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Form 10-Q PHX MINERALS INC. For: Jun 30

August 8, 2022 4:24 PM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the period ended  June 30, 2022

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                        

Commission File Number 001-31759

PHX MINERALS INC.

(Exact name of registrant as specified in its charter)

 

Delaware

73-1055775

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1320 South University Drive, Suite 720, Fort Worth, Texas 76107

(Address of principal executive offices)

Registrant's telephone number including area code (405) 948-1560

1601 NW Expressway, Suite 1100, Oklahoma City, Oklahoma 73118

(Former address of principal executive offices from last report)

Securities registered pursuant in Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01666 par value

 

PHX

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☑    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

  ☐  

Accelerated filer

  ☐  

Non-accelerated filer

  ☑  

Smaller reporting company

    

Emerging growth company    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

Outstanding shares of Common Stock at August 2, 2022: 36,433,063 shares.


INDEX

 

 

Part I

 

Financial Information

Page

 

 

 

 

 

 

 

 

Item 1

 

Condensed Financial Statements

1

 

 

 

 

 

 

 

 

 

 

Condensed Balance Sheets – June 30, 2022, and September 30, 2021

1

 

 

 

 

 

 

 

 

 

 

Condensed Statements of Operations – Three and nine months ended June 30, 2022 and 2021

2

 

 

 

 

 

 

 

 

 

 

Statements of Stockholders’ Equity – Nine months ended June 30, 2022 and 2021

3

 

 

 

 

 

 

 

 

 

 

Condensed Statements of Cash Flows – Nine months ended June 30, 2022 and 2021

5

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Financial Statements

6

 

 

 

 

 

 

 

 

Item 2

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures about Market Risk

29

 

 

 

 

 

 

 

 

Item 4

 

Controls and Procedures

29

 

 

 

 

 

 

Part II

 

Other Information

 

 

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

30

 

 

 

 

 

 

 

 

Item 1A

 

Risk Factors

30

 

 

 

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

 

 

 

 

 

Item 6

 

Exhibits

31

 

 

 

 

 

 

 

 

Signatures

31

 



 

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (“Form 10-Q”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements in this Form 10-Q by words such as “anticipate,” “project,” “intend,” “estimate,” “expect,” “believe,” “predict,” “budget,” “projection,” “goal,” “plan,” “forecast,” “target” or similar expressions.

All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements may include, but are not limited to, statements relating to: our ability to execute our business strategies; the volatility of realized natural gas and oil prices; the level of production on our properties; estimates of quantities of natural gas, oil and NGL reserves and their values; general economic or industry conditions; public health crises, such as the COVID-19 pandemic, and any related actions taken by businesses and governments; legislation or regulatory requirements; conditions of the securities markets; our ability to raise capital; changes in accounting principles, policies or guidelines; financial or political instability; acts of war or terrorism; title defects in the properties in which we invest; and other economic, competitive, governmental, regulatory or technical factors affecting our properties, operations or prices.

We caution you that the forward-looking statements contained in this Form 10-Q are subject to risks and uncertainties, many of which are beyond our control, incident to the exploration for, and development, production and sale of, natural gas, oil, and NGLs. These risks include, but are not limited to, the risks described in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021 (“Annual Report”), and all quarterly reports on Form 10-Q filed subsequently thereto, including any risks described in Item 1A of this Form 10-Q. Investors should also read the other information in this Form 10-Q and the Annual Report where risk factors are presented and further discussed.

Should one or more of the risks or uncertainties described above or elsewhere in this Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. Any forward-looking statement speaks only as of the date of which such statement is made, and we undertake no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

Except as required by applicable law, all forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement. This cautionary statement should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.



 

Glossary of Certain Terms

 

The following is a glossary of certain accounting, oil and natural gas industry and other defined terms used in this Form 10-Q:

 

ASC

Accounting Standards Codification.

ASU

Accounting Standards Update.

At-The-Market Program

Our Common Stock offering arrangement by which we may offer and sell, from time to time through or to Stifel, up to 3,000,000 shares of our Common Stock pursuant to an At-The-Market Equity Offering Sales Agreement, as amended, with Stifel as sales agent and/or principal.

