Amplify Energy Corp. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; filed November 1, 2022. Amplify acquires, develops and produces oil, natural gas and NGLs in several U.S. regions, including offshore Southern California.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $126.3 million | $97.0 million | $359.5 million | $249.9 million |
| Net income (loss) | $47.2 million | $(13.5) million | $27.8 million | $(67.8) million |
| Operating income (loss) | $51.2 million | $(10.3) million | $37.3 million | $(63.9) million |
| Net cash from operations | $18.9 million | $18.9 million | $49.3 million | $55.3 million |
| Capital additions to oil and gas properties | Not separately provided | Not separately provided | $26.2 million | $23.1 million |
- Oil and gas sales rose 16% in Q3 and 28% for the nine-month period year over year. Higher realized prices more than offset lower production. Q3 average realized price was $58.31/Boe versus $41.89; nine-month average was $56.76 versus $36.51.
- Net production declined to 21.0 MBoe/d in Q3 from 25.1 MBoe/d, and to 20.6 MBoe/d for nine months from 25.0 MBoe/d. The company attributed the decline mainly to the shut-in Beta properties and natural declines.
- Other revenue included $13.3 million of loss-of-production-income insurance proceeds in Q3 and $39.6 million for the nine-month period. Excluding that context, reported total revenue includes insurance proceeds, not only product sales.
- Q3 net margin was approximately 37% of revenue; nine-month net margin was approximately 8%. These are simple calculations from reported figures. Nine-month results included a $108.7 million commodity-derivative loss, including $120.3 million of cash settlements paid on expired contracts; Q3 recorded a $3.3 million derivative gain.
- At September 30, cash was $10.9 million, total current assets $106.4 million and current liabilities $155.2 million, a $48.9 million working-capital deficit. Long-term debt was $205.0 million; total stockholders’ deficit was $35.3 million.
- The revolving credit facility had a $225 million borrowing base, approximately $20 million of remaining availability, and a November 2, 2023 maturity. The company reported covenant compliance at quarter-end. Its weighted-average borrowing rate was 5.91% in Q3, up from 3.64% a year earlier.
- Cash declined $7.9 million during the first nine months to $10.9 million. Investing used $31.6 million and financing used $25.6 million, including net $25.0 million of revolver repayments.
Material changes and management commentary
- Profitability improved substantially year over year, reflecting stronger commodity prices and lower derivative losses than in 2021; production remained lower because Beta was offline.
- Per-Boe operating costs increased: nine-month lease operating expense was $17.45/Boe versus $13.47, gathering and transportation was $4.05 versus $2.15, and production taxes were $4.50 versus $2.30. The company cited inflation, lower volumes, higher commodity prices and changes to Oklahoma gas marketing.
- Adjusted EBITDA, a non-GAAP measure, was $30.8 million for Q3 versus $27.1 million, and $71.9 million for nine months versus $73.9 million.
- Management said operating cash flow and revolver availability, based on its current commodity-price expectations, should support normal operating needs and planned 2022 development activity. It gave no specific forward financial guidance. It intends to hedge approximately 50%–60% of estimated proved-developed-producing volumes over a one-to-three-year period, while retaining flexibility.
Incident, risks and contingencies
- The Southern California pipeline incident left Beta production shut in. Permanent repairs were ongoing as of November 1, 2022; restart depends on regulatory approvals, and the company gave no assurance whether or when operations will resume. The loss of Beta production, repair costs and restart timing remain important uncertainties.
- The company estimated total incident costs of approximately $120 million–$140 million, excluding certain costs that were not reasonably estimable, potential lost revenue, and permanent repair and restart costs. It recorded $12 million for federal and California criminal resolutions; the company also agreed to federal payments of about $7.1 million in fines and $5.8 million in agency response reimbursements, and a $4.9 million state fine.
- A $50 million civil class-action settlement was agreed in principle and expected to be funded under insurance, but remained subject to court approval when the filing was made. Insurance coverage is not assured for all incident costs. The natural-resource-damage assessment and OPA 90 claims process remained ongoing, and uncovered costs could pressure liquidity.
- The company reported a $30.6 million insurance receivable at September 30. It also reported an estimated $8 million of contingent liabilities associated with litigation. The company’s estimated incident costs and expected insurance recovery depend on uncertain assumptions.
- Additional risks include commodity-price volatility, derivative cash settlements and counterparty performance, inflation, covenant and borrowing-base redetermination risk, the revolver’s 2023 maturity, and long-term offshore decommissioning obligations. The filing disclosed no material changes to the risk factors in its 2021 Form 10-K.
Most important facts for investors to verify
- Regulatory approvals, repair progress and any restart date or revised outlook for Beta production and related revenue.
- Final court approval and insurance funding of the $50 million civil settlement, plus the amount and timing of other incident-related payments and recoveries.
- Future incident liabilities, including OPA 90 claims and natural-resource damages, and any effects on cash, working capital or borrowing availability.
- Revolver availability, borrowing-base redeterminations, covenant compliance and refinancing plans ahead of the November 2023 maturity.
- Hedge positions and cash settlements, given their substantial impact on reported earnings and operating cash flow.