Filing summary
Entity discrepancy: Request metadata names Amplify Energy Corp., but the supplied Form 10-Q is for Midstates Petroleum Company, Inc. This summary reflects the filing text. Reporting period: three and six months ended June 30, 2015; unaudited.
Business context and financial results
Midstates was an independent oil and gas exploration and production company operating in Oklahoma, Texas and Louisiana. It reported one operating segment. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless otherwise stated.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $74.8m | $148.0m | $185.9m | $292.7m |
| Net loss | $598.4m | $2.1m | $792.0m | $85.7m |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $138.7m | $173.6m |
| Capital expenditures incurred | $74.0m | Not provided here | $169.7m | Not provided here |
| Common-share loss per share | $88.44 | $1.04 | $117.45 | $14.07 |
Q2 oil, NGL and natural gas sales totaled $93.7m, down 47.7% year over year; reported total revenue also reflected a $19.3m net derivative loss. For the first half, commodity sales were $183.2m, down 47.1%, while net derivative results were a $2.1m gain. Production increased 6% in Q2 and 12% in the first half, to 33,893 and 34,028 Boe/day, respectively. Lower realized commodity prices were the principal driver of the sales decline.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $151.0m; current assets were $292.9m and current liabilities $175.5m.
- Reported debt carrying value was $1.924bn; principal outstanding was approximately $1.792bn. Stockholders’ deficit was $322.8m.
- The company reported $250.9m of available borrowing capacity and no drawn balance under its $252.4m borrowing base; letters of credit were $1.5m. The credit facility matures May 2018, with borrowing-base redetermination scheduled for October 2015.
- Six-month cash flow: $138.7m provided by operations, $150.0m used in investing and $150.8m provided by financing. Cash rose $139.5m to $151.0m. Operating cash flow included $94.8m of net cash receipts on settled derivatives.
- Current debt included $293.6m of 2020 senior notes, $347.7m of 2021 senior notes, $625.0m of 10% second-lien notes and $525.3m of third-lien notes bearing 12% total interest, including 2% paid in kind. The filing forecasts $89.0m of cash interest for the remainder of 2015 and $182.1m for 2016.
Material changes and unusual items
- Full-cost ceiling-test impairments were $498.4m in Q2 and $673.1m for the first half, versus no Q2 2014 impairment and $86.5m in the first half of 2014. Management attributed the charges primarily to low commodity prices reducing the present value of proved reserves. These noncash charges substantially drove reported losses and reduced equity.
- In May and June, the company issued $625m of 10% second-lien notes, used about $468.2m to repay its revolving facility, and exchanged third-lien notes for senior notes. The restructuring reduced principal on the exchanged senior notes, but added higher-cost secured debt. Debt restructuring costs were $34.4m in Q2 and $36.1m for the first half.
- In April, it sold its remaining Louisiana Dequincy properties for approximately $42.4m net proceeds. It then had no proved reserves or production in the Gulf Coast area.
- The company recorded a $9.0m first-half income tax benefit and a $309.7m valuation allowance at June 30; it anticipated no current income tax payments for 2015.
- After quarter-end, the company completed a 1-for-10 reverse stock split on August 3, 2015. Share and per-share figures in the filing reflect retrospective adjustment.
Outlook, risks and controls
- Management expected 2015 capital investment of $250m–$275m, including exploration, development, leases and seismic acquisition. It expected lower operating cash flow amid weak commodity prices.
- Hedges covered 2015 only: 2.208m barrels of oil swaps at a weighted-average $71.56/bbl and 9.2m MMBtu of gas swaps at $4.13/MMBtu. Management said second-half hedge pricing was lower than first-half pricing and there were no derivatives beyond 2015; hedge cash receipts could therefore decline materially after 2015.
- The filing states 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. The financial statements included no adjustments for that uncertainty. The company said it was in compliance with debt covenants at June 30, but debt documents include cross-default provisions.
- Management reported disclosure controls were ineffective due to a material weakness in review of cash-flow statements, following errors in previously reported cash-flow presentations. Remediation procedures were in progress and had not yet been tested by management.
- The company received another NYSE minimum-share-price noncompliance notice on July 16, 2015; it said the reverse split was intended to cure the deficiency. It also cited potential operational and cost impacts from regulatory responses to Oklahoma earthquake activity and disposal-well injection.
- Ordinary-course legal matters were disclosed; management said pending matters were not expected to have a material adverse effect. The filing also corrected prior cash-flow presentations, which management characterized as immaterial and without balance-sheet or income-statement impact.
Investor verification priorities
- Confirm the issuer identity: the supplied filing is Midstates Petroleum, not Amplify Energy, and verify the applicable ticker, filing and corporate history.
- Assess liquidity and debt-service capacity, including the October 2015 borrowing-base review, covenant headroom, interest schedule and going-concern disclosure.
- Review the valuation assumptions behind the $673.1m first-half impairment and the sensitivity of reserves and carrying values to commodity prices.
- Verify production economics and cash flows after 2015 hedges expire, including the effect of hedge settlements in first-half operating cash flow.
- Track remediation of the cash-flow control weakness, the NYSE listing status, and any further correction of previously reported cash-flow data.