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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission File Number: 001-35512

Amplify Energy Corp.

(Exact name of registrant as specified in its charter)

Delaware

    

82-1326219

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

500 Dallas Street, Suite 1700, Houston, TX

77002

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (713) 490-8900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  þ    No  

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  þ    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer þ

Non-accelerated filer   

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).   Yes      No  þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    þ  Yes           No

Securities Registered Pursuant to Section 12(b):

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

AMPY

NYSE

As of April 29, 2022, the registrant had 38,327,143 outstanding shares of common stock, $0.01 par value outstanding.

AMPLIFY ENERGY CORP.

TABLE OF CONTENTS

    

    

Page

Glossary of Oil and Natural Gas Terms

1

Names of Entities

4

Cautionary Note Regarding Forward-Looking Statements

5

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

8

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

8

Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021

9

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

10

Unaudited Condensed Consolidated Statements of Equity (Deficit) for the Three Months Ended March 31, 2022 and 2021

11

Notes to Unaudited Condensed Consolidated Financial Statements

12

Note 1 – Organization and Basis of Presentation

12

Note 2 – Summary of Significant Accounting Policies

13

Note 3 – Revenue

13

Note 4 – Fair Value Measurements of Financial Instruments

14

Note 5 – Risk Management and Derivative Instruments

15

Note 6 – Asset Retirement Obligations

18

Note 7 – Long-term Debt

19

Note 8 – Equity (Deficit)

20

Note 9 – Earnings per Share

21

Note 10 – Long-Term Incentive Plans

21

Note 11 – Leases

24

Note 12 – Supplemental Disclosures to the Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Cash Flows

26

Note 13 – Related Party Transactions

27

Note 14 – Commitments and Contingencies

27

Note 15 – Income Taxes

28

Note 16 – Southern California Pipeline Incident

28

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

40

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

Defaults Upon Senior Securities

41

Item 4.

Mine Safety Disclosures

41

Item 5.

Other Information

42

Item 6.

Exhibits

43

Signatures

44

i

GLOSSARY OF OIL AND NATURAL GAS TERMS

Analogous Reservoir: Analogous reservoirs, as used in resource assessments, have similar rock and fluid properties, reservoir conditions (depth, temperature and pressure) and drive mechanisms, but are typically at a more advanced stage of development than the reservoir of interest and thus may provide concepts to assist in the interpretation of more limited data and estimation of recovery. When used to support proved reserves, analogous reservoir refers to a reservoir that shares all of the following characteristics with the reservoir of interest: (i) the same geological formation (but not necessarily in pressure communication with the reservoir of interest); (ii) the same environment of deposition; (iii) similar geologic structure; and (iv) the same drive mechanism.

Bbl: One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil or other liquid hydrocarbons.

Bbl/d: One Bbl per day.

Bcfe: One billion cubic feet of natural gas equivalent.

Boe: One barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil.

BOEM: U.S. Bureau of Ocean Energy Management.

Btu: One British thermal unit, the quantity of heat required to raise the temperature of a one-pound mass of water by one degree Fahrenheit.

CO2: Carbon dioxide.

Development Project: A development project is the means by which petroleum resources are brought to the status of economically producible. As examples, the development of a single reservoir or field, an incremental development in a producing field or the integrated development of a group of several fields and associated facilities with a common ownership may constitute a development project.

Dry Hole or Dry Well: A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production would exceed production expenses and taxes.

Economically Producible: The term economically producible, as it relates to a resource, means a resource which generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation. For this determination, the value of the products that generate revenue are determined at the terminal point of oil and natural gas producing activities.

Exploitation: A development or other project which may target proven or unproven reserves (such as probable or possible reserves), but which generally has a lower risk than that associated with exploration projects.

Field: An area consisting of a single reservoir or multiple reservoirs, all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.

Gross Acres or Gross Wells: The total acres or wells, as the case may be, in which we have a working interest.

ICE: Inter-Continental Exchange.

MBbl: One thousand Bbls.

MBbls/d: One thousand Bbls per day.

MBoe: One thousand barrels of oil equivalent.

1

MBoe/d: One thousand barrels of oil equivalent per day.

MMBoe: One million barrels of oil equivalent.

Mcf: One thousand cubic feet of natural gas.

Mcf/d: One Mcf per day.

MMBtu: One million Btu.

MMcf: One million cubic feet of natural gas.

MMcfe: One million cubic feet of natural gas equivalent.

MMcfe/d: One MMcfe per day.

Net Production: Production that is owned by us less royalties and production due to others.

NGLs: The combination of ethane, propane, butane and natural gasolines that, when removed from natural gas, become liquid under various levels of higher pressure and lower temperature.

NYMEX: New York Mercantile Exchange.

NYSE: New York Stock Exchange.

Oil: Oil and condensate.

Operator: The individual or company responsible for the exploration and/or production of an oil or natural gas well or lease.

OPIS: Oil Price Information Service.

Plugging and Abandonment: Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another stratum or to the surface. Regulations of all states require plugging of abandoned wells.

Probabilistic Estimate: The method of estimation of reserves or resources is called probabilistic when the full range of values that could reasonably occur for each unknown parameter (from the geoscience and engineering data) is used to generate a full range of possible outcomes and their associated probabilities of occurrence.

Proved Developed Reserves: Proved reserves that can be expected to be recovered from existing wells with existing equipment and operating methods.

Proved Reserves: Those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible, from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations, prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced, or the operator must be reasonably certain that it will commence the project, within a reasonable time. The area of the reservoir considered as proved includes (i) the area identified by drilling and limited by fluid contacts, if any, and (ii) adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or natural gas on the basis of available geoscience and engineering data. In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons, as seen in a well penetration, unless geoscience, engineering or performance data and reliable technology establishes a lower contact with reasonable certainty. Where direct observation from well penetrations has defined a highest known oil elevation and the potential exists for an associated natural gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty. Reserves

2

which can be produced economically through application of improved recovery techniques (including fluid injection) are included in the proved classification when (i) successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir, or an analogous reservoir or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (ii) the project has been approved for development by all necessary parties and entities, including governmental entities. Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price used is the average price during the twelve-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

Realized Price: The cash market price less all expected quality, transportation and demand adjustments.

Reliable Technology: Reliable technology is a grouping of one or more technologies (including computational methods) that has been field tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.

Reserves: Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to market and all permits and financing required to implement the project. Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).

Reservoir: A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reserves.

Resources: Resources are quantities of oil and natural gas estimated to exist in naturally occurring accumulations. A portion of the resources may be estimated to be recoverable and another portion may be considered unrecoverable. Resources include both discovered and undiscovered accumulations.

SEC: The U.S. Securities and Exchange Commission

Working Interest: An interest in an oil and natural gas lease that gives the owner of the interest the right to drill for and produce oil and natural gas on the leased acreage and requires the owner to pay a share of the costs of drilling and production operations.

Workover: Operations on a producing well to restore or increase production.

WTI: West Texas Intermediate.

3

NAMES OF ENTITIES

As used in this Form 10-Q, unless indicated otherwise:

“Amplify Energy,” “Company,” “we,” “our,” “us,” or like terms refers to Amplify Energy Corp. individually and collectively with its subsidiaries, as the context requires;
“Legacy Amplify” refers to Amplify Energy Holdings LLC (f/k/a Amplify Energy Corp.), the successor reporting company of Memorial Production Partners LP; and
“OLLC” refers to Amplify Energy Operating LLC, our wholly owned subsidiary through which we operate our properties.

4

CAUTIONARY NOTE REGARDING FORWARD–LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about our:

business strategies;
ongoing impact of the oil incident that occurred off the coast of Southern California resulting from our pipeline operations (the “Pipeline”) at the Beta Field (the “Incident”);
acquisition and disposition strategy;
cash flows and liquidity;
financial strategy;
ability to replace the reserves we produce through drilling;
drilling locations;
oil and natural gas reserves;
technology;
realized oil, natural gas and NGL prices;
production volumes;
lease operating expense;
gathering, processing and transportation;
general and administrative expense;
future operating results;
ability to procure drilling and production equipment;
ability to procure oil field labor;
planned capital expenditures and the availability of capital resources to fund capital expenditures;
ability to access capital markets;
marketing of oil, natural gas and NGLs;
acts of God, fires, earthquakes, storms, floods, other adverse weather conditions, war, acts of terrorism, military operations or national emergency;
the occurrence or threat of epidemic or pandemic diseases, including the coronavirus (“COVID-19”) pandemic, or any government response to such occurrence or threat;

5

expectations regarding general economic conditions;
competition in the oil and natural gas industry;
effectiveness of risk management activities;
environmental liabilities;
counterparty credit risk;
expectations regarding governmental regulation and taxation;
expectations regarding developments in oil-producing and natural-gas producing countries; and
plans, objectives, expectations and intentions.

All statements, other than statements of historical fact included in this report, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “would,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “outlook,” “continue,” the negative of such terms or other comparable terminology. These statements address activities, events or developments that we expect or anticipate will or may occur in the future, including things such as projections of results of operations, plans for growth, goals, future capital expenditures, competitive strengths, references to future intentions and other such references. These forward-looking statements involve risks and uncertainties. Important factors that could cause our actual results or financial condition to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following risks and uncertainties:

risks related to the Incident and the ongoing impact to the Incident;
risks related to a redetermination of the borrowing base under our senior secured reserve-based revolving credit facility;
our ability to access funds on acceptable terms, if at all, because of the terms and conditions governing our indebtedness, including financial covenants;
our ability to satisfy debt obligations;
volatility in the prices for oil, natural gas and NGLs, including further or sustained declines in commodity prices;
the potential for additional impairments due to continuing or future declines in oil, natural gas and NGL prices;
the uncertainty inherent in estimating quantities of oil, natural gas and NGLs reserves;
our substantial future capital requirements, which may be subject to limited availability of financing;
the uncertainty inherent in the development and production of oil and natural gas;
our need to make accretive acquisitions or substantial capital expenditures to maintain our declining asset base;
the existence of unanticipated liabilities or problems relating to acquired or divested businesses or properties;
potential acquisitions, including our ability to make acquisitions on favorable terms or to integrate acquired properties;
the consequences of changes we have made, or may make from time to time in the future, to our capital expenditure budget, including the impact of those changes on our production levels, reserves, results of operations and liquidity;

6

potential shortages of, or increased costs for, drilling and production equipment and supply materials for production, such as CO2;
potential difficulties in the marketing of oil and natural gas;
changes to the financial condition of counterparties;
uncertainties surrounding the success of our secondary and tertiary recovery efforts;
competition in the oil and natural gas industry;
our results of evaluation and implementation of strategic alternatives;
general political and economic conditions, globally and in the jurisdictions in which we operate, including escalating tensions between Russia and Ukraine and the political destabilizing effect such conflict may pose for the European continent or the global oil and natural gas markets;
the impact of climate change and natural disasters, such as earthquakes, tidal waves, mudslides, fires and floods;
the impact of local, state and federal governmental regulations, including those related to climate change and hydraulic fracturing;
the risk that our hedging strategy may be ineffective or may reduce our income;
the cost and availability of insurance as well as operating risks that may not be covered by an effective indemnity or insurance;
actions of third-party co-owners of interests in properties in which we also own an interest; and
other risks and uncertainties described in “Item 1A. Risk Factors.”

The forward-looking statements contained in this report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. All readers are cautioned that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or that the events or circumstances described in any forward-looking statement will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors described in “Part I—Item 1A. Risk Factors” of Amplify’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 9, 2022 (“2021 Form 10-K”). All forward-looking statements speak only as of the date of this report. The Company does not intend to update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to the Company or persons acting on its behalf.

7

PART I—FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS.

