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Amplify Energy First Quarter 2021 Results

Share Print Bookmark    |    Wednesday,May 12,2021

Amplify Energy Corp. reported its operating and financial results for the first quarter of 2021.

Key Highlights:

• During the first quarter of 2021 the Company:
  • Achieved average total production of 24.7 MBoepd
  • Generated net cash provided by operating activities of $15.6 million
  • Delivered Adjusted EBITDA of $22.9 million
  • Generated $13.6 million of Free Cash Flow
  • Incurred LOE of $28.9 million
  • Spent $5.8 million in cash capital expenditures, focused on Eagle Ford DUC completions and preliminary preparations for the Beta development program
• As of April 30, 2021, net debt was $226 million, inclusive of $14 million of cash on hand
  • Net Debt to Last Twelve Months ("LTM") EBITDA of 2.5x¹
• Reaffirmed and issued additional details related to our full-year 2021 guidance

Martyn Willsher, Amplify's President and Chief Executive Officer commented, "Amplify started 2021 with a strong first quarter of operational and financial results, once again proving our disciplined operating strategy and consistent cash flow generation model. With recovery from the pandemic underway and the resulting global economic improvement, we are optimistic about the future macroeconomic and commodity price environment. We expect to fully capitalize on our long-lived, low-decline assets to further demonstrate the intrinsic long-term value of our Company."

"In addition, we are proud to announce that preparations for our Beta field development program were initiated during the quarter. We believe the program will yield material upside for the Company and should bolster our long-term profitability and operating margins. For the remainder of 2021, we remain committed to our key strategic objectives of growing our positive free cash flow, improving our liquidity and leverage profile, and continuing to optimize the cost structure of our asset base," Mr. Willsher concluded.

Key Financial Results

During the first quarter of 2021, Amplify generated $22.9 million of Adjusted EBITDA, an increase of $1.0 million from the fourth quarter of 2020, despite the impacts of Winter Storm Uri in February 2021. Our first quarter Adjusted EBITDA exceeded internal expectations and was primarily driven by our disciplined operational execution and commodity pricing improvement.

Free Cash Flow, defined as Adjusted EBITDA less cash interest and capital spending, was $13.6 million in the first quarter of 2021, a decrease of $2.5 million from the prior quarter due to an increase in capital spending.

Revolving Credit Facility and Liquidity Update

As of April 30, 2021, Amplify had net debt of $226 million, consisting of $240 million outstanding under its revolving credit facility and $14 million of cash on hand, and liquidity of approximately $34 million. Net Debt to LTM EBITDA was 2.5x (net debt as of April 30, 2021 and LTM EBITDA as of 1Q21).

The spring 2021 borrowing base redetermination process is under way and the Company does not anticipate material changes to its existing borrowing base.

Corporate Production Update

During the first quarter of 2021, average daily production was approximately 24.7 MBoepd, a decrease of 6% from 26.3 MBoepd in the fourth quarter of 2020. This decrease was primarily attributable to the effects of Winter Storm Uri in February of 2021 and anticipated natural production decline. Winter Storm Uri, which impacted our Oklahoma, East Texas and Eagle Ford assets, deferred approximately 700 MBoe, or 0.8 MBoepd, of our production in the first quarter of 2021, which equates to 0.2 MBoepd on an annualized basis. The swift actions of our operational teams prevented prolonged impacts to production and contributed to the realization of quarterly results substantially in line with original expectations.

Amplify's annual natural decline rate continues to decrease due, in part, to the nature of our mature, PDP-heavy asset base. We expect the decline rate to continue this downward trend for the foreseeable future. Our product mix for the quarter consisted of 41% crude oil, 16% NGLs, and 43% natural gas. Oil composition increased approximately 4% quarter-over-quarter and 14% year-over-year. We expect the reduction of natural decline rates, coupled with increasingly oil-weighted production, to further drive long-term profitability.

Total oil, natural gas and NGL revenues in the first quarter of 2021 were approximately $72.3 million, before the impact of derivatives, compared to $55.7 million in the fourth quarter of 2020. The Company realized a loss on commodity derivatives of $4.8 million during the quarter, compared to an $8.5 million gain during the previous quarter, consisting of $10.6 million in realized loss from active contracts, partially offset by a $5.8 million gain from in-the-money contracts related to the first quarter of 2021 that were monetized in April of 2020. The hedging loss experienced during this quarter was attributed to the hedges placed earlier in 2020 when the commodity pricing environment was materially lower and points to a positive outlook for further price improvement in the future.

Amplify's overall realized price per Boe, inclusive of realized derivatives, in the first quarter of 2021 was $27.77 per Boe, a 5% increase compared to $26.52 per Boe in the previous quarter and a 7% increase when compared to $26.03 per Boe in the first quarter of 2020.

Asset Operational Update and Statistics

Oklahoma:

• Production: 584 MBoe; 6.5 Mboepd
  • Commodity Mix: 22% oil, 28% NGLs, 50% natural gas
• LOE: $3.6 million; $6.08 per Boe
• Capex: $1.8 million

Our Oklahoma operating strategy remains focused on prioritizing a stable free cash flow profile and managing production decline by returning only the most economic wells to production. Aside from weather-related well work, recent workovers have focused on rod-lift conversions, which reduce future operating expenses and downtime while generating attractive returns in the current pricing environment. As of April 30, Amplify has converted approximately 40% of the field to rod lift and anticipates having 45% of the field converted to rod lift by year end. The Oklahoma operations team will continue evaluating workover economics as commodity prices improve to optimize production while maximizing cash flow generation.

