Filing Overview
Important identification note: The supplied Form 10-Q is for Oasis Petroleum Inc., not Chord Energy Corp. It covers the unaudited quarter ended March 31, 2017 and was filed May 9, 2017. Oasis was an independent exploration and production company focused on unconventional oil and natural gas resources in the Williston Basin, with midstream and well services segments.
Financial Performance and Position
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Total revenue | $285.1 million | $130.3 million |
| Operating income (loss) | $20.1 million | $(75.2) million |
| Net income (loss) | $23.8 million | $(64.5) million |
| Diluted EPS | $0.10 | $(0.40) |
| Net cash from operating activities | $107.8 million | $(46.1) million |
| Adjusted EBITDA | $150.6 million | $132.9 million |
| Free cash flow | $8.5 million | $10.1 million |
- Revenue increased 119%, driven by higher commodity prices, increased production, a December 2016 Williston Basin acquisition and new bulk oil sales.
- Operating margin was approximately 7.0%, compared with a negative margin in Q1 2016. Net margin was approximately 8.4%.
- Production increased to 63,192 Boe per day from 50,315 Boe per day. Oil production was 4.435 million barrels and natural gas production was 7.512 Bcf.
- Oil sales price before derivative settlements was $47.03 per barrel, compared with $28.74; natural gas pricing was $3.81 per Mcf, compared with $1.44.
- Net gain on derivatives was $56.1 million, including $8.0 million of net cash settlement payments. Derivative gains materially benefited reported earnings but were volatile and non-cash in substantial part.
- Total assets were $6.19 billion and stockholders’ equity was $2.95 billion at March 31, 2017.
- Long-term debt was $2.31 billion, consisting principally of $368.0 million drawn under the revolving facility, $1.753 billion of senior unsecured notes and $300.0 million of convertible notes, net of discounts and financing costs.
- Cash and cash equivalents were $13.8 million. Reported liquidity was $785.8 million, including $772.0 million of unused committed borrowing capacity.
- Capital expenditures were $109.8 million on an accrued basis, while cash capital expenditures in investing activities were $96.0 million.
Material Changes Versus the Prior Comparable Period
- Oasis moved from a $64.5 million net loss to $23.8 million of net income, primarily because of higher realized commodity prices, increased production and derivative gains.
- Oil and gas revenue increased $119.9 million, or 102%. Total revenue also benefited from $27.6 million of bulk oil sales that did not occur in the prior-year quarter.
- Midstream revenue increased to $14.6 million from $7.0 million following the start-up of natural gas processing and oil gathering infrastructure. Well services revenue declined 6% to $5.6 million.
- Lease operating expense increased to $43.9 million from $31.1 million, and production taxes increased to $20.3 million from $10.8 million, reflecting higher production and operating activity.
- DD&A increased modestly to $126.7 million, but the DD&A rate declined to $22.27 per Boe from $26.74 per Boe.
- Interest expense decreased to $36.3 million from $38.7 million, primarily due to 2016 senior note repurchases, partly offset by the convertible notes and revolving-facility borrowings.
- Operating cash flow improved by $153.9 million year over year, but free cash flow declined slightly because of higher capital expenditures and cash interest.
- The company completed 13 gross, or 9.7 net, operated wells and ended the quarter with 82 gross operated wells awaiting completion.
Guidance, Outlook, Risks and Unusual Items
- Management budgeted 2017 capital expenditures of $605.0 million, including $410.0 million for drilling and completion, $110.0 million for midstream infrastructure and $85.0 million for other capital expenditures. Spending could change with commodity prices, drilling results, financing availability and other conditions.
- Management stated that cash on hand, operating cash flow, derivative settlements and revolver availability were expected to fund the 2017 capital budget and obligations, but noted that substantially more capital would be required to develop the full drilling inventory.
- On April 10, 2017, the borrowing base was increased from $1.15 billion to $1.60 billion, while elected commitments remained $1.15 billion. The next redetermination was scheduled for October 1, 2017.
- The company was in compliance with its credit facility covenants. Reported EBITDAX-to-interest was 3.7x versus a 2.5x minimum, and the current ratio was 3.0x versus a 1.0x minimum.
- Commodity price exposure remained significant. The company used swaps and collars covering a significant portion of expected production, which reduced downside exposure but limited participation in rising prices. A 10% increase in crude prices was estimated to reduce derivative fair value by approximately $52.6 million.
- A lawsuit filed by Mirada in March 2017 sought more than $100 million in damages and declaratory relief relating to Wild Basin operating and midstream rights. Management considered the claims without merit, but stated that an adverse result or significant settlement could materially affect operations, financial condition and future Wild Basin development.
- The company recorded $2.7 million of impairment related to expiring unproved acreage and adopted ASU 2016-09, resulting in a $2.7 million cumulative-effect increase to retained earnings.
- The filing identifies oil and gas prices, transportation capacity, service costs, qualified personnel, environmental matters, customer and counterparty credit risk, reserve estimates and access to capital as key risks.
Investor Verification Priorities
- Confirm the issuer identity: the provided filing is Oasis Petroleum Inc. rather than Chord Energy Corp.
- Reconcile reported earnings and adjusted metrics for the effect of derivative fair-value gains and cash settlements.
- Verify production growth, realized prices, hedge volumes, strike prices and future derivative liabilities.
- Assess debt maturities, revolver borrowing-base availability, covenant headroom and the company’s ability to fund the $605.0 million capital budget.
- Monitor the Mirada litigation and any potential effects on Wild Basin operations, midstream ownership and revenues.
- Evaluate whether higher operating costs, production taxes and capital spending could reduce free cash flow if commodity prices weaken.
- Review the impact of the December 2016 Williston Basin acquisition on reserves, production, leverage and future development requirements.