Quarterly Report to Shareholders

Fiscal 2016 Third Quarter and Nine Months Results

SIGNIFICANT ITEMS FOR THE PERIODS ENDED JUNE 30, 2016

  • Recorded net loss of $786,795 for the fiscal third quarter 2016, $0.05 per diluted share, as compared to net loss of $728,946, $0.04 per diluted share, for the 2015 quarter.
  • Recorded net loss of $11,024,074 for the 2016 nine months, $0.65 per diluted share, compared to net income of $10,209,022, $0.61 per diluted share, for the 2015 nine months.
  • Incurred noncash impairment provision for the 2016 nine months of $11,849,064.
  • Generated cash from operating activities of $13,058,724 for the 2016 nine months, well in excess of $3,359,518 of capital expenditures for drilling and equipping wells.
  • Received lease bonus proceeds of $4.3 million in the third quarter and $7.5 million in the first nine months of fiscal 2016.
  • Reported production for the 2016 third quarter and nine months of 2,887,821 Mcfe and 8,817,524 Mcfe, respectively.
  • Reduced debt $15.8 million from Sept. 30, 2015, to $49.2 million through June 30, 2016 (as of Aug. 8, 2016, balance is $44.8 million).

FISCAL THIRD QUARTER 2016 RESULTS
For the 2016 third quarter, the Company recorded a net loss of $786,795, or $0.05 per diluted share. This compared to a net loss of $728,946, or $0.04 per diluted share, for the 2015 third quarter. Net cash provided by operating activities decreased 74% to $2,492,074 for the 2016 third quarter, versus the 2015 third quarter. Capital expenditures for the 2016 fiscal quarter totaled $804,975 and continue to be principally directed toward oil and NGL rich plays in south central Oklahoma including the SCOOP and STACK plays.

Total revenues for the 2016 third quarter were $9,862,578, a 16% decrease from $11,748,888 for the 2015 quarter. Oil, NGL and natural gas sales decreased $4,077,692, or 36%, in the 2016 quarter, compared to the 2015 quarter, as a result of a 13% decrease in Mcfe production and a 26% decrease in the average per Mcfe sales price. The average sales price per Mcfe of production during the 2016 third quarter was $2.55, compared to $3.45 for the 2015 third quarter. The 2016 quarter included a $1.8 million loss on derivative contracts, as compared to a $1.4 million loss for the 2015 quarter. The Company will typically hedge 40-60% of its expected production volumes of oil and gas for a duration of up to one year.

Oil production decreased 19% in the 2016 quarter to 88,732 barrels, versus 109,738 barrels in the 2015 quarter, while gas production decreased 12% to 2,112,567 Mcf for the 2016 quarter, compared to the 2015 quarter. In addition, 40,477 barrels of NGL were sold in the 2016 quarter, as compared to 41,737 barrels in the 2015 quarter. These production decreases are the result of normal well decline Company wide and the lack of new production coming on line. Capital expenditures for drilling, as highlighted above, continue to be depressed by the low product prices experienced over the last 18 months.

NINE MONTHS 2016 RESULTS
For the 2016 nine months, the Company recorded a net loss of $11,024,074, or $0.65 per diluted share. This compared to a net income of $10,209,022, or $0.61 per diluted share, for the 2015 nine months. Net cash provided by operating activities decreased 65% year over year to $13,058,724 for the 2016 nine months, versus $37,347,802 for the 2015 nine months. Again, cash flow from operations fully funded costs to drill and equip wells for the nine months. Capital expenditures for the 2016 nine months totaled $3,359,518. The Company recorded an $11.8 million noncash provision for impairment in the 2016 nine months, as compared to a $3.5 million provision in the 2015 period.

Total revenues for the 2016 nine months were $28,911,794, a 50% decrease from $57,427,092 for the 2015 nine months. Oil, NGL and natural gas sales decreased $20,843,467 or 48% in the 2016 nine months, compared to the 2015 nine months, as a result of a 16% decrease in Mcfe production and a 38% decrease in the average per Mcfe sales price. The average sales price per Mcfe of production during the 2016 nine months was $2.56, compared to $4.13 for the 2015 nine months. The 2016 nine months included a $0.8 million loss on derivative contracts as compared to an $11.7 million gain for the 2015 period.

Oil production decreased 16% in the 2016 nine months to 285,854 barrels from 340,888 barrels in the 2015 nine months, while gas production decreased 1,140,359 Mcf, or 15%, compared to the 2015 nine months. In addition, 126,462 barrels of NGL were sold in the 2016 nine months, which was a 23% decrease compared to 2015 NGL volumes.

MANAGEMENT COMMENTS
Our 2016 fiscal third quarter results again demonstrated the value of Panhandle’s mineral acreage asset base. The $4.3 million of lease bonus proceeds generated in the third quarter, combined with the $3.2 million generated in the first half of the year, was a significant piece of our overall operating cash flow this year. Shortly after the quarter close, we sold a non-strategic group of assets for $3.9 million. We have been able to fund our operations, continue to pay a dividend and reduce debt $15.8 million this fiscal year. Additional monetization of certain assets continues, and we will analyze and exploit appropriate opportunities that fit with our operating strategies.

Natural gas represents 72% of our Mcfe production volume, so recent natural gas price increases will add to our cash flows and also provide us the opportunity to add to our hedge book, which will help stabilize our future cash flows. In addition, drilling for gas has been proposed by a third party operator on one of our largest mineral acreage holding plays, the Southeast Oklahoma Woodford Shale. We have ample liquidity and plan to take appropriate advantage of the opportunity.

We have been patient through this downturn, continuing to follow our proven operating strategies, which has positioned the Company to prosper as the industry begins a recovery.

Fiscal 2016 Third Quarter and Nine Months Results

Michael C. Coffman
President, CEO
Paul F. Blanchard
Sr. Vice President, COO