Q1 2020 Earnings Call

Welcome to amplify Energy's first quarter Twentytwenty Investor Conference call.

<unk> operating and financial results were released earlier today and are available on amplifies website.

Www dot amplify energy Dot com.

During this presentation, all participants will be placed any listen only mode.

Today's call is being recorded.

A replay of the call will be accessible until Thursday may 20 is by dialing 855.

Fivenine to 056, and then entering conference I'd number 7947 106.

Visiting amplifies website.

W. W dog amplify energy Dot com.

I would now like turn the conference Overdrive, Erin Willis Senior Vice President and General Counsel.

Amplifying Energy Corporation.

Good morning, and welcome to the M. fight Energy conference call to discuss operating and financial results first quarter of 2020.

I appreciate you joining us today Martin will sure amplifies interim Chief Executive Officer in Chief Financial Officer will lead the call with comments on our first quarter results.

What do you enhancing initiatives before concluding comments about our liquidity hedge positions in operation outlook.

We'd like to remind you that some of our remarks may contain forward looking statements are based on certain assumptions and expectations of amplifies the management team.

These remark reflect management's current views with regard to future events and are subject to various risks uncertainties assumptions, although management believes that the expectations reflected in such forward looking statements are reasonable you can give no assurance that such expectations, what could be correct undertakes no obligation and does not intend to update these four.

<unk> looking statements to reflect events or circumstances occurring after this earnings call.

Please refer to our press release NFCC 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 in the ports.

For additional detailed disclosure we encourage you to read our quarterly report on form 10-Q, what you expect to file 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, we're on our website at www dot and by energy Dotcom with this in mind I will now turn the call over to Martin will Usher Martin.

Thank you Eric and thank you to all of our stakeholders for joining US today last few months had been difficult not only for those of us any oil and gas sector, but also for the global community due to the profound impact or the covert 19 pandemic.

Got it mind I would first like to discuss our most important resource our people.

Thanks in no small part to the excellent procedures and initiatives enacted by all field and office stuff I'm extremely pleased to be able to say that at this time, we've had zero amplify employees or contractors test positive for covered my team not only that we have maintained our strong safety standards with zero lost time accidents and due to the engineer.

Already in the flexibility of our operating teams. We've also had zero operational downtime due to covert 19.

This is a tremendous testament to the people in this company and I Express my appreciation to all of them for their sacrifices and strength during this time.

My remaining remarks will provide an update on our performance in the first quarter, along with providing additional details our recent liquidity enhancement initiatives and hedge program before concluding with comments on our operational outlook.

Production for the first quarter average approximately 29700 beer, we per day or two at the high end of our guidance range for the quarter. This performance was due to strong results across all of our operated areas, including barrel, which produced steadily following startup challenges in connection with the expansion project in the early part of January in addition, Ms.

So they realize production stabilized following an enhanced targeted workover program during the quarter, what's your stance really reduce the backlog of offline wells from the fourth quarter.

The other operated areas, including East, Texas, and California produced at or better than forecasted levels.

Lease operating expenses in the first quarter were $35.7 million or $13.23 per be are we which was below the midpoint of our guidance range. This result was primarily due to better than expected production.

Capital spending for the first quarter was approximately $15 million, which was below the guidance midpoint of $16 million.

First quarter capital spending was primarily focused on the Mississippi lime and Eagle Ford in the Mississippi Lime area, we spent $5.4 million related to rod lift conversions and the S.P. replacement.

In the Eagle Ford five main was incurred for non operated drilling and completion activity, which primarily occurred prior to the commodity price collapse in mid March the remainder of our first quarter capital were spent to selectively to maintain facilities and equipment as well as delivering high rate of return workover projects.

Gee and eight for the first quarter was $8.3 million, which was in line with our fourth quarter and you're going to expenses and included a zero point $5 million, a transaction costs, and a reversal or zero point $9 million of year and stock compensation.

Due to a onetime increase in employee cash costs, along with some frontloaded benefit legal and I T related costs amplifies first quarter Kashi and he was $8.7 million running per unit basis $3. A 21 cents premier. We however, as a result of our cost reduction initiatives and the tapering or front loaded costs.

We consider our first quarter DNA to be significant outlier.

We currently expect cash DNA to be approximately $6 million into second quarter before falling to approximately five and a half million dollars in the third quarter and thereafter.

First quarter, adjusted EBITDA and free cash flow, which we define as adjusted EBITDA less capex and cash interest expense was approximately $17 million and negative $2 million, respectively. The negative free cash flow was primarily driven by our capital spending in the first quarter, which was committed to prior to the downturn of the oil market.

Before moving on from our first quarter results I would like to also mentioned the noncash asset impairment that drove our net loss for the quarter due to the substantial decrease in commodity prices during the first quarter amplify incur a noncash property impairment charges of $455 million. This included impairments of amplifies operated East Texas.

Beta and barrel field as well as leasehold acreage in Oklahoma that is unlikely to be developed prior to lease expiration based on current commodity prices now I'd like to share with you our liquidity enhancement initiatives. The amplified team has been working on in response to the changing economic backdrop.

During this period of uncertainty an unprecedented low commodity prices amplify has made significant progress executing many liquidity enhancement initiatives to better position. The company through this market downturn. This campaign includes material increases in operating and gene expenses.

Substantial reductions to capital programs the monetization of a portion of the company's 2021 crude oil hedges.

The receipt of loan proceeds from the federal governments Paycheck protection program beta royalty relief and the suspension of the quarterly dividend.

