Business context and reporting period
The supplied filing is Oasis Petroleum Inc.’s Form 10-K for the fiscal year ended December 31, 2013, not a Chord Energy Corp. filing. It reports annual results and includes unaudited fourth-quarter data. Oasis was an independent exploration and production company focused on unconventional oil and natural gas resources in the North Dakota and Montana areas of the Williston Basin, primarily the Bakken and Three Forks formations.
At year-end, Oasis held 515,314 net leasehold acres, 227.9 MMBoe of proved reserves, and average 2013 production of 33,904 Boe/d. Approximately 87% of proved reserves were oil and 54% were proved developed.
Key financial and operating metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Total revenue | $1,142.0 million | $686.7 million | Up 66% |
| Oil and gas revenue | $1,084.4 million | $670.5 million | Up 62% |
| Operating income | $504.4 million | $277.0 million | Up 82% |
| Net income | $228.0 million | $153.4 million | Up 49% |
| Diluted EPS | $2.44 | $1.66 | Up 47% |
| Net cash from operations | $697.9 million | $392.4 million | Up 78% |
| Capital expenditures | $2,506.3 million | $1,148.6 million | Up 118% |
| Average daily production | 33,904 Boe/d | 22,469 Boe/d | Up 51% |
| Net proved reserves | 227.9 MMBoe | 143.3 MMBoe | Up 59% |
Operating margin was approximately 44.2% in 2013 versus 40.3% in 2012; net margin was approximately 20.0% versus 22.3%. Net income benefited from substantially higher production and realized oil prices, but was reduced by derivative losses and higher interest expense.
- Oil production was 11.133 million barrels; natural gas production was 7.450 Bcf.
- Average realized oil price, before derivative settlements, was $92.34/Bbl versus $85.22/Bbl in 2012. Including derivative settlements, the average was $91.61/Bbl versus $86.09/Bbl.
- Lease operating expense increased to $94.6 million from $54.9 million; DD&A increased to $307.1 million from $206.7 million.
- Net derivative loss was $35.4 million, comprising an $8.1 million cash settlement loss and a $27.3 million non-cash mark-to-market loss.
- Interest expense increased to $107.2 million from $70.1 million.
- Cash and cash equivalents were $91.9 million, compared with $213.4 million at year-end 2012. Working capital was negative $18.8 million.
- Total debt was $2.536 billion, consisting of $2.200 billion of senior unsecured notes and $335.6 million drawn under the revolving facility. The company reported $1.159 billion of unused revolving capacity and $1.251 billion of total liquidity, including cash.
Fourth-quarter 2013 data
| Metric | Q4 2013 | Q4 2012 |
|---|---|---|
| Revenue | $333.6 million | $214.3 million |
| Operating income | $122.1 million | $86.6 million |
| Net income | $54.5 million | $42.6 million |
| Average realized oil price | $85.87/Bbl | $86.82/Bbl |
| Average price differential to WTI | 12% | 2% |
Material changes versus the prior comparable period
- Production growth was driven by 250 gross wells brought on production during 2013, including 136 gross operated wells, and by acquired producing properties.
- Oasis acquired approximately 161,000 net acres through four transactions, including approximately 136,000 net West Williston acres purchased for $1.496 billion and approximately 25,000 net East Nesson acres acquired for $57.2 million.
- Proved reserves increased 59% to 227.9 MMBoe, while proved developed reserves increased 74% to 122.1 MMBoe. PV-10 increased 69% to $5.487 billion, and Standardized Measure increased to $3.728 billion.
- Capital spending excluding the major acquisitions declined 17% to $954.6 million, primarily because of lower well costs despite increased drilling and completion activity.
- Debt increased materially following the issuance of $1.0 billion of 6.875% senior unsecured notes due 2022. Oasis also issued 7.0 million common shares for net proceeds of approximately $314.4 million and used $264.4 million to repay revolving debt.
- Oasis formed Oasis Midstream Services in 2013 and transferred substantially all saltwater disposal and other midstream assets to it. Well services and midstream revenue increased to $57.6 million from $16.2 million.
- Assets held for sale totaled $137.1 million at year-end, primarily related to Sanish-area assets.
Guidance, outlook, risks and unusual items
- Management budgeted $1.425 billion of 2014 capital expenditures, including $1.250 billion for drilling and completion and $60 million for production-support infrastructure. The plan contemplated approximately 205 gross, or 147.8 net, operated wells.
- Management stated that 2014 spending could vary materially with commodity prices, drilling results, service availability, financing conditions and acquisitions. It expected cash, operating cash flow and available revolver capacity to fund the 2014 budget.
- Oasis expected to increase its well-service capacity to two fracturing fleets and targeted average connections to natural gas infrastructure for 90% of operated Bakken and Three Forks wells during 2014.
- In January 2014, Oasis agreed to sell certain Sanish and adjacent non-operated properties for approximately $333.0 million, subject to customary adjustments. The transaction was expected to close in the first quarter of 2014.
- Commodity-price exposure remained significant. Oil differentials widened in the second half of 2013 because of refinery downtime and increased U.S. and Canadian production. Derivative contracts reduced downside exposure but limited some upside and created earnings volatility.
- Principal risks included concentration of all production and proved reserves in the Williston Basin, transportation and gathering constraints, oil-price volatility, drilling and completion performance, capital availability, debt covenant compliance, seasonal weather, environmental liabilities, hydraulic-fracturing regulation, water disposal and flaring requirements.
- The company reported no material legal proceedings, no impairment of proved oil and gas properties, and $1.2 million of non-cash impairment charges on unproved properties.
- Oasis reported compliance with its revolving-credit financial covenants at December 31, 2013. The filing states that the independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts an investor should verify
- Confirm the issuer identity: the provided filing is for Oasis Petroleum Inc., whereas the request identifies Chord Energy Corp.
- Reconcile reserve growth and PV-10 to drilling additions, acquisitions, price assumptions and the approximately 46% share of reserves classified as proved undeveloped.
- Assess whether operating cash flow can sustainably fund the $1.425 billion capital program after interest, working-capital needs and required debt service.
- Review debt maturities, revolving-credit borrowing-base redeterminations, covenant definitions and the effect of the company’s concentrated Williston Basin exposure.
- Evaluate the impact of wider oil differentials, transportation capacity, rail and pipeline availability, and derivative floors, ceilings and sub-floors on realized prices.
- Verify the closing, proceeds and use of funds from the planned approximately $333 million Sanish-area divestiture.
- Review acquisition valuation assumptions, title and environmental contingencies, asset-retirement obligations and the finalization of the preliminary purchase-price allocations.