PHX Minerals (PHX) - 2025 Q2 - Quarterly Report

Part I Financial Information The company's financial position as of March 31, 2025, shows a slight decrease in total assets and a reduction in total liabilities, primarily due to debt repayment, while net income significantly improved in Q1 2025 driven by higher sales and asset gains Item 1 Condensed Financial Statements The company reported total assets of $161.1 million as of March 31, 2025, a slight decrease from $163.9 million at year-end 2024, primarily due to a reduction in net properties and equipment. Total liabilities decreased to $35.5 million from $42.0 million, largely driven by a $9.75 million reduction in long-term debt. For the first quarter of 2025, the company achieved a net income of $4.4 million, a significant turnaround from a net loss of $0.2 million in the same period of 2024, boosted by higher natural gas, oil, and NGL sales and a significant gain on asset sales. Cash flow from operations was $4.3 million Condensed Balance Sheets Condensed Balance Sheet Summary | Metric | March 31, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $161,085,432 | $163,915,766 | | Net properties and equipment | $150,267,820 | $153,376,249 | | Total Liabilities | $35,539,132 | $41,965,913 | | Long-term debt | $19,750,000 | $29,500,000 | | Total Stockholders' Equity | $125,546,300 | $121,949,853 | Condensed Statements of Income Condensed Statement of Income Summary (Three Months Ended March 31) | Metric | 2025 (unaudited) | 2024 | | :--- | :--- | :--- | | Natural gas, oil and NGL sales | $10,433,287 | $7,090,208 | | Total Revenues | $7,598,312 | $7,869,418 | | Gains (losses) on derivative contracts | ($3,163,178) | $627,492 | | Gains on asset sales and other | $6,519,747 | ($24,212) | | Net Income (Loss) | $4,383,882 | ($183,615) | | Diluted EPS | $0.12 | ($0.01) | Condensed Statements of Cash Flows Condensed Statement of Cash Flows Summary (Three Months Ended March 31) | Metric | 2025 (unaudited) | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,276,440 | $5,246,651 | | Net cash provided by (used in) investing activities | $7,228,471 | ($1,347,188) | | Net cash provided by (used in) financing activities | ($11,210,880) | ($3,079,968) | | Increase (decrease) in cash and cash equivalents | $294,031 | $819,495 | Notes to Condensed Financial Statements Key notes include details on revenue recognition, where natural gas, oil, and NGL sales increased significantly. The company's long-term debt consists of a $100 million credit facility with $19.75 million outstanding. The company actively uses derivative contracts to hedge commodity prices, resulting in a net liability of $3.7 million. A significant subsequent event was the agreement to be acquired in an all-cash transaction at $4.35 per share Disaggregation of Revenues (Three Months Ended March 31, 2025) | Revenue Source | Royalty Interest | Working Interest | Total | | :--- | :--- | :--- | :--- | | Natural gas revenue | $6,038,625 | $611,235 | $6,649,860 | | Oil revenue | $2,711,565 | $275,141 | $2,986,706 | | NGL revenue | $538,234 | $258,487 | $796,721 | | Total Sales | $9,288,424 | $1,144,863 | $10,433,287 | - The company has a $100 million credit facility with a borrowing base of $50 million, maturing in September 2028. As of March 31, 2025, $19.75 million was outstanding, with $30.25 million available for borrowing. The company was in compliance with all covenants[48][51] Property Divestitures (Q1 2025) | Quarter Ended | Net mineral acres | Sale Price | Gain/(Loss) | Location | | :--- | :--- | :--- | :--- | :--- | | March 31, 2025 | 165,326 acres | $7.9 million | $6.7 million | OK, AR, CO, FL, IN, KS, MT, ND, NM, SD, TX | - The company uses commodity price derivative agreements (swaps and collars) to hedge exposure to price fluctuations. As of March 31, 2025, the fair value of these contracts was a net liability of $3.7 million[63][69] - On May 8, 2025, the company entered into a definitive agreement to be acquired in an all-cash transaction valued at $4.35 per share[82] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations The company's net income surged to $4.4 million in Q1 2025 from a net loss of $0.2 million in Q1 2024. This improvement was driven by a 47% increase in natural gas, oil, and NGL sales, fueled by higher natural gas prices and increased production volumes, and a $6.7 million gain from asset divestitures. These gains were partially offset by a $3.2 million loss on derivative contracts. The company's strategy remains focused on growth through mineral acquisitions in core areas, particularly in the SCOOP and Haynesville plays, while ceased taking new working interest positions. Liquidity remains strong with $30.3 million available under its credit facility Business Overview - PHX's principal business is managing and acquiring perpetual natural gas and oil mineral interests in US resource plays[84] - The current business strategy is growth through mineral acquisitions in core areas (SCOOP and Haynesville Shale) and development of its mineral acreage inventory. The company has ceased taking new working interest positions[85] Results of Operations For Q1 2025, net income was $4.4 million compared to a net loss of $0.2 million in Q1 2024. The positive swing was primarily due to a 47% increase