Q4 2019 Earnings Call
[music].
Bill five operating and financial results were released earlier today and are available on amplifies website at Www Dot amplify energy Dot com. During this presentation. All participants will be placed on the listen only mode. Today's call is being recorded a replay of the call will be accessible until Thursday March 19th My.
Link 85559 to do all five six and then it drink conference I'd 64663, or six 309 or by visiting amplifies website Www Dot amplify energy Dot Com I would now like to turn the conference over to Martin well sure.
Senior Vice President and Chief Financial Officer.
If I energy Corp.
[music] good morning, and welcome to the amplify energy conference call to discuss operating and financial results for the fourth quarter of 2019, we appreciate you joining us today.
Ken Mariani ample vice President and Chief Executive Officer begin the call were comments on our fourth quarter operating result, and full year 2020 Garden I.
I will follow with an update on our return of capital programs and our fourth quarter financial results.
First we would like to remind you that some of her remarks may contain forward looking statements are based on certain assumptions and expectations of amplifies management team.
These remarks reflects management's current views regarding future events and are subject to various risks uncertainties and assumption.
Although management believes that the expectations reflected in such forward looking statements are reasonable you can give no assurance that such expectations will prove to be correct and undertakes no obligation and doesn't tend to update these forward looking statements to reflect events or circumstances occurring after this earnings call.
Forward looking statements include but are not limited to our statements about and our discussion hub for year 2020 guidance.
Please refer to our press release, an FCC 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 annual report on form 10-K, which we expect to filed later today.
Also non-GAAP financial measures may be disclosed during this call reconciliations of those measures to comparable GAAP measures maybe found in our press release on our website at Www Dot amplifying energy Dot com. This in mind I will now turn call over it can Mary can.
[music]. Thank you Martin I appreciate everyone joining us today.
Our remarks on this call will provide an update of our operational performance for the fourth quarter year end 2019 proved reserves and God its expectations for full year 2020.
Production for the fourth quarter averaged approximately 29900 Boe per day, which was at the low anymore guidance range, where the quarter.
This result was primarily driven by challenging operations at our barrel field in Wyoming in Oklahoma.
Bairoil startup complications following the plant expansion in unrelated compressor outages materially impacted production in Oklahoma production was impacted by incremental submersible pump failures largely related to weather in Tibet and power outages.
Lease operating expenses in the third quarter were $35.7 million.
Which on a total dollar basis were inline with expectations.
However on a per unit basis amplifies lease operating expense of $12. A 97 cents per BOE. He was slightly above the high end of our guidance range as a result of lower than expected production.
Capital spending for the fourth quarter was approximately $12 million, which was at the high end of our guidance due to additional costs related to the beta capital Workovers New development activity at the company's non operated Eagle Ford assets in the beer or expansions startup.
Earlier today, we announced amplifies 2019 yearend proved reserves of approximately 163 million Boe eat based on flat as he see pricing for crude oil a 55 hours and 69 cents per barrel and natural gas pricing of $2 and 58 per M. B to you.
The reserve mix for proved reserves was approximately 43% crude oil, 18% natural gas liquids in 39% natural gas and approximately 80% of the proved reserves were classified as proved developed.
The FCC PV 10 were Stephen good ice measure for proved reserves was $917 million, which was significantly impacted by price reductions.
Compared to yearend 2018, FCC pricing for crude oil was down 15%.
Natural gas pricing was down 17% and NGL prices were down 40%.
Based on this FCC pricing amplifies year in 2019 proved developed reserves at a PV 10 value of approximately $705 million, which is 63% were $272 million higher than the company's enterprise value of approximately 433 new.
Indoors as of February 20, yet.
Earlier today, we also issued our initial guidance expectations for 2020, including forecast for production pricing differential operating costs in Capex. Our full year 2020 production forecast is for average for your 2020 production ranging from 26300.
The 29700 Boe per day.
As a result of the beer or expansion and the low decline rates of our oral properties. We anticipate that our oil were increased 37% of fourth quarter 2019 production to more than 40% of production by the fourth quarter 2020.
Our capital forecast for full year, 2020 is $40 million to $52 million with the mid point estimate of $46 million. The 2020 capital program includes $22 million for development projects and other capital work overs $14 million for cost reduction initiatives.
Is it $10 million for facilities projects, which are expected to create cost efficiencies in production stability.
Amplifies development capital will primarily be spend in the Eagle Ford amplify has budgeted a 11 million dollar Capex program, which includes drilling and completing 78 gross 1.7 net wells in 2020.
As of yearend 2019 April if I have received proposals for 60 gross 1.3 net well project.
