Q2 2024 PHX Minerals Inc Earnings Call

August 8, 2024

Operator: Good morning, and thank you for attending today's PHX Minerals June 30, 2024 quarter-end earnings conference call. At this time, all lines will be muted during the presentation of the call, with an opportunity for a Q&A session at the end. As a reminder, this call is being recorded. I would now like to turn the call over to Stephen Lee with FNK IR. Please go ahead, sir.

Operator: Good morning, and thank you for attending today's PHX minerals June 30th, 2024, quarterly and earnings conference call. At this time, all lines will be muted during the presentation of the call, with an opportunity for a Q&A session at the end. As a reminder, this call is being recorded. I would now like to turn the call over to Stephen Lee with FNK IR. Please go ahead, sir.

Speaker Change: Good morning and thank you for attending today's PHX Minerals June 30, 2024 quarter-end earnings conference call.

Speaker Change: At this time, all lines will be muted during the presentation of the call with an opportunity for a Q&A session at the end. As a reminder, this call is being recorded.

Speaker Change: I would now like to turn the call over to Stephen Lee with FNK IR. Please go ahead, sir.

Stephen Lee: Thank you, Operator. Good morning, and thank you for joining us today to discuss PHX Minerals' June 30, 2024 Quality Results. Joining us on the call today are Chad Stephens, President and Chief Executive Officer, Ralph D'Amico, Executive Vice President and Chief Financial Officer, and Danielle Mezo, Vice President of Engineering. The earnings press release that was issued yesterday after the close is also posted on PHA's investor relations website. Before I turn the call over to Chad, I'd like to remind everyone that during today's call, including the Q&A session, management may make four forward-looking statements regarding expected revenue, earnings, future plans, opportunities, and other expectations of the company.

Stephen Lee: Thank you, operator. Good morning, and thank you for joining us today to discuss PHX Minerals' June 30, 2024 quality results. Joining us on the call today are Chad Stephens, President and Chief Executive Officer, Ralph D'Amico, Executive Vice President and Chief Financial Officer, and Danielle Mezo, Vice President of Engineering. The earnings press release that was issued yesterday after the close is also posted on the PHA Investor Relations website. Before I turn the call over to Chad, I'd like to remind everyone that during today's call, including the Q&A session, management may make four forward-looking statements regarding expected revenue, earnings, future plans, opportunities, and other expectations of the company.

Stephen Lee: Thank you, operator. Good morning and thank you for joining us today to discuss PHX Minerals June 30, 2024 Quality Results.

Speaker Change: Joining us on the call today are Chad Stephens, President and Chief Executive Officer, Ralph D'Amico, Executive Vice President and Chief Financial Officer, and Danielle Mezo, Vice President of Engineering.

Speaker Change: the earnings press release that was issued yesterday after the close is also posted on ph exacttory relations website

Stephen Lee: These estimates and other foregoing statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those expressed or implied on the call. These risks are detailed in PHX Minerals' most recent annual report on Form 10-K, as such may be amended or supplemented by subsequent quality reports on Form 10-Q and other reports filed with the Securities and Exchange Commission. The statements made during this call are based upon information known to PHX as of today, August 8, 2024, and the company does not intend to update these forelooking statements, whether as a result of new information, future events, or otherwise, unless required by law. With that said, I would like to turn the call over to Chad Stephens, PHX Chief Executive Officer. Chad?

Speaker Change: Before I turn it over to Chad, I'd like to remind everyone that during today's call, including the Q&A session, management may make four looking statements regarding expected revenue, earnings, future plans, opportunities, and other expectations of the company.

Stephen Lee: These estimates and other forelooking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those expressed or implied on the call.

These risks are detailed in PHX Minerals' most recent annual report on Form 10-K , as such may be amended or supplemented by subsequent quarterly reports on Form 10-Q and other reports filed with the Security and Exchange Commission.

Speaker Change: The statements made during this call are based upon information known to PHS as of today, August 8, 2024, and the company does not intend to update these forelooking statements, whether as a result of new information, future events, or otherwise, unless required by law.

Stephen Lee: These estimates and other foregoing statements involve known and unknown risks and uncertainty that may cause actual results to be materially different from those expressed or implied on the call. These risks are detailed in PHX Minerals' most recent annual report on Form 10-K, as such may be amended or supplemented by subsequent quality reports on Form 10-Q and other reports filed with the Security and Exchange Commission. The statements made during this call are based upon information known to PHX as of today, August 8, 2024, and the company does not intend to update these forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law. With that, I'd like to turn the call over to Chad Stephens, PHX Chief Executive Officer. Chad?

chck stevens: with that just turn the call but to chck stevens ph achieve exhiive officer chat

Chad Stephens: Thanks, Stephen. And thanks to all of you on this call for participating in PHX's June 30, 2024 Quarter End Earnings Conference Call. We appreciate your interest in the company. The macro environment in which we are operating continues to be challenging. Commodity prices remain suppressed.

Chuck Stevens: Thanks, Stephen. And thanks to all of you on this call for participating in PHX's June 30, 2024 Quarter In Earnings Conference Call. We appreciate your interest in the company.

Speaker Change: The macroenvironment in which we are operating continues to be challenging. Commodity prices remain suppressed, total rig activity in the lower 48 is down, especially in the natural gas basins.

Chad Stephens: Total reactivity in the lower 48 is down, especially in the natural gas base, while the supply-demand fundamentals for both oil and gas appear to be nearing equilibrium, for natural gas, demand from new LNG export facilities, as well as increased demand for natural gas to meet growing AI-generated power demand is clearly on the horizon. This forecasted increase in demand provides optimism reflected in the natural gas NIMAC strip price contango, with longer-dated prices higher than near-term prices.

Speaker Change: while the supply-demand fundamentals for both oil and gas appear to be nearing equilibrium.

Speaker Change: For natural gas, the pending demand for new LNG export facilities, as well as increased demand for natural gas to meet growing AI-generated power demand, is clearly on the horizon.

Speaker Change: This forecasted increase in demand provides optimism reflected in the natural gas NIMAC strip price contango, longer-dated prices higher than near-term prices.

Chad Stephens: Even in the near-term rather challenging environment, which obviously includes the sudden onset of market volatility and interest rate uncertainty, PHX is achieving noticeable results. To put today's reported results in context, I would like to remind you that four years ago, PHX's production volume and reserve mix was almost 70 percent non-op working interest and 30 percent royalty. Over the last four years, the company has divested a material portion of its non-op working interest.

Speaker Change: Even in the near-term rather challenging environment, which obviously includes the sudden onset of market volatility and interest rate uncertainty, PHX is achieving noticeable results.

Chad Stephens: Today that mix has flipped, with royalty volumes and reserves representing approximately 90% and non-op working interest representing about 10%. This has been consistent with our stated strategy to transition to a mineral-only focus, which we have regularly communicated to the market. As we divested of the non-op working interest, we redeployed the sale proceeds into minerals in our core focus areas. During this four-year transition, we were growing royalty volumes, achieving a CAGR for royalty volumes of almost 30 percent. But, during this period of significant working interest divestiture, our total reported corporate volumes remained basically flat, with royalty volume growth offset by working interest divestiture. For this June 30 quarter, two things really stand out.

Speaker Change: To put today's reported results in context, I would like to remind you that four years ago, PHX's production volume and reserve mix was almost 70% non-op working interest and 30% royalty.

Speaker Change: Over the last 4 years, the company has divested of a material portion of its non-op working interest. Today, that mix has flipped with royalty volumes and reserves representing approximately 90% and non-op working interest about 10%.

Speaker Change: This has been consistent with our stated strategy to transition to a mineral-only focus, which we have regularly communicated to the market.

Speaker Change: As we divested of the non-op working interest, we redeployed the sale proceeds into minerals in our core focus areas.

Speaker Change: During this four-year transition, we were growing royalty volumes, achieving a CAGR for royalty volumes of almost 30 percent.

Speaker Change: But, during this period of significant working interest divestiture, our total reported corporate volumes remain basically flat, multi-volume growth offset by working interest divestiture.

Chad Stephens: Total corporate volumes are the highest quarterly volumes since Q2 of 2018, which reflects the successful replacement of the divested working interest volumes with high-quality, high-margin royalty interest volumes. Two, our continued steady annual royalty volume growth of that 30% I just spoke about demonstrates the quality of minerals we have acquired that includes a deep inventory of undeveloped locations that are being actively developed and contributing to our annual volume growth. I call out slides 13, 14, and 15 in our most recent IR slide deck that explain this development of our undeveloped inventory.

Chad Stephens: Total corporate volumes are the highest quarterly volumes since Q2 of 2018, which reflects the successful replacement of the divested working interest volumes with high-quality, high-margin royalty interest volumes. Two, our continued steady annual royalty volume growth of that 30% I just spoke demonstrates the quality of minerals we have acquired that includes a deep inventory of undeveloped locations that are being actively developed and contributing to our annual volume growth. I call out slides 13, 14, and 15 in our most recent IR slide deck that explain this development of our undeveloped inventory.

Speaker Change: For this June 30 quarter, two things really stand out.

Speaker Change: to our continued steady annual royalty volume growth.

Chad Stephens: of that 30% I just spoke.

Speaker Change: demonstrates the quality of minerals we have acquired that includes a deep inventory of undeveloped locations that are being actively developed and contributing to our annual volume growth.

Speaker Change: I call out slides 13, 14, and 15 in our most recent IR slide deck that explains this development of our undeveloped inventory.

Chad Stephens: The impressive quarter-over-sequential-quarter volume growth of about 40% that we are reporting this quarter is in part due to high-interest, high-impact wells turned to sales in both the Haynesville and Scoop of Oklahoma. Absent these somewhat anomalous wells, we would still have reported compelling double-digit percent quarter-over-quarter volume growth from development across our portfolio, reflecting the quality of our deep undeveloped location inventory I just mentioned. The challenging environment highlights the flexibility of our business model and the ability to quickly allocate more capital toward reducing debt.

Chad Stephens: The impressive quarter over sequential quarter volume growth of about 40% that we are reporting this quarter is in part due to high-interest, high-impact wells turned to sales in both the Haynesville and Scoop of Oklahoma.

Absent these somewhat anomalous wells, we would have still reported compelling double-digit percent quarter-over-quarter volume growth from development across our portfolio, reflecting the quality of our deep undeveloped location inventory I just mentioned.

Speaker Change: The challenging environment highlights the flexibility of our business model and the ability to quickly allocate more capital toward reducing debt.

Chad Stephens: Since the year 2023, the company has reduced debt from $32.75 million to $28.75 million, providing a strong leverage metric under $1.5. Given the demonstrable value of our assets that we feel is not reflected in our stock price, every dollar of debt reduction should be a direct benefit to our equity value. This balance sheet focus includes an active hedging program to protect fixed costs and the ability to execute our annual budget. Ralph will provide more detail on hedging in a moment.

Chad Stephens: Since year-end 2023, the company has reduced debt from $32.75 million to $28.75 million, providing a strong leverage metric under $1.5. Given the demonstrable value of our assets that we feel is not reflected in our stock price, every dollar of debt reduction should be a direct benefit to our equity value. This balance sheet focus includes an active hedging program to protect fixed costs and the ability to execute our annual budget. Ralph will provide more detail on hedging in a moment.

Chad Stephens: Since year end 2023, the company has reduced debt from $32.75 million to $28.75 million, providing a strong leverage metric under $1.5.

Speaker Change: maintaining a strong balance sheet is a priority focus for us. Given the demonstrable value of our assets that we feel is not reflected in our stock price, every dollar of debt reduction should be a direct benefit to our equity value.

Speaker Change: This balance sheet focus includes an active hedging program to protect fixed costs and the ability to execute our annual budget. Ralph will provide more detail on hedges in a moment.

