Q4 2023 PHX Minerals Inc Earnings Call

Participants

Stephen Lee; IR; FNK IR LLC

Chad Stephens; President & CEO; PHX Minerals Inc

Danielle Mezo; VP of Engineering; PHX Minerals Inc

Ralph D’Amico; CFO & SVP; PHX Minerals Inc

Nate Pendleton; Analyst; Stifel

Charles Meade; Analyst; Johnson Rice

Jeff Grampp; Analyst; Alliance Global Partners

Donovan Shafer; Analyst; Northland Capital Markets

Presentation

Operator

Good morning, and thank you for attending today's PHX Minerals December 31, 2023 year ended earnings conference call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to turn the call over to Stephen Li, FNK IR. Thank you. Please go ahead.

Stephen Lee

Thank you, and good morning. Thank you for joining us today to discuss PHX Minerals, December 31, 2023 annual results. Putting us on the call today are Chad Stephens, President and Chief Executive Officer; Ralph D’Amico, Senior Vice President and Chief Financial Officer; and Danielle Mezo, Vice President of Engineering. The earnings press release that was issued yesterday after the close is also posted on PHX 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 expectation 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 PAG 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 Securities and Exchange Commission.
Statements made during this call are based upon information known to PAGP as of today, March 13th, 2024, 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 that, I'd like to turn the call over to Chad Stephens, PHX's Chief Executive Officer. Chad?

Chad Stephens

Thanks, Stephen, and thanks to all of you on this call for participating in Paychex's December 31st, 2023 fiscal year end earnings conference call. We appreciate your interest in the Company. I am pleased to report another strong year for PHX. We delivered a 23% increase in royalty volumes expanded our 2P royalty reserves by 12% and generated significant operating cash flow as well as net income. This performance enabled us to increase our quarterly dividend by 33%, reflecting our confidence in our business strategy and ability to continue to generate consistent cash flow.
I'm especially pleased with these accomplishments despite another challenging year in the natural gas market. This demonstrates the value of our risk mitigated business model and as we can deliver strong profitability even during a period of challenging pricing during the past year, PHX deployed more than 30 million to acquire nearly 2,400 net royalty acres in the Haynesville and SCOOP plays the acquisition of these high-quality minerals.
We'll further drive our royalty volumes, margin expansion and cash flow over the course of the next two to three years. We continue to maintain modest leverage, backed by a strong balance sheet and our M&A activity is built on proven processes focused on high quality minerals that can convert to production quickly.
With our strong financial position and a highly focused acquisition strategy, we are poised to unlock value for our shareholders as the commodity pricing environment improves in the fourth quarter, PHX continued to experience robust activity on our mineral acreage, which Daniel will discuss in more detail in a moment, we are encouraged by the quarter's well in progress inventory, which stands at an all-time high for the Company, including docks, whips and permits.
The number of rigs present on PHX and its surrounding acreage remained strong. This provides good visibility for our production growth in the coming quarters. I direct you to our latest IR slide deck posted last night that explains in detail the pace of operator development on our minerals and our inventory of undrilled locations.
It is this inventory that fuels the development that drives our year-over-year royalty volume growth as natural gas prices touched a four year low last month, we began to see natural gas focused E & P's, begin reducing budgets and deferring well completions into the future awaiting better prices.
The latest being EQT, which announced two weeks ago, they are curtailing one BCF a day of production, at least through March, and CNX yesterday announced they are deferring completion of a number of wells and curtailing their current production until natural gas prices improve. Despite slower industry-wide development activities, we are expecting a 4% increase in royalty volume and 2% increase in total corporate volumes in 2020.
For speaking to the quality of our assets, please reference our press release and corporate presentation for our full 2024 guidance with reduced drilling and production activities just discussed and the expected increases in demand from new LNG export facilities coming online in '24 and '25, we believe this will balance the market and improved commodity prices as we move forward.
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 year ended December 31st, 2023, total corporate production decreased 3% from the year ended December 31st, 2022 and for the quarter ended December 31, 2023, increased 4% from the December 31, 2022 quarter. Recall that calendar 2020 to include 100% of the working interest volumes in the Arkoma and Eagleford, which we sold in January of 2023 pro forma for the divestiture, we would assume an increase in total corporate volumes on an annual basis.
As we move forward, it will be easier to compare period-over-period volumes as we are effectively done with our working interest divestitures. Working interest volumes now represent only 10% of total corporate volumes. This will become an even smaller percentage as working interest production content continues to decline and royalty volumes continue to grow 79% of our last quarter's 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 10 annual royalty production for 2023 increased 23% to 8,123.
And then CMP and quarterly royalty production increased 19% from the year-ago quarter to 1,946, an MCFE, respectively. The volume growth over the last 12 months is a result of the successful execution of our mineral acquisition program. It is important to note that as a mineral holder, we do not control timing on well development. So there can be some volatility volatility on a quarter-to-quarter basis.
And volumes associated with our business model are better evaluated on a rolling 12 month basis, production volumes associated with our non-op working interest decreased 59% for the year due to the sales of our Arkoma and Eagleford assets and decreased 49% compared to the year ago quarter. For the same reasons, note that we are not participating in new working interest wells, so our non-op working interest volumes will continue to decrease due to its natural decline rate relative to our total volumes and become less relevant to the business.
Royalty volumes represented 87% of total production during our December 31, 2023 quarter and 87% for the full 2023 calendar year. As recently as calendar year 2021, royalty volumes were only 45% of our total volume as we have grown our royalty volumes and divested of our non-op working interest. The quality of our asset base is enhanced with improving margins, which Ralph will talk about shortly.
We have high-graded our asset base, which provides a much stronger collateral base with which to support our bank credit facility. Our total proved reserves decreased 11% to 71.2 BCFE with a PV-10 of $110 million at SEC pricing, primarily as a result of the sales of our legacy non-operated working interest assets, we continued to execute our corporate strategy to exit this portion of our business, which we have consistently messaged in 2020.
As we have divested of these non-op working interest assets, we have redeployed the proceeds into our mineral acquisition program, which have contributed to our improved margins and inventory of undeveloped drilling locations.
At December 31, 2023, our proved royalty reserves increased 9% to 57.8 BCFE with a PV-10 of $97 million at SEC pricing and our undrilled development inventory mentioned earlier by Chad and which we categorized as probable reserves increased 13% to 99.6 BCFE with a PV-10 of $157.9 million. These undrilled probable reserves are undeveloped locations that have been identified by rigorous geologic and engineering analysis and offset existing producing wells.
The only uncertainty is regarding the timing of development by the operator, given that our minerals are located in the core of our focus areas with top-tier rock quality under reputable and highly active operators. We are confident these undeveloped locations will ultimately be converted to producing, resulting in increasing royalty volume and robust reserve release.
During the quarter ended December 31, 2023, third party operators active on our mineral acreage converted 46 gross or 0.098 net wells in progress or with two producing wells for the full 2023 calendar year. Third party operators active on our mineral acreage converted 314 gross or 1.034 net wells to producing wells compared to 313 gross or 1.15 net in calendar 2022.
The majority of the new wells brought online are located in the Haynesville and the SCOOP. We are very pleased with our well conversion rate, particularly given the challenging nature, given the challenging natural gas macro environment, which includes some operators deferring bringing completed wells online until there is an improvement in natural gas prices.
At the same time, our inventory of wells in progress on our minerals, which includes debt wells being drilled and permits filed, increased on a net basis to 263 gross or 1.295 net wells compared to the 278 gross or 1.09 net wells reported as of September 30, 2012.
The continued track record of well conversions and replenishment of the inventory of wells in progress or which shows the repeatability of our business strategy. In addition to our width, we regularly monitor third party operator rig activities in our focus areas and observed 14 rigs present on key object mineral acreage as of February 12, 2024. Additionally, we had 57 rigs active within 2.5 miles of PACE-X ownership in summary, we continue to see steady development in 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.

