Amplify Energy (AMPY) - 2022 Q3 - Quarterly Report

Glossary of Oil and Natural Gas Terms This section provides definitions for key terms related to oil and natural gas operations Names of Entities This section defines the specific entities and their relationships within the report's context - The report defines key entities: "Amplify Energy," "Company," "we," "our," "us" refer 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[17] Cautionary Note Regarding Forward-Looking Statements This section outlines the inherent risks and uncertainties associated with forward-looking statements in the report - This report contains forward-looking statements subject to risks and uncertainties, many beyond the company's control, including business strategies, the impact of the Southern California Pipeline Incident, cash flows, liquidity, financial strategy, reserve replacement, drilling locations, oil and natural gas reserves, and realized prices[19][20] - Key risk factors that could cause actual results to differ materially include risks related to the Pipeline Incident, borrowing base redetermination, ability to access funds, debt obligations, volatility in commodity prices, potential impairments, future capital requirements, and uncertainties in oil and natural gas development and production[22][23] - Other significant risks include potential shortages or increased costs for equipment and materials, marketing difficulties, counterparty credit risk, effectiveness of risk management, environmental liabilities, governmental regulations (including climate change), hedging strategy effectiveness, and actions of third-party co-owners[25] PART I—FINANCIAL INFORMATION This part presents the company's comprehensive financial data and management's analysis of its performance and condition ITEM 1. FINANCIAL STATEMENTS This section presents Amplify Energy Corp.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and equity, along with detailed notes explaining the company's organization, accounting policies, revenue recognition, fair value measurements, risk management, debt, equity, earnings per share, long-term incentive plans, leases, supplemental disclosures, related party transactions, commitments, contingencies, income taxes, and the Southern California Pipeline Incident Unaudited Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific dates Unaudited Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | |:----------------------|:-------------|:-------------| | ASSETS | | | | Total current assets | $106,375 | $125,784 | | Property and equipment, net | $333,689 | $320,285 | | Total assets | $458,182 | $455,100 | | LIABILITIES AND EQUITY | | | | Total current liabilities | $155,228 | $165,163 | | Long-term debt | $205,000 | $230,000 | | Total liabilities | $493,505 | $519,941 | | Total stockholders' deficit | $(35,323) | $(64,841) | - Total assets increased slightly from $455.1 million at December 31, 2021, to $458.2 million at September 30, 2022. Total liabilities decreased from $519.9 million to $493.5 million, leading to a reduction in the total stockholders' deficit from $(64.8) million to $(35.3) million[29] Unaudited Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss over specific reporting periods Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:----------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Total revenues | $126,299 | $97,001 | $359,509 | $249,863 | | Total costs and expenses | $75,116 | $107,332 | $322,243 | $313,726 | | Operating income (loss) | $51,183 | $(10,331) | $37,266 | $(63,863) | | Net income (loss) | $47,234 | $(13,470) | $27,840 | $(67,821) | | Basic and diluted EPS | $1.17 | $(0.35) | $0.69 | $(1.79) | - The company reported a significant turnaround, moving from a net loss of $(13.5) million in Q3 2021 to a net income of $47.2 million in Q3 2022. For the nine months, net income improved from a loss of $(67.8) million to a gain of $27.8 million, driven by increased revenues and a favorable shift in commodity derivative instrument performance[32] Unaudited Condensed Consolidated Statements of Cash Flows This section outlines the cash inflows and outflows from operating, investing, and financing activities Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:----------------------|:-------------------------------|:-------------------------------| | Net cash provided by operating activities | $49,330 | $55,287 | | Net cash used in investing activities | $(31,553) | $(23,253) | | Net cash used in financing activities | $(25,632) | $(25,054) | | Net change in cash and cash equivalents | $(7,855) | $6,980 | | Cash and cash equivalents, end of period | $10,944 | $17,344 | - Net cash provided by operating activities decreased by $5.9 million YoY for the nine months ended September 30, 2022, primarily due to higher cash settlements paid on expired derivative instruments, despite improved net income[35] - Net cash used in investing activities increased by $8.3 million YoY, mainly due to