PHX Minerals Inc. Reports Second Quarter 2021 Results

6, May 2021

OKLAHOMA CITY, May 6, 2021 – PHX MINERALS INC., “PHX” or the “Company,” (NYSE: PHX), today reported financial and operating results for the second quarter ended March 31, 2021.

SUMMARY OF RESULTS FOR THE PERIOD ENDED MARCH 31, 2021, AND SUBSEQUENT EVENTS

Production volumes for the second fiscal quarter of 2021 were 2,297 Mmcfe, decreased from 2,373 Mmcfe in the second fiscal quarter of 2020 and increased from 2,074 Mmcfe in the first fiscal quarter of 2021.
Net loss in the second fiscal quarter of 2021 was $0.5 million, or $0.02 per share, as compared to net loss $20.5 million, or $1.24 per share, in the second fiscal quarter of 2020 and net loss of $0.6 million, or $0.03 per share, in the first fiscal quarter of 2021.
Adjusted EBITDA excluding gain on asset sales⁽¹⁾ for the second quarter of 2021 was $3.4 million, increased from $2.4 million in the second fiscal quarter of 2020 and $2.7 million in the first fiscal quarter of 2021.
On April 30, 2021, the Company closed on the previously announced acquisition of 2,514 net royalty acres in the SCOOP play of Oklahoma for approximately $8.5 million in cash and 1.2 million shares of PHX stock.
Reduced total debt 13% from $27.0 million as of Dec. 31, 2020, to $23.5 million as of March 31, 2021. As of April 30, 2021, debt had been further reduced by $1.75 million to $21.75 million.
Debt to adjusted EBITDA (TTM)⁽¹⁾ ratio was 2.34x at March 31, 2021.
Approved the payment of a one cent per share dividend payable on June 4, 2021, to stockholders of record on May 20, 2021.

Chad L. Stephens, President and CEO, commented, “PHX continues to achieve excellent results towards its stated objectives of growing the company through the strategic acquisition of producing minerals with line-of-sight development in our core focus areas, high grading our asset base by divesting of lower margin assets outside of our core focus areas and reducing our debt to strengthen our financial position.

“During the quarter, production volumes increased 11% sequentially. Significantly, for the first-time in the last 10 years, royalty production volumes exceeded working interest production volumes, which illuminates our stated mineral-only growth strategy. The increase in our volumes and the improved realized commodity prices, resulted in adjusted EBITDA⁽¹⁾ excluding gain on asset sales of $3.4 million, which was an increase of approximately 26%, or $0.7 million, over the first quarter of fiscal 2021.

“With our improved financial performance, we were able to reduce our debt by $3.5 million, or 13%, from the end of the first quarter of fiscal year 2021, which continues to improve our financial strength. Since the end of the second quarter, we paid down debt an additional $1.75 million, bringing our total borrowings to $21.75 million as of April 30, 2021. We now believe that our Debt to adjusted EBITDA (TTM)⁽¹⁾ will approximate 1.0x by calendar year end 2021. Overall, our credit profile has significantly improved, as compared to one year ago. We believe this puts us in a stronger position to allocate more of our capital to our stated strategy.

“Further, since quarter end, we completed our second equity offering over the last seven months which allowed us to fund our previously announced SCOOP-focused mineral acquisition in Oklahoma. This acquisition closed on Friday, April 30, 2021. We continue to see good deal flow and look forward to keeping you apprised of our efforts to continue to drive shareholder value.”

This is a non-GAAP measure. Refer to the Non-GAAP Reconciliation section.

OPERATING HIGHLIGHTS

	Second Quarter Ended		Second Quarter Ended		Six Months Ended		Six Months Ended
	March 31, 2021		March 31, 2020		March 31, 2021		March 31, 2020
Mcfe Sold		2,296,802		2,373,135		4,371,139		4,651,622
Average Sales Price per Mcfe	$	3.63	$	3.04	$	3.38	$	3.18
Gas Mcf Sold		1,735,820		1,529,367		3,211,276		3,177,194
Average Sales Price per Mcf	$	2.52	$	1.64	$	2.44	$	1.89
Oil Barrels Sold		56,269		93,141		114,945		159,021
Average Sales Price per Barrel	$	55.89	$	44.99	$	47.73	$	48.14
NGL Barrels Sold		37,228		47,487		78,365		86,717
Average Sales Price per Barrel	$	22.24	$	11.05	$	18.54	$	13.14

