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Amplify Energy Second Quarter 2021 Results

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   |    Wednesday,September 01,2021

Amplify Energy Corp. reported its operating and financial results for the second quarter of 2021 and updated its full-year 2021 guidance.

Key Highlights:

• During the second quarter of 2021, the Company:
  • Achieved average total production of 25.3 MBoepd
  • Generated net cash provided by operating activities of $20.8 million
  • Delivered Adjusted EBITDA of $23.8 million
  • Generated $9.5 million of free cash flow
• Received full forgiveness from the U.S. Small Business Administration of the Company's $5.5 million Paycheck Protection Program loan
• As of July 31, 2021, net debt was $214 million, inclusive of $21 million of cash on hand
  • Net Debt to Last Twelve Months ("LTM") EBITDA of 2.3x¹
• Updated the Company's full-year 2021 guidance, materially increasing expectations for Adjusted EBITDA and free cash flow

Martyn Willsher, Amplify's President and Chief Executive Officer, commented, "During the second quarter, Amplify once again achieved outstanding operational and financial results driven by production outperformance and cost efficiencies."

"With the significant recovery of commodity prices in 2021, we are prudently allocating more capital to projects that have the highest potential to drive future cash flow generation and advance our strategic objectives. In addition, the initial phase of the Beta field development program is currently underway, with preliminary results from our first recompletion and two sidetrack projects expected in the third and fourth quarters, respectively. We have also accelerated our capital workover program in Oklahoma and have elected to participate in several high-return, non-operated development projects in the Eagle Ford and East Texas, which will help mitigate natural production declines and enhance free cash flow."

Mr. Willsher concluded, "Due to our exceptional operational performance and stronger commodity prices, we are materially increasing our free cash flow expectations for the Company. This is reflected in our improved full-year 2021 free cash flow guidance of $45-$55 million, and our forecast now projects free cash flow in excess of $200 million through 2023. This substantial free cash flow generation will allow us to rapidly delever our balance sheet, while also providing future optionality to allocate additional capital towards asset reinvestment, accretive transactions and return of capital initiatives."

⁽¹⁾ Net debt as of July 31, 2021 and LTM EBITDA as of second quarter of 2021

Key Financial Results

During the second quarter of 2021, Amplify generated $23.8 million of Adjusted EBITDA, an increase of approximately $1.0 million from the prior quarter. Second quarter Adjusted EBITDA exceeded internal projections as a result of production outperformance and cost efficiencies, which were strengthened by continued commodity price improvement.

Free cash flow, defined as Adjusted EBITDA less cash interest and capital spending, was $9.5 million in the second quarter of 2021, a decrease of approximately $4.1 million from the prior quarter due to increased capital spending detailed later in this release.

Revolving Credit Facility

As of July 31, 2021, Amplify had net debt of $214 million, consisting of $235 million outstanding under its revolving credit facility and $21 million of cash on hand. Net Debt to LTM EBITDA was 2.3x (net debt as of July 31, 2021 and 2Q21 LTM EBITDA).

Corporate Production and Pricing Update

During the second quarter of 2021, average daily production was approximately 25.3 MBoepd, an increase of 2% from 24.7 MBoepd in the first quarter. Production outperformance during the quarter was driven primarily by the recovery in East Texas and Oklahoma from Winter Storm Uri in February and new wells turned online in the Eagle Ford.

Amplify's annual natural decline rate continues to decrease due, in part, to the nature of its mature, PDP-heavy asset base. The Company expects the decline rate to continue this downward trend for the foreseeable future as it responsibly manages natural production decline and engages in high-return workover projects. The Company's commodity product mix for the quarter consisted of 39% crude oil, 16% NGLs, and 45% natural gas. On a year-over year basis, Amplify's oil composition increased by approximately 5%, and the Company expects the low-decline and increasingly oil-weighted nature of its diverse assets to further drive long-term profitability.

Total oil, natural gas and NGL revenues in the second quarter of 2021 were approximately $80.3 million, before the impact of derivatives, compared to $72.3 million in the first quarter. The Company realized a loss on commodity derivatives of $12.7 million during the quarter, compared to a $4.8 million loss during the previous quarter, consisting of $16.9 million in realized losses from active contracts, partially offset by a $4.2 million gain from in-the-money contracts related to the second quarter of 2021 that were monetized in April 2020. The hedging loss experienced during this quarter was primarily attributed to the hedges placed earlier in 2020, when the commodity pricing environment was materially lower, and highlights the substantial recovery in prices in 2021.

Costs and Expenses

Lease operating expenses in the second quarter of 2021 were approximately $28.7 million, or $12.46 per Boe, a decrease of approximately $0.2 million compared to $28.9 million, or $13.01 per Boe, in the first quarter. Amplify remains committed to the disciplined management of operating expenses, and the asset teams continue to explore additional methods of reducing costs moving forward.

