Amplify Energy (AMPY), the oil and gas exploration and production company, just released its Q1 2024 earnings transcript. Analysts are buzzing about the Bairoil asset divestiture and the Beta development program, but there's a quiet revolution brewing that's flown entirely under the radar: iodine.

Buried within the transcript is a seemingly innocuous mention of renegotiated iodine contracts in Oklahoma. Amplify provides produced water to a third party for iodine extraction and receives royalties on the iodine produced. Starting in Q2 2024, Amplify will enjoy higher revenue from this partnership, backdated to January 1st, 2024.

While the company expects an additional $2 to $3 million per year in iodine royalties, captured as "other revenue," the potential upside could be significantly greater. The current iodine market is experiencing robust demand driven by medical applications, sanitation, and even solar panel production. Prices have been on an upward trajectory, and industry forecasts suggest continued growth.

Why This is a Potential Game-Changer for Amplify:

Hidden Value: Amplify's core business is oil and gas, so the iodine revenue stream is viewed as ancillary. Analysts are likely focusing on the headline-grabbing divestiture and Beta development, overlooking the potential of this "other revenue" category. Scalability: Amplify currently produces a significant amount of produced water, the source of the iodine-rich brine. Expanding this water treatment and iodine extraction partnership could unlock even more revenue, turning a minor income stream into a significant profit center. Diversification: As the world transitions to renewable energy sources, diversification beyond oil and gas becomes increasingly important for energy companies. Amplify's iodine play provides exactly that, creating a less volatile and potentially higher-margin revenue stream.

The Numbers Tell a Story:

Let's do some back-of-the-envelope calculations. Amplify's updated guidance for 2024 anticipates adjusted EBITDA of $90 to $110 million. Even at the low end, the $2 to $3 million from iodine represents a 2.2% increase. This may seem insignificant, but remember that this is just the initial estimate.

Hypothesis:

What if iodine prices surge due to the factors mentioned above? What if Amplify aggressively scales its water treatment and iodine extraction capacity? The $2 to $3 million could easily become $5 million, $10 million, or even $20 million annually. This "other revenue" could then account for 5.5% to 22% of Amplify's EBITDA, transforming it from a minor detail to a driving force in the company's valuation.

Potential Impact of Iodine Revenue on Adjusted EBITDA

The following chart illustrates the hypothetical growth of Amplify's iodine revenue and its potential impact on the company's adjusted EBITDA.

The Iodine Factor:

Amplify's iodine play has the potential to significantly alter the company's future. It's a story of hidden value, scalability, and diversification - a narrative much more compelling than mere "other revenue." This is a development investors should be watching closely, as it could be the key to unlocking Amplify's true potential and turning the company into an unexpected market leader.

"Fun Fact: Did you know iodine gets its name from the Greek word "iodes," meaning "violet"? This is due to the vibrant violet color of iodine vapor. Just like this fun fact, Amplify's iodine story is colorful and full of potential, waiting to be discovered by investors who are paying attention."