Amplify Energy Corp.
Q1 2017 Earnings Call Transcript

Published: 11 May 2017

[Operator:]

Good morning. My name is Bridget, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Midstates Petroleum First Quarter and Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] Thank you. I will now turn the call over to Jason McGlynn. Mr. McGlynn, you may begin your conference.

[Jason McGlynn:]

Thank you, Bridget. Good morning, everyone, and welcome to Midstates Petroleum's first quarter 2017 earnings conference call. Joining me today as speakers on our call are Jake Brace, our President and Chief Executive Officer; and Nelson Haight, our Executive Vice President and Chief Financial Officer. Jake will begin with an overview of operational and financial highlights from the first quarter. Nelson will follow with additional details on our operations and financials. After Nelson, Jake will make some follow-up comments. And then, we will take your questions. Before we begin, let us get the administrative details out of the way with our Safe Harbor statement. This conference call contains forward-looking statements and assumptions which are subject to risk and uncertainty, and actual results may differ materially from those projected in these forward-looking statements. Please refer to Midstates' Form 10-Q that will be filed shortly with the SEC for a discussion of these risks. Also please note that any non-GAAP financial measures discussed in this call are defined and reconciled to the most directly comparable GAAP measure in the tables in yesterday's earnings release. Now I'll turn the call over to Jake for his comments.

[Jake Brace:]

Thanks you, Jason, and good morning, everyone, and thank you for joining us today and thank you for your interest in Midstates. Midstates has had a good solid start to 2017. We performed comfortably within or better than our annual guidance. Our production for the first quarter averaged a little over 23,500 BOE per day. This was a bit higher than we expected. At the beginning of the year, as we brought on two or three really strong wells online in a quarter, that boosted the average. The production team also contributed to our production outperformance as they did a fabulous job keeping our wells producing during the tough winter months. Operationally, we remained successful in securing acreage and future drilling opportunities with our one rig drilling program while continuing to generate attractive well level returns of approximately 35% at current strip pricing. Our drilling and completion teams have done a good job of maintaining efficiencies gained in prior years. And as a result, we are currently outpacing our estimated average well cost and drill cycle time. Average well cost year-to-date is about $2.7 million per well; slightly above our 2.6 million average in 2016, but below our estimate of 2.8 million for 2017. Drilling cycle time measured from rig release to rig release is running approximately 14.3 days per well, again, above our 2016 average of 13.3 days but below our 2017 estimate of 15 days. On the saltwater disposal front, we have completed two additional non-Arbuckle disposal wells and brought them online into our integrated water handling system. Bringing total permitted capacity of the system to 312,000 barrels of water per day, of which, non-Arbuckle formation represent 180,000 barrels of water per day. As a point of reference, we averaged 185,000 barrels of water disposed during the first quarter. Of which, 45% was disposed into the Arbuckle. That being said, we will continue our strategy of adding non-Arbuckle disposal capacity to maintain optionality and have the flexibility to grow production moving forward. In that regard, we currently have five non-Arbuckle injection wells with all the permits approved just waiting to be drilled. We don't currently have those wells in our drilling schedule, but again are simply giving ourselves the optionality should we ever need to do so. Turning to our financials, we continue to perform as expected. During the first quarter, we generated approximately $35 million in adjusted EBITDA, which outpaced operational CapEx of $32 million by about $3 million. And all of our first quarter expense side items within or under yearly guidance range published earlier this year. Nelson will take you through the details on all this when I turn the call over to him. Additionally, we reinstated our hedging program during the first quarter. Our hedging strategy is focused on providing downside price protection to protect operating cash flows while still allowing for meaningful participation in any upside price movement. Currently, we have approximate 55% of oil and 60% of natural gas production hedged through the end of 2017, all at attractive prices. Nelson will also go over the details of this in a few minutes. Looking forward, we plan to build on the momentum created by our solid first quarter results. And currently anticipate adding a second rig in our Miss Lime acreage sometime this summer. Our deep inventory of drilling locations and strong balance sheet present us with great opportunity to significantly grow production within existing funding sources. In summary, I am pleased with our results. In the first quarter, we build a solid foundation to execute our strategy in order to fully unlock the value of our premium asset positions. With that, I'll turn the call over to Nelson Haight, our CFO.