Total Production for the last four quarters was as follows:

Quarter ended	Mcf Sold		Oil Bbls Sold		NGL Bbls Sold		Mcfe Sold
3/31/2021		1,735,820		56,269		37,228		2,296,802
12/31/2020		1,475,456		58,675		41,138		2,074,334
9/30/2020		1,423,602		55,626		46,737		2,037,779
6/30/2020		1,361,909		55,138		35,169		1,903,752

Royalty Interest Production for the last four quarters was as follows:

Quarter ended	Mcf Sold		Oil Bbls Sold		NGL Bbls Sold		Mcfe Sold
3/31/2021		924,969		31,768		19,088		1,230,105
12/31/2020		487,925		27,840		14,948		744,653
9/30/2020		491,234		27,326		20,181		776,276
6/30/2020		544,249		28,468		16,574		814,501

Working Interest Production for the last four quarters was as follows:

Quarter ended	Mcf Sold		Oil Bbls Sold		NGL Bbls Sold		Mcfe Sold
3/31/2021		810,851		24,501		18,140		1,066,697
12/31/2020		987,531		30,835		26,190		1,329,681
9/30/2020		932,368		28,300		26,556		1,261,503
6/30/2020		817,660		26,670		18,595		1,089,251

FINANCIAL HIGHLIGHTS

	Second Quarter Ended			Second Quarter Ended			Six Months Ended			Six Months Ended
	March 31, 2021			March 31, 2020			March 31, 2021			March 31, 2020
Working Interest Sales	$	3,851,478		$	3,415,049		$	7,759,002		$	8,099,785
Royalty Interest Sales	$	4,494,347		$	3,802,569		$	7,011,802		$	6,711,671
Natural Gas, Oil and NGL Sales	$	8,345,825		$	7,217,618		$	14,770,804		$	14,811,456

Lease Bonuses and Rental Income	$	58,554		$	22,092		$	59,987		$	549,791
Total Revenue	$	6,079,493		$	11,311,287		$	12,272,137		$	21,887,818

LOE per Mcfe	$	0.45		$	0.65		$	0.47		$	0.59
Transportation, Gathering and Marketing per Mcfe	$	0.57		$	0.57		$	0.59		$	0.59
Production Tax per Mcfe	$	0.19		$	0.16		$	0.16		$	0.15
G&A Expense per Mcfe	$	0.90		$	0.92		$	0.87		$	0.95
Interest Expense per Mcfe	$	0.12		$	0.15		$	0.13		$	0.15
DD&A per Mcfe	$	0.77		$	1.42		$	0.92		$	1.36
Total Expense per Mcfe	$	3.00		$	3.87		$	3.14		$	3.79

Net Income (Loss)	$	(499,723	)	$	(20,454,814	)	$	(1,096,443	)	$	(18,562,700	)
Adj. Pre-Tax Net Income (Loss) ⁽¹⁾	$	1,333,989		$	(1,338,550	)	$	1,535,619		$	2,527,231
Adjusted EBITDA ⁽¹⁾	$	3,379,671		$	2,381,541		$	6,143,848		$	9,573,688

Cash Flow from Operations	$	4,205,726		$	4,009,901		$	4,677,107		$	6,108,342
CapEx - Drilling & Completing	$	297,015		$	34,490		$	425,098		$	139,755
CapEx - Mineral Acquisitions	$	64,758		$	81,422		$	7,934,504		$	10,254,016

Borrowing Base							$	29,400,000		$	45,000,000
Debt							$	23,500,000		$	32,000,000
Debt/Adjusted EBITDA (TTM) ⁽¹⁾								2.34			1.14

This is a non-GAAP measure. Refer to the Non-GAAP Reconciliation section.

SECOND QUARTER 2021 RESULTS

The Company recorded a second quarter 2021 net loss of $499,723, or $0.02 per share, as compared to a net loss of $20,454,814, or $1.24 per share, in the second quarter 2020. This change in net loss was principally the result of increased natural gas, oil and NGL sales and decreased general and administrative expenses (G&A), lease operating expenses (LOE), transportation, gathering and marketing expenses, depreciation, depletion and amortization (DD&A) and impairment expense, partially offset by a decrease in gain (losses) on derivative contracts and income tax benefit.