Ralph D’Amico

Thanks, Danielle, and thank you to everyone for being on the call today. As a reminder, we changed our fiscal year in December of 2022 from a 12 month year ended September 30 to December 31 of fiscal year. The 10-K filed yesterday reflects the new December 31 year end for our fourth quarter ended December 31st, 2023.
Natural gas oil and NGL sales volumes decreased 4% to $8.5 million compared to the prior sequential quarter, due primarily to a slight decrease in production volumes of 4%, partially offset by a modest 1% increase in realized prices. For the full year 2023 calendar year natural gas oil and NGL sales revenues decreased 49% to $36.5 million.
Breaking down this number, further, royalty production volumes actually increased 23%, offset by a 59% decrease in working interest production volumes compared to calendar 2022, primarily due to the sale of the Eagle Ford and Arkoma properties, which we closed in January of 2023.
Additionally, realized commodity prices decreased 47% on an MCFE basis to $3.90 in 2023 compared to $7.33 in calendar '22. Realized natural gas prices average for the quarter ended 20 -- December 31st, 2023, or $2.53 per MCFE for the full 2023 calendar year. Realized natural gas prices were $2.61 per MCFE. Realized oil prices averaged $78.66 and $76.76 per barrel for the quarter and full year, respectively.
NGLS averaged $24 and $22.18 per barrel for the quarter and full year, respectively. Realized hedge gains for the quarter were $275,000 and $2.6 million for the fourth quarter and the full year, respectively. For the quarter and full calendar year, respectively, approximately 44% and 46% of our natural gas, 36% and 42% of our oil and none of our NGL production volumes were hedged at average prices of 335 and 353 per MCF and [74.91 in 70.96] per barrel, approximately 50% of our anticipated full year '24 natural gas production at the midpoint of our guidance has downside protection at approximately $3.45 per MCF on the oil side, approximately a third of our anticipated production at the midpoint of our guidance has downside protection at approximately [65 15] per barrel.
We structure our natural gas hedges using both swaps and costless collars, which means we also have upside exposure on certain volumes to the $45 range. Our current hedge position is available in our recently filed 10-K.
Total transportation gathering and marketing increased 36% on a sequential quarter basis to 946,000, primarily due to a large percentage of new volumes coming from Cost bearing leases compared to the prior quarter when a higher percentage of the new volumes came from cost free leases for the scallop for the full calendar year.
These transportation expenses decreased 40% to $3.7 million, primarily due to the sales of our higher cost working interest assets in the Eagle Ford and the Arkoma production and ad valorem taxes increased 4% on a sequential quarter basis to approximately 457,000 due to higher production in Louisiana, which applies its tax rate production volumes and not revenues for the full calendar year.
Production and ad valorem taxes decreased 42% to $1.9 million, again primarily due to the sales of the higher-cost working interest assets in the Eagle Ford and Arkoma. LOE associated with our legacy non-operated working interest wells decreased 12% on a sequential quarter basis to 319,000. For the full calendar year, LOE decreased 57% to $1.6 million, again due to the sales of those higher cost working interest assets.
Cash G&A was up 11% to $2.5 million compared to the prior sequential quarter, primarily due to normal year end professional fees. For the full calendar year, cash G&A decreased 4% to $9.5 million, primarily due to higher efficiencies associated with our cost control efforts.
Adjusted EBITDA was $4.5 million in the quarter ended December 31st, 23, as compared to $6.3 million in September 30, 2023 quarter for the full 2023 calendar year, adjusted EBITDA was $22.7 million compared to 26.7 million in calendar '22. The 15% decrease in annual EBITDA despite an actual 47% decrease in realized commodity prices and the sale of the two working interest assets in January of '23, net income for the quarter was $2.5 million, or $0.07 per diluted share compared to net income of $1.9 million, or $0.05 per diluted share for the prior sequential quarter.
For the full calendar year 2023 net income was $13.9 million, or $0.39 per diluted share compared to net income of $17.1 million or $0.48 per diluted share. And we had total debt of $32.75 million as of December 31st, 2023, compared to $33.3 million. As of December 31, '22, our debt to trailing adjusted EBITDA was 1.51 0.45 as of December 31, '23. Since implementing our new minerals only strategy in 2020, we have high-graded our asset and improved our cash margins while reducing the leverage metrics of the Company are now high-quality undeveloped location and inventory will serve as a catalyst to grow reserves and royalties in the future.
Our strategy to manage leverage is influenced by, by our view of the macroeconomic climate and the opportunity set before us with projected leverage in the most draconian economic environment never to be above 2.0 times. Our hedge position, as discussed above, helps protect our strong balance sheet while providing upside exposure. We manage the risk based on a mid price cycle, assuming a low price range for natural gas of $1.75 to $2.50 and a high price range of $4.5 to $5.
With that, I'll turn the call over to Chad for some final remarks.

