Business Context and Reporting Period
The supplied filing is Oasis Petroleum Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2018, not a Chord Energy Corp. filing. Oasis is an independent U.S. exploration and production company with operations in the Williston and Delaware Basins, plus midstream and well-services segments. The company entered the Delaware Basin through its February 2018 acquisition of approximately 22,000 net acres from Forge Energy.
Financial Results and Key Metrics
| Metric | Three months ended September 30 | Change vs. 2017 | Nine months ended September 30 | Change vs. 2017 |
|---|---|---|---|---|
| Total revenue | $546.4 million | +79% | $1.469 billion | +74% |
| Operating income | $179.0 million | +$146.7 million | $49.4 million | -$8.5 million |
| Net income attributable to Oasis | $62.3 million | Compared with $41.2 million loss | $257.3 million loss | Compared with $0.8 million loss |
| EPS, diluted | $0.20 | Compared with $(0.18) | $(0.84) | Compared with approximately $0.00 |
| Net cash from operating activities | $230.0 million | Compared with $88.9 million | $762.0 million | Compared with $298.7 million |
| Adjusted EBITDA | $270.4 million | Compared with $179.6 million | $744.6 million | Compared with $471.5 million |
| Free cash flow, non-GAAP | $(142.0) million | Compared with $(94.0) million | $(1.272) billion | Compared with $(149.8) million |
Third-quarter operating margin was approximately 32.8% and net margin attributable to Oasis was approximately 11.4%. Nine-month operating margin was approximately 3.4% and net margin was approximately negative 17.5%; the nine-month results were materially affected by impairment and derivative losses.
- Third-quarter production was 85,400 Boe per day, including 65,870 barrels of oil per day, with a 77% oil cut. Production increased 29% on a Boe-per-day basis and 27% on an oil-per-day basis year over year.
- Third-quarter oil revenue was $412.5 million and total oil and gas revenue was $452.6 million. Average oil price before derivative settlements was $68.07 per barrel, while the price including derivative settlements was $57.25 per barrel.
- Lease operating expense declined to $6.18 per Boe from $7.45 per Boe, while marketing, transportation and gathering expense increased to $3.91 per Boe from $2.47 per Boe.
- Cash and cash equivalents were $16.9 million at September 30, 2018. Working capital was negative $333.2 million, primarily because of accrued development costs and derivative liabilities.
- Total long-term debt was $2.633 billion, including $522.0 million under the Oasis credit facility and $166.0 million under the OMP credit facility. Net derivative liabilities were $213.1 million.
- Liquidity was reported at $914.9 million, consisting of cash and $898.0 million of aggregate unused borrowing capacity. The company was in compliance with its credit-facility covenants.
Material Changes Versus the Prior Comparable Period
- Revenue growth reflected both higher commodity prices and higher production. Average daily production increased from 66,125 Boe to 85,400 Boe in the third quarter.
- The February 2018 Permian Basin Acquisition contributed $19.4 million of third-quarter revenue and $51.0 million for the nine-month period.
- Nine-month results included a $384.2 million impairment charge, primarily the $383.4 million write-down associated with the Foreman Butte divestiture, compared with $6.0 million of impairment in the prior-year period.
- Derivative results shifted from a $52.3 million gain in the first nine months of 2017 to a $239.9 million loss in the first nine months of 2018. Cash derivative settlements were a $162.0 million outflow in 2018.
- Capital expenditures increased to $841.1 million on a cash basis from $443.6 million, while acquisitions used $579.9 million. The company also received $333.0 million from property sales.
- Debt increased from $2.098 billion at December 31, 2017, reflecting acquisition funding and higher revolving borrowings. The company issued $400.0 million of 6.25% senior notes due 2026 and repurchased or redeemed approximately $413.5 million principal amount of older notes, resulting in a $13.7 million loss on extinguishment.
- Shares outstanding increased substantially following issuance of 46.0 million shares as part of the Permian Basin Acquisition.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Management’s 2018 capital expenditure plan was approximately $1.230 billion to $1.275 billion, including $900 million to $930 million for E&P capital, $290 million to $305 million for infrastructure, midstream and well-services equipment, and approximately $40 million of other capital expenditures.
- Management stated that cash on hand, operating cash flow and revolving-credit availability should fund the 2018 plan, but acknowledged that additional capital would be required to develop the broader drilling inventory.
- The Oasis credit facility’s October 2018 amendment increased the overall facility size from $2.5 billion to $3.0 billion, reaffirmed a $1.6 billion borrowing base and $1.35 billion elected commitment, and extended maturity to October 2023 subject to retirement or refinancing of specified 2022 and 2023 notes.
- Commodity-price exposure remains significant. At September 30, 2018, derivatives had a $213.1 million net liability; a 10% increase in crude oil prices was estimated to reduce derivative fair value by approximately $100.8 million.
- The company entered into swaps and collars after quarter-end, including crude oil and natural gas contracts settling in 2018 through 2020.
- The company disclosed a lawsuit by Mirada seeking more than $100 million and other declaratory relief concerning Wild Basin operating and midstream rights. Trial was scheduled for May 2019, and management stated that an adverse outcome could materially affect operations, revenues, cash flows and development plans. Oasis also agreed to indemnify OMP for losses related to the litigation.
- Other risks include volatile oil and gas prices, transportation capacity, service costs, reserve and production uncertainty, counterparty credit risk, environmental and regulatory matters, covenant compliance and access to capital markets.
Investor Verification Items
- Verify the issuer identity: the supplied document is Oasis Petroleum Inc., whereas the request identifies Chord Energy Corp.
- Reconcile the large difference between positive third-quarter earnings and the nine-month net loss, particularly the $384.2 million impairment and $239.9 million derivative loss.
- Assess liquidity after planned capital spending, acquisitions, derivative settlements and debt maturities, rather than relying solely on reported unused capacity.
- Review derivative volumes, strike prices and future settlement exposure, including the effect of rising oil prices on the derivative liability.
- Evaluate execution and returns from the Delaware Basin expansion against the $1.23 billion to $1.275 billion 2018 capital plan.
- Monitor the Mirada litigation, related indemnification obligations and potential effects on Wild Basin operations and midstream economics.