Good day everyone and welcome to Panhandle Oil and Gas Inc. First Quarter 2020 Earnings Conference Call. Today's conference is being recorded. I would like to now turn the conference call over to Ralph D'Amico, Panhandle's Vice President, Investor Relations. Please go ahead..

Thank you for joining us today to discuss our 2020 first quarter results. With me on the call today for prepared remarks are Chad Stephens, Chief Executive Officer; Robb Winfield, Chief Financial Officer; and myself. After prepared remarks, we will open up the call to a Q&A session.

During the Q&A session, we will also be joined by Freda Webb, who is the VP of Operations. Please note that we are also webcasting this call on our Investor Relations' website at panhandleoilandgas.com. The earnings press release that was issued earlier today is also posted on the Investor Relations' website.

Before I turn the call over to Chad, I'd like to remind everyone that during today's call, including the Q&A session, we may make forward-looking statements regarding expected revenue, earnings, future plans, opportunities, and other expectations of the company.

These estimates and plans and other forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied on the call.

These risks are detailed in our most recent annual report on Form 10-K as such may be amended or supplemented by subsequent quarterly reports on Form 10-Q or other reports filed with the Securities and Exchange Commission. The statements made during this conference call are based upon information known to Panhandle as of the date of this call.

Panhandle assumes no obligation to update the information presented in today's call. With that, I'd like to turn the call over to Chad Stephens, Panhandle's Chief Executive Officer..

Thanks Ralph and thanks to everyone on the line for participating in Panhandle's 2019 fiscal first quarter conference call. We sincerely appreciate your time and your continued interest in the company.

The first quarter of 2020 reflected increasing momentum despite continued commodity price headwinds and executing the strategy we originally announced in 2019.

As previously discussed, we are moving away from working interest participation to implement a disciplined focus from proactively growing our mineral royalty holdings in areas with good rock quality, clear line of sight development, under well-established operators, on an NAV accretive basis.

Over time, we are confident this strategy should provide meaningful free cash flow that we can return to our shareholders. In the first quarter, we closed on our previously announced acquisition of 700 net mineral acres in a core of the STACK under acreage largely operated by Devon, Aventine, and Marathon.

We are currently actively evaluating other interesting opportunities, mainly in the STACK and Bakken. Rob will provide detailed color around the first quarter results in a moment. Interestingly, quarter-over-quarter, we saw a decline in the operating cash flow of approximately $1.3 million or 42%.

But this decline is all due to a material swing and derivative contracts. We booked a $1.1 million derivatives gain in fourth quarter 2019 and an $800,000 loss in first quarter 2020, a $1.9 million negative variance. Otherwise, our operating cash flow would have been virtually flat.

I would also emphasized that our capital expenditures for the quarter have dropped to an insignificant amount, just over $100,000. We are seeing the natural decline and I working interest PDP volumes continue as we abstain from participating with working interested in new wells.

As we transition to the mineral-only strategy, we should be able to mitigate this decline through the organic development of our minerals and by acquiring minerals that include existing production and line of sight development similar to the STACK deal we announced in December.

This acquisition only contributed 14 days of production to the first quarter 2020 numbers. Beginning in the second quarter, we will realize the full impact to our financials. We have an active mineral package deal flow and our optimistic at our chances of closing more acquisitions in the future. We look forward to keeping you updated with our progress.

At this point, I would like to turn the call over to Ralph to provide quick operational overview..

Thanks Chad. Panhandle continues to see strong activity on its mineral position. During the quarter ended December 31st, we had 97 gross, 0.3 to net wells converted from wells in progress to producing wells. The majority of this activity continues to be focused in the SCOOP/STACK and Bakken regions.

At the end of the quarter, we had 125 gross, 0.49 net wells in progress, which is basically a 1:1 replacement ratio of the prior quarter's well in progress that were placed on production. This shows the resiliency and organic growth potential of the Panhandle asset base.

Also as the -- as of the quarter end, we had nine rigs present on PHX acreage and 55 within two and a half miles, again, predominantly focused on SCOOP/STACK and Bakken. We continue to actively lease our open minerals including minerals that had been previously held for working interest participation.

During the first fiscal quarter, we leased 754 net acres for about 528,000, which works out to an average bonus of $668 per acre and a royalty of 21%. On the acquisition and divestiture front, we closed on the sale of 530 predominantly undeveloped mineral acres in Northwest Eddie County, New Mexico at an average price of $4,800 per acre.

We also close on the purchase of 700 net mineral acres in the core of the STACK is Chad previously mentioned. These two deals bookend our philosophy of treating our minerals like a portfolio and high-grading our assets to maximize cash flow and reduce risk. Our deal pipeline continues to be strong and we're currently evaluating several opportunities.

With that, I'll turn the call over to Rob, who will provide a review of the financials..

Thanks Ralph. First, I want to thank everyone for being on our call today. I will share with you some more details regarding our financial results for the first quarter ended 12/31/2019 and then turn the call back over to Chad to make some final comments.

For our first quarter ended December 31, 2019, our total revenues were $10.6 million, which is a 33% decrease from the $15.7 million in the fourth quarter of 2019.

This change was caused by the following; one, the company sold minerals in the fourth quarter of 2019 for a gain on sale $5.9 million and the company sold mineral assets in the first quarter of 2020 for a gain on sale of $3.3 million, a decrease of $2.6 million in revenues.

