Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PHX Minerals Inc (PHX, Financial) reported the highest corporate production volumes since Q2 2018, reflecting successful replacement of divested working interest volumes with high-quality royalty interest volumes.
- The company achieved a 46% increase in royalty production for the quarter, setting an all-time quarterly record for PHX.
- PHX reduced its debt by $4 million or 12% since year-end 2023, maintaining a strong balance sheet with a leverage metric under $1.5 million.
- The Board decided to increase the dividend by 33% to $0.16 per share, marking a 400% increase since March 2020.
- PHX closed on approximately $3.5 million of mineral acquisitions year-to-date in key areas like SCOOP and Haynesville, with more opportunities being evaluated.
Negative Points
- The macro environment remains challenging with suppressed commodity prices and reduced rig activity, particularly in natural gas basins.
- There is volatility in production volumes due to the company's lack of control over well development timing, leading to potential quarter-to-quarter fluctuations.
- Transportation, gathering, and marketing fees increased by 83% sequentially, driven by higher volumes and cost-bearing leases.
- Production and ad valorem taxes rose by 52% due to higher production volumes, particularly in Louisiana where taxes are volume-based.
- The company faces a greater than 25% annual decline rate in its royalty interest wells, necessitating continuous replacement and growth efforts.
Q & A Highlights
Q: How much of an outlier is this quarter's performance, and can we expect similar results in the future?
A: Chad Stephens, CEO, explained that the 30% compounded annual growth rate in royalty volumes over the past four years indicates a steady pace of development. While this quarter was exceptional, the company expects continued quarter-over-quarter and year-over-year growth in royalty volumes, driven by their undeveloped inventory of locations being developed.
Q: Can you provide insights into the activity in the Western Anadarko targeting the Cherokee Shale and PHX's exposure to it?
A: Chad Stephens, CEO, noted that PHX has some legacy minerals in the area and has observed increased activity. However, due to high acquisition costs, PHX is not actively pursuing additional minerals there. Ralph D'Amico, CFO, added that PHX has seen significant well development and leasing activity on their existing minerals in the area.
Q: What are your expectations for production in the back half of the year and into 2025?
A: Ralph D'Amico, CFO, stated that while there might be some decline in the back half of the year, the company expects 2025 to look better than 2024 from a volume standpoint. This is based on continued operator activity and the quality of PHX's inventory, although it is dependent on commodity prices and operator decisions.
Q: How should we interpret the guidance revisions, particularly regarding GP&T expenses?
A: Ralph D'Amico, CFO, explained that GP&T expenses can vary depending on whether wells are cost-bearing or cost-free. The guidance range accounts for this variability, and the recent increase in guidance reflects more cost-bearing wells coming online sooner than expected.
Q: Are there any current impacts from recompletions or shut-ins of wells?
A: Danielle Mezo, VP of Engineering, reported that there have not been significant impacts from recompletions or shut-ins recently. In fact, PHX has seen positive impacts from completions of offset wells, particularly in the Haynesville.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
