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, 2017, not a filing under the name 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 midstream and well services businesses.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 |
|---|---|---|
| Total revenue | $254.1 million | $539.2 million |
| Operating income | $5.4 million | $25.5 million |
| Net income | $16.6 million | $40.4 million |
| Diluted earnings per share | $0.07 | $0.17 |
| Net cash from operating activities | $102.1 million | $209.9 million |
| Adjusted EBITDA | $141.3 million | $291.9 million |
| Free cash flow | $(64.3) million | $(55.8) million |
Revenue increased 41.9% year over year in the second quarter and 74.3% for the six-month period. Approximate operating margins were 2.1% for the quarter and 4.7% year to date; net margins were 6.5% and 7.5%, respectively. Production averaged 61,943 Boe per day in the quarter and 62,564 Boe per day for the six months.
- Cash and cash equivalents were $11.4 million at June 30, 2017.
- Total liquidity was $733.4 million, including $722.0 million of unused committed capacity under the revolving credit facility.
- Long-term debt was $2.36 billion, including $418.0 million drawn under the revolving credit facility and $2.05 billion of senior unsecured notes at principal value.
- The company reported a $50.5 million second-quarter and $106.6 million year-to-date net gain on derivatives; these gains are subject to commodity-price-driven fair-value changes.
- Total assets were $6.26 billion and stockholders’ equity was $2.98 billion at quarter-end.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue rose $75.0 million, driven by higher production, improved oil and natural gas sales prices, $8.1 million of bulk oil sales, and increased midstream revenue.
- Six-month revenue rose $229.8 million. Oil and gas revenue increased 65% to $455.9 million, reflecting both higher prices and production.
- Second-quarter net income improved from a $89.9 million loss to $16.6 million of income; six-month net income improved from a $154.4 million loss to $40.4 million of income.
- Operating income improved from a $28.2 million loss to $5.4 million in the quarter and from a $103.4 million loss to $25.5 million year to date.
- Operating cash flow increased from $91.4 million to $209.9 million for the six-month period, while investing cash use increased to $259.1 million, primarily due to capital expenditures.
- Capital expenditures were $173.0 million in the second quarter and $282.8 million year to date, compared with $131.3 million and $219.2 million, respectively, on the company’s non-GAAP presentation.
- Lease operating expense increased to $7.92 per Boe in the quarter from $7.00 and to $7.82 per Boe year to date from $6.89. DD&A expense declined to $22.23 per Boe in the quarter from $27.19 and to $22.25 year to date from $26.96.
- The company had no debt repurchases in 2017 through June 30, compared with senior note repurchases and related extinguishment gains in 2016.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Management disclosed a 2017 capital expenditure budget of $605.0 million, including $410.0 million for drilling and completion, $110.0 million for midstream infrastructure, and $85.0 million for other capital expenditures. Spending may vary with commodity prices, financing, drilling results, service costs, acquisitions, and other conditions.
- Management stated that cash on hand, operating cash flow, and revolving-facility availability should be sufficient to fund the 2017 budget and future obligations, but additional capital would be required to develop the broader drilling inventory.
- The company completed 15 gross, or 10.8 net, operated wells in the second quarter and ended the period with 81 gross operated wells awaiting completion.
- Commodity-price risk remained significant. The company used swaps and two-way and three-way collars covering portions of expected oil and natural gas production. A 10% increase in crude oil prices was estimated to reduce derivative fair value by approximately $53.3 million, while a 10% decrease was estimated to increase fair value by approximately $54.7 million.
- The revolving facility had a $1.15 billion elected commitment, a $2.50 billion overall line, a maturity date of April 2020 subject to the 2019 notes condition, and financial covenants with which the company was compliant at June 30, 2017. The reported EBITDAX-to-interest ratio was 3.8 versus a 2.5 minimum.
- Mirada litigation seeks more than $100 million in damages and other relief related to Wild Basin operating and midstream rights. The company disputes the claims, but an adverse result or material settlement could affect operations, financial results, Wild Basin development, and midstream interests. Trial was scheduled for July 2018.
- The company recorded $3.2 million of second-quarter and $5.9 million of year-to-date impairment expense related to unproved acreage expected to expire without drilling or lease extensions.
- The company completed a $12.7 million acquisition of midstream assets in April 2017, including $4.9 million of installment notes payable.
- Management identified oil and gas prices, transportation capacity, service availability, qualified personnel, reserve estimates, environmental matters, regulation, counterparty credit, and access to capital as principal risks. No material changes to previously disclosed risk factors were reported.
Important Facts for Investors to Verify
- Confirm the issuer identity: the provided filing is for Oasis Petroleum Inc., whereas the request identifies Chord Energy Corp.
- Reconcile the strong reported earnings and Adjusted EBITDA with negative free cash flow after capital expenditures.
- Review the maturity and refinancing requirements for the $54.3 million of 2019 notes and the company’s total debt burden.
- Assess sensitivity to oil prices, including the effect of derivative collars and swaps on realized prices and future cash flow.
- Monitor the October 2017 borrowing-base redetermination and compliance with revolving-facility covenants.
- Evaluate the potential financial and operational consequences of the Mirada litigation.
- Verify production growth, well completions, the 2017 capital program, and the contribution from the December 2016 Williston Basin acquisition.