WhiteHawk Minerals 3Q26 Earnings Call - PHX MINERALS INC

Explicit Guidance:

• Cash Available for Distribution (CAD) Per Share:
  • 2027: Expected to exceed $2.80 per share, driven by base asset growth and acquisitions.
  • 2028: Expected to reach $3.00+ per share.
  • 2027 Acquisition Impact: New acquisitions announced in Q3 2026 (totaling $45.5M) projected to generate $5.6 million of additional cash flow in 2027.
  • 2028 Acquisition Impact: Projected to add $7.5 million in cash flow from 6.8 MMCFE/day of incremental production.
  • Dividend: Quarterly dividend set at $0.50 per share ($2.00 annualized), with a coverage ratio of 1.3x based on Q3 CAD.

Business-Segment Outlook:

• Acquisition Pipeline & Volume:
  • Strategic Acquisitions: Identified $3 billion to $5 billion in strategic opportunities within Marcellus, Utica, and Haynesville shales.
  • "Ground Game" Acquisitions: Identified >$35 billion in opportunity (35x existing asset base) from individual mineral owners.
  • Production Growth: Line-of-sight wells and undeveloped locations (9,300 gross identified) position the company for solid base asset production over the next year.
  • Operator Concentration: Post-EQT/Range merger, EQT expected to represent ~67% of Appalachia production; WhiteHawk holds royalties on 46% of combined EQT/Range/CNX/Antero production.
• Asset Mix Targeting:
  • Long-term Portfolio Goal: Anticipated acquisition mix of 40–60% producing/WIP and 60–40% undeveloped assets (including WIP/permits) to optimize total return profiles.
  • Undeveloped Locations: Significant undeveloped location exposure expected to come online in 2028.

Market and Competitive Outlook:

• Demand & Pricing Drivers:
  • Power Generation: Anticipated 4–5 BCF/day of near-term (next 12-24 months) in-basin power demand growth; potential for 20 BCF/day long-term growth (2028–2030) as highlighted by EQT.
  • LNG Exports: Continued growth expected to support long-term demand tailwinds.
  • Basis Differentials: Expect further contraction of basis differentials (contracting spread between Henry Hub and local basins) due to increased in-basin demand, providing a "double benefit" to pricing.
• Competitive Dynamics:
  • Appalachia: Limited competition due to high complexity of land makeup; WhiteHawk views itself as having a differentiated knowledge base.
  • Haynesville: More competitive environment with smaller deals ($100k–$10M); opportunity exists to acquire large packages from PE firms exiting funds.
  • Pricing Environment: Management expects asset acquisition prices to remain attractive given disciplined return thresholds; no indication of price escalation for core assets.

Macro / Industry Outlook:

• Natural Gas Prices:
  • Hedging: 90% of 2027 production hedged at weighted average $3.80/MMBtu; >80% of 2028 production hedged.
  • Volatility Strategy: View low price environments with curtailments positively ("double benefit" via hedges and subsequent pressure-up production rebounds).
• Economic Factors:
  • AI Power Demand: Cited as a significant long-term driver for natural gas consumption.
  • Commodities: Oil volumes 90% hedged at $63; Natural gas volumes 96% hedged at $4.05.

Strategic Initiatives:

• M&A Execution:
  • Acquisition Strategy: Two-pronged approach of "ground game" and strategic transactions.
  • Recent Activity: Completed/signed 13 new acquisitions in Q3 2026 ($45.5M total); 22 acquisitions since IPO ($157M total).
  • Funding Mix: Utilizing cash on hand and revolving credit facility (RBL) drawdowns to fund acquisitions, maintaining leverage flexibility.
• Capital Structure & Liquidity:
  • Leverage Target: Long-term target of ~1.0x debt-to-EBITDA; currently at 0.4x.
  • RBL Capacity: Increased borrowing base commitments from $150M to $175M; facility fully undrawn.
  • Preferred Equity: Series E Preferred equity (10% dividend) previously issued for SJM2; management signals willingness to use debt or equity for future deals depending on accretion.
• Operational Focus:
  • Acquisition Philosophy: Avoiding "frontier" plays (e.g., deep Utica, Western Haynesville) in favor of core basins ("fairway") to maximize immediate value and minimize risk.
  • Development: Tracking WIP and permits for >1 year visibility on production cadence.

Risks and Headwinds to Outlook:

• Price Volatility: While hedged, sustained low prices could impact organic growth rates if not offset by hedges; however, management views low prices as an opportunity for accretive M&A.
• Curtailments: Operational curtailments by operators (e.g., Adamas, Apex) may cause production fluctuations, though management views this as providing upside potential when prices recover.
• Acquisition Execution: Success depends on the ability to continue identifying and closing deals within the $3–5B strategic and $35B ground game pipelines; competitive dynamics in Haynesville could pressure valuations.
• Regulatory/Market Changes: Unforeseen regulatory shifts affecting power generation demand or LNG exports could alter the long-term demand narrative.
• Forward-Looking Disclaimer: Actual results may differ materially from guidance due to risks outlined in SEC filings, including commodity price fluctuations, hedging performance, and execution risks.

Management Tone on the Future:

• Confidence Level: Highly confident and optimistic ("future for White Hawk looks to be brighter than ever").
• M&A Focus: Aggressive yet disciplined; views the current depressed gas strip as an "attractive window" to deploy capital accretively.
• Strategic Patience: Willing to wait for the "train" of power generation demand to fully arrive (2028–2030) while continuing to build asset base now.
• Stability: Emphasizes "excellence as a habit," highlighting the stability of major operators (EQT, Range, Antero, ETC) as a foundation for predictable cash flow.
• Capital Allocation: Committed to "win-win" outcomes, prioritizing asset accumulation and shareholder value growth over short-term yield maximization if it compromises balance sheet health.

Miscellaneous:

• Production Stats: Q3 2026 net production of 71 MMCFE/d (+10% YoY); 11,700+ producing wells; 500 gross line-of-sight wells.
• Operator Royalty Coverage: WhiteHawk receives royalties on 47% of combined Haynesville production (Xpand, Adamas, Comstock, Apex).
• Financial Position: Q3 2026 net income $6.9M; Adjusted EBITDA $21.1M; Cash available for distribution $18M.