Q4 2022 Amplify Energy Corp Earnings Call

Please standby your program is about to begin if you need assistance during your conference today. Please press Star zero.

Welcome to amplify Energy's fourth quarter 2022, Investor Conference call.

Amplifies operating and financial results were released yesterday after market close on March nine 2023 and are available on amplifies website at www Dot amplify energy dotcom.

During this conference call all participants will be in a listen only mode.

This call is being recorded.

A replay of the call will be accessible until Friday March 24th by dialing 800.

6541563, and then entering access code.

210.

Two one.

351.

I would now like to turn the conference call over to Eric Willis Senior Vice President and General Counsel at amplify Energy Corp.

Good morning, and welcome to the Empire Energy conference call to discuss operating and financial results for the fourth quarter of 2022.

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 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.

For additional detailed disclosure we encourage 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 these measures to comparable GAAP measures may be found in our earnings release or on our website at www Dot <unk> Dot com.

During the call Martin will assure M, Vice President and Chief Executive Officer, who will provide an update regarding our assets in southern California.

Quarter financial and operational highlights and our hedging program and balance sheet Martin will conclude our prepared remarks with comments regarding implies 2023 guidance and strategy and we will then have a question and answer session.

Thank you Eric.

Before we get into the quarterly results and our 2023 outlook I'll begin with an update regarding our southern California assets.

I'm pleased to announce that we have safely and successfully completed the scheduled repair operations to remove and replace the sections pipeline damaged by infrastructure to shipping vessels in 2021.

Upon completion of the repairs. The pipeline also underwent a series of safety tests and inspections. The results of which are being evaluated by federal regulators. We are currently awaiting regulatory approval to restart production and will update the market when we have additional clarity on timing.

In addition, as we announced last week amplify reached a $96 $5 million settlement with the vessels and their respective owners and operators, which results are affirmative claims related to the pipeline incident.

The overall resolution includes subrogation claims by amplifies property damage and loss of production income or lumpy insurers with ultra with amplify ultimately receiving a net payment of approximately $85 million.

Marine Exchange has agreed to non monetary terms as well the.

The response to the incident, resulting litigation and repair and restart operations have demand and considerable resources and focus from amplifies employees management team and board of directors.

Our eager to move forward from this unfortunate and preventable event and to dedicate all of our attention safely resuming operations at beta our business as a whole and the strategic direction of the company.

Now onto the quarter production for the fourth quarter of 2022 averaged approximately 20800 Boe per day, a reduction of 1% compared to 21000 Boe per day in the third quarter.

Quarter over quarter decrease was driven by lower production in the Eagle Ford and Oklahoma, partially offset by higher production at barrel and in East Texas.

Fourth quarter, adjusted EBITDA was approximately $21 9 million.

Compared to $30 8 million in the prior quarter. The decrease was primarily attributable to lower commodity prices, particularly natural gas and NGL prices, which were further impacted by significant natural gas basis differentials.

This impact was partially offset by lower fourth quarter commodity hedge settlement payments and a positive prior period adjustment related to loan proceeds.

Capital spending during the fourth quarter was approximately $5 5 million.

A decrease of $4 $4 million from the third quarter of 2022.

Quarter over quarter decrease was primarily attributable to a reduction in workover activity in Oklahoma, a decrease and facility capital spend at beta and reduced development expenditures in the Eagle Ford.

Free cash flow defined as adjusted EBITDA less capex and cash interest expense was $12 3 million in the fourth quarter of 2022.

Despite the substantial impact of the beta incident and lack of production from beta amplify reported $93 8 million of adjusted EBITDA and over $43 million of free cash flow for full year, 2022, which demonstrates our ability to generate substantial and sustainable cash flow and the benefits of a mature diversified asset base.

Moving on to an update on our operations in.

In Oklahoma production in the fourth quarter averaged 6600 Boe per day, a reduction of 200 Boe per day from the prior quarter, resulting primarily from adverse weather conditions third party compression issues and natural production declines at least operating expenditures were higher this quarter compared to the third quarter, primarily due to increased electrical cost from a higher number of wells in line.

During the fourth quarter, we decided to drop a workover rig from three to two as we continue working through our inventory of offline wells and artificial lift enhancements.

<unk> 2023, we believe this less capital intensive work over program focused on Rod lift conversions and ESP optimizations will continue to offset natural production declines and reduce future operating expenses and downtime.

Starting in July 2023, we anticipate lower <unk> expense as our NGL minimum volume commitment expires.

At barrel production for the quarter averaged 3700 Boe's per day and increased approximately 100 Boe per day quarter over quarter. As a result of improved run times lease operating expenses increased from the prior quarter, resulting from additional facility and Workover projects.

Going forward, we intend to focus on reducing operating costs, while targeted well re completions and conversions will drive further operational improvements and efficiencies.

In East, Texas, and North Louisiana production in the fourth quarter averaged 9500 barrels per day, which was 300 Boe per day higher than the previous quarter due to revised production volumes from our non operated properties.

We remain committed to efficiently managing production and costs, while pursuing high return workover projects and participating in accretive joint development projects.

The results from prior projects completed during the second quarter continue to exceed expectations and we intend to participate in similar high return projects in 2023 and beyond.

In the Eagle Ford fourth quarter production averaged 100 Boe per day compared to 4800 Boe per day in the third quarter as a result of production declines from new wells brought online earlier in the year. We are currently participating in 11 gross one net development projects, including two re fracs, which are projected to be online in the second quarter of 2023.

Now an update on our hedge book.

