CALGARY, Alberta, Nov. 05, 2024 (GLOBE NEWSWIRE) --

Third Quarter Highlights

• Despite the continued softening in the US rig count in the third quarter of 2024, PHX Energy generated consolidated revenue of $160.6 million, only 5 percent lower than the record third quarter consolidated revenue of $169.4 million generated in 2023. Consolidated revenue in the 2024-quarter included $10.2 million of motor rental revenue and $2 million of revenue generated from the sale of motor equipment and parts (2023 - $13.2 million and $6.2 million, respectively).

• For the three-month period ended September 30, 2024, PHX Energy's US division generated revenue of $117 million, 6 percent lower than the $123.8 million in the 2023-quarter and marginally higher than the $116 million in the second quarter of 2024. The decline in US quarterly revenue is largely attributable to lower motor rental revenue and motor equipment and parts sales while the US division's directional drilling revenue was flat quarter-over-quarter. In comparison, the US rig count was down 10 percent compared to the third quarter of 2023 and 3 percent compared to the second quarter of 2024. US division revenue in the 2024-quarter represented 73 percent of consolidated revenue (2023 - 73 percent of consolidated revenue).

• PHX Energy's Canadian division reported $43.7 million of quarterly revenue, 4 percent lower compared to $45.5 million in the 2023-quarter. In comparison, the Canadian rig count increased by 10 percent quarter-over-quarter. During the 2024 three-month period, PHX Energy's Canadian activity was negatively affected by the weak natural gas prices that persisted and the resulting reduction in its natural gas clients' activity.

• For the three-month period ended September 30, 2024, adjusted EBITDA⁽¹⁾ was $29 million, 18 percent of consolidated revenue⁽¹⁾, as compared to $43.5 million, 26 percent of consolidated revenue, in the same 2023-quarter. Earnings in the 2024 three-month period were $10.2 million, $0.22 per share, as compared to $24.9 million, $0.50 per share, in the same 2023-period. Included in the 2024-quarter's adjusted EBITDA and earnings is $4.3 million (pre-tax) of net gain on disposition of drilling equipment, a decrease compared to $8.4 million (pre-tax) in the 2023-quarter. Additionally, included in the 2024 three-month period adjusted EBITDA is cash-settled share-based compensation expense of $2.5 million (2023 - $5 million). For the three-month period ended September 30, 2024, adjusted EBITDA excluding cash-settled share-based compensation expense⁽¹⁾ is $31.5 million, 20 percent of consolidated revenue (2023 - $48.5 million, 29 percent of consolidated revenue). Apart from lower revenue and net gain on disposition of drilling equipment, the decline in profitability in the 2024-quarter was generally due to decreased activity in the Corporation's high margin revenue streams, including Rotary Steerable System ("RSS”) activity, motor rentals, and motor equipment and parts sales.

• In the third quarter of 2024, the Corporation generated excess cash flow⁽²⁾ of $19.3 million, after deducting net capital expenditures⁽²⁾ of $4.2 million ($11.1 million of capital expenditures offset by proceeds on disposition of drilling and other equipment of $6.9 million).

• In the 2024 three-month period, PHX Energy paid $9.4 million in dividends which is 24 percent higher than the dividend amount paid in the same 2023-period. On September 13, 2024, the Corporation declared a dividend of $0.20 per share or $9.2 million payable on October 15, 2024.

• During the third quarter of 2024, the TSX approved the renewal of PHX Energy's Normal Course Issuer Bid ("NCIB”) to purchase for cancellation, from time-to-time, up to a maximum of 3,363,845 common shares, representing 10 percent of the Corporation's public float of Common Shares as at August 7, 2024. The NCIB commenced on August 16, 2024 and will terminate on August 15, 2025.

• There were 1,289,932 common shares purchased for $12.6 million and subsequently cancelled under the previous and current NCIB in the three-month period ended September 30, 2024 (2023 - 2,442,700 shares, $17.5 million). Subsequent to September 30, 2024, the Corporation purchased and cancelled 420,100 common shares for $4.1 million including incremental transaction costs.

• Since the second quarter of 2017 to September 30, 2024, a total of 15.7 million common shares have been purchased and cancelled under PHX Energy's various NCIB's. This represents 27 percent of common shares outstanding as of June 30, 2017. It is the Corporation's intention to continue the current strategy of leveraging the NCIB to its fullest as a tool to further reward shareholders under ROCS.

• As at September 30, 2024, the Corporation had working capital⁽²⁾ of $75.7 million and net debt⁽²⁾ of $5 million.

