What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2022-11-01 · 110 added, 146 removed, 204 unchanged (56% of the section changed)

13 unchanged sentences

Industry Trends

Since the start of the COVID-19 pandemic, governments have tried to slow the spread of the virus by imposing social distancing guidelines, travel restrictions and stay-at-home orders, among other actions, which caused a significant decrease in activity in the global economy and the demand for oil and to a lesser extent natural gas and NGLs.

As vaccines have become widely available, social distancing guidelines, travel restrictions and stay-at-home orders have eased, activity in the global economy has increased and demand for oil, natural gas and NGLs and related commodity pricing, has improved.

Additionally, oil, natural gas and NGLs prices increased in 2022 when compared to the same period of 2021 and, as a result, we experienced an increase in revenues.

Oil, natural gas and NGLs prices have decreased in 2023 when compared to the same period of 2022 and, as a result, we experienced a decrease in revenues.

We continue to monitor the impact of the actions of the Organization of the Petroleum Exporting Countries and other large producing nations, the Russia-Ukraine conflict, global inventories of oil and gas and the uncertainty associated with recovering oil demand, inflation and future monetary policy, and governmental policies aimed at transitioning towards lower carbon energy.

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Recent Developments

Settlement Terms In Southern California Pipeline Civil Litigation

On August 25, 2022, we reached an agreement in principle with plaintiffs in the class action to resolve all civil claims against us and our subsidiaries.

The settlement of $50.0 million, which also includes certain injunctive relief, will be funded under our insurance policies, and the final agreement will be subject to court approval.

On October 17, 2022, counsel to the putative class filed a motion for preliminary approval of the final settlement agreement;

that motion is noticed for a hearing with the Court on November 16, 2022.

Agreement with Prosecutors to Resolve Matters Associated with Southern California Pipeline incident

On August 26, 2022, we reached an agreement with the United States government, which the court has approved, to resolve all federal criminal matters involving us and our subsidiaries stemming from the Incident.

As part of the resolution with the United States, we have agreed to plead guilty to one count of misdemeanor negligent discharge of oil in violation of the Clean Water Act.

We will pay a fine of approximately $7.1 million in installments over a period of three years, serve a term of four years’ probation and reimburse governmental agencies approximately $5.8 million for their response to this event.

We also have agreed to implement certain compliance measures including installation of a new leak detection system and increased Remote Operated Vehicle inspections of the pipeline.

On September 8, 2022, we reached an agreement with the state of California to resolve all related state criminal matters.

As part of the resolution with the state of California, which also has court approval, we agreed to enter a plea of No Contest to six misdemeanor charges.

We will pay a fine in the amount of $4.9 million to be distributed among the state of California, including the State’s Fish and Game Preservation Fund, and Orange County.

We will also serve a one-year term of probation and have agreed to certain compliance enhancements to its operations.

Commences Restart Operations at Beta Field

On April 10, 2023, the Company announced it received the required approvals from federal regulatory agencies to restart operations at the Beta Field.

The pipeline will be operated in accordance with the restart procedures that were reviewed and approved by PHMSA.

The Company returned the Beta Field to production and began selling oil on April 24, 2023 (after successfully filling the San Pedro Bay Pipeline and finalizing all required testing).

Certain Officer Departures and Appointments

On March 17, 2023, the board of directors of the Company appointed Daniel Furbee to serve as Senior Vice President and Chief Operating Officer of the Company, effective March 17, 2023.

On April 13, 2023, the board of directors of the Company appointed James Frew to serve as Senior Vice President and Chief Financial Officer of the Company, effective April 17, 2023.

Settlement with the Shipping Companies and Marine Exchange related to the Containerships’ Anchor Strike

On March 1, 2023, the Company announced that the vessels that struck and damaged the pipeline and their respective owners and operators have agreed to pay the Company $96.5 million in a settlement.

The Marine Exchange has agreed to non-monetary terms as well.

The overall resolution includes subrogation claims by Amplify’s property damage and loss of production insurers, with Amplify ultimately receiving a net payment of approximately $85.0 million.

The settlement resolves Amplify’s affirmative claims related to the Incident.

As part of the settlement, Amplify has dismissed its legal claims against those parties.

