AMPY - Mea Culpa
AMPY reported a very poor Q4 result featuring another well that had to be completed late in Beta and free cash flow that was not remotely close to their guidance. At this point Q4 is water under the bridge. The 2025 guidance was markedly worse than what they put in the preliminary proxy just a few weeks ago. The changes according to them relate to timing of wells online that have been pushed out to the second half of the year in E TX and Eagle Ford along with delays in the Beta completions. Of course on a calendar year basis they will still end up spending the cap ex but production benefuts won’t hit fully until the second half and 2026. So mgmt is right to say their results will look very much better when that production is fully on. At this point though the investors that I have spoken to understandably have no confidence in hitting their 2025 goals. I don’t either given how bad the miss was last year. They raised guidance in May and then again in August when they projected $30-$50M in FCF and then they came in at ~$19M. Cap ex went well above budget, production missed badly yet mgmt tried to say they were within their guidance.
2025 and Beyond
As shareholders we are being asked to vote on a deal with Juniper that brings in FCF to help the company diversify and grow its oil production. On paper the deal does not look terrible but the key to the deal relies on predicting oil prices! The deal looks fine at $70 WTI not great at $60 and disastrous below as it saddles with an additional $133M in debt.
The analysis is very easy and obvious as to what is best for shareholders! You have a bird in the hand vs 1.3 in the bush in 2 years IF oil prices cooperate! I am not sure what holders think this is a good deal.
Bird in the Hand -
The jump in natural gas prices has been an absolute gift that is in danger of being diluted away from AMPY holders. The choice is clear - Nat gas assets are trading very easily at PV12-PV15. I have spoken to bankers who say at PV15 you would have buyers lining up. Mgmt confirmed to me they think they could do better. But let’s take the bird in the hand.
MS Lime PV10 - $171M all PDP
E TX PV10 - $120M with $110M PDP
Eagle Ford PV10 - $36M with $29M PDP.
Let’s assume because these are long life assets the approximate value discount is 25%. I think it is less but this is worst case scenario. At these prices the sale of these assets would being in $245MM.
So we pay off the $120M in debt and have $125M in cash on the balance sheet and now own Beta and Bairoil. Both of these assets are low decline, high FCF assets requiring little investment in weak oil environments. If we assume these assets are worth only $250M combined which is very low, we get $375M in total value with ~40MM shares outstanding or ~$9.37 a share. The risk here is very low!
1.3x in the Bush
Mgmt would have us believe that the long term prospects of the company are much brighter with merger and perhaps they are IF oil prices cooperate. Closing the deal and then selling the aforementioned 3 assets would generate $245M which would make the company virtually debt free and we would have 3 assets left. If we assign $250M in value to be conservative on Beta and Bairoil under a lower oil price scenario and under the same scenario assign $250M in value to the Juniper assets (I am being generous here because these are shale assets that have high declines) we would have $500M in total value with ~68MM shares outstanding or $7.35 a share. The 1.3x in the bush requires $70 WTI! It also carries the risk of waiting until past closing to sell the other assets which introduces risk nat gas prices could change quickly with say a settlement in Ukraine. This might not be a high risk but many things can happen in 3 short months. Let’s fast forward 2 years and assume WTI is $75. Then we can say that Bairoil and Beta are worth $500M and the Juniper assets are worth $500M which is generous on a relative basis to the latter vs. the former. At this point we would have $1B in value on ~69MM shares(SBC of 1M shares over two years). At this point we have $14.50 in value. If we use a measly 5% discount rate to NPV that we get $13.14 today and voila there is our 1.3x in the Bush.
Conclusion
The choice is clear to me. Take $9.35 now even in low price environment or roll the dice that WTI trades at $75 so we can get 1.3x in the future under a risk free discount rate.
I present this analysis as this is how I am weighing how to vote.