See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
N
ote 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.
Unless the context requires otherwise, references to: (i) our “Predecessor’s general partner” and “MEMP GP” refer to Memorial Production Partners GP LLC, our Predecessor’s general partner, which was dissolved following the effective date of the Plan; (ii) “Memorial Resource” refers collectively to Memorial Resource Development Corp., the former owner of our Predecessor’s general partner, and its subsidiaries; (iii) the “Funds” refers collectively to Natural Gas Partners VIII, L.P., Natural Gas Partners IX, L.P. and NGP IX Offshore Holdings, L.P., which collectively control MRD Holdco LLC; (iv) “OLLC” refers to Amplify Energy Operating LLC, formerly known as Memorial Production Operating LLC, our wholly owned subsidiary through which we operate our properties; (v) “Finance Corp.” refers to Memorial Production Finance Corporation, our Predecessor’s wholly owned subsidiary, whose activities were limited to co-issuing our debt securities and engaging in other activities incidental thereto and which was dissolved following the effective date of the Plan; and (vi) “NGP” refers to Natural Gas Partners.
On April 27, 2016, we entered into an agreement pursuant to which the Predecessor agreed to acquire, among other things, all of the equity interests in our Predecessor’s general partner, MEMP GP, from Memorial Resource (the “MEMP GP Acquisition”) for cash consideration of approximately $0.8 million. MEMP GP held an approximate 0.1% general partner interest and 50% of the incentive distribution rights (“IDRs”) in us. In conjunction with the MEMP GP Acquisition, on April 27, 2016, we also entered into an agreement with an NGP affiliate pursuant to which we agreed to acquire the other 50% of the IDRs. The acquisition was accounted for as an equity transaction and no gain or loss was recognized as a result of the acquisition.
In connection with the closing of the transactions on June 1, 2016, our Predecessor’s partnership agreement was amended and restated to, among other things, (i) convert the 0.1% general partner interest in the Predecessor held by MEMP GP into a non-economic general partner interest, (ii) cancel the IDRs and (iii) provide that the limited partners of the Predecessor will have the ability to elect the members of MEMP GP’s board of directors. In addition, we terminated the Predecessor’s Omnibus Agreement under which Memorial Resource provided management, administrative and operations personnel to us and our Predecessor’s general partner, and we entered into a transition services agreement with Memorial Resource to manage certain post-closing separation costs and activities. See Note 13 for additional information regarding the MEMP GP Acquisition and the transition services agreement.
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 inclusion of MEMP GP in our consolidated financial statements was effective June 1, 2016 due to the MEMP GP Acquisition. 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
Bankruptcy Accounting
On January 16, 2017, 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 operated their business as “debtors-in-possession” under the Bankruptcy Code for the period from January 16, 2017 through May 4, 2017.
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 condensed statements of consolidated operations.
Comparability of Financial Statements to Prior Periods
As discussed in further detail in Note 3 below, we have 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”). 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. Emergence from Voluntary Reorganization under Chapter 11
On January 16, 2017 (the “Petition Date”), the Debtors filed voluntary petitions under the Bankruptcy Code in the Bankruptcy Court to pursue a Joint Chapter 11 Plan of Reorganization for the Debtors. 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 (the “Confirmation 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. Although the Company is no longer a debtor-in-possession, the Company was a debtor-in-possession through May 4, 2017. As such, certain aspects of the Chapter 11 proceedings and related matters are described below in order to provide context to the Company’s financial condition and results of operations for the period presented.
12
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Plan of Reorganization
In accordance with the Plan, on the Effective Date:
|
•
|
The Successor issued (i) 25,000,000 new shares (the “New Common Shares”) of its common stock, par value $0.0001 per share (“common stock”); and (ii) warrants (the “Warrants”) to purchase up to 2,173,913 shares of the Company’s common stock exercisable for a five-year period commencing on the Effective Date entitling their holders upon exercise thereof, on a pro rata basis, to 8% of the total issued and outstanding common shares (including common shares as of the Effective Date issuable upon full exercise of the Warrants, but excluding any common shares issuable under the Management Incentive Plan (the “MIP”)), at a per share exercise price of $42.60.
|
|
•
|
The holders of claims under the Predecessor’s revolving credit facility received a full recovery, consisting of a cash pay down and their pro rata share of the $1 billion exit senior secured reserve-based revolving credit facility (the “Exit Credit Facility”), as further discussed in Note 9.
|
|
•
|
The 7.625% senior notes due May 2021 (“2021 Senior Notes”) and 6.875% senior notes due August 2022 (“2022 Senior Notes” and collectively, the “Notes”) were cancelled and the Predecessor’s liability thereunder discharged, and the holders of the Notes received (directly or indirectly) their pro rata share of New Common Shares representing, in the aggregate, 98% of the New Common Shares on the Effective Date (subject to dilution by the MIP and the common shares issuable upon exercise of the Warrants). Additionally, the holders of the Notes received their pro rata share of a $24.6 million cash distribution.
|
|
•
|
The Predecessor’s common units were cancelled, and each common unitholder received its pro rata share of: (i) 2% of the New Common Shares, (ii) the Warrants, and (iii) cash in an aggregate amount of approximately $1.3 million.
|
|
•
|
The holders of administrative expense claims, priority tax claims, other priority claims and general unsecured creditors of the Predecessor received in exchange for their claims payment in full in cash or otherwise had their rights unimpaired under Title 11 of the United States Code.
|
|
•
|
The Successor entered into a stockholders agreement (the “Stockholders Agreement”) with certain parties pursuant to which the Successor agreed to, at the direction of such stockholders, use commercially reasonable efforts to effect the sale of their common stock.
|
|
•
|
The Successor entered into a registration rights agreement (the “Registration Rights Agreement”) with certain parties pursuant to which the Successor agreed to, among other things, file a registration statement with the SEC within 90 days of the receipt of a request from the stockholders party thereto covering the offer and resale of the common stock held by such stockholders.
|
|
•
|
The Company’s MIP became effective, such that an aggregate of 2,322,404 shares of the Company’s common stock are available for grant pursuant to awards under the MIP.
|
|
•
|
The terms of the Predecessor’s general partner’s board of directors automatically expired on the Effective Date. The Successor formed a new seven-member board of directors consisting of the President and Chief Executive Officer, one director of the Predecessor, and five new members designated by certain parties to the plan support agreement.
|
Note 3. Fresh Start Accounting
Upon emergence from the Chapter 11 proceedings on May 4, 2017, we adopted fresh start accounting as required by GAAP. We met the requirements of fresh start accounting, which include: (i) the holders of the Predecessor’s voting common units immediately prior to the Effective Date received less than 50% of the voting shares of the Company and (ii) the reorganization value of our assets immediately prior to the Effective Date was less than the post-petition liabilities and allowed claims.
Reorganization Value
The Successor’s enterprise value, as approved by the Bankruptcy Court, was estimated to be within a range of $700 million to $900 million, with a midpoint estimate of approximately $800 million. Enterprise value represents the estimated fair value of a company’s interest-bearing debt and its shareholders’ equity. Based on the estimates and assumptions utilized in our fresh start accounting process, we estimated the Successor’s enterprise value to be approximately $800 million before the consideration of cash and cash equivalents on hand at the Effective Date. Reorganization value represents the fair value of the Successor’s total assets prior to the consideration of liabilities and is intended to approximate the amount a willing buyer would pay for the assets immediately after a restructuring. The reorganization value, which was derived from the Successor’s enterprise value, was allocated to our individual assets based on their estimated fair values.
13
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table is a reconciliation of the enterprise value to the reorganization value of the Successor assets at the Effective Date (in thousands):
Enterprise value
|
$
|
800,000
|
|
Plus: Cash and cash equivalents
|
|
20,140
|
|
Plus: Other working capital liabilities
|
|
63,817
|
|
Plus: Other long-term liabilities
|
|
97,470
|
|
Reorganization value of Successor assets
|
$
|
981,427
|
|
Our assets consist primarily of producing oil and natural gas properties. The fair values of proved and unproved oil and natural gas properties were estimated using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount. 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. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation and are the most sensitive and subject to change. The underlying commodity prices embedded in the Company’s estimated cash flows are the product of a process that begins with NYMEX forward curve pricing and is adjusted for estimated location and quality differentials, as well as other factors as necessary that the Company’s management believes will impact realizable prices. The fair value of support equipment and facilities were estimated using a cost approach, based on current replacement costs of the assets less depreciation based on the estimated economic useful lives of the assets and age of the assets.
