The company depends on suppliers for contractually required quantities of CO2 used in oil and natural gas production. CO2 purchase agreements are influenced by suppliers' eligibility for the federal income tax credit under Internal Revenue Code Section 45Q, which provides credits for CO2 captured and used in enhanced oil recovery (EOR). The company has negotiated agreements to share the value of these credits through reduced CO2 pricing, contingent on compliance with applicable legal and regulatory requirements. Changes to the Section 45Q credit or noncompliance could increase CO2 costs and adversely affect the company's economics. Additionally, if CO2 leaks from EOR wells or is not used in accordance with credit requirements, the company has indemnity obligations to its CO2 suppliers, which would eliminate cost savings. Contracts have been structured to align with Section 45Q credit requirements, though risks remain related to potential IRS challenges. The company's future oil reserves and production depend on successfully developing current reserves and acquiring additional reserves, with production decline rates potentially impacting cash flows.
Amplify Energy's Comment on Supply Chain
The company depends on suppliers for contractually required quantities of CO2 used in oil and natural gas production. CO2 purchase agreements are influenced by suppliers' eligibility for the federal income tax credit under Internal Revenue Code Section 45Q, which provides credits for CO2 captured and used in enhanced oil recovery (EOR). The company has negotiated agreements to share the value of these credits through reduced CO2 pricing, contingent on compliance with applicable legal and regulatory requirements. Changes to the Section 45Q credit or noncompliance could increase CO2 costs and adversely affect the company's economics. Additionally, if CO2 leaks from EOR wells or is not used in accordance with credit requirements, the company has indemnity obligations to its CO2 suppliers, which would eliminate cost savings. Contracts have been structured to align with Section 45Q credit requirements, though risks remain related to potential IRS challenges. The company's future oil reserves and production depend on successfully developing current reserves and acquiring additional reserves, with production decline rates potentially impacting cash flows.
Sources:
Amplify Energy Corp 's official press releases and regulatory filings; CSIMarket.com's supply-chain research; and the financial filings and press releases of other companies cited in this report.
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