Filing and business context
The supplied filing is Oasis Petroleum Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2020, not a Chord Energy Corp. filing. Oasis was an independent U.S. exploration and production company with assets in the Williston and Delaware Basins and a midstream business through Oasis Midstream Partners. The filing was signed August 5, 2020.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $166.4 million | $529.4 million | $554.2 million | $1.105 billion |
| Operating income (loss) | $(11.2) million | $71.6 million | $(4.874) billion | $122.0 million |
| Net income (loss) attributable to Oasis | $(92.9) million | $42.8 million | $(4.404) billion | $(72.1) million |
| Diluted EPS | $(0.29) | $0.14 | $(13.90) | $(0.23) |
| Net cash from operating activities | $(47.9) million | $214.0 million | $59.9 million | $388.9 million |
| Adjusted EBITDA | $174.2 million | $249.6 million | $341.2 million | $519.0 million |
Q2 operating margin was approximately negative 6.7%, versus 13.5% in the prior-year quarter. Net margin was approximately negative 55.9%, versus 8.1%. The six-month margins were heavily distorted by impairment charges.
- Average production was 54,111 Boepd in Q2, down 36% from 84,454 Boepd, with 67% oil. Six-month production averaged 67,088 Boepd, down from 88,064 Boepd.
- Q2 crude oil revenue was $81.1 million, down from $328.0 million. Crude oil realized price excluding derivatives fell to $24.45 per barrel from $58.87.
- Q2 natural gas and NGL revenue was $12.8 million, down from $29.0 million; realized price declined to $1.32 per Mcf from $2.29.
- Q2 midstream revenue was $34.8 million, down from $51.6 million. Midstream remained profitable, generating $30.6 million of operating income.
- Six-month impairment expense was $4.826 billion, including $4.4 billion on proved oil and gas properties, $292.1 million on unproved properties and $108.3 million on midstream assets.
- Cash and cash equivalents were $77.4 million at June 30, 2020, compared with $20.0 million at December 31, 2019. Working capital surplus was $57.5 million.
- Total long-term debt was $2.762 billion, including $502.0 million under the Oasis Credit Facility and $487.5 million under the OMP Credit Facility.
- Reported liquidity was $203.8 million, consisting of cash and $126.4 million of unused borrowing capacity. The Oasis facility had only $38.9 million of unused capacity after borrowings and letters of credit.
Material changes versus prior comparable periods
- Revenue fell 69% in Q2 and 50% for the first six months, driven by lower commodity prices, reduced production and well shut-ins.
- Production declined primarily in the Williston Basin, while Delaware Basin production increased year over year.
- Oasis suspended drilling and completion operations in the second quarter, reduced its workforce by 39% year over year to 453 employees, and exited the well services business.
- Six-month operating results included the $4.826 billion impairment charge, reducing total assets to $2.626 billion from $7.499 billion and producing a stockholders’ deficit of $589.9 million.
- Derivative results shifted from a $34.7 million Q2 2019 gain to a $37.2 million Q2 2020 loss, although six-month 2020 derivative results included a $248.1 million net gain and $144.1 million of cash settlements.
- Interest expense rose to $140.1 million for the first six months from $87.7 million, partly because of additional interest charges under credit-facility waivers.
- Oasis repurchased $156.8 million principal amount of notes for $68.0 million and recorded an $83.9 million gain on extinguishment of debt.
Guidance, outlook, risks and unusual items
- Management reduced the 2020 capital expenditure plan by approximately 58% to $284 million-$303 million, including $248 million-$263 million for E&P and other expenditures and $36 million-$40 million for midstream.
- Management expected production to increase from the Q2 level as some shut-in wells resumed, but indicated that activity would remain dependent on commodity prices, financing and market conditions.
- The filing states that current commodity prices create substantial doubt about the company’s ability to continue as a going concern. Management expected it would be unable to comply with Oasis Credit Facility covenants within the next twelve months.
- A covenant breach could trigger an event of default, acceleration of secured debt and possible liquidation of collateral, potentially resulting in defaults or acceleration under the senior notes.
- Management was evaluating refinancing, asset sales, cost reductions, a recapitalization, an out-of-court debt restructuring and a possible Chapter 11 restructuring. No assurance was given that these actions would succeed.
- The April 2020 credit amendment reduced the Oasis borrowing base from $1.3 billion to $625.0 million, with further reductions to $612.5 million effective June 1 and $600.0 million effective July 1.
- COVID-19, oversupply, weak demand, actions by OPEC and non-OPEC producers, transportation constraints and potential Dakota Access Pipeline disruptions were identified as material risks.
- Outstanding off-balance-sheet items included $71.6 million of letters of credit and $15.7 million of net surety bond exposure. A $20 million legal accrual was recorded.
- Mirada litigation sought more than $200 million and could affect Wild Basin operations and midstream economics; trial was scheduled for October 2020. A separate wage-and-hour lawsuit could potentially proceed as a collective or class action, although no class-certification motion had been filed.
Important facts for an investor to verify
- Confirm the issuer identity: the source filing is Oasis Petroleum Inc. and does not correspond to Chord Energy Corp.
- Review subsequent filings for covenant compliance, borrowing-base redeterminations, waivers, debt restructuring, recapitalization or bankruptcy developments.
- Assess whether reported liquidity was sufficient after mandatory cash sweeps, letters of credit, accrued interest, operating needs and potential covenant-related restrictions.
- Reconcile non-GAAP Adjusted EBITDA and E&P Free Cash Flow with GAAP cash flow, particularly because Q2 operating cash flow was negative despite $174.2 million of Adjusted EBITDA.
- Monitor commodity prices, derivative settlements, hedge coverage, production recovery and transportation access, including Dakota Access Pipeline developments.
- Evaluate the assumptions supporting the $4.4 billion proved-property impairment and the resulting reduction in proved undeveloped reserves.