PHX MINERALS INC. REPORTS FIRST QUARTER 2022 RESULTS

OKLAHOMA CITY, Feb. 14, 2022 /PRNewswire/ -- PHX MINERALS INC., "PHX" or the "Company" (NYSE: PHX), today reported financial and operating results for the first quarter ended Dec. 31, 2021.

SUMMARY OF RESULTS FOR THE PERIOD ENDED DEC. 31, 2021, AND SUBSEQUENT EVENTS

• Royalty production volumes for the first fiscal quarter of 2022 increased 23% to 1,225 Mmcfe from 998 Mmcfe in the fourth fiscal quarter of 2021 and total production volumes for the first fiscal quarter of 2022 decreased 4% to 2,128 Mmcfe from 2,212 Mmcfe in the fourth fiscal quarter of 2021.
• Net income in the first fiscal quarter of 2022 was $6.7 million, or $0.20 per share, as compared to net loss of ($0.6) million, or ($0.03) per share, in the first fiscal quarter of 2021 and net loss of ($3.8) million, or ($0.14) per share, in the fourth fiscal quarter of 2021.
• Adjusted EBITDA(1) for the first quarter of 2022 increased to $4.4 million from $2.9 million in the first fiscal quarter of 2021 and increased from $4.2 million in the fourth fiscal quarter of 2021.
• Total debt was increased to $20.0 million as of Dec. 31, 2021, in order to fund an acquisition of developed minerals targeting the Haynesville, a 14% increase from $17.5 million as of Sept. 30, 2021. The borrowing base increased to $32.0 million as of Dec. 31, 2021, a 16% increase from $27.5 million as of Sept. 30, 2021.
• Total debt to adjusted EBITDA (TTM) (1) ratio was 1.16x at Dec. 31, 2021.
• For the first quarter of fiscal year 2022 through Jan. 31, 2022, closed on the acquisition of 2,151 net royalty acres in the SCOOP play of Oklahoma and the Haynesville play of East Texas and Louisiana for approximately $13.8 million in cash and 1.5 million shares of PHX common stock.

Chad L. Stephens, President and CEO, commented, "As we move into PHX's fiscal year 2022, you will note our first quarter 2022 results clearly demonstrate the traction we continue to gain from our mineral acquisition strategy, with royalty volumes increasing and working interest volumes declining. This is a direct result of our previously announced mineral acquisitions and the sale of legacy working interest properties, on which we closed last October and November. This is a methodical process that involves divesting mature non-operated working interest properties and redeploying the cash proceeds into acquiring minerals in our core basins, the SCOOP and Haynesville, with high rock quality attributes and active drilling under reputable and credit worthy operators. These mineral acquisitions provide immediate royalty volumes and cash flow along with an inventory of drilling locations that, as these locations are developed in the near future, will contribute additional growing royalty volumes and cash flow. I would also like to point out that the non-producing locations we have purchased over the last two years are being converted to producing wells at a faster pace than we expected during our underwriting process, which validates our strategy.

"This buy and sell high grading process generates a dynamic of declining working interest volumes, with no capital allocated to the working interest assets to increase production and slowly divesting of lower valued mature working interest properties, while materially growing our royalty volumes through the acquisition process. This dynamic is dramatically highlighted when you consider year-over-year royalty volumes have grown by over 60% and non-operated working interest volumes have declined year-over-year by 33%. We project that royalty volumes will represent more than 75% of overall corporate volumes by the end of fiscal year 2024 as our inventory of undrilled locations are developed. This will drive better margins, decrease lease operating expense, grow cash flow and generate an attractive return on capital employed.

"You see this materializing in the first quarter 2022 with impressive reported net income and earnings per share. You will see our financial results only improve from here as our low value hedges roll off and royalty volumes continue to increase in the coming quarters.

"We have a great partner in Independent Bank, who understands our strategy and has demonstrated their willingness to grow with us, a strong balance sheet and more than ample deal flow in which to allocate our free cash flow. We are confident that the almost $50.0 million of mineral acquisitions we have closed over the last two years will continue to bear fruit in the coming quarters, which will help achieve our ultimate goal of building shareholder value."

Total Production for the last five quarters was as follows:

Royalty Interest Production for the last five quarters was as follows:

Working Interest Production for the last five quarters was as follows:

FIRST QUARTER 2022 RESULTS

The Company recorded first quarter 2022 net income of $6,682,249, or $0.20 per share, as compared to a net loss of ($596,720), or ($0.03) per share, in the first quarter 2021. The change in net income was principally the result of increased natural gas, oil and NGL sales and an increase in non-cash gain on derivative contracts, partially offset by a loss on asset sales.

Natural gas, oil and NGL revenue increased $7,262,185, or 113%, for the first quarter 2022, compared to the corresponding 2021 quarter due to increases in natural gas, oil and NGL prices of 136%, 86% and 111%, respectively, and an increase in natural gas and NGL volumes of 7% and 8%, respectively, partially offset by a decrease in oil volumes of 18%.

