Panhandle Oil and Gas Inc. Reports Third Quarter and Nine Months 2009 Results

Third Quarter Production Increases 34% to 2.6 Bcfe


OKLAHOMA CITY, Aug. 10  /PRNewswire-FirstCall/ -- PANHANDLE OIL AND GAS INC. (NYSE:PHX) today reported financial and operating results for the fiscal third quarter and nine months ended June 30, 2009.

  HIGHLIGHTS FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 30, 2009

  --  Produced a quarterly record 2.6 Bcfe during the third quarter of 2009,
      a 34% increase from the corresponding 2008 period.
  --  Reported record nine month production of 7.5 Bcfe, a 36% increase
      compared to the corresponding 2008 period.
  --  Strengthened balance sheet and reduced debt by $2.5 million to $13.3
      million from March 31, 2009.
  --  Cash provided by operating activities increased 20% in the 2009 nine
      months as compared to the 2008 period.
  --  Continued to convert Panhandle's mineral rights ownership interests
      into producing well interests particularly in the Woodford Shale in
      Southeast Oklahoma and the Fayetteville Shale in Arkansas.

  --  Participated in 151 wells with a working interest thus far in 2009
      with only three dry holes.


  Three Months Results 2009



For the quarter ending June 30, 2009, the Company recorded a net loss of $928,512 or $.11 per share as compared to net income of $6,468,885 or $.76 per share for the 2008 third quarter.  Capital expenditures for drilling and equipping wells decreased 55% to $5,238,302, as compared to the corresponding 2008 quarter.  Net cash provided by operating activities for the 2009 quarter was $5,705,859 as compared to $9,117,191 for the 2008 quarter.  Production for the 2009 third quarter increased 34% to 2,647,474 Mcfe as compared to 1,979,904 Mcfe for the 2008 quarter.  Total revenues for the 2009 quarter were $8,779,960 as compared to $18,453,206 for the 2008 quarter.  For the 2009 quarter, the average sales price per Mcfe declined to $3.42 as compared to $10.38 for the 2008 period.

The outstanding balance on the Company's bank line-of-credit at August 3, 2009 was $11.4 million on a borrowing base of $35 million.

Nine Month Results 2009

For the fiscal nine months ended June 30, 2009, the Company recorded a net loss of $2,748,397 or $.33 per share as compared to net income for the 2008 nine months of $12,780,473 or $1.50 per share.  Net cash provided by operating activities for the 2009 period increased 20% to $30,617,545 as compared to $25,474,992 for the 2008 nine months.  Total revenues for the 2009 nine months were $28,973,677 as compared to $44,904,231 for the 2008 nine months.  Capital expenditures for drilling and equipping wells totaled $35,509,890 in the 2009 fiscal period, as compared to $27,757,275 for the 2008 fiscal period.  For the 2009 nine months, the average sales price per Mcfe declined to $3.74 as compared to $8.79 for the 2008 period.

The Company has in place certain natural gas fixed swap contracts which cover the remainder of calendar 2009 and all of 2010.  Based on current monthly natural gas production levels, approximately 37% of 2009 natural gas production and approximately 45% of anticipated 2010 natural gas production is hedged at weighted average prices of $3.77 per Mcf for 2009 and $5.30 per Mcf for 2010.  These prices are net prices tied to specific Oklahoma pipelines, as opposed to NYMEX prices.  In the first nine months of fiscal 2009, the Company received total payments of $1,782,400 on its derivative contracts.  These contracts continue to reduce the Company's exposure to short-term fluctuations in the price of natural gas.

Management Comment

Michael C. Coffman, President and CEO stated, "The economic downturn and the resulting downward pressure on natural gas demand, coupled with high natural gas storage levels have combined to dramatically reduce natural gas sales prices as our fiscal year has progressed.  Our increase in production through the first nine months of fiscal 2009 has somewhat buffered the effect of the substantial price decline on revenues.  However, cash flow from operations has remained strong and through the first nine months 20% above last year's level, which has allowed us to continue drilling principally from available cash."

Coffman continued, "We have been pleased with the results of our drilling program this year.  Quarterly production increased to a record level of 2.6 Bcfe, which was 34% higher than last year's third quarter volumes and 11% over production volumes in the second quarter of this year.  Panhandle has a large diversified base of mineral acreage ownership which continues to provide us substantial drilling opportunities in three world class shale plays, the Fayetteville Shale in Arkansas and the Woodford Shales in southeast Oklahoma and the Cana Woodford Shale in western Oklahoma.  In addition, we continue to see new opportunities in western Oklahoma with horizontal drilling in several formations that are yielding outstanding results.  We have more than 3,000 3P drilling locations, just in the plays discussed above, primarily on our perpetually owned fee mineral acreage which will provide Panhandle drilling opportunities for years to come.

