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Amplify Energy Details Fourth Quarter 2019 Results; 2020 Plans

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   |    Thursday,March 05,2020

Amplify Energy Corp. reported its operating and financial results for the fourth quarter 2019, update to its dividend program, year-end 2019 proved reserves and provided guidance for the first quarter and full year 2020.

Key Highlights

• During the fourth quarter this year we generated the following:
  • Daily production of 29.9 MBoe/d, which was within the range of quarterly guidance
  • Net cash provided by operating activities of $21 million
  • Adjusted EBITDA of $27 million
  • Free cash flow of $11 million
• Returned nearly $23 million of capital to shareholders through share repurchase program and December 2019 dividend payment
• Pro forma⁽¹⁾ Net Debt to Last Twelve Months ("LTM") EBITDA of 2.4x as of December 31, 2019
• As of February 28, 2020, net debt was $274 million, inclusive of $6 million of cash on hand
• Current hedge book net positive value of $58 million as of February 28, 2020
• Amplify's year-end 2019 proved developed reserves had a PV-10 value of approximately $705 million, which is 63% or $272 million higher than the Company's current enterprise value of approximately $433 million⁽²⁾.
• Retained Evercore as its financial advisor to actively pursue consolidation transactions focused on enhancing Amplify's low decline asset base, further strengthening the balance sheet and maximizing the Company's dividend yield and return of capital to its investors

Ken Mariani, President and Chief Executive Officer of Amplify, said: "As with most energy producers, Amplify is beginning 2020 in the face of significant headwinds following the recent commodity price decline. While the margins on our long-life, low-decline asset base are sensitive to commodity price fluctuations, Amplify took prudent and proactive steps to mitigate that risk by hedging more than 60% of total production and 77% of crude oil prior to the recent price decline."

Mr. Mariani continued, "In regards to our recent fourth quarter, Amplify's results were below our expectations due to temporary issues, including startup delays with the Bairoil plant expansion and incremental submersible pump failures in Oklahoma due to weather and power fluctuations. We believe that these operating issues have all been resolved going into 2020; however, in light of the significant reductions in commodity prices in the first quarter, we have carefully reevaluated our capital return and development programs. While these issues may not be permanent, we believe the best course of action at this time is to conservatively manage Amplify's balance sheet and liquidity to maximize long-term value for our stakeholders. As such, we have decided to reduce our first quarter 2020 dividend to $0.10 per share, which while reduced, still provides for an effective dividend yield of approximately 10%, which is among the highest in our industry. We have also decided to defer certain capital projects that were planned for later in the year and have set our initial 2020 capital budget between $40 million and $52 million. We believe that this program is prudent in the current price environment and a cost-effective way to maximize production, reduce costs and continue to provide a robust dividend yield to our shareholders. Further, this program enables the Company to drive shareholder value by continuing to execute its corporate consolidation strategy. As a key part of that strategy, I am pleased to announce we have retained Evercore as our financial advisor to help us evaluate new consolidation transactions. While many E&Ps are facing similar issues in the current price environment and market volatility, we believe that Amplify is uniquely positioned to take advantage of the opportunities this market creates, and we look forward to updating shareholders on our progress throughout the year."

Operations and Capital Spending Outlook

Amplify's capital spend for the fourth quarter was approximately $12 million. Capital expenditures were at the high end of guidance due to additional costs related to the Bairoil expansion start-up, Beta capital workovers and increased development activity at the Company's non-operated Eagle Ford assets.

Amplify's 2020 capital program is anticipated to be between $40 million and $52 million, with a midpoint estimate of $46 million.

On an area-by-area basis, Amplify's largest capital allocation in 2020 will be in Oklahoma, where Amplify anticipates spending approximately $14 million for additional rod lift conversions and ESP (electric submersible pump) optimizations. The rod lift conversion project initiated in late 2018 has been successful in significantly reducing operating expenditures and recurring maintenance costs.

Amplify anticipates spending approximately $11 million at Beta, primarily on capital workovers to return production from offline wells, along with facility maintenance.

In the Eagle Ford, Amplify has budgeted a $11 million capex program that includes drilling and completing seventy-eight gross (1.7 net) wells in 2020. As of year-end 2019, Amplify had received proposals for sixty gross (1.3 net) well projects. The substantial increase in development in this area is a testament to the superior well return potential from Amplify's acreage in the core of Karnes County, Texas.

At Bairoil, Amplify has budgeted approximately $7 million in 2020, split equally between facility work and capital workover activity.

Lastly in East Texas, Amplify has budgeted $2 million for recompletions, saltwater disposal and facility projects and an additional $1 million to complete the non-operated Viper 2 Jones well, which offsets Amplify's acreage.

2019

Dividend and Share Repurchase Program Update

Amplify's quarterly dividend of $0.10 per share is expected to be paid on March 30, 2020 to shareholders of record as of the close of business on March 16, 2020. This equates to a dividend yield of approximately 10% based on the closing share price of $4.18 on February 28, 2020.

Amplify also initiated a $25.0 million open market share repurchase program at the closing of the merger with Midstates on August 6, 2019. As of February 28, 2020, the Company had repurchased approximately 4.2 million shares of common stock at an average price of $5.94 per share for a total cost of approximately $24.9 million (inclusive of fees).

Revolving Credit Facility and Liquidity

As of February 28, 2020, Amplify had total debt of $280 million under its revolving credit facility, with a current borrowing base of $450 million. Amplify's liquidity was $176 million as of February 28, 2020, consisting of $6 million of cash on hand and available borrowing capacity of $170 million. The next regularly scheduled borrowing base redetermination is expected to occur in April 2020.

Production Update

During the fourth quarter of 2019, Amplify produced 29.9 MBoe/d, which was at the low end of our guidance range for the quarter. These results were primarily the result of ordinary course start-up complications following completion of the Bairoil plant expansion and incremental wells temporarily offline in the Mississippi Lime region for workovers as Amplify focuses on improving base production declines. The company expects that many of the Mississippi Lime wells will be more cost effective following these workovers and will help drive production efficiencies in 2020.

The Bairoil plant expansion project came online in late October as anticipated, but due to start-up and compressor issues, the Company did not achieve consistent runtime until mid-January. Bairoil also experienced compressor outages, unrelated to the plant expansion, that further reduced CO₂ processing capacity and had a negative impact on production. Although overall results were below expectations due to extended periods of low CO₂ throughput, material increases in crude oil production at Bairoil were achieved intermittently during the fourth quarter when run times were stable. Despite these initial delays, Amplify is encouraged by the potential observed when the plant expansion was fully operational and remains confident that the expansion project will achieve the expected oil production increase of approximately 900 Bbls/d over the next twelve months.

Mississippi Lime production was also below our expectations, as power and weather events, contributed to incremental submersible pump failures and temporarily increased the number of offline wells during the quarter. To alleviate the production impact from offline wells, Amplify increased workover rig activity, operating between two to three workover rigs during November and December to get the wells back online and improve future well efficiency. As a result of these efforts, production has stabilized, and the backlog of offline wells has been substantially reduced heading into 2020.

2019 Year-End Proved Reserve Update

Proved reserves at December 31, 2019 were approximately 163 MMBoe, of which approximately 61% were crude oil and natural gas liquids and 39% were natural gas. Approximately 80% of proved reserves were classified as proved developed with a total standardized measure of discounted future net cash flows of approximately $917 million.