8-K: PHX Minerals Reports Mixed Results for Quarter Ended September 30, 2024, Despite Strong Royalty Volumes

PHX Minerals reported a net income of $1.1 million for the quarter ended September 30, 2024, a decrease compared to the previous quarter and the same period last year, while achieving its second-highest royalty production volumes.

Summary

• PHX Minerals Inc. announced its financial and operating results for the quarter ended September 30, 2024.
• Net income was $1.1 million, or $0.03 per diluted share, down from $1.3 million in the previous quarter and $1.9 million in the same quarter of the previous year.
• Adjusted EBITDA was $4.9 million, compared to $6.4 million in the previous quarter and $6.3 million in the same quarter of the previous year.
• Royalty production volumes decreased by 23% compared to the previous quarter but increased by 1% compared to the same quarter last year, reaching 2,098 Mmcfe.
• Total production volumes decreased by 20% compared to the previous quarter but increased by 1% compared to the same quarter last year, reaching 2,379 Mmcfe.
• The company converted 46 gross (0.18 net) wells to producing status, compared to 55 gross (0.40 net) in the previous quarter and 71 gross (0.16 net) in the same quarter last year.
• The inventory of wells in progress and permits was 278 gross (0.93 net) as of September 30, 2024.
• Total debt was $27.8 million, down $5.0 million since December 31, 2023, with a debt-to-adjusted EBITDA ratio of 1.36x.
• The company purchased 325 net royalty acres for $3.0 million during the quarter.
• A quarterly dividend of $0.04 per share was declared, payable on December 5, 2024.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong royalty volumes and debt reduction, but tempered by decreased net income and production compared to previous periods. The company's strategic positioning and future outlook are positive, but the current results are mixed.

Positives

• The company achieved its second-highest royalty production volumes in its history.
• PHX reduced its debt by $5.0 million since the end of 2023.
• The company successfully replaced 100% of the wells in progress that converted to production.
• The company's borrowing base was reaffirmed at $50 million.
• PHX is seeing increased rig activity on and around its mineral acreage.
• The company has a strong balance sheet and a proven track record of acquiring mineral assets.
• The company is well-positioned for continued success due to its risk-mitigated business model.

Negatives

• Net income decreased to $1.1 million, down from $1.9 million in the same quarter last year.
• Adjusted EBITDA decreased to $4.9 million, down from $6.3 million in the same quarter last year.
• Royalty production volumes decreased by 23% compared to the previous quarter.
• Total production volumes decreased by 20% compared to the previous quarter.
• The number of wells converted to producing status decreased compared to both the previous quarter and the same quarter last year.
• Natural gas, oil and NGL revenue decreased by 11% for the quarter compared to the same quarter last year.

Risks

• The company is subject to volatility in commodity pricing.
• There is a risk of decreased production volumes.
• The company faces risks associated with the development of new wells.
• The company's financial performance is subject to general economic and industry conditions.
• There are risks associated with the company's hedging strategies.
• The company's future performance is subject to various technical, regulatory, and competitive factors.

Future Outlook

The company remains positive on natural gas prices and anticipates increased rig activity, which is expected to bolster its longer-term outlook. PHX also expects to continue to pursue M&A opportunities and grow its mineral position.

Management Comments

• PHX generated our second-highest quarter for royalty volumes in our history, validating the quality of our asset base even amidst continued volatility in commodity pricing.
• We remain positive on natural gas prices as we move into a seasonal stronger period and are seeing sequential increased rig activities on and around our mineral acreage, further bolstering our longer-term outlook.
• During the quarter, we saw a growing pipeline of attractive M&A opportunities.
• With a strong balance sheet, and a proven track record of acquiring attractive mineral assets that produce cash flow even during challenging pricing, we are well-positioned for continued success.
• Our risk-mitigated business is built for resilient and sustainable profitability even during challenging pricing environments, and our strategic advantages are evident through commodity price cycles.

Industry Context

The announcement reflects the ongoing volatility in commodity prices and the importance of strategic asset management in the oil and gas industry. The company's focus on royalty interests and debt reduction aligns with a broader trend of companies seeking to mitigate risk and improve financial stability.

Comparison to Industry Standards

• PHX Minerals' debt-to-adjusted EBITDA ratio of 1.36x is relatively low compared to some peers in the oil and gas industry, indicating a conservative approach to leverage.
• Companies like Kimbell Royalty Partners (KRP) and Viper Energy Partners (VNOM) also focus on mineral and royalty interests, but their scale and operational focus may differ.
• The company's royalty production growth is a key differentiator, as many companies are focused on direct production.
• The company's acquisition strategy of smaller deals in targeted areas is a common approach for smaller players in the industry to generate higher returns with less competition.
• The company's focus on the SCOOP and Haynesville plays is consistent with industry trends, as these are considered high-potential areas.

Stakeholder Impact

• Shareholders will receive a $0.04 per share quarterly dividend.
• Shareholders may be concerned about the decrease in net income and production volumes.
• Employees may be impacted by the company's strategic decisions and operational performance.
• Customers and suppliers may be affected by the company's production levels and financial stability.
• Creditors will be reassured by the company's debt reduction and reaffirmed borrowing base.

Next Steps

• The company will host a conference call on November 7, 2024, to discuss the results.
• The company will continue to pursue M&A opportunities.
• The company will continue to focus on converting its inventory of wells in progress to producing status.

Key Dates

Keywords

Mineral Rights, Oil and Gas, Production, Royalty, EBITDA, Natural Gas, Acquisition, Haynesville Shale, SCOOP Play, Debt Reduction