Amplify Energy (US:AMPY)2020-08-05 20:05markdown [Glossary of Oil and Natural Gas Terms](index=3&type=section&id=Glossary%20of%20Oil%20and%20Natural%20Gas%20Terms) This section defines common oil and natural gas industry terms, covering geological, production, measurement, and economic concepts for report comprehension - This section defines common terms in the oil and natural gas industry, including geological, production, measurement, and economic concepts, to aid in understanding the report's specialized content[4](index=4&type=chunk)[5](index=5&type=chunk)[6](index=6&type=chunk) [Names of Entities](index=4&type=section&id=Names%20of%20Entities) This section clarifies the definitions of company and related entity names used in the report, including Amplify Energy, Legacy Amplify, Midstates, and OLLC, ensuring consistent terminology - This section clarifies the definitions of company and related entity names used in the report, including **Amplify Energy**, **Legacy Amplify**, **Midstates**, and **OLLC**, ensuring consistent terminology[7](index=7&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=7&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This report contains forward-looking statements subject to various risks and uncertainties, including business strategy, cash flow, reserves, production, capital expenditures, commodity price fluctuations, COVID-19 impacts, government regulations, and competition, where actual results may differ materially - This report contains forward-looking statements subject to various risks and uncertainties, which may involve business strategy, cash flow, reserves, production volumes, capital expenditures, commodity price fluctuations, **COVID-19 pandemic** impacts, government regulations, and competition, where actual results could differ materially[9](index=9&type=chunk)[11](index=11&type=chunk)[13](index=13&type=chunk) - The company does not intend to update or revise any forward-looking statements, and all statements are valid only as of the report date[13](index=13&type=chunk) [PART I—FINANCIAL INFORMATION](index=10&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS](index=10&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS.) This section presents Amplify Energy Corp.'s unaudited condensed consolidated financial statements as of June 30, 2020, along with detailed notes covering key financial information [Unaudited Condensed Consolidated Balance Sheets](index=10&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Key Balance Sheet Data (As of June 30, 2020, and December 31, 2019) | Indicator | June 30, 2020 (thousand USD) | December 31, 2019 (thousand USD) | | :----------------------------------- | :--------------------- | :---------------------- | | **Assets** | | | | Cash and cash equivalents | 13,202 | — | | Current derivative instruments | 32,216 | 5,879 | | Total current assets | 84,773 | 52,587 | | Property and equipment, net | 348,788 | 803,723 | | Total assets | 453,683 | 877,539 | | **Liabilities and Equity** | | | | Current derivative instruments | 785 | 253 | | Current portion of long-term debt | 20,000 | — | | Total current liabilities | 66,794 | 61,088 | | Long-term debt | 265,516 | 285,000 | | Asset retirement obligations | 93,568 | 90,466 | | Total liabilities | 432,428 | 443,332 | | Total stockholders' equity | 21,255 | 434,207 | | Total liabilities and equity | 453,683 | 877,539 | - As of June 30, 2020, total company assets were **$453,683 thousand**, a significant decrease from **$877,539 thousand** on December 31, 2019, primarily due to a reduction in net property and equipment; total stockholders' equity also decreased from **$434,207 thousand** to **$21,255 thousand**[16](index=16&type=chunk) [Unaudited Condensed Statements of Consolidated Operations](index=11&type=section&id=Unaudited%20Condensed%20Statements%20of%20Consolidated%20Operations) Key Operations Data (As of June 30, 2020) | Indicator | Q2 2020 (thousand USD) | Q2 2019 (thousand USD) | H1 2020 (thousand USD) | H1 2019 (thousand USD) | | :----------------------------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Oil and gas sales revenue | 34,888 | 59,485 | 92,675 | 124,552 | | Total revenue | 35,171 | 59,532 | 93,307 | 124,687 | | Lease operating expenses | 27,828 | 26,292 | 63,551 | 55,202 | | Depreciation, depletion, and amortization | 7,623 | 12,913 | 23,179 | 24,079 | | Impairment charges | — | — | 455,031 | — | | Commodity derivative (gains) losses | 19,165 | (22,993) | (88,548) | 9,494 | | Operating (loss) income | (34,626) | 23,527 | (394,008) | (3,724) | | Net (loss) income | (41,336) | 18,641 | (408,535) | (12,836) | | Basic and diluted earnings per share | (1.10) | 0.80 | (10.87) | (0.58) | - Q2 2020, the company reported a net loss of **$41,336 thousand**, compared to net income of **$18,641 thousand** in the same period in 2019; H1 2020 net loss was **$408,535 thousand**, primarily impacted by **$455,031 thousand** in impairment charges[19](index=19&type=chunk) - Oil and gas sales revenue decreased by **41.3%** year-over-year in Q2 2020, from **$59,485 thousand** to **$34,888 thousand**, primarily due to declining commodity prices[19](index=19&type=chunk) [Unaudited