Q3 2023 Amplify Energy Corp Earnings Call
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Press Star Zero.
Welcome to amplify Energy's third quarter, 'twenty twenty-three Investor Conference call.
<unk> operating and financial results were released yesterday after market close on November six 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.
Today's call is being recorded.
A replay of the call will be accessible until Tuesday November 21st by Dialling 806.
Six five for 1563, and then entering access code 101.
90845.
I would now like to turn the conference call 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 third 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 assurances 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, which was filed yesterday afternoon.
Also non-GAAP financial measures may be disclosed during this call.
Reconciliations of those measures to comparable GAAP measures, maybe found in our earnings release or on our website at www Dot amplify energy Dot com.
During the call Martin wheelchair amplify as President and Chief Executive Officer will provide an update regarding our strategic initiatives, our third quarter performance.
And an update on our sustainability efforts.
Dan Furby Senior Vice President and Chief operating Officer will provide an overview of third quarter operational performance.
Following that I will discuss third quarter financial results provide an update on our balance sheet and liquidity and provide additional details on our hedge book.
Finally, Martin will provide final thoughts before opening the call up for questions with that I hand, it over to Martin.
Thank you Jim.
The restart of operations at beta and substantial reduction in debt outstanding have positioned amplify to evaluate strategic opportunities focused on enhancing shareholder value.
We are pleased to announce several near term strategic initiatives in more detail today.
The company has hired an investment banking firm to pursue monetization of our oil producing assets in barrel, Wyoming. We are exploring a complete divestiture of the asset while also considering alternative structures with the goal of maximizing value for our shareholders. The marketing process will commence in the first quarter of 2024.
Second our beta we've conducted an in depth technical review of the undeveloped potential in the field and will recommence a development program in the first half of 'twenty 'twenty four.
Economics at current oil prices are extremely attractive with IRR is well in excess of 100% for wells that can be drilled and completed for approximately $5 million to $6 million.
The low variable cost nature of this asset allows us to add production with marginal increases in operating costs greatly enhancing the profitability of the field.
We expect this development program when combined with cost savings initiatives outlined on prior calls and at the low decline nature of wells at this heavy oil reservoir to profitably extend the life of the asset.
Lastly, we have also created a wholly owned subsidiary Magnify energy services, which will provide a variety of oilfield services to amplify operated wells, beginning in east, Texas, and Oklahoma, magnifies, providing compression well testing and other well maintenance services.
Over time, we may expand magnifies capabilities into other service lines and operating areas.
I will improve the company's profitability by providing services are lower cost than current alternatives, while allowing the company to have greater access to and control over these critical services.
We look forward to executing these strategic initiatives, which could further reduce leverage and potentially accelerate amplify the ability to return capital to shareholders.
Amplify is third quarter operational and financial results were in line with internal projections, including the impact of the planned barrel turnaround in September.
Since restarting operations with Meda in late April production volumes have continued to exceed initial projections and the wells brought back online have experienced fewer complications and expected.
As a result production is higher and costs were lower than initially anticipated in the third quarter. The company generated adjusted EBITDA of $19 $5 million and free cash flow of $6 1 million.
Yesterday amplify issued its inaugural sustainability report, which provides increased transparency to our stakeholders regarding our business and operating practices.
This report details our safety procedures environmental performance efforts to enhance the long term sustainability of our business and dedication to sound corporate governance.
We are committed to continuing to improve our disclosures and to providing updates on our sustainability milestones.
With that I will now turn it over to Dan to discuss operational highlights from the quarter.
Thank you Martin totaled.
Total production for the quarter averaged approximately 20600 barrels of oil equivalent per day, consisting of 38% oil, 18% Ngls and 44% natural gas.
As expected third quarter production of barrel of oil was impacted by our planned turnarounds, where the field was shut in for 10 days to perform maintenance and facility improvements.
In addition to the turnaround a significant flooding that impacted production and operation for several days.
Data, we accelerated our electrification project to utilize more onshore power from the local electric utility <unk>.
Installation of the upgrades required intermittent production interruptions during the quarter.
For the fourth quarter, we expect higher production as their oil volumes returned to pre turnaround levels and beta production continues to increase.
Current production rates at beta are back to pre shutdown levels with additional wells scheduled to be returned to production.
We anticipate having higher gross production rates compared to the pre shutdown periods before thats, a new development drilling plan for 2024.
Effective well treatments, including acid stimulation jobs utilize a coiled tubing unit are generating higher production rates as we return wells to production.
For the third quarter lease operating expenses were $37 $1 million gathering.
Processing and transportation costs were $5 million and production taxes were $4 $9 million.
In total these costs were approximately $1 $8 million higher than the previous quarter, partly offset by approximately $225000 of income generated by magnify energy services.
The increase was driven by expenses related to the restart of beta and the bare oil flooding of that.
We expect to reduce operating expenses in the coming quarters as our cost saving initiatives start to take effect. Some of these initiatives include electrifying. It significant course of the beta platforms to reduce diesel usage. The installation of selective catalytic reducer is that beta to eliminate Michigan credit purchases.
<unk> well as the more efficient artificial lift method and Oklahoma.
And continuing to scale magnify to provide additional in sourcing pressors and services.
The company's total capital investment for the quarter was approximately $9 $7 million. The majority of this capital was invested in the facility upgrade that data related to the electrification of the platforms and the planned facility turnaround at their oil, which will improve efficiencies of the assets.
Capital investments for the remainder of 2023 will focus primarily on the continuation of the <unk> projects and additional capital work overs that data.
With that I will turn it over to Jim.
Thank you Dan.
I would now like to discuss third quarter financial performance balance sheet and liquidity and hedging.
With respect to third quarter financial performance the company reported a net loss of approximately $13 4 million compared.
Compared to $9 $8 million of net income in the prior quarter.
The decrease was primarily attributable to noncash unrealized losses on commodity derivatives from rising commodity prices during the period.
As Martin previously mentioned third quarter, adjusted EBITDA was $19 5 million up $1 $9 million from the prior quarter.
The quarter over quarter increase in adjusted EBITDA was primarily due to higher commodity prices.
Looking forward, we are reaffirming our guidance range of $80 million to $100 million of adjusted EBITDA for 2023.
With respect to costs third quarter lease operating expenses were up $2 $2 million versus the prior quarter.
On a per BOE basis, we were up 6% compared to the prior quarter.
Year to date LOE has averaged $18 84 per Boe.
Which is in line with our guidance.
As Dan mentioned, we think there are several opportunities to reduce LOE and the company is actively pursuing those initiatives.
Comparing the third quarter to second quarter gathering transportation and processing costs were 3% lower while production taxes were 5% lower on a per Boe basis.
Cash G&A in the third quarter with $6 5 million, which was up $3 million from the prior quarter and in line with expectations.
We expect cash G&A to remain flat in the fourth quarter.
In the third quarter, we incurred $4 $5 million of interest expense up $8 million compared to the prior quarter, primarily due to writing off $7 million associated with the prior credit facility.
Free cash flow defined as adjusted EBITDA less capex and cash interest expense was $6 1 million in the third quarter of 2023 and was in line with expectations.
Amplify has generated positive free cash flow and nine of the last 10 quarters illustrating our strong sustainable cash generating potential.
Cumulatively through the third quarter amplify has generated $23 $6 million of free cash flow.
Similar to adjusted EBITDA, we are reaffirming our full year free cash flow guidance of 30% to $50 million.
On October 19, 2023, we completed our regularly scheduled semi annual redetermination of our borrowing base, which was reaffirmed at $150 million with elected commitments of $135 million.
The next Redetermination is expected to occur in the second quarter of 2024.
As of October 31 <unk>.
Amplify had net debt of approximately $104 million.
Consisting of $120 million outstanding under our revolving credit facility and $16 million of cash on hand.
Net debt has been reduced $79 million or 43% since December 31 2022.
Companys liquidity was approximately $31 million and net debt to last 12 months adjusted EBITDA was approximately one two times.
Finally, I would like to discuss our hedge book.
As previously announced we added substantially to our oil and gas derivative positions covering the next three years of production to satisfy the covenants under our new credit facility.
Improving commodity prices in late summer enabled us to execute trades at attractive levels that support our cash generation profile and provide upside participation should prices increase in the future.
As of November six our forecast of crude oil production was approximately 65% to 70% hedged for the remainder of 2023 and 2024.
45% to 50% hedged for 2025, and 15% to 20% hedged in 2026.
On the gas side, we are approximately 75% to 85% hedged for the remainder of 2023 through 2025, and 40% to 45% hedged in 2026.
With that I'll turn the call back to Martin.
Thank you Jim over the past 18 months. The company has continued to deliver on its promises having brought beta back online and steadily increased production in a deliberate manner and successfully refinancing our debt under our new credit facility amplify is now positioned to unlock additional value from our mature diversified portfolio of cash flow generating asset.
As we near the end of 2023, we reaffirm our 2023 full year guidance and our focus on executing on our strategic initiatives with that operator, we're now open for questions.
And at this time, if you'd like to ask a question. Please press the star and one on your telephone keypad.
You may withdraw your question at any time by pressing star to once again to ask a question. Please press the star and one on your telephone keypad.
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And once again that is star and one to ask a question.
And as a final reminder, that is star and wanted to ask a question.
And it appears that we have no questions. At this time I will now turn the program back over to our presenters for any additional or closing remarks.
Thank you.
As always we like to listen to questions that have come in to us through our investors.
Kind of aggregate them and respond to them so Jamie.
Jamie if you'd like to ask some questions that have come in.
So I think the first question that came in.
Around magnify, so obviously, we've announced that for the first time and the question is around what is magnifies potential what could it be how are you guys thinking about that so.
Dan if that's something you want to you want to take.
Yes, we appreciate the question.
Yes, we see magnify.
<unk> as a way to help us better control costs and the reliability of services, we use in the field daily.
Over the past couple of years Theres been obviously inflation pressure on prices and we've seen some instances where trouble getting certain services. So we think by in housing. Some of these services will help us to.
Better control our own destiny.
<unk>.
Thus far we've spent a pretty nominal amount of capital on this endeavor and the payback on this investment has been a matter of months. So these are very.
Hi, quick payback high margin services, we're bringing in house and like we mentioned.
In our remarks that most of the compression well testing equipment and some other ancillary services.
Just overall, our type of assets mature low decline assets. We expect it's very important to try to squeeze every bit of low cost out of the system as we can and this is a way we think we can help do that.
Thanks for the question.
Another question I guess I can take so there's been some questions around the barrel oil marketing process.
Why are we thinking about that asset.
What our plans are there timing et cetera, So I guess first and foremost we believe it's a great asset.
With a great operating team.
<unk> is a significant amount of cash flow for us and it's a low decline asset.
That all being said based on where it is it might have more value to somebody else, especially if they can leverage any kind of infrastructure. They may have in the area. So.
We're going to run a dual process, we've hired an investment bank to do that we will pursue both an outright asset sale as well as other alternative monetization structures.
There've been a lot of folks in our industry recently announcing asset backed securitizations. So that's something we will pursue it.
Parallel with that asset.
Our goal would be to maximize the value.
And.
Part and parcel of that is our current credit facilities.
<unk> had some restrictions on when we are allowed to return capital to shareholders, most notably we need to have capacity or availability above 30% pro forma for any capital return. We do so certainly if we were to monetize the asset at the appropriate value that would allow us to accelerate any kind of return of capital.
Options that we may have at our disposal.
Lastly.
I guess I would say, we're under no real pressure to sell the assets. So we will only transact if the value exceeds what we believe to be the whole value.
We think we will run a thorough process with our investment bank adviser.
But we'll have more to announce upon that next next year. Following the first quarter. When we initiate the process. So I think that covers most items related to to.
Two barrel oil.
Uh huh.
So the final thing I guess that came up and it was part of the three strategic updates was any kind of information around data. So Martin do you want to you want to take that suddenly.
Obviously beta that an important asset to us and we've been spending time money effort to get that asset back up to full production.
Already is and going higher thanks to the efforts of Dan and the operating team out of beta.
So really encouraged about where we are obviously, we had to as we've done. This we've also been initiating the cost reduction initiatives, which we havent seen start flow through financials in that youll start to see them in the fourth quarter and going into next year, but we have substantially reduced diesel usage, which will start to flow into the financials.
<unk> has an impact on emissions credits and things of that nature that we spend money on so all of that is coming through the fourth quarter and beyond.
But we've also looked at and we did this back in 2021 is there isn't.
Incredible opportunity here to develop this asset as we mentioned before this is a this is largely a fixed cost asset and there is very little incremental variable costs from bringing new production online.
With are moving to the power generated from from electricity and shore power, it's even less and so these are wells that are $5 million to $6 million have very short paybacks of call. It six to 12 months at current pricing.
And we're really intrigued by the potential of these wells going forward. So.
We've been we waited until we've got most of the Workovers done we are obviously going to try to kind of finish off the majority of the workers through the end of the year in the very beginning of next year and then quickly pivot into that development program. We're currently expecting we're planning about four wells, obviously, we have some flexibility there the better things go the more we can make them.
Potentially increase the number of wells going forward, but it's currently planned at a four well program in 'twenty four and a three well program in 'twenty five, but obviously, we have flexibility there depending on how things progress, but we're really excited about like I said, the fact that we're already back at pre.
I appreciate that levels and going higher is where throughout the quarter and going into next year and once again that development program will be on top of that so I'm really excited about the potential for that asset.
But that I think thats all the the kind of the aggregated questions. We got from our shareholder base. Obviously, we are available to shareholders, who want to call in and ask additional questions.
But I'd just like to close by saying, Thank you to all of our employees for their outstanding efforts and dedication and also I'd like to express my appreciation to our syndicate lender in all of our shareholders for their patience and.
Their support thank you for participating on the call today and as always if there are any questions. Please don't hesitate to reach out. Thank you everyone.
Yes.
That concludes today's teleconference. Thank you for your participation you may now disconnect.
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