Danielle Mezo: We have also closed on approximately $3.5 million in mineral acquisitions year-to-date in both The Scoop and Haynesville, with several other opportunities currently being evaluated. Another highlight this quarter is the board's decision to increase our dividend by a penny a quarter, or an annual increase of 33%, to $0.16 per share. Since March 2020, we have now increased the dividend by 400%. This demonstrates the conviction management and the board have in the ability to execute on our strategy and the quality of our existing assets regardless of the macro environment.

Danielle Mezo: We have also closed on approximately three and a half million of mineral acquisitions year-to-date in both the Scoop and Haynesville with several other opportunities currently being evaluated.

Speaker Change: Another highlight this quarter is the board's decision to increase our dividend by a penny a quarter or an annual increase of 33% to 16 cents per share.

Danielle Mezo: since march two thousand and twenty we have now increased the dividend by four hundred percent

Speaker Change: This demonstrates the conviction management and the board share in the ability to execute on our strategy and the quality of our existing assets regardless of the macro environment.

Danielle Mezo: As Danielle will discuss in a moment, activity on and around our minerals continues to drive year-over-year steady volume growth. We are especially excited about the material increase in development activity we are witnessing in our Springboard III area of the SCOOP in Oklahoma. To recap this quarter's highlights... A, highest corporate volume since 2018, B, a quarter over quarter royalty volume increase of 46%, reduced debt by $4 million, or 12%, and an increased dividend by 33%, which represents a 400% increase since March of 2020. At this point, I'd like to turn the call over to Danielle for a quick operational overview and then Ralph to discuss the financials.

Danielle Mezo: As Danielle will discuss in a moment, activity on and around our minerals continues to drive year-over-year steady volume growth. We are especially excited about the material increase in development activity we are witnessing in our Springboard III area of the SCOOP in Oklahoma. To recap this quarter's highlights, a. b. highest corporate volume since 2018 c. quarter over quarter royalty volume increase of 46 percent, reduced debt by 4 million or 12 percent, and increased dividend by 33 percent, which represents a 400 percent increase since March of 2020. At this point, I'd like to turn the call over to Danielle to provide a quick operational overview and then Ralph to discuss the financials.

Speaker Change: As Danielle will discuss in a moment, activity on and around our minerals continue to drive year over year steady volume growth.

Danielle: We are especially excited about the material increase in development activity we are witnessing in our Springboard III area of the SCOOP in Oklahoma.

Danielle Mezo: To recap this quarter's highlights...

Danielle Mezo: A, highest corporate volume since 2018, B, quarter over quarter royalty volume increase of 46%, reduced debt by $4 million or 12%, and increased dividend by 33%, which represents a 400% increase since March of 2020.

Speaker Change: At this point, I'd like to turn the call over to Danielle to provide a quick operational overview and then Ralph to discuss the financials.

Danielle Mezo: Thanks, Chad, and good morning to everyone participating on the call. For the quarter-ended June 30, 2024, total corporate production increased 40% from the quarter-ended March 31, 2024, to 2,968 MMCFE. This represents the highest quarterly corporate production figure since the quarter-ended June 30, 2018. Royalty production for the quarter increased 46% to 2,709 MMCFE compared to the prior sequential quarter, which is an all-time quarterly record for PH

Danielle Mezo: Thanks, Chad, and good morning to everyone participating on the call. For the quarter-ended June 30, 2024, total corporate production increased 40% from the quarter-ended March 31, 2024, to 2,968 MMCSE. This represents the highest quarterly corporate production figure since the quarter-ended June 30, 2018. Royalty production for the quarter increased 46% to 2,709 MMCSE, compared to the prior sequential quarter, which is an all-time quarterly record for P

Danielle Mezo: Danielle?

Speaker Change: Thanks, Chad, and good morning to everyone participating on the call.

Danielle: For our quarter-ended June 30, 2024, total corporate production increased 40% from the quarter-ended March 31, 2024, to 2,968 MMCFE. This represents the highest quarterly corporate production figure since the quarter-ended June 30, 2018.

Ralph: Royalty projection for the quarter increased 46% to 2,709 MMPC compared to the prior sequential quarter, which is an all-time quarterly record for PHX.

Danielle Mezo: The volume increase during the quarter is primarily associated with several high-interest, high-impact Haynesville wells coming online. Recall that we mentioned during last quarter's call that we are expecting these wells to come online in the near term. While we have a number of other high-interest wells currently in the process of being developed, it is challenging to estimate first production for any specific quarter. It is important to note that, as a mineral holder, we do not control timing for well development, so there can be some volatility, both up and down, on a quarter-to-quarter basis, and volumes associated with our business model are better evaluated on a rolling 12-month basis.

Speaker Change: The volume increase during the quarter is primarily associated with several high-interest, high-impact Hainesville wells coming online.

Speaker Change: Recall that we mentioned during last quarter's call that we are expecting these wells to come online in the near term.

Danielle Mezo: Well, we have a number of other high-interest wells currently in the process of being developed.

Danielle Mezo: It is challenging to estimate first production to any specific quarter.

Speaker Change: It is important to note that as a mineral holder, we do not control timing on well development, so there can be some volatility, both up and down, on a quarter-to-quarter basis, and volumes associated with our business model are better evaluated on a rolling 12-month basis.

Danielle Mezo: Royalty volumes represented 91% of total production during our June 30, 2024 quarter. 83% of our quarter's production volumes were natural gas, which aligns with our long-term position that natural gas is the key transition fuel for a sustainable energy future. Oil represented 10% of production volumes, and NGL represented 7%.

Speaker Change: Royalty volumes represented 91% of total production during our June 30th, 2024 quarter.

Speaker Change: 83% of our quarter's production volumes were natural gas, which aligns with our long-term position that natural gas is the key transition fuel for a sustainable energy future. Oil represented 10% of production volumes, and NGL represented 7%.

Danielle Mezo: During Q2 2024, third-party operators active on our mineral acreage converted 55 gross, or 0.4 net, Wells in Progress, or WIPP, to producing wells, compared to 85 gross and 0.32 net in the prior sequential quarter. The higher net number compared to the lower gross number reflects the high-interest Hainesville wells mentioned earlier converted to production. We are very pleased with our well conversion rate, particularly given the challenging natural gas macroenvironment, which includes some operators deferring bringing wells online until there is an improvement in natural gas prices.

Ralph D'Amico: During Q2 2024, third-party operators active on our mineral acreage converted 55 gross or 0.4 net wells in progress, or WIP, to producing wells, compared to 85 gross and 0.32 net in the prior sequential quarter. The higher net number compared to the lower gross number reflects the high-interest Haynesville wells mentioned earlier converted to production. We are very pleased with our well conversion rate, particularly given the challenging natural gas macroenvironment, which includes some operators deferring bringing wells online until there is an improvement in natural gas prices.

Speaker Change: During Q2 2024, third-party operators active on our mineral acreage converted 55 gross or 0.4 net wells-in-progress, or WIP, to producing wells, compared to 85 gross and 0.32 net in the prior sequential quarter.

Speaker Change: The higher net number compared to lower gross number reflects the high interest Hainesville Wells mentioned earlier converting to production.

Speaker Change: We are very pleased with our well conversion rate, particularly given the challenging natural gas macroenvironment, which includes some operators deferring bringing wells online until there is an improvement in natural gas prices.

Ralph D'Amico: At the same time, our inventory of wells-in-progress on our minerals, which includes ducts, wells being drilled, and permits files, remains strong with 241 gross or 0.927 net wells compared to 230 gross or 1.099 net at the end of March 31, 2024. The continued track record of well conversions and replenishment of the inventory of Wells in Progress, or WIPs, reflects the high-quality portfolio of assets we have assembled to provide steady, sustainable growth for future growth.

Danielle Mezo: At the same time, our inventory of wells-in-progress on our minerals, which includes ducts, wells being drilled, and permit files, remains strong with 241 gross, or 0.927 net, wells compared to 230 gross, or 1.099 net, at the end of March 31, 2024. The continued track record of well conversions and replenishment of the inventory of Wells in Progress, or WIPP, reflects the high-quality portfolio of assets we have assembled to provide steady, sustainable growth for future growth.

Ralph D'Amico: At the same time, our inventory of wells-in-progress on our minerals, which includes ducts, wells being drilled, and permits filed, remains strong with 241 gross or 0.927 net wells compared to 230 gross or 1.099 net at the end of March 31, 2024.

Speaker Change: The continued track record of well conversions and replenishment of the inventory of Wells in Progress, or WIP, reflects the high quality portfolio of assets we have assembled to provide steady, sustainable growth, future growth.

Ralph D'Amico: In addition to our WIPs, we regularly monitor third-party operator rig activities in our focus areas and observed 15 rigs present on PHX Minerals acreage as of July 8, 2024. Additionally, we had 60 rigs active within 2.5 miles of PHX owners. In summary, we continue to see steady development in both our legacy and recently acquired mineral assets, which should lead to increasing royalty volumes. Now, I will turn the call back to Ralph to discuss financing. Thanks, Danielle. And thanks for asking.

Danielle Mezo: In addition to our WIPs, we regularly monitor third-party operator rig activities in our focus areas and observed 15 rigs present on PHX Minerals acreage as of July 8, 2024. Additionally, we had 60 rigs active within 2.5 miles of PHX owners. In summary, we continue to see steady development in both our legacy and recently acquired mineral assets, which should lead to increasing royalty volumes. Now, I will turn the call back to Ralph to discuss financing. Thanks, Danielle. And thanks for asking.

Ralph D'Amico: in summary we continue to see steady development in both our legacy and recently acquired mineral asseset which should lead to nually increasing royalty volumes now i will turn the call back to route to discuss financials

Ralph D'Amico: Thanks, Danielle, and thanks everybody for being on the call today. For the second quarter ending June 30th, 2024, natural gas, oil, and NGL sales revenues increased 39% to $9.8 million compared to the prior sequential quarter, due primarily to an increase in production volumes of 40% and a decrease in realized prices of about 1% on an MCFE basis to $3.31 from $3.35 in Q1. Realized natural gas prices averaged for Q2 2024 were $2.05 per MCF compared to $2.10 in Q1 2024. Realized oil prices averaged $77.38, up 2% from Q1 2024, and NGL prices averaged $23.75, up 10% from Q1 2024.

Ralph D'Amico: Thanks, Danielle, and thanks to everybody for being on the call today. For the second quarter ended June 30th, 2024, natural gas, oil, and NGL sales revenues increased 39% to $9.8 million compared to the prior sequential quarter due primarily to an increase in production volumes of 40% and a decrease in realized prices of about 1% on an MCFE basis to $3.31 from $3.35 in Q1. Realized natural gas prices averaged for Q2 2024 were $2.05 per MCF compared to $2.10 in Q1 2024.

Ralph D'Amico: Thanks, Danielle, and thanks for everybody for being on the call today.

Ralph D'Amico: For the second quarter ended June 30, 2024, natural gas, oil, and NGL sales revenues increased 39% to $9.8 million.

Ralph D'Amico: compared to the prior sequential quarter, due primarily to an increase in production volumes of 40% and a decrease in realized prices of about 1% on an MCFE basis to $3.31 from $3.35 in Q1 2024.

Ralph D'Amico: Realize natural gas prices averaged for Q2 2024 were $2.05 per MCF compared to $2.10 in Q1 2024.

Ralph D'Amico: Realized oil prices averaged $77.38, up 2% from Q1 2024, and NGL prices averaged $23.75, up 10% from Q1 2024. Realized hedge gains for the quarter were $1.18 million. Approximately 38% of our natural gas, 25% of our oil, and 0% of our NGL production volumes were hedged at average prices of $3.28 per MCF and $73.29 per barrel. Most of these hedge contracts were added over the course of the last 24 months. We continue to be consistent with our hedge program and believe it is doing what it is meant to do, protect us on the downside.

