S-1/A: Phoenix Energy One Offers $100M Junior Secured Notes

Phoenix Energy One, LLC is offering $100 million in Phoenix Flex Junior Secured Notes to fund drilling operations and acquisitions, despite significant existing debt and recent net losses.

Summary

• Phoenix Energy One, LLC is offering up to $100,000,000 in aggregate principal amount of Senior Subordinated Junior Lien Notes, marketed as Phoenix Flex Junior Secured NotesTM.
• The Notes will have a scheduled maturity of ten years from the date of initial issuance, with interest rates ranging from 6.00% to 7.00% per annum, payable monthly in cash or compounded daily.
• Holders may request redemption at par on Set Put Dates (three, six, nine, twelve, or eighteen months intervals) or at 95% of principal plus accrued interest at any time, subject to a 10% annual limit.
• Net proceeds, estimated at approximately $98.0 million after fees and expenses, are intended for investments in PhoenixOp for drilling and exploration, acquisitions of mineral rights and non-operated working interests, and general working capital.
• The company reported a net loss of $(140.1) million for the three months ended March 31, 2026, a significant decrease from a net income of $5.6 million for the same period in 2025.
• As of March 31, 2026, total liabilities were $2,041.3 million, exceeding total assets of $1,977.7 million, resulting in an accumulated deficit of $(112.3) million.
• Total indebtedness stood at $1,702.3 million as of March 31, 2026, with $812.3 million ranking contractually senior to the newly offered Notes.
• The company estimates needing approximately $669.8 million in additional capital through the end of 2028 to develop its proved and probable undeveloped reserves, and $147.3 million throughout 2026 for its business plan.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a high-risk offering given the company's current net loss, accumulated deficit, substantial existing debt, and continuous need for external capital to fund its aggressive growth strategy. The junior lien and subordinated nature of the notes, coupled with limited liquidity, further amplify investor risk.

Positives

• The company has experienced significant growth, with E&P operators drilling an additional 7,043 gross and 140.4 net productive development wells from 2020 through 2025.
• Total production increased substantially from under 0.2 million Boe in 2020 to over 9.9 million Boe for the year ended December 31, 2025.
• The number of employees grew from 21 at December 31, 2020, to 189 at March 31, 2026, indicating business expansion.
• Direct drilling operations commenced in mid-2023, with 135 gross and 123.2 net producing development and injection wells drilled by March 31, 2026.
• PV-10 (estimated total proved reserves) increased from $547.281 million as of December 31, 2023, to $2,412.058 million as of March 31, 2026.
• Revenue for the three months ended March 31, 2026, was $298.7 million, a substantial increase from $115.7 million for the same period in 2025.
• Adjusted EBITDA for Q1 2026 was $130.216 million, up from $69.161 million in Q1 2025, suggesting improved operational performance when excluding unrealized derivative gains/losses.

Negatives

• The company reported a net loss of $(140.1) million for the three months ended March 31, 2026, a significant reversal from a net income of $5.6 million in the prior year period.
• As of March 31, 2026, total liabilities of $2,041.3 million exceeded total assets of $1,977.7 million, resulting in an accumulated deficit of $(112.3) million.
• Cash flows from operations alone were insufficient to service required cash interest and principal payments and preferred equity distributions in 2025.
• The company requires substantial additional capital, estimating $669.8 million through 2028 for reserve development and $147.3 million in 2026 for its business plan.
• The Notes are senior subordinated obligations and are structurally subordinated to all obligations of the company's existing and future subsidiaries.
• The Notes are secured on a junior basis, with $525.0 million of senior-priority secured indebtedness under the Fortress Credit Agreement ranking ahead.
• Holders of Notes have limited rights to require redemption, subject to a 10% annual limit, and the company may not be able to repurchase them when requested.
• There is no established public trading market for the Notes, and transferability requires the company's prior written consent, indicating illiquidity.
• Investors risk losing their entire investment if they fail to confirm account details at maturity (Account Confirmation Failure).