Chad Stephens

Thank you, Ralph. As I commented in my opening remarks, we are very pleased with our achievements during 2023. Despite the challenging macro environment, the dramatic collapse in natural gas prices has had a material impact on natural gas focus, E & P's development activities, especially in the Haynesville and Marcellus as a muscle mineral operator. We will also be impacted by this.
However, our business strategy is to acquire minerals in the core of our focus area with near term development potential. This can be seen by our expected royalty volume growth in 2024 despite the various headwinds Put another way, we are structured to generate solid and consistent consistent cash flows even during challenging times due to our focused risk mitigated approach with a strong and conservative balance sheet we will continue to be proactive in our mineral acquisition, further enhancing shareholder value in the future.
To recap our progress and achievements, we have built a portfolio of new high-quality assets with improved cash margins over the last four years, a mineral interest in a deep inventory of undeveloped drilling locations that has and will continue to drive increasing royalty volumes and cash flow. Daniel talked earlier about PV 10 value of our proved and probable reserves. In this regard, I direct you to slide 7 of our newly posted IR presentation that reflect a total two P PV-10 reserve value at current Nymex strip prices of close to $300 million. If natural gas prices return to a more normal mid price cycle, that PV-10 value would be dramatically higher.
We also show in the appendix of our IR presentation, the timing of new LNG export capacity from the Gulf Coast once in service. This will help bring natural gas prices into that mid price, possibly upper range and increase our royalty production volumes and cash flow since 2020. And to date, we have spent $130 million, acquiring our current mineral position in the SCOOP and Haynesville PHX's current enterprise value is roughly $145 million with us reserve value.
I mentioned earlier of at least $300 million. We recognize the disconnect between these facts and our current stock price. We continually work every day searching for the best way to reward our shareholders and close this conundrum by increasing shareholder value. The company continues to make notable progress only through the hard work of our dedicated employees and the keen wisdom provided by our Board. So in closing, I thank them for their efforts. We look forward to keeping you updated.
This concludes the prepared remarks portion of the call. Operator, please open up the queue for questions.

Question and Answer Session

Operator

Thank you. Ladies and gentlemen, the floor is now open for questions. (Operator Instructions)
Nate Pendleton, Stifel.

Nate Pendleton

Good morning, Steve. Greg, provide some color on what you're seeing on the ground regarding wells being turned to production in the Haynesville and how have you incorporated that into your 2024 guidance?

Ralph D’Amico

It's Ralph. Yes. I mean, you know, obviously, everybody seen the announcements from Chesapeake and some others about slowing down the pace of development, right? We continue to see activity where in some cases they'll permit a well where they will bring a rig on location, set casing on and get the surface ready and then sort of move that well off location and move it to someplace else, right?
So to us, that really indicates that again, they're taking a temporary pause, right? But they have every intention of at some point. And when a better pricing environment of circling back end and finished drilling and completing those wells and putting them on sales, we've also seen on a few wells where the wells actually being completed. You can see the report on that on the Louisiana State website. You're just it's just a matter of the operator and not wanting to turn the well on and get all the flush production sold at current prices.
Right. So you know, we think as prices sort of get back approaching $3 right. And if you follow the curve, that's probably towards the second half of this year, those volumes will start coming back online. And so our our guidance and sort of what we anticipate is incorporates all of that.
Right. So you're still seeing a pretty strong conversion number is just it just more geared towards the second half of the year, then it is different than the first half of the year.

Nate Pendleton

Got it. I appreciate the detail Ralph. And can you share any updated thoughts on future prices and specifically for natural gas, given that it seems you've added hedges during the quarter for 2025 and 2026?

