PHX Minerals Inc. (PHX) is a natural gas and oil mineral company that has strategically positioned itself to capitalize on the evolving energy landscape. With a focus on perpetual mineral ownership and strategic acquisitions, PHX has built a diverse portfolio of assets across key resource plays in the United States.
Company History and Business Overview
PHX Minerals Inc., formerly known as Panhandle Oil and Gas Inc., was originally founded as a cooperative in 1926. The company's shares became publicly traded in 1979. For many years, PHX participated with a working interest on some of its mineral and leasehold acreage. However, in 2019, the company made the strategic decision to focus solely on perpetual natural gas and oil mineral ownership and to cease taking any new working interest positions.
This shift in strategy represented a significant milestone for the company, as it moved away from a working interest model to one focused entirely on growing its mineral acreage position through acquisitions. Over the past several years, PHX has continued to actively manage its mineral portfolio, divesting non-core assets while acquiring additional mineral interests, primarily in the Haynesville Shale, SCOOP, and other active resource plays.
The company has faced some challenges over the years, particularly in navigating volatile commodity price environments. For example, in 2020-2021, PHX weathered a period of extremely low natural gas and oil prices stemming from the COVID-19 pandemic. During this time, the company worked to maintain a strong balance sheet, reduce costs, and selectively divest non-core working interest assets.
Despite these industry headwinds, PHX has demonstrated resilience, maintaining production levels and consistently generating positive cash flow from its mineral holdings. The company's shift to a mineral-focused strategy has proven beneficial, as it has allowed PHX to capitalize on the development of its sizeable mineral acreage position by third-party operators without the capital requirements associated with working interest participation.
Today, PHX owns approximately 239,910 net mineral acres, primarily located in Oklahoma, Texas, Louisiana, North Dakota, and Arkansas. The company also owns leases on 13,290 net acres primarily in Oklahoma. Additionally, PHX has working interests, royalty interests or both in 6,960 producing natural gas and oil wells and 150 wells in the process of being drilled or completed. The company's mineral interests account for the majority of its revenue, with royalty payments making up approximately 89% of total revenue in the fiscal year ended December 31, 2024. The remaining revenue is derived from the company's legacy non-operated working interests.
Financial Performance and Liquidity
Financials
In the fiscal year ended December 31, 2024, PHX reported total revenue of $34.57 million, a decrease of 22% compared to the prior year. Net income for the period was $2.32 million, or $0.06 per diluted share, compared to $13.92 million, or $0.39 per diluted share, in the previous fiscal year. The decline in financial performance was primarily attributed to lower realized prices for natural gas, oil, and NGL, which decreased by 12%, 3%, and 1%, respectively, year-over-year.
Natural gas, oil, and NGL sales amounted to $33.69 million in fiscal year 2024, representing a decrease of 8% compared to $36.54 million in the prior year. This decrease was due to lower realized prices for natural gas, oil, and NGLs, as well as lower oil and NGL production volumes, partially offset by higher natural gas production volumes.
Operating cash flow for the fiscal year 2024 was $18.08 million, while free cash flow stood at $10.19 million. The company's most recent quarter (Q4 2024) showed signs of improvement, with revenue of $9.13 million, a 13% increase from the prior quarter. Net income for Q4 2024 was $0.11 million, compared to $1.10 million in the prior quarter. The increase in revenue from the prior quarter was primarily due to higher realized natural gas and oil prices, partially offset by lower production volumes.
Liquidity
Despite the challenging macroeconomic environment, PHX maintained a strong financial position. As of December 31, 2024, the company had $2.24 million in cash and cash equivalents and $29.50 million in total debt, resulting in a net debt position of $27.26 million. PHX's trailing 12-month debt-to-EBITDA ratio stood at 1.38x, indicating a conservative leverage profile.
The company's liquidity position was further strengthened by the sale of $8 million in non-producing mineral acres subsequent to the end of the fiscal year. Proceeds from this divestiture were used to pay down debt, reducing the company's pro forma leverage to less than 1.0x.
PHX's debt-to-equity ratio was 0.23, reflecting a conservative capital structure. The company has a $100 million credit facility with a current borrowing base of $50 million. As of December 31, 2024, PHX had $29.5 million outstanding on the facility, leaving $20.5 million of available borrowing capacity. The company's current ratio and quick ratio both stood at 2.95, indicating strong short-term liquidity.
Operational Highlights and Strategic Initiatives
During the fiscal year 2024, PHX's total production increased by 5% to 9,841 MCFE, driven by an 8% increase in royalty production volumes to 8,760 MCFE. This growth was primarily attributed to the company's ongoing development of its mineral acreage, particularly in the Haynesville Shale and SCOOP plays.
PHX's reserve base also saw changes during the year. As of December 31, 2024, the company's total proved reserves decreased by 11% to 63.7 BCFE, with the PV-10 value declining to $79.6 million. This decrease was largely due to the significant drop in natural gas prices year-over-year.
To further bolster its position, PHX has been actively pursuing strategic mineral acquisitions. During the fiscal year, the company acquired approximately 930 net mineral acres, primarily in the Haynesville Shale and SCOOP plays, for a total consideration of $7.8 million. These acquisitions contributed to the company's robust inventory of 2,400 undrilled probable locations, which supports its strategy of sustainable royalty volume growth.
The company's strategic focus on perpetual mineral ownership has been evident in its recent activities. In fiscal years 2023 and 2024, PHX acquired additional mineral and royalty interests, predominantly in the Haynesville Shale play in East Texas and Western Louisiana, as well as the SCOOP play in the Ardmore basin of Oklahoma. These acquisitions totaled $7.80 million in 2024 and $29.74 million in 2023.
Risks and Challenges
PHX's business model and financial performance are heavily influenced by commodity prices, particularly natural gas. Volatility in natural gas, oil, and NGL prices can significantly impact the company's revenues, cash flows, and profitability. Additionally, the company's reliance on third-party operators for the development and production of its mineral interests exposes it to operational risks beyond its direct control.
The company's growth strategy also carries inherent risks, as the successful execution of mineral acquisitions and the development of its acreage are subject to various factors, including market conditions, competition, and the availability of capital.
Outlook and Conclusion
Despite the challenges faced in fiscal year 2024, PHX remains optimistic about its prospects. The company's solid financial position, conservative leverage, and strategic focus on high-quality mineral assets position it well to navigate the evolving energy landscape.
While PHX did not provide explicit production or financial guidance for 2025, management expressed confidence in the company's future performance. Based on the trends observed over the past two years in production and well conversions, even in a lower natural gas price environment, the company anticipates a similar trend continuing into 2025.
The company's robust inventory of over 2,400 undrilled probable locations is expected to fuel the population of wells in progress and permits, driving year-over-year royalty volume growth. As of February 3, 2025, PHX reported 16 rigs present on its mineral acreage and 62 rigs active within 2.5 miles of its ownership, indicating continued development activity on its assets.
PHX's EBITDA performance in 2024, while slightly down year-over-year, was supported by the company's traditional hedging program. The company's total well conversions to production remained at historical levels in 2024, and well activity remained high, which is expected to drive future well conversions in 2025 and beyond. This performance enabled PHX to announce a 33% increase in its dividend in the third quarter of 2024.
As PHX continues to evaluate strategic alternatives to maximize shareholder value, the company's proven ability to adapt and its commitment to disciplined capital allocation are likely to be key drivers of its future success. Investors will be closely watching the company's progress as it navigates the dynamic natural gas and oil market environment, with particular attention to its ability to maintain production levels, execute on its mineral acquisition strategy, and capitalize on the development of its high-quality asset base by third-party operators.