Q4 2020 Amplify Energy Corp Earnings Call
Welcome to amplify energy fourth quarter, 'twenty, and 'twenty Investor Conference call amplify.
And besides operating and financial results were released earlier today and are available on amplifies the website at www.
Dot amplify energy Dotcom during this conference call all participants will be placed on listen only mode. Today's call is being recorded a replay of the call will be accessible until Thursday March 25th.
By Dialling 855859 choose the rose five six and entering conference I'd number three seven and three 169 or by visiting amplifies web site at Www Dot amplify energy Dot Com I would now like to turn the conference call over to Jason Mcglynn, Senior Vice President and Chief.
The officer of amplify Energy Corp.
Okay.
Good morning, and welcome to the amplify energy conference call to discuss the operating and financial results for the fourth quarter of 2020 joining me on the call today is Martin Wilshere amplifies, the President and Chief Executive Officer before we get started and we'd like to remind you that some of our remarks may contain forward looking statements, which reflect management's current.
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 assurance 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 our SEC filings for a list of factors that may cause actual results to differ materially from those and the forward looking statements made during this call. In addition, the unaudited financial information that will be highlighted here is derived from our internal finance.
Books Records and reports for additional detailed disclosure and we encourage you to read our form 10-K, which we expect to file later today and also non-GAAP financial measures may be disclosed during this call and reconciliation of those measures to comparable GAAP measures may be found in our earnings release or on our website at www.
Dot amplify energy Dot com with that I'll now turn the call over to Martin.
Thank you Jason during the call I will provide comments on our fourth quarter operating results year end, 2020 proved reserves and guidance expectations for full year 2021.
I'll, then turn the call over to Jason to provide additional details on our financial performance 2021 guidance hedging program liquidity position and balance sheet. Following our prepared remarks, we will take questions and I will conclude with closing remarks.
Production for the fourth quarter exceeded and internal forecast, averaging approximately 26003 hundred and Boe's per day, and 5% decrease from 27007 hundred Boe per day, and the third quarter of 2020. The decrease in production was primarily the result of projected and natural decline and reduce capital workover activity during the quarter.
Fourth quarter, adjusted EBITDA was approximately $21 $9 million, which was above internal projections and this represents a decline of $2 $9 million quarter over quarter and was principally associated with production declines partially offset by improved operating margins due to higher commodity prices during the quarter.
Capital spending for the fourth quarter was approximately $2 $2 million, a decrease of $2 $8 million from $5 million and the third quarter and was largely attributable to reduced capital workover activity.
Amplify the full year capital spending for 2000, and 'twenty was approximately $29 million with only $14 million spent after the first quarter that reduced capex demonstrates the flexibility of managing and mature low decline assets through commodity cycles.
Free cash flow defined as adjusted EBITDA less capex and cash interest expense was approximately $16 million and the fourth quarter and the remained flat from the prior quarter. Despite the reduced production.
Amplifies focus on maintaining a strong free cash flow profile was realized through the prudent deployment of capital to the highest return projects relentless attention to operating efficiencies and commitment to controlling costs.
And as a result, the company achieved its strongest year and operating cost reduction since inception.
Earlier today, we announced amplifies 2020 year end proved reserves estimates of approximately 114 M. P O where the PV 10 value of $298 million based on the SEC pricing of $39.57 per barrel of crude oil and of dollar and 99 cents per M. N V to you for natural gas compared to year end 2019.
The SEC pricing for crude oil was down 29% and natural gas pricing was down 23% the product mix for our proved reserves of approximately 41% crude oil, 19% natural gas liquids and 40% natural gas and approximately 85% of the proved reserves classified as proved developed.
While year end 2020 SCC reserve pricing is a stark reminder of the dramatic impact COVID-19 had on commodity prices and 2020 does not reflect the value of all of our reserves and the current commodity pricing environment utilizing strip pricing as of March 1st 2020, one and the Companys year end 2020 proved reserves increased to approximately 160 and M D.
With the PV 10 of $778 million of which of 118 F. N B R E and $594 million of PV 10 value is classified as proved developed reserves.
Additionally, we've now provided our guidance expectations for full year, 2020 one.
Our four year 2020, one average daily production forecast ranges from 23000 to 25000 Boe per day.
As a result of the low decline rates of our mature oil properties, we anticipate that our product mix will continue to become increasingly more oil weighted over time, and we anticipate on production in 2020, one to be approximately 42% oil and 16% Ngls and 42% of natural gas.
Our capex forecast for the year is $28 million to $39 million, which includes approximately $16 million for development projects of beta and and the Eagle Ford and approximately $18 million and facilities and capital Workover projects ample.
