10-Q 1 phx-20230930.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the period ended September 30, 2023

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-31759

PHX MINERALS INC.

(Exact name of registrant as specified in its charter)

 

Delaware

73-1055775

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1320 South University Drive, Suite 720, Fort Worth, Texas 76107

(Address of principal executive offices)

Registrant's telephone number including area code (405) 948-1560

Securities registered pursuant in Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01666 par value

 

PHX

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Outstanding shares of Common Stock at November 6, 2023: 37,000,340 shares.


INDEX

 

 

Part I

 

Financial Information

Page

 

 

 

 

 

 

 

 

Item 1

 

Condensed Financial Statements

1

 

 

 

 

 

 

 

 

 

 

Condensed Balance Sheets – September 30, 2023 and December 31, 2022

1

 

 

 

 

 

 

 

 

 

 

Condensed Statements of Operations – Three and nine months ended September 30, 2023 and 2022

2

 

 

 

 

 

 

 

 

 

 

Statements of Stockholders’ Equity – Nine months ended September 30, 2023 and 2022

3

 

 

 

 

 

 

 

 

 

 

Condensed Statements of Cash Flows – Nine months ended September 30, 2023 and 2022

5

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Financial Statements

6

 

 

 

 

 

 

 

 

Item 2

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures about Market Risk

27

 

 

 

 

 

 

 

 

Item 4

 

Controls and Procedures

27

 

 

 

 

 

 

Part II

 

Other Information

 

 

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

28

 

 

 

 

 

 

 

 

Item 1A

 

Risk Factors

28

 

 

 

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

 

 

 

 

 

Item 5

 

Other Information

28

 

 

 

 

 

 

 

 

Item 6

 

Exhibits

29

 

 

 

 

 

 

 

 

Signatures

29

 


Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (“Form 10-Q”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements in this Form 10-Q by words such as “anticipate,” “project,” “intend,” “estimate,” “expect,” “believe,” “predict,” “budget,” “projection,” “goal,” “plan,” “forecast,” “target” or similar expressions.

All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements may include, but are not limited to, statements relating to: our ability to execute our business strategies; the volatility of realized natural gas and oil prices; the level of production on our properties; estimates of quantities of natural gas, oil and NGL reserves and their values; general economic or industry conditions; public health crises, such as the COVID-19 pandemic, and any related actions taken by businesses and governments; legislation or regulatory requirements; conditions of the securities markets; our ability to raise capital; changes in accounting principles, policies or guidelines; financial or political instability; acts of war or terrorism; title defects in the properties in which we invest; and other economic, competitive, governmental, regulatory or technical factors affecting our properties, operations or prices.

We caution you that the forward-looking statements contained in this Form 10-Q are subject to risks and uncertainties, many of which are beyond our control, incident to the exploration for, and development, production and sale of, natural gas, oil, and NGLs. These risks include, but are not limited to, the risks described in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (“Annual Report”), and any quarterly or transition reports on Form 10-Q filed subsequently thereto, including any risks described in Item 1A of this Form 10-Q. Investors should also read the other information in this Form 10-Q and the Annual Report where risk factors are presented and further discussed.

Should one or more of the risks or uncertainties described above or elsewhere in this Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. Any forward-looking statement speaks only as of the date of which such statement is made, and we undertake no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

Except as required by applicable law, all forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement. This cautionary statement should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.


Glossary of Certain Terms

 

The following is a glossary of certain accounting, oil and natural gas industry and other defined terms used in this Form 10-Q:

 

ASC

Accounting Standards Codification.

ASU

Accounting Standards Update.

Bbl

Barrel.

Board

Board of directors of the Company.

BTU

British Thermal Units.

Common Stock

Common Stock, par value $0.01666 per share, of the Company.

completion

The process of treating a drilled well followed by the installation of permanent equipment for the production of crude oil and/or natural gas.

DD&A

Depreciation, depletion and amortization.

FASB

The Financial Accounting Standards Board.

field

An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.

G&A

General and administrative costs.

GAAP

United States generally accepted accounting principles.

Independent Consulting Petroleum Engineer(s)

Cawley, Gillespie & Associates.

LOE

Lease operating expense.

MCF

Thousand cubic feet.

MCFE

Natural gas stated on an MCF basis and crude oil and natural gas liquids converted to a thousand cubic feet of natural gas equivalent by using the ratio of one Bbl of crude oil or natural gas liquids to six MCF of natural gas.

Mmbtu

Million BTU.

minerals, mineral acres or mineral interests

Fee mineral acreage owned in perpetuity by the Company.

NGL

Natural gas liquids.

NYMEX

New York Mercantile Exchange.

play

Term applied to identified areas with potential oil and/or natural gas reserves.

proved reserves

The quantities of crude oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates renewal is reasonably certain.

royalty interest

Well interests in which the Company does not pay a share of the costs to drill, complete and operate a well but receives a smaller proportionate share (as compared to a working interest) of production.

SEC

The United States Securities and Exchange Commission.

SOFR

The Secured Overnight Financing Rate.

undeveloped acreage

Acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of crude oil and/or natural gas.

working interest

Well interests in which the Company pays a share of the costs to drill, complete and operate a well and receives a proportionate share of production.

WTI

West Texas Intermediate.

 

References to natural gas and oil properties

References to natural gas and oil properties in this Form 10-Q inherently include NGL associated with such properties.


 

 

PART I FINANCIAL INFORMATION

 

ITEM 1 CONDENSED FINANCIAL STATEMENTS

 

PHX MINERALS INC.

CONDENSED BALANCE SHEETS

 

 

September 30, 2023

 

 

December 31, 2022

 

Assets

 

(unaudited)

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,235,193

 

 

$

2,115,652

 

Natural gas, oil, and NGL sales receivables (net of $0 allowance for uncollectable accounts)

 

 

5,414,075

 

 

 

9,783,996

 

Refundable income taxes

 

 

712,475

 

 

 

-

 

Held for sale assets

 

 

-

 

 

 

6,420,051

 

Derivative contracts, net

 

 

577,381

 

 

 

-

 

Other

 

 

438,524

 

 

 

1,543,956

 

Total current assets

 

 

8,377,648

 

 

 

19,863,655

 

 

 

 

 

 

 

 

Properties and equipment at cost, based on successful efforts accounting:

 

 

 

 

 

 

Producing natural gas and oil properties

 

 

202,915,457

 

 

 

181,431,139

 

Non-producing natural gas and oil properties

 

 

61,096,631

 

 

 

57,781,644

 

Other

 

 

1,353,686

 

 

 

1,122,436

 

 

 

 

265,365,774

 

 

 

240,335,219

 

Less accumulated depreciation, depletion and amortization

 

 

(112,095,510

)

 

 

(107,085,212

)

Net properties and equipment

 

 

153,270,264

 

 

 

133,250,007

 

 

 

 

 

 

 

 

Derivative contracts, net

 

 

-

 

 

 

141,345

 

Operating lease right-of-use assets

 

 

606,978

 

 

 

706,871

 

Other, net

 

 

540,402

 

 

 

695,399

 

 

 

 

 

 

 

 

Total assets

 

$

162,795,292

 

 

$

154,657,277

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

387,460

 

 

$

504,466

 

Derivative contracts, net

 

 

-

 

 

 

1,534,034

 

Income taxes payable

 

 

-

 

 

 

576,427

 

Current portion of operating lease liability

 

 

230,347

 

 

 

217,656

 

Held for sale liabilities

 

 

-

 

 

 

889,155

 

Accrued liabilities and other

 

 

2,024,369

 

 

 

3,121,522

 

Total current liabilities

 

 

2,642,176

 

 

 

6,843,260

 

 

 

 

 

 

 

 

Long-term debt

 

 

30,750,000

 

 

 

33,300,000

 

Deferred income taxes, net

 

 

5,709,906

 

 

 

2,453,906

 

Asset retirement obligations

 

 

1,051,224

 

 

 

1,027,777

 

Derivative contracts, net

 

 

230,453

 

 

 

-

 

Operating lease liability, net of current portion

 

 

755,541

 

 

 

929,208

 

 

 

 

 

 

 

 

Total liabilities

 

 

41,139,300

 

 

 

44,554,151

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common Stock, $0.01666 par value; 54,000,500 shares authorized and
  
35,938,900 issued at September 30, 2023; 54,000,500 shares authorized and 35,938,206 issued at December 31, 2022

 

 

598,742

 

 

 

598,731

 

Capital in excess of par value

 

 

44,249,366

 

 

 

43,344,916

 

Deferred directors' compensation

 

 

1,425,155

 

 

 

1,541,070

 

Retained earnings

 

 

78,618,090

 

 

 

68,925,774

 

 

 

 

124,891,353

 

 

 

114,410,491

 

Less treasury stock, at cost; 225,723 shares at September 30, 2023, and 300,272 shares
   at December 31, 2022

 

 

(3,235,361

)

 

 

(4,307,365

)

Total stockholders' equity

 

 

121,655,992

 

 

 

110,103,126

 

Total liabilities and stockholders' equity

 

$

162,795,292

 

 

$

154,657,277

 

 

(The accompanying notes are an integral part of these condensed financial statements.)

(1)


 

PHX MINERALS INC.

CONDENSED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues:

 

(unaudited)

 

 

(unaudited)

 

Natural gas, oil and NGL sales

 

$

8,899,091

 

 

$

21,828,034

 

 

$

27,987,502

 

 

$

56,173,467

 

Lease bonuses and rental income

 

 

620,101

 

 

 

17,350

 

 

 

1,045,242

 

 

 

388,587

 

Gains (losses) on derivative contracts

 

 

(337,647

)

 

 

(4,298,614

)

 

 

3,648,179

 

 

 

(19,669,246

)

 

 

$

9,181,545

 

 

$

17,546,770

 

 

 

32,680,923

 

 

$

36,892,808

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

 

413,643

 

 

 

961,148

 

 

 

1,273,560

 

 

 

2,791,409

 

Transportation, gathering and marketing

 

 

693,915

 

 

 

1,758,132

 

 

 

2,729,044

 

 

 

4,676,786

 

Production taxes

 

 

387,624

 

 

 

929,330

 

 

 

1,430,950

 

 

 

2,551,920

 

Depreciation, depletion and amortization

 

 

2,022,709

 

 

 

1,550,410

 

 

 

6,123,031

 

 

 

5,694,358

 

Provision for impairment

 

 

36,460

 

 

 

2,703

 

 

 

38,533

 

 

 

8,980

 

Interest expense

 

 

556,941

 

 

 

471,716

 

 

 

1,638,708

 

 

 

988,273

 

General and administrative

 

 

2,760,342

 

 

 

3,783,159

 

 

 

8,919,354

 

 

 

9,405,037

 

Losses (gains) on asset sales and other

 

 

(174,492

)

 

 

(3,499,296

)

 

 

(4,369,613

)

 

 

(6,390,978

)

Total costs and expenses

 

 

6,697,142

 

 

 

5,957,302

 

 

 

17,783,567

 

 

 

19,725,785

 

Income (loss) before provision (benefit) for income taxes

 

 

2,484,403

 

 

 

11,589,468

 

 

 

14,897,356

 

 

 

17,167,023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

 

589,000

 

 

 

2,431,000

 

 

 

3,490,000

 

 

 

3,440,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,895,403

 

 

$

9,158,468

 

 

$

11,407,356

 

 

$

13,727,023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share (Note 4)

 

$

0.05

 

 

$

0.26

 

 

$

0.32

 

 

$

0.39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share (Note 4)

 

$

0.05

 

 

$

0.25

 

 

$

0.31

 

 

$

0.39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

35,983,116

 

 

 

35,573,813

 

 

 

35,961,570

 

 

 

34,833,427

 

Diluted

 

 

36,656,272

 

 

 

35,916,878

 

 

 

36,670,494

 

 

 

35,204,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per share of common stock paid in period

 

$

0.0225

 

 

$

0.02

 

 

$

0.0675

 

 

$

0.055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(The accompanying notes are an integral part of these condensed financial statements.)

(2)


 

PHX MINERALS INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2023

 

 

 

 

 

 

Capital in

 

 

Deferred

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Excess of

 

 

Directors'

 

 

Retained

 

 

Treasury

 

 

Treasury

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Par Value

 

 

Compensation

 

 

Earnings

 

 

Shares

 

 

Stock

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2022

 

 

35,938,206

 

 

$

598,731

 

 

$

43,344,916

 

 

$

1,541,070

 

 

$

68,925,774

 

 

 

(300,272

)

 

$

(4,307,365

)

 

$

110,103,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,553,244

 

 

 

-

 

 

 

-

 

 

 

9,553,244

 

Restricted stock award expense

 

 

-

 

 

 

-

 

 

 

580,998

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

580,998

 

Dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(50,034

)

 

 

-

 

 

 

-

 

 

 

(50,034

)

Distribution of restricted stock
   to employees and directors

 

 

-

 

 

 

-

 

 

 

(766,846

)

 

 

-

 

 

 

-

 

 

 

53,476

 

 

 

766,846

 

 

 

-

 

Distribution of deferred
   directors' compensation

 

 

-

 

 

 

-

 

 

 

(24,330

)

 

 

(281,497

)

 

 

-

 

 

 

21,312

 

 

 

305,827

 

 

 

-

 

Increase in deferred directors'
   compensation charged to
   expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

53,589

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

53,589

 

Balances at March 31, 2023

 

 

35,938,206

 

 

$

598,731

 

 

$

43,134,738

 

 

$

1,313,162

 

 

$

78,428,984

 

 

 

(225,484

)

 

$

(3,234,692

)

 

$

120,240,923

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(41,291

)

 

 

-

 

 

 

-

 

 

 

(41,291

)

Purchase of treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(239

)

 

 

(669

)

 

 

(669

)

Restricted stock awards

 

 

-

 

 

 

-

 

 

 

647,873

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

647,873

 

Dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(832,498

)

 

 

-

 

 

 

-

 

 

 

(832,498

)

Distribution of restricted stock
   to employees and directors

 

 

694

 

 

 

11

 

 

 

(11

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Increase in deferred directors'
   compensation charged to
   expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

55,794

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

55,794

 

Balances at June 30, 2023

 

 

35,938,900

 

 

$

598,742

 

 

$

43,782,600

 

 

$

1,368,956

 

 

$

77,555,195

 

 

 

(225,723

)

 

$

(3,235,361

)

 

$

120,070,132

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,895,403

 

 

 

-

 

 

 

-

 

 

 

1,895,403

 

Restricted stock awards

 

 

-

 

 

 

-

 

 

 

466,766

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

466,766

 

Dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(832,508

)

 

 

-

 

 

 

-

 

 

 

(832,508

)

Increase in deferred directors'
   compensation charged to
   expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

56,199

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

56,199

 

Balances at September 30, 2023

 

 

35,938,900

 

 

$

598,742

 

 

$

44,249,366

 

 

$

1,425,155

 

 

$

78,618,090

 

 

 

(225,723

)

 

$

(3,235,361

)

 

$

121,655,992

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)


 

 

Nine Months Ended September 30, 2022

 

 

 

 

 

 

Capital in

 

 

Deferred

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Excess of