Business Context and Reporting Period
The submitted filing is Oasis Petroleum Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2021; it does not identify Chord Energy Corp. as the registrant. Oasis was an independent exploration and production company focused on the Williston Basin, with a consolidated midstream business through Oasis Midstream Partners LP (OMP). The company emerged from Chapter 11 bankruptcy on November 19, 2020 and adopted fresh start accounting, making Successor and Predecessor results not fully comparable.
During 2021, Oasis sold its remaining Permian Basin assets and completed a midstream simplification. Subsequent to quarter-end, on October 21, 2021, it completed the acquisition of approximately 95,000 net Williston Basin acres for an adjusted purchase price of $585.8 million.
Financial Performance and Key Metrics
| Metric | Q3 2021 | Nine Months 2021 |
|---|---|---|
| Total revenue | $402.0 million | $1.151 billion |
| Operating income | $203.6 million | $730.0 million |
| Operating margin | 50.6% | 63.5% |
| Net income attributable to Oasis | $72.0 million | $101.7 million |
| Net margin attributable to Oasis | 17.9% | 8.8% |
| Diluted earnings per share | $3.46 | $4.96 |
| Net cash provided by operating activities | $294.4 million | $644.7 million |
| Adjusted EBITDA attributable to Oasis | $116.2 million | $348.9 million |
| E&P free cash flow | $65.4 million | $213.4 million |
- Q3 production averaged 51,804 barrels of oil equivalent per day, 62% oil. Nine-month production averaged 54,407 Boepd.
- Q3 crude oil sales averaged $70.12 per barrel before derivative settlements and $43.81 after settlements. Natural gas and NGL sales averaged $6.91 per Mcf before settlements and $6.52 after settlements.
- Q3 E&P lease operating expense was $9.42 per Boe; consolidated lease operating expense was $6.15 per Boe.
- Capital expenditures were $58.7 million in Q3 and $154.4 million on an accrued basis for the first nine months, including $122.9 million for E&P and $29.8 million for midstream.
Balance Sheet, Debt and Liquidity
- At September 30, 2021, total assets were $3.000 billion and total liabilities were $1.906 billion. Stockholders’ equity was $1.093 billion.
- Cash and cash equivalents were $448.6 million, with an additional $400.0 million of restricted cash reserved to fund the Williston Basin Acquisition.
- Reported long-term debt was $1.042 billion, consisting principally of $400.0 million of Oasis Senior Notes, $450.0 million of OMP Senior Notes and $210.0 million outstanding under the OMP Credit Facility.
- The Oasis Credit Facility had no borrowings and $398.7 million of unused capacity, while the OMP facility had $234.5 million of unused capacity. Total available liquidity was reported at $1.482 billion.
- The company was in compliance with applicable credit-facility and senior-note covenants at September 30, 2021. The Oasis borrowing base was subsequently increased to $900.0 million on October 21, 2021.
Material Changes Versus Comparable Periods
- Q3 revenue increased 48.3% from $271.1 million in Q3 2020, while nine-month revenue increased 39.4% from $825.2 million. Higher commodity prices were partly offset by lower production volumes.
- Q3 net income attributable to Oasis improved from a $55.7 million loss to $72.0 million of income. Nine-month results improved from a $4.460 billion loss in 2020 to $101.7 million of income in 2021.
- The nine-month 2020 loss included approximately $4.829 billion of impairment charges, whereas 2021 impairment expense was immaterial. The 2020 period also included reorganization items, litigation settlement expense and substantial default interest charges.
- Nine-month operating cash flow increased to $644.7 million from $154.9 million, primarily due to higher commodity revenues, lower interest expense and lower operating and corporate costs.
- Derivative activity materially reduced 2021 earnings: the company recorded a $550.3 million net derivative loss for the first nine months, compared with a $243.1 million net gain in the prior-year period. The September 30, 2021 net derivative liability was $408.9 million.
- The company recorded a $228.5 million gain on property sales in the first nine months, primarily from the Permian Basin divestiture.
Outlook, Commentary, Risks and Unusual Items
- The Williston Basin Acquisition closed after quarter-end and was funded with cash on hand, Permian sale proceeds and the $400.0 million Oasis Senior Notes. The filing states that purchase-accounting classification and valuation were still being evaluated.
- Oasis and OMP entered into an agreement to merge OMP with Crestwood Equity Partners LP. Expected consideration to Oasis included $160.0 million of cash and approximately 21.0 million Crestwood common units; closing was expected in the first quarter of 2022, subject to customary conditions.
- Oasis declared a Q3 dividend of $0.50 per share, following regular quarterly dividends and an $80.0 million special dividend paid in July 2021. The company also had a $100.0 million share-repurchase authorization; $14.6 million had been used through September 30.
- The company expects no cash income taxes for 2021 because it qualified for the Section 382(l)(5) exception, but this tax benefit could be jeopardized by a subsequent ownership change. A Tax Benefits Preservation Plan was adopted with a 4.95% ownership threshold.
- Commodity prices, production volumes, derivative positions, COVID-19 effects, transportation access, environmental regulation, litigation, counterparty credit and acquisition or merger execution remain significant risks.
- The company had an estimated $258.6 million of future crude oil transportation commitments under an agreement with approximately seven years remaining. It also reported $6.7 million of letters of credit and $10.2 million of net surety bond exposure.
- The Dakota Access Pipeline remained operational while the U.S. Army Corps of Engineers conducted an environmental review that could affect future operations.
Important Facts for Investors to Verify
- Confirm the registrant and ticker: the supplied filing is for Oasis Petroleum Inc. under the OAS ticker, not Chord Energy Corp.
- Assess comparability because the company adopted fresh start accounting after bankruptcy and the 2020 figures are Predecessor results.
- Reconcile reported earnings and cash flow with derivative settlements, the $408.9 million net derivative liability and the company’s hedge-price exposure.
- Review the financial impact, reserves and integration of the October 2021 Williston Basin Acquisition.
- Verify the conditions, approvals, consideration and closing status of the proposed OMP-Crestwood merger.
- Evaluate debt maturities, fixed interest obligations, OMP’s leverage and covenant requirements after the acquisition and merger transactions.
- Review the sustainability of dividends, repurchases and tax benefits, including the potential consequences of an ownership change.