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Oasis Petroleum First Quarter 2021 Results

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   |    Tuesday,May 04,2021

Oasis Petroleum reported its Q1 2021 results.

1Q21 Operational and Financial Highlights:

  • Completed simplification of midstream business through sale of remaining interests in Bobcat DevCo and Beartooth DevCo to OMP and elimination of IDRs (the "Midstream Simplification");
  • Best-in-class balance sheet supported by strong free cash generation in 1Q21 and no debt under the Oasis revolver as of March 31, 2021;
  • Continued dedication to shareholder returns by implementing $100MM share repurchase program;
  • Declared $0.375/share dividend ($1.50/share annualized);
  • Net cash provided by operating activities was $190.4MM and net loss was $35.3MM;
  • Adjusted EBITDA to Oasis(1) was $126.0MM and E&P Free Cash Flow(1) was $93.5MM. Assuming the Midstream Simplification occurred on January 1, 2021 and excluding $3.3MM of severance expense incurred in 1Q21, Adjusted EBITDA to Oasis would be approximately $135.2MM;
  • Strong operating performance across the board on E&P metrics (see table below);
  • Oasis Midstream Partners (NASDAQ: OMP) announced a $0.01/unit increase to its distribution, which is reflected in Oasis's updated 2021 guidance;
  • Continued focus on ESG with strong natural gas and liquids pipeline capture, as well as dedication to strong governance exemplified by the separation of Board Chair and CEO.

E&P Metric

 

1Q21 Actual

 

1Q21 Guidance

         

Production (MBoe/d)

 

57.2

 

54.0 - 57.0

Production (Mbbl/d)

 

36.8

 

35.0 - 37.0

Differential to NYMEX WTI ($ per Bbl)

 

$1.58

 

$2.00 - $3.00

Natural gas realized price (as a % of Henry Hub)

 

127%

 

100%

E&P LOE ($ per Boe)

 

$9.92

 

$10.00 - $11.00

E&P GPT ($ per Boe)(1)

 

$3.76

 

$4.25 - $4.50

E&P Cash G&A ($MM)(1)(2)

 

$14.0

 

$11.0 - $12.0

Production taxes (as a % of oil and gas revenues)

 

6.6%

 

7.2% - 7.4%

E&P & Other CapEx(3)

 

$28.6

 

$11.0 - $12.0

Cash Interest ($MM)(1)

 

$2.9

 

$2.0 - $3.0

Cash taxes ($MM)

 

$-

 

$-

               

(1)

Non-GAAP financial measure. See "Non-GAAP Financial Measures" below for a reconciliation to the most directly comparable financial measures under United States generally accepted accounting principles ("GAAP").

(2)

Adjusted for severance expense of $3.3MM incurred in 1Q21 as part of the Company's cost reduction initiative, E&P Cash G&A would be approximately $10.7MM.

(3)

Other CapEx includes well services and administrative capital and excludes estimated capitalized interest.

"First quarter results demonstrate outstanding operational and financial performance, strong execution, and progress towards our key strategic initiatives," said Danny Brown. "Oasis continues to demonstrate a steadfast commitment to our new strategy of strong capital discipline and significant free cash flow generation as well as commitments to our environment, our social responsibilities and the sustainability of our enterprise. The quality of the Oasis team is impressive and their continued hard work has put our company in a great position to succeed going forward."

"My goal is to build on the accomplishments made by management and the board in a very short amount of time. In the first quarter alone, Oasis significantly reduced its cost structure, instituted a peer-leading executive compensation program, declared an inaugural dividend, simplified its midstream business, and initiated a share repurchase program. Oasis represents a compelling investment opportunity, and we will continue to be aggressive and pursue strategies to unlock value."

Financial & Ops Update / Outlook

Oasis is updating its February FY21 volume and CapEx guidance to reflect 1Q21 actual performance and the Williston acquisition. For the purposes of guidance, the acquisition is modeled to close June 30, 2021. At $55/bbl WTI and $2.50/mmBtu NYMEX gas, Oasis is now expecting in excess of $200MM of free cash flow in 2021, including the impacts of hedges. The accretive transaction and the Company's dedication to shareholder returns supports an approximately 33% increase in the dividend post closing to $0.50/share ($2.00 annualized).

