Q2 2021 Amplify Energy Corp Earnings Call
Any operator today's conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
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Welcome to amplify energy second quarter, 'twenty, 'twenty, 1 Investor conference call ample.
Ample flies operating and financial results were released yesterday yesterday after market close on August 4th 2021.
Bailable on amplify as website at Www Dot amplify energy Dot com.
During this conference call all participants will be placed in a listen only mode.
Today's call is being recorded.
A replay of the call will be accessible until Thursday August 19th by dialing 8558592056, and then entering conference I D 5076814, or by visiting amplifies website, Www dot amplify energy Dot com.
Yeah.
I would now like to turn the conference call over to Jason Mcglynn, Senior Vice President and Chief Financial Officer of Amplify Energy Corp.
Good morning, and welcome to the amplify energy conference call to discuss operating and financial results for the second quarter of 2021, joining me on the call today is Martin Wilshere, amplify as President and Chief Executive Officer before we get started we would like to remind you that some of our remarks may contain forward looking statements which room.
<unk> 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 assurance that such expectations will prove to be correct and undertakes no obligation and does not intend to update these forward looking.
<unk> to reflect events or circumstances occurring after this earnings call. Please.
Please refer to our press release on that 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 quarterly report on form 10-Q that was filed yesterday afternoon.
Non-GAAP financial measures may be disclosed during this call reconciliations of those measures to comparable GAAP measures maybe found on our earnings release or on our website at www Dot amplify energy on I'll now I'll turn the call over to Martin.
Thank you Jason during the call I will provide a general overview of our second quarter performance, including recent company highlights give an update on operations and then review our improved full year 2021 guidance.
Jason will provide additional details regarding our financial performance hedging program and balance sheet. Following our prepared remarks, we will have a question and answer session and then I will conclude the conference call with a few closing comments.
Second quarter production averaged approximately 25300 Boe per day, an increase of 2% from 24700 Boe per day in the first quarter of 2021 the.
Quarter over quarter increase was largely driven by the return of offline production in Oklahoma and East, Texas caused by Winter storm here in February and new well performance in the Eagle Ford.
Second quarter, adjusted EBITDA of $23.8 million was approximately $1 million more than the previous quarter and exceeded internal projections due to production outperformance and continued cost efficiencies, which were further supported by stronger price realizations. As a result, unhedged cash operating margin improved nearly 20 per cent quarter over quarter to 40.
5%.
Cash capital spending for the second quarter was approximately $10.9 million, an increase of $5.8 million from the first quarter of 2021quarter.
Quarter over quarter increase was primarily attributable to bear on annual maintenance turnaround the acceleration of our rod lift conversion program in Oklahoma and the purchase of long lead time materials for the previously announced development program on beta.
Free cash flow defined as adjusted EBITDA less capex and cash interest expense was approximately $9.5 million in the second quarter of 2021, which exceeded our internal projections the decrease of $4.1 million from the previous quarter was primarily a result of the increased capital spending mentioned earlier.
We continue to project substantial free cash flow generation for the foreseeable future and consequently have increased our full year 2021 free cash flow guidance when true.
I will detail later on the call.
Now for an update on our operations during the second quarter of 2021, we continue deploying capital towards rig and platform upgrades on beta in addition to preparing materials for the development program. The first project a cased hole re completion is progressing according to schedule with initial production results expected in September.
Project will be followed by 2 sidetrack from existing wells in the fourth quarter of 2021 with preliminary production results expected by year end.
Because of the low variable cost nature of our beta asset on the current strong commodity price environment. We believe these projects will produce significant free cash flow and add incremental reserves Trump Ada asset.
Our Oklahoma Workover program remains focused on high return rod lift conversions on ESP, optimizations, which reduce operational and workover costs and help mitigate production downtime from future weather events.
Due to the strong commodity price environment, we accelerated the rod lift conversion program in the second quarter when should we expect to continue through at least the third quarter of 2021.
