PHX Minerals Inc. (NYSE:PHX) Q3 2023 Earnings Call Transcript

PHX Minerals Inc. (NYSE:PHX) Q3 2023 Earnings Call Transcript August 9, 2023

Operator: Good morning and thank you for attending today’s PHX Minerals June 30th, 2023 Quarter End Earnings Conference Call. At this time, all lines will be muted during the presentation of the call with an opportunity for question-and-answer session at the end. As a reminder, this call is being recorded. I would now like to turn the call over to Rob Fink with FNK, IR. Please go ahead, sir.

Rob Fink: Thank you for joining us today to discuss PHX Minerals June 30th, 2023 quarter end results. Hosting the call today are Chad Stephens, President and Chief Executive Officer; Ralph D’Amico, Senior Vice President and Chief Financial Officer; Danielle Mezo, PHX’s Vice President of Engineering. The earnings press release that was issued yesterday after the close is also posted on PHX’s Investor Relations website. Before I turn the call over to Chad, I’d like to remind everyone that during today’s call, including the Q&A session, management may make forward-looking statements regarding expected revenue, earnings, future plans, opportunities, and other expectations of the company. These estimates and other forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those expressed or implied on the call.

These risks are detailed in PHX Minerals’ most recent annual report on Form 10-K as such may be amended or supplemented by subsequent quarterly reports on Form 10-Q or other reports filed with the SEC. The statements made during the call are based upon information known to PHX as of today, August 9th, 2023 and the company does not intend to update these forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law. With all that said, I’d now like to turn the call over to Chad. Chad, the call is yours.

Chad Stephens: Thanks Rob and thanks to all of you on this call for participating in PHX’s June 30, 2023 quarter end conference call. We appreciate your interest in the company. As you may have seen a few moments ago, WhiteHawk Energy issued a public letter indicating its interest in merging with PHX Minerals. The Board will be reviewing the WhiteHawk letter in evaluating the proposal carefully. At this time, we have nothing further to say about this matter and we will not be taking questions regarding WhiteHawk’s expression of interest. For the second quarter, I am pleased with our performance despite historically low natural gas prices and I’m encouraged about future quarters, given the significant improvement in the macro dynamics.

During the second quarter, we continue to experience robust activities across acreage. Despite weak commodity prices, there was a notable improvement in our market share of operating rigs within our focus areas. Based on the activities in our inventory of wells, permitting and well conversions to production, we are confident in meeting the production forecast we communicated earlier in the year. As a matter of fact, we are raising the lower end of our guidance slightly higher based on improving conditions, progress to-date, and enhanced visibility. Ralph will discuss more on this later. As I have previously stated, it is more accurate to measure our royalty volume growth on a year-over-year basis instead of a sequential quarter. This eliminates the lumpiness created by operator timing.

In fact, we are on track to achieve annual year-over-year royalty volume growth, approximately 25% in calendar 2023. We believe the second quarter appears to be the bottom of natural gas prices as supply and demand imbalances continue to improve. As we look forward toward 2024 and 2025, demand from LNG export will be a significant demand driver to the natural gas market. During the quarter, several natural gas operators have signed Heads of Agreements or HOAs with LNG operators. As we draw closer to the commissioning of these additional LNG facilities, we believe it will drive improvement in sentiment as well as prices. Haynesville will be the primary source to feed these LNG facilities. Even though natural gas prices were at historical low levels this quarter, PHX continued to generate cash flow, fund acquisitions, and maintain ample liquidity, demonstrating the advantage of our mineral business model.

At this point, I’d like to turn the call over to Danielle to provide a quick operational overview and then to Ralph to discuss the financials.

Danielle Mezo: Thanks Chad, and good morning to everyone participating on the call. For our June 30th, 2023 ended quarter, total production decreased 7% from prior sequential quarter to 2,304 MMcfe. Note that last quarter’s volumes contained a full month of production from our legacy Eagle Ford and Arkoma assets that were divested on January 31st, 2023. Excluding these divested volumes, total production from our assets decreased just 3% from the prior sequential quarter. Additionally, 80% of our quarterly production volumes were natural gas, which aligns with our long-term position that natural gas is the key transition fuel for a sustainable energy future. Oil represented 11% of production volumes and NGL represented 9%. Quarterly royalty production decreased 4% sequentially to 2,010 MMcfe.

