Panhandle Oil and Gas Inc. Reports Fiscal 2012 First Quarter Results

Net Income Increases 139% to $3,412,110. Oil Production Increases 52%.

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Feb 08, 2012, 04:01 ET

OKLAHOMA CITY, Feb. 8, 2012 /PRNewswire/ -- PANHANDLE OIL AND GAS INC. (NYSE-PHX) today reported financial and operating results for the 2012 fiscal first quarter ending Dec. 31, 2011.

FIRST QUARTER 2012 HIGHLIGHTS

Recorded first quarter 2012 net income of $3,412,110, $.41 per share, compared to a net income of $1,426,849, $.17 per share, for the 2011 first quarter
Increased first quarter 2012 Mcfe production 16% to 2,559,524 Mcfe, compared to 2,208,218 Mcfe for the 2011 first quarter
Increased first quarter 2012 oil production by 52% to 38,040 barrels, compared to 24,965 barrels for the 2011 first quarter
Cash generated by operating activities of $7.7 million for the 2012 first quarter fully funded capital expenditures of $6.3 million for drilling and equipping wells during the quarter
Funded $17.4 million acquisition of 193 producing non-operated wells and 1,531 net acres of leasehold with more than 240 potential drilling locations in the Fayetteville Shale by accessing bank line-of-credit

For the 2012 first quarter, the Company recorded net income of $3,412,110, or $.41 per share, as compared to a net income of $1,426,849, or $.17 per share, for the 2011 first quarter. Net cash provided by operating activities decreased 10% to $7,745,652 for the 2012 first quarter, as compared to the 2011 first quarter. Cash flow from operations fully funded costs to drill and equip wells for the quarter. Capital expenditures for the 2012 quarter totaled $25,127,955, which included $6,344,006 for drilling and equipping wells, $17,399,052 for acquiring the Fayetteville Shale producing wells and leasehold and $1,384,897 for overriding royalty interests and 353 fee mineral acres, both in the Fayetteville Shale.

Total revenues for the 2012 quarter were $13,404,333, as compared to $9,901,548 for the 2011 quarter. The 2012 quarter included lease bonuses and rentals of $1,755,191, as compared to $113,365 in the 2011 quarter. $1,714,000 of the lease bonus was one transaction in which the Company leased 2,431 net acres in the Mississippi Limestone play in northern Oklahoma. Oil and gas sales revenues increased $2,012,703 or 21% in the 2012 quarter, as compared to the 2011 quarter, as a result of a 16% increase in Mcfe production and a 4% increase in the average Mcfe sales price.

Oil production increased 52% in the 2012 quarter to 38,040 barrels, as compared to 24,965 barrels in the 2011 quarter, while gas production also increased 184,884 Mcf, or 9%. Gas production volumes attributable to the Fayetteville property acquisition which closed in late October are primarily responsible for the gas production increase. In addition, 14,662 barrels of natural gas liquids (NGL) were sold in the 2012 first quarter. The Company reported NGL reserve volumes for the first time in its year end 2011 reserve report, and the 2012 first quarter marks initial reporting of quarterly NGL production volumes. The average sales price per Mcfe of production during the 2012 first quarter was $4.59, as compared to $4.41 for the 2011 first quarter. Further, Mcfe production in the first quarter increased 5% over fiscal 2011 fourth quarter volumes.

MANAGEMENT COMMENTS

Michael C. Coffman, President and CEO, said, "We are pleased with our first quarter results, both from a financial and operational standpoint. Our continuing focus on oil and natural gas liquids rich drilling over the last year has resulted in continually increasing production volumes of both products, which, at today's prices, adds significantly to our revenue stream. In addition, the attractively priced acquisition of the properties in the Fayetteville allowed us to layer on current cash flow generating properties with excellent upside potential as future infill drilling develops the more than 240 drilling locations purchased.

"The current market price for natural gas will make 2012 a somewhat challenging year for the Company, but our strong financial position, mineral acreage ownership in numerous oily plays in Western Oklahoma and our capital efficient strategies will allow us to continue to invest capital in projects which will enhance Panhandle's share value over the long term."

