WhiteHawk Minerals (WHK) Q2 2026 earnings call transcript

I will now hand the conference over to John 2nd Quarter 2026 earnings conference call. Before we begin, please note that today's discussion may include forward-looking statements regarding the company's financial condition, results of operations, and future performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to White Hawk's SEC filings for a statement of discussion around these risk factors. The company undertakes no obligation to update these statements except as required by law. We may also reference certain non-GAP financial measures reconciliations to the most comparable GAP measures are available in yesterday's earnings release on our website. With me on the call today are Daniel Herrs, Chief Executive Officer, and Jeffress Lardack, Chief Financial Officer.

I'll now turn the call over to Daniel.

Thanks John. Good morning and welcome to the inaugural White Hawk Minerals 2nd Quarter earnings call. It's good to be back. To quote Plato from the Republic, the beginning is the most important part of the work. Plato's original meaning is of course much deeper than business and relates to education, character, and the formation of the soul. I do believe this quote is directly applicable to White Hawk Minerals now. We must create the right character and soul of our company, a character rooted in working every day to deliver for our shareholders, protecting the downside while benefiting meaningfully from the significant upside potential. And we are off to an excellent start. White Hawk is uniquely positioned across our 3.6 million gross unit acres to benefit directly from the largest operators in the most economic natural gas patients with zero capital expenditures and minimal operating expenditures.

This positions us to benefit from the tremendous work and capital deployment by EQT, range, CNX, and tarot expand in others, resulting in significant cash flowing dividends to our shareholders. That means shareholders are directly tied to these operators while receiving significant returns through dividends and reinvestments through acquisitions of additional minerals and royalties.

We have previously discussed the two prong acquisition strategy, strategic or larger acquisitions, and ground game acquisitions. Since our initial public offering just two months ago, we have executed on both prongs, signing definitive agreements for acquisitions totalling nearly $112 million. Those acquisitions focused in the Marcella shale and Haynesville shale are expected to add approximately 16 million cubic feet per day in 2027, which we expect will add approximately $17 million of incremental cash flow. Further, we expect these assets to generate even more production in cash flow in 2028, placing the acquisition squarely within and even to the low side of our six to seven times acquisition cash flow multiple previously discussed.

When I consider the potential for White Hawk minerals, I see several ways for us to succeed. First, our strategic and ground game acquisition strategy. Second, the exposure we have to the two most economic natural gas basins in the US.

Third, our mineral and royalty ownership benefiting from the largest natural gas producers in the US. And fourth, the medium and long term significant tailwinds behind natural gas. While I consider these areas the primary drivers a value of White Hawk, I first and foremost balance that with protecting the downside risks, something we focus on every day, and something I believe we have done a very good job at through our balance sheet and natural gas hedging strategy. I will discuss each of these drivers in more detail shortly, but first, I want to briefly review our second quarter operation results. And then later on, handed off the jet slaughterback, our chief financial officer, to review the financial results.

We delivered a strong second quarter with net production of approximately 70 million cubic feet equivalents per day of natural gas. This was an increase of 57% over the same period in 2025 and a 9% increase over the first quarter of 2026. We generated this production from our more than 11,500 producing wells. We have more than 500 gross line of sight wells, positioning us for solid production from our asset base over the next year.

We are then benefited from our more than 9,000 rows identified on developed locations across our 3.6 million gross unit acres. In the Marcellus shale, 96% of our production came from EQT range CNX in Ontario. White Hawk currently receives royalties on 43% of their combined gross production. That is White Hawk receives 43% of their combined gross production. In the Haynesville shale, 58% of our production came from Expand, Mitsubishi, Adamis, Comstock, and Tokyo Gas. White Hawk currently receives royalties on 45% of their combined gross production. For the quarter, approximately 55% of our production came from the Marcellus in Utica shale in Appalachia, with an additional 25% from our Haynesville shale assets. Our line of sight wells carry a similar base in waiting.

