Q4 2020 PHX Minerals Inc Earnings Call
Ladies and gentlemen, thank you for your patience. Please remain on the line while we gather additional participants again, we do appreciate your patience. Please remain on the line at your conference will be getting the momentarily. Thank you.
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Ladies and gentlemen, thank you for your patience. Please remain on the line, while we gather additional participants and again, we do appreciate your patience. Please remain on the line your conference will be GAAP momentarily. Thank you.
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Thank you for joining us today to discuss our fiscal 2020 results with me on the call today for free.
Remarks, or Chad Stephens, <unk>, President and Chief Executive Officer and freedom from.
The spreads are kind of mineral operations. After the prepared remarks, we will open up the call to acute and accessories.
Earnings press release that was issued earlier today, which is also posted on the Investor Relations website before I turn the call over to Chad I'd like to remind everyone that during today's call the clarity into Q and a session. We will make forward looking statements regarding expected revenue earnings future plans of opportunities.
And other expectations of the company. These estimates are plants and other forward looking statements involve known and unknown risks and uncertainties. The may cause actual results to be materially different from those expressed or implied on the call. The.
These risks are detailed in our most recent annual report on form 10-K, and such maybe amended or supplemented by subsequent quarterly reports on form 10-Q, or other reports filed with the Securities and Exchange Commission. The statements made during the conference call for based upon information known to PHX assets.
Good day and time of this call.
Each ex assumes no obligation to update the information presented and today's call with that I'd like to turn the call over to Chad Stephens ph EXAS Chief Executive Officer.
Thanks, Ralph and thanks to everyone on the line for participating and PHX is 2020 fiscal year and conference call. We sincerely appreciate your time and your continued interest and the company.
The environment PHX weathered and 2020 was one of the the most difficult I've ever experienced and my 40 years and the industry.
The COVID-19 pandemic and assessment and collapse of oil and natural gas price is created a detrimental tsunami of bankruptcies layoffs and cuts and capital outlay throughout the year.
During the fourth fiscal quarter. However, we started to see crude oil price is stabilizing and natural gas searching for equilibrium as macro supply demand fundamentals appear to the improving.
Brick house after reaching levels not seen since the debt benchmark was introduced are showing signs of a moderate recovery.
Most importantly, with promising test results. It appears the vaccine for the COVID-19. He is on the horizon. This will hopefully allow the kind of the economy church of some level of normalcy in 2021.
And our most recent quarter, which Ralph will discuss in more detail on the minute. We are happy to see our sequential quarterly financial performance improve materially.
For the full year the company maintained an earnest focus of continuing to reduce debt down 6.7 million or 19% during the fiscal year, which has strengthened our financial position control costs, yeah for Megan or 19%, helping bolster operating cash flow.
And generating promising mineral deal opportunities 16 million close during the last two fiscal years, which helps high grade our asset base.
Over the course of fiscal 2021, we will continue to dedicate the majority of our free cash flow to pay down debt and further strengthen our financial position.
When using current strip pricing, we estimate fully eliminating our debt through free cash flow and just over three years.
As we continue to strengthen our financial position.
We will be able to allocate more of our cash flow to our core acquisition strategy.
Since the September 30, 2020 fiscal year end, we closed on the previously announced mineral acquisition, and Grady County, Oklahoma, and Harrison and Panola and neck and does just counties, Texas for 5.75 million. In addition, we closed on the purchase of the 134 net mineral acres and Santa.
Algostim County, Texas for 750000, which is in East, Texas and have signed if he has to say to purchase additional minerals overlapping the same well pad and San Augustine County, Texas for 1 million, which we expect to close in fiscal Q1 2021 day.
The 16, well pad and sand all the scene County operated by Aegon is currently in various stages of completion.
All of these acquisitions were funded using proceeds from our equity offering which we completed in September the.
The offering that really allowed us to complete these transactions and has also expanded our sphere of influence evidenced by a material increase and deal flow we.
We are excited about the opportunity set of deals in front of us, which fit well with our growth strategy.
Lastly, and costs are without change and strategy, we change the companys named the PHX Minerals, Inc. And October of 2020.
This new name honors the rich history of the company by retaining its New York stock exchange ticker symbol, Paul highlighting the focus strategy and minerals.
The name change includes a new corporate logo and symbolizes the proactive sense of urgency by which we work every day, we look forward to keeping you apprised of our progress over the next year.
At this point I'd like to turn the call over the free the to provide quick operational overview and then the routes and discuss the financials.
Thank you Chad and Hello to everyone on the line.
