Amplify Energy Corp. Q4 FY2023 earnings call

• Amplify had a strong fourth quarter 2023, with adjusted EBITDA of $25.2M and free cash flow of $14.4M. Full year 2023 adjusted EBITDA was $88M and free cash flow was $38M.
• Improved balance sheet by reducing net debt by ~$95M and establishing a new credit facility. Returned Beta to production and formed Magnify Energy Services.
• Strategic initiatives: Pursuing monetization of Bairoil oil-producing assets; Beta full well development program with first well spudded in 2024; focused on optimizing cash flow and cost reduction through initiatives like Magnify Energy Services.

In the fourth quarter of 2023, Amplify Energy generated $25.2 million of adjusted EBITDA and $14.4 million of free cash flow. Fourth quarter production averaged 20,800 BOE per day, with 41% oil, 18% NGL, and 41% natural gas. For the full year 2023, the company generated $88 million of adjusted EBITDA and $38 million of free cash flow. Full year production averaged 20,500 BOE per day. Revenue contributions by segment: oil made up 41% of Q4 production, NGL 18%, and natural gas 41%; for the full year, oil was ~41%, NGL ~16%, and natural gas ~42%.

• 2024 production guidance: 19,000-21,000 BOE per day, nearly flat year-over-year with 12% increase in oil volumes from Beta development offsetting gas declines.
• Adjusted EBITDA guidance: $90M-$110M; free cash flow guidance: $20M-$40M.
• Capital budget: $50M-$60M, with 85%-95% invested in first 3 quarters of 2024 due to Beta development and facilities projects.
• Assumptions: WTI price of $75 per barrel and Henry Hub natural gas price of $2.50 per MMBtu for 2024.

• Commodity price fluctuations that could impact adjusted EBITDA and free cash flow.
• Uncertainty in the timing and outcome of Bairoil asset monetization.
• Cost inflation related to items like insurance rates and regulated power costs, which could affect lease operating expenses.

Q: Was curious, starting first with Beta. So you guys have drilled in the first well there now, results coming in Q2. Do you have kind of a best guess for when those wells start flowing? Just to get a sense of kind of the contribution in Q2 and maybe into Q3. And I know IP rates aren't everything, but any kind of internal estimate or expectations you could share to kind of benchmark maybe what makes a good well there early on?

A: Yes. Let me talk about timing and then give Dan the floor and the other part of your question. These usually will take a couple of months to kind of by the time you've drilled them, completed them and started flowing them back. And so we may have some initial results by early May in our next call, but we're anticipating better results by kind of later in May and June and kind of that time frame. So we'll provide what we can by the next earnings call, but I think this is more likely a later in 2Q results and impact on our production base.

Q: Okay. Great. That's really helpful. Thank you. And sticking with beta, so production is kind of above pre-incident levels. I'm curious if you guys have any read or expectation on the sustainability of that? Is that maybe just a short-term boost since it's been offline for a while? Or what you guys are kind of expecting on the PDP base wedge of production there?

A: Yes. Since we brought Beta back on, we've been able to do some much more extensive cleanouts of the laterals and the wells and the screens in the wells. And we've been able to utilize the coiled tubing unit that was not previously available on our assets. So bringing in that unit, the uplift we've seen seems to be sustainable, and we've seen that uplift now on individual wells for going on 6 months since we started our workover program since we brought the asset back on. So we're confident we're able to continue seeing these results on our workover and hopefully get increasing uplift from these projects.

Q: Okay. Great. And maybe one more for me. On the LOE bridge slide that you guys have, and I appreciate the detail that went into that. On the cost inflation component specifically, I think you guys hit on a couple of items in the reports, but can you just kind of review specifically what you're seeing there on cost inflation? And then, curious, if you guys view that as kind of just a structural change to the cost profile going forward? Is that something Magnify could help with? Are there other things you guys could do to maybe mitigate that, any kind of commentary there with you again would be helpful.

A: Yes. I think we highlighted two main items, which are an increase in regulated power costs which are basically just -- they got approved at a higher rate, in some cases, almost double digits, and those came kind of late in the year. And so we obviously push those into the forecast. And then our insurance costs really not related to Amplify any way. This isn't just an industry-wide, I think this is all company-wide increase in liability cost. A lot of it's associated with automobile kind of incident costs, it's kind of impacting the entire market for liability claims and costs in the marketplace. I think this is something that a lot of companies will have to absorb. And we're obviously pointing it out specifically, but those are two of the things that kind of impacted us the most. Dan, do you want to go into that in any part of the question there? Dan Furbee: Yes. On the other parts of it, Magnify has done a really good job to offset some of these inflationary costs. If you go back to like 2022 with much higher gas prices, in East Texas, we saw a lot of inflation with things specifically around compression costs, and we have a lot of rental compression, bringing a lot of that compression in-house, we've been able to offset a lot of that. And we do expect compressor rates to come down over time as obviously it's going out with natural gas prices, there's just not as much activity in the East Texas region. And then, yes, like Martyn said, most of the cost inflation we are expecting this year are mainly the insurance rates and the regulated power costs, which we are currently looking for ways to reduce our power consumption across all of our assets. We think there's additional upside there to realize this year.