Amplify Energy Corp. (NYSE:AMPY) Q3 2023 Earnings Call Transcript

Amplify Energy Corp. (NYSE:AMPY) Q3 2023 Earnings Call Transcript November 7, 2023

Operator: Welcome to Amplify Energy’s Third Quarter 2023 Investor Conference Call. Amplify’s operating and financial results were released yesterday after market close on November 6, 2023 and are available on Amplify’s website at www.amplifyenergy.com. [Operator Instructions] Today’s call is recorded. [Operator Instructions] I would now like to turn the conference call over to Jim Frew, Senior Vice President and Chief Financial Officer of Amplify Energy Corp.

Jim Frew: Good morning, and welcome to the Amplify Energy conference call to discuss operating and financial results for the third quarter of 2023. Before we get started, we would like to remind you that some of our remarks may contain forward-looking statements, which reflect management’s current views of future events and are subject to various risks, uncertainties, expectations and assumptions. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurances that such expectations will prove to be correct and undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this earnings call.

Please refer to our press release and SEC filings for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. In addition, the unaudited financial information that will be highlighted here is derived from our internal financial books, records and reports. For additional detailed disclosure, we encourage you to read our Form 10-Q, which was filed yesterday afternoon. Also, non-GAAP financial measures may be disclosed during this call. Reconciliations of those measures to comparable GAAP measures may be found in our earnings release or on our website at www.amplifyenergy.com. During the call, Martyn Willsher Amplify’s President and Chief Executive Officer, will provide an update regarding our strategic initiatives, our third quarter performance and an update on our sustainability efforts.

Next, Dan Furbee, Senior Vice President and Chief Operating Officer, will provide an overview of third quarter operational performance. Following that, I will discuss third quarter financial results, provide an update on our balance sheet and liquidity and provide additional details on our hedge book. Finally, Martyn will provide final thoughts before opening the call up for questions. With that, I hand it over to Martyn.

Martyn Willsher: Thank you, Jim. The restart of operations at beta and substantial reduction in debt outstanding have positioned Amplify to evaluate strategic opportunities focused on enhancing shareholder value. We are pleased to announce several near-term strategic initiatives in more detail today. First, the company has hired an investment banking firm to pursue monetization of our oil-producing assets in Bairoil, Wyoming. We are exploring a complete divestiture of the asset while also considering alternative structures with the goal of maximizing value for our shareholders. The marketing process will commence in the first quarter of 2024. Second, at beta, we have conducted an in-depth technical review of the undeveloped potential in the field and we’ll recommence the development program in the first half of 2024.

See also 15 Biggest Tea Producing Countries In The World and 20 Best Chocolate Brands in the World.

Q&A Session

Economics at current oil pricing are extremely attractive with IRRs well in excess of 100% for wells that can be drilled and completed for approximately $5 million to $6 million. The low variable cost nature of this asset allows us to add production with marginal increases in operating cost greatly enhancing the profitability of the field. We expect the development program, combined with cost savings initiatives outlined on prior calls and the low decline nature of wells in this heavy oil reservoir to profitably extend the life of the asset. Lastly, we’ve also created a wholly owned subsidiary, Magnify Energy Services, which will provide a variety of oilfield services to amplify operated wells. Beginning in East Texas and Oklahoma, Magnify is providing compression, well testing and other well maintenance services.

Over time, we may expand Magnify’s capabilities into other service lines and operating areas. Magnify will improve the company’s profitability by providing services at lower cost than current alternatives while allowing the company to have greater access to and control over these critical services. We look forward to executing these strategic initiatives which could further reduce leverage and potentially accelerate Amplify’s ability to return capital to shareholders. Amplify’s third quarter operational and financial results were in line with internal projections including the impact of the planned Bairoil turnaround in September. Since restarting operations of beta in late April, production volumes have continued to exceed initial projections and the wells brought back online have experienced fewer complications than expected.

As a result, production is higher and comps are lower than initially anticipated. In the third quarter, the company generated adjusted EBITDA of $19.5 million and free cash flow of $6.1 million. Yesterday, Amplify issued its inaugural sustainability report, which provides increased transparency to our stakeholders regarding our business and operating practices. This report details our safety feeders, environmental performance efforts to enhance the long-term sustainability of our business and dedication to sound corporate governance. We are committed to continuing to improve our disclosures and to providing updates on our sustainability milestones. With that, I will now turn it over to Dan to discuss operational highlights from the quarter.