"With that being said, in view of current market prices for natural gas, we have slowed our drilling activity as the fiscal year has progressed, which is reflected in third quarter capital expenditures of $5.2 million as compared to $30.3 million in the first six months of fiscal 2009.  For the next several months, we will principally commit to drilling projects necessary to protect our unit rights.  The result of this reduced drilling program will eventually be lower production rates as we defer drilling until market conditions improve.  As we have stated many times, we are well positioned to weather this current industry and economic downturn and are prepared to prosper as the industry, product prices, and economy in general recover.  Our ability to drill on our mineral acres gives us a continuing advantage in capital efficiency which we will continue to exploit."

"We reduced our debt level from $15.8 million at March 31, 2009 to $13.3 million at June 30.  We used the $2.5 million proceeds from the sale of a partial interest in the SE Leedey Field in Western Oklahoma to make the debt reduction. This interest, consisting of approximately 350 Mmcfe of proved producing reserves (less than 1% of Panhandle's total proved producing reserves) and 910 acres of leasehold, was sold for what we consider to be full value.  Production from the SE Leedey Field was approximately 1% of our daily production.  The gain from this sale will be recorded in the fourth fiscal quarter, as the transfer of the properties was effective July 1, 2009."

                             OPERATING HIGHLIGHTS

                                   Third      Third       Nine       Nine
                                  Quarter    Quarter     Months     Months
                                   Ended      Ended      Ended      Ended
                                  June 30,   June 30,   June 30,   June 30,
                                    2009       2008       2009       2008
                                 ---------  ---------  ---------  ---------
  MCFE Sold                      2,647,474  1,979,904  7,522,897  5,538,866
  Average Sales Price per MCFE       $3.42     $10.38      $3.74      $8.79
  Barrels Sold                      34,145     31,907     99,149    101,027
  Average Sales Price per Barrel    $53.89    $120.92     $48.81    $100.12
  MCF Sold                       2,442,604  1,788,462  6,928,003  4,932,704
  Average Sales Price per MCF        $2.96      $9.33      $3.36      $7.82




                          Quarterly Production Levels

  Quarter ended     Barrels Sold    MCF Sold        MCFE
  -------------     ------------    --------        ----
  6/30/09              34,145      2,442,604     2,647,474
  3/31/09              34,744      2,171,660     2,380,124
  12/31/08             30,260      2,313,739     2,495,299
  9/30/08              31,375      1,995,333     2,183,583
  6/30/08              31,907      1,788,462     1,979,904




              Derivative contracts in place as of June 30, 2009
    (prices below reflect the Company's net price from the listed Oklahoma
                                  pipelines)

                                Production
                                 Volume
                                covered per      Indexed (1)
       Contract period             month          Pipeline      Fixed price
       ---------------         -------------      --------      -----------

  March - December, 2009        60,000 mmbtu        CEGT           $4.01

  April - December, 2009       100,000 mmbtu        CEGT           $3.71

  May - December, 2009          70,000 mmbtu        CEGT          $3.615

  July - December, 2009         70,000 mmbtu        PEPL          $3.745

  January - December, 2010     100,000 mmbtu        CEGT          $5.015

  January - December, 2010      50,000 mmbtu        CEGT          $5.050

  January - December, 2010     100,000 mmbtu        PEPL           $5.57

  January - December, 2010      50,000 mmbtu        PEPL           $5.56



  (1)  CEGT - Centerpoint Energy Gas Transmission's East pipeline in
       Oklahoma
       PEPL - Panhandle Eastern Pipeline Company's Texas/Oklahoma mainline





                              FINANCIAL HIGHLIGHTS
                     Consolidated Statements of Operations
                                  (unaudited)

                            Three Months Ended         Nine Months Ended
                                  June 30,                  June 30,
                             2009         2008         2009         2008
                             ----         ----         ----         ----