As a result, we currently have converted nearly 45 per cent of the field to rod lift and expect to have roughly 50% of the field converted by year end with strong operational results in Oklahoma. This quarter standard a testament to the efficacy of these workover projects and aligning operations in Oklahoma with our corporate strategy from production optimization and free cash flow generation.
Operational results in East, Texas, and North, Louisiana, again outperformed internal projections. This quarter. We have continued to mitigate natural decline rates do cost effective workover projects with quick payout periods. These efforts coupled with improved gas and NGL prices have yielded some of the company the best margins.
The company also anticipates participating in accretive non operated development opportunities beginning in the fourth quarter of 2021, which provides additional free cash flow starting in 2022.
At barrel the annual facility turnaround was completed on time and under budget in June during the quarter, we achieved strong operational reliability from injection and production facilities and the technical team continues to refine wag patterns and C. O 2 injection rates based on continuous evaluation of the reservoir in the second half of 2021 and we expect to continue.
Using new technologies, along with targeted Workover activity to drive further operational improvements and efficiencies.
Production rates from new wells in our non operated Eagle Ford asset continued this past type curves and drive incremental cash flow from the asset we continue to evaluate joint development projects as they arise and have elected to participate in new development projects, which are scheduled to be drilled in the second half of the year and completed in the second quarter of 2022.
Onto guidance as detailed on the earnings release last night, we've increased our full year 2020.1 guidance ranges from production adjusted EBITDA and free cash flow the midpoint for average daily production increased by 2% or 500 Boe per day to 24500 Boe per day.
We've also increased the midpoint of adjusted EBITDA to $100 million, which was an increase of 11% or $10 million above our prior guidance as a result of the increase in commodity prices strong production performance and the acceleration of our Workover program in Oklahoma most.
Most importantly, we've materially increased the midpoint of our free cash flow guidance by 25% to $50 million, an increase of $10 million from prior guidance additional.
Additional guidance details are provided in our earnings release yesterday and can be found in our latest investor presentation. Currently available on our website with that I will now turn the call over to Jason.
Thank you Martin I'll first provide details on the company's second quarter production on expenses I will then give an update on our hedge book and conclude with our balance sheet. As previously mentioned production for the second quarter average approximately 25300 Boe per day, an increase of 2% from 24007 hundred.
<unk> Boe per day in the first quarter of 2021 with the commodity mix of 39% oil, 16% Ngls and 45% gas as expected oil volumes were down this quarter due to the annual maintenance turnaround at barrel and should return to approximately 41% of production in the third quarter lease operating expenses.
For the second quarter were approximately $28.7 million or $12.46 per Boe.
A decrease of approximately $200000 compared to $28.9 million or $13 <unk> per Boe in the first quarter.
<unk> this quarter was $5.1 million or $2.20 per Boe compared to $4.6 million or $2 <unk> per Boe in the first quarter. This increase was largely due to higher production volumes in the second quarter, partially offset by a decrease in the minimum volume commitment on certain properties in Oklahoma and east.
Xs.
Production and AD valorem taxes, this quarter totaled $5.1 million or $2.20 per Boe compared to $4.6 million or $2.8 per Boe in the prior quarter. This increase is a function of higher revenue from production outperformance and sustained higher commodity pricing.
Second quarter cash G&A totaled $5 million or $2.19 per Boe compared to $6.6 million or $2.95 per Boe in the first quarter. In addition, second quarter cash G&A decreased $1.2 million year over year as amplify undertook a transformative corporate expense reduction plan on.
2020, our current projected full year 2021 cash G&A estimate remains approximately $23 million.
As Martin previously mentioned cash capital spending for the second quarter was approximately $10.9 million an increase of $5.8 million from the first quarter of 2021 quarter over quarter increase was primarily attributable to barrels annual turnaround the acceleration of rod lift conversions in Oklahoma and the procurement of materials for our <unk>.
On a development program.
Now to our hedge book amplify has taken advantage of the significant recovery in commodity prices to layer on additional hedges in 2022, and 2023, which should materially raised our weighted average fixed floors and ceiling prices across commodities, where approximately 80% hedged for the balance of 2021.70 per.
Sent hedged in 2022, and 20% hedged in 2023, specifically our crude oil production is approximately 85% hedged for the remainder of the year, 80% hedged for 2022 and 30% hedged for 2023 as we continue to monitor the market our strategy remains focused on utilizing.
<unk> various hedge structures to secure an attractive baseline of free cash flow and allow for substantial upside as the forward commodity strip improves amplifies August 2021, Investor presentation contains additional details regarding our current positions and was posted to our website yesterday under the Investor Relations section move.
On to the balance sheet as of July 31st amplify had net debt of approximately $214 million with $235 million outstanding under its revolving credit facility and $21 million of cash on hand for the remainder of 2021, we will continue allocating the majority of our free cash flow to improving our balance sheet.
On reducing our total debt outstanding.
With a significant amount of free cash flow, we expect to generate in the last half of 2021 and the full year 2022, we now anticipate net debt to last 12 months EBITDA to fall below 1.5 times by the end of 2022 on.
I'll now turn the call over to Martin.
Thank you Jason.
<unk> strategy remains focused on continuously enhancing our sustainable free cash flow profile and Delevering, our balance sheet with continued operational excellence and improvement in market conditions, we've materially increased guidance expectations for 2021 as detailed on our investor presentation, our internal projections currently forecast approximately $200 million.
And cumulative free cash flow through 2023, the substantial free cash flow should enable us to reach a leverage ratio below 1.5 times by the end of 2022 and 1.0 times by the end of 2023.
Additionally, our year end 2020 total proved reserves now on the PV 10 value of $1.1 billion with $835 million of proved developed reserves at strip pricing as of July 32021, when our significant reserve value and strong free cash flow outlook, we believe that amplify remains substantially undervalued in the current market.
Our dedication to enhancing corporate and operational efficiencies, coupled with our diverse and mature asset base differentiator amplify as a leader in generating sustainable free cash flow.
<unk> amplified strong free cash flow and leverage outlook will also enhance our ability to create significant long term value for shareholders through asset reinvestment accretive transactions and return of capital initiatives with that in mind. Operator, we are now open for questions.
If you would like to ask a question you may do so by pressing Star then the number 1 on your telephone keypad.
Again that is star 1 if you would like to ask a question.
Your first question is from John White of Roth capital.
Good morning congratulations.
<unk> is on on the new guidance, it's always nice to see improvements in your business.
Thanks, Sean.
You know using the old guidance I don't mean to get too much in the weeds here, but using the old guidance I've Gotta EBITDA number at almost $90 million. So it's going to be pretty easy to get to your <unk>.
To your heart.
On your $100 million number.
So it.
It sounds like things are going well on Veda and.
Given the.
Where that asset is in its lifecycle.
It looks to me like you could be due on workovers there.
Well into the next several years.
Do I have that correct.
Hey, John Yeah. This is Martin so obviously, we've got projects playing out through the middle of next year, but now assuming the successful.
On those projects.
Have the opportunity to keep going for as long as we want there is capacity add on.
Both of the platforms for up to 20000 barrels a day. So there's a lot of additional redundancy and capacity within the system. So like I said, we have ample opportunities to keep going.
Like I said, starting with this initial phase development.
That's what we call phase 1 on 1 b, which is the free projects. This year on the 2 projects in the first half of next year, but assuming like I said the success and we can keep going from there and permitting is obviously not an issue. So we are very excited about getting the first project.
<unk> completed this quarter.
And moving on from there to the 2 additional projects shortly thereafter.
Okay.
Good just the type of low risk development situation I'd like to I'd like to follow up.
Hum.
Noticed in your new.
Company presentation on 2 slides you mentioned.
Return on capital initiatives so.
As you Delever.
As you get production for continued higher.
Am I correct in assuming that something thats debt.
Taking a more important place in your list of priorities for the company.
Yeah, John I'll take the first part of that and put them on sat in on the back side. Yes. This is we were a return on capital story kind of before it was involved with everybody back in 2018 in 2019 after the transaction and early into 'twenty, obviously everything changed last year. So it put a hold on that but specifically when looking at the credit.
Agreement, we have to have 25% availability on the credit agreement in less than 2.5 times leverage ratio. After a distribution. So that's what's precluding those from right now, but its always a part of our capital allocation strategy to evaluate that we're targeting being in a position to potentially do it in the middle of 2012.
2 type of time frame. We also are exploring various ways to potentially accelerate that timeline. Given this is all subject to board approval and would have to be.
Approved at that point in time, when we look to do it but that is something that we are evaluating and discussing for the future for sure.
Yeah, I'll just add debt, obviously like Jason said this has been it's kind of in our DNA to return capital to shareholders.
That's kind of the whole mat methodology of the company has to be sustainable free cash flow that can ultimately be returned to shareholders.
And so like I said, there's we've been out of it just for the last year or so because of the pandemic.
Issues, but obviously getting back to that especially with a lower leverage level, which we we delever very rapidly as we go through the end of this year on into the beginning of next year and create substantial additional liquidity, which really opened up the the window of opportunities for how and when they start to return on that.
Capital like I said like David said, its all subject to board approval, but like I said, I think thats something thats clearly on our radar and if theres an opportunity to bring that forward a little bit. We're certainly looking at those options to do so.
Good day here and of course your.
Conventional asset base with its low decline rates really really lends itself to.
So that kind of corporate activities I'll turn it back to the operator in case someone else is waiting on.
I'll, probably come back with another question or 2.
Okay.
Thanks, John.
There are no other questions in queue I'd like to turn it back to Martin will share for any closing remarks.
So.
So it looks like it's on a couple of it looks like John has a couple of questions Rick.
Okay. John Your line is open.
So we didn't want to let you go without asking for.
Data on what Youre seeing in the.
M&A.
Market and how.
How you would describe the activity in that area of the business.
Absolutely.
We always monitor what's going on in the market and looking at various things in the lower 48, specifically around our operations in the mid Con in East, Texas, but keep an eye on everything I would say since our last conference call in May.
The activity has picked up I mean, theres a lot of a lot of things coming to market with pricing, where it is and was limited volatility until the last couple of weeks that people are really trying to see what they can get for assets and some things are starting to shake loose a lot of private equity backed type of packages and smaller things along those.
And obviously, there's always talk of corporate transactions, but I will say as we look at it and evaluate it we haven't really high internal hurdle rate to issue equity. So we look at everything against that a transaction would happily have to be accretive to the shareholders EBITDA leverage a lot of different metrics along those lines, but we do continually.
Look at thing are involved in processes, there's nothing to discuss at this point in time, but it has definitely picked up from both the quality and a number of packages on the market at this point.
Yeah, and Jason address the I'll just address the day side of this as well as obviously, we always have the option as well given just how substantially we are undervalued in the market, but the opportunity to potentially divest of smaller assets such as the Eagle Ford and use that to accelerate the capital return program potentially as 1.
On Avenue that we are obviously looking at.
There's other assets that could work as well, but like I said those are that's an option for us as we move forward, but like I said, that's just 1 of many options that we're looking at.
Okay very good thanks, so much for all the updates.
Absolutely. Thank you John.
There are no other questions on queue I'd like to turn it back to Martin will share for any closing remarks.
In closing I'd, just like to express my appreciation to all of the company's employees for their outstanding efforts and dedication.
Thing all of our stakeholders for their continued support as always please don't hesitate to reach out if you have any additional questions. Thank you for joining us today.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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