Oasis Petroleum Inc. Form 10-K Summary
Filing identity: The supplied filing is for Oasis Petroleum Inc., not Chord Energy Corp. It covers the fiscal year ended December 31, 2016; quarterly data includes the fourth quarter of 2016.
Business context and reporting period
Oasis was an independent exploration and production company focused on unconventional oil and natural gas resources in the North Dakota and Montana regions of the Williston Basin, primarily the Bakken and Three Forks formations. It also operated midstream and well-services businesses. Average production was 50,372 Boe per day, and the company completed 57 gross operated wells during 2016.
At December 31, 2016, Oasis held 517,801 net leasehold acres, approximately 94% of which was held by production. Proved reserves were 305.1 MMBoe, 78% oil and 62% proved developed.
Key financial metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Total revenue | $704.7 million | $789.7 million | Down 11% |
| Oil and gas revenue | $635.5 million | $721.7 million | Down 12% |
| Operating income/(loss) | $(130.8) million | $(114.2) million | Lower loss modestly |
| Net income/(loss) | $(243.0) million | $(40.2) million | Loss increased |
| Diluted EPS | $(1.32) | $(0.31) | Worsened |
| Cash flow from operations | $228.0 million | $359.8 million | Down 37% |
| Capital expenditures, including acquisitions | $1.18 billion | $610.0 million | Up 94% |
| Adjusted EBITDA | $500.3 million | $820.2 million | Down 39% |
| Free cash flow | $(809.1) million | $67.8 million | Significantly lower |
Derived margins were approximately negative 18.6% at the operating level and negative 34.5% at the net-income level. Lease operating expense improved to $7.35 per Boe from $7.84 per Boe, while DD&A was $25.84 per Boe.
Average oil sales price excluding derivative settlements declined to $38.64 per barrel from $43.04. Including derivative settlements, the realized oil price was $46.68 per barrel versus $66.06 in 2015. Natural gas pricing declined to $1.99 per Mcf from $2.08.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $11.2 million at year-end.
- Total available liquidity was $785.9 million, comprising cash and $774.7 million of unused borrowing-base capacity.
- Revolving credit borrowings were $363.0 million, with $12.3 million of letters of credit outstanding. The borrowing base and elected commitment were $1.15 billion.
- Long-term debt was $2.30 billion, including $2.053 billion of senior unsecured notes and the revolver balance.
- The company issued $300.0 million of 2.625% convertible notes due 2023 and repurchased $447.0 million principal amount of senior notes.
- Working capital was negative $142.6 million, although management stated that liquidity was adequate for near-term requirements.
- The company was in compliance with debt covenants. Consolidated EBITDAX to interest expense was 3.5x versus a 2.5x minimum, and the covenant current ratio was 3.2x versus a 1.0x minimum.
Material changes versus the prior comparable period
- Revenue declined primarily because of lower oil and natural gas prices; production was broadly flat at 50,372 Boe per day versus 50,477 Boe per day.
- Operating cash flow decreased $131.8 million, reflecting lower realized oil prices, lower oil volumes and reduced well-services activity.
- Capital spending excluding acquisitions decreased 31% to $400.0 million, but total spending rose because of the $781.5 million Williston Basin acquisition completed December 1, 2016.
- The acquisition added approximately 55,000 net acres and 66.9 MMBoe of proved reserves. Its 2016 contribution was $14.6 million of revenue and $5.9 million of operating income.
- Proved reserves increased 40% to 305.1 MMBoe from 218.2 MMBoe, primarily from acquisitions and revisions associated with larger completion designs, partly offset by lower commodity-price assumptions and divestitures.
- PV-10 increased 30% to $2.63 billion from $2.02 billion, while Standardized Measure increased to $2.48 billion from $1.91 billion.
- Midstream revenue increased to $35.4 million from $23.8 million following the start-up of a natural gas processing plant and expanded salt-water infrastructure. Well-services revenue decreased to $33.8 million from $44.3 million.
- The company recorded a $105.3 million net derivative loss in 2016, compared with a $210.4 million net derivative gain in 2015. Cash derivative settlements received were $122.0 million.
- Impairment expense declined to $4.7 million from $46.1 million. The company also recognized a $4.7 million pre-tax gain on debt extinguishment.
Guidance, outlook, risks and unusual items
- Management budgeted $605 million of 2017 capital expenditures: $410 million for drilling and completion, $110 million for midstream infrastructure and $85 million for other capital expenditures.
- The 2017 plan contemplated approximately 76 gross, or 51.7 net, operated well completions and 2.4 net non-operated completions. Spending and activity could be reduced or increased depending on commodity prices, drilling results, financing and operating conditions.
- Management expected to fund the 2017 program with operating cash flow, derivative settlements and revolver availability, but acknowledged that developing the broader drilling inventory would require substantially more capital.
- Commodity-price risk was significant. A sensitivity case using $35.00 oil and $2.00 natural gas reduced estimated proved reserves to 287.3 MMBoe and Standardized Measure to $1.78 billion.
- Management estimated that a further approximately 30% decline in future commodity prices could result in additional proved-property impairment charges potentially exceeding $2.5 billion, assuming a 10% discount rate.
- Key risks included concentration of all production and reserves in the Williston Basin, commodity-price volatility, borrowing-base redeterminations, high leverage, transportation and takeaway constraints, hydraulic-fracturing and environmental regulation, produced-water disposal, rail transportation, weather, service costs and counterparty credit risk.
- Outstanding derivatives had a net liability fair value of approximately $71.8 million at year-end and covered 12.0 million barrels of crude oil and 5.5 million MMBtu of natural gas for 2017.
- The company had no material legal proceedings reported and stated that there were no subsequent events requiring recognition or disclosure.
Most important facts for an investor to verify
- Confirm the issuer identity: the filing is Oasis Petroleum Inc. and does not appear to be a Chord Energy Corp. filing.
- Reconcile the annual filing with the requested 2016 fourth-quarter period; reported Q4 revenue was $218.0 million and Q4 net loss was $54.7 million.
- Review the sustainability of liquidity given $2.30 billion of debt, negative working capital and the April 1, 2017 borrowing-base redetermination.
- Assess exposure to oil prices, including the effect of outstanding swaps and collars on future cash flow and upside participation.
- Evaluate whether the $605 million 2017 capital program can be funded without additional debt, equity issuance or asset sales.
- Validate the reserve increase and PV-10 using the SEC pricing assumptions of $42.60 per barrel of oil and $2.47 per MMBtu of natural gas.
- Review acquisition integration, final purchase-price adjustments and the contribution from the December 2016 Williston Basin acquisition.
- Consider potential impairment sensitivity, transportation capacity, environmental compliance and produced-water disposal requirements.