Bbl

Barrel.

Board

Board of directors of the Company.

BTU

British Thermal Units.

Common Stock

Common Stock, par value $0.01666 per share, of the Company.

completion

The process of treating a drilled well followed by the installation of permanent equipment for the production of crude oil and/or natural gas.

DD&A

Depreciation, depletion and amortization.

EBITDA

Earnings before interest, taxes, depreciation and amortization (including impairment). This is a Non-GAAP measure.

FASB

The Financial Accounting Standards Board.

field

An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.

G&A

General and administrative costs.

GAAP

United States generally accepted accounting principles.

Independent Consulting Petroleum Engineer(s)

DeGolyer and MacNaughton for the 2021 fiscal year and Cawley, Gillespie & Associates beginning in fiscal year 2022.

LOE

Lease operating expense.

MCF

Thousand cubic feet.

MCFE

Natural gas stated on an MCF basis and crude oil and natural gas liquids converted to a thousand cubic feet of natural gas equivalent by using the ratio of one Bbl of crude oil or natural gas liquids to six MCF of natural gas.

Mmbtu

Million BTU.

minerals, mineral acres or mineral interests

Fee mineral acreage owned in perpetuity by the Company.

NGL

Natural gas liquids.

NYMEX

New York Mercantile Exchange.

play

Term applied to identified areas with potential oil and/or natural gas reserves.

proved reserves

The quantities of crude oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates renewal is reasonably certain.

royalty interest

Well interests in which the Company does not pay a share of the costs to drill, complete and operate a well but receives a smaller proportionate share (as compared to a working interest) of production.

SEC

The United States Securities and Exchange Commission.

SOFR

The Secured Overnight Financing Rate.

Stifel

Stifel, Nicolaus & Company, Incorporated

undeveloped acreage

Acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of crude oil and/or natural gas.

working interest

Well interests in which the Company pays a share of the costs to drill, complete and operate a well and receives a proportionate share of production.

WTI

West Texas Intermediate.

 

Fiscal year references

All references to years in this Form 10-Q, unless otherwise noted, refer to the Company’s fiscal year ended September 30. For example, references to 2022 mean the fiscal year ending September 30, 2022.

Fiscal quarter references

All references to quarters in this Form 10-Q, unless otherwise noted, refer to the Company’s fiscal quarter based on a fiscal year end of September 30. For example, references to first quarter mean the quarter of October 1 through December 31.


Unless otherwise noted, general references to a quarter refer to the quarterly period ended June 30. For example, the 2022 quarter refers to the quarterly period ended June 30, 2022 and the 2021 quarter refers to the quarterly period ended June 30, 2021.

Fiscal nine-month period references

All references to nine-month periods in this Form 10-Q, unless otherwise noted, refer to the Company’s fiscal nine-month period based on a fiscal year end of September 30. Unless otherwise noted, general references to a period in sections of this Form 10-Q discussing nine-month periods refer to the nine-month period ended June 30. For example, in sections of this Form 10-Q discussing nine-month periods, the 2022 period refers to the nine-month period ended June 30, 2022 and the 2021 period refers to the nine-month period ended June 30, 2021.

References to natural gas and oil properties

References to natural gas and oil properties in this Form 10-Q inherently include NGL associated with such properties.

 


 

 

 

PART I FINANCIAL INFORMATION

 

ITEM 1 CONDENSED FINANCIAL STATEMENTS

 

PHX MINERALS INC.