  Revenues:
    Oil and natural gas
     sales                $9,058,169  $20,551,865  $28,114,989  $48,687,560
    Lease bonuses and
     rentals                  28,777       32,154      182,019      110,464
    Gains (losses) on
     derivative contracts   (470,974)  (2,286,789)     212,578   (4,391,316)
    Gain on asset sales,
     interest and other      114,744      105,963      211,202      190,718
    Income of
     partnerships             49,244       50,013      252,889      306,805
                              ------       ------      -------      -------
                           8,779,960   18,453,206   28,973,677   44,904,231
  Costs and  expenses:
    Lease operating
     expenses              2,095,933    2,178,732    5,772,401    4,977,151
    Production taxes         369,802      675,206    1,117,040    2,431,165
    Exploration costs        112,537       35,394      314,845      397,125
    Depreciation,
     depletion and
     amortization          6,844,813    4,671,193   20,882,405   13,376,346
    Provision for
     impairment              115,892       37,666    2,124,133      385,672
    Loss on sale of assets         -      203,387            -      203,387
    General and
     administrative        1,174,315    1,164,743    3,721,070    3,991,566
    Interest expense          68,180            -       68,180       44,346
                              ------          ---       ------       ------
                          10,781,472    8,966,321   34,000,074   25,806,758
                          ----------    ---------   ----------   ----------
  Income (loss) before
   provision (benefit)
   for income taxes       (2,001,512)   9,486,885   (5,026,397)  19,097,473

  Provision (benefit)
   for income taxes       (1,073,000)   3,018,000   (2,278,000)   6,317,000
                          -----------   ---------   -----------   ---------

  Net income (loss)        $(928,512)  $6,468,885  $(2,748,397) $12,780,473
                           =========   ==========  ===========  ===========

  Earnings (loss) per
   common share (Note 4)      $(0.11)       $0.76       $(0.33)       $1.50
                              ======        =====       ======        =====

  Weighted average shares
   outstanding:
    Common shares          8,300,128    8,423,067    8,300,128    8,428,701
    Unissued, vested
     directors' shares        97,867       85,909       96,325       84,911
                              ------       ------       ------       ------
                           8,397,995    8,508,976    8,396,453    8,513,612
                           =========    =========    =========    =========

  Dividends declared
   per share of common
   stock and paid in
   period                      $0.07        $0.07        $0.21        $0.21
                               =====        =====        =====        =====



                         Consolidated Balance Sheets
                                 (unaudited)

                                                     June 30,  September 30,
                                                       2009        2008
                                                       ----        ----
  Assets
  Current assets:
    Cash and cash equivalents                        $605,090      $895,708
    Oil and natural gas sales receivables (net)     7,548,471    17,183,128
    Short-term derivative contracts                         -       646,193
    Refundable income taxes                                 -     2,162,305
    Assets held for sale                              893,325             -
    Other                                             708,143       217,691
                                                      -------       -------
  Total current assets                              9,755,029    21,105,025

  Properties and equipment, at cost, based on
   successful efforts accounting:
    Producing oil and natural gas properties      195,946,566   175,727,196
    Non-producing oil and natural gas properties   10,254,992    11,216,103
    Other                                             546,676       491,321
                                                      -------       -------
                                                  206,748,234   187,434,620
    Less accumulated depreciation, depletion and
     amortization                                 106,949,000    87,661,433
                                                  -----------    ----------
  Net properties and equipment                     99,799,234    99,773,187

  Investments                                         681,021       736,314
  Other                                               515,247       392,657
                                                      -------       -------
  Total assets                                   $110,750,531  $122,007,183
                                                 ============  ============

  Liabilities and Stockholders' Equity
  Current liabilities:
    Accounts payable                               $4,586,336   $15,897,565
    Short-term derivative contracts                    29,389             -
    Prepayment of sales price on assets to be
     sold                                           2,514,343             -
    Accrued liabilities                               814,277       608,456
                                                      -------       -------
  Total current liabilities                         7,944,345    16,506,021

  Long-term debt                                   13,332,504     9,704,100
  Deferred income taxes                            22,818,750    25,943,750
  Asset retirement obligations                      1,672,978     1,504,411
  Long-term derivative contracts                      894,240             -

  Stockholders' equity:
    Class A voting common stock, $.0166 par value;
     24,000,000 shares authorized, 8,431,502
     issued at June 30, 2009 and at September
     30, 2008                                         140,524       140,524
    Capital in excess of par value                  2,090,070     2,090,070
    Deferred directors' compensation                1,836,048     1,605,811
    Retained earnings                              64,745,180    69,236,604
                                                   ----------    ----------
                                                   68,811,822    73,073,009
    Less treasury stock, at cost; 131,374 shares
     at June 30, 2009 and at September 30, 2008    (4,724,108)   (4,724,108)
                                                   ----------    ----------
  Total stockholders' equity                       64,087,714    68,348,901
                                                   ----------    ----------
  Total liabilities and stockholders' equity     $110,750,531  $122,007,183
                                                 ============  ============



                Condensed Consolidated Statements of Cash Flows
                                  (unaudited)

