Amplify Energy (AMPY) - 2024 Q3 - Quarterly Report

Glossary of Oil and Natural Gas Terms This section defines key terms in the oil and natural gas industry for consistent understanding - This section provides definitions for key terms used in the oil and natural gas industry, such as 'Analogous Reservoir,' 'Bbl,' 'Boe,' 'Economically Producible,' 'Proved Reserves,' and 'Working Interest,' to ensure clarity and consistent understanding of the report's content[5][10][18] Names of Entities This section defines key entities like Amplify Energy, Legacy Amplify, and OLLC for clarity - The report defines key entities: 'Amplify Energy' refers to Amplify Energy Corp. and its subsidiaries; 'Legacy Amplify' refers to Amplify Energy Holdings LLC; and 'OLLC' refers to Amplify Energy Operating LLC, the wholly-owned subsidiary through which properties are operated[24] Cautionary Note Regarding Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties - This report contains forward-looking statements subject to risks and uncertainties beyond the company's control, including business strategies, cash flows, financial strategy, and the ongoing impact of the Beta Pipeline Incident[26] - Important factors that could cause actual results to differ materially include risks related to the Revolving Credit Facility borrowing base redetermination, volatility in commodity prices, substantial future capital requirements, and the impact of governmental regulations[29][30] PART I—FINANCIAL INFORMATION This part presents the company's financial information, including statements, notes, and management's discussion ITEM 1. FINANCIAL STATEMENTS. This section presents Amplify Energy Corp.'s unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, cash flows, and equity, along with detailed notes explaining the company's accounting policies, financial instruments, debt, equity, and significant events like the Beta Pipeline Incident Unaudited Condensed Consolidated Balance Sheets This section presents the company's unaudited condensed consolidated balance sheets as of September 30, 2024, and December 31, 2023 Unaudited Condensed Consolidated Balance Sheets | ASSETS | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | |:---|:---|:---| | Current assets: | | | | Cash and cash equivalents | $ — | $ 20,746 | | Accounts receivable, net | 32,295 | 39,096 | | Short-term derivative instruments | 15,556 | 17,669 | | Prepaid expenses and other current assets | 22,306 | 20,672 | | Total current assets | 70,157 | 98,183 | | Property and equipment, net | 378,871 | 346,741 | | Long-term derivative instruments | 4,419 | 9,405 | | Restricted investments | 27,451 | 19,935 | | Operating lease - long term right-of-use asset | 4,613 | 5,756 | | Deferred tax asset | 250,713 | 253,796 | | Other long-term assets | 2,992 | 3,858 | | Total assets | $ 739,216 | $ 737,674 | | LIABILITIES AND EQUITY | | | | Current liabilities: | | | | Accounts payable | $ 18,107 | $ 23,616 | | Revenues payable | 11,362 | 21,944 | | Accrued liabilities | 36,699 | 50,871 | | Total current liabilities | 66,168 | 96,431 | | Long-term debt | 120,000 | 115,000 | | Asset retirement obligations | 127,556 | 122,001 | | Operating lease liability | 3,806 | 5,090 | | Other long-term liabilities | 7,016 | 8,116 | | Total liabilities | 324,546 | 346,638 | | Stockholders' equity (deficit): | | | | Common stock | 400 | 393 | | Additional paid-in capital | 438,309 | 435,095 | | Accumulated deficit | (24,039) | (44,452) | | Total stockholders' equity (deficit) | 414,670 | 391,036 | | Total liabilities and equity | $ 739,216 | $ 737,674 | Unaudited Condensed Consolidated Statements of Operations This section presents the company's unaudited condensed consolidated statements of operations for the reported periods Unaudited Condensed Consolidated Statements of Operations | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | |:---|:---|:---|:---|:---| | | 2024 | 2023 | 2024 | 2023 | | Revenues: | | | | | | Oil and natural gas sales | $ 68,135 | $ 76,403 | $ 215,803 | $ 210,080 | | Other revenues | 1,723 | 367 | 9,857 | 18,531 | | Total revenues | 69,858 | 76,770 | 225,660 | 228,611 | | Costs and expenses: | | | | | | Lease operating expense | 33,255 | 36,493 | 107,850 | 103,953 | | Gathering, processing and transportation | 4,290 | 4,984 | 13,959 | 15,735 | | Taxes other than income | 5,997 | 5,532 | 15,539 | 16,433 | | Depreciation, depletion and amortization | 8,102 | 7,489 | 24,168 | 20,369 | | General and administrative expense | 8,251 | 8,255 | 26,409 | 24,547 | | Accretion of asset retirement obligations | 2,125 | 2,005 | 6,282 | 5,922 | | Loss (gain) on commodity derivative instruments | (25,047) | 23,328 | (7,258) | 4,371 | | Pipeline incident loss | 247 | 559 | 1,454 | 15,682 | | Other, net | 38 | 449 | 187 | 728 | | Total costs and expenses | 37,258 | 89,094 | 188,590 | 207,740 | | Operating income (loss) | 32,600 | (12,324) | 37,070 | 20,871 | | Other income (expense): | | | | | | Interest expense, net | (3,756) | (4,470) | (10,915) | (13,908) | | Litigation settlement | — | — | — | 84,875 | | Other income (expense) | (130) | 124 | (334) | 319 | | Total other income (expense) | (3,886) | (4,346) | (11,249) | 71,286 | | Income (loss) before income taxes | 28,714 | (16,670) | 25,821 | 92,157 | | Income tax (expense) benefit - current | (412) | (1,441) | (2,364) | (7,115) | | Income tax (expense) benefit - deferred | (5,650) | 4,708 | (3,082) | 264,130 | | Net income (loss) | $ 22,652 | $ (13,403) | $ 20,375 | $ 349,172 | | Earnings (loss) per share: | | | | | | Basic and diluted earnings (loss) per share | $ 0.54 | $ (0.34) | $ 0.49 | $ 8.57 | | Weighted average common shares outstanding: | | | | | | Basic and diluted | 39,783 | 39,063 | 39,608 | 38,911 | Unaudited Condensed Consolidated Statements of Cash Flows This section presents the company's unaudited condensed consolidated statements of cash flows for the reported periods Unaudited Condensed Consolidated Statements of Cash Flows | Cash flows from operating activities: | For the Nine Months Ended September 30, | |:---|:---| | | 2024 | 2023 | | Net income (loss) | $ 20,375 | $ 349,172 | | Depreciation, depletion and amortization | 24,168 | 20,369 | | Loss (gain) on derivative instruments | (7,258) | 4,371 | | Cash settlements (paid) received on expired derivative instruments | 13,564 | (5,082) | | Deferred income tax expense (benefit) | 3,082 | (264,130) | | Net cash provided by operating activities | 38,838 | 113,228 | | Cash flows from investing activities: | | | | Additions to oil and gas properties | (54,102) | (23,065) | | Additions to restricted investments | (7,516) | (6,399) | | Net cash used in investing activities | (62,655) | (29,965) | | Cash flows from financing activities: | | | | Advances on Revolving Credit Facility | 85,000 | 125,000 | | Payments on Revolving Credit Facility | (80,000) | (195,000) | | Net cash used in financing activities | 3,071 | (76,876) | | Net change in cash and cash equivalents | (20,746) | 6,387 | | Cash and cash equivalents, end of period | $ — | $ 6,387 | Unaudited Condensed Consolidated Statements of Equity (Deficit) This section presents the company's unaudited condensed consolidated statements of equity (deficit) for the reported periods Unaudited Condensed Consolidated Statements of Equity (Deficit) | | Common Stock | Additional Paid-in Capital | Accumulated Earnings (Deficit) | Total Stockholders' Equity (Deficit) | |:---|:---|:---|:---|:---| | Balance at December 31, 2023 | $ 393 | $ 435,095 | $ (44,452) | $ 391,036 | | Net income (loss) | — | — | (9,396) | (9,396) | | Share-based compensation expense | — | 1,120 | — | 1,120 | | Shares withheld for taxes | — | (1,745) | — | (1,745) | | Other | 5 | (5) | — | — | | Balance at September 30, 2024 | $ 400 | $ 438,309 | $ (24,039) | $ 414,670 | | Balance at December 31, 2022 | $ 386 | $ 432,251 | $ (437,202) | $ (4,565) | | Net income (loss) | — | — | 352,759 | 352,759 | | Share-based compensation expense | — | 941 | — | 941 | | Shares withheld for taxes | — | (2,141) | — | (2,141) | | Other | 5 | (5) | — | — | | Balance at September 30, 2023 | $ 392 | $ 433,675 | $ (88,030) | $ 346,037 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes to the unaudited condensed consolidated financial statements Note 1. Organization and Basis of Presentation Amplify Energy Corp. operates as a publicly traded Delaware corporation in one reportable segment focused on the acquisition, development, exploitation, and production of oil and natural gas properties, primarily located in Oklahoma, the Rockies, offshore Southern California (Beta), East Texas/North Louisiana, and the Eagle Ford (non-op) - Amplify Energy Corp. operates in a single reportable segment focused on oil and natural gas properties[40] - The company's primary assets are producing oil and natural gas properties in Oklahoma, the Rockies (Bairoil), federal waters offshore Southern California (Beta), East Texas/North Louisiana, and the Eagle Ford (non-op)[40] Note 2. Summary of Significant Accounting Policies There have been no changes to the Company's significant accounting policies from its 2023 Form 10-K. However, the company is evaluating the impact of new FASB accounting standard updates on reportable segment and income tax disclosures, effective for periods beginning after December 15, 2023, and December 15, 2024, respectively - No changes to significant accounting policies from the 2023 Form 10-K[47] - Evaluating new FASB guidance on reportable segment disclosure (effective after December 15, 2023, for annual periods) and income tax disclosure (effective after December 15, 2024, for annual periods)[48][49] Note 3. Revenue Revenue is recognized when performance obligations for crude oil, unprocessed natural gas, residue gas, and NGLs are satisfied at the delivery location. The transaction price is variable, based on market prices less fees. The company disaggregates revenue into oil, NGLs, and natural gas streams - Revenue is recognized upon transfer of control at the delivery location for crude oil, natural gas, and NGLs, with transaction prices based on variable market rates[52] Revenues Disaggregated by Stream (In thousands) | Revenues | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 | |:---|:---|:---|:---|:---| | Oil | $ 54,353 | $ 57,214 | $ 169,563 | $ 146,780 | | NGLs | 6,096 | 7,777 | 20,187 | 21,973 | | Natural gas | 7,686 | 11,412 | 26,053 | 41,327 | | Oil and natural gas sales | $ 68,135 | $ 76,403 | $ 215,803 | $ 210,080 | - Accounts receivable from revenue contracts were $25.6 million at September 30, 2024, down from $31.1 million at December 31, 2023[56] Note 4. Fair Value Measurements of Financial Instruments The company measures financial instruments at fair value using a three-tier hierarchy, with all derivative instruments classified as Level 2. Asset retirement obligations (AROs) and proved oil and natural gas properties are measured at fair value on a nonrecurring basis, with AROs being Level 3 due to unobservable inputs. No impairment expense was recorded on proved oil and natural gas properties during the reported periods - All derivative instruments are classified as Level 2 in the fair value hierarchy, based on estimated forward commodity prices[57][59] Gross Derivative Assets and Liabilities at Fair Value (In thousands) | | September 30, 2024 | December 31, 2023 | |:---|:---|:---| | Assets: | | | | Commodity derivatives | $ 26,174 | $ 39,439 | | Interest rate derivatives | — | — | | Total assets | $ 26,174 | $ 39,439 | | Liabilities: | | | | Commodity derivatives | $ 6,199 | $ 12,365 | | Interest rate derivatives | — | — | | Total liabilities | $ 6,199 | $ 12,365 | - No impairment expense was recorded on proved oil and natural gas properties for the three and nine months ended September 30, 2024 and 2023[65] Note 5. Risk Management and Derivative Instruments Amplify Energy uses commodity derivatives (swaps, put options, costless collars) to manage exposure to commodity price volatility and interest rate fluctuations, aiming for predictable cash flow. The company does not designate these as hedging instruments for accounting purposes, so all gains and losses are recognized in the statements of operations - The company uses commodity derivatives (fixed-price swaps, two-way collars) to manage exposure to natural gas (NYMEX-Henry Hub) and crude oil (NYMEX-WTI) price volatility[68] Commodity Derivative Contracts at September 30, 2024 | Contract Type | Metric | Remaining 2024 | 2025 | 2026 | |:---|:---|:---|:---|:---| | Natural Gas Fixed Price Swap | Avg. Monthly Volume (MMBtu) | 660,000 | 585,000 | 500,000 | | | Wtd-Avg Fixed Price | $3.74 | $3.75 | $3.79 | | Natural Gas Collar | Avg. Monthly Volume (MMBtu) | 333,333 | 250,000 | 354,167 | | | Wtd-Avg Floor Price | $3.50 | $3.50 | $3.57 | | | Wtd-Avg Ceiling Price | $4.08 | $4.06 | $4.18 | | Crude Oil Fixed Price Swap | Avg. Monthly Volume (Bbls) | 83,000 | 78,583 | 30,917 | | | Wtd-Avg Fixed Price | $74.34 | $71.79 | $70.68 | | Crude Oil Collar | Avg. Monthly Volume (Bbls) | 102,000 | 59,500 | — | | | Wtd-Avg Floor Price | $70.00 | $70.00 | — | | | Wtd-Avg Ceiling Price | $80.20 | $80.20 | — | Loss (Gain) on Derivative Instruments (In thousands) | Statements of Operations Location | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 | |:---|:---|:---|:---|:---| | Commodity derivative contracts | $ (25,047) | $ 23,328 | $ (7,258) | $ 4,371 | Note 6. Asset Retirement Obligations The company's asset retirement obligations primarily consist of future plugging and abandonment costs for wells and related facilities. For the nine months ended September 30, 2024, AROs increased due to accretion expense and revisions of estimates, partially offset by liabilities settled Changes in Asset Retirement Obligations (In thousands) | | Nine Months Ended September 30, 2024 | |:---|:---| | Asset retirement obligations at beginning of period | $ 123,494 | | Liabilities added from acquisition or drilling | 1 | | Liabilities settled | (750) | | Accretion expense | 6,282 | | Revision of estimates | 105 | | Asset retirement obligation at end of period | 129,132 | | Less: Current portion | 1,576 | | Asset retirement obligations - long-term portion | $ 127,556 | Note 7. Long-Term Debt Amplify Energy's long-term debt primarily consists of a $120.0 million outstanding balance on its senior secured reserve-based Revolving Credit Facility as of September 30, 2024. The facility, which matures on July 31, 2027, had a borrowing base of $150.0 million and elected commitments of $135.0 million at that date, and the company was in compliance with all covenants Consolidated Debt Obligations (In thousands) | | September 30, 2024 | December 31, 2023 | |:---|:---|:---| | Revolving Credit Facility | $ 120,000 | $ 115,000 | | Total long-term debt | $ 120,000 | $ 115,000 | - As of September 30, 2024, the Revolving Credit Facility had an outstanding principal of $120.0 million, a borrowing base of $150.0 million, and elected commitments of $135.0 million[78] - Subsequent to the quarter, on October 25, 2024, the borrowing base was reduced to $145.0 million, and elected commitments increased to $145.0 million[80] - The company was in compliance with all financial and non-financial covenants of the Revolving Credit Facility as of September 30, 2024[81] Note 8. Equity This note summarizes the changes in the company's common stock for the nine months ended September 30, 2024, showing an increase in