Natural gas, oil and NGL revenue increased $1,128,207, or 16%, for the second quarter 2021, compared to the corresponding 2020 quarter due to increases in natural gas, oil and NGL prices of 54%, 24% and 101%, respectively, and an increase in natural gas production volumes of 13%, partially offset by decrease in oil and NGL production volumes of 40% and 22%, respectively.

The decrease in oil production was primarily due to naturally declining production in high-interest wells brought online during the first quarter of 2020 in the Bakken play, as well as reduced drilling and completion activity in 2021, compared to 2020 in the Eagle Ford and SCOOP plays due to prevailing economic conditions. The decrease in NGL production was primarily attributable to production downtime and curtailments in high-interest wells in response to market conditions in the SCOOP and STACK plays, as well as naturally declining production in liquid-rich gas areas of the Anadarko Granite Wash play. Natural gas volumes increased as a result of acquisitions in the Haynesville Shale, which were partially offset by naturally declining production in the Fayetteville Shale, production downtime and curtailments in high-interest wells in response to market conditions in the STACK and SCOOP plays.

The Company had a net loss on derivative contracts of $2,348,143 in the 2021 quarter, as compared to a net gain of $4,071,577 in the 2020 quarter. The net loss on derivative contracts in the current period was principally due to the natural gas and oil collars and fixed price swaps being less beneficial in relation to their respective contracted volumes and prices at the beginning of the period, compared to such natural gas and oil collars and fixed price swaps being more beneficial in the comparative period causing a net gain.

The 22% decrease in total cost per Mcfe in the 2021 quarter, relative to the 2020 quarter, was primarily driven by a decrease in DD&A. DD&A decreased $1,595,701, or 47%, in the 2021 quarter to $0.77 per Mcfe, as compared to $1.42 per Mcfe in the 2020 quarter. $108,393 of the decrease was a result of production decreasing 3% in the 2021 quarter and $1,487,308 of the decrease was as a result of a $0.65 decrease in the DD&A rate per Mcfe. The rate decrease was mainly due to impairments taken at the end of the 2020 second quarter, which lowered the basis of the assets. The rate decrease was partially offset by lower natural gas, oil and NGL prices utilized in the reserve calculations during the 2021 quarter, as compared to prices used for the 2020 quarter, shortening the economic life of wells. This resulted in lower projected remaining reserves on a significant number of wells causing increased units of production DD&A.

SIX MONTHS 2021 RESULTS

The Company recorded a six-month net loss of $1,096,443, or $0.05 per share, in the 2021 period, as compared to a net loss of $18,562,700, or $1.12 per share, in the 2020 period. The change in net loss was principally the result of decreased G&A, LOE, transportation, gathering and marketing expenses, DD&A and impairment expense, partially offset by a decrease in natural gas, oil and NGL sales, gain (losses) on derivative contracts, gain on asset sales and income tax benefit.

Natural gas, oil and NGL sales remained relatively consistent with decreases in oil and NGL volumes of 28% and 10%, respectively, partially offset by increases in natural gas and NGL prices of 29% and 41%, respectively.

The decrease in oil production was primarily due to naturally declining production in high-interest wells brought online during the first quarter of 2020 in the Bakken play, as well as reduced drilling and completion activity in 2021, compared to 2020 in the Eagle Ford and SCOOP plays due to prevailing economic conditions. The decrease in NGL production was primarily attributable to production downtime and curtailments in high-interest wells in response to market conditions in the SCOOP play as well as naturally declining production in liquid-rich gas areas of the Anadarko Granite Wash play. Natural gas volumes increased as a result of acquisitions in the Haynesville Shale, which were partially offset by naturally declining production in the Fayetteville Shale, production downtime and curtailments in high-interest wells in response to market conditions in the STACK and SCOOP plays.

The Company had a net loss on derivative contracts of $2,602,179 in the 2021 period, as compared to a net gain of $3,253,683 in the 2020 period. The net loss on derivative contracts in the current period was principally due to the natural gas and oil collars and fixed price swaps being less beneficial in relation to their respective contracted volumes and prices at the beginning of the period, compared to such natural gas and oil collars and fixed price swaps being more beneficial in the 2020 period causing a net gain.

