Filing summary: Midstates Petroleum Company, Inc. 2018 Q2 Form 10-Q
Entity discrepancy: The request names Amplify Energy Corp., but the supplied filing is for Midstates Petroleum Company, Inc. The summary below reflects the filing text and should not be attributed to Amplify without verification.
Business context and reporting period
The unaudited report covers the three and six months ended June 30, 2018. Midstates is an oil and gas exploration and production company operating in Oklahoma, with its remaining operations focused on the Mississippian Lime. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless noted.
Key financial metrics
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue, including derivative gains/losses | $42.3M | $60.7M | $91.2M | $125.7M |
| Revenue from customer contracts | $53.7M | $53.2M | $106.5M | $113.3M |
| Operating income (loss) | $(0.2)M | $15.0M | $5.6M | $34.4M |
| Net income (loss) | $(1.5)M | $13.7M | $2.5M | $32.2M |
| Basic and diluted EPS | $(0.06) | $0.53 | $0.09 | $1.25 |
- Six-month operating cash flow was $49.3M, compared with $63.2M in 2017. Investing cash flow was $(11.1)M, including $65.8M of property and equipment investment and $54.4M net proceeds from the asset sale. Financing cash flow was $(100.5)M, principally the RBL repayment.
- Cash was $6.3M at June 30, down from $68.5M at year-end 2017. Net working capital was $(27.2)M.
- Long-term debt was $28.1M, down from $128.1M. The $170M RBL borrowing base had $140M available after $1.9M in letters of credit. The facility matures September 30, 2020; weighted-average interest was 8.0%. The company reported covenant compliance.
- Total stockholders’ equity was $492.0M. The filing does not state operating or net margin as a reported metric.
Material changes versus the prior comparable period
- Q2 net loss replaced prior-year net income. Total revenue fell largely because commodity derivatives generated a net loss of $11.3M in Q2 2018 versus a $7.5M gain in Q2 2017. Six-month derivative results were a $15.3M loss versus a $12.4M gain.
- Customer-contract revenue was broadly flat in Q2, while six-month customer-contract revenue declined. Lower production volumes and lower natural gas prices contributed; higher oil and NGL prices partly offset volume declines.
- Average Q2 Mississippian Lime production was 17,202 Boe/day, down 5.9% year over year. Production increased 10.9% from Q1 2018. Six-month Mississippian Lime production was down 13.4% year over year.
- On May 31, Midstates sold its Anadarko Basin assets for $58.0M gross, or $54.4M net of closing adjustments. It used $50.0M of net proceeds to repay RBL borrowings and retained the balance for general corporate purposes. The sale reduced reported ARO liabilities by $8.7M.
- Midstates adopted ASC 606 in 2018. Certain gathering and transportation costs are presented net against revenue rather than as expenses; the filing says this presentation change did not affect net income or cash flow.
Outlook, commentary, risks and contingencies
- Management expected to invest $100M–$110M in the Mississippian Lime during 2018, based on a one-rig program. Operational capital expenditures incurred were $71.4M in the first half of 2018.
- Management said operating cash flow, cash on hand and RBL availability were expected to fund anticipated capital expenditures, debt service and contractual commitments. This outlook is subject to commodity prices, production, capital-market access and operational factors.
- Commodity-price exposure is partly hedged with swaps and three-way collars. At June 30, net derivative fair value was a liability of $14.8M. Derivative losses and settlements can materially affect reported revenue and cash flow.
- Management cited Oklahoma saltwater-disposal limits and seismicity concerns as operational risks. It reported compliance with current regulator requests and no material production impact to date, but future restrictions or inability to obtain permits could raise costs or reduce production.
- Other key risks include natural production declines, drilling results, commodity-price volatility, reserve estimates, infrastructure and disposal capacity, and potential future full-cost ceiling-test impairments. No oil and gas property impairment was recorded in the first half of 2018.
- Accrued loss contingencies were $1.1M at June 30, 2018. The filing describes ordinary-course legal, regulatory, commercial, royalty, environmental and other matters; management did not expect pending legal actions to have a material adverse effect. No material risk-factor changes were reported.
- The company recorded no income tax expense or benefit for the first half. Its $119.4M valuation allowance reflects management’s view that realization of deferred tax assets was not more likely than not; accounting for certain Tax Act effects remained provisional.
Most important facts for investors to verify
- Confirm the issuer: the provided filing is Midstates Petroleum, not Amplify Energy.
- Review the Anadarko sale’s final post-closing adjustments and the resulting remaining asset and production base.
- Assess whether cash, $140M of RBL availability and operating cash flow can support the capital program and liquidity needs, particularly given negative working capital.
- Check production trends, realized commodity prices, derivative settlements and mark-to-market exposure against subsequent results.
- Monitor RBL borrowing-base redeterminations, covenant compliance, Oklahoma disposal restrictions and any resulting cost or production effects.