ampy-10q_20180331.htm

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10–Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission File Number: 001-35364

 

AMPLIFY ENERGY CORP.

(Exact name of registrant as specified in its charter)

 

Delaware

 

82-1326219

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

500 Dallas Street, Suite 1600, Houston, TX

 

77002

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (713) 490-8900

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No    

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Accelerated filer  

Non-accelerated filer    (Do not check if a smaller reporting company)

Smaller reporting company  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).    Yes      No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes       No

As of May 4, 2018, the registrant had 25,053,758 outstanding shares of common stock, $0.0001 par value outstanding.

 

 

 


AMPLIFY ENERGY CORP.

Table of Contents

 

 

 

 

 

Page

 

 

 

 

 

 

 

 

 

 

 

 

Glossary of Oil and Natural Gas Terms

 

1

 

 

Names of Entities

 

3

 

 

Cautionary Note Regarding Forward-Looking Statements

 

4

 

 

PART I—FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2018 (Successor Period) and December 31, 2017 (Successor Period)

 

7

 

 

Unaudited Condensed Statements of Consolidated Operations for the Three Months Ended March 31, 2018 (Successor Period) and the Three Months Ended March 31, 2017 (Predecessor Period)

 

8

 

 

Unaudited Condensed Statements of Consolidated Cash Flows for the Three Months Ended March 31, 2018 (Successor Period) and the Three Months Ended March 31, 2017 (Predecessor Period)

 

9

 

 

Unaudited Condensed Statements of Consolidated Equity for the Three Months Ended March 31, 2018 (Successor Period) and for the Three Months Ended March 31, 2017 (Predecessor Period)

 

10

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

 

Note 1 – Organization and Basis of Presentation

 

11

 

 

Note 2 – Summary of Significant Accounting Policies

 

12

 

 

Note 3 – Revenue

 

14

 

 

Note 4 – Acquisitions and Divestitures

 

15

 

 

Note 5 – Fair Value Measurements of Financial Instruments

 

16

 

 

Note 6 – Risk Management and Derivative Instruments

 

17

 

 

Note 7 – Asset Retirement Obligations

 

19

 

 

Note 8 – Long-term Debt

 

20

 

 

Note 9 – Equity (Deficit)

 

20

 

 

Note 10 – Earnings per Share/Unit

 

21

 

 

Note 11 – Long-Term Incentive Plans

 

21

 

 

Note 12 – Related Party Transactions

 

23

 

 

Note 13 – Commitments and Contingencies

 

23

 

 

Note 14 – Income Taxes

 

24

 

 

Note 15 – Subsequent Events

 

24

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

34

Item 4.

 

Controls and Procedures

 

34

 

 

PART II—OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

35

Item 1A.

 

Risk Factors

 

35

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

Item 3.

 

Defaults Upon Senior Securities

 

35

Item 4.

 

Mine Safety Disclosures

 

35

Item 5.

 

Other Information

 

35

Item 6.

 

Exhibits

 

35

 

 

 

Signatures

 

37

 

 

 

i


GLOSSARY OF OIL AND NATURAL GAS TERMS

Analogous Reservoir: Analogous reservoirs, as used in resource assessments, have similar rock and fluid properties, reservoir conditions (depth, temperature and pressure) and drive mechanisms, but are typically at a more advanced stage of development than the reservoir of interest and thus may provide concepts to assist in the interpretation of more limited data and estimation of recovery. When used to support proved reserves, analogous reservoir refers to a reservoir that shares all of the following characteristics with the reservoir of interest: (i) the same geological formation (but not necessarily in pressure communication with the reservoir of interest); (ii) the same environment of deposition; (iii) similar geologic structure; and (iv) the same drive mechanism.

Bbl: One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil or other liquid hydrocarbons.

Bcfe: One billion cubic feet of natural gas equivalent.

Btu: One British thermal unit, the quantity of heat required to raise the temperature of a one-pound mass of water by one degree Fahrenheit.

Development Project: A development project is the means by which petroleum resources are brought to the status of economically producible. As examples, the development of a single reservoir or field, an incremental development in a producing field or the integrated development of a group of several fields and associated facilities with a common ownership may constitute a development project.

Dry Hole or Dry Well: A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production would exceed production expenses and taxes.

Economically Producible: The term economically producible, as it relates to a resource, means a resource which generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation. For this determination, the value of the products that generate revenue are determined at the terminal point of oil and natural gas producing activities.

Exploitation: A development or other project which may target proven or unproven reserves (such as probable or possible reserves), but which generally has a lower risk than that associated with exploration projects.

Field: An area consisting of a single reservoir or multiple reservoirs, all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.

Gross Acres or Gross Wells: The total acres or wells, as the case may be, in which we have a working interest.

ICE: Inter-Continental Exchange.

MBbl: One thousand Bbls.  

Mcf: One thousand cubic feet of natural gas.

Mcf/d: One Mcf per day.

MMBtu: One million Btu.

MMcf: One million cubic feet of natural gas.

MMcfe: One million cubic feet of natural gas equivalent.

MMcfe/d: One MMcfe per day.

Net Production: Production that is owned by us less royalties and production due to others.

NGLs: The combination of ethane, propane, butane and natural gasolines that, when removed from natural gas, become liquid under various levels of higher pressure and lower temperature.

NYMEX: New York Mercantile Exchange.

Oil: Oil and condensate.

Operator: The individual or company responsible for the exploration and/or production of an oil or natural gas well or lease.

OPIS: Oil Price Information Service.

Probabilistic Estimate: The method of estimation of reserves or resources is called probabilistic when the full range of values that could reasonably occur for each unknown parameter (from the geoscience and engineering data) is used to generate a full range of possible outcomes and their associated probabilities of occurrence.

Proved Developed Reserves: Proved reserves that can be expected to be recovered from existing wells with existing equipment and operating methods.

1


Proved Reserves: Those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible, from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations, prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced, or the operator must be reasonably certain that it will commence the project, within a reasonable time. The area of the reservoir considered as proved includes (i) the area identified by drilling and limited by fluid contacts, if any, and (ii) adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or natural gas on the basis of available geoscience and engineering data. In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons, as seen in a well penetration, unless geoscience, engineering or performance data and reliable technology establishes a lower contact with reasonable certainty. Where direct observation from well penetrations has defined a highest known oil elevation and the potential exists for an associated natural gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty. Reserves which can be produced economically through application of improved recovery techniques (including fluid injection) are included in the proved classification when (i) successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir, or an analogous reservoir or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (ii) the project has been approved for development by all necessary parties and entities, including governmental entities. Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price used is the average price during the twelve-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

Realized Price: The cash market price less all expected quality, transportation and demand adjustments.

Reliable Technology: Reliable technology is a grouping of one or more technologies (including computational methods) that has been field tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.

Reserves: Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to market and all permits and financing required to implement the project. Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).

Reservoir: A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reserves.

Resources: Resources are quantities of oil and natural gas estimated to exist in naturally occurring accumulations. A portion of the resources may be estimated to be recoverable and another portion may be considered unrecoverable. Resources include both discovered and undiscovered accumulations.

Working Interest: An interest in an oil and natural gas lease that gives the owner of the interest the right to drill for and produce oil and natural gas on the leased acreage and requires the owner to pay a share of the costs of drilling and production operations.

Workover: Operations on a producing well to restore or increase production.

WTI: West Texas Intermediate.

 

 

 

2


NAMES OF ENTITIES

As used in this Form 10-Q, unless we indicate otherwise:

“Amplify Energy” and “Successor” refer to Amplify Energy Corp., the successor reporting company of Memorial Production Partners LP, individually and collectively with its subsidiaries, as the context requires;

“Memorial Production Partners,” “MEMP” and “Predecessor” refer to Memorial Production Partners LP, individually and collectively with its subsidiaries, as the context requires;

“Company,” “we,” “our,” “us” or like terms refer to Memorial Production Partners for the period prior to emergence from bankruptcy and to Amplify Energy for the period after emergence from bankruptcy; and

“OLLC” refers to Amplify Energy Operating LLC, our wholly owned subsidiary through which we operate our properties.

 

 

 

3


 

CAUTIONARY NOTE REGARDING FORWARD–LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, that are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about our:

 

business strategies;

 

acquisition and disposition strategy;

 

cash flows and liquidity;

 

financial strategy;

 

ability to replace the reserves we produce through drilling;

 

drilling locations;

 

oil and natural gas reserves;

 

technology;

 

realized oil, natural gas and NGL prices;

 

production volumes;

 

lease operating expense;

 

gathering, processing, and transportation;

 

general and administrative expense;

 

future operating results;

 

ability to procure drilling and production equipment;

 

ability to procure oil field labor;

 

planned capital expenditures and the availability of capital resources to fund capital expenditures;

 

ability to access capital markets;

 

marketing of oil, natural gas and NGLs;

 

acts of God, fires, earthquakes, storms, floods, other adverse weather conditions, war, acts of terrorism, military operations, or national emergency;

 

expectations regarding general economic conditions;

 

impact of the Tax Cuts and Jobs Act of 2017;

 

competition in the oil and natural gas industry;

 

effectiveness of risk management activities;

 

environmental liabilities;

 

counterparty credit risk;

 

expectations regarding governmental regulation and taxation;

 

expectations regarding developments in oil-producing and natural-gas producing countries; and

 

plans, objectives, expectations and intentions.

4


 

All statements, other than statements of historical fact included in this report, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “would,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “outlook,” “continue,” the negative of such terms or other comparable terminology. These statements address activities, events or developments that we expect or anticipate will or may occur in the future, including things such as projections of results of operations, plans for growth, goals, future capital expenditures, competitive strengths, references to future intentions and other such references. These forward-looking statements involve risks and uncertainties. Important factors that could cause our actual results or financial condition to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following risks and uncertainties:

 

our results of evaluation and implementation of strategic alternatives;

 

our inability to maintain relationships with suppliers, customers, employees and other third parties as a result of our Chapter 11 filing, or otherwise;

 

our indebtedness and our ability to satisfy our debt obligations and a potential inability to effect deleveraging transactions or otherwise reduce those risks;

 

risks related to a redetermination of the borrowing base under our secured reserve-based revolving credit facility;

 

the effect of changes in our senior management;

 

our ability to access funds on acceptable terms, if at all, because of the terms and conditions governing our indebtedness;

 

volatility in the prices for oil, natural gas, and NGLs, including further or sustained declines in commodity prices;

 

the potential for additional impairments due to continuing or future declines in oil, natural gas and NGL prices;

 

the uncertainty inherent in estimating quantities of oil, natural gas and NGLs reserves;

 

our substantial future capital requirements, which may be subject to limited availability of financing;

 

the uncertainty inherent in the development and production of oil and natural gas;

 

our need to make accretive acquisitions or substantial capital expenditures to maintain our declining asset base;

 

the existence of unanticipated liabilities or problems relating to acquired or divested businesses or properties;

 

potential acquisitions, including our ability to make acquisitions on favorable terms or to integrate acquired properties;

 

the consequences of changes we have made, or may make from time to time in the future, to our capital expenditure budget, including the impact of those changes on our production levels, reserves, results of operations and liquidity;

 

potential shortages of, or increased costs for, drilling and production equipment and supply materials for production, such as CO2;

 

potential difficulties in the marketing of oil and natural gas;

 

changes to the financial condition of counterparties;

 

uncertainties surrounding the success of our secondary and tertiary recovery efforts;

 

competition in the oil and natural gas industry;

 

general political and economic conditions, globally and in the jurisdictions in which we operate;

 

the impact of legislation and governmental regulations, including those related to climate change and hydraulic fracturing;

 

the risk that our hedging strategy may be ineffective or may reduce our income;

 

the cost and availability of insurance as well as operating risks that may not be covered by an effective indemnity or insurance; and

 

actions of third-party co-owners of interests in properties in which we also own an interest.

5


 

The forward-looking statements contained in this report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. All readers are cautioned that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or that the events or circumstances described in any forward-looking statement will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors described in “Part I—Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 12, 2018 (“2017 Form 10-K”) and “Part II—Item 1A. Risk Factors” appearing within this report and elsewhere in this report. All forward-looking statements speak only as of the date of this report. We do not intend to update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

 

6


 

PART I—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

AMPLIFY ENERGY CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except outstanding shares/units)

 

 

Successor

 

 

Successor

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

5,717

 

 

$

6,392

 

Restricted cash

 

325

 

 

 

 

Accounts receivable

 

31,516

 

 

 

36,391

 

Short-term derivative instruments

 

15,662

 

 

 

28,546

 

Prepaid expenses and other current assets

 

6,349

 

 

 

7,220

 

Assets held for sale (see Note 4)

 

2,036

 

 

 

 

Total current assets

 

61,605

 

 

 

78,549

 

Property and equipment, at cost:

 

 

 

 

 

 

 

Oil and natural gas properties, successful efforts method

 

565,328

 

 

 

603,053

 

Support equipment and facilities

 

100,528

 

 

 

100,225

 

Other

 

6,133

 

 

 

6,133

 

Accumulated depreciation, depletion and impairment

 

(46,186

)

 

 

(35,979

)

Property and equipment, net

 

625,803

 

 

 

673,432

 

Long-term derivative instruments

 

156

 

 

 

 

Restricted investments

 

157,124

 

 

 

156,938

 

Assets held for sale (see Note 4)

 

33,933

 

 

 

 

Other long-term assets

 

7,839

 

 

 

8,545

 

Total assets

$

886,460

 

 

$

917,464

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

3,635

 

 

$

1,941

 

Revenues payable

 

23,381

 

 

 

22,427

 

Accrued liabilities (see Note 2)

 

17,304

 

 

 

18,233

 

Short-term derivative instruments

 

2,673

 

 

 

 

Assets held for sale (see Note 4)

 

1,102

 

 

 

 

Total current liabilities

 

48,095

 

 

 

42,601

 

Long-term debt (see Note 8)

 

347,000

 

 

 

376,000

 

Asset retirement obligations

 

72,415

 

 

 

99,460

 

Long-term derivative instruments

 

5,401

 

 

 

5,470

 

Assets held for sale (see Note 4)

 

15,409

 

 

 

 

Total liabilities

 

488,320

 

 

 

523,531

 

Commitments and contingencies (see Note 13)

 

 

 

 

 

 

 

Stockholders'/ partners' equity:

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value: 45,000,000 shares authorized; no shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively

 

 

 

 

 

Warrants, 2,173,913 warrants issued and outstanding at March 31, 2018 and December 31, 2017

 

4,788

 

 

 

4,788

 

Common stock, $0.0001 par value: 300,000,000 shares authorized; 25,000,000 shares issued and outstanding at March 31, 2018 and December 31, 2017

 

3

 

 

 

3

 

Additional paid-in capital

 

388,824

 

 

 

387,856

 

Accumulated earnings (deficit)

 

4,525

 

 

 

1,286

 

Total stockholders'/partners' equity

 

398,140

 

 

 

393,933

 

Total liabilities and equity

$

886,460

 

 

$

917,464

 

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

7


 

AMPLIFY ENERGY CORP.

UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS

(In thousands, except per shares/unit amounts)

 

 

Successor

 

 

 

Predecessor

 

 

For the Three

 

 

 

For the Three

 

 

Months Ended

 

 

 

Months Ended

 

 

March 31, 2018

 

 

 

March 31, 2017

 

Revenues:

 

 

 

 

 

 

 

 

Oil and natural gas sales

$

87,847

 

 

 

$

81,284

 

Other revenues

 

85

 

 

 

 

96

 

Total revenues

 

87,932

 

 

 

 

81,380

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

Lease operating expense

 

29,570

 

 

 

 

25,986

 

Gathering, processing and transportation

 

5,600

 

 

 

 

8,035

 

Exploration

 

34

 

 

 

 

16

 

Taxes other than income

 

5,037

 

 

 

 

4,266

 

Depreciation, depletion and amortization

 

12,958

 

 

 

 

27,882

 

General and administrative expense

 

10,657

 

 

 

 

23,370

 

Accretion of asset retirement obligations

 

1,718

 

 

 

 

2,495

 

(Gain) loss on commodity derivative instruments

 

10,456

 

 

 

 

(10,241

)

(Gain) loss on sale of properties

 

2,373

 

 

 

 

 

Other, net

 

 

 

 

 

(8

)

Total costs and expenses

 

78,403

 

 

 

 

81,801

 

Operating income (loss)

 

9,529

 

 

 

 

(421

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense, net

 

(5,772

)

 

 

 

(8,400

)

Other income (expense)

 

 

 

 

 

6

 

Total other income (expense)

 

(5,772

)

 

 

 

(8,394

)

Income (loss) before reorganization items, net and income taxes

 

3,757

 

 

 

 

(8,815

)

Reorganization items, net

 

(518

)

 

 

 

(7,653

)

Income tax benefit (expense)

 

 

 

 

 

91

 

Net income (loss)

 

3,239

 

 

 

 

(16,377

)

Net income (loss) attributable to common stockholders/limited partners

$

3,239

 

 

 

$

(16,377

)

 

 

 

 

 

 

 

 

 

Successor/Predecessor interest in net income (loss):

 

 

 

 

 

 

 

 

Net income (loss) attributable to Successor/Predecessor

$

3,239

 

 

 

$

(16,377

)

Net (income) allocated to participating restricted stockholders

 

(83

)

 

 

 

 

Net income (loss) available to common stockholders/limited partners

$

3,156

 

 

 

$

(16,377

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share/unit: (See Note 10)

 

 

 

 

 

 

 

 

Basic and diluted earnings per share/unit

$

0.13

 

 

 

$

(0.20

)

Weighted average common shares/units outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

25,000

 

 

 

 

83,810

 

 

 

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

8


 

AMPLIFY ENERGY CORP.

UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(In thousands)

 

 

Successor

 

 

 

Predecessor

 

 

For the Three

 

 

 

For the Three

 

 

Months Ended

 

 

 

Months Ended

 

 

March 31, 2018

 

 

 

March 31, 2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

$

3,239

 

 

 

$

(16,377

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

12,958

 

 

 

 

27,882

 

(Gain) loss on derivative instruments

 

10,456

 

 

 

 

(10,241

)

Cash settlements (paid) received on expired derivative instruments

 

4,876

 

 

 

 

10,826

 

Cash settlements (paid) on terminated derivatives

 

 

 

 

 

94,146

 

Deferred income tax expense (benefit)

 

 

 

 

 

(74

)

Amortization of deferred financing costs

 

541

 

 

 

 

 

Accretion of asset retirement obligations

 

1,718

 

 

 

 

2,495

 

(Gain) loss on sale of properties

 

2,373

 

 

 

 

 

Share/unit-based compensation (see Note 11)

 

1,176

 

 

 

 

1,125

 

Settlement of asset retirement obligations

 

 

 

 

 

(113

)

Reorganization items, net

 

 

 

 

 

3,767

 

Other

 

 

 

 

 

41

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

2,839

 

 

 

 

3,761

 

Prepaid expenses and other assets

 

(115

)

 

 

 

4,099

 

Payables and accrued liabilities

 

2,086

 

 

 

 

4,650

 

Other

 

 

 

 

 

(222

)

Net cash provided by operating activities

 

42,147

 

 

 

 

125,765

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to oil and gas properties

 

(13,098

)

 

 

 

(3,908

)

Additions to other property and equipment

 

 

 

 

 

(50

)

Additions to restricted investments

 

(186

)

 

 

 

(154

)

Other

 

 

 

 

 

(150

)

Net cash (used in) investing activities

 

(13,284

)

 

 

 

(4,262

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Advances on revolving credit facilities

 

5,000

 

 

 

 

16,600

 

Payments on revolving credit facilities

 

(34,000

)

 

 

 

(73,453

)

Restricted units returned to plan

 

 

 

 

 

(1

)

Other

 

(213

)

 

 

 

 

Net cash (used in) provided by financing activities

 

(29,213

)

 

 

 

(56,854

)

Net change in cash, cash equivalents and restricted cash

 

(350

)

 

 

 

64,649

 

Cash, cash equivalents and restricted cash, beginning of period

 

6,392

 

 

 

 

15,373

 

Cash, cash equivalents and restricted cash, end of period

$

6,042

 

 

 

$

80,022

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

9


 

AMPLIFY ENERGY CORP.

UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED EQUITY (PREDECESSOR)

(In thousands)

 

 

 

 

Partner's Equity

 

 

Limited Partners

 

 

Common Units

 

Balance at December 31, 2016 (Predecessor)

 

99,489

 

Net income (loss)

 

(16,377

)

Amortization of unit-based awards

 

1,069

 

Restricted units repurchased and other

 

(1

)

Balance at March 31, 2017 (Predecessor)

$

84,180

 

 

 

 

UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED EQUITY (SUCCESSOR)

(In thousands)

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

Common Stock

 

 

Warrants

 

 

Additional Paid-in Capital

 

 

Accumulated Earnings (Deficit)

 

 

Total

 

Balance at December 31, 2017 (Successor)

$

3

 

 

$

4,788

 

 

$

387,856

 

 

$

1,286

 

 

$

393,933

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

3,239

 

 

 

3,239

 

Share-based compensation expense

 

 

 

 

 

 

 

1,176

 

 

 

 

 

 

1,176

 

Other

 

 

 

 

 

 

 

(208

)

 

 

 

 

 

(208

)

Balance at March 31, 2018 (Successor)

$

3

 

 

$

4,788

 

 

$

388,824

 

 

$

4,525

 

 

$

398,140

 

 

 

 

 

 

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

10


AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Organization and Basis of Presentation

General

When referring to Amplify Energy Corp. (formerly known as Memorial Production Partners LP and also referred to as “Successor,” “Amplify Energy,” or the “Company”), the intent is to refer to Amplify Energy, a newly formed Delaware corporation, and its consolidated subsidiaries as a whole or on an individual basis, depending on the context in which the statements are made. Amplify Energy is the successor reporting company of Memorial Production Partners LP (“MEMP”) pursuant to Rule 15d-5 of the Securities Exchange Act of 1934, as amended. When referring to the “Predecessor” or the “Company” in reference to the period prior to the emergence from bankruptcy, the intent is to refer to MEMP, the predecessor that was dissolved following the effective date of the Plan (as defined below) and its consolidated subsidiaries as a whole or on an individual basis, depending on the context in which the statements are made.

We operate in one reportable segment engaged in the acquisition, development, exploitation and production of oil and natural gas properties. Our management evaluates performance based on one reportable business segment as the economic environments are not different within the operation of our oil and natural gas properties. Our assets consist primarily of producing oil and natural gas properties and are located in Texas, Louisiana, Wyoming and offshore Southern California. Most of our oil and natural gas properties are located in large, mature oil and natural gas reservoirs. The Company’s properties consist primarily of operated and non-operated working interests in producing and undeveloped leasehold acreage and working interests in identified producing wells.

Emergence from Voluntary Reorganization under Chapter 11

On January 16, 2017 (the “Petition Date”), MEMP and certain of its subsidiaries (collectively with MEMP, the “Debtors”) filed voluntary petitions (the cases commenced thereby, the “Chapter 11 proceedings”) under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code” or “Chapter 11”) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”). The Debtors’ Chapter 11 proceedings were jointly administered under the caption In re: Memorial Production Partners LP, et al. (Case No. 17-30262). On April 14, 2017, the Bankruptcy Court entered an order approving the Second Amended Joint Plan of Reorganization of Memorial Production Partners LP and its affiliated Debtors, dated April 13, 2017 (as amended and supplemented, the “Plan”). On May 4, 2017 (the “Effective Date”), the Debtors satisfied the conditions to effectiveness of the Plan, the Plan became effective in accordance with its terms and the Company emerged from bankruptcy.

Basis of Presentation

Our Unaudited Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and guidelines of the Securities and Exchange Commission (the “SEC”). The results reported in these Unaudited Condensed Consolidated Financial Statements should not necessarily be taken as indicative of results that may be expected for the entire year. In our opinion, the accompanying Unaudited Condensed Consolidated Financial Statements include all adjustments of a normal recurring nature necessary for fair presentation. Although we believe the disclosures in these financial statements are adequate and make the information presented not misleading, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the SEC.

The Unaudited Condensed Consolidated Financial Statements have been prepared as if the Company is a going concern and reflect the application of Accounting Standards Codification 852 “Reorganizations” (“ASC 852”). ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that were realized or incurred in the bankruptcy proceedings are recorded in “reorganization items, net” on the Company’s Unaudited Condensed Statements of Consolidated Operations.

All material intercompany transactions and balances have been eliminated in preparation of our consolidated financial statements.

11


AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Comparability of Financial Statements to Prior Periods

We adopted and applied the relevant guidance provided in GAAP with respect to the accounting and financial statement disclosures for entities that have emerged from bankruptcy proceedings (“Fresh Start Accounting”), on May 4, 2017. Accordingly, our Unaudited Condensed Consolidated Financial Statements and Notes after May 4, 2017, are not comparable to the Unaudited Condensed Consolidated Financial Statements and Notes prior to that date. To facilitate our financial statement presentations, we refer to the reorganized company in these Unaudited Condensed Consolidated Financial Statements and Notes as the “Successor” for periods subsequent to May 4, 2017 and “Predecessor” for periods prior to May 5, 2017. Furthermore, our Unaudited Condensed Consolidated Financial Statements and Notes have been presented with a “black line” division to delineate the lack of comparability between the Predecessor and Successor.

Use of Estimates

The preparation of the accompanying Unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates include, but are not limited to, oil and natural gas reserves; depreciation, depletion, and amortization of proved oil and natural gas properties; future cash flows from oil and natural gas properties; impairment of long-lived assets; fair value of derivatives; fair value of equity compensation; fair values of assets acquired and liabilities assumed in business combinations and asset retirement obligations.  

Note 2. Summary of Significant Accounting Policies

A discussion of our significant accounting policies and estimates is included in our 2017 Form 10-K.

Accrued Liabilities

Current accrued liabilities consisted of the following at the dates indicated (in thousands):

 

Successor

 

 

Successor

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Accrued lease operating expense

$

7,840

 

 

$

6,439

 

Accrued capital expenditures

 

4,591

 

 

 

3,854

 

Accrued general and administrative expense

 

3,515

 

 

 

4,412

 

Accrued ad valorem tax

 

754

 

 

 

398

 

Asset retirement obligation

 

438

 

 

 

713

 

Accrued interest payable

 

166

 

 

 

1,309

 

Other

 

 

 

 

1,108

 

Accrued liabilities

$

17,304

 

 

$

18,233

 

 

Cash and Cash Equivalents Reconciliation

The following table provides a reconciliation of cash and cash equivalents on the Unaudited Condensed Consolidated Balance Sheet to cash, cash equivalents and restricted cash on the Unaudited Condensed Statements of Consolidated Cash Flows (in thousands):

 

Successor

 

 

Successor

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Cash and cash equivalents

$

5,717

 

 

$

6,392

 

Restricted cash

 

325

 

 

 

 

Total cash, cash equivalents and restricted cash

$

6,042

 

 

$

6,392

 

12


AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Supplemental Cash Flows

Supplemental cash flows for the periods presented (in thousands):

 

Successor

 

 

 

Predecessor

 

 

For the Three

 

 

 

For the Three

 

 

Months Ended

 

 

 

Months Ended

 

 

March 31, 2018

 

 

 

March 31, 2017

 

Supplemental cash flows:

 

 

 

 

 

 

 

 

Cash paid for interest, net of amounts capitalized

$

6,028

 

 

 

$

4,777

 

Cash paid for reorganization items, net

 

656

 

 

 

 

3,887

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Increase (decrease) in capital expenditures in payables and accrued liabilities

 

1,890

 

 

 

 

912

 

 

Reorganization Items, Net

The Company has incurred significant costs associated with the reorganization. Reorganization items, net, which are expensed as incurred, represent costs and income directly associated with the Chapter 11 proceedings since the Petition Date.

The following table summarizes the components of reorganization items, net included in the accompanying Unaudited Condensed Statements of Consolidated Operations (in thousands):

 

Successor

 

 

 

Predecessor

 

 

For the Three

 

 

 

For the Three

 

 

Months Ended

 

 

 

Months Ended

 

 

March 31, 2018

 

 

 

March 31, 2017

 

Professional fees

$

(414

)

 

 

$

(7,585

)

Other

 

(104

)

 

 

 

(68

)

Reorganization items, net

$

(518

)

 

 

$

(7,653

)

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance regarding the accounting for revenue from contracts with customers. This standard includes a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Among other things, the standard also eliminates industry-specific revenue guidance and requires enhanced disclosures related to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard was effective for the Company starting January 1, 2018, and the Company adopted the standard using a modified retrospective approach. See Note 3 for additional information.

New Accounting Pronouncements

Statement of Cash Flows – Restricted Cash a consensus of the FASB Emerging Issues Task Force. In November 2016, the FASB issued an accounting standards update to clarify the guidance on the classification and presentation of restricted cash in the statement of cash flows. The changes in restricted cash and restricted cash equivalents that result from the transfers between cash, cash equivalents, and restricted cash and restricted cash equivalents should not be presented as cash flow activities in the statement of cash flows. The new guidance is effective for reporting periods beginning after December 15, 2017 and interim periods within those fiscal years. The new guidance requires transition under a retrospective approach for each period presented. The Company adopted this guidance as of January 1, 2018, noting the impact of adopting this guidance was not material to the Company’s financial statements and related disclosures.

Leases. In February 2016, the FASB issued a revision to lease accounting guidance. The FASB retained a dual model, requiring leases to be classified as either direct financing or operating leases. The classification will be based on criteria that are similar to the current lease accounting treatment. The revised guidance requires lessees to recognize a right-of-use asset and lease liability for all leasing transactions regardless of classification. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The amendments are effective for financial statements issued for annual periods beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period.

13


AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company is the lessee under various agreements for office space, compressors, equipment, and surface rentals that are currently accounted for as operating leases. As a result, these new rules will increase reported assets and liabilities. The Company will not early adopt this standard. The Company will apply the revised lease rules for our interim and annual reporting periods starting January 1, 2019 using a modified retrospective approach, including several optional practical expedients related to leases commenced before the effective date. The Company is currently evaluating the impact of these rules on its financial statements and has started the assessment process by evaluating the population of leases under the revised definition. The quantitative impacts of the new standard are dependent on the leases in place at the time of adoption. As a result, the evaluation of the effect of the new standards will extend over future periods.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

Note 3. Revenue

Revenue from contracts with customers

As discussed in Note 2, the Company adopted Accounting Standard Update (ASU) No. 2014-09, revenue from contracts with customers (ASC 606), on January 1, 2018 using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance of equity and did not materially change the Company's amount and timing of revenues. The Company applied the ASU only to contracts that were not completed as of January 1, 2018.

Although the adoption of ASC 606 did not have an impact on the Company’s net income or cash flows, it did result in the reclassification of fees incurred under certain gathering and gas processing agreements. Such reclassification led to an overall decrease in oil and natural gas sales with a corresponding decrease in gathering, processing and transportation as follows (in thousands):

 

For the Three Months Ended

 

 

March 31, 2018

 

 

As Reported

 

 

Previous Revenue Recognition Method

 

 

Increase/ (Decrease)

 

 

(in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas sales

$

87,847

 

 

$

88,698

 

 

$

(851

)

Cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

Gathering, processing and transportation

 

5,600

 

 

 

6,451

 

 

 

(851

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

3,239

 

 

$

3,239

 

 

$

 

The reclassification of certain fees between oil and natural gas sales and gathering, processing and transportation is the result of the Company’s assessment of the point in time at which its performance obligations under its commodity sales contracts are satisfied and control of the commodity is transferred to the customer. The Company has determined that its contracts for the sale of crude oil, unprocessed natural gas, residue gas and NGLs contain monthly performance obligations to deliver product at locations specified in the contract. Control is transferred at the delivery location, at which point the performance obligation has been satisfied and revenue is recognized. Fees included in the contract that are incurred prior to control transfer are classified as gathering, processing and transportation and fees incurred after control transfers are included as a reduction to the transaction price. The transaction price at which revenue is recognized consists entirely of variable consideration based on quoted market prices less various fees and the quantity of volumes delivered.

Oil and natural gas revenues are recorded using the sales method. Under this method, revenues are recognized based on actual volumes of oil and natural gas sold to purchasers, regardless of whether the sales are proportionate to our ownership in the property. An asset or a liability is recognized to the extent there is an imbalance in excess of the proportionate share of the remaining recoverable reserves on the underlying properties. No significant imbalances existed at March 31, 2018 and 2017.

14


AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Disaggregation of Revenue

We have identified three material revenue streams in our business: oil, natural gas and NGLs. The following table present our revenues disaggregated by revenue stream.

 

For the Three Months Ended

 

 

March 31, 2018

 

 

(in thousands)

 

Revenues

 

 

 

Oil

$

54,726

 

NGLs

 

10,946

 

Natural gas

 

22,175

 

Oil and natural gas sales

$

87,847

 

Contract Balances

Under our sales contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our contracts do not give rise to contract assets or liabilities. Accounts receivable attributable to our revenue contracts with customers was $29.4 million at March 31, 2018 which includes $1.1 million that has been reclassified to assets held for sale and $30.1 million at December 31, 2017.

Transaction Price Allocated to Remaining Performance Obligations

For our contracts that have a contract term greater than one year, we have utilized the practical expedient in ASC 606, which states that a company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under our contracts, each unit of product delivered to the customer represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. For our contracts that have a contract term of one year or less, we have utilized the practical expedient in ASC 606, which states that a company is not required to disclose the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

Note 4. Acquisitions and Divestitures

Acquisition and Divestiture Related Expenses

Acquisition and divestiture related expenses for both related party and third party transactions are included in general and administrative expense in the accompanying Unaudited Condensed Statements of Consolidated Operations for the periods indicated below (in thousands):

Successor

 

 

 

Predecessor

 

For the Three

 

 

 

For the Three

 

Months Ended

 

 

 

Months Ended

 

March 31, 2018

 

 

 

March 31, 2017

 

$

208

 

 

 

$

 

Acquisitions and Divestitures

There were no material acquisitions or divestitures during the three months ended March 31, 2018 and 2017, respectively.

Assets Held for Sale

On March 9, 2018, we entered into a definitive agreement to divest certain of our non-core assets in South Texas (the “South Texas Divestiture”). The assets held for sale are recorded at the lower of their carrying value or fair value less cost to sell. We recorded a loss as a result of the planned disposal of approximately $2.4 million during the three months ended March 31, 2018 in “(gain) loss on sale of properties” in the accompanying Unaudited Condensed Statements of Consolidated Operations. This disposition did not qualify as a discontinued operation. The major categories of assets and liabilities were:

15


AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Successor

 

 

March 31, 2018

 

 

(In thousands)

 

Assets classified as held for sale

 

 

 

Accounts receivable

$

2,036

 

Property and equipment, at cost:

 

 

 

Oil and natural gas properties, successful efforts method

 

39,057

 

Accumulated depreciation, depletion, and impairment

 

(5,124

)

Property and equipment, net

 

33,933

 

Total assets classified as held for sale

$

35,969

 

 

 

 

 

Liabilities associated with assets held for sale

 

 

 

Current liabilities:

 

 

 

Revenue payable

$

(517

)

Accrued liabilities

 

(585

)

Total current liabilities

 

(1,102

)

Asset retirement obligations

 

(15,409

)

Total liabilities associated with assets held for sale

$

(16,511

)

 

Note 5. Fair Value Measurements of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a specified measurement date. Fair value estimates are based on either (i) actual market data or (ii) assumptions that other market participants would use in pricing an asset or liability, including estimates of risk. A three-tier hierarchy has been established that classifies fair value amounts recognized or disclosed in the financial statements. The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3). All of the derivative instruments reflected on the accompanying Unaudited Condensed Consolidated Balance Sheets were considered Level 2.

The carrying values of accounts receivables, accounts payables (including accrued liabilities), restricted investments and amounts outstanding under long-term debt agreements with variable rates included in the accompanying Unaudited Condensed Consolidated Balance Sheets approximated fair value at March 31, 2018 and December 31, 2017. The fair value estimates are based upon observable market data and are classified within Level 2 of the fair value hierarchy. These assets and liabilities are not presented in the following tables.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair market values of the derivative financial instruments reflected on the accompanying Unaudited Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 were based on estimated forward commodity prices. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement in its entirety. The significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The following table presents the gross derivative assets and liabilities that are measured at fair value on a recurring basis at March 31, 2018 and December 31, 2017 for each of the fair value hierarchy levels:

 

 

Successor

 

 

Fair Value Measurements at March 31, 2018 Using

 

 

Quoted Prices in

 

 

Significant Other

 

 

Significant

 

 

 

 

 

 

Active Market

 

 

Observable Inputs

 

 

Unobservable Inputs

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Fair Value

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivatives

$

 

 

$

28,864

 

 

$

 

 

$

28,864

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivatives

$

 

 

$

21,120

 

 

$

 

 

$

21,120

 

16


AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Successor

 

 

Fair Value Measurements at December 31, 2017 Using

 

 

Quoted Prices in

 

 

Significant Other

 

 

Significant

 

 

 

 

 

 

Active Market

 

 

Observable Inputs

 

 

Unobservable Inputs

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Fair Value

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivatives

$

 

 

$

38,188

 

 

$

 

 

$

38,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivatives

$

 

 

$

15,112

 

 

$

 

 

$

15,112

 

 

See Note 6 for additional information regarding our derivative instruments.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are reported at fair value on a nonrecurring basis as reflected on the accompanying Unaudited Condensed Consolidated Balance Sheets. The following methods and assumptions are used to estimate the fair values:

 

The fair value of asset retirement obligations (“AROs”) is based on discounted cash flow projections using numerous estimates, assumptions and judgments regarding factors such as the existence of a legal obligation for an ARO; amounts and timing of settlements; the credit-adjusted risk-free rate; and inflation rates. See Note 7 for a summary of changes in AROs.

 

If sufficient market data is not available, the determination of the fair values of proved and unproved properties acquired in transactions accounted for as business combinations are prepared by utilizing estimates of discounted cash flow projections. The factors to determine fair value include, but are not limited to, estimates of: (i) economic reserves; (ii) future operating and development costs; (iii) future commodity prices; and (iv) a market-based weighted average cost of capital.

 

Proved oil and natural gas properties are reviewed for impairment when events and circumstances indicate a possible decline in the recoverability of the carrying value of such properties. The factors used to determine fair value include, but are not limited to, estimates of proved reserves, estimates of probable reserves, future commodity prices, the timing of future production and capital expenditures and a discount rate commensurate with the risk reflective of the lives remaining for the respective oil and natural gas properties.

 

Unproved oil and natural gas properties are reviewed for impairment based on time or geologic factors. Information such as drilling results, reservoir performance, seismic interpretation or future plans to develop acreage is also considered.

 

No impairments were recognized during the three months ended March 31, 2018 or 2017, respectively.

Note 6. Risk Management and Derivative Instruments

Derivative instruments are utilized to manage exposure to commodity price fluctuations and achieve a more predictable cash flow in connection with natural gas and oil sales from production and borrowing related activities. These instruments limit exposure to declines in prices, but also limit the benefits that would be realized if prices increase.

17


AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Certain inherent business risks are associated with commodity derivative contracts, including market risk and credit risk. Market risk is the risk that the price of natural gas or oil will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by the counterparty to a contract. It is our policy to enter into derivative contracts, only with creditworthy counterparties, which generally are financial institutions, deemed by management as competent and competitive market makers. Some of the lenders, or certain of their affiliates, under our credit agreement are counterparties to our derivative contracts. While collateral is generally not required to be posted by counterparties, credit risk associated with derivative instruments is minimized by limiting exposure to any single counterparty and entering into derivative instruments only with creditworthy counterparties that are generally large financial institutions. Additionally, master netting agreements are used to mitigate risk of loss due to default with counterparties on derivative instruments. We have also entered into International Swaps and Derivatives Association Master Agreements (“ISDA Agreements”) with each of our counterparties. The terms of the ISDA Agreements provide us and each of our counterparties with rights of set-off upon the occurrence of defined acts of default by either us or our counterparty to a derivative, whereby the party not in default may set-off all liabilities owed to the defaulting party against all net derivative asset receivables from the defaulting party. At March 31, 2018, after taking into effect netting arrangements, we had no counterparty exposure related to our derivative instruments. As a result, had all counterparties failed completely to perform according to the terms of the existing contracts, we would have had the right to offset $13.9 million against amounts outstanding under our Credit Facility at March 31, 2018. See Note 7 for additional information regarding our Credit Facility (as defined below).

Commodity Derivatives

We may use a combination of commodity derivatives (e.g., floating-for-fixed swaps, put options, and costless collars) to manage exposure to commodity price volatility. We recognize all derivative instruments at fair value.

In January 2017, in connection with our restructuring efforts, we monetized $94.1 million in commodity hedges and used a portion of the proceeds to reduce the amounts outstanding under our Predecessor’s revolving credit facility and kept the remaining portion as cash on hand for general partnership purposes.

We enter into natural gas derivative contracts that are indexed to NYMEX-Henry Hub. We also enter into oil derivative contracts indexed to either NYMEX-WTI or ICE Brent. Our NGL derivative contracts are primarily indexed to OPIS Mont Belvieu. At March 31, 2018, we had the following open commodity positions:

 

 

Remaining

 

 

 

 

 

 

2018

 

 

2019

 

Natural Gas Derivative Contracts:

 

 

 

 

 

 

 

Fixed price swap contracts:

 

 

 

 

 

 

 

Average monthly volume (MMBtu)

 

1,802,000

 

 

 

1,250,000

 

Weighted-average fixed price

$

3.54

 

 

$

2.82

 

 

 

 

 

 

 

 

 

Crude Oil Derivative Contracts:

 

 

 

 

 

 

 

Fixed price swap contracts: