Business Context and Reporting Period
Filing identity: The supplied filing is Oasis Petroleum Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2012, not Chord Energy Corp. The filing describes an independent exploration and production company focused on unconventional oil and natural gas resources in the Williston Basin, with complementary well-services and marketing businesses.
Oasis reported 93.4 million shares issued and 93.4 million shares outstanding at September 30, 2012. The interim financial statements were unaudited and should be read with the 2011 Form 10-K.
Financial Performance and Key Metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | $184.7 million, up 111% | $472.3 million, up 121% |
| Operating income | $72.0 million; 39.0% margin | $190.4 million; 40.3% margin |
| Net income | $18.3 million; 9.9% margin | $110.8 million; 23.5% margin |
| Basic and diluted EPS | $0.20 | $1.20 |
| Average daily production | 24,257 Boe/d, up 109% | 20,761 Boe/d, up 126% |
| Net cash from operating activities | Not separately reported for the quarter | $282.1 million, up from $139.7 million |
| Capital expenditures | $311.4 million of E&P capital expenditures | $777.4 million cash capital expenditures; $872.3 million including accrued capital expenditures |
- Oil revenue was $173.8 million in the third quarter and $443.7 million for the first nine months. Natural gas revenue was $5.0 million and $18.2 million, respectively. Well-services revenue was $6.0 million in the quarter and $10.5 million year to date.
- Third-quarter oil sales averaged $83.71 per barrel before realized derivatives and $86.24 after realized derivatives. Natural gas averaged $5.33 per Mcf.
- Cash and cash equivalents were $280.3 million at September 30, 2012, compared with $470.9 million at December 31, 2011. Short-term investments were $126.2 million, producing cash and short-term investments of approximately $406.5 million.
- Current assets were $641.7 million and current liabilities were $355.0 million, resulting in reported working capital of approximately $286.8 million and an approximately 1.8-to-1 current ratio before facility-specific exclusions.
- Long-term debt was $1.2 billion, consisting of fixed-rate senior unsecured notes. The notes carried coupons of 7.25%, 6.50% and 6.875%, with maturities in 2019, 2021 and 2023. The notes had a reported fair value of $1.276 billion.
- The company had no borrowings or outstanding letters of credit under its $500 million revolving credit commitment at September 30, 2012 and was in compliance with its financial covenants.
- Derivative instruments had a net asset position of $25.7 million at September 30, 2012. Derivative gains and losses were recorded in earnings rather than hedge accounting.
Material Changes Versus the Prior Comparable Period
- Production growth drove the substantial revenue increase: third-quarter production rose by 12,674 Boe/d, while nine-month production rose by 11,560 Boe/d.
- Operating income increased $31.8 million in the quarter and $92.1 million year to date, despite higher lease operating, well-services, production-tax, DD&A and general and administrative expenses.
- Third-quarter net income declined $48.0 million to $18.3 million because the prior-year quarter included a $71.2 million derivative gain, while 2012 included a $22.4 million derivative loss. Nine-month net income increased $18.0 million.
- Interest expense increased $14.2 million in the quarter and $30.2 million year to date, primarily because of the 2011 and 2012 senior-note issuances.
- DD&A increased to $57.7 million in the quarter and $140.8 million year to date. DD&A per Boe rose to $25.85 from $19.57 in the quarter and to $24.75 from $19.02 year to date, reflecting higher well and infrastructure costs.
- On July 2, 2012, Oasis issued $400 million of 6.875% senior notes due 2023 and received approximately $392 million of net proceeds.
- Property, plant and equipment, net, increased to $1.804 billion from $1.080 billion at year-end 2011, while total assets increased to $2.481 billion from $1.727 billion.
- The company completed 34 gross operated wells during the third quarter and had 25 gross operated wells awaiting completion and 11 being drilled at quarter-end.
Guidance, Outlook, Risks, Contingencies and Unusual Items
- Management increased the 2012 capital expenditure budget from $884 million to $1.062 billion. The budget included $912 million for development, $74 million for infrastructure primarily related to saltwater disposal, and other spending for leasehold, seismic, well-services and corporate needs.
- Management stated that cash on hand, operating cash flow and revolver availability were expected to be sufficient to fund the 2012 budget, while noting that developing the full identified drilling inventory would require substantially more capital.
- Oasis was expanding oil-gathering and saltwater-disposal infrastructure. Approximately 60% of gross operated oil production flowed through a third-party gathering system at quarter-end, with management expecting more than 80% by mid-2013. Management also expected operated water flowing through its pipeline system to reach approximately 50% by year-end 2012.
- On October 2, 2012, the revolving facility borrowing base increased from $500 million to $750 million, although lender commitments remained $500 million. The amendment added a minimum consolidated EBITDAX-to-interest-expense covenant of 2.5-to-1.
- Commodity prices, transportation capacity, service costs, rig and personnel availability, reserve estimates, capital access, environmental and regulatory matters, litigation, customer and derivative-counterparty credit, and operating execution were identified as principal risks.
- Unusual or non-cash items included a $27.7 million third-quarter unrealized derivative loss, $2.6 million of year-to-date impairment charges on unproved properties, and $6.6 million of year-to-date stock-based compensation expense.
- Contractual obligations totaled approximately $2.086 billion, including $1.2 billion of senior notes, $725.2 million of estimated note interest, $50.4 million of drilling-rig commitments and $75.4 million of volume commitments.
- No material changes to previously disclosed risk factors were reported. Management stated that disclosure controls were effective, while testing of controls related to a new accounting and land software system remained ongoing.
Important Facts for Investors to Verify
- Verify the issuer identity: the supplied document is Oasis Petroleum Inc., whereas the request identifies Chord Energy Corp.
- Reconcile production growth with capital intensity, DD&A per Boe and future funding requirements.
- Assess the impact of the $1.2 billion fixed-rate debt load, contractual interest obligations and applicable note and revolver covenants.
- Review derivative volumes, floors, ceilings, sub-floors and swaps because mark-to-market changes materially affected reported earnings.
- Evaluate exposure to Williston Basin transportation constraints, regional price differentials, service-cost inflation and availability of rigs and completion crews.
- Confirm the October 2012 borrowing-base amendment and subsequent derivative transactions, which occurred after the September 30 balance-sheet date.