HOUSTON, Feb. 26, 2019 /PRNewswire/ -- Oasis Petroleum Inc. (NYSE: OAS) ("Oasis" or the "Company") today announced financial and operational results for the quarter and year ended December 31, 2018 and provided its 2019 outlook.
Highlights
- Increased production guidance twice in 2018, adjusted for divestitures. Production volumes averaged 88.3 thousand barrels of oil equivalent per day ("MBoepd") (76.2% oil) in the fourth quarter of 2018, in-line with midpoint guidance. Production volumes averaged 82.5 MBoepd (76.5% oil) for the year ended December 31, 2018.
- Lowered lease operating expenses ("LOE") per barrels of oil equivalent ("Boe") by over 12% year over year to $6.44 per Boe for the year ended December 31, 2018.
- Completed and placed on production 121 gross (85.3 net) operated wells, including 114 gross (79.0 net) operated wells in the Williston Basin and 7 gross (6.3 net) operated wells in the Delaware Basin, while investing $942.2 million of exploration and production capital expenditures ("E&P CapEx"), which excludes acquisitions, other capital and midstream capital, during 2018.
- Closed and integrated the acquisition of approximately 22,000 net core acres in the over-pressured oil window of the Delaware Basin (the "Permian Basin Acquisition"). Additionally, Oasis purchased adjacent acreage at attractive pricing, bringing its total position to over 23,000 net acres in the Delaware Basin.
- Oasis's midstream subsidiary, Oasis Midstream Partners LP ("OMP"), completed the construction and startup of a second natural gas plant in Wild Basin, making Oasis the second largest natural gas processor in North Dakota.
- Successfully executed a divestiture "dropdown" of additional interests in midstream subsidiaries to OMP for $251.4 million, which increased Oasis's holdings of OMP common units and reduced debt.
- High-graded the portfolio since announcing the Permian Basin Acquisition including non-strategic divestitures of approximately $360 million, which helped reduce financial leverage.
- Net cash provided by operating activities was $996.4 million for the year ended December 31, 2018 and $234.4 million for the fourth quarter of 2018. Adjusted EBITDA, a non-GAAP financial measure, was $958.7 million for the year ended December 31, 2018 and $214.1 million for the fourth quarter of 2018. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss) including non-controlling interests and net cash provided by operating activities, see "Non-GAAP Financial Measures" below.
"2018 was a successful year for Oasis," said Thomas B. Nusz, Oasis's Chairman and Chief Executive Officer. "We focused on development of our core Williston asset, which drove full-year oil production up 20% vs. 2017, adjusted for the Delaware acquisitions and Bakken divestitures. Also in the Williston, OMP successfully started its new 200 million cubic feet per day plant in December which puts us in a great position to capture and realize the full value of our gas production in North Dakota. Separately, we continue to integrate our new Delaware asset and prepare for full-field development. Our technical learnings have validated the quality of this acreage, first year financial performance exceeded expectations, and we expect to realize exceptional returns and value creation in coming years."
"Additionally, throughout 2018 we high-graded our asset base through a series of non-core divestitures. Operationally, our team continues to do a tremendous job optimizing our cost structure. On the resource delineation side, in the Williston Basin, several strong well results at Painted Woods and Montana in the west and Cottonwood in the east heighten our confidence in the competitive position of these areas. At year-end 2018, Oasis had over 2,000 gross operated locations in the Williston and Delaware with breakeven pricing below $45 per barrel WTI. At our current completions pace, this represents over 20 years of development. While prices have weakened considerably since 2018, we have the asset quality, inventory depth, financial strength, midstream capabilities, and services to succeed at low prices."
"Oasis has an enviable asset base. We are in a formidable position to generate significant free cash flow in 2019 through prudent capital spending reductions and operating efficiencies. Free cash flow generation from the Williston is expected to fund growth at our core Delaware asset and reduce corporate debt. Consistent with our dedication to generating free cash flow, we entered into a capital expenditures arrangement with OMP for Bobcat DevCo's 2019 expansion capital expenditures that permits us to minimize midstream spending at the Oasis level. We are poised to succeed in the current environment. Oasis has the strategic, operating, and financial capabilities to drive capital efficiency, generate strong free cash flow, and deliver for our shareholders."
Midstream Update
OMP completed its new 200 MMscfpd natural gas processing plant in early December and has gradually ramped up volumes through February. OMP is now the second largest natural gas processor in the Williston Basin. OMP's gas plant is currently running at approximately 60% utilization, and now expects utilization to increase to over 90% by year-end 2019 consisting of both Oasis and third-party volumes. In late 2018, OMP successfully signed additional third-party agreements, which diversifies the revenue base and provides financial resiliency. OMP continues to pursue additional opportunities with third-parties to further increase the utilization of its gas gathering and processing infrastructure.
On February 22, 2019, Oasis entered into a capital expenditures arrangement (the "Capital Expenditures Arrangement") with OMP, allowing OMP to fund growth capital for Bobcat DevCo. As a result of this arrangement, Oasis's ownership in Bobcat DevCo is expected to decline from 75% to between approximately 64% and 66% by the end of the 2019 calendar year. The Company believes this arrangement is mutually beneficial to both Oasis and OMP, as it significantly reduces Oasis's midstream spending and OMP can accretively increase its leverage to Bobcat DevCo. Additionally, in 2019, Oasis is planning capital expenditures related to its retained interest in Williston Basin infrastructure of approximately $11 million to $13 million and midstream capital expenditures of approximately $8 million in the Delaware Basin.
The terms of the Capital Expenditures Arrangement were approved by the Board of Directors of the general partner of OMP following a unanimous recommendation for approval from the conflicts committee of the Board of Directors of the general partner of OMP, which consists entirely of independent directors. The conflicts committee was advised by Baird on financial matters and Richards, Layton & Finger, P.A. on legal matters. Oasis was advised by Vinson and Elkins L.L.P. on legal matters.
2019 Plan
Oasis constructed its 2019 plan based on being free cash flow positive at $50 WTI. In order to achieve this objective, the total E&P and Other CapEx plan has been reduced by approximately 40% year over year and is expected to range between $540 million and $560 million. Oasis is directing approximately 75% of its capital to the Williston Basin and approximately 25% to the Delaware Basin. The Company expects 85% of its E&P and Other CapEx to be invested in drilling and completions activities, including:
- Completing approximately 70 gross operated wells with a working interest of approximately 65% in the Williston Basin;
- Completing 9 to 11 gross operated wells with a working interest of approximately 90% in the Delaware Basin; and
- Cash flow from the Williston asset is expected to fund a small Delaware outspend in 2019. Oasis produced 88.3 MBoepd in the fourth quarter of 2018, and expects first quarter production to be essentially flat quarter over quarter.
Metric | Range |
Production (Boepd)(1) | |
Full Year 2019 | 86,000 to 91,000 |
Full Year Financial Metrics | |
LOE ($ per Boe) | $7.00 to $8.00 |
Marketing, transportation and gathering ("MT&G") ($ per Boe)(2) | $1.50 to $3.50 |
E&P Cash G&A ($ in millions)(3) | $77 - $81 |
Production taxes (% of oil and gas revenue) | 8.1% to 8.4% |
2019 CapEx Plan ($ in millions) | |
E&P & Other CapEx(4) | $540 - $560 |
Midstream CapEx | 150 - 170 |
Midstream CapEx attributable to Oasis (included in Midstream CapEx above) | 19 - 21 |
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(1) | Average oil production percentage of 72% in 2019. |
(2) | Excludes the effect of non-cash valuation charges. |
(3) | Cash E&P G&A represents general and administrative ("G&A") expenses less non-cash equity-based compensation expense included in our exploration and production segment. Total cash G&A for Oasis estimated at $92 million to $96 million, which excludes non-cash amortization of equity-based compensation of approximately $41 million to $45 million. See "Non-GAAP Financial Measures" below. |
(4) | Other CapEx includes OWS and administrative capital and excludes capitalized interest of approximately $15 million. |
Operational and Financial Update
Select operational and financial statistics are included in the following table for the periods presented:
Quarter Ended | Year Ended | ||||||||||||||
12/31/2018 | 9/30/2018 | 12/31/2018 | 12/31/2017 | ||||||||||||
Production data: | |||||||||||||||
Oil (Bopd) | 67,266 | 65,870 | 63,151 | 51,557 | |||||||||||
Natural gas (Mcfpd) | 126,135 | 117,182 | 116,246 | 87,522 | |||||||||||
Total production (Boepd) | 88,288 | 85,400 | 82,525 | 66,144 | |||||||||||
Percent Oil | 76.2 | % | 77.1 | % | 76.5 | % | 77.9 | % | |||||||
Average sales prices: | |||||||||||||||
Oil, without derivative settlements ($ per Bbl) | $ | 52.01 | $ | 68.33 | $ | 61.84 | $ | 48.51 | |||||||
Differential to WTI ($ per Bbl) | 6.79 | 1.16 | 2.88 | 2.62 | |||||||||||
Oil, with derivative settlements ($ per Bbl)(1)(2) | 44.14 | 57.50 | 52.65 | 47.99 | |||||||||||
Oil derivative settlements - net cash payments ($ in millions)(2) | (48.7) | (65.6) | (211.7) | (9.8) | |||||||||||
Natural gas, without derivative settlements ($ per Mcf)(3) | 4.27 | 3.72 | 3.88 | 3.81 | |||||||||||
Natural gas, with derivative settlements ($ per Mcf)(1)(2)(3) | 4.02 | 3.76 | 3.84 | 3.86 | |||||||||||
Natural gas derivative settlements - net cash receipts (payments) ($ in millions)(2) | (2.9) | 0.4 | (1.8) | 1.5 | |||||||||||
Selected financial data ($ in millions): | |||||||||||||||
Revenues: | |||||||||||||||
Oil revenues(4) | $ | 321.8 | $ | 414.1 | $ | 1,425.4 | $ | 912.8 | |||||||
Natural gas revenues | 49.6 | 40.1 | 164.6 | 121.8 | |||||||||||
Purchased oil and gas sales(4) | 183.1 | 173.0 | 551.8 | 133.5 | |||||||||||
Midstream revenues | 30.6 | 31.2 | 119.0 | 72.8 | |||||||||||
Well services revenues | 14.7 | 16.3 | 61.1 | 52.8 | |||||||||||
Total revenues | $ | 599.8 | $ | 674.7 | $ | 2,321.9 | $ | 1,293.7 | |||||||
Net cash provided by operating activities | $ | 234.4 | $ | 230.0 | $ | 996.4 | $ | 507.9 | |||||||
Adjusted EBITDA | $ | 214.1 | $ | 270.4 | $ | 958.7 | $ | 707.7 | |||||||
Select operating expenses: | |||||||||||||||
LOE | $ | 56.5 | $ | 48.5 | $ | 193.9 | $ | 177.1 | |||||||
Midstream operating expenses | 7.6 | 8.7 | 31.9 | 17.6 | |||||||||||
Well services operating expenses | 8.8 | 11.4 | 41.2 | 37.2 | |||||||||||
MT&G(5) | 28.9 | 30.1 | 102.9 | 56.6 | |||||||||||
Non-cash valuation charges | 3.8 | 0.6 | 4.3 | (0.8) | |||||||||||
Purchased oil and gas expenses(4) | 179.9 | 174.3 | 554.3 | 134.6 | |||||||||||
Production taxes | 29.9 | 38.7 | 133.7 | 88.1 | |||||||||||
Depreciation, depletion and amortization ("DD&A") | 170.5 | 163.0 | 636.3 | 530.8 | |||||||||||
Total select operating expenses | $ | 485.9 | $ | 475.3 | $ | 1,698.5 | $ | 1,041.2 | |||||||
Select operating expenses data: | |||||||||||||||
LOE ($ per Boe) | $ | 6.95 | $ | 6.18 | $ | 6.44 | $ | 7.34 | |||||||
MT&G ($ per Boe)(5) | 3.55 | 3.84 | 3.41 | 2.34 | |||||||||||
DD&A ($ per Boe) | 20.99 | 20.74 | 21.12 | 21.99 | |||||||||||
E&P G&A ($ per Boe) | 3.08 | 3.88 | 3.40 | 3.21 | |||||||||||
E&P Cash G&A ($ per Boe)(6) | 2.18 | 2.97 | 2.48 | 2.16 | |||||||||||
Production taxes (% of oil and gas revenue) | 8.1 | % | 8.6 | % | 8.4 | % | 8.5 | % | |||||||
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(1) | Realized prices include gains or losses on cash settlements for commodity derivatives, which do not qualify for or were not designated as hedging instruments for accounting purposes. |
(2) | Cash settlements represent the cumulative gains and losses on the Company's derivative instruments for the periods presented and do not include a recovery of costs that were paid to acquire or modify the derivative instruments that were settled. |
(3) | Natural gas prices include the value for natural gas and natural gas liquids. |
(4) | For the quarter ended September 30, 2018 and the year ended December 31, 2017, oil revenues, purchased oil and gas sales and purchased oil and gas expenses have been revised as described in Revision of Prior Period Financial Statements below. |
(5) | Excludes non-cash valuation charges on pipeline imbalances of $3.8 million and $0.6 million for the quarters ended December 31, 2018 and September 30, 2018, respectively, and $4.3 million and a credit of $0.8 million for the years ended December 31, 2018 and 2017, respectively. |
(6) | Cash E&P G&A, a non-GAAP measure, represents G&A expenses less non-cash equity-based compensation expense included in the Company's exploration and production segment. See "Non-GAAP Financial Measures" below for a reconciliation of the Company's E&P G&A to Cash E&P G&A. |
G&A expenses for the fourth quarter of 2018 totaled $30.3 million, and for the year ended December 31, 2018, G&A totaled $121.3 million. Amortization of equity-based compensation, which is included in G&A expenses, was $7.7 million, or $0.95 per Boe, for the fourth quarter of 2018 and $29.3 million, or $0.97 per Boe, for the full year of 2018. G&A expenses for the Company's E&P segment totaled $25.1 million for the fourth quarter of 2018 and $102.5 million for the full year of 2018. Total Cash E&P G&A expenses, excluding non-cash equity-based compensation expenses, were $2.18 per Boe for the fourth quarter of 2018 and $2.48 per Boe for the full year of 2018.
Interest expense was $41.5 million for the fourth quarter of 2018 and $159.1 million for the full year of 2018. Capitalized interest totaled $4.0 million for the fourth quarter of 2018 and $17.2 million for the full year of 2018. Cash Interest (non-GAAP) totaled $40.5 million for the fourth quarter of 2018 and $157.6 million for the full year of 2018. For a definition of Cash Interest and a reconciliation of interest expense to Cash Interest, see "Non-GAAP Financial Measures" below.
For the three months ended December 31, 2018, the Company recorded an income tax expense of $69.5 million, resulting in an effective tax rate of 23.5% as a percentage of its pre-tax income for the quarter. The Company's income tax benefit for the year ended December 31, 2018 was recorded at $5.8 million, or 23.1% of its pre-tax loss.
The Company reported net income attributable to Oasis of $222.0 million in the fourth quarter of 2018. For the full year of 2018, Oasis reported net loss attributable to Oasis of $35.3 million. Excluding certain non-cash items and their tax effect in the fourth quarter of 2018, Adjusted Net Loss Attributable to Oasis (non-GAAP) was $7.3 million, or $0.02 per diluted share, and in the full year of 2018, Adjusted Net Income Attributable to Oasis (non-GAAP) was $79.6 million, or $0.26 per diluted share, respectively. For a definition of Adjusted Net Income (Loss) Attributable to Oasis and a reconciliation of net income (loss) attributable to Oasis to Adjusted Net Income (Loss) Attributable to Oasis, see "Non-GAAP Financial Measures" below.