Updated highlights based on adjusted E&P metrics include:

  • Oasis's original 2021 drilling and completion plan disclosed in February remains intact. Acquired volumes are expected to decline from current levels throughout 2021 as Oasis integrates the new assets and prioritizes free cash generation;
  • 2021 CapEx increased $5MM - $10MM to reflect incremental workover associated with acquired assets;
  • Updating oil and gas differential guidance to reflect strong 1Q21 performance and updated outlook;
  • Lowering GPT and production tax guidance reflecting strong 1Q21 performance and updated outlook;
  • E&P Cash G&A guidance of $43MM - $46MM, which includes the impact of $3.3MM of 1Q21 severance expense. Oasis now plans to exit 2021 at $1.25 - $1.35 per Boe, below original expectations of $1.60 per Boe;
  • 2Q21 volumes are expected to be 52-55 MBoe/d (65% oil), in line with prior expectations;
  • 2Q21 E&P CapEx is expected to be $75MM - $90MM reflecting deferred 1Q21 spending. Following the Midstream Simplification, Oasis no longer has CapEx for its ownership interest in OMP;
  • Oasis is currently evaluating various development scenarios for 2022 and beyond with the objective of optimizing operational efficiency, returns on capital, and sustainable free cash generation.

The following table presents previously announced full-year 2021 guidance and updated guidance for full-year 2021 and the second quarter of 2021:

E&P Metric

 

February FY21
Guidance

 

Updated FY21
Guidance

 

2Q21 Guidance

Production (MBoe/d)

 

57.0 - 60.0

 

67.5 - 71.0

 

52.0 - 55.0

Production (Mbbl/d)

 

37.5 - 39.0

 

44.5 - 47.0

 

33.5 - 35.5

Differential to NYMEX WTI ($ per Bbl)

 

$2.00 - $3.00

 

$1.50 - $2.75

 

$1.75 - $2.75

Natural gas realized price (as a % of Henry Hub)

 

100%

 

110%

 

100%

E&P LOE ($ per Boe)

 

$9.50 - $10.50

 

$9.50 - $10.50

 

$10.50 - $11.50

E&P GPT ($ per Boe)(1)

 

$4.00 - $4.25

 

$3.75 - $4.00

 

$3.75 - $4.00

E&P Cash G&A ($MM)(2)

 

$42 - $45

 

$43 - $46

 

$9.5 - $11.5

Production taxes (as a % of oil and gas revenues)

 

7.2% - 7.4%

 

7.1% - 7.3%

 

7.1% - 7.3%

E&P & Other CapEx(3)

 

$225 - $235

 

$230 - $245

 

$75 - $90

Cash Interest ($MM)

 

$9 - $10

 

$28 - $31

 

$0.5 - $1.5

Cash taxes ($MM)(4)

 

$14 - $26

 

$20 - $36

 

$19 - $23

               

(1)

Excludes effect of non-cash valuation charges on pipeline imbalances and benefits from midstream segment for crude oil gathering and transportation services.

(2)

Excludes non-cash equity-based compensation expenses included in the E&P segment.

(3)

Includes well services and administrative capital and excludes estimated capitalized interest.

(4)

Reflects $50-$60/bbl WTI (vs. $40-$50/bbl WTI prior), $2.50/mmBtu NYMEX gas, $6MM in cash taxes associated with the Midstream Simplification, and the Williston Basin acquisition. 2Q21 guidance reflects expected cash taxes to be paid for 1H21 and includes approximately $6MM in cash taxes associated with the Midstream Simplification.

Progress on Strategy

  • Governance: Consistent with its dedication to ESG-related opportunities, Oasis separated the positions of Board Chair and CEO. Danny Brown was appointed CEO on April 14, 2021 and Douglas E. Brooks will continue as independent Board Chair. The Board of Directors is 86% independent. Additionally, Oasis enacted a peer-leading executive compensation program in January 2021 with 75% of incentive pay tied to returns.
  • Best-in-class balance sheet: Pro forma for the announced transaction, Oasis is expected to be less than 1.0x levered, and strong free cash flow generation will drive leverage down over time. The Company is targeting leverage below 1.0x to ensure financial strength, sustainability of operations, and return of capital to shareholders.
  • Capital allocation committee: The capital allocation committee continues to evaluate and influence investments, including the Williston Basin acquisition, through a rigorous, systematic framework for evaluating and approving projects and acquisitions to enhance returns. Efficiently developing Oasis's high-quality asset base and pursuing accretive acquisitions are paramount to delivering sustainable returns of cash to shareholders.
  • Cost reductions: Oasis has dramatically reduced its capital, operating, and overhead cost structure over the past two years. Additionally, the Company has identified significant further cost reductions and operating efficiencies, which it will be able to continue with the Williston Basin acquisition.
  • Commitment to sustainability: Oasis is dedicated to producing a cleaner, low-cost barrel, while being engaged with local communities and conscious of stakeholder interests. The Company continues peer-leading gas capture in the Williston Basin where it is also capturing essentially all its liquids on pipeline instead of truck.
  • Enterprise risk management: Oasis has codified an enterprise risk management system to ensure organizational reliability and to protect against possible disruptions. Oasis has implemented new systems to effectively manage processes and mitigate risk.
  • Midstream optionality: Management took aggressive action to simplify its midstream business through the Midstream Simplification in March 2021. Management continues to believe its ownership in OMP is a source of unrecognized value and has prioritized evaluating value creation options in the near-term.

