Amplify Energy Corp. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; filed November 6, 2023. Financial statements are unaudited. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context and reporting period
Amplify acquires, develops and produces oil, natural gas and NGLs across Oklahoma, the Rockies, offshore Southern California, East Texas/North Louisiana and the Eagle Ford. Results remain affected by the 2021 Southern California pipeline incident and the suspension and restart of Beta Field operations. Federal regulatory approvals to restart Beta operations were received in April 2023.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $76.8 | $126.3 | $228.6 | $359.5 |
| Operating income (loss) | $(12.3) | $51.2 | $20.9 | $37.3 |
| Net income (loss) | $(13.4) | $47.2 | $349.2 | $27.8 |
| Adjusted EBITDA (non-GAAP) | $19.5 | $30.8 | $62.8 | $71.9 |
| Cash from operating activities | $18.0 | $18.9 | $113.2 | $49.3 |
- Production and pricing: Average net production was 20.6 Mboe/d in Q3 and 20.4 Mboe/d for the nine months, versus 21.0 and 20.6 Mboe/d, respectively, in 2022. Realized sales price fell to $40.28/boe in Q3 and $37.72/boe for nine months, from $58.31 and $56.76. Lower commodity prices drove much of the revenue decline.
- Costs: Lease operating expense was $19.54/boe in Q3 and $18.84/boe for nine months, up from $16.56 and $17.45, largely reflecting Beta restart costs. Gathering, processing and transportation expense declined to $2.63/boe and $2.83/boe, partly as minimum-volume fees expired. DD&A was $7.5 million in Q3 and $20.4 million for nine months.
- Profit and unusual items: Nine-month net income included an $84.9 million litigation-settlement gain related to the pipeline incident and a substantial deferred tax benefit. Amplify released substantially all of its deferred-tax valuation allowance; the release generated a stated $278.8 million tax benefit. The reported nine-month deferred tax benefit was $264.1 million. Q3 net loss included a $23.3 million commodity-derivative loss.
- Cash flow and investment: Nine-month investing cash outflow was $30.0 million, including $23.1 million for oil and gas properties and $6.4 million added to restricted investments. Financing cash outflow was $76.9 million, including $70.0 million of net revolver repayments. Cash at September 30 was $6.4 million.
- Debt and liquidity: Revolver debt was $120.0 million, down from $190.0 million at year-end 2022. The new facility has a $150.0 million borrowing base and $135.0 million in elected commitments; approximately $15.0 million was available at quarter-end. The October 19 redetermination reaffirmed these amounts. The facility matures July 31, 2027; the reported Q3 weighted-average borrowing rate was 9.39%. Amplify reported a $17.0 million working-capital deficit excluding commodity derivatives and said it was in covenant compliance at September 30.
- Other obligations: Long-term debt was $120.0 million; long-term asset retirement obligations were $119.9 million, with total AROs of $121.6 million. Restricted investments were $17.7 million. The company disclosed future supplemental offshore decommissioning trust contributions of $2.0 million for the remainder of 2023 and $15.8 million annually for 2024–2033.
Material changes versus the prior comparable period
- Lower commodity prices reduced oil and gas sales revenue by about 32% in Q3 and 34% for the nine-month period, while production volumes were comparatively steady.
- Nine-month operating cash flow increased to $113.2 million from $49.3 million. The 2023 period included approximately $84.9 million received in the vessel-related incident settlement; the prior-year period included substantially larger cash derivative settlements paid.
- Debt declined by $70.0 million from December 31, 2022, following net revolver repayments. The company replaced its prior facility in July 2023 with a new facility maturing in 2027.
- Q3 results shifted from net income of $47.2 million to a $13.4 million net loss. For nine months, reported net income rose sharply, but the comparison is significantly affected by the tax valuation-allowance release and incident settlement gain.
Outlook, commentary and risks
- Management said operating cash flow and facility availability, based on current commodity-price expectations, were expected to support normal operating needs and planned 2023 development activities. For the remainder of 2023, anticipated funding sources included internally generated cash, revolver borrowings, and debt or equity markets. The filing does not provide a numerical production or earnings forecast.
- Management expects commodity prices to remain volatile and cites market, geopolitical, inflation and policy uncertainty. Hedging is intended to cover approximately 50%–75% of estimated proved-developed-producing reserves over a one-to-three-year period; the new facility also imposes minimum hedging requirements.
- Pipeline incident: Amplify estimates total incident costs of approximately $190–$210 million, subject to significant uncertainty. The estimate excludes certain potentially material costs, including some future legal services, unestimable liabilities and permanent pipeline repair/restart costs. Insurance coverage may not cover all consequences. The OPA 90 claims process and natural-resource-damage assessment remain ongoing, and PHMSA discussions concerning alleged pipeline-safety violations are unresolved. Further agency action, claims or uncovered costs could pressure liquidity.
- Incident-related settlements include a $50 million class-action settlement funded under insurance policies, federal and California criminal resolutions, and a vessel-related settlement that produced an approximately $85 million net payment to Amplify. Federal terms include a $7.1 million fine paid over three years, approximately $5.8 million in agency reimbursements and four years’ probation; state terms include a $4.9 million fine and one year of probation.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no material changes to the risk factors in its prior filings.
Most important facts for investors to verify
- How much of the reported nine-month earnings and operating cash flow reflects the tax valuation-allowance release, incident settlement proceeds and insurance recoveries, rather than recurring operations.
- The remaining estimated pipeline-incident costs, insurance recoverability, status of OPA 90 and natural-resource-damage claims, and any further regulatory or litigation exposure.
- Beta Field production, operating costs and cash contribution following restart, including whether higher lease operating costs persist.
- Liquidity headroom and covenant compliance under the new facility, including the effects of borrowing-base redeterminations, interest rates and required hedging.
- Commodity-price and hedge exposure, particularly the potential effects of derivative settlements and fair-value changes on earnings and cash flow.