Business Context and Reporting Period
This unaudited Form 10-Q covers Oasis Petroleum Inc. for the three and nine months ended September 30, 2020. The supplied metadata identifies Chord Energy Corp., but the filing itself is for Oasis Petroleum Inc., which operated as a debtor-in-possession after filing voluntary Chapter 11 petitions on September 30, 2020. Oasis was an independent U.S. exploration and production company focused on the Williston and Delaware Basins, with a fee-based midstream business operated through Oasis Midstream Partners LP.
Key Financial Metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Total revenue | $271.1 million | $482.7 million | $825.2 million | $1,587.9 million |
| Operating income (loss) | $38.5 million | $8.4 million | $(4,835.2) million | $130.5 million |
| Net income (loss) attributable to Oasis | $(55.7) million | $20.3 million | $(4,459.5) million | $(51.8) million |
| Basic/diluted EPS | $(0.17) | $0.06 | $(14.05) | $(0.16) |
| Net cash provided by operating activities | $95.0 million | $251.0 million | $154.9 million | $639.9 million |
| Adjusted EBITDA | $186.7 million | $256.6 million | $527.9 million | $775.6 million |
| Average production | 65,578 Boepd | 88,715 Boepd | 66,581 Boepd | 88,283 Boepd |
Q3 operating margin was approximately 14.2%, compared with approximately 1.7% in the prior-year quarter, largely because of lower DD&A following the first-quarter impairment. Q3 net margin was approximately negative 20.5%. The nine-month operating and net margins were heavily distorted by the $4.8 billion impairment charge.
- Crude oil and natural gas revenue declined 47.8% year over year in Q3 to $179.6 million. Average crude oil price excluding derivative settlements fell to $38.52 per barrel from $55.12, while production declined 26.1%.
- Q3 lease operating expense decreased to $29.4 million, or $4.87 per Boe, from $50.3 million, or $6.16 per Boe.
- Nine-month impairment expense was $4.8 billion, including approximately $4.4 billion on proved oil and gas properties, $293.0 million on unproved properties, and $108.3 million on midstream assets.
- Cash and cash equivalents were $84.3 million at September 30, 2020, compared with $20.0 million at December 31, 2019. Total assets were $2.51 billion, down from $7.50 billion.
- Total liabilities were $3.14 billion, including $2.07 billion classified as liabilities subject to compromise. Stockholders’ deficit was $638.2 million.
- At September 30, debt included $360.6 million under the pre-petition credit facility, $487.5 million under the OMP credit facility, and $2.07 billion of senior unsecured notes and related accrued interest classified as liabilities subject to compromise.
- Working capital deficit was $235.9 million. Management reported $171.8 million of liquidity, consisting of cash and $87.5 million of unused OMP borrowing capacity.
Material Changes Versus the Prior Comparable Period
- Total revenue declined 43.9% in Q3 and 48.0% for the nine-month period, driven by lower oil prices, reduced production, and the exit from well services.
- Average production declined 23,137 Boepd in Q3 and 21,702 Boepd for the nine-month period, primarily due to temporary well shut-ins and reduced activity in response to commodity prices.
- Q3 operating income improved year over year because the prior-year period included substantially higher DD&A, but net income deteriorated due to derivative losses, reorganization costs, and other charges.
- Nine-month operating results swung from $130.5 million of operating income in 2019 to a $4.84 billion operating loss in 2020, principally due to impairment charges.
- Operating cash flow fell 75.8% for the nine-month period, while capital expenditures fell from $714.3 million to $291.8 million.
- General and administrative expense increased to $49.3 million in Q3 and $117.9 million for nine months, partly because of pre-petition restructuring expenses, despite a 29% reduction in full-time employees.
- The company exited its well services business, suspended drilling and completion operations during the second quarter, reduced its workforce, and reduced its 2020 capital expenditure plan by approximately 58% from the original plan.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- The revised 2020 capital expenditure plan was approximately $284 million to $303 million, including $248 million to $263 million for E&P and other capital expenditures and $36 million to $40 million for midstream expenditures. Actual spending could vary materially.
- Management expected operating cash flow, cash on hand, and DIP financing capacity to provide liquidity during the Chapter 11 cases, but disclosed substantial doubt about the company’s ability to continue as a going concern.
- The DIP facility provided up to $450 million, consisting of $150 million of new-money revolving capacity and up to $300 million of rolled-up pre-petition secured debt. Its stated maturity was March 30, 2021, subject to a potential three-month extension.
- The proposed exit facility contemplated up to $1.5 billion of maximum borrowing capacity and initial commitments of up to $575 million, subject to court approval, Plan effectiveness, borrowing-base redetermination, and minimum hedging requirements.
- The Restructuring Support Agreement contemplated cancellation of existing equity, with existing equity holders receiving four-year warrants exercisable for 7.5% of the reorganized company’s equity, subject to dilution. The filing warned that existing common stock could be cancelled with little or no recovery.
- All three voting classes subsequently voted to accept the Plan, and management expected confirmation on November 10, 2020 and consummation shortly thereafter; however, the filing stated that confirmation and emergence were not guaranteed.
- The Mirada settlement contemplated $42.8 million of payments, including $20.0 million on the Plan effective date, and mutual releases. The company accrued the full amount at September 30, 2020.
- Q3 included $49.8 million of reorganization items, a $22.8 million incremental litigation settlement charge, $2.6 million of impairment, and a $5.1 million derivative loss. Nine-month results included $243.1 million of derivative gains, $83.9 million of debt extinguishment gains, and $49.8 million of reorganization items.
- Primary risks included COVID-19 and energy-market volatility, depressed oil and gas prices, production and transportation constraints, DAPL-related uncertainty, counterparty exposure, bankruptcy-plan execution, DIP covenant compliance, liquidity, employee retention, and potential cancellation of existing equity.
Important Facts Investors Should Verify
- Confirm the issuer identity: the filing is for Oasis Petroleum Inc., not Chord Energy Corp.
- Verify the ultimate outcome and effective date of the Chapter 11 Plan, including treatment of existing common stock and the issuance of new equity or warrants.
- Review post-filing liquidity, DIP borrowings, exit financing, borrowing-base capacity, and compliance with minimum-liquidity and other covenants.
- Assess normalized earnings and cash flow excluding the $4.8 billion impairment, restructuring costs, derivative volatility, and other unusual items.
- Verify realized commodity prices, production volumes, hedge volumes and prices, and the company’s sensitivity to further oil and gas price declines.
- Review the Mirada settlement, other bankruptcy claims, liabilities subject to compromise, and any additional litigation or restructuring obligations.
- Consider the implications of the Nasdaq delisting and OTC trading under the symbol OASPQ, including limited liquidity and the stated risk of equity cancellation.