Business context and reporting period
Issuer clarification: The supplied filing is Midstates Petroleum Company, Inc.’s Form 10-Q, not an Amplify Energy Corp. filing. It covers the three and six months ended June 30, 2019; amounts below are in U.S. dollars unless stated otherwise. Midstates operated primarily in Oklahoma’s Mississippian Lime.
On May 6, 2019, Midstates agreed to an all-stock merger of equals with Amplify. Amplify shareholders were to receive 0.933 Midstates shares per Amplify share, with each group expected to own 50% of the combined company. The filing said closing was expected August 6, 2019, and all stated conditions were satisfied as of August 5.
Financial and operating results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Customer-contract revenue | $23.2 million | $53.7 million | $53.1 million | $106.5 million |
| Total revenue, including derivative gains/losses | $25.8 million | $42.3 million | $47.9 million | $91.2 million |
| Net income (loss) | $(36.9) million | $(1.5) million | $(54.8) million | $2.5 million |
| Net income (loss) per share | $(1.80) | $(0.06) | $(2.53) | $0.09 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $25.3 million | $49.3 million |
- Q2 oil, NGL, and natural gas sales were $22.7 million, down from $52.9 million. The company attributed the decline to lower production and realized prices, as well as the 2018 sale of its Anadarko Basin assets.
- Average Q2 production was 12,008 Boe/day, down 30.2% year over year. Average realized oil price before derivatives fell 13.8% to $58.09/Bbl; NGL price fell 40.4% to $16.82/Bbl; and natural gas price fell 27.6% to $0.97/Mcf.
- Q2 operating expenses included a $33.6 million oil-and-gas property impairment; the six-month impairment was $43.2 million. Management attributed the charges primarily to lower commodity prices. The impairment was noncash.
- Q2 lease operating and workover expense was $9.9 million, or $9.07/Boe; six-month expense was $18.9 million. DD&A was $10.9 million in Q2 and $22.7 million for six months.
- Cash and cash equivalents were $4.8 million at June 30, versus $11.3 million at year-end 2018. Net working capital was a deficit of $3.5 million, compared with positive working capital of $13.9 million at year-end.
- Six-month investing cash outflow was $19.1 million, including $17.2 million of operational capital expenditures. Financing cash outflow was $12.8 million, including the $50.0 million stock repurchase, partly offset by net revolving-credit borrowings. Cash declined by $6.5 million during the six months.
- Revolving-credit debt was $60.6 million, up from $23.1 million at year-end. The $170.0 million borrowing base provided $107.5 million of availability after outstanding borrowings and letters of credit. The facility matures September 30, 2020; the reported weighted-average interest rate was 7.7%. The company reported covenant compliance at June 30.
- Stockholders’ equity was $437.6 million, down from $541.7 million at year-end. In February, Midstates repurchased and retired 5.0 million shares for $50.0 million, funded in part with credit-facility borrowings.
Material changes, outlook, and risks
Production and customer-contract revenue fell substantially year over year, reflecting reduced drilling, natural decline, and the divested Anadarko production. Lower activity also reduced operating and capital spending. Despite these savings, the impairment and lower revenue drove a substantial net loss. The company paused drilling beginning in Q4 2018 and said further impairment charges could occur during 2019, depending in part on commodity prices.
Management said operating cash flow, cash on hand, and available RBL borrowings were expected to fund anticipated capital expenditures, debt service, and contractual commitments. No numerical earnings or production guidance was provided. The filing described commodity-price volatility, hedging limitations and counterparty exposure, and Oklahoma saltwater-disposal restrictions that could raise costs or constrain production. Reduced drilling could also make it harder to meet minimum NGL-volume commitments, potentially requiring shortfall payments.
The merger was expected to trigger change-in-control benefits. Midstates estimated 500,000–800,000 unvested awards would vest and $8.5–$11.5 million of severance payments would be made; final amounts were undetermined. The filing reported no loss-contingency accrual at June 30. It also reported a $123.4 million deferred-tax valuation allowance and no income-tax expense or benefit for the six-month period.
Most important facts for investors to verify
- Confirm the issuer and retrieve Amplify’s own 10-Q if the intended subject is Amplify Energy; this filing reports Midstates’ standalone results before the merger.
- Verify whether and when the merger closed, the final share issuance and ownership, and actual change-in-control, severance, and award costs.
- Track production, realized commodity prices, drilling plans, and any subsequent full-cost impairment charges.
- Review cash burn, borrowing-base availability, covenant headroom, and the September 2020 RBL maturity and refinancing needs.
- Assess hedging settlements and exposure, including the effect of three-way collars, and monitor Oklahoma disposal directives and NGL-volume commitments.