Q4 2021 Amplify Energy Corp Earnings Call
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Welcome to amplify Energy's fourth quarter 2021, Investor Conference call Amplifies operating and financial results were released yesterday after market close on March nine 2022 and are available on amplifies the website at Ww.
W 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 March 24th by dialing 85585920.
Five six and then entering conference I D number 8984535 or by visiting amplifies website 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 of final.
<unk> officer of amplify Energy Corp.
Okay.
Good morning, and welcome to the amplify energy conference call to discuss operating and financial results for the fourth quarter of 2021, joining me on the call today is Martin Wiltshire, ample Vice President and Chief Executive Officer.
Before we get started we'd 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.
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.
You to read our Form 10-K that was filed yesterday afternoon also non-GAAP financial measures may be disclosed during this call reconciliations of those measures to the comparable GAAP measures may be found in our earnings release and on our website at www Dot amplify the energy Dot com.
During the call Martin will start us off with an update of the Southern California pipeline incident, I will then review the fourth quarter results and provide updates on our hedging program and balance sheet. Martin will then follow up with our year end 2021 proved reserves and guidance expectations for the full year 2022, following our prepared.
Third remarks, we will have a question and answer session and Martin will conclude this conference call with closing remarks.
Okay.
Before we get into the quarterly results and our 2022 outlook I would like to spend a few minutes, providing an update regarding the southern California release first.
First and foremost I cannot stress enough my gratitude to our unified command partners for their collaboration and professionalism as we mobilized a robust response effort to the events in southern California.
This includes the United States Coast Guard, the California Department of Fish, and Wildlife Orange, and San Diego counties and various other federal state and local agencies. Additionally, we are also grateful to the numerous volunteers wildlife rescue organizations and the nearly 1800 oil spill response contractors that we deployed as part of the response effort.
On December 28, 2021, the United States Coast Guard announced that unified command had concluded cleanup operations in all counties impacted by the release event and unified command was officially stood down and the response phase was officially complete on February 2nd of this year.
Working with federal pipeline safety regulators and World Class Engineering and dive teams, we designed and approved temporary repair plan for the damaged pipeline and have completed this phase of the work by safely and successfully removing any oil in the pipeline that remain following its shut in on October <unk> 2021.
We continue to work cooperatively with the relevant regulatory agencies to safely and promptly advance our permanent repair plan for the pipeline and bring the beta field back online.
Separately last week, we filed a complaint against the two shipping companies and vessels, whose anchor struck and damage the pipeline, causing the ore release in early October . We also filed claims against the marine exchanges, Southern California, which failed to notify us of the anchor strikes when they occurred.
Amplifier filed complaints against these parties because our actions or Inactions caused the October 2021 release event. This release events should never happened at any of these parties notified amplify this entire incident could have been avoided.
We remain committed to safely operating in a way that ensures the protection of the environment and the surrounding communities communities, where many of our employees live and raise their families.
We continue cooperating with all federal and state agencies investigating this matter and eagerly await approval from federal regulators and permitting agencies to complete the permanent repair plants and bring the beta field back online.
I'll now turn the call over to Jason to provide an overview of our financial and operator operational results.
Okay.
Thank you Martin I'll first provide details of the company's fourth quarter results and then give an update on our hedge book, concluding with comments regarding our balance sheet.
As mentioned in our earnings release production for the fourth quarter averaged approximately 20800 Boe per day, a decrease from 25100 Boe per day in the third quarter of 2021 with the commodity mix of 31% oil, 18% Ngls and 51% gas oil volumes were down this quarter as a result of.
The suspension of operations at beta on October 2nd for comparison, the beta field produced an average of 3700 barrels of crude oil per day during the third quarter.
Total oil natural gas and NGL revenues in the fourth quarter of 2021 were approximately $86 $3 million before the impact of derivatives compared to $96 $8 million in the third quarter. Other revenues were $6 $8 million for the quarter compared to $2 million in the third quarter the change in <unk>.
Other revenues was primarily related to the receipt of loss of production income insurance payments of $6 $7 million for the period from November 15th 2021 through December 31, 2021 are lumpy insurance is effective for approximately 18 months following the incident with payments starting after 45 days of non production.
Lease operating expenses for the fourth quarter were approximately $29 $4 million or $15 34 per BOE, a decrease of approximately $5 1 million compared to $34 5 million or $14 92 per Boe in the third quarter, primarily due to the reduced.
Workover activity at Beta G.
<unk> this quarter was $6 1 million or $3 20 per Boe compared to $5 million or $2 18 per Boe in the third quarter the increase.
This was primarily attributable to a one time accounting adjustment related to our non operated Eagle Ford property.
Production and ample warm taxes, this quarter totaled $6 5 million or $3 42 per Boe.
Compared to $6 million or $2 61 per Boe in the prior quarter. This increase is a function of higher revenue from improved commodity pricing, partially offset by lower production.
Fourth quarter cash G&A totaled $6 2 million or $3 24 per Boe compared to $5 8 million.
$2 50 per Boe in the third quarter.
Adjusted EBITDA in the fourth quarter totaled $10 $8 million approximately $16 million less than the previous quarter. The decrease was largely attributable to the suspension of operations at beta partially offset by higher commodity prices lower lease operating expenses and loss of production income insurance payments received as a result.
The incident. Additionally.
Additionally to mitigate being in an over hedged position from the loss of production of beta the company entered into offsetting crude positions, which had an estimated $5 million negative impact on the quarter cash.
Cash capital spending for the fourth quarter was approximately $3 5 million a decrease of $7 million from the third quarter of 2021 quarter over quarter decrease was primarily attributable to the suspension of operations at beta free cash flow defined as adjusted EBITDA less capex and cash interest expense was approximately.
<unk> $4 million in the fourth quarter of 2021.
Despite the substantial impact of the beta incident, amplify reported $84 $7 million of adjusted EBITDA and over $40 million of free cash flow for the full year 2021, which exceeded internal projections and was a result of production outperformance within our diversified asset base and strong pricing realizations.
Now to our hedge book due to lots of production of beta the company entered into 420000 barrels of offsetting crude positions for 2022. These trades were executed in late November of 2021 at a weighted average price of $66 86 per barrel, which compares to the current price of over $100 apparel.
Currently we are approximately 70% hedged for the balance of 2022, and 40% hedged in 2023 across all commodities, specifically our crude oil production is approximately 90% to 100% hedged for the remainder of the year and 50% to 60% hedged for 2023.
I would like to note that our Ngls, which represent approximately 20% of our current production are completely unhedged in 2022, and 2023, enabling the company to participate in a rising commodity price environment.
Lastly, as Marc mentioned earlier, we are expeditiously working to bring the beta field back online and those crude oil barrels will be completely unhedged. When production is risk reward amplifies March 2022, Investor presentation contains additional details regarding our current positions and was posted to our website yesterday under the investor.
<unk> section moving.
Moving onto our balance sheet as of February 28th amplify had net debt of approximately $203 million consisting of $225 million outstanding under our revolving credit facility and $22 million of cash on hand for the remainder of 2022, we will continue allocating the majority of our free cash flow to improving.
Our balance sheet and reducing our total debt outstanding. We are currently marketing our non operated Eagle Ford asset and are considering additional transactions that could accelerate the deleveraging of our balance sheet.
I will now turn the call back over to Martin.
Thank you Jason Yes.
Yesterday, we announced amplifies 2021 year end proved reserves estimates of approximately 121 million barrels of equivalent with a PV 10 value of $920 million based on SEC pricing of $66.56 per barrel for crude oil and $3 60 per <unk> for natural gas.
With approximately 98% of the proved reserves classified as proved developed the product mix for our proved reserves was approximately 37% crude oil, 20% natural gas liquids and 43% natural gas.
Utilizing strip pricing as of February 28, 2022, the company's year end 2021 proved reserves are approximately 120 million barrels of equivalent with a PV 10 value of $1 billion.
Of which 118 million barrels of equivalent a $970 million of PV 10 value is classified as proved developed reserves.
As a result of the incident of beta all production and pipeline operations at the beta field have been suspended and the assets PDP reserves has been reclassified as PD NP further the company has shifted its resources to returning beta to production, which has resulted in a modification to our future development plans and a reduction in our Pud reserve estimates for 2021.
These locations remain available to the company and can be reclassified as Pud reserves should the company pursue additional development in the future.
Additionally, we have now provided guidance expectations for full year 2022.
Due to uncertainty regarding betas restart timeline, our guidance does not assume beta returns to production in 2022, but we will update our guidance when additional information is available.
Our full year 2022 average daily production forecast ranges from 18500 to 20005 hundred Boe per day with a commodity mix of approximately 31% oil, 18% Ngls and 51% natural gas.
Our capex forecast for the year is approximately 20 million to $30 million, which is comprised of non operated development projects in east, Texas, and the Eagle Ford as well as high return Workover projects and routine facility maintenance across our asset base.
Approximately $7 million of the Capex forecast will go towards non operated development as we expect to incur $5 million for the completion of three gross 0.6 net non operated wells in east, Texas and $2 million in the Eagle Ford to complete approximately 13 growth 0.5, net non operated docks that were drilled in 2021.
In addition, we anticipate spending approximately $7 million in Oklahoma for Rod lift conversions and ESP optimizations. The Rod lift conversion project initiated in late 2018 has been successful in significantly reducing operating expenditures and recurring maintenance costs.
Lastly, the company has a budget of approximately $11 million in 2022 for facility work and capital Workovers at barrel Beta and East Texas.
Ultimately, we anticipating generating approximately $40 million to $70 million of free cash for the year from adjusted EBITDA of $70 million to $100 million.
Additional guidance details were provided in our earnings release yesterday and can be found in our latest investor presentation currently available on our website.
In closing we continue to believe we remained substantially undervalued in the current market due to our significant reserve value and cash flow generation potential our 'twenty 'twenty. One yearend total proved reserves now have a PV 10 value of approximately $1 billion at strip pricing as of February 20th 2022, and as detailed in our investor presentation.
Our internal three year projections currently forecast approximately $150 million to $250 million in cumulative free cash flow, which is approximately 50% of our current enterprise value.
We are focused on continuously enhancing our sustainable free cash flow profile and delevering, our balance sheet. The elevated commodity pricing environment also allows us to opportunistically augment our workover program in Oklahoma and explore additional non operated development opportunities within our east, Texas and Eagle Ford assets. Additionally, the recently announced <unk>.
Marketing process of our non operated Eagle Ford asset is expected to accelerate our commitment to delevering and we are evaluating additional accretive transactions that could further drive shareholder value.
Our dedication to enhancing corporate and operational efficiencies, coupled with our diverse and mature asset base differentiates amplifies a leader in generating sustainable free cash flow, our strong free cash flow and leverage outlook supplements, our ability to create significant long term value for shareholders through asset reinvestment accretive transactions and return of capital.
<unk> with that in mind, operator, we're now open for questions.
To ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby we'll begin the Q&A roster.
And you do have a question in queue from John White with Roth capital.
John Your line is open.
Good morning, and congratulations on some nice results despite the challenges you're facing.
Thank you John .
Regarding.
The EBITDA guide in 2022, and your cumulative free cash flow number how much.
Insurance payments are included in those.
Those guidance numbers.
So for <unk>, we're projecting approximately $4.4 million per month.
And for <unk>.
Over what time period.
For the for the guidance for the full 12 months. So as you know we are where while we obviously hope to get paid online sooner rather than later for the purposes of guidance, we're being conservative or conservative in and utilizing kind of lumpy in lieu of any projection for getting better online.
In 2022, obviously, we'll.
Date that if and when we have better information on when betas coming back online.
The only thing I'll add to that John is as we noted in our K last night lumpy is worst for 18 months and that is inclusive of a 45 day waiting periods. So that gives you a little bit of view on how long it tracks through the three year numbers.
Okay 18 months in the cumulative free cash flow number.
Correct.
It started it started at the time of the incidence of October 2nd runs 18 months from there, but you have 45 days of nonpayment as we noted multiple times. So it runs into a little bit into 2023 through the first quarter.
Thanks very much.
Why is the revolver.
Being reduced 5 million a month starting in a well.
Started in February 2022.
Yeah, we went through a redetermination.
Fall with the Bank group, obviously, we were right in the midst of that when this incident happened. So we put it on pause and as we noted in our.
Third quarter info.
Information that we did we were reaffirmed at $2 45, obviously with everything going on and trying to understand exactly what the timeline would started the bank group wanted a little bit of amortization starting in February of this year that last until our next redetermination, which we will be kicking off here shortly and we anticipate completing.
<unk> during the second quarter.
Okay. So after the redetermination of the reduction in the revolver.
Is that correct.
That is correct.
Okay.
Okay, well those are my first two I'll pass it on and I'll come back with some follow up.
Okay.
And there are no additional questions in queue. Mr. Wide. If you want to continue with your additional questions.
Sure. Thank you operator.
In your 10-K, you mentioned regarding beta.
$90 million to $110 million of associated costs.
I have been incurred or may be incurred could you could you tell us how many how much has been incurred.
And give us a little more detail on what those costs are for.
Yeah, I'll take that so the first part of that is that's all actual and projected response for the remediation that occurred under direction of unified command as we noted.
A unified command has disbanded so that was essentially all of the cost that.
Is being booked on the remediation and certain legal fees for that the 90 to 110, we did note that $99 million of aggregate costs were incurred through 12 31.
The piece of that that hits. The income statement is that the deductible payments and certain legal costs was about $1 6 million. So that left that number about 97 four through the end of the year we had.
Received about $50 million or we.
We have received about $50 million of of insurance for costs and we've collected an additional $22. One through the first of March and we're continuing to move forward from there. So it gives you a little bit of detail what that 90 to 110 accounts for and then there's also plenty of information out there what it doesn't include it doesn't include all the <unk>.
<unk> cost moving forward and some of those other things, which that will be partially covered by insurance as well.
Okay.
So $99 million incurred in 2021.
Yes that was booked so it wasn't all incurred but that's what was incurred and projected to be incurred related to the remediation and certain known legal items.
Do you know how much was spent in 2021.
By the company.
Yes.
About $40 million and then there was an insurance receivable without $49 million as I noted.
Thank you for that I know despite beta not being included in your guidance.
You have a slide in your presentation on the reserves with a footnote that.
Yeah.
It has an assumption of beta restarting in about four months is.
He is four months your expectation.
So John what we've tried to do there was kind of give bookends for our investors. So that we can extrapolate all obviously we are.
Hopefully <unk> been moving along this permitting process for quite a while we could certainly be back online in that July timeframe. If we were to receive the permits in fairly short order. So this is.
A reasonable estimate of.
If we get the permits soon then we can be back online as quickly as Joel July obviously theirs.
Potential delays and so where you're trying to give our investors kind of AR.
A book end of <unk>.
Horses, So best case scenario versus a worst case scenario in terms of getting paid online obviously one of the things that does those projections don't include anything related to litigation and obviously were offline for a reason which is the damage inflicted on the pipeline and obviously, we've filed a complaint related to that so obviously none of that.
That's all contingent and wouldn't be reflected but.
The long used to offline the the more damages you're incurring related to that so those things are not reflected in our cash flow forecast, but we did want to provide as much information as we could to our investors.
I'm sure we all appreciate that.
So.
Part of the beta pipeline is in federal waters and part is in state waters.
Do you have available the number of federal permits youre going to have to get permits waivers approvals.
From from the federal government and how many are.
From the state government.
So this isn't this is the damages in federal waters.
This is a federal jurisdiction item there is some state involvement in asking questions and certain other things that they are.
Move along but this is really waiting on two permits one is from films for the repair and the other one is from the corps of engineers.
Those permits have had been in process for quite some time.
Answered a lot of questions along the way and so we're hoping that we're we're kind of moving towards a conclusion, but like I said, we don't have a definitive timeline on exactly when we get those permits and so that's why we are we're.
We're not ready to project an exact start time for beta at this time, but obviously, we're working as expeditiously as we can towards getting those two once we get those permits it's a matter of testing, which falls under the FEMSA jurisdiction.
Going to be doing some hydrostatic testing and some in line inspections.
Just to once again make absolutely certain that the rest of the pipeline is in great shape, though we think it is.
And so nothing will be coming back online until this is all thoroughly tested.
And like I said that timeframe that we're talking about by you know if we got the permits soon and we could be back online in July So that's call. It three to four month window.
That's a reasonable timeframe for getting back online if theres no interruptions once you get the permit.
Okay. So two federal.
And so no state agencies approval needed.
Not at this time.
I said they have some input into the core of engineers process, but there's no specific permit requirement at this time.
Alright appreciate it.
Regarding your proposed divestiture of your non operated Eagle Ford.
Can you just can you say, who the operator is.
Yeah all of our interest is in the heart of Karnes County is the primary operator is Murphy, but there's also other operators of Devon BP Exxon Marathon are make up the majority of the rest of it.
But it is very largely murphy, whereas where we have the majority of our interest.
Yeah.
Yeah, I can't remember who is Murphy are marathon.
What would be the borrowing base impact how much of the Eagle Ford is in the borrowing base.
Can't really get into that too terribly much obviously, we discuss these these type of things with our bank group, but what we can give you a little bit of a viewpoint is on the reserve base. If you look at slide six in our deck on the PD PD PV 10, it's $40 million out of 970.
So it's a kind of use that percentage and extrapolating that gives you a decent idea of what could be and there may be well it could be a little bit more could be a little bit less but that gives you a good working number on what could potentially happen there.
Again I.
I appreciate that and thank you for your patience for all my questions and I wish you the best of luck.
On getting beta started and in your complaint against the other shipping companies.
Thank you John really appreciate it.
Operator.
And there are no further questions in queue at this time, we'll go to your closing remarks. Please.
I'd just like to say, thank you to everyone for joining us today really want to express my appreciation to all our company employees for their outstanding efforts, especially our California personnel, who are working tirelessly alongside the unified command and for much of the fourth quarter and I'd also just like to thank our stakeholders for all of their continued support both of our investors.
Insurance companies and banks and <unk>.
Various other stakeholders that worked very well with us during this period.
As always please don't hesitate to reach out if you have any questions. Thank you everyone.
This concludes today's conference call. Thank you for participating you may now disconnect.
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