Welcome to the Amplify Energy's Second Quarter 2020 Investor Conference Call. Amplify’s operating and financial results were released earlier today and are available on Amplify's website at www.amplifyenergy.com. During this conference call, all participants will be placed in a listen-only mode. Today's call is being recorded. A replay of the call will be accessible until Thursday, August 19, by dialing 855-859-2056 and then entering conference ID number 4185547, or by visiting Amplify's website, www.amplifyenergy.com. I would now like to turn the conference over to Eric Willis, Senior Vice President and General Counsel of Amplify Energy Corporation.

Good morning. And welcome to the Amplify Energy conference call to discuss operating and financial results, the second quarter of 2020. We appreciate you joining us today. Martyn Willsher, Amplify's Interim Chief Executive Officer and Chief Financial Officer will lead the call with comments on our second quarter results and liquidity enhancement initiatives before concluding with comments about our liquidity, hedge positions and outlook for the second half of 2020. We would like to remind you that some of our remarks may contain forward-looking statements and are based on certain assumptions and expectations of Amplify’s management team. These remarks reflect management’s current views with regard to future events and are subject to various risks, uncertainties, and assumptions. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct and undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this earnings call. Please refer to our press release and SEC filings for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. In addition, the unaudited financial information that will be highlighted here is derived from our internal financial books, records, and reports. For additional detailed disclosure, we encourage you to read our quarterly report on Form 10-Q, which we expect to file later today. Also, non-GAAP financial measures may be disclosed during this call. Reconciliations of those measures to comparable GAAP measures may be found in our press release or on our website at www.amplifyenergy.com. With this in mind, I will now turn the call over to Martyn Willsher. Martyn?

Thank you, Eric. Before discussing our quarterly results, I would like to again express my appreciation for the Amplify team. Despite market disruptions related to the ongoing COVID-19 pandemic, we delivered an outstanding quarter and exceeded our expectations regarding the liquidity enhancement initiatives that were previously discussed during our first quarter earnings call. I'm extremely grateful for the dedication and professionalism demonstrated by our employees across the organization and reaffirm Amplify's commitment to operate as an efficient and safety-focused company. During this call, I will provide comments on our second quarter performance as well as updates regarding our previously announced liquidity enhancement initiatives and hedging program. Production for the second quarter averaged 27,700 Boe per day, despite anticipated reductions attributed to the scheduled annual Bairoil turnaround, the previously announced temporary curtailment on our non-operated Eagle Ford assets, and incremental offline wells in Oklahoma due to workover economics. At Bairoil, we are pleased that the annual plant turnaround in June was completed on schedule and within budget, and our plan quickly returned to pre-turnaround production levels in the first half of July. The non-operated Eagle Ford curtailment discussed during our first quarter earnings call concluded in April, and production levels have since returned as expected. Finally, production in Oklahoma experienced minor reductions in the second quarter as a result of the increased backlog of wells staying offline as commodity prices remained depressed. We expect to bring many of these wells back online in future periods as prices rebound and workover economics improve. Lease operating expenses in the second quarter were $27.8 million or $11.03 per Boe. These results reflect quarter-over-quarter savings of $7.9 million that significantly exceeded our savings estimates of $4 million to $5 million for the quarter and demonstrate the outstanding execution by our operations team. Capital spending for the second quarter was approximately $7 million, which was in line with our internal expectations. A significant portion of second quarter capital spending, approximately $2 million or 29%, was attributed to the non-operated drilling and completion activity in Eagle Ford, which occurred in April as operators finalized previously initiated development plans. The remaining capital activity was primarily related to the Bairoil turnarounds, high return type workover projects, and facility maintenance across our operated assets. Second quarter cash G&A was $6.2 million or $2.45 per Boe, which was in line with our expectations. We expect that cash G&A expense will continue to trend down to approximately $5.5 million in the third quarter and remain relatively flat thereafter. Moving onto adjusted EBITDA and free cash flow for the quarter, second quarter adjusted EBITDA was approximately $21 million, which significantly exceeded the consensus estimates and validated the exceptional execution of our cost reduction initiatives and hedging program. I think it is also important to note that the $18 million of monetized 2021 hedges is not included as part of the second quarter adjusted EBITDA. For purposes of calculating adjusted EBITDA and covenant compliance under our revolving credit facility, the hedge fund position will be allocated across 2021 to reflect the timing of the hedges that were unwound. Free cash flow defined as adjusted EBITDA, less CapEx and cash interest expense was $11 million in the second quarter, primarily driven by our significant cost reduction efforts. We anticipate a strong free cash flow profile for the remainder of the year due in part to the reduced capital budget for the second half of 2020. Now I would like to update our stakeholders on liquidity enhancing initiatives we've proactively implemented in light of the current commodity market volatility. As discussed during last quarter’s earnings call, Amplify undertook several initiatives to mitigate the effects of market disruptions related to the ongoing COVID-19 pandemic and commodity price volatility. While we completed some of these initiatives prior to the last call, the completion and realization of the remaining projects were critical to our success, and I'm pleased to announce that these remaining initiatives were executed with outstanding results. First, operating costs and corporate overhead reductions: our lease operating expenses were reduced from $35.7 million in the first quarter to $27.8 million in the second quarter. The quarter-over-quarter savings of approximately $7.9 million exceeded the internal expectations of $4 million to $5 million for the quarter. While we expect that operating costs will increase modestly in future periods, we remain committed to executing additional cost-saving opportunities and exceeding our target estimates. In addition, as previously stated, the team materially reduced recurring SG&A, which declined from $8.7 million in the first quarter to $6.2 million in the second quarter. This reduction was in line with expectations and we expect G&A spending to trend down to approximately $5.5 million in the third quarter and remain flat thereafter. Second, capital reductions: Amplify's capital spending was $7 million during the second quarter, which was in line with our expectations and representative of an $8 million reduction from the first quarter. Amplify's remaining capital expenditure budget for the second half of 2020 is approximately $6 million. We intend to maintain prudent capital allocation and our activity is focused principally on maintenance projects, which are essential for equipment integrity and operational efficiency, and high-rate-of-return workover projects. Finally, Beta Field royalty relief: effective July 1, 2020, Amplify qualified for special case royalty relief at its Beta Field. This program decreased the royalty rate of Beta by 60%, which is expected to result in approximately 500 barrels per day of additional net production and associated revenue of approximately $7 million per year, assuming a $40 per barrel WTI price. I would like to emphasize that this royalty relief program provides relief for both existing production and incremental production in future periods when economic conditions allow for additional developments. Moving on to a discussion of our recent credit facility redeterminations and our current liquidity position, on June 15, 2020, we announced the successful completion of the spring borrowing redetermination process. The spring redetermination was particularly challenging due to depressed bank price decks and a negative economic backdrop driven by the COVID-19 pandemic. However, we were pleased to be able to work with our bank group and deliver a supportive, foreign-based solution that provides sufficient liquidity while we work to deleverage our balance sheet. We expect the next borrowing base redetermination to take place in November 2020. As of July 31, Amplify had total net debt of $259 million under its revolving credit facility and liquidity of approximately $21 million. Moving onto our latest hedge position, since our last earnings call in May, Amplify has added to its hedge positions in natural gas for the second half of 2020 and 2022, as well as NGL swaps for the second half of 2020. Inclusive of the new hedges, the Company has over 80% hedge for the second half of 2020 based on Amplify's 2019 year-end reserve report forecasts, with approximately 83% of those hedges being swaps and the remainder being collars. Our hedge positions allow us to protect future cash flows while also providing the opportunity to benefit from commodity market improvements. As of July 31, our hedge mark-to-market value was a net asset position of $25 million. Amplify's second quarter 2020 hedge presentation contains additional details in our current positions and was posted on our website earlier today under the investor relations section. This formally concludes our prepared remarks this morning. We would now like to invite analysts to ask any questions they have for the management team. Operator, please open the line for any questions.