AMPLIFY ENERGY CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except outstanding shares)

    

March 31, 

    

December 31, 

    

2022

2021

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

15,605

$

18,799

Accounts receivable, net (see Note 12)

 

91,932

 

91,967

Short-term derivative instruments

 

234

 

Prepaid expenses and other current assets

 

14,266

 

15,018

Total current assets

 

122,037

 

125,784

Property and equipment, at cost:

 

  

 

  

Oil and natural gas properties, successful efforts method

 

806,959

 

799,532

Support equipment and facilities

 

145,325

 

145,324

Other

 

9,641

 

9,641

Accumulated depreciation, depletion and amortization

 

(639,847)

 

(634,212)

Property and equipment, net

 

322,078

 

320,285

Restricted investments

 

7,297

 

4,622

Operating lease - long term right-of-use asset

 

3,158

 

2,716

Other long-term assets

 

1,560

 

1,693

Total assets

$

456,130

$

455,100

LIABILITIES AND EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

26,578

$

33,819

Revenues payable

 

21,862

 

20,374

Accrued liabilities (see Note 12)

 

53,896

 

57,826

Short-term derivative instruments

 

103,887

 

53,144

Total current liabilities

 

206,223

 

165,163

Long-term debt (see Note 7)

 

225,000

 

230,000

Asset retirement obligations

 

104,118

 

102,398

Long-term derivative instruments

 

20,846

 

9,664

Operating lease liability

 

2,549

 

2,017

Other long-term liabilities

 

10,397

 

10,699

Total liabilities

 

569,133

 

519,941

Commitments and contingencies (see Note 14)

 

  

 

  

Stockholders' equity (deficit):

 

  

 

  

Preferred stock, $0.01 par value: 50,000,000 shares authorized; no shares issued and outstanding at March 31, 2022 and December 31, 2021

 

 

Warrants, 2,173,913 warrants issued and outstanding at March 31, 2022 and December 31, 2021

 

4,788

 

4,788

Common stock, $0.01 par value: 250,000,000 shares authorized; 38,260,182 and 38,024,142 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

384

 

382

Additional paid-in capital

 

425,516

 

425,066

Accumulated deficit

 

(543,691)

 

(495,077)

Total stockholders' deficit

 

(113,003)

 

(64,841)

Total liabilities and equity

$

456,130

$

455,100

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

8

AMPLIFY ENERGY CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

For the Three Months Ended

March 31, 

2022

    

2021

Revenues:

  

 

  

Oil and natural gas sales

$

93,872

$

72,331

Other revenues

 

17,561

 

138

Total revenues

 

111,433

 

72,469

Costs and expenses:

 

  

 

  

Lease operating expense

 

32,920

 

28,906

Gathering, processing and transportation

 

8,010

 

4,579

Taxes other than income

 

7,553

 

4,613

Depreciation, depletion and amortization

 

5,635

 

7,347

General and administrative expense

 

7,771

 

6,921

Accretion of asset retirement obligations

 

1,720

 

1,615

Loss on commodity derivative instruments

 

93,404

 

34,588

Pipeline incident loss

580

Other, net

 

35

 

84

Total costs and expenses

 

157,628

 

88,653

Operating loss

 

(46,195)

 

(16,184)

Other (expense) income:

 

  

 

  

Interest expense, net

 

(2,441)

 

(3,112)

Other expense

22

(26)

Total other expense

 

(2,419)

 

(3,138)

Loss before reorganization items, net and income taxes

 

(48,614)

 

(19,322)

Reorganization items, net

 

 

(6)

Income tax expense

 

 

Net loss

$

(48,614)

$

(19,328)

Loss per share: (See Note 9)

 

  

 

  

Basic and diluted loss per share

$

(1.27)

$

(0.51)

Weighted average common shares outstanding:

 

  

 

  

Basic and diluted

 

38,181

 

37,829

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

9

AMPLIFY ENERGY CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

    

For the Three Months Ended

    

March 31, 

    

2022

    

2021

Cash flows from operating activities:

 

  

 

  

Net loss

$

(48,614)

$

(19,328)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

Depreciation, depletion and amortization

 

5,635

 

7,347

Loss on derivative instruments

 

92,847

 

34,526

Cash settlements paid on expired derivative instruments

 

(31,157)

 

(11,100)

Bad debt expense

 

10

 

3

Amortization and write-off of deferred financing costs

 

133

 

139

Accretion of asset retirement obligations

 

1,720

 

1,615

Share-based compensation (see Note 10)

 

518

 

(204)

Settlement of asset retirement obligations

 

 

(162)

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

(6,661)

 

(4,525)

Prepaid expenses and other assets

 

(804)

 

2,574

Payables and accrued liabilities

 

(3,436)

 

4,849

Other

 

(472)

 

(176)

Net cash provided by operating activities

 

9,719

 

15,558

Cash flows from investing activities:

 

  

 

  

Additions to oil and gas properties

 

(5,172)

 

(3,788)

Additions to other property and equipment

 

 

(328)

Additions to restricted investments

 

(2,675)

 

Net cash used in investing activities

 

(7,847)

 

(4,116)

Cash flows from financing activities:

 

  

 

  

Payments on revolving credit facility

 

(5,000)

 

(5,000)

Shares withheld for taxes

 

(66)

 

(5)

Net cash used in financing activities

 

(5,066)

 

(5,005)

Net change in cash and cash equivalents

 

(3,194)

 

6,437

Cash and cash equivalents, beginning of period

 

18,799

 

10,364

Cash and cash equivalents, end of period

$

15,605

$

16,801

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

10

AMPLIFY ENERGY CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

(In thousands)

Stockholders' Equity (Deficit)

Additional

Common

Paid-in

Accumulated

    

Stock

    

Warrants

    

Capital

    

Deficit

    

Total

 

Balance at December 31, 2021

 

$

382

$

4,788

$

425,066

$

(495,077)

$

(64,841)

Net loss

 

 

 

 

(48,614)

 

(48,614)

Share-based compensation expense

 

 

 

518

 

 

518

Shares withheld for taxes

 

 

 

(66)

 

 

(66)

Other

 

