Panhandle Oil and Gas Inc. Reports Third Quarter And Nine Months 2013 Results

Company Increases Third Quarter Net Income 64% and Increases Mcfe Production 22%

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Aug 07, 2013, 06:30 ET

OKLAHOMA CITY, Aug. 7, 2013 /PRNewswire/ -- 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, 2013.

HIGHLIGHTS FOR THE PERIODS ENDED JUNE 30, 2013

Recorded a third quarter 2013 net income of $5,070,168, $.61 per share, as compared to $3,100,299, $.37 per share, for the 2012 quarter.
Recorded a nine month 2013 net income of $8,240,953, $.99 per share, as compared to $7,188,375, $.86 per share, for the 2012 nine months.
Generated cash from operating activities of $24,193,214 for the 2013 nine-month period, well in excess of $20,576,359 of capital expenditures for drilling and equipping wells.
Reported 2013 third quarter and nine-month production of 3,229,800 Mcfe and 9,483,576 Mcfe, respectively, which were increases of 22% and 21%, respectively, over the same periods of fiscal 2012.
Continued to significantly increase oil production, 42% and 44% for the quarter and nine months, respectively, as compared to the same 2012 periods.
Continued to receive a large number of oil and natural gas liquids (NGL) rich well proposals on mineral acreage, with 2013 drilling commitments thus far well ahead of fiscal 2012.

FISCAL THIRD QUARTER 2013 RESULTS

For the 2013 third quarter, the Company recorded net income of $5,070,168, or $.61 per share. This compared to net income of $3,100,299, or $.37 per share, for the 2012 third quarter. Net cash provided by operating activities increased 48% to $8,758,395 for the 2013 third quarter versus the 2012 third quarter. Cash flow from operations fully funded costs to drill and equip wells for the quarter. Capital expenditures for drilling and equipping wells for the 2013 quarter totaled $7,856,412. Capital expenditures thus far in fiscal 2013 are 75% directed toward oil and NGL rich plays, principally in Western and South Central Oklahoma and the Texas Panhandle. The 2013 quarter included a $2.1 million unrealized gain on derivative contracts. This compared to a $100,000 unrealized loss for the 2012 period. 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 typically will hedge around 50% - 60% of its expected production volumes.

Total revenues for the 2013 third quarter were $17,730,445, increasing 30% from $13,649,692 for the 2012 quarter. Oil and gas sales increased $7,388,428, or 88% in the 2013 quarter, as compared to the 2012 quarter, as a result of a 22% increase in Mcfe production and a 92% increase in the sales price of natural gas. The average sales price per Mcfe of production during the 2013 third quarter was $4.90, a 54% increase from $3.19 for the 2012 third quarter. Lease bonus and rental revenues were minor in the 2013 quarter versus $5 million in the 2012 third quarter. The Company was able to lease partial rights on its mineral acres located in Roger Mills County, Okla., in the 2012 quarter for $4.8 million.

Oil production increased 42% in the 2013 quarter to 55,474 barrels, versus 38,937 barrels in the 2012 quarter, and gas production increased 469,347 Mcf to 2,742,996 Mcf, a 21% increase from the 2012 quarter. Gas production volume increases are principally attributable to the development of Panhandle's Fayetteville Shale properties and gas production from wells drilled in the oil and NGL rich plays. Drilling expenditures over the last 24 months in the oil plays mentioned above are responsible for the increased oil volumes. In addition, 25,660 barrels of NGL were sold in the quarter.

NINE MONTHS 2013 RESULTS

For the 2013 nine months, the Company recorded net income of $8,240,953, or $.99 per share. This compared to net income of $7,188,375, or $.86 per share, for the 2012 nine months. Net cash provided by operating activities increased 15% to $24,193,214 for the 2013 nine months versus the 2012 nine months. Again, cash flow from operations fully funded costs to drill and equip wells for the nine months. Capital expenditures for the 2013 nine months totaled $21,360,109, which included $20,576,359 for drilling and equipping wells. The 2013 nine months included a $1 million unrealized gain on derivative contracts. This compared to a minor unrealized loss for the 2012 period.

