PHX Minerals Inc. Reports Third Quarter 2021 Results And Announces Dividend Payment

5, Aug 2021

OKLAHOMA CITY, Aug. 5, 2021 – PHX MINERALS INC., “PHX” or the “Company,” (NYSE: PHX), today reported financial and operating results for the third quarter ended June 30, 2021.

SUMMARY OF RESULTS FOR THE PERIOD ENDED JUNE 30, 2021, AND SUBSEQUENT EVENTS

Production volumes for the third fiscal quarter of 2021 increased 31% to 2,493 Mmcfe from 1,904 Mmcfe in the third fiscal quarter of 2020 and increased 9% from 2,297 Mmcfe in the second fiscal quarter of 2021.
Net loss in the third fiscal quarter of 2021 was $1.4 million, or $0.05 per share, as compared to net loss of $3.6 million, or $0.21 per share, in the third fiscal quarter of 2020 and net loss of $0.5 million, or $0.02 per share, in the second fiscal quarter of 2021.
Adjusted EBITDA excluding gain/loss on asset sales⁽¹⁾ for the third quarter of 2021 was $4.7 million, increased from $1.2 million in the third fiscal quarter of 2020 and increased from $3.4 million in the second fiscal quarter of 2021.
On April 30, 2021, the Company closed on the 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 common stock.
Additionally, during the quarter ended June 30, the Company closed on two separate acquisitions totaling 393 net royalty acres in the Haynesville for an aggregate $2.3 million in cash.
Total debt was reduced to $19.9 million as of June 30, 2021, a 15% decrease from the $23.5 million as of March 31, 2021.
Debt to adjusted EBITDA (TTM)⁽¹⁾ ratio was 1.47x at June 30, 2021.
A payment of a one cent per share dividend payable on Sept. 10, 2021, to stockholders of record on Aug. 26, 2021, was approved.

Chad L. Stephens, President and CEO, commented, “PHX’s third quarter 2021 reflects excellent quarterly results as we reported adjusted EBITDA of $4.7 million, an increase of 38% over the sequential prior quarter and a 292% increase compared to the year over year quarter. This is due mainly to higher volumes and improved commodity prices. Importantly, it is a direct reflection of our continued success as we execute our stated strategy of growth through mineral acquisitions in our core focus areas. During the quarter, we closed on the purchase of minerals in three different acquisitions located in the Haynesville and SCOOP for $13.25 million of total consideration, the cash portion of which was funded with proceeds from the April equity offering. This brings our total year to date acquisitions to approximately $21.2 million. We also closed on the sale of non-core/non-operated working interest in 71 well bores for approximately $225,000 as part of our strategy of constantly looking to high grade our asset base.

“Additionally, we reduced our debt to $19.9 million at quarter end, which represents a 15% reduction to sequential prior quarter and a 34% reduction compared to the year over year quarter. Current debt equates to a roughly 1.5x Debt to adjusted EBITDA (TTM)⁽¹⁾. Our goal is to achieve a 1.2x Debt to EBITDA (TTM)⁽¹⁾ by fiscal year end Sept. 30, 2021. This puts us in a strong financial position and will allow us to allocate a majority of our growing free cash flow to mineral acquisitions over the coming quarters. We look forward to informing you of our results to drive shareholder value in the future.”

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

OPERATING HIGHLIGHTS

	Third Quarter Ended		Third Quarter Ended		Nine Months Ended		Nine Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Mcfe Sold		2,492,813		1,903,752		6,863,949		6,555,378
Average Sales Price per Mcfe	$	4.37	$	1.85	$	3.74	$	2.80
Gas Mcf Sold		1,879,343		1,361,909		5,090,619		4,539,103
Average Sales Price per Mcf	$	3.33	$	1.36	$	2.77	$	1.73
Oil Barrels Sold		55,492		55,138		170,437		214,159
Average Sales Price per Barrel	$	63.77	$	25.94	$	52.95	$	42.43
NGL Barrels Sold		46,753		35,169		125,118		121,887
Average Sales Price per Barrel	$	23.58	$	6.62	$	20.42	$	11.26

Total Production for the last four quarters was as follows:

Quarter ended	Mcf Sold		Oil Bbls Sold		NGL Bbls Sold		Mcfe Sold
6/30/2021		1,879,343		55,492		46,753		2,492,813
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

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

Quarter ended	Mcf Sold		Oil Bbls Sold		NGL Bbls Sold		Mcfe Sold
6/30/2021		908,471		31,095		18,255		1,204,571
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

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

Quarter ended	Mcf Sold		Oil Bbls Sold		NGL Bbls Sold		Mcfe Sold
6/30/2021		970,872		24,397		28,498		1,288,242
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

FINANCIAL HIGHLIGHTS

	Third Quarter Ended			Third Quarter Ended			Nine Months Ended			Nine Months Ended
	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
Working Interest Sales	$	5,486,978		$	1,876,489		$	13,245,980		$	9,976,274
Royalty Interest Sales	$	5,412,842		$	1,641,072		$	12,424,644		$	8,352,743
Natural Gas, Oil and NGL Sales	$	10,899,820		$	3,517,561		$	25,670,624		$	18,329,017

Lease Bonuses and Rental Income	$	259,152		$	22,996		$	319,139		$	572,787
Total Revenue	$	5,941,559		$	2,705,383		$	18,213,696		$	24,593,201

LOE per Mcfe	$	0.43		$	0.60		$	0.45		$	0.59
Transportation, Gathering and Marketing per Mcfe	$	0.62		$	0.50		$	0.60		$	0.56
Production Tax per Mcfe	$	0.24		$	0.07		$	0.19		$	0.13
G&A Expense per Mcfe	$	0.91		$	1.00		$	0.88		$	0.96
Interest Expense per Mcfe	$	0.09		$	0.13		$	0.12		$	0.15
DD&A per Mcfe	$	0.86		$	1.29		$	0.90		$	1.34
Total Expense per Mcfe	$	3.15		$	3.59		$	3.14		$	3.73

Net Income (Loss)	$	(1,356,594	)	$	(3,555,215	)	$	(2,453,037	)	$	(22,117,915	)
Adj. Pre-Tax Net Income (Loss) ⁽¹⁾	$	2,356,054		$	(1,536,925	)	$	3,891,673		$	990,306
Adjusted EBITDA ⁽¹⁾	$	4,714,200		$	1,168,834		$	10,858,048		$	10,742,522

Cash Flow from Operations	$	5,563,226		$	3,717,398		$	10,240,333		$	9,825,740
CapEx - Drilling & Completing	$	271,661		$	56,413		$	696,759		$	196,168
CapEx - Mineral Acquisitions	$	11,402,761		$	50,000		$	19,337,265		$	10,304,016

Borrowing Base							$	28,500,000		$	32,000,000
Debt							$	19,900,000		$	30,000,000
Debt/Adjusted EBITDA (TTM) ⁽¹⁾								1.47			1.48

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

THIRD QUARTER 2021 RESULTS

The Company recorded a third quarter 2021 net loss of $1,356,594, or $0.05 per share, as compared to a net loss of $3,555,215, or $0.21 per share, in the third quarter 2020. The change in net loss was principally the result of increased natural gas, oil and NGL sales and decreased LOE, DD&A and impairment expense, partially offset by an increase in losses on derivative contracts, G&A, transportation, gathering and marketing expenses and production taxes.

Natural gas, oil and NGL revenue increased $7,382,259, or 210%, for the third quarter 2021, compared to the corresponding 2020 quarter due to increases in natural gas, oil and NGL prices of 145%, 146% and 256%, respectively, and an increase in natural gas, oil and NGL volumes of 38%, 1% and 33%, respectively.

Production increased across all three product categories during the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, due to improved market conditions, resulting in (i) previously curtailed, high interest wells being worked over and brought fully back online in the STACK, Arkoma Stack, and Fayetteville Shale, (ii) acquisitions in the STACK and Haynesville, and (iii) increased drilling and completions activity in the STACK and SCOOP. These were partially offset by plays with naturally declining production in high interest wells, such as the Eagle Ford Shale.

The Company had a net loss on derivative contracts of $5,487,483 in the 2021 quarter, as compared to a net loss of $838,282 in the 2020 quarter. The net loss on derivative contracts in both periods 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 periods.

The 12% 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 $326,861, or 13%, in the 2021 quarter to $0.86 per Mcfe, as compared to $1.29 per Mcfe in the 2020 quarter. Of the DD&A decrease, $1,086,750 was a result of a $0.43 decrease in the DD&A rate per Mcfe, partially offset by an increase of $759,889 resulting from production increasing 31% in the 2021 quarter. The rate decrease was mainly due to an increase in reserves during the 2021 quarter, as compared to the 2020 quarter.

NINE MONTHS 2021 RESULTS

The Company recorded a nine-month net loss of $2,453,037, or $0.10 per share, in the 2021 period, as compared to a net loss of $22,117,915, or $1.34 per share, in the 2020 period. The change in net loss was principally the result of increased natural gas, oil and NGL sales and decreased LOE, DD&A, impairment expense and G&A, partially offset by an increase in losses on derivative contracts, transportation, gathering and marketing expenses, production taxes and a reduction in gain on asset sales and income tax benefit.

Natural gas, oil and NGL sales increased $7,341,607, or 40%, for the 2021 period, compared to the 2020 period due to increases in natural gas, oil and NGL prices of 60%, 25% and 81%, respectively, and an increase in natural gas and NGL volumes of 12% and 3%, respectively.

Natural gas volumes increased during the nine months ended June 30, 2021, as compared to the nine months ended June 30, 2020, primarily as a result of (i) acquisitions in the Haynesville Shale, (ii) maintenance workovers on high-interest wells in the Arkoma Stack, and (iii) increased drilling and completion activity in the STACK. These gas volumes were partially offset by naturally declining production in the Fayetteville Shale and production downtime and curtailments in response to market conditions in the SCOOP. 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, as well as reduced drilling and completion activity in 2021 due to prevailing economic conditions compared to 2020 in the Eagle Ford and SCOOP. Oil production decreases were partially offset by increased drilling and completion activity in the STACK. The increased activity in the STACK also resulted in increased NGL production, which was partially offset by production downtime and curtailments in high-interest wells in in the SCOOP as well as naturally declining production in liquid-rich gas areas of the Anadarko Granite Wash.

The Company had a net loss on derivative contracts of $8,089,662 in the 2021 period, as compared to a net gain of $2,415,401 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.

The 16% 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 $2,617,614, or 30%, in the 2021 period to $0.90 per Mcfe, as compared to $1.34 per Mcfe in the 2020 period. Of the DD&A decrease, $3,031,099 was a result of a $0.44 decrease in the DD&A rate per Mcfe, partially offset by an increase of $413,485 resulting from production increasing 5% in the 2021 period. The rate decrease was mainly due an increase in reserves during the 2021 period, as compared to the 2020 period.

OPERATIONS UPDATE

During the quarter ended June 30, 2021, 37 gross and 0.18 net wells in progress converted to producing wells. Our inventory of wells in progress increased to 97 gross wells and 0.48 net wells.

					Bakken/
					Three		Arkoma
	SCOOP		STACK		Forks		Stack		Permian		Fayetteville		Haynesville		Other		Total
Gross Wells in Progress on PHX Acreage:
As of 3/31/21		42		13		3		2		3		-		13		4		80
Net Change		18		1		-2		-		-		-		-1		1		17
As of 6/30/21		60		14		1		2		3		-		12		5		97
Net Wells in Progress on PHX Acreage:
As of 3/31/21		0.08		0.03		-		-		0.14		-		0.13		0.06		0.44
Net Change		0.05		0.01		-		-		-		-		-0.01		-0.01		0.04
As of 6/30/21		0.13		0.04		-		-		0.14		-		0.12		0.05		0.48
Gross Active Permits on PHX Acreage:
As of 3/31/21		14		11		6		3		-		-		-		6		40
Net Change		-1		-4		-1		-		-		-		-		-		-6
As of 6/30/21		13		7		5		3