8-K: PHX Minerals Reports Mixed Results for Q4 and Year-End 2024 Amid Strategic Review

PHX Minerals reports a slight increase in royalty production volumes but a decrease in net income for the year ended December 31, 2024, while continuing to evaluate strategic alternatives.

Summary

• PHX Minerals Inc. reported net income of $0.1 million, or $0.00 per diluted share, for the fourth quarter ended December 31, 2024, compared to $1.1 million, or $0.03 per diluted share, for the quarter ended September 30, 2024.
• For the year ended December 31, 2024, net income was $2.3 million, or $0.06 per diluted share, compared to $13.9 million, or $0.39 per diluted share, for the year ended December 31, 2023.
• Adjusted EBITDA for the fourth quarter was $5.4 million, compared to $4.9 million for the previous quarter.
• Adjusted EBITDA for the year was $21.3 million, compared to $22.7 million for the year ended December 31, 2023.
• Royalty production volumes remained flat at 2,096 Mmcfe for the fourth quarter but increased 8% to 8,760 Mmcfe for the year.
• Total debt was $29.5 million at December 31, 2024, down $3.25 million since December 31, 2023, with a debt-to-adjusted EBITDA ratio of 1.38x.
• The company announced a $0.04 per share quarterly dividend payable on March 28, 2025.
• PHX closed on the divestiture of 165,326 net mineral acres for approximately $8.0 million on January 31, 2025.
• Since December 31, 2024, PHX has paid down an additional $9.8 million of debt, bringing the balance to $19.8 million as of March 5, 2025.
• Proved royalty reserves decreased 9% to 52.5 Bcfe compared to 57.8 Bcfe at Dec. 31, 2023.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While there are positives like debt reduction and increased royalty production volumes, the significant decrease in net income and the ongoing strategic review process create uncertainty. The sentiment is neutral.

Positives

• Royalty production volumes increased 8% for the year ended December 31, 2024.
• Total debt decreased by $3.25 million during 2024.
• The company successfully divested 165,326 net mineral acres for $8.0 million.
• PHX has further reduced debt by $9.8 million since the end of 2024.
• The company continues to return capital to shareholders through a quarterly dividend of $0.04 per share.

Negatives

• Net income decreased significantly for both the quarter and the year ended December 31, 2024.
• Adjusted EBITDA decreased slightly for the year ended December 31, 2024.
• The company experienced a net loss on derivative contracts for the quarter ended December 31, 2024.
• Proved royalty reserves decreased 9% to 52.5 Bcfe compared to 57.8 Bcfe at Dec. 31, 2023.

Risks

• Volatility in natural gas and oil prices could impact revenue and profitability.
• Decreased gains on derivative contracts negatively affected net income.
• Reduced permitting activity in the Haynesville shale due to lower gas prices impacted proved undeveloped royalty reserves.
• The ongoing strategic review process introduces uncertainty.

Future Outlook

The company is continuing its previously announced process with RBC to evaluate possible strategic alternatives to maximize stockholder value.

Management Comments

• PHX delivered solid results in 2024.
• Notably, we achieved our highest total corporate production volumes for a full calendar year since 2019.
• We also recorded our two highest royalty production volume quarters in company history during 2024, specifically the second and third calendar quarters.
• The strength of our asset base allowed us to generate strong cash flow, reduce debt and return capital to stockholders through our dividend.
• We are continuing our previously announced process with RBC to evaluate possible strategic alternatives to maximize stockholder value.
• As referenced in our subsequent events, we closed on the sale of approximately 165,000 net mineral acres for $8.0 million.
• These minerals are old legacy minerals located in the U.S. on the margins of various basins with little to no near-term developmental resource potential, have no cash flow or reserve value associated with them and have had no leasing activity over the last 6 years.

Industry Context

The report highlights PHX Minerals' focus on its core areas, SCOOP and Haynesville, amid broader trends in natural gas demand and LNG export growth. The company's strategy aligns with the industry's shift towards high-quality assets and efficient capital allocation.

Comparison to Industry Standards

• The company's debt-to-adjusted EBITDA ratio of 1.38x is within a reasonable range compared to other mineral companies such as Viper Energy Partners (VNOM) and Black Stone Minerals (BSM).
• The company's focus on smaller acquisitions with an average deal size of ~$1.5 million is a common strategy among smaller mineral companies to generate higher returns with less competition.
• The company's ROCE between 7% and 15% since 2021 is comparable to other companies in the sector such as Kimbell Royalty Partners (KRP) and Dorchester Minerals (DMLP).

Stakeholder Impact

• Shareholders will be impacted by the decreased net income and the ongoing strategic review.
• Employees may be affected by any potential changes resulting from the strategic review.
• Customers and suppliers are unlikely to be significantly impacted by this report.

Next Steps

• The company will host a conference call on March 13, 2025, to discuss the results.
• PHX will continue to evaluate possible strategic alternatives to maximize stockholder value.

Key Dates