Chord Energy Corp annual report, FY2019

Filing context and reporting period

The supplied filing is Oasis Petroleum Inc.’s Form 10-K for the fiscal year ended December 31, 2019, filed February 26, 2020. It is not a Chord Energy filing; the source identifies the registrant as Oasis Petroleum Inc. and ticker OAS. The filing reports full-year results and includes fourth-quarter data.

Oasis was an independent U.S. exploration and production company focused on unconventional crude oil and natural gas in the Williston Basin and Delaware Basin. It also consolidated Oasis Midstream Partners LP and operated a well-services business that management planned to exit in March 2020.

Financial and operating highlights

Metric	2019	2018	Change
Total revenue	$2.072 billion	$2.322 billion	Down 11%
Oil and gas revenue	$1.409 billion	$1.590 billion	Down 11%
Midstream revenue	$212.2 million	$120.5 million	Up 76%
Well-services revenue	$42.0 million	$61.1 million	Down 31%
Operating income	$154.4 million	$119.0 million	Up 30%
Net loss attributable to Oasis	$128.2 million	$35.3 million	Loss increased
Net loss per diluted share	$0.41	$0.11	Loss increased
Net cash provided by operating activities	$892.9 million	$996.4 million	Down 10%
Adjusted EBITDA	$1.040 billion	$958.7 million	Up 8%
Free cash flow, company-defined	$(10.6) million	$(1.407 billion)	Improved

Production averaged 88,061 Boe per day, approximately 71% oil, versus 82,525 Boe per day in 2018. Williston Basin production averaged 80,889 Boe per day and Delaware Basin production averaged 7,172 Boe per day.

Average realized crude oil price excluding derivative settlements declined to $55.27 per barrel from $61.84. Natural gas and NGL pricing declined to $2.64 per Mcf from $3.88. Including derivative settlements, realized crude oil price was $55.89 per barrel in 2019 versus $52.65 in 2018.

Operating expenses were $1.913 billion, including $787.2 million of depreciation, depletion and amortization, $143.5 million of general and administrative expense, $128.8 million of marketing, transportation and gathering expense, and $10.3 million of impairment. Operating margin was approximately 7.5% of revenue versus 5.1% in 2018; however, the company remained unprofitable after interest and derivative losses.

Cash flow, liquidity and debt

Cash and cash equivalents were $20.0 million at December 31, 2019, compared with $22.2 million at year-end 2018.
Reported available liquidity was $882.7 million, consisting of cash and $862.7 million of unused borrowing capacity under the revolving credit facilities.
Working capital was negative $165.5 million, compared with negative $57.6 million in 2018, primarily due to derivative liabilities and working-capital movements.
Net cash used in investing activities was $828.8 million, including $869.2 million of capital expenditures, $21.0 million of acquisitions, $42.4 million of property-sale proceeds and $19.1 million of derivative settlements received.
Total capital expenditures, including acquisitions, were $843.4 million, down from $2.204 billion in 2018. Excluding acquisitions, capital expenditures were $822.4 million.
Long-term debt carrying value was $2.712 billion. Principal debt included $337.0 million under the Oasis Credit Facility, $458.5 million under the OMP Credit Facility and $1.983 billion of senior unsecured notes, including convertible notes.
The Oasis Credit Facility borrowing base was reduced from $1.600 billion to $1.300 billion in November 2019, and the elected commitment was reduced to $1.100 billion. The company had $747.9 million of unused capacity under that facility.
OMP had $114.8 million of unused capacity under its $575.0 million credit facility. The company and OMP reported compliance with applicable financial covenants at year-end.

Material changes versus the prior comparable period

Production increased approximately 7%, driven primarily by new wells and higher natural gas volumes, while crude oil production declined modestly.
Oil and gas revenue fell 11% because of lower realized commodity prices and lower crude oil volumes, partly offset by higher natural gas production.
Midstream revenue rose substantially following increased third-party natural gas purchases and the start-up of a second Wild Basin processing plant in late 2018.
Capital spending declined sharply as management reduced drilling and completion activity in response to lower commodity prices. Completed operated wells declined in the Williston Basin but increased in the Delaware Basin.
The company recorded a $106.3 million net loss on derivative instruments, compared with a $28.5 million gain in 2018. Cash derivative settlements were positive $19.1 million in 2019 versus negative $213.5 million in 2018.
Interest expense increased to $176.2 million from $159.1 million, primarily because of higher OMP borrowings and lower capitalized interest.
Proved reserves declined 11% to 286.4 MMBoe from 320.5 MMBoe. The decline included 63.3 MMBoe of net negative revisions, largely related to well performance, lower realized prices and changes to the five-year development plan.
PV-10 declined 37% to $2.934 billion from $4.674 billion, principally because of lower commodity-price assumptions and lower reserves.
The company recorded a $20.0 million accrual for pending legal proceedings and a $4.4 million impairment related to well-services assets held for sale. No impairment of proved oil and gas properties was recorded in 2019, compared with a $383.4 million proved-property impairment in 2018.