Condensed Statements of Consolidated Cash Flows](index=12&type=section&id=Unaudited%20Condensed%20Statements%20of%20Consolidated%20Cash%20Flows) Key Cash Flow Data (As of June 30, 2020) | Indicator | H1 2020 (thousand USD) | H1 2019 (thousand USD) | | :----------------------------------- | :---------------- | :---------------- | | Net cash from operating activities | 42,989 | 33,299 | | Net cash from investing activities | (26,842) | 56,425 | | Net cash from financing activities | (3,270) | (120,726) | | Cash, cash equivalents, and restricted cash, end of period | 13,202 | 19,027 | - H1 2020, net cash flow from operating activities was **$42,989 thousand**, an increase from **$33,299 thousand** in the same period in 2019, primarily driven by cash settlement income from derivative instruments[21](index=21&type=chunk) - Net cash flow from investing activities shifted from a net inflow of **$56,425 thousand** in H1 2019 to a net outflow of **$26,842 thousand** in H1 2020, mainly due to reduced new investments in oil and gas properties and restricted investment withdrawals in 2019[21](index=21&type=chunk) [Unaudited Condensed Statements of Consolidated Equity](index=13&type=section&id=Unaudited%20Condensed%20Statements%20of%20Consolidated%20Equity) Key Equity Data (As of June 30, 2020) | Indicator | June 30, 2020 (thousand USD) | December 31, 2019 (thousand USD) | | :------------------- | :--------------------- | :---------------------- | | Common stock | 209 | 209 | | Warrants | 4,788 | 4,790 | | Additional paid-in capital | 423,770 | 424,399 | | Accumulated earnings (deficit) | (407,512) | 4,809 | | Total stockholders' equity | 21,255 | 434,207 | - As of June 30, 2020, total stockholders' equity was **$21,255 thousand**, a significant decrease from **$434,207 thousand** on December 31, 2019, primarily due to a shift from accumulated earnings to an accumulated deficit, reflecting substantial net losses during the reporting period[23](index=23&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Organization and Basis of Presentation](index=14&type=section&id=Note%201.%20Organization%20and%20Basis%20of%20Presentation) - The company completed its merger with **Legacy Amplify** on **August 6, 2019**, with **Midstates Petroleum Company, Inc.** renamed **Amplify Energy Corp.**, and **Legacy Amplify** treated as the accounting acquirer; the company operates in one reportable segment of oil and gas property acquisition, development, exploitation, and production, with primary assets in Oklahoma, the Rocky Mountains, federal waters offshore Southern California, East Texas/North Louisiana, and South Texas[26](index=26&type=chunk) - Financial statements are prepared in accordance with **SEC rules** and **GAAP**, assuming the company's continued operation; the **COVID-19 pandemic** has adversely impacted oil and gas demand, commodity prices, cash flow, and borrowing base, leading to impairment of oil and gas properties[27](index=27&type=chunk)[31](index=31&type=chunk) - The company regained compliance with **New York Stock Exchange** continued listing standards on **June 2, 2020**, after previously receiving a non-compliance notice due to its stock price falling below **$1.00**[32](index=32&type=chunk) - President and Chief Executive Officer **Kenneth Mariani** retired on **April 3, 2020**, with **Martyn Willsher** appointed Interim Chief Executive Officer, while continuing as Senior Vice President and Chief Financial Officer[33](index=33&type=chunk)[34](index=34&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=16&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) - The company adopted the 'current expected credit losses' accounting standard on **January 1, 2020**, assessing no material impact on opening retained earnings, and will continue to closely monitor trade receivables[39](index=39&type=chunk) - The company is evaluating the impact of FASB's 'reference rate reform' accounting standard update issued in **March 2020** and the 'simplifying income tax accounting' update issued in **December 2019** on its consolidated financial statements[40](index=40&type=chunk)[42](index=42&type=chunk) [Note 3. Revenue](index=17&type=section&id=Note%203.%20Revenue) - Oil and gas revenue is recognized using the sales method, based on actual volumes sold; as of June 30, 2020, no significant imbalances existed[43](index=43&type=chunk) Revenue by Stream (As of June 30, 2020) | Revenue Stream | Q2 2020 (thousand USD) | Q2 2019 (thousand USD) | H1 2020 (thousand USD) | H1 2019 (thousand USD) | | :----------- | :---------------- | :---------------- | :---------------- | :---------------- | | Oil | 22,963 | 41,685 | 64,814 | 81,742 | | NGLs | 3,343 | 5,336 | 8,465 | 11,201 | | Natural Gas | 8,582 | 12,464 | 19,396 | 31,609 | | **Total Oil and Gas Sales** | **34,888** | **59,485** | **92,675** | **124,552** | - Q2 2020, oil sales revenue decreased by **45%** year-over-year, NGLs sales revenue by **37%**, and natural gas sales revenue by **31%**, reflecting a general decline in commodity prices[45](index=45&type=chunk) [Note 4. Acquisitions and Divestitures](index=17&type=section&id=Note%204.%20Acquisitions%20and%20Divestitures) - No significant acquisitions or divestitures occurred in Q2 or H1 2020 and 2019; on **May 5, 2019**, Midstates entered into a merger agreement with **Legacy Amplify**, where **Legacy Amplify** shareholders received **0.933 shares** of Midstates common stock per share, with the merger completed on **August 6, 2019**[47](index=47&type=chunk)[49](index=49&type=chunk) Unaudited Pro Forma Financial Information (As of June 30, 2019) | Indicator | Q2 2019 (thousand USD) | H1 2019 (thousand USD) | | :----------- | :---------------- | :---------------- | | Revenue | 82,772 | 177,768 | | Net income (loss) | 23,385 | (7,742) | | Basic earnings per share | 0.57 | (0.18) | | Diluted earnings per share | 0.57 | (0.18) | [Note 5. Fair Value Measurements of Financial Instruments](index=18&type=section&id=Note%205.%20Fair%20Value%20Measurements%20of%20Financial%20Instruments) - The company's fair value measurements for financial instruments use a three-level hierarchy, with all derivative instruments classified as Level 2 (based on observable market data)[52](index=52&type=chunk)[53](index=53&type=chunk) Derivative Assets and Liabilities by Fair Value Hierarchy (As of June 30, 2020) | Indicator | Level 2 (thousand USD) | Total Fair Value (thousand USD) | | :------------------- | :---------------- | :-------------------- | | **Assets** | | | | Commodity derivative instruments | 49,302 | 49,302 | | Interest rate derivative instruments | — | — | | **Total Assets** | **49,302** | **49,302** | | **Liabilities** | | | | Commodity derivative instruments | 6,877 | 6,877 | | Interest rate derivative instruments | 3,693 | 3,693 | | **Total Liabilities** | **10,570** | **10,570** | - H1 2020, the company recognized **$405.7 million** in impairment charges for proved oil and gas properties, primarily due to declining commodity prices causing estimated future cash flows to fall below carrying value; unproved properties also incurred **$49.3 million** in impairment charges[61](index=61&type=chunk)[105](index=105&type=chunk) [Note 6. Risk Management and Derivative Instruments](index=20&type=section&id=Note%206.%20Risk%20Management%20and%20Derivative%20Instruments) - The company uses derivative instruments to manage commodity price volatility risk, including floating-to-fixed swaps, put options, costless collars, and three-way collars, to achieve more predictable cash flows; the company does not designate derivative instruments as accounting hedges, with all gains and losses (including fair value changes) recognized in the statements of operations[63](index=63&type=chunk)[64](index=64&type=chunk)[70](index=70&type=chunk) - In **April 2020**, the company monetized a portion of its 2021 crude oil hedge contracts, generating approximately **$18.0 million** in cash proceeds[64](index=64&type=chunk) Open Commodity Derivative Positions (As of June 30, 2020) | Contract Type | Remaining Months 2020 | 2021 | 2022 | | :------------------- | :------------- | :----- | :----- | | **Natural Gas Fixed Price Swaps** | | | | | Average Monthly Volume (MMBtu) | 1,450,000 | 925,000 | 500,000 | | Weighted Average Fixed Price ($) | 2.26 | 2.49 | 2.45 | | **Crude Oil Fixed Price Swaps** | | | | | Average Monthly Volume (Bbls) | 199,300 | 33,750 | 30,000 | | Weighted Average Fixed Price ($) | 57.41 | 56.57 | 55.32 | | **NGL Fixed Price Swaps** | | | | | Average Monthly Volume (Bbls) | 111,450 | 22,800 | — | | Weighted Average Fixed Price ($) | 21.99 | 24.25 | — | Derivative (Gains) Losses (As of June 30, 2020) | Derivative Instrument Type | Q2 2020 (thousand USD) | Q2 2019 (thousand USD) | H1 2020 (thousand USD) | H1 2019 (thousand USD) | | :------------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Commodity derivative (gains) losses | 19,165 | (22,993) | (88,548) | 9,494 | | Interest rate derivative (gains) losses | 438 | 627 | 4,054 | 534 | [Note 7. Asset Retirement Obligations](index=22&type=section&id=Note%207.%20Asset%20Retirement%20Obligations) - The company's asset retirement obligations primarily relate to future plugging and abandonment costs for oil wells and associated facilities; as of June 30, 2020, total asset retirement obligations were **$94,191 thousand**, with the long-term portion at **$93,568 thousand**[72](index=72&type=chunk) Changes in Asset Retirement Obligations (As of June 30, 2020) | Change Item | Amount (thousand USD) | | :----------------------- | :------------ | | Asset retirement obligations, beginning of period | 91,089 | | Liabilities incurred from acquisitions or drilling | 50 | | Liabilities settled | — | | Accretion expense | 3,052 | | Revisions in estimates | — | | Asset retirement obligations, end of period | 94,191 | | Less: Current portion | (623) | | **Long-term asset retirement obligations** | **93,568** | [Note 8. Long-Term Debt](index=23&type=section&id=Note%208.