Panhandle Oil & Gas (PHX) Q3 2020 Earnings Call Transcript

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Panhandle Oil & Gas (PHX 6.01%)
Q3 2020 Earnings Call
Aug 13, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

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.

Ralph D'Amico -- Vice President of Investor Relations

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, vice president, mineral operations. After the prepared remarks, we will open the call up for a Q&A session. The earnings press release that was issued earlier today is also posted on our Investor Relations website.

Before we 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 required 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 were based upon information known to Panhandle as of the date and time with 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.

Chad Stephens -- President and 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 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 continue to manage costs, generate free cash flow and reduced debt during the third quarter. Over the past few weeks, I've been encouraged by the signs of an uptick in activity in this sector.

This includes curtailed production being brought back online, increased permitting in core areas, and deal flow picking up in general. I remain confident with Panhandle will successfully navigate this market downturn taking proactive steps of prudent capital allocation that reflect market conditions, and remain committed to a long-term strategy of energy accretive growth via acquisitions. At this point, I would like to turn the call over to Freda, to provide a quick operational overview, and interop to discuss the financials.

Freda Webb -- Vice President, Mineral Operations

Thank you, Chad. And hello to everyone on the line. During this quarter ended June 30th, we had 48 gross/0.22 net wells convert from wells and progress to producing wells, as compared to 25 gross/0.06 net wells during this 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/0.05 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 on March 31. Since the end of the quarter, we've seen two Rigs move onto our acreage position, one in the SCOOP and one in the Bakken. Clearly, we are still in the middle of a slowdown in this sector as the economy deals with COVID-19 and the 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 continue to recalibrate their capital program.

During the third fiscal quarter of 2020, we leased 120 net acres, or about $23,000, as compared to 36 net acres for $22,000 for 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 the review of financials.

Ralph D'Amico -- Vice President of Investor Relations

Thanks, Freda. First, I'd like to thank everybody for being on our call today. For the third quarter ended June 30th, 2020, total revenues were $2.7 million, which is a 76% decrease from the $113 million in the second quarter of 2020. The changes caused by the following; 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 received first payment on new wells generally three to six months after production had started. And that first check includes all money owed from the first day of production through the date that the check is written. In essence, the second-quarter included a true-up of first monthly 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 a Mcfe basis, also had a large impact on sales. We had an $8.8 million loss on our derivatives contract in the third quarter, compared to a $4.1 million gain in the prior quarter.

Note that, we realized the gain of $1.7 million, compared to $0.6 million in the prior quarter. On a cash basis, this really reflects the positive impact of our hedge book during this downturn. Wells lease revenue was generally flat on a quarter-over-quarter basis as operators continue resetting their capital budgets, as a result of current market conditions. For total expense, excluding impairment, a decreased $2.4 million, or about 25% in the third quarter of 2020, compared to the second quarter.

The company's LOE decreased by approximately $400,000 or 26% in the third quarter, as compared to the second quarter. This is partially due to higher onetime gas balancing charges in the second quarter, and Panhandle proactively selling an economic working interest wells. On our current Mcfe basis, LOE decreased by about 8% to $0.60 per Mcfe. Transportation gathering and marketing expenses were also lower on an absolute dollar basis and poor 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. G&A decreased by 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 exit 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 under both the press release and the 10-Q that was filed today. Let me also touch on debt.

We had net debt of $28 million as of June 30th, and as of August 11, 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 believe that we have remediated the issues that caused the error in revenue accrual, and we do not expect that this should be an issue again. With that, I will turn the call over to Chad, for some final remarks.

Chad Stephens -- President and Chief Executive Officer

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 maneuvering Panhandle through this downturn.

We will also keep an eye on the landscape for growth opportunities, and look forward to keeping 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.

Questions & Answers:

Operator

Thank you. The floor is now open for questions. [Operator instructions]. And I am showing no questions from the phone lines.

So I'll turn it back over to management, for any closing remarks.

Ralph D'Amico -- Vice President of Investor Relations

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.

Operator

[Operator signoff]

Duration: 12 minutes

Call participants:

Ralph D'Amico -- Vice President of Investor Relations

Chad Stephens -- President and Chief Executive Officer

Freda Webb -- Vice President, Mineral Operations

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