Amplify Energy Corp.

Welcome to Amplify Energy's first quarter 2022 investor conference call. Amplify's operating and financial results were released yesterday after market close on May 4, 2022 and are available on Amplify's website at www.amplifyenergy.com. During this conference call, all participants will be placed into listen-only mode. Today's call is being recorded. A replay of the call will be accessible until Thursday, May 19th by dialing 855-859-2056 and then entering conference ID number 6891368 or by visiting Amplify's website at 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. Please go ahead, sir.

Good morning and welcome to the Amplify Energy Conference call to discuss operating and financial results for the first quarter of 2022. Joining me on the call today is Martin Wilshire, Amplify's President and Chief Executive Officer. Before we get started, we would like to remind you that some of our remarks may contain forward-looking statements, which reflect management's current views of future events and are subject to various risks, uncertainties, expectations, and assumptions. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct and undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this earnings call. Please 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 that was filed yesterday afternoon. 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, Martin will first provide an update regarding our Southern California assets, followed by our first quarter highlights and revised full-year guidance. I will then discuss the first quarter results in detail and provide updates to our hedging program, balance sheet, and additional items regarding guidance for the remainder of the year. Martin will then deliver final comments regarding performance during the quarter, current projections, and strategic goals. Following our prepared remarks, we'll have a question and answer session.

Before we get into the quarterly results, I would like to provide an update regarding the progress we have made toward returning our Southern California assets to production. During our most recent earnings call, I discussed the approvals required from PHMSA and the Army Corps of Engineers proceed with the permanent repair plan for the pipeline. In mid-April, we received approval from PHMSA for the permanent repair plan. We are now working cooperatively with the Army Corps of Engineers to obtain the remaining permit to commence repair operations. Although we cannot predict when we will receive approval from the Corps, we expect that within three to four months from the approval date, we can complete the PHMSA-approved repairs, satisfy the regulatory requirements to safely restart the pipeline, and return the platforms to production. Now onto the quarter. Production for the first quarter averaged approximately 20,400 barrels of oil equivalent per day, down slightly from 20,800 barrels of oil equivalent per day in the full quarter of 2021. First quarter adjusted EBITDA of approximately $24.9 million, exceeded internal projections, and was an increase of approximately $14 million from the previous quarter. This increase was primarily attributable to stronger price realizations and additional loss of production income insurance payments that were recognized in the quarter. As a result of production outperformance and improved pricing realizations, we have increased our four-year 2022 production and adjusted EBITDA guidance, which Jason will detail later on the call. Capital spending for the first quarter was approximately $6.9 million, focused primarily on accelerated work over projects in Oklahoma to capitalize on current commodity prices and non-operated Eagleford and East Texas development programs. Free cash flow, defined as adjusted EBITDA, Last capex and cash interest expense was approximately $14.9 million in the first quarter of 2022. Amplified free cash flow outlook has continued to improve since our last earnings call, and we now expect to generate $215 million to $340 million in cumulative free cash flow over the next three years, a significant increase from the $150 to $250 million stated during our last call. Now for an update on our operations. In Oklahoma, Amplify is currently running three workover rigs as part of our accelerated program to return offline wells to production and converting ESPs to rod lift. This program continues to support our comprehensive strategy for production and expense optimization and will generate incremental free cash flow for the company going forward. In East Texas and North Louisiana, we've committed to efficiently managing production and costs while pursuing high return workover and joint development projects. The company is participating in three non-operated development wells, which are expected to be brought online in the third quarter of this year. We continue to evaluate additional development opportunities in the area and will participate in high-return projects as they arise. In the Eagleford, we continue to optimistically participate in attractive projects with the highest economic viability. Operators are actively developing their positions in areas in which we jointly own interests and it is expected that seven growths The 0.4 net new development wells will be online by the end of the second quarter of 2022. At Barrel, production increased by approximately 4% quarter-over-quarter as a result of improved run times and positive results from workovers and well simulations performed earlier this year. Our annual facility maintenance turnaround is scheduled for up to 10 days in June, which will reduce production for the second quarter. We continue to implement technological improvements to enhance operational performance and efficiencies. and maximize the economic returns of our work over program. I will now turn the call over to Jason to provide a detailed review of our financial and operational results.