Dan Furbee: Thank you, Martyn. Total production for the quarter averaged approximately 20,600 barrels of oil equivalent per day consisting of 38% oil, 18% NGLs and 44% natural gas. As expected, third quarter production at Bairoil was impacted by our planned turnaround where the field was shut in for 10 days to perform maintenance and facility improvements. In addition to the turnaround, a significant class flooding that impacted production and operation for several days. At beta, we accelerated our electrification project to utilize more onshore power from the local electric utility. Installation of the upgrades required intermittent production interruptions during the quarter. For the fourth quarter, we expect higher production as Bairoil volumes returned to pre-turnaround levels and beta production continues to increase.

Current production rates at Beta are back to pre-shutdown levels with additional wells scheduled to be returned to production. We anticipate having higher gross production rates compared to the pre shutdown period before effects of new development drilling planned for 2024. Effective well treatments, including asset stimulation jobs utilized a coiled tubing units are generating higher production rates as we return well to production. For the third quarter, lease operating expenses were $37.1 million. Gathering, processing and transition costs were $5 million and production taxes were $4.9 million. In total, these costs were approximately $1.8 million higher than the previous quarter, partly offset by approximately $225,000 of income generated by Magnify Heritage services.

The increase was driven by expenses related to the restart of Beta and the Bairoil flooding event. We expect to reduce operating expenses in the coming quarters as our cost-saving initiatives start to take effect. Some of these initiatives include electrifying a significant portion of the beta platforms to reduce diesel usage, the insulation of selective catalytic reducers at beta to eliminate mission credit purchases converting wells to more efficient artificial lift method in Oklahoma and continuing to scale Magnify to provide additional in-source compressors and services. The company’s total capital investment for the quarter was approximately $9.7 million. The majority of this capital was invested in the facility upgrade beta related to the electrification of the platforms and the planned facility turnaround at Bairoil.

which will improve efficiency of the assets. Capital investments for the remainder of 2023 will focus primarily on the continuation of facility projects and additional capital workovers that data. With that, I will turn it over to Jim.

Jim Frew: Thank you, Dan. I would now like to discuss third quarter financial performance, balance sheet and liquidity and hedging. With respect to third quarter financial performance, the company reported a net loss of approximately $13.4 million compared to $9.8 million of net income in the prior quarter. The decrease was primarily attributable to noncash unrealized losses on commodity derivatives from rising commodity prices during the period. As Martyn previously mentioned, third quarter adjusted EBITDA was $19.5 million, up $1.9 million from the prior quarter. The quarter-over-quarter increase in adjusted EBITDA was primarily due to higher commodity prices. Looking forward, we are reaffirming our guidance range of $80 million to $100 million of adjusted EBITDA for 2023.

With respect to costs, third quarter lease operating expenses were up $2.2 million versus the prior quarter. On a per BOE basis, we were up 6% compared to the prior quarter. Year-to-date, LOE has averaged $18.84 per BOE, which is in line with our guidance. As Dan mentioned, we think there are several opportunities to reduce LOE and the company is actively pursuing those initiatives. Comparing the third quarter to second quarter, gathering, transportation and processing costs were 3% lower, while production taxes were 5% lower on a per BOE basis. Cash G&A in the third quarter was $6.5 million, which was up $0.3 million from the prior quarter and in line with expectations. We expect cash G&A to remain flat in the fourth quarter. In the third quarter, we incurred $4.5 million of interest expense, up $0.8 million compared to the prior quarter, primarily due to writing off $0.7 million associated with the prior credit facility.

Free cash flow defined as adjusted EBITDA less CapEx and cash interest expense, was $6.1 million in the third quarter of 2023 and was in line with expectations. Amplify has generated positive free cash flow in 9 of the last 10 quarters, illustrating our strong sustainable cash generating potential. Cumulatively to the third quarter, Amplify has generated $23.6 million of free cash flow. Similar to adjusted EBITDA, we are reaffirming our full year free cash flow guidance of $30 million to $50 million. On October 19, 2023, we completed the regularly scheduled semiannual redetermination of our borrowing base, which was reaffirmed at $150 million with elected commitments of $135 million. The next redetermination is expected to occur in the second quarter of 2024.