Ralph D’Amico

Yeah. I mean, obviously, we continue to be optimistic on on gas prices. I mean, in the long term, it is the key. It is the key on fuel for energy transition. And certainly these LNG projects that and despite what the government announced in terms of slowing down permitting that slowdown in permitting doesn't affect any of these projects that are coming online in the next 18 months plus, right? So we think those volumes are going to come online and or those projects will come online and they're going to need new volumes.
Having said that, you know, when you look at the forward curve and you see three $54 odd during winter, right? Our view is we want to lock in some of those prices, right? Nobody has a crystal ball and you know. And so if we lock down a good percentage of our volumes at that price. We think those are reasonable prices.
And if prices go above that, you know, it means that development is going to be accelerated on our other production on our other locations, which are not hedged at this point since they're not producing, right. So to us, it's a it's a nice balance of locking in attractive pricing and still getting, you know, still having a lot of exposure to higher prices if they go above $4.

Chad Stephens

And Nate, this is Chad. So just a couple of data points for you. In December, gross US domestic natural gas production hit an all-time high of 105 BCF a day today with the curtailments that I discussed in my comments. That's right now, about 100 BCF a day gross and going down, given all the announced curtailments cutbacks, let lack of activity CapEx cuts.
So that's going down. And then with L & G all of the known projects that are in construction as we speak and targeted to be in service toward the end of 24. But but much more materially in the first and second quarter of 2025 at nine BCF per day of additional LNG export capacity on top of the 13 BCF a day that's existing.
So we're going to have over 20 approaching 2022 BCF a day of LNG export capacity by mid 2025, which we feel like we will more than balance the market at a at a gross production of 100 plus or minus a little bit 100 BCF a day and should should lift prices into what we talked about reference kind of a mid mid price cycle, four for safety may be possibly $5 MCF Nymex. So we're optimistic that that mid '25, the market's going to be balanced.

Nate Pendleton

Yeah, thanks for taking my questions.

Operator

Thank you.
Charles Meade, Johnson Rice.

Charles Meade

Good morning, Chad, to you and your whole team there. I appreciate some of the your recitation of some of the public operators have done. You'll see announcements recently, but also ECT at Chesapeake. And I suppose this is a little bit along the lines of the previous question. Can you give us insight into either what you into what the private operators are in the Haynesville are doing either either from a from what you can it kind of observed through regulatory filings or perhaps if you've had any communication from from those operators?

Chad Stephens

Yeah, we have a lot of minerals underneath eight on, which is a private private equity-backed company based in Dallas. And they were really the one that back in 2018, 2017 and 18 really unlocked and the technology to make the Haynesville than what it is today, and they really slowed slowed their roles. So to speak, I'm not sure the number of rigs they dropped, but they really they really cut back their completions, curtailing their production, just like the public operators. So we're seeing a similar behavior on the private equity just based on a funds, what they're doing and what we see they're doing.

Charles Meade

Got it. That's helpful. And that's a little little more difficult part of the market for us to observe. And then I was going back to the to some of your prepared comments, but that you're still going to grow royalty volumes and we know that the Haynesville is flat to down. And so the other pieces of it implies or I think it implies that you're still seeing a lot of activity on your SCOOP and STACK assets.
So I'm wondering if you could talk about that side of the of that side of the asset portfolio, what you're seeing with trends up on operators there, whether you're more more in the north, more in the South, what kind of targets and any one in particular, who's who's really ramping activity?

