Filing Summary
Filing identity: The supplied filing is Oasis Petroleum Inc.’s Form 10-K for the fiscal year ended December 31, 2017, not a Chord Energy Corp. filing. The request metadata identifies Chord Energy and “2017 Q4”; investors should verify the issuer and period before relying on this summary. The filing reports full-year 2017 results and includes fourth-quarter data.
Business Context and Reporting Period
Oasis was an independent U.S. exploration and production company focused primarily on unconventional oil and natural gas resources in the Williston Basin, together with midstream services through Oasis Midstream Partners and well services through Oasis Well Services. At December 31, 2017, the company held 502,660 net Williston Basin leasehold acres, approximately 95% held by production, and had 1,570 gross producing wells.
Oasis completed 88 gross operated wells in the Williston Basin during 2017 and reported average production of 66,144 Boe per day. The company entered the Delaware Basin through an acquisition that closed on February 14, 2018, after year-end.
Financial and Operating Metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Total revenue | $1,248.4 million | $704.7 million | Up 77% |
| Oil and gas revenue | $1,034.9 million | $625.2 million | Up 66% |
| Operating income | $144.0 million | $(130.8) million | Improved |
| Net income attributable to Oasis | $123.8 million | $(243.0) million | Returned to profit |
| Basic earnings per share | $0.53 | $(1.32) | Improved |
| Net cash from operations | $507.9 million | $228.0 million | Up 123% |
| Total capital expenditures | $836.2 million | $1,181.5 million | Down 29% |
| Capital expenditures excluding acquisitions | $782.2 million | $400.0 million | Up 96% |
| Adjusted EBITDA | $707.7 million | $500.3 million | Up 41% |
| Free cash flow | $(262.3) million | $(809.1) million | Improved, still negative |
Production increased to 24.1 million Boe from 18.4 million Boe. Average oil sales price before derivative settlements increased to $48.52 per barrel from $38.64, while natural gas pricing increased to $3.81 per Mcf from $1.99. Lease operating expense was $7.34 per Boe, broadly stable with $7.35 in 2016; DD&A declined to $21.99 per Boe from $25.84.
The company reported a pretax loss of $75.9 million but net income of $127.4 million including non-controlling interests, primarily because of a $203.3 million tax benefit. The 2017 tax benefit included a $171.9 million provisional benefit from remeasuring deferred tax liabilities following the Tax Cuts and Jobs Act. Accordingly, reported net income was materially affected by a nonrecurring tax-related item.
At December 31, 2017, cash and cash equivalents were $16.7 million, working capital was negative $215.6 million, and total assets were $6.6 billion. Long-term debt was $2.10 billion on the balance sheet, including $2.053 billion of senior unsecured notes at principal amount, $70.0 million drawn under the Oasis Credit Facility and $78.0 million drawn under the OMP Credit Facility.
Material Changes Versus the Prior Comparable Period
- Revenue and production increased substantially, driven by the December 2016 Williston Basin acquisition, higher commodity prices and increased drilling and completion activity.
- Operating results improved from a 2016 operating loss of $130.8 million to 2017 operating income of $144.0 million.
- Operating cash flow more than doubled, but capital spending excluding acquisitions increased sharply, leaving free cash flow negative.
- Midstream revenue increased to $72.8 million from $35.4 million, supported by new gas processing and oil gathering infrastructure.
- Well services revenue increased to $52.8 million from $33.8 million after adding a second fracturing fleet.
- The company completed the initial public offering of Oasis Midstream Partners, receiving $132.1 million of IPO proceeds distributed to Oasis and retaining a majority interest.
- Proved reserves increased 2% to 312.2 MMBoe from 305.1 MMBoe. However, the company recorded a net negative reserve revision of 19.2 MMBoe, including negative performance revisions associated with higher-than-anticipated decline rates in recently developed spacing units.
- The company issued 32 million common shares in December 2017 and received net proceeds of $302.6 million, initially used to repay borrowings and intended to fund the Delaware Basin acquisition.
Guidance, Outlook, Risks and Unusual Items
Management planned 2018 capital expenditures of approximately $1.09 billion to $1.17 billion, including $815 million to $855 million for E&P, $235 million to $275 million for midstream and approximately $40 million for other capital. The plan contemplated 100 to 110 gross operated Williston Basin wells and six to eight gross operated Delaware Basin wells. Management stated that spending could change materially with commodity prices, drilling results, service availability and acquisitions.
The company reported $1.208 billion of liquidity at December 31, 2017, consisting of $16.7 million of cash and $1.192 billion of unused committed capacity under its revolving facilities. The Oasis Credit Facility had a $1.6 billion borrowing base and $1.15 billion elected commitment at year-end; a February 2018 amendment increased the elected commitment to $1.35 billion. The company stated that it was in compliance with its debt covenants.
- Commodity price volatility remains the primary financial risk. The company had a net derivative liability of approximately $135.6 million at year-end and recorded a $71.7 million net derivative loss in 2017.
- Debt maturities include $54.3 million of notes due in 2019, $395.5 million due in 2021, $937.1 million due in 2022 and $666.1 million of notes due in 2023, including convertible notes.
- The Delaware Basin acquisition involved approximately $549.8 million of cash and 46 million Oasis shares, increasing leverage and share count after year-end. The company’s reserve and purchase-price accounting was not finalized at the filing date.
- The company was party to Mirada litigation seeking more than $100 million and various operating and midstream rights in the Wild Basin area. Management considered the claims without merit, but stated that an adverse outcome could materially affect operations, cash flows and midstream interests. Oasis also agreed to indemnify OMP for related losses.
- A continuous development agreement related to the Delaware Basin acquisition could require non-performance fees of up to approximately $100 million if specified drilling obligations are not met.
- Environmental, hydraulic fracturing, pipeline safety, gas flaring, induced seismicity, climate-related regulation, transportation capacity and rail transportation risks could increase costs or restrict operations.
- The company’s gas capture rate in North Dakota was approximately 86% at year-end, compared with applicable regulatory targets that increase over time.
- The company recorded $6.9 million of impairment, principally related to unproved acreage and expiring leases, but no impairment of proved oil and gas properties in 2017.
Most Important Facts to Verify
- Confirm that Oasis Petroleum Inc., rather than Chord Energy Corp., is the intended issuer and that the desired period is fiscal year 2017 rather than a standalone fourth quarter.
- Reconcile reported 2017 net income with the $171.9 million provisional tax benefit and the $75.9 million pretax loss.
- Assess whether the negative reserve revisions and higher decline rates affect future production, reserve life and impairment risk.
- Review funding and leverage following the February 2018 Delaware Basin acquisition, including the $502.0 million post-year-end borrowing and 46 million shares issued.
- Evaluate the ability to fund the $1.09 billion to $1.17 billion 2018 capital plan while free cash flow remains negative.
- Review the 2019 note maturity, borrowing-base redeterminations, covenant headroom and derivative obligations.
- Monitor the Mirada litigation, the Delaware Basin continuous development obligations and any related indemnification exposure to OMP.