Filing identity and reporting period
Important mismatch: The request identifies Amplify Energy Corp., but the supplied Form 10-Q is for Midstates Petroleum Company, Inc. It covers the three and nine months ended September 30, 2015, and was signed November 5, 2015. The figures below are for Midstates and should not be attributed to Amplify.
Midstates was an independent oil and gas exploration and production company operating in Oklahoma, Texas and Louisiana. Following the April 2015 Dequincy sale, it reported no proved reserves or production in Louisiana.
Financial results and key metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $110.4 million | $224.8 million | $296.3 million | $517.4 million |
| Oil, NGL and gas sales, excluding derivatives | $76.6 million | $173.0 million | $259.7 million | $519.4 million |
| Operating income (loss) | $(453.8) million | $111.1 million | $(1,173.5) million | $90.8 million |
| Net income (loss) | $(494.3) million | $74.6 million | $(1,286.3) million | $(11.1) million |
| Operating cash flow | Not presented separately | Not presented separately | $235.9 million | $307.6 million |
| Capital expenditures incurred | $59.2 million | Not stated here | $228.9 million | Not stated here |
Amounts are in U.S. dollars. The filing reports no separate EBITDA figure. A conventional operating margin is not useful to interpret the period because the results include a very large noncash property impairment.
- Production: Q3 average production was 32,609 Boe/day, down 4% year over year. Nine-month production averaged 33,550 Boe/day, up 6%. Q3 oil production fell 11%; natural gas production rose 6%.
- Prices: Q3 realized oil price before derivatives was $43.27/Bbl, down 55%; NGL price was $13.61/Bbl, down 61%; and gas price was $2.40/Mcf, down 34% year over year. Realized oil price including derivatives was $66.94/Bbl.
- Derivative impact: Settled contracts generated $34.3 million of cash in Q3 and $129.1 million in the first nine months. Nine-month operating cash flow included these settlements; management said they increased it by approximately 54.7%. Nine-month derivative results also included a $93.7 million unrealized loss.
- Impairments: Full-cost ceiling-test impairments were $486.9 million in Q3 and $1.160 billion for the first nine months, versus $86.5 million in the comparable 2014 nine-month period. The 2015 charge reflected low commodity prices and reduced reserve value.
- Costs and interest: Nine-month DD&A was $158.4 million, down from $211.1 million; lease operating and workover expense was $63.8 million, up from $56.8 million. Net interest expense was $122.0 million, compared with $102.0 million.
- Cash, liquidity and equity: At September 30, cash was $166.8 million and current assets were $271.2 million versus current liabilities of $175.0 million. The company reported $249.9 million of available borrowing capacity, net of letters of credit, and no credit-facility borrowings. Stockholders’ deficit was $816.0 million.
- Debt: Debt carrying value was $1.916 billion; stated principal outstanding was $1.790 billion. The credit facility borrowing base was $252 million. Debt included $625 million of 10% Second Lien Notes and $524.1 million of 12% Third Lien Notes, with the latter carrying 2% paid-in-kind interest. The filing estimated cash interest obligations of $87.2 million for the remainder of 2015 and $179.5 million for 2016.
Material changes, outlook and risks
- Compared with Q3 2014, Q3 2015 total revenue fell about 51%, while underlying oil, NGL and gas sales fell about 56%, principally because of lower commodity prices. Q3 net income of $74.6 million became a $494.3 million net loss, mainly reflecting the impairment charge.
- For the first nine months, underlying commodity sales declined 50%. Operating cash flow decreased by $71.7 million year over year, despite greater derivative settlements. Investing cash outflow was $231.4 million; financing provided $150.7 million, primarily following the debt transactions.
- Debt restructuring: In May 2015, Midstates issued $625 million of Second Lien Notes, using about $468.2 million to repay its revolver. It exchanged Third Lien Notes for portions of its 2020 and 2021 unsecured notes. The restructuring improved near-term liquidity and amended covenants, but left substantial debt and interest obligations. The company reported covenant compliance at September 30.
- Going concern and hedging: Management stated that substantial interest obligations and uncertainty about meeting commitments or repaying debt raised substantial doubt about the company’s ability to continue as a going concern. No hedges were in place for periods after 2015; management warned that, absent new hedges, derivative cash receipts would not continue in 2016 and later periods.
- Impairment sensitivity: Management said a 20% decrease in the trailing 12-month average oil and gas prices, all else equal, would reduce the ceiling-test limit for proved properties by 44.5%. It warned that continued low prices could cause further impairment.
- Capital plan: The company expected 2015 exploration, development, lease and seismic capital spending of $265–$275 million. Q3 production in the Mississippian Lime and Anadarko Basin declined sequentially by 2.5% and 5.1%, respectively.
- Other risks and controls: The NYSE had raised listing-compliance issues concerning share price, market capitalization and equity; the company submitted a plan to regain compliance. Management concluded disclosure controls were not effective because of a material weakness in review of cash flow statements; remediation was ongoing and had not yet been tested. The filing also identified potential added costs or operational burdens from concerns linking Oklahoma earthquakes to produced-water disposal.
Most important facts for investors to verify
- Confirm the intended issuer: this filing is Midstates Petroleum, not Amplify Energy.
- Review the going-concern disclosure, near-term liquidity, scheduled cash interest payments, debt maturities and any subsequent borrowing-base or covenant changes.
- Check whether Midstates entered into new commodity hedges for 2016 and later, and assess cash flow without the 2015 hedge settlements.
- Assess the risk of additional ceiling-test impairments and the effect of commodity prices, reserves and development assumptions.
- Verify NYSE listing status and the status of the cash-flow reporting control weakness and its remediation.