During the quarter ended September 30, we had 76 credit 0.18, net wells can vary from wells and progress to produce.
As compared to 48, Graz 0.22, net wells during the quarter and at June 30.
At the end of the quarter, we had an additional 115 gross 0.5 from one net wells and progress up from 85 gross <unk> 0.44, and net from the prior quarter also.
Also as of the quarter and we had for rigs president on PHX eight grades and 32, and then 2.5 miles compared to no ranked our acreage and 15 within two and a half mile and again sorry.
Leasing on our up and minerals and slightly up from last quarter as operators continue to find efficiencies to reduce the drilling cost and let the series named drilling and completion activity.
During the fourth fiscal quarter of 2020, we leased 205 net acres for $118000 of compared to 120 net acres for $23000 the prior quarter.
I will turn the call over to the route for a review of the financials.
Thanks for your first I'd like to thank everyone for being on the call today I'll be discussing the results for both the fourth quarter of 2020 and the full fiscal year 2020 results before I start. Please know that the soup and Haynesville acquisitions, we announced in August workflows. The on October.
60, 2020, and as such for our fourth quarter results do not include any contribution from these acquisitions.
For our fourth quarter ended September Thirtyth 2020, total revenues were $4.4 million, which is a 62% increase from 2.7 million in the third quarter of 2020 the.
The quarter over quarter changes were caused by the following.
One.
Natural gas oil and NGL revenues increased to 5 million for 43% on a sequential quarter basis.
Total natural gas and oil production increased 7% ex curtailed volumes started being brought back online and new wells were put on production, particularly in the stack region.
Volumes were derived 38% from royalty interests and 62% from working interest during the quarter.
Higher average price is received for natural gas oil and NGL and the quarter or 34% on an Mcf fee basis also had a large impact on sales average M.C. of fee price realized was $2.47 versus $1.85 to prior quarter.
True, we had a 1.5 million loss and our derivative contracts in the fourth quarter compared to eight 840000 dollar loss the prior quarter no debt on on a cash basis, we realized the gain of $880000 this quarter compared to a one point.
The 7 million dollar gain and the prior quarter.
Three lease bonus revenues were up on a quarter over quarter basis to 118000, which is still lower than any other than any quarter and 2019.
But moving into right direction as operators restart leasing programs true.
Total expenses were 6.9 million for the fourth quarter compared to 7.1 million in the prior quarter of 4% decline the company's Halloween decreased to 178000 for 16% in the fourth quarter compared to the third quarter. This is partially due to lower working interest volumes and lower.
Service costs on a per Mcf fee basis, how low it decreased about 20% to 48 cents per M transportation gathering and marketing increased 17% and production taxes, 40% on a quarter over quarter basis, as a result of higher production and realized prices.
And a decrease of 190000 or 10% in the fourth quarter compared to the third quarter. This is the third straight quarter in which the GSK has decreased for the full year 2020, DNA was $8 million compared to 8.6 million and 29 team we expect the fiscal year.
For 2021 in January will be lower than 2020, as we benefit from for two quarters of ore and you nearly implemented cost control measures.
Adjusted EBITDA, excluding gains on sales was $2 million in the fourth quarter of 2020 as compared to 1.2 in the third quarter for the full fiscal year 2020, adjusted EBITDA, excluding gains on sales was 9.5 million compared to 18.6 of.
Millions in 2019, primarily as a result of the previously discussed negative macro conditions and the industry experienced this year we.
We continue to deploy an act of commodity hedging program, which extends out through the end of calendar 2022 and <unk>.
Generally we have locked and costless collars and natural gas between $2.30 and $3.15 and on the oil between approximately 36 75, and 45 75, you can see a detailed the up to date schedule and the press release and the 10-K, let.
Let me also touch on debt, we had total debt of 28.75 million as of September Thirtyth, which as Chad mentioned was a 19% reduction from the prior year.
As of December Onest, we had further reduce debt to 27.25 million also as of December Onest, we had $2.3 million and cash on the balance sheet after giving effect to the transactions the closed in October and November.
No debt 1.5 million of the $2.3 million remaining and cash is from the equity offering proceeds from the pending acquisition Chad mentioned earlier will be paid for with the cash from the equity raise on December 4th we entered into and amended credit agreement with our lending group led by be okay.
Okay, which reiterated our 30 million dollar borrowing base and reduce the required quarterly amortization from $1 million of quarter to $600000 per quarter going forward as Chad mentioned, we will continue to focus on reducing debt as part of our strategy with that I'd like to turn the call over to Chad for.
And his final remarks.
Th ex Adeptly navigated through unparalleled economic and the industry turmoil in 2020, we.
We believe 2021 will prove to be a tipping point for the minerals space as deal flow and mineral consolidation increases ph.
PHX is in the right position with the right strategy to participate in that consolidation and create shareholder value.
This concludes the prepared remarks portion of the call. Please open up the queue for questions.
Thank you the floor is now open for questions. If you do have the question or comments. Please press Star then one on your telephone keypad to join the queue. If you are using a speakerphone. Please pick up your handset and provide the best sound quality again, ladies and gentlemen, if you do have a question or comment. Please press Star then one on.
On your telephone keypad at this time.
And we got a lot of first a question from Derrick Whitfield with Stifel. Please go ahead.
Thanks, Good afternoon, and all and also thanks for the updated disclosures and your Powerpoint.
For my first question I wanted to focus on M&A, perhaps for chatter out could you offer some additional color on the degree of deal flow, you're seeing at present and seller expectations now that the commodity has drifted up a little bit higher.
Yeah, Derek this is Chad.
I think given we've seen the worst of the coated the economy seems to be at the kind of bottom coming off seller expectations have been reset the at least asset values.
And were given the as we indicated given up the offering that we did that kind of put us into the end of the mainstream of of deal flow and we're getting a lot of unsolicited inbound offerings. The.
The deals we've done today and it seems that the sellers their expectations were reasonable and we were able to to do deals I do want to stress that the deals we do the that we're looking at and the deals. We do will be we will be very disciplined and we'll let the the facts and the numbers speak for themselves and we're not going to just chase deals, but we do see.
Definite material increase and inbound deal flow with with the asset values more reasonable expectations for asset values.
Great and and stay with you Chad, perhaps the bigger picture could you speak to the business applications from the record levels of M&A activity, we're seeing across the sector.
And that will likely continue for the next few years, but really what does that mean to your business from an activity perspective.
Well were focused on just a couple of basins.
The real amount of our minerals or are in the mid continent, now and east, Texas, we're going to focus on a couple of other bases as well, but for right now mid continent and Uh huh.
The deal of our minerals and the core of the Scoop stack are as such a meat very low breakeven points. When you compare well economics from the Permian basin to the.
The mineral where the footprint of our minerals and the scoop stack and they compete so you see cottonelle I've left the Buck and they're coming back down to the scoop stack and the got several rigs running they've announced recently, some really excellent wells and buy and several zones. There. They are exporting three different zones, and they've announced and really.
Excellent completions and there so the implications for us.
And I wouldn't mind, a consolidation I think the industry overall needs consolidation I.
I think the stronger balance sheets and have better implications for capital allocation.
With the fragmented industry that we have it's kind of difficult.
To capital allocate between basins and between plays the we think the scoop stack and where we are focused and the scoop stack and compete for capital allocation.
Great, Thanks, Chad and and as my final question, perhaps for Ralph for for you to with the improvement you're reporting and both wells and progress and permits could you offer any color on expectations for the completions of your well and progress.
Wells or.
Really thinking about the likely production profile that you guys could see and the first half of the of 2021.
Yes so.
What we are saying is that some of the docs that were setting out there early and 2020 and then.
Instead of being completed and.
The company's tick the completion and regs off and and shutdown.
We're now seeing.
The shut in wells come back online as well and completion rig starting to come back.
So we expect.
The first half of that 2021 to see some of those debt completed which would and then show up on our production profile.
Great. That's very helpful. Thanks for your time guys.
Ex there thanks.
Next we got the the line of Jeff Grampp with Northland. Please go ahead.
Afternoon, guys appreciate the time.
And Jeff can you can you guys kind of touch on what you're seeing and activity wise the C for for for rigs and the skew the.
In the sense of the sustainability of those rigs or where else we might see rigs popping up based on where you guys, the senior acreage and and conversations with operators.
Yeah. This is Jeff just a follow up what what I was talking about earlier continental has really gone.
Non all in on the Scoop stack for 2021, and they stayed and so.
And they make really great rates of return at current strip prices, they advertise and their investor relations slide deck, where there would for wells and the Sycamore wells are in excess of 50% rates of return and the making some really excellent wells for their first and I think one of the important metrics that you look at on these wells.
The first 100 days of production and they they have several recent wells online.
Whether advertising in excess of 100000 barrels a day for the first 100 day. So those are that's good wells. So those are ex the wells.