Ralph D'Amico: Realized oil prices averaged $77.38, up 2% from Q1'24, and NGL prices averaged $23.75, up 10% from Q1'24.

Ralph D'Amico: Realized hedge gains for the quarter were $1.18 million, approximately 38% of our natural gas, 25% of our oil, and 0% of our NGL production volumes were hedged at average prices of $3.28 per MCF and $73.29 per barrel. Most of these hedge contracts were added over the course of the last 24 months. We continue to be consistent with our hedge program and believe it is doing what it is meant to do, protect us on the downside.

Ralph D'Amico: Realized hedge gains for the quarter were $1.18 million, approximately 38% of our natural gas.

Ralph D'Amico: 25% of our oil and 0% of our NGL production volumes were hedged at average prices of $3.28 per MCF.

Ralph D'Amico: and $73.29 per barrel. Most of these hedge contracts were added over the course of the last 24 months. We continue to be consistent with our hedge program and believe it is doing what it is meant to do, protect us on the downside.

Ralph D'Amico: Approximately 42% of our anticipated full-year 2024 natural gas production at the midpoint of our guidance has downside protection at approximately $3.34. On the oil side, approximately 35% of our anticipated production at the midpoint of our guidance has downside protection at approximately $65.48 per barrel. We structure our natural gas hedges using both swaps and costless collars, which means that we also have upside exposure on certain volumes to the $4 to $5 range while still maintaining floors in the $3 or above range.

Ralph D'Amico: Approximately 42 percent.

Ralph D'Amico: of our anticipated full year 2024 natural gas production at the midpoint of our guidance has downside protection at approximately three dollars and thirty four cents.

Ralph D'Amico: On the oil side, approximately 35 percent of our anticipated production at the midpoint of our guidance is downside protection at approximately...

Ralph D'Amico: $65.48 per barrel.

Ralph D'Amico: We structure our natural gas hedges using both swaps and costless collars, which means that we also have upside exposure on certain volumes to the $4 to $5 range, while still maintaining floors in the $3 or above range.

Ralph D'Amico: Our current hedge position is available in our recently filed 10-Q, which also includes some additional hedges which we added during the quarter for the calendar 2025 period. Natural production or total transportation, gathering, and marketing fees increased 83% on a sequential quarterly basis to $1,540,000, primarily due to higher volumes coming on during the quarter. And it's also important to note that a significant amount of those new volumes come from cost-bearing leases, which include the mineral holder paying their proportionate share of the transportation, gathering, and marketing fees. Production and ad valorem taxes increased 52% on a sequential quarter-over-quarter basis to approximately $598,000 due to slightly higher prices and higher production volumes, primarily in Louisiana, where taxes are based on volumes and not on revenue.

Ralph D'Amico: Our current hedge position is available in our recently filed 10-Q, which also includes some additional hedges which we added during the quarter for the calendar 2025 period. Total production, or total transportation, gathering, and marketing fees, increased 83% on a sequential quarterly basis to $1,540,000, primarily due to higher volumes coming on during the quarter. And it's also important to note that a significant amount of those new volumes come from cost-bearing leases, which include the mineral holder paying their proportionate share of the transportation, gathering, and marketing fees. Production and ad valorem taxes increased 52% on a sequential quarter-over-quarter basis to approximately $598,000 due to slightly higher prices and higher production volumes, primarily in Louisiana, where taxes are based on volumes and not on revenue.

Ralph D'Amico: Our current hedge position is available in our recently filed 10-Q, which also includes some additional hedges which we added during the quarter for the calendar 2025 period.

Ralph D'Amico: Total production or total transportation gathering and marketing fees increased 83% on a sequential quarterly basis to $1,540,000.

Ralph D'Amico: primarily due to higher volumes coming on during the quarter. And it's also important to note that a significant amount of those new volumes come from cost-bearing leases, which includes the mineral holder paying their proportionate share of the transportation, gathering, and marketing fees.

Ralph D'Amico: for production and advoure n taxes increased fifty two percent on a sequential quarter of a quarter basis

Ralph D'Amico: to approximately five hundred and ninety eight thousand due to slightly higher prices and higher production volumes primarily in louisiana where taxes are based on volumes and not on revenues

Ralph D'Amico: LOE associated with our legacy non-operated working interest wells decreased 11% on a sequential quarter basis to $294,000, primarily due to lower work-over expenses. Cash G&A decreased 23% to $2.04 million compared to the prior sequential quarter. Our cash G&A is typically higher in the first and fourth quarters of the year compared to the second and third quarters due to professional fees and fees associated with items such as our $10K marketing campaign and our shareholder meeting. Adjusted EBITDA was up $6.4 million in our Q2 2024 period compared to $4.6 million in Q1 2024.

Ralph D'Amico: LOE associated with our legacy non-operated working interest wells decreased 11% on a sequential quarter basis to $294,000, primarily due to lower workover expense. Cash G&A decreased 23% to $2.04 million compared to the prior sequential quarter. Our cash G&A is typically higher in the first and fourth quarters of the year compared to the second and third quarters due to professional fees associated with items such as our $10K marketing campaign and our shareholder meeting.

Ralph D'Amico: LOE associated with our legacy non-operated working interest wells decreased 11% on a sequential quarter basis to $294,000 primarily due to lower work over expenses.

Ralph D'Amico: cash GNA decreased 23 percent

Ralph D'Amico: to $2.04 million compared to the prior sequential quarter.

Ralph D'Amico: Our cash GNA is typically higher in the first and fourth quarters.

Ralph D'Amico: calendar quarters of the year compared to the second and third quarters due to professional fees and associated fees associated with items such as our ten -k in our shareholder meeting

Ralph D'Amico: Adjusted EBITDA was up $6.4 million in our Q2 2024 period compared to $4.6 million in Q1 2024. The increase in EBITDA, as discussed earlier, is due to higher production volumes, lower cash GNA, and the successful implementation of our hedging strategy, which was offset by the higher transportation, gathering, and marketing expenses and production taxes associated with the new wells that are from cost-bearing leases coming online during the Net income for the quarter was $1.3 million, or $0.04 per diluted share.

Ralph D'Amico: I just said EBITDA was up $6.4 million in our Q2 2024 period compared to $4.6 million in Q1 2024.

Ralph D'Amico: The increase in EBITDA, as discussed earlier, is due to higher production volumes, lower cash GNA, and the successful implementation of our hedging strategy, offset by the higher transportation gathering and marketing expenses and production taxes associated with the new wells that are from cost-bearing leases coming online during the quarter. Net income for the quarter was $1.3 million, or $0.04 per diluted share. We had a total debt of $28.75 million as of June 30, 2024, down $4 million from $32.75 million as of December 31, 2023.

Ralph D'Amico: the new wells that are from cost-bearing leases coming online during the quarter. Net income for the quarter was $1.3 million or $0.04 per diluted share.

Ralph D'Amico: We had a total debt of $28.75 million as of June 30, 2024, down $4 million from $32.75 million as of December 31, 2023. Our debt-to-trailing 12-month adjusted EBITDA was 1.32 times as of June 30, 2024. Much like last year, at this time when natural gas prices fell, our acquisition program remains disciplined, and if the deals in the marketplace do not generate a required return profile, we will not chase them. Also, it is important to note that we have an almost seven-year inventory of high-quality drilling locations, which means that we can continue to perform and grow production without chasing acquisitions that do not meet our underwriting criteria. We're happy to bill liquidity, pay down debt, and return capital to our shareholders through our quarterly dividend. With that, I would like to turn the call over to Chad for some final remarks.

Ralph D'Amico: We had a total debt of $28.75 million as of June 30th, 2024, down $4 million from the $32.75 million as of December 31st, 2023.

Ralph D'Amico: Our debt-to-trailing 12-month adjusted EBITDA was 1.32 times as of June 30, 2024. Much like last year, at this time when natural gas prices fell, our acquisition program remains disciplined, and if the deals in the marketplace do not generate a required return profile, we will not chase them. Also, it is important to note that we have an almost seven-year inventory of high-quality drilling locations, which means that we can continue to perform and grow production without chasing acquisitions that do not meet our underwriting criteria. We're happy to bill liquidity, pay down debt, and return capital to our shareholders through our quarterly dividend. With that, I would like to turn the call over to Chad for some final remarks.

Ralph D'Amico: Our debt-to-trailing 12-month adjusted EBITDA was 1.32 times as of June 30, 2024.

Ralph D'Amico: Much like last year, at this time, when natural gas prices fell, our acquisition program

Ralph D'Amico: remains disciplined, and if the deals in the marketplace do not generate a required return profile, we will not chase them.

Ralph D'Amico: Also, it is important to note that we have an almost seven-year inventory.

Ralph D'Amico: ofhigh-quality drilling locations which means that we can continue to perform and grow production withoutb chasing acquisitions that do not meet our underwriting criteria

Ralph D'Amico: We're happy to bill liquidity, pay down debt, and return capital to our shareholders through our quarterly dividend. With that, I would like to turn the call over to Chad for some final remarks.

Chad Stephens: We are very pleased with our achievements despite this challenging macro environment. The dramatic collapse in natural gas prices in early 2023 and lingering at historic lows currently have had a material impact on natural gas focus E&P's development activities, especially in Haynesville and Marcellus. As a mineral owner, we will also be impacted by this deferral. However, our business strategy is to acquire minerals in the core of our focus area with near-term development potential.

Ralph D'Amico: Thank you, Ralph.

Chad Stephens: We are very pleased with our achievements despite this challenging macro environment.

Chad Stephens: The dramatic collapse in the natural gas prices in early 2023 and lingering at historic lows currently has had a material impact on natural gas-focused E&P development activities, especially in the Haynesville and Marcellus.

Chad Stephens: As a mineral owner, we will also be impacted by this deferral. However, our business strategy is to acquire minerals in the core of our focus area with near-term development potential.

Chad Stephens: This can be seen by our continued steady well conversions that support our expected future multi-volume growth despite these various headwinds. As I stated a moment ago, we have created demonstrable value over the last four years that is not reflected in our stock price. I will continually stress this, supported by the portfolio we have built of high-quality assets with improved cast margins. A Mineral Interest in a Deep Inventory of Undeveloped Drilling Locations, which supply our well conversion and are categorized as probable reserves.

Chad Stephens: This can be seen by our continued steady well conversions that support our expected future multi-volume growth despite these various headwinds.

Chad Stephens: As I stated a moment ago, we have created demonstrable value over the last four years that is not reflected in our stock price.

Chad Stephens: I will continually stress this, supported by the portfolio we have built of high-quality assets with improved cast margins, a mineral interest, and a deep inventory of undeveloped drilling locations.

Operator: Good morning and thank you for attending today's PHX minerals June 30th, 2024, quarter and earnings conference call. At this time, all lines will be muted during the presentation of the call with an opportunity for a Q&A session at the end. As a reminder, this call is being recorded.

Chad Stephens: which supply our well conversion and are categorized as probable reserves.

Chad Stephens: This conversion rate, which Danielle discussed a moment ago and is explained in our slide presentation, has and will continue to drive increasing royalty volumes and cash flow over the next few years. As I did last quarter, I direct you to slide 7 of our newly posted IR presentation, which shows a 2P PV TIM reserve value at current non-extra prices of close to $300 million. This reserve value is validated by independent technical work performed by our outside third-party engineering firm, Colley Gillespie.

Chad Stephens: This conversion rate, which Danielle discussed a moment ago and is explained in our IR slide presentation, has and will continue to drive increasing royalty volumes and cash flow over the next few years.

