WhiteHawk Minerals 3Q26 Earnings Call - PHX MINERALS INC

Explicit Guidance:

• Cash Available for Distribution (CAFD): Management expects CAFD to exceed $2.80 per share in 2027 and surpass $3.00 per share in 2028 (annualized), driven by base assets and execution on acquisitions.
• Dividends: Board approved a $0.50 per share quarterly dividend (annualized $2.00), implying a 1.3x coverage ratio based on Q3 2026 cash available for distribution.
• Acquisition Cash Flow Impact: Recent $45.5M Q3 2026 acquisitions are expected to generate $5.6M in 2027 cash flow; 2028 production from new assets (including SJM1/SJM2 context) projected at 5.8–6.8 MMCFE per day to contribute to growth.
• Hedging: Pro forma for recent deals, 90% of 2027 and >80% of 2028 production is hedged; weighted average NYMEX hedge price of $3.80/MMBtu for 2027 previously noted.

Business-Segment Outlook:

• Production Growth: Base production expected to remain solid over the next year with ~500 gross line-of-sight wells; 9,300 identified undeveloped locations across 3.6 million gross unit acres.
• Geographic Mix: Expect 67% of Appalachia production to come from EQT (following EQT-Range merger) and ~22% from Haynesville (dominated by Expand, Adamas, Comstock, Apex).
• Asset Mix: Long-term target portfolio composition is 40–60% producing assets and 60–40% undeveloped/WIP/permits, aiming for 15–20% unlevered IRR on life-of-portfolio.
• Acquisition Pipeline: $3–5 billion in strategic opportunities and >$35 billion in ground game opportunities identified in Marcellus, Utica, and Haynesville.

Market and Competitive Outlook:

• Operator Synergy: EQT-Range merger expected to drive ~20 BCF/day in-basin power generation demand growth over time; management conservatively forecasts 4–5 BCF/day already under construction/FID.
• Pricing Dynamics: Anticipated basis differential contraction and natural gas price appreciation from 2028–2030 due to AI power demand and LNG exports; current "warm-up innings" for this trend.
• Competition: Limited competition in Appalachia (Marcellus/Utica) due to complex land makeup; highly competitive in Haynesville on smaller deals ($100k–$10M) but few large-scale buyers exist for strategic packages, offering differentiation for private equity exits.
• Curtailment Strategy: View low-price curtailments as a benefit due to hedges; expect flush production recovery at higher prices when curtailed wells come back online.

Macro / Industry Outlook:

• Natural Gas Demand: "Tremendous" medium/long-term tailwinds from AI power generation, data centers, and LNG exports.
• Economic Stance: Management views current depressed gas strips as an opportunity to acquire assets accretively; if prices remain muted, they will continue buying; if prices rise, they gain upside.
• Rig Count Activity: Monitoring operators (e.g., Apex, Adamas) that flex production based on prices, viewing this as an asymmetrical upside for a royalty payer with a stable base layer.
• Regulatory/Policy: No specific regulatory changes cited, but reliance on operator development cadence and market-driven FID decisions.

Strategic Initiatives:

• Acquisition Strategy: Dual-prong approach (ground game + strategic transactions); 22 acquisitions completed in 5 months (post-IPO) totaling >$157M.
• Balance Sheet Management: Target long-term leverage of ~1.0x adjusted EBITDA; exited Q3 2026 at 0.4x leverage with $62M debt and $23.6M cash; RBL increased to $175M.
• Funding Tools: Utilizing cash on hand, revolver borrowings, preferred equity (10% dividend), and common equity issuance; maintaining flexibility to deploy capital for hyper-accretive deals.
• Development: Heavy focus on producing and undeveloped locations in core basins (Marcellus, Utica, Haynesville); explicitly avoiding frontier plays (e.g., deep Utica dry gas, Western Haynesville) until technical certainty is established.

Risks and Headwinds to Outlook:

• Commodity Price Volatility: While hedged, significant upside depends on realization of demand tailwinds (AI/LNG); downside protected by hedges and cost control.
• Operator Execution: Dependent on operator development cadence (rig counts, completion crews) and potential production fluctuations by non-core operators (e.g., Apex, Adamas).
• Deal Execution: Risk of competition in Haynesville or inability to secure "fairway" assets at attractive prices; potential for "bad rock" if due diligence is insufficient.
• Integration: Delays in integrating new acquisitions (like SJM2) or realization of undeveloped locations coming online in 2028.

Management Tone on the Future:

• Confidence Level: Highly confident and "excited" about the trajectory; describes the future as "brighter than ever."
• Strategic Focus: Emphasis on "excellence as a habit," methodical execution, and disciplined capital allocation.
• Forward Outlook: Belief that the "train" of demand growth is not yet at the station; expects significant cash flow growth in 2027-2028 even if price appreciation is delayed, driven by volume growth from acquisitions.

Miscellaneous:

• Capital Structure: 27.9M weighted average shares Q3 2026; 30.4M fully diluted shares. Issued 2.9M Class A shares ($75M proceeds) and $50M Series E preferred (10% dividend) for acquisitions.
• Operational Efficiency: Zero capital expenditures on assets; revenue derived from royalties on operators' capex.
• Hedging Coverage: 96% of gas volumes and 90% of oil volumes hedged in Q3 2026; $3.80 weighted average hedge price for 2027.