• Production: 351 MBoe; 3.9 MBoepd
  • Commodity Mix: 100% oil
• LOE: $11.3 million; $32.21 per Boe
• Capex: Less than $0.1 million

We have been actively optimizing our oil-weighted Bairoil field's CO₂ injection rates and WAG patterns. The first quarter of 2021 has seen strong operational reliability in the injection and production facilities, and the oil production trend has been increasing since the beginning of March 2021. The favorable results are attributable to technological improvements our Rockies engineering team has applied to the overall workflow and analysis of the reservoir and injection patterns.

Bairoil's annual maintenance turnaround is scheduled for approximately 10 days in June 2021, which will lead to reduced production in Bairoil's second quarter results. Following the turnaround, we intend to continue the implementation of enhanced technological capabilities along with targeted workover activity to drive further operational improvements and efficiencies.

• Production: 326 MBoe; 3.6 MBoepd
  • Commodity Mix: 100% oil
• LOE: $8.4 million; $25.70 per Boe
• Capex: $1.6 million

Beta production exceeded internal expectations this quarter, and local Midway-Sunset crude oil price realization continues to improve. This quarter we deployed capital towards rig and platform upgrades in preparation for our previously announced phased development program. Our first project, a cased hole recompletion, is on schedule to begin in the third quarter of 2021, followed by two sidetracks of existing wells in the fourth quarter of 2021. Amplify is confident of the long-term value of Beta development, as only approximately 11% of the original oil in place has been recovered to date. This initial phase of the program should increase production with minimal incremental operating costs, which leads to stronger operating margins, significant cash flow generation and long-term profitability.

• Production: 5,233 MMcfe; 58.1 MMcfepd (872 MBoe; 9.7 MBoepd)
  • Commodity Mix: 5% oil, 20% NGLs, 75% natural gas
• LOE: $4.6 million; $0.88 per Mcfe ($5.26 per Boe)
• Capex: Less than $0.1 million

Our operating strategy for the remainder of 2021 is to continue responsibly managing natural production decline by prioritizing workover opportunities with high returns. Our East Texas and North Louisiana asset experienced the largest production impact from Winter Storm Uri this quarter, but prompt actions by our East Texas operations team allowed production to return within ten days, and the current trend is exceeding internal expectations. Workover expenses did not materially increase, and our East Texas asset remains one of our highest margin and best cash flowing areas.

• Production: 88.5 MBoe; 1.0 Mboepd
  • Commodity Mix: 84% oil, 9% NGLs, 7% natural gas
• LOE: $1.1 million or $12.30 per Boe
• Capex: $2.4 million

Capital spend in the first quarter was focused on the completion of DUCs and associated production facilities, and a portion of the expenditures will carry over into the second quarter. As of May 5, 2021, 23 DUCs have been turned online. The wells are all located in the core of the Eagle Ford in Karnes County. Amplify is pleased with the well results, which have exceeded our type curves to date with an average gross oil IP rate of 1,200 Bopd. The Company will continue opportunistically participating in attractive non-operated Eagle Ford projects as they arise.

Costs and Expenses

Lease operating expenses in the first quarter of 2021 were approximately $28.9 million, or $13.01 per Boe, an increase of $0.4 million compared to $28.5 million, or $11.77 per Boe, in the fourth quarter of 2020. This increase was mainly attributed to the storm-related impacts to our Oklahoma, East Texas and Eagle Ford assets. The resulting impact was a $0.7 MM increase in workover expense in the month of February, or $0.30 per Boe for the quarter, and the aforementioned 700 MBoe production deferral. The quick and prudent decision-making of our operations teams minimized the financial impact and mitigated the overall cost of the storm to the Company. 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 first quarter of 2021 consisted of $4.6 million, an increase of $1.6 million compared to $3.0 million in the fourth quarter of 2020. On a percentage basis, Amplify paid approximately 6.4% of total oil, NGLs, and natural gas sales revenue in taxes this quarter compared to 5.4% in the previous quarter. The quarter-over-quarter increase was generally attributable to a positive tax adjustment made in the fourth quarter of 2020 and higher commodity pricing, partially offset by naturally declining production in the same period.

Amplify incurred $4.6 million, or $2.06 per Boe, of gathering, processing, and transportation expenses in the first quarter of 2021, compared to $5.5 million, or $2.29 per Boe, in the previous quarter. The decrease was generally attributable to natural production decline, along with production impacts from Winter Storm Uri in February of 2021.

Due to year-end processes, first quarter cash G&A expenses are typically the highest of the year, and the $6.6 million incurred this quarter was an expected increase of $0.8 million from the fourth quarter of 2020. However, first quarter cash G&A decreased year-over-year by $2.1 million as Amplify undertook a transformative corporate expense reduction plan 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 first quarter of 2021 totaled $7.3 million, or $3.31 per Boe, compared to $9.1 million, or $3.77 per Boe, in the previous quarter. The decrease of $1.8 million can be attributed to non-cash impairments in 2020. Amplify does not expect further impairments in the foreseeable future.

Net interest expense was $3.1 million this quarter, a decrease of $0.2 million compared to $3.3 million in the fourth quarter of 2020 due to reduced borrowings.

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

Capital Spending Update and Outlook

Capital spending during the first quarter of 2021 was approximately $5.8 million, an increase of approximately $3.6 million from $2.2 million in the fourth quarter of 2020. The increase was largely attributable to completion activity at our Eagle Ford asset, increased workover activity in Oklahoma and expenses incurred to prepare for the Beta development program.