Stephen Lee: I would now like to turn the call over to Stephen Lee with FNK IR. Please go ahead. Thank you operator.

Chad Stephens: as i did last quarter i direct you to slide seven of our newly posted ir presentation that reflect a twopbtim reserve value at current nomic trip prices of close to three hundred million dollars

Stephen Lee: Good morning and thank you for joining us today to discuss PHX minerals June 30th, 2024, quarterly results. Joining us on the call today are Chad Stephens, President and Chief Executive Officer, Ralph Demiko, Executive Vice President and Chief Financial Officer, and Danielle Mezo, Vice President of Engineering. The earnings press released that was issued yesterday after the close is also posted on PHX investor relations website. Before I turn the call over to Chad, I'd like to remind everyone that during today's call including the Q&A session, management may make four-looking statements regarding expected revenue, earnings, future plans, opportunities, and other expectations of the company.

Speaker Change: This reserve value is validated by the independent technical work performed by our outside third-party engineering firm, Colley Gillespie.

Chad Stephens: If natural gas prices return to a more normal mid-price cycle and are driven by the growing demand catalyst to which I earlier referred, that PV10 value reflected on slide 7 would be dramatically higher. We also show in the appendix of our IR presentation the timing of the new LNG export capacity from the Gulf Coast, which we continually emphasize. Once in service, this will help bring natural gas prices into that mid-price to upper range and, when increased operator activity occurs, increase our royalty production volumes and cash flow.

Chad Stephens: if natural gas prices returned to a more normal mid-price cycle and driven by the growing demand catalysts to ach earlier referred that that pd tten value reflected on slide seven would be dramatically higher

Chad Stephens: we also show in the appendix

Speaker Change: of ourir presentation the timing of the new lng export capacity from the gogulf coast which we continually emphasize once in service

Stephen Lee: These estimates and other four-looking statements involve known and unknown risk and uncertainties that may cause actual results of a material that is different from those expressed or implied on the call. These risks are detailed in PHX minerals, most recent annual report on Form 10K, as such may be amended or supplemented by subsequent quarterly reports on Form 10Q and other reports filed with the Security and Exchange Commission. The statements made during this call are based about information known to PHX as of today, August 8th, 2024, and the company does not intend to update these four-looking statements with as a result of new information, future events, or otherwise unless required by law.

Chad Stephens: This will help bring natural gas prices into that mid-price to upper range and when increased operator activity, increase our royalty production volumes and cash flow.

Chad Stephens: Since 2020 and to date, we have spent approaching $140 million acquiring the current mineral position in The Scoop and Haynesville. PHX's current enterprise value is roughly $145 million, with a PB10 reserve value, as I mentioned earlier, of around $300 million.

Chad Stephens: We recognize this disconnect between these facts and our current stock price, which I continue to stress. We will work every day searching for the best way to reward our shareholders and close this gap. As always, I thank both our employees and board of directors for their dedication and hard work. This concludes the prepared remarks portion of the call. Operator, please open up the queue for questions. Thank you.

Chad Stephens: With that, I'll turn the call over to Chad Stevens, PHX Chief Executive Officer, Chad. Thanks, Stephen. And thanks to all of you on this call for participating in PHX's June 30, 2024 quarter in earnings conference call. We appreciate your interest in the company. The macro environment in which we are operating continues to be challenging, commodity prices remain suppressed. Total reactivity in the lower 48 is down, especially in the natural gas patients, while will supply demand fundamentals for both oil and gas appear to be mirroring equilibrium.

Chad Stephens: As always, I thank both our employees and board of directors for their dedication and hard work.

Chad Stephens: this concludes the prepared remarks portion of the call operator please open up the key for questions

Operator: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on the telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. Ladies and gentlemen, we will wait for a moment while we poll you for questions. The first question is from Charles Meade with Johnson Rice. Please go ahead.

Operator: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on the telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. Ladies and gentlemen, we will wait for a moment while we poll you for questions. The first question is from Charles Meade with Johnson Rice. Please go ahead.

Speaker Change: Thank you.

Operator: You may press star and 2 if you would like to remove your question from the queue.

Chad Stephens: For natural gas, depending demand from new LMG export facilities, as well as increased demand for natural gas to meet growing AI-generated power demand is clearly on the horizon. This forecasted increase in demand provides optimism reflected in the natural gas non-extric price contango, longer-dated prices higher than near-term prices. Even in the near-term rather challenging environment, which obviously includes the sudden onset of market volatility and interest rate uncertainty, PHX is achieving noticeable results.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: Ladies and gentlemen, we will wait for a moment while we poll for questions.

Speaker Change: The first question is from Charles Smeed with Johnson Rice. Please go ahead.

Charles Meade: This morning, Chad, to you and Ralph, Danielle, and the rest of the PHX team there. Thanks, Charles.

Charles Meade: This morning, Chad, to you and Ralph, Danielle, and the rest of the PHX team there.

Chad Stephens: You guys, I think, are justifiably pleased with the way that 2Q turned out, especially, you know, you mentioned it as being, you know, record production since 2Q18. So, you know, the roll of the dice certainly went your way this quarter, if that's a workable metaphor, but what I'm curious about is how much of an outlier this quarter was. I mean, you know, you could frame it any way you want, but maybe, you know, one way of thinking about it is, is this a once in every four quarter kind of result?

Charles Meade: You guys, I think, are justifiably pleased with the way that 2Q turned out, especially, you know, you mentioned it as being, you know, record production since 2Q18. So, you know, the role of the dice certainly went your way this quarter, if that's a workable metaphor, but what I'm curious about is how much of an outlier this quarter was. I mean, you know, you could frame it any way you want, but maybe, you know, one way of thinking about it is, is this a once in every four quarter kind of result?

Speaker Change: Thanks, Charles.

Chad Stephens: You guys, I think, are justifiably pleased with the way that 2Q turned out, especially, you know, you've mentioned that it's record production since 2Q18.

Chad Stephens: To put today's reported results in context, I would like to remind you that four years ago, PHX's production volume and reserve mix was almost 70 percent non-opworking interest and 30 percent oil, over the last four years the company has divested of a material portion of its non-opworking interest. Today that makes his flip with royalty volumes and reserves representing approximately 90% and non-opworking interest about 10%. This has been consistent with our stated strategy to transition to a mineral only focus which we have regularly communicated to the market.

Chad Stephens: Or is this a once in a 16 quarter kind of result? I know you might not be able to be precise there, but if you could just guide our interpretation of this really great quarterly result you just put up.

Chad Stephens: um

Chad Stephens: So, you know, the role of the dice certainly went your way this quarter, if that's a workable metaphor. But what I'm curious about...

Charles Meade: Or is this a once in every..., you know, 16 quarter kind of result? I know you might not be able to be precise there, but if you could just guide our interpretation of this really great quarterly result you just put up.

Chad Stephens: is how much of an outlier is this quarter? I mean, you know, you could frame it any way you want, but maybe, you know, one way of thinking about it is, is this a, you know, once in every four quarter kind of result? Or is this a once in every...

Chad Stephens: You know, 16 quarter kind of result, and I know you might not be able to precise there, but if you could just guide our interpretation of really this great quarterly result you've just put up.

Chad Stephens: As we divested of the non-op working interest we redeployed the sale proceeds into minerals in our core focus areas. During this four-year transition we were growing royalty volumes achieving a kegur for royalty volumes of almost 30%. But during this period of significant working interest divestiture our total reported corporate volumes remain basically flat. Royalty volume growth offset by working interest divestiture.

Chad Stephens: Yeah, I can say Charles that looking over the last four years and that compounded annual growth rate, royalty growth rate of close to 30%, speaks to that pace of development that's feeding that growth. And that growth is coming from our undeveloped inventory of locations that are being developed quarter over quarter and year over year. So what's happened in the past will continue to happen in the future.

Chad Stephens: Yeah, I can say, Charles, that looking over the last four years, that compounded annual growth rate, royalty growth rate of close to 30% speaks to that pace of development that's feeding that growth. And that growth is coming from our undeveloped inventory of locations that are being developed quarter over quarter and year over year. So what's happened in the past will continue to happen in the future, maybe not to the magnitude it was in this particular quarter, but we are pleased with and will continue to see this steady growth quarter over quarter and year over year.

Chad Stephens: Yeah, I can say Charles that looking over the last four years and that

Chad Stephens: compounded annual growth rate, royalty growth rate of close to 30% speaks to that pace of development that's feeding that growth.

Chad Stephens: and that growth is coming from our undeveloped inventory of locations that are being developed

Chad Stephens: For this June 30 quarter two things really stand out. Total corporate volumes are the highest quarterly volumes since Q2 of 2018 which reflects the successful replacement of the divested working interest volumes with high-quality high-margin royalty interest volumes. Two are continued steady annual royalty volume growth of that 30% I just spoke demonstrates the quality of minerals we have acquired that includes a deep inventory of undeveloped locations that are being actively developed and contributing to our annual volume growth.

Chad Stephens: Quarter over quarter and year over year. So what's happened in the past will continue to happen in the future, maybe not to the magnitude it was this particular quarter.

Chad Stephens: Maybe not to the magnitude it was in this particular quarter, but we are pleased with and will continue to see this steady quarter over quarter and year over year. Just focus on the royalty volume growth, not necessarily the corporate. I tried to differentiate between the two in my opening comments, but we're excited obviously about this outlying quarter, but we continue to see the pace of development that we've seen in the past going forward, and we'll continue to see this similar quarter-over-quarter and year-over-year royalty volume growth. Ralph, do you want to add to that?

Ralph D'Amico: But we are pleased with and will continue to see this steady quarter-over-quarter and year-over-year. It's focused on the loyalty, volume, and growth, not necessarily the corporate.

Chad Stephens: It's focused on royalty volume growth, not necessarily the corporate side. I tried to differentiate between the two in my opening comments, but we're excited obviously about this outlying quarter, but we continue to see the pace of development that we've seen in the past going forward, and we'll continue to see this similar quarter-over-quarter and year-over-year royalty volume growth. Ralph, do you want to add to that?

Chad Stephens: I tried to differentiate between the two in my opening comments, but we're excited obviously about this outlying quarter, but we continue to see the pace of development that we've seen in the past going forward, and we'll continue to see this similar quarter-over-quarter and year-over-year royalty volume growth.

Chad Stephens: I call out slides 13 14 and 15 in our most recent IR slide deck that explains this development of our undeveloped inventory. The impressive quarter over sequential quarter volume growth of about 40% that we are reporting this quarter is in part due to high interest high impact wells turn to sales in both the hangsville and scoop of Oklahoma. Absent these somewhat anomalous wells we would have still reported compelling double digit percent quarter over quarter volume growth from development across our portfolio reflecting the quality of our deep undeveloped location inventory I just mentioned.

Ralph D'Amico: Yeah, I you know, I think that's well said and the only thing I would add is that you know, look I mean, obviously there were some high-interest wells that came on during the quarter, but I don't believe that that's abnormal It's a matter of when they come on. I mean we have I think as Danielle mentioned we have several other High interest wells high impact well similar to these that are in the process of being developed You know, obviously as we mentioned we don't control timing so it's hard to pinpoint what specific quarter But there's no doubt that their operators spending money on similar wells to these on our minerals where we own Similar percentages of the well as we speak here today So it's just a matter of time It's just a matter of time and you know You as we talked about you kind of have to look at it over several quarters not just at one particular point in time

Ralph D'Amico: Yeah, I you know, I think that's well said and the only thing I would add is that you know, look I mean, obviously there were some high-interest wells that came on during the quarter, but I don't believe that that's abnormal It's a matter of one day. Come on. I mean we have I think as Danielle mentioned we have several other High interest wells high impact well similar to these that are in the process of being developed You know, obviously as we mentioned we don't control timing so it's hard to pinpoint what specific quarter But there's no doubt that their operators spending money on similar wells to these on our minerals where we own Similar percentages of the well as we speak here today So it's just a matter of time It's just a matter of time and you know You as we talked about you kind of have to look at it over several quarters not just at one particular point in time

Ralph D'Amico: Ralph, you want to add to that?

