Filing Overview
Reporting period: Three and six months ended June 30, 2014; filed August 6, 2014. The supplied filing is for Oasis Petroleum Inc., not Chord Energy Corp.; investors should verify the issuer identity and applicability of this filing.
Oasis was an independent exploration and production company focused on unconventional oil and natural gas resources in the North Dakota and Montana portions of the Williston Basin, with complementary well-services and midstream businesses. The interim financial statements were unaudited.
Key Financial Metrics
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Total revenue | $372.4 million | $254.6 million | $721.9 million | $502.9 million |
| Operating income | $166.5 million | $113.5 million | $495.6 million | $231.4 million |
| Net income | $38.8 million | $67.1 million | $208.8 million | $119.0 million |
| Diluted EPS | $0.39 | $0.72 | $2.08 | $1.28 |
| Adjusted EBITDA | $254.7 million | $185.5 million | $494.5 million | $376.9 million |
| Net cash from operations | Not separately provided | Not separately provided | $486.3 million | $357.8 million |
Margins: Q2 operating margin was approximately 44.7% and net margin was approximately 10.4%. Six-month operating margin was approximately 68.7%, substantially benefiting from the $187.0 million gain on the Sanish Divestiture; six-month net margin was approximately 28.9%. Q2 Adjusted EBITDA margin was approximately 68.4%.
- Average daily production increased 45% year over year to 43,668 Boe per day in Q2 and 43,264 Boe per day for the six-month period.
- Q2 oil revenue was $334.6 million and natural gas revenue was $19.6 million. Q2 oil price before derivative settlements was $94.48 per barrel; realized oil price including derivative settlements was $91.26 per barrel.
- Lease operating expense increased to $40.6 million in Q2, or $10.21 per Boe, from $6.65 per Boe in the prior-year quarter.
- Q2 derivative loss was $65.6 million, including a $54.2 million non-cash mark-to-market loss and an $11.4 million cash settlement loss.
- Cash and cash equivalents were $27.0 million at June 30, 2014, down from $91.9 million at December 31, 2013. The filing reports total liquidity of $1.42 billion, including $1.395 billion of unused revolving capacity.
- Total debt was $2.30 billion, comprising $2.20 billion of senior unsecured notes and $100.0 million drawn under the revolving facility. The weighted average rate on revolving borrowings was 1.7%.
- Net property, plant and equipment increased to $4.55 billion from $4.08 billion at year-end 2013. Stockholders’ equity increased to $1.56 billion from $1.35 billion.
Material Changes Versus Prior Comparable Period
- Revenue rose 46% in Q2 and 44% for the first six months, driven primarily by higher production from completed wells and the 2013 acquisitions of approximately 161,000 net acres.
- Net income declined 42% in Q2 despite higher revenue and operating income, primarily because derivative results shifted from a $12.6 million gain to a $65.6 million loss and interest expense increased by $17.6 million.
- Six-month net income increased 75%, but the comparison includes the $187.0 million pre-tax gain from the Sanish Divestiture. The sale generated approximately $324.9 million of cash proceeds.
- Operating costs increased with production growth: Q2 lease operating expense rose 122%, DD&A rose 46%, production taxes rose 61%, and general and administrative expense rose 25%.
- Operating cash flow increased 36% to $486.3 million, while capital expenditures increased to $606.9 million on a cash basis from $428.6 million.
- The company repaid $335.6 million of revolving debt and drew $100.0 million during the first six months, resulting in a $239.1 million net use of financing cash flow.
Guidance, Outlook, Risks and Unusual Items
- Management maintained a 2014 capital expenditure budget of $1.425 billion, including $1.250 billion for drilling and completion, $60 million for infrastructure, and $35 million for well-services activities. Spending could vary materially with commodity prices, drilling results, financing availability, acquisitions, costs and operating conditions.
- Approximately 16 rigs were active during Q2. The company completed and placed on production 41 gross, or 30.8 net, operated wells and had 67 gross operated wells awaiting completion at June 30, 2014.
- Management stated that cash, operating cash flow and revolving availability should fund the 2014 budget, but developing the full potential drilling inventory would require substantially more capital.
- Commodity-price exposure was managed through collars, swaps, sub-floor swaps and deferred premium puts. The net derivative liability was $74.3 million at June 30, 2014, and the contracts may limit gains when oil prices rise.
- The revolving facility had a $1.5 billion elected commitment, a $1.75 billion borrowing base, $100.0 million of borrowings and $5.2 million of letters of credit. The company was in compliance with its financial covenants, including a minimum EBITDAX-to-interest ratio of 2.5 to 1.0 and a minimum current ratio of 1.0 to 1.0.
- Contractual commitments included approximately $35.0 million of potential drilling-rig termination obligations, $179.8 million under minimum volume commitments, $27.4 million of lease commitments, $11.1 million of electrical-facility cost-sharing commitments and $7.0 million of remaining well-funding commitments.
- Oasis and a predecessor entity were named defendants in a proposed Quebec class action related to the 2013 Lac-Mégantic crude-oil train derailment. Management considered the claims without merit and did not expect a material adverse effect, but the ultimate outcome was uncertain.
- Key operating risks included oil and natural gas price volatility, Williston Basin transportation capacity and differentials, service and labor availability, reserve and production estimates, environmental and regulatory matters, customer and derivative-counterparty credit risk, and access to capital.
Investor Verification Checklist
- Confirm that the filing belongs to Oasis Petroleum Inc. rather than Chord Energy Corp. and determine whether the requested company metadata is incorrect.
- Separate recurring operating performance from the $187.0 million Sanish Divestiture gain and assess results excluding derivative mark-to-market movements.
- Review the sustainability of the $1.425 billion capital program against operating cash flow, only $27.0 million of cash, and the company’s reliance on revolving capacity or future financing.
- Evaluate the effect of the $74.3 million derivative liability and the contracted oil-price floors, ceilings and sub-floors on future realized prices and cash flow.
- Check debt maturities, covenant headroom, borrowing-base redeterminations and the impact of higher interest expense.
- Assess whether higher lease operating costs per Boe and increased North Dakota production taxes could pressure future margins.
- Review the Lac-Mégantic litigation, minimum-volume commitments and other contractual obligations for potential cash or liability exposure.