The following table presents select operational and financial data for the periods presented:

 

1Q21

 

1Q20

Production data:

     

Crude oil (Bopd)

36,807

   

54,103

 

Natural gas (Mcfpd)

122,388

   

155,776

 

Total production (Boepd)

57,205

   

80,066

 

Percent crude oil

64.3

%

 

67.6

%

Average sales prices:

     

Crude oil, without derivative settlements ($ per Bbl)

$

56.09

   

$

43.22

 

Differential to NYMEX WTI ($ per Bbl)

1.58

   

3.19

 

Crude oil, with derivative settlements ($ per Bbl)

49.11

   

44.24

 

Crude oil derivative settlements - net cash receipts (payments) ($MM)

(23.1)

   

5.0

 

Natural gas, without derivative settlements ($ per Mcf)(1)

5.41

   

1.86

 

Natural gas, with derivative settlements ($ per Mcf)(1)

5.46

   

1.86

 

Natural gas derivative settlements - net cash receipts ($MM)

0.5

   

-

 

Selected financial data ($MM):

     

Revenues:

     

Crude oil revenues

$

185.8

   

$

212.8

 

Natural gas revenues

59.6

   

26.3

 

Purchased oil and gas sales

48.5

   

86.3

 

Midstream revenues

61.3

   

56.4

 

Other services revenues

0.2

   

6.0

 

Total revenues

$

355.4

   

$

387.8

 

Net cash provided by operating activities

$

190.4

   

$

107.8

 

Non-GAAP measures:

     

Adjusted EBITDA

$

169.2

   

$

167.0

 

Adjusted EBITDA attributable to Oasis

$

126.0

   

$

133.8

 

E&P Free Cash Flow

$

93.5

   

$

(83.4)

 

Select operating expenses:

     

Lease operating expenses

$

35.3

   

$

49.8

 

Midstream expenses

27.9

   

13.1

 

Other services expenses

-

   

4.9

 

GPT, including non-cash valuation charges

15.7

   

29.5

 

Non-cash valuation charges

(1.8)

   

0.2

 

Purchased oil and gas expenses

48.4

   

85.2

 

Production taxes

16.3

   

19.3

 

Depreciation, depletion and amortization

40.0

   

203.8

 

Impairment

-

   

4,823.7

 

Total select operating expenses

$

183.6

   

$

5,229.3

 
               

(1)

Prices include the value for natural gas and natural gas liquids.

G&A totaled $20.7MM in 1Q21 and $31.2MM in 1Q20. Amortization of equity-based compensation, which is included in G&A, was $2.2MM, or $0.43 per barrel of oil equivalent ("Boe"), in 1Q21. G&A for the Company's E&P segment, excluding G&A expenses attributable to other services, totaled $15.7MM in 1Q21 and $23.3MM in 1Q20. E&P Cash G&A (non-GAAP), excluding G&A expenses attributable to other services, non-cash equity-based compensation expenses and other non-cash charges, was $2.72 per Boe in 1Q21 and $2.29 per Boe in 1Q20. For a definition of E&P Cash G&A and a reconciliation of G&A to E&P Cash G&A, see "Non-GAAP Financial Measures" below.

Interest expense was $8.7MM in 1Q21 as compared to $95.8MM in 1Q20. Capitalized interest totaled $0.4MM in 1Q21 and $2.3MM in 1Q20. Cash Interest (non-GAAP) totaled $5.6MM in 1Q21 and $93.5MM in 1Q20. For a definition of Cash Interest and a reconciliation of interest expense to Cash Interest, see "Non-GAAP Financial Measures" below.

In 1Q21, the Company recorded an income tax benefit of $3.7MM, resulting in a 9.4% effective tax rate as a percentage of its pre-tax loss for the quarter.