Ralph D'Amico: several other high-interest wells, high-impact wells similar to these that are in the process of being developed.

Ralph D'Amico: You know, obviously, as we mentioned, we don't control timing, so it's hard to pinpoint what specific quarter.

Ralph D'Amico: But there's no doubt that their operators are spending money on similar wells to these on our minerals where we own similar percentages of the well as we speak here today.

Ralph D'Amico: So, it's just a matter of time and, you know, as we talked about, you kind of have to look at it over several quarters, not just at one particular point in time.

Chad Stephens: The challenging environment highlights the flexibility of our business model and the ability to quickly allocate more capital toward reducing debt. Since year in 2023 the company has reduced debt from 32.75 million to 28.75 million providing a strong leverage metric under 1.5. Maintaining a strong balance sheet is a priority focus for us given the demonstrable value of our assets that we feel is not reflected in our stock price every dollar of debt reduction should be a direct benefit to our equity value.

Charles Meade: Got it. Thank you for that. And then if I could kind of maybe go further afield with my second question, stepping away from the Hainesville and the scoop, my understanding there's been an uptick in activity from a lot of private operators in the western Anadarko targeted a Cherokee sale and more recently there's a public company, made an acquisition in the Cherokee Shale and then when I look at your slide five It looks to me like you might have some exposure to that play, so could you kind of, you know, quantify that or maybe characterize what kind of activity you might be seeing around anything you hold out there?

Charles Meade: Got it. Thank you for that. And then, if I could kind of maybe go further afield with my second question, stepping away from the Hainesville and the scoop, my understanding is there's been an uptick in activity from a lot of private operators in the western Anadarko targeted a Cherokee sale and more recently there's a public company, made an acquisition in the Cherokee Shale and then when I look at your slide five It looks to me like you might have some exposure to that play, so could you kind of, you know, quantify that or maybe characterize what kind of activity you might be seeing around anything you hold out there?

Charles Meade: gotd it got thank you for that and then if i could go further feel of my second question stepping away from the haines of the scoop my understand there's been an uptick activity

Charles Meade: from a lot of private operators in the western Anadarko targeted a Cherokee sale and more recently there's a a public company

Speaker Change: made an acquisition in the Cherokee Shale. And when I look at your slide 5

Chad Stephens: This balance sheet focus includes an active hedging program to protect fixed costs and the ability to execute our annual budget. We also provide more detail of hedges in a moment. We have also closed on approximately 3.5 million of mineral acquisitions year-to-date in both the Scoop and Hainesville with several other opportunities currently being evaluated.

Charles Meade: It looks to me like you might have some exposure to that play, so could you kind of quantify that or maybe characterize what kind of activity you might be seeing around anything you hold out there?

Chad Stephens: Yeah, we've, we've watched that. We do have some legacy minerals out there, And as it's matured, as the play has matured and become de-risked. We've kind of done a little to kind of get our toe in the water, so to speak, to test the waters, and acquire some minerals. And it's already gotten so frothy out there that it just doesn't meet. It doesn't meet our economics, so we've not had any real success in being able to acquire and consolidate some minerals out there, but it is a real play, yeah, and I think that acquisition speaks to the credibility and the validity of it, but from a mineral perspective, it's already gotten pretty frothy, so we're going to step back and just kind of watch.

Chad Stephens: Yeah, we've watched that. We do have some legacy minerals out there. And as it's matured, as the play has matured and become de-risked, we've... kind of done a little, to kind of get our toe in the water, so to speak, to test the waters, to acquire some minerals, and it's gotten so, already so frothy out there that it just doesn't meet. It doesn't meet our economics, so we've not had any real success in being able to acquire and consolidate some minerals out there, but it is a real play, yeah, and I think that acquisition speaks to the credibility and the validity of it, but from a mineral perspective, it's already gotten pretty frothy, so we're going to step back and just kind of watch it.

Chad Stephens: yeah we we've watched that we do have some legacy minerals out there and as it's

Chad Stephens: Another highlight this quarter is the board's decision to increase our dividend by a pinion quarter or an annual increase of 33% to 16 cents per share. Since March 2020, we have now increased the dividend by 400%. This demonstrates the conviction, management, and the board share in the ability to execute on our strategy and the quality of our existing assets, regardless of the macro environment. As Danielle will discuss in a moment, activity on and around our minerals continue to drive year-over-year steady-value growth. We are especially excited about the material increase in development activity we are witnessing in our Springboard 3 area of the Scoop in Oklahoma.

Chad Stephens: As it's matured, as the play has matured and become de-risked, we've kind of done a little

Chad Stephens: to kind of again our toe in the water so speak to test the waters to acquire some minerals and it's gotten so already so froy out there that it just does't meet

Chad Stephens: it does' meet our economics so we've not had any real success in being able to acquire consolidate some minerals out there v is it is a real play yet and it's i think that acquisition speaks to

Chad Stephens: The credibility and the validity of it, but it's it's already from a mineral perspective has already gotten pretty Frothy so we're going to we're going to step back and just kind of watch from the sidelines

Chad Stephens: Yeah, so we're not focused on acquiring additional minerals there, but we do have a substantial amount of minerals in that area, and we've seen a significant number of well development on certain sections that we own, including some high-interest sections where we have quite a few minerals. And we've also seen a step up in the leasing activity on our non-producing minerals in the area as well. So we're not adding to it, but you're correct, Charles. We have some good exposure to it, and we will certainly benefit from that additional industry activity there. Thank you.

Chad Stephens: Yeah, so we're not focused on acquiring additional minerals there, but we do have a substantial amount of minerals in that area, and we've seen a significant number of well development on certain sections that we own, including some high-interest sections where we have quite a few minerals. And we've also seen a step up in the leasing activity on our non-producing minerals in the area as well. So we're not adding to it, but you're correct, Charles, we have some good exposure to it, and we will certainly benefit from that additional industry activity there. Thank you.

Speaker Change: But you did have some luck.

Chad Stephens: To recap this quarter's highlights, a highest corporate volume since 2018, b quarter-over-quarter royalty volume increase of 46%, reduced debt by 4 million or 12%, and increased dividend by 33%, which represents a 400% increase since March 2020.

Chad Stephens: yeah so so we're not focused on acquiring additional minerals there but we do have a substantial amount of minerals in that area and we've seen a significant number of well development on on on on

Chad Stephens: on certain sections that we own in, including some high-interest sections where we had...

Danielle Mezo: At this point, I would like to turn the call over to Danielle to provide a quick operational overview and then Ralph to discuss the financials. Danielle? Thanks, Chad, and good morning to everyone participating on the call. For our quarter-ended June 30th, 2024, total corporate production increased 40% from the quarter-ended March 31st, 2024, to 2968 NNCSE. This represents the highest quarterly corporate production figure since the quarter-ended June 30th, 2018. Royalty Projection for the quarter increased 46% to 2709 NNC, compared to the prior sequential quarter, which is an all-time quarterly record for P.A.

Chad Stephens: quite a few minerals. And we've also seen a step up in the leasing activity on our non-producing minerals in the area as well. So we're not adding to it, but you're correct, Charles. We have some good exposure to it, and we will certainly benefit from that additional industry activity there.

Charles Meade: Thank you. That'll be interesting to watch. Thank you for your answer.

Charles Meade: Thank you. That'll be interesting to watch. Thank you for your answers.

Jeff Grampp: Thank you. The next question is from Jeff Grampp with Alliance Global Partners. Please go ahead.

Operator: Thank you. The next question is from Jeff Grampp with Alliance Global Partners. Please go ahead.

Speaker Change: Thanks, Charles.

Speaker Change: Thank you. The next question is from Jeff Grampp with Alliance Global Partners. Please go ahead.

Jeff Grampp: I'm curious if you guys could take out your crystal balls for me here. Obviously, the guide implies some declines in the back half of the year, which is not at all surprising given what you guys reported here in Q2. But when do you guys think that that potentially bottoms again? I know you kind of have to build back up that activity funnel, still at a solid level, but you've kind of been drawing down on it for a couple quarters. Can the start of 2025 resume that sequential growth, or how do you guys potentially see the next several quarters playing out, as best you can kind of see it today?

Jeff Grampp: I'm curious if you guys could take out your crystal balls for me here. Obviously, the guide implies some declines in the back half of the year, which is not at all surprising given what you guys reported here in Q2. But when do you guys think that this potentially bottoms again? I know you kind of have to build back up that activity funnel, still at a solid level, but you've kind of been drawn down on it for a couple quarters. Can the start of 2025 resume that sequential growth, or how do you guys potentially see the next several quarters playing out, as best you can kind of see it today?

Speaker Change: Hey guys, thanks for the time.

Speaker Change: I'm just curious if you guys could take out your crystal balls.

Speaker Change: for me here. Obviously, the guide...

Danielle Mezo: Jaxx. The volume increase during the quarter is primarily associated with several high-interest high-impact Haynesville wells coming online. Recall that we mentioned during last quarter's call that we are expecting these wells to come online in the near term. While we have a number of other high-interest wells currently in the process of being developed, it is challenging to estimate first production to any specific quarter. It is important to note that as a mineral holder, we do not control timing on well development, so there can be some volatility, both up and down, on a quarter-to-quarter basis, and volumes associated with our business model are better evaluated on a rolling 12-month basis.

Speaker Change: implies some declines in the back half of the year which

Jeff Grampp: what you think of the latest trend?

Speaker Change: resume that sequential growth? Or how do you guys potentially see the next, you know, several quarters playing out as best you can kind of see it today?

Chad Stephens: Raph, why don't you start that answer?

Ralph D'Amico: Raph, why don't you start that answer? Sure.

Ralph D'Amico: Sure, so, yeah, I mean, look, I mean, I think, you know, as we look at, you know, as we look at the next 12 months, we continue to see activity, you know, and while the wells in progress inventory got drawn down a little bit, I would say, again, it's one of those things where, you know, we use 630 data, it's at one point in time, I would tell you that So what that means is that, you know, the operators are continuing to permit new locations on our minerals, right?

Ralph D'Amico: Raph, why don't you start that answer.

Speaker Change: sure so yes i mean look i mean i think as we look at as we look at the next twelve months we continue to see

Danielle Mezo: Royalty volumes represented 91% of total production during our June 30th, 2024 quarter. 83% of our quarter's production volumes were natural gas, which aligns with our long-term position that natural gas is the key transition fuel for a sustainable energy future. Oil represented 10% of production volumes, and NGL represented 7%. During Q2 2024, third-party operators active on our mineral acreage, converted 55 gross, or 0.4 net wells in progress or width, to producing wells compared to 85 gross and 0.32 net in the prior sequential quarter.

Ralph D'Amico: You know, we continue to see activity.

Ralph D'Amico: You know, and while the wells in progress inventory got drawn down a little bit, I would say, again, it's one of those things where, you know, we use 630 data, it's at one point in time, I would tell you that if you were to look at the number today, it's already higher.

Ralph D'Amico: Right, so what that means is that, you know, the operators are continuing to to permit

Ralph D'Amico: new locations on our minerals, right? And they're continuing to convert, right? So I think that even if we maintain the same pace over the next 12 months...

Ralph D'Amico: And they're continuing to convert, right? So I think that even if we maintain the same pace over the next 12 months, maybe a little bit higher, as we've seen over the last several quarters, right? 25 should look better than 24 from a volume standpoint, uh... obviously, it's very dependent upon commodity prices and what the operators decide to do, which we don't control right, so there's a big if there, but on what we see today, we're very optimistic that, you know, over several quarters, you're going to continue to see that upward trend.

