Phoenix Energy One, LLC

Phoenix Energy One, LLC: Unpacking the Annual Report

Considering an investment in Phoenix Energy One, LLC? This summary provides a clear, jargon-free look at the company's financial health, operational achievements, and strategic direction over the past year. We've distilled the key numbers and insights to help you make an informed decision.

Executive Summary & Key Highlights

Phoenix Energy One delivered a strong performance in the past fiscal year, marked by significant growth and strategic financial management:

• Robust Financial Growth: The company achieved 25% revenue growth, reaching $550 million, with net income rising 40% to $120 million.
• Increased Production: Phoenix Energy One boosted average daily production to 35 thousand barrels of oil equivalent (MBOE/d), driven by successful drilling programs.
• Strategic Hedging: The company proactively managed commodity price risk, hedging 60% of anticipated crude oil production and 70% of natural gas production through 2026.
• Optimized Capital Structure: Phoenix Energy One successfully amended its Fortress Credit Agreement in January 2026, extending maturities and improving financial flexibility.

Business Overview: What Phoenix Energy One Does

Phoenix Energy One operates as an independent exploration and production (E&P) company, primarily acquiring, developing, and producing crude oil, natural gas, and natural gas liquids (NGLs). The company engages in two main types of activities across its diverse portfolio:

• Mineral and Royalty Interests: Phoenix Energy One owns rights to a share of production from specific lands, receiving a percentage of revenue without incurring operational costs or responsibilities. This provides a stable, lower-risk income stream.
• Operating Interests: Here, Phoenix Energy One actively manages and operates wells, taking on the full scope of exploration, drilling, and production. This allows for direct control over operations and potentially higher returns.

The company operates across several prolific North American energy basins, including the Permian, Denver-Julesburg (DJ), Powder River, Marcellus, Williston, and Uinta Basins. This geographic diversification mitigates regional risks and allows Phoenix Energy One to capitalize on varied resource plays. For instance, its Permian assets are largely oil-focused, while the Marcellus provides significant natural gas output. Last year, average daily production reached 35 MBOE/d, and proved reserves are estimated at 150 million BOE.

Beyond core E&P, Phoenix Energy One also operates a water management segment, providing critical services like produced water disposal and freshwater sourcing for its own and third-party drilling operations. This segment not only supports its primary business but also generates additional revenue, contributing approximately 8% of total revenue.

Competitive Position

The oil and natural gas industry is intensely competitive, particularly in acquiring properties, marketing oil and natural gas, and securing equipment and personnel. Phoenix Energy One competes with major integrated oil companies, other independent E&P companies, and individual producers across all these areas, from property acquisition to reserve development and production marketing.

Phoenix Energy One's competitive strengths include:

• Diversified Asset Base: A geographically diversified asset base across several prolific North American basins provides resilience against regional downturns and access to varied resource plays.
• Operational Efficiency: Demonstrated through effective cost management and successful drilling programs, which enhances its competitive ability.
• Strategic Hedging: A proactive hedging program provides revenue stability, offering a competitive advantage in volatile commodity markets.
• Integrated Water Management: This segment reduces operational costs and generates additional revenue streams, further strengthening its market position.

Financial Performance: How They Did This Year

Phoenix Energy One delivered robust financial results for the fiscal year ending December 31, 2023:

• Revenue: Total revenue climbed to $550 million, a 25% increase from the previous year, primarily driven by higher production volumes and favorable commodity prices.
• Net Income: The company reported a net income of $120 million, representing a 40% jump year-over-year. Efficient operations and effective cost management supported this strong profitability.
• Cash Flow from Operations (CFO): Cash flow from operations (CFO) reached $280 million, providing ample liquidity for capital expenditures and debt servicing. This healthy cash generation is crucial in a capital-intensive industry.
• Capital Expenditures (CapEx): Phoenix Energy One invested $180 million in capital projects, primarily funding drilling and completion activities in its Permian and DJ Basin assets, which led to a 15% increase in production.

Financial Health & Management Discussion

Phoenix Energy One maintains a robust financial position and a structured approach to capital and ownership:

• Ownership Structure: The company has a mix of Series A Preferred Stock, which typically carries specific dividend rights and liquidation preferences (meaning they have priority in receiving dividends and payments if the company is sold), and Common Class A and Class B shares. Holders of Series A Preferred Stock also have certain protections, such as priority repayment if the company is sold, and specific conditions for share buybacks.
• Employee Incentives: To align employee interests with shareholder value, the company uses a 2024 Incentive Plan that includes Phantom Units. These units mirror the value of actual shares, allowing employees to benefit from company growth (often vesting over several years) without immediate direct equity ownership.
• Debt Management: The company strategically uses various forms of debt to fund its growth and operations. As of year-end, total debt was approximately $600 million, with a healthy debt-to-EBITDA ratio of 2.0x. Key debt instruments include a $350 million revolving credit facility (the Fortress Credit Agreement), recently amended in January 2026 to extend its maturity to December 2028 and adjust covenants, along with $250 million in senior notes issued under Regulation D. The average interest rate across its debt portfolio is approximately 6.5%.
• Risk Mitigation through Hedging: To protect against volatile energy prices, Phoenix Energy One uses financial instruments like swaps and two-way collars. These agreements lock in prices for a portion of its future production. Currently, the company has hedged 60% of its projected crude oil production and 70% of its natural gas production through 2026, with significant coverage extending into 2027 and 2028. This strategy helps stabilize cash flow and provides predictability for capital planning.

Key Risks and Future Outlook

While Phoenix Energy One demonstrated strong performance, investors should be aware of several key risks and the company's forward-looking strategy:

• Commodity Price Volatility: Despite hedging, the company remains exposed to fluctuations in crude oil, natural gas, and NGL prices, which can significantly impact revenue and profitability.
• Customer Concentration Risk: Approximately 45% of the company's revenue comes from its top five "Major Customers" (A, B, C, D, and E). The loss or financial distress of any one of these customers could materially affect Phoenix Energy One's financial results.
• Operational and Regulatory Risks: Exploration and production (E&P) operations inherently involve risks such as drilling failures, equipment malfunctions, environmental incidents, and changes in government regulations (e.g., environmental policies, permitting).
• Interest Rate Risk: With significant debt, rising interest rates could increase borrowing costs, although a portion of its debt is fixed-rate or hedged.
• Strategic Outlook: Phoenix Energy One plans to continue its disciplined growth strategy by optimizing existing assets and pursuing accretive acquisitions in core basins. The company aims to achieve a 10% increase in production and maintain a strong balance sheet, targeting a debt-to-EBITDA ratio below 1.8x in the coming year. Its water management segment is also slated for expansion to capitalize on growing demand for sustainable water solutions in the energy sector.

Conclusion

Phoenix Energy One, LLC demonstrated solid financial and operational performance over the past year, driven by strategic asset management and effective risk mitigation. While the energy sector carries inherent risks, the company's diversified asset base, proactive hedging strategy, and commitment to capital discipline position it for continued stability and potential growth. Investors should consider these factors, along with their own risk tolerance, when evaluating Phoenix Energy One as a potential portfolio addition.