Business Context and Reporting Period
The filing is Oasis Petroleum Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2020. Although the request metadata identifies Chord Energy Corp., the filing text identifies Oasis Petroleum Inc. as the registrant. Oasis operated exploration and production assets in the Williston and Delaware Basins and a consolidated midstream business through Oasis Midstream Partners LP.
The quarter was materially affected by the COVID-19 pandemic, sharply lower energy demand, the Saudi Arabia-Russia production dispute, depressed commodity prices and related transportation and storage constraints.
Financial Performance and Position
| Metric | Q1 2020 | Q1 2019 | Change or commentary |
|---|---|---|---|
| Total revenue | $387.8 million | $575.7 million | Down $187.9 million, or approximately 32.6% |
| Operating income (loss) | $(4.863) billion | $50.4 million | Driven primarily by $4.824 billion of impairment charges |
| Net loss attributable to Oasis | $(4.311) billion | $(114.9) million | Basic and diluted loss per share was $(13.61) versus $(0.37) |
| Net cash provided by operating activities | $107.8 million | $174.9 million | Down $67.2 million |
| Adjusted EBITDA | $167.0 million | $269.3 million | Down approximately 38.0%; non-GAAP |
| Average production | 80,066 Boepd, 68% oil | 91,714 Boepd | Down 11,648 Boepd, or approximately 12.7% |
| Cash and equivalents | $134.0 million | $15.4 million at March 31, 2019 | Up from $20.0 million at December 31, 2019 |
| Long-term debt | $2.778 billion | $2.712 billion at December 31, 2019 | Debt increased despite note repurchases |
Crude oil revenue declined to $212.8 million from $318.1 million, while natural gas and NGL revenue declined to $26.3 million from $50.7 million. Midstream revenue increased to $56.4 million from $48.0 million. Average crude oil price excluding derivative settlements fell to $43.22 per barrel from $53.52, and natural gas and NGL pricing fell to $1.86 per Mcf from $3.66.
The reported operating margin was approximately negative 1,254% because of the impairment charge. Excluding the impairment and other non-operating items, management reported $167.0 million of Adjusted EBITDA, a non-GAAP measure; Adjusted EBITDA margin was approximately 43.1% of revenue.
Capital expenditures were $178.9 million on an accrual basis, including $151.1 million for E&P and $25.2 million for midstream. Net cash used in investing activities was $130.8 million. Financing activities provided $137.0 million, including net revolver borrowings and debt repurchases.
Material Changes Versus the Prior Comparable Period
- Revenue decreased approximately 33%, primarily because of lower realized commodity prices and lower crude oil production.
- Production decreased approximately 13%, principally because of natural declines in Williston Basin wells and reduced activity.
- The company recorded $4.4 billion of impairment on proved oil and gas properties, including $3.8 billion in the Williston Basin and $637.3 million in the Delaware Basin.
- Additional impairments included $291.3 million on unproved properties, $108.3 million on midstream assets, $15.9 million on well-services assets held for sale and $8.5 million on inventory.
- Derivative results shifted from a $117.6 million loss in Q1 2019 to a $285.3 million gain in Q1 2020, primarily reflecting changes in forward commodity prices. The derivative gain was largely non-cash; cash settlements were $5.0 million.
- Operating cash flow declined approximately 38%, while Adjusted EBITDA declined approximately 38%.
- The company repurchased $156.8 million principal amount of notes for $68.0 million and recognized an $83.9 million pre-tax gain on extinguishment of debt.
- The company exited its well-services business, reduced headcount by 26% year over year to 529 employees and reduced general and administrative expense by approximately 9.5%.
- Total stockholders’ equity declined from $3.837 billion at December 31, 2019 to a deficit of $499.2 million at March 31, 2020, primarily because of the quarterly net loss.
Guidance, Outlook, Risks and Unusual Items
- Management reduced its 2020 capital expenditure plan by approximately 50% to 60% from the February plan. The revised total plan was approximately $266 million to $331 million, including $231 million to $291 million for E&P and other expenditures and $35 million to $40 million for midstream.
- The company suspended drilling and completion operations in the Williston and Delaware Basins in April 2020, with flexibility to resume activity in the fall. Production was curtailed and certain wells were shut in.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Based on the commodity price environment, management expected to fail the amended Oasis Credit Facility leverage covenant beginning in the fourth quarter of 2020.
- The April 2020 credit amendment reduced the Oasis Credit Facility borrowing base and elected commitment from $1.3 billion and $1.1 billion, respectively, to $625 million, with further reductions to $600 million by July 2020. It also imposed a 4.00-to-1.00 maximum leverage ratio and required excess cash above specified thresholds to repay borrowings.
- At March 31, 2020, liquidity was reported at $778.9 million, comprising $134.0 million of cash and $644.9 million of unused revolver capacity. This included $559.1 million of unused Oasis capacity and $85.8 million of unused OMP capacity.
- The company accrued approximately $29.3 million of additional interest related to a surety-bond covenant issue under the Oasis facility and approximately $25.9 million related to a past control-agreement default under the OMP facility. The lenders provided limited waivers and temporary forbearance, but future forbearance was not assured.
- Management was pursuing cost reductions, refinancing, capital exchanges, asset sales and other strategic transactions to address leverage and liquidity. The filing states that the success of these measures could not be predicted.
- Key risks include further commodity-price declines, additional asset impairments, reduced borrowing capacity, covenant breaches, debt acceleration, collateral liquidation and possible Chapter 11 reorganization if the company could not continue as a going concern.
- The Mirada litigation seeks more than $200 million in damages and could affect the company’s Wild Basin operations and midstream interests; trial was scheduled for October 2020. The company had accrued $20 million for pending legal proceedings but could not predict the ultimate outcome.
Most Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Oasis Petroleum Inc., not Chord Energy Corp.
- Verify the status of the Oasis and OMP credit facilities, including borrowing-base reductions, waivers, covenant compliance and any later amendments or defaults.
- Assess whether the company generated sufficient operating cash flow and liquidity after April 2020 to fund operations, interest and required debt repayments.
- Review subsequent impairments, reserve revisions, asset sales, restructuring activity or bankruptcy-related filings following March 31, 2020.
- Evaluate the sensitivity of asset values, borrowing capacity and covenant compliance to crude oil and natural gas prices.
- Review the terms and outcomes of the Mirada litigation and other contingencies, including any effect on Wild Basin operations or OMP.
- Use management’s non-GAAP measures, including Adjusted EBITDA and E&P Free Cash Flow, together with—not instead of—GAAP earnings and cash flow.