Filing identity and reporting period
Important mismatch: The supplied filing is Midstates Petroleum Company, Inc.’s 2016 Form 10-K, not an Amplify Energy Corp. filing. It covers the fiscal year ended December 31, 2016, with separate predecessor results through October 20 and successor results from October 21 after emergence from Chapter 11. Fresh start accounting makes these periods not directly comparable; the filing does not provide a standalone fourth-quarter income statement on a comparable basis.
Business context and financial results
Midstates was an independent oil and gas producer focused on the Mississippian Lime and Anadarko Basin in Oklahoma and Texas. The Mississippian Lime represented 96% of proved reserves at year-end. Average daily production was 29,816 Boe during the 2016 predecessor period and 24,971 Boe during the successor period.
- Revenue: Successor-period revenue was $48.5 million; predecessor-period revenue was $193.2 million. These figures cover different-length periods and different reporting entities.
- Profit: Successor-period net income was $9.9 million. Predecessor-period net income was $1.323 billion, driven principally by $1.594 billion in net reorganization income, including a $1.271 billion gain on settlement of liabilities. The predecessor also recorded a $232.1 million oil and gas property impairment.
- Cash flow: Operating cash flow was $23.6 million in the successor period and $62.0 million in the predecessor period. Investing cash outflow was $23.3 million and $133.3 million, respectively. Financing cash flow was zero in the successor period and $66.8 million in the predecessor period.
- Margins and costs: Successor-period lease operating and workover costs were $8.52 per Boe, versus $6.02 in the predecessor period; management attributed the successor-period increase partly to weather disruptions that reduced production. DD&A was $7.22 per Boe and $7.11 per Boe, respectively. Comparable margin measures are not clearly presented.
- Liquidity and debt: Year-end cash was $76.8 million; net working capital was $67.6 million. Exit Facility debt was $128.1 million, with $1.9 million of letters of credit and no remaining borrowing availability. The $170 million borrowing base was subject to a temporary $40 million availability reduction. The facility matures September 2020 and had a 5.50% weighted-average interest rate at year-end.
- Reserves: Proved reserves totaled 177.0 million Boe, including 107.4 million Boe proved undeveloped. PV-10 was $578.2 million; the standardized measure of discounted future net cash flows was $530.0 million.
Material changes versus prior periods
- After filing for Chapter 11 on April 30, 2016, the company emerged on October 21. The plan extinguished approximately $1.796 billion of predecessor debt excluding the Exit Facility; predecessor shareholders’ interests were cancelled without consideration.
- At year-end 2015, total debt was $1.891 billion and cash was $81.1 million. At year-end 2016, debt was $128.1 million and cash was $76.8 million. The successor’s $561.8 million equity balance reflects restructuring and fresh start accounting, not ordinary operating performance.
- For 2015 versus 2014, revenue declined from $794.2 million to $365.1 million, and net loss was $1.797 billion, including $1.626 billion of property impairment. Lower commodity prices were a major driver.
- Cash interest was expected to fall from approximately $173.7 million annually before restructuring to about $7.0 million, an estimated annual saving of $166.7 million.
Outlook, risks, and unusual items
- Management planned to invest $90–$100 million in 2017, primarily in Mississippian Lime development, and expected to drill 24–26 gross operated wells there. It expected operating cash flow and cash on hand to fund planned capital needs; execution depends on commodity prices and the Exit Facility’s restrictions.
- The company had no commodity derivatives at December 31, 2016, but entered into oil and gas hedges afterward for portions of 2017 and early 2018. Oil swaps were generally near $55 per barrel; hedge collars included floors near $50. Gas swaps were near $3.38 per MMBtu in several 2017 quarters.
- Key risks include volatile oil and gas prices, concentrated operations and purchasers, reserve-estimation uncertainty, borrowing-base and covenant constraints, and dependence on third-party transport and processing. The company had no unused Exit Facility capacity at year-end.
- Oklahoma saltwater-disposal restrictions related to seismic activity had affected some operated wells. The company said it had complied with regulator requests without a material production impact, but further restrictions could raise costs or constrain production. Environmental, water-disposal, hydraulic-fracturing, and regulatory changes also pose risks.
- About 29,070 net undeveloped acres were scheduled to expire in 2017 unless preserved or extended. The company did not expect to operate rigs in the Anadarko Basin in 2017, and acknowledged possible loss of leasehold there.
- Other items to note: fresh start accounting reset asset and liability values; estimated cancellation-of-debt income was approximately $1.2 billion and was expected to reduce tax attributes; a full $160.8 million valuation allowance remained against net deferred tax assets. Accrued loss contingencies were $1.1 million.
Important facts for investors to verify
- Confirm the issuer and filing: the source is Midstates Petroleum, not Amplify Energy.
- Review the full audited statements and restructuring notes to distinguish successor from predecessor results and understand the $1.594 billion reorganization gain.
- Check current borrowing-base availability, covenant headroom, liquidity, and the terms and status of the Exit Facility.
- Assess 2017 capital spending, drilling execution, production declines, lease expirations, and the economic assumptions supporting proved undeveloped reserves.
- Verify subsequent hedge positions, realized-price exposure, customer concentration, and the operational impact of saltwater-disposal restrictions.