Energy Market Report Card – Oasis Petroleum (OAS)

Financial Report Card Summary

Figure 1: Oasis (OAS) Key Benchmark Performance Factors Compared to Peers

Figure 2: Oasis (OAS) Key Benchmark Performance Factors Compared to Self (3-years)


Company Profile

Oasis Petroleum Inc. is a U.S. based upstream and midstream E&P company with a focus on developing onshore unconventional oil and natural gas assets. The corporation is publicly traded on the Nasdaq Global Select under the symbol OAS. At the end of 2020, Oasis’ exploration and production segment held 401,766 net acres in the Williston Basin and 24,396 net acres in the Permian Basin with an estimated 152.2 MMBOE net proved reserves. On May 20th, 2021, the company announced the sale of its Permian assets for $481 million while acquiring 95,000 net acres in the Williston Basin for $745 million. The transaction has now made Oasis a single-basin operator focused on its assets in the Williston. The company’s midstream segment manages natural gas, oil, and produced water gathering, transportation, processing, compression, disposal, and distribution. Oasis was founded in 2007 and exited a Chapter 11 bankruptcy on November 19th, 2020. It is currently headquartered in Houston, Texas.


Financial Analysis

Due to the company’s restructuring because of Chapter 11 bankruptcy, a quarterly financial ratio analysis was performed between Q3 2020 and Q1 2021. As of March 31st, 2021, Oasis Petroleum reported $2.297 billion in assets with $1.335 billion in liabilities and $962 million in total equity. During Q1 2021, the company generated $339.2 million in total revenue and a net income available to shareholders of -$43.6 million. These values can be seen in Table 3 and Table 4 representing a balance sheet common size analysis and an income statement index analysis, respectively. Additionally, Table 1 shows a peer comparison performed for the last twelve months (LTM) with the quarter ending March 31st, 2021. The companies chosen were Continental Resources (CLR), Whiting Petroleum Corporation (WLL), and Enerplus Corporation (TSX:ERF), all of which have a large focus in the Williston Basin.

Based on the three identified competitors, competitor averages for several financial ratios were calculated to create a benchmark for Oasis. The main cross-sectional performance indicators that stood out for Oasis were average collection period, receivables turnover, profit margin, return on assets (ROA), return on equity (ROE), and price-to-earnings (P/E) ratio. 

For the asset management ratios, average collection period, 62.9 days, was below the competitor average and also ties in with the higher receivables turnover ratio, 5.8, than competitors. This indicates that Oasis is taking less time to collect revenue and is more efficient at collecting payment for goods sold. 

The profitability ratios for Oasis are mixed compared to its peers as the ROA is much lower, -109.4%, while ROE is much higher, 228.3%. The P/E for the last twelve months was also much higher at 34.4 while the other competitors were all negative. This data may be skewed by several factors affecting both Oasis and its competitors. Oasis and Whiting both exited Chapter 11 bankruptcy in 2020, which may have an impact on the P/E ratio from restructuring debt and creating a new equity valuation. For the same reasons, the ROA and ROE may not be as accurate of a metric for comparison over the last twelve months. Profit margin was also very high at 57.5% compared to the negative average of peers. This margin is surprising since over the last twelve months commodity prices have severely damaged oil and gas revenues. Based on the company’s income statement, it appears that a line item for other unusual items of $837 million relating to net reorganization items and non-operating income expenses may be the main driver in this unusual profit margin number.

When comparing the financial ratios for Oasis to itself over the last three quarters, the inventory turnover and times-earned-interest (TIE) ratio stood out in Q1 2021. Inventory turnover ratio has increased in the most recent quarter, up from 7.3 to 11.5. This is likely due to demand for crude increasing over the same time. The TIE ratio has been poor because EBIT over the last two quarters has been negative. This is likely impacted by the impairment of oil, gas, and mineral property following the bankruptcy exit in Q4 2020 and a net loss on derivative instruments of $182 million in Q1 2021. 