The royalty production volumes increase during the three months ended Dec. 31, 2021, as compared to the three months ended Dec. 31, 2020, resulted from acquisition wells in the Haynesville Shale and SCOOP plays coming online. The decrease in working interest volumes resulted from naturally declining production in high-interest wells in the Eagle Ford Shale and divestiture of low-value legacy working interest in Oklahoma.

The Company had a net gain on derivative contracts of $2,836,168 in the first fiscal 2022 quarter, as compared to a net loss of ($254,036) in the first fiscal 2021 quarter. Net gain on derivative contracts excludes $2,688,091 of cash paid to settle off-market derivative contracts. The change in net gain on derivative contracts was principally due to the natural gas and oil collars and fixed price swaps being more beneficial in the quarter ended Dec. 31, 2021, in relation to their respective contracted volumes and prices.

The 1% decrease in total cost per Mcfe in the first fiscal 2022 quarter, relative to the first fiscal 2021 quarter, was primarily driven by a decrease in DD&A. DD&A decreased $676,889, or 30%, in the first fiscal 2022 quarter to $0.74 per Mcfe, as compared to $1.09 per Mcfe in the first fiscal 2021 quarter. Of the DD&A decrease, $735,649 was a result of a $0.35 decrease in the DD&A rate per Mcfe, partially offset by an increase of $58,760 resulting from production increasing 3% in the first fiscal 2022 quarter. The rate decrease was mainly due to an increase in reserves during the first fiscal 2022 quarter, as compared to the first fiscal 2021 quarter.

OPERATIONS UPDATE

During the first fiscal quarter of 2022, the Company converted 68 gross (0.19 net) wells to producing status and had 54 gross (0.25 net) wells in progress added across its mineral position.

At Jan. 31, 2022, the Company had a total of 65 gross wells (0.42 net wells) in progress across its mineral positions and 18 gross active permitted wells. As of Jan. 31, 2022, there were 20 rigs operating on the Company's acreage and 92 rigs operating within 2.5 miles of its acreage.

Leasing Activity

During the first quarter of fiscal 2022, the Company leased 175 net mineral acres for an average bonus payment of $546 and an average royalty of 22%.

ACQUISITION AND DIVESTITURE UPDATE

During the first quarter of fiscal year 2022 through Jan. 31, 2022, the Company purchased 2,151 net royalty acres for $13,788,632 and 1,519,481 shares of PHX common stock and sold 7,201 of predominantly undeveloped and unleased net mineral acres for $2,088,856.

During the first quarter of fiscal year 2022, the Company sold 708 gross working interest wells (17.27 net wells).

FIRST QUARTER EARNINGS CALL

PHX will host a conference call to discuss first quarter results at 11:00 a.m. EST on Feb. 15, 2022. Management's discussion will be followed by a question and answer session with investors. To participate on the conference call, please dial 877-407-3088 (domestic) or 201-389-0927 (international). A replay of the call will be available for 14 days after the call. The number to access the replay of the conference call is 877-660-6853 and the PIN for the replay is 13726336.

Non-GAAP Reconciliation

This news release includes certain "non-GAAP financial measures" under the rules of the Securities and Exchange Commission, including Regulation G. These non-GAAP measures are calculated using GAAP amounts in our financial statements. These measures, detailed below, are provided in addition to, not as an alternative for, and should be read in conjunction with, the information contained in our financial statements prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on our website.

Adjusted EBITDA Reconciliation

EBITDA excluding unrealized gains (losses) on derivatives and gains (losses) on asset sales and including cash receipts from (payments on) off-market derivatives and restricted stock and deferred directors' expense is defined as adjusted EBITDA. We have included a presentation of adjusted EBITDA because we recognize that certain investors consider this amount a useful means of measuring our ability to meet our debt service obligations and evaluating our financial performance. Adjusted EBITDA has limitations and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of adjusted EBITDA may not be comparable to a similarly titled measure of other companies. The following table provides a presentation of net income (loss) to adjusted EBITDA for the periods indicated:

Debt/Adjusted EBITDA (TTM) Reconciliation

Debt/adjusted EBITDA (TTM) is defined as the ratio of long-term debt to adjusted EBITDA on a trailing 12-month (TTM) basis. We have included a presentation of debt/adjusted EBITDA (TTM) because we recognize that certain investors consider such ratios a useful means of measuring our ability to meet our debt service obligations and evaluating our financial performance. The debt/adjusted EBITDA (TTM) ratio has limitations and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of debt/adjusted EBITDA (TTM) may not be comparable to a similarly titled measure of other companies. The following table provides a presentation of net income (loss) to adjusted EBITDA on a TTM basis, and of the resulting debt/adjusted EBITDA (TTM) ratio: