Business Context and Reporting Period
The filing is Oasis Petroleum Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015. The request identifies Chord Energy Corp., but the provided filing is for Oasis Petroleum Inc.; this entity mismatch should be verified. Oasis was an independent exploration and production company focused on unconventional oil and natural gas resources in the Williston Basin, with complementary well-services and midstream businesses.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2015 | Nine Months Ended September 30, 2015 |
|---|---|---|
| Total revenue | $197.2 million | $607.7 million |
| Operating income (loss) | $(19.9) million | $(61.0) million |
| Net income (loss) | $27.1 million | $(44.2) million |
| Diluted EPS | $0.20 | $(0.35) |
| Net cash from operations | Not separately provided for the quarter | $280.3 million |
| Capital expenditures | $78.1 million | $740.6 million cash basis |
| Adjusted EBITDA | $189.2 million | $643.5 million |
- Q3 operating margin was approximately negative 10.1%; net margin was approximately 13.7%, benefiting substantially from a $103.6 million derivative gain.
- Nine-month operating margin was approximately negative 10.0%; net margin was approximately negative 7.3%.
- Average production increased 10% year over year in Q3 to 50,546 Boe per day and 14% for the nine-month period to 50,418 Boe per day.
- Q3 realized oil price excluding derivative settlements was $41.61 per barrel, down from $87.17; including derivative settlements, it was $60.77 per barrel.
- At September 30, 2015, cash and cash equivalents were $12.3 million, total assets were $5.7 billion, and total stockholders’ equity was $2.3 billion.
- Total debt was $2.38 billion, consisting of $2.20 billion of senior unsecured notes and $180.0 million drawn under the revolving credit facility.
- Liquidity was reported at $1.352 billion, including cash and $1.340 billion of unused committed borrowing-base capacity. Working capital was negative $52.3 million.
Material Changes Versus the Prior Comparable Period
- Q3 revenue declined 46% from $368.7 million to $197.2 million, while nine-month revenue declined 44% from $1.091 billion to $607.7 million, primarily because of lower oil and natural gas prices.
- Q3 net income fell from $121.6 million to $27.1 million. The nine-month period shifted from $330.4 million of net income to a $44.2 million loss.
- Operating income declined from $134.1 million to a $19.9 million loss in Q3 and from $629.7 million to a $61.0 million loss for the nine-month period.
- Operating cash flow decreased 58% year over year for the nine months, from $673.5 million to $280.3 million.
- Production increased despite lower prices, but price declines reduced oil and gas revenue by substantially more than volume growth added.
- Lease operating expense improved to $7.67 per Boe in Q3 from $10.51, while DD&A increased to $26.61 per Boe from $25.35.
- The company recorded $24.9 million of nine-month noncash impairment charges on unproved properties, including $16.4 million associated with acreage expected to expire.
- Unlike 2014, when the company recorded a $187.0 million gain on the Sanish property divestiture, the 2015 nine-month period included only $0.2 million of property-sale gains.
- The company issued 36.8 million common shares in March 2015 and received approximately $463.1 million of net proceeds, increasing shares outstanding materially.
Guidance, Outlook, Risks and Unusual Items
- Management reduced planned 2015 capital spending from the approved $705 million budget to approximately $670 million and concentrated drilling in the most economic Williston Basin areas.
- The company expected cash on hand, operating cash flow, derivative settlements and revolver availability to fund its 2015 capital program and near-term obligations.
- Management stated that sustained low oil prices could materially reduce reserves, cash flow, asset values and access to capital. At September 30, the excess of expected undiscounted cash flows over proved-property carrying value had narrowed to $68.5 million, or 2%, from $2.881 billion, or 71%, at December 31, 2014.
- Management estimated that using lower reference prices of $50.35 per barrel for oil and $2.69 per MMBtu for natural gas could have reduced reported proved reserves by approximately 33%, although final year-end reserve revisions were not yet quantifiable.
- Derivative instruments produced a $111.3 million nine-month accounting gain and $291.4 million of cash settlement receipts. The company did not designate these instruments as accounting hedges.
- Outstanding derivatives at September 30 had aggregate fair value of $135.4 million and covered portions of 2015 through 2017 production, including swaps at weighted-average prices of $73.35 per barrel for 2015 and $57.75 for 2016.
- On October 6, 2015, the borrowing base was reduced from $1.700 billion to $1.525 billion, equal to the lenders’ elected commitment. The company reported compliance with its credit-facility covenants at September 30.
- The revolving credit facility required a minimum consolidated EBITDAX-to-interest ratio of 2.5 to 1.0 and a minimum defined current ratio of 1.0 to 1.0.
- Commitments included approximately $193.8 million under volume agreements, $38.6 million for fresh-water purchases, $28.7 million of lease obligations and $5.3 million of potential drilling-rig early-termination payments.
- The company was involved in litigation related to the Lac-Mégantic crude-oil train derailment. Settlements had been approved but were subject to appeal; management stated that related contributions were fully covered by insurance.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Investor Verification Items
- Verify that Oasis Petroleum Inc., rather than Chord Energy Corp., is the intended issuer and reporting entity.
- Reconcile reported liquidity with the post-quarter borrowing-base reduction to $1.525 billion.
- Assess sensitivity of reserves, proved-property impairment and borrowing-base availability to lower oil and natural gas prices.
- Separate recurring operating performance from derivative gains, including the $103.6 million Q3 accounting gain and $291.4 million of nine-month cash settlements.
- Review the company’s ability to fund capital expenditures and debt maturities given negative working capital, $2.38 billion of debt and declining operating cash flow.
- Verify the final 2015 reserve report, year-end impairment testing and actual capital expenditures against management’s approximately $670 million expectation.