in commodity sales to $10.4 million, driven by an 83% rise in natural gas prices and a 14% increase in oil volumes. A significant gain on asset sales of $6.5 million also contributed. This was partially offset by a $3.2 million loss on derivative contracts, compared to a $0.6 million gain in the prior year, and a 12% increase in G&A expenses Production and Average Sales Prices (Q1 2025 vs Q1 2024) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Natural Gas Sold (MCF) | 1,729,256 MCF | 1,700,108 MCF | | Avg. Gas Price ($/MCF) | $3.85/MCF | $2.10/MCF | | Oil Sold (Bbls) | 42,355 Bbls | 37,260 Bbls | | Avg. Oil Price ($/Bbl) | $70.52/Bbl | $76.01/Bbl | | NGL Sold (Bbls) | 29,316 Bbls | 32,184 Bbls | | Avg. NGL Price ($/Bbl) | $27.18/Bbl | $21.51/Bbl | | Total Sales | $10,433,287 | $7,090,208 | - Royalty interest production volumes increased in Q1 2025 compared to Q1 2024, primarily due to new wells coming online in the Haynesville Shale and SCOOP plays[89] - Gains (losses) on derivative contracts swung from a $627,492 gain in Q1 2024 to a $3,163,178 loss in Q1 2025, driven by settlements and changes in the fair value of open contracts[92] - General and Administrative (G&A) costs increased by 12% to $3.8 million, primarily due to higher professional fees associated with the company's strategic alternatives process[101] Liquidity and Capital Resources As of March 31, 2025, the company had positive working capital of $7.6 million and cash of $2.5 million. Net cash from operations was $4.3 million. Investing activities provided $7.2 million, mainly from asset sales, while financing activities used $11.2 million for debt repayment and dividends. The company reduced its debt by $9.75 million, leaving a balance of $19.75 million and $30.3 million available on its credit facility. Management expects future operations, acquisitions, and dividends to be funded by cash flow, cash on hand, and credit facility borrowings Cash Flow Summary (Three Months Ended March 31) | Activity | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Operating activities | $4,276,440 | $5,246,651 | ($970,211) | | Investing activities | $7,228,471 | ($1,347,188) | $8,575,659 | | Financing activities | ($11,210,880) | ($3,079,968) | ($8,130,912) | - The decrease in operating cash flow was primarily due to a $1.9 million decrease in net settlements from derivative contracts[105] - The increase in investing cash flow was driven by $7.8 million higher net proceeds from asset sales in Q1 2025[106] - As of March 31, 2025, the company had $19.75 million in outstanding borrowings and $30.3 million available under its Credit Facility, and was in compliance with all covenants[114][115] Item 3 Quantitative and Qualitative Disclosures about Market Risk The company is exposed to commodity price risk and interest rate risk. Based on 2024 volumes, a $0.10 per MCF change in natural gas prices would impact operating revenue by approximately $797,000, and a $1.00 per barrel change in oil prices would impact revenue by about $178,000. A 1% increase in interest rates on its outstanding debt of $19.75 million would increase quarterly interest expense by approximately $49,000 - The company is significantly impacted by volatile natural gas and oil prices. Excluding hedges, a $0.10/MCF change in gas price affects annual revenue by ~$797k, and a $1.00/Bbl change in oil price affects annual revenue by ~$178k, based on FY2024 volumes[120] - The company is exposed to interest rate risk on its credit facility. A 1% increase in interest rates would have increased interest expense by $49,375 for the three months ended March 31, 2025, based on the outstanding debt of $19.75 million[121] Item 4 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the quarter (March 31, 2025). There were no material changes in the company's internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[122] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[124] Part II Other Information This section covers legal proceedings, risk factors, equity sales, and exhibits, providing additional context to the company's operations and governance Item 1 Legal Proceedings The company is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition, operating results, or cash flow - The company states it is not a party to any pending legal proceedings that would be expected to have a material adverse effect on its financial condition or results[125] Item 1A Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - No material changes have been made to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[126] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds The company has an evergreen stock repurchase program authorizing the repurchase of up to $1.5 million of its common stock. No repurchases were made under this program during the quarter ended March 31, 2025 - The company made no repurchases of its Common Stock under its Repurchase Program during the quarter ended March 31, 2025[127] Item 6 Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, merger agreements, and certifications by the CEO and CFO required by the Sarbanes-Oxley Act - This section provides a list of all exhibits filed with the report, including certifications by the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act[129][130]