Amplify Energy Corp. annual report, FY2022

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Amplify Energy Corp. — 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022; filed March 9, 2023. This is an annual filing, not a standalone fourth-quarter report. Amplify is an independent oil and natural gas producer with operations in Oklahoma, Wyoming, offshore Southern California (Beta), East Texas/North Louisiana, and the Eagle Ford.

Financial and operating performance

  • Revenue: Oil, natural gas and NGL sales were $407.8 million, up 21% from $335.8 million in 2021. Including other revenue, total revenue was $458.5 million, versus $342.9 million. Other revenue included $50.2 million of Beta loss-of-production insurance proceeds.
  • Profit: Net income was $57.9 million ($1.44 per diluted share), compared with a net loss of $32.1 million ($0.84 per share) in 2021. Results included a $106.9 million loss on commodity derivatives and $12.0 million of pipeline-incident settlement expense. No impairment expense was recorded in either year.
  • Cash flow: Operating cash flow was $64.5 million, versus $63.0 million. Investing cash use was $41.5 million, including $34.8 million of oil and gas property additions and $6.7 million added to restricted investments. Financing cash use was $41.8 million, principally reflecting $40.0 million of net revolver repayments. Adjusted EBITDA, a non-GAAP measure, was $93.8 million versus $84.7 million.
  • Production and prices: Average net production declined to 20.7 MBoe/d from 24.0 MBoe/d. Total production was 7.55 MMBoe versus 8.75 MMBoe. Average realized price, excluding derivatives, increased to $54.02/Boe from $38.39/Boe; oil was $91.34/Bbl, natural gas $6.43/Mcf and NGLs $34.11/Bbl.
  • Costs: Lease operating expense was $131.7 million, or $17.45/Boe, versus $121.4 million, or $13.88/Boe. Gathering, processing and transportation was $29.1 million ($3.86/Boe), taxes other than income $33.3 million ($4.41/Boe), G&A $30.2 million ($4.00/Boe), and DD&A $24.0 million ($3.17/Boe).
  • Reserves: Estimated proved reserves rose to 124.0 MMBoe from 121.2 MMBoe; 99% were proved developed. The filing attributes the increase primarily to higher commodity-price assumptions. Beta accounted for 13.7 MMBbls of proved oil reserves but remained shut in.
  • Debt and liquidity: Revolver borrowings were $190.0 million at year-end, down from $230.0 million; reported available borrowing capacity was approximately $20.0 million. Cash and cash equivalents were zero, and working capital was negative $40.6 million. The company reported compliance with debt covenants at year-end. Total liabilities were $464.0 million, including $114.6 million of long-term asset retirement obligations.

Material changes versus 2021

  • Higher commodity prices increased realized pricing and sales revenue, but production fell, primarily because Beta remained shut in after the October 2021 pipeline incident and because of natural decline. Oil production fell from 3.35 million barrels to 2.33 million; gas and NGL volumes also declined modestly.
  • Reported net income improved from a loss to a profit, while operating cash flow was nearly flat. Derivative losses remained substantial, though lower than in 2021; cash paid on expired derivatives was $147.9 million versus $90.2 million.
  • Unit operating costs increased, reflecting inflation and other higher costs as well as lower production over which to spread costs. Interest expense rose to $14.1 million from $12.1 million, with higher borrowing rates partly offset by lower average revolver borrowings.
  • Proved reserves increased, but the reserve valuation is highly sensitive to commodity prices, costs and engineering assumptions. The standardized measure rose to $1.338 billion from $920 million.

Outlook, risks and unusual items

  • 2023 capital plan: Management expects capital expenditures of approximately $30–$40 million, funded from operating cash flow, revolver borrowings and potentially debt or equity financing. It may adjust spending as commodity prices and other conditions change.
  • Beta incident and settlement: The pipeline had been repaired, but as of the filing the company was awaiting federal regulatory approval to restart Beta; timing was uncertain. On March 1, 2023, vessel owners/operators agreed to a $96.5 million settlement of Amplify’s affirmative claims. After insurer subrogation claims, Amplify expected to receive approximately $85 million; documentation was still being finalized. The separate $50 million class-action settlement was subject to final court approval, with a hearing scheduled for April 24, 2023.
  • The company estimated total incident costs at $160–$170 million, while noting that the estimate excludes certain unestimable or not-probable costs, future legal work, lost Beta revenue, and permanent repair/restart costs. It reported $42.0 million of incident-related insurance receivables at year-end. Beta loss-of-production insurance coverage was set to expire March 31, 2023.
  • Incident-related criminal resolutions include a federal $7.1 million fine payable over three years, approximately $5.8 million of government response-cost reimbursement, four years of probation and compliance measures; and a California $4.9 million fine, one year of probation and compliance enhancements. Further claims, regulatory actions and uncovered costs remain possible.
  • Credit constraints: The December 2022 credit amendment extended revolver maturity to May 31, 2024, set a $215 million borrowing base subject to $5 million monthly reductions beginning December 31, 2022, tightened the maximum leverage ratio to 3.00:1 and prohibited dividends through maturity. These terms make borrowing-base reductions and refinancing important liquidity risks.
  • Other risks: Commodity-price volatility, variable-rate debt, inflation and service costs, reserve uncertainty, customer concentration, decommissioning collateral requirements, and environmental and regulatory exposure are material. Three customers represented at least 10% of 2022 revenue; the largest accounted for 23%. The company had $165.9 million of future funding commitments under the Beta decommissioning trust schedule, including $8.0 million in 2023, in addition to surety bonds and other obligations.
  • Management and the independent auditor concluded that disclosure controls and internal control over financial reporting were effective as of year-end. The auditor issued unqualified opinions on the financial statements and internal controls.

Most important facts for investors to verify

  1. Whether the approximately $85 million net vessel-related settlement was finalized, paid, and reflected in subsequent-period cash flow, and how it relates to insurance recoveries and incident liabilities.
  2. Whether Beta received required approvals and restarted operations before loss-of-production insurance expired, and the resulting production, cash-flow and restart costs.
  3. Current borrowing-base availability after scheduled monthly reductions, covenant headroom, revolver maturity/refinancing plans, and ability to fund operations and the 2023 capital program.
  4. Actual incident claims, legal and regulatory exposure, insurance coverage and collections, and any additional collateral demanded for Beta decommissioning obligations.
  5. Whether production decline, realized prices, derivative settlements and rising per-unit costs support management’s liquidity and capital-spending outlook.