Panhandle Oil and Gas Inc. Reports Second Quarter and Six Months 2011 Results and Mid-Year Reserve Update
Company records Six Month Net Income of $3,199,102, or $.38 per Share
OKLAHOMA CITY, May 6, 2011 /PRNewswire/ -- PANHANDLE OIL AND GAS INC.
today reported financial and operating results for the Company's fiscal second quarter and six months ended March 31, 2011. HIGHLIGHTS FOR THE PERIODS ENDED MARCH 31, 2011
-- Recorded a quarterly net income of $1,772,253
-- Recorded a six-month net income of $3,199,102
-- Generated cash from operating activities of $13,581,335 for the
six-month period, well in excess of $11,065,925 of capital
expenditures
-- Reported second quarter and six-month production of 2,152,011 Mcfe and
4,360,229 Mcfe, respectively
-- Increased proved reserves 3% to 107.1 Bcfe at March 31, 2011 as
compared to 103.7 Bcfe at September 30, 2010
-- Maintained $0 balance on credit facility at March 31, 2011
-- Increased capital expenditures for the 2011 six month period 117% to
$11,065,925 as compared to the 2010 six month period
FISCAL SECOND QUARTER 2011 RESULTS
For the quarter ending March 31, 2011, the Company recorded a net income of $1,772,253, $.21 per share, as compared to a net income of $5,163,566, $.61 per share, for the 2010 second quarter. Total revenues for the 2011 quarter decreased 35% to $10,977,459 as compared to the 2010 quarter. However, cash provided by operating activities totaled $5,001,671, while capital expenditures totaled $4,495,117. Production for the 2011 quarter increased 3% to 2,152,011 Mcfe as compared to 2,090,154 Mcfe for the 2010 quarter. The average per Mcfe sales price decreased 15% for the 2011 quarter to $5.07, as compared to $5.99 for the 2010 quarter. The Company recorded a pre-tax gain (realized and unrealized) on derivative contracts in the 2011 quarter of $8,766 compared to $4,226,309 for the 2010 quarter. The substantial decrease in our second quarter 2011 derivative contract gain as compared to the 2010 second quarter was the primary factor causing the drop in 2011 second quarter revenues and net income.
SIX MONTHS 2011 RESULTS
For the six months ended March 31, 2011, the Company recorded a net income of $3,199,102, $.38 per share, as compared to a net income of $6,871,944, $.82 per share, for the 2010 six months. Total revenues for the 2011 six months decreased 28% to $20,879,007 as compared to the 2010 six months. Cash provided by operating activities totaled $13,581,335, a 17% increase, which funded capital expenditures of $11,065,925. Production for the 2011 six months totaled 4,360,229 Mcfe as compared to 4,368,287 Mcfe for the 2010 six months. The average per Mcfe sales price decreased 11% for the 2011 six months to $4.73 as compared to $5.34 for the 2010 six months. The pre-tax loss (realized and unrealized) on derivative contracts in the 2011 six months was $12,673, compared to a $5,629,649 gain for the 2010 period. As previously indicated, the decrease in our 2011 derivative contracts gain as compared to the 2010 quarter was the primary factor for the drop in 2011 six month revenues and net income.
RESERVES UPDATE
Mid-year proved reserves at March 31, 2011 were 107.1 Bcfe, as calculated by the Company's petroleum engineering consulting firm, DeGolyer and MacNaughton. This was an increase of 3%, compared to the 103.7 Bcfe of proved reserves at September 30, 2010. SEC prices used for the March 31, 2011 report averaged $4.03 per Mcf for natural gas and $78.46 per barrel for oil, as compared to $4.33 per Mcf and $69.23 per barrel for the September 30, 2010 report. Total proved developed reserves increased 3.7% to 64.8 Bcfe and proved undeveloped reserves increased 2.6% to 42.3 Bcfe.