Total revenues for the 2013 nine months were $44,492,866, increasing 19% from $37,490,935 for the 2012 nine months. The 2012 nine months revenues included lease bonuses and rentals of $6,936,156, as compared to only $539,479 in the 2013 nine months. Oil and gas sales increased $12,938,051 or 43% in the 2013 nine months, compared to the 2012 nine months, as a result of a 21% increase in Mcfe production and a 19% increase in the average per Mcfe sales price. The average sales price per Mcfe of production during the 2013 nine months was $4.50 compared to $3.78 for the 2012 nine months.

Oil production increased 44% in the 2013 nine months to 154,697 barrels from 107,591 barrels in the 2012 nine months, and gas production increased 1,245,492 Mcf, or 18%, compared to the 2012 nine months. Gas production volume increases are principally attributable to the development of the Company's Fayetteville Shale properties and gas production from wells drilled in the oil and NGL rich plays. Drilling expenditures over the last 24 months targeting the oil and NGL rich plays are responsible for the increased oil volumes. In addition, 81,524 barrels of NGL were sold in the nine months.

MANAGEMENT COMMENTS

Michael C. Coffman, President and CEO said, "Our strong third quarter and nine months financial and operating results reflect the improved natural gas sales prices seen in fiscal 2013 and our increased natural gas and oil production. Panhandle has substantially increased its oil and natural gas liquids production over the last two years through drilling. Natural gas production has grown through drilling and acquisitions."

Coffman continued: "Oil, NGL and gas sales revenues thus far in fiscal 2013 have increased 43%, with natural gas sales revenues of $10.3 million this quarter more than doubling as compared to the 2012 third quarter and oil and NGL sales revenues increasing 39% to $5.5 million for the same periods. These increases have been accomplished principally from utilization of operating cash flow, thus allowing Panhandle to maintain its very low debt level. It also points to the Company's focus on executing our business strategies to increase shareholder value. At today's value (price) differentials for oil and NGLs as compared to dry gas, increases in oil and NGL reserves and production are an effective means to enhance Panhandle's operating results and reserve value per share."

OPERATIONS UPDATE

Paul Blanchard, Senior Vice President and COO said, "Panhandle has been in the enviable position of being able to shift its drilling capital expenditures over the last two years to predominately oil and NGL rich plays without having to incur any meaningful land cost. Our significant perpetual mineral acreage ownership in Oklahoma and Texas has provided a rapidly growing number of high quality drilling opportunities in a number of plays with very high quality operators. We expect to continue to spend approximately 75% of our drilling capital in these oil and NGL rich plays. This should continue to translate into increased oil and NGL production. We are anticipating that natural gas production will level off in the coming quarters, as new volumes associated with both dry gas drilling and our oil and liquids rich drilling are anticipated to approximately offset the natural decline of production from our existing properties."

Blanchard continued: "As drilling in several of our oil and NGL rich plays continues to transition into the development phase, we expect to be able to recognize and report expanded undeveloped reserves, both proved and unproved, in these plays in the near future."

FINANCIAL HIGHLIGHTS Statements of Operations

		Three Months Ended June 30,		Nine Months Ended June 30,
		2013	2012	2013	2012
Revenues:		(unaudited)		(unaudited)
	Oil, NGL and natural gas sales	$ 15,827,137	$ 8,438,709	$ 42,686,935	$ 29,748,884
	Lease bonuses and rentals	24,146	5,014,238	539,479	6,936,156
	Gains (losses) on derivative contracts	1,714,832	81,164	796,166	449,997
	Income from partnerships	164,330	115,581	470,286	355,898
		17,730,445	13,649,692	44,492,866	37,490,935
Costs and expenses:
	Lease operating expenses	3,105,709	2,254,543	9,040,613	6,570,942
	Production taxes	460,902	289,642	1,177,341	1,071,993
	Exploration costs	25,648	29,141	60,827	384,199
	Depreciation, depletion and amortization	5,192,544	4,597,363	17,090,187	13,680,737
	Provision for impairment	7,400	205,915	225,841	786,724
	Loss (gain) on asset sales, interest and other	29,789	93,350	(138,921)	45,846
	General and administrative	1,585,285	1,498,439	5,127,025	4,802,119
		10,407,277	8,968,393	32,582,913	27,342,560
Income before provision for income taxes		7,323,168	4,681,299	11,909,953	10,148,375