And of course, as a reminder, we receive royalties on 13% of total U. S. natural gas production, making us what I believe is the premier natural gas mineral and royalty owner. Now, to dig in deeper on how I expect White Hawk to succeed and outperform, with respect to our acquisition strategy and opportunities, we see between $3 billion and $5 billion of strategic acquisition opportunities in front of us in the Marcellus, Utica, and Haynesville shale. These are larger opportunities owned by private equity firms or funds later in their fund life. We have limited competition for these opportunities, and I believe our acquisition announcement today demonstrates the depth of our relationships and ability to execute.

Furthermore, the ground game opportunity, where we buy from individual mineral owners, is well over 35 times our existing asset base, or over $30 billion. We currently own a 0.51% royalty interest on our rose acreage position, out of an average 17% royalty rate. And of course, there are additional minerals surrounding our position that we are interested in purchasing.

To that point, given our massive footprint, we have tremendous data on our operators, and on all of the wells on our position and the surrounding position, which I believe provides a unique data advantage. And not only do I believe it is a significant advantage to have the amount of information that we have, some of our operators agree and have entered into partnerships with us to buy on the ground ahead of the drill bit in defined areas.

Opportunities that auger well for White Hawks acquisition future. Next, being exposed to the two most economic natural gas basins has several benefits to White Hawks. First, development activity remains robust in both high and low natural gas price environments, which helps mitigate downside of White Hawks.

Second, because we are in a power race, situating new natural gas power generation next to the most economic areas, not only makes sense, it is exactly what is currently happening. There are 21 announced new or planned natural gas power plants to support data center and AI power demand surrounding our Appalachian assets, which is expected to add 7 billion cubic feet per day of natural gas demand in the Marsalis shale by 2031.

Finally, having our production and footprint in the Haynesville shale gives us direct access to the growing liquefied natural gas export markets. Currently, there are 14 billion cubic feet per day of LNG export facilities under construction, which should be online by 2030. So in total, we expect 21 billion cubic feet per day of natural gas demand growth by 2031, much of which will be met by growth in the Marsalis, Utica, and Haynesville shale.

Third, our current and future production is tied to the largest natural gas producers in the United States. These operators spend billions of dollars per year developing our position, working with power companies, hyperscalers, LNG export facilities, and many others to ensure both production and demand is balanced, not just over the next year, but over the next decade and beyond, benefiting from EQT range and tarot C&X and expand uniquely positioned white octa benefit from their expected growth. And finally, the macro tailwinds of natural gas are very strong.

I often say I want white octa do well when prices go up and when prices go down. But with that said, when we look out over the next five years, it is extremely encouraging. I have touched on this already, but when we look at the demand growth from LNG exports and power generation for data centers and AI, we see a natural gas price environment which will demand higher prices to incentivize operators, our operators, to develop their position more quickly to meet that demand.

It is that simple, and white octa minerals will benefit. So we are off to a good start, but let's be clear. We are just getting started. There is a lot more to do on the acquisition side. We will remain disciplined, but we will take advantage of the opportunities as they come. Our asset base will then be even larger when the macro tailwinds develop into a higher natural gas price environment, which would further drive shareholder returns beyond just the immediate accretion to cash flow and net asset value per share. And in the meantime, we will continue to work to drive our cash flow per share and grow our dividends to shareholders.

With that, I will hand it over to Jeff to review the financial results.

Thank you, Daniel. And good morning, everyone. I appreciate you all joining us today for White Oct's first earnings call as a public company. Over the next several minutes, I'll walk you through our second quarter results, starting with our operating revenue and cash flows. I'll also cover the initiation of our quarterly dividend and close with a look at our balance sheet liquidity before we open the line for questions. During the second quarter, 2026, our average realized natural gas price for the quarter was $3.43 per MCF, including hedge settlements, compared to a $2.42 per MCF before the effect of those hedge settlements.

For context, Henry hub first of the month pricing averaged $2.90 per MMBC. For the quarter, our natural gas volumes were 96% hedged at $4.02, while our oil volumes were 83% hedged at $62. We headed a substantial portion of our expected production on a rolling basis, specifically to protect our downside, secure predictable cash flows and enhance the visibility of our dividend.

