PHX Minerals Reports Results For The Quarter Ended Dec. 31, 2022 and Provides 2023 Operational Outlook

FORT WORTH, Texas, Feb. 8, 2023 /PRNewswire/ -- PHX MINERALS INC., "PHX" or the "Company" (NYSE: PHX), today reported financial and operating results for the quarter ended Dec. 31, 2022.

Summary Of Results For The Quarter Ended Dec. 31, 2022

• Net income for the quarter ended Dec. 31, 2022, was $3.3 million, or $0.09 per share, compared to net income of $9.2 million, or $0.26 per share, for the quarter ended Sept. 30, 2022, and net income of $6.7 million, or $0.20 per share, for the quarter ended Dec. 31, 2021.
• Adjusted pretax net income⁽¹⁾ for the quarter ended Dec. 31, 2022, was $2.3 million, or $0.07 per share, compared to $5.3 million, or $0.15 per share, for the quarter ended Sept. 30, 2022, and $2.3 million, or $0.07 per share, for the quarter ended Dec. 31, 2021.
• Adjusted EBITDA⁽¹⁾ for the quarter ended Dec. 31, 2022, was $5.3 million, compared to $8.4 million for the quarter ended Sept. 30, 2022, and $4.4 million for the quarter ended Dec. 31, 2021.
• Royalty production volumes for the quarter ended Dec. 31, 2022, decreased 12% to 1,628 Mmcfe compared to the quarter ended Sept. 30, 2022, and increased 33% compared to the quarter ended Dec. 31, 2021.
• Total production volumes for the quarter ended Dec. 31, 2022, decreased 15% to 2,215 Mmcfe compared to the quarter ended Sept. 30, 2022, and increased 4% compared to the quarter ended Dec. 31, 2021.
• Converted 60 gross (0.27 net) wells to producing status during the quarter ended Dec. 31, 2022, compared to 49 gross (0.22 net) during the quarter ended Sept. 30, 2022.
• Inventory of 203 gross (0.83 net) wells in progress as of Dec. 31, 2022, compared to 172 gross (0.85 net) as of Sept. 30, 2022.
• Total debt was $33.3 million and the debt to adjusted EBITDA (TTM)⁽¹⁾ ratio was 1.25x at Dec. 31, 2022.
• During the quarter ended Dec. 31, 2022, PHX closed on acquisitions totaling 1,256 net royalty acres located in the SCOOP and the Haynesville plays for approximately $14.7 million.

Subsequent Events

• On Jan. 31, 2023, PHX closed on the two previously announced divestitures of a combined 257 gross non-operated working interest wellbores for approximately $10.7 million.
• Since Dec. 31, 2022, PHX has closed on mineral acquisitions totaling 99 net royalty acres located in the SCOOP and the Haynesville plays for approximately $1.2 million.
• Total debt was $23.0 million at Feb. 3, 2023.

Chad L. Stephens, President and CEO, commented, "We continue to enhance our asset base, divesting non-core, non-working interest wellbores and reinvesting the proceeds into high-quality minerals in our areas of focus. Royalty production in the quarter was impacted by short-term disruptions in the Haynesville due to temporary shut-ins in a few wells to accommodate frac completion on an offsetting set of wells, and fewer new wells coming online due to typical seasonal volatility. However, the inventory of wells being drilled continues to increase, giving us confidence in a near-term rebound and our long-term prospects."

"Results were also impacted by lower commodity prices, but our strong balance sheet and success in divestitures of working interests continues to help us navigate near-term headwinds," continued Mr. Stephens. "We are bullish on a recovery in natural gas prices in late 2023/ early 2024, as short-term impacts dissipate. I am also pleased to announce that given the confidence in our strategy and the steady conversion of our inventory, we have the visibility to begin providing an annual operational outlook, which is included in this press release and can be accessed in our investor relations presentation on our corporate website."

Total Production for the last four quarters was as follows:

Total production volumes attributable to natural gas were 75% for the quarter ended Dec. 31, 2022.

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

Royalty production volumes attributable to natural gas were 80% for the quarter ended Dec. 31, 2022.

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

Quarter Ended Dec. 31, 2022 Results

The Company recorded net income of $3,346,133, or $0.09 per share, for the quarter ended Dec. 31, 2022, as compared to net income of $6,682,249, or $0.20 per share, for the quarter ended Dec. 31, 2021. The change in net income was principally the result of increased impairment expense associated with the pending sale of non-operated working interest wellbores in the Arkoma play and general and administrative costs, or G&A, partially offset by increased natural gas, oil and NGL sales, increased gains on asset sales and increased gains associated with our hedge contracts.