Amplify of development capital primarily to beat the pointed our beta field or a bunch of approximately $10 million commenced a limited phased development program 20.
On the asset with minimal incremental operating costs the.
Date of reservoir features six separate stack of their own estimate the hold of approximately 1 billion barrels of high density original oil in place with only 11% recovered to date.
The initial phase of our development program includes the cased hole re completion and two sidetrack of existing wells that will target longer completion intervals and betas most prolific reservoir zones.
We view the phase in nature of the program as the means of Derisking and more expensive the about my program and the future that has the potential to unlock substantial economic value. While also bolstering the company's free cash flow profile and increasing margins.
The development work of Veda is scheduled to begin in the second half of 2021, where the full impact of the program largely realized and our 2020. Two result is also important to note that at this time, we do not anticipate any impact of our short term or long term development plans of beta based on the current regulatory environment.
In addition to beta we expect to incur approximately $6 million of additional development capital to participate and the completion of approximately 1.2 net non operated dogs and the Eagle Ford roughly $3 million of the budgeted capital was prepaid and the fourth quarter of 2020, but will be reflected and our 2021 financials the.
The remainder of our capital budget will be deployed across all of our asset areas and will focus on our strongest return projects, we anticipate spending approximately $8 million and Oklahoma for additional rod lift conversions and E. S. P optimization.
The Rod lift conversion project initiated in late 2018 has been successful and significantly reducing operating expenditures and recurring maintenance costs.
Lastly, the company's budget of approximately $10 million in 2020, one for facility work and capital Workovers at barrel Beta and East Texas.
Our 'twenty 'twenty result, demonstrate the sustainable value of our mature PDP weighted operating platform the company's operational adaptability and efficiency, coupled with a robust hedging program led to strong free cash flow generation, even in a volatile commodity price environment.
And with an improving market outlook, we will maintain our commitment to improving our balance sheet and driving equity value for our stakeholders to that and we intend to file a shelf registration statement and in order to access the capital markets and provide additional flexibility when evaluating potential transaction opportunities if they arise.
And this in mind I'll now turn the call over to Jason.
Thank you Martin I'll first provide details on the company's fourth quarter production and expenses I'll, then provide an update on our balance sheet and finish up with the discussion on our 2021 guidance numbers and the hedge book.
And as previously mentioned production for the fourth quarter average approximately 26300 Boe per day with the production mix of approximately 40% oil and 17% Ngls and 43% gas, notably our oil production mix of 40% and the fourth quarter is an increase of approximately 11% from 36%.
And the first quarter of 2020. This is a favorable shift and we expect our production mix to continue on this trend moving forward.
Lease operating expenses for the fourth quarter total of $28 $5 million or $11 77 per Boe.
Down from $35 $7 million of our $12 98 per BOE for the same period and 2019 and were in line with our projections.
The reductions from prior periods held relatively steady throughout the fourth quarter of 2020, and the majority of our expected to continue through 2021 G. P and T and this quarter was $5 $5 million or $2.29 per Boe and.
And was relatively flat with $5 $3 million or $2 seven per Boe in the third quarter taxes, and other income decreased this quarter to $3 million or $1 24 per Boe compared to $3 $8 million or of $1 48 per Boe in the third quarter. This decrease was mainly associated with lower AD warm tap.
Range.
Fourth quarter cash G&A totaled $5.8 million or $2.38 per Boe compared to $5 $6 million or $2 20 per Boe and the third quarter of 2020. The increase was largely attributed to timing of minor year and adjustments.
<unk> spending and the fourth quarter was approximately $2 $2 million and below the projection provided during our last earnings call for the full year 2020, amplify spent approximately $29 $2 million and capital expenditures, primarily focused on facility maintenance projects essential to the equipment integrity and operational efficiency.
The rate of return Workover projects, and non operated drilling and completion activity and the Eagle Ford our mature asset base requires minimal capex to maintain free cash flow at lower prices and presents attractive economics at and above the current strip, allowing us the flexibility to adapt to changing market conditions.
I'd now like to provide a quick update on the winter storm here as mentioned and our release. This morning, our Oklahoma East, Texas and Eagle Ford assets experienced production interruptions due to the extreme cold ice and snow produced by Winter Storm, Gary production levels were returned to pre storm levels within 10 days and full production targets on within approximately two <unk>.
BOE per day of original estimates the Swift return of our production of the Testament to the top tier operating efficiency of our field staff.
On the balance sheet.
On November 18th 2020, we successfully completed our fall borrowing base Redetermination and reaffirmed the company's borrowing base of $260 million. The fall Redetermination was significant and supporting amplify the liquidity and improving our leverage profile moving forward.
Okay.
As of March one 'twenty 'twenty, one our net debt was approximately $228 million consisting of $250 million outstanding under our revolving credit facility and $22 million of cash on hand in 2020. One we intend to continue allocating the majority of our free cash flow to improving our balance sheet and reducing our total debt.
Outstanding we anticipate completing the spring 2021 redetermination process before the end of the name.
Moving to guidance as Martin previously mentioned, our full year of 2021 average daily production forecast ranges from 23000 to 25000 Boe per day, and our Capex forecast for the year is $28 million to $39 million on the expense side, we are forecasting LOE per Boe range of $12 50.
And to $14.50. This range is above our fourth quarter, low and $11 77 per BOE due primarily to the production forecast during 2021 and approximately 50 per Boe for statutorily required inspections of beta which will not be required for another 10 years.
Lastly, we anticipate recurring cash G&A expenses to range between $2 45.
And $2 75 per BOE for the year additional details on commodity and price realization G P and T cost cash and cash interest expense. When we provided in our earnings release. This morning, and can be found and the latest investor presentation of currently available on our website.
And out of our hedge book since our last earnings call in November we've added substantial oil and gas hedges for 2021, and 2022 across commodities were approximately 84% hedged in 2021 and 58% hedged in 2022 currently our crude oil production and 90% hedged for 2021 and 65% hedged.
For 2022, we continue to monitor the market for opportunities to layer on incremental hedges for the next several years.
Amplify as of March 2021 hedge presentation contains additional details regarding our current positions and was posted to our website earlier today under the Investor Relations section that concludes our prepared remarks, operator, we're now ready for questions.
At this time, if you'd like to ask and audio question you may do so by pressing star and the number one on your telephone keypad again that of Star one we'll pause for just a moment.
The first question will come from the line of John White with Roth capital.
Yes.
Good morning.
Good morning.
Nice results.
On the shelf registration I'm modeling 2021.
And with significant free cash flow and debt reduction. So I just want to confirm again the shelf registration is in order to be prepared for any acquisition opportunities are you you might become aware of.
Yes, John and that's exactly right and the S. Three and it's simply a housekeeping item to put us and positioned to quickly move on accretive transactions should the opportunities arise.
Yeah, and I Oh.
And I get the impression from the calls I've been on so far that.
Seller and seller initiatives are ticking up a little bit of activity are you seeing that.
Yeah, I think there is theres been a number of packages that of came out over the last couple of months and I think one thing that differentiates it from what we've seen last year is the quality of the packages that are coming up is a little bit better than what we've seen recently so that gives us a lot of work.
Very excited anticipate seeing some more of that continuing throughout 2021.
Yeah, and John just on the plane.
Just to continue to and are going.
Going into 2020, and we were certainly looking at additional opportunities to add scale and through mergers or acquisitions and as things return to normal and 2021, and that's certainly something that we're looking to continue.
Continue that process and obviously the Asbury as just another way for us to potentially get their ass as needed.
Okay, well, thanks of that confirmation and my last on beta did you mention.
Did you give the number of new wells, it'll be drilled or of well count.
So in 2020, one where we're planning around it's basically three wells and Theyre, primarily extensions of existing wells that are are going to be drilled a little differently to capture a little bit more of the the best loans.
So it's we're starting we have a program that starts in 'twenty, one and continues into 2022, but like we said on the call there's not a big impact and production in 2021, obviously and you start the capital program, there's always a lag between you're spending the money and receiving kind of the the rewards of the program. So.
As this is the second half 'twenty, one weighted program youre going to see more of the production out of the lift in 2020 two and so like I said, that's probably one of a little disconnect between where you see the capital spend and why you see the production and EBITDA impacts.
Alright, well, thanks, very much for all of that.
Thanks, Sean.
Our next question will come from the line of Noel Parks of Tuohy Brothers.
Hey, good morning.
I was just curious.
Inspection.
And the aggregate of how much of what that class B and.
And I was wondering could you.
And sort of break them separate and so he can call there like a non recurring items.
Yeah. So every 10 years you are required to do stay and story and we're actually doing the stage two and stage three inspections. This year on our platforms, we're not anticipating any issues, obviously, but they do run between call. It three and a half and $4 million, which is why are we alluded to the 50.
Per Boe of column I don't want to call them nonrecurring costs, because they recur and just very infrequently call of every 10 years. So that's why we broke it out separately that is of course, we will incur around during the second and third quarters of this year and.
