Oasis Petroleum Inc. Form 10-K Summary
Filing and period: The provided filing is Oasis Petroleum Inc.’s Form 10-K for the fiscal year ended December 31, 2011, filed February 28, 2012. It does not appear to be a Chord Energy Corp. filing, and it reports annual rather than quarterly results. Fourth-quarter data are provided on an unaudited basis.
Business context
Oasis was an independent exploration and production company focused primarily on unconventional oil and natural gas resources in the Montana and North Dakota portions of the Williston Basin, including the Bakken and Three Forks formations. At year-end, it held 307,430 net leasehold acres, 78.7 MMBoe of proved reserves, and average daily production of 10,724 Boe.
- 2011 operated drilling: 63 gross wells, or 49.2 net wells, completed and placed on production.
- Year-end proved reserves were 88% oil and 46% proved developed.
- The company sold its remaining Barnett Shale assets in November 2011 and became effectively focused on the Williston Basin.
Key financial metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Oil and gas revenue | $330.4 million | $128.9 million | +156% |
| Operating income | $152.6 million | $22.0 million | Significant increase |
| Net income (loss) | $79.4 million | $(29.7) million | Turnaround to profitability |
| Basic and diluted EPS | $0.86 | $(0.61) | Turnaround |
| Net cash from operating activities | $176.0 million | $49.6 million | +255% |
| Net cash used in investing activities | $(629.4) million | $(309.5) million | Higher investment |
| Capital expenditures | $666.0 million | $352.4 million | +89% |
| Cash and cash equivalents | $470.9 million | $143.5 million | +228% |
| Short-term investments | $20.0 million | None reported | New balance |
| Long-term debt | $800.0 million | None reported | New debt issuance |
Calculated margins were approximately 46.2% operating and 24.0% net in 2011, compared with approximately 17.1% operating and negative 23.0% net in 2010. Net cash from operations represented approximately 53.3% of revenue.
- Net production increased 106% to 3,914 MBoe, from 1,900 MBoe in 2010.
- Average oil price excluding realized derivatives increased to $86.18 per barrel from $69.60.
- Average oil price including realized derivative settlements was $85.15 per barrel.
- Lease operating expense increased to $34.1 million, or $8.70 per Boe, from $14.6 million, or $7.67 per Boe.
- DD&A increased to $75.0 million but declined to $19.16 per Boe from $19.91 per Boe.
- Income tax expense was $46.8 million, primarily deferred, with a 37.1% effective tax rate.
Fourth-quarter information
| Metric | Fourth quarter 2011 | Fourth quarter 2010 |
|---|---|---|
| Revenue | $116.9 million | $49.1 million |
| Operating income | $54.3 million | $13.0 million |
| Net income (loss) | $(13.4) million | $1.6 million |
The fourth-quarter 2011 net loss occurred despite higher revenue and operating income. The filing does not provide a single concise explanation for the quarterly loss; investors should reconcile the quarter to the effects of interest expense, income taxes, derivatives and other corporate items.
Material changes versus the prior comparable period
- Production and revenue more than doubled because of substantial drilling and completion activity and higher commodity prices.
- Proved reserves increased 98% to 78.7 MMBoe from 39.8 MMBoe. PV-10 increased 173% to $1.904 billion from $697.8 million, while the GAAP standardized measure increased to $1.319 billion from $485.7 million.
- Capital spending increased materially to support accelerated Bakken and Three Forks development.
- The company issued $400 million of 7.25% senior unsecured notes due 2019 and $400 million of 6.5% senior unsecured notes due 2021. Interest expense increased to $29.6 million from $1.4 million.
- The revolving credit facility was expanded to a $1 billion commitment, with a $350 million borrowing base at year-end. No borrowings or letters of credit were outstanding.
- General and administrative expense increased to $29.4 million from $19.7 million as employees increased to 146 from 62. The company recorded $3.7 million of restricted-stock compensation in 2011, compared with $8.7 million of primarily non-cash stock compensation in 2010.
- Unproved-property impairment declined to $3.6 million from $12.0 million. No impairment of proved oil and gas properties was recorded in either year.
Liquidity, debt and cash commitments
- Year-end liquidity was reported at $840.9 million, consisting of $490.9 million of cash, cash equivalents and short-term investments plus $350.0 million of unused borrowing-base capacity.
- The company reported a $441.1 million working-capital surplus and compliance with revolving-credit financial covenants.
- Contractual cash obligations totaled $1.523 billion, including $800.0 million of senior notes, $476.9 million of related interest payments, $102.4 million of fracturing-service commitments, $63.2 million of drilling-rig commitments and $54.5 million of volume commitments.
- The company had no publicly announced share-repurchase program and did not expect to pay dividends.
Guidance, outlook and management commentary
- The 2012 capital expenditure budget was $884 million, including $846 million of E&P spending and $38 million of non-E&P spending.
- The plan included $758 million for drilling and completing wells, $57 million for infrastructure, $25 million for leasehold activity, $6 million for seismic and other testing, $15 million for Oasis Well Services and $23 million of other non-E&P capital.
- Management planned approximately 108 gross, or 74.0 net, operated wells in 2012 and expected to adjust activity based on market conditions and drilling results.
- Management projected 2012 lease operating costs of $6.00 to $8.00 per Boe, compared with $8.70 per Boe in 2011, partly because of salt-water-disposal infrastructure.
- Management stated that cash on hand, operating cash flow and 2011 note proceeds were expected to fund the 2012 budget, but acknowledged that developing the full drilling inventory would require substantially more capital.
- The company expected derivatives to stabilize a portion of operating cash flow, while recognizing that collars could limit upside from higher oil prices.
Risks, contingencies and unusual items
- Results were highly sensitive to oil prices, production volumes, drilling results, service costs and access to capital.
- All proved reserves and production were concentrated in the Williston Basin, creating geographic, weather, infrastructure and regulatory concentration risk.
- Transportation and refining constraints caused potentially significant discounts between Bakken crude and WTI; the filing specifically noted substantially lower Bakken prices in February 2012.
- Approximately 54% of proved reserves were proved undeveloped. Net undeveloped acreage expiring in 2012, 2013 and 2014 totaled 31,905, 35,055 and 18,192 acres, respectively.
- Hydraulic fracturing, water management, environmental compliance, greenhouse-gas rules and potential regulatory changes could increase costs or delay development.
- Derivative contracts covered approximately 5.3 million barrels for 2012, 2.8 million for 2013 and 217,000 for 2014. The year-end net derivative position was a $5.1 million liability.
- Subsequent events included a new January 2012 volume commitment of approximately $13.0 million and a February 2012 conversion of certain deferred-premium puts into three-way collars.
- The filing reports no material legal proceedings. Management and the independent auditor concluded that internal control over financial reporting was effective at December 31, 2011, and that a previously identified material weakness had been remediated.
Investor verification checklist
- Verify the issuer identity: the source filing is for Oasis Petroleum Inc., not Chord Energy Corp.
- Reconcile the fourth-quarter net loss of $13.4 million with the full-year net income of $79.4 million.
- Assess whether the $884 million 2012 capital budget can be funded while maintaining leverage and covenant compliance.
- Review the sensitivity of reserves, PV-10 and cash flow to oil prices, Bakken differentials and reserve-price assumptions.
- Evaluate the development schedule and funding requirements for the large proved-undeveloped and broader drilling inventory.
- Review derivative floors, ceilings, sub-floors, premiums, counterparty exposure and the effect of hedges on realized prices.
- Monitor lease expirations, transportation capacity, water-disposal infrastructure and the company’s contractual drilling and fracturing commitments.