ampy-10q_20180930.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 September 30, 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 1700, Houston, TX

 

77002

(Address of principal executive offices)

 

(Zip Code)

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

 

500 Dallas Street, Suite 1600, Houston, Texas 77002

(Former name, former address and former fiscal year, if changed since last report)

 

 

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, every Interactive Data File required to be submitted 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 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    

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 November 2, 2018, the registrant had 25,072,856 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 September 30, 2018 (Successor Period) and December 31, 2017 (Successor Period)

 

7

 

 

Unaudited Condensed Statements of Consolidated Operations for the Three and Nine Months Ended September 30, 2018 (Successor Period), the three months ended September 30, 2017 (Successor Period), the period from May 5, 2017 through September 30, 2017 (Successor Period) and the period from January 1, 2017 through May 4, 2017 (Predecessor Period)

 

8

 

 

Unaudited Condensed Statements of Consolidated Cash Flows for the Nine Months Ended September 30, 2018 (Successor Period), the period from May 5, 2017 through September 30, 2017 (Successor Period) and the period from January 1, 2017 through May 4, 2017 (Predecessor Period)

 

10

 

 

Unaudited Condensed Statements of Consolidated Equity for the Nine Months Ended September 30, 2018 (Successor Period)

 

11

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

 

Note 1 – Organization and Basis of Presentation

 

12

 

 

Note 2 – Summary of Significant Accounting Policies

 

14

 

 

Note 3 – Revenue

 

15

 

 

Note 4 – Acquisitions and Divestitures

 

17

 

 

Note 5 – Fair Value Measurements of Financial Instruments

 

17

 

 

Note 6 – Risk Management and Derivative Instruments

 

19

 

 

Note 7 – Asset Retirement Obligations

 

20

 

 

Note 8 – Long-term Debt

 

21

 

 

Note 9 – Equity (Deficit)

 

23

 

 

Note 10 – Earnings per Share/Unit

 

23

 

 

Note 11 – Long-Term Incentive Plans

 

24

 

 

Note 12 -Supplemental Disclosures to the Condensed Consolidated Balance Sheets and Condensed Statements of Consolidated Cash Flows

 

27

 

 

Note 13 – Related Party Transactions

 

28

 

 

Note 14 – Commitments and Contingencies

 

28

 

 

Note 15 – Income Taxes

 

29

 

 

Note 16 – Subsequent Events

 

29

 

 

 

 

 

Item 2.

 

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

 

30

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

40

Item 4.

 

Controls and Procedures

 

41

 

 

PART II—OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

42

Item 1A.

 

Risk Factors

 

42

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

42

Item 3.

 

Defaults Upon Senior Securities

 

42

Item 4.

 

Mine Safety Disclosures

 

42

Item 5.

 

Other Information

 

42

Item 6.

 

Exhibits

 

43

 

 

 

Signatures

 

45

 

 

 

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)

 

 

Successor

 

 

Successor

 

 

September 30,

 

 

December 31,

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

11,862

 

 

$

6,392

 

Restricted cash

 

325

 

 

 

 

Accounts receivable

 

28,833

 

 

 

36,391

 

Short-term derivative instruments

 

996

 

 

 

28,546

 

Prepaid expenses and other current assets

 

6,283

 

 

 

7,220

 

Total current assets

 

48,299

 

 

 

78,549

 

Property and equipment, at cost:

 

 

 

 

 

 

 

Oil and natural gas properties, successful efforts method

 

593,361

 

 

 

603,053

 

Support equipment and facilities

 

103,569

 

 

 

100,225

 

Other

 

6,300

 

 

 

6,133

 

Accumulated depreciation, depletion and impairment

 

(73,133

)

 

 

(35,979

)

Property and equipment, net

 

630,097

 

 

 

673,432

 

Long-term derivative instruments

 

25

 

 

 

 

Restricted investments

 

156,848

 

 

 

156,938

 

Other long-term assets

 

5,998

 

 

 

8,545

 

Total assets

$

841,267

 

 

$

917,464

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

4,859

 

 

$

1,941

 

Revenues payable

 

24,269

 

 

 

22,427

 

Accrued liabilities (see Note 12)

 

20,345

 

 

 

18,233

 

Short-term derivative instruments

 

41,420

 

 

 

 

Total current liabilities

 

90,893

 

 

 

42,601

 

Long-term debt (see Note 8)

 

294,000

 

 

 

376,000

 

Asset retirement obligations

 

74,765

 

 

 

99,460

 

Long-term derivative instruments

 

10,030

 

 

 

5,470

 

Total liabilities

 

469,688

 

 

 

523,531

 

Commitments and contingencies (see Note 14)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value: 45,000,000 shares authorized; no shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

 

 

 

Warrants, 2,173,913 warrants issued and outstanding at September 30, 2018 and December 31, 2017

 

4,788

 

 

 

4,788

 

Common stock, $0.0001 par value: 300,000,000 shares authorized; 25,072,856 and 25,000,000 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

3

 

 

 

3

 

Additional paid-in capital

 

390,140

 

 

 

387,856

 

Accumulated earnings (deficit)

 

(23,352

)

 

 

1,286

 

Total stockholders'/partners' equity

 

371,579

 

 

 

393,933

 

Total liabilities and equity

$

841,267

 

 

$

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 share amounts)

 

 

Successor

 

 

For the Three

 

 

For the Three

 

 

Months Ended

 

 

Months Ended

 

 

September 30, 2018

 

 

September 30, 2017

 

Revenues:

 

 

 

 

 

 

 

Oil and natural gas sales

$

85,446

 

 

$

75,534

 

Other revenues

 

76

 

 

 

55

 

Total revenues

 

85,522

 

 

 

75,589

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Lease operating expense

 

27,505

 

 

 

29,119

 

Gathering, processing and transportation

 

6,197

 

 

 

7,077

 

Exploration

 

9

 

 

 

4

 

Taxes other than income

 

4,717

 

 

 

4,214

 

Depreciation, depletion and amortization

 

13,355

 

 

 

13,467

 

General and administrative expense

 

8,219

 

 

 

11,097

 

Accretion of asset retirement obligations

 

1,272

 

 

 

1,665

 

(Gain) loss on commodity derivative instruments

 

21,110

 

 

 

14,217

 

(Gain) loss on sale of properties

 

(707

)

 

 

 

Other, net

 

639

 

 

 

772

 

Total costs and expenses

 

82,316

 

 

 

81,632

 

Operating income (loss)

 

3,206

 

 

 

(6,043

)

Other income (expense):

 

 

 

 

 

 

 

Interest expense, net

 

(5,336

)

 

 

(5,808

)

Other income (expense)

 

(2

)

 

 

 

Total other income (expense)

 

(5,338

)

 

 

(5,808

)

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

 

(2,132

)

 

 

(11,851

)

Reorganization items, net

 

(466

)

 

 

(33

)

Income tax benefit (expense)

 

 

 

 

4,348

 

Net income (loss)

 

(2,598

)

 

 

(7,536

)

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

$

(2,598

)

 

$

(7,536

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share: (See Note 10)

 

 

 

 

 

 

 

Basic and diluted earnings per share

$

(0.10

)

 

$

(0.30

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic and diluted

 

25,073

 

 

 

25,000

 

 

 

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

8


 

AMPLIFY ENERGY CORP.

UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS

(In thousands, except per share/unit amounts)

 

 

 

Successor

 

 

 

Predecessor

 

 

 

 

 

 

Period from

 

 

 

Period from

 

 

For the Nine

 

 

May 5, 2017

 

 

 

January 1,

 

 

Months Ended

 

 

through

 

 

 

2017 through

 

 

September 30, 2018

 

 

September 30, 2017

 

 

 

May 4, 2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas sales

$

264,187

 

 

$

117,762

 

 

 

$

108,970

 

Other revenues

 

255

 

 

 

222

 

 

 

 

231

 

Total revenues

 

264,442

 

 

 

117,984

 

 

 

 

109,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expense

 

84,575

 

 

 

47,961

 

 

 

 

35,568

 

Gathering, processing, and transportation

 

17,772

 

 

 

11,191

 

 

 

 

10,772

 

Exploration

 

3,031

 

 

 

11

 

 

 

 

21

 

Taxes other than income

 

15,289

 

 

 

6,147

 

 

 

 

5,187

 

Depreciation, depletion, and amortization

 

39,932

 

 

 

21,818

 

 

 

 

37,717

 

General and administrative expense

 

35,739

 

 

 

18,479

 

 

 

 

31,606

 

Accretion of asset retirement obligations

 

4,419

 

 

 

2,692

 

 

 

 

3,407

 

(Gain) loss on commodity derivative instruments

 

67,218

 

 

 

12,302

 

 

 

 

(23,076

)

(Gain) loss on sale of properties

 

1,439

 

 

 

 

 

 

 

 

Other, net

 

519

 

 

 

772

 

 

 

 

36

 

Total costs and expenses

 

269,933

 

 

 

121,373

 

 

 

 

101,238

 

Operating income (loss)

 

(5,491

)

 

 

(3,389

)

 

 

 

7,963

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(17,395

)

 

 

(9,605

)

 

 

 

(10,243

)

Other income (expense)

 

 

 

 

(6

)

 

 

 

8

 

Total other income (expense)

 

(17,395

)

 

 

(9,611

)

 

 

 

(10,235

)

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

 

(22,886

)

 

 

(13,000

)

 

 

 

(2,272

)

Reorganization items, net

 

(1,752

)

 

 

(382

)

 

 

 

(88,774

)

Income tax benefit (expense)

 

 

 

 

4,940

 

 

 

 

91

 

Net income (loss)

 

(24,638

)

 

 

(8,442

)

 

 

 

(90,955

)

Net income (loss) attributable to Successor/Predecessor

$

(24,638

)

 

$

(8,442

)

 

 

$

(90,955

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share/unit: (See Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share/unit

$

(0.98

)

 

$

(0.34

)

 

 

$

(1.09

)

Weighted average common shares/units outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

25,037

 

 

 

25,000

 

 

 

 

83,807

 

 

 

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

9


 

AMPLIFY ENERGY CORP.

UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(In thousands)

 

 

Successor

 

 

 

Predecessor

 

 

 

 

 

 

Period from

 

 

 

Period from

 

 

For the Nine

 

 

May 5, 2017

 

 

 

January 1, 2017

 

 

Months Ended

 

 

through

 

 

 

through

 

 

September 30, 2018

 

 

September 30, 2017*

 

 

 

May 4, 2017*

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

(24,638

)

 

$

(8,442

)

 

 

$

(90,955

)

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

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

39,932

 

 

 

21,818

 

 

 

 

37,717

 

(Gain) loss on derivative instruments

 

67,218

 

 

 

12,302

 

 

 

 

(23,076

)

Cash settlements (paid) received on expired derivative instruments

 

6,287

 

 

 

21,277

 

 

 

 

15,895

 

Cash settlements (paid) on terminated derivatives

 

 

 

 

 

 

 

 

94,146

 

Deferred income tax expense (benefit)

 

 

 

 

(5,837

)

 

 

 

(74

)

Amortization and write-off of deferred financing costs

 

2,249

 

 

 

916

 

 

 

 

 

Accretion of asset retirement obligations

 

4,419

 

 

 

2,692

 

 

 

 

3,407

 

(Gain) loss on sale of properties

 

1,439

 

 

 

 

 

 

 

 

Share/unit-based compensation (see Note 11)

 

3,090

 

 

 

1,543

 

 

 

 

3,667

 

Settlement of asset retirement obligations

 

(600

)

 

 

(174

)

 

 

 

(164

)

Reorganization items, net

 

 

 

 

 

 

 

 

68,356

 

Other

 

 

 

 

 

 

 

 

56

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

7,252

 

 

 

1,182

 

 

 

 

1,024

 

Prepaid expenses and other assets

 

1,698

 

 

 

5,683

 

 

 

 

735

 

Payables and accrued liabilities

 

8,279

 

 

 

(2,570

)

 

 

 

15,030

 

Other

 

(15

)

 

 

(77

)

 

 

 

(266

)

Net cash provided by operating activities

 

116,610

 

 

 

50,313

 

 

 

 

125,498

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Additions to oil and gas properties

 

(46,002

)

 

 

(27,661

)

 

 

 

(6,211

)

Additions to other property and equipment

 

(167

)

 

 

(48

)

 

 

 

(76

)

Additions to restricted investments

 

(413

)

 

 

(310

)

 

 

 

(209

)

Proceeds from the sale of oil and natural gas properties, net of cash and cash equivalents sold

 

18,088

 

 

 

 

 

 

 

 

Other

 

503

 

 

 

 

 

 

 

 

Net cash (used in) investing activities

 

(27,991

)

 

 

(28,019

)

 

 

 

(6,496

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Advances on revolving credit facilities

 

21,000

 

 

 

 

 

 

 

16,600

 

Payments on revolving credit facilities

 

(103,000

)

 

 

(27,000

)

 

 

 

(98,252

)

Deferred financing costs

 

(18

)

 

 

(184

)

 

 

 

(8,575

)

Payment to holders of the Notes

 

 

 

 

(8,193

)

 

 

 

(16,446

)

Payment to Predecessor common unitholders

 

 

 

 

(1,250

)

 

 

 

 

Contribution from management

 

 

 

 

1,500

 

 

 

 

 

Restricted units returned to plan

 

(815

)

 

 

 

 

 

 

(10

)

Other

 

9

 

 

 

(9

)

 

 

 

9

 

Net cash (used in) provided by financing activities

 

(82,824

)

 

 

(35,136

)

 

 

 

(106,674

)

Net change in cash, cash equivalents and restricted cash

 

5,795

 

 

 

(12,842

)

 

 

 

12,328

 

Cash, cash equivalents and restricted cash, beginning of period

 

6,392

 

 

 

20,140

 

 

 

 

15,373

 

Cash, cash equivalents and restricted cash, end of period

$

12,187

 

 

$

7,298

 

 

 

$

27,701

 

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

*See Note 1 for information regarding recast amounts and basis of financial statement presentation.

 

10


 

AMPLIFY ENERGY CORP.

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)

 

 

 

 

 

 

 

 

 

 

(24,638

)

 

 

(24,638

)

Share-based compensation expense

 

 

 

 

 

 

 

3,090

 

 

 

 

 

 

3,090

 

Restricted shares repurchased

 

 

 

 

 

 

 

(815

)

 

 

 

 

 

(815

)

Other

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Balance at September 30, 2018 (Successor)

$

3

 

 

$

4,788

 

 

$

390,140

 

 

$

(23,352

)

 

$

371,579

 

 

 

 

 

 

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

11


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 in federal waters offshore 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.

Management and Board Changes

On April 27, 2018, the board of directors appointed Martyn Willsher to serve as Senior Vice President and Chief Financial Officer of the Company, effective April 27, 2018.

On May 1, 2018, the Company announced the retirement of William J. Scarff, the Company’s President and Chief Executive Officer and member of the board of directors, which retirement became effective May 14, 2018. Also on May 1, 2018, the Company announced the departure of Christopher S. Cooper, Senior Vice President and Chief Operating Officer, and Robert L. Stillwell, Jr., Senior Vice President and Chief Financial Officer, from their respective positions with the Company, effective April 27, 2018. There were no disagreements between the Company and any of Messrs. Scarff, Cooper or Stillwell (collectively, the “Departing Executives”) which led to their retirement or separation (as applicable) from the Company.

On May 4, 2018, the board of directors appointed Kenneth Mariani to serve as President and Chief Executive Officer of the Company, effective May 14, 2018.

On May 17, 2018, Mr. Scarff resigned from the board of directors of the Company. There were no disagreements between Mr. Scarff and the Company which led to Mr. Scarff’s resignation from the board of directors. Also on May 17, 2018, the board of directors appointed Mr. Mariani to serve as a director of the Company to fill the vacancy caused by Mr. Scarff’s resignation.

On July 25, 2018, the board of directors appointed Denise DuBard to serve as Vice President and Chief Accounting Officer of the Company, effective August 9, 2018.

Also on July 25, 2018, Matthew J. Hoss tendered his resignation from his position as Vice President and Chief Accounting Officer of the Company, effective August 9, 2018. There were no disagreements between Mr. Hoss and the Company which led to his separation from the Company.

12


AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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, 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.

The Company adopted the new accounting pronouncement related to the presentation of statement of cash flows — restricted cash in the first quarter of 2018. See Note 2 for additional information. A retrospective change for the period from January 1, 2017 through May 4, 2017 and May 5, 2017 through September 30, 2017 on the Unaudited Condensed Statement of Consolidated Cash Flows as previously presented was required due to adoption. The table below sets forth the retrospective adjustments for the periods presented:

 

Predecessor

 

 

Previously Reported

Period from

January 1, 2017

through May 4, 2017

 

 

Adjustment Effect

 

 

As Adjusted Period

from January 1, 2017

through May 4, 2017

 

 

(In thousands)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Restricted cash

$

(7,561

)

 

$

7,561

 

 

$

 

Net cash provided by operating activities

 

117,937

 

 

 

7,561

 

 

 

125,498

 

Net change in cash and cash equivalents

 

4,767

 

 

 

7,561

 

 

 

12,328

 

Cash and cash equivalents, end of period

 

20,140

 

 

 

7,561

 

 

 

27,701

 

 

 

Successor

 

 

Previously Reported

Period from

May 5, 2017 through September 30, 2017

 

 

Adjustment Effect

 

 

As Adjusted Period

from May 5, 2017

through

September 30, 2017

 

 

(In thousands)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Restricted cash

$

7,561

 

 

$

(7,561

)

 

$

 

Net cash provided by operating activities

 

57,874

 

 

 

(7,561

)

 

 

50,313

 

Net change in cash and cash equivalents

 

(5,281

)

 

 

(7,561

)

 

 

(12,842

)

Cash and cash equivalents, end of period

 

14,859

 

 

 

(7,561

)

 

 

7,298

 

 

13


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.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period from

 

 

 

Period from

 

 

For the Three

 

 

For the Three

 

 

For the Nine

 

 

May 5, 2017

 

 

 

January 1,

 

 

Months Ended

 

 

Months Ended

 

 

Months Ended

 

 

through

 

 

 

2017 through

 

 

September 30, 2018

 

 

September 30, 2017

 

 

September 30, 2018

 

 

September 30, 2017

 

 

 

May 4, 2017

 

Gain on settlement of liabilities subject to compromise

$

 

 

$

 

 

$

 

 

$

 

 

 

$

758,764

 

Fresh start valuation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(827,120

)

Professional fees

 

(14

)

 

 

 

 

 

(638

)

 

 

(349

)

 

 

 

(19,824

)

Other

 

(452

)