See below under the caption “Fresh Start Adjustments” for additional information regarding assumptions used in the valuation of the Company’s various other significant assets and liabilities.
14
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet
The adjustments included in the following condensed consolidated balance sheet reflect the effect of the transactions contemplated by the Plan (reflected in the column “Reorganization Adjustments”) as well as fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column “Fresh Start Adjustments”). The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine the fair values and significant assumptions.
|
As of May 4, 2017
|
|
|
|
|
|
|
Reorganization
|
|
|
|
Fresh Start
|
|
|
|
|
|
|
Predecessor
|
|
|
Adjustments (1)
|
|
|
|
Adjustments
|
|
|
Successor
|
|
|
(In thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
83,050
|
|
|
$
|
(62,910
|
)
|
|
(2)
|
$
|
—
|
|
|
$
|
20,140
|
|
Restricted cash
|
|
—
|
|
|
|
7,411
|
|
|
(3)
|
|
—
|
|
|
|
7,411
|
|
Accounts receivable
|
|
33,560
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
33,560
|
|
Short-term derivative instruments
|
|
51,329
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
51,329
|
|
Prepaid expenses and other current assets
|
|
10,229
|
|
|
|
675
|
|
|
(4)
|
|
—
|
|
|
|
10,904
|
|
Total current assets
|
|
178,168
|
|
|
|
(54,824
|
)
|
|
|
|
—
|
|
|
|
123,344
|
|
Property and equipment, net
|
|
1,551,500
|
|
|
|
—
|
|
|
|
|
(894,164
|
)
|
(11)
|
|
657,336
|
|
Long-term derivative instruments
|
|
33,800
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
33,800
|
|
Restricted investments
|
|
156,443
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
156,443
|
|
Other long-term assets
|
|
1,929
|
|
|
|
8,575
|
|
|
(5)
|
|
—
|
|
|
|
10,504
|
|
Total assets
|
$
|
1,921,840
|
|
|
$
|
(46,249
|
)
|
|
|
$
|
(894,164
|
)
|
|
$
|
981,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
1,501
|
|
|
$
|
1,389
|
|
|
(6)
|
$
|
—
|
|
|
$
|
2,890
|
|
Revenues payable
|
|
22,747
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
22,747
|
|
Accrued liabilities
|
|
36,954
|
|
|
|
2,939
|
|
|
(7)
|
|
(1,713
|
)
|
(12)
|
|
38,180
|
|
Current portion of long-term debt
|
|
454,799
|
|
|
|
(454,799
|
)
|
|
(8)
|
|
—
|
|
|
|
—
|
|
Total current liabilities
|
|
516,001
|
|
|
|
(450,471
|
)
|
|
|
|
(1,713
|
)
|
|
|
63,817
|
|
Liabilities subject to compromise
|
|
1,162,437
|
|
|
|
(1,162,437
|
)
|
|
(9)
|
|
—
|
|
|
|
—
|
|
Long-term debt
|
|
—
|
|
|
|
430,000
|
|
|
(8)
|
|
—
|
|
|
|
430,000
|
|
Asset retirement obligations
|
|
158,114
|
|
|
|
—
|
|
|
|
|
(62,928
|
)
|
(13)
|
|
95,186
|
|
Deferred tax liabilities
|
|
2,206
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
2,206
|
|
Other long-term liabilities
|
|
2,481
|
|
|
|
—
|
|
|
|
|
(2,403
|
)
|
(12)
|
|
78
|
|
Total liabilities
|
|
1,841,239
|
|
|
|
(1,182,908
|
)
|
|
|
|
(67,044
|
)
|
|
|
591,287
|
|
Commitments and contingencies (see Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'/partners' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor common units
|
|
80,601
|
|
|
|
(80,601
|
)
|
|
(10)
|
|
—
|
|
|
|
—
|
|
Successor warrants
|
|
—
|
|
|
|
4,788
|
|
|
(10)
|
|
—
|
|
|
|
4,788
|
|
Successor common stock
|
|
—
|
|
|
|
3
|
|
|
(10)
|
|
—
|
|
|
|
3
|
|
Successor additional paid-in capital
|
|
—
|
|
|
|
1,212,469
|
|
|
(10)
|
|
(827,120
|
)
|
(14)
|
|
385,349
|
|
Total stockholders'/ partners' equity
|
|
80,601
|
|
|
|
1,136,659
|
|
|
|
|
(827,120
|
)
|
|
|
390,140
|
|
Total liabilities and equity
|
$
|
1,921,840
|
|
|
$
|
(46,249
|
)
|
|
|
$
|
(894,164
|
)
|
|
$
|
981,427
|
|
Reorganization Adjustments
(1)
|
Reflects amounts recorded as of the Effective Date for the implementation of the Plan, including among other items, settlement of the Predecessor’s liabilities subject to compromise, cancellation of the Predecessor’s equity, issuance of the Successor New Common Shares and the Warrants, repayment of certain of Predecessor’s debt and settlement with holders of the Notes.
|
15
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(2)
|
Reflects the
changes in cash and cash equivalents, including the following (in thousands):
|
Payment on the Predecessor's revolving credit facility
|
$
|
(24,799
|
)
|
Payment to holders of the Notes (1)
|
|
(16,446
|
)
|
Payment of fees related to Exit Credit Facility
|
|
(8,575
|
)
|
Funding of the professional fees escrow account
|
|
(7,411
|
)
|
Payment of professional fees
|
|
(4,295
|
)
|
Other
|
|
(1,384
|
)
|
Changes in cash and cash equivalents
|
$
|
(62,910
|
)
|
|
(1)
|
The total cash settlement to the holders of the Notes was approximately $24.6 million, of which $16.4 million was paid upon emergence and $8.2 million was paid post-emergence and is reflected in accrued liabilities in the above condensed consolidated balance sheet.
|
(3)
|
Reflects the transfer to restricted cash to fund the professional fees escrow account.
|
(4)
|
Reflects the pre-payment of certain professional fees.
|
(5)
|
Reflects the deferred financing costs related to the Exit Credit Facility.
|
(6)
|
Reflects the recognition of payables for general unsecured claims.
|
(7)
|
Net increase in accrued liabilities reflects the following (in thousands):
|
Recognition of liability for settlement with holders of the Notes
|
$
|
8,193
|
|
Payment of professional fees
|
|
(4,295
|
)
|
Recognition of contribution from management
|
|
(1,500
|
)
|
Recognition of settlement with Predecessor common unitholders
|
|
1,250
|
|
Other
|
|
(709
|
)
|
Net increase in accrued liabilities due to reorganization items
|
$
|
2,939
|
|
(8)
|
Reflects a repayment of $24.8 million on the Predecessor’s revolving credit facility and the reclassification of $430.0 million in borrowings under the Exit Credit Facility to long-term debt.
|
(9)
|
Settlement of liabilities subject to compromise and the resulting net gain were determined as follows (in thousands):
|
Accounts payable
|
$
|
1,389
|
|
Accrued interest payable
|
|
49,796
|
|
Debt
|
|
1,111,252
|
|
Total liabilities subject to compromise of Predecessor
|
|
1,162,437
|
|
Recognition of payables for general unsecured claims
|
|
(1,389
|
)
|
Recognition of settlement with holders of the Notes
|
|
(24,639
|
)
|
Issuance of common stock to holders of the Notes
|
|
(377,645
|
)
|
Gain on settlement of liabilities subject to compromise
|
$
|
758,764
|
|
(10)
|
Net increase in our stockholders’/partners’ equity reflects the following (in thousands):
|
Issuance of common stock to holders of the Notes
|
$
|
377,645
|
|
Issuance of common stock to Predecessor common unitholders
|
|
7,707
|
|
Cancellation of the Predecessor's units issued and outstanding
|
|
80,601
|
|
Recognition on gain on settlement of liabilities subject to compromise
|
|
758,764
|
|
Recognition of issuance of common stock to Predecessor common unitholders
|
|
(7,707
|
)
|
Recognition of issuance of warrants to Predecessor common unitholders
|
|
(4,788
|
)
|
Recognition of contribution from management
|
|
1,500
|
|
Recognition of settlement with Predecessor common unitholders
|
|
(1,250
|
)
|
Par value of common stock
|
|
(3
|
)
|
Change in Successor additional paid-in capital
|
|
1,212,469
|
|
Issuance of warrants to Predecessor common unitholders
|
|
4,788
|
|
Par value of common stock
|
|
3
|
|
Predecessor units issued and outstanding
|
|
(80,601
|
)
|
Net increase in capital accounts
|
$
|
1,136,659
|
|
16
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fresh Start Adjustments
(11)
|
Reflects a decrease of property and equipment, net based on the methodology discussed above and the elimination of accumulated depreciation, depletion and impairment. The fresh start adjustments to property and equipment, net are as follow:
|
|
Predecessor
|
|
|
|
Fresh Start Adjustments
|
|
|
Successor
|
|
|
(In thousands)
|
|
Property and equipment at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved oil and natural gas properties
|
$
|
3,124,137
|
|
|
|
$
|
(2,615,076
|
)
|
|
$
|
509,061
|
|
Support equipment and facilities
|
|
199,463
|
|
|
|
|
(101,883
|
)
|
|
|
97,580
|
|
Unproved oil and natural gas properties
|
|
—
|
|
|
|
|
44,688
|
|
|
|
44,688
|
|
Other
|
|
15,420
|
|
|
|
|
(9,413
|
)
|
|
|
6,007
|
|
Property and equipment
|
|
3,339,020
|
|
|
|
|
(2,681,684
|
)
|
|
|
657,336
|
|
Accumulated depreciation, depletion and impairment
|
|
(1,787,520
|
)
|
|
|
|
1,787,520
|
|
|
|
—
|
|
Property and equipment, net
|
$
|
1,551,500
|
|
|
|
$
|
(894,164
|
)
|
|
$
|
657,336
|
|
(12)
|
Reflects the write-off of the deferred rent and loss on sublease liabilities.
|
(13)
|
Reflects a decrease of $62.9 million for asset retirement obligations. The fair value of asset retirement obligations were estimated using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation include estimates of: (i) plugging and abandonment costs per well based on existing regulatory requirements; (ii) remaining life per well; (iii) future inflation factors; and (iv) a credit-adjusted risk free rate.
|
(14)
|
Reflects the cumulative impact of our fresh start accounting adjustments discussed above.
|
Reorganization Items, Net
The Company has incurred significant costs associated with the reorganization. These costs, which are expensed as incurred, are expected to significantly affect the Company’s results of operations. Reorganization items, net 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
|
|
|
Period from
|
|
|
May 5, 2017
|
|
|
|
April 1, 2017
|
|
|
January 1,
|
|
|
through
|
|
|
|
through
|
|
|
2017 through
|
|
|
June 30, 2017
|
|
|
|
May 4, 2017
|
|
|
May 4, 2017
|
|
Gain on settlement of liabilities subject to compromise
|
$
|
—
|
|
|
|
$
|
758,764
|
|
|
$
|
758,764
|
|
Fresh start valuation adjustments
|
|
—
|
|
|
|
|
(827,120
|
)
|
|
|
(827,120
|
)
|
Professional fees
|
|
(349
|
)
|
|
|
|
(12,239
|
)
|
|
|
(19,824
|
)
|
Other
|
|
—
|
|
|
|
|
(526
|
)
|
|
|
(594
|
)
|
Reorganization items, net
|
$
|
(349
|
)
|
|
|
$
|
(81,121
|
)
|
|
$
|
(88,774
|
)
|
Note 4. Summary of Significant Accounting Policies
A discussion of our significant accounting policies and estimates is included in our 2016 Form 10-K.
Accrued Liabilities
Current accrued liabilities consisted of the following at the dates indicated (in thousands):
|
Successor
|
|
|
|
Predecessor
|
|
|
June 30,
|
|
|
|
December 31,
|
|
|
2017
|
|
|
|
2016
|
|
Accrued general and administrative expenses
|
$
|
12,533
|
|
|
|
$
|
3,040
|
|
Accrued lease operating expense
|
|
8,568
|
|
|
|
|
10,411
|
|
Accrued capital expenditures
|
|
7,948
|
|
|
|
|
1,826
|
|
Accrued ad valorem tax
|
|
2,120
|
|
|
|
|
977
|
|
Accrued interest payable
|
|
1,612
|
|
|
|
|
46,417
|
|
Asset retirement obligation
|
|
941
|
|
|
|
|
789
|
|
Other
|
|
121
|
|
|
|
|
1,775
|
|
Accrued liabilities
|
$
|
33,843
|
|
|
|
$
|
65,235
|
|
17
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Cash Flows
Supplemental cash flows for the periods presented (in thousands):
|
Successor
|
|
|
|
Predecessor
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
May 5, 2017
|
|
|
|
January 1, 2017
|
|
|
Six Months
|
|
|
through
|
|
|
|
through
|
|
|
Ended
|
|
|
June 30, 2017
|
|
|
|
May 4, 2017
|
|
|
June 30, 2016
|
|
Supplemental cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized
|
$
|
1,752
|
|
|
|
$
|
6,598
|
|
|
$
|
57,589
|
|
Cash paid for reorganization items, net
|
|
412
|
|
|
|
|
11,999
|
|
|
|
—
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in capital expenditures in payables and accrued liabilities
|
|
5,288
|
|
|
|
|
3,173
|
|
|
|
(1,759
|
)
|
(Increase) decrease in accounts receivable/payable related to divestitures
|
|
—
|
|
|
|
|
—
|
|
|
|
(856
|
)
|
Asset retirement obligation removal related to divestitures
|
|
—
|
|
|
|
|
—
|
|
|
|
6,212
|
|
New Accounting Pronouncements
Compensation —Stock Compensation.
In May 2017, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update to clarify and reduce both (i) diversity in practice and (ii) cost and complexity when applying its guidance in the terms and conditions of a share-based payment award. The new guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company is currently assessing the impact the adoption of this new guidance will have on our consolidated financial statements and related disclosures.
Definition of a Business.
In January 2017, the FASB issued an accounting standards update to clarify the definition of a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments provide a more robust framework to use in determining when a set of assets and activities is a business. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted and the guidance is to be applied on a prospective basis to purchases or disposals of a business or an asset. The Company is currently assessing the impact the adoption of this new guidance will have on our consolidated financial statements and related disclosures.
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. Early adoption is permitted, including adoption in an interim period. The new guidance requires transition under a retrospective approach for each period presented. The Company is currently assessing the impact the adoption of this new guidance will have on our consolidated financial statements and related disclosures.
Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments.
In August 2016, the FASB issued an accounting standards update to address eight specific cash flow issues with the objective of reducing the current and potential future diversity in practice. The new guidance is effective for reporting periods beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The new guidance requires transition under a retrospective approach for each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently assessing the impact the adoption of this new guidance will have on our consolidated 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.
18
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 lea
ses in force at the time of adoption. As a result, the evaluation of the effect of the new standards will extend over future periods.
Revenue from Contracts with Customers
. In May 2014, the 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 to which we expect to be entitled 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 guidance is effective for interim and annual reporting periods starting January 1, 2018, and early adoption is permitted. The Company will not early adopt the standard and plans to use a modified retrospective approach upon adoption with the cumulative effect of initial application recognized at the date of initial application subject to certain additional disclosures. The Company is currently evaluating its revenue streams and contracts under the revised standard to determine the impact it is expected to have on the consolidated financial statements and related disclosures.
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.
N
ote 5. Acquisitions and Divestitures
Related Party Acquisitions
See Note 13 for further information regarding related party acquisitions that have been accounted for as transactions between entities under common control that impact the basis of presentation for the periods presented.
Acquisition and Divestiture Related Expenses
Acquisition and divestiture related expenses for both related party and third party transactions are included in general and administrative expenses in the accompanying unaudited condensed statements of consolidated operations for the periods indicated below (in thousands):
Successor
|
|
|
|
Predecessor
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
May 5, 2017
|
|
|
|
April 1, 2017
|
|
|
Three Months
|
|
|
January 1, 2017
|
|
|
Six Months
|
|
through
|
|
|
|
through
|
|
|
Ended
|
|
|
through
|
|
|
Ended
|
|
June 30, 2017
|
|
|
|
May 4, 2017
|
|
|
June 30, 2016
|
|
|
May 4, 2017
|
|
|
June 30, 2016
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
927
|
|
|
$
|
—
|
|
|
$
|
1,013
|
|
Acquisitions and Divestitures
There were no material acquisitions or divestitures during the period from January 1, 2017 through May 4, 2017 or for the period from May 5, 2017 through June 30, 2017.
