Filing identity and reporting period
The supplied filing is Midstates Petroleum Company, Inc.’s Form 10-K for the fiscal year ended December 31, 2018, filed March 14, 2019. It does not appear to be an Amplify Energy Corp. filing, despite the request metadata. This is an annual report, not a standalone fourth-quarter filing; quarterly figures below are from the 10-K’s unaudited quarterly data.
Midstates was an independent oil and gas producer focused on Oklahoma’s Mississippian Lime. It sold its Anadarko Basin assets in May 2018 and reported all year-end proved reserves in the Mississippian Lime. Its financial statements use fresh-start accounting adopted upon emergence from Chapter 11 in October 2016, limiting comparability with pre-emergence periods.
Financial and operating performance
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $208.6 million | $228.8 million |
| Operating income (loss) | $54.3 million | $(79.5) million |
| Net income (loss) | $49.8 million | $(85.1) million |
| Net cash from operations | $107.2 million | $119.6 million |
| Net cash used in investing | $58.0 million | $126.0 million |
| Net cash used in financing | $106.4 million | $2.0 million |
| Adjusted EBITDA (non-GAAP) | $111.6 million | $125.2 million |
| Year-end cash | $11.3 million | $68.5 million |
| Year-end debt | $23.1 million | $128.1 million |
Year-end liquidity was reported as $156.3 million, comprising cash and $145.0 million of available borrowing capacity. Net working capital was $13.9 million. The Exit Facility had a $170 million borrowing base, matured September 30, 2020, and carried a 7.3% weighted-average rate at year-end. The company reported compliance with its debt covenants.
- Oil and gas sales revenue was $200.8 million; an additional $3.6 million of net derivative gains and $4.3 million of other revenue brought total revenue to $208.6 million.
- Average production fell to 20,326 Boe/day from 22,148 Boe/day, while average oil price excluding realized derivatives rose to $64.57/Bbl from $49.45/Bbl. Natural gas price declined to $2.39/Mcf from $2.64/Mcf.
- Operating capital expenditures were $96.5 million; total capital expenditures incurred, including capitalized costs and interest, were $100.7 million.
- Proved reserves were 72.4 MMBoe at year-end, 52% oil and NGLs and 68% developed. PV-10 was $579.7 million and the GAAP standardized measure was $566.3 million; neither is a measure of current market value.
- Fourth-quarter 2018 revenue was $69.6 million and net income was $35.8 million, or $1.38 per basic and diluted share.
Material changes versus 2017
- Total revenue declined 8.8%; lower production and a sharp reduction in natural gas revenue more than offset higher oil and NGL prices. Natural gas revenue fell 46.2% to $32.1 million; oil revenue rose 5.8% to $123.9 million and NGL revenue rose 1.4% to $44.7 million.
- Net income improved from an $85.1 million loss to $49.8 million of income. A major factor was the absence of the $125.3 million oil and gas impairment recorded in 2017; 2018 operating income was positive.
- Operating cash flow decreased $12.4 million. Financing cash use increased chiefly because the company repaid $106 million of Exit Facility borrowings. The Anadarko sale generated $54.1 million net proceeds; $50 million was used to pay down debt.
- Year-end debt fell by $105 million, but cash declined by $57.2 million. The 2018 Anadarko asset sale also reduced the company’s operating footprint.
- Proved reserves declined from 108.9 MMBoe to 72.4 MMBoe. Negative revisions of 39.1 MMBoe reflected the revised development schedule and lower forecast production, partly offset by 18.0 MMBoe of extensions and discoveries; asset sales and production also reduced reserves.
- ASC 606 adoption changed presentation: $12.4 million of gathering and transportation costs was netted against revenue rather than reported as expense. The company said adoption did not materially affect net income or equity, so revenue and expense line comparisons are affected by presentation.
Outlook, risks, and unusual items
- Management emphasized free-cash-flow generation, capital discipline, low costs, and keeping leverage low rather than prioritizing production growth. It expected operating cash flow and cash on hand to fund anticipated capital requirements. No specific 2019 revenue, earnings, production, or capital-spending guidance is provided in the supplied filing text.
- The company prioritized two-mile laterals and selected higher-working-interest one-mile laterals. Its development plan anticipated drilling no later than 2020 and continuing for approximately three years thereafter; undeveloped locations outside that schedule were excluded from year-end proved undeveloped reserves.
- In February 2019, after year-end, the company completed a $50 million tender offer for 5.0 million shares at $10 per share, partly funded with a $39 million Exit Facility draw and the remainder from cash. This materially changes the year-end liquidity and debt picture; the year-end balances above predate the transaction.
- Key risks include oil and gas price volatility, declining production and reserves, concentration in one Oklahoma basin, and limits on saltwater disposal linked to induced-seismicity regulation. The company also cited dependence on a small number of purchasers, trucking and third-party gas infrastructure, environmental and regulatory exposure, and reserve-estimation uncertainty.
- Oklahoma production-tax changes increased severance-tax expense. The company recorded no 2018 income-tax provision and maintained a $109.6 million valuation allowance against deferred tax assets.
- Minimum NGL-volume commitments under a gas gathering and processing contract could require shortfall payments if delivery volumes fall below required levels; the company reported meeting minimums at year-end. Accrued loss contingencies were $1.1 million. It reported no material oil and gas property impairment in 2018.
- The independent auditor gave an unqualified opinion on the financial statements, and management and the auditor reported effective internal control over financial reporting as of December 31, 2018.
Important facts for investors to verify
- Confirm the filing identity: the source is Midstates Petroleum Company, Inc., not Amplify Energy Corp.
- Assess post-tender-offer liquidity, debt, borrowing availability, and covenant headroom using updated filings; 2018 year-end figures precede the $50 million buyback and $39 million facility draw.
- Review whether production and reserve declines, including the 39.1 MMBoe negative reserve revision, affect the company’s ability to sustain cash flow and meet its development plan.
- Examine commodity hedge coverage, terms, realized settlements, and unhedged exposure, especially for production sold at market prices.
- Monitor Oklahoma saltwater-disposal restrictions and seismicity directives, as well as the company’s ability to satisfy minimum-volume commitments and maintain production.
- Compare revenue trends on a consistent basis given ASC 606’s net presentation of certain gathering and transportation costs, and distinguish reported earnings from non-GAAP Adjusted EBITDA and reserve valuation measures.