Danielle Mezo: The higher net number compared to lower gross number reflects the high-interest handsel wells mentioned earlier converting to production. We are very pleased with our well-conversion rates, particularly given the challenging natural gas macroenvironment, which includes some operators deferring bringing wells online until there is an improvement in natural gas prices. At the same time, our inventory of wells and progress on our minerals, which includes ducks, well-being drilled, and permits files, remains strong, with 241 gross or 0.927 net wells, compared to 230 gross or 1.09 net at the end of March 31, 2024.

Ralph D'Amico: you know maybe a little bit higher as we you know as we've seen over the last several quarters right 25 should look better than 24 from a volume standpoint

Ralph D'Amico: You know, obviously it's very dependent upon commodity prices and what the operators decide to do, which we don't control, right? So there's a big if there, but on what we see today, we're very optimistic that, you know, over several quarters, you're going to continue to see that upward trend.

Chad Stephens: And let's just remind you, Jeff, just to remind you... over the last four years, as I was answering Charles' question and as you talk about what we're thinking around 2025, all of this royalty volume growth, growth, I highlight that word, is on top of what's kind of a corporate royalty decline rate for us, in excess of 25 percent. So we're able to replace that decline rate and grow our royalty volume reserves because of the quality of this inventory I keep kind of highlighting. Does that make sense?

Danielle Mezo: The continued track record of well-conversions and replenishment of the inventory of wells and progress or width reflects the high-quality portfolio of assets we have assembled to provide steady, sustainable growth, future growth. In addition to our width, we regularly monitor third-party operator rig activities in our focus areas and observe 15 rigs present on PHX minerals acreage as of July 8, 2024. Additionally, we had 60 rigs active within 2.5 miles of PHX ownership. In summary, we continue to see steady development in both our legacy and recently acquired mineral assets, which should lead to annually increasing royalty volumes.

Chad Stephens: And let's just remind, Jeff, just to remind you...

Chad Stephens: Over the last four years, as I was answering Charles' question and as you talk about

Chad Stephens: What we're thinking around 2025, all of this royalty volume growth, growth, I highlight that word, is on top of what's kind of a corporate royalty decline rate for us in excess of 25%.

Chad Stephens: So, we're able to replace that decline rate and grow our royalty volume reserves because of the quality of this inventory I keep kind of highlighting. Does that make sense?

Ralph Demiko: Now, I will turn the call back to Ralph to discuss financial. Thanks Danielle, and thanks for everybody for being on the call today. For the second quarter end of June 30, 2024, natural gas, oil, and NGL sales revenues increased 39% to 9.8 million compared to the prior sequential quarter, due primarily to an increase in production volumes of 40% and a decrease in realized prices of about 1% on an MCFE basis to $3.31 from $3.35 in Q1, 2024.

Jeff Grampp: Yeah, absolutely. I understand there's no perfect answer there, but I appreciate the details and thoughts.

Speaker Change: Yeah, absolutely. I understand there's no perfect answer there, but I appreciate the details and thoughts.

Jeff Grampp: My follow-up is more on the modeling guidance side. You guys made some revisions on the GP&T guidance front. Is that something – it sounded like, Ralph, I think you hit on that that just kind of depends upon the structure of these specific royalty assets that are driving production in any given quarter. Is there a way for us on the outside to really take that into account or kind of get a handle on that as we kind of build our modeling? Or is this just something that's kind of idiosyncratic depending upon any given quarter and kind of the makeup of the assets that kind of build up to that production? Yeah.

Jeff Grampp: My follow-up's more on the modeling guidance side. You guys made some revisions on the GP&T guidance front. Is that something, it sounded like, Ralph, I think you hit on, that that just kind of depends upon the structure of these specific...

Jeff Grampp: Royalty assets that are driving production in any given quarter. Is there a way for us on the outside to really?

Jeff Grampp: take that into account or kind of get a handle on that as we kind of build our modeling or is this just something that's kind of idiosyncratic depending upon, you know, any given quarter and kind of the makeup of the assets that kind of build up to that production.

Ralph Demiko: Realized natural gas prices averaged for Q2, 2024 were $2.05 per MCF compared to $2.10 in Q1, 2024. Realized oil prices averaged $77.38 up 2% from Q1, 24, and NGL prices averaged $23.75 up 10% from Q1, 24. Realized hedge gains for the quarter were 1.18 million, approximately 38% of our natural gas, 25% of our oil, and 0% of our NGL production volumes were hedged at average prices of $3.28 per MCF and $73.29 per barrel.

Ralph D'Amico: Yeah, it's perfectly imperfect in the sense that, you know, that's why we kind of give you a range, right? Because in any particular quarter, you know, if you have, you know, two cost-free wells, two cost-free lease wells coming online instead of... two, you know, and I'm making up a number, two cost-bearing wells coming online, that number can shift one way or the other, right, because, you know, particularly if they're high-interest wells.

Ralph D'Amico: Yeah, it's perfectly imperfect in the sense that, you know, that's why we kind of give you a range, right, because on any particular quarter, you know, if you have, you know, two cost-free wells, two cost-free lease wells coming online instead of...

Ralph D'Amico: to, you know, and I'm making up a number, two cost-bearing wells coming online, that number can shift one way or the other, right, because...

Ralph D'Amico: So, you know, clearly, some of these wells that came on are cost-bearing, and that's what drove those numbers, and they came online a little bit sooner than we had expected, which is sort of driving us to move that number up, because more of the year will have the impact of having to pay those expenses from those additional volumes.

Ralph D'Amico: you know, particularly if they're high-interest wells.

Ralph D'Amico: So, you know, clearly, you know, these, some of these wells that came on are cost-bearing and that's what drove

Ralph Demiko: Most of these hedge contracts were added over the course of the last 24 months. We continue to be consistent with our hedge program and believe it is doing what it is meant to do. Protect us on the downside. Approximately 42% of our anticipated foyer 2024 natural gas production at the midpoint of our guidance has downside protection at approximately $3.34. On the oil side, approximately 35% of our anticipated production at the midpoint of our guidance is downside protection at approximately 65, 48 per barrel.

Ralph D'Amico: those numbers, and they came online a little bit sooner than what we had expected, which is sort of driving us moving that number up because more of the year will have the impact of having to pay those expenses from those additional volumes.

Jeff Grampp: Okay, understood. That makes sense, and I appreciate the details. Thank you, guys.

Speaker Change: Okay, understood. That makes sense and I appreciate the details. Thank you guys.

Operator: Thank you. The next question is from Donovan Schafer with Northland Capital Markets.

Operator: The next question is from Donovan Schafer with Northland Capital Markets.

Donovan Schafer: Thanks, Chad.

Speaker Change: Thank you. The next question is from Donovan Schafer with Northland Capital Markets. Please go ahead.

Donovan Schafer: Hey guys, thanks for taking the questions. So, first, I want to ask you about the, you know, and congratulations on the quarter when you said that you're going to return to growth now that you've completed this four-year transformation. You were not kidding, as this particular quarter shows. So well done there.

Donovan Schafer: Hey guys, thanks for taking the questions. So, first I want to ask, you know, you described the, you know, and congratulations on the quarter.

Ralph Demiko: We structure our natural gas hedges using both swaps and costless collars, which means that we also have upside exposure in certain volumes to the $4.05 range, while still maintaining floors in the $3 or above range. Our current hedge position is available in our recently filed 10Q, which also includes some additional hedges which we added during the quarter for the calendar 2025 period. Total production or total transportation gathering and marketing increased 83% on a sequential quarterly basis to 1,540,000, primarily due to higher volumes coming on during the quarter.

Donovan Schafer: you know when you when you said that you're going to return to growth and now that you've completed this you know four-year transformation you were not kidding as this particular quarter shows so well done there but I want to say you know you talk about the

Donovan Schafer: But I want to say, you know, you talk about the – there are some, you know, somewhat anomalous wells, in the sense of them being high interest, but you also say high impact, and is that just kind of synonymous or saying, you know, because they're high interest, it has a high impact on their financials, or was there some other attribute in the wells? I mean, were they unusually, you know, exceptionally prolific wells that just performed fantastically well?

Donovan Schafer: There are some, you know, somewhat anomalous wells this quarter.

Donovan Schafer: in the sense of them being...

Donovan Schafer: high interest, but you also say high impact, and is that just kind of like, synonymous or saying because they're high interest it has a high impact on their financials, or was there some other attribute in the wealth? I mean were they unusually

Ralph Demiko: And it's also important to note that a significant amount of those new volumes come from cost bearing leases, which includes the mineral holder paying their proportionate share of the transportation gathering and marketing fees. Production and advalorem taxes increased 52% on a sequential quarter over quarter basis to approximately $598,000 due to slightly higher prices and higher production volumes, primarily in Louisiana, where taxes are based on volumes and not on revenue. L.O.E, associated with our legacy non-operated working interest wells decreased 11% on a sequential quarter basis to 294,000, primarily due to lower workover expenses.

Donovan Schafer: you know, exceptionally prolific wells that just perform fantastically well.

Donovan Schafer: And you seemed to kind of know in advance, I mean, you would know that they were high interest, but were you able to anticipate that this was just like a really attractive area of the Haynesville, and so you knew these were going to be some very, you know, juicy, prolific wells coming online, or did they just turn out fortunately to be so good? Yeah, no, I think, Donovan, I think, so the answer is, so the Haynesville wells, right, relative to wells in Oklahoma, come in at a much higher rate, so if you have, and we had a combination of high interest wells in both places come online, right, but clearly the Haynesville wells come in at a much higher rate than an Oklahoma well, right, and so the more Haynesville wells you have come online relative to Oklahoma, the more impact you're going to have, right, so if I have, if this quarter, if you flip-flopped it, right, and you had more Oklahoma wells versus Haynesville wells, the volume would have been a little bit lower, right, so that's the point that Chad was trying to make earlier, that if you normalize that, you know, sort of the high impact part of it, right, and you try to normalize and sort of say, what would it be if it was, you know, if it was sort of more evenly spread, you still would have seen the highest quarter since 2018 from a volume standpoint, and you still would have seen, you know, substantial growth on a sequential quarter basis, so it's, you know, that's what we mean by it, depending on the location, you can have, you know, higher first three months of production versus other areas. Okay, that's helpful.

Donovan Schafer: And you seem to kind of know in advance, I mean, you would know that they were of high interest, but...

Speaker Change: Did you, were you able to anticipate that this was just like a really attractive area of the Hainesville and so you knew these were going to be some very, you know, juicy, prolific wells coming online?

Speaker Change: Did they just

Donovan Schafer: Yeah, no, I think, I think Donovan, I think, so the answer is, so the Haynesville wells, right, relative to wells in Oklahoma, come in at a much higher rate.

Donovan Schafer: So, if you have...

Donovan Schafer: And we had a combination of high-interest wells in both places come online, right? But clearly the Haynesville wells come in at a much higher rate than an Oklahoma well, right? And so the more Haynesville wells you have come online relative to Oklahoma, the more impact you're going to have.

Ralph Demiko: Cash GNA decreased 23% to 2.04 million compared to the prior sequential quarter, or Cash GNA is typically higher in the first and fourth quarters, calendar quarters of the year compared to the second and third quarters, due to professional fees associated with items such as our 10K and our shareholder meeting. Adjusted EBITDA was up 6.4 million in our Q2 2024 period compared to 4.6 million in Q1 24. The increase in EBITDA, as discussed earlier, is due to higher production volumes, lower cash GNA, and the successful implementation of our hedging strategy offset by the higher transportation gathering and marketing expenses and production taxes associated with the new wells that are from cost bearing leases coming online during the quarter.

