Panhandle Oil and Gas : Fiscal 2016 First Quarter Results

12-31-15 Press Release final

FOR IMMEDIATE RELEASE PLEASE CONTACT:

Michael C. Coffman 405.948.1560

Website: www.panhandleoilandgas.com

Feb. 8, 2016

PANHANDLE OIL AND GAS INC. REPORTS FISCAL 2016 FIRST QUARTER RESULTS

OKLAHOMA CITY - PANHANDLE OIL AND GAS INC. (NYSE: PHX), the "Company," today reported financial and operating results for the 2016 fiscal first quarter ending Dec. 31, 2015.

FIRST QUARTER 2016 RESULTS HIGHLIGHTS

• Recorded first quarter 2016 net loss of $2,799,118, $0.17 per share, compared to net income of

  $10,233,761, $0.61 per share, for the 2015 first quarter.

• Recorded production of 3,143,400 Mcfe, compared to 3,737,483 Mcfe for the 2015 first quarter.

• Funded capital expenditures of $1.3 million for drilling and equipping wells for the 2016 first quarter with cash generated by operating activities of $7.7 million during the quarter.

• Collected $2.7 million from leasing out mineral acreage in the 2016 quarter (not included in $7.7 million of cash generated by operating activities).

• Reduced debt $8 million in the 2016 first quarter.

For the 2016 first quarter, the Company recorded a net loss of $2,799,118, $0.17 per share, compared to a net income of $10,233,761, $0.61 per share, for the 2015 first quarter. Net cash provided by operating activities decreased 50% to $7,650,218 for the 2016 first quarter, compared to the 2015 first quarter. Cash flow from operations fully funded all capital expenditures for drilling and equipping wells for the quarter of $1,286,114.

Total revenues for the 2016 first quarter were $11,462,125, compared to $30,999,170 for the 2015 first quarter. Oil, NGL and natural gas sales decreased $10,464,412 or 54% in the 2016 quarter, compared to the 2015 quarter, as a result of a 16% decrease in Mcfe production and a 45% reduction in the average sales price per Mcfe of production. Sales prices for oil, NGL and natural gas decreased 44%, 51% and 47%, respectively, for the 2016 first quarter when compared to the 2015 first quarter. The average sales price per Mcfe during the 2016 first quarter was $2.88, compared to $5.22 for the 2015 first quarter.

Oil production decreased 9% in the 2016 first quarter to 106,362 barrels, compared to 116,583 barrels in the 2015 first quarter. NGL production decreased 34% in the 2016 quarter to 48,051 barrels, and natural gas production decreased 15% for the 2016 first quarter, compared to the 2015 first quarter. The production volume declines are the result of normal decline in the Company's producing wells. Drilling and completion capital expenditures for the last year have been below levels required to add new production sufficient to offset this natural decline.

Lease operating expenses decreased to $1.13 per Mcfe in the 2016 quarter as compared to $1.28 in the 2015 quarter. The reduction was in part the result of operating efficiencies gained in the Eagle Ford Shale field due to the addition of a salt water disposal system and the electrification of the field. Further, natural gas related fees were down as natural gas production volumes and sales revenues were lower in the 2016 period. Depreciation, depletion and amortization (DD&A) increased principally as a result of lower oil, NGL and natural gas prices utilized in the 2016 period reserve calculations shortening the economic life of wells, which then results in lower projected remaining reserves and causes increased units of production DD&A. Impairment charges in the 2016 period related to more than 20 fields, which are principally oil and liquids rich properties.

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5400 N. Grand Blvd., Suite 300 Oklahoma City, OK 73112 Ph. (405)948-1560 Fax (405)948-2038

MANAGEMENT COMMENTS

Michael C. Coffman, President and CEO said, "At this point, 2016 is shaping up to be a continuation of difficult times for the energy industry. Product prices remain low; the outlook for oil and natural gas demand growth compared to production growth continues to result in oversupply and high inventory levels.

"The combined result of these factors has been a dramatic reduction in capital expenditures announced by virtually every company in the industry. Panhandle's capital expenditure level has declined steadily over the last year, and we are fine with that, based on current product prices. We have been able to use the free cash flow to further reduce our debt, which today stands at $53.5 million. The $8 million debt reduction in the first quarter was the largest quarterly debt reduction in Company history, and was accomplished during these very difficult times in the industry.

"In addition, we are looking at all alternatives to maximize the value of our mineral acreage assets to position the Company to be in the best possible situation not only to ride out the current environment, but to be in a position to take advantage of strategic opportunities at the appropriate time."

