Amplify Energy (AMPY) - 2020 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section provides Amplify Energy Corp.'s unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Financial Statements This section presents the unaudited condensed consolidated financial statements for Amplify Energy Corp. as of March 31, 2020, and for the three months then ended, including balance sheets, statements of operations, cash flows, and changes in equity, reporting a significant net loss of $367.2 million largely due to a $455.0 million impairment expense [Condensed Consolidated Balance Sheet (Unaudited)] | (in thousands) | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $116,381 | $52,587 | | Property and Equipment, net | $349,062 | $803,723 | | Total Assets | $507,125 | $877,539 | | Total Current Liabilities | $55,658 | $61,088 | | Long-term Debt | $290,000 | $285,000 | | Total Liabilities | $445,029 | $443,332 | | Total Stockholders' Equity | $62,096 | $434,207 | | Total Liabilities and Equity | $507,125 | $877,539 | [Condensed Statements of Consolidated Operations (Unaudited)] | (in thousands, except per share) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Total Revenues | $58,136 | $65,155 | | Impairment Expense | $455,031 | $— | | (Gain) on commodity derivative instruments | ($107,713) | $32,487 | | Operating Loss | ($359,382) | ($27,251) | | Net Loss | ($367,199) | ($31,477) | | Basic and Diluted EPS | ($9.77) | ($1.42) | [Condensed Statements of Consolidated Cash Flows (Unaudited)] | (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $13,089 | $10,800 | | Net cash used in investing activities | ($12,720) | ($10,500) | | Net cash provided by (used in) financing activities | $1,200 | ($25,128) | | Net change in cash, cash equivalents and restricted cash | $1,569 | ($24,828) | Note 1 – Organization and Basis of Presentation The company operates in a single reportable segment focused on oil and natural gas properties in the U.S., with financial statements reflecting the August 2019 reverse merger with Legacy Amplify, and acknowledges significant market volatility due to the COVID-19 pandemic - For financial reporting, the August 2019 merger with Midstates Petroleum was treated as a "reverse merger," with Legacy Amplify as the accounting acquirer, meaning historical results prior to the merger are those of Legacy Amplify[25] - The company acknowledges significant risks and uncertainties from the COVID-19 pandemic, which has caused market volatility, lowered commodity demand, and may impact future operations and financial results[27][29] Note 3 – Revenue This note details the company's revenue disaggregated into oil, natural gas, and NGLs, showing total sales of $57.8 million for Q1 2020, a decrease from $65.1 million in Q1 2019, primarily due to lower natural gas revenue [Revenue by Stream (in thousands)] | Revenue Stream | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Oil | $41,851 | $40,057 | | NGLs | $5,122 | $5,865 | | Natural gas | $10,814 | $19,145 | | Total | $57,787 | $65,067 | Note 5 – Fair Value Measurements of Financial Instruments This note discusses the fair value measurement of financial instruments, highlighting a significant non-recurring $405.7 million impairment charge on proved oil and natural gas properties during Q1 2020 due to declining commodity prices - In Q1 2020, the company recognized a $405.7 million impairment expense on proved oil and natural gas properties in East Texas, the Rockies, and offshore Southern California, primarily caused by the decline in commodity prices making future cash flows unrecoverable against their carrying values[54] Note 6 – Risk Management and Derivative Instruments The company uses commodity and interest rate derivatives to manage price fluctuation risks and achieve predictable cash flow, outlining open derivative positions as of March 31, 2020, and noting the monetization of $18.0 million in 2021 crude oil hedges in April 2020 [Open Crude Oil Derivative Contracts (as of March 31, 2020)] | Contract Type | Remaining 2020 | 2021 | 2022 | | :--- | :--- | :--- | :--- | | Fixed Price Swaps | | | | | Avg. Monthly Volume (Bbls) | 209,300 | 116,250 | 30,000 | | Wtd-Avg Fixed Price ($) | $57.44 | $56.05 | $55.32 | [Open Natural Gas Derivative Contracts (as of March 31, 2020)] | Contract Type | Remaining 2020 | 2021 | 2022 | | :--- | :--- | :--- | :--- | | Fixed Price Swaps | | | | | Avg. Monthly Volume (MMBtu) | 650,000 | 487,500 | 300,000 | | Wtd-Avg Fixed Price ($) | $2.54 | $2.48 | $2.46 | - In April 2020, the company monetized a portion of its 2021 crude oil hedges, generating total cash proceeds of approximately $18.0 million[57] Note 8 – Long-Term Debt As of March 31, 2020, the company had $290.0 million in long-term debt outstanding under its Revolving Credit Facility, an increase from $285.0 million at year-end 2019, with a borrowing base of $450.0 million, and was in compliance with all financial covenants [Consolidated Debt Obligations (in thousands)] | | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Revolving Credit Facility | $290,000 | $285,000 | | Total Long-term debt | $290,000 | $285,000 | Note 9 – Equity (Deficit) This note details changes in equity, including common stock, warrants, and the share repurchase program, noting a $0.10 per share dividend paid in March 2020, the subsequent suspension of the quarterly dividend program, and the completion of the $25.0 million share repurchase program - On March 3, 2020, the board approved a dividend of $0.10 per share, paid on March 30, 2020, but has since suspended the quarterly dividend program until further notice[73] - As of February 28, 2020, the company had completed its $25.0 million share repurchase program, buying back approximately 4.2 million shares at an average price of $5.94 per share[72] Note 13 – Supplemental Disclosures This note provides supplemental details, including a breakdown of accrued liabilities and information on property impairments, with the company recognizing $49.3 million of impairment expense on unproved properties for Q1 2020 due to expiring leases and declining commodity prices - The company recognized $49.3 million of impairment expense on unproved properties for the three months ended March 31, 2020, due to expiring leases and the negative impact of declining commodity prices[94] Note 15 – Commitments and Contingencies The company is party to gas gathering and processing contracts with minimum NGL volume commitments in Oklahoma and East Texas, and is not meeting minimums, incurring $0.2 million in commitment fees in Oklahoma and accruing $0.3 million for an anticipated shortfall in East Texas for 2020 - The company is not meeting minimum NGL volume commitments on contracts in Oklahoma and East Texas, resulting in commitment fee expenses of $0.2 million and an accrual of $0.3 million for Q1 2020[98] Note 17 – Subsequent Events This note outlines significant events after March 31, 2020, including the retirement of the President and CEO, receipt of a non-compliance notice from the NYSE due to low stock price, and obtaining a $5.5 million loan under the Paycheck Protection Program (PPP) - On April 1, 2020, President and CEO Kenneth Mariani retired, and Martyn Willsher was appointed Interim CEO while continuing as CFO[102][103] - On April 20, 2020, the company received a non-compliance notice from the NYSE because its average closing stock price was below $1.00 for over 30 consecutive trading days, with the cure period extended to December 29, 2020[105] - On April 24, 2020, the company received a $5.5 million loan under the Paycheck Protection Program (PPP), established by the CARES Act, and anticipates a substantial majority of the loan will be forgiven[106] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operational results, highlighting the severe impact of the COVID-19 pandemic and OPEC negotiations on commodity prices, leading to lower cash flows and a significant property impairment, with Adjusted EBITDA for Q1 2020 at $17.2 million - The company's financial performance has been significantly impacted by the COVID-19 pandemic and OPEC-related oil price declines, resulting in lower cash flow and a major impairment of oil and gas properties[111] - In response to the downturn, the company has implemented several initiatives: significant decreases in operating and G&A expenses, substantial reductions to capital programs, monetization of 2021 crude oil hedges, receipt of a PPP loan, and suspension of the quarterly dividend[111] Results of Operations For Q1 2020, the company reported a net loss of $367.2 million, primarily due to a $455.0 million impairment expense, despite increased production volumes, offset by a sharp decline in average realized sales price to $21.41 per Boe, partially mitigated by a $107.7 million gain on commodity derivatives [Key Operating Metrics (Q1 2020 vs Q1 2019)] | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Loss (in thousands) | ($367,199) | ($31,477) | | Impairment Expense (in thousands) | $455,031 | $— | | Average Net Production (MBoe/d) | 29.7 | 21.5 | | Average