Business Context and Reporting Period
The filing is a Form 10-Q for the quarter ended March 31, 2013, filed May 8, 2013. The filing identifies the registrant as Oasis Petroleum Inc., not Chord Energy Corp.; investors should verify the requested company and filing identity. Oasis was an independent exploration and production company focused on unconventional oil and natural gas resources in the Williston Basin, with complementary well services, marketing and midstream businesses.
The interim financial statements are unaudited and should be read with the 2012 Form 10-K. The company completed 31 gross operated wells during the quarter, reported average production of 30,153 Boe per day, and transferred salt water disposal assets to newly formed Oasis Midstream Services.
Key Financial Metrics
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $248.3 million | $138.6 million | +$109.7 million, or 79% |
| Oil and gas revenue | $241.7 million | $137.9 million | +$103.7 million |
| Operating income | $118.0 million | $58.2 million | +$59.8 million, or 103% |
| Operating margin | 47.5% | 42.0% | Improved |
| Net income | $51.9 million | $16.4 million | +$35.4 million, or 215% |
| Net margin | 20.9% | 11.9% | Improved |
| Basic and diluted EPS | $0.56 | $0.18 | +$0.38 |
| Cash flow from operations | $170.5 million | $62.8 million | +$107.8 million |
| Capital expenditures, cash basis | $217.7 million | $270.0 million | -$52.2 million |
| Free cash flow before other investing items | Approximately $(47.1) million | Approximately $(207.2) million | Improved |
Oil production increased to 2.482 million barrels from 1.474 million barrels, while natural gas production increased to 1.388 Bcf from 0.785 Bcf. Average oil sales price excluding realized derivatives rose to $93.33 per barrel from $88.10; realized oil price including derivatives was $94.01 per barrel.
At March 31, 2013, cash and cash equivalents were $166.0 million, short-term investments were $25.9 million, and working capital was approximately $83.6 million. Current assets and current liabilities were $440.5 million and $356.9 million, respectively, implying a current ratio of approximately 1.23. Total assets were $2.647 billion and stockholders’ equity was $849.1 million.
Long-term debt was $1.200 billion, consisting of senior unsecured notes with maturities in 2019, 2021 and 2023. Net debt after cash and short-term investments was approximately $1.008 billion. The notes had a carrying value of $1.200 billion and a reported fair value of $1.310 billion. The company had no revolver borrowings and $2.2 million of letters of credit outstanding.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by a 71% increase in average daily production, higher oil prices, and increased well services activity.
- Operating income more than doubled despite higher lease operating costs, production taxes and depreciation, depletion and amortization.
- DD&A increased to $66.3 million from $38.9 million as production and the producing asset base expanded.
- Net derivative loss declined to $14.6 million from $18.6 million. Q1 2013 included a $16.3 million non-cash unrealized loss and a $1.7 million realized gain, compared with a $31.2 million unrealized gain and a $1.3 million realized loss in Q1 2012.
- Interest expense increased to $21.2 million from $13.9 million, primarily because of the additional 6.875% senior notes issued in July 2012.
- General and administrative expense increased to $13.9 million from $12.2 million, reflecting organizational growth and higher employee compensation. Full-time employees increased to 294 from 176.
- Cash flow from operations increased substantially, while capital expenditures declined from the prior-year quarter. Nonetheless, operating cash flow did not fully fund cash capital expenditures.
- Net derivative assets declined to $6.3 million from $22.6 million at December 31, 2012.
Guidance, Outlook, Risks and Unusual Items
Management disclosed a 2013 capital expenditure budget of approximately $1.020 billion, including $897 million for drilling and completion, $43 million for infrastructure, $25 million for leasehold, $10 million for seismic and testing, $21 million for other E&P projects, $14 million for well services and $10 million for other non-E&P capital. The budget remained subject to market conditions, drilling results, financing availability, commodity prices and other operating factors.
Management stated that cash on hand, operating cash flow, senior note proceeds and revolver availability were expected to fund the 2013 budget. On April 5, 2013, after the reporting date, the borrowing base increased from $750 million to $1.250 billion, lender commitments increased to $900 million, and the overall credit facility increased from $1.0 billion to $2.5 billion.
Key risks include volatile oil and natural gas prices, production and reserve uncertainty, transportation and takeaway capacity, service costs and availability, qualified personnel, access to capital, drilling and completion performance, environmental and regulatory matters, litigation, derivative counterparty exposure and customer credit risk. The company’s properties were geographically concentrated in the Williston Basin.
The company used collars, swaps and put spreads covering a significant portion of expected oil production. These instruments reduce downside exposure but may limit gains from higher oil prices. The filing reported $37.2 million of potential early termination obligations under drilling contracts and approximately $62.1 million of future obligations under minimum-volume agreements. Lease commitments totaled $12.9 million. Management stated that ordinary-course legal proceedings were not expected to be material.
There were no material changes to previously disclosed risk factors, critical accounting policies or internal control over financial reporting. Disclosure controls were determined to be effective as of March 31, 2013.
Investor Verification Checklist
- Verify whether this Oasis Petroleum filing is the intended document for Chord Energy Corp.; the source text does not identify Chord Energy.
- Confirm production growth, realized oil prices, regional price differentials and the sustainability of the 30,153 Boe-per-day production rate.
- Reconcile the approximately $1.020 billion 2013 capital budget with operating cash flow, cash balances and planned borrowing capacity.
- Review the April 5, 2013 credit facility amendment, including borrowing-base terms, lender commitments, covenants and collateral requirements.
- Assess the $1.2 billion fixed-rate debt burden, upcoming maturities, interest expense and the fair-value premium over carrying value.
- Evaluate the volume, strike prices and potential earnings and cash-flow effects of the oil derivative portfolio.
- Monitor drilling contract termination obligations, minimum-volume commitments, asset retirement obligations and environmental or regulatory contingencies.