And our first question comes from Jeff Grampp with Northland Capital. You may proceed.

I think I haven't put out anything too firm in terms of guidance or anything. So, I'm not trying to pin you down, but if we just kind of think about 2021 and current strip prices. Can you just talk maybe broadly about what kind of capital program you would look to employ in that environment? And maybe talk about what kind of minimum spending that you guys would have to put in for any environments? And then, what kind of projects maybe pencil out on the workover front or any facilities cost enhancement type projects that you guys may look to deploy in that type of scenario?

Sure, Jeff. As we've discussed before, there is a certain level of capital spending required under Beta and Bairoil, along with some facilities projects in Oklahoma, which would likely range from $5 million to $10 million in base capital spending, depending on the calendar year. Then you would also consider the level of activity in the Eagle Ford. Clearly, those wells are still economically viable in a mid-30s price environment, which is where we expect to be a year from now. Once we move beyond that, our focus will shift to capital workover projects. If certain initiatives in California and the Beta Field prove to be viable, we will pursue them, acknowledging that the commodity market is very dynamic. Three months ago, when prices were in the mid-30s, we likely weren't looking at many projects, but now with prices rising to the mid-40s and possibly even higher, there might be a slight uptick in activity. However, unless prices reach the mid to high 50s, I believe that our activity levels will remain subdued compared to previous years. For the remainder of this year, I anticipate a very minimal capital budget. We will concentrate on workover economics, focusing on cash flow returns and payback periods, and evaluate what makes sense. There may be a bit more workover activity due to slightly higher prices, but it will still align with our prior discussions.

I appreciate that. So my follow-up, you touched on the Eagle Ford a little bit here. Do you guys have any line of sight on second half activity? Is that embedded in the second-half budget you guys talked about? And then more broadly, I know that was potentially a divestiture candidate pre-COVID. Does the stabilization in the commodity market maybe make that something you've kind of revisited? Or is that still kind of on the back burner to the extent oils kind of hanging around these levels?