MANAGEMENT COMMENTS
Michael C. Coffman, President and CEO said, 'Our second quarter and six month periods of 2011 were very comparable to the 2010 periods in terms of production, with an increase of 3% for the 2011 quarter, and flat production during the first half of our fiscal year. The decline in net income for both 2011 periods was due to Panhandle recording a $4,226,309 gain on derivative contracts in the second quarter of 2010, compared to essentially breaking even on our derivative contracts in the 2011 periods. This again points to Panhandle's low cost structure and superior rates of return generated by drilling on our fee mineral acreage which allows the Company to be profitable even with the lower natural gas price environment we are experiencing in 2011.'
Coffman continued: 'We have fully funded our 2011 capital expenditures with cash flow through our first two fiscal 2011 quarters and have more than doubled 2010 capital expenditures levels. The majority of Panhandle's capital expenditures continue to be in Western Oklahoma natural gas liquids rich and oily projects during 2011. As these new wells in Western Oklahoma are completed and new production continues to come on line we anticipate our production volumes will begin a steady increase later this year. Drilling in the Southeast Oklahoma Woodford Shale is beginning to rebound as operators who purchased positions in the play over the past few years are beginning to accelerate the pace of drilling as reflected by the increasing number of well proposals Panhandle is receiving.'
OPERATIONS UPDATE
Paul Blanchard, Senior Vice President and COO said, 'The increasing number of drilling proposals we are receiving from operators in Western Oklahoma, particularly in the Cana Woodford Shale and in the Granite Wash play, is a positive sign for Panhandle. With our substantial legacy mineral position in Western Oklahoma, we are extremely well positioned to participate in the development of these oil and liquids rich plays. These two plays represent 39% and 12% of Panhandle's drilling commitments thus far in 2011. We are also seeing evidence of a resurgence of activity in the highest quality areas of the Southeastern Oklahoma Woodford Shale and the Fayetteville Shale, by both existing operators and large companies who recently acquired substantial positions in the plays. These developments are expected to result in increased production and reserves in late 2011 and 2012.'
Blanchard continued: 'The first well in our Joiner City prospect, which is the first horizontal Woodford Shale well drilled in the Marietta Basin in Southern Oklahoma, was drilled and completed in our first fiscal quarter of 2011. The well is currently producing commercial quantities of oil and liquids rich natural gas as production volumes and methods are being evaluated. Costs on this well were extraordinarily high as they generally are for initial tests in new resource plays. The results from this well will continue to be analyzed in order to determine optimum drilling and completion procedures for possible future development of this Marietta Basin project.'
FINANCIAL HIGHLIGHTS
--------------------
Consolidated Statements of Operations
-------------------------------------
(unaudited)
-----------
Three Months Ended Six Months Ended
March 31, March 31,
2011 2010 2011 2010
---- ---- ---- ----
Revenues:
Oil and natural
gas (and
associated
natural gas
liquids) sales $10,907,935 $12,510,995 $20,639,509 $23,321,427
Lease bonuses and
rentals 28,490 92,108 141,855 122,936
Gains (losses) on
derivative
contracts 8,766 4,226,309 (12,673) 5,629,649
Income from
partnerships 32,268 27,472 110,316 104,224
------ ------ ------- -------
10,977,459 16,856,884 20,879,007 29,178,236
Costs and
expenses:
Lease operating
expenses 2,081,579 2,177,576 4,279,449 4,484,120
Production taxes 422,428 449,903 767,072 804,945
Exploration costs 290,353 300,502 577,457 876,763
