Business Context and Reporting Period
This Form 8-K is filed by Midstates Petroleum Company, Inc. (not Amplify Energy Corp.) on August 11, 2012. The filing reports the entry into a Material Definitive Agreement to acquire producing oil and natural gas assets, leasehold acreage in Oklahoma and Kansas, and related hedging instruments from Eagle Energy Production, LLC. The transaction is effective retroactively to June 1, 2012, with closing expected on or about October 1, 2012.
Key Financial Metrics and Transaction Structure
The aggregate purchase price for the asset acquisition consists of:
- Cash Consideration: $325,000,000.
- Equity Consideration: 325,000 shares of Series A Preferred Stock with an initial liquidation preference of $1,000 per share (totaling $325,000,000).
Financing Arrangements:
- Bridge Credit Facility: Commitment for up to $500 million unsecured bridge loans to fund the transaction. Interest is LIBOR (1.50% floor) plus 9.0%, maturing one year after closing.
- Revolving Credit Facility Amendment: Commitment to increase the borrowing base to $250 million and allow up to $500 million in unsecured indebtedness.
- Interim Borrowing Base Increase: A separate commitment provides $35 million in non-conforming borrowing base loans, temporarily increasing the borrowing base from $200 million to $235 million.
Preferred Stock Terms:
- Dividends: 8.0% per annum, payable semi-annually in cash or accrued liquidation preference.
- Conversion: Voluntary conversion allowed after one year at $13.50 per share; mandatory conversion on September 30, 2015, between $11.00 and $13.50 per share.
- Voting Rights: Holders may elect one board member and approve certain corporate actions.
Operating Results: The filing references a press release for the quarter ended June 30, 2012, but does not provide specific revenue, profit, or cash flow figures within this text.
Material Changes and Conditions
The transaction represents a significant expansion of Midstates' asset base through the acquisition of Eagle's interests. Closing is subject to customary conditions, including the accuracy of representations, the absence of material adverse effects, the release of liens on Eagle's indebtedness, and the execution of ancillary documents. The filing notes that the transaction will be effective as of June 1, 2012, implying a retroactive accounting treatment upon closing.
Outlook, Risks, and Management Commentary
Management expects the transaction to close on or about October 1, 2012. The filing includes standard forward-looking statement disclaimers regarding the consummation of the transaction, financing effectiveness, and future results. Key risks include the failure to meet closing conditions, the ability to secure permanent financing to replace the bridge loans, and market variables affecting the value of the acquired assets. The bridge facility carries a high interest margin (9.0% over LIBOR) and potential yield caps up to 13.25% if converted to other debt instruments.
Investor Verification Checklist
- Verify the final closing date and whether the retroactive effective date of June 1, 2012, impacts Q2 2012 financial restatements.
- Confirm the terms of the permanent financing intended to replace the $500 million bridge facility and the associated interest costs.
- Review the full Asset Purchase Agreement (Exhibit 2.1) for specific details on the acquired acreage, production volumes, and hedging instruments.
- Assess the impact of the 8.0% dividend obligation on the Series A Preferred Stock on future cash flows.
- Monitor the status of the $35 million interim borrowing base increase and its expiration conditions.