Amplify Energy Corp. — Q2 2021 Form 10-Q
Business context and period: Unaudited quarterly report for the three and six months ended June 30, 2021. Amplify is a U.S. oil and natural gas producer operating in Oklahoma, the Rockies, offshore Southern California, East Texas/North Louisiana, and the Eagle Ford.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Oil and gas sales | $80.3 million | $34.9 million | $152.7 million | $92.7 million |
| Net loss | $35.0 million | $41.3 million | $54.4 million | $408.5 million |
| Adjusted EBITDA | $23.8 million | $21.3 million | $46.8 million | $38.6 million |
| Operating cash flow | Not clearly provided for the quarter in the cash flow statement | Not clearly provided for the quarter in the cash flow statement | $36.4 million | $43.0 million |
| Average net production | 25.3 MBoe/d | 27.7 MBoe/d | 25.0 MBoe/d | 28.7 MBoe/d |
- Higher realized prices drove sales growth despite lower production. Average realized price rose to $34.93/Boe in Q2 from $13.83/Boe, and to $33.76/Boe for the first half from $17.74/Boe.
- Six-month production fell about 13%, reflecting natural decline and approximately two weeks of shut-ins caused by Winter Storm Uri.
- Q2 operating loss was $37.3 million. Six-month operating loss was $53.5 million; the comparable 2020 period included $455.0 million of impairment expense, versus none in 2021.
- Commodity-derivative losses were $63.9 million in Q2 and $98.5 million for the first half of 2021, compared with losses of $19.2 million and a gain of $88.5 million, respectively, in 2020. The 2021 first-half loss included fair-value changes and cash settlements; derivative accounting materially affected reported earnings.
- Cash from operations declined year over year in the first half, partly reflecting $28.4 million of cash settlements paid on expired derivatives, compared with receipts in 2020. Investing used $11.6 million and financing used $20.0 million, largely reflecting $20.0 million of revolver repayments.
- At June 30, cash was $15.2 million; total assets were $395.3 million and stockholders’ deficit was $87.4 million. The company reported a $55.3 million working-capital deficit, largely reflecting $63.1 million of short-term derivative liabilities.
- Revolver debt was $235.0 million against a $245.0 million borrowing base, leaving approximately $10.0 million available. The facility matures November 2023. The borrowing base was reduced from $260.0 million; the company said it complied with financial and other covenants at quarter-end. PPP debt of $5.5 million was forgiven and recognized as a gain.
Changes, outlook, and risks
- Compared with Q2 2020, Q2 2021 sales more than doubled as commodity prices recovered, but production declined and per-Boe operating, transportation, and production-tax costs increased. Six-month net loss improved substantially, primarily because 2020 included major impairments.
- Management expects remaining-2021 funding to come primarily from operating cash flow, cash on hand, and available revolver capacity; it did not provide a specific earnings or production forecast in this filing. The company intends to hedge approximately 30%–65% of estimated proved-developed-producing output over a one-to-three-year period, subject to market conditions and facility covenants.
- At quarter-end, commodity derivatives had $84.3 million of gross liabilities and $5.3 million of gross assets; net recorded derivative liabilities were $80.8 million. Hedges reduce exposure to price declines but also limit gains from higher prices.
- Minimum-volume commitments were not being met under Oklahoma and East Texas contracts. Q2 fees were approximately $0.5 million under each contract; first-half fees were $0.8 million and $0.9 million, respectively. The commitments end in 2023 and 2022.
- Asset-retirement obligations totaled $100.2 million, including $99.4 million classified long term. The company supported offshore California decommissioning obligations with $161.3 million of surety bonds and $0.3 million of cash.
- Management cited possible further impacts from COVID-19, commodity-price declines, reserve-based borrowing-base redeterminations, covenant and debt-service requirements, production decline, and operational or environmental risks. The company reported no material litigation known and no environmental reserves recorded. It regained NYSE continued-listing compliance on July 8, 2021.
Important facts for investors to verify
- Whether borrowing-base availability and covenant headroom remain adequate after future redeterminations and operating cash needs.
- How derivative fair-value movements, hedge settlements, and hedge coverage affect realized cash flow and reported results.
- Whether production decline and the effects of Winter Storm Uri are continuing, and whether commodity prices sustain the revenue improvement.
- The future cost and duration of minimum-volume commitments and offshore decommissioning obligations.
- Whether operating cash flow can fund capital spending, debt service, and plugging obligations while working capital remains negative.