While royalty volumes remained relatively flat compared to last quarter, year-over-year volumes have increased by 26%. It is important to note that as a mineral holder, we do not control timing on well development, so there can be some volatility on a quarter-to-quarter basis and volumes associated with our business model are better evaluated on a rolling 12-month basis. On the working interest side, production volumes declined 24% sequentially to 2,904 MMcfe in the June 30th, 2023 quarter as a result of the sale of our legacy Eagle Ford and Arkoma working interests well on January 31st, as stated above. The working interest volumes from the March 31st quarter contained a full month of production associated with these divested assets. Excluding these divested volumes, working interest volumes remained flat quarter-over-quarter.

Royalty volumes represented 87% of total production during our June 30th quarter. As recently, at calendar 2021, royalty volumes were only 45% of our total — Reflecting on our reported volumes over the last several quarters, you will note our total corporate volumes have remained relatively flat. This is due to the loss of volumes associated with the sale of working interest asset offset by the gain in our growing royalty volume. With the divestiture of our working interest assets virtually complete, we estimate our total corporate volumes will reflect steady growth in the coming quarters. As we have grown our royalty volume and divested of our non-op working interest, the quality of our asset base is enhanced with improving margins. This growth in royalty volumes is also reflected in our corporate reserves, Our proved reserves as of June 30th, 2023, were 68.6 Bcfe compared to our fiscal year end reserves of 81.1 Bcfe as of September 30th, 2022.

This decrease is primarily due to sales of our working interest assets, as well as nine months of production volumes rolling off. Over the same timeframe, our proved royalty reserves have remained flat as a result of steady conversion of probable reserves to prove over the last three quarters despite significantly lower natural gas prices. During the quarter ended June 30th, 2023, third-party operators active on our mineral acreage converted 81 gross or 0.3 net wells in progress or WIP to producing wells compared to 117 growth or 0.42 net web converted to PBT in the quarter ended March 31st, 2023. The majority of the new wells brought online are located in the Haynesville and SCOOP. At the same time, our inventory of wells in progress remained consistent at 186 gross or 0.51 net wells compared to the 198 gross or 0.65 net wells reported as of March 31st, 2023.

The continued track record of well conversions and replenishment of the inventory of wells in progress or WIP, shows the repeatability of our business strategy. Additionally, we have mineral interest under a deep inventory of approximately 2,000 gross undrilled locations that will continue to feed the split activity. In addition to our WIP, we regularly monitor third-party operator rate activities in our focus areas and observed 15 rigs present on PHX Minerals acreage as of July 10th. Additionally, we had 61 rigs active within 2.5 miles of PHX ownership. Despite the recent decrease in natural gas prices, our market share of total active rigs in the Haynesville play has doubled. As of July 31st, PHX’s share of all active rigs was 18% compared to 9% a year ago.

We believe this is a result of owning minerals in the core of the basin in which we focus with competitive economics across various pricing environments. In summary, we continue to see steady development on both our legacy and recently acquired mineral assets, which should lead to annually increasing royalty volumes. Now, I will turn the call back to Ralph to discuss financials.

Ralph D’Amico: Thanks Danielle and thank you to everyone for being on the call today. Natural gas, oil, and NGL sales revenues decreased 39% on a sequential quarter basis to a total of $7.2 million. Breaking down this number further, royalty sales revenues decreased 39% to $6.2 million because of a 4% decline in royalty production volumes and 36% lower realized commodity prices. Working interest sales revenues decreased 42% to $1 million as a result of lower production volumes associated with the divestiture of the Eagle Ford and Arkoma assets, which you recall that the May 31st — the March 31st quarter still had 1 full month of production from these areas as Danielle talked about and the working interest revenues for the June 30th quarter also had a 23% lower realized commodity price affecting them.