Provision for income taxes		2,253,000	1,581,000	3,669,000	2,960,000

Net income		$ 5,070,168	$ 3,100,299	$ 8,240,953	$ 7,188,375





Basic and diluted earnings per common share		$ 0.61	$ 0.37	$ 0.99	$ 0.86

Basic and diluted weighted average shares outstanding:
	Common shares	8,163,520	8,249,954	8,247,642	8,253,079
	Unissued, directors' deferred compensation shares	116,762	115,087	113,259	133,702
		8,280,282	8,365,041	8,360,901	8,386,781
Dividends declared per share of common stock and paid in period

		$ 0.07	$ 0.07	$ 0.21	$ 0.21

The Company's derivative contracts in place for natural gas at June 30, 2013, are outlined in its Form 10-Q for the period ending June 30, 2013.

Balance Sheets

			June 30, 2013	Sept. 30, 2012
Assets			(unaudited)
Current assets:
	Cash and cash equivalents		$ 1,381,705	$ 1,984,099
	Oil, NGL and natural gas sales receivables		12,234,870	8,349,865
	Derivative contracts		814,978	-
	Deferred income taxes		55,900	121,900
	Refundable income taxes		-	325,715
	Refundable production taxes		620,590	585,454
	Other		124,617	255,812
Total current assets			15,232,660	11,622,845

Properties and equipment, at cost, based on
successful efforts accounting:
	Producing oil and natural gas properties		297,124,313	275,997,569
	Non-producing oil and natural gas properties		9,504,728	10,150,561
	Furniture and fixtures		720,565	668,004
			307,349,606	286,816,134
	Less accumulated depreciation, depletion and amortization		(181,919,478)	(165,199,079)
Net properties and equipment			125,430,128	121,617,055

Investments			1,509,609	1,034,870
Refundable production taxes			623,776	911,960
Total assets			$ 142,796,173	$ 135,186,730

Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$ 6,648,091	$ 6,447,692
	Derivative contracts		-	172,271
	Accrued liabilities and other		978,063	1,007,779
Total current liabilities			7,626,154	7,627,742

Long-term debt			13,565,237	14,874,985
Deferred income taxes			29,293,907	26,708,907
Asset retirement obligations			2,332,949	2,122,950

Stockholders' equity:
	Class A voting common stock, $.0166 par value;
		24,000,000 shares authorized, 8,431,502 issued at June 30, 2013, and Sept. 30, 2012	140,524	140,524
	Capital in excess of par value		2,479,619	2,020,229
	Deferred directors' compensation		2,667,765	2,676,160
	Retained earnings		91,316,131	84,821,395
			96,604,039	89,658,308
	Less treasury stock, at cost; 211,155 shares at June 30,
		2013, and 181,310 shares at Sept. 30, 2012	(6,626,113)	(5,806,162)
Total stockholders' equity			89,977,926	83,852,146
Total liabilities and stockholders' equity			$ 142,796,173	$ 135,186,730

Condensed Statements of Cash Flows

			Nine months ended June 30,
			2013	2012
Operating Activities			(unaudited)
	Net income		$ 8,240,953	$ 7,188,375
	Adjustments to reconcile net income to net cash provided
	by operating activities:
		Depreciation, depletion and amortization	17,090,187	13,680,737
		Impairment	225,841	786,724
		Provision for deferred income taxes	2,651,000	1,261,257
		Exploration costs	60,827	384,199
		Gain from leasing of fee mineral acreage	(538,133)	(6,929,651)
		Net gain on sale of assets	(208,750)	(119,794)
		Income from partnerships	(470,286)	(355,898)
		Distributions received from partnerships	603,249	436,489
		Directors' deferred compensation expense	288,745	314,655
		Restricted stock awards	541,937	239,858
	Cash provided by changes in assets and liabilities:
		Oil, NGL and natural gas sales receivables	(3,885,005)	2,645,853
		Fair value of derivative contracts	(987,249)	46,468
		Refundable production taxes	253,048	78,978
		Other current assets	78,889	13,727
		Accounts payable	(48,038)	374,076
		Income taxes receivable	325,715	354,246
		Other non-current assets	-	308
		Income taxes payable	50,854	690,951
		Accrued liabilities	(80,570)	(104,279)
	Total adjustments		15,952,261	13,798,904
	Net cash provided by operating activities		24,193,214	20,987,279

Investing Activities
		Capital expenditures, including dry hole costs	(20,576,359)	(16,026,416)
		Acquisition of working interest properties	-	(17,399,052)
		Acquisition of minerals and overrides	(783,750)	(2,625,569)
		Proceeds from leasing of fee mineral acreage	557,196	7,042,364
		Investments in partnerships	(607,702)	(321,640)
		Proceeds from sales of assets	870,610	131,843
	Net cash used in investing activities		(20,540,005)	(29,198,470)

Financing Activities
		Borrowings under debt agreement	9,353,651	33,385,738
		Payments of loan principal	(10,663,399)	(25,385,738)
		Purchase of treasury stock	(1,214,638)	(1,158,957)
		Payments of dividends	(1,746,217)	(1,740,920)
		Excess tax benefit on stock-based compensation	15,000	83,743
	Net cash provided by (used in) financing activities		(4,255,603)	5,183,866

	Increase (decrease) in cash and cash equivalents		(602,394)	(3,027,325)
	Cash and cash equivalents at beginning of period		1,984,099	3,506,999
	Cash and cash equivalents at end of period		$ 1,381,705	$ 479,674

Supplemental Schedule of Noncash Investing and Financing Activities
	Additions to asset retirement obligations		$ 119,166	$ 45,702

	Gross additions to properties and equipment		$ 21,660,852	$ 35,945,287
	Net (increase) decrease in accounts payable for properties
		and equipment additions	(300,743)	105,750
	Capital expenditures and acquisitions, including dry hole costs		$ 21,360,109	$ 36,051,037

OPERATING HIGHLIGHTS

	Third Quarter	Third Quarter	Nine Months	Nine Months
	Ended	Ended	Ended	Ended
	June 30, 2013	June 30, 2012	June 30, 2013	June 30, 2012
Mcfe Sold	3,229,800	2,649,351	9,483,576	7,863,360
Average Sales Price per Mcfe	$4.90	$3.19	$4.50	$3.78
Oil Barrels Sold	55,474	38,937	154,697	107,591
Average Sales Price per Barrel	$88.02	$88.41	$86.73	$91.36
Mcf Sold	2,742,996	2,273,649	8,066,250	6,820,758
Average Sales Price per Mcf	$3.75	$1.95	$3.35	$2.59
NGL Barrels Sold	25,660	23,680	81,524	66,176
Average Sales Price per Barrel	$25.79	$23.29	$27.22	$33.58

Quarterly Production Levels

Quarter ended	Oil Bbls Sold	Mcf Sold	NGL Bbls Sold	Mcfe Sold
6/30/2013	55,474	2,742,996	25,660	3,229,800
3/31/2013	52,567	2,778,869	25,190	3,245,411
12/31/2012	46,656	2,544,385	30,674	3,008,365
9/30/2012	45,552	2,251,540	32,538	2,720,080
6/30/2012	38,937	2,273,649	23,680	2,649,351

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 2012 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.