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Amplify Energy Third Quarter 2022 Results

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   |    Tuesday,November 01,2022

Amplify Energy Corp. reported its operating and financial results for the third quarter of 2022 and updated its full-year 2022 guidance.

Key Highlights:

• During the third quarter of 2022, the Company:
  • Achieved average total production of 21.0 MBoepd
  • Generated net cash provided by operating activities of $18.9 million and net income of $47.2 million
  • Delivered Adjusted EBITDA of $30.8 million
  • Generated $17.0 million of free cash flow
• As of October 28, 2022, net debt was $179 million, consisting of $205 million outstanding under the revolving credit facility and $26 million of cash on hand
  • Net Debt to Last Twelve Months ("LTM") EBITDA of 2.2x¹
• Southern California Release Incident (the "Incident") Updates:
  • Pipeline repair operations are currently underway, and the Company expects to safely repair and restart the pipeline by the end of the first quarter of 2023
  • On October 1, 2022, the Company announced that it had received the U.S. Army Corps of Engineers Nationwide Permit 12 to proceed with the permanent repair plans which were previously reviewed and approved by federal pipeline safety regulators earlier this year
  • On August 26, 2022 and September 8, 2022, respectively, Amplify announced that it had reached agreements to resolve all federal and state criminal matters involving the Company and its subsidiaries arising from the Incident; the courts have approved those agreements
  • On August 25, 2022, Amplify announced that it had reached an agreement in principle, which is subject to court approval, to settle all civil claims against Amplify and its subsidiaries, which will be funded under the Company's insurance policies

⁽¹⁾ Net debt as of October 28, 2022, and LTM EBITDA as of the third quarter of 2022

Martyn Willsher, Amplify's President and Chief Executive Officer, commented, "We are excited to report that operations are currently underway to repair the sections of our pipeline that were damaged by anchor strikes from two shipping vessels in 2021. As we have previously announced, we have resolved all federal and state criminal matters and have reached an agreement in principle with the plaintiffs in the class action to resolve all civil matters against Amplify and its subsidiaries. With the resolution of these matters substantially complete, we are concentrated on safely repairing the damaged pipeline and working with regulators to promptly receive the required approvals to restart our pipeline and bring the Beta field back online."

Mr. Willsher concluded, "Amplify performed well operationally and financially during the third quarter. We increased production, reduced operating expenses, and improved cash margins, which allowed us to further reduce total debt outstanding and improve our leverage metrics. For the remainder of 2022, we remain focused on improving our future free cash flow generation through prudent asset investments and cost optimization of our assets, while delevering our balance sheet."

Southern California Pipeline Incident

For more information and disclosures regarding the Incident, please see our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 filed with the Securities and Exchange Commission ("SEC").

Key Financial Results

During the third quarter of 2022, Amplify generated $30.8 million of Adjusted EBITDA, an increase of approximately $14.5 million from $16.3 million in the prior quarter. The increase was primarily attributable to higher production, lower operating expenses, timing variances regarding the recognition of loss of production income ("LOPI") insurance proceeds related to the Incident, and lower third quarter commodity hedge settlement payments. For the third quarter, the Company recognized $13.3 million of LOPI proceeds, which represents three months of LOPI payments, compared to $8.8 million, or two months LOPI payments, for the prior quarter. Amplify will continue to recognize LOPI proceeds at the time they are approved by insurers for the remainder of the policy period or until Beta is returned to full production.

Free cash flow, defined as Adjusted EBITDA less cash interest expense and capital expenditures, was $17.0 million in the third quarter of 2022, compared to negative $0.6 million in the prior quarter and $14.3 million in the first half of the year. The positive change was primarily related to rolling off out-of-the-money commodity hedges, reduced capital expenditures in East Texas and Bairoil and LOPI payment recognition during the third quarter.

Revolving Credit Facility

As of October 28, 2022, Amplify had net debt of $179 million, consisting of $205 million outstanding under its revolving credit facility and $26 million of cash on hand. Net Debt to LTM EBITDA was 2.2x (net debt as of October 28, 2022 and 3Q22 LTM EBITDA).

The Company's fall borrowing base redetermination process is currently underway.

Corporate Production and Pricing Update

During the third quarter of 2022, average daily production was approximately 21.0 MBoepd, an increase of 3% from 20.4 MBoepd in the second quarter. The quarter-over-quarter growth was driven primarily by recent development activity in the Eagle Ford, accelerated workovers in Oklahoma and recovery in Bairoil following the annual maintenance turnaround. The Company's product mix for the quarter consisted of 31% crude oil, 19% NGLs, and 50% natural gas.

Total oil, natural gas and NGL revenues in the third quarter were approximately $112.8 million, before the impact of derivatives, compared to $112.9 million in the prior quarter. The Company realized a loss on commodity derivatives of $40.8 million during the quarter, compared to a $48.6 million net loss during the previous quarter.