Realized natural gas prices averaged $1.92 per Mcf, 46% lower than the prior sequential quarter. Realized oil prices averaged $73.87 per barrel, 3% lower, and NGLs averaged $18.93 per barrel, 25% lower. Realized hedge gains for the quarter were $1 million. For the quarter, approximately 45% of our natural gas, 53% of our oil and 0% of our NGL production volumes were hedged at average prices of $3.37 and $74.68, respectively. Approximately 39% of our anticipated remaining calendar 2023 natural gas production has downside protection at approximately $3.27 per Mcf. On the oil side, approximately 39% of our anticipated production has downside protection at approximately $72.98 per barrel. Most of our natural gas hedges are structured as costless collars, which means that we also have upside on these volumes up to the $6 range.

Our current hedge position is available in our recently filed 10-Q. Total transportation, gathering and marketing decreased 20% on a sequential quarter basis to $906,000 and decreased 13% on a per Mcfe basis to $0.39 primarily because of higher Haynesville volumes as a percentage of total volumes, which have lower associated transportation costs and where we have a meaningful number of cost-free leases. Production taxes decreased 21% on a sequential quarter basis to approximately $462,000 due to lower sales revenues, offset by higher production in Louisiana, which applies its tax rate to production volumes and not to revenues. LOE associated with our legacy non-operated working interest wells decreased 42% on a sequential quarter basis to $314,000.

This is the first clean quarter without the impact of the Eagle Ford and Arkoma working interests, which we sold in late January. Cash G&A was up 5% to $2.47 million compared to the prior sequential quarter, primarily due to additional costs associated with legal work and tax work during the quarter. Adjusted EBITDA was approximately $4.1 million in our quarter ended June 30th compared to $7.7 million in the March 31st quarter. DD&A was up 17% to $2.2 million compared to the prior sequential quarter, due to new and significant overriding royalty production that is depreciated on a unit of production basis and conversion of nonproducing minerals to producing minerals, which have a shorter depreciable life as these new royalty wells come online.

Net loss for the quarter was $41,000 or effectively $0.00 per share compared to net income of $9.6 million or $0.27 per share for the prior sequential quarter. Adjusting for the unrealized mark-to-market on our hedges and the gain on sales in the June quarter, pre-tax net income decreased approximately 87% to $468,000 or $0.02 per share. We had total debt of $23.75 million as of June 30th, 2023, compared to $26 million as of March 31st as we have continued to focus on maintaining a strong balance sheet and enhancing liquidity for potential future acquisition opportunities. Our debt to trailing 12-month EBITDA was 0.93 times at June 30th, 2023. Lastly, we updated our company outlook for calendar 2023 to reflect higher confidence in forecasted volumes.

The estimated royalty production range is now 7.6 to 8.6 Bcfe compared to the prior outlook of 7.4 to 8.6 Bcfe. We also reduced the estimated per unit transportation gathering and marketing costs to a $0.45 to $0.50 range compared to a $0.53 to $0.58 range to reflect a higher percentage of sales volumes coming from the Haynesville, which as I talked about, has lower associated costs and where we have a significant number of cost-free leases. Production tax as a percentage of our pre-hedge sales volumes is being increased to 5.5% to 6% from 4.75% to 5.25%, again as a result of higher production volumes in the Haynesville and Louisiana tax being applied to volumes and not revenues. On the G&A side, we’ve reduced the high end of our per unit production metric from $1.07 to $1.06 to reflect the higher production volumes estimates and a stable cash G&A on an absolute basis.

With that, I’d like to turn the call over back to Chad for some final remarks.

Chad Stephens: Thank you, Ralph. In conclusion, we have made remarkable progress in transforming PHX over the last three years and have achieved on specific plans we originally established back then. We are now positioned to grow even further using the free cash flow from our quality assets and strong financial position and look forward to keeping you updated. Before we close, I would like to highlight a couple of important points. First, with our non-op working interest divestiture is largely complete, we expect to resume growth at a corporate level for our corporate volumes, which will be primarily driven by increasing royalty volumes. Two, in spite of record low natural gas prices, PHX continues to see robust activity on its minerals, which will drive royalty volume growth in the coming quarters as the natural gas market macro dynamics improve, we are seeing additional consolidation opportunities in our core areas in the Haynesville and SCOOP.

