WhiteHawk Minerals 3Q26 Earnings Call - PHX MINERALS INC

Financial Performance:

• Third-quarter 2026 GAAP revenue was $21.5 million ($22.9 million excluding $1.4 million non-cash unrealized hedging loss).
• Adjusted EBITDA for the quarter was $21.1 million; acquisition-adjusted EBITDA was $25 million.
• Cash available for distribution (CAF D) was $18 million, or $0.65 per share ($0.68 per share on an acquisition-adjusted basis).
• Annualized CAF D was $2.60 per share (including 5 days of SJM2 contribution); fully adjusted annualized rate was $2.72.
• Net income was $6.9 million, impacted by depletion expense and earn-out liability fair value changes.
• Average realized gas price was $3.50/MMBtu, up from $2.53 pre-hedge; 96% of gas volumes were hedged at $4.05.
• Leverage was 0.4x at quarter-end, well below the 1.0x long-term target; total debt stood at ~$62 million.
• Cash on hand was $23.6 million; the revolving credit facility (RBL) was increased to $175 million and remained undrawn.

Guidance and Future Outlook:

• Management expects CAF D per share to exceed $2.80 in 2027 and surpass $3.00 in 2028, driven by new acquisitions and base asset growth.
• Pro forma hedging positions are set for 90% of 2027 production, over 80% of 2028, and ~45% of 2029.
• Long-term dividend guidance implies a 1.3x coverage ratio based on current distribution levels ($2.00 annualized).
• Future growth is anchored by 9,300 identified undeveloped locations and a pipeline of 13 new acquisitions ($45.5M) and 22 total since IPO ($157M).
• Production is projected to grow significantly due to operator development, with a specific focus on in-basin power generation demand expected to materialize fully by 2028–2030.

Business Segments and Product Lines:

• Net production averaged 71 MCFE/d, a 10% YoY increase and 2% QoQ increase, excluding most of the recent SJM2 acquisition.
• Production mix: 59% from Marcellus/Utica (Appalachia) and 22% from Haynesville; 46% of EQT/Range combined production is covered.
• Portfolio spans >11,700 producing wells with ~500 line-of-sight wells; the company holds 46% of EQT's and 47% of Haynesville's top operator production.
• New acquisitions include the $105 million SJM2 transaction closed Sept 25, adding $5.6M expected cash flow in 2027.
• The "ground game" (individual mineral owners) represents a >$35 billion opportunity base, while strategic deals cover $3–$5 billion in core basins.

Market and Competitive Landscape:

• The EQT-Ranges merger is viewed as highly favorable, expected to consolidate 67% of Appalachia production under EQT and drive basis differential contraction.
• Management identifies limited competition in the core Marcellus/Utica and Haynesville fairways due to deep local knowledge and relationships.
• Haynesville sees more competition on smaller deals, while large-scale package sales remain a unique opportunity for Whitehawk.
• Long-term demand tailwinds are driven by AI power generation needs, LNG exports, and the contraction of basis differentials.

Risks and Challenges:

• Natural gas price volatility remains a key market risk, though mitigated by a robust hedging program ($3.80 weighted average 2027 price).
• Potential curtailments by operators are monitored; the company views curtailments at low prices as a double benefit due to hedge collections and subsequent pressure-driven production rebounds.
• Execution risk on undeveloped locations is managed via detailed mapping and historical cadence analysis.
• Competition in the Haynesville for smaller, retail-style assets is noted as more active compared to the core Appalachia basins.

Management Commentary and Tone:

• Tone was highly confident and disciplined, emphasizing "excellence as a habit" and a two-pronged acquisition strategy.
• Management highlighted a "win-win" operational stance: stable production from major operators (EQT, Antero, Expand) paired with asymmetric upside from flexible producers during price spikes.
• Leadership expressed strong conviction in their ability to generate accretive growth without significantly increasing leverage.
• The team emphasized their ability to forecast production within 1% accuracy over multi-year horizons.

Analyst Questions and Answers:

• Leverage: Confirmed a firm long-term target of 1.0x leverage; management intends to stay near this target while growing cash flow per share via excess free cash flow.
• Forecasting: Production forecasts rely on a massive proprietary database of all operators' undeveloped locations, ranked by economic viability, with a 15–20% unlevered return target on acquisitions.
• Curtailments: Minimal curtailment impact reported on the base portfolio; management views low-price curtailments as beneficial for long-term value due to hedges and pressure buildup.
• Funding Strategy: Recent acquisitions funded via cash and revolver draws; preferred equity used previously for the SJM2 transaction, offering flexibility to mix funding tools for accretive deals.
• Asset Mix: Targeting a 40–60% split between producing (PDP) and undeveloped assets (including WIP/permits) to build a balanced, long-term value mosaic.
• Frontier Plays: Explicitly stated a decision not to pursue "frontier" plays like deep Utica dry gas or Western Haynesville, preferring to stay in the proven fairway where value is quantifiable.

Other Key Points:

• The company completed 13 new acquisitions totaling $45.5 million in Q3 2026, bringing the total to 22 deals ($157 million) since its IPO five months prior.
• A quarterly cash dividend of $0.50 per share ($2.00 annualized) was declared, payable November 30.
• Equity and preferred issuances were utilized to fund the SJM2 acquisition ($75M Class A equity, $50M Series E preferred).
• The company maintains a "conservative balance sheet" philosophy, prioritizing liquidity and the ability to pivot during market fluctuations.