Drilling & Completions | Quarterly / Earnings Reports | First Quarter (1Q) Update | Financial Results | Hedging | Capital Markets | Capital Expenditure | Capital Expenditure - 2020 | 2020 Guidance

Amplify Energy First Quarter 2020 Results

Share Print Bookmark    |    Wednesday,May 06,2020

Amplify Energy Corp. announced its operating and financial results for the first quarter of 2020.

Key Highlights

• Liquidity Enhancement Initiatives: 
  -- Reduced future operating expenses by approximately $18 million annually 
  -- Reduced annualized general and administrative (“G&A”) expenses by approximately $2.5 million annually 
  -- Reduced budgeted capital spending for the year by $19 million (41%) from $46 million to $27 million 
  -- Monetized approximately $18 million of 2021 hedges 
  -- Received $5.5 million of proceeds under the Paycheck Protection Program (“PPP”) 
  -- Applied for Beta royalty relief that is expected to generate $5 million per year of incremental revenue (assuming a $30/Bbl WTI price) 
  -- Suspended quarterly dividend program
• During the first quarter this year we generated the following: 
  -- Daily production of 29.7 MBoe/d, which was at the high end of quarterly guidance 
  -- Net cash provided by operating activities of $13.1 million 
  -- Adjusted EBITDA of $17.2 million
• Current mark-to-market hedge book value of $77 million as of May 1, 2020
• Pro forma⁽¹⁾ Net Debt to Last Twelve Months (“LTM”) EBITDA of 2.8x as of March 31, 2020
• As of May 1, 2020, net debt was $263 million, inclusive of $27 million of cash on hand

Martyn Willsher, interim Chief Executive Officer and Chief Financial Officer of Amplify, said: "The first quarter of 2020 was extremely challenging for the oil and gas industry and the global economy due to OPEC+ production increases and the COVID-19 pandemic.  Our first priority during this period has been the well-being of our workforce and their families, and accordingly we have implemented strict measures to avoid infection and maintain employee safety at all of our locations.  At this time, we are pleased to report that no Amplify employee has tested positive for COVID-19, and we are committed to exercising caution and remaining focused on safety as states endeavor to reopen their economies. During this time of unprecedented and extremely low commodity prices, Amplify has executed several initiatives to better position the Company through the downturn, including significant decreases to operating and G&A expenses, substantial reductions to capital programs, the monetization of a portion of the Company’s 2021 in-the-money crude oil hedges, the receipt of loan proceeds from the federal government’s PPP program, Beta royalty relief and the suspension of the quarterly dividend.” 

Mr. Willsher continued, ”Moving forward, our attractive hedge positions and low-decline asset base will be instrumental in generating positive free cash flow for the remainder of 2020 and beyond.  While volatility and market headwinds have tested the Company, we remain confident that we are well-positioned to weather this unprecedented downturn and capitalize on the recovery in both commodity prices and the global economy.”

Liquidity Enhancement Initiatives

Operating Cost and Corporate Overhead Reductions – The Amplify team performed a bottom-up evaluation to identify cost saving opportunities and has implemented several cost reduction projects that will significantly reduce operating cost and overhead (“cash G&A”). The Company has worked closely with its vendors to decrease costs associated with supplies and services, which are forecasted to generate approximately $18 million of annual savings.  Additionally, the Company is expecting to deliver a $2.5 million annual savings in cash G&A expenses.  These savings are expected to be partially realized in the second quarter and fully realized by the third quarter of 2020 and will positively impact Amplify’s free cash flow profile for the remainder of 2020 and beyond.

Capital Reductions – Amplify has reduced its capital spending budget for the year by 41% from an initial estimate of $46 million to a current estimate of $27 million. Amplify’s remaining capital expenditure budget for 2020 is approximately $12 million and is focused principally on maintenance capital projects, which are essential to equipment integrity and operational efficiency, and high rate of return workover projects.

Hedge Monetization – Amplify added additional liquidity to its balance sheet by monetizing 990,000 barrels of 2021 crude oil hedges (100% swaps) for total cash proceeds of approximately $18 million.

PPP Loan – On April 24, 2020, the Company received a $5.5 million loan under the PPP.  The PPP was established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) to provide loans to qualifying businesses.  The loans and accrued interest are forgivable after eight weeks provided that the borrower uses the loan proceeds for eligible purposes.  At this time, the Company anticipates that a substantial majority of the loan proceeds will be forgiven under the program.  The term of the Company’s PPP loan is two years with an annual interest rate of 1% and no payments of principal or interest due during the six-month period beginning on April 24, 2020.