We are excited about these prospects, and we’ll use the same rigorous approach to evaluate these opportunities in order to drive shareholder value. As always, I would like to recognize and thank our dedicated employees for their hard work and our Board of Directors for their support and the insightful wisdom they provide. This concludes the prepared remarks portion of the call. Operator, please open up the queue for questions.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is from Derrick Whitfield with Stifel. Please proceed.

Derrick Whitfield: Good morning all and thanks for your time.

Chad Stephens: Hi Derrick.

Derrick Whitfield: For my first question, I wanted to focus on your growth outlook. While we are seeing a reduction in your WIP, your relative market share in the Haynesville is increasing and you are raising the lower band of your minerals guidance. Could you perhaps speak to your expected trajectory for the second half and your views on how the macro environment is shaping up for 2024 activity across your assets?

Chad Stephens: Ralph, do you want to address that, and I’ll follow up with a closing comment.

Ralph D’Amico: Sure. Hey Derrick. Look, I mean, I think, again, the — what we like about our motto is this focus — as we focus on natural gas, the Haynesville is the key basin in which to be if you’re playing an improvement in natural gas commodity price cycle and LNG exports, right? And I think the basin even at these prices are highly economic. And the fact that we’re focused on the core of the core, right, really what’s enabled us to increase the market share of the operating rates, right? So, what that means is to us is that even in a down cycle, our acreage is so economic to operators that it would be the last rig that they laid down as opposed to the first rig, right? So we’re not around the margins. We’re in the core of the core.

The operators that we are under are focused also on growing production, which helps us, right? They’re not focused on purely just maintaining production steady. It’s highly fragmented. There’s lots of good operators. And so that visibility enables us to kind of look at the world and say, we have a high level of confidence that the wells being worked on are going to convert, right? And we continue to see active permitting on our acreage every day. So we’re encouraged about the future as it pertains to the Haynesville. And then if you look at the SpringBoard III play, if you look at our corporate presentation, it’s just a map, right? And you look at the amount of permitting that you’re seeing coming out of Continental, right? It certainly seems like they are picking up the taste there, as we always thought and predicted that they would.

So, I think we just — all of that gives us conviction that the inventory that we built should continue to be converted and drive up revenue production volumes on the royalty side, revenues and cash flow.

Chad Stephens: And we can — thanks, Ralph. And we can really look back to the strategy we recently put forth and being in the best rock quality and to the best operators when you look at rig counts in our two core areas, the Haynesville and SpringBoard III, six months ago and today and a virtually unchanged on our minerals same rig count. So, that really speaks to the quality of the assets and the quality of the operators. And as Ralph said, we weekly watch permitting and the wells that are being drilled on our acreage and the DUCs, the wells that have been drilled and are waiting on completion. And that continues on a week-over-week and month-over-month remains relatively flat as these wells are being converted. Again, there’s a bit of lumpiness to it as we alluded to.

But we’re very confident, as you asked, we’re very confident in the trajectory of our growth going into next year. We think SpringBoard III given what we see Continental we think Spring III next year should really be driving a lot of our royalty volume growth. That’s our expectation. So, we’re pretty excited about that. Great asset, great operator.

Derrick Whitfield: That’s great color. And then for my follow-up, could you speak to what you’re seeing in the market from an M&A perspective at present, given the firming of commodity prices and perhaps also speak to your preference at present for capital allocation between the Anadarko and Haynesville mineral opportunities?

Chad Stephens: Well, we continue to focus on those two areas. We have great technical knowledge and have had great success in both those areas. So, we’re pretty opportunistic in both those areas, whichever comes first, best economics, best returns, best, we’ll evaluate an asset in whichever one if we’re competing, whichever one provides the best economics we’ll try to close on. Six months ago or three months ago, when gas prices were at the bottom, there was a really wide spread in the bid/ask between sellers and buyers. And we couldn’t — we were having a hard time transacting in the Haynesville. We’ve had a little bit of success acquiring over the last couple of months in the SpringBoard III area, but not so much in the Haynesville.

