Business Context and Reporting Period
This filing is a Form 10-K for Oasis Petroleum Inc., not Chord Energy Corp. It covers the fiscal year ended December 31, 2012, with quarterly data for the fourth quarter of 2012. Oasis was an independent exploration and production company focused on unconventional oil and natural gas resources in the North Dakota and Montana regions of the Williston Basin. The company reported 335,383 net leasehold acres, 143.3 MMBoe of estimated proved reserves, and average 2012 production of 22,469 Boe/d.
Key Financial Metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Total revenues | $686.7 million | $330.4 million | +108% |
| Oil and gas revenues | $670.5 million | $330.4 million | +103% |
| Operating income | $277.0 million | $152.6 million | +82% |
| Operating margin | 40.3% | 46.2% | Down |
| Net income | $153.4 million | $79.4 million | +93% |
| Net margin | 22.3% | 24.0% | Down |
| Basic EPS | $1.66 | $0.86 | +93% |
| Net cash from operations | $392.4 million | $176.0 million | +123% |
| Capital expenditures | $1,148.6 million | $666.0 million | +72% |
| Net cash used in investing | $1,038.6 million | $629.4 million | More investment |
Oil production increased to 7.533 million barrels from 3.732 million barrels, while natural gas production increased to 4.146 Bcf from 1.092 Bcf. Average oil sales price excluding derivative settlements declined slightly to $85.22/Bbl from $86.18/Bbl. Realized oil price including derivatives increased to $86.09/Bbl from $85.15/Bbl. Lease operating expense decreased to $6.68 per Boe from $8.36 per Boe, while DD&A increased to $25.14 per Boe from $19.16 per Boe.
The company recorded a $34.2 million net gain on derivative instruments, including $27.6 million of unrealized gains and $6.5 million of realized gains. Interest expense increased to $70.1 million from $29.6 million because of additional senior notes.
Liquidity, Debt and Balance Sheet
- Cash and cash equivalents were $213.4 million, and short-term investments were $25.9 million at December 31, 2012.
- Total liquidity was reported at approximately $737.1 million, consisting of $239.3 million of cash and short-term investments and $497.8 million of available revolving credit capacity.
- The company had no borrowings under its revolving credit facility and $2.2 million of outstanding letters of credit.
- Long-term debt was $1.2 billion, consisting of $400 million of 7.25% notes due 2019, $400 million of 6.5% notes due 2021 and $400 million of 6.875% notes due 2023.
- Total contractual cash obligations were $2.06 billion, including $1.2 billion of principal and $712.2 million of scheduled interest on senior unsecured notes.
- Working capital was positive at approximately $161.9 million at year-end.
Material Changes Versus the Prior Comparable Period
- Average daily production rose 110%, primarily from the completion of 117 gross, or 95.8 net, operated Bakken and Three Forks wells.
- Estimated proved reserves increased 82% to 143.3 MMBoe from 78.7 MMBoe. Proved developed reserves increased 95% to 70.0 MMBoe.
- Reserve PV-10 increased 70% to $3.24 billion from $1.90 billion. PV-10 is a non-GAAP measure and excludes future income taxes.
- Capital expenditures increased 72% to $1.15 billion, causing cash to decline by $257.4 million despite higher operating cash flow.
- The company issued $400 million of 6.875% senior unsecured notes in July 2012, increasing total debt from $800 million to $1.2 billion.
- Well Services began generating external revenue in 2012, contributing $16.2 million of consolidated revenue.
- General and administrative expense increased to $57.2 million from $29.4 million, partly because employees increased to 281 from 146 and stock-based compensation increased.
- The company recorded $3.6 million of non-cash impairment charges on unproved properties; no impairment was recorded on proved properties.
- Fourth-quarter 2012 revenue was $214.3 million, operating income was $86.6 million and net income was $42.6 million, compared with fourth-quarter 2011 revenue of $116.9 million, operating income of $54.3 million and a net loss of $13.4 million.
Guidance, Outlook, Risks and Unusual Items
Management budgeted approximately $1.02 billion of 2013 capital expenditures, including $897 million for drilling and completion, $43 million for infrastructure, $25 million for leasehold activities and $24 million of non-E&P capital. The plan contemplated approximately 128 gross, or 92.5 net, operated wells. Management stated that spending could vary materially with commodity prices, drilling results, service availability and market conditions.
- Commodity prices, especially oil prices, materially affect revenue, cash flow, reserve values, borrowing capacity and the ability to fund development.
- All proved reserves and production were concentrated in the Williston Basin, creating geographic, transportation, weather and infrastructure risk.
- Transportation constraints had caused significant price differentials to WTI during the first half of 2012, although differentials narrowed in the second half as pipeline and rail capacity expanded.
- Approximately 73.3 MMBoe, or about 51% of proved reserves, were proved undeveloped. Development requires substantial capital, and actual well performance may differ from reserve estimates.
- Net negative reserve revisions of approximately 2.0 MMBoe reflected below-forecast well performance in portions of the acreage.
- Lease expirations represented 22,461 net acres in 2013, 9,970 net acres in 2014 and 35,011 net acres in 2015 unless production or other actions preserved the acreage.
- Hydraulic fracturing, produced-water disposal, air emissions, climate regulation and other environmental requirements could increase costs or delay operations.
- Derivative contracts reduced price volatility but limited some upside and created counterparty, settlement and mark-to-market risks. Outstanding derivative notional volumes totaled approximately 7.22 million barrels for 2013, 2.78 million for 2014 and 0.20 million for 2015.
- The filing reported no material legal proceedings and no off-balance-sheet arrangements. PricewaterhouseCoopers issued unqualified opinions on the financial statements and internal control over financial reporting.
Most Important Facts for Investors to Verify
- Confirm that this filing belongs to Oasis Petroleum Inc. and is not a Chord Energy Corp. filing.
- Reconcile the requested “2012 Q4” period with the filing’s annual reporting period and the separately disclosed fourth-quarter data.
- Assess whether operating cash flow can sustainably fund the approximately $1.02 billion 2013 capital program without additional debt or equity issuance.
- Review reserve assumptions, including the $94.68/Bbl oil price, $2.75/MMBtu natural gas price, 10% discount rate and expected development timing.
- Evaluate the impact of the $1.2 billion senior note balance, interest obligations and debt covenant restrictions.
- Review derivative volumes, floors, ceilings, sub-floors, counterparty exposure and the distinction between realized cash gains and unrealized accounting gains.
- Monitor Williston Basin transportation capacity and realized price differentials to WTI.
- Verify well performance, negative reserve revisions and the conversion of proved undeveloped reserves into producing reserves.
- Review lease expiration exposure, drilling rig commitments, volume commitments and asset retirement obligations.