Chad Stephens

Yeah, and Charles to speak to that specific, I do want to comment. It's an interesting dynamic in the Haynesville over the year over year from this time last year in March, when you think about it, January, February, March of 2023, gas prices fell off a cliff and it was really beginning in March that the rig activity have really collapsed.
But if you look at rig counts in the Haynesville, this time last year was over 30 in excess of 30 on a proximal to our we follow rigs in around that area and it was in excess of 30 rigs within a couple of miles of our minerals. Our activity in today that's dropped by about a third. So around a little over 20 rigs in and around our place.
Then you look at the rigs on our minerals and it's relatively flat year over year. So our actually percent market shares, we call it, it's actually gone up because the gross rig count's gone down. But that rig activity on our Minerals has gone up and that just speaks to the quality. So that's one reason we we will have we will report a modest year over year increase in our natural gas royalty volumes because of that that also in the there's two areas of the SCOOP that we focus on.
One of the more active operators is Continental on there. They're constantly they're very efficient in the way they filed permits. And within few weeks of filing a permit, they get a rig on and start drilling a well. They're very efficient that way and we follow them. So they continue to run a couple of rigs in the SCOOP areas that we're focused on. And so we're again, because they're so consistent and efficient in their execution implementation execution. We're confident that with their behavior with these two rig count around our minerals, that that's helping drive the year-over-year royalty volume growth at least a modest single digit for this year, given where natural gas prices are.

Charles Meade

Got it. That's helpful detail. Appreciate it.

Ralph D’Amico

The one other thing. One quick thing, Charles. I mean it's interesting and in the Mid-Con, right, I mean, aside from all the private guys like Continental 89 citizens charter Oaks, newborn, all those guys are currently drilling on us, but there's a number of public guys are also drilling on us today. They don't like to advertise it because they also have assets in the Permian and they prefer to talk about their Permian assets.
But, you know, the way we look at it is yet the wells they're drilling on our minerals in Oklahoma have to compete on a cost on a return standpoint to the Permian. Otherwise it wouldn't be drilling it so they may not talk about it, but they sure are spending money and drilling those wells and we benefit from that.
And I think that's something that's generally overlooked just because you know, they choose not to talk about the SCOOP and STACK and other areas of Oklahoma, but that's a factor that does happen. We pay attention to, and it is beneficial to us.

Charles Meade

Thank you, Ralph.

Operator

Thank you.
Jeff Grampp, Alliance Global Partners.

Jeff Grampp

I had a capital allocation question for you on. As we look into '24, given your hedge book as well as the high margin royalty model, it seems like you guys will still have a decent chunk of some discretionary free cash flow post dividend, what's the appetite for acquisitions in this market? And how would you kind of compare contrast or balance presumably some lower pricing along with making sure you have gone over your skis from a liquidity and leverage standpoint?

Ralph D’Amico

That's a good question, Jeff, on Yes. Look, I mean, I think you can look at we can look at last spring as sort of a, you know, short of And as an example, what we did last spring, natural gas prices also dropped, right. And and there was a big bid-ask spread between what sellers of minerals we're looking for and what we are willing to pay for them.
And so I think if you look at this year, it's probably going to be something fairly similar. We've always been very disciplined and we don't change our underwriting economics or metrics or the way that we look at acquisitions regardless of the commodity price environment. And so if prices if what sellers are willing to sell minerals for if it comes down, right, then great.
We can execute on that. If it doesn't come down, what we generally do is what we did last year, right? We continue to sort of build liquidity and wait for for prices to come our way. The good news is on, as Chad mentioned, we have an inventory of over 2000 gross locations that are very high-quality, right? So and you know, that allows us to still grow our reserve volumes or in our royalty production volumes right without having to rely on, you know, on acquisitions in the near term, right? So I would say that's the plan, but we're going to be patient. And if pricing makes sense, we can acquire minerals. And if they don't, we'll build liquidity, pay down debt and eventually the market will reach equilibrium again, just like you did last year.

Jeff Grampp

Okay. I appreciate those details for my follow up on the new slide deck, it looks like And Mike, in your slide calling out the Texas side of the Haynesville and some recent results there I'm just wondering if you guys now consider that core and maybe that's and maybe that's not new. You guys just wanted to shine a little bit more of a light on it, but is that an area that you guys are spending more time on than, say, 12, 24 months ago?

Ralph D’Amico

No, we've always spent time in that area right now. I think the purpose of this slide was to kind of show that, particularly with the announcement that EON was dropping rigs and under that AMI that they had with that with Blackstone, right. We wanted to be able to do with the slightest, differentiate the area of the Texas side of the Haynesville in which we own minerals to what you know, what that IAMI. area was right. And what you can see on here is that it continues where we are. It continues to be actively developed, including, you know, a current development by a fund regardless of pricing in this area. So we were just trying to differentiate it versus what we're doing versus what's out there in the out in the marketplace today.

