OAS drop?
Re: OAS drop?
4th quarter production was slightly under my forecast due to weather related delays. I am working on the forecast model and I will post it after I listen to their conference call. Anytime an E&P company increases production by more than 50% it is a great year.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: OAS drop?
Oasis Petroleum (OAS): An updated Net Income & Cash Flow Forecast model has been posted under the Sweet 16 Tab.
My Fair Value Estimate is now $70.00/share, compared to First Call's Price Target of $57.56. This is a $6 drop in my valuation, caused by the dip in 2014 production as a result of the Sanis asset sale. I am still using 8X CFPS for my valuation, which is a rather low multiple for a company with this much low risk drilling inventory.
The PV10 of just their proven reserves is now over $5 Billion.
The best news in today's press release is the continued drop in completed well costs.
Because of the asset sale and weather related delays, first half production is likely to be flat to Q4. Then production will accelerate into year-end. Oasis' exit rate should be up near 60,000 boepd.
Today's sellers are driven by FEAR. This is a high quality (and I mean really HIGH QUALITY) growth company. When the weak hands leave this will be a nice buying opportunity.
My Fair Value Estimate is now $70.00/share, compared to First Call's Price Target of $57.56. This is a $6 drop in my valuation, caused by the dip in 2014 production as a result of the Sanis asset sale. I am still using 8X CFPS for my valuation, which is a rather low multiple for a company with this much low risk drilling inventory.
The PV10 of just their proven reserves is now over $5 Billion.
The best news in today's press release is the continued drop in completed well costs.
Because of the asset sale and weather related delays, first half production is likely to be flat to Q4. Then production will accelerate into year-end. Oasis' exit rate should be up near 60,000 boepd.
Today's sellers are driven by FEAR. This is a high quality (and I mean really HIGH QUALITY) growth company. When the weak hands leave this will be a nice buying opportunity.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: OAS drop?
This is what Johnson Rice reported after the conference call. IMO Oasis is a first call growth company and the stock should be a Big Winner for us during the 2nd half. Q1 and Q2 production will be slightly higher than Q4, but then they will really ramp up production into year-end. Exit rate over 60,000 boepd by 12-31-2014, up from 43,000 boepd now. - Dan
Oasis Petroleum Inc.
Sell-off offers buying opportunity; Drillbit execution the key
Key Takeaway:
Oasis significantly underperformed its peer group, closing down 5.2% versus the
EPX being up 2.8% and the rest of the Bakken group being flat-to-up on the day.
Commentary around the Three Forks attracted the most attention, with investor
perception being Oasis lowered the Three Forks EURs on the call; however, we
would point out management re-iterated its prior commentary that it expected Three
Forks EURs to represent ~85% of its expected Bakken EURs. As a result, our
modeling assumptions remain unchanged and, if anything, would be biased higher
due to tighter spacing driving the increased drilling inventory. Adjusting its 2014
production guidance for the sale of its Sanish assets, our prior estimate (52.0
mboe/d) would have been within the guidance range (48.3-52.3 mboe/d) and its '14
capex budget ($1.425 billion) was in-line with our model ($1.37 billion). With 90%
of its '14 drilling activity being conducted from pads, its production growth will be
back-end weighted, though improving efficiencies/well costs should offset some of
the lumpiness. Consensus numbers were too high heading into the release and
estimates will be re-calibrated; however, the stock's relative underperformance since
November appears to have priced a lot of that move in. Over the coming quarters,
we would expect drillbit execution to once again play a major role in driving the stock
price higher and we recommend investors take advantage of the price weakness and
buy the stock, despite the lack of near-term catalysts.
• Well inventory grows/remains conservative – Oasis strategically increased its
acreage position in the Bakken through four main transactions in 2013, increasing
its acreage position to 515,314 net acres, and increasing its operated DSU count
to 403 (from 280). The Company has completed several downspacing and Three
Forks tests, which have allowed it to increase its average number of wells per
DSU to 10 (up from 8). Management remains conservative in its assumptions with
credit only given for the Middle Bakken and Upper Three Forks in the majority of
its areas, with the second bench of the Three Forks only included in its Indian Hills
and South Cottonwood areas. As a result it believes that 26% of its DSUs hold 15
locations (5 Bakken, 5 Upper bench TFS, 5 2nd Bench TFS), with 40% holding 10
wells per DSU (5 Bakken and Upper TFS) and 37% holding at least 7 locations (4
Bakken and 3 TFS). There looks to be significant upside to its inventory as recent
3rd bench wells have started to de-risk that formation near its acreage and the
Company will test the lower benches of the Three Forks in previously unexplored
areas in 2014. In total, the Company believes that it holds 3,590 remaining gross
operated locations (358 PUDs), an increase of 78% year-over-year and a ~17 year
inventory at current activity levels.
