PHXE-P

Phoenix Energy One, LLC - 10-Q Summary (Q3 2025)

Business Context and Reporting Period

This Quarterly Report on Form 10-Q covers the period ended September 30, 2025. Phoenix Energy One, LLC (formerly Phoenix Capital Group Holdings, LLC) is an oil and gas company focused on acquiring royalty assets, non-operated working interests, and operated leaseholds. The company operates primarily in the Williston Basin, Uinta Basin, Permian Basin, Denver-Julesburg Basin, and Powder River Basin. In September 2025, the company completed an offering of Series A Cumulative Redeemable Preferred Shares (PHXE.P) and amended its Fortress Credit Agreement to increase borrowing capacity.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 220.2% in Q3 2025 compared to Q3 2024, driven by a 375.5% increase in product sales from direct drilling operations (PhoenixOp) and the introduction of purchased crude oil sales ($40.4 million) which did not exist in the prior period.
• Profitability: The company returned to profitability, reporting net income of $8.5 million in Q3 2025 compared to a net loss of $11.3 million in Q3 2024. This turnaround was driven by increased production volumes and revenue, partially offset by higher interest expense ($38.8 million vs. $26.2 million).
• Capital Expenditures: Net cash used in investing activities increased significantly to $606.0 million for the nine months ended Sept 30, 2025, compared to $274.2 million in the prior year, reflecting aggressive drilling and completion activities.
• Debt Structure: Total indebtedness grew from $987.9 million at year-end 2024 to $1,405.8 million at Sept 30, 2025. This includes a $400.0 million balance under the Fortress Credit Agreement and significant issuances of unregistered debt offerings.

Guidance, Outlook, and Risks

• Capital Requirements: Management estimates a need for approximately $730.0 million to $830.0 million in capital expenditures over the next 12 months to fund drilling operations. The company expects to raise additional capital through debt and equity offerings to meet these needs and service debt obligations.
• Commodity Price Sensitivity: The company's business plan assumes average oil prices of $71.98 per barrel. Recent market prices have fluctuated below this assumption (e.g., ~$60.98 per barrel in late October 2025). Sustained lower prices could reduce cash flows and necessitate adjustments to the capital plan.
• Liquidity Risk: The company reported negative working capital of approximately $222.0 million. Continued operations depend on the ability to obtain financing or achieve profitable operations to service liabilities.
• Internal Controls: The company disclosed material weaknesses in internal control over financial reporting, including inadequate separation of duties and lack of testing over accounting systems. Management is implementing remediation efforts.
• Subsequent Events: In October 2025, the company amended the Fortress Credit Agreement to add a $350.0 million term loan facility (with $50.0 million drawn) and paid the first quarterly distribution on Series A Preferred Shares.

Investor Verification Checklist

• Debt Covenants: Verify compliance with the Fortress Credit Agreement financial covenants (leverage ratio, current ratio, asset coverage), noting the waiver of default on the current ratio obtained in October 2025.
• Capital Raise Pace: Monitor the company's ability to raise the estimated $658.9 million in additional capital required through 2028 to develop reserves and service debt.
• Production Volumes: Track the ramp-up of PhoenixOp's direct drilling operations and the number of producing wells to ensure revenue growth targets are met.
• Commodity Hedging: Review the effectiveness of the company's hedging program (approx. 9.0 million Bbl hedged) in mitigating downside risk from oil price volatility.
• Restatement History: Note the history of financial statement restatements (2022-2024) and monitor the progress of remediation efforts regarding internal controls.