But then recently, we’ve had a lot of inbound opportunities in the Haynesville as well. And we’re really excited about a couple of opportunities we’re looking at right now. So, we think that the sellers have gotten a little bit of market therapy and have realized that they’re not going to be able to transact at what was $6 gas six months ago, and the strip today is $3.50, they’ve got to come down to be able to transact. So, we’re seeing that spread on the bid-ask narrow or come our way. So, we’re excited about the opportunities we’re looking at right now.

Ralph D’Amico: Yes. One other thing, Derik, I mean I think it’s important to note that regardless of the commodity price environment, we use the same, very rigorous approach to how we evaluate acquisition opportunities, right? And I think being patient works in our favor, right? And that’s what we’re seeing in the Haynesville today, that being rigorous with our evaluation and not being overly not doing deals just for the sake of doing deals, which has never been our approach, right, is paying off. And we’re seeing a lot of opportunities at prices that are significantly better than they were a few months ago.

Derrick Whitfield: That’s great. Thanks again for your time.

Chad Stephens: Thanks Derrick.

Operator: [Operator Instructions] Our next question is from Jeff Grampp with Alliance Global Partners. Please proceed.

Jeff Grampp: Morning guys.

Chad Stephens: Good morning.

Jeff Grampp: I understand you obviously can’t comment directly on the WhiteHawk better. But broadly speaking, as you guys think about larger M&A opportunities, what are the main boxes that you guys want checked off when evaluating those kinds of opportunities when thinking about whether it makes sense from a PHX and its shareholders’ perspective?

Chad Stephens: When you have a Board, the Board is obviously going to — they’re going to look at any and every opportunity that is in the best interest of the shareholders. We look at all opportunities, all requests, all inbounds with the same rigor and the same serious sincere effort. So, to protect those shareholders, we want to make sure that any proposal is NAV accretive and is in the best interest of the shareholders from that perspective. So, that’s always the — I guess the main hurdle is it the best deal, the right deal for our shareholders from a value perspective.

Ralph D’Amico: Yes. And Derrick, I mean Derrick, I’m sorry, Jeff. And Jeff, I mean, I think — and again, it always — and Chad has always said this, right, from day 1. It always starts with the rock, right? What is the quality of the rock, right? Is it in the core of the core? Regardless of the size of the deal, we’ve always evaluated every deal the exact same way. What is the rock quality for the operators on them? What’s the growth rate at which those assets are going to be developed? And is it accretive? We look at it the same way. And I think that consistency has always been what’s led to the success that we’ve had in terms of growing those royalty volumes over the last three years. I mean, we’ve grown that at over a 20% compounded annual rate. And I think that consistency is the key to our success in terms of what we’ve achieved on the royalty growth side.

Jeff Grampp: Great. I appreciate that. And for my follow-up, obviously, the natural gas market is pretty dynamic right now. What kind of assumptions as it relates to guidance are you guys making in regards to operators potentially ducking up wells maybe for early 2024. Do you view that at all as a material risk for hitting the 2023 full year guidance? Or just kind of any thoughts understanding that, obviously, it’s out of your control unitholder?

Chad Stephens: Yes, most of the — for 100% of the volumes we forecasted for this year are based on our existing base PDP production and wells that are already drilling or are being completed, and we have a pretty good idea of when they’re going to be put into sales. If you get into 2024 and there’s a little bit more risk around those volumes. But again, given the location of those assets, the footprint of where they are and the operators, we risk them and have a pretty good idea of what volumes are going to be coming on and what our volumes look like for 2024.

Ralph D’Amico: Yes, Jeff. I mean, I think that’s why it’s a range, right? So, we — that’s not a number, but a range, right? It takes into account the possibility of somebody doing something that they control and that we don’t control in terms of ducking up inventory, et cetera, et cetera. So, it’s all baked into our assumptions.

Jeff Grampp: All right. Thanks for the time guys.

Operator: Our next question is from Donovan Schafer with Northland Capital Markets. Please proceed.

Donovan Schafer: Hi guys. I’m juggling a couple of calls so apologies if any of this has already been asked. But the first question I have is with the challenging price environment for the quarter, it’s actually kind of nice to see how you still end up at like a breakeven kind of way I think it kind of highlights the business model in a positive way. Is this — and kind of looking back at historical performance when you had more working interest wells, it looks like maybe you didn’t have as much of that almost like downside protection, where you could — you just — you’re really just covering overhead yet and historically, you could have some pretty big GAAP net income losses. So, is this kind of representative going forward where now that you really — now that you’re more mineral and royalty interest, the cost burden really just becomes the overhead.

And if you can kind of size that properly and then do some hedging, is it — should we kind of see this as emblematic of floor by floor, I guess, I mean, in the future, if natural gas prices are really kind of what seems to be a bottom, should you be in this kind of position of still being able to be breakeven? Is that kind of the strategy and the thinking just looking to validate in that perspective here?

Chad Stephens: Yes. So, I think we started the business in January 2020, and we built the business around scale. And we have 20 employees, half our accountants back-office financial people do all the public filings SEC and the other half is technical people, and we evaluate five to six or seven deals a month. We’re evaluating 80 to 100 deals a year. We only do a few — a handful of those because, as Ralph said, the rigorous technical focus we apply to any acquisition, whether it’s a $100,000 deal or a $10 million, we use the same rigorous technical work. So, the business is set up for scale and we’re built to grow. So, every new deal we acquire and close on and bring the asset in-house, we don’t add G&A. The G&A stays the same. So, we’re built to grow. And yes, as we move forward and as we use our cash flow to acquire more assets, that G&A will become less and less of a burden and a breakeven will lower really overall.

Donovan Schafer: Okay. And then shifting gears a little bit. This might sound like a little bit of paranoia on my part, and it’s probably from my own experience, my first job out of college was the triaging the Marcellus Shale in Appalachia. And the Mountain Valley pipeline Congress, the Debt Ceiling Act, kind of greenlit that now the US Supreme Court has also kind of helped to greenlight that — and so — and I haven’t looked closely at the interconnections between the different — the various pipelines or anything. But it just makes me think about, are there any risks kind of in the midterm or longer-term kind of time horizon of lots of gas coming out of Appalachia and having — putting some downward pressure on natural gas prices.

Just trying to think about that and if there’s a — yes, like it’s such — it’s historically such a prolific gas basin, but you just couldn’t get the gas out of it with pipeline. So is there anything for us to kind of be mindful of in watching there? And what are you guys — how are you thinking about it? And how are you monitoring that?

Chad Stephens: Well, really to answer that question, you’ve got to look at the overall one, the US domestic natural gas supply and demand fundamentals. And then in that context of a global natural gas through all of the LNG terminals built around the world has become — Ralph and I were talking about this this morning, had become — it’s a fungible commodity. And for instance, in Australia, there were a couple of LNG terminals that the workers were going to strike, and that hurt the possibilities of LNG imports into Europe. So, European prices despite now natural gas prices in the US, Henry Hub is way up this morning. It’s up 6% or 7% this morning just because of news around the world that didn’t really have an immediate impact here, but that just shows you the fungible nature of natural gas today.

So, I don’t think Mountain Valley — to your question, Mountain Valley Pipeline is going to in any way materially impact the macro dynamics in the US. That pipeline goes to North Carolina. It’s going to serve kind of the southeastern portion of the United States. I think most of the — in the future, most of the growth in natural gas supply is going to come from the Permian Basin and the Haynesville. And as these — as I alluded to in my comments, as these LNG, they are under construction, these LNG terminals, the new ones come into service in 2025 at 6.5 Bcf a day of additional export capacity, which will mean the US will be exporting about 20 Bcf a day between 2025 of LNG. You’ve got the US natural gas decline is at 18% or 20%. So, you got to replace the decline first and now you’ve got to add another 6.5 Bcf of demand from LNG.

