Good day, everyone and welcome to the PHX Minerals 2022 Second Fiscal Quarter Earnings Conference Call. Today’s conference is being recorded. I would now like to turn the call over to Ralph D’Amico. PHX’s Vice President and Chief Financial Officer. Please go ahead..

Thank you for joining us today to discuss our 2022 second fiscal quarter results. With me on the call today for prepared remarks, are Chad Stephens, President and Chief Executive Officer and Danielle Mezo, Vice President of Engineering. After prepared remarks, we will open up the call to a Q&A session.

The earnings press release that was issued earlier yesterday 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 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 PHX.

As of the date and time of this call PHX 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. PHX’s Chief Executive Officer..

Thanks Ralph. And thanks to everyone on the line for participating in PHX’s 2022 second quarter conference call. We sincerely appreciate your time and your continued interest in the company.

We have made remarkable progress over the last two years implementing our strategy to proactively pursue the acquisition of minerals in our core areas of focus having closed almost 55 million in transactions since September 2020.

As part of this strategy, we have focused on hydrating our asset base by divesting of our lower valued mature, non-operated working interest wells and undeveloped marginal minerals and redeploying the proceeds in higher margin mineral acquisition efforts.

Included in the 55 million just referenced fiscal year-to-date, 2022 we have closed on a total of 25.6 million in mineral transactions, with another 9.4 million scheduled to close by the end of May. These are all in our areas of concentration, the scoop of southern Oklahoma and Haynesville in East Texas and Louisiana.

All of our mineral acquisitions are in areas of high rock quality, with active drillers under reputable operators. As highlighted in our most recent two quarters this has and will continue to drive in the coming quarters, growing royalty volumes and increasing cash flow.

This growing free cash flow stream will provide the capital to feed our continuing future mineral acquisition program as well as a steadily increasing return to shareholders via dividends. This is evidenced by the board’s recently announced 33% increase in our quarterly dividend payable in June 2022 which follows the 50% increase in December of 2021.

You will also note that new wells recently turned to sales that were part of the minerals we recently acquired are driving an improving return on capital employed.

We expect our return on capital employed to continue to improve as volumes increases and our legacy COVID hedges, which Ralph will discuss in more detail in a moment, become less impactful and roll off in the next few quarters.

We are excited to see the steady flow of new mineral acquisition opportunities in our core focus areas in the scoop and Haynesville and are confident of our ability to add to our growing mineral position core focus areas and attractive rates of return. I will now turn the call over to Danielle for her update on drilling activity. .

Thanks Chad, and good morning to everyone participating on the call.

During the second quarter third party operators active on our minerals converted 108 gross or 0.48 net well on progress or width to producing compared to 68 gross or 0.19 width converted to PDP in the first quarter, which is nearly a 60% increase quarter-over-quarter with the majority of the new wells located in the scoop and Haynesville place.

Additionally, our inventory of gross wells in progress doubled to 134 gross or 0.6 net wells at the end of the second quarter compared to 65 gross and p0.42 net well as reported in our prior earnings call. The majority of these wells are also located in the scoop and Haynesville place.

This activity growth is a direct result of successfully executing on our mineral acquisition strategy paired with the growth in commodity prices. Additionally, we have been able to replace all the net well converted to producing with new net well in progress.

This continued replenishment of drilling inventory measured by width is what will drive our increasing royalty volume and free cash flow in the coming quarters. In addition to well inventory, we regularly monitor third party operator rig activity in our focus areas.

We observed 18 rigs present on PHX minerals and 86 rigs active within 2.5 miles and our ownership as of March, 31 compared to 20 rigs on PHX minerals and 90 rigs within 2.5 miles that we reported in the first quarter.

The consistent rig activity present on and near our acreage is encouraging and indicate that we will continue to see a strong width inventory as well as converted to PDP. Now I will turn the call back to Ralph to discuss financial. .

Thanks, Danielle. And thanks for everyone for being on the call today. For our fiscal second quarter ended March 31, 2022, total hydrocarbon production volumes increased 16% from the prior sequential quarter to 2.46 Bcfe.

