Exploration & Production | Quarterly / Earnings Reports | First Quarter (1Q) Update
Oasis Sheds Non-Op Properties, Cuts Well Costs in 1Q
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Oasis Petroleum Inc. has reported financial results for the quarter ended March 31, 2014 and provided an operational update.
Highlights include:
- Completed the sale of certain non-operated properties in its Sanish project area and other non-operated leases adjacent to its Sanish position for cash proceeds of approximately $321.9 million, on March 5, 2014.
- Increased average daily production to 42,856 barrels of oil equivalent per day. Excluding production from Sanish in the fourth quarter of 2013 and the first quarter of 2014, Oasis grew production 5% quarter over quarter.
- Expects production in the second quarter of 2014 to range between 43,000 and 46,000 Boepd.
- Grew Adjusted EBITDA to a record $239.8 million in the first quarter of 2014.
- Invested capital expenditures of $307.5 million in the first quarter of 2014.
- Lowered well costs to $7.2 million, including the impact of Oasis Well Services.
- Plans to complete over 20% of its wells during the second half of 2014 with slickwater, due to encouraging early production uplift of more than 25% in the areas tested and analyzed.
Thomas B. Nusz, Oasis' Chairman and Chief Executive Officer, commented: "Oasis continues to execute and deliver on expectations, as we produced in the middle of our production range and continued to drive down well costs in the first quarter in spite of harsh weather conditions. Our first quarter well costs were approximately $7.2 million, including the CapEx savings of $0.4 million per well realized from OWS, as we completed approximately 80% of our wells from multi-well pads and continued to optimize drilling and completion costs by area across our significant acreage position.
"We picked up an additional rig during the quarter, and we anticipate a sixteenth rig coming after the spring breakup season. The majority of our rigs will be operating on pads through the spring breakup season, and we expect to produce between 43,000 and 46,000 Boepd in the second quarter. In addition, we have been identifying and testing completion techniques outside of our base design. Specifically, early time results from slickwater completions point to greater than 25% production uplift in Indian Hills, Foreman Butte, and Red Bank. Based on encouraging results to date from slickwater tests and other completion technology, we intend to complete over 60% of our wells in the second half of 2014 with alternative completion techniques. We are focused on designs that may increase production or reduce costs, ultimately driving higher per well and per drilling spacing unit returns."
Operational and Financial Update
On March 5, 2014, the Company completed the Sanish Divestiture for cash proceeds of approximately $321.9 million, including, and subject to further, customary post close adjustments, and recognized a gain of $183.4 million.
Average daily production by project area is listed in the following table:
The following table describes the Company's producing wells by project area in the Williston Basin as of March 31, 2014:
Additionally, the Company had 15 rigs running and had a backlog of gross operated wells waiting on completion of 25 wells in West Williston and 22 wells in East Nesson as of March 31, 2014.
The Company's average price per barrel of oil, without realized derivatives, was $89.66 in the first quarter of 2014, compared to$93.33 in the first quarter of 2013 and $85.87 in the fourth quarter of 2013. The Company's average price differential compared to NYMEX West Texas Intermediate ("WTI") crude oil index prices was 9% in the first quarter of 2014, compared to 1% in the first quarter of 2013 and 12% in the fourth quarter of 2013. At the beginning of the first quarter of 2014, the Company's price differentials to WTI increased due to the pipeline market continuing to weaken as a result of refinery down time and increased production from both the United States and Canada. More recently, the pipeline market has strengthened, and the Company's price differentials to WTI have decreased.
The sequential quarter-over-quarter increase in lease operating expenses per barrel of oil equivalent was primarily due to additional workover costs related to restoring wells that were down due to winter weather conditions and costs to protect producing wells from offsetting wells that are being completed by the Company and other operators. The Company expects LOE to trend down over time, as it believes it will be able to drive down LOE to pre-acquisition levels. Despite first quarter performance, the Company expects that it will be able to keep LOE in the $7.50 to $9.00 per Boe range for the full year, albeit at the high end of that range.
The increase in marketing, transportation and gathering expenses from the fourth quarter of 2013 to the first quarter of 2014 is due to higher operated volumes flowing through third party oil gathering pipelines in the first quarter of 2014. Currently, the Company is flowing approximately 75% of its gross operated oil production through these gathering systems. While transporting volumes through third party oil gathering pipelines increases marketing, transportation and gathering expenses, it improves oil price realizations by reducing transportation costs included in the Company's oil price differential for sales at the wellhead.
Production taxes as a percentage of oil and gas revenues were 9.6% in the first quarter of 2014, 9.1% in the first quarter of 2013 and 9.6% in the fourth quarter of 2013. The Company's production tax rate increased in the first quarter of 2014 compared to the first quarter of 2013 due to the decreased weighting of oil revenues on certain new wells in Montana that are subject to lower incentivized production tax rates.
