Amplify Energy Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 9, 2023

There are 3 speakers on the call.

Operator

Were released yesterday after market close on August 8, 2023, and are available on Amplify's website at www.amplifyenergy.com. During this conference call, all participants will be in a listen only mode. Today's call is being recorded. A replay of the call will be accessible on Thursday, August 23rd, by dialing 800 6,000,000,005 to 3,1111,111. I would now like to turn the conference over to Jim Frew, Senior Vice President and Chief Financial Officer of Amplify Energy Corp.

Speaker 1

Good morning and welcome to the Amplify Energy conference call to discuss operating and results for the Q2 of 2023. Before we get started, we would like to remind you that some of our remarks may contain forward looking statements, which reflect management's current views of future events and are subject to various risks, uncertainties, expectations and assumptions. Although management believes that the Objections reflected in such forward looking statements are reasonable. It can give no assurance that such expectations will prove to be correct and undertakes no obligation and does not intend to update these forward looking statements to reflect events or circumstances occurring after this earnings call. Please refer to our press release and SEC filings for a list of factors that may cause actual results to differ materially from those in the forward looking statements made during this call.

Speaker 1

In addition, the unaudited financial information that will be highlighted here is derived from our internal financial books, records and reports. For additional detailed disclosure, we encourage you to read our Form 10 Q, which was filed yesterday afternoon. Also, Non GAAP financial measures may be disclosed during this call. Reconciliations of those measures to comparable GAAP measures may be found in our earnings release or on our website at www.amplifyenergy.com. During the call, Martin Wilshire, Amplify's President and Chief executive officer will provide an update regarding our 2nd quarter performance and the closing of our new revolving credit facility.

Speaker 1

Next, Dan Furby, Senior Vice President and Chief Operating Officer will provide an overview of 2nd quarter operational performance. Following that, I will discuss 2nd quarter financial results, provide an update on our balance sheet and liquidity and provide additional details on our hedge book. Finally, Martin will provide a strategic update before opening the call up for questions. With that, I hand it over to Martin.

Speaker 2

Thank you, Jim. Amplify continued its strong start to 2023 both operationally and financially. Since restarting operations at Beta in late April, production volumes have continued to exceed the initial projections. The wells we have brought back online have had fewer issues than expected and as a result production is higher and costs are lower than previously anticipated. In the 2nd quarter, the company also realized higher production in the Eagle Ford due to wells brought online at the end of the quarter.

Speaker 2

Although natural gas and NGL prices were significantly lower compared to the Q1, the company still generated 2nd quarter adjusted EBITDA $17,600,000 and free cash flow of $6,100,000 As announced on August 1, we successfully closed on a new 4 year revolving credit facility. Jim will provide additional details on this call, but we are very pleased to have completed the deal despite a very challenging credit market. The new revolving credit facility provides the company with sufficient liquidity to pursue our near term initiatives and flexibility to execute on our longer term and strategic goals. We greatly appreciate the support of our lenders and we look forward to working closely with them moving forward. With that, I'll now turn it over to Dan to discuss operational highlights from the quarter.

Speaker 2

Thank you, Martin. Total production for the quarter averaged approximately 21,200 barrels of oil equivalent per day, which was in line with our expectations and up 9% from the previous quarter, consisting of approximately 38% oil, 17% NGLs and 45% natural gas. The increase in 2nd quarter production was driven by partial quarter of beta production after the restart in late April, Eagle Ford development that was brought online at the end of the Q1 and the continued execution of low cost high return workover projects. For the remainder of the year, we expect flat to slightly increasing production. Production increases in the second half of the year will be driven by incremental oil volumes at Beta and accretive workover and depressor optimization projects.

Speaker 2

This will be partially offset by lower third quarter production at Fair Oil, which will be temporarily impacted by a scheduled shutdown in September. Though the turnaround of their oil will reduce 3rd quarter production, we intend to perform preventive maintenance on all critical facilities and equipment, are also upgrading our injection system. These changes will enable us to inject more water and CO2 into the reservoir, which we will improve the efficiency of the FLY and in turn further reduce the already low investment decline of that. With respect to beta, our workover program is progressing ahead of schedule. The well responses we are seeing are very encouraging as we are utilizing a coiled tubing unit to perform more efficient clean out of the production liners compared to historic workovers.

