Amplify Energy Corp. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; filed November 5, 2020. Amplify is an oil and natural gas producer with assets in Oklahoma, the Rockies, offshore Southern California, East Texas/North Louisiana, and South Texas. Unless noted otherwise, dollar amounts below are in millions.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Oil and gas sales | $52.5 | $72.4 | $145.2 | $197.0 |
| Net income (loss) | ($17.7) | $5.2 | ($426.2) | ($7.7) |
| Adjusted EBITDA, non-GAAP | $24.8 | $27.9 | $63.3 | $66.0 |
| Net cash from operating activities | $20.6 | ($7.4) | $63.6 | $25.9 |
| Capital expenditures/additions to oil and gas properties | Not separately stated | Not separately stated | $31.2 | $63.0 |
- Q3 average production was 27.7 MBoe/d versus 28.8 MBoe/d; realized price fell to $20.63/Boe from $27.37/Boe. For nine months, production rose to 28.3 MBoe/d from 23.8 MBoe/d, but realized price declined to $18.69/Boe from $30.30/Boe.
- Q3 lease operating expense was $27.6 million ($10.86/Boe); gathering, processing and transportation was $5.3 million ($2.07/Boe). Nine-month LOE was $91.2 million ($11.74/Boe); gathering, processing and transportation was $15.0 million ($1.93/Boe).
- The filing does not present a headline gross or operating margin. Q3 operating loss was $14.3 million; the nine-month operating loss was $408.3 million, including a $455.0 million impairment charge.
- At September 30, cash was $13.5 million, working capital was $11.1 million, total debt was $270.5 million, and stockholders’ equity was $4.0 million. Debt included $265.0 million drawn under the revolver and a $5.5 million PPP loan. The revolver borrowing base was $270.0 million, leaving about $5.0 million of availability. The company reported compliance with its covenants at quarter-end.
- Cash from operations benefited from derivative cash receipts, including $53.1 million on expired contracts and $18.0 million on terminated contracts during the nine-month period. Net financing cash use was $18.3 million; investing cash use was $32.1 million.
Material changes versus prior periods
- Q3 sales declined 27% year over year, reflecting lower commodity prices and lower production. The nine-month sales decline was partly offset by additional production following the 2019 merger; the company cautions that merger accounting makes some comparisons less meaningful.
- The nine-month net loss included $405.7 million of impairment on proved properties and $49.3 million on unproved properties, primarily tied to lower commodity prices and expiring leases. No Q3 impairment was recorded.
- Q3 G&A decreased to $6.4 million from $27.0 million, largely because prior-year costs included merger-related acquisition expenses and other higher professional, insurance, and legal costs. Q3 LOE also fell, reflecting lower activity and cost-saving measures.
- Q3 derivative results were a $14.4 million loss, compared with a $28.7 million gain in Q3 2019. Nine-month derivative results were a $74.2 million gain, including cash received from terminated hedges. These mark-to-market amounts can be volatile.
Outlook, risks and unusual items
- Management anticipated further market and commodity-price volatility for the remainder of 2020 because of COVID-19, uncertain demand recovery, and oil supply conditions. No specific production, revenue, earnings, or capital-spending guidance is provided.
- The June 2020 credit amendment cut the borrowing base from $450 million to $285 million, with monthly $5 million reductions until it reaches $260 million effective November 1, 2020. The company also faces semiannual redeterminations, tighter lien and hedging requirements, and a mandatory cash sweep if defined cash exceeds $25 million for five consecutive business days.
- NYSE notices cited both market capitalization/stockholders’ equity and share-price deficiencies. The shares remained listed during cure periods, but failure to regain compliance could lead to suspension or delisting. The share-price notice was received after quarter-end, on October 13, 2020.
- Beta royalty relief took effect July 1, reducing rates on specified offshore leases, subject to price and other conditions. The company also monetized part of its 2021 crude oil hedges for approximately $18 million in April.
- The quarterly dividend was suspended after a $0.10-per-share dividend paid in March. Management anticipated substantial forgiveness of the $5.5 million PPP loan; forgiveness was not assured in this filing.
- Minimum-volume commitments generated about $1.0 million of Oklahoma expense for the nine months; the company accrued $1.2 million for an anticipated East Texas shortfall. Offshore decommissioning obligations are supported by $161.3 million of surety bonds and $0.3 million of cash. Recorded asset retirement obligations were $95.6 million.
- Management cited possible further impairments, lower cash flows, reduced borrowing capacity, production curtailments, counterparty risk, and financing constraints. It reported no material litigation believed likely to adversely affect the company and no environmental reserves at quarter-end.
Key facts investors should verify
- How much revolver availability remains after scheduled borrowing-base reductions and the next redetermination, and whether the company continues to satisfy all covenants.
- Whether the PPP loan is forgiven and whether operating cash flow can fund debt service, working capital, and planned capital needs amid weak prices.
- The realized effects of hedges, including settlement cash flows, hedge coverage, counterparty exposure, and the limits those contracts place on upside.
- Whether NYSE deficiencies are cured within the applicable periods and the consequences for share liquidity and access to capital.
- Whether commodity prices or reserve revisions lead to further impairments, and how minimum-volume and decommissioning obligations evolve.