The Company completed and placed on production 121 gross (85.3 net) operated wells during 2018 and 30 gross (21.7 net) operated wells during the fourth quarter of 2018.
The Company sells a significant amount of its crude oil production through gathering systems connected to multiple pipeline and rail facilities, which allows it to shift volumes between pipeline and rail markets in order to optimize price realizations. For the first three quarters of 2018, the Company's oil price differentials improved to less than $2.00 per barrel discount to WTI. Purchased oil and gas sales, which consist primarily of the sale of crude oil purchased to optimize transportation costs or for blending at the Company's crude oil terminal, increased $418.3 million to $551.8 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017, primarily due to higher volumes purchased and sold driven by increased market opportunities in the Williston Basin and in the Delaware Basin. Purchased oil and gas expenses increased $419.7 million to $554.3 million for the year ended December 31, 2018 as compared to December 31, 2017.
Revision of Prior Period Financial Statements. In connection with the preparation of the Company's consolidated financial statements for the year ended December 31, 2018, the Company identified errors in its previously issued 2017 annual consolidated financial statements and in each of the interim periods within 2018 and 2017. These prior period errors related to the presentation of certain crude oil purchase and sale arrangements. Specifically, although the Company previously presented the transactions on a net basis in oil and gas revenues, the Company was required to present these purchase and sale arrangements on a gross basis in purchased oil and gas expenses and purchased oil and gas sales. In addition, the Company identified certain assets and liabilities related to these arrangements that were reported on a net basis in accounts receivable on the balance sheet, but did not meet all of the criteria for a right of setoff. The correction of these errors had no effect on the reported consolidated net income (loss) attributable to Oasis or earnings (loss) attributable to Oasis per share data for the year ended December 31, 2017 or for any of the interim periods within 2018 and 2017 or to Oasis share of stockholders' equity at December 31, 2017. Based on an analysis of quantitative and qualitative factors, the Company determined the related impact was not material to its consolidated financial statements, and therefore, amendments of previously filed reports are not required.
For the quarter ended December 31, 2017, the Company revised the Consolidated Statements of Operations by increasing purchased oil and gas sales and purchased oil and gas expenses by $30.5 million and $30.4 million, respectively, and decreasing oil and gas revenues by $0.1 million. For the year ended December 31, 2017, the Company revised the Consolidated Statements of Operations by increasing purchased oil and gas sales and purchased oil and gas expenses by $45.6 million and $45.3 million, respectively, and decreasing oil and gas revenues by $0.3 million. For the quarter ended September 30, 2018, the Company revised the Consolidated Statements of Operations by increasing oil and gas revenues, purchased oil and gas sales and purchased oil and gas expenses by $1.6 million, $126.6 million and $128.2 million, respectively. As of December 31, 2017, the Company revised the Consolidated Balance Sheets by increasing both accounts receivable and accrued liabilities by $7.8 million. The amounts presented herein reflect the impact of this revision.
As a result of the errors noted above, the Company has identified a material weakness in its internal control over financial reporting. Accordingly, management will disclose in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 that its internal control over financial reporting and its disclosure controls and procedures are not effective as of December 31, 2018 and will receive an adverse opinion on internal control over financial reporting as of December 31, 2018 from PricewaterhouseCoopers LLP. In response to the material weakness identified, management has developed a plan to remediate the material weakness, and has begun working on that remediation plan. In addition, management performed additional analyses and procedures in order to conclude that the Company's consolidated financial statements for the year ended December 31, 2018 are fairly presented, in all material respects, in accordance with generally accepted accounting principles.
Capital Expenditures
The following table depicts the Company's CapEx for the year ended December 31, 2018: