PHX Minerals Inc.
Q1 2021 Earnings Call Transcript

Published: 8 Feb 2021

[Operator:]

Good day everyone and welcome to PHX Minerals' First Fiscal Quarter 2021 Earnings Conference Call. Today's conference is being recorded. I would now like to turn the call over to Ralph D'Amico, PHX's Vice President, Chief Financial Officer. Please go ahead.

[Ralph D'Amico:]

Thank you for joining us today to discuss our 2021 fiscal first quarter results. With me on the call today for prepared remarks are Chad Stephens, President and Chief Executive Officer; and Freda Webb, Vice President of Mineral Operations. After the prepared remarks, we will open up the call to a Q&A session. The earnings press release that was issued earlier today is also posted on the Investor Relations website.

[Chad Stephens:]

Thanks Ralph and thanks to everyone on the line for participating in PHX's 2021 first fiscal quarter conference call. We sincerely appreciate your time and your continued interest in the company. I was very pleased with our performance during our first fiscal quarter of 2021. Adjusted EBITDA excluding gains on sale was up by 37% relative to the prior quarter ended 9/30/2020 due to a combination of higher sales volumes and higher realized commodity prices, particularly in natural gas as the energy markets recover from the impact of COVID. Ralph and Freda will provide more detail on that later on the call. We also continue to focus on reducing our debt in order to delever the company and increase our financial flexibility as we paid down $1.75 million of debt during the quarter and an additional $1 million since the quarter end to bring our total debt outstanding as of February 1 to $26 million. As we stated in our last earnings call, when using NYMEX strip pricing, we estimate we would be able to repay our debt through operating free cash flow in just over three years. As previously announced, we closed on the mineral acquisitions in Grady County, Oklahoma under Continental Springboard one asset and in Harrison, Panola and Nacogdoches Counties, Texas focusing on the Haynesville for a total of $5.5 million. We also closed on two additional mineral acquisitions in San Augustine County, Texas that target Haynesville where Aethon owns the drilling lights and operates for a combined $1.75 million, bringing our total mineral acquisitions closed during the quarter to $7.25 million.

[Freda Webb:]

Thank you, Chad, and hello to everyone on the line. Thank you for joining our call today. As Chad just mentioned, commodity prices have had a nice rebound since the lows of last summer. This has helped certain plays, including SCOOP and STACK exceed their economic threshold, which is allowing operators to allocate development capital to these plays. In Oklahoma, the rig count is still down 50% compared to this time last year, but we have seen a recent upward trend with three rigs added over the last month and showing over a 100% increase in September 2020. During the quarter ended December 31, we had seven gross, 0.02 net wells convert from wells in progress to producing. This compares to 76 gross, 0.18 net wells, during the quarter ended September 30. The majority of the wells brought online are in SCOOP region.

[Ralph D'Amico:]

Thanks, Freda. For the first quarter ended December 31, 2020, total revenues were $6.2 million, up 41% from the fourth fiscal quarter of 2020. The quarter-over-quarter changes were caused by the following

[Chad Stephens:]

Thanks Ralph. We have done a good job of implementing a purposeful repositioning of the company, in this rather disrupted market to take advantage of the modest recovery in the energy sector. We are excited about the opportunities before us to drive shareholder value and we'll strive every day to build shareholder confidence. We look forward to keeping apprise of our progress. This concludes the prepared remarks portion of the call.

[Operator:]

Certainly. Ladies and gentlemen, the floor is now open for questions. And the first question is coming from Derrick Whitfield . Derrick, your line is live, please announce your affiliation and pose your question.

[Derrick Whitfield:]

Good afternoon. Derrick Whitfield with Stifel, and congrats on your retirement, Freda, well-earned.

[Freda Webb:]

Thank you.

[Derrick Whitfield:]

Regarding the acquisitions that were closed during the quarter, could you comment on how activity is progressing across those assets and how production would look on a fully consolidated basis at present?

[Ralph D’Amico:]

Yes, hey, Derrick, it's Ralph. Production, we're very excited about the production coming from those assets. We think based on the data that we're seeing on the wells that are online, they're doing well. They're exceeding in many cases, exceeding our projections. I think this is – the booking to volumes is just a matter of doing your diligence and making sure that what we book is correct. And that usually takes a couple of months for us to do that. Make sure it's correct. I think if you – we estimate that if you actually included all the volumes from the acquisitions that we think we are or we know we’re receiving, the royalty volumes instead of being down 4% probably would have been up in the magnitude of the low to mid single-digits.

[Chad Stephens:]

Really Derrick, this is Chad to add to that. Once you close on these acquisitions, you have to get the transfer documents, the assignments, the mineral deeds to the operator. And typically the operator takes, their land department can take anywhere from four to six weeks to incorporate the changes into their records, division orders, getting their pay decks changed. And you try to push them as hard as you can, but obviously, everybody's cut back on staff and it takes a little while to get the interest changed over to a new pay status.

[Derrick Whitfield:]

Understood, great color guys. Appreciate that. And as a housekeeping oriented follow-up, we noticed a rather sizable income tax refund in the current asset on your balance sheet, could you speak to the nature of the tax refund and the expected timing?

[Ralph D’Amico:]

Sure. So we filed for a tax refund in June of last year, and that was AMT acceleration from the CARES Act that totaled $1.4 million. In terms of timing that’s – unfortunately, that's up to the government. We know they have their return and we're expecting that to come in at some point. Also related to the CARES Act, we have a $2.2 million tax receivable from a – with the carry back that's allowed from 2020 for our net operating losses.

[Derrick Whitfield:]

That's very helpful guys and supportive of your debt reduction objectives as well. Thanks for your time.

[Ralph D’Amico:]

Thanks.

[Chad Stephens:]

Thanks Derrick.

[Operator:]

Thank you. Once again, ladies and gentlemen, the floor remains open for questions. And there were no other questions in queue at this time.

[Chad Stephens:]

Okay, operator, thank you. We appreciate everybody being on the call and we look forward to our next quarterly call. Have a good day. Thank you.

[Operator:]

Thank you, ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.