Natural gas, oil and NGL revenue increased $1,201,510, or 9%, for the quarter ended Dec. 31, 2022, compared to the quarter ended Dec. 31, 2021, due to increases in natural gas and oil prices of 3% and 11%, respectively, and an increase in natural gas and oil volumes of 6% and 9%, respectively, partially offset by a decrease in NGL prices and volumes of 10% and 13%, respectively.

The production increase in royalty volumes during the quarter ended Dec. 31, 2022, as compared to the quarter ended Dec. 31, 2021, was primarily due to acquisitions and new drilling in the Haynesville and SCOOP plays. The decrease in working interest volumes resulted from the divestiture of low-value legacy working interests in Oklahoma and the Fayetteville Shale in Arkansas and naturally declining production in high-interest wells in the Arkoma Stack, STACK, and Eagle Ford plays.

The Company had a net gain on derivative contracts of $3,347,002 in the quarter ended Dec. 31, 2022, as compared to a net gain of $2,836,168 in the quarter ended Dec. 31, 2021, of which ($2,918,039) is a loss on settled derivatives and $6,265,041 is a non-cash gain on derivatives with respect to the quarter ended Dec. 31, 2022. Loss on settled derivative contracts for the quarter ended Dec. 31, 2022, excludes $903,461 of cash paid to settle off-market derivative contracts. The change in net loss on derivative contracts was due to the Company's settlements of natural gas and oil collars and fixed price swaps and the change in valuation caused by the difference in Dec. 31, 2022, pricing relative to the strike price on open derivative contracts.

The 20% increase in total cost per Mcfe in the quarter ended Dec. 31, 2022, relative to the quarter ended Dec. 31, 2021, was primarily driven by an increase in G&A and interest expense. G&A increased $1,041,844, or 50%, in the quarter ended Dec. 31, 2022, compared to the quarter ended Dec. 31, 2021, due to the write-off of costs associated with the At-The-Market equity offering program, which was terminated in December 2022, increased administrative expenses associated with higher transaction activity, and restricted stock expense. Interest expense increased $460,979, or 261%, due to higher average debt balance and average interest rate in the quarter ended Dec. 31, 2022, compared to the quarter ended Dec. 31, 2021.

Operations Update

During the quarter ended Dec. 31, 2022, the Company converted 60 gross (0.27 net) wells to producing status, including 8 gross (0.09 net) wells in the SCOOP and 31 gross (0.076 net)  wells in the Haynesville, compared to 68 gross (0.19 net) wells in the quarter ended Dec. 31, 2021.

At Dec. 31, 2022, the Company had a total of 203 gross (0.83 net) wells in progress across its mineral positions and 76 gross (0.22 net) active permitted wells, compared to 172 gross (0.85 net) wells in progress and 64 gross (0.21 net) active permitted wells at Sept. 30, 2022. As of Jan. 17, 2023, 22 rigs were operating on the Company's acreage with 91 rigs operating within 2.5 miles of its acreage, compared to 15 rigs operating on the Company's acreage with 93 rigs operating within 2.5 miles of its acreage as of Sept. 30, 2022.

Leasing Activity

During the quarter ended Dec. 31, 2022, the Company leased 99 net mineral acres for an average bonus payment of $850 per net mineral acre and an average royalty of 23%.

Acquisition And Divestiture Update

During the quarter ended Dec. 31, 2022, the Company purchased 1,256 net royalty acres for approximately $14.7 million and sold 4,743 net mineral acres, which were outside the Company's core focus areas and predominantly undeveloped and unleased, for approximately $1.0 million.

Outlook

PHX is providing an operational outlook for 2023 as follows:

Quarterly Conference Call

PHX will host a conference call to discuss the Company's results for the quarter ended Dec. 31, 2022, at 11:00 a.m. EST tomorrow, Feb. 9, 2023. Management's discussion will be followed by a question-and-answer session with investors.

To participate on the conference call, please dial 877-407-3088 (toll-free domestic) or 201-389-0927. A replay of the call will be available for 14 days after the call. The number to access the replay of the conference call is 877-660-6853 and the PIN for the replay is 13736024.

A live audio webcast of the conference call will be accessible from the "Investors" section of PHX's website at https://phxmin.com/events. The webcast will be archived for at least 90 days.

Non-GAAP Reconciliation

This press release includes certain "non-GAAP financial measures" as defined under the rules and regulations of the U.S. Securities and Exchange Commission, or the SEC, including Regulation G. These non-GAAP financial measures are calculated using GAAP amounts in the Company's financial statements. These measures, detailed below, are provided in addition to, not as an alternative for, and should be read in conjunction with, the information contained in the Company's financial statements prepared in accordance with GAAP (including the notes thereto), included in the Company's SEC filings and posted on its website.

Adjusted EBITDA Reconciliation 

We define "adjusted EBITDA" as earnings before interest, taxes, depreciation and amortization, or EBITDA, excluding non-cash gains (losses) on derivatives and gains (losses) on asset sales and including cash receipts from (payments on) off-market derivatives and restricted stock and deferred directors' expense. We have included a presentation of adjusted EBITDA because we recognize that certain investors consider this amount to be a useful means of measuring our ability to meet our debt service obligations and evaluating our financial performance. Adjusted EBITDA has limitations and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of adjusted EBITDA may not be comparable to a similarly titled measure of other companies. The following table provides a reconciliation of net income (loss) to adjusted EBITDA for the quarters indicated:

Debt to Adjusted EBITDA (TTM) Reconciliation 

"Debt to adjusted EBITDA (TTM)" is defined as the ratio of long-term debt to adjusted EBITDA on a trailing 12-month (TTM) basis. We have included a presentation of debt to adjusted EBITDA (TTM) because we recognize that certain investors consider such ratios to be a useful means of measuring our ability to meet our debt service obligations and for evaluating our financial performance. The debt to adjusted EBITDA (TTM) ratio has limitations and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of debt to adjusted EBITDA (TTM) may not be comparable to a similarly titled measure of other companies. The following table provides a reconciliation of net income (loss) to adjusted EBITDA on a TTM basis and of the resulting debt to adjusted EBITDA (TTM) ratio:

Adjusted Pretax Net Income (Loss) Reconciliation

"Adjusted pretax net income (loss)" is defined as earnings before taxes and impairment expense, excluding non-cash gains (losses) on derivatives and gains (losses) on asset sales and including cash receipts from (payments on) off-market derivatives. We have included a presentation of adjusted pretax net income (loss) because we recognize that certain investors consider this amount to be a useful means of measuring our ability to meet our debt service obligations and evaluating our financial performance. Adjusted pretax net income (loss) has limitations and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of adjusted pretax net income (loss) may not be comparable to a similarly titled measure of other companies. The following table provides a reconciliation of net income (loss) to adjusted pretax net income (loss) for the periods indicated:

PHX Minerals Inc. (NYSE: PHX) Fort Worth-based, PHX Minerals Inc. is a natural gas and oil mineral company with a strategy to proactively grow its mineral position in its core focus areas. PHX owns mineral acreage principally located in Oklahoma, Texas, Louisiana, North Dakota and Arkansas.  Additional information on the Company can be found at www.phxmin.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words such as "anticipates," "plans," "estimates," "believes," "expects," "intends," "will," "should," "may" and similar expressions may be used to identify forward-looking statements. Forward-looking statements are not statements of historical fact and reflect PHX's current views about future events. Forward-looking statements may include, but are not limited to, statements relating to: the Company's operational outlook; the Company's ability to execute its business strategies; the volatility of realized natural gas and oil prices; the level of production on the Company's properties; estimates of quantities of natural gas, oil and NGL reserves and their values; general economic or industry conditions; legislation or regulatory requirements; conditions of the securities markets; the Company's ability to raise capital; changes in accounting principles, policies or guidelines; financial or political instability; acts of war or terrorism; title defects in the properties in which the Company invests; and other economic, competitive, governmental, regulatory or technical factors affecting properties, operations or prices. Although the Company believes expectations reflected in these and other forward-looking statements are reasonable, the Company can give no assurance such expectations will prove to be correct. Such forward-looking statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company. These forward-looking statements involve certain risks and uncertainties that could cause results to differ materially from those expected by the Company's management. Information concerning these risks and other factors can be found in the Company's filings with the SEC, including its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, available on the Company's website or the SEC's website at www.sec.gov.

Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in forward-looking statements. The forward-looking statements in this press release are made as of the date hereof, and the Company does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.

SOURCE PHX MINERALS INC.