First operating costs and corporate overhead reductions the amplify team performed a bottom up or valuation to identify cost saving opportunities and then implemented numerous cost reduction projects that will meaningfully reduce elouise and gionee. The company has worked closely with its vendors to decrease costs associated with supplies and services.

But you are forecasted to generate approximately $18 million available savings.

Additionally, as I mentioned earlier the company is expect to deliver at least two and a half million dollars an annual savings for reduce cashier expenses.

I expect that these savings will be partially realized in the second quarter and then fully realized by the third quarter 2020.

Working capital reductions, we've reduced the capital budget for 2020 by 41% permanent initial estimate of $46 million. So the latest estimate of $27 million.

Amplifies remaining capital expenditure budget of approximately $12 million for 2020, this focused largely on maintenance capital projects, which are essential to equipment integrity and operational efficiency and onto select high rate of return Workover projects.

Third our hedge monetization.

Part of our liquidity enhancement strategy amplifiers recently monetize nearly a million barrels a 2021 crude oil swaps for total cash proceeds of approximately $18 million.

This transaction provided immediate cash flow benefits, but also provides additional times for commodity price recovery as we consider our hedge strategy moving forward.

Sure on April 24, 2020, the company received a 5.5 million dollar loan under the Paycheck Protection program. This program was established a part of the cares act to provide loans to qualifying businesses, the loans and accrued interest or forgivable. After eight weeks provided that the borrower uses a loan proceeds for eligible purposes at this time.

The company anticipates that a substantial majority of the loan proceeds will be forgiven under this program.

Fifth better field Roche relief due to the recent reduction in oil prices amplify expects to qualify for statutory royalty relief at its beta field in the third quarter 2020 subject to standard review by the Eureste Bureau safety environmental enforcement once approved amplifies royalty rate have beta will decrease by 50% resulting in.

Increased production of approximately 500 barrels per day, which equates to additional revenue of approximately $5 million annually, assuming a $30 per barrel W.G.I. price.

Finally, the suspension of our quarterly dividend program.

Given the volatile environment and significant uncertainty in the price of oil amplifies board of directors have decided to suspend the quarterly dividend program until further notice. This dividend suspension resulted in approximately $15 million per year and retain cash based on a quarterly dividend rate of 10 cents per share, which will further improve the company's liquidity.

Collectively due to improvements in operating cost and Gionee royalty relief of beta and the suspension of the dividend. The total amount of recurring annual cash flow permanent is approximately $40 million. In addition him to fly has effectively at $42.5 million of additional liquidity from capital reductions hedge monetizations and the.

Paycheck protection program.

Combined this is over $80 million on liquidity enhancement that will help the company, whether this extraordinary downturn and capitalize on the recovery in both commodity prices and the global economy.

Moving onto our current liquidity position as of May 1st 2020, amplify had total debt of $290 million under its revolving credit facility with a current borrowing base a $450 million amplifies liquidity was $187 million consisting of $27 million of cash on hand and available borrowing capacity of one.

Good and $60 million.

Amplify spring 2020 borrowing base Redetermination process has been delayed relative to prior years due to the substantial change in commodity prices.

But we've utilized this time to increase near term liquidity and future free cash flow, while we expect a decrease in our borrowing base to your lower bank price decks. We continue to work collaboratively with the banks and expect that this process will be completed later in the second quarter.

Moving onto our latest hedge position since our last earnings call in March amplifies editorial hedge positions in natural gas or 2021 inclusive of the new gas hedges the company's over 90% hedge on gas and 2021 based on amplifies 2019 year and reserve report forecast with half the hedge is being swaps and the other half being costless collars.

These positions allow us to lock in a certain percentage of our future cash flows while also allowing us to benefit from upside opportunities and mitigating downside risk.

As of May 1st our hedge mark to market value was a net asset position of $77 million. Furthermore, as compared to amplifies 2019 year and reserve report amplifiers hedge more than 90% of second quarter 2020 crude volumes and more than 80% of crude volumes for the remainder of 2020. These crude hedges will provide significant.

Value and security to our shareholders during the lowest point on the oil price curve.

Five first quarter 2020 hedge presentation contains additional details in our current positions I must posted on our website earlier today under the Investor Relations section.

After delivering strong production in the first quarter amplify like most operators spaces uncertainty in this low demand and tight storage capacity environment. At this time amplifies only identify production limitation is an expected 30% curtailment of the company's non operated Eagle Ford production as of April 1st 2020.

Due to planned capacity limitations.

In addition, the company's barrel plant well conducted regularly scheduled annual turnaround in the second quarter, 2020, which will temporarily reduced crude volumes in that area.

Given these two situations and provide currently does not anticipate any material curtailments or shut ins across its properties.

While we believe we are likely to continue producing through the current period access to markets for our products may change at any time due to capacity limitations for gathering and transportation systems for end users due to this and the uncertainty regarding the full impact of cobot 19 on a broader Europe's economy, we're withdrawing the for year 2020 guidance issued on March five 2012.

Management and the board will reassess the physician in future periods based on the macroeconomic recovery as well as our ability to raise a we provide an outlook for an investors.

The first quarter was a challenging period due to covert 19, and its devastating impact on global economies and all demand. However, despite market headwinds amplifies continuing to take proactive steps to maintain balance sheets stability and improve our liquidity position, we consider our $80 million liquidity enhancement campaign to be a strong start.

And we will continue to look at additional options to protect the balance sheet. During this historic downturn.

Before concluding.

I would like to again, thank our employees for their professionalism and commitment as we continue to operate our business in a safe and environmentally responsible manner through these difficult times.

Thank you for joining us today and as always please do not hesitate to reach out to us with any additional questions.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

[music].