Guidance, outlook and management commentary

Management planned 2020 total capital expenditures of approximately $685 million to $715 million, including $575 million to $595 million for E&P and other capital and $110 million to $120 million for midstream capital.
The 2020 plan contemplated approximately 45 to 55 gross operated wells in the Williston Basin and 20 to 25 gross operated wells in the Delaware Basin. Management retained discretion to adjust activity for commodity prices, drilling results, financing and other market conditions.
Management stated that cash on hand, operating cash flow, derivative settlements and revolver availability should fund the 2020 plan and near-term obligations, but acknowledged dependence on commodity prices, borrowing-base redeterminations and capital-market access.
Oasis intended to transition hydraulic-fracturing services from its well-services subsidiary to a third-party provider under a long-term agreement in March 2020 and to exit the well-services segment.
The company captured approximately 94% of North Dakota natural gas production at year-end 2019, above the then-current statewide target, but warned that future compliance could require production restrictions or incur penalties.
Williston Basin crude differentials widened to more than $3.50 per barrel below NYMEX WTI in the fourth quarter of 2019 as takeaway capacity tightened. Management expected additional transportation capacity in mid-2020 to improve differentials.
Management disclosed material impairment sensitivity: based on its analysis, an approximately 2% decline in expected future commodity prices could cause the Williston Basin proved-property cash-flow test to fail, while an approximately 20% decline could cause the Delaware Basin test to fail. Potential impairment charges could exceed $2 billion for the Williston Basin and $455 million for the Delaware Basin under the stated assumptions.

Risks, contingencies and unusual items

Commodity-price volatility, lower production or drilling results could reduce cash flow, reserves, borrowing capacity and the ability to fund development.
Debt agreements contain restrictive covenants, including interest-coverage, current-ratio and potential leverage-ratio requirements. Borrowing bases are subject to redetermination and are secured by substantially all of the company’s oil and gas assets.
Oasis had $3.950 billion of disclosed contractual cash obligations, including debt principal and interest, leases, asset-retirement obligations and volume commitments.
Mirada litigation sought more than $200 million in damages and declaratory relief concerning Wild Basin operating and midstream rights. Trial was scheduled for May 2020. The company accrued $20.0 million but could not predict the outcome and agreed to indemnify OMP for certain losses.
A separate Solomon litigation alleged wage-and-hour violations and could potentially proceed as a collective or class action; no class-certification motion had been filed as of the filing date.
Transportation constraints, rail-safety regulation, pipeline regulation, hydraulic-fracturing restrictions, environmental liabilities, induced seismicity, climate-related regulation, water availability and cybersecurity were identified as material risks.
The company had approximately $18.6 million of net derivative liability at December 31, 2019 and derivatives covering 16.6 million barrels of crude oil for 2020 and 2021. A 10% increase in crude oil prices would reduce the derivative portfolio’s fair value by approximately $71.4 million, while a 10% decrease would increase it by approximately $62.6 million.

Investor verification checklist

Registrant identity: Verify whether the intended issuer is Oasis Petroleum or Chord Energy; the supplied filing is for Oasis Petroleum and does not mention Chord Energy as the registrant.
Debt maturities and refinancing: Confirm the company’s ability to address the $962.8 million of senior-note principal due within one to three years and the linked revolver maturity provisions.
Borrowing-base redetermination: Review the April 2020 Oasis Credit Facility redetermination and any impact on liquidity or required repayments.
Reserve quality: Reconcile the 2019 negative reserve revisions, higher decline rates and sensitivity of proved-property impairment tests to commodity prices.
Free cash flow: Distinguish positive operating cash flow from the company-defined negative free cash flow after capital expenditures, interest and acquisitions.
Legal exposure: Monitor the Mirada and Solomon matters, the $20.0 million accrual and any subsequent settlements, judgments or operating restrictions.
2020 execution: Compare actual drilling, production, capital spending, well-services exit costs and midstream investment with the stated 2020 plan.
Commodity and basis risk: Verify hedge volumes, realized prices, transportation capacity and basin differentials, particularly in the Williston Basin.