Business Context and Reporting Period
The provided filing is Oasis Petroleum Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019, not a filing identified as Chord Energy Corp. Oasis is an independent U.S. exploration and production company operating in the Williston and Delaware Basins, with midstream and well-services businesses.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $529.4 million | $1.105 billion |
| Operating income | $71.6 million | $122.0 million |
| Net income attributable to Oasis | $42.8 million | $(72.1) million |
| Diluted earnings per share | $0.14 | $(0.23) |
| Net cash provided by operating activities | $214.0 million | $388.9 million |
| Adjusted EBITDA | $249.6 million | $519.0 million |
| Free cash flow | $(95.3) million | $(102.8) million |
Second-quarter operating margin was approximately 13.5%; six-month operating margin was approximately 11.0%. Second-quarter net margin was approximately 8.1%, while the six-month net margin was approximately negative 6.5%.
- Average production was 84,454 Boepd in the second quarter and 88,064 Boepd for the six-month period; approximately 72% of second-quarter production was crude oil.
- Second-quarter crude oil sales price before derivative settlements was $58.87 per barrel, compared with $65.82 in the prior-year quarter. Realized crude oil price including derivative settlements was $56.79 per barrel.
- Cash and cash equivalents were $20.3 million at June 30, 2019.
- Total long-term debt was $2.897 billion, including $939.0 million under the Oasis and OMP revolving credit facilities and approximately $2.039 billion principal amount of senior unsecured and convertible notes.
- Aggregate unused borrowing capacity was $863.8 million, producing reported liquidity of approximately $884.1 million including cash.
- Capital expenditures were $525.5 million on a cash-flow basis for the six months ended June 30, 2019.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue declined $44.3 million, or approximately 7.7%, primarily because lower commodity prices more than offset higher production. Six-month revenue increased $57.6 million, or approximately 5.5%, driven by higher production, purchased oil and gas sales, and midstream revenue.
- Second-quarter operating income improved from a $242.7 million loss to $71.6 million of income. The improvement primarily reflected the absence of the $384.1 million prior-year impairment charge.
- Six-month net loss attributable to Oasis improved from $319.6 million to $72.1 million, but remained a loss due partly to an $82.9 million derivative loss and increased interest expense.
- Midstream revenue increased 75.9% in the quarter and 73.9% for the six months, largely due to third-party natural gas purchase arrangements and increased gathering, compression and processing activity.
- Well-services revenue decreased 38.2% in the quarter and 27.2% for the six months, reflecting lower completion activity and product sales.
- Net cash from operations decreased from $532.0 million to $388.9 million for the six months, while investing cash use declined substantially because the prior-year period included the $524.3 million Permian Basin acquisition.
- Debt increased from $2.735 billion at December 31, 2018 to $2.897 billion at June 30, 2019, primarily reflecting higher revolving-facility borrowings.
- The company adopted ASC 842 lease accounting on January 1, 2019, recognizing operating and finance lease assets and liabilities. Management also reported remediation of the previously identified material weakness in internal control over financial reporting.
Guidance, Outlook, Risks and Unusual Items
- Management’s 2019 capital expenditure plan was approximately $839 million to $870 million, including approximately $620 million to $640 million for E&P and other capital expenditures and $219 million to $230 million for midstream expenditures.
- Management stated that cash on hand, operating cash flow, derivative settlements and revolving-facility availability should be sufficient to fund the 2019 capital plan and obligations, but capital spending may be adjusted for commodity prices, financing availability, drilling results and other conditions.
- The Oasis Credit Facility had a $1.6 billion borrowing base and $1.35 billion elected commitment after the April 2019 redetermination; the next redetermination was scheduled for October 1, 2019. The company reported compliance with its financial covenants and did not anticipate a covenant violation in the next twelve months.
- Commodity derivatives produced a $34.7 million net gain in the quarter but an $82.9 million net loss for the six months. At June 30, the net derivative asset was $20.3 million. Hedging may reduce downside exposure but can limit benefits from rising prices.
- The company cited commodity-price volatility, transportation capacity, operating costs, service availability, reserve estimates, environmental and regulatory matters, counterparty credit risk and access to capital as key risks.
- Mirada litigation seeks damages exceeding $100 million and declaratory relief concerning Wild Basin operations and midstream rights. Oasis filed counterclaims on July 2, 2019; trial was scheduled for February 2020. An adverse outcome could affect Wild Basin operations, midstream interests and cash flows, and Oasis has agreed to indemnify OMP for related losses.
- The filing contains a revision of 2018 revenue and expense presentation for certain crude oil purchase and sale arrangements. The revision increased reported 2018 revenue and purchased oil and gas sales and expenses but did not affect net income, earnings per share, financial position or operating cash flow.
- No cash dividends were paid, and management did not anticipate paying dividends because of debt covenants and the intention to retain cash for development and debt repayment.
Investor Verification Priorities
- Verify that the intended issuer is Oasis Petroleum Inc.; the supplied metadata names Chord Energy Corp.
- Reconcile the reported $884.1 million liquidity figure to cash, borrowing-base availability, letters of credit and facility covenants.
- Assess debt maturities, refinancing requirements and the October 2019 borrowing-base redetermination.
- Review the sustainability of operating cash flow after approximately $839 million to $870 million of planned 2019 capital expenditures and negative reported free cash flow.
- Evaluate realized commodity prices, derivative volumes and settlement exposure, including the sensitivity of derivative values to oil-price movements.
- Monitor the Mirada litigation, potential indemnification obligations and any effect on Wild Basin operations or midstream economics.
- Confirm the impact of the ASC 842 adoption, the corrected revenue presentation and the reported remediation of internal-control weaknesses.