A substantial increase in development activity in this area demonstrates the superior well return potential from able to fight acreage in the core of Karnes County, Texas.
The cost reduction capital.
We'll be spent in Oklahoma, we anticipate spending approximately $14 million for additional rod lift conversions and electric submersible pump optimizations.
Rod lift conversion project initiated in late 2018 has been successful and significantly reducing operating and maintenance costs, which further enhance our margins in the area.
The remaining capital budget will be span across our operated properties at beta they're all in East Texas.
Approximately $10 million, we spent on capital Workover projects to bring offline what was back on production and another $10 million or we spent one facility projects, primarily at beer or one beta.
In East, Texas, we have budgeted an additional $1 million to complete the previously drilled and non operated Viper to Jones, well, which offsets amplifies acreage.
As I look toward 2020, I firmly believe that our proposed capital program is prudent in the current price environment and they cost effective way to maximize production and reduce costs, while also allowing the company to drive shareholder value by continuing to execute on its return of capital in corporate consolidation strategy is.
Several mid stage merger and integration demonstrate the value creation potential of our PDP weighted operating platform and that capturing cost synergies can lead to strong free cash flow generation, despite falling commodity prices.
We strongly believe that recent market events were intensify the push for industry consolidation and with that in mind. We have retained evercore is our financial adviser to pursue accretive consolidation transactions Evercores outstanding team will further positioning amplify to capitalize on consolidation opportunities agenda.
We need additional value for amplify shareholders.
With that in mind I will now turn the call over to Martin to discuss our financial results.
Thank you Ken I'd like to first discuss the update on our dividend policy and a progress we've made on our return of capital programs, followed by an update on our fourth quarter financial result, liquidity and hedge positions.
Amplify paid its quarterly dividend of 20 cents per share approximately $8 million on December 18th to shareholders of record on December 4th.
As announced in our press released earlier today, we decided to reduce our first quarter 2020 dividend to 10 cents per share, which will reduce still provides for an effective dividend yield of approximately 10%, which is among the highest in our industry.
While recent price reductions related to Corona virus induced demand destruction may prove to be transitory. We believe the best course of action. At this time is conservatively managing amplifies balance sheet and liquidity to maximize long term value for our stakeholders. The upcoming quarterly dividend of 10 cents per share will be paid on March thirtyth to shareholders of record out of the close of business.
On March 16th.
Amplify had initiated an open market share repurchase program at the closing of the merger to repurchase up to $25 million on the Companys outstanding shares of common stock as of February 28, the company and repurchased approximately 4.2 million shares of common stock for a total cost of approximately $24.9 million.
Moving onto our fourth quarter results net cash from operating activities was $21 million an hour adjusted EBITDA for the fourth quarter was $27 million, both of which were below expectations due largely due to the production results discussed earlier.
Gionee for the fourth quarter was $8.3 million, which included $1.5 million a transaction severance costs, which were primarily the final onetime adjustment from the midstates merger, excluding the onetime merger related costs and zero point $3 million are noncash compensation expenses fourth quarter cash jumei was $6.5 million.
Well $2.38 per be a week, which was below the midpoint of our guidance.
We had previously anticipated $7 million in recurring cash DNA for the fourth quarter as we finalize the integration of the merger, but we were able to execute on our promise and delivered a $6.5 million run rate for DNA, one quarter earlier than projected.
Due to additional cost reduction initiatives, we believe that after expected first quarter 2020, Kashi nay of approximately $6.5 million, we will be able to reduce cashing nature approximately $6.1 million per quarter for the remainder of 2020.
Free cash flow, which we defined as adjusted EBITDA less capex and cash interest expense was approximately $11 million for the fourth quarter, which was below the low end of our guidance range.
This was driven by a previously discussed operating results, coupled with slightly higher than forecasted capital expenditures.
As of February 28, 2020, amplify had total debt of $280 million under its revolving credit facility. When the current borrowing base of $450 million amplifiers liquidity was $176 million consisting of $6 million of cash on hand, and available borrowing capacity of $170 million.
Our next regularly scheduled Redetermination is expected in April 2020, and at this time, we are forecasting a decrease in our borrowing base due to material reductions and bank price forecasts. However, despite this anticipated decreased amplify will maintain sufficient liquidity moving forward and we will continue to generate incremental free cash flow that will reduce.
Our outstanding borrowings.
Moving onto our latest hedge positions.
Since our last earnings call amplifies Opportunistically added to our hedge positions on crude and natural gas. These positions allow us to lock in a certain percentage of our future cash flows while also allowing us to benefit from the upside and mitigating exposure to the downside.
