Chord Energy Corp quarterly report, Q2 FY2020

Filing and business context

The supplied filing is Oasis Petroleum Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2020, not a Chord Energy Corp. filing. Oasis was an independent U.S. exploration and production company with assets in the Williston and Delaware Basins and a midstream business through Oasis Midstream Partners. The filing was signed August 5, 2020.

Key financial metrics

Metric	Q2 2020	Q2 2019	Six months 2020	Six months 2019
Total revenue	$166.4 million	$529.4 million	$554.2 million	$1.105 billion
Operating income (loss)	$(11.2) million	$71.6 million	$(4.874) billion	$122.0 million
Net income (loss) attributable to Oasis	$(92.9) million	$42.8 million	$(4.404) billion	$(72.1) million
Diluted EPS	$(0.29)	$0.14	$(13.90)	$(0.23)
Net cash from operating activities	$(47.9) million	$214.0 million	$59.9 million	$388.9 million
Adjusted EBITDA	$174.2 million	$249.6 million	$341.2 million	$519.0 million

Q2 operating margin was approximately negative 6.7%, versus 13.5% in the prior-year quarter. Net margin was approximately negative 55.9%, versus 8.1%. The six-month margins were heavily distorted by impairment charges.

Average production was 54,111 Boepd in Q2, down 36% from 84,454 Boepd, with 67% oil. Six-month production averaged 67,088 Boepd, down from 88,064 Boepd.
Q2 crude oil revenue was $81.1 million, down from $328.0 million. Crude oil realized price excluding derivatives fell to $24.45 per barrel from $58.87.
Q2 natural gas and NGL revenue was $12.8 million, down from $29.0 million; realized price declined to $1.32 per Mcf from $2.29.
Q2 midstream revenue was $34.8 million, down from $51.6 million. Midstream remained profitable, generating $30.6 million of operating income.
Six-month impairment expense was $4.826 billion, including $4.4 billion on proved oil and gas properties, $292.1 million on unproved properties and $108.3 million on midstream assets.
Cash and cash equivalents were $77.4 million at June 30, 2020, compared with $20.0 million at December 31, 2019. Working capital surplus was $57.5 million.
Total long-term debt was $2.762 billion, including $502.0 million under the Oasis Credit Facility and $487.5 million under the OMP Credit Facility.
Reported liquidity was $203.8 million, consisting of cash and $126.4 million of unused borrowing capacity. The Oasis facility had only $38.9 million of unused capacity after borrowings and letters of credit.

Material changes versus prior comparable periods

Revenue fell 69% in Q2 and 50% for the first six months, driven by lower commodity prices, reduced production and well shut-ins.
Production declined primarily in the Williston Basin, while Delaware Basin production increased year over year.
Oasis suspended drilling and completion operations in the second quarter, reduced its workforce by 39% year over year to 453 employees, and exited the well services business.
Six-month operating results included the $4.826 billion impairment charge, reducing total assets to $2.626 billion from $7.499 billion and producing a stockholders’ deficit of $589.9 million.
Derivative results shifted from a $34.7 million Q2 2019 gain to a $37.2 million Q2 2020 loss, although six-month 2020 derivative results included a $248.1 million net gain and $144.1 million of cash settlements.
Interest expense rose to $140.1 million for the first six months from $87.7 million, partly because of additional interest charges under credit-facility waivers.
Oasis repurchased $156.8 million principal amount of notes for $68.0 million and recorded an $83.9 million gain on extinguishment of debt.

Guidance, outlook, risks and unusual items

Management reduced the 2020 capital expenditure plan by approximately 58% to $284 million-$303 million, including $248 million-$263 million for E&P and other expenditures and $36 million-$40 million for midstream.
Management expected production to increase from the Q2 level as some shut-in wells resumed, but indicated that activity would remain dependent on commodity prices, financing and market conditions.
The filing states that current commodity prices create substantial doubt about the company’s ability to continue as a going concern. Management expected it would be unable to comply with Oasis Credit Facility covenants within the next twelve months.
A covenant breach could trigger an event of default, acceleration of secured debt and possible liquidation of collateral, potentially resulting in defaults or acceleration under the senior notes.
Management was evaluating refinancing, asset sales, cost reductions, a recapitalization, an out-of-court debt restructuring and a possible Chapter 11 restructuring. No assurance was given that these actions would succeed.
The April 2020 credit amendment reduced the Oasis borrowing base from $1.3 billion to $625.0 million, with further reductions to $612.5 million effective June 1 and $600.0 million effective July 1.
COVID-19, oversupply, weak demand, actions by OPEC and non-OPEC producers, transportation constraints and potential Dakota Access Pipeline disruptions were identified as material risks.
Outstanding off-balance-sheet items included $71.6 million of letters of credit and $15.7 million of net surety bond exposure. A $20 million legal accrual was recorded.
Mirada litigation sought more than $200 million and could affect Wild Basin operations and midstream economics; trial was scheduled for October 2020. A separate wage-and-hour lawsuit could potentially proceed as a collective or class action, although no class-certification motion had been filed.

Important facts for an investor to verify

Confirm the issuer identity: the source filing is Oasis Petroleum Inc. and does not correspond to Chord Energy Corp.
Review subsequent filings for covenant compliance, borrowing-base redeterminations, waivers, debt restructuring, recapitalization or bankruptcy developments.
Assess whether reported liquidity was sufficient after mandatory cash sweeps, letters of credit, accrued interest, operating needs and potential covenant-related restrictions.
Reconcile non-GAAP Adjusted EBITDA and E&P Free Cash Flow with GAAP cash flow, particularly because Q2 operating cash flow was negative despite $174.2 million of Adjusted EBITDA.
Monitor commodity prices, derivative settlements, hedge coverage, production recovery and transportation access, including Dakota Access Pipeline developments.
Evaluate the assumptions supporting the $4.4 billion proved-property impairment and the resulting reduction in proved undeveloped reserves.