The 17% decrease in total cost per Mcfe in the 2021 period, relative to the 2020 period, was primarily driven by a decrease in DD&A. DD&A decreased $2,290,753, or 36%, in the 2021 period to $0.92 per Mcfe, as compared to $1.36 per Mcfe in the 2020 period. $381,457 of the decrease was a result of production decreasing 6% in the 2021 period and $1,909,296 of the decrease was as a result of a $0.44 decrease in the DD&A rate per Mcfe. The rate decrease was mainly due to impairments taken at the end of the 2020 second quarter, which lowered the basis of the assets. The rate decrease was partially offset by lower natural gas, oil and NGL prices utilized in the reserve calculations during the 2021 period, as compared to prices used for the 2020 period, shortening the economic life of wells. This resulted in lower projected remaining reserves on a significant number of wells causing increased units of production DD&A.

OPERATIONS UPDATE

During the quarter ended March 31, 2021, we converted 37 gross and 0.16 net wells in progress to producing wells. Our inventory of wells in progress decreased to 80 gross wells and 0.44 net wells.

					Bakken/
					Three		Arkoma
	SCOOP		STACK		Forks		Stack		Permian		Fayetteville		Haynesville		Other		Total
Gross Wells in Progress on PHX Acreage:
As of 12/31/20		45		32		5		2		4		-		25		7		120
Net Change		-3		-19		-2		-		-1		-		-12		-3		-40
As of 3/31/21		42		13		3		2		3		-		13		4		80
Net Wells in Progress on PHX Acreage:
As of 12/31/20		0.09		0.16		-		-		0.14		-		0.16		0.07		0.62
Net Change		-0.01		-0.13		-		-		-		-		-0.03		-0.01		-0.18
As of 3/31/21		0.08		0.03		-		-		0.14		-		0.13		0.06		0.44
Gross Active Permits on PHX Acreage:
As of 12/31/20		29		15		10		7		-		-		-		13		74
Net Change		-15		-4		-4		-4		-		-		-		-7		-34
As of 3/31/21		14		11		6		3		-		-		-		6		40

As of 3/31/21:
Rigs Present on PHX Acreage		1		1		-		-		2		-		1		-		5
Rigs Within 2.5 Miles of PHX Acreage		5		11		1		-		3		-		5		2		27

Leasing Activity

During the second quarter of fiscal 2021, the Company leased 368 net mineral acres for $63,815.

					Bakken/
					Three		Arkoma
	SCOOP		STACK		Forks		Stack		Permian		Fayetteville		Haynesville		Other		Total
During Three Months Ended 3/31/21:
Net Mineral Acres Leased		-		1		-		-		41		-		-		326		368
Average Bonus per Net Mineral Acre		-	$	1,100		-		-	$	483		-		-	$	148	$	173
Average Royalty per Net Mineral Acre	-		13%			-	-		25%			-		-	18%		18%

ACQUISITION AND DIVESTITURE UPDATE

During the second quarter of fiscal 2021, the Company purchased 18 net royalty acres for $362,486.

					Bakken/
					Three		Arkoma
	SCOOP		STACK		Forks		Stack		Permian		Fayetteville		Haynesville		Other		Total
During Three Months Ended 3/31/21:
Net Mineral Acres Purchased		-		-		-		-		-		-		11		-		11
Net Royalty Acres Purchased		-		-		-		-		-		-		18		-		18
Price per Net Royalty Acre		-		-		-		-		-		-	$	19,772		-	$	19,772
Net Mineral Acres Sold		-		-		-		-		-		-		-		-		-
Net Royalty Acres Sold		-		-		-		-		-		-		-		-		-
Price per Net Royalty Acre		-		-		-		-		-		-		-		-		-

SECOND QUARTER EARNINGS CALL

PHX will host a conference call to discuss second quarter results at 5:00 p.m. EDT on May 6, 2021. Management’s discussion will be followed by a question and answer session with investors. To participate on the conference call, please dial 888-506-0062 (domestic) or 973-528-0011 (international). A replay of the call will be available for seven days after the call. The number to access the replay of the conference call is 877-481-4010 and the PIN for the replay is 40717.