Speaker 2

We expect to be back decreased shutdown production rates in the Q4 of this year. We remain focused on improving operational efficiencies and cost reduction initiatives across all asset areas. For the 2nd quarter, lease operating costs were $34,900,000 Gathering, processing and transportation costs were $5,100,000 and production taxes were 2,000,000 in total these costs were 7% lower than the prior quarter on a per BOE basis. We intend to further reduce our total operating costs through the remainder of 2023 by pursuing other opportunities, such as electrifying a significant portion of the beta platform to reduce power expenses, insourcing company owned compressor to replace high cost rental compression in East Texas and converting wells to more efficient artificial lift methods in Oklahoma. Our team is continuing to evaluate additional cost savings opportunities that we will be implementing in the near future, consisting of the in sourcing of specific and critical service equipment that the company will own and operate, utilizing different artificial lift configurations to reduce failures and upgrading our oilfield chemical programs to increase efficacy at a lower cost.

Speaker 2

The company's total capital investment for the quarter was approximately $7,900,000 In the Eagle Ford, we invested $1,400,000 on the remaining expenditures associated with the 10 gross 1 net wells, which were brought online at the end of the Q1. The company also invested $1,400,000 in Oklahoma workover projects and $4,700,000 at Beta as we continue to optimize the Beta fuel production and facilities. The company's capital investments for the remainder of 2023 will focus primarily on Beta and Bairoil facility projects. The beta facility upgrades will allow the asset to be operated with much lower power costs, while greatly reducing overall emissions. The reduction of emissions will also significantly reduce the emission credit expenses currently incurred by the company as part of LOE.

Speaker 2

The bare oil capital will greatly improve the efficiency of the asset and improve the overall operations of the CO2 flood. With the return of the beta field to production, we have a liquid rich low decline asset base consisting of a prolific oilfield in beta with significant remaining upside, a large inventory of low cost extremely accretive workover projects across our onshore assets and several high impact cost saving initiatives coming to fruition in the second half of this year, all of which will continue to drive higher and operating margins for the organization. With that, I'll turn it over to Jim. Thank you, Dan.

Speaker 1

I would now like to discuss 2nd quarter financial performance, balance sheet and liquidity and hedging. With respect to 2nd quarter financial performance, Company reported net income of approximately $9,800,000 compared to $352,800,000 in the prior quarter. As previously reported, 1st quarter net income included the receipt of $84,900,000 in net proceeds from the beta settlement and recognition of a $259,500,000 deferred income tax benefit, which were both non recurring items. As Martin previously mentioned, 2nd quarter adjusted EBITDA was $17,600,000 Though down $8,200,000 from the prior quarter, The results are in line with our annual guidance. The quarter over quarter decrease in adjusted EBITDA was primarily due to decreases in commodity prices and the termination of LOPI proceeds.

Speaker 1

Compared to the prior quarter, net of hedges, gas prices were down 27%, while NGL prices were down 17 with the recent improvement in oil prices and beta back online, we are reaffirming our guidance range of $80,000,000 to $100,000,000 of with adjusted EBITDA for 2023. With respect to costs, 2nd quarter lease operating expenses were up $1,900,000 versus the prior quarter, primarily due to beta coming back online. On a per BOE basis, we were down 4% compared to the prior quarter. As Dan mentioned, we think there are several opportunities to further reduce LOE in the second half of the year. Comparing the second quarter to the Q1, gathering, Transportation and processing costs were 17% lower, while production taxes were 11% lower on a per BOE basis.

Speaker 1

These cost savings were primarily due to lower physical commodity prices. Also of note, minimum volume commitments associated with our Oklahoma NGL production ended on June 30, which will further reduce our future GPT expenses. Cash G and A in the 2nd quarter was $6,200,000 which was down $1,400,000 from the prior quarter and in line with are sufficient. We expect cash G and A to remain at this level throughout the remainder of 2023. In the second quarter, we incurred $3,700,000 of interest expense.

Speaker 1

This was down $2,000,000 compared to the Q1. The decrease in interest expense was primarily due to significantly paying down our debt outstanding with a portion of the proceeds from the beta settlement. Free cash flow defined as adjusted EBITDA less CapEx and cash interest expense was $6,100,000 in the Q2 of 2023 And was in line with expectations. Through the first half of the year, Amplify has generated $17,500,000 free cash flow. Similar to adjusted EBITDA, we are reaffirming our full year free cash flow guidance of $30,000,000 to $50,000,000 As Martin mentioned, on July 31, 2023, the company entered into a new senior secured reserve based revolving credit facility with KeyBanc acting as the administrative agent.

Speaker 1

The facility has a 4 year term with an initial borrowing base of 150,000,000 the borrowing base will be redetermined on a semiannual basis with the net redetermination expected to occur in the Q4 of 2023. At closing, participants committed $135,000,000 providing ample liquidity for the company. Similar to Martin, I'd like to thank KeyBanc and our syndicate of lenders for their support and resolve to successfully close the deal. After the closing of the credit facility on July 31, Amplify had net debt of approximately $113,000,000 consisting of $120,000,000 outstanding under its revolving credit facility and $7,000,000 of cash on hand. The company's liquidity was approximately 22,000,000 and net debt to last 12 months adjusted EBITDA was approximately 1.2 times.

Speaker 1

Finally, I'd like to discuss our hedge book. As of July 31, our forecasted crude oil production was approximately 55% hedged for 2023 and 5% hedged in 2024. On the GAAP side, we were approximately 75% hedged for 2023 and 15% hedged for 2024. With the new credit facility now in place, we are required to increase our hedge positions covering the next 36 and months of expected production. The company is currently executing a program to meet its hedging requirements under the new credit facility.

Speaker 1

We plan to provide updated hedge information before our next quarterly conference call. With that, I'll turn the call back to Mark.

Speaker 2

Thank you, Jim. As we progress through 2023, we expect to increase our free cash flow profile through prudent asset management and capital allocation, lower leverage and increasing contributions from beta's return to production. At this time, we are reaffirming our 2023 full year but increasing our forecasted 2023 through 2025 free cash flow to approximately $200,000,000 at current strip pricing. Our strategic focus near term is to continue to build production rates at Beta, while pursuing the cost cutting initiatives and accretive investments that Dan outlined were filed earlier. Additionally, over the last several months Amplify's management team and Board have been in collaborative discussions on our path forward and with the certainty provided by our recent financing, we expect to be able to finalize certain decisions on our strategic direction in the coming months.

Speaker 2

We appreciate the support of all of our shareholders as we continue to put the events over the last couple of years behind us and focus on the value enhancing options available to us moving forward. With that, operator, we are now open for

Operator

on KeyBanc. One moment while we queue. I will take our first question from John White with ROTH MKM. Please go ahead.

Speaker 2

Good morning and congratulations on a good quarter and congrats on your new credit facility. Hey, John. Appreciate that. A little more detail on beta, if we could. If you have it, what was production before the pipeline incident compared to where it's currently?

Speaker 2

Sure. Obviously, prior to the incident, we were approximately around 4,000 barrels a day gross. We are approaching that now as we kind of got into the Q3. We're more than bringing a few 100 barrels a day are away from reaching that target. So we expect to get there either maybe later in Q3 or early in Q4 with our current rate of workovers.

Speaker 2

And so we've made a lot of progress over the last couple of months. Obviously, this quarter, you didn't see any production at all in pretty much in April and you're ramping up through May June, but obviously in the Q3 you'll see a much more full quarter of close to at least Production from the beta asset, which was more than offset the loss of LOBE that we incurred in this quarter reduced our revenue a little bit. Okay. I appreciate that. And the water production is in line with your expectations?

Speaker 2

Yes, absolutely. So we're seeing good results. And like I said, It's a we view the water as kind of a water flood anyway out there. So we're reinjecting the water. And like I said, we're seeing good results And no real degradation across of the wells that have come back online.

Speaker 2

That's great. Glad to hear it. I'll pass it back to the operator and come back into the queue.

Speaker 1

Thank you.

Operator

I will take our next question from Jeff Robertson with Water Tower Research. Please go ahead. Thanks.

Speaker 2

Martin before the incident in California Amplify had some redevelopment plans for beta. Can you talk about where you sit with those today now that the field has come back online? Yes. Thank you. Great question, Jeff.

Speaker 2

So When we went offline, obviously, we were in the middle of kind of the first we're actually finishing up the second well in that program. We have permits, we have pipe, we have a lot of the materials already ready to go to continue that program. We are currently evaluating bringing that program back maybe as early as the beginning of next year. That will be discussed with our Board. So we're going to look at the economics all over again.

Speaker 2

We're going to look at the And the upside and really evaluate that from the bottom up before we make any decisions. But that is certainly something that is currently under discussion and I expect to be able to kind of give you an update on that by the next quarterly call. Thanks. So the permits are still in force, right? Absolutely.

Speaker 2

Okay. Thank you.

Operator

And we have a follow-up from John White with Roth MKN. Please Go ahead.

Speaker 1

Martin,

Speaker 2

you threw in one of your last remarks The strategic direction being considered over the coming months, Does that include possible resumption of a dividend? Yes, John. So obviously one of the things that we had Look carefully at when we did the financing was how it fit with the future strategy. There are certainly options out there to create a lot more liquidity in the near term, but currently we're not looking at acquisitions as kind of a primary focus. So more likely to look at Some portfolio optimization opportunities and look at free cash flow as a means to reserve some kind of return of capital program to shareholders.

Speaker 2

That's all to be determined going forward and that's part of the kind of the strategic decisions that I mentioned that we will be discussing with the Board going forward. As I mentioned, there's there are some requirements under the revolving credit facility that we need to Before we can resume returning capital to shareholders, but basically that's part of the conversation that will be we have moving forward and I fully expect to be able to update the our shareholders by next quarter on our plans going forward.

Speaker 1

Well, that sounds great.

Speaker 2

You're sure in a good spot compared to last year or so. Regionally, where's the focus on the workovers? It sounds like there's a lot of workovers In the budget for the rest of the year. So primarily Oklahoma has got a continuing workover program. So does East Texas.

Speaker 2

It's not quite to the same level of Oklahoma. And then primary obviously is in California, where we still have and wells offline that we are planning to bring back online next couple of months. And like I said, that should get us back to full production rates that I mentioned earlier. We also have a workover program in barrel. It's kind of our we don't do a whole lot of drilling, but we do kind of maintain an active workover Because we consider those the most accretive near term methods of kind of production up and hitting higher rates of return.

Speaker 2

Okay. Well, thanks again. I'll pass it back to the operator.

Operator

Thank you. And this concludes our Q and A session. I will now turn the call over to management.

Speaker 2

Thank you. In closing, I'd like to express my appreciation to the company's employees for their outstanding and dedication and would especially like to express our appreciation for the support from KeyBanc again and our syndicate of lenders and all of our shareholders for their patience and support as we've moved forward over the last couple of years. I'd also like to thank everyone for participating in the call today. As always, if there are any questions, please don't hesitate to reach out. Thank you.

Operator

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.

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Key Takeaways

  • Beta production outperformance: Since restarting in late April, Beta volumes have exceeded projections with lower-than-expected costs, nearing pre-incident rates of ~4,000 boe/d and expected to fully ramp by late Q3/early Q4.
  • Solid Q2 financial results: Adjusted EBITDA of $17.6 million and free cash flow of $6.1 million, in line with guidance, with full‐year EBITDA reaffirmed at $80–100 million and FCF at $30–50 million.
  • New $150 million credit facility: Closed a 4-year revolving credit line with a $135 million commitment, providing ample liquidity and flexibility for near- and long-term strategic goals.
  • Operating cost reductions underway: LOE, gathering, processing and tax costs down on a per-boe basis; initiatives include electrifying Beta, insourcing compressors, artificial-lift upgrades and optimized chemical programs.
  • Focused capex and strategic upside: Q2 capex of $7.9 million spent on Eagle Ford wells, Oklahoma workovers and Beta optimization, with H2 investment targeting Beta and Bairoil facility upgrades to lower emissions and improve CO₂ flood efficiency.
AI Generated. May Contain Errors.
Earnings Conference Call
Amplify Energy Q2 2023
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