No, I think right now, we're not projecting a lot of activity in the Eagle Ford for the remainder of the year. Obviously, we don't operate and there's some ducks; there are some wells that we proposed and not completed. And so, there could be additional activity beyond what we're projecting. But we've deferred most of that into 2021, and our expectations, as I said, is that with prices moving up more recently, maybe there is some level of activity sneaking back into the latter half of 2020 from some operators. Regarding it as a divestiture candidate, I think we've put that on hold for the time being; obviously, we can't stop inbound inquiries and to the extent that those become attractive, we will consider anything, but I don't think that is likely for the remainder of this year. But from our long-term perspective, that asset still does not fit our strategy as well as the operated assets, so we will certainly revisit in 2021.

And our next question comes from Noel Parks with Coker & Palmer. You may proceed.

I just have a few questions. Could you talk a little bit more about the hedge monetization? You mentioned that we're not included in adjusted EBITDA, even though I guess they're kind of a one-time cash event, but you're actually going to be recognized over time? Could you just go into more detail on that?

Thank you, Noel. The hedge monetization refers to the unwinding of 2021 hedges. From an accounting viewpoint, these hedges were included in earnings and cash flow from operations this quarter, reflecting the realized hedge gains. However, from a non-GAAP perspective, we want those gains to be shown in the periods they were unwound. This means that for our credit facility, adjusted EBITDA, and free cash flow, all the impacts will be accounted for in 2021, and we will not factor in the $18 million of proceeds in our second quarter adjusted EBITDA free cash flow. Instead, that amount will be distributed across the entire 2021 calendar year, approximately $4.5 million per quarter, contributing to 2021 adjusted EBITDA and free cash flow. This also applies to our credit facility calculations, meaning that value will be included in adjusted EBITDA for those calculations as well, aligning the hedges with the actual periods when they were locked in.

So, on a GAAP basis, do those show up as a current liability then?

No, it's a realized gain in cash. From a non-GAAP adjusted EBITDA perspective, we just back it out. So it isn't cash flow from operations and isn't reflected on the statement. There is cash on the balance sheet, but it does not appear in our adjusted EBITDA or published free cash flow number.

Great. Thanks. Next, I just maybe could you talk a little bit about how you categorize sort of recurring versus nonrecurring LOE expenses?

Yes. From an operating team perspective, they did an outstanding job of identifying and implementing long-term recurring expenses, which were estimated at $4 million to $5 million. We have far exceeded that, but they also discovered some significant short-term, one-time items that added considerable value. However, we acknowledge that this won't last indefinitely. I would estimate that approximately $1 million to $1.5 million of operating expenses should be classified as non-recurring. These were simply opportunities recognized and acted upon by the team during the quarter, resulting in substantial savings.

Okay, great. And one thing I was curious, we did see one of the relatively rare asset sales a few days ago, and that was a sale of a range of assets. I believe it was Terryville, in North Louisiana. I was just curious what you thought of the valuation for that transaction? Do you see that as applicable to your position and just examples of how it should be valued?

Obviously, we have a personal long history knowing that Terryville asset from the old MRD days. It is a little different asset. It's probably got more upside at higher gas prices and has a higher NGL content than our Cotton Valley, which is obviously on the East Texas side; this is in Louisiana. It's a little bit more risk and a little more, and I think there's a premium paid for that. So I thought it was a pretty decent valuation under the circumstances, but you've also seen gas prices rallying and NGL prices starting to firm up. So, I thought it was a very reasonable transaction. And I think, if gas prices continue to trend in that direction then they'll do well with the acquisition.

Okay. Just the last one for me, I was wondering, I have been hearing about continued suffering going on around private equity-held assets. As some companies get into a distressed state, probably with their bank lenders, I was running in, in some of your basins that are relatively mature. Do you see are you going to push for any opportunities to do like a contract operator type role? I'm aware I heard of something similar where a bank got some properties that you didn't really want to operate, and they didn't want to sell in this environment, so they look for a third party to come in.

I think with our platform, we're obviously set up to take on those kinds of opportunities as they present themselves. I think, right now, I wouldn't say anything is imminent on that front or that something that we're actively pursuing. But as you say, there could be more activity as banks get more involved and don't want to set up operating teams for specific mass areas. We have a very strong operations team, and I think these quarterly results demonstrate that. If those opportunities present themselves, we would look at them on an individual basis, but it's not an overarching business model idea that we're going to pursue aggressively. However, it could make sense under the right circumstances, and certainly, something we would consider given that our platform would allow for that with minimal incremental costs.

Ladies and gentlemen, this concludes today's conference call. I would like to turn the call back over to Martyn Willsher for any closing remarks.

Thank you. As an organization, the second quarter began with a lot of uncertainty, but due to the outstanding efforts of the Amplify team, we're now moving forward with renewed optimism for the remainder of the year. While COVID-19 related issues are still dampening demand and prices are slow to recover, the organization has demonstrated its resiliency and ability to adapt to the current environment. With strong free cash flow expected for the remainder of 2020, we look forward to continuing to execute for our stakeholders and preparing for future opportunities. Thank you, as always, for joining us today, and if you have any questions, please do not hesitate to reach out to us. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you participants and you may now disconnect. Everyone have a good day.