PHX PHX Minerals Inc

OKLAHOMA CITY, Dec. 12, 2016 /PRNewswire/ -- PANHANDLE OIL AND GAS INC., the "Company," (NYSE: PHX) today reported financial and operating results for the fiscal year ended Sept. 30, 2016, and for the fiscal fourth quarter, an update on its bank line-of-credit borrowing base and provided an operations update.

SIGNIFICANT ITEMS FOR THE PERIODS ENDED SEPT. 30, 2016

• Recorded a fourth quarter 2016 net income of $737,190, $0.05 per share, compared to a net loss of $887,681, $0.05 per share, for the 2015 fourth quarter.
• Recorded a fiscal year 2016 net loss of $10,286,884, $0.61 per share, compared to a net income of $9,321,341, $0.56 per share, for fiscal 2015.
• Posted total fiscal 2016 production of 11.5 billion cubic feet equivalent (Bcfe).
• Generated cash from operating activities of $14.6 million for the year, well in excess of capital expenditures of $4.0 million.
• Generated lease bonus income of $7.7 million in fiscal 2016, which is not included in cash flow from operations.
• Reduced debt $20.5 million during fiscal 2016.
• Incurred non-cash impairment provision for fiscal 2016 of $12.0 million.

Fiscal Fourth Quarter 2016 Results

For the 2016 fourth quarter, the Company recorded net income of $737,190, or $0.05 per share. This compared to net loss of $887,681, or $0.05 per share, for the 2015 fourth quarter. Net cash provided by operating activities was $1,530,993 for the 2016 fourth quarter versus $8,223,212 for the 2015 fourth quarter. Fourth quarter 2016 cash from operating activities again exceeded costs to drill and equip wells of $626,717. The Company recorded a gain of $2.4 million on asset sales in the 2016 fourth quarter as small interests in more than 2,000 wells which were the Company's share of a liquidated partnership were sold.

Total revenues for the 2016 fourth quarter were $10,151,389, a decrease of 25% from $13,455,001 for the 2015 quarter. Oil, NGL and gas sales decreased $2,279,094, or 20% in the 2016 quarter, as compared to the 2015 quarter. This revenue decrease was a result of decreased oil, NGL and natural gas volumes of 30%, 7% and 14%, respectively, and decreased oil prices of 6%, slightly offset by increased NGL and natural gas prices of 2% and 5%, respectively. Average sales price per Mcfe of production during the 2016 fourth quarter was $3.31, a 4% decrease from $3.46 in the 2015 fourth quarter. Oil production decreased in the 2016 quarter to 78,398 barrels, versus 112,237 barrels in the 2015 quarter, while gas production decreased 14% to 1,940,749 Mcf, and NGL production decreased 7% to 44,598 barrels. Natural decline and significantly reduced capital expenditures to drill and complete new wells combined to reduce production volumes. Additionally, gains on derivative contracts were $0.8 million in the 2016 quarter compared to $2.1 million in the 2015 quarter.

Fiscal Year 2016 Results

For fiscal 2016, the Company recorded a net loss of $10,286,884, or $0.61 per share. This compared to a net income of $9,321,341, or $0.56 per share, for fiscal 2015. Net cash provided by operating activities decreased 68% to $14.6 million for 2016 versus 2015, and was in excess of capital expenditures in fiscal 2016, which totaled $4.0 million.

Total revenues for 2016 were $39,063,183, a decrease of 45% from $70,882,093 for 2015. Oil, NGL and natural gas sales revenues decreased $23,122,561 or 42% in 2016, as compared to 2015. This revenue decrease was a result of decreased oil, NGL and natural gas prices of 31%, 31% and 30%, respectively, and decreased oil, NGL and natural gas production volumes of 20%, 19% and 15%, respectively. Overall results were a 16% decrease in Mcfe production volumes and a 31% decrease in the average sales price per Mcfe to $2.73, as compared to $3.97 in 2015. Revenue from lease bonuses in 2016 was $7.7 million, compared to $2.0 million in 2015. Losses on derivative contracts totaled $0.1 million in 2016 as compared to gains of $13.8 million in 2015. The majority of the derivative gains in 2015 were for oil contracts put in place in fiscal 2014 to protect oil prices received for production from the Eagle Ford Shale properties.