On a forward-looking basis, we looked to lock in through fixed price swaps, 90% of our production for the next 12 months, 80% of our production for the following 12 months, and 60% of our production in year three. The intent is to keep protecting our downside while retaining exposure to the upside from our acquisition strategy, our operators continued development of their positions, and the long-term tailwinds for natural gas supply and demand.

Moving to our financial results, our operating revenue, which includes the realized gains on our hedging instruments, was $25.7 million for the second quarter. Total asset cash flow was $22.4 million for the quarter, including the $3.3 million or $0.52 per MCE of operating expenses incurred during the period, which are included within revenue on our income statement. Total asset cash flow for the second quarter represented a 10% increase from $20.4 million realized in the first quarter of this year.

On a gap basis, our total revenue was $29.1 million, including an additional $6.7 million in unrealized mark-to-market hedge gains. Our adjusted EBITDA, which is effectively comprised of our asset cash flows, less GNA expenses, with $20.7 million for the second quarter, after giving effects to our $1.78 million of GNA expense, which excludes certain nonrecurring IPO and other transaction-related costs.

Below EBITDA, let me cover our financing costs and taxes for the period, which our earnings closing of the IPO, we reduced our senior notes to $75 million outstanding, which bore interest at an 8.5% effective rate, giving an implied net interest expense of $1.6 million for the quarter. Also a pro forma for the IPO, we have $46 million of series B preferred stock outstanding, which paid a 10% coupon, or $1.2 million for the quarter. During the second quarter, we paid $550,000 of estimated cash income taxes during the period related to 2026.

In total, our cash available for distribution for the second quarter was $17.4 million, or $0.63 on a per share basis, based on our $20.7 million of adjusted EBITDA for the period.

Adjusted EBITDA cash available for distribution and cash available for distribution per share are non-gap measures, reconciliations to their most directly comparable gap measure are available in our earnings release and on our website. On a gap basis, net income for the period, which includes costs associated with our IPO and the internalization of our former external manager, specifically 21.7 million non-recurring loss on the extinguishment of debt, 15.8 million of non-recurring management and incentives, and a 1.7 million non-cash change in the fair value of our earnings, earn out liability, resulted in a net loss of $39.2 million, which brings me to our EBITDA. On August 12th, our board approved the initiation of our first quarterly cash dividend at a rate of $0.50 per share or $2 per share on an annualized basis.

This initial dividend has been prorated for the period from the closing of the IPO on June 10th through quarter end, resulting in an initial declared dividend of $0.11 per share. That dividend is payable on August 28th to shareholders of record as of the close of business on August 24th. Our 50 cent dividend implied 1.3 times coverage by cash available for distribution per share on a full quarter basis and reflects our expectation to pay out at least 75 percent of our cash available for distribution as a public company.

Finally, before opening the line for questions, let me turn to our balance sheet and liquidity. In June, White Hawk completed its IPO, generating gross proceeds of over 220 million, including our exercise of the green shoe overall op-it. With the IPO proceeds, we repaid more than 162 million in debt in total, reducing our notes outstanding to 68.7 million at quarter end. We fully retired, 37.8 million of our series B preferred equity, and additionally redeemed approximately 10 million of our series B preferred equity. We exited the quarter with net debt of just 55.5 million and maintained an undrawn $150 million revolving credit facility. At the quarter end, we were 0.67 times lower.

In order to fund the approximately $112 million in acquisition signed since our IPO, we have received commitments to fund a $50 million series E preferred at closing of the SJM 2 acquisition in late September. The series E preferred will initially bear coupon of 10 percent and can be redeemed at any time. We are committed to a conservative balance sheet, and we target long-term leverage of approximately one time's adjusted EBITDA. Maintaining that discipline protects our dividend, preserves our flexibility to quickly unacquisition opportunities, and is fundamental to how we intend to build long-term per-shower value for our shareholders.

With that, I thank you for your time this morning. Rebecca, could we please open the line for questions?

Yeah, I think that's what you should continue to expect from us is that we will layer in as Jeff laid out 90%, 80%, 60% on a rolling basis. We made as a hedge committee monthly and review it. And then of course, as gas prices rise, we expect our operators to respond with increased production above levels that we were hedged at. So we'll benefit from that increased production. And we oftentimes, sometimes we root for lower prices because it offers opportunities like we've been executing on to buy more assets at what we think are attracted prices and then benefit over the three, four, five year period in a substantially increased asset base.

