to buy back the lease and participate with its original interest, up to a maximum 10% working interest, in each unit when the initial well in a unit is proposed. This deal structure secures the significant lease bonus and an attractive royalty for Panhandle while maintaining the option to participate with a material working interest should the project meet our investment standards.

“Panhandle continues to maintain its long-term investment philosophy during this commodity price downturn. We are receiving a reduced volume of well proposals, and many of those proposals do not meet our criteria to participate.  Therefore our drilling and completion capital expenditures are relatively low. If this low commodity price environment persists through 2016, the Company projects that a reduced level of capital expenditures will result in a small decrease in next year’s production relative to 2015.

“Recent investments included the completion of five high-rate Bakken oil wells on Panhandle’s mineral acreage in the Fort Berthold area of North Dakota.  These wells were drilled in 2014 but completion was deferred until May of 2015. Panhandle owns a 6.25% working and net revenue interest in all five wells which began producing in late May. Additional notable investments during the quarter included drilling and completion activity on our mineral holdings in the SCOOP Woodford play in the Anadarko and Marietta Basins in south central Oklahoma and the Springer play in the Anadarko Basin in south central Oklahoma. This drilling activity in the core of SCOOP is projected to generate favorable rates of return at recent NYMEX futures pricing.

“Five of our six Eagle Ford wells drilled in 2014 are scheduled to be completed beginning in August 2015, with production anticipated to begin in early October 2015. Panhandle owns a 16% working interest and approximately 12% net revenue interest in these wells.  The operator of our Eagle Ford properties has completed installation of water disposal lines which connect the wells in the field to a nearby commercial disposal well, thereby significantly reducing water disposal and road repair costs associated with previous water-trucking. An electrical substation has also been constructed proximal to the field, and the operator is in the process of connecting the wells in the field to this system. This will eliminate the use of diesel generators in the field and result in a material reduction in lease operating expense associated with generator rental, diesel fuel, trucking cost and road repairs. The recently installed disposal system and electrical substation work complements the oil and natural gas pipelines infrastructure already in place in the field and allows the operator to optimize field level operating expenses.  This augments the value of the properties’ oil and natural gas production.”

FINANCIAL HIGHLIGHTS

Statements of Operations

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

2015

 

2014

 

2015

 

2014

Revenues:

(unaudited)

 

(unaudited)

Oil, NGL and natural gas sales

$

 11,443,590 

 

$

 19,534,545 

 

$

 43,400,839 

 

$

 59,115,928 

Lease bonuses and rentals

 

 1,663,402 

 

 

 137,476 

 

 

 1,945,743 

 

 

 353,422 

Gains (losses) on derivative contracts

 

 (1,443,472)

 

 

 (1,427,165)

 

 

 11,706,955 

 

 

 (3,511,095)

Income from partnerships

 

 85,368 

 

 

 130,121 

 

 

 373,555 

 

 

 565,523 

 

 

 11,748,888 

 

 

 18,374,977 

 

 

 57,427,092 

 

 

 56,523,778 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

 4,071,634 

 

 

 2,961,750 

 

 

 13,233,980 

 

 

 9,930,147 

Production taxes

 

 362,548 

 

 

 593,941 

 

 

 1,384,217 

 

 

 1,871,538 

Exploration costs

 

 19,911 

 

 

 6,956 

 

 

 48,368 

 

 

 70,140 

Depreciation, depletion and amortization

 

 5,729,460 

 

 

 5,314,777 

 

 

 17,680,069 

 

 

 15,562,630 

Provision for impairment

 

 132,118 

 

 

 -

 

 

 3,532,760 

 

 

 430,143 

Loss (gain) on asset sales and other

 

 (18,459)

 

 

 3,897 

 

 

 (27,586)

 

 

 31,086 

Interest expense

 

 383,047 

 

 

 40,697 

 

 

 1,195,056 

 

 

 40,697 

General and administrative

 

 1,565,575 

 

 

 1,825,374 

 

 

 5,374,206 

 

 

 5,349,921 

 

 

 12,245,834 

 

 

 10,747,392 

 

 

 42,421,070 

 

 

 33,286,302 

Income (loss) before provision (benefit) for income taxes

 

 (496,946)

 

 

 7,627,585 

 

 

 15,006,022 

 

 

 23,237,476 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

 232,000 

 

 

 2,505,000 

 

 

 4,797,000 

 

 

 7,534,000 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

 (728,946)

