September 8, 2017
Via EDGAR
H. Roger Schwall
Assistant Director
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549-3561
| Re: | Amplify Energy Corp. |
Form10-K for the Fiscal Year Ended December 31, 2016
Filed March 10, 2017
Response dated August 9, 2017
Form10-Q for the Fiscal Quarter Ended June 30, 2017
Filed August 9, 2017
FileNo. 1-35364
Ladies and Gentlemen:
Set forth below are the responses of Amplify Energy Corp., a Delaware corporation (the “Company”), to comments received from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated August 22, 2017 with respect to the Company’s Form10-Q for the Fiscal Quarter Ended June 30, 2017, FileNo. 1-35364, initially filed with the Commission on August 9, 2017 (the “Form10-Q”).
Each response is prefaced by the exact text of the Staff’s corresponding comment in bold text. All references to pages numbers and captions correspond to the Form10-Q, unless otherwise indicated.
Form10-Q for Fiscal Quarter Ended June 30, 2017
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 33
Results of Operations, page 35
Factors Affecting the Comparability of the Results, page 35
| 1. | We note you provide tables on pages 36 and 37 in which you combine successor and predecessor periods into a combined three and six month period ended June 30, 2017. Your discussion that follows is based on a comparison of these combined |
periods with three and six month predecessor periods ended June 30, 2016. Please be advised that it is not appropriate to combine the results for purposes of MD&A discussion or otherwise as the financial statements have not been prepared on a consistent basis and therefore are not comparable. Revise to include a discussion and analysis of the historical results of each statement of operations period presented pursuant to Item 303 of RegulationS-K.
Response: The Company respectfully acknowledges the Staff’s comment and proposes to revise its disclosure in future filings to separate the discussion and analysis of the historical results of each statement of operations period presented. For illustrative purposes, the Company has provided to the Staff inAnnex A hereto the proposed revised disclosure (additions from the Form10-Q disclosure are shown in underline, and deletions are shown as strike-through text).
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Please direct any questions with respect to the foregoing or any requests for additional supplemental information, to Matthew R. Pacey of Kirkland & Ellis LLP at (713)836-3786.
| Very truly yours, | ||
| AMPLIFY ENERGY CORP. | ||
| By: | /s/ Robert L. Stillwell, Jr. | |
| Name: | Robert L. Stillwell, Jr. | |
| Title: | Senior Vice President and Chief Financial Officer | |
| cc: | Wei Lu, Securities and Exchange Commission |
Jennifer O’Brien, Securities and Exchange Commission
Eric M. Willis, Amplify Energy Corp.
Matthew R. Pacey, Kirkland & Ellis LLP
3
Annex A
[See attached.]
Results of Operations
Factors Affecting the Comparability of the Results
Amplify Energy is the successor reporting company of MEMP pursuant to Rule 15d-5 of the Exchange Act; however, the impact to the comparability of our results is generally limited to those areas associated with the basis in and accounting for our oil and gas properties (specifically DD&A and impairments), exploration expense, and income taxes (due to the change from a limited partnership to a corporation that occurred in connection with our emergence from bankruptcy). Accordingly, we believe that describing certain year-over-year variances and trends in our production, revenue and expenses for theThe results of operations for the period from May 5, 2017 through June 30, 2017, for the period from April 1, 2017 through May 4, 2017, for the period from January 1, 2017 through May 4, 2017 and for the three and six months ended June 30,2017 and2016without regard to the concept of Successor and Predecessor (i.e. on a combined basis) facilitates a meaningful analysis of our results of operations. The results of operationshave been derived from our consolidated financial statements.
The following table summarizes certain of the results of operationsand period-to-period comparisonsfor the periods indicated (in thousands).
| Successor |
| Predecessor | ||||||||||||||
| Period from May 5, 2017 through June 30, 2017 | Period from April 1, 2017 through May 4, 2017 | Three Months Ended June 30, 2016 | ||||||||||||||
| (In thousands) | ||||||||||||||||
Oil and natural gas sales | $ | 42,228 | $ | 27,686 | $ | 67,780 | ||||||||||
Lease operating expense | 18,842 | 9,582 | 29,354 | |||||||||||||
Gathering, processing and transportation | 4,114 | 2,737 | 8,823 | |||||||||||||
Taxes other than income | 1,933 | 921 | 3,485 | |||||||||||||
Depreciation, depletion and amortization | 8,351 | 9,835 | 44,413 | |||||||||||||
Impairment of proved oil and natural gas properties | — | — | — | |||||||||||||
General and administrative expense | 7,382 | 8,236 | 15,246 | |||||||||||||
Accretion of asset retirement obligations | 1,027 | 912 | 2,712 | |||||||||||||
(Gain) loss on commodity derivative instruments | (1,915 | ) | (12,835 | ) | ) | 124,580 | ||||||||||
(Gain) loss on sale of properties | — | — | (3,539 | ) | ||||||||||||
Interest expense, net | (3,797 | ) | (1,843 | ) | ) | (32,143 | ) | |||||||||
Gain on extinguishment of debt | — | — | 41,664 | |||||||||||||
Reorganization items, net | (349 | ) | (81,121 | ) | ) | — | ||||||||||
Income tax benefit (expense) | 592 | — | (100 | ) | ||||||||||||
Net income (loss) | (906 | ) | (74,578 | ) | ) | (147,550 | ) | |||||||||
Oil and natural gas revenue: | ||||||||||||||||
Oil sales | $ | 22,070 | $ | 14,466 | $ | 36,973 | ||||||||||
NGL sales | 4,112 | 3,495 | 7,928 | |||||||||||||
Natural gas sales | 16,046 | 9,725 | 22,879 | |||||||||||||
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Total oil and natural gas revenue | $ | 42,228 | $ | 27,686 | $ | 67,780 | ||||||||||
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Production volumes: | ||||||||||||||||
Oil (MBbls) | 525 | 315 | 954 | |||||||||||||
NGLs (MBbls) | 219 | 160 | 590 | |||||||||||||
Natural gas (MMcf) | 5,092 | 3,173 | 11,799 | |||||||||||||
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Total (MMcfe) | 9,576 | 6,025 | 21,063 | |||||||||||||
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Average net production (MMcfe/d) | 168.0 | 177.2 | 231.5 | |||||||||||||
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Average sales price: | ||||||||||||||||
Oil (per Bbl) | $ | 41.93 | $ | 45.81 | $ | 38.73 | ||||||||||
NGL (per Bbl) | 18.60 | 21.90 | 13.45 | |||||||||||||
Natural gas (per Mcf) | 3.15 | 3.06 | 1.94 | |||||||||||||
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Total (per Mcfe) | $ | 4.41 | $ | 4.59 | $ | 3.22 | ||||||||||
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Average unit costs per Mcfe: | ||||||||||||||||
Lease operating expense | $ | 1.97 | $ | 1.59 | $ | 1.39 | ||||||||||
Gathering, processing and transportation | 0.43 | 0.45 | 0.42 | |||||||||||||
Taxes other than income | 0.20 | 0.15 | 0.17 | |||||||||||||
General and administrative expenses | 0.77 | 1.37 | 0.72 | |||||||||||||
Depletion, depreciation and amortization | 0.87 | 1.63 | 2.11 | |||||||||||||
| Successor |
| Predecessor | ||||||||||||||
| Period from May 5, 2017 through June 30, 2017 | Period from January 1, 2017 through May 4, 2017 | Six Months Ended June 30, 2016 | ||||||||||||||
| (In thousands) | ||||||||||||||||
Oil and natural gas sales | $ | 42,228 | $ | 108,970 | $ | 128,403 | ||||||||||
Lease operating expense | 18,842 | 35,568 | 65,050 | |||||||||||||
Gathering, processing and transportation | 4,114 | 10,772 | 18,032 | |||||||||||||
Taxes other than income | 1,933 | 5,187 | 7,493 | |||||||||||||
Depreciation, depletion and amortization | 8,351 | 37,717 | 88,842 | |||||||||||||
Impairment of proved oil and natural gas properties | — | — | 8,342 | |||||||||||||
General and administrative expense | 7,382 | 31,606 | 28,770 | |||||||||||||
Accretion of asset retirement obligations | 1,027 | 3,407 | 5,419 | |||||||||||||
(Gain) loss on commodity derivative instruments | (1,915 | ) | (23,076 | ) | ) | 72,835 | ||||||||||
(Gain) loss on sale of properties | — | — | (3,635 | ) | ||||||||||||
Interest expense, net | (3,797 | ) | (10,243 | ) | ) | (64,695 | ) | |||||||||
Gain on extinguishment of debt | — | — | 41,664 | |||||||||||||