outstanding shares primarily due to restricted stock units vesting, partially offset by shares withheld for taxes Changes in Common Stock Issued (Nine Months Ended September 30, 2024) | | Common Stock | |:---|:---| | Balance, December 31, 2023 | 39,147,205 | | Restricted stock units vested | 903,898 | | Shares withheld for taxes | (261,603) | | Balance, September 30, 2024 | 39,789,500 | Note 9. Earnings (Loss) per Share This note details the calculation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2024 and 2023, reflecting net income available to common stockholders and weighted average shares outstanding Earnings (Loss) per Share Calculation (In thousands, except per share amounts) | | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 | |:---|:---|:---|:---|:---| | Net income (loss) | $ 22,652 | $ (13,403) | $ 20,375 | $ 349,172 | | Basic and diluted earnings available to common stockholders | $ 21,569 | $ (13,403) | $ 19,392 | $ 333,401 | | Common shares outstanding — basic and diluted | 39,783 | 39,063 | 39,608 | 38,911 | | Basic and diluted earnings (loss) per share | $ 0.54 | $ (0.34) | $ 0.49 | $ 8.57 | Note 10. Long-Term Incentive Plans The company's shareholders approved the 2024 Equity Incentive Plan (EIP), replacing the prior plan. This note details the activity and accounting for Restricted Stock Units (TSUs) with service vesting conditions and Performance Stock Units (PSUs) with market and service vesting conditions, including their reclassification to equity awards in May 2024 and associated compensation expenses - The 2024 Equity Incentive Plan (2024 EIP) was approved by shareholders on May 15, 2024, replacing the prior Legacy Equity Incentive Plan[88] Restricted Stock Units (TSUs) Activity | | Number of Units | Weighted-Average Fair Value per Unit | |:---|:---|:---| | TSUs outstanding at December 31, 2023 | 1,331,456 | $ 5.77 | | Granted | 851,456 | $ 6.37 | | Forfeited | (5,922) | $ 5.04 | | Vested | (796,854) | $ 5.29 | | TSUs outstanding at September 30, 2024 | 1,380,136 | $ 6.42 | Performance Stock Units (PSUs) Activity | | Number of Units | Weighted-Average Fair Value per Unit | |:---|:---|:---| | PSUs outstanding at December 31, 2023 | 402,701 | $ 9.31 | | Granted | 312,843 | $ 7.55 | | Forfeited | — | $ — | | Vested | (107,044) | $ 2.63 | | PSUs outstanding at September 30, 2024 | 608,500 | $ 9.58 | Share-Based Compensation Costs (In thousands) | | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 | |:---|:---|:---|:---|:---| | TSUs | $ 1,322 | $ 1,027 | $ 3,685 | $ 2,965 | | PSUs | 494 | 300 | 1,428 | 643 | | Total | $ 1,816 | $ 1,327 | $ 5,113 | $ 3,608 | Note 11. Leases Amplify Energy holds operating leases for office, warehouse, equipment, and vehicles, with most being short-term or month-to-month. The company recognized $1.5 million and $1.6 million in operating lease costs for the nine months ended September 30, 2024 and 2023, respectively, and provides a maturity analysis of its non-cancelable operating lease obligations - The company recognized approximately $1.5 million and $1.6 million in operating lease costs for the nine months ended September 30, 2024 and 2023, respectively[103] Right-of-Use Assets and Lease Liabilities (In thousands) | | September 30, 2024 | December 31, 2023 | |:---|:---|:---| | Right-of-use asset | $ 4,613 | $ 5,756 | | Current lease liability | 1,772 | 1,737 | | Long-term lease liability | 3,806 | 5,090 | | Total lease liability | $ 5,578 | $ 6,827 | Maturity Analysis of Minimum Lease Payment Obligations (In thousands) | Year | Office and warehouse leases | Leased vehicles and office equipment | Total | |:---|:---|:---|:---| | 2024 | $ 357 | $ 188 | $ 545 | | 2025 | 1,429 | 573 | 2,002 | | 2026 | 1,206 | 87 | 1,293 | | 2027 | 836 | 4 | 840 | | 2028 and thereafter | 1,798 | — | 1,798 | | Total lease payments | 5,626 | 852 | 6,478 | | Less: interest | 856 | 44 | 900 | | Present value of lease liabilities | $ 4,770 | $ 808 | $ 5,578 | Note 12. Supplemental Disclosures to the Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Cash Flows This note provides detailed breakdowns of current accrued liabilities and accounts receivable, net, as well as supplemental cash flow information for the reported periods Current Accrued Liabilities (In thousands) | | September 30, 2024 | December 31, 2023 | |:---|:---|:---| | Accrued lease operating expense | $ 11,491 | $ 14,239 | | Accrued liability - pipeline incident | 1,691 | 9,331 | | Accrued capital expenditures | 7,914 | 8,019 | | Accrued general and administrative expense | 3,790 | 5,335 | | Accrued production and ad valorem tax | 3,572 | 3,502 | | Operating lease liability | 1,772 | 1,737 | | Asset retirement obligations | 1,576 | 1,493 | | Accrued current income tax payable | 784 | — | | Accrued interest payable | 221 | 1,792 | | Accrued liabilities | $ 36,699 | $ 50,871 | Accounts Receivable (In thousands) | | September 30, 2024 | December 31, 2023 | |:---|:---|:---| | Oil and natural gas receivables | $ 25,618 | $ 31,131 | | Insurance receivable - pipeline incident | 1,697 | 3,571 | | Joint interest owners and other | 6,680 | 6,042 | | Total accounts receivable | 33,995 | 