Depreciation, depletion and amortization expenses totaled $91.3 million in the first quarter of 2014, $66.3 million in the first quarter of 2013 and $101.3 million in the fourth quarter of 2013. DD&A was $23.66 per Boe in the first quarter of 2014,$24.42 per Boe in the first quarter of 2013 and $26.14 per Boe in the fourth quarter of 2013. The decrease in the DD&A rate was a result of lower well costs for wells completed during 2013. In addition, during the first two months of 2014, the Company had production from the wells sold in the Sanish Divestiture, but these wells were not depreciated because the assets were held for sale, which lowered DD&A by $0.78 per Boe in the first quarter of 2014.
General and administrative expenses totaled $23.5 million in the first quarter of 2014, $13.9 million in the first quarter of 2013 and $28.1 million in the fourth quarter of 2013. The sequential quarter-over-quarter decrease in G&A expenses was primarily due to end-of-year compensation expenses and acquisition-related costs incurred in the fourth quarter of 2013. G&A expenses were $6.10 per Boe in the first quarter of 2014, $5.10 per Boe in the first quarter of 2013 and $7.25 per Boe in the fourth quarter of 2013. Amortization of stock-based compensation, which is included in the aggregate G&A expenses, was $4.5 million, or $1.17per Boe, in the first quarter of 2014 as compared to $2.3 million, or $0.84 per Boe, in the first quarter of 2013 and $3.6 million, or$0.92 per Boe, in the fourth quarter of 2013.
The Company recorded non-cash charges for the impairment of oil and natural gas properties of $0.8 million in the first quarter of 2014 related to unproved property leases that expired or have been forecasted to expire under current drilling plans, as compared to $0.5 million in the first quarter of 2013 and $0.4 million in the fourth quarter of 2013.
Interest expense was $40.2 million for the first quarter of 2014 compared to $21.2 million for the first quarter of 2013 and $41.7 million for the fourth quarter of 2013. The $1.5 million decrease from the fourth quarter of 2013 was primarily the result of less interest expense incurred due to lower borrowings under the Company's revolving credit facility during the three months endedMarch 31, 2014. Capitalized interest totaled $1.6 million for the first quarter of 2014, $0.8 million for the first quarter of 2013 and$1.4 million for the fourth quarter of 2013.
Income tax expense was $101.5 million for the three months ended March 31, 2014, resulting in an effective tax rate of 37.4%. The Company's income tax expense for the three months ended March 31, 2013 was recorded at 37.5% of pre-tax net income. The Company's effective tax rate is expected to continue to closely approximate the statutory rate applicable to the U.S. and the blended rate for each of the states in which the Company conducts business.
Adjusted EBITDA for the first quarter of 2014 was $239.8 million, a 25% increase over the first quarter of 2013 of $191.4 million, and a 6% increase from the fourth quarter of 2013 of $225.4 million. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income and net cash provided by operating activities, see "Non-GAAP Financial Measures" below.
For the first quarter of 2014, the Company reported net income of $170.0 million, or $1.70 per diluted share, as compared to net income of $51.9 million, or $0.56 per diluted share, for the first quarter of 2013. The Company's first quarter 2014 results were impacted by several non-cash or non-recurring items, including a $183.4 million gain on sale of properties for the Sanish Divestiture and a $15.4 million mark-to-market loss on derivative instruments. Excluding these items and their tax effect, the first quarter 2014 Adjusted Net Income (non-GAAP) was $64.8 million, or $0.65 per diluted share. Excluding similar non-cash items and their tax effect, Adjusted Net Income (non-GAAP) for the first quarter of 2013 was $62.4 million, or $0.67 per diluted share.
Capital Expenditures
The following table depicts the Company's exploration and production ("E&P") CapEx by project area and total CapEx by category:
(1) Total E&P CapEx include $3.1 million for OMS, primarily related to salt water disposal systems.
(2) Non-E&P CapEx include such items as administrative capital and capitalized interest.
(3) CapEx reflected in the table above differ from the amounts shown in the statement of cash flows in the Company's condensed consolidated financial statements because amounts reflected in the table above include accrued liabilities for capital expenditures, while the amounts presented in the statement of cash flows are presented on a cash basis.
Liquidity
On March 31, 2014, Oasis had total cash and cash equivalents of $56.3 million. As of March 31, 2014, the Company had $60.0 million of LIBOR loans and $5.2 million of outstanding letters of credit issued under its revolving credit facility, resulting in an unused borrowing base capacity of $1,434.8 million. On March 27, 2014, the lenders under the revolving credit facility (the "Lenders") completed their regular semi-annual redetermination of the borrowing base, resulting in an increase to the borrowing base from $1,500.0 million to $1,750.0 million. However, the Company elected to limit the Lenders' aggregate commitment to$1,500.0 million. The overall senior secured line of credit under the revolving credit facility is $2,500.0 million as of March 31, 2014.