Reorganization items, net | (349 | ) | (88,774 | ) | ) | — | ||||||||||
Income tax benefit (expense) | 592 | 91 | (196 | ) | ||||||||||||
Net income (loss) | (906 | ) | (90,955 | ) | ) | (185,647 | ) | |||||||||
Oil and natural gas revenue: | ||||||||||||||||
Oil sales | $ | 22,070 | $ | 55,767 | $ | 66,750 | ||||||||||
NGL sales | 4,112 | 14,103 | 15,183 | |||||||||||||
Natural gas sales | 16,046 | 39,100 | 46,470 | |||||||||||||
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Total oil and natural gas revenue | $ | 42,228 | $ | 108,970 | | $ | 128,403 | |||||||||
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Production volumes: | ||||||||||||||||
Oil (MBbls) | 525 | 1,204 | 2,022 | |||||||||||||
NGLs (MBbls) | 219 | 616 | 1,253 | |||||||||||||
Natural gas (MMcf) | 5,092 | 12,411 | 23,552 | |||||||||||||
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Total (MMcfe) | 9,576 | 23,336 | 43,201 | |||||||||||||
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Average net production (MMcfe/d) | 168.0 | 188.2 | 237.4 | |||||||||||||
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Average sales price: | ||||||||||||||||
Oil (per Bbl) | $ | 41.93 | $ | 46.28 | $ | 33.01 | ||||||||||
NGL (per Bbl) | 18.60 | 22.90 | 12.12 | |||||||||||||
Natural gas (per Mcf) | 3.15 | 3.15 | 1.97 | |||||||||||||
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Total (per Mcfe) | $ | 4.41 | $ | 4.67 | $ | 2.97 | ||||||||||
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Average unit costs per Mcfe: | ||||||||||||||||
Lease operating expense | $ | 1.97 | $ | 1.52 | $ | 1.51 | ||||||||||
Gathering, processing and transportation | 0.43 | 0.46 | 0.42 | |||||||||||||
Taxes other than income | 0.20 | 0.22 | 0.17 | |||||||||||||
General and administrative expenses | 0.77 | 1.35 | 0.67 | |||||||||||||
Depletion, depreciation and amortization | 0.87 | 1.62 | 2.06 | |||||||||||||
Three Months Ended June 30, 2017 Compared to the Three Months Ended June 30, 2016
For the period from May 5, 2017 through June 30, 2017, for the period from April 1, 2017 through May 4, 2017 and for the Three Months Ended June 30, 2016
A net loss of $75.5 million was recorded during 2017 compared to a net loss of $147.6 million recorded during0.9 million, $74.6 million and $147.6 million was recorded for the period from May 5, 2017 through June 30, 2017, for the period from April 1, 2017 through May 4, 2017 and for the three months ended June 30, 2016, respectively.
| • | Oil, natural gas and NGL revenues |
| • | Lease operating expenses were $ |
| • | Taxes other than income |
| • | DD&A expense |
| • | General and administrative |
| • | Net gains on commodity derivative instruments of $ |
Given the volatility of commodity prices, it is not possible to predict future reportedmark-to-market net gains or losses and the actual net gains or losses that will ultimately be realized upon settlement of the hedge positions in future years. If commodity prices at settlement are lower than the prices of the hedge positions, the hedges are expected to mitigate the otherwise negative effect on earnings of lower oil, natural gas and NGL prices. However, if commodity prices at settlement are higher than the prices of the hedge positions, the hedges are expected to dampen the otherwise positive effect on earnings of higher oil, natural gas and NGL prices and will, in this context, be viewed as having resulted in an opportunity cost.
| • | Interest expense, net |
Average outstanding borrowings under our Predecessor’s revolving credit facility were $454.1 millionand $768.1 million for the period from April 1, 2017 through May 4, 2017compared to $768.1 millionduringand for the three months ended June 30, 2016, respectively. Average outstanding borrowings under our Exit Credit Facility were $424.7 million for the period from May 5, 2017 through June 30, 2017. We had an average of $1.1 billion aggregate principal amount of the Notes issued and outstanding for the period from April 1, 2017 through May 4, 2017. The Notes were cancelled on the Effective Date. We had an average of $1.2 billion aggregate principal amount of the Notes issued and outstandingduringfor the three months ended June 30, 2016.
| • | The Company has incurred significant costs associated with the reorganization. Reorganization items, net represents costs and income directly associated with the Chapter 11 proceedings since the Petition Date, such as the gain on settlement of liabilities subject to compromise, fresh start valuation adjustments |
| • | We recognized a gain on extinguishment of debt of approximately $41.7 million |
Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016
For the period from May 5, 2017 through June 30, 2017, for the period from January 1, 2017 through May 4, 2017 and for the Six Months Ended June 30, 2016
A net loss of $91.9 million was recorded during 2017 compared to a net loss of $185.6 million recorded during0.9 million, $91.0 million and $185.6 million was recorded for the period from May 5, 2017 through June 30, 2017, for the period from January 1, 2017 through May 4, 2017 and for the six months ended June 30, 2016, respectively.
| • | Oil, natural gas and NGL revenues |
| • | Lease operating expenses were $ |
| • | Taxes other than income |
| • | DD&A expense |
| • | No impairments were recognized |
| • | General and administrative |
| • | Net gains on commodity derivative instruments of $ |
| • | Interest expense, net |
Average outstanding borrowings under our Predecessor’s revolving credit facility were $460.2 millionand $791.4 million for the period from January 1, 2017 through May 4, 2017compared to $791.4 millionduringand for the six months ended June 30, 2016, respectively. Average outstanding borrowings under our Exit Credit Facility were $424.7 million for the period from May 5, 2017 through June 30, 2017. We had an average of $1.1 billion aggregate principal amount of the Notes issued and outstanding for the period from January 1, 2017 through May 4, 2017. The Notes were cancelled on the Effective Date. We had an average of $1.2 billion aggregate principal amount of the Notes issued and outstandingduringfor the six months ended June 30, 2016.
| • | The Company has incurred significant costs associated with the reorganization. Reorganization items, net represents costs and income directly associated with the Chapter 11 proceedings since the Petition Date, such as the gain on settlement of liabilities subject to compromise, fresh start valuation adjustments |
| • | We recognized a gain on extinguishment of debt of approximately $41.7 million |
Liquidity and Capital Resources
Cash Flows from Operating, Investing and Financing Activities
The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated. The cash flows for the period from May 5, 2017 through June 30, 2017, for the period from January 1, 2017 through May 4, 2017 and for the six months ended June 30, 2016 have been derived from our consolidated financial statements. For information regarding the individual components of our cash flow amounts, see the unaudited condensed statements of consolidated cash flows included under “Item 1. Financial Statements” of this quarterly report.
| Successor | Predecessor | |||||||||||||||
| Period from May 5, 2017 through June 30, 2017 | Period from January 1, 2017 through May 4, 2017 | Six Months Ended June 30, 2016 | ||||||||||||||
| (In thousands) | ||||||||||||||||
Net cash provided by operating activities | $ | 20,544 | $ | 117,937 | $ | 155,972 | ||||||||||
Net cash used in investing activities | (9,639 | ) | (6,496 | ) | (10,142 | ) | ||||||||||
Net cash used in financing activities | (20,094 | ) | (106,674 | ) | (146,429 | ) | ||||||||||
Operating Activities. Key drivers of net operating cash flows are commodity prices, production volumes and operating costs. Net cash provided by operating activities was $20.5 million, $117.9 millionfor the period from January 1, 2017 through May 4, 2017 and $20.5and $156.0 million for the period from May 5, 2017 through June 30, 2017 compared to $156.0 million for the six months ended June 30, 2016. Production decreased 10.3Bcfe (approximately 24%) and average realized sales price increased $1.62 perMcfe period over period. During 2017, oil, natural gas and NGL revenues were $151.2 million, an increase of $22.8 million compared to 2016. Lease operating expenses were $54.4 million, a decrease of $10.6 million compared to 2016. Gathering, processing and transportation decreased to $14.9 million in 2017 from $18.0 million during 2016. Cash paid for interest for the period from January 1, 2017 through May 4, 2017 was $6.6 million and for the period from May 5, 2017 through June 30, 2017 was $1.8 million compared to $57.6 million for the six months ended June 30, 2016. Cash paid for reorganization items, net for the period from January 1, 2017 through May 4, 2017 was $12.0 million and for the period from May 5, 2017 through June 30, 2017 was $0.4 million with no comparable cost in 2016. Cash settlements received on expired commodity derivatives for the period from January 1, 2017 through May 4, 2017 were $15.9 million and for the period from May 5, 2017 through June 30, 2017 were $8.3 million compared to $146.8 million for the six months ended June 30, 2016. Cash settlements on terminated derivatives were $94.1, for the period from January 1, 2017 through May 4, 2017 andwe did not have any cash settlement on terminated derivativesfor the six months ended June 30, 2016, respectively. Production volumes were approximately 168.0MMcfe/d, 188.2MMcfe/d and 237.4MMcfe/d for the period from May 5, 2017 through June 30, 2017 compared to $39.3 million, for the period from January 1, 2017 through May 4, 2017 and for the six months ended June 30, 2016., respectively. The average realized sales price was $4.41 perMcfe, $4.67 perMcfe, and $2.97 perMcfe for the period from May 5, 2017 through June 30, 2017, for the period from January 1, 2017 through May 4, 2017 and for the six months ended June 30, 2016, respectively. Oil, natural gas and NGL revenues were $42.2 million, $109.0 million and $128.4 million for the period from May 5, 2017 through June 30, 2017, for the period from January 1, 2017 through May 4, 2017 and for the six months ended June 30, 2016, respectively. Lease operating expenses were $18.8 million, $35.6 million and $65.1 million for the period from May 5, 2017 through June 30, 2017, for the period from January 1, 2017 through May 4, 2017 and for the six months ended June 30, 2016, respectively. Gathering, processing and transportation was $4.1 million, $10.8 million and $18.0 million for the period from May 5, 2017 through June 30, 2017, for the period from January 1, 2017 through May 4, 2017 and for the six months ended June 30, 2016, respectively.
Cash paid for interest was $1.8 million, $6.6 million and $57.6 million for the period from May 5, 2017 through June 30, 2017, for the period from January 1, 2017 through May 4, 2017 and for the six months ended June 30, 2016, respectively. Cash paid for reorganization items, net was $0.4 million and $12.0 million for the period from May 5, 2017 through June 30, 2017 and for the period from January 1, 2017 through May 4, 2017, respectively. No cash was paid for reorganization items, net for the six months ended June 30, 2016. Cash settlements received on expired commodity derivatives for the period was $8.3 million, $15.9 million and $146.8 million for the period from May 5, 2017 through June 30, 2017, for the period from January 1, 2017 through May 4, 2017 and for the six months ended June 30, 2016, respectively. Cash settlements on terminated derivatives were $94.1 million and $39.3 million for the period from January 1, 2017 through May 4, 2017 and for the six months ended June 30, 2016, respectively. We did not have any cash settlement on terminated derivatives for the period from May 5, 2017 through June 30, 2017.
Investing Activities.Net cash used in investing activities for theperiod from May 5, 2017 through June 30, 2017 was $9.6 million, of which $9.5 million was used for additions to oil and natural gas properties. Net cash used in investing activities for the period from January 1, 2017 through May 4, 2017 was $6.5 million, of which $6.2 million was used for additions to oil and natural gas properties. Net cash used in investing activities for theperiod from May 5, 2017 through June 30, 2017 was $9.6 million, of which $9.5 million was used for additions to oil and natural gas properties. Net cash used in investing activities for thesix months ended June 30, 2016 was $10.1 million, of which $36.6 million was used for additions to oil and natural gas properties and $7.3 million was used for additions to other property and equipment. These amounts were partially offset by $37.9 million of proceeds from sale of oil and natural gas propertiesinfor the six months ended June 30, 2016. Various restricted investment accounts fund certain long-term contractual and regulatory asset retirement obligations and collateralize certain regulatory bonds associated with our offshore Southern California oil and natural gas properties. Additions to restricted investments were $0.1 million, $0.2 millionand $4.2 million for the period from May 5, 2017 through June 30, 2017, for the period from January 1, 2017 through May 4, 2017 andwere $0.1 million for the period from May 5, 2017 through June 30, 2017compared to $4.2 millionfor the six months ended June 30, 2016, respectively.
Financing Activities. The Company had net repayments of $12.0 million under the Exit Credit Facility and made $8.2 million in payments to the holders of the Notes, $1.3 million in payments to the Predecessor common unitholders and received a $1.5 million contribution from management in accordance with the Plan for the period from May 5, 2017 through June 30, 2017. The Company had net repayments of $81.7 million under the Predecessor’s revolving credit facility, made $16.4 million in payments to the holders of the Notes in accordance with the Plan and paid $8.6 million in deferred financing costs for the period from January 1, 2017 through May 4, 2017. The Company had net repayments of $96.6 million under the Predecessor’s revolving credit facility for the six months ended June 30, 2016. Distributions to partners for the six months ended June 30, 2016 were $10.8 million.
During 2016,We repurchased an aggregate principal amount of approximately $84.2 million of the Notes for $40.5 millionfor the six months ended June 30, 2016.