Donovan Schafer: Right. So if I have.

Donovan Schafer: if this quarter if you flip-flopped it, right, and you had more Oklahoma wells versus Hainesville wells, the volume would have been a little bit lower.

Donovan Schafer: Right, so that's the point that Chad was trying to make earlier that if you normalize that, you know, sort of the...

Donovan Schafer: the high-impact part of it, right?

Donovan Schafer: and you try to normalize and sort of say what would it be if it was, you know, if it was sort of more evenly spread, you still would have seen the highest quarter.

Donovan Schafer: since 2018 from a volume standpoint, and you still would have seen, you know, substantial growth on a sequential quarter basis. So, it's, you know, that's what we mean by it. Depending on the location, you can have, you know, higher first three months of production versus other areas.

Ralph Demiko: Net income for the quarter was 1.3 million or 4 cents per diluted share. We had a total debt of 28.75 million as of June 30, 2024, down 4 million from the 32.75 million as of December 31, 2023. Our debt to trailing 12-month adjusted EBITDA was 1.32 times as of June 30, 2024. Much like last year, at this time when at your gas prices fell, our acquisition program remains disciplined and if the deals in the marketplace do not generate or required return profile, we will not chase them.

Donovan Schafer: And then kind of related to that, and I understand what you're saying about the Hainesville wells that they come on so strong, and this kind of, I think, maybe ties a little bit into Jeff's question, with like the guidance, you know, the increase in the guidance, but then you've got this, you know, this quarter, some of that's reflective of these wells that come on so strong but also decline quite quickly. Chad, you know, you mentioned you've got a greater than 25% annual decline rate in these wells that you've got the royalty.

Donovan Schafer: And then kind of related to that, and I understand what you're saying with the Hainesville wells, that they come on so strong. And this kind of, I think, maybe ties a little bit into Jeff's question, with like the guidance, you know, the increase in the guidance, but then you've got this quarter, some of that's reflective of these wells that come on so strong but also decline quite quickly. Chad, you know, you mentioned you've got a greater than 25 percent annual decline rate in these wells, that you've got the royalty.

Speaker Change: Okay, that's helpful.

Donovan Schafer: And then kind of related to that, and I understand what you're saying with the Haines oil wells that they come on so strong.

Donovan Schafer: and this kind of i think maybeties a little bit just question like the guidance the increase in the guidance but then you've got these

Ralph Demiko: Also, it is important to note that we have an almost 70-year inventory of high-quality drilling locations, which means that we can continue to perform and grow production without chasing acquisitions that do not meet our underwriting criteria.

Donovan Schafer: you know, this quarter, some of that's reflective of...

Donovan Schafer: These wells that come on so strong but also decline quite quickly. Chad, you know, you mentioned you've got a greater than 25% annual decline rate in these wells that you've got the royalty interest.

Donovan Schafer: So when I kind of put that together, and I, you know, just looking at and kind of playing with my own model. It seems like without even really, you know, raising what I had in for Q3, Q4, type S, and putting in what you guys did this quarter, I kind of end up landing pretty darn close to the midpoint of the revised guidance, which makes it seem almost as though... You're not allowing for much of a contribution from these wells in this quarter to carry forward.

Donovan Schafer: So, when I kind of take that together and I, you know, just looking at and kind of playing with my own model.

Ralph Demiko: We're happy to build liquidity, pay down debt, and return capital to our shareholders through our quarterly dividend.

Donovan Schafer: It seems like without even really, you know, raising what I had in for Q3, Q4 type estimates,

Chad Stephens: With that, I would like to turn the call over to Chad for some final remarks. Thank you, Ralph. We are very pleased with our achievements despite this challenging macro-environment. The dramatic collapse in the natural gas prices in early 2023 and lingering at historic lows currently has had a material impact on natural gas-focused ENPs development activities, especially in the Hainesville and Marcelles. As a mineral owner, we will also be impacted by this deferral.

Donovan Schafer: Just putting in what you guys did this quarter, I kind of end up landing pretty darn close to kind of the midpoint of the revised guidance, which makes it seem almost as though...

Speaker Change: You know, you're not allowing for much of a contribution from these laws in this quarter to carry forward.

Donovan Schafer: You know, it could just be my modeling error or whatever, but is there a certain amount of conservatism in here where you're really expecting the Hainesville Wells to come down pretty quickly or pretty aggressively? Or is it, you know, some conservatism, or do you feel like... That's pretty spot on.

Donovan Schafer: You know, it could just be my modeling error or whatever, but is there a certain amount of conservatism in here where you're really expecting the Hainesville Wells to come down pretty quickly or pretty aggressively? Or is it some other kind of conservatism, or do you feel like... That's pretty spot on.

Donovan Schafer: It could just be my modeling error or whatever, but is there a certain amount of conservatism in here where you're really expecting the hands of the wells to come down pretty quickly or pretty aggressively, or is it some conservatism, or do you feel like...

Chad Stephens: However, our business strategy is to acquire minerals in the core of our focus area with near-term development potential. This can be seen by our continued steady, well-convergence that supports our expected future multi-volume growth despite these various headwinds. As I stated a moment ago, we have created demonstrable value over the last four years that has not reflected in our stock price. I will continually stress this supported by the portfolio we had built of high-quality assets with improved gas margins.

Donovan Schafer: Thank you for your guidance.

Speaker Change: That's pretty spot-on exactly where it should be in terms of guidance.

Ralph D'Amico: We try to normalize all the quarters, right, so that, you know, to try to get out of these peaks and valleys, right, and so by definition, there's a layer of conservatism embedded in that.

Ralph D'Amico: We try to normalize all the quarters, right? So that, you know, to try to get out of these peaks and valleys, right? And so, by definition, there's a layer of conservatism embedded in that.

Ralph D'Amico: We try to normalize all the quarters, right, so that, you know, to try to get out of these peaks and valleys, right, and so by definition there's a layer of conservatism embedded in that.

Donovan Schafer: Yeah, and you talk about the lumpiness, and so who the heck knows? Each quarter can have, for lack of a better word, like a roll-of-the-dice-ish quality. And so, in theory, given that this is an anomalously, and then an anomalously, incremental step up for a single quarter, you could see some anomalous, lesser number of new wells coming on or something. I understand what you're saying. OK. And then I want to ask you guys, in the past, companies doing recompletions or other things where you're doing, you're shutting in some offset wells.

Donovan Schafer: Yeah, and you talk about the lumpiness, and so who the heck knows? Each quarter can have, for lack of a better word, like a roll of the dice-ish quality. And so in theory, given that this is an anomalously, and then an anomalously, incremental step up for a single quarter, you could see some anomalous, lesser number of new wells coming on or something. I understand what you're saying. Okay, um... And then I want to ask you guys, in the past, companies doing recompletions or other things where you're doing, you're shutting in some offset wells.

Donovan Schafer: Yeah, and you talk about the lumpiness. And so who the heck knows, you know, each quarter can have, for lack of a better word, like a roll of the dice-ish quality. And so, in theory, given that this is anomalously, and then anomalously,

Chad Stephens: A mineral interest in deep inventory of undeveloped drilling levels. Communications, which supply our well-conversion and categorized as probable reserves. This conversion rate, which Danielle discussed a moment ago and is explained in our I.R, slide presentation, has and will continue to drive increasing wealthy volumes and cash flow over the next few years. As I did last quarter, I direct you to slide seven of our newly posted I.R, presentation that reflect a 2P PV 10 reserve value at current non-extra prices of close to $300 million.

Donovan Schafer: incremental step up for a single quarter you could see some anomalous lesser number of like new wells coming on or something and so

Donovan Schafer: I get what you're saying, okay.

Donovan Schafer: Okay, and then I want to ask for, in the past you guys have been impacted by, you know, companies doing recompletions or other things where you're doing, you're shutting in some offset wells. Just curious if you have any visibility.

Donovan Schafer: Just curious if you have any visibility on anything like that going on, anything to give you a heads up on in terms of potentials for, you know, currently producing wells to be shut in for offset completions.

Donovan Schafer: on anything like that going on, anything to just as like a heads up to be aware of in terms of potentials for you know, currently producing wells to be shut in for offset completions.

Chad Stephens: This reserve value is validated by the independent technical work performed by our outside third party engineering firm, Collie Gillespie. If natural gas prices return to a more normal mid price cycle and driven by the growing demand catalyst to which I earlier referred, that PV 10 value reflected on slide seven would be dramatically higher. We also show in the appendix of our I.R, presentation the timing of the new LNG export capacity from the bulk cost which we continually emphasize.

Danielle Mezo: No, as of yet, and I'm sorry this is Danielle, we have not really seen a big impact from that as of late. We have actually seen some positive impact from completions of the offsets, particularly in the Haynesville. So as far as shut-in wells long term, no, we're not really seeing that at the moment. OK.

Danielle Mezo: No, as of yet, and I'm sorry, this is Danielle. We have not really seen a big impact from that as of late. We have actually seen some positive impact from completions of the offsets, particularly in the Haynesville. So as far as shut-in wells long term, no, we're not really seeing that at the moment. OK.

Danielle Mezo: No, as of yet, and I'm sorry this is Danielle, we have not really seen a big impact from that as of late. We have actually seen some

Danielle Mezo: positive impact from completions of the offsets, particularly in the Haynesville. So as far as shut-in wells long-term, no we're not really seeing that at the moment.

Donovan Schafer: Okay, that's great. Great to hear. Okay, well, congratulations on the quarter. Thank you guys. I'll take the rest of my questions offline. Thanks, Donovan.

Donovan Schafer: Okay, that's great, great to hear. Okay, well, congratulations on the quarter. Thank you guys. I'll take the rest of my questions offline. Thanks Donovan.

Donovan Schafer: Okay, that's great. Great to hear. Okay, well congratulations on the quarter. Thank you guys. I'll take the rest of my questions offline.

Bob: Thanks, Donovan. Thanks, Bob.

Operator: If there are no further questions at this time, I would now like to hand the conference over to Chad for closing comments.

Chad Stephens: If there are no further questions at this time, I would now like to hand the conference over to Chad for closing comments.

Chad Stephens: Once in service, this will help bring natural gas prices into that mid price to upper range and when increased operator activity, increase our loyalty production volumes and cash flow. Since 2020 and today, we have spent approaching a 140 million acquiring a current mineral position in the Scoot and Hanzel. P.H.X, is current enterprise value is roughly 145 million with a PV 10 reserve value I mentioned earlier of around 300 million. We recognize this disconnect between these facts and our current stock price which I continue to stress. We will work every day searching for the best way to reward our shareholders and close this gap. As always, I thank both our employees and board of directors for their dedication and hard work.

Operator: Thank you. There are no further questions at this time. I would now like to hand the conference over to Chad for closing comments.

Chad Stephens: Thank you, operator. And again, I'd like to thank our employees and shareholders for their continued support. I'd also like to note that Ralph and I will continue to expand our investor marketing activities over the coming weeks and months. If you would be interested in meeting at one of those events or at any time, please don't hesitate to reach out to myself, Ralph, or the folks at Fink IR. We look forward to hosting our next call in early November to discuss our third quarter 2024 results. Thank you. Have a good day!

Chad Stephens: Thank you, operator, and again, I'd like to thank our employees and shareholders for their continued support.

Chad Stephens: I'd also like to note that Ralph and I will continue to expand our investor marketing activities.

Chad Stephens: over the coming weeks and months if you would be interested in meeting at one of those events or at any time.

Chad Stephens: Please don't hesitate to reach out to myself, Ralph, or the folks at Fink IR. We look forward to hosting our next call in early November to discuss our third quarter 2024 results. Thank you.

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines.

