Business Context and Reporting Period
The filing is Oasis Petroleum Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2011. The supplied metadata identifies Chord Energy Corp., but the filing itself identifies Oasis Petroleum Inc.; the entity should be verified. Oasis was an independent exploration and production company focused primarily on unconventional oil and natural gas resources in the Williston Basin, including the Bakken and Three Forks formations.
- Second-quarter activity included 16 gross operated wells placed on production and 30 gross operated wells drilling or being completed at June 30, 2011.
- Average production was 7,893 Boe per day in the quarter and 7,991 Boe per day for the first six months.
- The filing was signed August 10, 2011, and reported 92.45 million shares issued and approximately 92.43 million outstanding at June 30, 2011.
Financial Performance and Position
| Metric | Three months ended June 30, 2011 | Three months ended June 30, 2010 | Six months ended June 30, 2011 | Six months ended June 30, 2010 |
|---|---|---|---|---|
| Oil and gas revenue | $67.2 million | $26.7 million | $126.0 million | $46.8 million |
| Operating income | $32.4 million | $0.6 million | $58.0 million | $(1.8) million |
| Net income (loss) | $33.3 million | $(26.4) million | $26.5 million | $(29.6) million |
| Basic and diluted EPS | $0.36 | $(3.26) | $0.29 | $(7.28) |
| Net cash provided by operating activities | Not separately provided for the quarter | Not separately provided for the quarter | $102.1 million | $20.6 million |
- Second-quarter operating margin was approximately 48.2% and net margin approximately 49.6%; six-month operating margin was approximately 46.0% and net margin approximately 21.0%.
- Revenue growth reflected a 77% increase in quarterly production and higher commodity prices. Quarterly oil revenue increased 155% to $65.4 million, while natural gas revenue increased to $1.8 million.
- Quarterly average oil price before realized derivatives was $95.48 per barrel, compared with $67.19; the realized price including derivatives was $89.43 per barrel.
- Six-month capital expenditures were $212.3 million on a cash basis, including $200.5 million of drilling, development and acquisition expenditures in the project-area schedule.
- At June 30, 2011, cash and cash equivalents were $300.0 million, short-term investments were $124.9 million, and total current assets were $505.9 million.
- Total liabilities were $601.5 million and stockholders’ equity was $579.3 million. Long-term debt was $400.0 million, consisting of 7.25% senior unsecured notes due February 2019.
- The company had no borrowings or letters of credit under its $600.0 million revolving credit facility; unused borrowing-base capacity was $137.5 million.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue increased $40.5 million, or 151%, and six-month revenue increased $79.1 million, or 169%, primarily from higher production volumes and commodity prices.
- Operating results improved from near break-even or a loss to substantial operating income. Net income shifted from a $26.4 million quarterly loss and $29.6 million six-month loss to profits of $33.3 million and $26.5 million, respectively.
- Operating cash flow increased by $81.5 million, or approximately 395%, for the six-month period, while investing cash outflows increased to $335.0 million from $98.2 million.
- Financing shifted from the prior-year IPO and credit-facility activity to the February 2011 issuance of $400.0 million of senior unsecured notes, which generated approximately $390.0 million of net proceeds.
- Interest expense increased to $6.8 million in the quarter and $12.0 million year to date because of the new notes.
- Unrealized derivative gains were $31.7 million in the quarter, but only $0.5 million for the six-month period. Realized derivative losses were $4.1 million and $4.7 million, respectively.
- Noncash impairment charges on unproved properties declined to $1.5 million in the quarter and $2.9 million year to date, from $7.9 million and $11.0 million in the comparable periods.
Guidance, Outlook, Risks, and Unusual Items
- On August 1, 2011, the board increased the 2011 capital expenditure budget from $490 million to $627 million, including a $587 million exploration and production budget and $24 million for newly formed Oasis Well Services equipment and materials.
- Management stated that cash on hand, operating cash flow, and net note proceeds were expected to fund the 2011 budget, while noting that developing the full identified drilling inventory could require substantially more capital.
- Key operating constraints included Williston Basin transportation capacity, drilling and completion-service availability, service costs, weather, and infrastructure.
- Oil and gas prices were the principal market exposure. Derivative collars reduced downside volatility but also limited participation in rising prices. Outstanding derivative contracts had a net liability fair value of approximately $10.0 million at June 30, 2011.
- In July 2011, the company entered additional derivatives covering 1.675 million barrels in 2012, 823,000 barrels in 2013, and 62,000 barrels in 2014. The deferred-premium put contracts had a $9.7 million liability at execution.
- Contractual commitments included $41.4 million of drilling-rig commitments, $35.6 million of volume commitments, $51.5 million of fracturing-service commitments, $8.0 million of operating leases, and the $400.0 million notes.
- The company disclosed a material weakness in internal control over financial reporting. Remediation was in progress, but management concluded that disclosure controls were not effective as of June 30, 2011 and that additional deficiencies could be identified.
- Management corrected a nonmaterial $3.4 million classification error in first-quarter 2011 cash flows between operating and investing activities; there was no effect on the balance sheet or statement of operations.
- The filing states that ordinary-course legal and regulatory proceedings were not expected to have a material adverse effect, but environmental, regulatory, litigation, reserve-estimation, and counterparty risks remain relevant.
Most Important Facts to Verify
- Confirm the issuer identity: the provided company name is Chord Energy Corp., while the filing is for Oasis Petroleum Inc.
- Reconcile the significant quarterly net income contribution from the $31.7 million unrealized derivative gain with cash earnings and realized derivative losses.
- Assess the sustainability of production growth and margins given the higher drilling budget, service commitments, commodity-price volatility, and transportation constraints.
- Review the 7.25% notes, revolving-credit covenants, borrowing-base redeterminations, and the company’s ability to fund capital spending without additional financing.
- Evaluate remediation of the disclosed material weakness in internal control and monitor subsequent SEC filings for changes in control effectiveness.