Filing and reporting period
Important entity discrepancy: The provided filing is Midstates Petroleum Company, Inc.’s 2017 Form 10-K, not an Amplify Energy Corp. filing. It reports the fiscal year ended December 31, 2017; fourth-quarter figures are also presented. The company was an independent oil and gas producer focused on Oklahoma and Texas and had emerged from Chapter 11 in October 2016. Fresh-start accounting means post-emergence results are not directly comparable with predecessor-period results.
Financial and operating highlights
- Revenue: $228.8 million for 2017, including $220.9 million from oil, NGL and natural gas sales, $3.7 million in net derivative gains and $4.2 million of other revenue. Fourth-quarter revenue was $53.3 million.
- Profit and impairment: 2017 net loss was $85.1 million, or $3.39 per share; operating loss was $79.5 million. Fourth-quarter net loss was $121.0 million and operating loss was $119.2 million, primarily reflecting a $125.3 million oil and gas property impairment. Adjusted EBITDA, a non-GAAP measure, was $125.2 million for the year.
- Cash flow and investment: Operating cash flow was $119.6 million; cash used in investing was $126.0 million. Cash capital investment in property and equipment was $130.2 million, while total capital expenditures incurred were $140.4 million. Cash declined $8.3 million to $68.5 million.
- Production and costs: Average production was 22,148 Boe/day. Average realized prices, including realized derivatives, were $50.92/bbl for oil, $22.64/bbl for NGLs and $2.79/Mcf for gas. Lease operating and workover costs were $7.83/Boe; gathering and transportation, $1.79/Boe; and DD&A, $8.14/Boe. Impairment expense was $15.50/Boe.
- Reserves: Proved reserves were 108.9 million Boe at year-end, including 44.5 million Boe proved undeveloped. The standardized measure of discounted future net cash flows was $549.2 million; PV-10 was $558.1 million. These reserve valuation measures are not estimates of market value.
- Liquidity and debt: Cash plus available borrowing capacity was $108.5 million. The $170.0 million borrowing base had $128.1 million drawn and $1.9 million in letters of credit, leaving $40.0 million available. Debt matures September 2020, bears interest at LIBOR plus 4.50% (1.00% floor), and had a 6.3% weighted-average rate. The company reported compliance with debt covenants at year-end.
Material changes versus prior periods
- Oil and gas sales revenue rose from $47.6 million in the post-emergence portion of 2016 to $220.9 million in 2017, but the 2016 comparator covers only October 21–December 31 and is not a full-year comparison. Fresh-start accounting further limits comparability.
- Production averaged 22,148 Boe/day in 2017, below the reported 29,816 Boe/day in the January–October 2016 predecessor period; the periods differ in length and are not directly comparable.
- Proved undeveloped reserves fell to 44.5 million Boe from 107.4 million at year-end 2016. The company cited a shift from a two-rig to one-rig five-year development plan, downward revisions to the PUD type curve and higher assumed capital costs. Negative revisions to total proved reserves were 76.4 million Boe.
- The 2017 impairment was attributed primarily to excluding PUD reserves outside the revised five-year drilling plan. The company also sold Lincoln County, Oklahoma properties in 2017 for $7.0 million gross cash proceeds ($2.9 million net of assumed liabilities).
- Oklahoma production tax rates increased during 2017; management said the changes contributed to higher production-tax rates.
Outlook, risks and unusual items
- For 2018, management planned one Mississippian Lime drilling rig and $100–$120 million of capital investment, and expected operating cash flow and cash on hand to fund planned requirements. Management’s strategy emphasizes free cash flow and minimum leverage rather than production growth.
- The company engaged SunTrust Robinson Humphrey to evaluate strategic alternatives for its Anadarko Basin and NW STACK assets; no transaction was assured. Anadarko assets were excluded from the October 2017 borrowing-base redetermination.
- Commodity prices, reserve estimates, drilling results, reserve replacement and borrowing-base redeterminations create substantial uncertainty. Other material exposures include Oklahoma and Texas saltwater-disposal restrictions and induced seismicity, environmental and hydraulic-fracturing regulation, third-party transportation capacity, purchaser concentration and covenant compliance.
- Three purchasers represented 37%, 25% and 14% of 2017 revenue. A Mississippian gas gathering and processing contract has minimum NGL commitments; management reported meeting them but noted reduced drilling could make future compliance harder.
- Fourth-quarter impairment was the principal unusual charge. A $1.9 million insurance reimbursement reduced 2017 operating costs. A January 2018 workforce reduction resulted in $1.6 million of severance and $1.4 million of accelerated equity compensation expense.
Investor facts to verify
- Confirm the issuer: this source is Midstates Petroleum, not Amplify Energy.
- Review the $125.3 million impairment and the assumptions behind the revised reserve estimates, PUD inventory and five-year drilling plan.
- Assess whether the $100–$120 million 2018 capital plan and projected funding remain consistent with production, free cash flow and liquidity.
- Monitor borrowing-base redeterminations, covenant headroom, the 2020 facility maturity and the effect of Anadarko asset-sale alternatives.
- Check hedge coverage and exposure to commodity prices, including the effects of three-way collars and unhedged production.
- Evaluate saltwater-disposal limits, minimum-volume commitments, purchaser concentration and the status of environmental or legal contingencies.