Midcontinent- and Haynesville-focused minerals buyer PHX Minerals is exploring a potential merger or sale. (Source: Shutterstock.com, PHX Minerals)
PHX Minerals has hired bankers to explore strategic alternatives, including a potential sale, to boost shareholder value despite already receiving seemingly lucrative offers.
Fort Worth-based PHX Minerals retained RBC Capital Markets as financial adviser to assist in the review process, the company said Dec. 12.
PHX shares closed up over 4% at $4.03 per share after the announcement, after closing at $3.85 per share on Dec. 11.
Most of PHX’s assets are in the Midcontinent’s SCOOP/STACK play and the Haynesville Shale. PHX had 88,637 net leased royalty acres at the end of the third quarter.
Key operators on PXH’s mineral interests include Continental Resources, Aethon Energy, Expand Energy (formerly Chesapeake Energy), Gulfport Energy and Trinity Operating.
The bulk of PHX’s mineral, royalty and working interest production is natural gas-weighted. Output is expected to average between 9.7 Bcfe/d and 10.3 Bcfe/d during full-year 2024. (79% to 82% gas).
The decision to pursue strategic alternatives comes after PHX rejected multiple unsolicited acquisition bids by WhiteHawk Energy, another gas-focused minerals and royalties company.
WhiteHawk’s mineral and royalty assets cover 1.05 million gross unit acres in the Haynesville and Marcellus shales. WhiteHawk and PHX’s interests share several of the same operators in the Haynesville.
In the latest bid, Philadephia-based WhiteHawk made a public offer to buy PHX for $4 per share. The proposal valued PHX at roughly $150 million and represented a 17% premium to PHX’s 30-day average share price.
A month passed; WhiteHawk badgered PHX for a response. PHX ultimately urged its shareholders to reject WhiteHawk’s $4 per share all-cash bid, arguing that the deal was not in the best interest of investors.
WhiteHawk’s first public bid in August 2023 called for PHX stockholders to own 61% of the pro forma company and to receive a one-time $0.20 per share cash dividend.
In a letter to WhiteHawk rejecting the proposal, PHX said the initial offer was “grossly inadequate in terms of the value offered to PHX and its stockholders.”
WhiteHawk contends that it has adjusted its proposals “to meet the ever-shifting requests from PHX” for a deal to go forward.
In an Oct. 14 statement, Daniel Herz, WhiteHawk’s Chairman and CEO, said PHX’s stock price performance has lagged compared to other public minerals peers, gas-weighted producers “and just about every other index since 2020.”
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Mineral and royalty scale
Investors and industry experts argue that public minerals and royalties names need greater scale to attract greater investor interest.
Few minerals and royalties players have market values greater than $10 billion. The historic Texas Pacific Land Corp. stands out with a market capitalization of more than $27 billion.
The failed, 150-year-old transcontinental railroad eventually turned into a liquidating land trust in West Texas. Today, Texas Pacific Land (TPL) controls 900,000 acres in the core of the Permian Basin.
TPL’s stock price has grown by over 120% year-over-year.
Viper Energy Partners, a subsidiary of E&P Diamondback Energy, is another Permian-focused minerals and royalties stock. Viper’s market value is around $10 billion; The company’s stock price has grown around 70% over the past year.
But most of the minerals and royalties industry is still fragmented and made up of smaller players, with a small number of public companies.
Smaller publics include Sitio Royalties (market cap ~$3.3 billion), Black Stone Minerals (~$3.3 billion), Kimbell Royalty Partners (~$1.6 billion), Dorchester Minerals (~$1.6 billion) and PHX.
Industry proponents argue that the investment thesis for oil and gas minerals and royalties is sound.
They’re relatively safe investments, compared to E&Ps. Minerals and royalties companies aren’t exposed to drilling and completion risks. Minerals buyers also make a one-time purchase to own the subsurface rights in perpetuity.
But public minerals companies still need a higher trading liquidity to attract larger, sophisticated investors, Tim Perry, RBC vice chairman of global energy, said at the 2024 World Oilman’s Mineral & Royalty Conference.
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