%20Long-Term%20Debt) Consolidated Debt Obligations (As of June 30, 2020, and December 31, 2019) | Debt Type | June 30, 2020 (thousand USD) | December 31, 2019 (thousand USD) | | :------------------- | :--------------------- | :---------------------- | | Revolving credit facility | 280,000 | 285,000 | | Paycheck Protection Program loan | 5,516 | — | | **Total Debt** | **285,516** | **285,000** | | Current portion of long-term debt | 20,000 | — | | **Long-term debt** | **265,516** | **285,000** | - The company entered into the **Borrowing Base Redetermination Agreement and Third Amendment to Credit Agreement** on **June 12, 2020**, reducing the revolving credit facility from **$450.0 million** to **$285.0 million**, with monthly reductions of **$5.0 million** starting **November 1, 2020**, until it reaches **$260.0 million**; as of June 30, 2020, the company was in compliance with all financial covenants[74](index=74&type=chunk) - The company received a **$5.5 million Paycheck Protection Program (PPP) loan** on **April 24, 2020**, with a significant portion expected to be forgiven[79](index=79&type=chunk) Revolving Credit Facility Weighted Average Interest Rates (As of June 30, 2020) | Period | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :----------- | :------- | :------- | :------- | :------- | | Revolving credit facility | **3.12%** | **5.00%** | **3.55%** | **5.04%** | [Note 9. Equity (Deficit)](index=24&type=section&id=Note%209.%20Equity%20(Deficit)) Summary of Common Stock Changes (As of June 30, 2020) | Change Item | Number of Common Shares | | :----------------------- | :----------- | | Balance, December 31, 2019 | 37,566,540 | | Restricted stock units vested | 64,751 | | Common stock repurchased (net settlement) | (18,377) | | **Balance, June 30, 2020** | **37,612,914** | - The company approved and paid a cash dividend of **$0.10** per share on **March 3, 2020**, totaling **$3.8 million**; the Board has decided to suspend the quarterly dividend program, with future dividends subject to debt covenants and Board discretion[84](index=84&type=chunk) - Warrants assumed by the company during the **August 2019** merger expired on **April 21, 2020**[81](index=81&type=chunk) [Note 10. Earnings per Share](index=25&type=section&id=Note%2010.%20Earnings%20per%20Share) Earnings Per Share Calculation (As of June 30, 2020) | Indicator | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :----------------------------------- | :------- | :------- | :------- | :------- | | Net income (loss) attributable to common stockholders (thousand USD) | (41,336) | 17,913 | (408,535) | (12,836) | | Weighted average common shares outstanding, basic and diluted (thousand shares) | 37,595 | 22,267 | 37,582 | 22,233 | | **Basic and diluted earnings (loss) per share ($)** | **(1.10)** | **0.80** | **(10.87)** | **(0.58)** | - Q2 and H1 2020, the company's basic and diluted earnings per share were negative, at **($1.10)** and **($10.87)** respectively, compared to **$0.80** and **($0.58)** in the same periods in 2019, primarily reflecting net losses during the reporting period[85](index=85&type=chunk) [Note 11. Long-Term Incentive Plans](index=25&type=section&id=Note%2011.%20Long-Term%20Incentive%20Plans) - The company assumed **Legacy Amplify's 2017 Management Incentive Plan (MIP)** and Non-Employee Director Compensation Plan, which include restricted stock units (**TSUs**) with service-based vesting conditions and restricted stock units (**PSUs**) with market and service-based vesting conditions[86](index=86&type=chunk)[87](index=87&type=chunk)[90](index=90&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) Long-Term Incentive Plan Compensation Expense (As of June 30, 2020) | Award Type | Q2 2020 (thousand USD) | Q2 2019 (thousand USD) | H1 2020 (thousand USD) | H1 2019 (thousand USD) | | :----------- | :---------------- | :---------------- | :---------------- | :---------------- | | TSUs | (6) | 532 | 125 | 1,202 | | PSUs | 5 | 309 | 10 | 705 | | Director RSUs | 2 | 50 | 40 | 162 | | **Total** | **1** | **891** | **175** | **2,069** | - As of June 30, 2020, unrecognized compensation cost for **TSUs** was **$0.5 million**, and for **PSUs** was **$0.2 million**, expected to be recognized over approximately **1.7 years** and **1.6 years**, respectively[87](index=87&type=chunk)[90](index=90&type=chunk) [Note 12. Leases](index=27&type=section&id=Note%2012.%20Leases) - The company's leases are primarily operating leases, including office space, equipment, vehicles, compressors, and surface leases, as well as a right-of-use agreement for an offshore pipeline in Southern California; most leases are terminable with **30 days' written notice**, and monthly leases are not recognized on the balance sheet[97](index=97&type=chunk) - H1 2020, the company recognized approximately **$1.2 million** in operating lease costs, compared to **$1.0 million** in the same period in 2019[97](index=97&type=chunk) Lease Liability Maturity Analysis (As of June 30, 2020) | Period | Office Leases (thousand USD) | Leased Vehicles and Office Equipment (thousand USD) | Total (thousand USD) | | :------------------- | :---------------- | :-------------------------- | :------------ | | Remaining Months 2020 | 808 | 353 | 1,161 | | 2021 | 1,287 | 536 | 1,823 | | 2022 | 478 | 208 | 686 | | 2023 and thereafter | — | 25 | 25 | | **Total lease payments** | **2,573** | **1,122** | **3,695** | | Less: Interest | 105 | 35 | 140 | | **Present value of lease liabilities** | **2,468** | **1,087** | **3,555** | [Note 13. Supplemental Disclosures to the Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Statements of Consolidated Cash Flows](index=28&type=section&id=Note%2013.