$8.00
$40.00
bear $8.00
base $27.00
bull $40.00
margin of safety $12.00
market price* $25.49
Business condition attached to the margin of safety
At least four consecutive quarters of on-time, undeferred Series A Preferred distributions and a leverage ratio (total liabilities to total assets) that has stopped climbing.
Phoenix Energy One, LLC is a private, founder-controlled company that buys oil and gas mineral, royalty, and working interests across several U.S. basins, including the Permian Basin in Texas, the Williston Basin in North Dakota and Montana, the Uinta Basin in Utah, and the Denver-Julesburg Basin in Colorado and Wyoming. It has funded very rapid growth almost entirely with borrowed money: revenue grew roughly six-fold in two years, from about $118 million in 2023 to about $687 million in 2025, backed by more than a dozen layers of bonds and notes carrying interest rates from roughly 8% up to 16.5%, plus a newer class of NYSE American-listed Series A Preferred Shares (the security valued here) that began trading in September 2025. This analysis covers only the Series A Preferred Shares. Phoenix Energy's common ownership interests are held entirely by its private founder-affiliated parent and are not publicly traded, so there is no public common equity to value here; the preferred shares are a fixed, bond-like claim, not a claim on the underlying growth of the business. The preferred shares carry a $25.00 per-share liquidation preference and a cumulative distribution fixed at 10.0% per year ($2.50/share) through October 2028, stepping to 10.5% ($2.625) for one year, and then to 11.0% ($2.75) per year indefinitely after that. There is no maturity date and no requirement that the company ever redeem the shares; only the company can choose to redeem them, at $25.00. A skipped distribution still accumulates and must be paid before anything can go to the common owner. What the preferred is really being asked to survive is the strength of the balance sheet beneath it. As of the most recent quarter, total assets were about $2.2 billion against total liabilities of about $2.18 billion, leaving only about $40 million of combined equity supporting the entire structure - and the preferred shares' own liquidation claim of roughly $50-68 million is itself a large share of that thin cushion. Operating cash flow has been strong and growing quickly - about $301 million for all of 2025, and already about $277 million in just the first half of 2026 - comfortably covering today's interest and distribution bill. But quarterly net income has swung sharply, including a $140 million loss in the first quarter of 2026 followed by a $106 million gain in the second, a sign that reported earnings move a great deal with oil and gas prices and hedging positions even while cash generation has stayed solid. Base case (about $27/share): the company keeps paying the preferred distribution on its scheduled contractual rate, supported by today's strong and growing cash generation, but we do not treat that as certain indefinitely - the debt stack is large and made up of more than a dozen separately priced bonds that must all be rolled over or repaid in the years ahead, and this capital structure has not yet been tested through a full oil and gas price cycle. We discount the contractual distribution stream and assume a meaningful, but not full, recovery of the $25 liquidation value. Bull case (about $40/share): the company's rapid growth keeps converting into cash the way it has for the last two years, its many bond series are refinanced on schedule as the business scales, the full contractual distribution schedule is paid without interruption, and the $25 liquidation value is fully recoverable. Bear case (about $8/share): within the next few years, softer oil and gas prices combine with the scheduled step-up in the distribution rate to strain the company's ability to keep servicing more than a billion dollars of debt that ranks ahead of the preferred; distributions are deferred, and in a restructuring the preferred - which sits behind essentially all of the company's borrowings - recovers only a fraction of its $25 liquidation preference. Given how thin the equity cushion is beneath a very large and complex debt stack, and given that these preferred shares have only about a year of public trading and payment history, the margin-of-safety price is set at a large discount to intrinsic value, and the payment stream would be treated as dependable only after several more consecutive quarters of on-time, undeferred distributions and a leverage ratio that is not still climbing. The margin-of-safety price is about $12 per share. We could not confirm from the filing the exact date the company first becomes able to call the shares at $25.00; the disclosure describes the right only in general terms.