                                                  Nine months ended June 30,
                                                      2009         2008
                                                      ----         ----
  Operating Activities
    Net income (loss)                             $(2,748,397)  $12,780,473
    Adjustments to reconcile net income (loss)
     to net cash provided by operating
     activities:
      (Gain) loss, net, on sale of assets            (181,760)       83,986
      Income of partnerships                         (252,889)     (306,805)
      Exploration costs                               314,845       397,125
      Depreciation, depletion and amortization     20,882,405    13,376,346
      Provision for impairment                      2,124,223       385,672
      Deferred income taxes                        (3,125,000)    4,275,000
      Distributions received from partnerships        308,182       368,413
      Directors' deferred compensation expense        230,237       225,965
    Cash provided by changes in assets and
     liabilities:
      Oil and natural gas sales receivables         9,634,657    (9,359,047)
      Derivative contracts                          1,569,822     3,613,416
      Refundable income taxes                       2,162,305             -
      Other current assets                           (490,452)     (819,020)
      Other non-current assets                       (122,590)            -
      Accounts payable                                106,136       130,477
      Accrued liabilities                              39,902       322,991
      Income taxes payable                            165,919             -
                                                      -------           ---
    Total adjustments                              33,365,942    12,694,519
                                                   ----------    ----------
    Net cash provided by operating activities      30,617,545    25,474,992

  Investing Activities
      Capital expenditures, including dry hole
       costs                                      (35,509,890)  (27,757,275)
      Proceeds from leasing of fee mineral
       acreage                                        202,007       131,449
      Proceeds from asset sales                     2,514,343       181,120
                                                    ---------       -------
    Net cash used in investing activities         (32,793,540)  (27,444,706)

  Financing Activities
      Borrowings under credit facility             43,705,195    40,058,723
      Payments on credit facility                 (40,076,791)  (34,701,332)
      Purchase of treasury stock                            -    (1,955,761)
      Payments of dividends                        (1,743,027)   (1,770,615)
                                                   ----------    ----------
    Net cash provided by financing activities       1,885,377     1,631,015
                                                    ---------     ---------

      Decrease in cash and cash equivalents          (290,618)     (338,699)
      Cash and cash equivalents at beginning of
       period                                         895,708       989,360
                                                      -------       -------
      Cash and cash equivalents at end of period     $605,090      $650,661
                                                     ========      ========

  Supplemental Schedule of Noncash Investing and
   Financing Activities
    Receivable from asset sales                            $-      $658,668
                                                          ===      ========
    Additions to asset retirement obligations        $168,567            $-
                                                     ========           ===

    Gross additions to properties and equipment   $24,069,809   $29,625,707
    Net (increase) decrease in accounts
     payable for properties and equipment
     additions                                     11,440,081    (1,868,432)
                                                   ----------    ----------
    Capital expenditures, including dry hole
     costs                                        $35,509,890   $27,757,275
                                                  ===========   ===========



Panhandle Oil and Gas Inc. (NYSE-PHX) is engaged in the exploration for and production of natural gas and oil.  Additional information on the Company can be found at http://www.panhandleoilandgas.com/.

Forward-Looking Statements and Risk Factors - This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include current expectations or forecasts of future events.  They may include estimates of oil and gas reserves, expected oil and gas production and future expenses, projections of future oil and gas prices, planned capital expenditures for drilling, leasehold acquisitions and seismic data, statements concerning anticipated cash flow and liquidity and Panhandle's strategy and other plans and objectives for future operations.  Although Panhandle believes the expectations reflected in these and other forward-looking statements are reasonable, we can give no assurance they will prove to be correct.  They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties.  Factors that could cause actual results to differ materially from expected results are described under "Risk Factors" in Part 1, Item 1 of Panhandle's 2008 Form 10-K filed with the Securities and Exchange Commission.  These "Risk Factors" include the volatility of oil and gas prices; Panhandle's ability to compete effectively against strong independent oil and gas companies and majors; the availability of capital on an economic basis to fund reserve replacement costs; Panhandle's ability to replace reserves and sustain production; uncertainties inherent in estimating quantities of oil and gas reserves and projecting future rates of production and the amount and timing of development expenditures; uncertainties in evaluating oil and gas reserves; unsuccessful exploration and development drilling; declines in the values of our oil and gas properties resulting in write-downs; the negative impact lower oil and gas prices could have on our ability to borrow; and drilling and operating risks.

Do not place undue reliance on these forward-looking statements, which speak only as of the date of this release, and Panhandle undertakes no obligation to update this information.  Panhandle urges you to carefully review and consider the disclosures made in this presentation and Panhandle's filings with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect Panhandle's business. 

DATASOURCE: Panhandle Oil and Gas Inc.



CONTACT:  Michael C. Coffman of Panhandle Oil and Gas Inc.,

[phone]



Web Site:  http://www.panhandleoilandgas.com/ 

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