FINANCIAL RESULTS

Statements of Operations

	Three Months Ended March 31,						Six Months Ended March 31,
	2021			2020			2021			2020
Revenues:
Natural gas, oil and NGL sales	$	8,345,825		$	7,217,618		$	14,770,804		$	14,811,456
Lease bonuses and rental income		58,554			22,092			59,987			549,791
Gains (losses) on derivative contracts		(2,348,143	)		4,071,577			(2,602,179	)		3,253,683
Gain on asset sales		23,257			-			43,525			3,272,888
		6,079,493			11,311,287			12,272,137			21,887,818
Costs and expenses:
Lease operating expenses		1,030,651			1,542,199			2,035,063			2,723,870
Transportation, gathering and marketing		1,319,514			1,356,628			2,600,479			2,739,629
Production taxes		443,154			373,754			719,180			701,035
Depreciation, depletion and amortization		1,777,817			3,373,518			4,038,466			6,329,219
Provision for impairment		-			29,545,702			-			29,545,702
Interest expense		267,865			346,573			569,763			717,238
General and administrative		2,059,476			2,174,661			3,790,573			4,397,689
Other expense (income)		(102,261	)		40,066			(98,944	)		29,136
		6,796,216			38,753,101			13,654,580			47,183,518
Income (loss) before provision (benefit) for income taxes		(716,723	)		(27,441,814	)		(1,382,443	)		(25,295,700	)

Provision (benefit) for income taxes		(217,000	)		(6,987,000	)		(286,000	)		(6,733,000	)

Net income (loss)	$	(499,723	)	$	(20,454,814	)	$	(1,096,443	)	$	(18,562,700	)



Basic and diluted earnings (loss) per common share	$	(0.02	)	$	(1.24	)	$	(0.05	)	$	(1.12	)

Basic and diluted weighted average shares outstanding:
Common shares		22,429,777			16,384,687			22,403,678			16,362,057
Unissued, directors' deferred compensation shares		178,597			139,390			177,923			186,443
		22,608,374			16,524,077			22,581,601			16,548,500

Dividends declared per share of
common stock and paid in period	$	0.01		$	0.04		$	0.02		$	0.08

Dividends declared per share of
common stock and to be paid in quarter ended June 30	$	0.01		$	-

Balance Sheets

	March 31, 2021			Sept. 30, 2020
Assets
Current assets:
Cash and cash equivalents	$	1,270,482		$	10,690,395
Natural gas, oil, and NGL sales receivables (net of $0		4,712,793			2,943,220
allowance for uncollectable accounts)
Refundable income taxes		2,448,871			3,805,227
Other		752,248			351,088
Total current assets		9,184,394			17,789,930

Properties and equipment at cost, based on
successful efforts accounting:
Producing natural gas and oil properties		329,708,071			324,886,491
Non-producing natural gas and oil properties		21,012,897			18,993,814
Other		582,444			582,444
		351,303,412			344,462,749
Less accumulated depreciation, depletion and amortization		(265,863,136	)		(263,590,801	)
Net properties and equipment		85,440,276			80,871,948

Operating lease right-of-use assets		649,500			690,316
Other, net		593,150			669,641
Total assets	$	95,867,320		$	100,021,835

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	672,507		$	997,637
Derivative contracts, net		3,000,530			281,942
Current portion of operating lease liability		129,672			127,108
Accrued liabilities and other		1,382,066			1,297,363
Short-term debt		-			1,750,000
Total current liabilities		5,184,775			4,454,050

Long-term debt		23,500,000			27,000,000
Deferred income taxes, net		1,041,007			1,329,007
Asset retirement obligations		2,927,662			2,897,522
Derivative contracts, net		625,179			425,705
Operating lease liability, net of current portion		856,142			921,625

Stockholders' equity:
Class A voting common stock, $0.01666 par value; 36,000,500
shares authorized; 22,825,226 issued at March 31, 2021, and
Class A voting common stock, $0.01666 par value;
24,000,500 shares authorized; 22,647,306 issued at September 30, 2020		380,268			377,304
Capital in excess of par value		11,150,749