Oil, NGL and natural gas sales decreased $23,122,561, or 42%, for 2016, as compared to 2015. The decrease was due to decreased oil, NGL and natural gas prices, coupled with lower oil, NGL and natural gas production volumes. The decrease in oil production was primarily the result of natural production decline in the Eagle Ford Shale, which was not offset by new production in the play due to significantly reduced drilling activity. Declining production from various fields in western Oklahoma, the Texas Panhandle and the Northern Oklahoma Mississippian contributed to the decrease to a lesser extent. NGL production volume decreases were largely the result of natural production decline in the Anadarko Woodford Shale in western and central Oklahoma and the Anadarko Basin Granite Wash in western Oklahoma and the Texas Panhandle. Natural gas production volume decreases were primarily the result of naturally declining production in the Fayetteville Shale. Declining production from the Anadarko Basin Granite Wash and the southeastern Oklahoma Woodford Shale also contributed to the decrease to a lesser extent.

Total costs and expenses for 2016 increased $336,315, or 0.6% over 2015. Lease operating expenses declined $3.9 million, principally as a result of operating efficiencies in the Eagle Ford Shale field. However, provision for impairment increased $7.0 million in 2016 as a result of severely depressed oil, NGL and natural gas prices during 2016. The Company also recorded a $2.6 million gain on asset sales in 2016, as compared to only $0.4 million in 2015.

Bank Line-of-Credit Update

On December 8, 2016, Panhandle's bank line-of-credit borrowing base was reaffirmed and remained unchanged at $80 million. This compares to a current outstanding balance of $43.7 million. Availability under the line of $36.3 million is in excess of projected needs. Based on currently expected product prices, the Company anticipates funding normal operations and an expanded drilling capital expenditure program in 2017 from internally generated cash flow and utilization of borrowing under the bank line-of-credit.

Management Comments

Michael C. Coffman, President and CEO, said, "As have all companies in the oil and gas industry, Panhandle experienced a very difficult year in 2016, brought on by extremely low product prices. Our average per Mcfe sales price of $2.73 in 2016 compared to $3.97 in 2015 and $5.88 in 2014.

"We were able to supplement cash flows from oil and gas sales during the year by generating $8.0 million of lease bonus proceeds and selling the assets of a liquidated partnership and other minor assets, thus generating another $4.5 million. Combined with our cash flows from operations, this allowed Panhandle to fund capital expenditures, pay dividends and reduce debt by $20.5 million. This reduced debt level put the Company in a position to be able to comfortably fund a significant amount of low-risk drilling just recently proposed on our acreage in three core areas of shale plays."

Paul Blanchard, Senior Vice President and COO, said, "We chose not to participate in the majority of wells proposed to us in 2016 because we did not believe they would earn reasonable rates of return at the NYMEX futures pricing at that time. Instead, we focused on leasing out our mineral acreage in what we considered to be relatively higher risk areas as compared to our core resource play holdings.

"As product prices climbed later in fiscal 2016 and into the first quarter of fiscal 2017, we have seen meaningful activity return to our core resource play holdings. Participation in this activity is expected to generate solid rates of return at current NYMEX strip prices.

"Drilling is underway on an eight-well horizontal drilling program operated by BP America in the Southeastern Oklahoma Woodford Shale gas play. Panhandle has an average of 20% working interest and 27.4% net revenue interest in these wells, which should begin producing in the second fiscal quarter of 2017.

"Panhandle recently received notice from Cimarex Energy of their plans to drill six wells on Panhandle leasehold in the core of the STACK/CANA play beginning in December 2016. Panhandle has elected to participate with 17.5% working interest and a 16.25% net revenue interest in these Woodford Shale wells. Cimarex plans to drill the wells with two rigs and projects they will begin producing early in the third fiscal quarter of 2017.

"Pad drilling is scheduled to resume on our Eagle Ford leasehold acreage in our second fiscal quarter of 2017. The operator plans to move in one rig and drill a ten-well program. This activity should occur over a roughly six- to seven-month period. Panhandle will have 16% working interest in six of the wells that are entirely located on our acreage and approximately 8.2% working interest in the other four that are roughly half on our acreage. The operator intends to apply techniques used in the completion of the most recent well on the acreage block, which began producing last summer. Production from this well was significantly higher than previous wells on the block, and this new drilling is expected to yield similar results.

