Business context and reporting period
Entity discrepancy: The supplied filing is for Midstates Petroleum Company, Inc., not Amplify Energy Corp. It is a Form 10-Q for the three months ended March 31, 2015; figures below summarize the filing as provided.
Midstates was an independent U.S. oil and gas exploration and production company, with operations in Oklahoma, Texas, and Louisiana. The unaudited statements use the full-cost method for oil and gas properties.
Financial results and key metrics
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total revenue, including derivative gains/losses | $111.2 million | $144.7 million |
| Oil, NGL, and natural gas sales | $89.4 million | $167.1 million |
| Operating loss | $166.1 million | $52.0 million |
| Net loss | $193.6 million | $83.6 million |
| Net loss per common share | $2.88 | $1.31 |
| Operating cash flow | $113.0 million | $105.4 million |
| Cash used in investing activities | $111.2 million | $122.8 million |
| Cash at period-end | $11.9 million | $14.6 million |
- Average daily production rose 18% year over year to 34,164 Boe/day. Oil production increased 9%, NGLs 16%, and natural gas 31%.
- Oil, NGL, and gas sales prices before realized derivatives fell sharply: oil 53% to $45.22/Bbl, NGLs 63% to $17.78/Bbl, and gas 43% to $2.79/Mcf.
- Derivative contracts generated $52.6 million of cash receipts, partly offset by $31.2 million of unrealized losses, for a reported net gain of $21.4 million. Q1 2014 had $14.8 million of cash payments and a $22.7 million net derivative loss.
- The $174.7 million oil and gas property impairment, versus $86.5 million in Q1 2014, was a major noncash expense. DD&A was $58.4 million, or $19.00/Boe, versus $66.9 million, or $25.63/Boe.
- Gross debt was $1.735 billion: $435.2 million drawn on the revolving facility, $600 million of 10.75% notes due 2020, and $700 million of 9.25% notes due 2021. Net interest expense was $36.5 million.
- At March 31, cash was $11.9 million and available revolving-credit capacity was approximately $88.4 million. The current ratio was 1.0:1.0; covenant leverage was 3.7:1.0. The company reported covenant compliance at quarter-end, with only about $1.5 million of current-asset headroom for covenant purposes.
Material changes versus the prior comparable period
- Oil, NGL, and gas sales revenue declined 46% year over year, despite higher total production, primarily because commodity prices fell.
- Net loss more than doubled, driven chiefly by lower sales revenue and the larger property impairment. Lease operating and workover costs rose 15% to $23.3 million, while severance taxes and DD&A declined.
- Operating cash flow increased to $113.0 million, primarily reflecting higher derivative cash receipts and favorable working-capital movements. Investing outflows remained substantial; operating cash flow less investing outflows was approximately $1.9 million.
- Production growth was concentrated in the Mississippian Lime. Anadarko Basin production declined 13% sequentially, and Gulf Coast production declined 10% sequentially.
- Q1 2014 cash-flow figures were restated for an immaterial presentation error involving accrued capital expenditures: operating cash flow increased from $97.4 million as previously reported to $105.4 million, with a corresponding change in investing cash flow. The filing also describes corrections to prior annual cash-flow presentations; it reports no effect on the referenced balance sheets or statements of operations.
Outlook, commentary, risks, and unusual items
- Going concern and liquidity: Management stated forecast cash and expected credit availability would not be sufficient to meet commitments as due and that, absent materially improved commodity prices or increased liquidity, covenant compliance would likely become unsustainable. The filing says this uncertainty raises substantial doubt about the company’s ability to continue as a going concern. The financial statements contain no related adjustments.
- Management was pursuing debt-structure actions, asset sales, reduced capital spending, working-capital management, and lender waivers or amendments, with Evercore and Kirkland & Ellis advising on strategic and financing alternatives. The filing gives no assurance these efforts would succeed.
- The March 2015 credit amendment reaffirmed the $525 million borrowing base, set the maximum leverage ratio at 4.5:1.0 through 2015 (then 4.0:1.0), and increased required mortgage coverage on borrowing-base properties from 80% to 90%. Management warned that the October 2015 redetermination could reduce availability.
- After quarter-end, on April 21, the company sold Dequincy-area Louisiana properties for $44 million, or approximately $42 million net. Proceeds were intended partly to repay revolver borrowings. The sale was permitted without a borrowing-base reduction; the company said it would have no remaining Gulf Coast proved reserves or producing properties after the sale.
- Management expected 2015 capital investment of $250 million to $275 million, despite the liquidity constraints. Q1 operational capital spending was $93.0 million, mainly in the Mississippian Lime.
- Hedges covered 2.196 million barrels of 2015 oil at a weighted-average $88.04/Bbl and 13.75 million MMBtu of 2015 gas at $4.13/MMBtu. Management noted that hedge cash receipts would not recur after contracts expired, creating added exposure to low prices.
- Series A preferred shares carried 8% cumulative dividends. The March dividend was added to liquidation preference rather than paid in cash; the filing estimated 5.2 million to 6.4 million additional common shares would be issued upon conversion, subject to the conversion price.
- The NYSE notified the company on April 1 that its share price had fallen below the continued-listing threshold; the company reported it regained compliance after April 1. Management also expected additional significant advisory costs during 2015.
Important facts for investors to verify
- Confirm the issuer identity: this filing names Midstates Petroleum Company, Inc., not Amplify Energy Corp.
- Review subsequent filings for liquidity actions, going-concern developments, debt amendments, covenant compliance, and the October 2015 borrowing-base redetermination.
- Verify the Dequincy sale proceeds and use of cash, as well as any further asset sales or financing transactions.
- Track hedge settlements and expirations against realized commodity prices and operating cash flow.
- Assess whether the stated capital budget, debt-service obligations, and production decline can be funded from available liquidity.
- Review the preferred-stock conversion terms and resulting dilution, and the subsequent status of NYSE listing compliance.