Q3 2024 Amplify Energy Corp Earnings Call
Welcome to Amplify Energy's third quarter 2024 investor conference call. Amplify's operating and financial results were released yesterday after market close on November 6, 2024 and are available on Amplify's website at www.amplifyenergy.com.
During this conference call, all participants will be in a listen-only mode. Today's call is being recorded.
Speaker Change: 1-0-1-7-1-2-5-4 I would now like to turn the conference call over to Jim Frew, Senior Vice President and Chief Financial Officer of Amplify Energy Corp.
Jim Frew: Good morning and welcome to the Amplify Energy conference call to discuss operating and financial results for the third quarter of 2024.
Jim Frew: 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.
Jim Frew: Although management believes that the expectations reflected in such forward-looking statements are reasonable,
Jim Frew: 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.
Jim Frew: 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.
Jim Frew: In addition, the unaudited financial information that will be highlighted here is derived from our internal financial books, records, and reports.
Jim Frew: For additional detailed disclosure, we encourage you to read our Form 10-Q, which was filed yesterday afternoon.
Jim Frew: 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.amplifyenergy.com.
Jim Frew: During the call, Martin Willsher, Amplify's President and Chief Executive Officer, will review our third quarter performance and provide an update regarding our previously announced strategic initiatives.
Jim Frew: Next, Dan Furbee, Senior Vice President and Chief Operating Officer, will provide an overview of third quarter operational performance.
Speaker Change: 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.
Speaker Change: Finally, Martin will conclude our prepared remarks with final thoughts before opening the call up for questions.
Speaker Change: With that, I will hand it over to Martin. Thank you, Jim. Amplify continued its strong performance in the third quarter of 2024. The company generated $25.5 million of electricity per dollar, and $3.6 million of free cash flow during the quarter, both in line with
Speaker Change: As previewed in our last earnings call, we continue to evaluate several proposals regarding the modernization of our Wyoming assets in the third quarter.
Speaker Change: At this time, we believe that retaining ownership of the assets and continuing to benefit from the asset cash flows maximize value for our shareholders. While we are unlikely to transact in the near term, we remain open to a potential transaction if it is in the best interest of shareholders.
Speaker Change: At Beta, we continue to make progress in our 2024 development program. Dan will provide more details in a moment, but we are pleased to announce that we successfully drilled and brought online the C59 well in early October with strong results.
Speaker Change: With the results of the A50 and C59 wells exceeding initial projections, and the C48 expected to come online in mid-November, we intend to include a number of additional development locations into our approved reserves at year-end 2024.
Speaker Change: We are also refining our development program schedule and expect to have an updated plan with additional details in the first quarter of 2025.
Speaker Change: In the report, we discuss the significant progress we have made in the past year, including a substantial reduction in Scope 1 emissions and methane intensity. The report also details our safety procedures, environmental performance, efforts to enhance the long-term sustainability of our business, and dedication to sound corporate governance.
Speaker Change: I highly encourage our stakeholders to read the report, which can be found under the sustainability section of our website, AmplifyEnergy.com. We remain committed to continuing to improve our disclosures and to providing updates on our sustainability milestones.
Speaker Change: In summary, we continue to be excited about our development program at Beta, which has the potential to deliver outstanding returns on investment, significant incremental free cash flow, and materially improve the value of our Beta reserves.
Speaker Change: Combining this organic development with the additional non-operated investment opportunities in East Texas and the Eagle Ferd
Speaker Change: continuing focus on LOE optimization initiatives will help realize the full potential of Amplify's diverse portfolio of assets.
and deliver substantial benefits and long-term value to our shareholders.
With that, I will hand it over to Dan.
Thank you, Martin.
Dan Furbee: Total production for the third quarter averaged approximately 19,000 VOE per day.
a decrease of 1,300 BOE per day.
Dan Furbee: from the second quarter, which benefited from a one-time prior period adjustment of approximately 1,200 BOE per day. Adjusting for this one-time benefit in the second quarter, third quarter production was approximately flat for the prior quarter despite a scheduled multi-day shut-in at beta.