Business Environment and Operational Focus

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Results of Operations

The results of operations for the three and nine months ended September 30, 2022 and 2021 have been derived from our unaudited condensed consolidated financial statements.

The results of operations for the three months ended March 31, 2023 and 2022 have been derived from our unaudited condensed consolidated financial statements.

The comparability of the results of operations among the periods presented below is impacted by the Incident and suspension of operations at our Beta properties.

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For the Three Months Ended

For the Nine Months Ended

September 30,

($ In thousands except per unit amounts)

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Pipeline incident loss

Pipeline incident settlement

Interest expense, net

Litigation settlement

Income tax (expense) benefit - current

Income tax (expense) benefit - deferred

Net income (loss)

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Depletion, depreciation and amortization

For the Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Net income of $47.2 million and a net loss of $13.5 million were recorded for the three months ended September 30, 2022 and 2021, respectively.

Oil, natural gas and NGL revenues were $112.8 million and $96.8 million for the three months ended September 30, 2022 and 2021, respectively.

Average net production volumes were approximately 21.0 MBoe/d and 25.1 MBoe/d for the three months ended September 30, 2022 and 2021, respectively.

The change in production volumes was primarily due to the suspension of operations at our Beta properties and natural declines.

For the three months ended September 30, 2021, production from our Beta properties was 3.7 MBoe/d.

The average realized sales price was $58.31 per Boe and $41.89 per Boe for the three months ended September 30, 2022 and 2021, respectively.

The increase in average realized sales price was primarily due to the increase in commodity prices.

Other revenues were $13.5 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively.

For the three months ended September 30, 2022, we recognized $13.3 million of LOPI proceeds related to the suspension of operations at our Beta properties resulting from the Incident which includes three months of LOPI.

Lease operating expense was $32.0 million and $34.5 million for the three months ended September 30, 2022 and 2021, respectively.

The change in lease operating expense was primarily related to a decrease of $5.4 million at our Beta properties, mainly due to the suspension of operations, offset by an increase of $2.9 million related to inflation across our other assets.

On a per Boe basis, lease operating expense was $16.56 and $14.92 for the three months ended September 30, 2022 and 2021, respectively.

The change in lease operating expense on a per Boe basis was mainly due to the higher aggregate costs noted above and lower production.

Gathering, processing and transportation was $7.5 million and $5.0 million for the three months ended September 30, 2022 and 2021, respectively.

The increase was primarily attributable to marketing our own natural gas in Oklahoma starting in October 2021.

Marketing our own natural gas in Oklahoma has greatly improved our natural gas differentials, but we must now recognize certain revenue deductions as gathering, processing and transportation expenses on a go-forward basis.

On a per Boe basis, gathering, processing and transportation was $3.87 and $2.18 for the three months ended September 30, 2022 and 2021, respectively.

The change on a per BOE basis is primarily related to the marketing changes discussed above.

Taxes other than income were $9.2 million and $6.0 million for the three months ended September 30, 2022 and 2021, respectively.

The increase in taxes other than income is due to an increase in production taxes as a result of the increase in commodity prices.

On a per Boe basis, taxes other than income were $4.73 and $2.61 for the three months ended September 30, 2022 and 2021, respectively.

The change in taxes other than income on a per Boe basis was primarily due to the increase in commodity prices.

Depreciation, depletion & amortization (“DD&A expense”) was $6.3 million and $7.0 million for the three months ended September 30, 2022 and 2021, respectively.

The change in DD&A expense was primarily due to a decrease in production of 376 MBoe, which equates to a decrease of approximately $1.1 million offset by an increase of $0.4 million in our depletion rate.

General and administrative expense was $7.0 million and $6.4 million for the three months ended September 30, 2022 and 2021, respectively.

The change in general and administrative expense was primarily related to an increase of $0.5 million in salaries and other payroll benefits and an increase of $0.2 million in stock compensation expense offset with a decrease of $0.1 million in legal expense.

Net gain on commodity derivative instruments of $3.3 million were recognized for the three months ended September 30, 2022, consisting of a $44.1 million increase in the fair value of open positions and $40.8 million of cash settlements paid on expired positions.

Net loss on commodity derivative instruments of $46.7 million was recognized for the three months ended September 30, 2021, consisting of a $24.1 million decrease in the fair value of open positions and $22.6 million of cash settlements paid on expired positions.

The change in commodity derivative instruments is primarily related to the rolling off of out-of-the-money commodity hedges and increased commodity prices.

Pipeline incident loss was $2.6 million for the three months ended September 30, 2022.

The $2.6 million reflects certain legal expenses that are not expected to be recovered under an insurance policy.

No expense was recorded for the three months ended September 30, 2021.

See Note 16 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report for additional information.

Pipeline incident settlement was $12.0 million for the three months ended September 30, 2022, related to the resolution of the federal and state of California matters discussed in Note 16 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

No expense was recorded for the three months ended September 30, 2021.

Interest expense, net was $4.0 million and $3.1 million for the three months ended September 30, 2022 and 2021, respectively.

We had an increase of $1.1 million in interest expense due to higher interest rates on our Revolving Credit Facility offset by a decrease of $0.2 million in the change of our interest rate swaps.

Average outstanding borrowings under our Revolving Credit Facility were $214.9 million and $234.9 million for the three months ended September 30, 2022 and 2021, respectively.

For the Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Net income of $27.8 million and a net loss of $67.8 million were recorded for the nine months ended September 30, 2022 and 2021, respectively.

Oil, natural gas and NGL revenues were $319.6 million and $249.5 million for the nine months ended September 30, 2022 and 2021, respectively.

Average net production volumes were approximately 20.6 MBoe/d and 25.0 MBoe/d for the nine months ended September 30, 2022 and 2021, respectively.

The change in production volumes was primarily due to the suspension of operations at our Beta properties and natural declines.

For the nine months ended September 30, 2021, production from our Beta properties was 3.6 MBoe/d.

The average realized sales price was $56.76 per Boe and $36.51 per Boe for the nine months ended September 30, 2022 and 2021, respectively.

The increase in average realized sales price was primarily due to the increase in commodity prices.

Other revenues were $39.9 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively.

For the nine months ended September 30, 2022, we recognized $39.6 million of LOPI proceeds related to the suspension of operations at our Beta properties resulting from the Incident which includes nine months of LOPI.

Lease operating expense was $98.3 million and $92.0 million for the nine months ended September 30, 2022 and 2021, respectively.

The change in lease operating expenses was primarily related to a $7.3 million increase in lease operating expenses due to inflation and a $5.9 million increase in our workover expenses primarily in Wyoming and Oklahoma.

The increase was offset by a decrease of $6.9 million in lease operating expense at our Beta properties, mainly due to the suspension of operations.

On a per Boe basis, lease operating expense was $17.45 and $13.47 for the nine months ended September 30, 2022 and 2021, respectively.

The change in lease operating expense on a per Boe basis was due to the higher aggregate costs noted above and lower production.

Gathering, processing and transportation was $22.8 million and $14.7 million for the nine months ended September 30, 2022 and 2021, respectively.

The increase was primarily attributable to marketing our own natural gas in Oklahoma starting in October 2021.

On a per Boe basis, gathering, processing and transportation was $4.05 and $2.15 for the nine months ended September 30, 2022 and 2021, respectively.

The change on a per BOE basis primarily related to the marketing changes discussed above.

Taxes other than income were $25.3 million and $15.7 million for the nine months ended September 30, 2022 and 2021, respectively.

The increase in taxes other than income is due to an increase in production taxes as a result of the increase in commodity prices.

On a per Boe basis, taxes other than income were $4.50 and $2.30 for the nine months ended September 30, 2022 and 2021, respectively.

The change in taxes other than income on a per Boe basis was primarily due to the increase in commodity prices.

DD&A expense was $17.8 million and $21.7 million for the nine months ended September 30, 2022 and 2021, respectively.

The change in DD&A expense was primarily due to a decrease in production of 1,201 MBoe, which equates to a decrease of approximately $3.8 million and a decrease of $0.1 million in our depletion rate.

General and administrative expense was $23.4 million and $19.4 million for the nine months ended September 30, 2022 and 2021, respectively.

The change in general and administrative expense was primarily related to (i) an increase of $2.2 million in salaries and other payroll benefits, (ii) an increase of $0.6 million in legal expenses, (iii) an increase of $0.5 million in professional services and (iv) an increase of $0.4 million in stock compensation expense,.

Net loss on commodity derivative instruments of $108.7 million were recognized for the nine months ended September 30, 2022, consisting of a $11.6 million increase in the fair value of open positions and $120.3 million of cash settlements paid on expired positions.

Net loss on commodity derivative instruments of $145.1 million was recognized for the nine months ended September 30, 2021, consisting of a $95.0 million decrease in the fair value of open positions and $50.1 million of cash settlements paid on expired positions.

The change in commodity derivative instruments is primarily related to the rolling off of out-of-the-money commodity hedges and increased commodity prices.

Pipeline incident loss was $8.3 million for the nine months ended September 30, 2022.

The $8.3 million reflects certain legal expenses that are not expected to be recovered under an insurance policy.

No expense was recorded for the nine months ended September 30, 2021.

For the Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

Net income of $352.8 million and a net loss of $48.6 million were recorded for the three months ended March 31, 2023 and 2022, respectively.

Oil, natural gas and NGL revenues were $66.3 million and $93.9 million for the three months ended March 31, 2023 and 2022, respectively.

Average net production volumes were approximately 19.4 MBoe/d and 20.4 MBoe/d for the three months ended March 31, 2023 and 2022, respectively.

The change in production volumes was primarily due to natural declines.

The average realized sales price was $37.99 per Boe and $51.10 per Boe for the three months ended March 31, 2023 and 2022, respectively.

The decrease in average realized sales price was primarily due to the decrease in commodity prices.

Other revenues were $13.6 million and $17.6 million for the three months ended March 31, 2023 and 2022, respectively.

The change in other revenues was primarily related to the recognition of loss of production income (“LOPI”) insurance proceeds of $13.5 million for the three months ended March 31.

2023 compared to $17.5 million of LOPI proceeds for the three months ended March 31, 2022.

The decrease in LOPI proceeds reflects the timing recognition of one additional month of LOPI during the three months ended March 31, 2022.

Lease operating expense was $33.0 million and $32.9 million for the three months ended March 31, 2023 and 2022, respectively.

On a per Boe basis, lease operating expense was $18.89 and $17.92 for the three months ended March 31, 2023 and 2022, respectively.

The change in lease operating expense on a per Boe basis was due to lower production.

Gathering, processing and transportation expense was $5.6 million and $8.0 million for the three months ended March 31, 2023 and 2022, respectively.

The decrease in gathering, processing and transportation expense was primarily related to the expiration of the minimum volume commitment (“MVC”) fee for the East Texas/North Louisiana property in November 2022.

On a per Boe basis, gathering, processing and transportation expense was $3.21 and $4.36 for the three months ended March 31, 2023 and 2022, respectively.

The change on a per BOE basis primarily related to decrease in production and a decrease in MVC fees.

Taxes other than income were $5.3 million and $7.6 million for the three months ended March 31, 2023 and 2022, respectively.

The decrease was due to a reduction in production taxes as a result of lower commodity prices and lower production.

In addition, we received a $0.4 million from a one-time positive severance tax adjustment related to our non-operated Eagle Ford operations.

On a per Boe basis, taxes other than income were $3.03 and $4.11 for the three months ended March 31, 2023 and 2022, respectively.

The change in taxes other than income on a per Boe basis was primarily due to the decrease in commodity prices and lower production.

DD&A expense was $5.8 million and $5.6 million for the three months ended March 31, 2023 and 2022, respectively.

The change in DD&A expense was primarily due to a decrease of approximately $0.3 million in the change of production offset by an increase of $0.5 million related to our depletion rate.

General and administrative expense was $8.5 million and $7.8 million for the three months ended March 31, 2023 and 2022, respectively.

The change in general and administrative expense was primarily related to (i) an increase of $0.5 million in salaries and other payroll benefits, (ii) an increase of $0.3 million in stock compensation expense, (iii) an increase of $0.2 million in professional services, partially offset by a decrease of $0.2 million in legal expense and a decrease of $0.2 million in accounting/audit services.

Net gain on commodity derivative instruments of $15.2 million were recognized for the three months ended March 31, 2023, consisting of a $17.9 million increase in the fair value of open positions offset by $2.7 million of cash settlements paid on expired positions.

Net loss on commodity derivative instruments of $93.4 million was recognized for the three months ended March 31, 2022, consisting of a $62.5 million decrease in the fair value of open positions and $30.9 million of cash settlements paid on expired positions.

The change in commodity derivative instruments is primarily related to the rolling off of out-of-the-money commodity hedges.

Pipeline incident loss was $8.3 million and $0.5 million for the three months ended March 31, 2023 and 2022, respectively.

The costs reflect certain expenses that are not expected to be recovered under an insurance policy.

See Note 16 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report for additional information.

Pipeline incident settlement was $12.0 million for the nine months ended September 30, 2022, related to the resolution of the federal and state of California matters discussed in Note 16 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Litigation settlement was $84.9 million for the three months ended March 31, 2023, related to the settlement with the shipping companies related to the containerships’ anchor strikes of the Company’s pipeline.

See additional information discussed in Note 16 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

No expense was recorded for the nine months ended September 30, 2021.

Interest expense, net was $9.5 million and $9.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Interest expense included a gain position on our interest rate swaps of $0.9 million for the nine months ended September 30, 2022, compared to a loss position on interest rate swaps of less than $0.1 million for the nine months ended September 30, 2021.

Interest expense, net was $5.7 million and $2.4 million for the three months ended March 31, 2023 and 2022, respectively.

Interest expense included $0.5 million and $0.1 million for the amortization and write-off of deferred financing fees for the three months ended March 31, 2023 and 2022, respectively.

In addition, we had an increase of $2.5 million in interest expense due to higher interest rates on our Revolving Credit Facility.

Average outstanding borrowings under our Revolving Credit Facility were $220.7 million and $243.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Average outstanding borrowings under our Revolving Credit Facility were $192.4 million and $228.1 million for the three months ended March 31, 2023 and 2022, respectively.

Current income tax expense was $12.5 million for the three months ended March 31, 2023.

This is the estimated current federal and state income tax expense for the year.

See additional information discussed in Note 15 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

No current income tax expense was recorded for the three months ended March 31, 2022.

Deferred income tax benefit was $259.5 million for the three months ended March 31 2023.

This is related to the release of our valuation allowance due to a three-year cumulative book income.

See additional information discussed in Note 15 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

No deferred income tax benefit was recorded for the three months ended March 31, 2022.

Adjusted EBITDA

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For the Three Months Ended

For the Nine Months Ended

September 30,

($ In thousands)

1 unchanged sentence

Interest expense, net

Income tax expense (benefit) - current

Income tax expense (benefit) - deferred

Accretion of AROs

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Cash settlements (paid) received on expired commodity derivative instruments

Amortization of gain associated with terminated commodity derivatives

Pipeline incident loss

Pipeline incident settlement

Litigation settlement

Share-based compensation expense

Gain on extinguishment of debt

Loss on settlement of AROs

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Bad debt expense

Reorganization items, net

Adjusted EBITDA

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For the Three Months Ended

For the Nine Months Ended

September 30,

($ In thousands)

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Interest expense, net

Gain (loss) on interest rate swaps

Cash settlements paid (received) on interest rate swaps

Amortization of gain associated with terminated commodity derivatives

Pipeline incident loss

Pipeline incident settlement

Litigation settlement

Income tax expense (benefit) - current

Amortization and write-off of deferred financing fees

Acquisition and divestiture related expenses

Plugging and abandonment cost

Exploration costs

Reorganization items, net

Gain (loss) on interest rate swaps

Cash settlements paid (received) on interest rate swaps

Plugging and abandonment cost

Acquisition and divestiture related expenses

Adjusted EBITDA

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Impact of the Southern California Pipeline Incident.

There is substantial uncertainty surrounding the full impact that the Incident will have on our financial condition and cash flow generation going forward.

We have incurred and will continue to incur costs as a result of the Incident, and we anticipate that the suspension of production from Beta will lead to a material reduction in revenue from these assets.

Although we carry customary insurance policies, including loss of production income insurance, which we expect will cover a material portion of the total aggregate costs associated with the Incident, including loss of revenue resulting from suspended operations, we can provide no assurance that our coverage will adequately protect us against liability from all potential consequences, damages and losses related to the Incident.

We have incurred and will continue to incur certain costs as a result of the Incident.

