PHX Minerals Inc.

Greetings, and welcome to the PHX Minerals, Inc. Fourth Quarter and Year-End 2024 Earnings Call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn local over to your host, Stephen Lee, Investor Relations. Please go ahead.

Thank you, Operator, and thank you for everyone for joining us today to discuss PHX Minerals December 31, 2024, quarterly and annual results. On the call today are Chad Stephens, President and Chief Executive Officer, Ralph D'Amico, Executive Vice President and Chief Financial Officer, and Danielle Mezzo, Vice President of Engineering. The earning press release that was issued yesterday after the close is also posted on PHX 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, management may make forelooking statements regarding expected revenue, earnings, future plans, opportunities, and other expectations of the company. These estimates and other forelooking statements involve 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 PHX Minerals' most recent annual report on Form 10-K, as such may be amended or supplemented by subsequent caller reports on Form 10-Q or other reports filed with the Security and Exchange Commission. The statements made during this call are based upon information known to PHX as of today, March 13th, 2025, And the company does not intend to update these four looking statements, whether as a result of new information, future events, or otherwise, unless required by law. With that, I'd like to turn the call over to Chad Stephens, PHX Chief Executive Officer. Chad?

Thanks, Stephen, and thanks to all of you on this call for participating in PHX's December 31st, 2024 quarter and annual earnings conference call. We appreciate your interest in the company. Bear with me. Stand by. Computer just went down. Thank you. Our results in calendar 2024 were largely influenced by natural gas macro fundamentals. As we eliminated throughout this past year, the macro headwinds created difficult industry conditions with lower rig counts and reduced industry CapEx budgets. The general uncertainty in the U.S. election cycle and the Fed's decision to maintain current interest rates added to these headwinds. But PHX delivered commendable financial results this year, even considering this unfavorable environment. Despite slower industry activity, our total production volumes were up approximately 5% year-over-year, with royalty volume up 8% for the year. EBITDA was down slightly year-over-year and was supported by our traditional hedging program. Over the last several quarters, and as we weathered the low natural gas prices, we opined on an imminent improvement in the natural gas macro story. Our forecast then for improving fundamentals is resonating now with a gas trip well over $4. This will improve our financials and should translate into increased industry activity on our strategically located mineral assets. I also highlight that our total well conversions to production remained at historical levels in 2024, and our well activity remains high, which will drive future well conversions in 2025 and beyond. All of this speaks to the high quality of our assets and resulted in a 33% increase in our dividend announced in the third quarter of 2024. As disclosed in our subsequent events section, we sold non-producing minerals for $8 million at the end of January 2025. These minerals were old legacy assets, that had no production, cash flow, or reserves associated with them. They were located in areas with little to no industry activity and thus had no strategic value to the company's core business. We have always maintained a strong conservative balance sheet. Upon the sale of our non-core minerals, closing in January 25, we applied these sale proceeds to reducing debt. Ralph will discuss more about leverage in a moment. As previously disclosed, we formally began evaluating strategic alternatives in December, and that process is progressed as planned. We are committed to keeping shareholders informed and will provide an update on the outcomes once the process is complete. At this point, I'd like to turn the call over to Danielle to provide a quick operational overview and then to Ralph to discuss the financials.

Thanks, Chad, and good morning to everyone participating on the call. For our year-ended December 31st, 2024, total corporate production increased 5% to 9,841 MMCFE from the year-ended December 31st, 2023, and for the quarter remained flat at 2,379 MMCFE from the prior sequential quarter. Annual royalty production for 2024 increased 8% to 8,760 MMCFE and quarterly royalty production remained flat from the September 30, 2024 quarter at 2,096 MMCFB. It is important to note that as a mineral holder, we do not control timing on well development, so there can be some volatility both up and down on a quarter-to-quarter basis, and volumes associated with our business model are better evaluated on a rolling 12-month basis. Royalty volumes represented 88% of total production during our December 31, 2024 quarter. 80% of our quarter's production volumes were natural gas, which aligns with our long-term position that natural gas is the key transition fuel for a sustainable energy future. Oil represented 11% of production volumes, and NGL represented 9%. At December 31st, 2020, our total approved reserves decreased 11% to 63.7 BCFE, with a PV10 of $79.6 million at SEC pricing. Improved royalty reserves decreased 9% to 52.5 BCFE, with a PV10 of 71.9 million at SEC pricing. These reserve decreases were primarily attributable to the large year-over-year drop in gas prices. Given where natural gas prices currently are, these reserves could be recouped in the coming year. In addition to our approved reserves, we have a robust inventory of over 2,400 undrilled probable locations that fuel our population of WIPs and permits and drives our year-over-year royalty volume growth. During fourth quarter 2024, Third-party operators active on our mineral acreage converted 71 gross or 0.22 net wells in progress or WIP to producing wells compared to 46 or 0.1 net in the prior sequential quarter. We are pleased with our well conversion rates, particularly given the challenging natural gas macro environment, which includes some operators deferring bringing completed wells online until there is an improvement in gas prices. At the same time, our inventory of wells in progress on our minerals, which includes ducts, wells being drilled and permits filed remains strong with 225 gross or 0.91 net wells compared to 278 gross or 0.93 net at the end of September 30th, 2024 quarter. The continued track record of well conversions and replenishment of the inventory of wells in progress or WIPs reflects the high quality portfolio of assets we have assembled to provide steady, sustainable future growth. In addition to our WIPs, We regularly monitor third-party operator rig activities in our focus areas and observe 16 rigs present on PHX Minerals acreage as of February 3, 2025. Additionally, we had 62 rigs active within 2.5 miles of PHX ownership. In summary, we continue to see steady development on both our legacy and recently acquired mineral assets, which should lead to annually increasing royalty volumes. Now I will turn the call back to Ralph to discuss financials.

Thanks, Danielle, and thanks to everyone for being on the call today. For the quarter ended December 31st, 2024, natural gas, oil, and NGL sales revenues increased 13% to $8.9 million and decreased 8% to $33.7 million, respectively, compared to $7.9 million in the prior sequential quarter and $36.5 million for the full year 2023. During our fourth quarter, volumes remained relatively flat, as Danielle mentioned, and realized prices increased 13% compared to the prior sequential quarter. For the full year 2024, volumes increased 5%, realized prices decreased 12% compared to 2023. Recall also that we sold two working interest packages with closing dates in the first quarter of 2023. So 2024 did not have any production associated with these assets, while 2023 included approximately one full month for both sets of assets. Realized natural gas prices for the fourth quarter of 24 averaged $2.64 per MCF, compared to $2 even in the third quarter of 24. Realized oil prices averaged $69.82 down 7% from the third quarter of 24, and NGLs averaged $23.01, up 17% compared to the third quarter. For the full year 2024, natural gas prices averaged $2.19 compared to $2.61 in 2023, and oil averaged $74.59 compared to $76.76 in 2023, while NGLs averaged $21.95 compared to 2218 in 2023. Realized hedge gains for the fourth quarter were $511,000 and were 4.3 million for the full year 2024. Our current hedge position is available in our most recently filed 10K. Total transportation expenses decreased 9% on a sequential quarter basis to approximately 1 million, primarily due to volumes in areas with lower transportation costs representing a larger percentage of the overall volumes. For the full year, transportation expenses increased 18% to $4.5 million, primarily due to some high-interest wells in the Haynesville coming online where leases were cost-bearing in 2024. Production taxes decreased 33% on a sequential quarter basis to $284,000, primarily due to lower production volumes in states that had lower production tax rates. For the full year 2024, taxes decreased 15% to $1.7 million compared to 2023, primarily due to lower realized prices offset by slightly higher volumes. LOE associated with our legacy non-operated working interest wells increased 4% on a sequential quarter basis to $307,000. For the full year, LOE decreased 23% to $1.2 million. And recall that, as I mentioned earlier, the comparable period in 2023 also had approximately one full month of LOE expenses with the assets that were divested. Cash G&A increased to 2.34 million in the fourth quarter compared to the prior sequential quarter, primarily due to normal year-end professional service expenses. For the full year, cash GNA decreased 4% to 9.2 million compared to 2023, primarily due to our internal, ongoing internal cost control effort. Adjusted EBITDA for the quarter was up to 5.4 million compared to 4.9 million in the third quarter. For the full year, adjusted EBITDA was 21.3 million compared to 22.7 in 2023. As Chad mentioned, primarily due to lower realized prices offset by slightly higher volumes. Net income for the quarter was $109,000 or 0 cents per share compared to 1.1 million or 3 cents per share in the prior sequential quarter. Note that the first quarter, natural gas prices increased towards the end of the quarter, causing a negative non-cash mark-to-market adjustment of $1.5 million to our hedge book. Absent this non-cash expense, we would have generated higher positive net income. Total debt as of December 31, 2024, was $29.5 million. And our trailing debt to 12-month adjusted EBITDA was 1.38 times. As Chad mentioned, subsequent to the quarter, we reduced our debt to $19.8 million through a combination of operating cash flow and the sale, the proceeds from the sale of the non-producing unleased open mineral acres, bringing our pro forma leverage to under one times. With that, I'll turn the call over to Chad for some final remarks.

Thanks, Ralph. As we reflect on 2024, I am proud of our resilience and performance amid a challenging macro environment. Despite industry headwinds, PHX demonstrated growth, maintained asset quality, and successfully enhanced shareholder returns. Looking ahead to 2025, we remain optimistic about our prospects. With a solid foundation of high-quality assets and improving financial position, and a commitment to exploring strategic opportunities that can unlock value, we are well positioned for continued growth and value creation for our shareholders in the year ahead. As always, I thank both our employees and board of directors for the dedication and hard work. This concludes the prepared remarks portion of the call. Operator, please open up the queue for questions.

Certainly. When I'll be conducting your question and answer session, If you'd like to be placed in the question queue, please press star one under telephone keypad. A confirmation tone will indicate your line is in the question queue. Once again, that's star one to be placed in the question queue. Our first question is coming from Derek Whitfield from Texas Capitol. Your line is now live.

Good morning, all, and thanks for taking my questions.

Hi, Derek.

With the understanding that the Strategic Alternatives Review is ongoing, are there any highlights or insights that you can share with us on what you learned through the process to date?

Eric, I think our policy really is not to comment on an ongoing process in any sort of way.

Completely fair. Maybe speak about it from this perspective, if you could. So, while this effort is underway, How should we think about your approach to M&A and ground game leasing?

Well, we continue to operate the business as is, right, as we always have. So there really is no change to how we approach the business.

Great. And then maybe on 2025, with the understanding that you're not providing production guidance or guidance today, Does your line of sight well support flattish production?

I think you can see what's happened with our conversions and production over the last two years in a significantly lower natural gas price environment. So you can extrapolate from the last two years with what's happening, what's happened, right, that, you know, you could see a trend continuing to 2025. But I'll leave it at that as, again, we're not providing guidance while we're going through, you know, this process.

Understood. I appreciate it. Thanks for your time.

Thanks, Derek. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.

Thank you, Operator. Again, I'd like to thank our employees and shareholders for their continued support. I'd also like to note that Ralph and I will continue to expand our investor marketing activities over the coming weeks and months. If you'd be interested in meeting with us, please don't hesitate to reach out to myself, Ralph, or the folks at ThinkIRR. We look forward to hosting our next call in May 2025 to discuss our first quarter 25 results. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.