This was comprised of a 26% increase in royalty volumes, primarily attributable to the newly drilled and completed wells in the Haynesville and Scoop place and a 1% increase in our working interest volumes primarily attributable to the [Indiscernible].

Royalty volumes were a record 1.55 Bcfe or 62.9% of total production and natural gas represented 77.5% of our total hydrocarbon stream. Natural gas, oil and NGL sales revenues increased 8% on a sequential quarter basis to a total of 14.8 million. Royalty sales accounted for 60% of total sales.

We anticipate this percent of total corporate sales increasing in the coming quarters as our newly acquired minerals are developed in our legacy mature non-working interest volumes declined.

Average realized prices received for natural gas, oil and NGL in the quarter were down 7% on a Mcfe basis from the prior sequential quarter to $6.01, which is driven by lower pricing in the natural gas market, primarily in January and early February. Realized hedge losses for the quarter were 3.7 million.

For the quarter approximately 61% of our natural gas, 73% of our oil and 0% of our NGL production volumes were hedged at average price of about $3.40 $4.25 respectively.

The majority of these hedges volumes were layered in during COVID and the majority of the remaining contracts entered into during that time will become less impactful and roll off over the next couple of quarters.

Unrealized mark to market losses totaled 11.7 million during the quarter as a result of oil and gas prices increasing from $75.21 to $100.28 and $3.73 to $5.64 respectively from December 31, 2021 to March 31, 2022. These mark-to-market losses are changes to the present value of future hedge contracts in place and not cash settlements.

As these contracts settle in the future we will receive revenues for the prevailing prices in that period which will offset the value of the hedge contracts. The company’s LOE decreased 26% to $929,500 or $1.02 for Mcfe based on working interest volumes only. The decrease is attributable to fewer work overs on our working interest properties.

Note that the bigger, that the higher work over expenses in the quarter ended December 31, 2021, enabled our Eagle Ford properties production to remain relatively flat on a sequential quarter basis.

That said, we continue to see higher service price inflation across the industry which caused this quarter’s LOE to be on the higher end of the range I mentioned on our last quarterly call of between 800,000 and 900,000 per quarter.

Going forward, we continue to prioritize the divestiture of our lower margin wells, which we expect will reduce our future LOE expenses.

Total transportation, gathering and marketing increased 23% on an absolute basis to 1.49 million on a sequential quarter basis due to higher volumes, primarily the Fayetteville shale play, which has higher transportation expenses relative to other gas producing regions, such as the Haynesville.

Production taxes increased 3% on a sequential quarter basis due to higher sales volumes offset by lower realized commodity prices. Cash, G&A increased 28% to 2.28 million from 1.8 million, due primarily to onetime costs associated with the reincorporation of the company to Delaware and the timing of certain audit and legal expenses.

Adjusted EBITDA was 5.8 million in our 2022 fiscal second quarter compared to 4.4 million in the 2022 fiscal first quarter. Pre-tax loss for the quarter was 4 million compared to income of 7.4 million during the prior sequential quarter. The net loss during this quarter included a 11.7 million unrealized the mark-to-market loss on our hedge book.

The prior quarter included a 4.5 unrealized gain on our hedge book. Backing out these items, we would have generated 7.7 million of pre-tax net income this quarter compared to 2.9 million in the prior sequential quarter.

Our total debt increase to 24 million as of March 31, 2022 from 20 million the prior quarter, the increase is associated with the previously announced mineral acquisitions with line of sight development in the Haynesville.

Our trailing 12 month debt to EBITDA is 1.23 times, which is a number that we’ve talked about before in the low one range that we’re very comfortable with, and we think enables us to execute our strategy more successfully.

Also an update on the borrowing base we are currently going through a borrowing base redetermination with our lenders independent financial from May 1. We expect to have that out in the next finalized and announced over the next step two weeks or so. And at this point, we expect our borrowing base to increase.

We’ll put out a press release once that is finalized. With that I’d like to turn the call over to Chad for some final remarks. .

Yes. Thanks, Ralph. In just thinking back over this quarter, and some of the important things we highlighted in our press release I do want to stress that we’re really pleased to see increasing royalty volumes quarter-over-quarter.

That’s a direct reflection of the success of our acquisition program and its driving increasing cash flow, which was obviously free cash flow, was way up. And we’re really, really pleased to see these lower COVID hedges rolling off in the next two quarters, which will have a material impact on our future financials. So we’re really happy about that.

Generally, we continue to see positive macro fundamentals in the energy space particularly in the natural gas sector. We are confident that we will continue to be able to execute on our strategy which will translate into increasing royalty volumes and associated cash flow in the coming quarters as I alluded to.

It will ultimately drive shareholder value which is our main focus obviously. We look forward to keeping you updated on our progress in the coming quarters. Thanks again for joining us today. I am proud of the PHX employees who have worked very hard and embraced our strategy with enthusiasm and dedication.

I would also like to express my appreciation to our board of directors who provides invaluable wisdom and advice. This concludes the prepared remarks portion of the call. Operator please open up the queue for questions. .

Thank you. This time we will be conducting a question and answer session. [Operator Instructions] And our first question comes from the line of John [Indiscernible] with Stifel. Please proceed with your question. .

Good morning all and congrats on a strong update.

With my first question, can you speak to your expectations for royalty volumes in Q3 based on the activity you have seen to start the quarter? And then the trend for the rest of the year? I know there are a couple moving parts with the recently closed and pending acquisitions, and certainly not trying to hold you to an absolute number, but just the general trend?.

Hey, John, it’s Ralph. So over the last couple of quarters, I think what we’ve guided on royalty volumes was that fiscal ‘22 would grow on average, somewhere between 30% and 35% compared to fiscal 2021. At this point, we continue to remain very comfortable with those numbers.

And quite frankly, we may I think we’re probably looking at a little bit north of the 35% year-over-year growth. On those acquisitions just remember that when we make those acquisitions, they tend to have more wells in progress as a larger percentage of the deal size compared to PDP.

So with our fiscal year ending, September 30 those acquisitions are going to have some effects in fiscal ‘22. But you really should see them have the more material effect in fiscal ‘23 as the operators complete those wells and put them on production..

Great, I appreciate the color.

For my follow up in light of the higher commodity prices and rig count, can you comment on the potential for lease bonuses in 2022?.

Yes, this is Danielle. So we have seen an increase year-over-year on lease bonus side. And we would continue to expect continued to see that same rate going through the rest of this year as it sits now..

Totally agree. A lot of activity, you can see the rig counts in the Anadarko basin, especially where a lot of our legacy minerals are and we are seeing lots of inbound requests to lease these open minerals in around where these rigs are active. So yes..

One other thing, John is, keep in mind a part of the strategy of hydrating those, the asset base.

In outside of our core areas, we’re actually looking at the opportunities and you can read about it in o10-Q where we have actually divested some of those open minerals and will continue to do so in future quarters as another source of capital to fund acquisitions in our core areas that have more line of sight development opportunities..

Very helpful. If I could squeeze one last question in and ask you to elaborate on your prepared remarks on the AMD market.

Can you share what you’re seeing in terms of deal flow and whether the bid ask spread has widened with higher commodity prices?.

Based on what we’re paying, especially some of these acquisitions that we recently closed or will be closing, for us acquisition prices are relatively flat. But the good news is where commodity prices are it appears sellers are a bit more inclined to sell into this price strip versus where we were maybe this time last year.

So it’s helping us with as just a good active steady stream of inbound deals..

Makes sense, thanks for taking my questions and congrats again on that year update. .

And it looks like we have reached the end of our question and answer session. I will now I’ll turn the call back over to the CEO and President Chad Stephens for closing remarks..

We appreciate you participating today and look forward to an update in our next quarterly call. Thank you all very much. Have a good day. .

This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation..