Amplify Energy Corp. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The unaudited filing covers a U.S. oil and gas producer with assets in Oklahoma, the Rockies, offshore Southern California, East Texas/North Louisiana, and the Eagle Ford. A major subsequent event—the October 2 Southern California pipeline incident—occurred after quarter-end.
Financial and operating performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Oil and gas sales | $96.8 million | $52.5 million | $249.5 million | $145.2 million |
| Net loss | $13.5 million | $17.7 million | $67.8 million | $426.2 million |
| Operating cash flow | Not separately stated in the cash flow statement | Not separately stated | $55.3 million | $63.6 million |
| Adjusted EBITDA (non-GAAP) | $27.1 million | $24.8 million | $73.9 million | $63.3 million |
| Capital expenditures | Not separately stated | Not separately stated | Approximately $27.3 million | Not stated in MD&A |
- Q3 production averaged 25.1 Mboe/d, down from 27.7 Mboe/d; nine-month production averaged 25.0 Mboe/d, down from 28.3 Mboe/d. The filing attributes declines principally to natural production decline and, for the nine-month comparison, Winter Storm Uri.
- Average realized price, excluding derivatives, rose to $41.89/Boe in Q3 from $20.63/Boe, and to $36.51/Boe for the nine months from $18.69/Boe. Higher commodity prices drove the revenue increase despite lower volumes.
- Q3 operating loss was $10.3 million. The $46.7 million Q3 commodity-derivative loss weighed on reported results; the nine-month derivative loss was $145.1 million, compared with a $74.2 million gain in the prior-year period. These amounts include fair-value movements and settlements.
- Q3 lease operating expense increased to $34.5 million from $27.6 million, including costs for periodic Beta platform inspections; per-Boe expense rose to $14.92 from $10.86. Nine-month lease operating expense was $92.0 million, with per-Boe costs up to $13.47 from $11.74.
- At September 30, cash was $17.3 million, total assets $405.9 million, and total liabilities $506.1 million; stockholders’ deficit was $100.2 million. Long-term debt was $230.0 million, down from $260.5 million at year-end 2020. Asset retirement obligations totaled $101.8 million.
- Working capital was negative $69.3 million, primarily reflecting $83.6 million of current derivative liabilities. The credit facility borrowing base was $245.0 million and borrowings were $230.0 million; no letters of credit were outstanding. The company reported covenant compliance at quarter-end.
- Operating cash flow was below the prior-year nine-month amount, in part because the company paid $51.5 million on expired derivatives, whereas the prior-year period included derivative cash receipts. Investing cash outflow was $23.3 million; financing cash outflow was $25.1 million. Cash increased by $7.0 million from year-end.
Material changes and unusual items
- Compared with 2020, revenue benefited from much higher oil, gas, and NGL prices, while production declined. The 2020 nine-month net loss included $455.0 million of impairment expense; no impairment was recorded in the 2021 period.
- The $5.5 million Paycheck Protection Program loan was forgiven in June 2021 and recorded as a gain on debt extinguishment. The company also recognized $2.8 million of employee-retention credits for the first two quarters of 2021.
- In June 2021, the borrowing base was reduced from $260.0 million to $245.0 million. A November 10 redetermination reaffirmed $245.0 million, but provides for monthly $5.0 million reductions beginning February 28, 2022 until the next expected redetermination in April 2022.
Outlook, risks, and contingencies
- Southern California incident: On October 2, 2021, an oil sheen was found offshore Newport Beach. The Coast Guard later estimated the release at approximately 588 barrels. A section of pipeline was displaced and split; the cause remains under investigation, including examination of a vessel of interest.
- The affected pipeline and Beta field were shut in pending regulatory approval of a written restart plan. Management expects the suspension to materially reduce revenue from Beta, but the duration and financial impact are uncertain. No incident obligation was recorded at September 30 because the event occurred afterward.
- As of November 11, the company reported approximately $17.3 million paid for remediation, with $3.8 million reimbursed and the remaining $13.5 million approved for reimbursement by insurers, subject to the applicable deductible. Total costs, insurance recovery, and potential business interruption losses cannot yet be estimated; coverage is not assured.
- As of November 5, the company faced approximately 14 lawsuits, including 13 putative class actions, and multiple federal and state investigations. Under the Oil Pollution Act, the Coast Guard designated the company’s pipeline as the source, making the company financially responsible for specified remediation, damages, and related costs. Potential civil, regulatory, or criminal outcomes are uncertain and could materially affect liquidity and operations.
- Management said it expects operating cash flow, cash on hand, and credit-facility capacity to fund operations and capital needs, but the incident, Beta shut-in, and scheduled borrowing-base reductions may constrain liquidity. The company expects insurance to cover a material portion of incident costs but gives no assurance it will be sufficient. No formal earnings or production guidance is provided in the supplied filing text.
- Commodity-price volatility, hedge settlement exposure, declining production, minimum-volume commitments in Oklahoma and East Texas, and possible financing or insurance constraints are additional risks. The company reported commitment fees of $1.2 million and $1.5 million, respectively, for the nine months.
Key facts for investors to verify
- Progress and timing for regulatory approval to restart the Beta pipeline and field, and the resulting production and revenue impacts.
- Final remediation, claims, litigation, investigation, and enforcement exposure, including insurance coverage, deductibles, and timing of reimbursements.
- Available liquidity after scheduled borrowing-base step-downs, facility covenants, and any incident-related restrictions on access to credit or trading counterparties.
- Hedge positions, future settlement cash flows, and the distinction between non-cash mark-to-market losses and realized cash payments.
- Production trends, operating costs per Boe, and the company’s ability to fund maintenance and capital spending while meeting debt and decommissioning obligations.