Filing summary
Entity and period: The supplied filing is Midstates Petroleum Company, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2013, not an Amplify Energy Corp. filing. Confirm the issuer before relying on this summary. Financial amounts below are in U.S. dollars; “$ million” denotes millions.
Business context and reporting period
Midstates explores for and produces oil, natural gas and natural gas liquids (NGLs), with operations in Louisiana and, following its October 2012 Eagle acquisition, Oklahoma and Kansas. The comparison with first-quarter 2012 is affected by the acquired Mid-Continent assets being included only in 2013 results. The interim statements are unaudited.
Financial and operating metrics
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Oil, gas and NGL sales, before derivative losses | $90.7 million | $54.8 million |
| Total reported revenue, including net derivative losses | $71.0 million | $30.2 million |
| Operating loss | $2.1 million | $15.8 million |
| Net loss | $7.9 million | $17.5 million |
| Net loss attributable to common shareholders | $12.1 million | $17.5 million |
| Operating cash flow | $62.2 million | $34.3 million |
| Cash used in investing activities | $132.5 million | $72.5 million |
| Cash provided by financing activities | $102.1 million | $40.0 million |
| Average daily production | 16,208 Boe/d | 8,275 Boe/d |
- Reported operating margin was approximately negative 2.9% of revenue; this uses revenue after derivative losses.
- Cash and cash equivalents were $50.6 million at March 31, up from $18.9 million at December 31, 2012. Management reported liquidity of approximately $139 million, including $88 million of revolver availability.
- Total debt was $796.5 million: $196.5 million drawn on the revolving facility and $600 million of 10.75% senior notes due 2020. Net debt, using reported cash, was approximately $745.8 million.
- Current assets were $135.3 million and current liabilities $168.8 million; the company reported a covenant-defined current ratio of 1.4x. Its debt-to-EBITDA covenant ratio was 3.48x, within the 4.0x maximum.
- Capital expenditures incurred were $132.8 million, including $7.1 million of capitalized interest. The cash flow statement reports $132.5 million of investing outflows; accrued, unpaid property investment was $82.6 million.
Material changes versus the prior comparable period
- Production nearly doubled, up 96%, primarily reflecting the Eagle acquisition. Oil, NGL and natural gas sales increased 66% to $90.7 million, while reported total revenue rose to $71.0 million after derivative losses.
- Average realized oil price excluding realized derivatives fell 9% to $101.08/Bbl; NGL price fell 29% to $35.04/Bbl; natural gas price rose 20% to $3.14/Mcf. The filing attributes lower oil pricing in part to the Mid-Continent’s WTI-linked production versus Gulf Coast LLS pricing.
- Net derivative losses were $20.1 million, including $15.1 million unrealized and $5.0 million realized, compared with $24.7 million in Q1 2012. Derivatives are not designated as accounting hedges, so fair-value changes affect reported revenue.
- Operating loss narrowed, but reported interest expense net of capitalized interest increased to $10.9 million from $1.7 million, principally because of the $600 million notes issued in October 2012. The $5.0 million tax benefit also contributed to the smaller net loss.
- Lease operating and workover expense rose to $13.9 million from $6.5 million; management cited acquired operations, added wells, workovers and winter-weather power disruptions. DD&A rose in dollars but declined to $28.77/Boe from $37.22/Boe.
Outlook, commentary, risks and unusual items
- For the remainder of 2013, management planned $100–$110 million of Gulf Coast investment and eight to ten wells, and approximately $180–$200 million of Mid-Continent investment and 58–62 wells, including non-operated wells. These are plans, not guaranteed results.
- On April 3, 2013, after quarter-end, the company agreed to acquire Anadarko Basin properties for $620 million cash, subject to adjustment and closing conditions; closing was expected around May 31. A $62 million termination fee could apply for a material breach.
- To support the proposed acquisition, the company had a commitment for up to $620 million of unsecured bridge financing and a proposed revolving-credit amendment increasing the borrowing base to $425 million. These arrangements were conditional on closing and other customary conditions. The bridge would initially carry LIBOR (with a 1.50% floor) plus 7.50% or 8.00%, with possible increases, and mature one year after closing.
- Management said liquidity, expected operating cash flow and financing would meet operating needs through at least Q2 2014 if the acquisition closed; without access to external funding, it might reduce planned capital spending. The acquisition was expected to materially increase debt and could reduce cash and financial flexibility.
- Hedges covered portions of expected oil, gas and NGL production through 2015. Derivative liabilities were $22.3 million net of permitted balance-sheet offsets; management estimated maximum counterparty loss of about $3.1 million after netting arrangements. The revolver borrowing base was subject to redetermination, with the next scheduled review in September 2013.
- The Louisiana Supreme Court ruled for the company in the Clovelly dispute on March 19, 2013; rehearing was denied May 3, after quarter-end. The company intended to seek dismissal, so confirm subsequent case developments. Management said other ordinary-course matters were not expected to have a material adverse effect.
- Series A preferred stock carried an 8% cumulative dividend. The company paid the March 2013 dividend by increasing the liquidation preference, rather than paying cash; the quarter’s preferred dividend allocation was $4.1 million.
- Management reported effective disclosure controls. A new accounting, production and land IT system was being implemented; management expected it to improve internal controls when fully implemented.
Most important facts for investors to verify
- Confirm the filing belongs to the intended issuer: this document names Midstates Petroleum Company, Inc., not Amplify Energy Corp.
- Check whether the Anadarko acquisition closed, its final purchase price and financing, and the resulting debt, liquidity and covenant position.
- Review subsequent production, well performance and capital spending against the company’s 2013 plans, including the effects of weather and downtime.
- Assess hedge volumes, prices, fair values and realized cash impacts alongside unhedged commodity-price exposure.
- Reconcile reported cash flow with accrued capital expenditures and assess the company’s ability to fund drilling and debt service.
- Verify preferred-stock dividend accruals and potential dilution; the filing describes a substantial possible common-share issuance upon conversion.