Chad Stephens

And to be clear, Jeff, the fee based on Blackstone AMI is along the river there between Angelina and Nacogdoches County, where you see a few horizontal wells down there versus where our Green Minerals are up in St. Augustine and a little bit of Eastern Nacogdoches. We're a lot of the rig activity has remained .

Jeff Grampp

Great I appreciate those details. Thanks for the time.

Operator

Thank you.
Donovan Shafer, Northland Capital Markets.

Donovan Shafer

Hey, guys. Thanks for taking the questions. I first want to ask about 2024 guidance. So in the last few calls, you've talked about how your now that you've mostly completed the conversion of royalty on the from working interest now to you know, overwhelming majority being royalty on the interest and that now that that conversion has been physically done, you'd be in something like a return to growth mode on growing the royalty on the production at a double digit rate.
And I think even in some cases you alluded to continuing the historical growth rate and which have been closer to 20% for the royalties, you obviously have the guidance at the midpoint is 4% year over year growth for royalties and 8% at the high end of that range. And that's of course, you know below I mean, that's a double digit and Chris, below 20%, a lot of things are happening, certainly in the macroenvironment. We've already talked about a lot of that.
But on I'm just curious if you could talk if you can talk to is the earlier views and perspective sort of still hold? And if it's really just been a matter of change in development activity or that pace and maybe another way to put the put it would be and, you know, if we hadn't seen such a dramatic decline in natural gas prices in the second half of January, would you do you think would the guidance more likely have been somewhere you would think it would have hit that double digit growth rate at a midpoint or something closer to 20%. I'm just trying to reconcile the past comments with current situation and if the past comments still hold, but for a more normal environment?

Chad Stephens

Yeah I mean, it's a bit earlier because this is Chad. I'll answer first and then let let the others maybe follow on. So again, to be clear, we've consistently messaged this. There's two different dynamics at play when we talk about volumes. One is corporate volumes. Corporate volumes have two components, non-op working interest and royalty. And we've constantly messaged and focused on our royalty only volume growth because we weren't we weren't doing anything on non-op working interest. We were divesting of non-op working interest, redeploying proceeds using our cash flow and buying royalty mineral interest and royalty in these two areas.
So when you look at our Investor Relations slide deck, we highlight organic royalty production growth. We've talked about it in our quarterly 10-Q's and year end year over year. It's all about loyalty because we're not we're not doing anything investing, any capital, allocating any capital. So non-op working interest so that's why we've continued to highlight and feel good about double digit royalty volume growth, whatever period you're comparing now to what you just talked about and what we've been discussing with natural gas prices and cash prices today are below above 50, I think strips above 65% than the cash prices. What buyers are actually negotiating for buying on a daily basis is below about 50. So if it's bad out there. And so the E & P's Chesapeake, EQT, everybody's cut back CapEx, cut back rigs, curtailing production. And so we have taken that into account, knowing what we know, we've taken that into account for our 2024 guidance and pull way back on that double digit growth to have that modest single single digit growth based on what we know is going on in the Haynesville, our operators in the Haynesville and the operators in the SCOOP/STACK. So we feel pretty good about that little single digit, 4%. What we're talking about if we hit the high end of that, great. But we feel really good about that midpoint.
Rafael, if you want to add to that or?

Ralph D’Amico

Yeah I mean, I you know, I mean, we don't operate in a vacuum, right Donovan, right? So if operators are if you look at what the gas guys are saying flat to down year over year, mostly down year over year.
Right I mean, we're certainly not immune to it in a CAD3 pricing environment, right. You know whenever that comes back or if we were here today, I think that historical growth rate based on the pace of development and the number of rigs that those operators would be running? Yes, we would go back to what we've averaged over the last over the last three years.
Right But that is, you know, dependent on what the operators do, which is dependent upon what natural gas prices do. So you know to answer your questions? Yes, if you have $3 price and operators are drilling at a similar rate. Yes, our growth would return to what we've historically been able to achieve over the last three years.

Chad Stephens

Not only royalty volume growth would move back up into that double-digit range, which would then drive higher cash flow, cash flow per share and then PV10 reserve value going up, I mentioned as well.

Donovan Shafer

Yes, yes. And I know there's kind of like a there's sort of a stacked layers of variables that would drive upside. So that's great. And then as a follow-up, I want to ask I think I asked on the last call about this, but kind of just looking for an update here on the issue of associated gas coming out of the Permian or potentially other basins where in the current natural gas price environment, the gas focus drillers are not they know they have an incentive to slow down.
So oil prices are still at a healthy level, you know, kind of bouncing around or kind of close to $80 a barrel. So more oil-focused production continues and that's going to get associated gas. I know there's a pipeline that's going to as you bring more of the Permian gas to markets where you sell your gas and there's that should up with LNG capacity coming online. But just curious if we can get any update there between the last four months or so since the last call.

Chad Stephens

So when you again when you look at kind of a US natural gas market and the supply and demand dynamics, there's kind of really three main areas that are driving the overall growth in natural gas supply. One, Marcellus, it's pretty much right now as we speak camps, there's no more capacity coming out of the basin, all the pipelines are full.
So as those operators announce their CapEx budgets year over year, everything all their production announced production's relatively flat. And as EQT has indicated they're going to actually be curtailing. But overall, there's no new material volumes coming out of the Marcellus to feed increase in demand for LNG.
Then you've got the Haynesville, which is a huge growth year over year and can grow at a pretty fast clip with those big wells that are being drilled throughout the overall Haynesville basin and then recently announced as you alluded to in the Permian associated gas, Kinder Morgan has a new project there. It's actually being built as we speak and is going to add half a BCF a day of supply of associated gas.
Other than that, most of the other or all the other, our pipelines coming out of the Permian Basin are pretty much full. So you're only having a half a BCF a day of incremental increase to be in service by the end of the year or early first quarter of 2025. With this, all this new demand for LNG demand coming. So that's again why I feel confident that overall on the market will be balanced first quarter to mid 2025 and pull pull prices up and support support prices over the next 24 to 36 months.

Donovan Shafer

Okay. Great. That's helpful. And if I can just squeeze one last question and I want to ask about I believe it delivers an inflation Reduction Act, but there is a proposal of a fee on methane. I kind of forget where we are in like the rulemaking process are those final numbers have been established there or not. But I'm curious if you guys have done any analysis there, if it's something you've been following closely at all as to whether there is a fee.
And is that at the state level where it hasn't been worked out, whether that's something that could be borne by the royalty interest owners or if it's kind of a settled, you know, it's already settled that that would all be working interest and royalty interest. And as you think there could be an impact on just the overall economics of natural gas with nothing in place. Any color there would be helpful.

Chad Stephens

So the two subjects that I tried to follow at least generally, so it's pretty complicated one to a carbon tax, so to speak. And there is a carbon market out there for companies who want to be neutral that are high emitters. So they're buying they're buying carbon credits in the carbon tax market trying to balance their emissions, but we're not an emitter. So we don't we don't worry about that. So to speak, as a mineral owner the methane fee, is that still in a legislative discussion?
So it's hard to understand who would pay and how we would work with the mineral owner be burdened by it. It depends upon how the oil and gas lease rates and what sort of fees that the operator can pass through to the mineral owner through a deduction on the royalty rates that they're paying. So it's it's so early in the game there. I it's hard to so to really determine what the impact would be for a royalty owner.

Donovan Shafer

Okay. Okay. That's helpful. I think you guys will take the rest of my questions offline.

Operator

Thank you. At this time, I'd like to turn the floor back over to Mr. Stephens for closing comments.

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 specifically, we will be participating in the KeyBanc virtual minerals Conference on March 26, the Alliance Global Virtual Energy Conference on April 10 and the Stifel Cross Sector Insight Conference that will be hosted in Boston on June 4 and 5, if you'd should meeting at one of these events at any time, please don't hesitate to reach out to myself, Ralph or the folks at fig IR. We look forward to hosting our next call in early May to discuss our first quarter 2024 results.
Thank you.

Operator

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.