Depreciation,
depletion and
amortization 3,631,385 5,484,080 7,066,196 10,776,775
Provision for
impairment 828,019 12,370 828,019 12,370
Loss (gain) on
asset sales,
interest and
other (13,499) 39,185 (19,226) 1,819
General and
administrative 1,465,941 1,428,702 3,105,938 2,845,500
--------- --------- --------- ---------
8,706,206 9,892,318 16,604,905 19,802,292
--------- --------- ---------- ----------
Income before
provision for
income taxes 2,271,253 6,964,566 4,274,102 9,375,944
Provision for
income taxes 499,000 1,801,000 1,075,000 2,504,000
------- --------- --------- ---------
Net income $1,772,253 $5,163,566 $3,199,102 $6,871,944
========== ========== ========== ==========
Basic and diluted
earnings per
common share $0.21 $0.61 $0.38 $0.82
===== ===== ===== =====
Basic and diluted
weighted average
shares
outstanding:
Common shares 8,281,059 8,311,636 8,291,549 8,311,636
Unissued,
directors'
deferred
compensation
shares 119,943 110,041 119,652 102,268
------- ------- ------- -------
8,401,002 8,421,677 8,411,201 8,413,904
========= ========= ========= =========
Dividends
declared per
share of
common stock and
paid in period $0.07 $0.07 $0.14 $0.14
===== ===== ===== =====
Consolidated Balance Sheets
---------------------------
March 31, September 30,
2011 2010
---------- --------------
Assets
Current assets:
Cash and cash equivalents $5,888,029 $5,597,258
Oil and natural gas sales
receivables, net of allowance
for uncollectible accounts 8,097,015 9,063,002
Derivative contracts 63,984 1,481,527
Refundable income taxes 758,332 -
Refundable production taxes 379,893 804,120
Other 150,824 412,778
------- -------
Total current assets 15,338,077 17,358,685
Properties and equipment, at cost,
based on
successful efforts accounting:
Producing oil and natural gas
properties 216,268,053 207,928,578
Non-producing oil and natural gas
properties 9,389,228 9,616,330
Furniture and fixtures 665,535 656,889
------- -------
226,322,816 218,201,797
Less accumulated depreciation,
depletion and amortization 138,874,693 131,983,249
----------- -----------
Net properties and equipment 87,448,123 86,218,548
Investments 641,902 754,208
Derivative contracts 57,819 138,799
Refundable production taxes 1,020,868 654,599
--------- -------
Total assets $104,506,789 $105,124,839
============ ============
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable $4,027,047 $5,062,806
Deferred income taxes 167,100 354,100
Accrued income taxes and other
liabilities 714,643 1,842,918
------- ---------
Total current liabilities 4,908,790 7,259,824
Deferred income taxes 23,206,650 22,552,650
Asset retirement obligations 1,743,749 1,730,369
Stockholders' equity:
Class A voting common stock, $.0166
par value;
24,000,000 shares authorized,
8,431,502 issued at March 31,
2011, and September 30, 2010 140,524 140,524
Capital in excess of par value 1,875,211 1,816,365
Deferred directors' compensation 2,458,077 2,222,127
Retained earnings 75,635,506 73,599,733
---------- ----------
80,109,318 77,778,749
Less treasury stock, at cost;
166,242 shares at
March 31, 2011, and 120,560 at
September 30, 2010 (5,461,718) (4,196,753)
---------- ----------
Total stockholders' equity 74,647,600 73,581,996
---------- ----------
Total liabilities and stockholders'
equity $104,506,789 $105,124,839
============ ============
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(unaudited)
-----------
Six months ended March
31,
2011 2010
---- ----
Operating Activities
Net income $3,199,102 $6,871,944
Adjustments to reconcile net income to
net cash provided
by operating activities:
Depreciation, depletion, amortization
and impairment 7,894,215 10,789,145
Provision for deferred income taxes 467,000 240,000
Exploration costs 577,457 876,763
Net (gain) loss on sale of assets (139,955) (227,568)
Income from partnerships (110,316) (104,224)
Distributions received from
partnerships 175,813 155,343
Directors' deferred compensation
expense 235,950 272,733
Restricted stock awards 58,846 -
Cash provided by changes in assets and
liabilities:
Oil and natural gas sales receivables 965,987 (2,529,261)
Fair value of derivative contracts 1,498,523 (5,818,249)
Refundable production taxes 57,958 183,387
Other current assets 261,954 (69,448)
Accounts payable 325,408 (181,418)
Income taxes receivable (758,332) -
Income taxes payable (922,136) 1,147,436
Accrued liabilities (206,139) (28,171)
-------- -------
Total adjustments 10,382,233 4,706,468
---------- ---------
Net cash provided by operating
activities 13,581,335 11,578,412
Investing Activities
Capital expenditures, including dry
hole costs (11,065,925) (5,109,510)
Proceeds from leasing of fee mineral
acreage 155,908 165,589
Investments in partnerships 46,809 -
Proceeds from sales of assets 938 104,858
--- -------
Net cash used in investing activities (10,862,270) (4,839,063)
Financing Activities
Borrowings under debt agreement - 9,567,559
Payments of loan principal - (15,007,223)
Purchase of treasury stock (1,264,965) -
Payments of dividends (1,163,329) (1,163,630)
---------- ----------
Net cash provided by (used in)
financing activities (2,428,294) (6,603,294)
---------- ----------
Increase (decrease) in cash and cash
equivalents 290,771 136,055
Cash and cash equivalents at beginning
of period 5,597,258 639,908
--------- -------
Cash and cash equivalents at end of
period $5,888,029 $775,963
========== ========
Supplemental Schedule of Noncash
Investing and Financing Activities
Additions to asset retirement
obligations $13,380 $15,270
======= =======
Gross additions to properties and
equipment $9,704,758 $4,483,954
Net (increase) decrease in accounts
payable for properties
and equipment additions 1,361,167 625,556
--------- -------
Capital expenditures, including dry
hole costs $11,065,925 $5,109,510
=========== ==========
OPERATING HIGHLIGHTS
--------------------
Second Second
Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2011 2010 2011 2010
---------- ---------- ---------- ----------
Mcfe Sold 2,152,011 2,090,154 4,360,229 4,368,287
Average Sales Price
per Mcfe $5.07 $5.99 $4.73 $5.34
Barrels Sold 26,376 21,998 51,341 49,452
Average Sales Price
per Barrel $88.20 $74.87 $84.10 $72.89
Mcf Sold 1,993,755 1,958,166 4,052,183 4,071,575
Average Sales Price
per Mcf $4.30 $5.55 $4.03 $4.84
Quarterly Production Levels
---------------------------
Quarter Barrels
ended Sold Mcf Sold Mcfe Sold
------- ------- -------- ---------
3/31/11 26,376 1,993,755 2,152,011
12/31/10 24,965 2,058,428 2,208,218
9/30/10 26,054 2,155,769 2,312,093
6/30/10 26,873 2,074,998 2,236,236
3/31/10 21,998 1,958,166 2,090,154
Proved Reserves
---------------
SEC Pricing
-----------
March 31, September 30,
2011 2010
---------- --------------
Net Proved Developed
Reserves:
--------------------
Barrels of Oil 827,463 861,240
Mcf of Gas 59,832,087 57,344,190
Mcfe * 64,796,865 62,511,630
Net Proved Undeveloped
Reserves:
----------------------
Barrels of Oil 66,142 63,769
Mcf of Gas 41,879,403 40,826,265
Mcfe * 42,276,255 41,208,879
Net Total Proved
Reserves:
----------------
Barrels of Oil 893,605 925,009
Mcf of Gas 101,711,490 98,170,455
Mcfe * 107,073,120 103,720,509
10% Discounted Estimated
Future
Net Cash Flows (before
federal
income taxes)
Proved Developed $104,938,907 $103,270,565
Proved Undeveloped 24,637,134 21,960,347
---------- ----------
Total $129,576,041 $125,230,912
============ ============
Pricing
Oil/Barrel (constant) $78.46 $69.23
Gas/Mcf (constant) $4.03 $4.33
*Crude oil converted to natural gas on a one barrel of
crude oil equals six Mcf of natural gas basis
Derivative contracts in place as of March 31, 2011
(prices below reflect the Company's net price from the listed
Oklahoma pipelines)
Production volume Indexed (1)
Contract period covered per month Pipeline Fixed price
--------------- ----------------- -------- -----------