Following the sale of Oasis’ Permian assets, purchase of additional Williston assets, and offering of $400 million of senior notes in Q2 2021, the company has been making many changes each quarter to its balance sheet and income statement. From the balance sheet common size analysis in Table 3, net property, plant, and equipment decreased by 5% between Q4 2020 and Q1 2021 while current liabilities and long-term debt changed by 7% and -3%, respectively. Following the transactions recently made by the company, a significant increase to property, plant, and equipment can be expected as well as a larger portion of long-term debt from the $400 million in senior notes to be issued and drawing on the company’s existing credit revolver for the purchase. The income statement index analysis in Table 4 shows the company has been generating a gross profit since exiting bankruptcy but has also had a large increase in cost of goods sold and operating expense during the last quarter. Due to the bankruptcy restructuring, the amount of interest expense has decreased significantly, but this number should continue to be watched in the coming quarters to see how it is impacted by debt taken on for the Williston asset purchase. The company has also hedged a fixed swap volume of 29 MBOPD at $42.09/bbl and a 2-way collar volume of 8 MBOPD with a $51.25 floor and $68.24 ceiling through the second half of 2021. Following the divestiture and acquisition, this constitutes about 75% of the company’s oil production that could be affected by these contracts.


Financial Summary

Analysis of several performance metrics benchmarked to competitors of Oasis, comparisons of the company’s ratios over prior quarters, common size analysis on the balance sheet, and index analysis on the income statement were performed. Additional transactions including the sale of the company’s Permian assets for $481 million, the all-cash purchase of Williston assets for $745 million, and the $400 million offering of senior notes at 6.75% that have occurred in Q2 2021 are not represented in the most recent financial statements. Following the company’s exit from Chapter 11 in Q4 2020, Oasis appears to have a better average collection period, receivables turnover, ROE, and P/E ratio than its competitors. Its ROA, however, is significantly worse than the competitor average. Many of these ratios from data over the last twelve months may be skewed by low commodity prices and the restructuring that occurred from the bankruptcy. When the company’s ratios are compared to itself over the last 3 quarters, inventory turnover ratio has been improving while the TIE ratio has been negative due to costs associated with restructuring. Following the recent asset divestments and acquisitions by the company, the next quarter can expect increased net property, plant, and equipment on the balance sheet as well as additional current and long-term liabilities. The result will increase the company’s debt leverage, which should be monitored in the coming quarters to ensure debt obligations are met. Assuming commodity prices continue to rise, the company should still see increased profits compared to the past several quarters but will likely also be missing out on some additional revenue from hedging contracts in place through 2021 and 2022.


Disclaimer

RARE PETRO Engineering and the author(s) of this article are not financial planners/advisors, attorneys, accountants, or certified financial analysts. The information in this post is from the personal research and experience of the author to be used for illustrative, educational, and entertainment purposes only and does not constitute financial, accounting, or legal advice. It is not a guarantee or a specific offer of products or services and shall not be understood or construed as financial advice. Past performance is not a guarantee of future return, nor is it an indicator of future performance. 

Please be aware that investing involves risk. Information provided in this article is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. It is also not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation. The information presented is believed to be factual and up to date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. RARE PETRO accepts no liability whatsoever for any loss or damage you may incur.


References 

[1] http://oasispetroleum.investorroom.com/download/OAS+Presentation+-+Updated+6-7-21.pdf

[2] http://oasispetroleum.investorroom.com/2021-05-20-Oasis-Petroleum-Inc-Announces-Strategic-Sale-of-Its-Permian-Assets-and-Updates-2021-Outlook

[3] http://oasispetroleum.investorroom.com/2021-05-25-Oasis-Petroleum-Inc-Announces-Pricing-of-400-Million-Offering-of-Senior-Notes

[4] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/oasis-petroleum-emerges-from-chapter-11-bankruptcy-61386979

[5] https://www.sec.gov/ix?doc=/Archives/edgar/data/1486159/000148615921000041/oas-20210331.htm

[6] https://www.sec.gov/ix?doc=/Archives/edgar/data/1486159/000148615921000017/oas-20201231.htm

[7] https://www.sec.gov/ix?doc=/Archives/edgar/data/1486159/000148615920000089/oas-20200930.htm

[8] https://www.sec.gov/ix?doc=/Archives/edgar/data/732834/000073283421000009/clr-20210331.htm

[9] https://www.sec.gov/ix?doc=/Archives/edgar/data/1255474/000125547421000019/wll-20210331x10q.htm

[10] https://www.sec.gov/Archives/edgar/data/0001126874/000127956921000623/ex991.htm

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