Amplify Energy Corporation First Quarter 2023 Results

Martyn Willsher, Amplify's President and Chief Executive Officer, commented, "Amplify is off to a strong start in 2023. We are excited to report that we have restarted operations at Beta, with initial production rates exceeding our expectations. Resumed operations at Beta, coupled with the receipt of the settlement proceeds and corresponding reduction in debt outstanding, significantly improve our financial outlook and represent a new chapter in Amplify's future."

Mr. Willsher concluded, "The Company performed well operationally and financially in the first quarter despite difficult weather conditions across our assets, and we intend to continue driving operational efficiencies through additional high-return workover and non-operated development projects. Our near-term strategic focus is to build production rates at Beta and refinance our credit facility, which will allow us to pursue value enhancing initiatives for our shareholders."

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 March 31, 2023, which Amplify expects to file with the Securities and Exchange Commission ("SEC") on May 3, 2023.

Key Financial Results

During the first quarter of 2023, the Company reported net income of approximately $352.8 million. Net income was positively impacted by the receipt of $84.9 million in net proceeds from the Beta settlement and recognition of a $259.5 million deferred income tax benefit, which includes $269.5 million from the release of a substantial amount of the Company's valuation allowance previously offsetting its net deferred tax assets. While the tax benefit associated with the valuation allowance release increased net income, it had no impact on Amplify's current or future cash flows. Additional information can be found in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

Amplify generated $25.8 million of Adjusted EBITDA for the first quarter of 2023, an increase of approximately $3.9 million from $21.9 million in the prior quarter. The increase was primarily attributable to lower operating expenses and higher realized commodity prices (net of hedges), partially offset by lower production and lower loss of production income ("LOPI") proceeds. For the first quarter, the Company recognized $13.5 million of LOPI proceeds, compared to $15.2 million for the prior quarter, a decrease attributable to a true-up for prior period settlements in the fourth quarter of 2022. Per the terms of the LOPI policy, LOPI coverage specific to the Incident ended on March 31, 2023.

Free cash flow, defined as Adjusted EBITDA less cash interest and capital spending, was $11.4 million in the first quarter of 2023.

Revolving Credit Facility

Amplify is in the process of refinancing its credit agreement. As previously disclosed, the facility's termination date was extended to May 31, 2024 during the last borrowing base redetermination process. Amplify expects to complete the refinance process in the later part of the second quarter or in the early part of the third quarter.

Of the $85 million in proceeds from the Beta settlement, $65 million was used for repayment of debt under the facility. The remainder was used to pay Incident-related expenses, which resulted in a larger-than-expected working capital deficit. The Company expects to recover these Incident-related amounts through the insurance claims process, which will positively impact working capital.

As of April 30, 2023, Amplify had $125 million outstanding under its credit facility. With a borrowing base of $190 million and $16 million of cash on hand, Amplify's liquidity was $81 million. Net Debt to LTM Adjusted EBITDA was 1.1x (net debt as of April 30, 2023 and 1Q23 LTM Adjusted EBITDA).

Corporate Production and Pricing Update

During the first quarter of 2023, average daily production was approximately 19.4 MBoepd, a decrease of 7% from 20.8 MBoepd in the fourth quarter, primarily due to severe weather disruptions across multiple basins, third-party interruptions and natural field declines. 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 for the first quarter of 2023 were approximately $66.3 million, before the impact of derivatives, compared to $88.2 million in the prior quarter. The Company realized a loss on commodity derivatives of $2.7 million during the quarter, compared to a $27.9 million loss during the previous quarter. Oil and gas revenues, net of realized hedges, increased $3.3 million for the first quarter compared to fourth quarter 2022.

Costs and Expenses

Lease operating expenses in the first quarter of 2023 were approximately $32.9 million, or $18.89 per Boe, a decrease of approximately $0.5 million compared to $33.4 million, or $17.43 per Boe, in the fourth quarter of 2022. The decrease was primarily attributable to reduced facility and workover projects at Bairoil and Oklahoma.

Severance and Ad Valorem taxes in the first quarter were approximately $5.3 million, a decrease of $2.7 million compared to $8.0 million in the prior quarter. The quarter-over-quarter decrease was partially due to lower realized commodity prices. Amplify also recovered $0.4 million from a one-time positive severance tax adjustment related to its non-operated Eagle Ford operations. As a result, Severance and Ad Valorem taxes as a percentage of revenue were approximately 8.0% this quarter compared to 9.0% in the previous quarter.

