Business Context and Reporting Period
The submitted filing is Oasis Petroleum Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2013, not a filing for Chord Energy Corp. 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.
The company completed 20 gross, or 14.0 net, operated wells during the second quarter. Average production was 30,171 Boe per day, and 37 gross operated wells were awaiting completion at June 30, 2013.
Financial Results and Key Metrics
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Six months ended June 30, 2013 | Six months ended June 30, 2012 |
|---|---|---|---|---|
| Total revenue | $254.6 million | $149.1 million | $502.9 million | $287.6 million |
| Operating income | $113.5 million | $60.2 million | $231.4 million | $118.3 million |
| Net income | $67.1 million | $76.0 million | $119.0 million | $92.5 million |
| Diluted EPS | $0.72 | $0.82 | $1.28 | $1.00 |
| Net cash from operations | Not separately provided | Not separately provided | $357.8 million | $171.9 million |
- Second-quarter operating margin was approximately 44.6%, compared with 40.4% in the prior-year quarter. Six-month operating margin was approximately 46.0%, compared with 41.1%.
- Second-quarter net margin was approximately 26.4%, compared with 51.0% in the prior-year quarter. Six-month net margin was approximately 23.7%, compared with 32.2%.
- Oil and gas revenue was $241.8 million in the second quarter and $483.5 million for the first six months. Well services and midstream revenue was $12.7 million and $19.4 million, respectively.
- Second-quarter oil production was 2.489 million barrels and natural gas production was 1.540 Bcf. Average oil price excluding realized derivatives was $91.15 per barrel; including realized derivatives, it was $91.65.
- Capital expenditures were $429.3 million on a cash basis during the first six months, producing negative free cash flow of approximately $71.5 million before considering financing and investment proceeds.
- Cash and cash equivalents were $161.6 million at June 30, 2013, down from $213.4 million at December 31, 2012. Working capital surplus was reported at $55.3 million.
- Long-term debt was $1.2 billion, consisting of three $400 million senior unsecured note issuances bearing fixed rates of 7.25%, 6.50% and 6.875%, due in 2019, 2021 and 2023. Interest expense was $21.4 million in the quarter and $42.6 million year to date.
- The company had no borrowings under its revolving credit facility and $2.2 million of outstanding letters of credit. The elected lender commitment was $900 million, leaving $897.8 million of unused borrowing capacity.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue increased 71% and first-half revenue increased 75%, driven primarily by higher production volumes and higher oil prices.
- Average daily production increased 48% year over year in the quarter and 59% year over year for the first six months, reflecting new well completions.
- Second-quarter net income declined 12% despite higher operating income because the prior-year period included a $74.6 million derivative gain, compared with a $12.6 million gain in 2013. First-half net income increased 29%.
- First-half operating cash flow more than doubled, rising from $171.9 million to $357.8 million, but remained below capital spending.
- Operating expenses increased with production growth. Second-quarter DD&A rose to $66.8 million from $44.2 million, while interest expense increased by $7.3 million due primarily to the 2023 notes issued in July 2012.
- Oasis formed Oasis Midstream Services in the first quarter of 2013. Midstream revenue was $1.3 million in the quarter and $2.2 million for the first six months; related activities were previously reflected in lease operating expenses.
- The April 2013 credit facility amendment increased the borrowing base from $750 million to $1.25 billion, although lender commitments were limited to $900 million.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Management established a 2013 capital expenditure budget of $1.020 billion, including $897 million for drilling and completion, $43 million for production infrastructure, $25 million for leasehold, $14 million for well services and $10 million for other non-E&P capital.
- Management stated that cash on hand, operating cash flow, note proceeds and revolving-credit availability should be sufficient to fund the 2013 budget, while noting that spending could be adjusted for commodity prices, financing availability, drilling results, costs and operational conditions.
- Commodity prices, transportation capacity, service costs, qualified personnel, reserve estimates, drilling performance, environmental regulation, litigation, counterparty credit and access to capital were identified as significant risks.
- The company used collars, put spreads, swaps and swaps with sub-floors to reduce oil-price volatility. Net derivative assets were $17.6 million at June 30, 2013, with total notional volumes extending through 2015. Derivatives can limit the benefit of rising oil prices and generated material mark-to-market volatility.
- At June 30, 2013, the company had approximately $12.2 million of lease commitments, potential early termination obligations of approximately $30.2 million under drilling contracts and approximately $61.1 million of future obligations under minimum-volume agreements.
- In July 2013, the company entered additional derivative contracts covering 1.879 million barrels in 2014 and 124,000 barrels in 2015, and extended a drilling contract that could add up to $4.8 million of termination exposure.
- The filing states that there were no material changes to previously disclosed risk factors, no material litigation expected to adversely affect financial condition, and effective disclosure controls as of June 30, 2013.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Oasis Petroleum Inc., whereas the request identifies Chord Energy Corp.
- Reconcile production growth and capital spending with reserve additions, well-level returns and future development requirements.
- Assess liquidity after the negative first-half free cash flow and the planned $1.020 billion 2013 capital budget.
- Review derivative volumes, floors, ceilings, sub-floors and mark-to-market sensitivity to WTI prices.
- Evaluate leverage, fixed-rate interest obligations, credit-facility covenants and borrowing-base redetermination risk.
- Review transportation differentials, gathering commitments, minimum-volume obligations and drilling-contract termination exposure.
- Determine whether midstream and well-services growth represents sustainable third-party economics or primarily intercompany activity eliminated in consolidation.