Jul 30, 2023Liked by Six Bravo

Thanks for the writeup on PHX.

One item that might impact shareholder value here is SG&A. My understanding is that the SEC PV-10 does not include SG&A. Based on the latest 10-Q, PHX has a run rate of about $12 million/year for SG&A. Capitalizing that at 10% it would subtract very roughly $120 million from the valuation. While that may impair a pretty decent chunk of value, your thesis that this company is undervalued still holds water, although the magnitude may be smaller.

Another topic that might be worth discussing is pricing Part of you thesis is that you are optimistic about natural gas prices. I agree with your logic, however, the current estimated PV-10 is already based on the futures curve which is in contango. That is to say that some increase in the price of natural gas is already included in the current PV-10. Should natural gas prices rise even more, then certainly, that would be additional upside.

Regarding taxes, looking at the quarterly reports, PHX may pay less cash taxes than is recorded under income and expense. I believe that this shows up in the cash flow statements. I'm unclear exactly how this works, but potentially could add value if the estimate for tax liability is overstated in the PV-10.

Thanks again for your analysis. I enjoy your posts. I own shares in NRP which you have discussed in other articles.

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Dan, thank you very much for your insightful comment. You brought up some super valid points we hadn't considered. Thanks!

We're glad you enjoy our posts. Thank you for reading them (and taking the time to comment). Folks like you help us become better.

We are very excited about the long-term prospects of NRP.

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