On July 14, 2016, we closed a transaction to divest certain assets located in Colorado and Wyoming (the “Rockies Divestiture”) to a third party for total proceeds of approximately $16.4 million, including final post-closing adjustments. This disposition did not qualify as a discontinued operation.
On June 14, 2016, we closed a transaction to divest certain assets located in the Permian Basin (the “Permian Divestiture”) to a third party for a total purchase price of approximately $36.7 million including estimated post-closing adjustments. This disposition did not qualify as a discontinued operation.
19
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The income (loss) before income taxes, including the associated (gain) loss on sale of pro
perties, related to the Permian Divestiture and Rockies Divestiture, which is included in the accompanying unaudited condensed statements of consolidated operations of the Company, is as follows (in thousands):
|
Predecessor
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
June 30, 2016
|
|
|
|
June 30, 2016
|
|
Permian Divestiture
|
$
|
6,855
|
|
|
|
$
|
4,832
|
|
Rockies Divestiture
|
|
(5,860
|
)
|
|
|
|
(7,620
|
)
|
Note 6. 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 June 30, 2017 and December 31, 2016. 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. See Note 9 for the estimated fair value of our outstanding debt.
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 June 30, 2017 and December 31, 2016 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 June 30, 2017 and December 31, 2016 for each of the fair value hierarchy levels:
|
Successor
|
|
|
Fair Value Measurements at June 30, 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
|
$
|
—
|
|
|
$
|
88,797
|
|
|
$
|
—
|
|
|
$
|
88,797
|
|
Total assets
|
$
|
—
|
|
|
$
|
88,797
|
|
|
$
|
—
|
|
|
$
|
88,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
—
|
|
|
$
|
10,037
|
|
|
$
|
—
|
|
|
$
|
10,037
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
10,037
|
|
|
$
|
—
|
|
|
$
|
10,037
|
|
20
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
Predecessor
|
|
|
Fair Value Measurements at December 31, 2016 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
|
$
|
—
|
|
|
$
|
189,851
|
|
|
$
|
—
|
|
|
$
|
189,851
|
|
Total assets
|
$
|
—
|
|
|
$
|
189,851
|
|
|
$
|
—
|
|
|
$
|
189,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
—
|
|
|
$
|
17,757
|
|
|
$
|
—
|
|
|
$
|
17,757
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
17,757
|
|
|
$
|
—
|
|
|
$
|
17,757
|
|
See Note 7 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 8 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 period from January 1, 2017 through May 4, 2017 or for the period from May 5, 2017 through June 30, 2017. During the six months ended June 30, 2016, we recognized approximately $8.3 million of impairments related to certain properties located in East Texas. The estimated future cash flows expected from these properties were compared to their carrying values and determined to be unrecoverable primarily as a result of declining commodity prices. As a result of the impairments, the carrying value of these properties was reduced to approximately $11.0 million.
|
Note 7. Risk Management and Derivative Instruments
Derivative instruments are utilized to manage exposure to commodity price and interest rate 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 or increases in interest rates, but also limit the benefits that would be realized if prices increase or interest rates decrease.
21
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Certain inherent business risks are associated with commodity and interest derivative contracts, including market risk and credit risk. Market risk is the risk that the price of natur
al 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, including int
erest rate swaps, 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 counte
rparties 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 in
struments 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 in
to 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 June 30, 2017, after taking in
to 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
$78.8 million against amounts outstanding under our Exit Credit Facility at June 30, 2017. See Note 9 for additional information regarding our Exit Credit Facility.
Commodity Derivatives
We may use a combination of commodity derivatives (e.g., floating-fo
r-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.
During the three months ended June 30, 2016, we terminated certain “in-the-money” oil and NGL derivatives settling in 2016 and certain oil basis swaps settling in 2016 and 2017. We received cash settlements of approximately $39.3 million from the termination of these oil and NGL derivatives.
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 June 30, 2017, we had the following open commodity positions:
|
Remaining
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
Natural Gas Derivative Contracts:
|
|
|
|
|
|
|
|
Fixed price swap contracts:
|
|
|
|
|
|
|
|
Average monthly volume (MMBtu)
|
|
1,295,000
|
|
|
|
1,102,000
|
|
Weighted-average fixed price
|
$
|
3.96
|
|
|
$
|
3.91
|
|
|
|
|
|
|
|
|
|
Crude Oil Derivative Contracts:
|
|
|
|
|
|
|
|
Fixed price swap contracts:
|
|
|
|
|
|
|
|
Average monthly volume (Bbls)
|
|
129,000
|
|
|
|
122,000
|
|
Weighted-average fixed price
|
$
|
71.44
|
|
|
$
|
75.69
|
|
|
|
|
|
|
|
|
|
Collar contracts:
|
|
|
|
|
|
|
|
Average monthly volume (Bbls)
|
|
10,000
|
|
|
|
—
|
|
Weighted-average floor price
|
$
|
45.00
|
|
|
$
|
—
|
|
Weighted-average ceiling price
|
$
|
54.50
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
NGL Derivative Contracts:
|
|
|
|
|
|
|
|
Fixed price swap contracts:
|
|
|
|
|
|
|
|
Average monthly volume (Bbls)
|
|
78,400
|
|
|
|
65,700
|
|
Weighted-average fixed price
|
$
|
30.29
|
|
|
$
|
24.13
|
|
22
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interest Rate Swaps
Periodically, we enter into interest rate swaps to mitigate exposure to market rate fluctuations by converting variable interest rates, such as those in our credit agreement, to fixed interest rates. The Company did not have any interest rate swaps at June 30, 2017.
Balance Sheet Presentation
The following table summarizes both: (i) the gross fair value of derivative instruments by the appropriate balance sheet classification even when the derivative instruments are subject to netting arrangements and qualify for net presentation in the balance sheet and (ii) the net recorded fair value as reflected on the balance sheet at June 30, 2017 and December 31, 2016. There was no cash collateral received or pledged associated with our derivative instruments since most of the counterparties, or certain of their affiliates, to our derivative contracts are lenders under our credit agreement.
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Type
|
|
Balance Sheet Location
|
|
2017
|
|
|
2017
|
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
(In thousands)
|
|
Commodity contracts
|
|
|
|
$
|
63,214
|
|
|
$
|
9,916
|
|
|
|
$
|
86,335
|
|
|
$
|
16,871
|
|
Gross fair value
|
|
|
|
|
63,214
|
|
|
|
9,916
|
|
|
|
|
86,335
|
|
|
|
16,871
|
|
Netting arrangements
|
|
|
|
|
(9,916
|
)
|
|
|
(9,916
|
)
|
|
|
|
(16,871
|
)
|
|
|
(16,871
|
)
|
Net recorded fair value
|
|
Short-term derivative instruments
|
|
$
|
53,298
|
|
|
$
|
—
|
|
|
|
$
|
69,464
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
|
$
|
25,583
|
|
|
$
|
121
|
|
|
|
$
|
103,515
|
|
|
$
|
885
|
|
Gross fair value
|
|
|
|
|
25,583
|
|
|
|
121
|
|
|
|
|
103,515
|
|
|
|
885
|
|
Netting arrangements
|
|
|
|
|
(121
|
)
|
|
|
(121
|
)
|
|
|
|
(885
|
)
|
|
|
(885
|
)
|
Net recorded fair value
|
|
Long-term derivative instruments
|
|
$
|
25,462
|
|
|
$
|
—
|
|
|
|
$
|
102,630
|
|
|
$
|
—
|
|
(Gains) Losses on Derivatives
We do not designate derivative instruments as hedging instruments for accounting and financial reporting purposes. Accordingly, all gains and losses, including changes in the derivative instruments’ fair values, have been recorded in the accompanying condensed statements of consolidated operations. The following table details the gains and losses related to derivative instruments for the periods indicated (in thousands):
|
Successor
|
|
|
|
Predecessor
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
May 5, 2017
|
|
|
|
April 1, 2017
|
|
|
Three Months
|
|
|
January 1, 2017
|
|
|
Six Months
|
|
|
through
|
|
|
|
through
|
|
|
Ended
|
|
|
through
|
|
|
Ended
|
|
|
June 30, 2017
|
|
|
|
May 4, 2017
|
|
|
June 30, 2016
|
|
|
May 4, 2017
|
|
|
June 30, 2016
|
|
(Gain) loss on commodity derivatives
|
$
|
(1,915
|
)
|
|
|
$
|
(12,835
|
)
|
|
$
|
124,580
|
|
|
$
|
(23,076
|
)
|
|
$
|
72,835
|
|
Interest expense, net
|
|
—
|
|
|
|
|
—
|
|
|
|
1,844
|
|
|
|
—
|
|
|
|
5,526
|
|
23
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
N
ote 8. Asset Retirement Obligations
The Company’s asset retirement obligations primarily relate to the Company’s portion of future plugging and abandonment costs for wells and related facilities. The following table presents the changes in the asset retirement obligations for the period from January 1, 2017 through May 4, 2017 and for the period from May 5, 2017 through June 30, 2017 (in thousands):
Asset retirement obligations at beginning of period (Predecessor)
|
$
|
155,702
|
|
Liabilities added from acquisitions or drilling
|
|
6
|
|
Liabilities settled
|
|
(164
|
)
|
Accretion expense
|
|
3,407
|
|
Revision of estimates
|
|
104
|
|
Asset retirement obligations at May 4, 2017 (Predecessor)
|
$
|
159,055
|
|
Fresh start adjustments (1)
|
|
(62,928
|
)
|
Asset retirement obligations at May 5, 2017 (Successor)
|
$
|
96,127
|
|
Liabilities added from acquisition or drilling
|
|
8
|
|
Liabilities settled
|
|
—
|
|
Accretion expense
|
|
1,027
|
|
Revision of estimates
|
|
69
|
|
Asset retirement obligation at end of period (Successor)
|
|
97,231
|
|
Less: Current Portion
|
|
(941
|
)
|
Asset retirement obligations - long-term portion (Successor)
|
$
|
96,290
|
|
|
(1)
|
As a result of the application of fresh start accounting, the Successor recorded its asset retirement obligations at fair value as of the Effective Date.
|
Note 9. Debt
The following table presents our consolidated debt obligations at the dates indicated:
|
Successor
|
|
|
|
Predecessor
|
|
|
June 30,
|
|
|
|
December 31,
|
|
|
2017
|
|
|
|
2016
|
|
|
(In thousands)
|
|
Successor $1.0 billion Exit Credit Facility, variable-rate, due March 2021 (1)
|
$
|
418,000
|
|
|
|
$
|
—
|
|
Predecessor $2.0 billion revolving credit facility, variable-rate, due March 2018 (1)
|
|
—
|
|
|
|
|
511,652
|
|
2021 Senior Notes, fixed-rate, due May 2021 (2) (4)
|
|
—
|
|
|
|
|
646,287
|
|
2022 Senior Notes, fixed-rate, due August 2022 (3) (4)
|
|
—
|
|
|
|
|
464,965
|
|
Total debt
|
|
418,000
|
|
|
|
|
1,622,904
|
|
Less: current portion of long-term debt (5)
|
|
—
|
|
|
|
|
(1,622,904
|
)
|
Long-term debt
|
$
|
418,000
|
|
|
|
$
|
—
|
|
(1)
|
The carrying amount of our Predecessor’s revolving credit facility and Successor Exit Credit Facility approximates fair value because the interest rates are variable and reflective of market rates.
|
(2)
|
The estimated fair value of our 2021 Senior Notes was $314.3 million at December 31, 2016.
|
(3)
|
The estimated fair value of our 2022 Senior Notes was $223.2 million at December 31, 2016.
|
(4)
|
The estimated fair value is based on quoted market prices and is classified as Level 2 within the fair value hierarchy.
|
(5)
|
Due to the existing and anticipated financial covenant violations as of December 31, 2016, the borrowings under the Predecessor’s revolving credit facility and the Notes were classified as current at December 31, 2016. There were no existing or anticipated financial covenant violations as of June 30, 2017.
|
Exit Credit Facility
On May 4, 2017, OLLC, as borrower, entered into the Amended and Restated Credit Agreement (the “Credit Agreement”) among Amplify Acquisitionco Inc., a Delaware corporation (“Acquisitionco”), as parent guarantor, the lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent. Pursuant to the Credit Agreement the lenders party thereto agreed to provide OLLC with the Exit Credit Facility (the loans thereunder, the “Loans”). The aggregate principal amount of Loans outstanding under the Exit Credit Facility as of the Effective Date was $430.0 million.
The terms and conditions under the Credit Agreement include (but are not limited to) the following:
|
•
|
a borrowing base of approximately $490.0 million
(which borrowing base amount will be reduced by
$2.5 million each month until the next scheduled redetermination of the borrowing base to occur in November 2017);
|
|
•
|
a maturity date of March 19, 2021 for the Exit Credit Facility;
|
|
•
|
the Loans shall bear interest at a rate per annum equal to (i) the alternative base rate plus an applicable margin of 2.00% to 3.00% or (ii) adjusted LIBOR plus an applicable margin of 3.00% to 4.00%, in each case based on the borrowing base utilization percentage under the Exit Credit Facility;
|
24
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
•
|
the unused commitments under the Exit Credit Facility will accrue a commitment fee of 0.50%, payable quarterly in arrears;
|
|
•
|
the obligations under the Credit Agreement are guaranteed by Acquisitionco and substantially all of OLLC’s subsidiaries (the “Guarantors”), subject to limited exceptions, and secured on a first-priority basis by substantially all of OLLC’s and the Guarantors’ assets, including, without limitation, liens on at least 95% of the total value of OLLC’s and the Guarantors’ oil and gas properties, a non-recourse pledge by the Company of the capital stock of Acquisitionco, a pledge by Acquisitionco of the membership interests of OLLC and pledges of stock of all other direct and indirect subsidiaries of OLLC, subject to certain limited exceptions;
|
|
•
|
certain financial covenants, including the maintenance of (i) an interest coverage ratio not to exceed 2.50 to 1.00, determined as of the last day of each fiscal quarter for the four fiscal-quarter period then ending, commencing with the fiscal quarter ending September 30, 2017, (ii) a current ratio, determined as of the last day of each fiscal quarter, commencing with the fiscal quarter ending September 30, 2017, of not less than 1.00 to 1.00 and (iii) a total leverage ratio, determined as of the last day of each fiscal quarter, commencing with the fiscal quarter ending September 30, 2017, of less than or equal to 4.00 to 1.00; and
|
|
•
|
certain events of default, including, without limitation: non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy.
|
The borrowing base as of June 30, 2017 was approximately $487.5 million.
Unamortized deferred financing costs associated with our Exit Credit Facility was $8.4 million at June 30, 2017. The unamortized deferred financing costs are amortized over the remaining life of our Exit Credit Facility.
Letters of Credit
At June 30, 2017, we had $2.5 million of letters of credit outstanding, primarily related to operations at our Wyoming properties.
Predecessor’s Revolving Credit Facility
Our Predecessor was a party to a $2.0 billion revolving credit facility, which was guaranteed by us and all of our current and future subsidiaries (other than certain immaterial subsidiaries).
On the Effective Date of the Plan, the holders of claims under the Predecessor’s revolving credit facility received a full recovery, which included a $24.8 million pay down and their pro rata share of the Exit Credit Facility. See Note 2 for additional information.
Senior Notes
On the Effective Date, the Notes were cancelled and the Predecessor’s liability thereunder discharged, and the holders of the Notes received their pro rata share of the New Common Shares. Additionally, the holders of the Notes received their pro rata share of a $24.6 million cash distribution.
The Company’s voluntary petitions as described in Note 2 constituted an event of default that accelerated the obligations under the Notes. For the period from April 1, 2017 through May 4, 2017 and for the period from January 17, 2017 through May 4, 2017 our contractual interest that was not recorded on the Notes was approximately $7.5 million and $24.2 million, respectively.
During the three and six months ended June 30, 2016, our Predecessor repurchased on the open market approximately $52.2 million of its 2021 Senior Notes and approximately $32.0 million of its 2022 Senior Notes. In connection with the repurchases, our Predecessor paid approximately $40.5 million and recorded a gain on extinguishment of debt of approximately $41.7 million for the three and six months ended June 30, 2016.
Weighted-Average Interest Rates
The following table presents the weighted-average interest rates paid, excluding commitment fees, on our consolidated variable-rate debt obligations for the periods presented:
|
Successor
|
|
|
|
Predecessor
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
May 5, 2017
|
|
|
|
April 1, 2017
|
|
|
Three Months
|
|
|
January 1, 2017
|
|
|
Six Months
|
|
|
through
|
|
|
|
through
|
|
|
Ended
|
|
|
through
|
|
|
Ended
|
|
|
June 30, 2017
|
|
|
|
May 4, 2017
|
|
|
June 30, 2016
|
|
|
May 4, 2017
|
|
|
June 30, 2016
|
|
Successor Exit Credit Facility
|
|
4.91%
|
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Predecessor's revolving credit facility
|
n/a
|
|
|
|
|
3.80%
|
|
|
|
3.30%
|
|
|
|
4.04%
|
|
|
|
2.85%
|
|
25
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Equity and Distributions
Issuance of Common Stock and Cancellation of Units
In accordance with the Plan, on the Effective Date:
|
•
|
the Company issued 25,000,000 New Common Shares and Warrants to purchase up to 2,173,913 shares of its common stock;
|
|
•
|
the Predecessor common units were cancelled; and
|
|
•
|
each Predecessor common unitholder received its pro rata share of: (i) 2% of the New Common Shares, (ii) the Warrants, and (iii) cash in an aggregate amount of approximately $1.3 million.
|
On the Effective Date, there were 25,000,000 New Common Shares issued and outstanding.
The following table summarizes the changes in the number of outstanding common units and shares of common stock:
|
|
|
|
|
Common Units/Shares
|
|
Balance, December 31, 2016 (Predecessor)
|
|
83,827,920
|
|
Restricted common units issued
|
|
—
|
|
Restricted common units forfeited
|
|
(12,952
|
)
|
Restricted common units repurchased (1)
|
|
(14,681
|
)
|
Balance, May 4, 2017 (Predecessor)
|
|
83,800,287
|
|
Cancellation of Predecessor common units
|
|
(83,800,287
|
)
|
Balance, May 4, 2017 (Predecessor)
|
|
—
|
|
Issuance of Successor common stock
|
|
25,000,000
|
|
Balance, May 5, 2017 (Successor)
|
|
25,000,000
|
|
Issuance of Successor common stock
|
|
—
|
|
Balance, June 30, 2017 (Successor)
|
|
25,000,000
|
|
|
(1)
|
Restricted common units are generally net-settled by unitholders to cover the required withholding tax upon vesting. Unitholders surrendered units with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes. Total payments remitted for the employees’ tax obligations to the appropriate taxing authorities were less than approximately $0.1 million for the period from January 1, 2017 through May 4, 2017. The net-settlement had the effect of unit repurchase by the Company as they reduced the number of units that would have otherwise been outstanding as a result of the vesting and did not represent an expense to the Company.
|
Warrants
On the Effective Date, the Company entered into a warrant agreement with American Stock Transfer & Trust Company, LLC, as warrant agent, pursuant to which the Company issued Warrants to purchase up to 2,173,913 shares of the Company’s common stock (representing 8% of the Company’s outstanding common stock as of the Effective Date including shares of the Company’s common stock issuable upon full exercise of the Warrants, but excluding any common stock issuable under the MIP), exercisable for a five year period commencing on the Effective Date at an exercise price of $42.60 per share.
The fair values for the warrants upon issuance have been estimated using the Black-Scholes option pricing model using the following assumptions:
|
Warrants Issued in
|
|
|
Successor Period
|
|
Risk-free interest rate
|
|
2.06
|
%
|
Dividend yield
|
|
—
|
|
Expected life (in years)
|
|
5.0
|
|
Expected volatility
|
|
50.0
|
%
|
Strike Price
|
$
|
42.60
|
|
Calculated fair value
|
$
|
2.20
|
|
Predecessor “At-the-Market” Equity Program
On May 25, 2016, our Predecessor entered into an equity distribution agreement for the sale of up to $60 million of common units under an at-the-market offering program (the “ATM Program”). Sales of common units, were made under the ATM Program by means of ordinary brokers’ transactions, through the facilities of the NASDAQ Global Market at market prices, or as otherwise agreed to between the Predecessor and a sales agent.
26
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the three and six months ended June 30, 2016, our Predecessor sold 822,313 common units under the ATM program, generating net proceeds of approximately $1.6 million (net of approxim
ately $0.1 million in commissions). Our Predecessor used the net proceeds from the sale of common units to repurchase senior notes.
Predecessor
Prior to the MEMP GP Acquisition, net income (loss) attributable to the Predecessor was allocated between our Predecessor’s general partner and the common unitholders in proportion to their pro rata ownership after giving effect to priority earnings allocations in an amount equal to incentive cash distributions allocated to our Predecessor’s general partner and the Funds. Subsequent to the MEMP GP Acquisition, net income (loss) attributable to the Predecessor was allocated entirely to the common unitholders.
Cash Distributions to Unitholders
The following table summarizes our Predecessor’s declared quarterly cash distribution rates and amounts with respect to the quarter indicated (dollars in millions, except per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Aggregate
|
|
|
Received by
|
|
Quarter
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Per Unit
|
|
|
Distribution
|
|
|
Affiliates
|
|
2
nd
Quarter 2016
|
|
July 26, 2016
|
|
August 5, 2016
|
|
August 12, 2016
|
|
$
|
0.0300
|
|
|
$
|
2.5
|
|
|
$
|
< 0.1
|
|
1
st
Quarter 2016
|
|
April 26, 2016
|
|
May 6, 2016
|
|
May 13, 2016
|
|
$
|
0.0300
|
|
|
$
|
2.5
|
|
|
$
|
< 0.1
|
|
4
th
Quarter 2015
|
|
January 26, 2016
|
|
February 5, 2016
|
|
February 12, 2016
|
|
$
|
0.1000
|
|
|
$
|
8.3
|
|
|
$
|
< 0.1
|
|
In October 2016, the board of directors of our Predecessor’s general partner suspended distributions on common units, primarily due to the current and expected commodity price environment and market conditions and their impact on our future business, as well as restrictions imposed by our Predecessor’s debt instruments, including our Predecessor’s revolving credit facility.
27
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
N
ote 11. Earnings per Share/Unit
The following sets forth the calculation of earnings (loss) per share/unit, or EPS/EPU, for the periods indicated (in thousands, except per share/unit amounts):
|
Successor
|
|
|
|
Predecessor
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
May 5, 2017
|
|
|
|
April 1, 2017
|
|
|
Three Months
|
|
|
January 1,
|
|
|
Six Months
|
|
|
through
|
|
|
|
through
|
|
|
Ended
|
|
|
2017 through
|
|
|
Ended
|
|
|
June 30, 2017
|
|
|
|
May 4, 2017
|
|
|
June 30, 2016
|
|
|
May 4, 2017
|
|
|
June 30, 2016
|
|
Net income (loss) attributable to Successor/Predecessor
|
$
|
(906
|
)
|
|
|
$
|
(74,578
|
)
|
|
$
|
(147,550
|
)
|
|
$
|
(90,955
|
)
|
|
$
|
(185,647
|
)
|
Less: predecessor's general partner's 0.1% interest in net income (loss) (1)
|
|
—
|
|
|
|
|
—
|
|
|
|
(128
|
)
|
|
|
—
|
|
|
|
(168
|
)
|
Net (income) allocated to participating restricted stockholders
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss) available to common stockholders/limited partners
|
$
|
(906
|
)
|
|
|
$
|
(74,578
|
)
|
|
$
|
(147,422
|
)
|
|
$
|
(90,955
|
)
|
|
$
|
(185,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares/units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares/units outstanding — basic
|
|
25,000
|
|
|
|
|
83,800
|
|
|
|
83,007
|
|
|
|
83,807
|
|
|
|
82,971
|
|
Dilutive effect of potential common shares/units
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Common shares/units outstanding — diluted
|
|
25,000
|
|
|
|
|
83,800
|
|
|
|
83,007
|
|
|
|
83,807
|
|
|
|
82,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share/unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.04
|
)
|
|
|
$
|
(0.89
|
)
|
|
$
|
(1.78
|
)
|
|
$
|
(1.09
|
)
|
|
$
|
(2.24
|
)
|
Diluted
|
$
|
(0.04
|
)
|
|
|
$
|
(0.89
|
)
|
|
$
|
(1.78
|
)
|
|
$
|
(1.09
|
)
|
|
$
|
(2.24
|
)
|
Antidilutive stock options (2)
|
|
516
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Antidilutive warrants (3)
|
|
2,174
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(1)
|
As a result of repurchases under the December 2014 repurchase program, our Predecessor’s general partner had an approximate average 0.105% interest in us prior to the MEMP GP Acquisition for the three and six months ended June 30, 2016.
|
|
(2)
|
Amount represents options to purchase common stock that are excluded from the diluted net earnings per share calculations because of their antidilutive effect.
|
|
(3)
|
Amount represents warrants to purchase common stock that are excluded from the diluted net earnings per share calculations because of their antidilutive effect.
|
|
Note 12. Long-Term Incentive Plans
On the Effective Date in connection with the Plan, the Company implemented the MIP for selected employees of the Company or its subsidiaries. An aggregate of 2,322,404 shares of the Company’s common stock are reserved for issuance under the MIP. MIP awards are granted in the form of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards, stock awards and other incentive awards. To the extent that an award under the MIP is expired, forfeited or cancelled for any reason without having been exercised in full, the unexercised award would then be available again for grant under the MIP. The MIP is administered by the board of directors of the Company.
On May 4, 2017, the board of directors approved grants of restricted stock unit awards and stock options (collectively, the “Emergence Awards”) to certain of the Company’s employees, including the Company’s executive officers. The board granted 614,754 restricted stock units and 614,754 stock options under the MIP on the Effective Date.
The Emergence Awards will generally vest annually in three equal installments on each of the first three anniversaries of the Effective Date, subject to the grantee’s continued employment through each such vesting date. However, upon the grantee’s (i) termination of employment without “cause,” or due to death or “disability,” or (ii) resignation for “good reason,” in each case, (A) any unvested restricted stock unit award at such time shall fully vest and (B) the portion of the then unvested stock options that would have vested had the grantee remained employed with the Company or its subsidiaries during the 12 months following such termination or resignation date shall vest. In addition, if the grantee is terminated by the Company without cause or the grantee resigns for good reason, in each case, following a “change of control,” all unvested stock options at such time shall fully vest. Subject to the foregoing, any unvested Emergence Awards will be forfeited upon the grantee’s termination of employment.
Restricted Stock Units
The restricted stock units granted are accounted for as equity-classified awards. The grant-date fair value net of estimated forfeitures is recognized as compensation cost on a straight-line basis over the requisite service period. Compensation costs are recorded as general and administrative expenses. The unrecognized cost associated with restricted stock unit awards was $8.6 million at June 30, 2017. We expect to recognize the unrecognized compensation cost for these awards over a weighted-average period of 2.9 years.
28
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information regarding the restricted stock unit awards granted under the MIP for the period presented:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average Grant
|
|
|
Number of
|
|
|
Date Fair Value
|
|
|
Units
|
|
|
per Unit (1)
|
|
Restricted stock units outstanding at May 5, 2017 (Successor)
|
|
614,754
|
|
|
$
|
13.77
|
|
Granted
|
|
143,341
|
|
|
$
|
13.77
|
|
Forfeited
|
|
(99,232
|
)
|
|
$
|
13.77
|
|
Vested
|
|
—
|
|
|
$
|
—
|
|
Restricted stock units outstanding at June 30, 2017 (Successor)
|
|
658,863
|
|
|
$
|
13.77
|
|
|
(1)
|
Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
|
Stock Options
The fair value for stock options granted during the period have been estimated using the Black-Scholes option pricing model using the following assumptions:
|
Awards Issued in
|
|
|
Successor Period
|
|
Risk-free interest rate
|
|
2.06
|
%
|
Dividend yield
|
|
—
|
|
Expected life (in years)
|
|
6.0
|
|
Expected volatility
|
|
50.0
|
%
|
Strike Price
|
$
|
21.58
|
|
Calculated fair value per stock option
|
$
|
5.01
|
|
The stock options granted are accounted for as equity-classified awards. The grant-date fair value net of estimated forfeitures is recognized as compensation cost on a straight-line basis over the requisite service period. Compensation costs are recorded as general and administrative expenses. The unrecognized cost associated with stock option awards was $2.4 million at June 30, 2017. We expect to recognize the unrecognized compensation cost for these awards over a weighted-average period of 2.9 years.
The following table summarizes information regarding the stock option awards granted under the MIP for the period presented:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average Grant
|
|
|
Number of
|
|
|
Date Fair Value
|
|
|
Units
|
|
|
per Unit (1)
|
|
Stock options outstanding at May 4, 2017 (Successor)
|
|
614,754
|
|
|
$
|
5.01
|
|
Granted
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
|
(99,232
|
)
|
|
$
|
5.01
|
|
Vested
|
|
—
|
|
|
$
|
—
|
|
Stock Options outstanding at June 30, 2017 (Successor)
|
|
515,522
|
|
|
$
|
5.01
|
|
|
(1)
|
Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
|
Predecessor Restricted Common Units
On May 1, 2017, the Company effectively cancelled the unvested restricted common unit awards under the Memorial Production Partners GP LLC Long-Term Incentive Plan (“LTIP”) and recorded $2.3 million in compensation expense with the cancellation of the LTIP.
On June 1, 2016, in connection with the MEMP GP Acquisition, the board of directors of our Predecessor’s general partner approved the acceleration of the vesting schedule of unvested awards under the LTIP for the employees that remained with Memorial Resource. The grant-date fair value compensation cost of approximately $0.1 million was reversed and the modified-date grant fair value compensation cost of $0.5 million was recognized.
On March 9, 2016, certain employees were impacted by an involuntary termination which, upon the approval of the board of directors of our Predecessor’s general partner, accelerated the vesting schedule of unvested awards under the LTIP that otherwise would have been forfeited upon an involuntary termination. The acceleration of the LTIP vesting schedule represents an improbable-to-probable modification. The grant-date fair value compensation cost of approximately $0.5 million was reversed and the modified-date grant fair value compensation cost of approximately $0.3 million was recognized.
29
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summariz
es information regarding the restricted common unit awards granted under the LTIP for the periods presented:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average Grant
|
|
|
Number of
|
|
|
Date Fair Value
|
|
|
Units
|
|
|
per Unit (1)
|
|
Restricted common units outstanding at December 31, 2016 (Predecessor)
|
|
432,160
|
|
|
$
|
15.00
|
|
Granted
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
|
(12,952
|
)
|
|
$
|
9.51
|
|
Vested
|
|
(43,045
|
)
|
|
$
|
10.40
|
|
Cancelled
|
|
(376,163
|
)
|
|
$
|
15.72
|
|
Restricted common units outstanding at May 4, 2017 (Predecessor)
|
|
—
|
|
|
$
|
—
|
|
|
(1)
|
Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
|
Predecessor Phantom Units
The following table summarizes information regarding the Predecessor’s phantom unit awards granted under the LTIP:
|
Number of
|
|
|
Units
|
|
Phantom units outstanding at December 31, 2016 (Predecessor)
|
|
5,980,693
|
|
Granted
|
|
—
|
|
Forfeited
|
|
(132,347
|
)
|
Vested
|
|
(155,601
|
)
|
Phantom units outstanding at May 4, 2017 (Predecessor)
|
|
5,692,745
|
|
Cancelled
|
|
(5,692,745
|
)
|
Phantom units outstanding at June 30, 2017 (Successor)
|
|
—
|
|
Phantom units issued to non-employee directors of our Predecessor in January 2016 vested on the first anniversary of the date of grant and were settled in cash for less than $0.1 million. Phantom units issued to certain employees in June 2016 were scheduled to vest in substantially equal one-third increments on the first, second, and third anniversaries of the date of grant. The awards included distribution equivalent rights (“DERs”) pursuant to which the recipient would, upon vesting, receive a cash payment with respect to each phantom unit equal to any cash distributions that we paid to a holder of a common unit. DERs were treated as additional compensation expense. Upon vesting, the phantom units were scheduled to be settled through an amount of cash in a single lump sum payment equal to the product of (y) the closing price of our common units on the vesting date and (z) the number of such vested phantom units. In lieu of a cash payment, the board of directors of our Predecessor’s general partner, in its discretion, was permitted to elect for the recipient to receive either a number of common units equal to the number of such vested phantom units or a combination of cash and common units. Upon emergence from bankruptcy, the remaining awards were settled in cash for less than $0.1 million.
Compensation Expense
The following table summarizes the amount of recognized compensation expense associated with the MIP and LTIP awards that are reflected in the accompanying unaudited condensed statements of consolidated operations for the periods presented (in thousands):
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
May 5, 2017
|
|
|
|
April 1, 2017
|
|
|
Three Months
|
|
|
January 1, 2017
|
|
|
Six Months
|
|
|
|
through
|
|
|
|
through
|
|
|
Ended
|
|
|
through
|
|
|
Ended
|
|
|
|
June 30, 2017
|
|
|
|
May 4, 2017
|
|
|
June 30, 2016
|
|
|
May 4, 2017
|
|
|
June 30, 2016
|
|
Equity classified awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units (Successor)
|
|
$
|
426
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted stock options (Successor)
|
|
|
101
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Restricted common units (Predecessor)
|
|
|
—
|
|
|
|
|
2,644
|
|
|
|
2,507
|
|
|
|
3,713
|
|
|
|
4,999
|
|
Liability classified awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phantom units (Predecessor)
|
|
|
—
|
|
|
|
|
(102
|
)
|
|
|
224
|
|
|
|
(46
|
)
|
|
|
300
|
|
|
|
$
|
527
|
|
|
|
$
|
2,542
|
|
|
$
|
2,731
|
|
|
$
|
3,667
|
|
|
$
|
5,299
|
|
30
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
N
ote 13. Related Party Transactions
On June 1, 2016, Memorial Resource and certain affiliates of NGP became unaffiliated entities after we closed the MEMP GP Acquisition, as discussed in Note 1.
NGP Affiliated Companies
During the six months ended June 30, 2016, our Predecessor paid less than $0.1 million to Multi-Shot, LLC, an NGP affiliate company, for services related to our drilling and completion activities.
Common Control Acquisitions
MEMP GP Acquisition.
On June 1, 2016, as discussed in Note 1, our Predecessor acquired all of the equity interests in our Predecessor’s general partner, MEMP GP, from Memorial Resource for cash consideration of approximately $0.8 million. The acquisition was accounted for as an equity transaction and no gain or loss was recognized as a result of the acquisition. In connection with the closing of the transaction, our Predecessor’s partnership agreement was amended and restated to, among other things, (i) convert MEMP GP’s 0.1% general partnership interest into a non-economic general partner interest, (ii) cancel the IDRs, and (iii) provide that the limited partners of our Predecessor had the ability to elect the members of MEMP GP’s board of directors. On June 1, 2016, our Predecessor also acquired the remaining 50% of the IDRs of MEMP owned by an NGP affiliate.
On June 1, 2016, Memorial Resource assigned and transferred Beta Operating Company, LLC to our Predecessor in connection with the MEMP GP Acquisition.
Related Party Agreements
We and certain of our former affiliates entered into various documents and agreements during the Predecessor’s existence, including the Predecessor’s Omnibus Agreement described below. These agreements were negotiated among affiliated parties and, consequently, were not the result of arm’s-length negotiations.
Omnibus Agreement
Memorial Resource provided management, administrative and operating services to the Predecessor and our Predecessor’s general partner pursuant to our Predecessor’s Omnibus Agreement. Upon completion of the MEMP GP Acquisition, the Predecessor’s Omnibus Agreement was terminated and the Company entered into a transition services agreement with Memorial Resource. The following table summarizes the amount of general and administrative expenses recognized under the Predecessor’s Omnibus Agreement that are reflected in the accompanying unaudited condensed statements of consolidated operations for the periods presented (in thousands):
Predecessor
|
|
Three Months Ended
|
|
|
For the Six Months Ended
|
|
June 30,
|
|
|
June 30,
|
|
2016
|
|
|
2016
|
|
$
|
4,418
|
|
|
$
|
11,867
|
|
Transition Services Agreement
On June 1, 2016, we closed the MEMP GP Acquisition. Upon closing of the MEMP GP Acquisition, we and Memorial Resource became unaffiliated entities. We terminated our Predecessor’s Omnibus Agreement as noted above and entered into a transition services agreement with Memorial Resource to manage post-closing separation costs and activities. The Company did not incur any costs under the transition services agreement for the period from May 5, 2017 through June 30, 2017 or for the period from January 1, 2017 through May 4, 2017. We recorded $0.5 million of general and administrative expenses related to the transition services agreement with Memorial Resource for the three months ended June 30, 2016.
31
AMPLIFY ENERGY CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
N
ote 14. Commitments and Contingencies
Litigation and Environmental
As part of our normal business activities, we may be named as defendants in litigation and legal proceedings, including those arising from regulatory and environmental matters. On January 13, 2017, the Company received a letter from the Environmental Protection Agency (“EPA”) concerning potential violations of the Clean Air Act (“CAA”) section 112(r) associated with our Bairoil complex in Wyoming. The Company met with the EPA on February 16, 2017 to present relevant information related to the allegations. We currently cannot estimate the potential penalties, fines or other expenditures, if any, that may result from any EPA actions relating to the alleged violations and, therefore, we cannot determine if the ultimate outcome of this matter will have a material impact on the Company’s financial position, results of operations or cash flows. Other than the Chapter 11 proceedings and the alleged CAA violations discussed herein, based on facts currently available, we are not aware of any litigation, pending or threatened, that we believe will have a material adverse effect on our financial position, results of operations or cash flows; however, cash flow could be significantly impacted in the reporting periods in which such matters are resolved.
Although we are insured against various risks to the extent we believe it is prudent, there is no assurance that the nature and amount of such insurance will be adequate, in every case, to indemnify us against liabilities arising from future legal proceedings.
At June 30, 2017 and December 31, 2016, we had no environmental reserves recorded on our unaudited condensed consolidated balance sheet.
Supplemental Bond for Decommissioning Liabilities Trust Agreement
Rise Energy Operating, LLC, a
wholly owned subsidiary,
assumed an obligation under a trust agreement with the BOEM for the decommissioning of the offshore production facilities in connection with its 2009 acquisition of our Beta properties in offshore Southern California. The trust account had the required minimum balance of
$152.0 million as of June 30, 2017 and December 31, 2016. The held-to-maturity investments held in the trust account at June 30, 2017 for the U.S. Bank money market cash equivalent was $152.1 million.
In 2015, the Bureau of Safety and Environmental Enforcement issued a preliminary report that indicated the estimated costs of decommissioning may further increase, and we expect the amount to be finalized during 2017 after negotiations are completed.
Note 15. Income Taxes
Effective May 5, 2017, pursuant to the Plan, the Successor became a corporation subject to federal and state income taxes. Prior to the Plan being effective, the Predecessor was a limited partnership and organized as a pass-through entity for federal and most state income tax purposes. As a result, our Predecessor limited partners were responsible for federal and state income taxes on their share of our taxable income. Certain of our consolidated subsidiaries were taxed as corporations for federal and state income tax purposes, which resulted in deferred taxes. We were also subject to the Texas margin tax for partnership activity in the state of Texas.
The Company’s income tax expense/(benefit) for the period from May 5, 2017 through June 30, 2017 was ($0.6) million, for the period from January 1, 2017 through May 4, 2017 was ($0.1) million and for the six months ended June 30, 2016 was $0.2 million. The Company’s effective tax rate for the period from May 5, 2017 through June 30, 2017 was 39.5%, for the period from January 1, 2017 through May 4, 2017 was 0.1% and for the six months ended June 30, 2016 was (0.1%). The effective tax rate for the period from May 5, 2017 through June 30, 2017 is different from the statutory U.S. federal income tax rate due to the impact of state taxes, disallowed expenses, and changes in the rate applied to historic deferred balances. The effective tax rate for the six months ended June 30, 2016 is different from the statutory U.S. federal income tax rate primarily due to the Predecessor not being subject to U.S. federal income tax. Deferred tax benefit of $0.2 million was recorded in income tax benefit for the Company’s change from a limited partnership to a corporation for the period from May 5, 2017 through June 30, 2017.
32