Paul Blanchard, Senior Vice President and COO, said, "As most operating companies drilling in Western Oklahoma continue to increase their budgets for oily plays, this gives us the opportunity to further increase our spending in projects such as the horizontal Granite Wash, Hogshooter, Cleveland, Marmaton and Tonkawa plays. This will translate into additional oil and natural gas liquids production in future quarters. Of the 40,000+ net mineral acres Panhandle owns in Western Oklahoma and the Texas Panhandle, 25,000 net acres are located in the counties where these plays are active. There are 17,100 acres available for our working interest participation. The remaining mineral acres were leased, predominately prior to the Company's strategy change in 2006. These leased minerals will continue to generate significant non-cost bearing royalty for the Company as development continues.

"We were also pleased we were able to lease 2,431 net mineral acres in the horizontal Mississippi Limestone play in Northern Oklahoma for $1,714,000 and retain a 3/16 royalty interest in future production generated on the acreage. We were not interested in participating as a non-operating working interest in wells in this play due to the high operating costs associated with water disposal. We will be able to deploy this capital to more favorable return projects for the Company."

PRODUCTION
	First Quarter Ended	First Quarter Ended
	December 31, 2011	December 31, 2010
Mcfe Sold	2,559,524	2,208,218
Average Sales Price per Mcfe	$4.59	$4.41
Oil Barrels Sold	38,040	24,965
Average Sales Price per Barrel	$89.39	$79.77
Mcf Sold	2,243,312	2,058,428
Average Sales Price per Mcf	$3.46	$3.76
NGL Barrels Sold (1)	14,662
Average Sales Price per Barrel	$40.05

Quarter ended	Oil Bbls Sold	Mcf Sold	NGL Bbls Sold (1)	Mcfe Sold
12/31/11	38,040	2,243,312	14,662	2,559,524
9/30/11	27,418	2,268,606	0	2,433,114
6/30/11	25,382	1,976,868	0	2,129,160
3/31/11	26,376	1,993,755	0	2,152,011
12/31/10	24,965	2,058,428	0	2,208,218

The Company reported NGL reserves for the first time in its 2011 year-end reserve report. Increased drilling activity over the last 12-18 months in several western Oklahoma plays which produce significant NGL, have resulted in meaningful NGL production and reserves for the Company, necessitating inclusion in the reserve calculation and inclusion of NGL production volumes with first quarter 2012 results.

The Company's derivative contracts in place for natural gas at Dec. 31, 2010 are outlined in its Form 10-Q for the period ending Dec. 31, 2011.

FINANCIAL HIGHLIGHTS Statements of Operations
			Three Months Ended Dec. 31,
			2011	2010
Revenues:			(unaudited)
	Oil and natural gas (and associated
		natural gas liquids) sales	$ 11,744,277	$ 9,731,574
	Lease bonuses and rentals		1,755,191	113,365
	Gains (losses) on derivative contracts		(222,079)	(21,439)
	Income from partnerships		126,944	78,048
			13,404,333	9,901,548
Costs and expenses:
	Lease operating expenses		2,264,912	2,197,870
	Production taxes		438,499	344,644
	Exploration costs		313,370	287,104
	Depreciation, depletion and amortization		4,142,413	3,434,811
	Provision for impairment		363,547	-
	Loss (gain) on asset sales, interest and other		(77,041)	(5,727)
	General and administrative		1,697,523	1,639,997
			9,143,223	7,898,699
Income before provision for income taxes			4,261,110	2,002,849

Provision for income taxes			849,000	576,000

Net income			$ 3,412,110	$ 1,426,849





Basic and diluted earnings per common share			$ 0.41	$ 0.17

Basic and diluted weighted average shares outstanding:
	Common shares		8,256,171	8,301,811
	Unissued, directors' deferred compensation shares		130,654	115,483
			8,386,825	8,417,294

Balance Sheets
			Dec. 31, 2011	Sept. 30, 2011
Assets			(unaudited)
Current assets:
	Cash and cash equivalents		$ 1,935,886	$ 3,506,999
	Oil and natural gas sales receivables		8,473,280	8,811,404
	Deferred income taxes		70,900	-
	Refundable income taxes		-	354,246
	Refundable production taxes		366,413	223,672
	Derivative contracts		-	269,329
	Other		523,296	95,408
Total current assets			11,369,775	13,261,058

Properties and equipment, at cost, based on
successful efforts accounting:
	Producing oil and natural gas properties		253,421,239	230,554,198
	Non-producing oil and natural gas properties		11,151,778	11,100,350
	Furniture and fixtures		646,221	628,929
			265,219,238	242,283,477
	Less accumulated depreciation, depletion and amortization		150,435,510	146,147,514
Net properties and equipment			114,783,728	96,135,963

Investments			706,978	667,504
Refundable production taxes			1,151,008	1,359,668
Total assets			$ 128,011,489	$ 111,424,193

Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$ 3,249,441	$ 4,899,593
	Deferred income taxes		-	7,100
	Derivative contracts		320,074	-
	Income taxes payable		264,786	-
	Accrued liabilities and other		1,449,789	1,040,269
Total current liabilities			5,284,090	5,946,962

Long-term debt			14,522,371	-
Deferred income taxes			25,086,650	24,777,650
Asset retirement obligations			1,887,421	1,843,875
Derivative contracts			-	53,389

Stockholders' equity:
	Class A voting common stock, $.0166 par value;
		24,000,000 shares authorized, 8,431,502 issued at Dec. 31, 2011, and Sept. 30, 2011	140,524	140,524
	Capital in excess of par value		1,982,236	1,924,507
	Deferred directors' compensation		2,785,459	2,665,583
	Retained earnings		82,022,598	79,771,563
			86,930,817	84,502,177
	Less treasury stock, at cost; 175,331 shares at
		December 31, 2011 and at September 30, 2011	(5,699,860)	(5,699,860)
Total stockholders' equity			81,230,957	78,802,317
Total liabilities and stockholders' equity			$ 128,011,489	$ 111,424,193

Condensed Statements of Cash Flows
			Three months ended Dec. 31,
			2011	2010
Operating Activities			(unaudited)
	Net income		$ 3,412,110	$ 1,426,849
	Adjustments to reconcile net income to net cash provided
	by operating activities:
		Depreciation, depletion and amortization	4,142,413	3,434,811
		Impairment	363,547	-
		Provision for deferred income taxes	231,000	339,000
		Exploration costs	313,370	287,104
		Net (gain) loss on sale of assets	(1,871,861)	(111,478)
		Income from partnerships	(126,944)	(78,048)
		Distributions received from partnerships	150,404	110,743
		Directors' deferred compensation expense	119,876	141,313
		Restricted stock awards	57,729	12,028
	Cash provided by changes in assets and liabilities:
		Oil and natural gas sales receivables	338,124	2,138,525
		Fair value of derivative contracts	536,014	1,597,939
		Refundable production taxes	65,919	159,708
		Other current assets	(40,662)	240,951
		Accounts payable	(95,148)	83,242
		Income taxes receivable	354,246	-
		Other non-current assets	308	-
		Income taxes payable	264,786	(725,070)
		Accrued liabilities	(469,579)	(477,953)
	Total adjustments		4,333,542	7,152,815
	Net cash provided by operating activities		7,745,652	8,579,664

Investing Activities
		Capital expenditures, including dry hole costs	(6,344,006)	(6,570,808)
		Acquisition of working interest properties	(17,399,052)	-
		Acquisition of minerals and overrides	(1,384,897)
		Proceeds from leasing of fee mineral acreage	1,802,892	122,678
		Investments in partnerships	(63,242)	50,936
		Proceeds from sales of assets	128,925	938
	Net cash used in investing activities		(23,259,380)	(6,396,256)

Financing Activities
		Borrowings under debt agreement	25,726,136	-
		Payments of loan principal	(11,203,765)	-
		Purchase of treasury stock	-	(576,813)
		Payments of dividends	(579,756)	(581,675)
	Net cash provided by (used in) financing activities		13,942,615	(1,158,488)

	Increase (decrease) in cash and cash equivalents		(1,571,113)	1,024,920
	Cash and cash equivalents at beginning of period		3,506,999	5,597,258
	Cash and cash equivalents at end of period		$ 1,935,886	$ 6,622,178

Supplemental Schedule of Noncash Investing and Financing Activities
	Dividends declared and unpaid		$ 581,319	$ 581,654
	Additions to asset retirement obligations		$ 16,246	$ 3,436

	Gross additions to properties and equipment		$ 23,483,505	$ 5,092,496
	Net (increase) decrease in accounts payable for properties
		and equipment additions	1,644,450	1,478,312
	Capital expenditures and acquisitions, including dry hole costs		$ 25,127,955	$ 6,570,808

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 2011 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.

SOURCE Panhandle Oil and Gas Inc.