Q1 2022 Amplify Energy Corp Earnings Call

May 5, 2022

Yeah.

Welcome to amplify Energy's first quarter 2022, Investor Conference call amplify as operating and financial results were released yesterday after market close on May four 2022 and are available on amplifies website Adobe.

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 may 19th by Dialling 8558592.

056, and then entering conference I'd number 6891368 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 financial.

Financial operator.

Officer of amplify Energy Corp. Please go ahead Sir.

Good morning, and welcome to the amplify energy conference call to discuss operating and financial results for the first quarter of 2022, joining me on the call today is Martin wheelchair amplifies, President and Chief Executive Officer.

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 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 Form 10-Q that was filed yesterday afternoon.

Also non-GAAP financial measures may be disclosed during this call reconciliations 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.

During the call Martin will first provide an update regarding our southern California assets, followed by our first quarter highlights and revised full year guidance. I will then discuss the first quarter results in detail and provide updates to our hedging program balance sheet and additional items regarding guidance for the remainder of the year Martin will then deliver.

Final comments regarding performance during the quarter current projections and strategic goals. Following our prepared remarks, we will have a question and answer session.

Before we get into the quarterly results I would like to provide an update regarding the progress we've made toward returning our southern California assets to production during.

During our most recent earnings call I discussed the approvals required from FEMSA and the Army Corps of engineers received with the permanent repair plans of pipeline in mid April we received approval from <unk> for the permanent repair plant.

We are now working cooperatively with the Army Corps of engineers to obtain the remaining permit to commence repair operations, although we cannot predict when we will receive approval from the court, we expect that within three to four months from approval date, we can complete the films on proved repairs satisfy the regulatory requirements to safely restart pipeline and returned the platform production.

Now onto the quarter production for the first quarter averaged approximately 2400 barrels of oil equivalent per day down slightly from 2800 barrels of oil equivalent per day in the fourth quarter of 2012 one.

First quarter adjusted EBITDA of approximately $24 9 million exceeded internal projections and was an increase of approximately $14 million from the previous quarter. This increase was primarily attributable to stronger price realizations and additional loss of production income insurance payments that were recognized in the quarter.

As a result of production outperformance and improved pricing realizations, we've increased our full year 2022 production and adjusted EBITDA guidance, which Jason will detail later on the call.

Capital spending for the first quarter was approximately $6 9 million.

Focused primarily on accelerated workover projects in Oklahoma to capitalize on current commodity prices and non operated Eagle Ford and East, Texas development programs.

Free cash flow defined as adjusted EBITDA less capex and cash interest expense was approximately $14 9 million in the first quarter of 2022.

And provides free cash flow outlook has continued to improve since our last earnings call and we now expect to generate $215 million with $340 million in Q their free cash flow over the next three years, a significant increase from the $150 million to $250 million stated during our last call.

Now for an update on our operations in Oklahoma and requires currently running three workover rigs as part of our accelerated program to return offline wells to production and converting ESP to Rod lift. This program continues to support our comprehensive strategy for production and expense optimization and will generate incremental free cash flow for the company going forward.

Sure.

In East, Texas, and North, Louisiana, we are committed to efficiently managing production and costs, while pursuing high return Workover and joint development projects. The company is participating in three non operated development wells, which are expected to be brought online in the third quarter of this year we continue.

To evaluate additional development opportunities in the area or participate in high return projects as they arise.

In the Eagle Ford, we continue to optimistically participated in attractive projects with the highest economic viability operators are actively developing their positions in areas in which we jointly owned interest in as expected at seven gross four net new development wells will be online by the end of the second quarter of 2022.

At barrel production increased approximately 4% quarter over quarter as a result of improved run times and positive results from Workovers and well stimulations performed earlier this year our.

Our annual facility maintenance turnaround is scheduled for up to 10 days in June which will reduce production for the second quarter.

We continue to implement technological improvements to enhance operational performance and efficiencies and maximize the economic returns of our Workover program.

