Amplify Energy Corp. (ticker: NYSE:AMPY) has reported a promising start to the year with its first-quarter financial results, surpassing expectations with an adjusted EBITDA of $24.9 million and generating $2.3 million in free cash flow. The positive performance has led the company to increase its annual guidance.
Despite a net loss of $9.4 million, primarily due to non-cash losses on commodity derivatives, Amplify Energy remains positive about its future prospects, highlighting strategic initiatives and production growth from its development program at Beta.
The company's strong hedging position for its oil and gas production through 2026 and a reaffirmed borrowing base of $150 million, with elected commitments of $135 million, also provide a stable financial outlook.
Key Takeaways
- Amplify Energy reported strong Q1 results with adjusted EBITDA of $24.9 million and free cash flow of $2.3 million, leading to increased annual guidance.
- The company is progressing with strategic initiatives, including barrel marketing and payroll monetization.
- Significant production growth is expected from the 2024 development program at Beta.
- Amplify Energy has renegotiated iodine contracts and implemented a more robust insurance program, likely to boost revenue.
- The company's net debt stood at $112 million as of March 31, 2024.
- A strong hedging position has been established for crude oil and gas production through 2026.
Company Outlook
- Anticipates lower operating costs throughout the year.
- Expects substantial production growth from the Beta development program.
- Increased annual free cash flow guidance range.
- Plans to invest 85-95% of capital in the first three quarters, primarily for Beta projects.
- Optimistic about future transformative potential for the company.
Bearish Highlights
- Reported a net loss of $9.4 million for the quarter.
- The loss was mainly due to a non-cash unrealized loss on commodity derivatives.
Bullish Highlights
- Amplify's borrowing base was reaffirmed at $150 million with no changes to the 2024 capital guidance.
- The company has generated positive free cash flow in 15 of the last 16 quarters.
- Strong hedging position for crude oil and gas production through 2026.
Misses
- Lease operating expenses (LOE) were higher than expected at $38.3 million due to one-time adjustments and scheduled maintenance.
- Capital spending in Q1 was slightly above expectations due to an accelerated turnaround at Bairoil.
Q&A Highlights
- Accelerated turnaround and project progress at Beta have reduced downtime.
- The sinking fund decreased from $16 million to $9 million.
- Finalizing bids for Bairoil, with completion expected over the summer.
- Management expressed gratitude towards employees and stakeholders for their support.
InvestingPro Insights
Amplify Energy Corp. has demonstrated resilience with its Q1 performance, but a closer look through InvestingPro's lens provides a more nuanced view of the company's financial health and future outlook. Here are some insights based on real-time data and InvestingPro Tips:
InvestingPro Data:
- The company's market capitalization stands at $262.23 million, reflecting its current valuation in the market.
- With an adjusted P/E ratio of 7.29 for the last twelve months as of Q1 2024, Amplify Energy is trading below the industry average, which could indicate a potential undervaluation.
- The revenue growth for the last quarter (Q1 2024) was positive at 14.96%, signaling a turnaround from the negative annual revenue growth trend.
InvestingPro Tips:
- Despite the positive quarter, analysts have concerns about Amplify Energy's profitability, expecting net income to drop this year. Investors should monitor this closely, as it may impact the company's ability to sustain its positive free cash flow.
- A key point of caution is that Amplify Energy's short-term obligations exceed its liquid assets, which could pose liquidity risks in the near term. This emphasizes the importance of the company's strategic initiatives and production growth to maintain financial stability.
For readers looking to delve deeper into Amplify Energy's financials and future prospects, InvestingPro offers additional tips and metrics. Utilize the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and access a total of 5 InvestingPro Tips for Amplify Energy at https://www.investing.com/pro/AMPY. These insights can help investors make more informed decisions by providing a comprehensive understanding of the company's performance and potential risks.
Full transcript - Amplify Energy (AMPY) Q1 2024:
Operator: Good day, and welcome to Amplify Energy's First Quarter 2024 Investor Conference Call. Amplify's operating financial results were released yesterday after market close on May 8, 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. A replay of the call will be accessible until May 23, 2024 by dialing 800-654-1563 and then entering access code 592-403-315. I would now like to turn the conference over to Jim Frew, Senior Vice President and Chief Financial Officer of Amplify Energy Corp. Please go ahead.
James Frew: Good morning, and welcome to the Amplify Energy conference call to discuss operating and financial results for the first quarter of 2024. 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 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 may be found in our earnings release or on our website at www.amplifyenergy. com. During the call, Martyn Willsher, Amplify's President and Chief Executive Officer will review our first quarter performance and provide an update regarding our previously announced strategic initiatives. Next, Dan Furbee, Senior Vice President and Chief Operating Officer will provide an overview of first quarter operational performance. Following that, I will discuss first quarter financial results, provide an update on our balance sheet and liquidity and provide additional details on our hedge book. Finally, Martyn will conclude our prepared remarks with final thoughts before opening the call up for questions. With that, I will hand it over to Martyn.
Martyn Willsher: Thank you, Jim. Amplify had a strong first quarter of 2024. The company generated $24.9 million of adjusted EBITDA and $2.3 million of free cash flow during the quarter with both exceeding expectations. Due to our stronger than expected first quarter performance, combined with higher forecasted crude oil prices for the remainder of 2024, we have increased our annual guidance. You can find our updated guidance in our earnings release and investor presentation posted to our website last night. With respect to the strategic initiatives highlighted on our previous calls, the barrel marketing process is progressing as expected. As a reminder, we are exploring complete divestiture of the asset as well as considering alternative financing structures with the goal of maximizing shareholder value. A successful payroll monetization will accelerate our ability to reduce debt outstanding and to evaluate return of capital options. We will provide an update regarding this process on our next call. At Beta, we continue to make progress on our 2024 development program. Dan will provide more details in a moment, but we remain encouraged about the potential of the program, especially in light of current crude oil prices. Our initiatives at both Bairoil and Beta have the potential to demonstrate those significant upside of our assets that we believe is not currently fully valued. With respect to other initiatives, Amplify has been working hard to put a more robust insurance program in place to enhance our overall risk mitigation plan. A key part of that program was replacing our prior surety bonds. As a result of taking this holistic approach to our insurance program, we were able to successfully restructure our sinking fund obligations, which will lower our annual payments by approximately $7 million per year. Also of note, Amplify recently renegotiated its pre-existing iodine contracts in Oklahoma. We provide produced water to a third-party for iodine extraction from the brine stream and are paid a royalty on the iodine produced. Starting in the second quarter, but effective as of January 1, 2024, Amplify will start realizing higher revenue from this partnership. Based on current iodine prices, we expect to generate an additional $2 million to $3 million per year in iodine royalties, which are captured as other revenue in our updated guidance. In summary, we continue to focus on optimizing cash flow generation, while simultaneously pursuing our strategic initiatives at Bairoil and Beta. We believe this plan will unlock additional value in Amplify's portfolio and deliver substantial benefits and long-term value to our shareholders. With that, I'll hand it over to Dan.
Daniel Furbee: Thank you, Martyn. Total production for the first quarter averaged approximately 20,200 BOE per day consisting of 43% oil, 18% NGLs, and 39% natural gas. Oil volumes for the quarter were slightly higher than the previous quarter. Despite a planned shutdown for [indiscernible] upgrade to Bairoil and planned shut ins at Beta necessary for the continued electrification and emission reduction project scheduled to be completed later this year. The oil production increased versus prior quarter, gas production was lower quarter-over-quarter primarily due to third-party interruption and higher shrinks as a result of process and more ethane. As a result, we have adjusted our production guidance accordingly. For the first quarter, lease operating expenses were $38 million gathering, processing, and transportation costs were $4.8 million and production taxes were $4.9 million. In total, these costs were approximately $2.5 million higher than the previous quarter driven by higher planned LOE costs in the first quarter for certain annual maintenance and one time projects. We are forecasting our total lease operating expenses to decrease throughout the remainder of the year with many of the one-off expense projects completed in the first quarter and several cost saving initiatives starting to take effect. Our lease operating expenses were partially offset by approximately $600,000 of income generated by Magnify Energy Services. Magnify income is expected to continue growing throughout the year as they expand this business by acquiring digital compressors and initiating water hauling services in the second quarter. The company's total capital investment for the quarter was approximately $19.1 million. The majority of this capital was invested at Beta as we continue our electrification and emission reduction facility project and initiated our development program. The remaining capital was invested in facility upgrade to Bairoil, various capital workovers across our asset base, and approximately $700,000 for magnified equipment. Capital for the remainder of 2024 will mostly be allocated to continued development and facility enhancements of Beta, high return workovers across our assets, and non-operated projects. With respect to our non-operated activity in the Eagle Ford (NYSE:F), the company is expected to participate in 13 gross 0.7 net new development wells and 2 gross 0.4 net recompletion projects. While at East Texas, the company is evaluating participation in 3 gross 0.8 net wells. At Beta, we completed the second phase of electrification and emission reduction infrastructure project in the first quarter, which involves successfully replacing of a diesel driven injection pumps with electric pumps on the LE platform. We are now proceeding with the third and final phase of the project, which involves installing selective catalytic reducers or SCRs on our rig engines on the LE platform. Amplify remains on target to meet the compliance deadline in the fourth quarter of 2024 as prescribed by the district air quality regulations. After completing these projects, we do not anticipate additional material facility investments at Beta in the near future, which will significantly increase the free cash flow from Beta going forward. In conjunction with the cost savings being realized by the large facility project at Beta, we also anticipate substantial production growth as a result of our 2024 development program. The company spud the 845 well from the LN platform in March and successfully reached the objective formation. Amplified formation logs reinforce the company's views that the target interval has a high oil saturation and is expected to deliver excellent results. During drilling operations, Amplify experienced equipment issues including a rig engine failure causing an extended period of downtime with the hole open leading to well stability issues. In turn, we were not able to run our casing to our planned depth of the production formation leading us to set the casing high. This will require us to complete the well through a smaller casing design resulting in auger completion for the well. Due to equipment availability for their revised completion and because commencement of the third phase of electrification project is critical to achieve the project deadline. We are deferring the completion of A45 well into the Q4 of 2024 when we are finished with the FDR installation on Ellen rig engines. We expect to spud our second development well this month with this completion anticipated in June and we plan to spud two additional development wells in the third quarter. With our facility and development drilling invested in Beta, we anticipate a significant increase in the profitability and overall value of the asset that will be realized as we execute these initiatives this year. Couple this with continued optimization projects and cost saving efforts across our asset base, including the continued build out of Magnify Energy Services, we continue to expect 2024 to be a transformational year for the company where we start to realize the full value of Amplify's asset base. With that, I will turn it over to Jim.
James Frew: Thank you, Dan. I'd would now like to discuss the following items. First quarter financial performance, balance sheet and liquidity and hedging. With respect to first quarter financial performance, the company reported a net loss of approximately $9.4 million compared to $43.6 million of net income in the prior quarter. The change was primarily attributable to a non-cash unrealized loss on commodity derivatives due to prices increasing throughout the first quarter. As Martyn previously mentioned, first quarter adjusted EBITDA was $24.9 million exceeded our expectations. First quarter revenue was also higher than expected due to strong crude oil prices combined with less downtime at Beta versus our plan. The futures curve for crude oil is above our initial guidance assumptions, which is providing a strong tailwind for 2024. With respect to lease operating costs, first quarter lease operating expenses were approximately $38.3 million and averaged $20.78 per BOE. LOE was higher than the prior quarter in large part to a one-time adjustment that occurred in the fourth quarter, in addition to scheduled maintenance and other routine annual expenses. Amplify expects quarterly LOE for the remainder of the year to be lower than the Q1, with full-year LOE remaining within the original guidance range. First quarter GPT costs were $4.8 million or $2.59 per BOE. First quarter GPT was down 3% versus the prior quarter. We expect these lower costs will continue into 2024. Cash G&A in the first quarter was $7.9 million or $4.05 per BOE, which was up $1.7 million from the prior quarter. This increase was in line with expectations and primarily due to year end processes that impact various cost drivers annually in the first quarter and a onetime cost associated with the early termination of our Tulsa office lease. Adjusting for the early lease termination cost, G&A was flat compared to Q1 2023. The company anticipates that quarterly cash G&A expenses will be materially lower throughout the remainder of the year. And as a result, we have not adjusted our original G&A guidance range. In the first quarter, we incurred $3.5 million of interest expense, down $0.3 million compared to the prior quarter and down $2.2 million versus the same quarter a year ago. Amplify invested $19.1 million of capital in the first quarter. In addition to ramping up activity at Beta, the company also elected to accelerate a short turnaround at Bairoil. Originally planned to occur in the second quarter, Amplify opted to conduct the turnaround in the first quarter to take advantage of the downtime associated with another project. As a result, first quarter capital was slightly higher than expected, but because it was an acceleration, the company is electing not to adjust capital in our 2024 guidance. As Dan mentioned, we are also participating in development wells in the Eagle Ford and evaluating several in East Texas, and we expect to see production from those wells starting in 2025. Free cash flow, defined as adjusted EBITDA less CapEx and cash interest expense was $2.3 million for the first quarter of 2024. Despite accelerating capital into the first quarter, this result exceeded expectations and Amplify has increased our annual free cash flow guidance range. Amplify has now generated positive free cash flow in 15 of the last 16 quarters, illustrating the strong sustainable cash generating potential of our mature diversified asset base. On May 2, 2024, we completed the 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 fourth quarter of 2024. As of March 31, Amplify had net debt of approximately $112 million consisting of $115 million outstanding under our revolving credit facility and $3 million of cash and cash equivalents. At the end of the first quarter, the company's liquidity was $23 million and net debt to last 12 months adjusted EBITDA was 1.3x. The increase in net debt versus the prior quarter was primarily due to expected changes in working capital and increased investment activity. As of May 8, our forecasted crude oil production was approximately 70% to 75% hedged for 2024, 45% to 50% hedged for 2025 and 10% to 15% hedged in 2026. On the gas side, we are 80% to 90% hedged for 2024 through 2025 and 55% to 60% hedged in 2026. In the first quarter, we added gas hedges covering a portion of our expected 2026 production and crude hedges covering a portion of our 2024 expected production. We will continue monitoring the market to supplement our strong hedge positions going forward. With that, I'll turn the call back to Martyn.
Martyn Willsher: Thank you, Jim. As I mentioned earlier on this call, we are increasing guidance based on better than expected first quarter results and continued strength in crude oil prices. Amplify's updated guidance is now based on flat commodity prices for WTI crude oil of $78 a barrel and Henry Hub Natural Gas of $2.25 per MMBtu. As previously disclosed, the company expects to invest 85% to 95% of its capital in the first three quarters of the year, primarily in connection with the Beta projects. Additional guidance details were provided in our earnings release and can be found in the latest investor presentation currently available on our website. In summary, 2024 is off to a good start with a strong balance sheet, compelling strategic initiatives underway and a motivated and capable workforce, we are optimistic about our future. We believe the barrel monetization and Beta development have the potential to provide a catalyst for market outperformance, while also enhancing our flexibility as we consider and evaluate potential capital return options. We will continue to find ways to enhance shareholder value through diligent asset management, a relentless focus on managing our cost structure and prudent capital allocation. We remain confident that the initiatives Amplify is actively pursuing this year have the potential to be transformative for the company. With that, operator, we are now open for questions.
Operator: Thank you. [Operator Instructions]. Our first question will come from Jeff Grampp with Alliance Global Partners (NYSE:GLP). Please go ahead.
Jeff Grampp: To start off first with Beta and the mechanical issue that appeared here, specifically wondering if there's any anticipated impact to production from the well given the change in completion plan and then prospectively, if there's any kind of learnings that can be applied to the next wells to, I guess kind of de-risk or mitigate any potential issues rearising on future drilling? Thanks.
Daniel Furbee: Yes, Jeff. This is Dan. Yes, the issues we had with the well to answer your second part of your question, it was equipment failures on our rig. The good thing is we've replaced all the components that failed during this operation. So we do not foresee those issues in the future. For the altered completion, yes, we just -- not much different, just a smaller casing design, and we do not expect any real material differences in the productivity this well. And like we said, we're encouraged by we did log the zone that we intend to produce from and expect that to perform very well. The real impact of this is, there's one well becoming on towards the end of the year as opposed to this time of year and the remaining drilling we have is still on schedule.
Jeff Grampp: Understood. Great. I appreciate that detail. My follow-up, with respect to the Bairoil Limited turnaround, can you talk a little bit more about the strategy to change that timing? And then, can you clarify, apologies if this was mentioned, but is there expected to be another kind of more traditional turnaround later this year or what's kind of the timeline that you guys might expect for when another turnaround may be needed at Bairoil?
Martyn Willsher: Hey, Jeff. Good morning. So we've been looking at the turnaround strategy. Traditionally, we've done these every year, but we've kind of stretched them out a little bit towards more like 18 months and 12 months. And because we've added additional capacity on compression and replaced some things over the years, we're actually able now to probably go potentially as long as two years in between turnarounds. This particular, we were replacing a section of line that we needed to replace. And so instead of we wanted to get that out of the way. And so we did it in March. It was planned in late May, June originally. So basically all we did was accelerate and instead of what's usually a seven to 10 day turnaround, we did in two to three days. And so we don't anticipate another turnaround until sometime next year. So there won't be another turnaround this year. This is basically the replacement. So it's a much shorter, less costly, more efficient turnaround that also has less overall impact on total crude production for the year because when you're down seven to 10 days on a CO2 flood, it takes a little while to ramp back up. So this was less impactful by doing it this way. And like I said, because we can do compressor annuals and things like that during the year now because we have redundancy, it's allowed us to kind of do things a little bit more efficiently overall.
Jeff Grampp: Understood. Appreciate those details and thanks for the time.
Martyn Willsher: Thanks, Jeff.
Operator: Thank you. [Operator Instructions]. Our next question comes from Subash Chandra with Benchmark. Please go ahead.
Subash Chandra: Yes. Good morning, everyone. Question on Beta. So production now has ticked up every quarter over the past year since the restart. What do you think of base production at this point? And is any of it still being hindered with some of the modifications being made to the platform to where it might argue for a higher base production next year independent of the development work?
Daniel Furbee: Yes. This is Dan. So outside the developments, we still have a handful of wells pre-shutdown that still need workovers. So there is some incremental production that could be realized from Beta from that. But as of now, I think where we're at now is probably our base production before development and yes, maybe some incremental. The large facility projects we keep talking about, been working on for some time now, that's going to mostly drive cost saving initiatives. And those cost savings are going to come from we're essentially going to reduce all of our diesel usage for power generation being supplemented with just produced gas, generated power through our generators and then also supplemented with shore power we purchased. In addition to that, we won't have to buy nearly as much NOx credits that we currently have to buy under the South Coast Air Quality District, so that will reduce cost as well. So that's mostly on the cost savings side.
Subash Chandra: Okay. Got you. And from, I guess the discussion on the direction LOE and CapEx, doesn't sound like there was a lot of A45 related costs in the LOE CapEx in the first quarter. Is that a fair comment that that wasn't the reason for some of the overages?
Daniel Furbee: Yes. I think there was obviously some capital costs related to the AFE. We started the A45 in March, so that part of that was in March, and there'll be some in April as well. Most of this is because in, one, we accelerated the turnaround, two, we've accelerated projects at Beta specifically on the facility side. And we've actually managed to what was originally going to be 15 days of downtime during the year, we've managed to shrink that. And we'll have less downtime during the year because we've kind of taken advantage of some other opportunities to move forward some of that facilities project. And so it's less impactful as we go forward through the year. So it had a little bit of a tumultuous impact on Q1, especially on the LOE and capital side. But if you look at our overall guidance, we're not changing overall guidance. It's just an acceleration as we've had to change timing as we've seen opportunities to bring things forward and then thus bring forward the impact of these changes at the same time.
Subash Chandra: Okay, got you. And if I can just ask on the sinking fund. So the 16 million goes to 9 million, is that fair? And when does that start? And is there any sort of offsetting balances? I don't know how this stuff works, but maybe something on the credit facility or something. Or is this a pretty clean 16 goes to 9 on cash outlays?
Martyn Willsher: I think you said it perfectly the first time. There's basically there's a federal portion of this and the state portion of this and the federal portion is eight and the state portion is one. It was essentially so what was 16 is now 9. And I anticipate that's kind of where we are going forward. And so that's really the change that we made was basically replacing the Surety Group that had been in there for several years and basically reallocating ourselves with a different group as we kind of move forward and getting the right people in the right group to kind of manage that process going forward.
Subash Chandra: Okay. Good to know. If I just ask one last one and then I'll hop back in the queue. So, Bairoil, when are the final bids due?
Martyn Willsher: So that process will take place basically. We're kind of wrapping up kind of or middle of towards the end of data rooms at this point. Bids will be due towards the end of May. There's traditionally a first round, second round and then you'll negotiate a PSA. And obviously we've got the added complication of the fact that we're doing kind of a dual process with a monetization structure as well. So we anticipate this will happen over the summer and potentially in advance of the next call. And so, we'll obviously update the market at the appropriate time, but that is coming soon.
Subash Chandra: Thank you.
Operator: At this time, I would like to turn the call back to management for any additional or closing remarks.
Martyn Willsher: Thank you. With that, I'd just like to say thank you to all of our employees for their outstanding efforts and dedication so far this year. And also like to express my appreciation to all of our stakeholders for their continued 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.
Operator: Thank you. This does conclude the Amplify Energy's first quarter 2024 investor conference call. You may disconnect your line at this time and have a wonderful day.
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