%20Supplemental%20Disclosures%20to%20the%20Unaudited%20Condensed%20Consolidated%20Balance%20Sheets%20and%20Unaudited%20Condensed%20Statements%20of%20Consolidated%20Cash%20Flows) Current Accrued Liabilities (As of June 30, 2020, and December 31, 2019) | Liability Type | June 30, 2020 (thousand USD) | December 31, 2019 (thousand USD) | | :----------------------- | :--------------------- | :---------------------- | | Accrued lease operating expenses | 8,680 | 11,794 | | Accrued capital expenditures | 1,541 | 5,515 | | Accrued general and administrative expenses | 3,111 | 3,126 | | Operating lease liabilities | 2,205 | 1,712 | | Accrued property taxes | 1,566 | 520 | | Asset retirement obligations | 623 | 623 | | Accrued interest payable | 30 | 36 | | Other | 81 | 32 | | **Total accrued liabilities** | **17,837** | **23,358** | - H1 2020, the company recognized **$49.3 million** in impairment charges for unproved properties due to lease expirations and declining commodity prices[105](index=105&type=chunk) [Note 14. Related Party Transactions](index=29&type=section&id=Note%2014.%20Related%20Party%20Transactions) - No significant related party transactions exceeding **$120,000** occurred between the company and any related parties in Q2 or H1 2020 and 2019[107](index=107&type=chunk) [Note 15. Commitments and Contingencies](index=29&type=section&id=Note%2015.%20Commitments%20and%20Contingencies) - The company has not identified any pending or potential litigation expected to materially adversely impact its financial condition, operating results, or cash flows; as of June 30, 2020, no environmental reserves were recorded by the company[108](index=108&type=chunk) - The company has natural gas purchase, gathering, and processing contracts in Oklahoma and East Texas, including minimum NGL commitments; H1 2020, commitment fees for Oklahoma were **$0.6 million**, and East Texas is expected to incur a deficiency, with **$0.8 million** in commitment fees accrued[110](index=110&type=chunk) - The company supports its decommissioning liability obligations for the **Beta field** in federal waters offshore Southern California with **$161.3 million** in **Class A surety bonds** and **$0.3 million** in cash[111](index=111&type=chunk) [Note 16. Income Taxes](index=30&type=section&id=Note%2016.%20Income%20Taxes) - Q2 and H1 2020, the company's income tax benefit/(expense) was less than **($0.1) million**; the effective tax rates for Q2 and H1 2020 were **0.2%** and **0.0%** respectively, primarily due to a recorded valuation allowance[112](index=112&type=chunk) - The **CARES Act** did not have a material impact on the company's tax provisions for the current year[112](index=112&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=31&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS.) This section discusses Amplify Energy Corp.'s financial condition and operating results as of June 30, 2020, covering company overview, industry trends, key metrics, accounting policies, performance analysis, adjusted EBITDA, liquidity, debt, and cash flows, highlighting COVID-19 and commodity price impacts [Overview](index=31&type=section&id=Overview) - The company operates in one reportable segment of oil and gas property acquisition, development, exploitation, and production, with primary assets in Oklahoma, the Rocky Mountains, federal waters offshore Southern California, East Texas/North Louisiana, and South Texas[115](index=115&type=chunk) Key Operating Data (As of December 31, 2019) | Indicator | Data | | :----------------------- | :----------- | | Estimated total proved reserves | **163.0 MBoe** | | Oil as a percentage of proved reserves | **approximately 43%** | | Developed reserves as a percentage of proved reserves | **80%** | | Total (net) producing wells | **2,643 (1,567)** | | Average net production (Q4 2019) | **29.9 MBoe/d** | | Reserve-to-production ratio | **approximately 15 years** | [Industry Trends and Outlook](index=31&type=section&id=Industry%20Trends%20and%20Outlook) - The **COVID-19 pandemic** has led to decreased oil and gas demand and depressed commodity prices, adversely impacting the company's cash flow and borrowing base, and resulting in impairment of oil and gas properties; the effectiveness of **OPEC+** production cuts remains uncertain, with continued market and commodity price volatility expected for the remainder of 2020[116](index=116&type=chunk) - The company has implemented several measures to address the downturn, including significant reductions in operating and general and administrative expenses, substantial cuts in capital projects, monetization of a portion of 2021 crude oil hedge contracts, obtaining a **PPP loan**, **Beta** royalty relief, and suspension of the quarterly dividend[116](index=116&type=chunk) [Recent Developments](index=32&type=section&id=Recent%20Developments) - The company secured royalty relief for the **Beta field**, effective **July 1, 2020**, reducing the royalty rate on the primary lease from **25%** to **12.5%**, and on the third lease from **16.67%** to **8.33%**[118](index=118&type=chunk) - The company