In addition, although the Company has returned the Beta Field to production and initial production rates have exceeded Company forecasts, the full impact to production from the prolonged shut-in remains uncertain and may have a material adverse impact on our business, results of operations and financial condition.

We carry customary insurance policies, which have covered a material portion of the aggregate costs, including LOPI insurance, to offset loss of revenue resulting from suspended operations in Southern California.

LOPI coverage specific to the Incident expired on March 31, 2023.

We can provide no assurance that our coverage will adequately protect us against liability from all potential consequences, damages and losses related to the Incident.

In connection with the settlement between the Company and the vessels that struck and damaged the pipeline and their respective owners and operators, the Company received a net payment of approximately $85.0 million.

Proceeds from the settlement have been used to reduce debt outstanding under the Company’s credit facility and to enhance liquidity.

Capital Markets.

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Non-performance by a customer could also result in losses.

Valuation Allowance.

Net deferred tax assets relate to net operating loss carryforwards, interest expense carryforwards, tax credits, and other temporary differences expected to produce tax deductions in future periods.

The realization of these assets depends on recognition of sufficient future taxable income in specific federal and state tax jurisdictions in which those temporary differences are deductible.

In assessing the need for a valuation allowance on our deferred tax assets, we consider whether it is more likely than not that some portion of or all our deferred tax assets will not be realized.

On December 31, 2022, our valuation allowance was $284.9 million, which offset all net deferred tax assets as of such date.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

The assessment considers all available information including historical and forecasted taxable income and operating history.

The three months ended March 31, 2023 marks the first time that the Company has achieved three years of cumulative book income.

Furthermore, management determined that the Company’s ability to maintain long-term profitability despite near-term changes in commodity prices and capital and operating costs demonstrated that there is sufficient positive evidence to conclude that it is more likely than not that all net deferred tax asset is realizable.

As a result of the Company’s assessment, during the quarter ended March 31, 2023, the Company released substantially all of its valuation allowance previously recorded.

The result of the valuation allowance release during the three months ended March 31, 2023 was a tax benefit of $269.5 million.

Capital Expenditures.

Our total capital expenditures were approximately $30.3 million for the nine months ended September 30, 2022, which were primarily related to capital workovers, maintenance and facilities located in Oklahoma, East Texas, the Rockies and non-operated drilling and completion activities in East Texas and the Eagle Ford.

Our total capital expenditures were approximately $9.0 million for the three months ended March 31, 2023, which were primarily related to capital workovers and facilities upgrades located in Oklahoma and California and non-operated drilling and completion activities in the Eagle Ford.

Working Capital.

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We expect that our future working capital requirements will be impacted by these same factors.

As of September 30, 2022, we had a working capital deficit of $48.9 million primarily due to short-term derivatives of $44.9 million, accrued liabilities of $59.9 million, revenues payable of $25.4 million, and accounts payable of $25.0 million offset by accounts receivable of $78.9 million, prepaid expenses of $16.1 million and cash on hand of $10.9 million.

As of March 31, 2023, we had a working capital deficit of $17.1 million primarily due to short-term derivatives of $3.1 million, accrued liabilities of $66.6 million, revenues payable of $20.3 million, and accounts payable of $21.7 million, partially offset by accounts receivable of $66.0 million, prepaid expenses of $16.0 million and cash on hand of $12.8 million.

Debt Agreement

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Our borrowing base under our Revolving Credit Facility is subject to redetermination on at least a semi-annual basis primarily based on a reserve engineering report.

On June 20, 2022, OLLC entered into the Sixth Amendment.

The Sixth Amendment amends the Revolving Credit Facility to, among other things:

● terminate the automatic monthly reductions of the borrowing base;

● reaffirm the borrowing base under the Revolving Credit Facility at $225.0 million;

● modify the affirmative hedging covenant.

As of September 30, 2022, we had approximately $20.0 million of available borrowings under our Revolving Credit Facility.

As of September 30, 2022, we were in compliance with all the financial (current ratio and total leverage ratio) and non-financial covenants associated with our Revolving Credit Facility.

As of March 31, 2023 we had approximately $70.0 million of available borrowings under our Revolving Credit Facility.

As of March 31, 2023, we were in compliance with all the financial (current ratio and total leverage ratio) and non-financial covenants associated with our Revolving Credit Facility.

For additional information regarding our Revolving Credit Facility, see Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

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We have a funding requirement to fund a trust account to comply with supplemental regulatory bonding requirements related to our decommissioning obligations for our offshore Southern California production facilities.

As of September 30, 2022, our future commitment under this agreement were $1.3 million for the remaining of 2022, $8.0 million for 2023, $15.8 million a year for years 2024 through 2026 and $110.5 million thereafter.

As of March 31, 2023, our future commitment under this agreement were $6.0 million for the remaining of 2023, and $15.8 million a year for years 2024 through 2033.

See Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

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The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated.

The cash flows for the nine months ended September 30, 2022 and 2021 have been derived from our Unaudited Condensed Consolidated Financial Statements.

The cash flows for the three months ended March 31, 2023 and 2022 have been derived from our Unaudited Condensed Consolidated Financial Statements.

For information regarding the individual components of our cash flow amounts, see our Unaudited Condensed Consolidated Statements of Cash Flows included under “Item 1.

Financial Statements” of this quarterly report.

For the Nine Months Ended

September 30,

For the Three Months Ended

(In thousands)

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Key drivers of net operating cash flows are commodity prices, production volumes and operating costs.

Net cash provided by operating activities was $49.3 million and $55.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Production volumes were approximately 20.6 MBoe/d and 25.0 MBoe/d for the nine months ended September 30, 2022 and 2021, respectively.

The average realized sales price was $56.76 per Boe and $36.51 per Boe for the nine months ended September 30, 2022 and 2021, respectively.

The change in average realized sales price was primarily due to the increase in commodity prices.

Net cash provided by operating activities for the nine months ended September 30, 2022 included $120.3 million of cash paid on expired commodity derivative instruments compared to $50.1 million of cash paid on expired commodity derivatives for the nine months ended September 30, 2021.

For the nine months ended September 30, 2022, we had net losses on commodity derivative instruments of $108.7 million compared to net losses of $145.1 million for the nine months ended September 30, 2021.

Net cash provided by operating activities was $90.3 million and $9.7 million for the three months ended March 31, 2023 and 2022, respectively.

Production volumes were approximately 19.4 MBoe/d and 20.4 MBoe/d for the three months ended March 31, 2023 and 2022, respectively.

The average realized sales price was $37.99 per Boe and $51.10 per Boe for the three months ended March 31, 2023 and 2022, respectively.

The change in average realized sales price was primarily due to the decrease in commodity prices.

Net cash provided by operating activities for the three months ended March 31, 2023 included $2.7 million of cash paid on expired commodity derivative instruments compared to $30.9 million of cash paid on expired commodity derivatives for the three months ended March 31, 2022.

For the three months ended March 31, 2023, we had net gains on commodity derivative instruments of $15.2 million compared to net losses of $93.4 million for the three months ended March 31, 2022.

Investing Activities.

Net cash used in investing activities for the nine months ended September 30, 2022 was $31.6 million, of which $26.2 million was used for additions to oil and natural gas properties.

Net cash provided by investing activities for the nine months ended September 30, 2021 was $23.3 million, of which $23.1 million was used for additions to oil and natural gas properties.

Net cash used in investing activities for the three months ended March 31, 2023 was $10.4 million, of which $8.2 million was used for additions to oil and natural gas properties.

Net cash provided by investing activities for the three months ended March 31, 2022 was $7.8 million, of which $5.2 million was used for additions to oil and natural gas properties.

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 properties.

Additions to restricted investments were $5.4 million during the nine months ended September 30, 2022.

Additions to restricted investments were $2.1 million and $2.7 million during the three months ended March 31, 2023 and 2022, respectively.

Financing Activities .

We had net repayments of $25.0 million and $25.0 million for the nine months ended September 30, 2022 and 2021, respectively, related to our Revolving Credit Facility.

We had net repayments of $65.0 million and $5.0 million for the three months ended March 31, 2023 and 2022, respectively, related to our Revolving Credit Facility.

Off–Balance Sheet Arrangements

As of September 30, 2022, we had no off–balance sheet arrangements.

As of March 31, 2023, we had no off–balance sheet arrangements.

Recently Issued Accounting Pronouncements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis