Chord Energy Corp quarterly report, Q2 FY2018

Business Context and Reporting Period

The supplied filing is Oasis Petroleum Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2018, not a filing identified as Chord Energy Corp. Oasis was an independent U.S. exploration and production company operating primarily in the Williston Basin, with midstream and well-services segments. The company entered the Delaware Basin through its February 2018 acquisition of approximately 22,000 net acres from Forge Energy.

Results are presented for the three and six months ended June 30, 2018, compared with the corresponding 2017 periods. The filing was signed August 7, 2018.

Key Financial Metrics

Metric	Three months ended June 30, 2018	Three months ended June 30, 2017	Six months ended June 30, 2018	Six months ended June 30, 2017
Total revenue	$501.3 million	$254.1 million	$922.6 million	$539.2 million
Operating income (loss)	$(242.7) million	$5.4 million	$(129.7) million	$25.5 million
Net income (loss) attributable to Oasis	$(320.2) million	$16.6 million	$(319.6) million	$40.4 million
Diluted earnings (loss) per share	$(1.02)	$0.07	$(1.06)	$0.17
Net cash provided by operating activities	$303.7 million	$102.1 million	$532.0 million	$209.9 million
Adjusted EBITDA	$241.2 million	$141.3 million	$474.1 million	$291.9 million
Free cash flow	$(158.7) million	$(64.3) million	$(1.13) billion	$(55.8) million

Revenue increased 97% year over year in the second quarter and 71% in the first six months. Growth reflected higher commodity prices, increased production, the Delaware Basin acquisition, and higher purchased oil and gas, midstream and well-services activity.
Operating margins were approximately negative 48% in the second quarter and negative 14% for the first six months, versus positive approximately 2% and 5%, respectively, in the prior-year periods. The deterioration was primarily caused by a $383.4 million impairment charge related to assets held for sale.
Oil and gas production averaged 79,437 Boepd in the second quarter and 78,135 Boepd for the first six months, up from 61,943 and 62,564 Boepd, respectively.
Average oil price before derivative settlements was $65.47 per barrel in the second quarter and $63.38 for the first six months, compared with $44.61 and $45.83 in the prior-year periods.
Cash and cash equivalents were $17.1 million at June 30, 2018, compared with $16.7 million at December 31, 2017. Working capital was negative $407.6 million.
Available liquidity was approximately $737.1 million, consisting of cash and $720.0 million of unused borrowing capacity under the revolving credit facilities.
Total long-term debt was $2.76 billion at June 30, 2018, up from $2.10 billion at year-end 2017. Revolver borrowings were $651.0 million under the Oasis facility and $165.0 million under the OMP facility.
The company reported a net derivative liability of $229.8 million. Six-month derivative losses were $191.4 million, including $96.8 million of cash settlements, compared with a $106.6 million gain in the prior-year period.

Material Changes Versus the Prior Comparable Period

Oil and gas revenue increased 81% in the second quarter and 67% for the first six months, driven by both higher realized prices and higher production volumes.
The Permian Basin Acquisition added $20.0 million of second-quarter revenue and $6.8 million of second-quarter operating income; for the six-month period it contributed $31.6 million of revenue and $10.2 million of operating income.
Production increased approximately 28% in the second quarter and 25% for the first six months.
Lease operating expense per Boe improved to $6.11 in the second quarter and $6.29 for the first six months, from $7.92 and $7.82, respectively.
Marketing, transportation and gathering expense per Boe increased to $3.16 in the second quarter and $3.10 for the first six months, reflecting higher transportation and gathering volumes.
General and administrative expense increased to $28.2 million in the second quarter and $56.2 million for the first six months, principally because of acquisition-related costs and organizational growth.
The company issued $400.0 million of 6.25% senior unsecured notes due 2026 and repurchased or redeemed approximately $413.5 million principal amount of older notes. The transactions resulted in a $13.7 million pretax loss on extinguishment of debt and eliminated the remaining 2019 notes.
Capital expenditures and acquisitions substantially increased. Six-month cash investing outflows were $1.16 billion, including $537.0 million of capital expenditures and $524.3 million of acquisitions, compared with $259.1 million in the prior-year period.

Guidance, Outlook, Risks and Unusual Items

Management expected 2018 capital expenditures of approximately $1.23 billion to $1.275 billion, including $900 million to $930 million for exploration and production, $290 million to $305 million for infrastructure and midstream, and approximately $40 million for other capital expenditures.
Management stated that cash on hand, operating cash flow and revolver availability should be sufficient to fund the 2018 capital plan and obligations, but noted that additional capital would be required to develop the company’s broader drilling inventory.
The company was in compliance with the Oasis and OMP credit-facility covenants at June 30, 2018 and did not anticipate a covenant violation in the next twelve months. The Oasis borrowing base was scheduled for redetermination on October 1, 2018.
The company entered agreements to sell non-core Williston Basin assets for total proceeds of $282.5 million as of June 30, 2018. Subsequent initial closings produced a $33.2 million gain on one transaction. An additional $55.0 million asset sale agreement was signed in July 2018.
The $383.4 million Foreman Butte impairment was an unusual and material item, based on expected sales proceeds less costs to sell. It materially reduced GAAP earnings and operating income.
Commodity prices, production levels, transportation capacity, service costs, capital-market access, interest rates and derivative positions remain significant risks. A 10% increase in crude oil prices was estimated to reduce derivative fair value by approximately $109.3 million; a 10% decrease was estimated to increase fair value by approximately $105.0 million.
Mirada litigation seeks damages exceeding $100 million and other relief relating to Wild Basin operating and midstream rights. Trial was scheduled for May 2019. Management considered the claims without merit, but stated that an adverse outcome or significant settlement could materially affect operations, financial condition and cash flows; the company also agreed to indemnify OMP for related losses.
The company had minimum volume commitments requiring delivery or transportation of specified quantities of crude oil, NGLs, natural gas, freshwater and produced water. Estimable future commitments totaled approximately $526.6 million.

Important Facts for Investors to Verify

Issuer identity: Confirm whether the requested company should be Oasis Petroleum Inc.; the supplied filing does not identify Chord Energy Corp.
Acquisition economics: Verify the final purchase-price allocation and post-acquisition production, operating income and development requirements for the Delaware Basin assets.
Asset sales: Verify closing adjustments, final proceeds and gains or losses for the Williston divestitures, including the Foreman Butte transaction.
Liquidity and leverage: Reconcile debt balances, borrowing-base availability, covenant calculations and the October 2018 borrowing-base redetermination.
Hedge exposure: Review derivative volumes, settlement prices, future cash obligations and the sensitivity of earnings and cash flow to commodity prices.
Free cash flow: Assess whether operating cash flow can fund the capital plan without additional borrowing, equity issuance or asset monetizations.
Litigation and contingencies: Monitor the Mirada litigation, environmental obligations and minimum-volume commitments for potential material cash impacts.