Amplify Energy Dataset

Amplify Energy has been written three times before and the previous write-ups and related comments give a good overview of the history of the Company and the quality of its asset base. DO EM GO’s write up in October 2020 was particularly well timed and the stock is up over 8X since that time, however the enterprise value is only 20% higher. Ray Palmer wrote it up in April of 2022 and the stock is up 12% since then but the enterprise value is 20% lower. The muted change in enterprise value has occurred as the Company has paid down over $100MM of debt while extending its reserve to production ratio. I believe the stock is cheaper and more derisked now than it has ever been (less than 1X debt/EBITDA) and on the cusp of major catalysts over the next 3-6 months that will uncover the tremendous value of Amplify’s assets. This write-up will focus specifically on two items which we believe haven’t been fully flushed out and create a path to significant cash flow inflection and share price gains which I expect to be above and beyond what has been discussed so far: 1) clarity on the enormous value of Beta and 2) specific actions planned by management to realize the massive undervaluation of its asset base. COMPANY OVERVIEW Amplify’s assets are mature properties that are generally past the higher decline stages typically characterized by newer production. Its production decline rate is only ~6% per year for the next decade, translating to a less capital-intensive business relative to most E&P companies, especially those in the unconventional/shale business that can have corporate decline rates of 25%-35%+. Amplify is more resilient against commodity price volatility and provides for higher FCF. This FCF is highly predictable with 85%-90% hedged for natural gas until year end 2025 and 45%-50% in 2026. The oil hedge position in 70-75% for 2024, 45%-50% in 2025 and 10-15% in 2026. A screenshot of a map Description automatically generated As the slide below shows, the Company is quite cheap based on its current proved, producing assets even with fairly draconian long term commodity price assumptions. The PV 10 analysis is very sensitive to long term strip prices, which for oil prices is currently in the mid $60s, however, I am of the opinion that long term prices will trend higher not lower in the long term. This undervaluation, however, is even more severe when one considers that the Beta PV10 is dinged for decommissioning liabilities that may be delayed by decades as discussed later. Based on a FCF valuation, the Company has guided to $20-$40 million of FCF in 2024 after $33-$40 million of growth expenditures. FCF yield to equity at midpoint is 12% with fully loaded capex and 27%, excluding Beta related growth capex. Amplify is one of the longest reserve lives and highest free cash flow yielding energy Company in my universe based on the just the existing asset base. A screenshot of a screen Description automatically generated THE BETA OPPORTUNITY The following slide gives an overview of the Beta asset: A map of oil and gas waters Description automatically generated Beta is a world-class oilfield initially discovered and developed by Shell in the 1980’s drilling low angle wells through the massive, highly permeable, stacked sandstones. The last significant drilling program in the asset consisted of 7 wells drilled by Amplify’s predecessor company. Three of these wells were drilled horizontally targeting the D-Sand and delivered 1st year average production of approximately 350 gross Bopd per well. The current development plan is designed to sidetrack out of existing, shut-in wells and horizontally target the D-Sand, utilizing the latest in rotary steerable and mapping well drilling technology to optimally place wells in areas with the highest remaining oil saturation. The Beta field has the potential to be a large growth asset for decades as there are still significant resources remaining to be recovered. The original oil in place estimates of the field range from 600 million to 1 billion barrels of oil and, with only approximately 100 million barrels recovered to date, the implied recovery factor is only between 11 to 16%. There are many analogue fields in the southern California basin with very similar reservoir properties that have recovered between 30 to 40% of the original oil in place. Implication being that there is 70 million to 260 million barrels of recoverable oil in place with the midpoint of estimates being 165 million barrels. These analogous fields generally have much tighter well spacing compared to the Beta field, which presents the opportunity for significant infill drilling. The key for faster drilling is to get your website indexed instantly by Google. BETA ECONOMICS AND VALUE The Company plans to increase production from Beta starting this year and 66% of its $50-$60 million 2024 capex budget is allocated to the Beta development and one time Beta facility upgrade. The remainder of the budget,...