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Amplify Energy Third Quarter 2020 Results

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   |    Wednesday,November 11,2020

Amplify Energy Corp. reported its operating and financial results for the third quarter of 2020.

Key Highlights:

  • During the third quarter of 2020 the Company:
    • Grew oil production volumes by 5% to 10.8 MBbls/d from 10.4 MBbls/d in the second quarter
      • Achieved daily production of 27.7 MBoe/d, which was in line with 27.7 MBoe/d in the second quarter of 2020, despite reduced maintenance capital expense
    • Generated net cash provided by operating activities of $20.6 million
    • Reduced LOE to $27.6 million, from $27.8 million during the second quarter of 2020, by continued realization and execution of long-term cost reduction initiatives
    • Continued the downward trend of cash G&A expense, attaining the previously forecasted annualized run rate of approximately $22 million, a $2.5 million annualized reduction from the first quarter of 2020
    • Implemented Beta field royalty relief effective July 1, 2020, which is expected to generate approximately $7 million per year of incremental revenue (assuming a $40/Bbl WTI price)
    • Delivered Adjusted EBITDA of $24.8 million, an increase of $3.5 million from the previous quarter
    • Realized $16.0 million of Free Cash Flow, an increase of approximately $5 million from the second quarter of 2020
  • Net Debt to Last Twelve Months ("LTM") EBITDA of 2.8x as of September 30, 2020
  • Approximately 75% of fourth quarter 2020 crude oil production hedged at attractive pricing
    • Robust crude oil hedge position in 2021 with a mix of swaps and collars allowing for upside participation
  • Current mark-to-market hedge book value of $13 million as of October 30, 2020
  • As of October 30, 2020, net debt was $243 million, inclusive of $17 million of cash on hand

Martyn Willsher, Interim Chief Executive Officer and Chief Financial Officer of Amplify commented, "I am very pleased with our third quarter operational and financial results. Despite the continued impact of the ongoing COVID-19 pandemic and depressed commodity prices, we generated significant free cash flow from the continued realization and execution of our liquidity enhancing initiatives and disciplined commodity hedging program, demonstrating the sustainable value of our long-lived, low-decline assets."

Mr. Willsher continued, "During the remainder of 2020, we will remain focused on operational excellence and capitalizing on all opportunities that enhance shareholder value. We have initiated the fall borrowing base redetermination process and anticipate a result that supports our liquidity position and provides a solid foundation for significant free cash flow generation."

"This year has been challenging for the industry and our Company, but I remain very confident about Amplify's future. I am extremely proud of our exceptional employees and grateful for the dedication and resourcefulness they have exhibited during this uncertain and tumultuous time," Mr. Willsher concluded.

Key Financial Results

During the third quarter of 2020, Amplify generated $24.8 million in Adjusted EBITDA, an increase of $3.5 million from $21.3 million in the second quarter of 2020. This increase exceeded internal expectations and was primarily attributable to higher than expected production, the continued realization of our previously announced cost reduction initiatives and commodity price improvement during the quarter.

Free cash flow, defined as Adjusted EBITDA less cash interest and capital spending, was $16 million in the third quarter of 2020, an increase of approximate $5 million from $11 million in the prior quarter. This result was primarily attributed to increased revenue and a decrease in capital spending in the quarter.

Selected Operating and Financial Results for the Second and Third Quarters of 2020:

Revolving Credit Facility and Liquidity Update

Amplify is currently working with its lenders on its fall 2020 borrowing base redetermination and expects the process to be finalized before the end of November.

As of October 30, 2020, Amplify had total net debt of $243 million, with $260 million outstanding under its revolving credit facility and $17 million of cash on hand.

Production and Operations Update

During the third quarter of 2020, average daily production was approximately 27.7 Mboe/d, mirroring that of the second quarter of 2020. While a portion of this result was attributed to receiving royalty relief at Beta, all asset areas met or exceeded internal expectations despite intermittent third-party and weather interruptions. This consistent level of production, achieved with limited capital spending, demonstrates the sustainability of Amplify's long-lived, low-decline assets and stands as a testament to the hard work put forth by our employees to identify and capitalize on high-return projects.

Production in East Texas exceeded internal forecasts as a result of reduced downtime and efficient workover operations, despite intermittent third-party interruptions. In Oklahoma, the team prudently returned economic wells to production and converted five wells to rod-lift from electrical submersible pumps. These conversions are part of an ongoing program implemented last year, which has facilitated reduced electrical costs and well downtime. At Beta, net production during the third quarter averaged approximately 500 Bbls/d more than the previous quarter, primarily as the result of the royalty rate reduction effective July 1, 2020. This amounts to an approximate $1.7 million increase in revenue for the quarter, in line with the projected annualized increase in revenue of $7 million previously disclosed. Our oil-weighted Bairoil properties maintained stable production from the previous quarter, demonstrating the mature, low-decline nature of the asset. Lastly, third quarter production from our non-operated Eagle Ford assets remained relatively flat when compared with the second quarter of 2020, primarily due to new wells coming online in late May 2020.

Lease operating expenses in the third quarter of 2020 were approximately $27.6 million, a decrease of $0.2 million, from $27.8 million in the second quarter of 2020. This outcome was a strong result considering the second quarter included a significant number of one-time cost reductions, and is a credit to Amplify's operating team's continued efforts to reduce costs without impacting safety or production.

Capital Spending Update

Capital spending during the third quarter of 2020 was approximately $5 million, a decrease of approximately $2 million from $7 million in the second quarter. This was slightly higher than forecasted due to additional costs from non-operated Eagle Ford wells that were drilled earlier in the year.

Amplify's remaining capital budget for the fourth quarter of 2020 is approximately $3 million and is focused principally on maintenance projects, which are essential to equipment integrity and operational efficiency, in addition to high rate of return workover projects.

Hedging Update

As of October 30, 2020, Amplify's mark-to-market value of its commodity and interest rate hedge book remained a net asset position of $13 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 October 2020 through December 2022, as of November 5, 2020.

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