 

$

 5,122,585 

 

$

 10,209,022 

 

$

 15,703,476 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per common share

$

 (0.04)

 

$

 0.31 

 

$

 0.61 

 

$

 0.94 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 16,514,435 

 

 

 16,474,040 

 

 

 16,504,512 

 

 

 16,470,372 

Unissued, directors' deferred compensation shares

 

 246,893 

 

 

 255,670 

 

 

 256,084 

 

 

 252,102 

 

 

 16,761,328 

 

 

 16,729,710 

 

 

 16,760,596 

 

 

 16,722,474 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share of

 

 

 

 

 

 

 

 

 

 

 

common stock and paid in period

$

 0.04 

 

$

 0.04 

 

$

 0.12 

 

$

 0.12 

Balance Sheets

 

June 30, 2015

 

Sept. 30, 2014

Assets

(unaudited)

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

 925,219 

 

$

 509,755 

Oil, NGL and natural gas sales receivables

 

 9,455,779 

 

 

 16,227,469 

Refundable production taxes

 

 585,961 

 

 

 625,996 

Derivative contracts, net

 

 5,402,106 

 

 

 1,650,563 

Other

 

 196,397 

 

 

 354,828 

Total current assets

 

 16,565,462 

 

 

 19,368,611 

 

 

 

 

 

 

Properties and equipment, at cost, based on

 

 

 

 

 

   successful efforts accounting:

 

 

 

 

 

Producing oil and natural gas properties

 

 438,750,515 

 

 

 418,237,512 

Non-producing oil and natural gas properties

 

 8,703,427 

 

 

 10,260,717 

Other

 

 1,390,339 

 

 

 1,317,725 

 

 

 448,844,281 

 

 

 429,815,954 

Less accumulated depreciation, depletion and amortization

 

 (222,231,830)

 

 

 (204,731,661)

Net properties and equipment

 

 226,612,451 

 

 

 225,084,293 

 

 

 

 

 

 

Investments

 

 2,087,629 

 

 

 1,936,421 

Derivative contracts, net

 

 -

 

 

 251,279 

Total assets

$

 245,265,542 

 

$

 246,640,604 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

 5,948,158 

 

$

 7,034,773 

Deferred income taxes

 

 745,100 

 

 

 600,100 

Income taxes payable

 

 1,041,846 

 

 

 523,843 

Accrued liabilities and other

 

 1,017,544 

 

 

 1,290,858 

Total current liabilities

 

 8,752,648 

 

 

 9,449,574 

 

 

 

 

 

 

Long-term debt

 

 65,500,000 

 

 

 78,000,000 

Deferred income taxes

 

 40,072,907 

 

 

 37,363,907 

Asset retirement obligations

 

 2,786,229 

 

 

 2,638,470 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

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

 

 

 

 

 

24,000,000 shares authorized, 16,863,004 issued at June 30,

 

 

 

 

 

2015, and Sept. 30, 2014

 

 280,938 

 

 

 280,938 

Capital in excess of par value

 

 2,879,000 

 

 

 2,861,343 

Deferred directors' compensation

 

 3,014,024 

 

 

 3,110,351 

Retained earnings

 

 127,002,060 

 

 

 118,794,188 

 

 

 133,176,022 

 

 

 125,046,820 

Less treasury stock, at cost; 316,628 shares at June 30,

 

 

 

 

 

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

 

 (5,022,264)

 

 

 (5,858,167)

Total stockholders' equity

 

 128,153,758 

 

 

 119,188,653 

Total liabilities and stockholders' equity

$

 245,265,542 

 

$

 246,640,604 

Condensed Statements of Cash Flows

 

Nine months ended June 30,

 

2015

 

2014

Operating Activities

(unaudited)

Net income (loss)

$

 10,209,022 

 

$

 15,703,476 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

  by operating activities:

 

 

 

 

 

Depreciation, depletion and amortization

 

 17,680,069 

 

 

 15,562,630 

Impairment

 

 3,532,760 

 

 

 430,143 

Provision for deferred income taxes

 

 2,854,000 

 

 

 5,964,000 

Exploration costs

 

 48,368 

 

 

 70,140 

Gain from leasing of fee mineral acreage

 

 (1,973,773)

 

 

 (352,930)

Net (gain) loss on sale of assets

 

 -

 

 

 152,766 

Income from partnerships

 

 (373,555)

 

 

 (565,523)

Distributions received from partnerships

 

 535,400 

 

 

 734,825 

Directors' deferred compensation expense

 

 232,088 

 

 

 269,608 

Restricted stock awards

 

 740,043 

 

 

 499,791 

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

 

 

 

 

 

Oil, NGL and natural gas sales receivables

 

 6,771,690 

 

 

 (1,349,892)

Fair value of derivative contracts

 

 (3,500,264)

 

 

 2,431,427 

Refundable production taxes

 

 40,035 

 

 

 281,741 

Other current assets

 

 158,431 

 

 

 (25,098)

Accounts payable

 

 148,384 

 

 

 443,438 

Income taxes receivable

 

 -

 

 

 (3,160,243)

Income taxes payable

 

 518,003 

 

 

 (751,992)

Accrued liabilities

 

 (272,899)

 

 

 100,229 

Total adjustments

 

 27,138,780 

 

 

 20,735,060 

Net cash provided by operating activities

 

 37,347,802 

 

 

 36,438,536 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Capital expenditures, including dry hole costs

 

 (23,613,349)

 

 

 (26,693,851)

Acquisition of working interest properties

 

 (308,180)

 

 

 (86,759,445)

Acquisition of minerals and overrides

 

 -

 

 

 (56,250)

Proceeds from leasing of fee mineral acreage

 

 2,018,707 

 

 

 381,280 

Investments in partnerships

 

 (313,053)

 

 

 (248,066)

Proceeds from sales of assets

 

 -

 

 

 92,000 

Net cash used in investing activities

 

 (22,215,875)

 

 

 (113,284,332)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Borrowings under debt agreement

 

 23,013,234 

 

 

 95,112,044 

Payments of loan principal

 

 (35,513,234)

 

 

 (17,521,506)

Purchase of treasury stock

 

 (242,313)

 

 

 (122,044)

Payments of dividends

 

 (2,001,150)

 

 

 (1,995,812)

Excess tax benefit on stock-based compensation

 

 27,000 

 

 

 17,000 

Net cash provided by (used in) financing activities

 

 (14,716,463)

 

 

 75,489,682 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 415,464 

 

 

 (1,356,114)

Cash and cash equivalents at beginning of period

 

 509,755 

 

 

 2,867,171 

Cash and cash equivalents at end of period

$

 925,219 

 

$

 1,511,057 

 

 

 

 

 

 

Supplemental Schedule of Noncash Investing and Financing Activities

 

 

 

 

 

Additions to asset retirement obligations

$

 52,017 

 

$

 370,536 

 

 

 

 

 

 

Gross additions to properties and equipment

$

 22,686,530 

 

$

 109,182,119 

Net (increase) decrease in accounts payable for properties

 

 

 

 

 

and equipment additions

 

 1,234,999 

 

 

 4,327,427 

Capital expenditures and acquisitions, including dry hole costs

$

 23,921,529 

 

$

 113,509,546 

OPERATING HIGHLIGHTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third Quarter Ended

 

Third Quarter Ended

 

Nine Months Ended

 

Nine Months Ended

 

June 30, 2015

 

June 30, 2014

 

June 30, 2015

 

June 30, 2014

Mcfe Sold

 

3,315,899

 

 

3,309,394

 

 

10,508,647

 

 

10,314,886

Average Sales Price per Mcfe

$

3.45

 

$

5.90

 

$

4.13

 

$

5.73

Oil Barrels Sold

 

109,738

 

 

70,479

 

 

340,888

 

 

220,131

Average Sales Price per Barrel

$

51.20

 

$

97.90

 

$

56.07

 

$

94.74

Mcf Sold

 

2,407,049

 

 

2,508,346

 

 

7,483,987

 

 

8,083,066

Average Sales Price per Mcf

$

2.17

 

$

4.20

 

$

2.82

 

$

4.11

NGL Barrels Sold

 

41,737

 

 

63,029

 

 

163,222

 

 

151,839

Average Sales Price per Barrel

$

14.30

 

$

33.51

 

$

19.46

 

$

32.99

 

Quarter ended

 

Oil Bbls Sold

 

Mcf Sold

 

NGL Bbls Sold

 

Mcfe Sold

6/30/2015

 

109,738

 

2,407,049

 

41,737

 

3,315,899

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

The Company’s derivative contracts in place for natural gas at June 30, 2015, are outlined in its Form 10-Q for the period ending June 30, 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.