Risks

• The right to receive payment under the Notes is contractually subordinated to Senior Debt, which totaled $812.3 million as of March 31, 2026.
• The Notes are the Issuer's obligations alone and are structurally subordinated to all obligations of the Issuer's existing and future subsidiaries.
• Holders of Notes have a limited right to require the company to redeem their Notes, and the company may not be able to repurchase such Notes when requested, subject to a 10% annual cap on redemptions.
• Notes may only be transferred with the company's consent, and there is no established trading market for the Notes, nor is an active trading market expected to develop.
• If an Account Confirmation Failure occurs, holders may not receive payment at maturity and could forfeit their right to such payment entirely.
• The liens securing the Notes will be junior in priority to the liens securing the Fortress Credit Agreement ($525.0 million outstanding) and any other senior-priority secured indebtedness.
• The rights of holders of Notes may be adversely affected by the Intercreditor Agreement, which grants senior-priority secured creditors control over collateral enforcement.
• The value of the Collateral securing the Notes may not be sufficient to satisfy obligations, and its valuation is determined in good faith by the company in its sole discretion, without independent appraisal.
• Security interests in the Collateral may not be perfected in a timely manner or at all, and could be avoidable as preferential transfers in bankruptcy.
• The company retains control over the Collateral, and its sale or disposition could reduce the pool of assets securing the Notes.
• Certain laws and regulations may impose restrictions or limitations on foreclosure of the Collateral.
• Rights of holders of the Notes in the Collateral may be adversely affected by bankruptcy proceedings, and holders may not be entitled to post-petition interest, fees, or expenses if under-collateralized.
• The Collateral is subject to casualty risks, and insurance proceeds may not be sufficient to cover losses.
• The company's business is highly sensitive to the price of oil and gas, and sustained declines could adversely affect its financial position.
• The acquisition and development of properties require substantial capital, and the company may be unable to obtain needed capital or financing on satisfactory terms.
• Properties acquired for direct drilling and extraction operations may not produce as projected, and reserve estimates are based on assumptions that may prove inaccurate.
• The development of estimated proved and probable undeveloped reserves may take longer and require higher capital expenditures than anticipated.
• The company's future success depends on its ability to replace reserves.
• The company engages in financial transactions with counterparties that could pose credit risk, including hedging activities that could result in financial losses.
• The company is subject to complex governmental, environmental, health, and safety laws and regulations that could increase costs or restrict operations.
• Current and future litigation, regulatory, administrative, or other legal proceedings could have a material adverse effect.
• The company's substantial indebtedness could adversely affect its financial condition and ability to fulfill obligations.
• Despite current indebtedness, the company can incur substantially more debt, further exacerbating financial risks.
• The company may not be able to generate sufficient cash to service all existing and future indebtedness.
• The company will need to repay or refinance a substantial amount of its indebtedness.
• The terms of outstanding indebtedness restrict current and future operations, and the company has in the past failed to satisfy financial covenants under the Fortress Credit Agreement.
• Variable rate indebtedness subjects the company to interest rate risk.
• Fraudulent transfer and conveyance laws may permit a court to void the Notes or related security interests.
• In bankruptcy, the allowed claim for the Notes may be less than the principal amount due to unmatured interest being disallowed.
• Compound Interest Notes (and potentially Cash Interest Notes) will be issued with original issue discount (OID) for U.S. federal income tax purposes, requiring income inclusion in advance of cash receipt.

Future Outlook

The company expects its cash flows from operations to be sufficient to service debt and preferred equity obligations for the foreseeable future, despite current development plans contemplating capital expenditures exceeding operating cash flow in certain periods. It intends to fund growth capital through a combination of operating cash flow, available borrowing capacity, and capital markets transactions. Direct drilling operations are expected to be a core component of the business strategy, aiming for greater control of cash flow, increased revenue, and shorter payback periods. The company anticipates needing approximately $147.3 million in additional capital throughout 2026 and $669.8 million through 2028 to fund its development plans. It regularly evaluates its capital structure and liquidity, and may refinance or restructure indebtedness. The pace of drilling activity is discretionary and subject to commodity prices and capital market conditions.

Management Comments

• "We expect our cash flows from operations to be sufficient to service cash interest and principal payment obligations under our debt arrangements and cash distributions on our preferred equity for the foreseeable future, our current development plan contemplates capital expenditures in excess of operating cash flow in certain periods."
• "We intend to fund a portion of our growth capital through a combination of operating cash flow, available borrowing capacity, and capital markets transactions, consistent with our historical practice."
• "We regularly evaluate our capital structure and liquidity profile to maintain appropriate financial flexibility while executing our development plan."
• "We may from time to time refinance, extend, or restructure portions of our indebtedness through capital markets transactions or private financing arrangements in order to optimize maturities and cost of capital."
• "Although we believe that running our own direct drilling operations will require significantly greater funds than partnering with a third-party operator, we believe that this strategy will provide greater control of cash flow, increased revenue, and larger potential for shorter payback periods as compared to returns on royalty assets and working interest assets."
• "We expect that this ongoing shift in our business model will allow us to capture more of the upside from the use of our specialized software system."

Industry Context

StockSavvy.ai notes that Phoenix Energy One operates in the highly capital-intensive and commodity price-sensitive oil and gas E&P sector. The company's hybrid strategy of acquiring royalty assets alongside expanding direct drilling operations aims to capture benefits from both stable royalty income and higher operational upside. This approach, while potentially lucrative, also combines the risks inherent in both models. The continuous reliance on debt offerings and capital raises is characteristic of growth-oriented E&P firms, particularly those in expansion phases, but also highlights the significant funding requirements of such strategies.

Comparison to Industry Standards

• StockSavvy.ai notes that Phoenix Energy One's hybrid business model, combining royalty acquisitions with direct drilling, differs from pure-play royalty companies like Royalty Pharma (RPRX) or Franco-Nevada (FNV) which typically have lower operational risk, and from traditional E&P companies like EOG Resources (EOG) or Pioneer Natural Resources (PXD) which bear full operational risk for higher potential returns.
• The reported net loss of $(140.1) million for Q1 2026, despite increased revenue, contrasts with many established E&P players who have recently reported strong profits due to favorable commodity prices, though this can vary based on hedging and asset bases.
• The company's high leverage and continuous need for capital raises, including $669.8 million through 2028 for development, indicates a more aggressive growth profile compared to mature, free cash flow-generating E&P companies that often prioritize debt reduction and shareholder returns.
• The average daily production of 37,976 Boe/d for Q1 2026 positions Phoenix Energy One as a smaller to mid-tier producer, but its rapid growth from under 0.2 million Boe in 2020 to 9.9 million Boe in 2025 is a notable achievement in the industry.

Management Changes

Corporate Governance

Legal Proceedings

• The company faces a general risk of current and future litigation, regulatory, administrative, or other legal proceedings that could have a material adverse effect on its business and results of operations.

Related Party Transactions

• Lion of Judah Capital, LLC (LJC) controls Phoenix Equity Holdings, LLC, which owns 100% of the company's common equity interests. Daniel Ferrari and Charlene Ferrari each own 50% of LJC's voting interests and are its managers. Adam Ferrari (CEO, son of Daniel and Charlene Ferrari) owns 100% of LJC's economic interests but no voting or managerial interest, and is also the manager of Phoenix Equity.
• The company has issued $287.3 million of Adamantium Securities (Adamantium Bonds and Adamantium Secured Note) through Adamantium Capital LLC, a direct, wholly-owned subsidiary. Proceeds from these securities are loaned to the company and PhoenixOp under the Adamantium Loan Agreement.
• The principal amount of Notes requested for redemption by, and redeemed from, directors, executive officers, or their family members will not be included in calculating the 10% annual redemption limit for other holders, potentially allowing for up to 20% of outstanding Notes to be redeemed annually if executive redemptions occur first.

Stakeholder Impact

• Shareholders (Phoenix Equity Holdings, LLC) face potential dilution of equity value due to increased debt burden, which could impact future equity value and distributions, though control remains centralized.
• New Noteholders will acquire junior secured notes with varying interest rates and put options, but face contractual subordination to Senior Debt and structural subordination to subsidiary obligations, along with limited liquidity due to transfer restrictions and no public market.
• Existing Debt Holders, particularly those with Senior Debt (e.g., Fortress Credit Agreement), maintain their senior position, as the new Notes are explicitly subordinated to their claims.
• Employees may benefit from continued employment opportunities and growth initiatives funded by the offering, with certain non-executive personnel receiving sales commissions for their role in the offering.
• Customers and suppliers are not directly impacted by the debt offering itself, but the funding supports ongoing drilling and acquisition activities, which could influence future operational relationships and resource availability.

Next Steps

• Continue the continuous offering of Phoenix Flex Junior Secured Notes.
• Hold weekly closings for Note sales, assuming funds are available.
• Make investments in PhoenixOp and finance potential drilling and exploration operations.
• Continue acquisitions of mineral rights and non-operated working interests.
• Regularly evaluate capital structure and liquidity profile.
• Potentially refinance, extend, or restructure portions of indebtedness through capital markets transactions or private financing arrangements.
• Notify holders prior to maturity of their Notes, requiring confirmation of account details for payment.

Key Dates

Recommendation

The company is undertaking a high-risk growth strategy funded by substantial debt, including this new offering. While there's significant production growth and reserve value, the recent net loss, accumulated deficit, and high leverage create considerable financial instability. The subordinated and illiquid nature of the Notes, coupled with the company's past covenant breaches, suggest a 'hold' for investors who can tolerate high risk and are comfortable with the long-term growth potential, but a 'sell' for risk-averse investors. The continuous need for capital raises and the junior lien position of these notes make it a speculative investment.

Keywords

Phoenix Energy One, Junior Secured Notes, Debt Offering, Oil and Gas, E&P, Energy, Subordinated Debt, SEC Filing, Capital Raise, Phoenix Flex Notes, Mineral Rights, Working Interests, Direct Drilling