Author Topic: AMPY - Amplify Energy  (Read 5189 times)

aws

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AMPY - Amplify Energy
« on: August 03, 2019, 02:26:58 PM »
Midstates Petroleum (MPO) and Amplify Energy (AMPY) have agreed to a merger of equals and will begin trading as a combined company on August 6th.  They will trade under AMPY, and each share of MPO will receive 1 share of the combined company, while AMPY shareholders will get 0.933 shares.  As AMPY had slightly more shares outstanding, shareholders of each company will own 50% of the combined company and there will be approximately 41mm shares outstanding after the merger.  The market capitalization implied by the current share price is $176mm.  Combined net debt of the companies is $207mm, for an enterprise value of approximately 383mm.  PD PV-10 was $960mm based on 4/30/19 strip pricing.

Both companies were previously in bankruptcy and emerged with relatively clean balance sheets.  The companies are controlled by shareholders who have shown a determination to return cash to shareholders.  In the past nine months, each company has done a tender offer for a large percentage of the shares outstanding.  MPO purchased 5 million shares at $10 each, and AMPY purchased 2,916,667 shares at $12 each.  In the aggregate that is $85 million, which is nearly 50% of the current market cap.  Now while they certainly could have retired a lot more shares if they waited, itís not like they destroyed their balance sheet to do it.  Both companies had substantial net income in 2018.  MPO also received proceeds from the sale of some non-core properties, and AMPY received cash that had previously been held in a trust account as a result of their bankruptcy.

In June 2019, AMPY received a further $90 million in cash from the beta decommissioning trust account.  Now while they still have the associated decommissioning liability (itís not free money or anything), it does give them plenty of ammunition for another big repurchase.  And this time they can do so at probably half the price they previously paid.  In addition to the $90 million in new cash, they are also projecting pro-forma free-cash-flow from the combined company to be $65 million for 2019.  Now, while the cash flow figures will likely come down as a result of lower energy prices, they should also have substantial G&A expense reductions ($20mm/year according to their presentation) after the merger is completed which will help future cash flows.

From the day after the merger announcement the stock of each company has been going in just one direction, with about 2/3rds of the company value evaporating.  Obviously the decline in energy prices and general hatred of the E&P sector have not helped matters, but nothing seems to justify this severe of a decline in price.  Once the merger has been completed, it is likely they will repurchase additional shares, and this should be incredibly accretive.  Using the $960mm PD PV-10 figure in the merger presentation minus the current $207mm of net debt gives an implied equity value of 753mm, which with 41mm shares would be over $18 per share, over 300% above the current share price.  Sure the prices are lower now, and the EV would ignore decommissioning liabilities, but thatís still a huge margin of safety.

I expect you could either buy now and collect maybe a 40-50% return by the time they announce further repurchases, or you might be able to hang on and collect a multi-bagger, especially if energy prices cooperate in the future.  I would love to see them come out with say a 10 - 15 million share tender offer at $6 a share to use up most of that new cash.  Itís possible such an announcement could come as early as next week.

Here are some documents related to the merger:

Announcement: https://www.midstatespetroleum.com/news-media/press-releases/detail/136/amplify-energy-and-midstates-petroleum-announce
Merger Presentation: https://d1io3yog0oux5.cloudfront.net/_bb31a59812c24c0c963d54ba0f3aaafc/midstatespetroleum/db/346/2642/pdf/Amplify+Energy+and+Midstates+Petroleum+Merger+Presentation.pdf

« Last Edit: August 05, 2019, 12:15:41 PM by Parsad »


wisowis

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Re: AMPY - Amplify Energy - merger with MPO closing August 6th
« Reply #1 on: August 03, 2019, 05:46:50 PM »
...

Now, while the cash flow figures will likely come down as a result of lower energy prices, they should also have substantial G&A expense reductions ($20mm/year according to their presentation) after the merger is completed which will help future cash flows.

...

Looks like they have a tonne of natural gas and oil hedges for 2019 (and some in 2020 and 2021 as well). Referencing this: http://investor.amplifyenergy.com/static-files/5759e6c5-ed51-41aa-a949-bfc7002b908a

So just eyeballing it...70-80% of cash flows over the next couple years should be predictable...right?


aws

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Re: AMPY - Amplify Energy - merger with MPO closing August 6th
« Reply #2 on: August 03, 2019, 10:53:08 PM »
Yes, around 80% hedged.  MPO has around the same percentages for Oil and NG, but doesn't appear to have any NGL hedges.  AMPY's hedges aren't that great for 2019, with mostly swaps at 53.29, but those have been in place for a while and it is what it is.  The 2020 hedges are looking a little better now at current prices.  MPO had some better fixed price hedges in the 60s for this year, but not for that many barrels.  The rest of their hedges are collars, where the strip pricing is around the bottom end of their collar.

MPO had suspended their drilling program last year and had just been building cash to payoff debt and buyback shares.  I'm not sure what their future production in the Mississippian Lime (MPO's only play) will bring as they don't offer guidance, but I get the impression that investing capital there is not attractive. I'm happy if they just let that runoff for now and they can diversify into the AMPY assets, while saving SG&A costs in the merger.

AMPY's production guidance seems fine, and I'm certainly happy to see that it includes free-cash-flow and not just adjusted EBITDA nonsense.  FCF with an eye towards buybacks is what much of the E&P world needs, and these guys do have a history of providing just that.  With the current share prices, I cannot imagine any drilling program having a better long-run return than buying back shares.  And with their history I certainly expect them to do it.

aws

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Re: AMPY - Amplify Energy - merger with MPO closing August 6th
« Reply #3 on: August 05, 2019, 10:38:04 AM »
Quarterly results are out.  Nothing too surprising.  Confirms the substantially lower net debt as a result of the decommissioning release.  The updated guidance and conference call are tomorrow.  I am hoping for good news on buybacks.


http://investor.amplifyenergy.com/news-releases/news-release-details/amplify-energy-announces-second-quarter-2019-results-and

aws

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Re: AMPY - Amplify Energy
« Reply #4 on: August 06, 2019, 06:10:31 AM »
Merger closed today, although I still see it as MPO in my account but maybe will change to AMPY after market close.  They expect $21 million of free cash flow for the next six months, and annualized savings of $21 million from the merger.  They announced a $25 million open market buyback (about 14% at current prices.  Plus a dividend of 0.20/quarter which is an incredible 18% yield at the current price.

https://www.globenewswire.com/news-release/2019/08/06/1897610/0/en/Amplify-Energy-Announces-Closing-of-Merger-with-Midstates-Guidance-for-Second-Half-2019-Recurring-Dividend-with-Current-Yield-of-18-and-Share-Buyback-Plan.html
« Last Edit: August 06, 2019, 06:15:48 AM by aws »

awindenberger

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Re: AMPY - Amplify Energy
« Reply #5 on: August 06, 2019, 07:40:06 AM »
Thanks for highlighting this one AWS. I was able to buy some before the close yesterday. The dividend is nice, but they would have been better served to buy back shares at these prices and announce a dividend later. Although I guess their goal is to get dividend investors interested.

Trying to decide if I want to buy more now or not.

valuedontlie

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Re: AMPY - Amplify Energy
« Reply #6 on: August 06, 2019, 08:38:16 AM »
what does this situation look like 2-3-4 years out?

it sounds like they are forgoing capex in favor of generating / returning cash... i feel like the decline curve is always steeper than people realize... this isn't the type of business where they can steady-state cash generation for many, many years... i feel like the PV-10 doesn't do justice to true liquidation value either so i'm not sure you can treat that as the undiscounted net cash this thing will generate til the wells run dry...

do you see it as more of a return to normal quick trade? or is there a longer term play here?

aws

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Re: AMPY - Amplify Energy
« Reply #7 on: August 06, 2019, 09:00:51 AM »
I'm not really qualified to analyze the quality of the assets or the decline rates.  My reason for getting in was the huge disconnect in value and the fact that I liked how management handles their capital.  I would hope they are only forgoing the growth capital that so many other E&Ps spend wildly, destroying their balance sheets and oversupply the markets.

At these prices I think the buybacks are the most important, and the longer term value will be affected not insignificantly by how many shares they are able to get for their $25 million.  At $5 current price that's a 16% annual dividend savings from every share repurchased, leaving significant extra value for the rest of the shareholders.

If the share price doubled tomorrow I'd take my gains and be on the way, but it still might offer reasonable returns from that level.

valuedontlie

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Re: AMPY - Amplify Energy
« Reply #8 on: August 06, 2019, 09:03:18 AM »
makes sense...

i actually hate the idea of buybacks for any declining business... i'd rather see a large, variable dividend payout tied to cash generation... simply too difficult to know if the buybacks are good value when looking several years down the road...

aws

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Re: AMPY - Amplify Energy
« Reply #9 on: August 06, 2019, 10:08:50 AM »
I know what you mean, but a dividend cannot create value like buybacks can when done under fair value.  And at prices of not much more than 1x cashflow, it's hard to imagine them overpaying anytime soon in this round of buybacks.