Thank you, Martin. I'll first provide details regarding first quarter results and then give an update on our hedge book, concluding with comments regarding our balance sheet and details on our updated guide. Production for the first quarter averaged approximately 20,400 BOE per day with a commodity mix of 32% oil, 18% NGLs, and 50% gas. Total oil, natural gas, and NGL revenues for the first quarter of 2022 were approximately $93.1 million before the impact of derivatives compared to $86.3 million in the fourth quarter of 2021. Other revenues were $17.6 million for the quarter, compared to $6.8 million in the fourth quarter, and primarily related to $17.5 million of low fee payments that were booked during the period. As discussed during our prior earnings call, loss of production income proceeds are available for approximately 18 months following the incident. Lease operating expenses for the quarter were approximately $32.9 million, or $17.92 per BOE, an increase of approximately $3.5 million compared to $29.4 million or $15.34 per BOE in the fourth quarter. The increase was primarily attributable to incremental expense work over projects in Oklahoma, Barrow, and the Eagleford, and higher costs resulting from inflation across our asset base. GP&T this quarter was $8 million or $4.36 per BOE compared to $6.1 million or $3.20 per BOE in the fourth quarter. The increase is primarily due to an accounting reclassification of plant processing charges from revenue deductions to GP&T expenses resulting from taking our gas in kind in Oklahoma during the fourth quarter of 2021. By taking our gas in kind in Oklahoma, the company has greatly improved our natural gas pricing differential irrespective of the increase in GP&T as a result of the accounting reclass. This reclassification is reflected in our updated guidance. Production and ad forum taxes this quarter totaled $7.6 million or $4.11 per BOE compared to $6.5 million or $3.42 per BOE in the prior quarter. This increase is a function of higher revenue from improved commodity pricing. First quarter cash G&A totaled $7.1 million, or $3.87 per BOE, compared to $6.2 million, or $3.24 per BOE in the fourth quarter. Cash G&A expenses are typically highest in the first quarter of the year, and the quarter-over-quarter increase was within expectations. Jets to Diva DAW in the first quarter totaled $24.9 million, approximately $14 million, higher than the previous quarter. Cash capital spending for the first quarter was approximately $6.9 million, an increase of $3.4 million from the fourth quarter of 2021. The quarter-over-quarter increase was primarily attributable to planned activity in Eagleford and East Texas, and elevated work over activity in Oklahoma to capitalize on current commodity prices. Free cash flow was approximately $14.9 million in the first quarter of 2022, an increase of roughly $11 million from the fourth quarter of 2021. Now to our hedge book. Currently, we're approximately 75% hedged for the balance of 2022 and 50% hedged in 2023 across all commodities. Our crude oil production is approximately 90% to 100% hedged for the remainder of the year and 50% to 60% hedged for 2023. On the gas side, we're approximately 85% hedged for the balance of 2022 and approximately 65% hedged for 2023. We recently took advantage of the volatility present in the gas market to improve the floor and ceilings on our collar positions in 2023, and we'll look to layer on additional positions as opportunities arise. I would like to note that our NGL volumes, which represent approximately 20% of our current production, are completely unhedged in 2022 and 2023, enabling the company to benefit from the improved commodity price environment. Lastly, as a reminder, when we return beta field to production, those crude oil volumes will be completely unhedged, which may provide additional upside depending on prevailing prices. Moving on to our balance sheet, as of April 30th, Amplify had net debt of approximately $197 million, consisting of $215 million outstanding under our revolving credit facility and $18 million in cash on. For the remainder of 2022, we will continue allocating the majority of our free cash flow to improving our balance sheet and reducing our total debt outstanding. Our spring borrowing base redetermination is currently underway and is expected to be completed during the second quarter of 2022. On to guidance. As detailed in the earnings release last night, we have increased our full year 2022 guidance ranges for production and adjusted EBITDA. We increased the midpoint of our production guidance to approximately 19,800 BOE per day. We have also increased the midpoint of our adjusted EBITDA guidance by 15% to $98 million as a result of the increase in commodity prices, pricing realization, and strong production performance. As discussed previously, guidance also reflects improved gas realizations and associated GP&T costs related to taking our gas in kind in Oklahoma. which we expect will improve our bottom line going forward. Additional guidance details were provided in our earnings release yesterday and can be found in the latest investor presentation currently available on our website. As a reminder, due to the uncertainty regarding Beta's restart timeline, our guidance does not assume Beta returns to production in 2022, but we expect to update our guidance when additional information is available. With that, I'll now turn the call back to Mark.

