8-K: PHX Minerals Reports Record Royalty Volumes and Increases Dividend by 33%

PHX Minerals Inc. announced record royalty production volumes for the quarter ended June 30, 2024, and a 33% increase in its fixed quarterly dividend.

Summary

• PHX Minerals reported a net income of $1.3 million, or $0.04 per diluted share, for the quarter ended June 30, 2024, compared to a net loss of $0.2 million, or $0.01 per diluted share, in the previous quarter.
• Adjusted EBITDA for the quarter was $6.4 million, up from $4.6 million in the previous quarter.
• Royalty production volumes increased by 46% to a record 2,709 Mmcfe, driven by high-impact wells in the Haynesville.
• Total production volumes reached 2,968 Mmcfe, a 40% increase from the previous quarter and the highest since June 2018.
• The company converted 55 gross wells to producing status, compared to 85 in the previous quarter.
• PHX has an inventory of 241 gross wells in progress and permits as of June 30, 2024.
• Total debt decreased by $4.0 million since December 31, 2023, to $28.8 million, with a debt-to-adjusted EBITDA ratio of 1.32x.
• The company increased its fixed quarterly dividend by 33% to $0.04 per share, payable on September 6, 2024.
• Natural gas, oil, and NGL sales increased by $2.6 million, or 36%, compared to the same quarter last year.
• The company leased 313 net mineral acres for an average bonus payment of $550 per acre and an average royalty of 24%.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to record production volumes, increased dividend, and debt reduction. While there are some negative aspects, the overall tone is optimistic and indicates strong performance.

Positives

• The company achieved record royalty production volumes, indicating strong operational performance.
• The increase in total production volumes to the highest level since 2018 demonstrates significant growth.
• The 33% increase in the quarterly dividend provides a higher return to shareholders.
• The reduction in total debt and improved debt-to-adjusted EBITDA ratio strengthens the company's financial position.
• The company's strong cash generation allows for further exploration of mineral asset acquisitions.
• The increase in natural gas, oil, and NGL sales indicates strong revenue growth.
• The leasing activity shows continued interest in the company's mineral assets.

Negatives

• The number of wells converted to producing status decreased from 85 in the previous quarter to 55.
• The company experienced a net loss on derivative contracts of $0.4 million for the quarter.
• Working interest production volumes decreased due to natural production decline and divestitures.
• The company's net income for the six months ended June 30, 2024, decreased compared to the same period in 2023.
• Natural gas, oil, and NGL revenue decreased by 11% for the six months ended June 30, 2024, compared to the same period in 2023.

Risks

• The company's royalty volumes can be lumpy due to the timing of high-impact wells coming online.
• The company does not control the pace of development or well completion timing, leading to potential quarterly volatility.
• The company is exposed to commodity price fluctuations, which can impact revenue and profitability.
• The company's derivative contracts can result in losses due to changes in market prices.
• The company's working interest production is subject to natural decline.
• The company's future performance is subject to various economic, competitive, governmental, regulatory, and technical factors.

Future Outlook

PHX is providing an updated operational outlook for 2024, with mineral and royalty production expected to be between 8,700 and 9,100 Mmcfe, and total production between 9,700 and 10,300 Mmcfe. The company anticipates continued quarterly lumpiness in volumes due to the timing of high-impact wells.

Management Comments

• Chad L. Stephens, President and CEO, stated that the operational and financial results for the second quarter provide compelling evidence about the quality of the company's asset base.
• Mr. Stephens noted that royalty production reached record levels during the quarter, driven by strong conversion of high-impact wells.
• He also mentioned that the company's wells in progress metric remains strong, despite the decrease in the rig count due to the current commodity price environment.
• Mr. Stephens highlighted the company's strong cash generation, which enabled debt reduction and an increase in the quarterly cash dividend.
• He also mentioned that the company's financial strength provides the necessary liquidity to further explore the acquisition of premium mineral assets.

Industry Context

The announcement reflects the ongoing activity in the oil and gas industry, particularly in the Haynesville Shale, where PHX has significant operations. The increase in production volumes and the focus on high-impact wells align with industry trends of maximizing output from key areas. The company's focus on mineral acquisitions also reflects a broader trend of consolidation in the sector.

Comparison to Industry Standards

• PHX's royalty production growth of 46% quarter-over-quarter is significantly higher than the average growth rate for many mineral and royalty companies, indicating strong performance in its core areas.
• The debt-to-adjusted EBITDA ratio of 1.32x is within the range of acceptable leverage for companies in the oil and gas sector, but is lower than some peers, suggesting a more conservative financial approach.
• The increase in the quarterly dividend by 33% is a positive sign for investors, as many companies in the sector have been hesitant to increase dividends due to commodity price volatility.
• Compared to companies like Kimbell Royalty Partners (KRP) and Viper Energy Partners (VNOM), PHX's focus on smaller acquisitions with higher returns is a differentiated strategy.
• While companies like Brigham Minerals (MNRL) also focus on mineral acquisitions, PHX's emphasis on the Haynesville and SCOOP plays provides a specific geographic focus.
• The company's operational outlook for 2024, with a projected increase in total production, is a positive sign compared to some peers who are facing production declines.

Stakeholder Impact

• Shareholders will benefit from the increased dividend and potential for future growth.
• Employees may experience increased job security due to the company's strong performance.
• Customers will benefit from the company's increased production of natural gas and oil.
• Suppliers may see increased business opportunities due to the company's growth.
• Creditors will benefit from the company's reduced debt and improved financial position.

Next Steps

• PHX will host a conference call on August 8, 2024, to discuss the results.
• The company will continue to focus on growing its mineral position in core areas.
• The company will explore further acquisitions of premium mineral assets.
• The company will continue to monitor and manage its debt levels.
• The company will continue to convert wells in progress to producing status.

Key Dates

Keywords

Royalty Production, Natural Gas, Oil, EBITDA, Dividend, Mineral Acquisitions, Haynesville Shale, Production Volumes, Debt Reduction, Wells in Progress