Beta Field Royalty Relief – As discussed in the Company’s March 19, 2020 press release, due to the significant oil price reduction, Amplify expects to qualify for statutory royalty relief at its Beta field in the third quarter of 2020, subject to standard review by the US Bureau of Safety and Environmental Enforcement.  Once approved, Amplify’s royalty rate at Beta will decrease by 50%, resulting in increased production of approximately 500 Bbls/d and additional revenue of approximately $5 million per year assuming $30/Bbl WTI price.  

Suspension of Quarterly Dividend Program – Amplify’s Board of Directors has decided to suspend the quarterly dividend program until further notice.  This dividend suspension will result in increased retained cash of approximately $15 million annually (based on a quarterly dividend rate of $0.10 per share), which will further improve the Company’s liquidity.

Revolving Credit Facility and Liquidity Update

Amplify’s Spring 2020 borrowing base redetermination process has been delayed relative to prior years due to the volatility in commodity prices, but Amplify utilized the time to increase liquidity and free cash flow in future periods.  While the Company currently expects a decrease in the borrowing base due to lower bank price decks, Amplify continues to work collaboratively with the banks and expects that the redetermination process will be completed later in the second quarter.    As of May 1, 2020, Amplify had total debt of $290 million under its revolving credit facility, with a current borrowing base of $450 million.  Amplify’s liquidity was $187 million as of May 1, 2020, consisting of $27 million of cash on hand and available borrowing capacity of $160 million. 

Asset Impairments

Due to the significant decrease in commodity prices during the first quarter, Amplify incurred non-cash impairment charges of $455 million.  This included impairments of Amplify’s operated East Texas, Beta and Bairoil fields along with an impairment of certain leasehold acreage in Oklahoma.

Operations Update

During the first quarter of 2020, Amplify produced 29.7 MBoe/d, which was at the high end of the Company’s guidance range of 27.2 to 30.1 MBoe/d for the quarter.  This outperformance was due to strong results across all assets, including at the Bairoil asset, which produced steadily following start-up challenges in connection with the expansion project.  In addition, Mississippi Lime production stabilized following targeted, increased workover rig activity, which substantially reduced the backlog of offline wells from the fourth quarter. 

After strong production in the first quarter, Amplify, like most operators, faces uncertainty regarding future production in this low demand and tight storage capacity environment.  At this time, Amplify’s only identified production limitation is an expected 30% curtailment of the Company’s non-operated Eagle Ford production effective April 1, 2020.  In addition, the Company’s Bairoil plant will conduct its regularly scheduled, but cost limited, annual turnaround in the second quarter of 2020, which will temporarily reduce crude volumes.  Other than these two situations, Amplify currently anticipates being able to continue producing without limitation or shut-ins.  However, the Company acknowledges that access to markets for our products may change at any time due to capacity limitations for the gathering and transportation systems or the ultimate end-user. 

Capital Spending Update

Amplify’s capital spending for the first quarter was approximately $15.3 million and in line with the first quarter 2020 guidance range of $13 million to $19 million, which the Company reaffirmed on March 19, 2020.  Of the $15.3 million, a significant portion ($5.4 million or 35%) was attributed to the Company’s Mississippi Lime assets related to rod lift conversions and electric submersible pump optimizations.  An additional $5.0 million was incurred in the Eagle Ford for non-operated drilling and completion activity, which primarily occurred prior to the commodity price collapse in mid-March.

Full Year 2020 Guidance

Due to the high level of market volatility and uncertainty in connection with the impact of the ongoing COVID-19 pandemic, commodity prices and the broader US economy, the Company is withdrawing its previously issued full year 2020 guidance. 

Hedging Update

Since Amplify’s previous hedge update on March 5, 2020, the Company has made opportunistic additions to its natural gas hedge position in 2021 as well as monetized certain 2021 crude oil swaps for total cash proceeds of $18 million.  As of May 1, 2020, Amplify’s mark-to-market value remained a significant net asset position of $77 million and based on 2019 year-end reserve report’s PDP forecast, the Company has hedged over 90% of its expected second quarter oil production. The following table reflects the hedged volumes under Amplify’s commodity derivative contracts and the average fixed or floor prices at which production is hedged for April 2020 through December 2022, as of May 6, 2020.