PANHANDLE OIL AND GAS has reported financial and operating results for the third quarter and nine months ended June 30, 2020. 

Chad L. Stephens, President and CEO, commented, 
"Clearly the third quarter was challenging given the effects of the global pandemic on the economy and the energy markets. Our sales volumes were down as operators curtailed production and brought fewer wells online due to low commodity prices. While we have made significant strides in reducing costs in the quarter, it was not enough to offset lower revenue. In spite of these challenges, we managed to generate free cash flow which we used to further reduce debt. The energy sector is stabilizing as the rig count seems to have found a floor and operators are talking about bringing curtailed wells back on line and setting reasonable drilling plans going forward. The deal flow for mineral assets is also picking up, and we expect more opportunities to come to market in the second half of 2020. We will continue to focus on areas that we can control such as cost discipline, debt reduction and sourcing mineral acquisition opportunities, which we believe will create value for our shareholders in the long run."

SUMMARY OF RESULTS FOR THE PERIODS ENDED JUNE 30, 2020, AND SUBSEQUENT EVENTS

• Total volumes sold decreased in the third quarter 2020 by 0.47 Bcfe, or 20%, and royalty volumes decreased by 0.16 Bcfe, or 16%, from the second quarter 2020, primarily due to timing of payments from operators as a higher number of new wells were paid in the second quarter compared to the third quarter. 
• Net loss in the third quarter 2020 was $3.6 million, or $0.21 per share, as compared to net loss of $20.5 million, or $1.24 per share, in the second quarter 2020. 
• Adjusted EBITDA(1) for the third quarter 2020 was $1.2 million, as compared to $2.4 million in the second quarter 2020, mainly due to 20% lower production volumes and 39% lower realized prices. 
• Reduced debt from $35.4 million, as of Sept. 30, 2019, to $30.0 million, as of June 30, 2020. Net debt has been further reduced to approximately $26.9 million as of Aug. 11, 2020. 
• Debt to adjusted EBITDA (TTM) ratio was 1.48x at June 30, 2020. 
• Subsequent to June 30, 2020, the Company sold 5,925 open and non-producing net mineral acres for $793,617 with the proceeds applied toward further debt reduction. 
• Total G&A decreased by $265,871 from the second quarter as a result of the Company's ongoing cost reduction efforts. 
• Approved a payment of a one cent per share dividend payable on Sept. 11, 2020, to stockholders of record on Aug. 27, 2020.

(1)  This is a non-GAAP measure. 

RESULTS OF THIRD QUARTER 2020 COMPARED TO THIRD QUARTER 2019

The Company recorded a third quarter 2020 net loss of $3,555,215, or $0.21 per share, as compared to net income of $4,604,236, or $0.28 per share, in the 2019 quarter. The decrease was principally the result of decreased oil, NGL and natural gas sales, loss on derivative contracts in the third quarter and decreased gain on asset sales, partially offset by a decrease in DD&A, transportation, gathering and marketing expenses, production taxes and changes in tax provision (benefit). 

Oil, NGL and natural gas sales decreased $6,264,776, or 64%, for the 2020 quarter due to decreases in oil, NGL and natural gas prices of 55%, 57% and 32%, respectively, and decreases in oil, NGL and natural gas sales volumes of 43%, 35% and 21%, respectively. 

Although production is down in all three product categories, it is notable that production is down for working interest volumes and slightly up for royalty interest volumes due to new royalty interest wells brought online, as compared to June 30, 2019. The primary factor for the oil production decrease is attributable to the Eagle Ford Shale working interest wells, where the natural decline on new wells brought online in March 2019 is coupled with recent delays in performing mechanical repairs due to poor economics related to low oil prices. Decreases are also attributable to the natural decline of the working interest production base. NGL production decline is attributable to curtailed production along with the natural decline of the working interest production base in liquid-rich gas areas of the STACK, SCOOP and Arkoma Stack. Natural gas volumes have decreased as a result of curtailments in response to market conditions in the STACK, SCOOP and Arkoma Stack, in addition to the natural decline of working interest production base in all the areas. New royalty interest production has increased, even though we have experienced reduced activity as a result of market conditions; this increase is primarily associated with mineral acquisitions and new wells brought online. While we cannot estimate the curtailed volumes or timing, we expect the deferred production to resume to normal rates as market conditions and prices improve.

The Company had a net loss on derivative contracts of $838,282 in the 2020 quarter as compared to a net gain of $2,313,195 in the 2019 quarter. During the 2020 quarter, oil and natural gas collars and fixed price swaps experienced an unfavorable change as NYMEX futures experienced an increase in price during the quarter in relation to their previous position to the collars and the fixed prices of the swaps at the beginning of the 2020 quarter.

The 9% decrease in total cost per Mcfe in the 2020 quarter relative to the 2019 quarter was primarily driven by a decrease in DD&A. DD&A decreased $1,918,475 or 44% in the 2020 quarter to $1.29 per Mcfe as compared to $1.67 per Mcfe in the 2019 quarter. $1,193,410 of the decrease was a result of production decreasing 27% in the 2020 quarter. Also, DD&A decreased $725,065 as a result of a $0.38 decrease in the DD&A rate per Mcfe due to impairments taken at the end of fiscal 2019 and the 2020 second quarter, which lowered the basis of the assets. The rate decrease was partially offset by lower oil, NGL and natural gas prices utilized in the reserve calculations during the 2020 quarter, as compared to the 2019 quarter, shortening the economic life of wells.

RESULTS OF NINE MONTHS ENDED JUNE 30, 2020, COMPARED TO NINE MONTHS ENDED JUNE 30, 2019 

The Company recorded a nine-month net loss of $22,117,915, or $1.34 per share, in the 2020 period, as compared to net income of $15,408,842, or $0.92 per share, in the 2019 period. The decrease was principally the result of increased provision for impairment (non-cash), decreased oil, NGL and natural gas sales, decreased gains on derivative contacts and decreased gain on asset sales, partially offset by decreased lease operating expenses, decreased transportation, gathering and marketing expenses, decreased production taxes, decreased DD&A and changes in our tax provision (benefit).

Oil, NGL and natural gas sales decreased $12,885,358, or 41%, for the 2020 period due to decreases in oil, NGL and natural gas prices of 23%, 40% and 35%, respectively, and decreases in oil, NGL and natural gas sales volumes of 15%, 26% and 14%, respectively. 

Total production decreased 16% in the 2020 period, as compared to the 2019 period. This decrease for the 2020 nine-month period, was the result of Panhandle electing not to participate with a working interest on 18 wells proposed on its mineral and leasehold acreage, as well as the factors for the third quarter 2020 results discussed above.

The 3% decrease in total cost per MCFE in the 2020 period, relative to the 2019 period, was primarily driven by a decrease in DD&A as noted above.

OPERATIONS UPDATE

During the quarter ended June 30, 2020, Panhandle converted 48 gross/0.22 net wells in progress to producing wells. The company's inventory of wells in progress decreased to 85 gross wells and 0.44 net wells, as drilling has slowed down due to the current pricing environment. Permits outstanding decreased due to current economics.

KeyFacts Energy Industry Directory: Panhandle Oil & Gas