Fixed price
swaps
April -October NYMEX Henry
2011 50,000 Mmbtu Hub $4.65
April -October NYMEX Henry
2011 50,000 Mmbtu Hub $4.65
April -October NYMEX Henry
2011 50,000 Mmbtu Hub $4.70
April -October NYMEX Henry
2011 50,000 Mmbtu Hub $4.75
May -October NYMEX Henry
2011 50,000 Mmbtu Hub $4.50
May -October NYMEX Henry
2011 50,000 Mmbtu Hub $4.60
Basis
protection
swaps
January -
December 2011 50,000 Mmbtu CEGT NYMEX -$.27
January -
December 2011 50,000 Mmbtu CEGT NYMEX -$.27
January -
December 2011 50,000 Mmbtu PEPL NYMEX -$.26
January -
December 2011 50,000 Mmbtu PEPL NYMEX -$.27
January -
December 2011 70,000 Mmbtu PEPL NYMEX -$.36
January -
December 2012 50,000 Mmbtu CEGT NYMEX -$.29
January -
December 2012 40,000 Mmbtu CEGT NYMEX -$.30
January -
December 2012 50,000 Mmbtu PEPL NYMEX -$.29
January -
December 2012 50,000 Mmbtu PEPL NYMEX -$.30
Oil costless
collars
April -
December 2011 5,000 Bbls NYMEX WTI $100 floor/$112 ceiling
(1) CEGT -CenterPoint Energy Gas Transmission's East pipeline in
Oklahoma
PEPL -Panhandle Eastern Pipeline Company's Texas/Oklahoma mainline
Panhandle Oil and Gas Inc. (NYSE-PHX) is engaged in the exploration for and production of natural gas and oil. Additional information on the Company can be found at http://www.panhandleoilandgas.com/.
Forward-Looking Statements and Risk Factors - This report includes 'forward-looking statements' within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include current expectations or forecasts of future events. They may include estimates of oil and gas reserves, expected oil and gas production and future expenses, projections of future oil and gas prices, planned capital expenditures for drilling, leasehold acquisitions and seismic data, statements concerning anticipated cash flow and liquidity and Panhandle's strategy and other plans and objectives for future operations. Although Panhandle believes the expectations reflected in these and other forward-looking statements are reasonable, we can give no assurance they will prove to be correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Factors that could cause actual results to differ materially from expected results are described under 'Risk Factors' in Part 1, Item 1 of Panhandle's 2010 Form 10-K filed with the Securities and Exchange Commission. These 'Risk Factors' include the worldwide economic recession's continuing negative effects on the natural gas business; our hedging activities may reduce the realized prices received for natural gas sales; the volatility of oil and gas prices; Panhandle's ability to compete effectively against strong independent oil and gas companies and majors; the availability of capital on an economic basis to fund reserve replacement costs; Panhandle's ability to replace reserves and sustain production; uncertainties inherent in estimating quantities of oil and gas reserves and projecting future rates of production and the amount and timing of development expenditures; uncertainties in evaluating oil and gas reserves; unsuccessful exploration and development drilling; decreases in the values of our oil and gas properties resulting in write-downs; the negative impact lower oil and gas prices could have on our ability to borrow; drilling and operating risks; and we cannot control activities on our properties as the Company is a non-operator.
Do not place undue reliance on these forward-looking statements, which speak only as of the date of this release. Panhandle undertakes no obligation to update this information. Panhandle urges you to carefully review and consider the disclosures made in this presentation and Panhandle's filings with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect Panhandle's business.
Panhandle Oil and Gas Inc.
CONTACT: Michael C. Coffman, +1-405-948-1560, Website:
http://www.panhandleoilandgas.com/
Web Site: http://www.panhandleoilandgas.com/