I will now turn the call over to Jason to provide a detailed review of our financial and operational results.

Thank you Martin I'll first provide details regarding first quarter results and then give an update on our hedge book, concluding with comments regarding our balance sheet and details on our updated guidance.

Production for the first quarter averaged approximately 20400 Boe per day with the commodity mix of 32% oil, 18% Ngls and 50% gas.

Total oil natural gas and NGL revenues for the first quarter of 2022 were approximately $93 1 million before the impact of derivatives compared to $86 3 million in the fourth quarter of 2021 other.

Other revenues were $17 6 million for the quarter compared to $6 $8 million in the fourth quarter and primary related to $17 $5 million of royalty payments that were booked during the period as discussed during our prior earnings call lots of production income proceeds are available for approximately 18 months following.

Yes.

Lease operating expenses for the quarter were approximately $32 9 million or $17 92 per Boe.

An increase of approximately $3 5 million compared to $29 4 million or $15 34 per Boe in the fourth quarter. The increase was primarily attributable to incremental expense workover projects in Oklahoma barrel in the Eagle Ford and higher costs, resulting from inflation across our asset base.

<unk> this quarter was $8 million or $4 36 per Boe.

<unk> to $6 1 million or $3 20 per Boe in the fourth quarter. The increase is primarily due to an accounting reclassification of plant processing charges from revenue deduction to GPT expenses, resulting from taking our gas in kind in Oklahoma during the fourth quarter of 2021.

By taking our gas in kind in Oklahoma. The company has greatly improved our natural gas pricing differential irrespective of the increase in <unk>.

As a result of the accounting re class. This reclassification is reflected in our updated guidance.

Production and AD valorem taxes, this quarter totaled $7 6 million or $4 11 per Boe.

Compared to $6 5 million or $3 42 per Boe in the prior quarter. This increase is a function of higher revenue from improved commodity pricing.

First quarter cash G&A totaled $7 1 million or $3 87 per Boe compared to $6 2 million or $3 24 per Boe in the fourth quarter cash G&A expenses are typically highest in the first quarter of the year and the quarter over quarter increase was within expectations.

Adjusted EBITDA in the first quarter totaled $24 $9 million, approximately $14 million higher than the previous quarter cash capital spending for the first quarter was approximately $6 9 million an increase of $3 4 million in the fourth quarter of 2021 quarter over quarter increase was primarily attributable to.

Land activity in the Eagle Ford and East, Texas, and elevated Workover activity in Oklahoma to capitalize on current commodity prices.

Free cash flow was approximately $14 9 million in the first quarter of 2022, an increase of roughly $11 million from the fourth quarter of 2021.

Now to our hedge book currently we are approximately 75% hedged for the balance of 2022 and 50% hedged in 2023 across all commodities.

Our crude oil production of approximately 90% to 100% hedged for the remainder of the year and 50% to 60% hedged for 2023 on the gas side, we are approximately 85% hedged for the balance of 2022 and approximately 65% hedged for 2023, we recently took advantage of the volatility president of <unk>.

Gas market to improve the floor and ceiling on our collar positions in 2023, and we will look to layer on additional positions as opportunities arise.

I'd like to note that our NGL volumes, which represent approximately 20% of our current production are completely unhedged in 2022, and 2023, enabling the company to benefit from the improved commodity price environment.

Lastly, as a reminder, when we return beta field to production those crude oil volumes will be completely unhedged, which may provide additional upside depending on prevailing prices.

Moving onto our balance sheet as of April 30th amplify had net debt of approximately $197 million.

Consisting of $215 million outstanding under our revolving credit facility and $18 million of cash on hand for the remainder of 2022, we will continue allocating the majority of our free cash flow to improve our balance sheet and reducing our total debt outstanding.

Our spring borrowing base Redetermination is currently underway and is expected to be completed during the second quarter of 2022.

On to guidance as detailed in the earnings release last night, we have increased our full year 2022 guidance ranges for production and adjusted EBITDA, We increased the midpoint of our production guidance to approximately 19800 Boe per day, and we have also increased the midpoint of our adjusted EBITDA guidance by 15%.

The $98 million as a result of the increase in commodity prices pricing realization and strong production performance as discussed previously guidance also reflects improved gas realizations and associated <unk> cost related to taking our gas in kind in Oklahoma, which we expect will improve our bottom line going forward.

Additional guidance details were provided in our earnings release yesterday and can be found in the latest investor presentation. Currently available on our website as a reminder, due to the uncertainty regarding betas restart timeline our guidance does not assume data returned to production in 2022, but we expect to update our guidance when additional information is available.

I'll now turn the call back to Mark.

Thank you Jason amplify our strong performance. This quarter is testament to our ability to generate substantial free cash flow from our mature diversified asset base and has allowed us to improve our full year guidance provided on our last call. We are.

Especially optimistic about the prospect of safely returning our data assets reduction, which will have a significant positive impact to our free cash flow profile.

As we look ahead to the remainder of 2022, the elevated commodity price environment has allowed us to opportunistically accelerate workable programs and explore additional non operated development opportunities within our east, Texas Eagle Ford assets. Furthermore, the previously announced marketing process of our Eagle Ford asset is expected to accelerate our commitment to delevering.

We continue to evaluate additional accretive transactions that could further drive shareholder value.

Additionally, with improved commodity pricing.

21 year and total proved reserves now of a PV 10 value of approximately $1 2 billion.

At strip pricing as of April 18, 2022, and as detailed in our Investor presentation. Our improved internal three year projections currently forecast approximately $215 million to $340 million in cumulative free cash flow.

With our significant reserve value and strong free cash flow outlook, we believe that amplify remains substantially undervalued in the current market.

Before concluding I would like to reiterate the safety remains our highest priority.

And we are continuously committed to operating safely and then amount of insurance as well being of our employees business partners and stakeholders and the protection of the environment and our surrounding communities our dedication to safety environmental stewardship operational excellence disciplined capital allocation and Delevering efforts this demonstrates our ability.

To generate significant free cash flow to drive substantial long term value for all of our stakeholders.

With that operator, we're now open for questions.

To ask a question you any depressed star one on your telephone so let's go to your question press the pound key please standby, while we compile the Q&A roster.

Your first question comes from the line of John White with Roth capital.

Good morning, guys.

Good morning, Jonathan.

You have made it clear you're not assuming beta returns to production in 2022.

Is that for a little more detail is that because you have to wait on the core of engineers or is it due to the amount of time needed for the repairs or is it a combination of those two.

So I'll take that John so while it is still to be determined. We're obviously, hoping for a return in 2022, we as we've stated we expect to take approximately three to four months and we're waiting on that final permit as we speak. So we're certainly hopeful of getting it online in 2022, but from a guidance.

Perspective, we felt like it was more appropriate to issue guidance without beta coming online until we have more clarity on exactly what date that would be so if we come back online in October we'd obviously update the guidance to reflect that.

At that time.

And that's certainly understandable.

In the three to four months that encompasses.

The decision by the Corps of Engineers and estimated repair time.

So.

And Thats basically once we get the permanent hand, that's a three to four month process from there.

Okay.

Thank you and.

Strong activity during the quarter at the Eagle Ford.

And I know you're.

Considering that for divestiture, but.

Do you see continued strong activity at the Eagle Ford for the rest of the year.

Yes, I'll start that and Jason can add if he wants to but yes, we've certainly seen an uptick in activity across the Eagle Ford Obviously, we're still.

Planning to we're so looking at the potential for divesting that asset, but obviously, we always have the opportunity to keep it as well and continue to take advantage of the extremely strong economics from the from the projects projects that are coming online.

A lot more assuming we plan for the remainder of the year that may stretch into 2023 as well.

Yeah, John the only thing I'll add there is the activity that we're seeing right now is completing the ducts that were drilled later last year, which is the seven gross wells for net debt, we anticipate coming online in the second quarter.

Continually having conversations with the operators.

On our positions about future projects, what could be coming down the pipeline from both a re completion reflag frac standpoint, and from new drill. So we would anticipate additional activities we continue through the year.

And then just like to once again reiterate the divestiture process is still very much ongoing so.

Where we can kind of pivot depending on what provides the best outcome for the company.

I appreciate that.

Are you marketing the property with internal resources or have you hired an adviser.

We have an advisor marketing it for us.

Okay, well, good luck with that and <unk>.

Congratulations on the nice results.

Free cash flow and.

Most of all.

You are.

Your regulatory progress on beta congratulations on that.

Thank you John .

That's all right.

And there are no further questions in queue at this time I will turn the call back over to management for closing remarks.

I'd just like to say, thank you to everyone for joining us today.

I'd like to conclude by now.

Expressing my appreciation to the company's employees for their outstanding efforts and dedication as always I would also like to thank all of our stakeholders for their continued support and patience as we as we move through this process as always please don't hesitate to reach out to us if you have any additional questions. Thank you.

Sure.

And this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Welcome to amplify Energy's first quarter 2022, Investor Conference call amplify its operating and financial results were released yesterday after market close on May four 2022 and are available on amplifies website.

056, and then entering conference I D number 6891368 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 financial.

Actual operator.

Officer of amplify Energy Corp. Please go ahead Sir.

Before we get started we would 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.

For additional detailed disclosure we encourage you to read our Form 10-Q that was filed yesterday afternoon.

Final comments regarding performance during the quarter current projections and strategic goals. Following our prepared remarks, we will have a question and answer session.

Before we get into the quarterly results I would like to provide an update regarding the progress we have made towards returning our southern California assets to production during.

We are now working cooperatively with the Army Corps of engineers to obtain the remaining permit to commence repair operations, although we cannot predict when we will receive approval from the court, we expect that within three to four months from approval date, we can complete the FEMSA approved repairs satisfy the regulatory requirements to safely restart pipeline and returned the platform production.

Now onto the quarter production for the first quarter averaged approximately 20400 barrels of oil equivalent per day down slightly from 2800 barrels of oil equivalent per day in the fourth quarter of 2012 one.

As a result of production outperformance and improved pricing realizations, we've increased our full year 2022 production and adjusted EBITDA guidance, which Jason will detail later on the call.

Capital spending for the first quarter was approximately $6 9 million.

Focus primarily on accelerated workover projects in Oklahoma to capitalize on current commodity prices and non operated Eagle Ford and East, Texas development programs.

Free cash flow defined as adjusted EBITDA less capex and cash interest expense was approximately $14 9 million in the first quarter of 2022.

And provides free cash flow outlook has continued to improve since our last earnings call and we now expect to generate $215 million with $340 million in cumulative free cash flow over the next three years, a significant increase from the $150 million to $250 million stated during our last call.

Now for an update on our operations in Oklahoma amplifiers currently running three workover rigs as part of our accelerated program to return offline wells to production and converting ESP to Rod lift. This program continues to support our comprehensive strategy for production and expense optimization and will generate incremental free cash flow for the company going forward.

Sure.

High return projects as they arise.

In the Eagle Ford, we continue to optimistically participated in attractive projects with the highest economic viability operators are actively developing their positions in areas in which we jointly own interests and as expected at seven gross <unk> for net new development wells will be online by the end of the second quarter of 2022.

At barrel production increased approximately 4% quarter over quarter as a result of improved run times and positive results from Workovers and well stimulations performed earlier this year.

Our annual facility maintenance turnaround is scheduled for up to 10 days in June which will reduce production for the second quarter.

We continue to implement technological improvements to enhance operational performance and efficiencies and maximize the economic return of our Workover program.

I will now turn the call over to Jason to provide a detailed review of our financial and operational results.

Production for the first quarter averaged approximately 20400 Boe per day with the commodity mix of 32% oil, 18% Ngls and 50% gas.

Total oil and natural gas and NGL revenues for the first quarter of 2022 were approximately $93 1 million before the impact of derivatives compared to $86 3 million in the fourth quarter of 2021 other.

Other revenues were $17 6 million for the quarter compared to $6 $8 million in the fourth quarter and primary related to $17 $5 million of lumpy payments that were booked during the period as discussed during our prior earnings call lots of production income proceeds are available for approximately 18 months following.

Yes.

Lease operating expenses for the quarter were approximately $32 9 million or $17 92 per Boe.

An increase of approximately $3 5 million compared to $29 $4 million or $15 34 per Boe in the fourth quarter. The increase was primarily attributable to incremental expense workover projects in Oklahoma barrel in the Eagle Ford and higher costs, resulting from the inflation across our asset base.

<unk> this quarter was $8 million or $4 36 per Boe compared to $6 1 million or $3 20 per Boe in the fourth quarter. The increase is primarily due to an accounting reclassification of plant processing charges from revenue deduction, <unk> expenses, resulting from taking our gas in.

Kind in Oklahoma during the fourth quarter of 2021.

By taking our gas in kind in Oklahoma. The company has greatly improved our natural gas pricing differential irrespective of the increase in <unk> as a result of the accounting re class. This reclassification is reflected in our updated guidance.

Production and AD valorem taxes, this quarter totaled $7 6 million or $4 11 per Boe compared to $6 5 million or $3 42 per Boe in the prior quarter. This increase is a function of higher revenue from improved commodity pricing.

Adjusted EBITDA in the first quarter totaled $24 $9 million approximately $14 million.

Higher than the previous quarter cash capital spending for the first quarter was approximately $6 9 million an increase of $3 4 million in the fourth quarter of 2021 quarter over quarter increase was primarily attributable to planned activity in the Eagle Ford and East, Texas and elevated workover activity in Oklahoma to capitalize on.

Current commodity pricing free.

Free cash flow was approximately $14 9 million in the first quarter of 2022, an increase of roughly $11 million from the fourth quarter of 2021.

Now to our hedge book currently we are approximately 75% hedged for the balance of 2022 and 50% hedged in 2023 across all commodities.

Our crude oil production is approximately 90% to 100% hedged for the remainder of the year and 50% to 60% hedged for 2023 on the gas side, we are approximately 85% hedged for the balance of 2022 and approximately 65% hedged for 2023, we recently took advantage of volatility president of <unk>.

<unk> market to improve the floor and ceiling on our collar positions in 2023, and we will look to layer on additional positions as opportunities arise.

Would like to note that our NGL volumes, which represent approximately 20% of our current production are completely unhedged in 2022, and 2023, enabling the company to benefit from the improved commodity price environment.

Lastly, as a reminder, when we return beta field to production those crude oil volumes will be completely unhedged, which may provide additional upside depending on prevailing prices.

Moving onto our balance sheet as of April 30th amplify had net debt of approximately $197 million.

Consisting of $215 million outstanding under our revolving credit facility and $18 million in cash on hand for the remainder of 2022, we will continue allocating the majority of our free cash flow to improve our balance sheet and reducing our total debt outstanding.

Our spring borrowing base Redetermination is currently underway and is expected to be completed during the second quarter of 2022.

Additional guidance details were provided in our earnings release yesterday and can be found in the latest investor presentation are currently available on our website as a reminder, due to the uncertainty regarding betas restart timeline our guidance does not assume data returned to production in 2022, but we expect to update our guidance when additional information is available.

I'll now turn the call back to Mark.

We are especially optimistic about the prospect of safely returning of data assets reduction, which will have a significant positive impact to our free cash flow profile.

As we look ahead to the remainder of 2022, the elevated commodity price environment has allowed us to opportunistically accelerate workover programs and explore additional non operated development opportunities within our east, Texas Eagle Ford assets.

