Business Context and Reporting Period
The filing is Oasis Petroleum Inc.’s unaudited Form 10-Q for the three months ended March 31, 2018, not a Chord Energy Corp. filing as indicated in the request metadata. Oasis is an independent U.S. exploration and production company with operations in the Williston and Delaware Basins, plus midstream and well-services businesses. The company entered the Delaware Basin through its February 14, 2018 acquisition of approximately 22,000 net acres from Forge Energy.
Financial Performance and Position
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Total revenue | $421.2 million | $285.1 million | +$136.1 million |
| Operating income | $113.0 million | $20.1 million | +$92.9 million |
| Operating margin | 26.8% | 7.0% | +19.8 percentage points |
| Net income attributable to Oasis | $0.6 million | $23.8 million | -$23.2 million |
| Diluted EPS | $0.00 | $0.10 | Declined |
| Net cash from operating activities | $228.4 million | $107.8 million | +$120.6 million |
| Capital expenditures and acquisitions, cash basis | $775.6 million | $96.0 million | Significantly higher |
Oil and gas revenue increased 53% to $363.7 million, driven by higher commodity prices and production. Average production rose 22% to 76,819 Boepd. Oil revenue was $323.4 million, natural gas revenue was $40.3 million, midstream revenue was $27.9 million, and well-services revenue was $11.6 million.
Operating expenses increased to $308.2 million from $265.0 million, while lease operating expense per Boe improved to $6.48 from $7.71. Operating performance was offset below the operating-income line by a $71.1 million net derivative loss, compared with a $56.1 million derivative gain in the prior-year quarter. Interest expense was $37.1 million.
Net income including non-controlling interests was $3.7 million, of which $3.1 million was attributable to non-controlling interests. Adjusted EBITDA was $232.9 million, while management-defined free cash flow was negative $971.0 million, primarily reflecting acquisition and capital spending.
Cash and cash equivalents were $17.7 million at March 31, 2018. The company reported a working-capital deficit of $251.2 million but stated total liquidity of approximately $810.7 million, including cash and unused borrowing capacity. Long-term debt was $2.70 billion, compared with $2.10 billion at December 31, 2017.
Material Changes Versus the Prior Comparable Period
- Production increased from 63,192 Boepd to 76,819 Boepd, supported by well completions and the Delaware Basin acquisition.
- Oil sales prices excluding derivative settlements increased to $61.20 per barrel from $47.03; natural gas prices including NGL value increased to $4.12 per Mcf from $3.81.
- Midstream revenue nearly doubled to $27.9 million, and well-services revenue more than doubled to $11.6 million.
- Operating income increased substantially, but net income declined because the prior-year derivative gain became a current-year derivative loss and non-controlling interests increased.
- The Forge Energy transaction added approximately $921.0 million of acquired assets, funded with approximately $549.8 million of cash and 46.0 million common shares. The purchase-price allocation remained preliminary.
- Revolving-credit borrowings increased materially. At March 31, 2018, Oasis had $626.0 million outstanding under its facility and OMP had $117.0 million outstanding under its facility.
Guidance, Outlook, Risks and Unusual Items
Management’s 2018 capital expenditure budget was approximately $1.09 billion to $1.17 billion, including $815 million to $855 million for E&P, $235 million to $275 million for infrastructure and midstream, and approximately $40 million for other capital expenditures. Management stated that cash on hand, operating cash flow and available revolver capacity should fund the budget, while noting that spending may change with commodity prices, drilling results, financing availability and acquisitions.
On April 30, 2018, after the reporting date, the company launched a proposed $400.0 million private placement of 6.25% senior unsecured notes due 2026. Proceeds were intended primarily to fund tender offers for up to $400.0 million of existing senior notes and potentially reduce revolver borrowings or fund general corporate purposes. The offering was expected to close May 14, 2018.
Commodity derivatives produced a net liability of $169.4 million at March 31, 2018. The company reported that a 10% increase in crude oil prices would reduce the fair value of its derivative position by approximately $109.1 million, while a 10% decrease would increase it by approximately $106.8 million. Derivatives may reduce downside price exposure but limit benefits from higher prices.
Material risks include oil and natural-gas price volatility, transportation capacity, service costs, access to capital, reserve and production estimates, interest-rate exposure, counterparty credit risk, environmental regulation and litigation. Mirada litigation seeks damages exceeding $100 million and other relief concerning Wild Basin operations and midstream rights; trial was scheduled for May 2019. The company believes the claims lack merit but cannot predict the outcome and has agreed to indemnify OMP for related losses.
The company adopted new revenue-recognition, financial-instrument, cash-flow, income-tax, business-combination and equity-compensation standards in the quarter; management reported no material adoption impact. Disclosure controls and procedures were deemed effective as of March 31, 2018.
Important Facts for Investors to Verify
- Confirm the issuer identity: the provided filing is Oasis Petroleum Inc., whereas the request identifies Chord Energy Corp.
- Reconcile the large increase in debt and negative free cash flow with the Delaware Basin acquisition and the 2018 capital program.
- Review derivative volumes, strike prices and future settlement exposure, particularly the $169.4 million net derivative liability.
- Assess liquidity after the proposed 2026 notes offering, tender offers and any subsequent revolver repayments.
- Evaluate the preliminary valuation and integration results of the Forge Energy acquisition.
- Monitor the Mirada litigation, potential indemnification obligations and any effect on Wild Basin operations or midstream economics.
- Compare actual production, commodity prices, capital spending and leverage against the stated 2018 budget and financing assumptions.