Amplify Energy Corp. (AMPY) on Q1 2021 Results - Earnings Call Transcript
Operator: Welcome to Amplify Energy’s First Quarter 2021 Investor Conference Call. Amplify’s operating and financial results were released yesterday after market close on May 5, 2021 and are available on Amplify’s website at www.amplifyenergy.com. Today’s call is being recorded. A replay of the call will be accessible until Thursday, May 20, by dialing (855) 859-2056, and then entering conference ID number 6187289, or by visiting Amplify’s website www.amplifyenergy.com. I would now like to turn the conference call over to Jason McGlynn, Senior Vice President and Chief Financial Officer of Amplify Energy Corp.
Jason McGlynn: Good morning, and welcome to the Amplify Energy conference call to discuss operating and financial results for the first quarter of 2021. Joining me on the call today is Martyn Willsher, Amplify’s President and Chief Executive Officer.
Martyn Willsher: Thank you, Jason. During the call, I will start with comments on our first quarter performance, provide an operational update and then run through some company highlights. Jason will provide additional details on our financial performance, balance sheet and hedging program. Following our prepared remarks, we will take questions and I will conclude with closing remarks. Production for the first quarter averaged approximately 24,700 BOE per day, a decrease of 6% from 26,300 BOE per day in the fourth quarter of 2020. Approximately half of the decrease or 800 BOE per day was due to Winter Storm Uri with a remainder attributable to anticipated natural production decline. First quarter adjusted EBITDA of approximately $22.9 million exceeded internal projections and was $1 million more than the previous quarter. This increase was primarily attributable to stronger price realizations during the quarter. Capital spending for the first quarter was approximately $5.8 million focused on completion activity at our non-operated Eagle Ford asset, the enhanced workover program in Oklahoma and rig upgrades and facility preparations for the Beta development program, which will commence in the third quarter.
Jason McGlynn: Thank you, Martyn. I’ll first provide details on the company’s first quarter production and expenses. I’ll then give an update on our balance sheet and wrap up with our hedge book. As previously mentioned, production for the first quarter averaged approximately 24,700 BOE per day with the production mix of approximately 41% oil, 16% NGLs and 43% gas. Notably our oil composition in the first quarter represents an increase of approximately 14% from 36% in the first quarter of 2020. This increase is a favorable shift, which we expect will continue moving forward. Lease operating expenses for the first quarter totaled $28.9 million or $13.01 per BOE an increase of $0.4 million compared to $28.5 million or $11.77 per BOE in the fourth quarter of 2020. This increase was primarily attributed to the storm related impacts as we incurred a $0.7 million or $0.30 per BOE increase in workover expenses in the quarter, the prompt actions of our operations team minimize the financial impact of the storm and serve as a prime example of the company’s operational efficiency. Amplify remains dedicated to the disciplined operating expense management and the operational teams will continue to explore additional methods of reducing costs moving forward. GP&T this quarter was $4.6 million or $2.06 per BOE, a decrease from $5.5 million or $2.29 per BOE in the fourth quarter. The reduction is generally attributed to the natural production decline along with production impacts from Winter Storm Uri. Taxes this quarter totaled $4.6 million or $2.08 per BOE compared to $3 million or $1.24 per BOE in the prior quarter. This increase was mainly associated with a positive tax adjustment in the fourth quarter of 2020 and higher commodity pricing, partially offset by natural production decline over the same period. First quarter cash G&A totaled $6.6 million or $2.95 per BOE compared to $5.8 million or $2.38 per BOE in the fourth quarter of 2020.
Martyn Willsher: Thank you, Jason. As commodity prices have trended higher since our previous earnings call, our 2020 year-end total approved reserves of 166 million barrels of oil equivalent now have a PV-10 value of $916 million at strip pricing as of April 28, 2021. Our developed reserves of 122 million barrels of equivalent are valued at $689 million using the same strip pricing. Our reserves on a volume in PV-10 valuation basis have materially increased since our previous update in March, and we see this improvement as an important component of our positive outlook for Amplify. Additionally, we are reaffirming our guidance provided in March and have supplemented our initial guidance with full year projections for adjusted EBITDA and free cash flow. Our current guidance projects adjusted EBITDA in the range of $80 million to $100 million and free cash flow in the range of $30 million to $50 million for full year 2021. In addition to the guidance update, we provided greater detail on our operational and financial performance in our earnings release and investor presentation. We are including this additional information in order to better provide our investors with transparency into Amplify’s multiyear financial outlook.
Operator: Our first question will come from the line of John White with ROTH Capital. Please go ahead.
John White: Good morning, guys. Congratulations. I thought it was a very strong quarter and as we all know, the focus – one of the main focuses this year is on debt reduction and you are ahead of my estimates on debt reduction for the first quarter. So really good to see that. Looking forward to your work later in the year at Beta, and I’ll start off with kind of a housekeeping question. The Bairoil turnaround that’s obviously included in the guidance that you published.
Martyn Willsher: Yes, John that’s correct. We include the barrel turnaround for approximately 10 days. That’s a complete shutdown, so it takes a little bit of time to recover from that as well. So that’s fully projected into our projections and into our long-term projections that we’ve included into the investor deck as well. So we include that every second quarter over the next few years.
John White: Okay. Thank you. And again, in your comments on Bairoil, you use the capitalized term W-A-G patterns. Can you explain that?
Martyn Willsher: Sure. WAG, or W-A-G, is a water alternating gas. That’s the method that’s used in these tertiary recovery projects to basically where you’re flooding it with CO2 in order to adhere to the oil and then hitting it with water to basically push it towards the producing wells. So it’s obviously a mixture of those two, it’s water, then alternate then over to gas. The concept there is obviously that we are managing pressure throughout the field. There’s a number of different zones and different areas within the field. As you move through the field, sometimes you need to adjust those.
John White: Thank you for that. You had higher realized natural gas liquids prices than I expected. And a couple of other companies have reported similarly higher-than-expected NGL prices. You want to talk about the NGL market a little bit and what’s driving the strength here?
Martyn Willsher: Yes. This is something we’ve talked about previously and the reason we’ve not added any NGL hedges specifically is that we’ve seen a very strong recovery across all the NGL components, especially once you get to C3 propane and plus. We have a broader mix, kind of a heavier mix in Oklahoma than we do in East Texas, but there’s a few higher fixed costs in Oklahoma. So as those costs have – as those prices have gone up, the increase in Oklahoma specifically has been very impressive. I think it’s almost 3x what we were getting at this time last year. And then obviously in East Texas, it’s probably close to double. We see this trend continuing and have – the forward curve is starting to catch up. It hasn’t been there previously where we’ve had very high spot prices, but the forward curve hasn’t been catching up. It is starting to catch up. And like I said, we project there’s a continued need for NGLs. The production at these current levels and the NGL needs and their recovering economy, we feel very good about where the NGLs are. And like that’s kind of where we’ve – that’s why you’ve seen that particular area not be hedged. We see upside to – we wanted to be locked in and obviously we had to hedge some of the oil last year in the low kind of mid-$40s due to RBL requirements. But we’ve been able to kind of keep the NGLs as an upside piece to allow for – as the recovery we’ve seen, like I said, outsized returns on the NGL piece of our East Texas and Oklahoma assets.
John White: Well, thank you for that. It’s a smart read on your part on that market. Those are all the questions I have, but I also wanted to tell you, I appreciate the additional guidance items and the extra information in this quarter’s company presentation. Nice job.
Martyn Willsher: Yes. We wanted to be very transparent. I think – we provided significant additional details by area. We provided a multiyear free cash flow and adjusted EBITDA outlook that really gives investors comfort in kind of what they’re investing in for the long term. And just a little bit of a view of kind of some of the upside that’s present. As we’ve stated, we think we’re highly undervalued at this moment, and our investors should feel assured that we are doing everything we can to continue executing and eventually the market will catch up with some of the numbers that we are capable of producing over the next several quarters. So like I said, we will continue to deliver, and we have a lot of value left to capture.
John White: Well, for a company your size, it’s a very good amount of disclosure and good to see. So again, I appreciate it.
Martyn Willsher: Thank you, John.
Jason McGlynn: Thanks, John.
Operator: At this time, I’ll turn the call back over to Martyn Willsher for any closing remarks.
Martyn Willsher: We are strongly encouraged by the overall recovery in market conditions and expect that the transformative steps we took last year will have lasting improvements on our profitability and cash flow profiles. With our strong free cash flow outlook, significant reserve value and margin improvement, we believe that Amplify remains substantially undervalued in the current market. Focusing on executing on our key initiatives for 2021, we can tend to continue delivering for our stakeholders and demonstrating the long-term potential of the company. In closing, I’d like to express my appreciation to the company’s employees for their outstanding efforts and dedication. And I’d also like to thank our stakeholders for their continued support. Thank you for joining us today. And as always, please don’t hesitate to reach out if you have any additional questions.
Operator: That does conclude today’s call. Thank you all for joining. You may now disconnect.