So you need more supply to feed just the obvious increase in demand besides what’s going to happen industrial-wise if we come out of this I don’t know if it’s a recession or nobody can decide whether we’re in a recession or not. But if the overall economy in the next couple of years includes you’ll get industrial demand, commercial demand and so I’m not that worried about any sort of too much supply for the most part, given the LNG export capacity that’s going to really balance the US natural gas macro.

Ralph D’Amico: And the — one thing to add, too, Donovan, is, I mean, I think if you think about the operate because, again, regardless of that pipeline, right, what is the intent that’s been communicated by the operators, right? And I think we talked about the sort of 3 key operators there. And in the Marcellus, right? What is their desire to grow versus the pressures that they face to focus on returning capital, right? I mean I think that’s the other piece of the puzzle that you have to think about, right? And I don’t know if and when that ever changes, right? But I think what we like about the Haynesville is that it’s more fragmented even from an operator standpoint, there’s a lot more private folks who are not as — they don’t wake up every day thinking about what does Wall Street think about return of capital, right?

So, they want to grow production, they want to take advantage of the market, right? And so I think that dynamic provides in the Haynes or provides a lot of opportunity for us going forward to continue to grow at a similar pace to what we’ve done over the last 3 years from a royalty standpoint.

Donovan Schafer: Okay, that makes sense. That’s actually a helpful perspective. And then last question, if I can squeeze one more in, is just when we look at the other, there’s certainly some much larger minerals or royalty focused companies out there. And they do — it seems like they get a premium valuation really probably driven by their size and scale. I think they seem to be a little bit more hands-off and approach. So, it seems like you guys could maybe — you can make the counterargument that may be a good multiple should be assigned to you as well because you’re doing a more proactive effort to kind of see where the drill that’s going to go. But leaving that aside, are there any you’ve made great strides in shifting from working interest to royalty interest.

Are there any other kinds of things you can do or that you plan to do or that you think explains that valuation gap that you can — where you can start to close it? Is it just a matter of growing and trying to get to larger and larger scale over time? I know that would take some time. But — or are there sort of other things you think or feel you can do that help kind of reduce that valuation gap?

Chad Stephens: So, we — that’s probably the question of the day. And we — every existing investor shareholder or new potential shareholders, it comes down to that question. They like the strategy, like they like the execution. They like the results we’ve achieved over the last three years, as I alluded to in my comments. And it just comes down to overall the daily float and the ability to get into the stocking out, we’re small. We need to get bigger. We know that, and we’re pedaling as hard as we can. In all these acquisitions, we’ve got some interesting things that we’re working on to address, as you say, how can we better address these various issues. And that’s — I think the real issue of the day is just our overall float and ability for larger investors who are interested to get in and get out. So, that’s — we’re working on that.

Ralph D’Amico: Yes. And Don, I mean, look, I think, look, multiple expansion is always good, right? But I mean, I think it’s also important to consider that at the pace that we’re going in terms of our growth rate and the expanding margins associated with all minerals, et cetera, et cetera, right? I mean there is value creation that we are always working on, right, that is not dependent upon closing the gap with where we trade relative to some of the peer group, some of the other mineral peer group out there. That’s the cherry on top, and we do think about it and we do try to behave in a way that’s going to compress that spread. But that’s not at the core of what drives value, right? It’s not just multiple expansion. It’s executing on the day-to-day, growing royalty volumes, growing cash flow, and you’re going to create value that way as well.

Donovan Schafer: Yes, absolutely. No, that makes sense. Okay, thank you guys. I’ll take the rest of questions offline.

Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to Chad for closing remarks.

Chad Stephens: Thank you, operator. Again, I’d like to thank our employees and shareholders for their continued support. I’d also like to note that Ralph and I will continue to expand our investor marketing activities over the coming weeks and months through a series of non-deal road shows and conference presentations aimed at expanding investor awareness. If you’d be interested in meeting, please don’t hesitate to reach at to myself, Ralph or the folks at Fink IR. We look forward to hosting our next quarterly call in mid-November. Thank you, and have a good day.

Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time and thank you again for your participation.