40,744 | | Less: allowance for doubtful accounts | (1,700) | (1,648) | | Total accounts receivable, net | $ 32,295 | $ 39,096 | Supplemental Cash Flows (In thousands) | Supplemental cash flows: | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 | |:---|:---|:---| | Cash paid for interest, net of amounts capitalized | $ 9,162 | $ 8,142 | | Cash paid for taxes | 1,040 | 5,725 | | Increase (decrease) in capital expenditures in payables and accrued liabilities | (1,323) | 5,880 | Note 13. Related Party Transactions The company reported no material transactions with related parties for the three and nine months ended September 30, 2024 and 2023 - No material related party transactions occurred for the three and nine months ended September 30, 2024 and 2023[112] Note 14. Commitments and Contingencies This note addresses various commitments and contingencies, including litigation, environmental matters, and an out-of-period adjustment for improperly classified non-operated revenue. It also details funding obligations for decommissioning liabilities related to the Beta properties, supported by surety bonds and escrow accounts - An out-of-period adjustment of $2.8 million was recorded in 2024 to release improperly classified non-operated revenue in suspense from 2015-2024[116] - The company has a sinking fund trust agreement for decommissioning the San Pedro Bay Pipeline, with an account balance of approximately $4.5 million as of September 30, 2024[118] Updated Funding Commitment for Decommissioning Escrow Accounts (In thousands) | Funding commitment | Total | Remaining 2024 | Payment 2025 | Due by 2026 | Period 2027 | 2028 | Thereafter | |:---|:---|:---|:---|:---|:---|:---|:---| | Federal escrow fund payments | $140,728 | $ 2,000 | $8,000 | $8,000 | $8,000 | $8,000 | $106,728 | | State escrow fund payments | 9,253 | 258 | 1,034 | 1,034 | 1,034 | 1,034 | 4,859 | | Total sinking fund payments | $149,981 | $ 2,258 | $9,034 | $9,034 | $9,034 | $9,034 | $ 111,587 | Note 15. Income Taxes This note details the company's current and deferred income tax expenses/benefits and explains the factors contributing to the difference between the statutory U.S. federal income tax rate of 21% and the effective tax rates for the reported periods - Current income tax expense was ($0.4) million for Q3 2024 and ($2.4) million for the nine months ended September 30, 2024[122] - Deferred income tax expense was ($5.7) million for Q3 2024 and ($3.1) million for the nine months ended September 30, 2024[123] - The effective tax rates for the three and nine months ended September 30, 2024, were both 21.1%, primarily influenced by higher state taxes, marginal well tax credits, and a windfall tax benefit from stock compensation[124] - The significant impact on the 2023 effective tax rate was the release of the valuation allowance due to achieving three years of cumulative book income[124] Note 16. Beta Pipeline Incident This note provides an update on the Beta Pipeline Incident, including the restart of operations in April 2023, the resolution of federal and state criminal matters, and the settlement of civil claims. The company estimates total costs for the incident to be between $190.0 million and $210.0 million, with insurance covering a material portion - The Beta Field pipeline operations restarted on April 10, 2023, after receiving required regulatory approvals[126] - The company resolved all criminal matters, agreeing to a $7.1 million federal fine and $5.8 million reimbursement, plus a $4.9 million state fine[127] - A $50.0 million class action civil settlement was finalized in April 2023, funded by insurance, and the company received $96.5 million from vessels that struck the pipeline[130] - Estimated total costs for the Incident are between $190.0 million and $210.0 million, with insurance covering a material portion[133][135] Note 17. Subsequent Events This note refers to the borrowing base redetermination as a subsequent event, with further details provided in Note 7 - A subsequent event on October 25, 2024, involved an amendment to the Revolving Credit Facility, reducing the borrowing base from $150.0 million to $145.0 million and increasing elected commitments to $145.0 million[80][137] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This section provides management's perspective on Amplify Energy's financial condition and results of operations, discussing industry trends, recent developments, operational focus, revenue sources, critical accounting policies, and a detailed comparison of financial performance for the three and nine months ended September 30, 2024 and 2023 Overview This section outlines the company's primary sources of liquidity and expected funding for operations and development activities - Amplify Energy operates in a single reportable segment focused on the acquisition, development, exploitation, and production of oil and natural gas properties[140] - The company's primary assets are producing oil and natural gas properties in Oklahoma, the Rockies (Bairoil), federal waters offshore Southern California (Beta), East Texas/North Louisiana, and the Eagle Ford (non-op)[140] Industry Trends