We continue to realize the benefits from rescheduled roll off of our hedge book and have the potential to capture additional upside in the current commodity price environment currently our forecasted oil and gas production is hedged approximately 50% to 60% for 2023 and 5% to 10% in 2020 for crude.

Crude oil production is approximately 30% to 40% hedged for 2023, and we are unhedged for 2024.

On the gas side, we are approximately 65% to 75% hedged for 2023, 5% to 15% hedged for 2024.

With regards to our balance sheet as of February 28, amplify had net debt of approximately $167 million.

Consisting of $185 million outstanding under our revolving credit facility and $18 million of cash on hand. This excludes the $85 million in net proceeds from the beta settlement, which will significantly reduce our leverage profile by nearly 50% to below one times by the end of this month.

Currently the company is working with new and existing capital providers to explore potential solutions to refinance or replace our revolving credit facility, which matures in may 2024.

Onto guidance yesterday, we provided operational and financial expectations for full year 2023.

Our average daily production forecast for the year ranges between 20, and 22000 Boe per day with a Colombian mix of approximately 36% oil, 17% Ngls and 47% natural gas.

Guidance assumes beta returned to production excellent and slowly ramps up to full production over the remainder of 2023.

Amplify is 2023 capital budget is forecast to be between 30, and $40 million approximately $15 million of which will be dedicated to onetime costs associated with platform electrification and other emissions reducing projects at beta.

The balance of the capital budget will be committed to joint development projects in East, Texas, and the Eagle Ford High return Workover projects routine facility maintenance across our asset base and facility and well work to restore production of beta.

Ultimately, we anticipate generating approximately $30 million to $50 million of free cash flow for the year from adjusted EBITDA of $80 million to $100 million.

Additional guidance details were provided in our earnings release it can be found in our latest investor presentation currently available on our website.

Lastly, as we progress into 2023, we expect to continue enhancing our free cash flow profile through prudent asset management and capital allocation, which will be bolstered by the roll off of our hedge book and the planned return of production that beta currently our forecasted 2023 to 2025 production is expected to climb but on average by only 1% annual.

<unk> and generate cumulative free cash flow of approximately $180 million at current strip pricing.

Our improved liquidity and leverage profile the return of production of beta and a significant free cash flow from our diversified asset base provides us with flexibility as we consider our strategic path forward and evaluate potential capital return options in conjunction with that effort the management team and board working to evaluate strategic opportunities that could further enhance.

Since April by shareholder value.

With that operator, we are now open for questions.

At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.

You may remove yourself from the queue at any time by pressing star two.

Once again that is star one to ask a question.

We will pause for a moment to allow questions to queue.

And once again that start in one if you'd like to ask a question.

I'm showing we have no questions in the queue at this time I will turn it back over to the presenters for any additional or closing remarks.

Yes. Thank you.

As usual at this point.

We will.

Spud to some questions that we've received from shareholders as well.

During since the time that we released earnings.

We will start with the beta restart.

Obviously theres a lot of interest in exactly when we're restarting at this point as our guidance suggests we are planned to come online early in an early in April of 2023, that's been consistent or obviously getting very close to that date.

Where we're still increasingly opt.

<unk> and believes that Thats, a very viable start date, we have completed everything that we need to do and right now were just working with the regulators to get that final sign off.

Secondarily, there's been questions about the free cash flow profile for 23 through 25, what the major impacts have been there I think that's largely been driven primarily by natural gas and NGL prices. Obviously, the last time, we put this out was actually 22 through 'twenty four I believe it was 235 million.

At this time, we are like I said more like $180 million, which is driven primarily like I said by natural gas and NGL prices. There is a little bit of an impact as well we are taking a more conservative approach to the ramp up on beta and we've increased cost a little bit too for potential workovers and things of that.

Nature in the short term to make sure that we are.

Allocating enough cost there during the short term to to get that production back online.

Fully up to speed hopefully by the end of the year, which is kind of the ramp up process that we have in place and the guidance forecast that you see.

Third there is a little bit of additional low but.

Current commodity prices coming down a lot from where we were towards the end of last year, I think that might actually end up being a little bit conservative as well. So those are kind of the three main drivers, but natural gas and NGL prices being the primary one.

The third is.

Questions about the strict strategy.

At this point, obviously for the last 18 months have been largely reacting to the incident and working through that process with the recent settlement ending kind of all the litigation that we are directly involved in it.

And the ability to generate free cash flow for us. This get returned the potential for strategies like we had previously which was returning capital to shareholders utilizing our yield based.

Assets to continue that program going forward.

Before we can do that we do need to refinance the existing RVO.

So we havent come forward with any direct plans yet, but those are the kinds of strategy that we're considering in the near term. Obviously, we are always considering what to do with the portfolio whether there's strategic.

Strategic decisions like divesting of certain asset of multiple assets.

And just to be clear, we're not part of any acquisition processes. At this time either so this is really where we pivot from where we've been reacting to what happened to beta to getting data back online refinancing of the credit facility and really deciding how we move forward from there, especially in return returning capital and.

Basically assessing the portfolio and what best to do with that.

At this time I think that's all the questions that we had from shareholders in closing I'd just like to express my appreciation to the company's employees for their outstanding efforts and dedication, particularly over the last 18 months. We are really excited to put the beta incident behind us at this point and actively pursue our go.

Forward strategy as I've laid out I would like to thank everyone for participating in the call today as always if there are any questions. Please do not hesitate to reach out. Thank you.

That concludes today's teleconference. Thank you for your participation you.

You may now disconnect.

No.

[music].

Okay.

[music].