Speaker Change: As discussed earlier in the year, the Emissions Reduction and Electrification Project required certain electrical work to be completed for which production operations needed to be suspended for several days.
Speaker Change: Our production commodity mix for the quarter was 43% oil, 17% NGL, and 40% natural gas.
Speaker Change: For the third quarter, lease offering expenses were approximately $33.3 million, a $3 million decrease from the second quarter. Gathering, processing, and transportation costs were $4.3 million, and production taxes were $6 million.
Speaker Change: The decrease in lease operating expenses was driven by a $1.2 million reclassification of certain expenses to taxes other than income and our continued LOE optimization initiatives.
Speaker Change: These operating expenses do not reflect $800,000 of income generated by magnified energy services.
Speaker Change: Since inception, Amplify has invested approximately $1.5 million in Magnify and generated over $2.9 million in EBITDA.
Speaker Change: Going forward, we project to generate a run rate adjusted EBITDA of over $3 million per year after just over one year of operations, and we will continue to explore opportunities to expand the 9 to 5 service line through 2025.
Speaker Change: The company's total capital investment for the quarter was $18.2 million. Approximately $12 million of this capital was invested at Beta, where we have continued our development drilling program and our electrification and emissions reduction facility project.
Speaker Change: The remaining capital was invested in non-operated drilling in Eagleford and East Texas, as well as various capital workovers and facility projects across our asset base.
Speaker Change: Capital for the fourth quarter of 2024 is primarily being allocated to the 2024 Development Drilling Program data and the continuation of the non-operated drilling projects.
Speaker Change: As we noted in our second quarter earnings call in the Eagleford, the company is participating in 14 gross 0.7 net new development wells and 2 gross 0.4 net recompletion projects.
Speaker Change: In East Texas, the company is participating in four growths, one net wells, with two wells targeting the Hainesville Formation and the remaining two wells targeting the Cotton Valley Formation.
Speaker Change: These projects will provide additional volumes in cash flow in early 2025. We are also evaluating opportunities to extract incremental value from our Haynesville acreage through non-operated partnerships and potential monetization opportunities.
Speaker Change: As for our beta development program, in the third quarter we successfully drilled and completed the C59 well from the Eureka platform and brought it online in early October.
Speaker Change: The well achieved an IP30 gross oil rate of approximately 590 barrels of oil per day. The C-59 well achieved a third day IP despite being artificially restricted as we are currently producing the well with over 1,000 psi of bottom hole pressure due to our initial pump setting depth.
Speaker Change: We intend to lower the pump in the fourth quarter after giving the well sufficient time for use in the initial solids, which is often expected with gravel pack completions in the unconsolidated sands.
Speaker Change: This well was drilled in the far southern area of the beta field, which is largely undeveloped, and reservoir logs indicated excellent reservoir quality, giving us a high degree of confidence of significant future inventory in this area of the field.
Speaker Change: In early October, we spotted the C-48 well from the Eureka platform, which we are currently in the process of completing and expect to bring online in the middle of this month.
Speaker Change: The A50 well, which was the first well we completed at Beta this year, has been online for approximately five months and it's already achieved payout, with punitive production to date of approximately 85,000 gross barrels of oil, despite the impact of the planned facility shut-ins discussed on this call.
Speaker Change: With excellent results from the A50 well drilled from the Ellen platform, strong initial results from the C59 well, and high expectations for the C48 well, both drilled from the Eureka platform, we are very excited about the long-term development opportunities at Beda.
Speaker Change: After the completion of the C-48 well this month, the remainder of 2024 activity at BATA will focus on workover projects, completing the emission reduction electrification project, and preparing for a 2025 development program. With that, I will turn it over to Jim.
Jim Frew: Thank you, Dan. I would now like to discuss the following items.
Third Quarter Financial Performance, Balance Sheet and Liquidity, and Hedging.
Jim Frew: With respect to third quarter financial performance, the company reported net income of approximately $22.7 million compared to $7.1 million of net income in the prior quarter.
Speaker Change: The change was primarily attributable to a non-cash unrealized gain on commodities derivatives in the third quarter compared to an unrealized loss in the prior quarter.