This section covers industry trends - The company monitors factors influencing commodity prices, including OPEC actions, geopolitical conflicts (Russia-Ukraine, Middle East), global inventories, inflation, monetary policy, and governmental policies on lower carbon energy[141] - Commodity prices are expected to remain volatile due to these factors, creating uncertainty for the business[141] Recent Developments This section covers recent developments - On October 25, 2024, the Revolving Credit Facility's borrowing base was reduced from $150.0 million to $145.0 million, and aggregate elected commitments increased from $135.0 million to $145.0 million[142] Business Environment and Operational Focus This section covers business environment and operational focus - Key financial and operational metrics used to assess performance include production volumes, realized prices, cash settlements on commodity derivatives, lease operating expense, gathering, processing and transportation, general and administrative expense, and Adjusted EBITDA[143] Sources of Revenues This section covers sources of revenues - Revenues are derived from the sale of natural gas, oil, and NGLs, with all production revenues originating from the continental United States[144] - The company uses derivative contracts to mitigate the impact of volatile commodity prices, recognizing changes in fair value of unsettled instruments in earnings[144] Critical Accounting Policies and Estimates This section covers critical accounting policies and estimates - Significant estimates include oil and natural gas reserves, fair value estimates, revenue recognition, and contingencies and insurance accounting[145] - These estimates are subjective, require professional judgment, and involve complex analysis, with potential for significant impact on financial position, results of operations, and cash flows due to future revisions[145][146] Revenue Payables in Suspense This section covers revenue payables in suspense - For the nine months ended September 30, 2024, the company released $8.4 million of net revenues in suspense[147][148] Impact of Revenue Payables in Suspense Releases (Nine Months Ended September 30, 2024) | | In thousands | |:---|:---| | Oil and natural gas sales | $ 4,023 | | Other revenues | 4,829 | | Severance tax and other deducts | (433) | | Total net revenue | $ 8,419 | | Production volumes: | | | Oil (MBbls) | 33 | | NGLs (MBbls) | 31 | | Natural gas (MMcf) | 441 | | Total (MBoe) | 138 | | Total (MBoe/d) | 0.50 | Results of Operations This section covers results of operations For the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023 For the three months ended September 30, 2024, Amplify Energy reported net income of $22.7 million, a significant improvement from a net loss of $13.4 million in the prior year. This was driven by a net gain on commodity derivative instruments and lower operating expenses, despite a decrease in total revenues and production volumes - Net income was $22.7 million for Q3 2024, compared to a net loss of $13.4 million for Q3 2023[152] - Total revenues decreased from $76.8 million in Q3 2023 to $69.9 million in Q3 2024, primarily due to lower commodity prices and production volumes (19.0 MBoe/d vs. 20.6 MBoe/d)[153][151] - The company recognized a net gain on commodity derivative instruments of $25.0 million in Q3 2024, a reversal from a $23.3 million net loss in Q3 2023[159] - Lease operating expenses decreased by $3.2 million, and gathering, processing, and transportation expenses decreased by $0.7 million[155][156] For the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023 For the nine months ended September 30, 2024, Amplify Energy reported net income of $20.4 million, a significant decrease from $349.2 million in the prior year, primarily due to the absence of the $84.9 million litigation settlement and $17.9 million LOPI insurance proceeds received in 2023. Higher commodity prices and Beta's return to production partially offset this - Net income was $20.4 million for the nine months ended September 30, 2024, down from $349.2 million in the same period of 2023[164] - Oil, natural gas, and NGL revenues increased to $215.8 million in 2024 from $210.1 million in 2023, driven by higher commodity prices, Beta's return to production, and a $4.0 million revenue suspense release[165] - Other revenues decreased from $18.5 million in 2023 (including $17.9 million LOPI insurance proceeds) to $9.9 million in 2024 (including a $4.8 million revenue suspense release)[166] - A net gain on commodity derivative instruments of $7.3 million was recognized in 2024, compared to a net loss of $4.4 million in 2023[172] - Litigation settlement of $84.9 million was recorded in 2023, with no comparable amount in 2024[175] Adjusted EBITDA This section reconciles net income and net cash from operating activities to Adjusted EBITDA, a non-GAAP financial measure - Adjusted EBITDA is a non-GAAP financial measure used to evaluate operating performance and compare results without regard to financing methods or capital structure[180] Reconciliation of Net Income (Loss) to Adjusted EBITDA (In thousands) | | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 | |:---|:---|:---|:---|:---| | Net income (loss) | $ 22,652 | $ (13,403) | $ 20,375 | $ 349,172 | | Interest expense, net | 3,756 | 4,470 | 10,915 | 13,908 | | Income tax expense (benefit) - current | 412 | 1,441 | 2,364 | 7,115 | | Income tax expense (benefit) - deferred | 5,650 | (4,708) | 3,082 | (264,130) | | DD&A | 8,102 | 7,489 | 24,168 | 20,369 | | Accretion of AROs | 2,125 | 2,005 | 6,282 | 5,922 | | Losses (gains) on commodity derivative instruments | (25,047) | 23,328 | (7,258) | 4,371 | | Cash settlements (paid) received on expired commodity derivative instruments | 5,582 | (3,890) | 13,565 | (5,082) | | Pipeline incident loss | 247 | 559 | 1,454 | 15,682 | | Litigation settlement | — | — | — | (84,875) | | Share-based compensation expense | 1,815 | 1,327 | 5,113 | 3,608 | | Adjusted EBITDA | $ 25,544 | $ 19,483 | $ 81,194 | $ 62,841 | Reconciliation of Net Cash from Operating Activities to Adjusted EBITDA (In thousands) | | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 | |:---|:---|:---|:---|:---| | Net cash provided by operating activities | $ 15,737 | $ 18,007 | $ 38,838 | $ 113,228 | | Changes in working capital | 5,937 | (4,985) | 27,502 | 2,443 | | Interest expense, net | 3,756 | 4,470 | 10,915 | 13,908 | | Pipeline incident loss | 247 | 559 | 1,454 | 15,682 | | Litigation settlement | — | — | — | (84,875) | | Income tax expense (benefit) - current | 412 | 1,441 | 2,364 | 7,115 | | Adjusted EBITDA | $ 25,544 | $ 19,483 | $ 81,194 | $ 62,841 | Liquidity and Capital Resources This section discusses the company's liquidity, capital resources, and cash flow management strategies Overview This section outlines the company's primary sources of liquidity and expected funding for operations and development activities - Primary sources of liquidity are cash flows from operating activities and borrowings under the Revolving Credit Facility[186] - Expected cash flows and Revolving Credit Facility availability are anticipated to fund 2024 development activities and operating needs[186] Impact of the Beta Pipeline Incident This section discusses the ongoing financial and cash flow impact of the Beta Pipeline Incident and insurance coverage - The Beta Pipeline Incident continues to have an impact on financial condition and cash flow generation[187] - Customary insurance policies, including loss of production income insurance (expired March 31, 2023), have covered a material portion of aggregate costs[187] Capital Markets This section addresses the company's capital markets strategy for funding future growth projects and acquisitions - No near-term capital markets activity is anticipated[188] - The company will evaluate public debt and equity for future growth projects and acquisitions[188] Hedging This section describes the company's hedging strategy to mitigate commodity price volatility and stabilize cash flows - Hedging is an important strategy to reduce cash flow volatility and manage commodity price fluctuations[189] - The company targets hedging 50%-75% of estimated production from total proved developed producing reserves over a one-to-three-year period[189] Capital Expenditures This section details the company's capital expenditures for the reported period, focusing on key development programs - Total capital expenditures were approximately $55.3 million for the nine months ended September 30, 2024[191] - Expenditures were primarily for the Beta development program, capital workovers, facilities upgrades in Beta and Oklahoma, and non-operated drilling/completion activities in East Texas and the Eagle Ford[191] Working Capital This section analyzes the company's working capital position, influenced by accounts receivable and payable dynamics - Working capital requirements are driven by changes in accounts receivable and accounts payable, influenced by commodity prices and payment timing[192] - As of September 30, 2024, the company had a working capital deficit (excluding commodity derivatives) of $11.6 million[194] Debt Agreement This section provides details on the company's Revolving Credit Facility, including outstanding balances and compliance with covenants - Outstanding loans under the Revolving Credit Facility were $120.0 million as of September 30, 2024[195] - Available borrowings under the Revolving Credit Facility were approximately $15.0 million as of September 30, 2024[196] - The company was in compliance with all financial and non-financial covenants as of September 30, 2024[196] - On October 25, 2024, the borrowing base was reduced to $145.0 million, and elected commitments increased to $145.0 million[197] Material Cash Requirements This section outlines the company's significant contractual cash obligations, including debt, leases, and decommissioning payments - Contractual commitments include debt agreements (interest and principal payments) and operating lease obligations[199][200] - Future sinking fund payments for decommissioning liabilities are $2.3 million for the remainder of 2024 and $9.0 million per year thereafter until fully funded[201] Cash Flows from Operating, Investing and Financing Activities