Business Context and Reporting Period
This Form 10-Q is filed by Oasis Petroleum Inc., not Chord Energy Corp.; it covers the quarter ended March 31, 2022. Oasis was an independent exploration and production company focused on oil and gas assets in the Williston Basin of North Dakota and Montana. The financial statements are unaudited and recast to present Oasis Midstream Partners LP as discontinued operations following its February 1, 2022 merger with Crestwood Equity Partners LP.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $653.0 million | $325.4 million |
| Operating income | $291.9 million | $99.5 million |
| Operating margin | 44.7% | 30.6% |
| Net income attributable to Oasis | $466.0 million | $(43.6) million |
| Continuing-operations net income | $(19.6) million | $(82.8) million |
| Net cash provided by operating activities | $265.6 million | $190.4 million |
| Adjusted EBITDA from continuing operations | $287.4 million | $125.4 million |
| Adjusted free cash flow | $217.5 million | $93.9 million |
| Average production | 69,606 Boepd, 65% oil | 57,205 Boepd |
| E&P capital expenditures | $62.9 million | Not clearly provided in the filing text |
Crude oil revenue was $385.9 million and natural gas revenue was $107.6 million. Average crude oil sales price before derivative settlements was $95.34 per barrel, while the realized price after settlements was $79.27. Average natural gas sales price before settlements was $8.09 per Mcf, and realized price after settlements was $7.67. Lease operating expense was $10.07 per Boe.
Cash and cash equivalents were $410.2 million at March 31, 2022, compared with $172.1 million at December 31, 2021. Total liquidity was $857.8 million, consisting of cash plus $447.6 million of unused revolver capacity. The company had no revolver borrowings and $2.4 million of outstanding letters of credit.
Long-term debt was $392.9 million, consisting principally of $400.0 million of 6.375% senior unsecured notes due June 1, 2026. The revolver had a $900.0 million borrowing base, $450.0 million of elected commitments and a May 2024 maturity.
Material Changes Versus Comparable Periods
- Revenue increased 100.7% year over year, driven by higher commodity prices, increased production and greater purchased oil and gas sales.
- Average daily production increased 21.7%, primarily reflecting fourth-quarter 2021 acquisitions and the absence of divested Permian production in the prior-year comparison.
- Operating income increased to $291.9 million from $99.5 million, despite higher lease operating, transportation, production tax, DD&A and purchased-product costs.
- The company recorded a $367.9 million net loss on derivatives, including a $297.3 million unrealized loss and $70.7 million of settlement payments. This materially reduced continuing-operations earnings.
- Continuing operations remained unprofitable, but the loss narrowed to $19.6 million from $82.8 million.
- Net income attributable to Oasis benefited from $485.6 million of discontinued-operation income, primarily the $518.9 million pre-tax gain on the OMP merger.
- Operating cash flow increased 39.5%, while adjusted free cash flow increased approximately 131% year over year.
- Cash increased substantially following the OMP transaction, while total liabilities declined to $1.566 billion from $1.805 billion at year-end 2021.
Outlook, Commentary, Risks and Unusual Items
Management stated that crude oil, natural gas and NGL prices had risen significantly, partly due to the Russia-Ukraine conflict, but warned that commodity prices remain highly volatile. Labor, materials and services costs also increased because of supply-chain disruption and higher demand; inflationary pressures were expected to continue through the remainder of 2022.
On March 7, 2022, Oasis agreed to merge with Whiting Petroleum in a merger-of-equals transaction expected to close in the third quarter of 2022. Whiting shareholders were to receive 0.5774 Oasis shares and $6.25 in cash per Whiting share. Oasis shareholders were to receive a $15.00 special dividend. Closing depended on shareholder approvals and other customary conditions, and the filing identified risks of delay, termination, dilution, integration costs and failure to achieve expected synergies.
Oasis completed the OMP merger on February 1, 2022, receiving $160.0 million in cash and approximately 21.0 million Crestwood common units. Oasis owned approximately 21% of Crestwood at quarter-end, with a $615.3 million fair-value investment and two board seats. Crestwood generated $13.1 million of distributions and contributed $47.0 million of unrealized fair-value gains during the quarter.
The company planned to return approximately $280 million to shareholders through base dividends, variable dividends and share repurchases. It paid a $0.585 base dividend and a $3.00 variable dividend per share during the quarter, declared a $0.585 base dividend and a $2.94 variable dividend in May, and authorized a $150 million repurchase program. No shares were repurchased under that program during the quarter.
At March 31, 2022, commodity derivative liabilities had a net fair value of approximately $518.9 million. A 10% increase in crude oil prices was estimated to reduce the derivative position's fair value by approximately $153.7 million, while a 10% decrease was estimated to increase it by approximately $151.2 million. Other risks included Williston Basin concentration, transportation and pipeline disruptions, DAPL-related uncertainty, environmental and climate regulation, counterparty credit risk, reserve and production uncertainty, and contractual minimum-volume obligations.
The company maintained a $321.5 million valuation allowance against deferred tax assets and continued to conclude that some or all of those assets were not more likely than not to be realized. Material off-balance-sheet items included $2.4 million of letters of credit and $6.7 million of net surety bond exposure.
Important Facts for Investors to Verify
- Confirm the filing identity and corporate succession: the source is an Oasis Petroleum 10-Q, while the request identifies Chord Energy Corp.
- Separate recurring E&P performance from the $485.6 million discontinued-operation gain related to the OMP merger.
- Assess the economic impact and future cash settlements of the approximately $518.9 million net derivative liability.
- Verify completion terms, shareholder approvals, special-dividend funding and dilution associated with the pending Whiting merger.
- Reconcile adjusted EBITDA and adjusted free cash flow to GAAP cash flow and review the company’s non-GAAP definitions.
- Evaluate whether the $857.8 million liquidity position adequately covers dividends, capital spending, derivative settlements, merger costs and debt obligations.
- Review the sustainability of production growth, crude oil differentials, lease operating costs and inflationary pressures.
- Monitor the fair value, distributions and related-party operating costs associated with the Crestwood investment.