Oasis Petroleum Inc. Form 10-Q Summary
Reporting period: Three months ended March 31, 2019. The provided filing is for Oasis Petroleum Inc. (NYSE: OAS), not Chord Energy Corp. The company is an independent U.S. exploration and production company with operations in the Williston and Delaware Basins, plus midstream and well-services businesses. The interim financial statements are unaudited.
Key Financial Metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenues | $575.7 million | $473.8 million | +$101.9 million |
| Operating income | $50.4 million | $113.0 million | -$62.5 million |
| Net income (loss) including non-controlling interests | $(108.0) million | $3.7 million | -$111.7 million |
| Net income (loss) attributable to Oasis | $(114.9) million | $0.6 million | -$115.5 million |
| Diluted earnings (loss) per share | $(0.37) | $0.00 | $(0.37) |
| Net cash provided by operating activities | $174.9 million | $228.4 million | -$53.4 million |
| Capital expenditures | $237.4 million | $254.8 million | -$17.4 million |
| Adjusted EBITDA | $269.3 million | $232.9 million | +$36.4 million |
| Free cash flow | $(7.5) million | $(971.0) million | Improved |
Production averaged 91,714 barrels of oil equivalent per day, up 19% from 76,819 Boepd in Q1 2018; approximately 72% was crude oil. Crude oil sales revenue was $318.1 million, natural gas revenue was $50.7 million, purchased oil and gas sales were $148.5 million, midstream revenue was $48.0 million, and well-services revenue was $10.5 million.
Crude oil prices excluding derivative settlements averaged $53.52 per barrel versus $61.75 in the prior-year quarter. Natural gas prices, including natural gas liquids, averaged $3.66 per Mcf versus $4.12. With derivative settlements, crude oil realized prices averaged $55.79 per barrel and natural gas realized prices averaged $3.65 per Mcf.
Margins, Balance Sheet, Debt and Liquidity
- Total operating expenses increased to $522.4 million from $360.8 million, driven primarily by higher purchased oil and gas costs, DD&A, marketing and transportation, lease operating expenses, and midstream expenses.
- DD&A rose to $189.8 million from $149.3 million. DD&A per Boe increased to $23.00 from $21.59.
- Lease operating expenses increased to $58.4 million from $44.8 million, or $7.08 per Boe versus $6.48.
- The company recorded a $117.6 million net loss on derivatives, compared with a $71.1 million loss in Q1 2018. The quarter-end net derivative liability was $24.3 million.
- Cash and cash equivalents declined to $15.4 million from $22.2 million at December 31, 2018. Working capital was negative $147.3 million.
- Total long-term debt was $2.79 billion at March 31, 2019, including $493.0 million under the Oasis Credit Facility, $345.0 million under the OMP Credit Facility, $2.04 billion principal amount of senior unsecured notes and $300.0 million of convertible notes.
- Liquidity was reported at approximately $913.4 million, consisting of cash and $898.0 million of aggregate unused borrowing capacity. The company was in compliance with applicable credit-facility covenants at quarter-end.
Material Changes Versus Q1 2018
- Revenue increased 22%, primarily from higher production, increased purchased oil and gas activity, and growth in midstream services following the start-up of a second Wild Basin natural gas processing plant.
- Production increased 14,895 Boepd, reflecting well completions in both basins and a full quarter of production from the 2018 Permian Basin acquisition.
- Lower commodity prices and higher operating costs reduced operating income by $62.5 million and produced a significant net loss.
- Operating cash flow declined 23% to $174.9 million, partly because of lower realized prices and working-capital changes.
- Investing cash use fell substantially because Q1 2018 included $520.7 million of acquisitions; Q1 2019 investing cash use was primarily $237.4 million of capital expenditures.
- The company adopted ASC 842 lease accounting on January 1, 2019, recognizing approximately $31.6 million of lease assets and $37.8 million of lease liabilities at March 31, 2019.
- The company revised Q1 2018 revenue and expense presentation to correct the gross-versus-net accounting for certain crude oil purchase and sale arrangements. The revision increased reported Q1 2018 revenue and purchased oil and gas expenses but did not affect net income or earnings per share.
Guidance, Outlook, Risks and Unusual Items
- Management projected 2019 capital expenditures of approximately $735 million to $779 million, including $540 million to $560 million for E&P and other capital expenditures and $195 million to $219 million for midstream activities.
- The company expects approximately $53 million to $57 million of 2019 spending by OMP on Delaware Basin infrastructure through Panther DevCo. OMP also agreed to fund up to $80 million of Bobcat DevCo contributions otherwise required from OMS, reducing OMS’s Bobcat ownership from 75% to 72.6% at March 31, 2019.
- Management stated that cash on hand, operating cash flow, derivative settlements and revolving-credit availability should be sufficient to fund the 2019 capital plan, while noting that substantially more capital would be required to develop the full drilling inventory.
- Williston crude oil differentials averaged $1.30 below NYMEX WTI in Q1 2019. Delaware differentials averaged more than $5.00 below WTI because of pipeline constraints; management expected mid-2019 pipeline expansions to reduce the differential.
- Commodity prices, transportation capacity, service costs, production execution, interest rates, reserve estimates, access to capital, counterparty credit and environmental or regulatory matters remain key risks. Derivative contracts reduce downside price exposure but can limit benefits from rising prices.
- Mirada litigation seeks more than $100 million in damages and other relief relating to Wild Basin operating and midstream rights. Trial was scheduled for February 2020. The company disputes the claims but stated that an adverse result could materially affect operations, assets, revenues and cash flows and that it has agreed to indemnify OMP for related losses.
- Disclosure controls and procedures were not effective as of March 31, 2019 because of a previously identified material weakness involving accounting for certain purchase and sale arrangements. Management implemented remediation measures and began testing the controls during the quarter.
- The company recognized a $2.9 million loss on the sale of non-strategic Williston Basin properties and other equipment.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is Oasis Petroleum Inc., whereas the request identifies Chord Energy Corp.
- Reconcile GAAP earnings with management’s non-GAAP measures, especially the $117.6 million derivative loss and the $269.3 million Adjusted EBITDA.
- Assess liquidity and leverage against the $735 million to $779 million 2019 capital plan, commodity-price sensitivity and upcoming borrowing-base redeterminations.
- Review the maturity and refinancing risks for the 2021–2023 senior notes and convertible notes, including the credit-facility maturity provisions.
- Monitor Delaware Basin transportation constraints, expected pipeline expansions and their effect on realized prices.
- Follow the Mirada litigation and potential impacts on Wild Basin operations and midstream ownership economics.
- Verify remediation of the material weakness and the effectiveness of disclosure controls in subsequent filings.