Q2 2023 Amplify Energy Corp Earnings Call
To amplify Energy's second quarter 2023, Investor Conference call.
<unk> operating and financial results were released yesterday after market close on August eight 2023 and are available on amplifies website.
Www dot amplify energy Dot com.
During today's conference call all participants will be in a listen only mode.
Today's call is being recorded.
A replay of the call will be accessible see August 23rd by Dialling 800.
654.
1563, and then entering access code 76231111.
I would now like to turn the conference over to Jim <unk>, 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 2023.
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 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.
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, which 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 wheelchair amplifies, President and Chief Executive Officer will provide an update regarding our second quarter performance and the closing of our new revolving credit facility.
Next Dan Furby, Senior Vice President and Chief operating Officer, who will provide an overview of second quarter operational performance.
Knowing that I will discuss second quarter financial results provide an update on our balance sheet and liquidity.
Additional details on our hedge book.
Finally, Martin will provide a strategic update before opening the call up for questions with that I hand, it over to Martin.
Thank you Jim amplify continued its strong start to 2023, both operationally and financially since restarting operations that beta in late April production volumes have continued to exceed the initial projections. The wildfire brought back online have had fewer issues than expected and as a result production is higher and costs are lower than previously anticipated.
In the second quarter. The company also realized higher production in the Eagle Ford due to wells brought online at the end of the first quarter.
Although natural gas and NGL prices were significantly lower compared to the first quarter. The company still generated second quarter, adjusted EBITDA of $17 $6 million and free cash flow of $6 $1 million.
As announced on August 1st we successfully closed on a new four year revolving credit facility, Jim will provide additional details on this call, but we are very pleased to have completed the deal despite a very challenging credit market.
The new revolving credit facility provides the company with sufficient liquidity to pursue our near term initiatives and flexibility to execute on our longer term strategic goals. We greatly appreciate the support of our lenders and we look forward to working closely with them moving forward.
With that I'll now turn it over to Dan discuss operational highlights from the quarter.
Thank you Martin.
Total production for the quarter averaged approximately 21200 barrels of oil equivalent per day, which was in line with our expectations and up 9% from the previous quarter, consisting of approximately 38% oil, 17% Ngls and 45% natural gas the increase in second quarter production was driven by a partial.
Order a beta production after the restart in late April equal for development that was brought online at the end of the first quarter and the continued execution of low cost high return Workover projects.
For the remainder of the year, we expect flat to slightly increasing production production increases in the second half of the year will be driven by incremental oil volumes at beta and accretive workover and compressor optimization projects.
This will be partially offset by lower third quarter production at bear oil, which will be temporarily impacted by a scheduled shutdown in September .
The turnaround there oil will reduce third quarter production, we intend to perform preventive maintenance on all critical facilities and equipment, while also upgrading our injection system fees.
These changes will enable us to inject more water NCR to you and to the reservoir, which we expect will improve the efficiency of the flood and in turn further reduce the already low natural production decline of the asset.
With respect to beta our Workover program is progressing ahead of schedule.
Well responses, we're seeing are very encouraging as we were utilizing a coil tubing unit to perform more efficient clean outs other production liners compared to historic Workovers.
We expect to be back to pre shutdown production rates in the fourth quarter of this year.
We remain focused on improving operational efficiencies and cost reduction initiatives across all asset areas for the second quarter lease operating costs were $34 $9 million gathering processing and transportation costs were $5 $1 million and production taxes were $5 $2 million.
In total these costs were 7% lower than the prior quarter on a per Boe basis.
We intend to further reduce our total operating costs through the remainder of 2023 by pursuing other opportunities such as electrifying a significant portion of the beta platforms to reduce power expenses in sourcing company own compressor to replace high cost rental compression in east, Texas and converting wells.
A more efficient artificial lift methods in Oklahoma.
Our team is continuing to evaluate additional cost savings opportunities that we will be implementing in the near future consisting of the in sourcing of specific and critical service equipment that the company will own and operate utilizing different artificial lift configurations to reduce failures and upgrading our oilfield chemical programs.
<unk> increased efficacy at a lower cost.
The company's total capital investment for the quarter was approximately $7 9 million in the Eagle Ford, We invested $1 4 million when the remaining expenditures associated with the 10 gross one net wells.
Which were brought online at the end of the first quarter.
The company also invested $1 $4 million in Oklahoma, Workover projects and $4 $7 million that data as we continued to optimize the beta field production and facilities. The company's capital investments for the remainder of 2023 will focus primarily on data and bear oil facility projects.
The beta facility upgrades will allow the asset to be operated with much lower power costs, while greatly reducing overall emission the reduction of emissions will also significantly reduce the emission credit expenses currently incurred by the company as part of La.
The pair oil capital will greatly improve the efficiency of the asset and improve the overall operations of the Cotwo flood.
With the return of the beta field production, we have a liquid rich low decline asset base, consisting of a prolific oil field in beta with significant remaining upside a large inventory of low cost extremely accretive workover projects across our onshore assets and several high impact cost saving initiatives.
Coming to fruition in the second half of this year, all of which will continue to drive higher operating margins for the organization.
With that I'll turn it over to Jim.
Thank you Dan.
I would now like to discuss second quarter financial performance balance sheet and liquidity and hedging.
With respect to second quarter financial performance. The company reported net income of approximately $9 8 million compared.
Compared to $352 8 million in the prior quarter.
As previously reported first quarter net income included the receipt of $84 9 million in net proceeds from the beta settlement and recognition of a $259 5 million deferred income tax benefit which were both nonrecurring items.
As Martin previously mentioned second quarter, adjusted EBITDA was $17 6 million.
So down $8 $2 million from the prior quarter. The results are in line with our annual guidance the.
Quarter over quarter decrease in adjusted EBITDA was primarily due to decreases in commodity prices and the termination of <unk> proceeds.
Compared to the prior quarter net of hedges gas prices were down 27%, while NGL prices were down 17%.
With the recent improvement in oil prices and beta back online, we are reaffirming our guidance range of $80 million to $100 million.
Adjusted EBITDA for 2023.
With respect to costs second quarter lease operating expenses were up $1 $9 million versus the prior quarter, primarily due to beta coming back online.
On a per BOE basis, we were down 4% compared to the prior quarter.
As Dan mentioned, we think there are several opportunities to further reduce LOE in the second half of the year.
Comparing the second quarter to the first quarter gathering transportation and processing costs were 17% lower while production taxes were 11% lower on a per Boe basis.
These cost savings were primarily due to lower physical commodity prices.
Also of note minimum volume commitments associated with our Oklahoma NGL production ended on June 30, which will further reduce our future GPT expenses.
Cash G&A in the second quarter was $6 2 million.
Which was down $1 4 million from the prior quarter and in line with expectations, We expect cash G&A to remain at this level throughout the remainder of 2023.
In the second quarter, we incurred $3 $7 million of interest expense this was down $2 million compared to the first quarter.
The decrease in interest expense was primarily due to significantly paying down our debt outstanding with a portion of the proceeds from the beta settlement.
Free cash flow defined as adjusted EBITDA less capex and cash interest expense was $6 1 million in the second quarter of 2023 and was in line with expectations.
Through the first half of the year amplify has generated $17 $5 million of free cash flow.
Similar to adjusted EBITDA, we are reaffirming our full year free cash flow guidance of $30 million to $50 million.
As Martin mentioned on July 31, 2023, the company entered into a new senior secured reserve based revolving credit facility with Keybank acting as the administrative agent.
The facility has a four year term with an initial borrowing base of $150 million.
The borrowing base will be re determined on a semi annual basis with the next redetermination expected to occur in the fourth quarter of 2023.
At closing participants committed $135 million, providing ample liquidity for the company.
Similar to Martin I would like to thank Keybank and our syndicate of lenders for their support and resolve to successfully close the deal.
After the closing of the credit facility on July 31, amplify had net debt of approximately $113 million consisting.
Consisting of $120 million outstanding under its revolving credit facility and $7 million of cash on hand.
The company's liquidity was approximately $22 million.
And net debt to last 12 months adjusted EBITDA was approximately one two times.
Finally, I'd like to discuss our hedge book as of July 31, our forecast in crude oil production was approximately 65% hedged for 2023 and 5% hedged in 2024.
On the gas side, we were approximately 75% hedged for 2023 and 15% hedged for 2024.
With the new credit facility now in place we are required to increase our hedge positions covering the next 36 months of expected production the.
The company is currently executing a program to meet its hedging requirements under the new credit facility. We plan to provide updated hedge information before our next quarterly conference call.
With that I'll turn the call back tomorrow.
Thank you Jim as we progress through 2023, we expect to increase our free cash flow profile through prudent asset management and capital allocation lower leverage and increasing contributions from Bain has returned to production at this time, we are reaffirming our 2023 four year guidance, but increasing our forecasted 2023.
Through 2025 free cash flow to approximately $200 million at current strip pricing.
Our strategic focus near term is to continue to build production rates up data, while pursuing the cost cutting initiatives and accretive investments that Dan outlined earlier. Additionally over the last several months amplify his management team and board have been in collaborative discussions on our path forward and with the certainty provided by our recent financing we expect to be able to finalize certain.
Decisions on our strategic direction in the coming months.
We appreciate the support of all of our shareholders as we continue to put the events over the last couple of years behind us and focus on the value enhancing options available to us moving forward with that operator, we are now open for questions.
And at this time, if you would like to ask a question. Please press star one on your telephone keypad.
You may withdraw your question at any time the pricing start to.
Once again to ask a question. Please press star one on your telephone keypad.
One moment, while we queue.
And we will take our first question from John White with Roth.
Kim.
Please go ahead.
Good morning, and.
Relations on a good quarter and congrats on your new credit facility.
Hey, Jeff I appreciate that.
A little more detail on beta.
If we could.
If you have it what was production before the pipeline incident compared to where it is currently.
Sure.
Obviously prior to the incident, we are approximately around 4000 barrels a day gross.
We are approaching that now as we kind of got into the third quarter were more than.
A few hundred barrels a day away from reaching that target. So we expect to get there either maybe later in the third quarter early in the fourth quarter and with our current rate of Workovers and so we've made a lot of progress over the last couple of months. Obviously this quarter you didn't see any production at all in pretty much in April and you are ramping up <unk>.
May and June , but obviously in the third quarter Youll see a much for full quarter of.
Close to at least.
Production from the beta asset, which.
Will more than offset the loss of lumpy that way.
During this quarter reduced our revenue a little bit.
Okay I appreciate that and the water production is in line with your expectations.
Yes, absolutely so where we're seeing good results and like I said no.
We view the water is kind of a waterflood anyway out there. So we're re injecting the water in and like I said, we're seeing good results in <unk>.
No real degradation cross off the wells that have come back online.
That's great.
Glad to hear it I'll pass it back to the operator and come back into the queue.
Thank you.
And we will take our next question from Jeff Robertson with water Tower Research. Please go ahead.
Thanks, Martin before the incident in California, amplify had some redevelopment plans for data.
Can you talk about where you sit with those today now that the deal's come back online.
Yeah. Thank you great question Jeff.
So when we went offline obviously, we're in the middle of kind of their first come down we're actually finishing up the second well in that program.
We have permits we had pipe we had a lot of the materials already ready to go to continue that program. We are currently evaluating bringing that program back maybe as early as the beginning of next year and that will be discussed with our board. So we're going to look at the economics all over again, we're going to look at the risks in the upside and really a V.
<unk> that from the bottom up.
And before we make any decisions, but that is certainly something that is currently under discussion and I expect to be able to kind of give you an update on that by the next by the next quarterly call.
Thanks, so much.
Permits are still enforced right.
Absolutely.
Thank you.
Yes.
Okay.
And we have a follow up from John White with Roth.
Please go ahead.
Martin you.
You threw in one of your last remarks that.
The strategic direction.
<unk> considered over the coming months does that.
Does that include possible resumption of <unk>.
Dividend.
Yes, John So obviously one of the things that we have to look carefully at when we did the financing was with how it fit with our future strategy.
There are certainly options out there to create a lot more liquidity in the near term, but currently we're not looking at acquisitions.
Our primary focus so more likely to look at some portfolio optimization opportunities and look at free cash flow as a means to reserve some kind of return of capital program to shareholders.
That's all to be determined going forward and that's part of the kind of the strategic decisions that I mentioned that we will be discussing with the board going forward.
As I mentioned there is there are some in our requirements under the revolving credit facility that we need to obtain before we we can resume.
Turning capital to shareholders.
But basically that's part of the conversation that we'll be moving forward and I fully expect to be able to update our.
Our shareholders by next quarter on our plans going forward.
Well that sounds great.
Sure and a good a good spot compared to.
Last year or so.
We're regionally, where where is the focus on the workovers that it sounds like there's a lot of workovers.
The budget for the rest of the year.
So primarily Oklahoma as Scott and continuing work over program. So does east, Texas is not quite to the same level of Oklahoma and then primary obviously is in California.
Where we still have some wells offline that we are planning to bring back online next couple a couple of months and like I said that should get us back to full production rates that I mentioned earlier, we also have a workover program a barrel, it's kind of our we don't do a whole lot of drilling, but we do kind of maintained an active workover program because we can say, though is the most accretive.
Near term methods.
Production up and hitting higher rates of return.
Okay, well. Thank you. Thanks, again I'll pass it back to the operator.
Thank you.
This concludes our Q&A session I will now turn the call over to management.
Thank you.
In closing I'd like to express my appreciation to the company's employees for their outstanding efforts and dedication and especially like to express our appreciation for the support from Keybanc again in our syndicate of lenders and all of our shareholders for their patience and support as we move forward over the last couple of years.
Also like to thank everyone for participating on our call today as always if there are any questions. Please don't hesitate to reach out. Thank you.
Yeah.
And this does conclude today's program. Thank you for your participation you may disconnect at anytime.
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