Costs and Expenses

Lease operating expenses in the third quarter of 2022 were approximately $32.0 million, or $16.56 per Boe, a decrease of approximately $1.3 million compared to $33.3 million, or $17.91 per Boe, in the second quarter. The decrease was primarily due to lower workover expense projects at Bairoil.

Severance and Ad Valorem taxes in the third quarter were approximately $9.2 million, an increase of $0.6 million compared to $8.6 million in the previous quarter. On a percentage basis, Amplify paid approximately 8.1% of total oil, NGL and natural gas sales revenue in taxes this quarter compared to 7.6% in the previous quarter.

Amplify incurred $7.5 million, or $3.87 per Boe, of gathering, processing and transportation expenses in the third quarter of 2022, compared to $7.3 million, or $3.92 per Boe, in the prior quarter.

Third quarter cash G&A expenses were $6.1 million, a decrease of $1.6 million from $7.7 million in the second quarter of 2022, primarily attributable to lower professional and advisor fees.

Depreciation, depletion and amortization expense for the third quarter totaled $6.3 million, or $3.25 per Boe, compared to $5.9 million, or $3.16 per Boe, in the prior quarter.

Net interest expense was $4.0 million this quarter, an increase of $0.9 million from $3.1 million in the second quarter of 2022.

Amplify had an effective tax rate of 0% and did not record an income tax expense or benefit for the third quarter of 2022.

Capital Spending Update

Cash capital spending during the third quarter of 2022 was approximately $9.9 million, a $3.6 million decrease from $13.5 million in the prior quarter. The majority of the capital expenditures in the third quarter was related to non-operated development activity in the Eagle Ford, facility maintenance at Bairoil and Beta, and accelerated workover activity in Oklahoma to capitalize on current commodity prices.

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

Asset Operational Update and Statistics

Oklahoma:

• Production: 625 MBoe; 6.8 MBoepd
  • Commodity Mix: 20% oil, 28% NGLs, 52% natural gas
• LOE: $5.3 million; $8.48 per Boe
• Capex: $5.1 million

Amplify's operating strategy in Oklahoma remains focused on prioritizing a stable free cash flow profile and managing production through an active workover program. The Company continued the accelerated workover program initiated earlier in the year, maintaining three workover rigs focused on rod-lift conversions and ESP optimizations. These highly accretive projects reduce future operating expenses and downtime, while generating attractive returns in the current pricing environment. As a result, production in the third quarter increased 5% and 14% from the second and first quarters, respectively.

Rockies (Bairoil):

• Production: 332 MBoe; 3.6 MBoepd
  • Commodity Mix: 100% oil
• LOE: $12.3 million; $37.07 per Boe
• Capex: $0.9 million

Bairoil's processing facilities returned to normal operating levels after completion of the annual maintenance turnaround last quarter, resulting in increased production and lower operating expenses in the third quarter. Amplify intends to continue using new technologies, along with targeted workover activity and well stimulations, to drive further operational improvements and efficiencies at Bairoil.

Southern California (Beta):

• Production: 0 MBoe; 0.0 MBoepd
  • Commodity Mix: 100% oil
• LOE: $6.7 million
• Capex: $1.2 million

As previously disclosed, all of the Company's production and pipeline operations at the Beta field have been suspended. Amplify remains focused on repairing and restarting the pipeline as soon as practicable. In anticipation of returning the field to production, the Company is also completing certain facilities projects.

East Texas and North Louisiana:

• Production: 5.1 Bcfe; 55.3 MMcfepd (848 MBoe; 9.2 MBoepd)
  • Commodity Mix: 5% oil, 20% NGLs, 75% natural gas
• LOE: $6.2 million; $1.22 per Mcfe ($7.29 per Boe)
• Capex: $0.6 million

Amplify's East Texas operating strategy continues to focus on prudent management of production by prioritizing high-return workover projects and opportunistically participating in non-operated development opportunities. The Company's production during the third quarter benefitted from the 3 gross (0.6 net) non-operated development wells that were brought online late in the second quarter. Amplify is actively pursuing additional opportunities to bolster future free cash flow generation.

Non-Operated Eagle Ford:

• Production: 130 MBoe; 1.4 MBoepd
  • Commodity Mix: 80% oil, 10% NGLs, 10% natural gas
• LOE: $1.5 million; $11.58 per Boe
• Capex: $2.1 million

Amplify continues to opportunistically participate in attractive non-operated Eagle Ford development and recompletion projects as they arise. Quarter-over-quarter production increased 25% as a result of wells completed late in the second quarter, which exceeded internal expectations. We are currently participating in 11 gross (1.0 net) new development projects, including two recompletion projects, which are projected to be on-line in the first quarter of 2023.

2022 Guidance Update

The following guidance is subject to the cautionary statements and limitations described under the "Forward-Looking Statements" caption at the end of this press release. Amplify's updated 2022 guidance is based on its current expectations regarding capital expenditure levels and on the assumption that market demand and prices for oil and natural gas will continue at levels that allow for economic production of these products. The guidance below does not assume Beta returns to production in 2022.

 A summary of the guidance is presented below:

⁽¹⁾