Across commodities were approximately 61% hedged in 2020 based on our full year 2020 midpoint guidance production of 28000 Boe per day on oil specifically, we are 77% hedged at attractive pricing relative to our oil production guidance midpoint of 10950 barrels per day.
As of February 28, our hedge mark to market value was a net gain position of $58 million amplifies fourth quarter 2019 hedge presentation contains additional detailed in our current positions I was posted on our website earlier today under the Investor Relations section.
During a period of significant market turbulence amplify is taking proactive steps are maintained its commitment to our shareholders by prioritizing balance sheet stability and reducing risk.
As we continue to weather market headwinds, we consider the dividend reduction and lower capital budget to be a prudent and conservative response.
While these steps will help we have also intensified our efforts to identify additional cost savings opportunities, which will further boost the free cash flow profile of the company during this challenging environment.
This formally conclude our prepared remarks for this morning's call. We would now like to invite analysts and investors are asking questions I have for the management team operator. Please open the line for any questions.
At this time I would like to remind everyone to if he would like to ask a question two questions. One on your telephone keypad now again that star one for any questions well pause for just a moment to can buy all the key Wendy roster.
The first question will come from Jeff Grampp with Northland Capital. Please go ahead.
Good morning, guys.
Hi, good morning, Jeff.
Was wondering first Oh.
I'll start on the dividend fraud, and obviously appreciate where you guys are coming from and maintaining the balance sheet integrity, but.
It's really wanted to focus on on kind of two specific topics within evaluating how how you guys kind of thinking about the dividend. After this 10% right that that you're looking at at least for this first quarter can you guys. Just talk maybe high level, how how comfortable are you I guess with kind of maintaining or seeing maybe even leverage creep up to maintain or.
Improved that dividend or leverage reduction something that you guys would prioritize over getting that dividend backup after towards that 20 cents a quarter.
Right and then kind of a related topic. If you guys have given any consideration internally or at the board level to more of a maybe a fixed plus variable type of strategy in terms of the dividend whereby.
I have a more sustainable dividend rate, then maybe use kind of periods of cash will outperformance to layer on a variable component.
Jeff I'll take that obviously, we we had long discussions about the dividend and whether we felt we should maintain the 20 cents dividend or be a little bit more conservative in cutting it back down to the 10 cents. Obviously, we're in a period of a lot lot of uncertainty with where.
And what's happening globally on supply chains and the demand destruction.
While we just could rebound quickly we also realize it sometimes these things can take a long time to play out and we want to make sure that our balance sheet and our leverage remains at a reasonable level and so we just took a proactive what we thought was a reasonable step to kind of balance the to leverage liquidity while also.
Maintaining our commitment to return capital to shareholders. So really it was a combination of all of them and really just not wanting.
And you take additional risk during a period of increased uncertainty.
Jeff This is Ken I'll, just add to that you know our dividend decisions are made on a quarterly basis by the board and obviously, we have a lot of robust discussions centered around you know company performance external factors et cetera, et cetera, So everything's on the table on a quarterly basis.
So to Martin's points, you never want to get ahead of your skis and make short term decisions that have significant long term implications, but I wish you are you. The board is along with the management team monitors the situation closely and our next.
Quarterly discussion regarding the dividend down again everything will be on the table.
Got it appreciate those comments then my follow up on the operational side.
How should we think about kind of the ramp progressing for bairoil given.
That's a little bit of a slower start that you saw in the fourth quarter can you kind of maybe give us a little bit more sense of maybe what's baked into the first quarter guide in terms of kind of incremental production from that field and how you guys are maybe seeing that ramp play out over the remainder of the or.
Yes, great question.
Jeff, we basically deferred that ramp about three months.
Still very excited about the project.
As you can imagine it was a very large complex project.
It had some loan.
Startup complications some of which we anticipated some which we didn't and just as importantly, while we were going live with the expansion some of our legacy compressors had some unexpected them outages that we were able to overhaul we revamped doing to startup common frame so basically.
These waterfloods coty floods, it's not like flipping a switch once you get everything lined up.
There is a delay and seeing the benefits of your work at the wellhead and so to be specific with your question. We're forecasting a three month lag.
In our initial forecast, but our expectations have not changed with regards to peak rates ultimate benefits ultimate recoveries et cetera, et cetera, and we're still real excited about the project.
With the exception to the three three months' delay.
Did I answer that question.
That's perfect I'll, let someone else up on I appreciate it.
Thank you.
Once again, if he would like to ask your question. Please press star one again that star one for any questions over the phone line.
The next question will come from John White with Roth Capital. Please go ahead.
Good morning.
Hi, I caught your hedge position on oil at 77%, but I missed your hedge percentage on a BLE basis.
Hey, John This is Martin more part about approximately 61% hedged across commodities service, including that's gas and Ngls choose a component so were between 40 and 50% hedged on gas and NGL would be the rest obviously hedged on oil.
Thank you.
And again on the.
[noise] dividend.
In fourth quarter.
Funny 19 admittedly with.
Higher commodity prices.
I had modeled a dividend coverage for 2020.
1.7 times.
Free cash flow divided by the dividend and I've.
Pretty well updated mine numbers this morning.
With your new Capex in your new dividend.
And to dollar gas and and.
$50 oil.
And I see about 2.4 times dividend coverage so.
It looks like.
Your.
Being more conservative.
At this point in time with dividend coverage than you were in.
The fourth quarter and.
If you could comment on that in and given.
The 2.4 times coverage.
What are your expect if commodity prices stay flat.
What are your expectations on maybe increasing the dividend later this year.
Hey, John This is Martin again no wave.
We obviously look at some of those same metrics and no. It's a it's a balancing between obviously when you're when you're looking at $47 oil and $1.80 gas and were looking at where that strip could go over the course of the year, we are being a little conservative but at the same time, we want to.
Make sure. This is a a long you know a long term decision here regards to maintaining a dividend for our shareholders and we will obviously look at potentially raising it back up at prices come back to a more reasonable level, but what you're seeing obviously with the coverage as well as obviously meant wanting to make.
Chain leverage and with overall EBITDA dropping due to the price drop we want to make sure that we're managing our leverage profile adequately as well as well as maintaining that free cash flow cushion that you're referring to.
Okay. Thanks very much.
Next question is a follow up from Jeff Grampp with Northland Capital. Please go ahead.
Hey, guys. Just just one more quick follow up on the capital side is it fair to conclude.
That.
Capital programs, maybe a little bit more.
Brazil answer kind of locked in a relative to commodity price fluctuations and I guess I'm just kind of thinking since a lot of the capital is more kind of non DNC related and and a lot more driven on kind of optimizing efficiencies and cost structure that is maybe not necessarily dictated by what the front end of the curve is necessarily moving up and up or down.
On it that is that a fair conclusion or and if not can you guys just talk about the level of flexibility in that program.
Hey, Jeff This is Ken I'll take that question. When you look at our our guidance of $46 million. We already you can break that up into four buckets. One bucket is what we call discretionary and its related to drilling and completions and obviously 12 million of the 46 million is focused in the Eagle Ford in our non up because.
In addition, we have in Karnes County, and these are some just very superior well economics that makes sense.
Even at $47 oil they have very attractive returns so taking that aside we have a a another bucket of capital what we call cost reduction initiatives, that's predominantly related to our Mississippi lime position, where we're replacing submersible pumps, which were with Rod love Rod lift.
Installations.
What happens there is you have a significant savings cost savings with regards to par and electricity. In addition to that we mentioned in our fourth quarter, we had weather in power related issues in Mississippi lime that affected a lot of our operations.
That impact from weather in power outages is much reduced when you have rod this <unk> rod lift installations versus submersible pumps. So again that initiative is independent of commodity price, it's related to cost savings and making or operations more resilient.
Relative to weather in power outages and then third is what we call you know just when well was go down you know good wells go down we look at him on a case by case basis, we want to return those good wells back to production and again I'm such a typical example might be a submersible pump.
Don and down we run the economics I'm at the current strip and it makes economic sense to return that went into production and often times that may include down you know purchasing a new submersible pump or larger pump. So again that is evaluated on a case by case basis and again its related.
To our existing production versus new production.
And then the last bucket is just basic facility expense.
Expenditures to maintain our patients so long that was a long winded answer but to answer your question a chunk of the money is related to great well economics in the Eagle Ford that makes sense, even at current prices and the rest of the three buckets I am detailed are basically independent of oil.
Prices.
We're on the cost saving side or replacing returning wells to production.
Got it understood I appreciate again, thank you.
There no further questions at this time I would like to turn the conference back over to manage my for any closing comments.
Thank you again for joining us today I want to thank our employees were making 2019, a transformative year successfully integrating all the midstates assets in operations within 90 days, while also delivering annual cost savings of more than $22 million for shareholders was an outstanding accomplishments for team although the old.
Overall environment presents many challenges we remain focused on executing our strategy of free cash flow generation and are ready to execute on a new new consolidation opportunities. We believe this platform will create long term value for investors and we appreciate your support as we move forward.
This completes our earnings conference call today, and as always please don't hesitate to reach out to us with any additional questions. Thank you.
Ladies and gentlemen, thank you for participating in today's conference you may now disconnect.