My other question is.
On the non operated side and.
And then and now we're seeing and stronger commodity prices.
And the deal.
But that's strictly true pad, but I was wondering on the operating side are you is there a chance of more activity.
And by those are those partners. This year than you were thinking of.
And on a quarter.
So our primary partner in the Eagle Ford is Murphy and.
And now we've read there and materials and obviously had conversations and we're not aware of any additional pickup and activity yet from some of them and so we have modeled accordingly.
<unk>, which is primarily just the completion of the docs that we drove last year and around the end of the first quarter and and into the second quarter and.
And so those are those and that's how we've modeled it so far obviously they can change plans.
And later in the year, if they so choose but as of right now we're not aware of anything I think from an activity of lateral on the operated side. Obviously, we do have some flexibility and and some of our areas, but primarily we're going to be focused on that beta development plan and and you know we do have some offline wells and Oklahoma, where we could potentially pick up some additional production if prices hold at these kind of.
Levels.
And the economics of pretty strong.
Great. Thanks, that's all for me.
And again to ask and Audi.
The question you may do so by pressing star and the number one on your telephone keypad.
We do have a question from the line of Mark Kaufman with Eagle Rock capital.
Oh good morning, how are you.
And Mark.
And just have a few questions.
Specifically around differentials and also NGL pricing currently.
And last year and 2020, they widened down on natural gas and it seems you are anticipating.
But the tightening somewhat and natural gas the idea of about 20% discount to of the the.
The Nymex or the angry out.
It's to it to Nymex Henry it's the Henry hub pricing, but yeah, we do expect a little bit of contraction and I mean, you had some basis differential blow out over the last number of years, we do have a portion of that hedge for 2021, but that is something that has been contracting and the back half of 'twenty.
And into 2021, so we do expect a little bit of better realizations and what we saw last year.
Yeah, and I'll add on the NGL side now, we have and gels, primarily from Oklahoma and East, Texas, Oklahoma is a significant amount of propane and.
It's look it's been realizing fairly strong up and Oklahoma and stronger than east taxes. So the 38% to 42% that you're seeing between kind of on a blended basis and our guidance is a little stronger on Oklahoma, a little weaker and east Texas.
But the those are largely unhedged and we felt like the market there has been a realizing.
And we're realizing much stronger on on actual spot basis and it looks on the the forward curves and so we've we've lapped that relatively open to take advantage of that and that.
And that market, but like I said, that's it's been this is based on actually what we're seeing not just what we're projecting so.
It's been it's been of much more improved differential market and some of the stuff that you saw earlier in 2020.
Yeah, I mean, you havent hedged right now or at least of small about hedge at $24 or $4 Mcf equivalent and so I guess are you you're pointing toward that you're probably going to continue do you expect or at least you're currently seeing that on the blended basis or maybe better.
The four for $4 per Mcf.
That's correct.
Okay, well, that's significant and thank you.
And on that I get it in the sense to offset the negative.
The negative differential that you're seeing and natural gas right now.
And it's just math, yeah, just taking the one and the other third of what two thirds of the other and it certainly makes up a lot of ground for you.
Absolutely, but we're pretty excited with how NGL price realizations have moved I mean, this is strongest pricing we've seen since back in the 14th and 15th type of timeframe.
Are you seeing not necessarily you but.
60, and exporting out of the the eastern producers or are you also seeing some of that you know, we're just playing new style and the east.
East, Texas, and Oklahoma area.
And most of our you know, we obviously sell to the plants and obviously, where they take the Ngls from there on.
Obviously, it depends on their own economics so.
We obviously have the you know the.
The gathering and processing agreements at the plant level, so not sure exactly the leg it downstream, but you have seen obviously propane has been for example.
Very very strong as you've had exports and addition to strong usage through the winter.
Storage levels are extremely low and so that's an area, where you know without all of the associated gas and the and any northeast growth than propane level should stay strong and obviously that drives the butane as well ethane and that's obviously more correlated with gas and.
And and C. Five with the oil so the propane is kind of the key for the our our NGL barrel.
And that's why Oklahoma's been fairly strong.
Okay, Oh can I ask another question about Beda.
And so that is priced.
That is price again, it's it's the.
And I don't want to say a blend of blend W. T I and Brent.
Have you been seeing better pricing on what Youre looking at let's say in 2022 or even what's not hedged this year.
Yeah, I'll I'll say that you know typically you know going into 2020 and now it moves in correlation with Brent, but it's and it's certainly a discount to Brent it's not it doesn't trade at Brendan It's and index called Midway Sunset.