"The drilling detailed above will be on some of the lowest-risk acreage in the Company's portfolio, as it is in the cores of well-developed and understood resource plays. These investments should materially increase Panhandle's daily oil, NGL and natural gas production when the wells come online. The Company also has two exciting higher-risk plays being tested in the Permian Basin.

"Element Petroleum has commenced testing the economic viability of drilling horizontal San Andres oil wells on our Cochran County, Texas, mineral block. Prior to December 2016, Element drilled and cored two pilot holes on our mineral acreage. In December 2016 and January 2017 they plan to drill and core three additional pilot wells on and adjacent to our block. Element has also completed a salt water disposal (SWD) well and has an additional SWD well planned on the block. Their intent is to use the technical data from these five pilot wells to determine the optimum placement of the lateral in the San Andres. Once that has been determined, Element plans to drill and complete 1.5-mile-long laterals in the five pilot wells to test the productivity of the San Andres on and adjacent to our mineral acreage. Panhandle owns 4,053 net mineral acres on the gross 34.5-square-mile block, which were leased to Element Petroleum in December 2015. The lease terms provide Panhandle a 25%, proportionately reduced, royalty and the right to buy back up to a 10% working interest in each drilling unit on the lease, as initial unit wells are proposed. Where Panhandle exercises this right, we will own a 10% working interest and a 12.1% net revenue interest in those drilling units. These terms allow Panhandle to not risk capital in the concept testing phase, but to begin participation with a working interest position once economic viability has been established. If successful, there is potential to develop this acreage with multiple San Andres oil wells per unit.

"QEP Resources is testing the economic viability of a Woodford Shale resource play on a block of mineral acreage we own in Andrews and Winkler Counties, Texas. The initial Woodford Shale test well, which began producing in early 2015, was a productive oil well, but it was uneconomic. QEP has proposed to drill a second Woodford well with a two-mile-long lateral in early 2017. The second well will optimize the fracture stimulation and completion design, utilizing data acquired from the first well completion. Panhandle's mineral block consists of 2,439 net acres covering 43.6 square miles. Our lease to QEP provides Panhandle a 25%, proportionately reduced, royalty and the right to buy back up to 10% working interest in each drilling unit on the lease as initial unit wells are proposed. Where Panhandle exercises this right, we will own an average 7.0% working interest and a 7.5% net revenue interest in those drilling units. This allows Panhandle to not risk capital in the concept testing phase, but to begin participation with a working interest position once economic viability has been established. If successful, there is potential to develop this acreage with multiple Woodford Shale oil wells per unit."

Panhandle Oil and Gas Inc. (NYSE: PHX) is engaged in the exploration for and production of natural gas and oil. Additional information on the Company can be found at www.panhandleoilandgas.com.

Forward-Looking Statements and Risk Factors – This report includes "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include current expectations or forecasts of future events. They may include estimates of oil and gas reserves, expected oil and gas production and future expenses, projections of future oil and gas prices, planned capital expenditures for drilling, leasehold acquisitions and seismic data, statements concerning anticipated cash flow and liquidity and Panhandle's strategy and other plans and objectives for future operations. Although Panhandle believes the expectations reflected in these and other forward-looking statements are reasonable, we can give no assurance they will prove to be correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Factors that could cause actual results to differ materially from expected results are described under "Risk Factors" in Part 1, Item 1 of Panhandle's 2016 Form 10-K filed with the Securities and Exchange Commission. These "Risk Factors" include the worldwide economic recession's continuing negative effects on the natural gas business; Panhandle's hedging activities may reduce the realized prices received for natural gas sales; the volatility of oil and gas prices; Panhandle's ability to compete effectively against strong independent oil and gas companies and majors; the availability of capital on an economic basis to fund reserve replacement costs; Panhandle's ability to replace reserves and sustain production; uncertainties inherent in estimating quantities of oil and gas reserves and projecting future rates of production and the amount and timing of development expenditures; unsuccessful exploration and development drilling; decreases in the values of Panhandle's oil and gas properties resulting in write-downs; the negative impact lower oil and gas prices could have on the Company's ability to borrow; drilling and operating risks; and Panhandle cannot control activities on its properties as the Company is a non-operator.

Do not place undue reliance on these forward-looking statements, which speak only as of the date of this release. Panhandle undertakes no obligation to update this information. Panhandle urges you to carefully review and consider the disclosures made in this presentation and Panhandle's filings with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect Panhandle's business.

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SOURCE PANHANDLE OIL AND GAS INC.