(Stated in thousands of dollars except per share amounts, percentages and shares outstanding)

Outlook

• With the forecast that the US rig count has stabilized, and will likely remain near current levels, we believe our US operations will maintain the activity levels achieved in the third quarter. We will continue to focus on RSS applications, as the margins from this business line can have a meaningful impact on improved profitability. With current R&D efforts, we will further differentiate our RSS fleet with our proprietary Real Time RSS Communications, an ancillary technology we have developed, and market our unique advantages to US Operators who are hyper focused on drilling efficiencies. We believe through 2025 we could see RSS representing an even greater portion of our operations.

• Although our Atlas motor rental division was more directly impacted by the softening of the US rig count, we believe this high margin business line has the potential for growth. PHX is focused on adding resources to this division in an effort to attract new business.

• The 2024-year has been strong for our Canadian operations, although weak natural gas prices and client mix did impact the third quarter. We foresee the overall strength in the operations continuing through the remainder of the year and into 2025. The recent purchase of PowerDrive Orbit RSS technology for this market will generate improved margins in the upcoming year. RSS represents less than 5 percent of our Canadian activity, and we believe RSS growth will provide a notable upside in 2025.

• In 2025 we anticipate an initial capital expenditure budget of $50 million, split evenly between growth and maintenance. Our large capital expenditures over the past two years have allowed us to build a fleet of MWD tools and high performance drilling motors that will support our forecasted growth in 2025, and enable us to focus growth expenditures primarily on the RSS fleet.

• With our forecasted lower 2025 capital expenditure budget, we anticipate maintaining our strong commitment to shareholder returns through ROCS. We foresee exhausting our current NCIB as we believe our stock remains under valued at the current levels.

November 5, 2024

Financial Results

During the third quarter of 2024, the Corporation's US activity continued to be impacted by the softening US rig counts while PHX Energy's Canadian activity was impacted by weaker natural gas drilling activity. Despite these unfavorable market conditions, the Corporation generated consolidated revenue of $160.6 million in the 2024-quarter, only 5 percent lower as compared to the record $169.4 million generated in the same 2023-quarter.

For the three-month period ended September 30, 2024, the Corporation's US division's revenue decreased by 6 percent to $117 million as compared to $123.8 million in the same 2023-period. The US industry's rig count declined 10 percent as compared to the third quarter of 2023 while PHX Energy's US operating days only declined by 3 percent from 4,050 in the third quarter of 2023 to 3,916 in the 2024-quarter. Average revenue per day⁽³⁾ for directional drilling services increased by 3 percent quarter-over-quarter which offset the decline in activity and resulted in flat revenue for directional drilling services. The weaker industry rig count had a more direct impact on the Corporation's US motor rental division whose revenue decreased to $9.8 million from $12.9 million in the 2023-quarter. The US motor sales division revenue also declined from $6.2 million to $2 million in the 2024-quarter as revenue was primarily generated from parts sales to existing clients rather than new motor purchases as was the case in the third quarter of 2023. Revenue from PHX Energy's US segment represented 73 percent of consolidated revenue in the 2024 three-month period (2023 - 73 percent).

In the 2024 three-month period, the Corporation's Canadian division generated revenue of $43.7 million, which is 4 percent less than the $45.5 million generated in the same 2023-period. During the 2024-quarter, Canadian industry activity increased by 9 percent while PHX Energy's Canadian operating days decreased by 2 percent to 3,302 days from the 3,385 operating days in the comparable 2023-quarter. As a result of decreasing natural gas prices, a number of PHX Energy's Canadian natural gas clients had fewer rigs running in the period. Average revenue per day⁽³⁾ for directional drilling services decreased by 2 percent quarter-over-quarter and the Corporation's Canadian motor rental division generated $0.4 million of revenue, in the third quarter of 2024 (2023 - $0.3 million).

For the three-month period ended September 30, 2024, earnings were $10.2 million (2023 - $24.9 million), adjusted EBITDA⁽¹⁾ was $29 million (2023 - $43.5 million), and adjusted EBITDA represented 18 percent of consolidated revenue⁽¹⁾ (2023 - 26 percent). Lower activity in the Corporation's high-margin business lines, particularly RSS activity, motor rentals, and motor equipment and parts sales, partly contributed to the decline in profitability. In addition, fewer occurrences of downhole equipment losses in the 2024-quarter resulted in lower net gain recognized on disposition of drilling equipment which was $4.3 million (pre-tax) in the third quarter of 2024 compared to $8.4 million (pre-tax) in the 2023-quarter, a $4 million decrease. Included in the 2024 three-month period adjusted EBITDA is cash-settled share-based compensation expense of $2.5 million (2023 - $5 million). For the three-month period ended September 30, 2024, adjusted EBITDA excluding cash-settled share-based compensation expense⁽¹⁾ is $31.5 million, 20 percent of consolidated revenue (2023 - $48.5 million, 29 percent of consolidated revenue).

As at September 30, 2024, the Corporation had working capital⁽²⁾ of $75.7 million and net debt⁽²⁾ of $5 million. The Corporation also has CAD $75.5 million and USD $20 million available to be drawn from its credit facilities.

Dividends and ROCS

On September 13, 2024, the Corporation declared a dividend of $0.20 per share payable to shareholders of record at the close of business on September 30, 2024. This is 33 percent higher than the dividend of $0.15 per share declared in the 2023-quarter. An aggregate of $9.2 million was paid on October 15, 2024.

The Corporation remains committed to enhancing shareholder returns through its Return of Capital Strategy ("ROCS”) which will potentially allow up to 70 percent of 2024 excess cash flow to be used for shareholder returns and includes multiple options including the dividend program and the NCIB. In the third quarter of 2024, $9.4 million (2023 - $7.6 million) was paid in dividends to shareholders and $12.6 million (2023 - $17.5 million) was used to repurchase and cancel shares under the previous and current NCIB. In the 2024-quarter, 70 percent of PHX Energy's excess cash flow⁽²⁾ was $13.5 million (2023 - $18 million). The remaining distributable balance under ROCS⁽²⁾ was negative $8.5 million in the 2024 three-month period (2023 - negative $7.1 million) due to a decrease in excess cash flow, mainly resulting from lower cash flows generated from operations, higher capital expenditures and decrease in proceeds on disposition of drilling equipment. Despite the decrease in excess cash flow, the Corporation maintained its current level of dividends and continued NCIB purchases as it believed the stock price was opportunistic, leading to over 70 percent of excess cash flow being distributed for shareholder returns under ROCS. The Corporation foresees the level of excess cash flow to be used for shareholder returns to stay within the 70 percent threshold in 2025.

(Stated in thousands of dollars)

During the third quarter of 2024, the TSX approved the renewal of PHX Energy's NCIB to purchase for cancellation, from time-to-time, up to a maximum of 3,363,845 common shares, representing 10 percent of the Corporation's public float of Common Shares as at August 7, 2024. The NCIB commenced on August 16, 2024 and will terminate on August 15, 2025. Purchases of common shares are to be made on the open market through the facilities of the TSX and through alternative trading systems. The price which PHX Energy is to pay for any common shares purchased is to be at the prevailing market price on the TSX or alternate trading systems at the time of such purchase.

Pursuant to the previous and current NCIB, 1,648,232 common shares were purchased by the Corporation for $15.8 million including incremental transaction costs, and cancelled in the nine-month period ended September 30, 2024 (2023 - 2,710,500 shares, $19.1 million). Of the 1,648,232 common shares purchased and cancelled, 1,069,121 common shares were purchased under the previous NCIB and 579,111 common shares were purchased under the current NCIB. Subsequent to September 30, 2024, the Corporation purchased and cancelled 420,100 common shares for $4.1 million including incremental transaction costs.

It is the Corporation's intention to continue the current strategy of leveraging the NCIB to its fullest as a tool to further reward shareholders under ROCS especially during times of market industry weaknesses.

Capital Spending

In the third quarter of 2024, the Corporation spent $11.1 million in capital expenditures, of which $11 million was spent on growing the Corporation's fleet of drilling equipment, $0.1 million was spent to replace retired assets, and nothing was spent to replace equipment lost downhole during drilling operations (2023 - $12.5 million, $2.8 million, and $3.5 million, respectively). With proceeds on disposition of drilling and other equipment of $7 million (2023 - $11.7 million), the Corporation's net capital expenditures⁽²⁾ for the 2024-quarter were $4.2 million (2023 - $7.1 million). Capital expenditures in the 2024-quarter were primarily directed towards Atlas High Performance motors ("Atlas”), Velocity Real-Time systems ("Velocity”), and RSS. PHX Energy funded capital spending primarily using proceeds on disposition of drilling equipment, cash flows from operating activities, and its credit facilities when required.

(Stated in thousands of dollars)