regained compliance with **New York Stock Exchange** continued listing standards on **June 2, 2020**, with its stock price having maintained an average closing price and closing price above **$1.00** for **30 consecutive trading days**[119](index=119&type=chunk) - President and Chief Executive Officer **Kenneth Mariani** retired on **April 3, 2020**, and **Martyn Willsher** was appointed Interim Chief Executive Officer[121](index=121&type=chunk)[122](index=122&type=chunk) [Business Environment and Operational Focus](index=32&type=section&id=Business%20Environment%20and%20Operational%20Focus) - The company assesses performance using financial and operational metrics such as production volumes, realized prices, commodity derivative cash settlements, lease operating expenses, gathering, processing, and transportation expenses, general and administrative expenses, and **Adjusted EBITDA**[123](index=123&type=chunk) - Revenue primarily derives from the sale of natural gas, oil, and NGLs, which are subject to high commodity price volatility; the company hedges future prices through derivative contracts to mitigate this impact[124](index=124&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Critical accounting estimates include oil and gas reserves, depreciation, depletion, and amortization of proved oil and gas properties, future cash flows, impairment of long-lived assets, fair value of derivative instruments, fair value of equity compensation, fair value of assets acquired and liabilities assumed in business combinations, and asset retirement obligations[126](index=126&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Summary of Operating Results (As of June 30, 2020) | Indicator | Q2 2020 (thousand USD) | Q2 2019 (thousand USD) | H1 2020 (thousand USD) | H1 2019 (thousand USD) | | :----------------------------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Oil and gas sales revenue | 34,888 | 59,485 | 92,675 | 124,552 | | Lease operating expenses | 27,828 | 26,292 | 63,551 | 55,202 | | Impairment charges | — | — | 455,031 | — | | Commodity derivative (gains) losses | 19,165 | (22,993) | (88,548) | 9,494 | | Net (loss) income | (41,336) | 18,641 | (408,535) | (12,836) | | Average Net Production (MBoe/d) | 27.7 | 21.1 | 28.7 | 21.3 | | Average Sales Price (per Boe) | 13.83 | 30.95 | 17.74 | 32.32 | | Average Unit Cost: Lease Operating Expenses (per Boe) | 11.03 | 13.69 | 12.17 | 14.32 | - Q2 2020 net loss of **$41.3 million**, compared to net income of **$18.6 million** in the same period in 2019; H1 2020 net loss of **$408.5 million**, primarily impacted by **$455.0 million** in impairment charges[128](index=128&type=chunk)[131](index=131&type=chunk) - Oil and gas sales revenue decreased by **41.3%** year-over-year in Q2 2020 and by **25.6%** in H1 2020, primarily due to declining commodity prices, partially offset by increased production from the merger[129](index=129&type=chunk)[131](index=131&type=chunk) - Lease operating expenses increased in Q2 and H1 2020, but decreased on a per Boe basis, primarily due to reduced drilling activity, cost-saving measures, and increased production from the merger[129](index=129&type=chunk)[131](index=131&type=chunk) [Adjusted EBITDA](index=35&type=section&id=Adjusted%20EBITDA) - **Adjusted EBITDA** is a non-GAAP financial measure used to evaluate the company's operating performance, excluding the effects of financing methods, capital structure, historical cost of depreciable assets, and tax structure; management uses **Adjusted EBITDA** to assess actual cash flow available for developing existing reserves or acquiring additional oil and gas properties[132](index=132&type=chunk)[135](index=135&type=chunk) Reconciliation of Adjusted EBITDA to Net Income (Loss) (As of June 30, 2020) | Indicator | Q2 2020 (thousand USD) | Q2 2019 (thousand USD) | H1 2020 (thousand USD) | H1 2019 (thousand USD) | | :----------------------------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Net loss | (41,336) | 18,641 | (408,535) | (12,836) | | Interest expense, net | 6,209 | 4,422 | 13,856 | 8,511 | | Depreciation, depletion, and amortization | 7,623 | 12,913 | 23,179 | 24,079 | | Impairment charges | — | — | 455,031 | — | | Commodity derivative (gains) losses | 19,165 | (22,993) | (88,548) | 9,494 | | Cash proceeds (payments) from matured commodity derivative instruments | 27,295 | (631) | 39,795 | (1,908) | | **Adjusted EBITDA** | **21,315** | **19,071** | **38,551** | **38,105** | Reconciliation of Adjusted EBITDA to Cash Flow from Operating Activities (As of June 30, 2020) | Indicator | Q2 2020 (thousand USD) | Q2 2019 (thousand USD) | H1 2020 (thousand USD) | H1 2019 (thousand USD) | | :----------------------------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Net cash from operating activities | 29,900 | 22,499 | 42,989 | 33,299 | | Changes in working capital | 5,766 | (10,862) | 5,311 | (7,856) | | Interest expense, net | 6,209 | 4,422 | 13,856 | 8,511 | | Cash payments (proceeds) from terminated derivative instruments | (17,977) | — | (17,977) | — | | **Adjusted EBITDA** | **21,315** | **19,071** | **38,551** | **38,105** | [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) - The company's liquidity primarily stems from cash flow from operating activities and borrowings under its revolving credit facility; primary funding sources for the remainder of 2020 are expected to remain cash flow from operating activities and available borrowing capacity under the revolving credit facility[139](index=139&type=chunk) - Commodity hedging is a key strategy for the company to reduce cash flow volatility, aiming to cover at least **30%-60%** of estimated proved developed producing reserves over a one-to-three-year horizon[139](index=139&type=chunk) - H1 2020, total capital expenditures were approximately **$22.2 million**, primarily for capital workovers and facilities in Oklahoma and California, and non-operated drilling activities in South Texas[139](index=139&type=chunk) - As of June 30, 2020, the company's working capital was **$18.0 million**, primarily driven by receivable positions from current derivative instruments, accounts receivable, cash, and prepaid expenses, partially offset by revenue payable, current portion of long-term debt, accrued liabilities, and accounts payable[139](index=139&type=chunk) [Debt Agreements](index=38&type=section&id=Debt%20Agreements) - As of June 30, 2020, the revolving credit facility's borrowing base was **$285.0 million**, and will decrease by **$5.0 million** monthly under the **Third Amendment** until it reaches **$260.0 million**; the company was in compliance with all financial covenants and had approximately **$5.0 million** in available borrowing capacity[141](index=141&type=chunk) [Cash Flows from Operating, Investing and Financing Activities](index=38&type=section&id=Cash%20Flows%20from%20Operating,%20Investing%20and%20Financing%20Activities) Summary of Cash Flows (As of June 30, 2020) | Activity Type | H1 2020 (thousand USD) | H1 2019 (thousand USD) | | :------------------- | :---------------- | :---------------- | | Net cash from operating activities | 42,989 | 33,299 | | Net cash from investing activities | (26,842) | 56,425 | | Net cash from financing activities | (3,270) | (120,726) | - H1 2020, net cash flow from operating activities was **$43.0 million**, primarily including **$39.8 million** in cash proceeds from matured derivative instruments and **$18.0 million** in cash proceeds from terminated derivative instruments[144](index=144&type=chunk) - Net cash flow from investing activities was an outflow of **$26.8 million**, primarily for new investments in oil and gas properties; net cash flow from financing activities was an outflow of **$3.3 million**, including net repayments on the revolving credit facility and dividend payments, partially offset by **PPP loan** proceeds[144](index=144&type=chunk) [Contractual Obligations](index=39&type=section&id=Contractual%20Obligations) - H1 2020, the company's consolidated contractual obligations did not materially change, except for revolving credit facility borrowings and repayments, and receipt of the **PPP loan**[146](index=146&type=chunk) [Off–Balance Sheet Arrangements](index=39&type=section&id=Off%E2%80%93Balance%20Sheet%20Arrangements) - As of June 30, 2020, the company had no off-balance sheet arrangements[147](index=147&type=chunk) [Recently Issued Accounting Pronouncements](index=39&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) - For recently issued accounting pronouncements, refer to Note 2 in 'ITEM 1. FINANCIAL STATEMENTS' of this quarterly report[148](index=148&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=39&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK.) This section discloses Amplify Energy Corp.'s primary market risks, including commodity price, interest rate, and counterparty credit risks, and outlines the company's management strategies using derivatives and credit controls [Commodity Price Risk](index=39&type=section&id=Commodity%20Price%20Risk) - The company's primary market risk is fluctuations in oil, natural gas, and NGLs production prices; to mitigate this, the company regularly hedges a portion of its anticipated production through derivative contracts, typically engaging in fixed-price swaps and costless collar transactions with lenders and their affiliates under the revolving credit facility[150](index=150&type=chunk) [Interest Rate Risk](index=39&type=section&id=Interest%20Rate%20Risk) - The company mitigates market interest rate fluctuation risk by converting variable interest rates to fixed interest rates through interest rate swaps[151](index=151&type=chunk) [Counterparty and Customer Credit Risk](index=39&type=section&id=Counterparty%20and%20Customer%20Credit%20Risk) - The company faces credit risk from oil and gas receivables concentrated among a few large customers, and from non-performance by derivative counterparties; the company minimizes credit risk by limiting exposure to single counterparties, selecting reputable financial institutions, and utilizing master netting agreements[152](index=152&type=chunk) - As of June 30, 2020, if all counterparties completely failed to perform, the company could offset **$39.9 million** against revolving credit facility outstanding balances, reducing maximum credit risk to approximately **$0.3 million**[152](index=152&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=40&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES.) This section assesses the effectiveness of Amplify Energy Corp.'s disclosure controls and procedures as of June 30, 2020, and states no material changes to internal controls during the reporting period [Evaluation of Disclosure Controls and Procedures](index=40&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - As of June 30, 2020, the company's management, including the Chief Executive Officer and Chief Financial Officer, assessed and concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[154](index=154&type=chunk) - Despite the **COVID-19 pandemic** leading to remote work and reduced on-site personnel, the company believes its internal controls and procedures continue to operate as designed and effectively[154](index=154&type=chunk) [Change in Internal Control Over Financial Reporting](index=40&type=section&id=Change%20in%20Internal%20Control%20Over%20Financial%20Reporting) - No changes in the company's internal control over financial reporting occurred during the most recent quarter that materially affected, or are reasonably likely to materially affect, internal control[155](index=155&type=chunk) [PART II—OTHER INFORMATION](index=41&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=41&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS.) This section references Note 15 of the financial statements regarding legal proceedings, indicating no pending or potential litigation expected to materially impact financial condition, operating results, or cash flows - For information on legal proceedings, refer to Note 15, 'Commitments and Contingencies—Litigation and Environmental' in 'ITEM 1. FINANCIAL STATEMENTS' of this quarterly report[157](index=157&type=chunk) [ITEM 1A. RISK FACTORS](index=41&type=section&id=ITEM%201A.%20RISK%20FACTORS.) This section supplements the 2019 10-K risk factors, emphasizing potential adverse impacts from COVID-19, oil and gas oversupply, OPEC+ production failures, and global economic instability, which could lead to transport/storage limitations, reduced production, or shutdowns - The **COVID-19 pandemic**, leading to oil and gas oversupply and decreased demand, coupled with insufficient **OPEC+** member production cuts, could result in transportation and storage limitations, reduced production, or shutdowns, adversely impacting the company's business[158](index=158&type=chunk) - Uncertainty in global economic and financial conditions could lead to a recession, further reducing oil and gas demand and commodity prices; volatility and disruptions in capital and credit markets for the oil and gas industry may limit funding availability, increase financing costs, and result in more stringent lending standards[158](index=158&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=42&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS.) This section summarizes the company's Q2 2020 stock repurchase activities, primarily involving net settlements of restricted stock unit vestings to satisfy minimum statutory tax withholding requirements Summary of Stock Repurchase Activity (As of June 30, 2020) | Period | Total Shares Repurchased | Average Price Paid per Share ($) | | :------------------- | :----------- | :------------------- | | April 1-30, 2020 | 1,020 | **$0.54** | | May 1-31, 2020 | 10,279 | **$1.29** | | June 1-30, 2020 | 3,737 | **$1.12** | - Repurchased common stock typically represents net settlements to satisfy minimum statutory tax withholding requirements upon the vesting of restricted stock units[160](index=160&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=42&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES.) This section states that the company experienced no senior securities defaults during the reporting period - No senior securities defaults[161](index=161&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=42&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES.) This section states that mine safety disclosures are not applicable to the company - Not applicable[161](index=161&type=chunk) [ITEM 5. OTHER INFORMATION](index=42&type=section&id=ITEM%205.%20OTHER%20INFORMATION.) This section states that there is no other information requiring disclosure - None[162](index=162&type=chunk) [ITEM 6. EXHIBITS](index=42&type=section&id=ITEM%206.%20EXHIBITS.) This section lists all exhibits filed with the quarterly report, including articles of incorporation, credit agreement amendments, executive certifications, and XBRL data files - Exhibits include articles of incorporation, credit agreement amendments, Chief Executive Officer and Chief Financial Officer certification documents, and Inline XBRL instance, schema, calculation, definition, label, and presentation linkbase files[163](index=163&type=chunk)[164](index=164&type=chunk) [Signatures](index=44&type=section&id=Signatures) - This report was signed by **Martyn Willsher**, Interim Chief Executive Officer, Senior Vice President, and Chief Financial Officer, and **Denise DuBard**, Vice President and Chief Accounting Officer of **Amplify Energy Corp.** on **August 5, 2020**[166](index=166&type=chunk)