In 1Q21, the Company reported a net loss of $43.6MM, or $2.20 per diluted share, as compared to a net loss of $4,310.9MM, or $13.61 per diluted share, in 1Q20. Excluding certain non-cash items and their tax effect, Adjusted Net Income Attributable to Oasis (non-GAAP) was $86.2MM, or $4.34 per diluted share, in 1Q21, as compared to Adjusted Net Loss Attributable to Oasis of $62.8MM, or $0.20 per diluted share, in 1Q20. Adjusted EBITDA (non-GAAP) in 1Q21 was $169.2MM, as compared to Adjusted EBITDA of $167.0MM in 1Q20, which included $37.4MM for derivatives monetized in 1Q20. For definitions of Adjusted Net Income (Loss) Attributable to Oasis and Adjusted EBITDA and reconciliations to the most directly comparable financial measures under GAAP, see "Non-GAAP Financial Measures" below.

Capital Expenditures and Completions

The following table presents the Company's total capital expenditures ("CapEx") by category for the period presented:

 

1Q21

CapEx ($MM):

 

E&P

$

28.6

 

Other(1)

0.4

 

Total CapEx before midstream

29.0

 

Midstream(2)

0.3

 

Total CapEx

$

29.3

 
               

(1)

Other CapEx includes capitalized interest of $0.4MM for 1Q21.

(2)

Midstream CapEx attributable to OMP was $0.2MM for 1Q21.

Oasis did not complete any operated wells in the Williston Basin or Permian Basin during 1Q21.

Dividend Declaration

Oasis declared a dividend of $0.375 per share ($1.50/share annualized) for the first quarter of 2021 for shareholders of record as of May 17, 2021, payable on May 31, 2021.

Balance Sheet and Liquidity

The following table depicts the Company's key balance sheet statistics and liquidity. Debt is calculated in accordance with respective credit facility definitions. The debt held at Oasis and OMP is not cross-collateralized and guarantors under the Oasis credit facility are not responsible for OMP debt.

1Q21 ($MM)

OAS

 

OMP

 

Consolidated

Revolving credit facility

$

500.0

   

$

450.0

   

$

950.0

 

Elected commitments

450.0

   

450.0

   

900.0

 

Revolver borrowings

-

   

234.0

   

234.0

 

Senior notes

-

   

450.0

   

450.0

 

Total debt

-

   

684.0

   

684.0

 

Cash

105.9

   

7.2

   

113.1

 

Letters of credit

1.3

   

5.5

   

6.8

 

Liquidity

$

554.6

   

$

217.7

   

$

772.3

 

Hedging Activity

The Company's crude oil contracts settle monthly based on the average NYMEX West Texas Intermediate crude oil index price ("NYMEX WTI") for fixed price swaps and costless collars. The Company's natural gas contracts settle monthly based on the average NYMEX Henry Hub natural gas index price ("NYMEX HH") for fixed price swaps. As of May 3, 2021, the Company had the following outstanding commodity derivative contracts:

   

2Q21

 

2H21

 

1H22

 

2H22

 

2023

Crude Oil (Volume in MBopd)

                   

Fixed Price Swaps

                   

Volume

 

29.0

   

29.0

   

19.0

   

19.0

   

14.0

 

Price ($ per Bbl)

 

$

42.09

   

$

42.09

   

$

42.74

   

$

42.74

   

$

43.68

 

Two-Way Collars

                   

Volume

 

-

   

3.0

   

3.0

   

-

   

-

 

Floor ($ per Bbl)

 

$

-

   

$

45.00

   

$

45.00

   

$

-

   

$

-

 

Ceiling ($ per Bbl)

 

$

-

   

$

63.82

   

$

63.82

   

$

-

   

$

-

 

Total Crude Oil Volume

 

29.0

   

32.0

   

22.0

   

19.0

   

14.0

 
                     

Natural Gas (Volume in MMBtupd)

                   

Fixed Price Swaps

                   

Volume

 

40,000

   

40,000

   

30,000

   

-

   

-

 

Price ($ per MMBtu)

 

$

2.84

   

$

2.84

   

$

2.82

   

$

-

   

$

-

 

Total Natural Gas Volume

 

40,000

   

40,000

   

30,000

   

-

   

-

 

The March 2021 crude oil derivative contracts settled at a net payable of $18.2MM, which was paid in April 2021 and will be included in the Company's 2Q21 derivative settlements.


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