[Nelson Haight:]

Thanks, Jake. I'll begin with discussion of the company's operational highlights and follow with cost and earnings for the quarter. I'll then provide an update on our capital investments and our hedging program, and finish up with the discussion on our overall liquidity and our 2017 guidance numbers. As Jake mentioned, in the first quarter of 2017, we continued to operate one rig in the Mississippian Lime focused primarily on HPP [ph] and terms acreage and securing acreage under our farming arrangement. We achieved average daily production of 23,562 barrels of oil equivalent for the company, down from 25,259 barrels of oil equivalent per day in the fourth quarter of 2016. And the company's Mississippian Lime properties contributed approximately 83% or 19,540 BOE per day of the first quarter's volumes with the balance coming from our Anadarko Basin properties. In the first quarter, 30% of our total production was oil, 24% NGLs, and 46% gas. Our production mix for the quarter included a bit more gas than expected. And we attribute that to a slower rate of decline in existing gas production. Turning to expenses, our first quarter adjusted cash operating expenses, which include LOE production taxes and cash G&A that excludes transaction, restructuring, and advisory costs, totaled 26 million or roughly $12.28 per BOE, down from 28.4 million or $12.22 per BOE for the fourth quarter. Our lease operating and work over expenses for the first quarter totaled $15.9 million or $7.47 per barrel of oil equivalent, down from 18.6 million or $8 per BOE in the prior quarter. A decrease quarter-over-quarter was due to field operation efficiency gains in the Anadarko Basin and roughly 1.9 million non-recurring reduction in LOE during the first quarter of 2017 related an insurance recovery settlement. Removing the impact of that insurance settlement from our lease operating work over expenses for the first quarter would have -- our lease operating work expense for the first quarter would have averaged roughly $8.40 per BOE. Gathering and transportation expenses totaled 3.7 million or $1.74 per BOE compared with 4.1 million or $1.78 per BOE in the previous quarter. Our severance and other taxes were up this quarter to 2.1 million or roughly $1 per BOE compared to 1.7 million or $0.7 per BOE in the fourth quarter. With respect to adjusted cash G&A, which is a measure of cash G&A before any capitalization to oil and gas properties and excludes non-cash compensation and certain non-recurring items, our actual came in at 5.3 million for the quarter or $2.48 per BOE compared to 6.7 million or $2.31 per BOE for the fourth quarter. We continue to be keenly focused on controlling overhead expenses in this commodity price environment. In the first quarter of 2017, our net income totaled 18.5 million or $0.72 per share. And we generated approximately 35 million in adjusted EBITDA, which was consistent with our fourth quarter results. In the first quarter of 2017, we saw an increase in realized commodity prices and realized hedges for February and March. Both of which were offset by a decline in production in the Miss Lime and the Anadarko Basin areas. I would also like to note that beginning in June 2017 we will have a new gathering and transportation contract in place for oil production in Mississippian Lime, which we expect to improve our differential versus WTI on a per barrel basis by approximately $0.50. Our first quarter operational capital expenditures were approximately 32 million. Roughly 30 million was invested in the Miss Lime where we spud six development wells and brought eight wells online, and drilled and completed one saltwater disposal well. We invested approximately 2 million in the Anadarko Basin. A majority of which was related to the exercise of our option to acquire additional acreage under the farm-out agreement we have an operator in western Oklahoma where we are assessing the northwest Stack potential. Regarding our hedging program, we realized roughly 800,000 in cash from our hedges that expired during the first quarter. We have hedged approximately 55 and 60% of forecast oil and natural gas production respectively to the end of 2017 with a combinations swaps, costless collars, and costless three-way collars. We will continue to evaluate the commodity price environment. And we will implement further hedges when we see an opportunity. On our liquidity and debt, at the end of the first quarter, we had approximately 85 million in cash and 43 million of net debt. Or said in other ways since year end we have built approximately 8 million in cash, primarily due to improvements in commodity markets during the first quarter and our effective cost management initiatives. We also continue to evaluate our exit facility and what steps we can easily take to return to a more normal regular way RBL facility. Lastly, I would like to reaffirm our guidance for the full year of 2017. We will provide updated guidance numbers for the year if and when we add a second rig. With that, I'll turn the call back over to Jake for closing comments.

[Jake Brace:]

Thank you, Nelson. In closely, our performance for the first quarter was very solid right where we wanted it to be. As we move forward, we will continue to focus on capital cost discipline, operating cost optimization, and opportunistic acreage additions to increase returns as we continue to exploit our premier Miss Lime assets and knowledge. We have an outstanding team of employees and contractors who know how to do all this. And they continue find incremental acreage and to operate and drill consistent low-cost wells day in and day out. They have performed exceptionally well, and I want to take this opportunity to thank all of them for with them, none of this would have been possible. With that, Jason and Bridget, we're ready to take any questions.

[Jake Brace:]

Okay. I will take no questions as we have given you a lot of information out there. Thanks everybody for participating. If you do have some questions, reach out to Jason and he'll get in touch with whoever he needs to answer your questions. But we do appreciate your participation and we do appreciate your interest in Midstates. And we look forward to talking to you next quarter. Thanks everybody.

[Operator:]

And thank you. This does conclude today's conference call. You may now disconnect your lines.