Amplify Energy Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Amplify is an oil and natural gas producer operating in Oklahoma, the Rockies, offshore Southern California (Beta), East Texas/North Louisiana, and the Eagle Ford. The statements are unaudited.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $76.3 million | $79.9 million |
| Oil and natural gas sales | $75.3 million | $66.3 million |
| Operating income (loss) | $(9.1) million | $26.6 million |
| Net income (loss) | $(9.4) million | $352.8 million |
| Adjusted EBITDA (non-GAAP) | $24.9 million | $25.8 million |
| Cash from operating activities | $7.7 million | $90.3 million |
| Capital expenditures | Approximately $19.1 million | Approximately $8.3 million |
- Oil and gas sales rose 14% year over year. Average net production increased to 20.2 MBoe/d from 19.4 MBoe/d, principally because Beta returned to production in April 2023. Average realized price increased to $40.89/Boe from $37.99/Boe.
- Product mix shifted: oil revenue increased to $57.4 million from $38.8 million, while natural gas revenue declined to $10.4 million from $19.7 million. Other revenue fell to $1.0 million from $13.6 million, mainly because Q1 2023 included $13.5 million of loss-of-production insurance proceeds; those payments ended March 31, 2023.
- Lease operating expense increased to $38.3 million from $33.0 million, or $20.78/Boe versus $18.89/Boe, largely reflecting Beta operations. DD&A rose to $8.2 million from $5.8 million. Gathering, processing and transportation costs and production taxes declined.
- Derivative results were a $16.6 million loss versus a $15.2 million gain in Q1 2023, including a $20.8 million fair-value decrease in open positions in 2024. Interest expense was $3.5 million versus $5.7 million.
- 2023 net income included an $84.9 million litigation settlement gain related to the vessels that damaged the Beta pipeline and a $259.5 million deferred tax benefit, primarily associated with release of the valuation allowance. These items make reported earnings and cash flow comparisons unusually non-recurring; 2024 had no comparable settlement gain and a $4.7 million deferred tax benefit.
- Cash and cash equivalents were $3.0 million at March 31, down from $20.7 million at year-end. Long-term debt remained $115.0 million. The company reported approximately $20.0 million of available revolver borrowings and a $150.0 million borrowing base, with $135.0 million of elected commitments.
- Working capital excluding commodity derivatives was a $21.4 million deficit. Total assets were $712.2 million and total liabilities were $331.2 million at quarter-end. Asset retirement obligations were $125.6 million, including current obligations.
Material changes and management commentary
- Operating activity at Beta, offline in Q1 2023, resumed in April 2023 following regulatory approvals. Its return increased production and oil and gas sales, but also raised operating and DD&A costs.
- Operating cash flow was $7.7 million versus $90.3 million. Q1 2023 included the $84.9 million pipeline-related settlement receipt; 2024 operating cash flow also reflected working-capital movements and cash derivative settlements.
- Q1 2024 investing cash outflow was $23.7 million, including $20.6 million of additions to oil and gas properties and $2.5 million added to restricted investments. Financing cash outflow was $1.7 million, including $25.0 million of revolver advances offset by $25.0 million of repayments.
- Management expects internally generated cash flow to be the primary funding source for the rest of 2024, with revolver or capital-markets funding available as alternatives. It believes cash flows and revolver availability, based on current commodity-price expectations, can fund normal needs and currently planned 2024 development activity, but notes that outcomes depend on production and prices and that further development requires significant capital. No specific earnings, production, or cash-flow guidance is provided.
- Management intends to hedge approximately 50%–75% of estimated proved-developed-producing production over a one-to-three-year period, while noting that hedges limit benefits from rising prices and counterparties may fail to perform. Open positions at March 31 included oil and natural gas swaps and collars through 2026.
Debt, liquidity, contingencies and risks
- The revolver matures July 31, 2027, bears variable-rate interest, and had a 9.37% weighted-average rate in Q1. Its covenants include a minimum 1.00:1.00 current ratio and maximum 3.00:1.00 net debt leverage ratio.
- At March 31, the current ratio was 0.98:1.00, below the required minimum. Lenders waived any default arising from this shortfall on May 2, 2024; the company therefore reported covenant compliance as of quarter-end. Management expects to maintain at least 1.00:1.00 in future quarters. The spring 2024 borrowing-base redetermination reaffirmed the $150.0 million base; the next is expected in Q4 2024.
- The 2021 Beta pipeline incident remains a material uncertainty. The company estimates total incident costs incurred or expected of approximately $190 million–$210 million, subject to significant assumptions and possible changes. The estimate excludes certain potentially unestimable regulatory, legal, repair, restart, and other costs. Ongoing agency investigations, OPA 90 claims, and the natural-resource-damage assessment could result in further costs or enforcement. Insurance has covered a material portion, but adequacy and future coverage are not assured.
- Beta decommissioning obligations are supported by $161.3 million of surety bonds. Restricted investments included $17.6 million in supplemental escrow accounts; future required funding was $6.8 million for the remainder of 2024 and about $9.0 million annually thereafter, subject to the agreement terms. The company amended one funding agreement in March, reducing its annual funding amount from $14.8 million to $8.0 million.
- Management cites commodity-price volatility, reserve and production uncertainty, borrowing-base redeterminations, covenant and financing access, operating costs, hedging effectiveness, and incident-related liabilities as important risks. Disclosure controls were assessed as effective; the filing reports no material change in risk factors from the 2023 Form 10-K.
Important facts for investors to verify
- Whether operating cash generation and available revolver capacity can support planned 2024 capital spending while cash balances remain low and working capital is negative.
- Future covenant compliance, including the current ratio, and the effect of the next borrowing-base redetermination expected in Q4 2024.
- Actual and remaining Beta incident costs, insurance recoveries, unresolved claims and investigations, and any additional regulatory or remediation obligations.
- Whether Beta production and the broader production mix sustain oil and gas sales, and how operating costs and commodity prices affect margins and cash flow.
- Hedge volumes, realized settlements, counterparty exposure, and the effect of hedges on results if prices move materially.
- Progress and funding requirements for Beta decommissioning escrow obligations and the adequacy of restricted investments and surety support.