higher additions to oil and gas properties and restricted investments[35] Unaudited Condensed Consolidated Statements of Equity (Deficit) This section details changes in the company's equity or deficit, reflecting net income, share transactions, and other comprehensive income Unaudited Condensed Consolidated Statements of Equity (Deficit) (in thousands) | Metric (in thousands) | Dec 31, 2021 | Sep 30, 2022 | |:----------------------|:-------------|:-------------| | Common Stock | $382 | $386 | | Warrants | $4,788 | $0 | | Additional Paid-in Capital | $425,066 | $431,528 | | Accumulated Deficit | $(495,077) | $(467,237) | | Total Stockholders' Deficit | $(64,841) | $(35,323) | - The total stockholders' deficit improved significantly from $(64.8) million at December 31, 2021, to $(35.3) million at September 30, 2022, primarily driven by net income and the expiration of warrants[38] - Warrants outstanding at December 31, 2021, expired by June 30, 2022, contributing to a shift in equity components[38] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1. Organization and Basis of Presentation This note describes the company's business, its operational focus, and the foundational principles for financial statement preparation - Amplify Energy Corp. is a publicly traded Delaware corporation (NYSE: AMPY) engaged in the acquisition, development, exploitation, and production of oil and natural gas properties in Oklahoma, the Rockies, offshore Southern California, East Texas/North Louisiana, and the Eagle Ford[42] - The financial statements are prepared in accordance with GAAP, include all wholly-owned subsidiaries, and reflect management's significant estimates for oil and natural gas reserves, fair value, revenue recognition, and contingencies[43][45] - Commodity prices for oil, natural gas, and NGLs increased in 2022 compared to 2021, leading to a significant increase in revenues, but the company continues to monitor volatility due to global events like the Russia-Ukraine conflict and governmental policies[47] Note 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and methods applied in preparing the financial statements - There have been no material changes to the Company's significant accounting policies as described in its 2021 Form 10-K[49] - The Company has implemented all new accounting pronouncements in effect, none of which had a material impact on the financial statements[50] Note 3. Revenue This note details the company's revenue recognition policies and disaggregates revenue by stream - Revenue is recognized when performance obligations to deliver crude oil, unprocessed natural gas, residue gas, and NGLs are satisfied at the delivery location, with transaction prices based on variable market prices less fees[51][52] Revenue Stream (in thousands) | Revenue Stream (in thousands) | Sep 2022 | Sep 2021 | |:------------------------------|:---------|:---------| | Oil sales | $54,394 | $63,172 | | NGLs sales | $11,704 | $11,839 | | Natural gas sales | $46,714 | $21,830 | | Total oil and natural gas sales | $112,812 | $96,841 | - Accounts receivable from revenue contracts increased from $32.4 million at December 31, 2021, to $45.8 million at September 30, 2022[57] Note 4. Fair Value Measurements of Financial Instruments This note explains the methodologies and classifications used for fair value measurements of financial instruments - Fair value measurements for derivative instruments are classified as Level 2, based on estimated forward commodity prices and observable market data[58][60] Derivative Type (in thousands) | Derivative Type (in thousands) | Sep 30, 2022 Fair Value | Dec 31, 2021 Fair Value | |:-------------------------------|:------------------------|:------------------------| | Assets | | | | Commodity derivatives | $7,634 | $7,967 | | Interest rate derivatives | $442 | $0 | | Total assets | $8,076 | $7,967 | | Liabilities | | | | Commodity derivatives | $58,185 | $70,152 | | Interest rate derivatives | $0 | $623 | | Total liabilities | $58,185 | $70,775 | - No impairment expense was recorded on proved oil and natural gas properties for the three and nine months ended September 30, 2022 and 2021[66] Note 5. Risk Management and Derivative Instruments This note describes the company's strategies for managing commodity price and interest rate risks using derivative instruments - The Company uses commodity derivatives (swaps, options, collars) and interest rate swaps to manage exposure to price and interest rate fluctuations, aiming for predictable cash flow and mitigating market and credit risks with creditworthy counterparties[67][68][69] Commodity Derivative Contracts (as of Sep 30, 2022) | Contract Type | 2022 Average Monthly Volume | 2022 Weighted-Average Price | 2023 Average Monthly Volume | 2023 Weighted-Average Price | |:--------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Natural Gas Fixed Price Swap (MMBtu) | 695,000 | $2.56 | — | — | | Natural Gas Two-Way Collars (MMBtu) | 775,000 | Floor: $2.56, Ceiling: $3.44 | 1,160,000 | Floor: $3.49, Ceiling: $5.92 | | Crude Oil Fixed Price Swap (Bbls) | 57,000 | $48.27 | 55,000 | $57.30 | | Crude Oil Two-Way Collars (Bbls) | 15,000 | Floor: $60.00, Ceiling: $71.00 | — | — | | Crude Oil Three-Way Collars (Bbls) | 89,000 | Ceiling: $55.55, Floor: $42.92, Sub-floor: $32.58 | 30,000 | Ceiling: $67.15, Floor: $55.00, Sub-floor: $40.00 | Loss (Gain) on Derivative Instruments (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:-------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Commodity derivative contracts | $(3,300) | $46,653 | $108,675 | $145,139 | | Interest rate derivatives | $(87) | $47 | $(930) | $3 | Note 6. Asset Retirement Obligations This note details the company's liabilities for future plugging and abandonment costs of its wells and facilities - Asset retirement obligations (AROs) primarily relate to future plugging and abandonment costs for wells and facilities[80] Changes in Asset Retirement Obligations (in thousands) for the Nine Months Ended Sep 30, 2022 | Metric | Amount | |:-------|:-------| | AROs at beginning of period | $103,414 | | Liabilities added | $20 | | Liabilities settled | $(552) | | Accretion expense | $5,242 | | Revision of estimates | $117 | | ARO at end of period | $108,241 | | Less: Current portion | $(883) | | AROs - long-term portion | $107,358 | Note 7. Long-Term Debt This note provides information on the company's long-term debt obligations, including its revolving credit facility Consolidated Debt Obligations (in thousands) | Debt Type | Sep 30, 2022 | Dec 31, 2021 | |:----------|:-------------|:-------------| | Revolving Credit Facility | $205,000 | $230,000 | | Total long-term debt | $205,000 | $230,000 | - The Revolving Credit Facility, with a borrowing base of $225.0 million, matures on November 2, 2023. The Sixth Amendment on June 20, 2022, terminated automatic monthly reductions, reaffirmed the borrowing base, and modified hedging covenants[85] - The weighted-average interest rate on the Revolving Credit Facility increased from 3.64% in Q3 2021 to 5.91% in Q3 2022, and from 3.65% to 4.73% for the nine months ended September 30, 2022[88] Note 8. Equity (Deficit) This note details the components and changes in the company's stockholders' equity or deficit Common Stock Changes for the Nine Months Ended Sep 30, 2022 | Metric | Number of Shares | |:-------|:-----------------| | Balance, Dec 31, 2021 | 38,024,142 | | Restricted stock units vested | 512,754 | | Shares withheld for taxes | (96,093) | | Balance, Sep 30, 2022 | 38,440,803 | - Warrants to purchase 2,173,913 shares of common stock, exercisable at $42.60 per share, expired on May 4, 2022[95] Note 9. Earnings per Share This note presents the calculation of basic and diluted earnings per share for the reporting periods Earnings (Loss) per Share (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:-------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net income (loss) available to common stockholders | $44,962 | $(13,470) | $26,530 | $(67,821) | | Basic and diluted EPS | $1.17 | $(0.35) | $0.69 | $(1.79) | | Weighted average common shares outstanding (Basic and Diluted) | 38,441 | 37,996 | 38,318 | 37,937 | - The company achieved positive basic and diluted EPS of $1.17 for Q3 2022, a significant improvement from $(0.35) in Q3 2021. For the nine months, EPS turned positive to $0.69 from $(1.79) in the prior year[99] Note 10. Long-Term Incentive Plans This note describes the company's equity-based compensation plans and related share-based compensation expense - The new Equity Incentive Plan (EIP) approved in May 2021 replaced previous plans, with 1,533,291 shares available for future grants as of September 30, 2022[100] Restricted Stock Units (TSUs) Outstanding (Nine Months Ended Sep 30, 2022) | Metric | Number of Units | |:-------|:----------------| | TSUs outstanding at Dec 31, 2021 | 1,074,420 | | Granted | 958,279 | | Forfeited | (24,375) | | Vested | (460,326) | | TSUs outstanding at Sep 30, 2022 | 1,547,998 | Compensation Expense (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:-------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | TSUs | $718 | $466 | $2,000 | $1,123 | | PSUs and PRSUs | $132 | $(10) | $349 | $119 | | Board RSUs | $0 | $4 | $5 | $12 | | Total | $850 | $460 | $2,354 | $1,254 | Note 11. Leases This note outlines the company's lease arrangements, including operating lease liabilities and related cash flows - The Company's leases are primarily operating leases for office space, equipment, vehicles, and offshore pipeline right-of-way agreements, with most having short terms or month-to-month extensions[118] Lease Liabilities (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | |:-------|:-------------|:-------------| | Current lease liability | $232 | $777 | | Long-term lease liability | $7,042 | $2,017 | | Total lease liability | $7,274 | $2,794 | - Operating cash flows from operating leases increased significantly from $0.879 million for the nine months ended September 30, 2021, to $4.118 million for the same period in 2022[121] Note 12. Supplemental Disclosures to the Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Cash Flows This note provides additional details on accrued liabilities, accounts receivable, and supplemental cash flow information Accrued Liabilities (in thousands) | Accrued Liability | Sep 30, 2022 | Dec 31, 2021 | |:------------------|:-------------|:-------------| | Pipeline incident | $26,115 | $34,417 | | Lease operating expense | $9,830 | $9,271 | | Capital expenditures | $5,958 | $1,631 | | Production and ad valorem tax | $6,533 | $3,277 | | Total accrued liabilities | $59,888 | $57,826 | Accounts Receivable (in thousands) | Account Type | Sep 30, 2022 | Dec 31, 2021 | |:-------------|:-------------|:-------------| | Oil and natural gas receivables | $45,766 | $32,428 | | Insurance receivable - pipeline incident | $30,570 | $55,765 | | Total accounts receivable, net | $78,929 | $91,967 | Supplemental Cash Flows (in thousands) for the Nine Months Ended Sep 30 | Metric | 2022 | 2021 | |:-------|:-----|:-----| | Cash paid for interest, net | $7,597 | $6,578 | | Cash paid for taxes | $35 | $0 | Note 13. Related Party Transactions This note discloses any material transactions with related parties during the reporting periods - There were no material related party transactions for the three and nine months ended September 30, 2022 and 2021[132] Note 14. Commitments and Contingencies This note details the company's contractual commitments and potential liabilities arising from legal and operational matters - As of September 30, 2022, the Company had $8.0 million in contingent liabilities related to litigation, with no environmental reserves recorded[133] - The Company reached an agreement in principle to settle all civil claims related to the Southern California Pipeline Incident for $50.0 million, to be funded by insurance, and secured court-approved agreements to resolve federal and state criminal matters for fines totaling $12.0 million and compliance measures[135][136][137] - The Company is not meeting minimum volume commitments for gas purchase, gathering, and processing contracts in Oklahoma and East Texas, incurring commitment fees of approximately $0.4 million and $0.6 million, respectively, for Q3 2022[139][140] Note 15. Income Taxes This note explains the company's income tax position, including tax expense, effective tax rates, and valuation allowances - The Company reported no income tax expense for the three and nine months ended September 30, 2022 and 2021, with an effective tax rate of 0% due to recorded valuation allowances[143] - The U.S. Inflation Reduction Act (IRA) enacted in August 2022 did not have a material impact on the Company's current year tax provision[143] Note 16. Southern California Pipeline Incident This note provides a comprehensive update on the Southern California Pipeline Incident, including its financial and legal implications - On October 2, 2021, an oil sheen was observed off the coast of Newport Beach, California, leading to the discovery of a 13-inch pipeline split and displacement, with the U.S. Coast Guard estimating a release of approximately 588 barrels of oil[144][145] - The Company has reached agreements to resolve civil claims for $50.0 million (insurance-funded) and federal/state criminal matters for fines totaling $12.0 million, along with compliance enhancements[135][136][137][152][154][155] - Total estimated costs for the Incident range from $120.0 million to $140.0 million, including response, remediation, fines, and legal fees. The Company expects insurance to cover a material portion of these costs, including $39.6 million in loss of production income (LOPI) proceeds recognized in Q3 2022[155][158][160] 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, highlighting key performance metrics, industry trends, recent developments including the Southern California Pipeline Incident settlements, critical accounting policies, and a detailed analysis of financial results for the three and nine months ended September 30, 2022, compared to 2021. It also discusses Adjusted EBITDA, liquidity, capital resources, and off-balance sheet arrangements Overview This section provides a general description of Amplify Energy's business and operational focus - Amplify Energy operates in a single reportable segment focused on the acquisition, development, exploitation, and production of oil and natural gas properties across various U.S. regions, primarily through its wholly-owned subsidiary OLLC[163] Industry Trends This section discusses the prevailing economic and market conditions impacting the oil and natural gas industry - Global economic activity and demand for oil, natural gas, and NGLs have increased in 2022, leading to higher commodity prices, following the easing of COVID-19 restrictions[164][165] - The company anticipates continued volatility in