Two, as Chad mentioned earlier, we had a $1.1 million gain on our derivative contracts in the fourth quarter of 2019 and that turned to a loss of $0.8 million in the first quarter of 2020, a $1.9 million decrease in revenues.

Three, oil, NGL, and natural gas revenues decrease $0.6 million or 7.3% during the first quarter of 2020 compared to the fourth quarter of 2019 due to production decreases from all our products in the Eagle Ford and Arkoma, and that was partially offset by higher natural gas and NGL prices in the first quarter of 2020.

Our total expenses excluding impairment previously discussed in our 2019 10-K decrease $4.9 million or 37% in the first quarter of 2020 when compared to the fourth quarter of 2019. The majority of the decrease was due to the reduction in DD&A of $3.4 million or 54%.

The company's DD&A rate in the first quarter of 2020 was $1.30 per Mcfe as compared to $2.50 per Mcfe in the fourth quarter of 2019. The company's LOE decreased $682,000 or 21% in the first quarter of 2020 as compared to the fourth quarter of 2019.

This was primarily due to lower expenses in the Eagle Ford as well as lower work over expenses overall and lower production. G&A decreased approximately $461,000 or 17% in the first quarter of 2020 as compared to the fourth quarter of 2019.

That was mainly due to the one-time severance paid to the former CEO in the fourth quarter of 2019, partially offset by higher legal and technical consulting expenses in the first quarter of 2020. Our adjusted EBITDA was $7.2 million in the first quarter of 2020 as compared to $10.1 million in the fourth quarter of 2019.

Adjusted pretax net income was $3.9 million or $0.23 per share in the first quarter of 2020 as compared to $2.7 million or $0.16 per share in the fourth quarter of 2019. Both adjusted pretax net income and adjusted EBITDA include gain on sale of asset.

We continue to deploy an active commodity hedging program which extends out into early calendar 2021. Currently, we have 156,000 barrels of oil hedge to the price of approximately $59 per barrel for calendar 2020. We also have 1.4 Bcf of natural gas hedge at a price of approximately $2.75 per Mcf for calendar 2020.

We have been able to lock in favorable returns for our shareholders through this hedging program and we plan to continue. With that, I'd like to turn the call over to Chad for some final remarks..

Thank you, Rob. I would like to reiterate how excited I am about the new strategic direction we have set for the company and look forward to keeping you apprised of our progress in the coming quarters. This concludes the prepared remarks portion of the call. Operator, let's please open up the queue for questions..

Thank you. The lines are now open for questions. [Operator Instructions] Question comes from Richard Howard with Boiling Point Resources. Please go ahead..

Good afternoon..

Good afternoon..

Two questions.

First of all, have we continued to see the ability to make sales in the Permian?.

Are you referring to--?.

The Eddie County -- was the Eddie County sale the last -- done and are there still opportunities to sell or is that slowed way down?.

Hey, Rich its Ralph. No, the last one that we did was the Eddie County sale, that's the last one that closed. We continue to have discussions and think about opportunities, but right now, there's nothing that's on the on the front burner..

Okay.

And if we have purchases, will we typically use the money from those sales and in the exchange -- the past three exchanges or are we going to depend sort of cash that's generated by our activities?.

Yes, Richard, this is Chad. So, it to fund our purchases, if we were able to sell more minerals, we would do similar like kind exchange 1031 structured type deals for tax deferred advantage. But to the extent we do not sell minerals, we would source the funds to acquire minerals from cash on hand, debt, and potentially equity..

Got it.

Do you foresee not making share repurchases then with the [technical difficulty]?.

No, we don't think at this point that that's the best use -- or the best allocation of our capital going forward. So, you probably will not see for the foreseeable future an active share repurchase..

Okay. My second question -- although I thoroughly extended the first part of it. But my second question [technical difficulty] capacity, could you give us a feel for how much of that relates to royalty production and how much relates to our working interest production? There is about one or two-thirds--.

The first part of your question, you broke up.

Can you quickly repeat? I'm sorry?.

Sure.

The $70 million that we have in the borrowing base, should I look at that as being two-thirds working interest and one-third royalty and say it's the approximate relationship of our sales right now?.

Well, and as laid out in the most recent Q, the borrowing base has been reduced to $45 million..

Okay..

And that's -- well, it was reduced because if you'll recall, at the end of the year, we announced the impairment because we eliminated all of the PED [ph] drilling locations on the Eagle Ford, which triggered the impairment. But we also eliminated $85 million of future CapEx associated with those PEDs. So, it reduced the borrowing base.

So, at this point, our borrowing base is virtually associated with the PDP. Freda if you have a sense of how much is associated from a reverse standpoint is associated with working interest, you might be able to answer that question..

Yes, I think it's probably in line with our production. So, two-thirds working interest, one-third royalty..

Thank you very much..

Thank you..

[Operator Instructions] And I apologize ladies and gentlemen, it looks like we are out of time. I will turn it back to Ralph D'Amico for any closing comments..

Thank you, Christy. Thanks everybody for joining us. We look forward to updating you guys at the end of the next quarter. Thanks again for participating and your interest in Panhandle..

And that concludes today's teleconference. We thank you for your participation. You may now disconnect your lines and please have a great day..