Yes, you see and the core of the stack and Scoop.
The main players for Devon Simmer ex Oh vintage of Continental Marathon has got a huge footprint there and they've got the come back there at some point I think because they have some really excellent.
Right and of course, it really ex excellent rock quality and the need for their their acreage position. So those those five at some point any.
Anything above $40 oil and making really good rates of return and I see them all coming back at some point and 2021.
Once you kind of get a sense sort of feel that the gas price is really are going to recover obviously, all weather dependent but the there seems to be a little impetus for for gas price is improving and especially continental's say and they're going to be drilling more gas wells and the scoop and they are oil wells. So.
We're we're optimistic and and Panhandle as an excellent mineral position throughout the course of the Scoop stack. So we're excited about the opportunity to see our volumes and cash flow improve with all that capital coming into the end of the play.
All right great that's helpful and.
Bigger picture question for you and I appreciate the and the comment that you guys can organically pay down debt over the next few years that sounds great. So when we kind of think about the.
The return of capital strategy, and you guys have been able to maintain the dividend through the downturn here. What do you guys kind of need to see to look and maybe reevaluating, bringing that back up you know, whether that's a net and try to balance capital for acquisitions versus returns of capital is probably a bit of a debate internally, but bigger picture how do you guys view.
Or evaluate increasing the dividend going forward.
I, let ralph or contribute to this this question, but I will say the it's important to me to get our debt to EBITDA down to one or so I think the market is it's kind of dictated that and I think it's just in terms of surviving through the the commodity price cycles, you need to be conservative with your balance sheet. So.
Oh, I want us to get down to that area that that ZIP code before we we start increasing our dividend, but it's going to be important the meat is to show. The the shareholders. There were going to be willing to return a good percentage of our free cash flow back to our shareholders. Once our debt is met at a manageable place.
Place Ralph the yeah, now and and and I would also say you know look I mean, I think from it from the standpoint right. We have set up the company, where we can manage.
The significantly larger asset footprint, right and and so we think the rates of return that we can generate for the company the acquisitions and and the scalability of what we set up the company to be right.
Next the paying down debt right and the growing the production base is also an important and part.
Part of the strategy, So and you know I think it's a low I think we've stated this before and that in the long run right and and whether that is a you know two three however, many years down the road right and whatever amount of time. It is right, where we're looking at doing something where it's you know you're returning 50% of the capital to shareholders and redeploying 50.
Percent of the capital.
The into the ground right, but I don't have anything more specific to you on timing as it pertains to that right I think as Chad said that's number one.
Growing the production base is number two and once we got that figured out that and then we'll start looking at increasing the return of capital for shareholders.
Yep and makes perfect sense and that's.
That's it for me thanks, guys.
The next year.
Next we go to the line of Rich Howard with boiling point resources. Please go ahead.
And on that last question.
It sounded like the bank.
Bank credit agreement.
Wasn't the approved.
And that.
We're only going to be paying down 600000, though for the quarter, which is far less than you can pay now based on the three year three plus year to eliminate the debt. So first of all was this an improvement in the bank revenue the mint and secondly.
Oh, the thinking share.
Yeah, I mean look I think it's the reiterated our our borrowing base and reduce the the amortization that they want at the C. So from my standpoint, right. What Theyre basically saying is that the think there that we're in a better it we're in a better credit worthiness position relative.
Of two six months ago. So to me that's an improvement right. I mean, you know I do think that as Chad said and we talked about as we talk about leverage we're not our intent is and to pay down the minimum required by the by the bank. We think that you know that the appropriate long term leverage range.
Show up for the business right is given everything that's happening and the macro environment is really closer to one one times rather than two times, where we are today. So if anything we're going to we're going to repay more of debt debt and as we grow the production base and cash flow right. That's good that's going.
The reach that one times debt to EBITDA.
And and you know and then we're going to reevaluate.
How we you know how we allocate capital and turned away. We have obviously, we have some ideas and but we're not ready to share that with you with with the with the market just yet.
That's great. Thank you very much I was very pleased for the call.
Thanks, Rich thanks rich.
This does conclude our question and answer a portion of we've returned to Ted Stevens for closing remarks.
We appreciate you being on the call with us today, and I want to reiterate what I said in my prepared remarks. The we believe that we are in the right position to participate in 2021, and what we think is going to be a real tipping point for mineral consolidation, we see some really attractive opportunities right now and we think we will see more so we look forward to keeping you.
Paul up to date as the quarters progress. Thank you very much of a great day.
Thank you. This does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time have a great day.
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