Panhandle Oil & Gas Inc. (NYSE: PHX) reported financial and operating results for the company's fiscal second quarter and six months ended March 31, 2011.

Highlights:

  • Recorded a quarterly net income of $1,772,253
  • Recorded a six-month net income of $3,199,102
  • Generated cash from operating activities of $13,581,335 for the six-month period, well in excess of $11,065,925 of capital expenditures
  • Reported second quarter and six-month production of 2,152,011 Mcfe and 4,360,229 Mcfe, respectively
  • Increased proved reserves 3% to 107.1 Bcfe at March 31, 2011 as compared to 103.7 Bcfe at September 30, 2010
  • Maintained $0 balance on credit facility at March 31, 2011
  • Increased capital expenditures for the 2011 six month period 117% to $11,065,925 as compared to the 2010 six month period

Reserves Update

Mid-year proved reserves at March 31, 2011 were 107.1 Bcfe, as calculated by the company's petroleum engineering consulting firm, DeGolyer and MacNaughton. This was an increase of 3%, compared to the 103.7 Bcfe of proved reserves at September 30, 2010.

Michael C. Coffman, president and chief executive officer said, "Our second quarter and six month periods of 2011 were very comparable to the 2010 periods in terms of production, with an increase of 3% for the 2011 quarter, and flat production during the first half of our fiscal year. The decline in net income for both 2011 periods was due to Panhandle recording a $4,226,309 gain on derivative contracts in the second quarter of 2010, compared to essentially breaking even on our derivative contracts in the 2011 periods. This again points to Panhandle's low cost structure and superior rates of return generated by drilling on our fee mineral acreage which allows the company to be profitable even with the lower natural gas price environment we are experiencing in 2011."

Coffman continued: "We have fully funded our 2011 capital expenditures with cash flow through our first two fiscal 2011 quarters and have more than doubled 2010 capital expenditures levels. The majority of Panhandle's capital expenditures continue to be in Western Oklahoma natural gas liquids rich and oily projects during 2011. As these new wells in Western Oklahoma are completed and new production continues to come on line we anticipate our production volumes will begin a steady increase later this year. Drilling in the Southeast Oklahoma Woodford Shale is beginning to rebound as operators who purchased positions in the play over the past few years are beginning to accelerate the pace of drilling as reflected by the increasing number of well proposals Panhandle is receiving."

Operations Update

Paul Blanchard, senior vice president and chief operating officer said, "The increasing number of drilling proposals we are receiving from operators in Western Oklahoma, particularly in the Cana Woodford Shale and in the Granite Wash play, is a positive sign for Panhandle. With our substantial legacy mineral position in Western Oklahoma, we are extremely well positioned to participate in the development of these oil and liquids rich plays. These two plays represent 39% and 12% of Panhandle's drilling commitments thus far in 2011. We are also seeing evidence of a resurgence of activity in the highest quality areas of the Southeastern Oklahoma Woodford Shale and the Fayetteville Shale, by both existing operators and large companies who recently acquired substantial positions in the plays. These developments are expected to result in increased production and reserves in late 2011 and 2012."

Blanchard continued: "The first well in our Joiner City prospect, which is the first horizontal Woodford Shale well drilled in the Marietta Basin in Southern Oklahoma, was drilled and completed in our first fiscal quarter of 2011. The well is currently producing commercial quantities of oil and liquids rich natural gas as production volumes and methods are being evaluated. Costs on this well were extraordinarily high as they generally are for initial tests in new resource plays. The results from this well will continue to be analyzed in order to determine optimum drilling and completion procedures for possible future development of this Marietta Basin project."