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Amplify Energy Second Quarter 2020 Results

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   |    Wednesday,August 05,2020

Amplify Energy Corp. reported its Q2 2020 results.

Key Highlights

• Update on Liquidity Enhancement Initiatives:
  • Reduced operating expenses quarter-over-quarter by approximately $8 million, exceeding original expectations of $4 to $5 million
  • Reduced recurring cash general and administrative ("G&A") expenses quarter-over-quarter by approximately $2.5 million
  • Reduced 2020 capital spending plan by more than $8 million and expects full year capital spend of approximately $28 million
  • Finalized Beta royalty relief process that is expected to generate approximately $7 million per year of incremental revenue (assuming a $40/Bbl WTI price)
• During the second quarter of 2020 the Company generated:
  • Daily production of 27.7 MBoe/d
  • Net cash provided by operating activities of $29.9 million
  • Adjusted EBITDA of $21.3 million
  • Free Cash Flow of $11.1 million
• Current mark-to-market hedge book value of $25 million as of July 31, 2020
• As of July 31, 2020, net debt was $259 million, inclusive of $16 million of cash on hand

Martyn Willsher, Interim Chief Executive Officer and Chief Financial Officer of Amplify, said: "Despite the ongoing issues related to COVID-19, Amplify turned out an excellent quarter by focusing on the execution of our liquidity enhancement initiatives and operational performance of our long life, low-decline assets. Among the many highlights from this quarter were the overachievement of our liquidity initiatives, which included significant overhead and operating cost reductions, the finalization of our royalty relief process in California and the successful redetermination of our revolving credit facility that provides a supportive borrowing base solution. These results were only possible due to relentless effort from our team, and I'm very proud of our employees for their continued dedication throughout this difficult time."

Liquidity Enhancement Initiatives Update

Operating Cost and Corporate Overhead Reductions Amplify's lease operating expenses were reduced from $35.7 million in the first quarter to $27.8 million in the second quarter. The quarter-over-quarter savings of $7.9 million exceeded internal expectations of $4 to $5 million for the quarter and were accomplished due to outstanding execution by Amplify's employees. While the Company anticipates that a portion of these cost reductions are non-recurring, the Company remains committed to identifying and executing on incremental operational savings initiatives and expects to continue exceeding original estimates.

Additionally, Amplify reduced recurring cash G&A spending from $8.7 million in the first quarter to $6.2 million in the second quarter, which was in line with expectations. Amplify expects G&A spending to continue to trend down in the third quarter and beyond.

Capital Reductions Capital spending during the second quarter was $7 million, which was in line with the Company's expectations and represented a $8 million reduction from the first quarter. Amplify's remaining capital expenditure budget for the second half of 2020 is approximately $6 million. Amplify's remaining capital activity is focused principally on maintenance projects, which are essential to equipment integrity and operational efficiency, in addition to high rate of return workover projects.

Beta Field Royalty Relief As anticipated, Amplify successfully qualified for royalty relief at its Beta field effective July 1, 2020. Amplify's royalty rate at Beta decreased by 50%, which resulted in increased net production of approximately 500 Bbls/d and additional revenue of approximately $7 million per year assuming a $40/Bbl WTI price. Notably, this royalty relief program provides relief for both existing production and incremental production in the future when economic conditions allow for additional development.

Revolving Credit Facility and Liquidity Update

On June 15, 2020, Amplify announced that it has completed the regularly scheduled redetermination of its revolving credit facility borrowing base and entered into an amendment to its credit agreement. The redetermination resulted in a revised borrowing base of $285 million effective June 12, 2020 with scheduled monthly reductions of $5 million until the borrowing base reaches $260 million on November 1, 2020. The Company expects the next regularly scheduled borrowing base redetermination to occur in November 2020.

As of July 31, 2020, Amplify had total net debt of $259 million under its revolving credit facility with $21 million of available liquidity.

Operations and Capital Spending Update

During the second quarter of 2020, average daily production was approximately 27.7 MBoe. This result included reductions attributable to the annual Bairoil turnaround, temporary curtailment of Amplify's non-operated Eagle Ford assets and incremental offline wells in the Company's Oklahoma assets. At Bairoil, the annual plant turnaround was completed on time and on schedule in June, and the field has quickly returned to pre-turnaround production levels in July. The non-operated Eagle Ford curtailment mentioned on the Company's last earnings call concluded after April and production has since returned as expected in that area. Finally, Oklahoma production fell in the second quarter, as the backlog of wells offline increased as prices remained depressed. Amplify expects to bring many of these wells back online in future periods as prices continue to slowly rebound and workover economics improve.

Amplify's capital spending for the second quarter of 2020 was approximately $7 million which was in line with internal expectation and puts the Company on track for an estimated second half 2020 budget of $6 million. Of the $7 million spent in the second quarter, a significant portion ($2 million or 29%) was attributed to the Company's Eagle Ford assets and was utilized for non-operated drilling and completion activity. The remainder was primarily related to the Bairoil turnaround, along with capital workover and facility maintenance projects across other operated areas.

Hedging Update

Since Amplify's previous hedge update on May 6, 2020, the Company has made additions to its natural gas hedge position in second half of 2020 and 2022, as well as NGL swaps in the second half of 2020. As of July 31, 2020, Amplify's mark-to-market value of its commodity and interest rate hedge book remained a net asset position of $25 million.

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 July 2020 through December 2022, as of August 5, 2020.