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

Thank you for joining us today to discuss our 2020 third quarter results. With me on the call for prepared remarks are Chad Stephens, President and Chief Executive Officer; and Freda Webb, VP Mineral Operations. After the prepared remarks, we will open the call up for Q&A session.

The earnings press release that was issued earlier today is also posted on our 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 both known and unknown risks and uncertainties that may cause actual results to be materially different 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 and time of the 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 2020 fiscal third quarter conference call. We sincerely appreciate your time and your continued interest in the company.

The third quarter of 2020 was very challenging for Panhandle as we dealt with the effects of COVID-19 and the associated downturns in the economy and commodity prices. Our royalty volumes decreased by 16% quarter-over-quarter, and our total volumes, including working interest, decreased a total of 20%.

Activity on our minerals continues to experience a slowdown, as operators contend with the current state of the economy. Despite the current macro environment, we continued to manage costs, generate free cash flow and reduce debt during the third quarter.

Over the past few weeks, I've been encouraged by the signs of an uptick in activity in the sector. This includes curtailed production being brought back online, increase permitting in core areas and deal flow picking up in general.

I remain confident that Panhandle will successfully navigate this market downturn, taking proactive steps, a prudent capital allocation that reflect market conditions and remain committed to our long-term strategy of NAV accretive growth via acquisitions.

At this point, I would like to turn the call over to Freda to provide quick operational overview and then to Ralph to discuss the financials..

Thank you, Chad, and hello to everyone on the line. During the quarter ended June 30th, we had 48 gross/0.22 net wells convert from wells in progress to producing wells as compared to 25 gross/0.06 net wells during the quarter ended March 31st.

At the end of the quarter, we had an additional 85 gross/0.44 net wells in progress, down from 118 gross/0.5 net from the prior quarter. Also, as the quarter ended, we had no rigs present on Panhandle acreage, and 15 within 2.5 miles, compared to 10 rigs on our acreage, and 41 within 2.5 miles at March 31.

Since the end of the quarter, we've seen two rigs move on to our acreage position, one in the SCOOP and one in the Bakken. Clearly, we are still in the middle of a slowdown in the sector as the economy deals with COVID-19 and lower commodity prices. We are encouraged by what we've seen in the last few weeks as Chad mentioned.

Leasing on our open minerals was flat during the quarter as operators continued to recalibrate their capital programs. During the third fiscal quarter of 2020, we leased 120 net acres for about $23,000 as compared to 36 net acres for $22,000 in the prior quarter.

Subsequent to June 30th, we closed on the sale of 5,925 open non-producing acres in Northwest Oklahoma for $794,000. With that, I'd like to turn the call over to Ralph, who will provide a review of financials. .

One, oil, NGL and natural gas revenues decreased $3.7 million or 51% during the third quarter of 2020 compared to the second quarter of 2020. Total production decreased by about 20%, as a result of fewer new wells being brought online in the third quarter relative to the second quarter.

It's important to remember that on royalty wells we receive first payment on new wells generally three to six months after production has started. And that first cheque includes all monies owed from the first day of production through the date that the cheque is written.

In essence, the second quarter included a true up of first 90 wells of about 30,000 barrels of oil, which the third quarter did not have given the slowdown in the economy. To a lesser degree, we were also affected by curtailments on existing production.

Breaking out volumes between royalty and working interest, the decrease was 16% and 22%, respectively. Lower average prices received for oil, natural gas and NGL in the quarter of 39% on an Mcfe basis also had a large impact on sales.

We had $0.8 million loss on our derivatives contract in the third quarter compared to a $4.1 million gain the prior quarter. Note that we realized the gain of $1.7 million compared $0.6 million the prior quarter. On a cash basis, this really reflects the positive impact of our hedge book during this downturn.

Lease service revenue were generally flat on a quarter-over-quarter basis as operators continue resetting their capital budgets as a result of current market conditions. For total expenses, excluding impairment, they decreased $2.4 million, or about 25% in the third quarter of 2020 compared to the second quarter.

The company's LOE decreased approximately $400,000 or 26% in the third quarter as compared to the second quarter. This is partially due to higher one-time gas balancing charges in the second quarter, and Panhandle proactively selling uneconomic working interest wells. On a per Mcfe basis, LOE decreased about 8% to $0.60 per Mcfe.

Transportation gathering and marketing expenses were also lower on an absolute dollar basis and per Mcfe basis, about 30% and 12% respectively, generally as a result of lower sales. The same can be said about production taxes, which decreased 64% on a quarter-over-quarter basis.

Our G&A decreased about $266,000 or 12% in the third quarter, compared to the second quarter of 2020, as a result of our cost control measures. Adjusted EBITDA was $1.2 million in the third quarter of 2020, as compared to $2.4 million in the second quarter.

We have continued to deploy an active commodity hedging program which extends out into calendar 2022. Generally, we have locked in costless collars on natural gas between $2.30 and $3.02 and on oil between $36.69 and $52.55. You can see an up-to-date schedule in both the press release and the 10-Q that were filed today. Let me also touch on debt.

We had net debt of $28 million as of June 30th. And as of August 11th, debt has further been reduced to $26.9 million. This reduction is net of the proceeds from the sale of open minerals that Freda mentioned.

Lastly, on the second quarter restatement, we believed that we have remediated the issues that caused the error in revenue accrual and we do not expect that this will be an issue again. With that, I will turn the call over to Chad for some final remarks..

Thank you, Ralph. I would like to emphasize how committed we are to taking proactive and prudent actions given the current difficult market conditions, focusing on the balance sheet that includes hedging, reducing G&A, reducing the dividend as we discussed in the second quarter, and allocating all free cash flow to reducing net debt.

These prudent allocations of capital and cash management processes will assist in manoeuvring Panhandle through this downturn. We will also keep an eye on the landscape for growth opportunities 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..

And I am showing no questions from the phone line. So, I'll turn it back over to management for any closing remarks..

Yes, thanks, everybody for joining us. If there are no questions, we look forward to keeping you updated on the next quarterly call, which would be our fiscal year end 2020 call. Thanks, everybody..

That does conclude today's webinar. Thank you for attending. You may disconnect your lines at this time and have a great day..