Speaker Change: As Martin previously mentioned, third quarter adjusted EBITDA was $25.5 million, which was in line with expectations.
Speaker Change: Third quarter, these operating expenses were approximately $33.3 million, which were also in line with expectations.
Speaker Change: LOE was lower than the prior quarter, primarily due to continued optimization initiatives and a reclassification of certain expenses to taxes other than income.
Speaker Change: Excluding the reclassification, AMPLIFi expects fourth quarter LOE will be lower than the third quarter and in line with our guidance.
Speaker Change: With respect to other costs, third quarter GPT costs were $4.3 million, or $2.45 per BOE, while production taxes were $6 million, or 8.8% of oil and gas revenue.
Speaker Change: Taxes were higher than the prior quarter due to the previously mentioned reclassification of lease operating expense.
Speaker Change: The company anticipates that taxes as a percentage of revenue will remain within the previously announced guidance range for 2024.
Speaker Change: Cash G&A in the third quarter was $6.2 million, or $3.55 per BOE, which was down $0.4 million from the prior quarter.
Speaker Change: This decrease was in line with expectations and primarily due to lower legal fees.
Speaker Change: The company anticipates that quarterly cash G&A expenses will remain at approximately the same level in the fourth quarter.
Speaker Change: In the third quarter, we incurred $3.8 million of interest expense, up $0.2 million compared to the prior quarter.
Speaker Change: With respect to capital, Amplify invested $18.2 million in the third quarter, which was in line with internal expectations.
Speaker Change: The company's capital allocation was approximately 66% for beta facility projects and development drilling, with the remainder distributed across the company's other assets.
Speaker Change: As Dan mentioned, we are also participating in non-operated development projects in the Eagleford and East Texas.
Speaker Change: Due to the acceleration of non-operative development costs in the fourth quarter, Amplify expects total capital to be at or slightly above the high end of its current annual guidance range of $60 to $65 million.
Speaker Change: Free cash flow, defined as adjusted EBITDA, less CapEx, and cash interest expense, was $3.6 million for the third quarter of 2024.
Speaker Change: Amplify has now generated positive free cash flow in 17 of the last 18 quarters illustrating the strong sustainable cash generating potential of our mature diversified asset base.
Speaker Change: On October 25, 2024, Amplify completed the regularly scheduled semi-annual redetermination of its bar and bass.
Speaker Change: As a result of this redetermination, the borrowing base was reduced $5 million, while elected commitments were increased $10 million, bringing the borrowing base and elected commitments to $145 million.
Speaker Change: The increase in elected commitments improves the company's liquidity and provides additional flexibility.
Speaker Change: The next regularly scheduled borrowing-based redetermination is expected to occur in the second quarter of 2025.
Speaker Change: As of September 30th, Amplify had $120 million of debt outstanding under its revolving credit facility.
Speaker Change: Third quarter net debt increased slightly from the prior quarter due to expected changes in working capital and increased development activity primarily at beta.
Speaker Change: Our leverage ratio improved quarter over quarter to 1.1 times from 1.2 times due to increased last 12 months adjusted EBITDA.
Speaker Change: Recently, Amplify took advantage of volatility in the market to add to our hedge position, further protecting future cash flows.
Speaker Change: Amplify executed crude oil swaps for 2025 and 2026 at weighted average prices of $69.39 and $68.12 per barrel, respectively.
Speaker Change: Furthermore, the company monetized a small portion of in-the-money gas hedges to stay in compliance with our credit facility.
Speaker Change: As of November 6th, our forecasted PDP crude oil production was approximately 75-80% hedged for the remainder of 2024 and for full year 2025.
with 20 to 25 percent hedged in 2026.
Speaker Change: On the gas side, our forecasted PDP production is 80-85% hedged for the remainder of 2024 through full year 2026.
Speaker Change: We will continue monitoring the market and we will look for opportunities to add to our strong hedge positions.
With that, I'll turn the call back to Martin.
Martin Willsher: Thank you, Jim. In summary, the first nine months of 2024 have exceeded our expectations, and we continue to be excited about the strong early results from our beta development program.
Speaker Change: We remain confident that the combination of our beta and non-operated development opportunities coupled with our strong balance sheet and unrelenting efforts to reduce operating costs
Speaker Change: have the potential to be transformative for the company, providing a catalyst to market our performance, while also enhancing our flexibility, as we consider and evaluate potential capital return options in future periods. With that operator, we are now open for questions.
Jeffrey Robertson, John White, Martyn Willsher, Daniel Furbee, James Frew,
Speaker Change: If you would like to ask a question, please press star and one on your telephone keypad now and you'll be placed into the queue in the order received. If you would like to remove yourself at any time, press pound and one to be removed from the queue.
Speaker Change: And our first question comes from Jeff Gramp of Alliance Global Partners.
Morning, guys.
Speaker Change: A couple questions on beta for you. You mentioned the prepared remarks, and you guys think you've got a decent batch of PUDs you think you can put on the year-end reserve report. I'm curious.
Speaker Change: You know ballpark numbers. How many locations do you guys think you've de-risked?
Speaker Change: with the development you've done so far. And then as we think about kind of medium, longer term development plans, how do you guys think about balancing, you know, going for those kind of de-risked PUD locations versus maybe stepping out into some newer areas in beta to continue to prove this new strategy out?
Hey Jeff, this is Dan.
Speaker Change: Can I hit the last part of your question? The C-59 well we drilled, as we'll talk more about as we finalize our plans for 2025 and beyond, it really proved up a big chunk of southern part of the acreage.
Speaker Change: that before hasn't really been drilled in this area. And the main part of that was, you know, in the past when Shell drilled these wells, most of these wells were 80s.
Speaker Change: Technologies didn't really exist to target this part of the reservoir from where the platforms are.
Speaker Change: So we're very excited about the results we see this well. And specific numbers of locations, we haven't, we're not quite there yet, but we expect in this area a decent amount of locations that we'll be talking about that, you know,
was kind of the biggest area to prove off.
Outside this area, you have the rest of the reservoir.
Speaker Change: is pretty much defined. So I think we got a very good idea of how many locations we'll be able to target and then how many pods we'll be booking this year. Some we'll work through as well in terms of our timing and what we'll feel comfortable with declaring as pods. So we're excited about that.
Speaker Change: Yeah, and I'll just add, obviously, we only had four PUDs.
Speaker Change: at Bate on our books for this year. We didn't have anything beyond this year booked. And so what we're talking about is adding 2025 to 2029 type development program. And, you know, we're.
Speaker Change: We're always typically a little bit more conservative than most in trying to book PUDs and making sure that we're converting the PUDs over time but, you know, we feel increasingly confident in the return profile of these wells and that allows us to
Speaker Change: put things on the books now, moving forward, that we think will, you know, substantially change kind of the outlook for the approved research.
Speaker Change: Perfect. That's helpful. Thank you. And for my follow-up on the cost side, I think on this second well,
Speaker Change: I think $5.9 million was the number you guys quoted, which is still within that $5 to $6 million range you guys initially put out, but obviously a bit above that first well. So just overall, I wanted to see, I guess, if you guys compare and contrast what drove that cost difference and then just bigger picture your overall comfortability with that $5 to $6 million range, if that's still a good number.
Yeah.
Speaker Change: Now, we feel like that's a good number, comparing to the 850 well, for example, which you drilled in the low to mid $4 million range.
Speaker Change: So the C-59 well, for example, we had about eight extra days of drilling. It was mostly driven by, we had to control drill part of the well at a lower rate of penetration because we had very narrow windows, frack gradient to pore pressure gradient. Just managing through that, and we had to make an extra trip for tool failure while drilling, for example.
Speaker Change: Yeah, I think if we have no issues and no tool failures while drilling, you know, something similar to the A50 weld, is it still achievable? If we have, you know, these kind of, you know, typical type of issues while drilling, we could be towards the near end of the five to six million dollar range we talked about. So we still feel good about our estimates going forward.
Thank you.
Thank you.
Speaker Change: perfect yeah this is a first well we've drilled up Eureka so you know just kind of managing the drilling in a different area off a different platform with a with a different rig we were you know trying to kind of make sure that we were managing you know the drilling in a conservative manner as we went through so hopefully they can move up but or move down so to speak but you know
Speaker Change: We're comfortable in that five to six million dollar range going forward and hopefully we can continue to improve
Our next question comes from Subhash Chandra of Benchmark.
Speaker Change: Yeah, thanks. Doing the quick math, I guess, on the first well.
Speaker Change: It seems like it barely declined and, you know, if that's a fair interpretation, what do you think of, like, an exit rate could be on these wells from IP at the end of the year?
Speaker Change: Yeah, the A50 well, which is typical in this field, in this reservoir, did not see it.
sharp decline from initial 30-day IP.
Speaker Change: It's approximately producing about 500 barrels a day now. Exit rate IP on these wells end of the year, it's hard to say. I mean, I'll say the characteristics of wells in this field, if you look back historically on their drill, they have obviously higher production at first.
Speaker Change: decline and that if you look at all the wells in the field this is a normally pressured reservoir that has water flood injection support so you know the decline profile of these wells is fairly flat.
Speaker Change: With that being said, this is one of the first wells we drilled with this type of completion technique as a horizontal well through the D-Sand, we call it, the most prolific sand in this field by itself. So exactly how it's going to act in the future, we...
Speaker Change: We don't have a great idea, but the results so far are great, and we have high expectations going forward that the decline will be fairly shallow.
Speaker Change: And did I hear you mention that the second well you encountered high bottom hole pressures and sort of what do you attribute that to?
Speaker Change: In the remarks earlier, what I was referring to is the way we're producing the well now is with a high bottom hole pressure compared to A50 and compared to the other wells producing in the field. That's due to where we set our pump, so all these wells are produced with electric submersible pumps.
Speaker Change: We set the pump deliberately high in this well because we didn't want to put the pump into a smaller casing closer to the reservoir.
Speaker Change: The reason for that is all these wells are unconsolidated sands, we complete them with gravel packs, and there's a chance of initial solids and sand production. So we wanted to keep that pump out of the smaller casing just to avoid any risk of getting that pump stuck if you're producing a lot of sand.
Speaker Change: So we believe this will be our kind of our mode of operation going forward. These pumps will be set higher if they need to be to stay out of the smaller casing. After you produce the wells for a couple months, we'll lower the pump. Lowering that pump down will lower the bottom hole pressure. Lowering bottom hole pressure, especially in these reservoirs, we expect to see higher production.
Speaker Change: So I just made that comment saying, you know, we saw a very good IP30 on this well, but there's still a lot of drawdown in this well after we lower the pump, which we expect to do before the end of the year.
Speaker Change: Okay, thanks. Yeah, it's helpful. And then finally, I guess the monetization opportunities you mentioned in Mahanesville, you know, how do we see, how and when do we see that manifest? And, you know, maybe some rough contours of what kind of value we're talking about?
Speaker Change: Without getting into too many specifics, you know, one of the things we've mentioned on prior calls is that, you know, our
Speaker Change: Our East Texas Hainesville acreage has become more valuable over time as the play has come towards us.
Speaker Change: You know, we're looking at different opportunities. Some of them involve creating new AMIs and maybe selling down some of our position. Others involve just maybe acreage sales.
Speaker Change: And so we're looking at these different opportunities, and we expect these will be realized fairly soon, probably between, say, now and kind of the middle of the first quarter kind of time frame, and the order of the magnitudes could be, you know,
Speaker Change: Several million dollars to you know a little bit more than that so We're looking at different like I said different opportunities, and it depends on how we end up structuring the deals
Speaker Change: but it is something where we've obviously never really attributed a lot of value in the past where we think we're bringing we can bring some of that value forward while also retaining you know some optionality to participate in some of these wells although albeit at a non-operated level of interest.
Speaker Change: similar to how we've structured other deals in the past in the East Texas area.
Speaker Change: Okay, thanks and one more and I'll hop off if I can.
Speaker Change: When do you envision a return of capital? You know, I think there's a... you have to get below, say, 90 million or so on the bank utilization, but do you think of that being the trigger or would you want to be more de-levered?
Speaker Change: Great question. I think, you know, with the increase in and actually with the increase in the kind of the credit facility elected commitments.
Speaker Change: That number has gone from, call it, $90 million up to around $100 million to where you're below that threshold.
Speaker Change: Certainly something that we hope to be looking at in 2025. I'm not going to put in an exact date on it yet.
Speaker Change: It also depends on development activity and how fast we drill and develop beta.
Speaker Change: Moving target there depending on how do we are we going to increase the level activity at beta? And if so that might you know delay it a quarter or so so we're we're gonna. We're looking at that. That's kind of
Speaker Change: Part of the kind of the plan for and part of why we're kind of looking at budget for next year and kind of really making sure that we're comfortable with the timing assumptions on the capital spending and how it impacts free cash flow and the ability to return capital at some point in 2025.
Great. Thank you all.
Speaker Change: James Frew, Daniel Furbee, James Frew, Daniel Frew, Daniel Frew, Daniel Frew, James Frew,
Our next question comes from Jeff Robertson of Watertower Research.
Speaker Change: Thank you, good morning. Dan, can you remind me how many currently permitted locations you have at Beta?
Current permits of data is
Dan Furbee: We are currently in the process of permitting more and just a reminder we're in federal waters so we don't we don't permit through the state of California and permits in the past have not been an issue for us at Beda.
Do you need...
Speaker Change: The way you book PUD reserves at a field like Beta, do you need permits in hand to be able to include them into your development plan?
Speaker Change: No, as long as it's reasonable, we'd be able to get them, which...
to date has been. We don't need those in hand.
Dan Furbee: The conductor, we're going to just drill all of them from existing well bores. And so, we have enough permits for next year, but we're going to, like I said, we might high-grade new ones based on, you know, if we like a certain location.
Dan Furbee: helps kind of the program and we're also more likely than not to you know stay on Eureka for the early part of next year as well given that we're you know given the success we're seeing and some of the the opportunity so all of those things are being kind of
Speaker Change: work through as we get through the end of this year and into the beginning of next year so that we can set up the most successful 2025 program that we can we can create.
Thanks, and just a follow-up on East Texas.
Speaker Change: Did I hear right that the monetization is mostly currently non-producing acreage that you might still retain and some sort of a non-opt-type interest in?
Speaker Change: Yeah, so most of this is acreage that's held by production in the Cotton Valley Formation, but we also have the deep rights. So it's not something that you would see any value for in our reserve report, for example. We wouldn't have drilling locations on on this acreage, and so it's a combination of, once again,
Speaker Change: some, you know, monetization where we bring cash forward, but also the potential to, you know, allow ourselves to participate in some of these wells moving forward as well. So, you know, depending on what level of participation we decide to go forward with, you know, there could be more or less proceeds, and that's why it's a little hard to kind of
Speaker Change: down a number in the near term, but like I said, I think you'll you'll see more from us between now and call it the middle part of Q1
Speaker Change: Okay, and last question, Martin. Where you are a non-owned interest owner, can you share any color on what you're seeing with respect to AFEs for the next, say, six to nine months?
Yeah, so in East Texas and the Eagle Perch.
Speaker Change: Yes, obviously we're participating in the wells we mentioned currently that will stretch into the first quarter of next year. And beyond that, we don't have any concrete visibility into what we're going to see in 2025. Oftentimes, we see those.
Speaker Change: Those non-operators submitting proposals six to nine months ahead of time. So it is possible we see some more activity in 2025, but we just can't forecast yet.
Okay, thank you.
Speaker Change: And it appears that we have no further questions at this time. I will now turn the program back to our presenters for closing remarks.
Speaker Change: Thank you. I'd just like to express my appreciation to all of our employees for their outstanding efforts and dedication this year, as well as the continued support of all of our stakeholders. Thank you for participating in the call today. As always, if you have any follow-up questions, please don't hesitate to reach out directly. Thank you.
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