Yeah, thanks, Mike. I think so one, yes, this was part of our what I would characterize as half a billion dollars of immediate opportunities in front of us that we had identified on the page that you're talking about. We see as we talk about three to five billion of larger deals, but we really saw 500 million plus immediately in front of us. As a reminder for those less familiar new information, we've done a number of transactions with this group. And in fact, this asset in Appalachian in particular, we bought 20% of it back in 2024.

So we've owned a portion of this asset, which is the best way we think to do due diligence is to own the asset for multiple years, understand it intimately. And then we've purchased through the announcement last night or we've entered an agreement to purchase another large portion of that asset. So actually, there's still more potentially for us to buy there, which is very exciting. And then that's the vast majority of the $105 million, but there's also an asset in the Haynesville that they owned that we've been monitoring for several years as well and trying to buy. So this was a great opportunity for us to put the assets together in our two primary areas and acquire them.

Yeah, so I mean, we have a number of, I think we think, attractive tools that have allowed us to grow over time. We're targeting below one times leverage. I would think about our business, the ground game acquisitions and beyond our ability and really our expectation to grow our EBITDA. So we end up nicely below one times leverage over time. So we feel really good about where we are. I think we feel even better about where we're headed.

Thanks Daniel.

Yeah, I think you're really touching on something that positions us in a so well tied to the largest US natural gas producers. 49% of EQT's production pays us royalties. 57% of expands production in the Hanesville pays us royalties. So we want to be not just in the core of the most economic natural gas basins in the US. We want to be exposed to the largest, most well-capitalized operators. And very specifically to that, it's because of their, I would say, integrated model and ability to achieve the highest price for natural gas for us as the mineral owners. So we spend no capital obviously on midstream acquisitions or infrastructure of size, but we benefit from their pricing that they're able to achieve.

So I think we've obviously track our operators very closely. We're in regular direct communication with them. I think it's a trend, very much worth watching. It's a trend we benefit from. I think you're going to see it beyond midstream. And I think it bodes well for us.

Well, it's very interesting, the way you phrase it. I don't think there are much in the way of contrarian views. I think there are certain operators that are doing a better job at taking advantage of the opportunity in front of them. Obviously, and you do a very good job of assessing who the better operators are at taking advantage of the data center and AI power demand growth that's coming. We like to align ourselves with those best in class operators who are, we think, taking better advantage of those opportunities. But I mean, I think you'll have noted in my remarks, I was commenting at seven BC at the day of base in power demand growth. We obviously see and hear from our operators the potential for significantly more than that.

But we think when we peel back the story and try to take a very conservative outlook at what the demand side is going to look like in Appalachia and around the US on the power side and looking at gas turbine generation and then layer on the LNG export growth that's coming. We've tried to take an conservative bent and even doing that. And then, of course, factoring in pipeline takeaway that's coming out of the Permian. We still very much see an environment that's going to demand higher natural gas prices as Wayne was asking about in the first question. We really see a robust environment over the next five years. But, as I said, again, to Wayne, we anchor ourselves in protecting the downside, delivering our cash flow, delivering our dividend.

And then, as we have in our past companies, let the positive tailwinds come to us. We do that. I think we're going to do extremely well here at White Hawk Minerals.

Thanks for the kind words and thank you for the question. So this is a type of security we've used in the past and it's been quite effective for us in being able to execute and really grow White Hawk from the beginning. We have a number of tools to be able to grow our business and pieces of capital to grow our business and we are constantly looking for the absolute most efficient way to drive cash flow in that asset value per share through those securities and that's exactly what we're going to do on a go-forward basis with our capital structure as well as with all of our acquisitions. What's really nice is when we look at this acquisition and we look at the capital structure, we see significant accretion on cash flow per share on that asset value per share and that bodes well.

We think for value in the short meeting and long-term here.

Great. Thank you all for joining us. We look forward to speaking with you all again very soon. Bye.