Realized Sales Price (per Boe) | $21.41 | $33.67 | | Lease Operating Expense (per Boe) | $13.23 | $14.96 | | Adjusted EBITDA (in thousands) | $17,236 | $19,034 | - The primary driver of the $367.2 million net loss was a $455.0 million impairment charge on proved and unproved properties, resulting from the sharp decline in commodity prices[123] - The company recognized a net gain on commodity derivative instruments of $107.7 million in Q1 2020, compared to a net loss of $32.5 million in Q1 2019, due to the significant drop in commodity prices relative to hedged prices[123] Liquidity and Capital Resources The company's primary liquidity sources are operating cash flow and its Revolving Credit Facility, with $160.0 million of available borrowing capacity as of March 31, 2020, and capital expenditures of $15.3 million for the quarter, resulting in positive working capital of $60.7 million - As of March 31, 2020, the company had approximately $160.0 million of available borrowings under its Revolving Credit Facility, which has a borrowing base of $450.0 million[132] - Total capital expenditures were approximately $15.3 million for Q1 2020, primarily for workovers and facilities in Oklahoma and California, and non-operated drilling in South Texas[130] - Working capital was $60.7 million as of March 31, 2020, primarily driven by a $78.4 million receivable from short-term derivative instruments[130] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposures are related to commodity prices and interest rates, mitigated by derivative instruments, and counterparty credit risk is managed through master netting agreements, resulting in a maximum credit exposure of approximately $5.7 million as of March 31, 2020 - The company's main market risk is from volatile oil, natural gas, and NGL prices, which it manages by periodically entering into derivative contracts like fixed-price swaps and collars[139] - Counterparty credit risk is managed by using master netting agreements and ISDA Agreements, and if all counterparties had defaulted at March 31, 2020, the company could have offset $99.1 million against its credit facility, reducing its maximum credit exposure to approximately $5.7 million with a single counterparty[141] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2020, with no material changes to internal control over financial reporting occurring during the quarter despite the shift to remote work - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[142] - No material changes were made to the company's internal control over financial reporting during the first quarter of 2020[144] PART II—OTHER INFORMATION This section covers non-financial disclosures, including legal proceedings, risk factors, equity sales, and other corporate information Legal Proceedings The company is not aware of any pending or threatened litigation that is expected to have a material adverse effect on its financial position, results of operations, or cash flows - There are no legal proceedings expected to have a material adverse effect on the company[97][146] Risk Factors This section highlights key risks facing the company, including the adverse effects of oil and gas oversupply and lower demand caused by the COVID-19 pandemic and OPEC actions, and the significant new risk of the company's non-compliance with the NYSE's minimum share price requirement - The company faces significant risk from the oversupply of oil and gas and reduced demand due to the COVID-19 pandemic and the failure of oil-producing nations to sufficiently curtail production, which could lead to production shut-ins[147] - The company is out of compliance with the NYSE's minimum share price requirement (below $1.00), and failure to regain compliance by the extended deadline of December 29, 2020, could result in the delisting of its common stock[147][149] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity, noting that during the three months ended March 31, 2020, the company repurchased 787 shares in January at an average price of $6.61 per share for tax withholdings on vested shares [Share Repurchase Activity (Q1 2020)] | Period | Total Shares Purchased (Shares) | Average Price Paid per Share ($ per Share) | | :--- | :--- | :--- | | Jan 1 - Jan 31, 2020 | 787 | $6.61 | | Feb 1 - Feb 29, 2020 | — | $— | | Mar 1 - Mar 31, 2020 | — | $— | Defaults Upon Senior Securities None Other Information None Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, certifications by the CEO and CFO as required by the Sarbanes-Oxley Act, and XBRL data files