CONDENSED BALANCE SHEETS

 

 

June 30, 2022

 

 

September 30, 2021

 

Assets

 

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,489,282

 

 

$

2,438,511

 

Natural gas, oil, and NGL sales receivables (net of $0 allowance for uncollectable accounts)

 

 

11,780,557

 

 

 

6,428,982

 

Refundable income taxes

 

 

860,416

 

 

 

2,413,942

 

Other

 

 

1,276,942

 

 

 

942,082

 

Total current assets

 

 

18,407,197

 

 

 

12,223,517

 

 

 

 

 

 

 

 

 

 

Properties and equipment at cost, based on successful efforts accounting:

 

 

 

 

 

 

 

 

Producing natural gas and oil properties

 

 

265,800,998

 

 

 

319,984,874

 

Non-producing natural gas and oil properties

 

 

50,204,756

 

 

 

40,466,098

 

Other

 

 

972,770

 

 

 

794,179

 

 

 

 

316,978,524

 

 

 

361,245,151

 

Less accumulated depreciation, depletion and amortization

 

 

(193,551,159

)

 

 

(257,643,661

)

Net properties and equipment

 

 

123,427,365

 

 

 

103,601,490

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

770,952

 

 

 

607,414

 

Other, net

 

 

764,068

 

 

 

578,593

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

143,369,582

 

 

$

117,011,014

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

486,034

 

 

$

772,717

 

Derivative contracts, net

 

 

10,189,546

 

 

 

12,087,988

 

Income taxes payable

 

 

-

 

 

 

334,050

 

Current portion of operating lease liability

 

 

190,604

 

 

 

132,287

 

Accrued liabilities and other

 

 

1,489,127

 

 

 

1,809,337

 

Total current liabilities

 

 

12,355,311

 

 

 

15,136,379

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

28,300,000

 

 

 

17,500,000

 

Deferred income taxes, net

 

 

550,906

 

 

 

343,906

 

Asset retirement obligations

 

 

2,116,246

 

 

 

2,836,172

 

Derivative contracts, net

 

 

1,068,544

 

 

 

1,696,479

 

Operating lease liability, net of current portion

 

 

1,015,405

 

 

 

789,339

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

45,406,412

 

 

 

38,302,275

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common Stock, $0.01666 par value; 54,000,500 shares authorized and

  35,680,970 issued at June 30, 2022; 36,000,500 shares authorized and 32,770,433 issued at September 30, 2021

 

 

594,445

 

 

 

545,956

 

Capital in excess of par value

 

 

42,849,595

 

 

 

33,213,645

 

Deferred directors' compensation

 

 

1,451,690

 

 

 

1,768,151

 

Retained earnings

 

 

58,676,047

 

 

 

48,966,420

 

 

 

 

103,571,777

 

 

 

84,494,172

 

Less treasury stock, at cost; 377,232 shares at June 30, 2022, and 388,545 shares

   at September 30, 2021

 

 

(5,608,607

)

 

 

(5,785,433

)

Total stockholders' equity

 

 

97,963,170

 

 

 

78,708,739

 

Total liabilities and stockholders' equity

 

$

143,369,582

 

 

$

117,011,014

 

 

(The accompanying notes are an integral part of these condensed financial statements.)

(1)


 

PHX MINERALS INC.

CONDENSED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues:

 

(unaudited)

 

 

(unaudited)

 

Natural gas, oil and NGL sales

 

$

19,561,568

 

 

$

10,899,820

 

 

$

48,032,597

 

 

$

25,670,624

 

Lease bonuses and rental income

 

 

209,329

 

 

 

259,152

 

 

 

450,152

 

 

 

319,139

 

Gains (losses) on derivative contracts

 

 

(2,387,226

)

 

 

(5,487,483

)

 

 

(12,534,464

)

 

 

(8,089,662

)

 

 

$

17,383,671

 

 

$

5,671,489

 

 

 

35,948,285

 

 

$

17,900,101

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

 

900,807

 

 

 

1,064,989

 

 

 

3,086,272

 

 

 

3,100,052

 

Transportation, gathering and marketing

 

 

1,430,136

 

 

 

1,538,174

 

 

 

4,132,258

 

 

 

4,138,653

 

Production taxes

 

 

925,197

 

 

 

596,858

 

 

 

2,301,537

 

 

 

1,316,038

 

Depreciation, depletion and amortization

 

 

2,022,832

 

 

 

2,137,707

 

 

 

5,727,708

 

 

 

6,176,173

 

Provision for impairment

 

 

6,277

 

 

 

45,855

 

 

 

11,862

 

 

 

45,855

 

Interest expense

 

 

286,345

 

 

 

220,439

 

 

 

693,276

 

 

 

790,202

 

General and administrative

 

 

2,877,614

 

 

 

2,275,104

 

 

 

7,717,435

 

 

 

6,065,677

 

Losses (gains) on asset sales and other

 

 

(630,547

)

 

 

(35,043

)

 

 

(743,867

)

 

 

(177,512

)

Total costs and expenses

 

 

7,818,661

 

 

 

7,844,083

 

 

 

22,926,481

 

 

 

21,455,138

 

Income (loss) before provision (benefit) for income taxes

 

 

9,565,010

 

 

 

(2,172,594

)

 

 

13,021,804

 

 

 

(3,555,037

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

 

976,000

 

 

 

(816,000

)

 

 

1,771,000

 

 

 

(1,102,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

8,589,010

 

 

$

(1,356,594

)

 

$

11,250,804

 

 

$

(2,453,037

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per common share (Note 4)

 

$

0.25

 

 

$

(0.05

)

 

$

0.33

 

 

$

(0.10

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

34,652,155

 

 

 

28,309,258

 

 

 

34,009,105

 

 

 

24,482,639

 

Diluted

 

 

34,851,214

 

 

 

28,309,258

 

 

 

34,009,105

 

 

 

24,482,639

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per share of common stock paid in period

 

$

0.02

 

 

$

0.01

 

 

$

0.045

 

 

$

0.03

 

 

(The accompanying notes are an integral part of these condensed financial statements.)

(2)


 

PHX MINERALS INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

Nine Months Ended June 30, 2022

 

 

 

 

 

 

Capital in

 

 

Deferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Excess of

 

 

Directors'

 

 

Retained

 

 

Treasury

 

 

Treasury

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Par Value

 

 

Compensation

 

 

Earnings

 

 

Shares

 

 

Stock

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at September 30, 2021

 

 

32,770,433

 

 

$

545,956

 

 

$

33,213,645

 

 

$

1,768,151

 

 

$

48,966,420

 

 

 

(388,545

)

 

$

(5,785,433

)

 

$

78,708,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,682,249

 

 

 

 

 

 

 

 

 

 

 

6,682,249

 

Equity issued to acquire assets

 

 

1,519,481

 

 

 

25,315

 

 

 

3,460,988

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,486,303

 

At-the-market offering fees

 

 

 

 

 

 

 

 

 

 

(10,730

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,730

)

Purchase of treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(700

)

 

 

(1,855

)

 

 

(1,855

)

Restricted stock awards

 

 

-

 

 

 

-

 

 

 

255,844

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

255,844

 

Dividends ($0.025 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(849,689

)

 

 

-

 

 

 

-

 

 

 

(849,689

)

Distribution of restricted stock

   to officers and directors

 

 

115,373

 

 

 

1,921

 

 

 

(178,481

)

 

 

-

 

 

 

-

 

 

 

12,013

 

 

 

178,681

 

 

 

2,121

 

Increase in deferred directors'

   compensation charged to

   expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

67,570

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

67,570

 

Balances at December 31, 2021

 

 

34,405,287

 

 

$

573,192

 

 

$

36,741,266

 

 

$

1,835,721

 

 

$

54,798,980

 

 

 

(377,232

)

 

$

(5,608,607

)

 

$

88,340,552

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,020,455

)

 

 

-

 

 

 

-

 

 

 

(4,020,455

)

Cost of equity issuance

 

 

-

 

 

 

-

 

 

 

(48,166

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(48,166

)

At-the-market offering

 

 

2,710

 

 

 

45

 

 

 

7,972

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,017

 

Restricted stock awards

 

 

-

 

 

 

-

 

 

 

433,137

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

433,137

 

Distribution of deferred

   directors' compensation

 

 

61,452

 

 

 

1,024

 

 

 

462,735

 

 

 

(463,759

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Increase in deferred directors'

   compensation charged to

   expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

35,461

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

35,461

 

Balances at March 31, 2022

 

 

34,469,449

 

 

$

574,261

 

 

$

37,596,944

 

 

$

1,407,423

 

 

$