AMPY - Amplify Energy: Improving Financial Position After Settlement And Beta Production Ramp Up

2023-08-14 13:34:25 ET

Summary

• Amplify should generate free cash flow towards the high end of its 2023 guidance for $30 million to $50 million.
• It also expects to generate $200 million in free cash flow between 2023 and 2025 at end of July strip prices.
• Amplify closed on a new credit facility, pushing its debt maturity out to 2027.
• PD PV-10 may be around $800 million at $75 WTI oil and $3.75 NYMEX gas.

Amplify Energy ( AMPY ) looks capable of generating free cash flow near the high-end of its 2023 guidance range for $30 million to $50 million. This includes a projection of $29 million in free cash flow in the second half of 2023.

At current strip, Amplify's free cash flow should be higher in 2024 and 2025, and it should be able to eliminate its net debt during the next few years. Amplify has also closed on a new revolving credit facility that matures in July 2027.

I estimate Amplify's value at approximately $11 per share in a long-term $75 WTI oil and $3.75 NYMEX gas scenario. As its Beta production continues to ramp up and its hedges roll off, Amplify will be able to benefit more from any increase in oil prices.

New Credit Facility

Amplify recently announced the closing of a new revolving credit facility that replaces its existing revolving credit facility. This is a positive for Amplify since it gives it more certainty around its borrowing capacity over the next few years.

Amplify's old credit facility was scheduled to mature on May 31, 2024 (after having previously been extended from a November 2, 2023 maturity). Amplify's new credit facility matures on July 31, 2027.

Amplify's new credit facility has an initial $150 million borrowing base with $135 million in elected commitments. Amplify reported $120 million in credit facility borrowings and $7 million in cash on hand at the end of July 2023, giving it $22 million in liquidity.

Amplify's new credit facility borrowing base is slightly lower than its old credit facility base, which was $180 million at the end of Q2 2023, but scheduled to decrease by $5 million per month. The interest rate grid is about 0.75% lower for its new credit facility compared to its old credit facility.

Outlook For 2H 2023

Amplify Energy may be able to generate $171 million in oil and gas revenue during the second half of 2023 at current strip prices, which includes low-$80s WTI oil and roughly $3 NYMEX gas.

Amplify's hedges have approximately negative $9 million in estimated value during this period.

This results in a projection that Amplify can deliver $29 million in free cash flow during the second half of 2023, bringing its full-year free cash flow up to approximately $46 million.

Debt Situation And Valuation

Amplify had $118 million in net debt at the end of Q2, 2023, so this free cash flow would reduce its net debt to around $89 million by the end of 2023.

Amplify increased its expectations around 2023 to 2025 free cash flow to approximately $200 million at end of July strip prices. At current strip prices, Amplify may be able to generate $210 million in free cash flow over that period.

This would potentially result in Amplify ending up with $75 million in cash on hand by the end of 2025. However, Amplify's free cash flow forecasts may not include its required sinking fund payments for Beta decommissioning obligations. These payments increase to $15.8 million per year starting in 2024.

I estimate Amplify's value at $11 per share at my long-term commodity prices of $75 WTI oil and $3.75 NYMEX gas. Amplify estimates that its proved developed reserves (based on its year-end 2022 reserve report) have a PV-10 of $893 million at $75 WTI oil and $4.00 NYMEX gas.

At $75 WTI oil and $3.75 NYMEX gas (and depletion during 2023), this may be closer to $800 million. A conservative 0.65x multiple to this would result in Amplify being worth approximately $11 per share net of its projected year-end 2023 net debt.

Conclusion

Amplify Energy's financial position has improved after receiving settlement payments and getting Beta production restarted. It also closed on a new credit facility that matures three years later than its previous credit facility.

Amplify should now be able to eliminate its net debt over the next couple of years, and it may be able to generate (based on current strip) around $210 million in free cash flow between 2023 and 2025.

I estimate Amplify's value at around $11 per share in a long-term $75 WTI oil and $3.75 NYMEX gas environment, based on a relatively conservative 0.65x multiple to its estimated PD PV-10 at those commodity prices.

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