2

 

 

(2)

 

 

Balance at March 31, 2022

$

384

$

4,788

$

425,516

$

(543,691)

$

(113,003)

Stockholders' Equity (Deficit)

Additional

Accumulated

Common

Paid-in

Earnings

    

Stock

    

Warrants

    

Capital

    

(Deficit)

    

Total

Balance at December 31, 2020

 

$

378

 

$

4,788

 

$

424,104

 

$

(463,007)

 

$

(33,737)

Net loss

 

 

 

 

(19,328)

 

(19,328)

Share-based compensation expense

 

 

 

(204)

 

 

(204)

Shares withheld for taxes

 

 

 

(5)

 

 

(5)

Other

 

3

 

 

(3)

 

 

Balance at March 31, 2021

 

381

 

4,788

 

423,892

 

(482,335)

 

(53,274)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

11

Table of Contents

AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

General

Amplify Energy Corp. (“Amplify Energy,” “it” or the “Company”) is a publicly traded Delaware corporation whose common stock is listed on the NYSE under the symbol “AMPY.”

The Company operates in one reportable segment engaged in the acquisition, development, exploitation and production of oil and natural gas properties. The Company’s management evaluates performance based on one reportable business segment as the economic environments are not different within the operation of its oil and natural gas properties. The Company’s assets consist primarily of producing oil and natural gas properties and are located in Oklahoma, the Rockies, federal waters offshore Southern California, East Texas / North Louisiana and the Eagle Ford. Most of the Company’s oil and natural gas properties are located in large, mature oil and natural gas reservoirs. The Company’s properties consist primarily of operated and non-operated working interests in producing and undeveloped leasehold acreage and working interests in identified producing wells.

Basis of Presentation

The Company’s Unaudited Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and guidelines of the SEC. The results reported in these Unaudited Condensed Consolidated Financial Statements should not necessarily be taken as indicative of results that may be expected for the entire year. In the Company’s opinion, the accompanying Unaudited Condensed Consolidated Financial Statements include all adjustments of a normal recurring nature necessary for fair presentation. Although the Company believes the disclosures in these financial statements are adequate, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the SEC.

Material intercompany transactions and balances have been eliminated in preparation of the Company’s consolidated financial statements.

Use of Estimates

The preparation of the accompanying Unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates include, but are not limited to, oil and natural gas reserves; depreciation, depletion and amortization of proved oil and natural gas properties; future cash flows from oil and natural gas properties; impairment of long-lived assets; fair value of derivatives; fair value of equity compensation; fair values of assets acquired and liabilities assumed in business combinations and asset retirement obligations.

Market Conditions and COVID-19

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.

12

Table of Contents

AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Additionally, oil, natural gas and NGLs prices increased in the first quarter of 2022 when compared to the same period of 2021 and, as a result, we experienced a significant increase in revenues. As 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, future monetary policy and governmental policies aimed at transitioning towards lower carbon energy, we expect prices for some or all of the commodities we produce to remain volatile. Other factors such as the duration of the COVID-19 pandemic and the speed and effectiveness of vaccine distributions or other medical advances to combat the virus may impact the recovery of world economic growth and the demand for oil, natural gas and NGLs.

Note 2. Summary of Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies and estimates as described in the Company’s annual financial statements included in its 2021 Form 10-K.

New Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

Note 3. Revenue

Revenue from Contracts with Customers

Revenue is recognized when the following five steps are completed: (1) identify the contract with the customer, (2) identify the performance obligation (promise) in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, (5) recognize revenue when the reporting organization satisfies a performance obligation.

The Company has determined that its contracts for the sale of crude oil, unprocessed natural gas, residue gas and NGLs contain monthly performance obligations to deliver product at locations specified in the contract. Control is transferred at the delivery location, at which point the performance obligation has been satisfied and revenue is recognized. Fees included in the contract that are incurred prior to control transfer are classified as gathering, processing and transportation, and fees incurred after control transfers are included as a reduction to the transaction price. The transaction price at which revenue is recognized consists entirely of variable consideration based on quoted market prices less various fees and the quantity of volumes delivered.

Disaggregation of Revenue

The Company has identified three material revenue streams in its business: oil, natural gas and NGLs. The following table presents the Company’s revenues disaggregated by revenue stream.

For the Three Months Ended

March 31, 

    

2022

    

2021

Revenues

  

 

  

Oil

$

52,374

$

49,695

NGLs

13,481

7,670

Natural gas

28,017

14,966

Oil and natural gas sales

$

93,872

$

72,331

13

Table of Contents

AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contract Balances

Under the Company’s sales contracts, the Company invoices customers once its performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s contracts do not give rise to contract assets or liabilities. Accounts receivable attributable to the Company’s revenue contracts with customers was $39.9 million at March 31, 2022 and $32.4 million at December 31, 2021.

Note 4. Fair Value Measurements of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a specified measurement date. Fair value estimates are based on either (i) actual market data or (ii) assumptions that other market participants would use in pricing an asset or liability, including estimates of risk. A three-tier hierarchy has been established that classifies fair value amounts recognized or disclosed in the financial statements. The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3). All the derivative instruments reflected on the accompanying Unaudited Condensed Consolidated Balance Sheets were considered Level 2.

The carrying values of accounts receivables, accounts payables (including accrued liabilities), restricted investments and amounts outstanding under long-term debt agreements with variable rates included in the accompanying Unaudited Condensed Consolidated Balance Sheets approximated fair value at March 31, 2022 and December 31, 2021. The fair value estimates are based upon observable market data and are classified within Level 2 of the fair value hierarchy. These assets and liabilities are not presented in the following tables.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair market values of the derivative financial instruments reflected on the accompanying Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 were based on estimated forward commodity prices. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement in its entirety. The significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The following tables present the gross derivative assets and liabilities that are measured at fair value on a recurring basis at March 31, 2022 and December 31, 2021 for each of the fair value hierarchy levels:

    

Fair Value Measurements at March 31, 2022

Significant

Quoted Prices in

Significant Other

Unobservable

Active Market

Observable Inputs

 Inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Fair Value

(In thousands)

Assets:

 

  

 

  

 

  

 

  

Commodity derivatives

$

$

11,819

$

$

11,819

Interest rate derivatives

 

 

234

 

 

234

Total assets

$

$

12,053

$

$

12,053

Liabilities:

 

  

 

  

 

  

 

  

Commodity derivatives

$

$

136,465

$

$

136,465

Interest rate derivatives

 

 

87

 

 

87

Total liabilities

$

$

136,552

$

$

136,552

14

Table of Contents

AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

    

Fair Value Measurements at December 31, 2021 

Significant

Quoted Prices in

Significant Other

Unobservable 

Active Market

Observable Inputs

Inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Fair Value

(In thousands)

Assets:

  

  

  

  

Commodity derivatives

$

$

7,967

$

$

7,967

Interest rate derivatives

 

 

 

 

Total assets

$

$

7,967

$

$

7,967

Liabilities:

 

  

 

  

 

  

 

  

Commodity derivatives

$

$

70,152

$

$

70,152

Interest rate derivatives

 

 

623

 

 

623

Total liabilities

$

$

70,775

$

$

70,775

See Note 5 for additional information regarding the Company’s derivative instruments.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are reported at fair value on a nonrecurring basis, as reflected on the accompanying Unaudited Condensed Consolidated Balance Sheets. The following methods and assumptions are used to estimate the fair values:

The fair value of asset retirement obligations (“AROs”) is based on discounted cash flow projections using numerous estimates, assumptions and judgments regarding factors such as the existence of a legal obligation for an ARO; amounts and timing of settlements; the credit-adjusted risk-free rate; and inflation rates. The initial fair value estimates are based on unobservable market data and are classified within Level 3 of the fair value hierarchy. See Note 6 for a summary of changes in AROs.
Proved oil and natural gas properties are reviewed for impairment when events and circumstances indicate a possible decline in the recoverability of the carrying value of such properties. The Company uses an income approach based on the discounted cash flow method, whereby the present value of expected future net cash flows is discounted by applying an appropriate discount rate, for purposes of placing a fair value on the assets. The future cash flows are based on management’s estimates for the future. The unobservable inputs used to determine fair value include, but are not limited to, estimates of proved reserves, estimates of probable reserves, future commodity prices, the timing of future production and capital expenditures and a discount rate commensurate with the risk reflective of the lives remaining for the respective oil and natural gas properties (some of which are Level 3 inputs within the fair value hierarchy).
No impairment expense recorded on proved oil and natural gas properties during the three months ended March 31, 2022 and 2021.

Note 5. Risk Management and Derivative Instruments

Derivative instruments are utilized to manage exposure to commodity price fluctuations and achieve a more predictable cash flow in connection with natural gas and oil sales from production and borrowing related activities. These instruments limit exposure to declines in prices but also limit the benefits that would be realized if prices increase.

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AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Certain inherent business risks are associated with commodity derivative contracts, including market risk and credit risk. Market risk is the risk that the price of natural gas or oil will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by the counterparty to a contract. It is the Company’s policy to enter into derivative contracts only with creditworthy counterparties, which generally are financial institutions, deemed by management as competent and competitive market makers. Some of the lenders, or certain of their affiliates, under the Company’s current credit agreements are counterparties to its derivative contracts. While collateral is generally not required to be posted by counterparties, credit risk associated with derivative instruments is minimized by limiting exposure to any single counterparty and entering into derivative instruments only with creditworthy counterparties that are generally large financial institutions. Additionally, master netting agreements are used to mitigate risk of loss due to default with counterparties on derivative instruments. The Company has also entered into International Swaps and Derivatives Association Master Agreements (“ISDA Agreements”) with each of its counterparties. The terms of the ISDA Agreements provide the Company and each of its counterparties with rights of set-off upon the occurrence of defined acts of default by either the Company or its counterparty to a derivative, whereby the party not in default may set-off all liabilities owed to the defaulting party against all net derivative asset receivables from the defaulting party. See Note 7 for additional information regarding the Company’s Revolving Credit Facility.

Commodity Derivatives

The Company may use a combination of commodity derivatives (e.g., floating-for-fixed swaps, put options, costless collars and three-way collars) to manage exposure to commodity price volatility. The Company recognizes all derivative instruments at fair value.

The Company enters into natural gas derivative contracts that are indexed to NYMEX-Henry Hub. The Company also enters into oil derivative contracts indexed to NYMEX-WTI. The Company’s NGL derivative contracts are primarily indexed to OPIS Mont Belvieu.

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AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At March 31, 2022, the Company had the following open commodity positions:

2022

    

2023

Natural Gas Derivative Contracts:

  

 

  

Fixed price swap contracts:

  

 

  

Average monthly volume (MMBtu)

695,000

 

Weighted-average fixed price

$

2.56

$

Collar contracts:

 

 

Two-way collars

 

 

Average monthly volume (MMBtu)

 

775,000

 

690,000

Weighted-average floor price

$

2.56

$

2.92

Weighted-average ceiling price

$

3.44

$

3.84

Crude Oil Derivative Contracts:

 

 

Fixed price swap contracts:

 

 

Average monthly volume (Bbls)

 

61,667

 

55,000

Weighted-average fixed price

$

49.17

$

57.30

Collar contracts:

 

  

 

  

Two-way collars

Average monthly volume (Bbls)

20,000

Weighted-average floor price

$

58.75

$

Weighted-average ceiling price

$

68.31

$

Three-way collars

 

 

Average monthly volume (Bbls)

 

89,000

 

30,000

Weighted-average ceiling price

$

55.55

$

67.15

Weighted-average floor price

$

42.92

$

55.00

Weighted-average sub-floor price

$

32.58

$

40.00

Interest Rate Swaps

Periodically, the Company enters into interest rate swaps to mitigate exposure to market rate fluctuations by converting variable interest rates such as those in its Credit Agreement to fixed interest rates. At March 31, 2022, the Company had the following interest rate swap open positions:

    

Remaining

2022

    

Average Monthly Notional (in thousands)

$

75,000

Weighted-average fixed rate

 

1.281

%  

Floating rate

 

1 Month LIBOR

Balance Sheet Presentation

The following table summarizes both: (i) the gross fair value of derivative instruments by the appropriate balance sheet classification even when the derivative instruments are subject to netting arrangements and qualify for net presentation in the balance sheet and (ii) the net recorded fair value as reflected on the balance sheet at March 31, 2022 and December 31, 2021. There was no cash collateral received or pledged associated with the Company’s derivative instruments since most of its counterparties, or certain of its affiliates, to its derivative contracts are lenders under its Revolving Credit Facility.

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AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

    

    

Asset 

    

Liability

    

Asset 

    

Liability

Derivatives

Derivatives

Derivatives

Derivatives

March 31, 

March 31, 

December 31, 

December 31, 

Type

    

Balance Sheet Location

    

2022

    

2022

    

2021

    

2021

(In thousands)

Commodity contracts

 

Short-term derivative instruments

$

9,470

$

113,270

$

4,804

$

57,325

Interest rate swaps

 

Short-term derivative instruments

 

234

 

87

 

 

623

Gross fair value

 

 

9,704

 

113,357

 

4,804

 

57,948

Netting arrangements

 

 

(9,470)

 

(9,470)

 

(4,804)

 

(4,804)

Net recorded fair value

 

Short-term derivative instruments

$

234

$

103,887

$

$

53,144

Commodity contracts

 

Long-term derivative instruments

$

2,349

$

23,195

$

3,163

$

12,827

Interest rate swaps

 

Long-term derivative instruments

 

 

 

 

Gross fair value

 

 

2,349

 

23,195

 

3,163

 

12,827

Netting arrangements

 

 

(2,349)

 

(2,349)

 

(3,163)

 

(3,163)

Net recorded fair value

 

Long-term derivative instruments

$

$

20,846

$

$

9,664

Loss (Gain) on Derivative Instruments

The Company does not designate derivative instruments as hedging instruments for accounting and financial reporting purposes. Accordingly, all gains and losses, including changes in the derivative instruments’ fair values, have been recorded in the accompanying Unaudited Condensed Consolidated Statements of Operations. The following table details the gains and losses related to derivative instruments for the periods indicated (in thousands):

    

For the Three Months Ended

Statements of

    

March 31, 

    

Operations Location

2022

    

2021

Commodity derivative contracts

 

Loss on commodity derivatives

$

93,404

$

34,588

Gain on interest rate derivatives

 

Interest expense, net

 

(557)

 

(62)

Note 6. Asset Retirement Obligations

The Company’s asset retirement obligations primarily relate to the Company’s portion of future plugging and abandonment costs for wells and related facilities. The following table presents the changes in the asset retirement obligations for the three months ended March 31, 2022 (in thousands):

Asset retirement obligations at beginning of period

$

103,414

Liabilities added from acquisition or drilling

 

Liabilities settled

 

Liabilities removed upon sale of wells

 

Accretion expense

 

1,720

Revision of estimates

 

Asset retirement obligation at end of period

 

105,134

Less: Current portion

 

1,016

Asset retirement obligations - long-term portion

$

104,118

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AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 7. Long-Term Debt

The following table presents the Company’s consolidated debt obligations at the dates indicated:

    

March 31, 

December 31, 

2022

2021

(In thousands)

Revolving Credit Facility (1)

$

225,000

$

230,000

Total long-term debt

$

225,000

$

230,000

(1) The carrying amount of the Company’s Revolving Credit Facility approximates fair value because the interest rates are variable and reflective of market rates.

Revolving Credit Facility

Amplify Energy Operating LLC, the Company’s wholly owned subsidiary (“OLLC”), is a party to a reserve-based revolving credit facility (the “Revolving Credit Facility”), subject to a borrowing base of $235.0 million as of March 31, 2022, which is guaranteed by the Company and all of its current subsidiaries. The Revolving Credit Facility matures on November 2, 2023. The Company’s borrowing base under its Revolving Credit Facility is subject to redetermination on at least a semi-annual basis, primarily based on a reserve engineering report.

As of March 31, 2022, the Company was in compliance with all the financial (current ratio and total leverage ratio) and non-financial covenants associated with its Revolving Credit Facility.

The Fall 2021 semi-annual borrowing base redetermination in November 2021, resulted in (1) the reaffirmation of the $245.0 million borrowing base and (2) subsequent reductions to the borrowing base of $5.0 million per month beginning February 28, 2022 and continuing until the completion of the next regularly scheduled redetermination. The Company expects to complete the next regularly scheduled redetermination during the second quarter 2022. As of April 30, 2022, the Company’s borrowing base was $230.0 million, which reflects the previously agreed-upon borrowing base reductions of $5.0 million in February, March and April 2022.

Weighted-Average Interest Rates

The following table presents the weighted-average interest rates paid, excluding commitment fees, on the Company’s consolidated variable-rate debt obligations for the periods presented:

For the Three Months Ended

 

March 31, 

 

2022

2021

 

Revolving Credit Facility

3.79

%  

3.67

%

Letters of Credit

At March 31, 2022, the Company had no letters of credit outstanding.

Unamortized Deferred Financing Costs

Unamortized deferred financing costs associated with the Company’s Revolving Credit Facility was $0.8 million at March 31, 2022.

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AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Paycheck Protection Program

On April 24, 2020, the Company received a $5.5 million PPP Loan. The PPP Loan was established as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide loans to qualifying businesses. The PPP Loan was not part of the Revolving Credit Facility as described above. The loan and accrued interest were potentially forgivable provided that the borrower uses the loan proceeds for eligible purposes. The term of the Company’s PPP Loan was two years with an annual interest rate of 1% and no payments of principal or interest due during the six-month period beginning on the date of the PPP Loan. The Company applied for forgiveness of the amount due on the PPP Loan based on spending the loan proceeds on eligible expenses as defined by the statute. On June 22, 2021, KeyBank notified the Company that the PPP Loan had been approved for full and complete forgiveness by the Small Business Association.