commodity prices due to factors such as OPEC actions, the Russia-Ukraine conflict, global inventories, inflation, monetary policy, and governmental energy transition policies[165] Recent Developments This section highlights significant events and agreements, particularly concerning the Southern California Pipeline Incident - The company reached an agreement in principle to settle all civil claims related to the Southern California Pipeline Incident for $50.0 million, to be funded by insurance, pending court approval[166] - Amplify Energy resolved federal criminal matters by pleading guilty to one misdemeanor count of negligent oil discharge, agreeing to a $7.1 million fine, four years' probation, $5.8 million reimbursement to agencies, and compliance measures including a new leak detection system[167] - The company also resolved state criminal matters in California by pleading No Contest to six misdemeanor charges, agreeing to a $4.9 million fine and one year of probation with compliance enhancements[168] Business Environment and Operational Focus This section describes the key metrics and strategies used to assess the company's operational performance and revenue generation - The company assesses performance using metrics such as production volumes, realized prices, cash settlements on commodity derivatives, lease operating expense, gathering, processing and transportation costs, general and administrative expense, and Adjusted EBITDA[169] - Revenues are primarily from the sale of natural gas, oil, and NGLs, with commodity derivative contracts used to mitigate price volatility, and changes in fair value of unsettled derivatives recognized in earnings[170] Critical Accounting Policies and Estimates This section outlines the subjective accounting policies and estimates that significantly impact the company's financial reporting - Critical accounting policies and estimates, including those for oil and natural gas reserves, fair value, revenue recognition, and contingencies, are subjective and require professional judgment, with potential for significant impact on financial results due to future revisions[171][172] Results of Operations This section provides a detailed comparative analysis of the company's financial performance over different periods For the Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021 This section analyzes the company's financial performance for the third quarter of 2022 against the same period in 2021 Key Financial Results (in thousands, except per unit amounts) - Three Months Ended Sep 30 | Metric | 2022 | 2021 | Change (YoY) | |:-------|:-----|:-----|:-------------| | Net income (loss) | $47,234 | $(13,470) | +$60,704 | | Oil and natural gas sales | $112,812 | $96,841 | +$15,971 | | Other revenues | $13,487 | $160 | +$13,327 | | Average net production (MBoe/d) | 21.0 | 25.1 | -4.1 | | Average realized sales price (per Boe) | $58.31 | $41.89 | +$16.42 | | Lease operating expense | $32,048 | $34,486 | -$2,438 | | Gathering, processing and transportation | $7,483 | $5,047 | +$2,436 | | Taxes other than income | $9,152 | $6,024 | +$3,128 | | Loss (gain) on commodity derivative instruments | $(3,300) | $46,653 | -$49,953 | | Pipeline incident loss | $2,606 | $0 | +$2,606 | | Pipeline incident settlement | $12,000 | $0 | +$12,000 | | Interest expense, net | $3,974 | $3,078 | +$896 | - Net income significantly improved by $60.7 million, driven by higher commodity prices, $13.3 million in LOPI proceeds, and a $49.9 million favorable swing in commodity derivative instrument performance[177][178][179][183] - Production volumes decreased by 4.1 MBoe/d due to the suspension of operations at Beta properties and natural declines, while average realized sales price per Boe increased by $16.42[178] For the Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021 This section analyzes the company's financial performance for the nine months ended September 30, 2022, against the prior year Key Financial Results (in thousands, except per unit amounts) - Nine Months Ended Sep 30 | Metric | 2022 | 2021 | Change (YoY) | |:-------|:-----|:-----|:-------------| | Net income (loss) | $27,840 | $(67,821) | +$95,661 | | Oil and natural gas sales | $319,562 | $249,510 | +$70,052 | | Other revenues | $39,947 | $353 | +$39,594 | | Average net production (MBoe/d) | 20.6 | 25.0 | -4.4 | | Average realized sales price (per Boe) | $56.76 | $36.51 | +$20.25 | | Lease operating expense | $98,253 | $92,045 | +$6,208 | | Gathering, processing and transportation | $22,774 | $14,676 | +$8,098 | | Taxes other than income | $25,328 | $15,708 | +$9,620 | | Loss (gain) on commodity derivative instruments | $108,675 | $145,139 | -$36,464 | | Pipeline incident loss | $8,278 | $0 | +$8,278 | | Pipeline incident settlement | $12,000 | $0 | +$12,000 | | Interest expense, net | $9,499 | $9,327 | +$172 | - Net income for the nine months ended September 30, 2022, improved by $95.7 million, primarily due to a $70.1 million increase in oil and natural gas sales, $39.6 million in LOPI proceeds, and a $36.5 million reduction in commodity derivative losses[186][187][192] - Lease operating expense increased by $6.2 million, driven by inflation and higher workover expenses, partially offset by reduced costs at Beta properties due to suspended operations[188] Adjusted EBITDA This section presents Adjusted EBITDA as a non-GAAP measure for evaluating operational performance and liquidity - Adjusted EBITDA is a non-GAAP financial measure used to evaluate operating performance and compare results without regard to financing or capital structure, and to measure the ability to meet debt service requirements and fund development[196][197][198] Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:-------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net income (loss) | $47,234 | $(13,470) | $27,840 | $(67,821) | | Adjustments (e.g., Interest expense, DD&A, AROs, derivative losses/gains, pipeline incident items, share-based comp) | $(16,484) | $40,550 | $44,101 | $141,683 | | Adjusted EBITDA | $30,750 | $27,080 | $71,941 | $73,862 | - Adjusted EBITDA for the nine months ended September 30, 2022, was $71.9 million, a slight decrease from $73.9 million in the prior year, reflecting the impact of various operational and non-routine items[200] Liquidity and Capital Resources This section discusses the company's ability to generate and manage cash to meet its financial obligations and fund operations Overview This section summarizes the company's primary sources of liquidity and their expected use for operations and development - The company's primary liquidity sources are cash flows from operations and its Revolving Credit Facility. It expects these to fund normal operations and planned 2022 development activities, but future cash flows are subject to commodity prices and production volumes[202] Impact of the Southern California Pipeline Incident This section addresses the financial and operational uncertainties stemming from the Southern California Pipeline Incident - The Southern California Pipeline Incident creates substantial uncertainty regarding future financial condition and cash flow, with anticipated material revenue reduction from suspended Beta production and no assurance that insurance coverage will fully protect against all liabilities[203] Capital Markets This section outlines the company's approach to accessing public debt and equity markets for future funding needs - The company does not anticipate near-term capital markets activity but will evaluate public debt and equity for future growth projects and acquisitions[204] Hedging This section describes the company's strategy for using derivative instruments to mitigate commodity price volatility - Hedging is a key strategy to reduce cash flow volatility, with a target of covering 50%-60% of estimated production from proved developed producing reserves over a one-to-three-year period, subject to market conditions and counterparty risks[205][206] Capital Expenditures This section details the company's investments in oil and natural gas properties and related infrastructure - Total capital expenditures for the nine months ended September 30, 2022, were approximately $30.3 million, primarily for capital workovers, maintenance, facilities, and non-operated drilling and completion activities in Oklahoma, East Texas, the Rockies, and the Eagle Ford[207] Working Capital This section explains the factors influencing the company's short-term liquidity and its working capital position - Working capital requirements are driven by changes in accounts receivable and payable, influenced by commodity prices, and the classification of debt. The company had a working capital deficit of $48.9 million as of September 30, 2022[207][208] Debt Agreement This section provides details on the company's revolving credit facility and its compliance with debt covenants - The Revolving Credit Facility's borrowing base was reaffirmed at $225.0 million on June 20, 2022, with approximately $20.0 million of available borrowings as of September 30, 2022[209] - The company was in compliance with all financial and non-financial covenants of its Revolving Credit Facility as of September 30, 2022[210] Material Cash Requirements This section outlines the significant future cash outflows for debt, leases, and decommissioning liabilities - Material cash requirements include debt obligations (interest and principal), operating lease payments, and sinking fund payments for decommissioning liabilities related to offshore Southern California properties[211][212] Sinking Fund Payments for Decommissioning Liabilities (in millions) | Period | Amount | |:-------|:-------| | Remaining 2022 | $1.3 | | 2023 | $8.0 | | 2024-2026 (per year) | $15.8 | | Thereafter | $110.5 | Cash Flows from Operating, Investing and Financing Activities This section analyzes the sources and uses of cash across the company's core business, investment, and funding