10-Q: PHX Minerals Inc. Reports First Quarter 2024 Results with Lower Revenue and Net Loss

PHX Minerals Inc. experienced a net loss in the first quarter of 2024 due to decreased natural gas, oil, and NGL sales and lower gains on derivative contracts.

Summary

• PHX Minerals Inc. reported a net loss of $183,615 for the first quarter of 2024, a significant decrease compared to a net income of $9,553,244 in the same period of 2023.
• The company's revenue from natural gas, oil, and NGL sales decreased by 40% to $7,090,208, primarily due to lower prices and reduced production volumes.
• Natural gas prices decreased by 41%, and NGL prices decreased by 15%, while natural gas, oil, and NGL volumes decreased by 13%, 31%, and 3%, respectively.
• Gains on derivative contracts also decreased significantly, contributing to the overall decline in profitability.
• Lease bonuses and rental income decreased by 52% to $151,718 due to reduced leasing activity.
• The company's lease operating expenses decreased by 42% to $332,409, mainly due to the divestiture of working interest properties.
• Depreciation, depletion, and amortization increased by 25% to $2,356,326, driven by an increase in the DD&A rate per MCFE.
• Interest expense increased by 28% to $714,886 due to a higher average interest rate and debt balance.
• The company's income tax provision decreased by 99% to $42,332 due to a decrease in net income and discrete income tax expenses.
• General and administrative costs increased by 12% to $3,347,037, primarily due to higher restricted stock expense and professional fees.
• The company had $30,750,000 in outstanding borrowings under its credit facility and $19,250,000 available for borrowing as of March 31, 2024.

Sentiment

Score: 3

Explanation: The document indicates a significant downturn in financial performance with a net loss and decreased revenue, which is a negative signal for investors. However, the company is managing costs and has extended its credit facility, which provides some stability.

Positives

• Lease operating expenses decreased by 42% due to the divestiture of working interest properties.
• Transportation, gathering, and marketing costs decreased by 25% due to lower production and divestiture of assets with higher rates.
• The company reaffirmed its borrowing base at $50 million and extended the maturity date of its credit facility to September 1, 2028.

Negatives

• The company experienced a net loss of $183,615 in Q1 2024, a significant decrease from the net income of $9,553,244 in Q1 2023.
• Natural gas, oil, and NGL sales decreased by 40% due to lower prices and reduced production volumes.
• Gains on derivative contracts decreased by 83%, impacting overall profitability.
• Lease bonuses and rental income decreased by 52% due to reduced leasing activity.
• Depreciation, depletion, and amortization increased by 25%, driven by an increase in the DD&A rate per MCFE.
• General and administrative costs increased by 12%, primarily due to higher restricted stock expense and professional fees.

Risks

• The company is exposed to commodity price risk due to the volatility of natural gas, oil, and NGL prices.
• Changes in market interest rates related to the credit facility could impact operating income.
• The company's results are dependent on the level of production on its properties, which can be affected by various factors.
• The company's ability to raise capital and execute its business strategies is subject to various risks and uncertainties.

Future Outlook

The company expects to fund overhead costs, mineral and royalty acquisitions, and dividend payments from cash provided by operating activities, cash on hand, and borrowings under its credit facility. Management plans to continue to actively pursue leasing opportunities and evaluate opportunities for product price protection through additional hedging.

Management Comments

• Management plans to continue to actively pursue leasing opportunities.
• Management continues to evaluate opportunities for product price protection through additional hedging of our future natural gas and oil production.

Industry Context

The results reflect the impact of volatile commodity prices on the oil and gas industry, particularly the decrease in natural gas prices. The company's strategy of focusing on mineral acquisitions and ceasing working interest participation aligns with a trend of companies seeking to reduce operational risk and capital expenditures.

Comparison to Industry Standards

• The decrease in natural gas prices by 41% is consistent with the broader market trend of lower natural gas prices during the period, impacting many companies in the sector.
• The company's focus on mineral and royalty interests is a common strategy among smaller oil and gas companies to reduce capital expenditure and operational risk, similar to companies like Viper Energy Partners and Black Stone Minerals.
• The company's hedging strategy is a standard practice in the industry to mitigate price volatility, similar to how larger companies like EOG Resources and Devon Energy manage their price risk.
• The company's debt to EBITDAX ratio is a key metric monitored by lenders and investors, and the company's compliance with its debt covenants is similar to other companies in the sector.

Stakeholder Impact

• Shareholders will be negatively impacted by the net loss and decreased revenue.
• Employees may be affected by cost-cutting measures.
• Customers may see changes in pricing due to market volatility.
• Suppliers may experience changes in demand due to production adjustments.
• Creditors will be monitoring the company's compliance with debt covenants.

Next Steps

• The company will continue to pursue mineral and royalty acquisitions.
• The company will evaluate opportunities for product price protection through additional hedging.
• The company will monitor its debt covenants and liquidity.

Key Dates

Keywords

Natural Gas, Oil, NGL, Mineral Interests, Royalty Interests, Production, Derivatives, Lease Bonuses, Working Interest, Credit Facility, Financial Results, Commodity Prices