Amplify Energy Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Comparisons are with Q1 2022. Amounts are in millions of dollars unless otherwise stated.
Business context
Amplify acquires, develops and produces oil and natural gas 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 Beta Field shutdown. The Beta Field restarted and began selling oil on April 24, 2023, after regulatory approvals and pipeline testing.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $79.9 | $111.4 |
| Oil and gas sales | $66.3 | $93.9 |
| Operating income (loss) | $26.6 | $(46.2) |
| Net income (loss) | $352.8 | $(48.6) |
| Adjusted EBITDA | $25.8 | $24.9 |
| Operating cash flow | $90.3 | $9.7 |
| Capital expenditures | Approximately $9.0 | Not stated here |
- Average production was 19.4 MBoe/d, down from 20.4 MBoe/d; management attributed the decline primarily to natural declines.
- Average realized price, excluding derivatives, fell to $37.99/Boe from $51.10/Boe. Oil was $72.52/Bbl, NGLs $23.92/Bbl and natural gas $3.71/Mcf.
- Other revenue included $13.5 million of loss-of-production-income insurance proceeds. Q1 2022 included $17.5 million of such proceeds.
- Operating cash flow exceeded Adjusted EBITDA; reported cash flows reflected working-capital changes and other adjustments. Investing cash use was $10.4 million and financing cash use was $67.1 million, including $65.0 million of net revolving-credit-facility repayments.
- Cash was $12.8 million at quarter-end. Working capital was a deficit of $17.1 million. Revolver debt was $125.0 million, with approximately $70.0 million of available borrowing capacity; the borrowing base was $195.0 million.
- Quarter-end total assets were $719.3 million, total liabilities $372.3 million and stockholders’ equity $347.0 million. The company reported a $116.5 million long-term asset retirement obligation.
- The revolver matures May 31, 2024. Its weighted-average interest rate rose to 9.73% from 3.79% in Q1 2022. The company said it complied with its covenants at March 31, 2023.
Material changes and unusual items
- Net income included a $84.9 million litigation settlement gain related to the shipping companies’ settlement over the pipeline damage, and a $259.5 million deferred tax benefit. The tax benefit largely reflects release of substantially all of a prior valuation allowance; the reported net income is therefore not representative of recurring operating earnings.
- Commodity derivatives produced a $15.2 million gain in Q1 2023, versus a $93.4 million loss in Q1 2022. The company does not apply hedge accounting, so fair-value changes affect reported earnings.
- Oil and gas sales declined with lower commodity prices and modestly lower production. Lease operating expense was nearly flat in total but increased to $18.89/Boe from $17.92/Boe, primarily as lower production spread costs over fewer units.
- The company repaid $65.0 million net on its revolver during the quarter. The approximately $85.0 million net shipping-company settlement proceeds were used to reduce debt and enhance liquidity.
Outlook, risks and contingencies
- Management said operating cash flow and revolver availability, based on its commodity-price expectations, should support normal cash needs and currently planned 2023 development activities. No numerical earnings or production guidance was provided.
- Management expects commodity prices to remain volatile. Its stated hedging strategy targets coverage of approximately 30%–75% of estimated proved-developed-producing reserves over a one-to-three-year period, but actual coverage may vary. At March 31, 2023, open positions included 2023 oil swaps at a weighted-average $57.31/Bbl and gas collars with a $3.49/MMBtu floor and $5.81/MMBtu ceiling.
- The pipeline incident remains a material uncertainty. The company estimated total incident costs of approximately $160 million–$175 million, subject to assumptions and potentially material revisions. This estimate excludes certain costs that are not reasonably estimable, including some future legal services and any uncovered claims. The company noted that insurance may not cover all losses.
- The $50.0 million class-action settlement was finally approved April 24, 2023 and is expected to be funded through insurance. Separate federal and California criminal resolutions include fines, reimbursement, probation and operational compliance measures. PHMSA notified the company of its positions regarding probable pipeline-safety violations on April 6, 2023; the company said it would respond. The OPA 90 claims process and natural-resource-damage assessment remain ongoing.
- Incident-related LOPI coverage expired March 31, 2023. The full production impact of the prolonged Beta shut-in remains uncertain, including possible well-performance or equipment issues after restart.
- The company reported a $6.0 million remaining 2023 funding commitment to its decommissioning trust and $15.8 million annually for 2024–2033. It was not meeting an Oklahoma minimum-volume commitment; related fees were approximately $0.1 million in Q1, and the commitment expires June 30, 2023.
- The revolver borrowing base is subject to periodic redetermination and the facility matures in May 2024. The filing identifies commodity-price volatility, borrowing-base changes, covenant and refinancing access, incident liabilities, and insurance recovery as key risks.
Important facts for investors to verify
- Whether Beta production and cash generation after the April 2023 restart meet management expectations, and how output compares with pre-shutdown levels.
- Collection and timing of the approximately $85.0 million net shipping-company settlement, insurance recoveries, and remaining incident-related payments and claims.
- Progress and potential financial impact of the OPA 90 process, natural-resource-damage assessment and PHMSA proceedings.
- Liquidity, covenant headroom, borrowing-base redeterminations and refinancing plans ahead of the May 2024 revolver maturity, especially with the 9.73% reported borrowing rate.
- Underlying earnings and cash generation excluding the valuation-allowance release, settlement gain, derivative fair-value movements and incident-related insurance proceeds.