Filing summary
Entity and period: The supplied filing is Midstates Petroleum Company, Inc.’s Form 10-K for the fiscal year ended December 31, 2013, filed March 24, 2014. This does not match the request metadata naming Amplify Energy Corp. or a standalone 2013 Q4 filing; the figures below are for Midstates and its consolidated subsidiary.
Business context and reporting period
Midstates was an independent oil and gas exploration and production company operating in Louisiana, Oklahoma and Texas. Its 2013 results include the Eagle properties acquired in October 2012 and the Anadarko Basin properties acquired in May 2013. Management reported one operating segment. The company’s strategy emphasized developing its Mississippian and Anadarko assets, with reduced Gulf Coast drilling activity.
Financial and operating metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Total revenue | $469.5 million | $247.7 million |
| Operating income (loss) | $(407.4) million | $20.5 million |
| Net income (loss) | $(344.0) million | $(150.1) million |
| Net loss per common share | $(5.47) | $(2.61) |
| Operating cash flow | $227.1 million | $137.2 million |
| Cash used in investing activities | $1,193.8 million | $773.6 million |
| Cash provided by financing activities | $981.0 million | $647.9 million |
| Cash and cash equivalents at year-end | $33.2 million | $18.9 million |
| Long-term debt at year-end | $1,701.2 million | $694.0 million |
- Margins: Calculated from reported figures, 2013 operating margin was approximately -86.8% and net margin approximately -73.3%; the large impairment materially affected both.
- Revenue and production: Oil, NGL and natural gas sales totaled $512.8 million before net commodity-derivative losses of $44.3 million. Average daily production was reported as 23,927 Boe/d in the production table; another MD&A passage gives 23,902 Boe/d. Fourth-quarter 2013 revenue was $161.0 million and net loss was $315.8 million.
- Prices and costs: 2013 realized oil price was $99.18/Bbl before realized derivatives and $93.41/Bbl after; NGL price was $36.26/Bbl before derivatives; natural gas price was $3.39/Mcf before derivatives. Lease operating and workover costs were $8.41/Boe, and DD&A was $28.67/Boe.
- Reserves: Proved reserves reached 127.8 MMBoe at year-end, up from 75.5 MMBoe; 63% were oil or NGLs and approximately 62% were proved undeveloped. Standardized measure of discounted future net cash flows was $1.79 billion; pre-tax PV-10 was $2.07 billion.
- Liquidity and leverage: Year-end liquidity was $132 million, including $99 million of available revolver capacity. The $500 million borrowing base had $401.2 million drawn. The company reported a 1.3:1 current ratio and 4.4:1 debt-to-EBITDA ratio, and said it was in covenant compliance.
Material changes versus the prior comparable period
- Revenue rose about 90%, and average daily production increased 139%, largely reflecting the acquisitions and drilling growth; oil and NGL prices were lower year over year, while natural gas prices rose.
- The company recorded a $453.3 million impairment expense before tax (reported as $319.6 million net of tax), versus none in 2012. It cited Gulf Coast reserve revisions, well performance and costs, and unevaluated-property transfers or lease expirations. The impairment was noncash but reduced earnings and equity.
- Operating cash flow increased by about $89.9 million, while investing outflows increased substantially with the Anadarko acquisition and expanded drilling. Debt rose by approximately $1.01 billion, following the issuance of $700 million of 9.25% notes due 2021 and increased revolver borrowing.
- Net commodity-derivative losses increased to $44.3 million from $11.2 million, including $26.7 million of unrealized losses. Net interest expense rose to $83.1 million from $13.0 million.
- Proved reserves had net negative revisions of 20.2 MMBoe, including approximately 17.8 MMBoe in the Gulf Coast. The company also disclosed a correction to the 2012 deferred-tax balance sheet: deferred tax liabilities decreased by $33.9 million and equity increased by the same amount; there was no impact to 2012 earnings or cash flow.
Outlook, risks and unusual items
- 2014 plans: Management expected $500–$550 million of exploration, development, lease and seismic capital spending, plus $16–$22 million of capitalized interest. Plans included 95–105 gross Mississippian wells, 70–75 gross Anadarko wells and $5–$10 million of Gulf Coast investment. No formal earnings or production guidance is provided in the supplied text.
- Asset sale and financing: In March 2014, Midstates agreed to sell its Pine Prairie acreage for $170 million, subject to adjustments and closing conditions, with proceeds intended to repay revolver borrowings. It also entered into commitment letters for a proposed $125 million secured bridge facility and a backstop revolver arrangement. Management said the sale or bridge proceeds, operating cash flow and amended credit capacity were expected to fund plans through 2015; completion and availability were not assured.
- Operational and commodity risks: Results and borrowing capacity are exposed to oil and gas prices, reserve uncertainty, drilling outcomes, service and water availability, third-party transportation and processing capacity, and lease expirations. The filing notes that oil is transported by truck and gas depends on third-party infrastructure. Hedging reduces price exposure but can create losses, counterparty risk and limits on upside.
- Financial reporting controls: Management and Deloitte reported a material weakness in controls over oil and gas reserve estimates, including source-data validation and management review. Disclosure controls and internal control over financial reporting were deemed ineffective at year-end; the auditor issued an adverse opinion on ICFR. Management described remediation steps.
- Other exposures: The filing discusses environmental, hydraulic-fracturing, regulatory, litigation, customer-concentration and debt-covenant risks. It reported no litigation expected to have a material adverse effect at the filing date. The company had no current plans to pay common dividends.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for Midstates Petroleum, not Amplify Energy, and covers the full 2013 fiscal year.
- Review the reserve-estimate control weakness, remediation progress and the basis for the substantial 2013 impairment and negative reserve revisions.
- Check whether the Pine Prairie sale closed, its final proceeds, and whether the proposed bridge and revolver arrangements were executed on the described terms.
- Assess debt service, borrowing-base redeterminations, covenant headroom and the feasibility of funding the planned capital program.
- Reconcile the filing’s inconsistent 2013 average daily production figures (23,927 versus 23,902 Boe/d) and confirm quarterly impacts of the impairment.
- Evaluate how acquisition-driven growth, derivative losses, reserve development needs and asset-sale plans affect sustainable cash flow and production.