And so it's kind of correlated with Brent and although and so lately, it's been trading much more closer to in line with W. G I.
It was far below W. Chai for most of last year. So it has gotten stronger as <unk> seen a lot of the the local.
Areas of gotten stronger on differentials during the year.
So it's been on like I said, that's it's gotten strong pricing to go with a lot of the other advantages of low royalty rates and very low incremental operating costs. The rigs are already on the platforms.
So it's got very strong operating leverage to bringing on additional production and that area and that's why we've targeted it along with the fact that there's substantial amount of additional oil in place and and we've had a good amount of time to study of this and feel very confident and the and the program and now we are leaning into the program by doing.
Some kind of of lower cost wells first.
But we're very excited about the the potential of that program and 21 is just the starting point and obviously we plan to continue from there.
So so this next question I think time sense of that question about how are you.
Your cadence for capital expenditures this year.
So the average for the year.
The quarterly Oh excuse me the the average daily production is there going to be a cadence and the quarter doesn't decline all year does it decline.
Earlier in the year decline starts to change as you bring on some beta.
And does that start to look at maybe a flatter production and let's say out in 2020 two we're towards the end of this year.
Yeah, It should grow a little bit. So obviously February is going to have the impact of winter storm urea and then and maybe we do have our annual turnaround of barrel. So there was of two events that we always plan and to all of our production forecast, but as we get into the second half of the year. You know you start to you'll have the impact of some of the Eagle Ford.
Development and you'll have the impact of some of the Bane of wells coming starting to come on line kind of late third quarter, probably more like middle of fourth quarter and and so there's just not a huge impact on overall production levels, but obviously, it's impactful from the oil to oil mix perspective, and so it's driving margins and.
And as you've heard us probably say in the past we're far more focused on driving free cash flow unsustainable free cash flow and then we are on an absolute production target level.
And so that's why you'll see our mix continue to get oily or as we focus on those projects that have the highest margin.
So now this does this also give you and the opportunity grow your plans are and you I think we've discussed this before you know and they plan to your hedge book for for 2020 two.
That's that's correct I mean, we.
And I'll, let the numbers will round about 65% hedged on oil and they move into that obviously, we understand what the production forecast look like from the activity. We have planned out, but yes that as we kind of roll into 'twenty, two and did twenty-three we will factor all of those decisions and and look at the market to Opportunistically add additional hedges.
Okay. Appreciate it nice job gentlemen, look forward to Oh actually and one other question how come you've put the March number out for.
For the box, even the the bank loans and the cash outstanding and so I don't I don't have the year end to actually see what the change and cash flow you generated for the first.
Too much it just is what it is low.
Yeah, we tried to give the most of the up to date information and but obviously all of that information and the K that's coming out. This afternoon. So you'll have all of that okay.
You know I think the numbers, where we probably cash flow a little more on the first two months of the share based on the fact, there were some prepays going into the end of last year, which we alluded to and <unk>.
Comments yeah.
Yes, it looked pretty good that's why I was asking the question.
Okay.
Thanks Mark.
You're welcome.
The next question will come from the line of John White with Roth capital.
Yeah, I just wanted to follow up on the M&A again.
Is there a particular region and say the Rockies or the mid continent, or east, Texas, where youre seeing more seller activity than compared to other areas and if you don't want to provide that detail I certainly understand.
No, we're actually seeing activity kind of all over the place. So there's there's a lot within our operating areas and outside of our operating out of areas as well I think just expanding a little bit is.
And we're virtually agnostic to geographic where we can add additional production, it's more about value and what we can get on and accretive to the enterprise basis naturally we'd like to focus on some areas, where we can have operating synergies to drive additional value to come to our way for the business, but I'd say it.
As far as ex op packages and activity from M&A, it's kind of been widespread all over the the major operating basins.
I appreciate that thanks for taking my follow up.
Thanks, John.
We are showing no further audio questions at this time.
Alright, thank you.
Just to conclude we are really encouraged by the overall improvement and the market conditions and when you expect that the lasting and transformative steps. We took last year to improve profitability will benefit us greatly in 2020 on beyond on our express my appreciation to the company's employees for their outstanding efforts and dedication over the last 12 months and I'd also like to thank.
Of our stakeholders for their continued support with the strong free cash flow, we'll be generating in 2020, one and beyond and we really look forward to leveraging the strategic advantages and executing on our value driving initiatives. Thank you for joining us today and as always please don't hesitate to reach out if you of any additional questions.
Yes.
This does conclude today's conference call. We thank you for your participation and ask that you. Please disconnect your line.
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