activities Cash Flows (in thousands) - Nine Months Ended Sep 30 | Activity | 2022 | 2021 | |:---------|:-----|:-----| | Net cash provided by operating activities | $49,330 | $55,287 | | Net cash used in investing activities | $(31,553) | $(23,253) | | Net cash used in financing activities | $(25,632) | $(25,054) | - Operating cash flows decreased due to $120.3 million in cash paid on expired commodity derivative instruments in 2022, compared to $50.1 million in 2021[215] - Investing activities saw $31.6 million used, primarily for oil and natural gas properties ($26.2 million) and restricted investments ($5.4 million)[215][216] Off–Balance Sheet Arrangements This section discloses any material off-balance sheet transactions or obligations of the company - As of September 30, 2022, the company had no off-balance sheet arrangements[216] Recently Issued Accounting Pronouncements This section refers to the discussion of new accounting standards and their impact on the financial statements - For a discussion of recent accounting pronouncements, refer to Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements[217] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, Amplify Energy Corp. is not required to provide quantitative and qualitative disclosures about market risk - Amplify Energy Corp. is a smaller reporting company and is exempt from providing quantitative and qualitative disclosures about market risk[218] ITEM 4. CONTROLS AND PROCEDURES This section details the evaluation of Amplify Energy's disclosure controls and procedures, confirming their effectiveness as of September 30, 2022, and notes no material changes in internal control over financial reporting during the most recent quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2022[219] - Despite the ongoing uncertainty of COVID-19, the company believes its internal controls and procedures are functioning as designed and were effective for the most recent quarter[220] - No changes in internal control over financial reporting occurred during the most recent quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[221] PART II—OTHER INFORMATION This part includes additional disclosures not covered in the financial information, such as legal proceedings and risk factors ITEM 1. LEGAL PROCEEDINGS This section refers to the legal proceedings associated with the Southern California Pipeline Incident, as detailed in Note 16 of the financial statements, and emphasizes the inherent uncertainties and potential adverse impacts of litigation - Legal proceedings related to the Southern California Pipeline Incident are discussed in Note 16 of the financial statements[223] - The results of current or future litigation are uncertain and can adversely impact the company due to defense and settlement costs, and diversion of management resources[223] ITEM 1A. RISK FACTORS This section states that the company's business faces numerous risks, with no material changes to the risk factors since those disclosed in its 2021 Form 10-K - The company's business is subject to many risks, and there have been no material changes to the risk factors since those disclosed in its 2021 Form 10-K[224] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section summarizes the company's repurchase activity for common shares during the three months ended September 30, 2022, primarily related to net settlements for tax withholding upon vesting of restricted stock Common Shares Repurchased (Three Months Ended Sep 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | |:-------|:---------------------------------|:-----------------------------| | July 1, 2022 - July 31, 2022 | 2,364 | $6.46 | | August 1, 2022 - August 31, 2022 | — | — | | September 1, 2022 - September 30, 2022 | — | — | - Common shares were generally net-settled by shareholders to cover required withholding tax upon vesting, with the company repurchasing remaining vesting shares at current market price[226] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section states that there were no defaults upon senior securities - There were no defaults upon senior securities[227] ITEM 4. MINE SAFETY DISCLOSURES This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[227] ITEM 5. OTHER INFORMATION This section reports the upcoming resignation of Eric T. Greager from the Board of Directors, effective December 31, 2022, due to a new career opportunity, and the company's search for new independent director candidates - Eric T. Greager will resign as a director, effective December 31, 2022, to become CEO of Baytex Energy Corp., with the Board actively seeking new independent director candidates[228] ITEM 6. EXHIBITS This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, certifications, and XBRL-related documents - Exhibits include the Second Amended and Restated Certificate of Incorporation, Certificate of Amendment, Third Amended and Restated Bylaws, CEO and CFO certifications (31.1, 31.2, 32.1), and Inline XBRL documents[230]