Thank you, Jason. Amplify's strong performances quarter is testament to our ability to generate substantial free cash flow from a mature, diversified asset base and has allowed us to improve the four-year guidance provided on our last call. We are especially optimistic about the prospect of safely returning our beta assets production, which will have a significant positive impact to our free cash flow profile. As we look ahead to the remainder of 2022, the elevated commodity price environment has allowed us to optimistically accelerate workable programs and explore additional non-operated development opportunities within our East Texas and Eagleford assets. Furthermore, the previously announced marketing process of our Eagleford asset is expected to accelerate our commitment to de-levering while we continue to evaluate additional accretive transactions that could further drive shareholder value. Additionally, with improved commodity pricing, our 2021 year-end total approved reserves now have a PV10 value of approximately $1.2 billion at district pricing as of April 18, 2022. And as detailed in our investor presentation, our improved internal three-year projections currently forecast approximately $215 to $340 million in cumulative free cash flow. With our significant reserve value and strong free cash flow outlook, we believe that Amplify remains substantially undervalued in the current market. Before concluding, I would like to reiterate that safety remains our highest priority, and we are continuously committed to operating safely and in a manner that ensures the well-being of our employees, business partners and stakeholders, and the protection of the environment and our surrounding communities. Our dedication to safety, environmental stewardship, operational excellence, disciplined capital allocation, and delivering efforts has demonstrated our ability to generate significant free cash flow and to drive substantial long-term value for all of our stakeholders. With that, operator, we are now open for questions.

To ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of John White with Roth Capital.

Good morning, guys. Morning, John. You have made it clear you're not assuming beta returns to production in 2022. Is that, for a little more detail, is that because you have to wait on the Corps of Engineers, or is it due to the amount of time needed for the repairs, or is it a combination of those two?

So I'll take that, John. So while it's still to be determined, we're obviously hoping for a return in 2022. As we've stated, we expect to take approximately three to four months And we're waiting on that final permit as we speak. So we're certainly hopeful of getting it online in 2022. But from a guidance perspective, we felt like it was more appropriate to issue guidance without beta coming online until we had more clarity on exactly what date that would be. So if we come back online in October, we'd obviously update the guidance to reflect that at that time.

That's certainly understandable. And the three to four months, that encompasses a decision by the Corps of Engineers and estimated repair time.

So that's basically once we get the permit in hand, that's a three to four-month process from there.

Okay. Thank you. And strong activity during the quarter at the Eagleford, and I know you're – considering that for divestiture. But do you see continued strong activity at the Eagleford for the rest of the year?

Yeah, I'll start that and Jason can add if he wants to. But yeah, we've certainly seen an uptick in activity across the Eagleford. Obviously, we're still planning to, you know, we're still looking at the potential for divesting that asset. But obviously, we always have the opportunity to keep it as well and continue to take advantage of the extremely strong economics from the projects that are coming online with a lot more seemingly planned for the remainder of the year that may stretch into 2023 as well.

Yeah, John, the only thing I'll add there is the activity that we're seeing right now is completing the ducts that were drilled later last year, which is the seven gross wells for net that we anticipate coming online in the second quarter. And we're continually having conversations with the operators on our positions about future projects, what could be coming down the pipeline from both a re-completion, re-frack standpoint, and from new drills. So we would anticipate additional activities as we continue through the year.

Yeah, and I'd just like to once again reiterate that the investor process is still very much ongoing. So um, you know, we're, we can kind of pivot depending on what provides the best outcome for the company.

I appreciate that. Are, uh, are you marketing the property, uh, with internal resources or have you hired, uh, an advisor? We have an advisor marketing it for us. Okay. Well, good luck with that. And, uh, congratulations on the nice results, the, uh, the free cashflow and, uh, most of all your regulatory progress on beta. Congratulations on that. Thank you, John. That's all I have.

There are no further questions in queue at this time. I'll turn the call back over to management for closing remarks.

I'd just like to say thank you to everyone for joining us today. I'd like to conclude by expressing my appreciation to the company's employees for their outstanding efforts and dedication as always. I'd also like to thank all of our stakeholders for their continued support and patience as we move through this process. As always, please don't hesitate to reach out to us if you have any additional questions. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.