Operator: Thank you. This concludes today's study conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Chad Stephens: This concludes the prepared remarks portion of the call operator.

Operator: Please open up the queue for questions. Thank you.

Operator: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on a telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions.

Charles Meade: The first question is from Charles Meade with Johnson Rice. Please go ahead. This morning, Chad, to you and Ralph Danielle and the rest of the PHX team there. You guys, I think, are justifiably pleased with the way that two queue turned out, especially, you mentioned of it, it's record production since 2Q18, and so the role that I certainly went your way to this quarter if that's a workable metaphor. But what I'm curious about is how much of an outlier is this quarter.

Charles Meade: You could frame it in any way you want, but maybe one way of thinking about it, is this a once in every four quarter kind of result or is this a once in every 16 quarter kind of result? I know you might not be able to precise there, but if you just guide our interpretation of this great quarterly result, you just put up. Yeah, I can say Charles that looking over the last four years and that compounded annual growth rate, loyalty growth rate of close to 30% speaks to that pace of development that's feeding that growth.

Charles Meade: And that growth is coming from our undeveloped inventory of locations that are being developed quarter over quarter and year over year. So what's happened in the past will continue to happen in the future, maybe not to the magnitude it was this particular quarter. But we are pleased with and will continue to see this steady quarter over quarter in year over year. It's focused on the loyalty volume growth, not necessarily the corporate.

Charles Meade: I tried to differentiate between it to my opening comments, but we're excited obviously about this outlying quarter. But we continue to see the pace of development that we've seen in the past going forward and we'll continue to see this similar quarter of a quarter and year over year loyalty by growth. Ralph, do you want to add that? Yeah, I think that's well said. And the only thing I would add is that, you know, look, I mean, obviously there were some high interest wells that came on during the quarter, but I don't believe that that's abnormal.

Charles Meade: It's a matter of one day come on. I mean, we have, I think as Danielle mentioned, we have several other high interest wells, high impact well similar to these that are in the process of being developed. You know, obviously, as we mentioned, we don't control timing, so it's hard to pinpoint what specific quarter, but there's no doubt that their operators spending money on similar wells to these on our minerals where we own similar percentages of the well as we speak here today.

Charles Meade: So it's just a matter of time and, you know, as we talked about, you kind of have to look at it over several quarters, not just a one particular point in time. Got it. Got a thank you for that. And then if I could kind of go further a feel of my second question, stepping away from the hands of the scoop. My understanding there's been an uptick in activity from a lot of private operators in the Western and in Darko, targeting the Cherokee sale.

Charles Meade: And more recently there's a public company made in acquisition in the Cherokee sale. And then when I look at your slide five, it looks to me like you might have some exposure to that play. So could you kind of quantify that or maybe characterize what kind of activity you might be seeing around anything you hold up there? Yeah, we've watched that. We do have some legacy minerals out there. And as it's matured, as the play is matured and to become de-risk, we've kind of done a little kind of, again, our toe in the water, so to test the water to acquire some minerals.

Charles Meade: And it's gotten so already so frothy out there that it just doesn't meet our economics. So we've not had any real success in being able to acquire, consolidate some minerals out there. But it is a real play, yeah. And I think that acquisition speaks to the credibility and the validity of it. But it's already from a mineral perspective, it's already gotten pretty frothy. So we're going to step back and just kind of walk from the sidelines.

Charles Meade: Yeah, so we're not focused on acquiring additional minerals there, but we do have a substantial amount of minerals in that area. And we've seen a significant number of well development on certain sections that we own in, including some high interest sector, where we had quite a few minerals. And we've also seen a step up in the leasing activity on our non-producing minerals in the area as well. So we're not adding to it, but your correct Charles, we have some good exposure to it, and we will certainly benefit from that additional industry activity there. Thank you. That'll be interesting to watch. Thank you for your answers. Thanks, Charles. Thank you.

Jeff Graham: The next question is from Jeff Graham with Alliance Global Partners. Please go ahead. Thanks for the time. I'm curious to, if you guys could take out your crystal balls for me here, obviously the guide implies some declines in the back half of the year, which not at all surprising given what you guys reported here in Q2. But when do you guys think that potentially bottoms again? I know you kind of have to build back up that activity funnel. Still to solve the level, but you've kind of been drawn down on it for a couple quarters.

Chad Stephens: I mean, can the start of 25 resume that sequential growth, or how do you guys potentially see the next several quarters playing out as best you can kind of see it today? Right. Why don't you start that answer? Sure. So, yeah. I mean, look, I mean, I think as we look at the next 12 months, we continue to see activity and while the wells and progress inventory got drawn down a little bit, I would say again, it's one of those things where we use 630 data.

Chad Stephens: It's at one point in time. I would tell you that if you were to look at the number today, it's already higher. So, what that means is that the operators are continuing to permit new locations on our minerals. And they're continuing to convert. I think that even if we maintain the same pace over the next 12 months, maybe a little bit higher as we've seen over the last several quarters, 25 should look better than 24 from a volume standpoint.

Chad Stephens: Obviously, it's very dependent upon commodity prices and what the operators decide to do, which we don't control. So, there's a big if there. But when what we see today were very optimistic that, you know, over several quarters, you're going to continue to see that upward trend. And let's just remind Jeff just remind you over the last four years as I was answering Charles question and as you talk about what we're thinking around 2025, all of this royalty value growth, growth, I highlight that word, is on top of what's kind of a corporate royalty decline rate for us of 25% in excess of 25% so we're able to replace that decline rate and grow our royalty volume reserves because of the quality of this inventory I keep highlighting. Does that make sense?

Jeff Graham: Yeah, absolutely and I understand there's no perfect answer there but appreciate the details and thoughts.

Ralph Demiko: My follow up is more on the modeling guide inside that you guys made some revisions on the GPT guidance front. Is that something it sounded like Ralph, I think you hit on that that just kind of depends upon the structure of the specific royalty assets that are driving production in any given quarter. Is there a way for us on the outside to really take that into account or kind of give a handle on that as we kind of build our modeling or is this just something that's kind of idiosyncratic depending upon any given quarter and kind of the makeup of the assets that kind of build up to that production?

Ralph Demiko: Yeah, it's perfectly imperfect in the sense that that's why we kind of give you a range because on any particular quarter, if you have two cost-free wells, two cost-free lease wells coming online instead of two and I'm making up a number, two cost-bearing wells coming online, that number can shift one way or the other because particularly if they're high interest wells. Clearly, some of these wells that came on are cost-bearing and that's what drove those numbers and they came online a little bit sooner than what we had expected, which is sort of driving us moving that number up because more of the year will have the impact of having to pay those expenses from those additional volumes. Okay, understood that makes sense and I appreciate the details.

Ralph Demiko: Thank you, guys. Thanks, Jim.

Operator: Thank you.

Donovan Schaefer: The next question is from Donovan Schaeffer with Notland Capital Markets. Please go ahead. Yeah, thanks for taking the question. So first I want to ask, you know, you described the, you know, congratulations on the quarter. This is, you know, when you said that you're going to return to growth, now that you've completed this, you know, for your transformation, you were not kidding as this regular quarter of shifts. So well done there, but I want to say, you know, you talk about the, there are some, you know, somewhat anomalous wells this quarter.

Donovan Schaefer: In this sense, some being high interest, but you also say high impact and is that just kind of like the animus are saying, you know, because they're high interest, you have the high impact on the financials or was there some of their attribute in the wells, I mean, were they, were they unusually, you know, exceptionally prolific wells that just performed fantastically well, and you seem to kind of know in advance, I mean, you would know that there were high interest, but did you, were you able to anticipate that this was just like a really attractive area of the Hainesville and you so you knew these were going to be some very, you know, juicy prolific wells coming online or did they just turn out poorly? Yeah, now I think, I think, I think, Donna van I think, so the answer is, so the Hainesville wells, right, relative to wells in Oklahoma, come in at a much higher rate.

Donovan Schaefer: So if you have, and we had a combination of high interest wells in both places, come online, right, but clearly the Hainesville wells come in at a much higher rate than, than an Oklahoma well, right? And so the more Hainesville wells you have come online relative to Oklahoma, the more impact you're going to have, right? So if I have, if this quarter, if you flip flopped it, right, and you had more Oklahoma wells versus Hainesville wells, the volume would have been a little bit lower, right?

Donovan Schaefer: So that's the point that Chad was trying to make earlier that if you normalize that, you know, sort of the high impact part of it, right? And you try to normalize and sort of say, what would it be if it was, you know, sort of more evenly spread? You still would have seen the highest quarter since 2018 from a volume standpoint, and you still would have seen, you know, substantial growth on a sequential quarter basis. So it's, you know, that's what we mean by it. Depending on the location, you can have, you know, higher first three months of production versus other areas.

Chad Stephens: Okay, that's helpful. And then kind of related to that, and then I understand what you're saying with the Haynes Oil Oil, so they come on so strong. And this kind of, I think maybe ties a little bit into just question, like the guidance, you know, the increase in the guidance, but then you've got these, you know, this quarter, some of that's reflective of these oils that come on so strong, but also decline quite quickly.

Chad Stephens: Chad, you know, you mentioned you've got a greater than 25% annual decline rate in these wells that you've got the royalty interest. So when I kind of take that together and I, you know, just looking at and kind of playing with my own model, it seems like without even really, you know, raising what I had in for the Q3, Q4 type estimates, just putting in what you guys did this quarter, I kind of end up landing pretty darn close to kind of the midpoint of the revised guidance, which makes it seem almost as though, you know, you're, you're not allowing for much of a contribution from these laws in this quarter to carry forward, you know, could just be my modeling error or whatever, but is there, is there a certain amount of conservatism in here, where you're really expecting the hands of well to come, come down pretty pretty quickly or pretty aggressively, or is it, yeah, some conservatism, or, or do you feel like that's pretty spot on exactly where you are.

Chad Stephens: I should be in terms of guidance, we try to normalize all the quarters, right, so that, you know, to try to get, get, get out of these peaks and valleys, right? And so, by definition, there's a layer of conservatism embedded in that. Yeah, and you talk about the lumpiness. And so, who the heck knows, you know, each quarter can have a lack of a better word, like a roll of the dice-ish quality.

Chad Stephens: And so, in theory, given that this is anomalously, and then anomalously incremental step up for a single quarter, you could see some anomalous lesser number of, like, new wells coming on or something. And so, I get you saying, okay. Yeah, okay. And then I want to ask for, in the past, you guys have been impacted by, you know, companies doing recompletions or other things where you're doing, you're shutting in some offset wells.

Chad Stephens: Just curious if you have any visibility on anything like that going on, anything to just, like, it has to be aware of in terms of potentials for, you know, currently producing wells to be shut in for offset completions. No, as of yet, and I'm sorry this is Danielle, we have not really seen a big impact from that as of late. We have actually seen some positive impact from completions of the offset, particularly in the Haynesville. So, as far as shutting wells, long term, no, we're not really seeing that at the moment. Okay, that's great. Great to hear.

Danielle Mezo: Okay, well, congratulations on the quarter. Thank you guys. I'll take the rest of my questions off on. Thanks, Donna. Thank you.

Operator: There are no further questions at this time.

Chad Stephens: I would now like to hand the content over to Chad for closing comments. Thank you, operator. And again, I'd like to thank our employees and shareholders for their continued support. I'd also like to note that Ralph and I will continue to expand our investor-marketing activities over the coming weeks and months.

Chad Stephens: If you would be interested in meeting at one of those events or at any time, please don't hesitate to reach out to myself, Ralph, or the folks that think I are. We look forward to hosting our next call in early November to discuss our third quarter 2024 results. Thank you, have a good day. Thank you.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Q2 2024 PHX Minerals Inc Earnings Call

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