Filing identity and reporting period
Important metadata discrepancy: The supplied filing is Midstates Petroleum Company, Inc.’s Form 10-Q for the three and nine months ended September 30, 2016—not a filing identified as Amplify Energy Corp. This summary reflects the supplied filing.
Midstates was an oil and gas exploration and production company operating in Oklahoma, Texas, and Louisiana. It filed for Chapter 11 on April 30, 2016; its plan was confirmed September 28, and it emerged on October 21, 2016. The September-quarter statements therefore cover the pre-emergence company and do not reflect the restructuring or fresh-start accounting.
Financial and operating results
Amounts below are in millions of dollars unless otherwise indicated.
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $64.2 | $110.4 | $178.7 | $296.3 |
| Oil, NGL, and gas sales, excluding derivatives | $62.2 | $76.6 | $174.4 | $259.7 |
| Operating loss | $(12.9) | $(453.8) | $(200.8) | $(1,173.5) |
| Net loss | $(38.4) | $(494.3) | $(208.7) | $(1,286.3) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $78.2 | $235.9 |
| Cash used in investing | Not provided for quarter | Not provided for quarter | $(129.1) | $(231.4) |
| Cash provided by financing | Not provided for quarter | Not provided for quarter | $249.3 | $150.7 |
- Q3 average production was 28,059 Boe/day, down 14.0% year over year; nine-month production averaged 30,073 Boe/day, down 10.4%.
- Q3 oil sales were $35.6 million, NGL sales $8.9 million, and natural gas sales $17.7 million. The company had no commodity derivatives outstanding and no derivative gains in 2016. By comparison, derivative gains contributed $33.4 million of Q3 2015 revenue and $35.4 million for the first nine months of 2015.
- Q3 impairment expense was $33.9 million; nine-month impairment was $224.6 million, versus $486.9 million and $1.16 billion in the comparable 2015 periods. Impairment was attributed mainly to low commodity prices and was noncash. Lower impairment also reduced subsequent DD&A.
- Q3 operating expenses were $77.1 million; nine-month expenses were $379.5 million. Per-Boe lease operating costs were $6.84 in Q3 and $6.01 for the nine months. Nine-month gathering and transportation expense rose 17.5% to $13.4 million.
- At September 30, cash was $279.6 million and current assets were $328.0 million versus current liabilities of $326.2 million. The balance sheet reported $249.4 million of Credit Facility debt as current, $1.882 billion of liabilities subject to compromise, and a $1.533 billion stockholders’ deficit.
- Reported debt obligations at September 30 totaled approximately $2.045 billion, including $249.4 million under the Credit Facility and approximately $1.796 billion of notes subject to compromise. These pre-emergence amounts are not comparable with the post-restructuring capital structure.
Changes, restructuring, and liquidity
- Year-over-year revenue fell 41.8% in Q3 and 39.7% for the first nine months. The filing attributes lower sales primarily to reduced production and, year to date, lower realized prices. Q3 oil production fell 29.4%; reduced drilling and natural declines were key factors.
- Nine-month operating cash flow declined $157.6 million year over year, primarily because 2015 included $129.1 million of derivative cash receipts and 2016 had lower oil and gas revenue. Lower interest payments partly offset the decline.
- On emergence, existing equity was cancelled with no consideration to old shareholders. Second-lien creditors received $60.0 million cash and 96.25% of reorganized-company equity; third-lien and unsecured creditors received specified equity and warrants. The company issued 24,687,500 new shares at emergence and planned a further 312,500-share distribution.
- The old debt was largely extinguished or exchanged. The exit facility had a $170 million initial borrowing base, matures September 30, 2020, and bears interest at LIBOR plus 4.50% with a 1.00% floor. The company paid down $81.3 million of Credit Facility claims and made an additional $40.0 million payment at emergence. Approximately $128.1 million was outstanding under the Exit Facility and pro forma cash was approximately $77.8 million at emergence.
- Management estimated annual cash-interest expense would decline from approximately $173.7 million to $7.0 million, a reduction of about $166.7 million. The facility includes liquidity, leverage, interest-coverage, and capital-spending covenants; availability was subject to a $40 million reduction through April 2018 unless redetermined earlier.
- Fresh-start accounting was required upon emergence and was expected to create material adjustments. The filing says post-emergence financial statements will not be comparable with historical statements; the financial effect was not yet estimable when reported.
Outlook, commentary, and risks
- Management expected 2016 capital investment of $140 million to $150 million. Capital expenditures incurred through September were $123.4 million, including $118.7 million of operational expenditures. One rig was operating in the Mississippian Lime at quarter-end; no operated rigs were active in the Anadarko Basin during Q3.
- Mississippian Lime average production declined 7.2% from Q2 to Q3, and Anadarko Basin production declined 5.8%. Management said future funding needs were expected to be met through operating cash flow, cash on hand, and Exit Facility availability, while noting liquidity depended on operating results and market conditions.
- Oklahoma wastewater-disposal restrictions and seismicity-related regulatory scrutiny could constrain saltwater disposal and require production curtailments. The company had converted five wells and drilled three new wells for disposal into formations other than the Arbuckle; further permits and third-party consents were not assured.
- Commodity-price volatility, natural production declines, reserve estimates, access to capital, facility availability, and environmental or regulatory developments were identified as material risks. The company had no commodity hedges at September 30.
- Other unusual items included $22.8 million of Q3 reorganization expense, largely professional fees, and a $57.8 million net reorganization gain for the nine-month period, substantially affected by accounting adjustments to debt-related balances. Contractual interest of $47.6 million for Q3 and $79.3 million since the bankruptcy filing was not recorded on debt subject to compromise.
- Management reported disclosure controls were effective as of September 30 and no material change in internal control over financial reporting occurred during the quarter. It anticipated no current-year income tax payments and maintained a full valuation allowance on deferred tax assets.
Most important facts for investors to verify
- Confirm the issuer: the source is Midstates Petroleum Company, Inc., despite the request metadata naming Amplify Energy Corp.
- Review the confirmed Chapter 11 plan, creditor distributions, share and warrant dilution, and the final post-emergence capitalization.
- Verify Exit Facility availability, covenant headroom, liquidity requirements, and compliance as operating results evolve.
- Assess whether production declines, commodity prices, capital spending, and Oklahoma disposal restrictions affect cash generation and the ability to sustain operations.
- Review final fresh-start valuations and claim adjustments; the filing states historical and post-emergence financial statements are not comparable.