PHX Minerals (PHX)2023-05-10 20:31Financial Data and Key Metrics Changes - Net income for the quarter was $9.6 million or $0.27 per share compared to $3.3 million or $0.09 per share for the prior sequential quarter, reflecting a significant improvement [5] - Adjusted EBITDA increased to $7.74 million in the quarter ended March 31, 2023, compared to $5.33 million in the December 31, 2022 quarter, driven by higher royalty volumes and reduced cash expenses [112] - Total natural gas, oil, and NGL sales revenues decreased 20% on a sequential quarter basis to a total of $11.9 million [65] Business Line Data and Key Metrics Changes - Royalty production increased 29% sequentially to 2,094 MMcfe, a quarterly record, primarily due to new wells in the Haynesville, Scoop, and Bakken [77] - Working interest sales revenues decreased 60% to $1.7 million due to lower production volumes associated with the divestiture of the Eagle Ford and Arkoma assets [110] - Royalty volumes represented 84% of total production during the March 31, 2023 quarter, up from 45% in 2021 [62] Market Data and Key Metrics Changes - Rig counts in the Haynesville dropped approximately 15% during the quarter from 76 to 64 rigs, while rig activity on PHX acreage increased from 10 in January to 14 at the end of the quarter [74] - Realized natural gas prices averaged $3.53 per Mcf, 38% lower than the prior sequential quarter [83] - Approximately 48% of natural gas production was hedged at average prices of $4.06 per Mcf [43] Company Strategy and Development Direction - The company has pivoted towards a minerals-only strategy with minimal capital commitments, allowing for quick capital reallocation [6] - The focus remains on acquiring high-quality mineral assets in core areas, particularly in the SCOOP/STACK region, while managing leverage [12][91] - The company aims to maintain a debt-to-EBITDA ratio around 1 to 1.2 times, reflecting a disciplined approach to capital management [19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future commodity price improvements, particularly for natural gas, as supply and demand imbalances are expected to stabilize [73] - The company anticipates continued growth in royalty volumes, driven by new well completions and a strong inventory of undrilled locations [81][88] - Management acknowledged the challenges posed by current natural gas pricing but remains committed to a patient and strategic approach to acquisitions [91][92] Other Important Information - The company recorded an income tax receivable of $776,000 this quarter compared to an income tax payable of $576,000 in the previous quarter, reflecting a net operating loss due to asset divestitures [49] - The company completed over $10 million in acquisitions during the quarter, enhancing its royalty asset base [59] - The asset retirement obligation liability decreased by $1.8 million since September 30, 2021, indicating continuous improvement in the balance sheet [86] Q&A Session Summary Question: What is the outlook for 2023 guidance given the current activity levels? - Management remains comfortable with 2023 guidance despite expectations for a softening in gas-focused activity, citing ongoing rig activity on their mineral acreage [116] Question: How is the company managing liquidity in light of the bank's price-related borrowing base cuts? - The company emphasized flexibility in capital allocation due to the divestiture of non-op working interests, allowing for quick responses to market conditions [121] Question: What is the company's strategy regarding hedging and exposure to commodity prices? - The company aims to balance locking in cash flow through hedges while maintaining upside exposure to commodity prices, particularly for new production volumes [99]