This section summarizes the company's cash flow performance across operating, investing, and financing activities Summary of Cash Flows (In thousands) | | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | |:---|:---|:---| | Net cash provided by operating activities | $ 38,838 | $ 113,228 | | Net cash used in investing activities | (62,655) | (29,965) | | Net cash used in financing activities | 3,071 | (76,876) | - Operating cash flows decreased significantly due to the $84.9 million litigation settlement received in 2023 not recurring in 2024[203] - Net cash used in investing activities increased to $62.7 million in 2024, primarily due to $54.1 million in additions to oil and natural gas properties[206] - Financing activities resulted in net borrowings of $5.0 million on the Revolving Credit Facility in 2024, compared to net repayments of $70.0 million in 2023[208] Off–Balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements for the company as of the reporting date - The company had no off-balance sheet arrangements as of September 30, 2024[208] Recently Issued Accounting Pronouncements This section directs readers to Note 2 for information on recently issued accounting pronouncements affecting the company - Refer to Note 2 for a discussion of recently issued accounting pronouncements[209] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Amplify Energy Corp. is a smaller reporting company and is therefore not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[210] ITEM 4. CONTROLS AND PROCEDURES. Management, including the principal executive and financial officers, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2024, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting occurred during the most recent quarter - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of September 30, 2024[211] - No material changes in internal control over financial reporting occurred during the most recent quarter[212] PART II—OTHER INFORMATION This part provides other information, including legal proceedings, risk factors, and equity security sales ITEM 1. LEGAL PROCEEDINGS. This section refers to Note 16 for details on legal proceedings related to the Beta Pipeline Incident and emphasizes the inherent unpredictability of litigation outcomes, which can impact the company through defense costs, settlements, and diversion of management resources - Legal proceedings associated with the Beta Pipeline Incident are discussed in Note 16[214] - The results of current or future litigation cannot be predicted with certainty and may adversely impact the company due to costs and diversion of resources[215] ITEM 1A. RISK FACTORS. Amplify Energy's business faces numerous risks, and this section states that there have been no material changes to the risk factors previously disclosed in Part I, Item 1A of its 2023 Form 10-K - No material changes to the risk factors disclosed in Part I, Item 1A of the 2023 Form 10-K[216] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. This section summarizes the company's common share repurchase activity for the three months ended September 30, 2024, which primarily involved net settlements by shareholders to cover tax withholding requirements upon vesting of restricted stock Common Shares Repurchased (Three Months Ended September 30, 2024) | Period | Total Number of Shares Purchased | Average Price per Share | |:---|:---|:---| | July 1, 2024 - July 31, 2024 | 8,871 | $ 6.96 | | August 1, 2024 - August 31, 2024 | 2,877 | $ 7.00 | | September 1, 2024 - September 30, 2024 | — | $ — | - Common shares were generally net-settled by shareholders to cover required withholding tax upon vesting[217] ITEM 3. DEFAULTS UPON SENIOR SECURITIES. This section confirms that the company reported no defaults on its senior securities during the period - No defaults upon senior securities were reported[218] ITEM 4. MINE SAFETY DISCLOSURES. This section states that mine safety disclosures are not applicable to the company - This item is not applicable[218] ITEM 5. OTHER INFORMATION. This section indicates that no other information was reported for this item - No other information was reported[218] ITEM 6. EXHIBITS. This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q Selected Exhibits | Exhibit Number | Description | |:---|:---| | 3.1 | Second Amended and Restated Certificate of Incorporation | | 3.2 | Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation | | 3.3 | Third Amended and Restated Bylaws | | 10.1 | Borrowing Base Redetermination, Commitment Increase and First Amendment to Amended and Restated Credit Agreement | | 31.1* | Certification of Chief Executive Officer | | 31.2* | Certification of Chief Financial Officer | | 32.1** | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18. U.S.C. Section 1350 | | 101.INS* | Inline XBRL Instance Document | | 104* | Cover Page Interactive Data File | SIGNATURES This section contains the official signatures certifying the accuracy of the report - The report is signed by James Frew, Senior Vice President and Chief Financial Officer, and Eric Dulany, Vice President and Chief Accounting Officer, on November 6, 2024[220][221]