Amplify Energy Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 5, 2021. Amplify is an oil and natural gas producer operating in Oklahoma, the Rockies, offshore Southern California, East Texas/North Louisiana and the Eagle Ford.
Financial performance and condition
- Revenue: Oil and gas sales were $72.3 million, up from $57.8 million in Q1 2020. Oil revenue was $49.7 million, NGL revenue $7.7 million and natural gas revenue $15.0 million.
- Production and realized prices: Average net production fell to 24.7 MBoe/d from 29.7 MBoe/d. Average realized price rose to $32.56/Boe from $21.41/Boe, excluding derivatives.
- Profit and margins: Net loss was $19.3 million, or $0.51 per share, compared with a $367.2 million loss, or $9.77 per share. Operating loss was $16.2 million. The filing does not provide a clear gross-margin figure.
- Derivatives: Commodity derivative losses were $34.6 million versus gains of $107.7 million in Q1 2020. These mark-to-market results are recorded in earnings because the company does not apply hedge accounting.
- Cash flow and capital spending: Operating cash flow was $15.6 million, compared with $13.1 million. Investing cash outflow was $4.1 million, including $3.8 million for oil and gas properties; total capital expenditures were approximately $5.8 million. Cash increased to $16.8 million from $10.4 million.
- Non-GAAP measure: Adjusted EBITDA was $22.9 million, up from $17.2 million. The company cautions that this measure is not a substitute for GAAP earnings or cash flow.
- Debt and liquidity: Debt was $255.5 million, consisting of $250.0 million drawn on the revolving facility and a $5.5 million PPP loan. The facility borrowing base was $260.0 million, with approximately $10.0 million of availability; maturity is November 2023. The company reported covenant compliance. Working capital was negative $17.7 million.
- Balance sheet: Total assets were $391.6 million and total liabilities $444.8 million, leaving a stockholders’ deficit of $53.3 million. Long-term asset retirement obligations were $98.2 million.
Changes versus Q1 2020
- Sales increased as prices recovered from depressed Q1 2020 levels, despite lower production. Production decline and Winter Storm Uri, which shut in wells, pipelines and plants for about two weeks in February, contributed to the volume decrease.
- Lease operating expense declined to $28.9 million from $35.7 million, reflecting cost-saving initiatives; expense per Boe was broadly similar at $13.01 versus $13.23. General and administrative expense fell to $6.9 million from $8.4 million.
- No impairment was recorded in Q1 2021, compared with $455.0 million in Q1 2020, including impairments of proved and unproved properties. This was the principal reason the reported net loss was substantially smaller.
- Derivative results swung from a $107.7 million gain to a $34.6 million loss. Interest expense declined to $3.1 million from $7.6 million, mainly reflecting lower borrowings and different interest-rate swap results.
- Cash dividends were suspended after the $3.8 million payment in Q1 2020. No dividend was paid in Q1 2021.
Outlook, commentary and risks
- Management expects operating cash flow and available revolving-facility capacity to fund remaining-2021 needs, including capital expenditures and debt service. It did not provide specific production, revenue, earnings or capital-spending guidance in the supplied filing text.
- The company uses commodity derivatives to reduce cash-flow volatility and intends, subject to market conditions and permitted flexibility, to hedge approximately 30%–65% of estimated proved-developed-producing production over a one-to-three-year period. Hedging also limits benefits if prices rise.
- COVID-19-related economic and demand uncertainty remained unresolved. Management cited commodity-price volatility, borrowing-base redetermination, access to financing, covenant and debt-service capacity, reserve uncertainty, operating risks and potential future impairments among material risks.
- The company was below minimum-volume requirements under Oklahoma and East Texas contracts; Q1 commitment-fee expense was approximately $0.4 million and $0.7 million, respectively.
- Offshore California decommissioning obligations are supported by $161.3 million of A-rated surety bonds and $0.3 million of cash. No environmental reserves were recorded, and management reported no known litigation expected to materially affect the company, while noting outcomes could affect cash flow.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The Vice President and Chief Accounting Officer announced retirement effective after an orderly transition; the filing said the decision was for personal reasons.
Key facts for investors to verify
- Whether the next borrowing-base redetermination changes the $260.0 million base or the approximately $10.0 million of available capacity.
- Production recovery after Winter Storm Uri and the ongoing natural decline in the asset base.
- Hedge volumes, settlement cash flows and exposure to commodity-price changes, including the effect of hedges that limit upside.
- Progress toward meeting minimum-volume commitments and any additional contract fees or liabilities.
- PPP loan forgiveness status, and the funding and timing of substantial plugging, abandonment and offshore decommissioning obligations.
- Whether operating cash flow can support capital needs and debt service given the working-capital deficit and limited revolving-facility headroom.