Severance and Ad Valorem taxes in the second quarter of 2021 consisted of $5.1 million, an increase of $0.5 million compared to $4.6 million in the first quarter. On a percentage basis, Amplify paid approximately 6.3% of total oil, NGL and natural gas sales revenue in taxes this quarter compared to 6.4% in the previous quarter.

Amplify incurred $5.1 million, or $2.20 per Boe, of gathering, processing and transportation expenses in the second quarter of 2021, compared to $4.6 million, or $2.06 per Boe, in the previous quarter. This increase was attributable to higher production volumes in the second quarter.

Second quarter cash G&A expenses were $5.0 million this quarter, a decrease of $1.5 million from the first quarter of 2021. In addition, second quarter cash G&A decreased year-over-year by $1.2 million, which demonstrates the effectiveness of the transformative corporate expense reduction plan Amplify undertook in 2020. The Company's current projected full-year 2021 cash G&A estimate remains approximately $23 million.

Depreciation, depletion and amortization expense for the second quarter of 2021 totaled $7.4 million, or $3.21 per Boe, compared to $7.3 million, or $3.31 per Boe, in the prior quarter.

Net interest expense was $3.1 million this quarter, held flat from the first quarter of 2021.

Amplify had an effective tax rate of 0% and did not record an income tax expense or benefit for the second quarter of 2021.

Capital Spending Update and Outlook

Cash capital spending during the second quarter of 2021 was approximately $10.9 million, an increase of approximately $5.1 million from $5.8 million in the previous quarter. The increase was largely attributable to the annual facility maintenance project at Bairoil, the acceleration of rod-lift conversions in Oklahoma, and the purchase of long lead-time materials for Amplify's previously announced phased development program at Beta.

The following table details Amplify's capital incurred during the quarter and year-to-date:

Asset Operational Update and Statistics

Oklahoma:

• Production: 601 MBoe; 6.6 MBoepd
  • Commodity Mix: 21% oil, 28% NGLs, 51% natural gas
• LOE: $4.3 million; $7.08 per Boe
• Capex: $3.0 million

Amplify's operating strategy in Oklahoma remains focused on prioritizing a stable free cash flow profile and managing production by returning to production only the most economic wells. Recent workovers have been focused on rod-lift conversions and ESP optimizations, which reduce future operating expenses and downtime while generating attractive returns in the current pricing environment. The workover program was accelerated in the second quarter of 2021 to boost future production, which led to higher capital expenditures compared to the prior quarter. As of June 30, Amplify has converted approximately 45% of the field to rod lift and anticipates having approximately 50% of the field converted to rod lift by year end.

• Production: 310 MBoe; 3.4 MBoepd
  • Commodity Mix: 100% oil
• LOE: $11.2 million; $36.16 per Boe
• Capex: $2.7 million

The Company continued its CO₂ injection and water-alternating-gas pattern optimization at Bairoil to improve production performance. The second quarter of 2021 delivered strong operational reliability of the production facilities, and the technical team continued extensive evaluation of the reservoir to facilitate these efforts. Amplify also completed the annual turnaround during the second quarter, a ten-day field-wide shut-in to perform production facilities maintenance, on time and under budget. The Company intends to continue using new technologies, along with targeted workover activity, to drive further operational improvements and efficiencies.

• Production: 328 MBoe; 3.6 MBoepd
  • Commodity Mix: 100% oil
• LOE: $7.8 million; $23.83 per Boe
• Capex: $3.0 million

During the second quarter, Amplify deployed additional capital towards rig and platform upgrades in preparation for the previously announced phased development program. The first project, a case hole recompletion, is progressing according to schedule, with initial production results expected in September. This project will be followed by two sidetracks of existing wells in the fourth quarter of 2021, with initial production results expected by year-end. Amplify remains confident that its development strategy for the Beta asset will lay the groundwork for stronger operating margins, significant cash flow generation and long-term profitability.

• Production: 5.6 Bcfe; 61.5 MMcfepd (933 MBoe; 10.3 MBoepd)
  • Commodity Mix: 5% oil, 20% NGLs, 75% natural gas
• LOE: $4.1 million; $0.73 per Mcfe ($4.38 per Boe)
• Capex: Less than $0.1 million

The Company's East Texas asset remains one of its highest margin and best cash flowing areas. Second quarter production was 6% higher than the previous quarter as the team quickly recovered from Winter Storm Uri, while also capitalizing on workover efficiencies to mitigate natural production decline. Amplify's operating strategy continues to focus on prudent management of production by prioritizing high-return workover opportunities. The Company also anticipates participating in highly accretive non-operated development opportunities beginning in the fourth quarter of 2021, which will provide additional cash flow generation starting in 2022.

• Production: 128 MBoe; 1.4 MBoepd
  • Commodity Mix: 77% oil, 12% NGLs, 11% natural gas
• LOE: $1.3 million; $9.98 per Boe
• Capex: $2.2 million

As of August 4, 2021, all 48 DUCs from 2020 have been turned online and the initial production rates of the wells placed online exceeded the internal type curve average, demonstrating the continued value generated by the Company's Eagle Ford asset.