Chord Energy Corp. (formerly Oasis Petroleum Inc.) — Q1 2014 Form 10-Q Summary
Business context and reporting period
The supplied filing is for Oasis Petroleum Inc., not Chord Energy Corp.; Chord Energy was formed later. This summary therefore describes Oasis Petroleum’s unaudited quarterly report for the three months ended March 31, 2014, filed May 7, 2014.
Oasis was an independent exploration and production company focused on unconventional oil and natural gas resources in the North Dakota and Montana portions of the Williston Basin. It also operated well services and midstream businesses.
Financial performance and condition
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Total revenue | $349.5 million | $248.3 million | Up 41% |
| Operating income | $329.1 million | $118.0 million | Up $211.1 million |
| Net income | $170.0 million | $51.9 million | Up $118.1 million |
| Diluted EPS | $1.70 | $0.56 | Up $1.14 |
| Net cash from operations | $208.3 million | $170.5 million | Up $37.7 million |
| Capital expenditures | $280.9 million cash basis; $307.5 million including accrued expenditures | $217.8 million cash basis | Higher investment |
- Reported operating margin was approximately 94.2% and net margin approximately 48.6%; both were substantially affected by the $183.4 million gain on the Sanish Divestiture. Excluding that gain, operating income was approximately $145.7 million, or 41.7% of revenue.
- Average production increased 42% to 42,856 Boe per day from 30,153 Boe per day. Oil-equivalent volumes rose to 3.857 million Boe from 2.714 million Boe.
- Oil revenue was $309.2 million and natural gas revenue was $22.6 million. Oil revenue benefited primarily from higher volumes, while the average oil price excluding derivative settlements declined to $89.66 per barrel from $93.33.
- Operating expenses increased to $203.8 million from $130.4 million. Lease operating expense rose to $10.37 per Boe from $7.18, partly due to workovers, winter-weather-related downtime and the larger producing-well base.
- Net derivative loss was $17.6 million, including a $15.4 million non-cash mark-to-market loss and a $2.2 million cash settlement loss. The net derivative liability was $20.1 million at March 31, 2014.
- Interest expense increased to $40.2 million from $21.2 million, reflecting the 2022 senior notes and revolving-credit borrowings.
- Cash and cash equivalents were $56.3 million, down from $91.9 million at December 31, 2013. The company reported a working-capital deficit of $101.8 million but total liquidity of $1.491 billion, including $1.435 billion of unused revolving-credit capacity.
- Long-term debt was $2.260 billion, down from $2.536 billion, primarily because of $275.6 million of revolving-credit principal repayments. Debt comprised $2.2 billion of senior unsecured notes and $60.0 million of revolver borrowings.
- The borrowing base increased from $1.5 billion to $1.75 billion, although the company elected to limit lender commitments to $1.5 billion. The company was in compliance with its credit-facility covenants.
Material changes versus the prior comparable period
- Production growth from well completions and 2013 acquisitions drove the increase in revenue and operating cash flow.
- Well services and midstream revenue increased to $17.7 million from $6.7 million.
- The company completed the Sanish Divestiture on March 5, 2014, receiving approximately $321.9 million and recording a $183.4 million gain. The transaction was structured as a tax-deferred Section 1031 like-kind exchange.
- Investing cash flow changed from a $217.8 million use in Q1 2013 to a $34.9 million source in Q1 2014 because divestiture proceeds exceeded capital spending.
- Financing cash use increased to $278.8 million, primarily from revolver repayments.
- General and administrative expense increased to $23.5 million from $13.9 million, reflecting organizational growth, higher compensation and stock-based compensation. Full-time employees increased to 461 from 294.
Guidance, outlook, risks and unusual items
- The 2014 capital expenditure budget was $1.425 billion, including $1.250 billion for drilling and completion, $60 million for infrastructure, $35 million for well services and $23 million for other non-E&P capital.
- Management stated that cash on hand, operating cash flow and revolver availability were expected to fund the 2014 budget, but noted that spending could change with commodity prices, drilling results, financing availability, costs, rig availability and acquisitions.
- During Q1, the company completed 40 gross, or 29.9 net, operated wells; 47 gross wells were awaiting completion and 19 gross wells were being drilled at quarter-end.
- Key risks include oil and natural gas price volatility, widening price differentials and transportation constraints, service and labor availability, reserve and production-estimation uncertainty, access to capital, operating and weather risks, environmental regulation, litigation, counterparty credit risk and derivative exposure.
- The company had contractual commitments including approximately $19.8 million for potential early termination of drilling contracts, $43.7 million under minimum-volume agreements, $5.0 million for water purchases, $11.1 million for electrical-facility cost sharing and $6.9 million of remaining drilling commitments.
- Oasis and its predecessor were named in a proposed Quebec class-action proceeding related to the July 2013 Lac-Mégantic crude-oil train derailment. Management said the claims were without merit and did not expect a material adverse effect, but the ultimate outcome was uncertain.
- Subsequent events included higher lease commitments, additional drilling contracts and new 2015 swap agreements covering 1.092 million barrels. No material changes to reported risk factors were disclosed.
Important facts for investors to verify
- Verify the issuer identity: the source filing is Oasis Petroleum Inc. and predates the Chord Energy name and corporate structure.
- Separate recurring operating performance from the $183.4 million divestiture gain when evaluating profitability and valuation.
- Reconcile the $1.425 billion capital budget with operating cash flow, liquidity, debt maturities and future borrowing-base redeterminations.
- Review derivative volumes, floors, ceilings, sub-floors and mark-to-market liabilities because hedging can limit upside and create settlement or collateral risks.
- Assess the effect of higher lease operating costs, transportation differentials, production taxes and service costs on per-Boe margins.
- Review the Sanish divestiture’s impact on future production, reserves, tax basis and cash generation.
- Monitor the Lac-Mégantic litigation, drilling and volume commitments, and the company’s compliance with debt covenants.