Note 8. Equity (Deficit)

Common Stock

The Company’s authorized capital stock includes 250,000,000 shares of common stock, $0.01 par value per share. The following is a summary of the changes in the Company’s common stock issued for the three months ended March 31, 2022:

    

Common Stock

Balance, December 31, 2021

 

38,024,142

Issuance of common stock

 

Restricted stock units vested

 

326,440

Shares withheld for taxes (1)

(90,400)

Balance, March 31, 2022

 

38,260,182

(1) Represents the net settlement on vesting of restricted stock necessary to satisfy the minimum statutory tax withholding requirements.

Warrants

On May 4, 2017, Legacy Amplify entered into a warrant agreement with American Stock Transfer & Trust Company, LLC, as warrant agent, pursuant to which Legacy Amplify issued warrants to purchase up to 2,173,913 shares of Legacy Amplify’s common stock, exercisable for a five-year period commencing on May 4, 2017 at an exercise price of $42.60 per share. The warrants expired on May 4, 2022.

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AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Earnings per Share

The following sets forth the calculation of earnings (loss) per share, or EPS, for the periods indicated (in thousands, except per share amounts):

For the Three Months Ended

March 31, 

2022

2021

Net loss

$

(48,614)

$

(19,328)

Less: Net income allocated to participating restricted stockholders

 

 

Basic and diluted earnings available to common stockholders

$

(48,614)

$

(19,328)

Common shares:

 

  

 

  

Common shares outstanding — basic

 

38,181

 

37,829

Dilutive effect of potential common shares

 

 

Common shares outstanding — diluted

 

38,181

 

37,829

Net loss per share:

 

  

 

  

Basic

$

(1.27)

$

(0.51)

Diluted

$

(1.27)

$

(0.51)

Antidilutive warrants (1)

 

2,174

 

2,174

(1) Amount represents warrants to purchase common stock that are excluded from the diluted net earnings per share calculations because of their antidilutive effect.

Note 10. Long-Term Incentive Plans

In May 2021, the shareholders approved a new Equity Incentive Plan (“EIP”) in which the Legacy Amplify Management Incentive Plan (the “Legacy Amplify MIP”) and the Legacy Amplify 2017 Non-Employee Directors Compensation Plan (the “Legacy Amplify Non-Employee Directors Compensation Plan”) were replaced by the EIP and no further awards will be allowed to be granted under the Legacy Amplify MIP or the Legacy Amplify Non-Employee Directors Compensation Plan. As of March 31, 2022, an aggregate of 1,564,669 shares were available for future grants under the EIP.

Restricted Stock Units

Restricted Stock Units with Service Vesting Condition

The restricted stock units with service vesting conditions (“TSUs”) are accounted for as equity-classified awards. The grant-date fair value is recognized as compensation cost on a straight-line basis over the requisite service period and forfeitures are accounted for as they occur. Compensation costs are recorded as general and administrative expense. The unrecognized cost associated with the TSUs was $4.9 million at March 31, 2022. The Company expects to recognize the unrecognized compensation cost for these awards over a weighted-average period of approximately 2.4 years.

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AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information regarding the TSUs granted under the EIP for the period presented:

    

    

Weighted-

Average Grant-

Number of

Date Fair Value

Units

per Unit (1)

TSUs outstanding at December 31, 2021

 

1,074,420

$

3.66

Granted (2)

 

834,374

$

3.64

Forfeited

 

(18,523)

$

3.52

Vested

 

(277,345)

$

3.60

TSUs outstanding at March 31, 2022

 

1,612,926

$

3.66

(1) Determined by dividing the aggregate grant-date fair value of awards by the number of awards issued.
(2) The aggregate grant-date fair value of TSUs issued for the three months ended March 31, 2022 was $3.0 million based on a grant date market price at $3.64 per share.

Restricted Stock Units with Market and Service Vesting Conditions

The restricted stock units with market and service vesting conditions (“PSUs”) are accounted for as equity-classified awards. The grant-date fair value is recognized as compensation cost on a graded-vesting basis. As such, the Company recognizes compensation cost over the requisite service period for each separately vesting tranche of the award as though the award were, in substance, multiple awards. The Company accounts for forfeitures as they occur. Compensation costs are recorded as general and administrative expense. The unrecognized cost related to the PSUs was less than $0.1 million at March 31, 2022. The Company expects to recognize the unrecognized compensation cost for these awards over a weighted-average period of approximately 1.0 years.

The PSUs will vest based on the satisfaction of service and market vesting conditions, with market vesting based on the Company’s achievement of certain share price targets. The PSUs are subject to service-based vesting such that 50% of the PSUs service vest on the applicable market vesting date and an additional 25% of the PSUs service vest on each of the first and second anniversaries of the applicable market vesting date.

In the event of a qualifying termination, subject to certain conditions, (i) all PSUs that have satisfied the market vesting conditions will fully service vest, upon such termination, and (ii) if the termination occurs between the second and third anniversaries of the grant date, then PSUs that have not market vested as of the termination will market vest to the extent that the share targets (in each case, reduced by $0.25) are achieved as of such termination. Subject to the foregoing, any unvested PSUs will be forfeited upon termination of employment.

A Monte Carlo simulation was used in order to determine the fair value of these awards at the grant date.

The following table summarizes information regarding the PSUs granted under the EIP for the period presented:

    

    

Weighted-

Average Grant-

Number of

Date Fair Value

Units

per Unit (1)

PSUs outstanding at December 31, 2021

 

65,940

$

2.87

Granted

 

$

Forfeited

 

(5,365)

$

2.11

Vested

 

$

PSUs & outstanding at March 31, 2022

 

60,575

$

2.94

(1) Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.

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AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units with Market Vesting Conditions

The restricted stock units with performance-based vesting conditions (“PRSUs”) are accounted for as equity-classified awards. The grant-date fair value is recognized as compensation cost on a graded-vesting basis. As such, the Company recognizes compensation cost over the requisite service period for each separately vesting tranche of the award as though the award were, in substance, multiple awards. The Company accounts for forfeitures as they occur. Compensation costs are recorded as general and administrative expense.

The 2022 PRSUs were issued with a three year vesting period beginning on the grant date and ending on the third anniversary of the grant date. Vesting of PRSUs can range from zero to 200% of the target units granted based on the Company’s relative total shareholder return as compared to the total shareholder return of the Company’s performance peer group over the performance period. The fair value of each PRSU award was estimated on their grant dates using a Monte Carlo simulation. The unrecognized cost associated with the PRSUs was $1.3 million at March 31, 2022. The Company expects to recognize the unrecognized compensation cost for these awards over a weighted-average period of approximately 2.7 years.

The 2021 PRSUs awards were issued collectively in separate tranches with individual performances periods beginning in January 2021, 2022, and 2023 respectively. For each of the 2021 PRSUs awards the performance period, will vest based on the percentage of the target PRSUs subject to the performance vesting condition, with 25% able to vest during the period January 1, 2021 through December 31, 2021; 25% able to vest during the period January 1, 2022 through December 31, 2022 and 50% able to vest during the period of January 1, 2023 through December 31, 2023.

The ranges for the assumptions used in the Monte Carlo model for the PRSUs granted during 2022 are presented as follows:

2022

Expected volatility

120.8

%

Dividend yield

0.00

%

Risk-free interest rate

1.38

%

The following table summarizes information regarding the PRSUs granted under the EIP for the period presented:

    

    

Weighted-

Average Grant-

Number of

Date Fair Value

Units

per Unit (1)

PRSUs outstanding at December 31, 2021

 

196,377

$

1.94

Granted (2)

 

189,904

$

6.20

Forfeited

 

$

Vested

 

(49,095)

$

1.24

PRSUs outstanding at March 31, 2022

 

337,186

$

4.44

(1) Determined by dividing the aggregate grant-date fair value of awards by the number of awards issued.
(2) The aggregate grant-date fair value of PRSUs issued for the three months ended March 31, 2022 was $1.2 million based on a calculated fair value price at $6.20 per share.

2017 Non-Employee Directors Compensation Plan

In June 2017, Legacy Amplify implemented the Legacy Amplify Non-Employee Directors Compensation Plan to attract and retain the services of experienced non-employee directors of Legacy Amplify or its subsidiaries. In connection with the closing of the merger, on August 6, 2019, the Company assumed the Legacy Amplify Non-Employee Directors Compensation Plan. As noted above, the Legacy Amplify Non-Employee Directors Compensation Plan was replaced by the EIP in May 2021.

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AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The restricted stock units with a service vesting condition (“Board RSUs”) are accounted for as equity-classified awards. The grant-date fair value is recognized as compensation cost on a straight-line basis over the requisite service period and forfeitures are accounted for as they occur. Compensation costs are recorded as general and administrative expense. The unrecognized cost associated with restricted stock unit awards was less than $0.1 million at March 31, 2022. The Company expects to recognize the unrecognized compensation cost for these awards over a weighted-average period of approximately 0.1 years. The remaining Board RSUs outstanding was 3,333 at March 31, 2022 with a weighted average grant date fair value per unit of $5.12. No awards granted, forfeited or vested during the three months ended March 31, 2022.

Compensation Expense

The following table summarizes the amount of recognized compensation expense associated with the EIP, which are reflected in the accompanying Unaudited Condensed Consolidated Statements of Operations for the periods presented (in thousands):

    

For the Three Months Ended

    

March 31, 

2022

2021

Equity classified awards

  

  

TSUs

591

75

PSUs and PRSUs

 

53

 

23

Board RSUs

 

4

 

4

$

648

$

102

Note 11. Leases

For the quarter ended March 31, 2022, the Company’s leases qualify as operating leases and it did not have any existing or new leases qualifying as financing leases or variable leases. The Company has leases for office space and equipment in its corporate office and operating regions as well as warehouse space, vehicles, compressors and surface rentals related to its business operations. In addition, the Company has offshore Southern California pipeline right-of-way use agreements. Most of the Company’s leases, other than its corporate office lease, have an initial term and may be extended on a month-to-month basis after expiration of the initial term. Most of the Company’s leases can be terminated with 30-day prior written notice. The majority of its month-to-month leases are not included as a lease liability in its balance sheet under ASC 842 because continuation of the lease is not reasonably certain. Additionally, the Company elected the short-term practical expedient to exclude leases with a term of twelve months or less.

The Company’s corporate office lease does not provide an implicit rate. To determine the present value of the lease payments, the Company uses its incremental borrowing rate based on the information available at the inception date. To determine the incremental borrowing rate, the Company applies a portfolio approach based on the applicable lease terms and the current economic environment. The Company uses a reasonable market interest rate for its office equipment and vehicle leases.

For the three months ended March 31, 2022 and 2021, the Company recognized approximately $0.4 million and $0.6 million, respectively, of costs relating to the operating leases in the Unaudited Condensed Consolidated Statements of Operations.

Supplemental cash flow information related to the Company’s lease liabilities is included in the table below:

For the Three Months Ended

March 31, 

2022

2021

(In thousands)

Non-cash amounts included in the measurement of lease liabilities:

 

 

Operating cash flows from operating leases

 

$

442

$

106

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AMPLIFY ENERGY CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Company’s right-of-use assets and lease liabilities for the period presented:

    

March 31, 

December 31, 

2022

2021

(In thousands)

Right-of-use asset

$

3,158

$

2,716

Lease liabilities:

 

  

 

  

Current lease liability

 

756

 

777

Long-term lease liability

 

2,549

 

2,017

Total lease liability

$

3,305

$

2,794

The following table reflects the Company’s maturity analysis of the minimum lease payment obligations under non-cancelable operating leases with a remaining term in excess of one year (in thousands):