Furthermore, the previously announced marketing process of our Eagle Ford asset is expected to accelerate our commitment to delevering, while we continue to evaluate additional accretive transactions that could further drive shareholder value.

Additionally, with improved commodity pricing or 2021 year and total proved reserves now of a PV 10 value of approximately $1 2 billion.

Strip pricing as of April 18, 2022.

As detailed in our Investor presentation, our improved internal three year projections currently forecast approximately $215 million to $340 million in cumulative free cash flow with our significant reserve value and strong free cash flow outlook, we believe that amplify remains substantially undervalued in the current market.

Before concluding I would like to reiterate that safety remains our highest priority.

We are continuously committed to operating safely and in a manner of insurers the well being of our employees business partners and stakeholders and the protection of the environment and our surrounding communities our dedication to safety environmental stewardship operational excellence disciplined capital allocation and Delevering efforts this demonstrates our ability.

To generate significant free cash flow and to drive substantial long term value for all of our stakeholders.

With that operator, we're now open for questions.

To ask a question you any depressed star one on your telephone so let's go to your question press the pound key please standby, while we compile the Q&A roster.

Your first question comes from the line of John White with Roth capital.

Good morning, guys.

Good morning, Jonathan.

You have made it clear you're not assuming beta returns to production in 2022.

Is is that for a little more detail is that because you have to wait on the core of engineers or is it due to the amount of time needed for the repairs or is it a combination of those two.

So I'll take that John .

While it is still to be determined we're obviously, hoping for a return in 2022.

Say that we expect to take approximately three to four months and we're waiting on that final permit as we speak. So we're certainly hopeful of getting it online by 2022, but from a guidance perspective, we felt like it was more appropriate to issue guidance without beta coming online until we have more clarity on exactly what date.

That would be so if we come back online in October we'd obviously update the guidance to reflect that.

At that time.

And that's certainly understandable.

In the three to four months that encompasses.

The decision by the Corps of Engineers and estimated repair time.

So that's basically once we get the permanent hand, that's a three to four month process from there.

Okay.

Thank you and.

Strong activity during the quarter at the Eagle Ford.

And I know you're.

Considering that for divestiture, but.

Do you see continued strong activity at the Eagle Ford for the rest of the year.

Yes, I'll start that and Jason can add if he wants to but yes, we've certainly seen an uptick in activity across the Eagle Ford Obviously, we're still.

Planning to we're sort of looking at the potential for divesting that asset, but obviously, we always have the opportunity to keep it as well and continue to take advantage of the extremely strong economics from the from the projects projects that are coming online.

A lot more assuming we plan for the remainder of the year that may stretch into 2023 as well.

Yeah, John the only thing I'll add there is the activity that we're seeing right now is completing the ducts that were drilled later last year, which is the seven gross wells four net that we anticipate coming online in the second quarter.

Continually having conversations with the operators.

On our positions about future projects, what could be coming down the pipeline from both a re completion reflag frac standpoint, and from new drills. So we would anticipate additional activities we continue through the year.

And then just like to once again reiterate the divestiture process is still very much ongoing.

Where we can kind of pivot depending on what provides the best outcome for the company.

I appreciate that.

Are you marketing the property with internal resources or have you hired an adviser.

We have an advisor marketing it for us.

Okay well.

Good luck with that and congratulations on the nice results.

Free cash flow and.

Most of all.

Your regulatory progress on beta congratulations on that.

Thank you John .

That's all I had.

And there are no further questions in queue at this time I will turn the call back over to management for closing remarks.

I'd just like to say, thank you to everyone for joining us today I'd.

I'd like to conclude by.

Expressing my appreciation to the company's employees for their outstanding efforts and dedication as always I'd like to thank all of our stakeholders for their continued support and patience as we as we move through this process as always please don't hesitate to reach out to us if you have any additional questions. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q1 2022 Amplify Energy Corp Earnings Call

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