Business Context and Reporting Period
The filing is a Form 10-Q for the quarter and nine months ended September 30, 2014, filed November 5, 2014. The registrant identified in the filing is Oasis Petroleum Inc., not Chord Energy Corp.; investors should verify the requested company identifier. Oasis was an independent exploration and production company focused on unconventional oil and natural gas resources in the North Dakota and Montana portions of the Williston Basin, with complementary well services and midstream businesses.
Key Financial Metrics
| Metric | Three months ended Sept. 30, 2014 | Year-over-year change | Nine months ended Sept. 30, 2014 | Year-over-year change |
|---|---|---|---|---|
| Total revenue | $368.7 million | +$63.2 million, +21% | $1,090.6 million | +$282.2 million, +35% |
| Operating income | $134.1 million | -$16.8 million, -11% | $629.7 million | +$247.5 million, +65% |
| Net income | $121.6 million | +$67.1 million, +123% | $330.4 million | +$156.9 million, +90% |
| Diluted EPS | $1.21 | vs. $0.59 | $3.29 | vs. $1.87 |
| Net cash from operations | Not separately presented for the quarter | Not clearly provided | $673.5 million | +$136.8 million, +25% |
| Adjusted EBITDA | $238.8 million | +$19.2 million, +9% | $733.3 million | +$136.8 million, +23% |
Calculated margins were approximately 36.4% operating and 33.0% net for the third quarter, compared with 49.4% and 17.8%, respectively, in the prior-year quarter. Nine-month operating and net margins were approximately 57.7% and 30.3%, compared with 47.3% and 21.5% in the prior-year period. The quarter’s net margin benefited materially from a $103.4 million derivative gain, including a $114.6 million non-cash mark-to-market gain.
- Average daily production increased 39% year over year to 45,873 Boe per day in the quarter and 42% to 44,143 Boe per day for the nine months.
- Third-quarter oil revenue was $328.5 million and natural gas revenue was $16.2 million. Average oil price excluding derivative settlements declined to $87.17 per barrel from $100.75; average natural gas price declined to $5.97 per Mcf from $6.80.
- Cash and cash equivalents were $67.2 million at September 30, 2014, versus $91.9 million at December 31, 2013. The company reported total liquidity of $1.212 billion, including $1.145 billion of unused committed revolving capacity.
- Working capital was a deficit of $137.9 million. Total assets were $5.457 billion and stockholders’ equity was $1.690 billion.
- Total debt was $2.550 billion, consisting of $2.200 billion of senior unsecured notes and $350.0 million drawn under the revolving facility. The revolver’s weighted-average interest rate was 1.7%.
- Operating cash flow of $673.5 million was exceeded by cash capital expenditures of $972.8 million, producing approximately negative $299.3 million of cash flow before property-sale proceeds and financing activity.
Material Changes Versus Prior Comparable Period
- Revenue growth was driven primarily by higher production volumes from drilling, completions and prior acquisitions, partially offset by lower oil prices.
- Lease operating expense increased 38% in the quarter to $44.4 million and rose to $10.51 per Boe from $7.18. DD&A increased 47% to $107.0 million, and G&A increased 43% to $23.9 million.
- Operating income declined in the third quarter despite higher revenue because operating expenses grew faster than revenue. Nine-month operating income benefited from a $187.1 million gain on the Sanish property divestiture.
- Interest expense increased to $39.4 million in the quarter and $118.6 million for the nine months, primarily due to the 2022 senior notes issued in September 2013 and higher revolver borrowings.
- Derivative results changed from a $39.8 million loss in the prior-year quarter to a $103.4 million gain in the current quarter. Cash derivative settlements remained losses of $11.1 million in the quarter and $24.8 million for the nine months.
- The company completed 66 gross, or 52.4 net, operated wells during the quarter, had 16 rigs running, and had 61 gross operated wells waiting on completion at September 30, 2014.
- Property, plant and equipment, net, increased to $4.875 billion from $4.080 billion at year-end 2013, reflecting continued development spending. Capital expenditures were $437.6 million in the third quarter and $1.097 billion on an accrual basis for the nine months.
Guidance, Outlook, Risks and Unusual Items
- The 2014 capital expenditure budget was $1.425 billion, including $1.250 billion for drilling and completion, $60 million for infrastructure, $25 million for leasehold, $35 million for well services and $23 million for other non-E&P capital. Management stated that spending could change with commodity prices, financing availability, drilling results, service costs and other conditions.
- Management believed cash on hand, operating cash flow and revolver availability were sufficient to fund the 2014 budget, but acknowledged that developing the broader drilling inventory would require substantially more capital and potentially additional debt or equity financing.
- Oil-price risk was partly mitigated through collars, swaps, swaps with sub-floors and deferred premium puts covering future production. Outstanding derivatives had a net fair-value asset of $40.3 million at September 30, 2014, but the contracts limited upside participation and could generate settlement losses.
- Key operating risks included volatile oil and natural gas prices, Williston Basin transportation capacity and price differentials, availability and cost of drilling and completion services, qualified personnel, reserve and production uncertainty, environmental regulation, litigation, counterparty credit risk and access to capital.
- The company had minimum delivery commitments of approximately 33.7 million barrels and 9.1 Bcf, with future obligations of approximately $199.6 million. Other commitments included $27.8 million of leases, $33.1 million of potential drilling-contract termination payments, $4.2 million of water purchase commitments and $9.6 million of electrical-facility cost-sharing obligations.
- Oasis and its predecessor were named defendants in a Quebec class-action proceeding related to the 2013 Lac-Mégantic crude-oil train derailment. Management considered the claims without merit and stated that an unfavorable outcome was not expected to have a material effect, although the ultimate outcome could not be predicted.
- No material changes to previously disclosed risk factors were reported. Disclosure controls and procedures were determined to be effective as of September 30, 2014.
Investor Verification Items
- Confirm whether the intended issuer is Oasis Petroleum Inc. or Chord Energy Corp.; the supplied filing is an Oasis Petroleum 2014 Form 10-Q.
- Reconcile GAAP earnings with Adjusted EBITDA and Adjusted Net Income, particularly the effects of the $187.1 million property-sale gain and derivative mark-to-market gains.
- Assess whether production growth and the $1.425 billion capital program can be funded without increased leverage or equity issuance if oil prices or operating cash flow weaken.
- Review revolver borrowing-base redeterminations, covenant compliance, debt maturities, interest costs and available liquidity.
- Evaluate derivative volumes, floors, ceilings, sub-floors, premiums and settlement exposure against expected production and prevailing oil prices.
- Monitor Williston Basin transportation constraints, price differentials, service costs, completion backlog and the contractual volume-delivery obligations.
- Obtain subsequent updates on the Lac-Mégantic litigation and other environmental or regulatory contingencies.