WhiteHawk Minerals 3Q26 Earnings Call - PHX MINERALS INC

Financial Performance:

• Third-quarter 2026 revenue was $21.5 million (GAAP), or $22.9 million excluding mark-to-market losses on hedges.
• Adjusted EBITDA reached $21.1 million; cash available for distribution (CAD) was $18 million ($0.65 per share).
• On a fully diluted basis including Q3 acquisitions, CAD was $0.68 per share (up 8% QoQ), with acquisition-adjusted EBITDA at $25 million.
• Net income was $6.9 million GAAP, impacted by non-cash charges including depletion and earn-out liability adjustments.
• Leverage remained conservative at 0.4x adjusted EBITDA, with net debt of approximately $62 million and $23.6 million in cash on hand.
• The company utilized $50 million in Series E preferred equity and $75 million in common equity issuance to fund recent strategic acquisitions.

Guidance and Future Outlook:

• Management projects cash available for distribution per share to exceed $2.80 in 2027 and surpass $3.00 in 2028 due to acquisition accretion and production growth.
• Forward production guidance targets 5.8 MMCFE/day in 2027 and 6.8 MMCFE/day in 2028 from newly acquired assets.
• The company expects the EQT-Range merger to drive significant production and pricing benefits, with material upside anticipated in the 2028–2030 timeframe due to in-basin power generation demand.
• Acquisition targets remain between $3 billion and $5 billion for strategic deals and over $35 billion for ground game opportunities in core basins.
• Long-term leverage target is maintained at approximately 1.0x adjusted EBITDA.

Business Segments and Product Lines:

• Completed 13 new acquisitions in Q3 totaling $45.5 million, bringing total post-IPO acquisitions to 22 for over $157 million.
• Average production reached 71 MMCFE/d (up 10% YoY), sourced from over 11,700 producing wells with 9,300 identified undeveloped locations.
• Portfolio composition: 59% from Marcellus/Utica (Appalachia) and 22% from Haynesville.
• Royalty exposure: 46% of combined production from top Appalachian operators (EQT, Range, CNX, Antero) and 47% from Haynesville operators (Xpand, Adamas, Comstock, Apex).
• Hedging coverage remains high at 96% for gas and 90% for oil volumes; 90% of 2027 production is hedged at a weighted average price of $3.80/MMBtu.

Market and Competitive Landscape:

• Views the EQT-Range merger as highly favorable, potentially increasing royalty exposure on Appalachian production to 67% via EQT.
• Differentiates on deep knowledge of complex Appalachian land titles, limiting competition in the Marcellus/Utica fairway compared to the more competitive Haynesville.
• Anticipates significant demand growth from AI data centers and LNG exports, potentially contracting basis differentials and increasing realized prices.
• Maintains a dual acquisition strategy: "Ground game" (individual mineral owners) and "Strategic transactions" (large-scale deals with major operators).

Risks and Challenges:

• Short-term natural gas price volatility is mitigated through an attractive hedging program and conservative balance sheet management.
• Potential curtailments by operators are viewed as a strategic hedge; management notes that curtailed wells can provide double benefits of hedge collections and future flush production upon price recovery.
• Competition for Haynesville assets is more intense than in Appalachia, though large-scale private equity exits provide differentiated opportunities.
• No aggressive pursuit of frontier plays (e.g., deep Utica, Western Haynesville) to avoid infrastructure risks and resource uncertainty.

Management Commentary and Tone:

• Management expressed high confidence, citing "unrelenting hard work" and a disciplined, habit-based approach to acquiring high-quality assets.
• Tone was optimistic regarding long-term demand tailwinds while emphasizing capital discipline and a focus on free cash flow generation.
• Emphasized that the company can grow cash flow per share significantly without necessarily breaching the 1.0x leverage target due to excess free cash flow.
• Leadership highlighted the unique ability to benefit from major operators' capital deployment with zero capital expenditure on the part of Whitehawk.

Analyst Questions and Answers:

• Leverage: Confirmed a firm long-term target of ~1.0x leverage, with no intent to exceed this for strategic deals given ample cash flow generation capabilities.
• Forecasting: Detailed a rigorous forecasting model based on mapped PDP locations, operator cadence history, and economic ranking of undeveloped pads, achieving ~1% forecast error historically.
• Curtailments: Confirmed minimal curtailment impacts in Q3; management views rig count flexibility and operator production decisions as asymmetric upside when prices rise.
• Acquisition Mix: Clarified a long-term philosophy of 40-60% producing assets versus 60-40% undeveloped/WIP, focusing on total return rather than specific asset maturity profiles.
• Funding: Noted flexibility in using cash, revolving credit facilities, and equity/preferreds, with recent deals funded via cash and revolver to maintain accretion.
• Competition: Reiterated limited competition in core Appalachian basins due to proprietary land knowledge, contrasting with higher competition in Haynesville for smaller deals.

Other Key Points:

• Board declared a quarterly cash dividend of $0.50 per share ($2.00 annualized), implying a 1.3x coverage ratio from CAD per share.
• The company retains exposure to approximately 67% of Appalachian production post-EQT-Range merger, leveraging the largest operators in the U.S.
• Management highlighted a "double benefit" scenario where low prices/hedged volumes protect downside, while production ramp-ups drive upside.
• Fall borrowing base redetermination increased the RBL to $175 million, remaining fully undrawn to ensure liquidity for future acquisitions.