Amplify incurred $5.6 million, or $3.21 per Boe, of gathering, processing and transportation expenses in the first quarter of 2023, compared to $6.3 million, or $3.30 per Boe, in the previous quarter. The reduction was primarily attributable to lower gathering expenses in Oklahoma due to lower commodity prices and volumes compared to the prior quarter.

First quarter cash G&A expenses were $7.6 million, an increase of $1.5 million from $6.1 million in the fourth quarter of 2022. This expected increase was primarily due to 2022 year-end processes that impact various cost drivers annually in the first quarter. The company anticipates that quarterly cash G&A expenses will decrease throughout the remainder of the year.

Depreciation, depletion and amortization expense for the first quarter of 2023 totaled $5.8 million, or $3.33 per Boe, compared to $6.2 million, or $3.21 per Boe, in the prior quarter.

Net interest expense was $5.7 million this quarter, an increase of $1.1 million from $4.6 million in the fourth quarter of 2023. The increase was due to higher interest rates in the first quarter, partially offset by lower debt outstanding under our credit facility.

Due to the large one-time gain associated with the Beta settlement, the Company incurred approximately $12.5 million of current income tax expense in the first quarter. The Company is evaluating opportunities to mitigate this expense over the remainder of the year.

Capital Investment Update

Cash capital investment during the first quarter of 2023 was approximately $9.0 million, a $3.5 million increase from $5.5 million in the prior quarter. The majority of capital investment in the first quarter was related to non-operated development activity in the Eagle Ford, restart efforts at Beta, and workover activity in Oklahoma.

Asset Operational Update and Statistics

Oklahoma:

• Production: 560 MBoe; 6.2 MBoepd
  • Commodity Mix: 21% oil, 28% NGLs, 51% natural gas
• LOE: $5.5 million; $9.84 per Boe
• Capex: $1.9 million

In Oklahoma, Amplify continues to prioritize a stable free cash flow profile and manage production through an active workover program. In the first quarter, production was impacted primarily by third-party compression issues. Amplify remains focused on artificial lift and field compression optimization in an effort to mitigate natural production declines and reduce future operating expenses and downtime.

Rockies (Bairoil):

• Production: 308 MBoe; 3.4 MBoepd
  • Commodity Mix: 100% oil
• LOE: $12.3 million; $40.12 per Boe
• Capex: ($0.1) million

Amplify is focused on reducing operating expenses at Bairoil given its higher fixed-cost nature. The Company is also dedicated to enhancing injection performance through targeted well recompletions and conversions to offset nominal production declines and achieve a stable free cash flow profile. In the first quarter, production at Bairoil was negatively impacted by unusually severe weather conditions, but operational conditions have since improved, and production rates are expected to return to normal going forward.

Southern California (Beta):

• Production: 0 MBoe; 0.0 MBoepd
  • Commodity Mix: 100% oil
• LOE: $7.1 million
• Capex: $1.9 million

Beta's production and pipeline operations remained suspended during the first quarter. However, as previously disclosed, the Company received approvals from all required federal regulatory agencies to restart operations. On April 24, the Company began selling crude from wells returned to production. Consistent with prior updates, as the Company continues to increase production at Beta, Amplify will invest capital in production enhancing opportunities, facility upgrades, and projects focused on emissions reductions.

East Texas and North Louisiana:

• Production: 4.7 Bcfe; 52.6 MMcfepd (789 MBoe; 8.8 MBoepd)
  • Commodity Mix: 5% oil, 21% NGLs, 74% natural gas
• LOE: $6.3 million; $1.33 per Mcfe ($8.01 per Boe)
• Capex: $0.2 million

Amplify's strategy in East Texas remains committed to prudent management of production and operating expenses. Production in the quarter was primarily impacted by third-party compression interruptions. The Company continues to prioritize high-return workover projects and field compression optimization projects, while opportunistically participating in non-operated development opportunities.

Non-Operated Eagle Ford:

• Production: 88 MBoe; 1.0 MBoepd
  • Commodity Mix: 81% oil, 9% NGLs, 10% natural gas
• LOE: $1.7 million; $19.26 per Boe
• Capex: $5.1 million

Amplify continues to participate in attractive non-operated Eagle Ford development and recompletion projects. In the first quarter, production was relatively flat compared to the prior quarter. The Company participated in the completion of 10 gross (1.0 net) new development projects, including two recompletion projects, all of which were brought online at the end the quarter. As a result, the Company is expecting higher production in the second quarter.

Full-Year 2023 Guidance

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 2023 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.

Based on the operating and financial results for the first quarter of 2023, Amplify is maintaining its full-year 2023 guidance ranges.