AMPY Q2 2024: A50 Well under $5M Bolsters FCF and Return Flexibility
- Cost-efficient well operations: The A50 well came in at a lower cost than the initial guidance of $5–6 million, indicating potential for improved well economics and increased overall efficiency in drilling programs.
- Robust organic free cash flow: Management highlighted that even if activity levels are doubled in 2025, the available free cash flow is more than sufficient to support accelerated development, underscoring strong operational scalability.
- Flexible capital return strategy: The company remains open to using either stock buybacks, dividends, or a combination of both for capital returns, which adds strategic value and potential shareholder upside.
- Uncertainty in monetization and capital allocation: Management was vague about the outcome of Bairoil monetization discussions and potential capital return options, leaving uncertainty over future liquidity and shareholder returns.
- Potential volatility in operating expenses: Questions on LOE trends, including varying expense impacts from workovers and drilling, point to risks that operational costs might exceed expectations, which could erode margins.
- Dependence on commodity price recovery: Low natural gas prices and the uncertain economics of non-operated wells in East Texas raise bear concerns if forecasted improvements in commodity prices do not materialize.
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Capital Returns
Q: Preference: buyback or dividend?
A: Management noted that with the Bairoil discussions, they are keeping options open for both stock buybacks and dividends, aiming to maximize shareholder value based on evolving market conditions. -
RBL Redetermination
Q: Expected borrowing base post-redetermination?
A: They emphasized that while it is early to speculate on specific numbers, robust free cash flow underpins the current facility, and any asset monetization would only add liquidity without impairing credit terms. -
Beta LOE Outlook
Q: Where do Beta LOE costs head next?
A: Management expects Beta’s LOE to trend lower next year thanks to electrification measures cutting diesel usage and NOx credit costs, with higher production volumes further reducing per-barrel expenses despite some quarterly variability. -
Well Cost Efficiency
Q: Will well costs remain below $5M?
A: Citing the efficient performance of the A50 well, they indicated that while additional wells need to be drilled to confirm trends, achieving costs under $5 million is very possible. -
Beta Development Flexibility
Q: Any constraints to more wells in '25?
A: While the plan includes 4 wells this year and 3 in '25, management stressed they have the flexibility to add more if results are favorable, though capital allocation remains a key consideration. -
Non-Operated Wells
Q: Is East Texas opportunity scalable?
A: Management sees participation in non-operated Haynesville projects as both a one-off learning experience and a potential long-term scalable opportunity, depending on market response and well economics. -
A50 Cycle Time
Q: Was A50 cycle time as expected?
A: They confirmed that the A50 well's drill and completion time—under one month—met expectations, showcasing operational efficiency. -
Haynesville Value
Q: How valuable is Haynesville relative to alternatives?
A: The team views the Haynesville play as a cost-effective means to evaluate acreage value, offering optionality that could accelerate development if returns align with their robust benchmarks.
Research analysts covering Amplify Energy.