phx ppt

Nicholls State UniversityCFA Institute Research Challenge

Hosted in: Houston, TX

Current Trading Price (as of 2/19/15): $23.39Target Price (calculated on 2/3/15): $24.35

Panhandle Oil and Gas Inc. (NYSE: PHX)Sector: Basic MaterialsIndustry: Independent Oil & Gas

Tiffany Lefort DurocherDane Granier

Elizabeth HoernerSamundra Kharel

Joseph McClelland

SUMMARY

Target Price: $24.35 (4.10% increase) HOLD• Unique Business Model• Geopolitical Sensitivity of Oil• Volatility in the Industry• Mineral Legacy

COMPANY OVERVIEW

Net Acres Gross Acres

Net Acres Producing

Gross Acres

Producing

Net Acres Leased to

Others

Gross Acres

Leased to Others

Net Acres Open

Gross Acres Open

Total: 255,190 1,690,106 59,141 450,283 9,248 53,065 186,801 1,186,758

As of September 30, 2014Mineral Interests Owned

51.75%38.44%

7.95% 0.50% 0.29% 1.06%

Natural Gas Rev

Oil Rev

NGL Rev

Lease Bonuses on Derivatives

Gains on Derivatives

Income from Partnerships

Sources of Revenue

INDUSTRY OVERVIEW

• Increased Domestic Production of Oil

• Growth of Oil Shale Refinement

• Advances in Technology• Recent Fall of Oil Prices• Geopolitical Sensitivity

Domestic Crude Oil Production2008:5 million barrels/day

2014:

8.6 million barrels/day

COMPETITOR ANALYSIS

PHX is unlike any other

publicly traded oil company.

• PHX focuses on owning mineral rights.

• It hires others to extract & sell these minerals.

• It has little invested in oil drilling equipment.

SWOT ANALYSISSTRENGTHS WEAKNESSES

Growing Revenues Small Capital Structure

Reasonable Debt Level Limited Employees

Major Customers Limited Influence on Property

Lack of Drilling Equipment Lack of Drilling Equipment

OPPORTUNITIES THREATSVenture Capital Competitive Business Conditions

New Markets Volatile Prices

Mergers Legislation

FINANCIAL ANALYSISTrends in Earnings (in millions, $)

Trends in Margins2010 2011 2012 2013 2014

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Gross Profit Operating Income Net income (loss)

2010 2011 2012 2013 2014$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

Gross Profit Operating Income Net income (loss)

VALUATION

9/30/2014 2015E 2016E 2017E 2018ESelf Sustaining Growth Rate* 7.39% 10.53% 11.68% 11.10%

End of years shares outstanding** 16,490,640 16,490,640 16,490,640 16,490,640 16,490,640

Dividend*** $2,661,723 $2,661,723 $2,661,723 $2,661,723 $2,661,723Dividend per share $0.16 $0.16 $0.16 $0.16 $0.16Terminal Value **** $24.63Discounting Dividend to 2014 0.144 0.129 0.116 17.642

Share Price $18.03

*Assuming constant self sustaining growth of 11.10% after 2017. 11.10% is average self sustaining growth rate in 2016E-2017E (2015E is excluded in the average calculation because the last quarter of 2014 and entire period of 2015 is a period of shock).**Assuming shares outstanding remain constant.***Assuming constant dividend of $0.16/share in forward 3 years.****Terminal value, assuming the constant growth of 11.10% after 2017E.

DIVIDEND DISCOUNT MODEL

VALUATIONTime Growth Rate FCF PV

2015 -27.95% $37,015,315 $33,608,8742016 17.01% $43,309,950 $35,705,3012017 9.99% $47,637,513 $35,658,790Horizon Value, 2017 (Constant Growth) 2.50% $639,489,050 $478,685,906

Total Value of Operations $583,658,871Less: Debt $78,000,000Value of Equity $505,658,871Number of Shares 16,490,640Value per Share $30.66

DISCOUNTED CASH FLOW MODEL

Growth Rate Horizon Value Value of Equity Share Price1.50% $559,919,451 $446,097,498 $27.05

2.00% $597,259,128 $474,047,901 $28.75

Sensitivity Analysis for Growth Rate

VALUATION

Target Price (DDM): $18.03 Target Price (DCF): $30.66

Final Target Price Range: $18.03 – $30.66

Final Target Price: $24.35DDM & DCF are equally weighted in calculating the Final Target Price.

INVESTMENT RISKS

• Uncertainty in the Oil & Gas Market• Geopolitical Sensitivity• Reliance on Outside Companies• Oil & Gas Supply on PHX’s Land• Governmental & Environmental Regulations

WE RECOMMEND TO…

HOLDBENEFITS:1.Unique Business Model2.Mineral Legacy3.Reasonable Debt4.Experienced Management

RISKS:1.Volatile Oil Prices2.Geopolitical Sensitivity3.Regulations4.Small Capital Structure

Currently trading at 12.92x Earnings.

Nicholls State UniversityCFA Institute Research Challenge

Hosted in: Houston, TX

Current Trading Price (as of 2/19/15): $23.39Target Price (calculated on 2/3/15): $24.35

Panhandle Oil and Gas Inc. (NYSE: PHX)Sector: Basic MaterialsIndustry: Independent Oil & Gas

Tiffany DurocherDane Granier

Elizabeth HoernerSamundra Kharel

Joseph McClelland

TABLE OF CONTENTSSlide 1: IntroductionSlide 2: SummarySlide 3: Company Overview & Sources of RevenueSlide 4: Industry OverviewSlide 5: Competitor AnalysisSlide 6: SWOT AnalysisSlide 7: Financial AnalysisSlide 8: Dividend Discount ModelSlide 9: Discounted Cash Flow ModelSlide 10: Final Target PriceSlide 11: Investment RisksSlide 12: Recommendation

Slide 13: QuestionsSlide 14: Table of ContentsSlide 15: OwnershipSlide 16: Stock Price TrendSlide 17: Dividend per ShareSlide 18: Prices of Crude Oil & Natural GasSlide 19: Derivative ContractsSlide 20: Proved ReservesSlide 21: Supplemental Information

SUPPLEMENTARY INFORMATIONOwnership

Institutional Holdings (%) 94.48

Insider Holdings (%) 5.52

Put/Call Ratio 2.78

Short Interest (% of Float) 2.6

Average Volume (3 months) 105,726

Key Officers Salary Total Compensation Age

Michael C. Coffman, President $307,500 $941,274 61Paul F. Blanchard, Senior VP $284,375 $757,813 54

Lonnie Joe Lowry, VP $184,775 $289,420 62

Robb P. Winfield, CAO $150,025 $245,625 40

Average $231,669 $558,533 54.3

20.44%

38.18%15.55%

8.08%

4.10%3.56%

2.72% 7.38%

5.52% Held by Insiders

Duke R. LigonMichael C. CoffmanPaul Blanchard Jr.Peace Ii HwBen SpriestersbachChris E. KauffmanRobert A. Reece10 people

39.45%

5.52%

55.03%

Institutional Holdings

Insider Hold-ings

Other

SUPPLEMENTARY INFORMATION

Source: FactSet

TREND IN DIVIDEND PER SHARE

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014$0.000

$0.020

$0.040

$0.060

$0.080

$0.100

$0.120

$0.140

$0.160

$0.180

Dividend per share

TRENDS IN PRICES

CRUDE OIL NATURAL GAS

DERIVATIVE CONTRACTS

As of September 30, 2014:

As Reported on PHX’s Balance Sheet

$1,650,563

As of December 31, 2014:

$12,333,036

Contract period Production volume covered per month

Indexedpipeline Fixed price

NATURAL GAS COSTLESS COLLARS

July - December 2014 140,000 Mmbtu NYMEX Henry Hub $3.75 floor / $4.50 ceiling

NATURAL GAS FIXED PRICE SWAPS

July - December 2014 140,000 Mmbtu NYMEX Henry Hub $4.11

May - October 2014 30,000 Mmbtu NYMEX Henry Hub $4.30

October – December 2014 40,000 Mmbtu NYMEX Henry Hub $4.61

OIL COSTLESS COLLARS

January - December 2014 4,000 Bbls NYMEX WTI $85.00 floor / $100.00 ceiling

July - December 2014 5,000 Bbls NYMEX WTI $90.00 floor / $97.00 ceiling

OIL FIXED PRICE SWAPS

January - December 2014 3,000 Bbls NYMEX WTI $94.50

June - December 2014 4,000 Bbls NYMEX WTI $99.40

July - December 2014 4,000 Bbls NYMEX WTI $95.25


January - March 2015 6,000 Bbls NYMEX WTI $92.85

January - June 2015 7,000 Bbls NYMEX WTI $96.80January - June 2015 5,000 Bbls NYMEX WTI $97.40January - June 2015 4,000 Bbls NYMEX WTI $97.25

April - December 2015 5,000 Bbls NYMEX WTI $94.56


PROVED RESERVES Barrels of Oil Barrels of NGL Mcf of Natural Gas Mcfe

NET PROVED DEVELOPED RESERVESSeptember 30, 2014 2,890,678 1,564,859 88,512,767 115,245,989

September 30, 2013 1,037,721 764,321 82,298,833 93,111,085

September 30, 2012 849,548 494,160 65,733,119 73,795,367

NET PROVED UNDEVELOPED RESERVESSeptember 30, 2014 4,678,901 1,475,322 53,979,593 90,904,931

September 30, 2013 605,582 851,805 49,990,334 58,734,656

September 30, 2012 222,771 294,582 47,780,937 50,885,055

NET TOTAL PROVED RESERVESSeptember 30, 2014 7,569,579 3,040,181 142,492,360 206,150,920

September 30, 2013 1,643,303 1,616,126 132,289,167 151,845,741

September 30, 2012 1,072,319 788,742 113,514,056 124,680,422

SUPPLEMENTARY INFORMATIONFiler’s Name Relation Title Trans. Date Action Price Mkt. Value Shares HoldingsLigon Duke R Director 12/12/2014 0 18.23 30991 1700 186240

Lowry Lonnie Joe VP, CFO 12/10/2014 A 0.02 53 3151 14563

Coffman Michael C CEO 12/10/2014 A 0.02 392 23499 347932

Blanchard Paul Jr Sr. VP, COO 12/10/2014 A 0.02 302 18060 141733

Winfield Robb CAO 12/10/2014 A 0.02 43 2604 17770

Coffman Michael C CEO 12/08/2014 D 16.63 59635 3586 324433

Coffman Michael C CEO 12/08/2014 D 0.02 217 12979 328019

Blanchard Paul Jr Sr. VP, COO 12/08/2014 D 16.63 46830 2816 123673

Blanchard Paul Jr Sr. VP, COO 12/08/2014 D 0.02 170 10189 126489

Winfield Robb CAO 12/08/2014 D 16.63 3326 200 15166

Winfield Robb CAO 12/08/2014 D 0.02 12 723 15366

Lowry Lonnie Joe VP-CFO 12/08/2014 D 16.63 4241 255 11412

Lowry Lonnie Joe VP-CFO 12/08/2014 D 0.02 15 921 11667

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