Business Context and Reporting Period
The filing is an unaudited Form 10-Q for Oasis Petroleum Inc. for the three months ended March 31, 2012, filed May 8, 2012. The request metadata identifies Chord Energy Corp.; however, the supplied filing is for Oasis Petroleum Inc., an independent exploration and production company focused on unconventional oil and natural gas resources in the Williston Basin of North Dakota and Montana. The company also operated marketing and well-services businesses.
Key Financial Metrics
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Total revenue | $138.6 million | $58.7 million | +$79.8 million, or 136% |
| Oil and gas revenue | $137.9 million | $58.7 million | +$79.2 million |
| Operating income | $58.2 million | $25.5 million | +$32.6 million |
| Operating margin | 42.0% | 43.5% | Down approximately 1.5 percentage points |
| Net income (loss) | $16.4 million | $(6.8) million | Improved by $23.3 million |
| Net margin | 11.9% | (11.7)% | Improved |
| Basic and diluted EPS | $0.18 | $(0.07) | Improved |
| Cash flow from operations | $62.8 million | $22.8 million | +$39.9 million |
| Capital expenditures in cash flow statement | $270.0 million | $91.1 million | +$178.8 million |
| Cash and cash equivalents | $287.3 million | $355.0 million at March 31, 2011 | Prior-year comparison |
| Long-term debt | $800.0 million | $800.0 million at December 31, 2011 | No change |
- Average daily production increased 118% to 17,633 Boe per day from 8,090 Boe per day.
- Oil production increased to 1.474 million barrels from 694,000 barrels; natural gas production increased to 785 MMcf from 202 MMcf.
- Average oil price excluding realized derivatives increased to $88.10 per barrel from $82.33 per barrel. Including realized derivatives, the average was $87.23 per barrel.
- Operating expenses were $80.4 million, including $38.9 million of depreciation, depletion and amortization, $13.3 million of production taxes and $12.2 million of general and administrative expenses.
- The company recorded an $18.6 million net loss on derivative instruments, consisting primarily of a $17.3 million unrealized loss and a $1.3 million realized loss.
- Working capital was approximately $223.2 million at March 31, 2012. The company reported total assets of $1.813 billion and stockholders’ equity of $651.1 million.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by a 118% increase in production volumes, with higher commodity prices contributing approximately $4.1 million of additional revenue.
- The company completed and placed on production 26 gross, or 19.9 net, operated wells during the quarter. At March 31, 2012, 26 gross operated wells were awaiting completion and seven gross wells were being drilled.
- Operating expenses increased $47.2 million, reflecting the larger producing base, higher DD&A, expanded staffing, exploration activity and transportation costs. Unit lease operating expense declined to $6.12 per Boe from $7.73 per Boe.
- Interest expense increased to $13.9 million from $5.2 million because of the $800 million of senior unsecured notes issued during 2011.
- Net derivative losses decreased from $31.7 million to $18.6 million, but derivatives remained a significant drag on pretax earnings.
- Cash flow from operations increased substantially, but capital spending exceeded operating cash flow, resulting in a $183.6 million decrease in cash during the quarter.
- Property, plant and equipment, net, increased to $1.339 billion from $1.080 billion at December 31, 2011, reflecting substantial drilling and development investment.
Liquidity, Debt and Capital Program
- The company had $800 million of fixed-rate senior unsecured notes: $400 million due 2019 bearing 7.25% interest and $400 million due 2021 bearing 6.5% interest.
- No borrowings or letters of credit were outstanding under the senior secured revolving credit facility at March 31, 2012. The borrowing base was $350 million at quarter-end and was subsequently increased to $500 million on April 3, 2012.
- The company stated that cash on hand, operating cash flow and revolving-credit availability were expected to be more than sufficient to fund its $884 million 2012 capital expenditure budget, although the budget could change with market conditions and drilling results.
- First-quarter capital expenditures totaled $288.3 million on an accrued basis, including $267.0 million of exploration and production spending. The largest allocation was West Williston at $204.0 million.
- The company’s cash balance declined to $287.3 million from $470.9 million at December 31, 2011, primarily because of capital spending.
Guidance, Outlook, Commentary, Risks and Unusual Items
- The 2012 capital budget was $884 million, including $758 million for development capital and $57 million for infrastructure, primarily saltwater disposal systems.
- Management expected saltwater disposal infrastructure to reduce trucking and lease operating costs. Approximately 25% of operated water production flowed through the company’s pipeline system at quarter-end, with a goal of approximately 80% by year-end.
- Nine operated drilling rigs were running at March 31, 2012, with three additional contracted rigs expected later in the year. The company had 12 rigs under contract.
- OWS completed its first fracturing job in late March and was expected to begin full-time operations in the second quarter of 2012.
- Williston Basin transportation and refinery constraints caused oil price differentials to reach or exceed the high end of the historical range of approximately 10% to 15% of NYMEX WTI.
- Outstanding oil collars covered approximately 7.6 million barrels for settlement periods from 2012 through 2014, with an aggregate net derivative liability of approximately $22.3 million at March 31, 2012. These instruments reduce downside exposure but also limit some upside participation.
- Material contractual commitments included approximately $62.3 million for drilling-rig termination obligations, $65.5 million under minimum-volume agreements, $66.6 million for fracturing-service commitments and $12.3 million of lease obligations.
- The company identified commodity prices, transportation capacity, service availability, qualified personnel, environmental regulation, counterparty credit and access to capital as principal risks.
- EPA air-emissions rules approved April 17, 2012 may increase development and production costs, including requirements for reduced-emission or “green” completions beginning January 1, 2015.
- In April 2012, the company terminated one fracturing-services contract without an early termination fee. In May 2012, it entered into additional oil collar contracts covering specified volumes from 2012 through 2015.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Oasis Petroleum Inc., not Chord Energy Corp.
- Verify production growth and whether the elevated drilling program can generate sufficient operating cash flow to fund the stated $884 million capital budget.
- Assess exposure to Williston Basin transportation constraints, price differentials and service-cost inflation.
- Review the complete oil-derivative schedule, including floors, ceilings, sub-floors, settlement periods and future mark-to-market volatility.
- Evaluate liquidity after the $183.6 million quarterly cash decline and the company’s reliance on cash balances and revolving-credit availability.
- Review debt covenants, fixed interest obligations and the April 2012 increase in the borrowing base to $500 million.
- Assess the economic effect of drilling-rig, fracturing-service and minimum-volume commitments if activity levels or commodity prices weaken.
- Consider potential incremental compliance costs from EPA emissions regulations and other environmental or regulatory developments.