Paul Blanchard, Senior Vice President and COO said, "We have always considered our Company to be unique in the oil and gas business, and we have demonstrated that uniqueness during the current industry downturn. We have utilized our significant undeveloped mineral position to generate $4.6 million in cash proceeds in the last three quarters by leasing out 8,391 acres or 4.2% of our total 199,000 acres of undeveloped minerals. As a part of this leasing activity the Company has negotiated the right, on a unit by unit basis, to exercise the option to participate with up to a 10% working interest with our mineral holdings in two large blocks in the Permian Basin that have the potential to become significant oil fields with several hundred producing wells. As always, we will also generate non-cost bearing royalty income on all production from these leased lands whether or not we participate with a working interest. In addition, the Company is currently analyzing expressions of interest to lease other material undeveloped mineral holdings. Our approach to this part of our business remains consistent, we lease out our mineral holdings only where we believe the lease bonus and royalty income will exceed the risk adjusted present value of participating as a working interest owner.

"We have been generating significant lease bonus income and greatly expanding the royalty and working interest opportunities for Panhandle during this industry downturn. Most other oil and gas companies, who are not mineral owners, have been forced to drill wells and expend precious capital to preserve their opportunity or lose the land and right to drill as their undeveloped leasehold expires. They also have to invest additional capital to lease minerals in new areas in order to expand their opportunity. Panhandle's mineral holdings are perpetual and therefore never expire. As a result, we are never forced to drill wells to preserve our mineral acreage. These facts clearly differentiate our assets and strategy from others and accentuate the conservative strength of our Company and its benefits during difficult times in the industry."

FINANCIAL HIGHLIGHTS Statements of Operations
Three Months Ended Dec. 31, 2015 2014
Revenues: Oil, NGL and natural gas sales	(unaudited) $ 9,055,288 $ 19,519,700
Lease bonuses and rentals	2,425,504 29,291
Gains (losses) on derivative contracts	(34,936) 11,250,265
Income from partnerships	16,269 199,914
Costs and expenses:	11,462,125 30,999,170
Lease operating expenses	3,566,536 4,785,350
Production taxes	321,841 622,512
Exploration costs	27,790 25,352
Depreciation, depletion and amortization	6,957,652 6,139,019
Provision for impairment	3,733,273 2,191,997
Loss (gain) on asset sales and other	(269,706) (1,982)
Interest expense	360,562 402,733
General and administrative	1,912,079 1,958,428
Bad debt expense (recovery)	19,216 -
16,629,243 16,123,409
Income (loss) before provision (benefit) for income taxes	(5,167,118)	14,875,761
Provision (benefit) for income taxes	(2,368,000)	4,642,000
Net income (loss)	$ (2,799,118)	$ 10,233,761

Basic and diluted earnings (loss) per common share	$ (0.17)	$ 0.61
Basic and diluted weighted average shares outstanding: Common shares	16,563,942	16,494,805
Unissued, directors' deferred compensation shares	255,060	262,121
16,819,002	16,756,926

Dividends declared per share of

common stock and paid in period $ 0.04 $ 0.04

Dividends declared per share of

common stock and to be paid in quarter ended March 31 $ 0.04 $ 0.04

Balance Sheets

Dec. 31, 2015 Sept. 30, 2015

Assets (unaudited)

Current assets:

Cash and cash equivalents $ 1,503,691 $ 603,915 Oil, NGL and natural gas sales receivables (net of 5,540,926 7,895,591

allowance for uncollectable accounts)

Refundable income taxes - 345,897

Refundable production taxes 474,839 476,001

Derivative contracts, net 636,114 4,210,764

Other 911,340 252,016

Total current assets 9,066,910 13,784,184

Properties and equipment, at cost, based on successful efforts accounting:

Producing oil and natural gas properties 441,316,100 441,141,337

Non-producing oil and natural gas properties 7,694,635 8,293,997

Other 1,055,935 1,393,559

450,066,670 450,828,893

Less accumulated depreciation, depletion and amortization (234,432,151) (228,036,803) Net properties and equipment 215,634,519 222,792,090

Investments 173,423 2,248,999

Total assets $ 224,874,852 $ 238,825,273

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $ 2,397,076 $ 2,028,746

Deferred income taxes 863,100 1,517,100

Income taxes payable 1,073,551 -

Accrued liabilities and other 1,491,077 1,330,901

Total current liabilities 5,824,804 4,876,747

Long-term debt 57,000,000 65,000,000

Deferred income taxes 36,025,907 39,118,907

Asset retirement obligations 2,861,160 2,824,944

Stockholders' equity:

Class A voting common stock, $.0166 par value;

24,000,000 shares authorized, 16,863,004 issued at Dec. 31,

2015, and Sept. 30, 2015	280,938	280,938
Capital in excess of par value	2,915,219	2,993,119
Deferred directors' compensation	3,170,219	3,084,289
Retained earnings	121,309,373	125,446,473
Less treasury stock, at cost; 284,593 shares at Dec. 31,	127,675,749	131,804,819
2015, and 302,623 shares at Sept. 30, 2015	(4,512,768)	(4,800,144)
Total stockholders' equity	123,162,981	127,004,675
Total liabilities and stockholders' equity	$ 224,874,852	$ 238,825,273