• Drilling to shift to pad drilling/Three Forks – During 2014, Oasis will shift its activity
to a more development mode with 80-90% of its wells drilled on pads (up from ~60%
in 2013). The majority of its rigs will remain in its Indian Hills (4 rigs), Red Bank (4 rigs)
and Cottonwood (4-5 rigs) areas with two rigs expected to test its Montana and other
West Williston acreage. In addition, the Company will significantly expand its Three Forks
drilling, with ~60% of its wells expected to target the Three Forks, including ~30 lower
bench tests. The majority of its pads will be 3 or more wells with several pads testing
multiple benches of the Three Forks in addition to the Bakken. Based on data gathered
to-date from its Three Forks drilling, Oasis continues to believe the EURs from the Three
Forks will be ~85% of the Bakken EURs, as it has stated for quite some time.
• 2014 Capex/Production guidance – With a ramp up to 16 rigs (from 14) during the
second half of 2014, Oasis intends to spend $1.425 billion ($1.367 billion E&P) to drill 205
gross (155.5 net) wells. While the majority of its capex is going to drilling ($1.25 billion),
$60 million is earmarked to expand its SWD system with an additional $25 million to be
spent on leasehold expenses, facilities ($19) and micro-seismic ($13). Capex to add a
second frac spread to OWS is expected to be $35 million with an additional $23 million
for non-E&P capital (G&A and capitalized interest). After adjusting its 1Q:14 and FY:14
production guidance for the sale of its Sanish assets, our prior estimates would have been
at the high-end of its guidance, albeit with the growth being back-end weighted due to
both weather impacts and the shift to greater pad development.
• Drilling efficiencies improve further; To test slickwater fracs – Oasis completed 47
gross (36.4 net) wells during 4Q and exited the year with a backlog of 41 gross operated
wells awaiting completion with an additional 18 wells in the process of drilling/completing.
For the full year, Oasis drilled 114.2 net wells, 8.6 more net wells than in 2012, despite
spending $40 million less capital than expected. On a per well basis, including the impact
of OWS, costs have been reduced by 12% year-over-year to $7.5 million, with a further
reduction expected in 2014 (to $7.3 million) as a further shift to pad drilling is expected.
So far, the Company has completed its wells with mostly cross-link gels, but testing is
under way to test slickwater fracs in several areas, especially at Indian Hills, given recent
industry success. While slickwater fracs can cost up to $1.5-$2 million more per well,
the Company (and industry) has seen a proportionate increase in EURs to justify the
additional cost. In 2014, the Company will perform several additional slickwater tests to
gain additional data.
• 4Q production – Production during 4Q increased to 42.1 mboe/d, in-line with our model
(42 mboe/d) and at the low-end of guidance (42-46 mboe/d), despite abnormally severe
winter weather in the Williston Basin during December. The winter weather has persisted
throughout some of 1Q, but Oasis has been able to limit its affects with 1Q production
expected to be 41-45 mboe/d despite the sale of its Sanish assets expected in March
(2,691 boe/d). The Company has 75% of its oil and 93% of its gas flowing through
pipelines, which helped insulate it from disruptions in shipping its oil experienced by other
operators in the basin.
• Sanish assets sold for $333 million – Oasis has agreed to sell its non-operated Sanish
assets to an undisclosed buyer for $333 million. The assets consist of 8,354 net acres
with recent production of 2,691 boe/d and proved reserves of 8.6 mmboe with a PV-10
of $252 million. The proceeds of this transaction will be used to repay a portion of its
revolver balance (~$340 million at year-end).
• Year-end reserves – Year-end reserves grew to 227.9 mmboe (87% oil, 54% developed)
in 2013, an increase of 59% year-over-year. The PV-10 value of its reserves increased
to ~$5.5 billion in 2013 (up from $3.2 billion in 2012) based on prices of $96.96/bbl and
$3.66/mcf. The Company anticipates its E&P expenditures to come in at ~$920 million
which would result in a F&D cost of ~$19.95/bbl.
• Adjusting estimates – While our prior estimates were within the high-end of its
production guidance, we are lowering our production to account for both the timing of pad
drilling hook-ups and flowing through the impact of the Sanish sale. In addition, we are
adjusting our cost estimates higher as the recently acquired properties had a higher cost
structure, which should be aligned with Oasis' cost structure by year-end. After adjusting
our model for expected 4Q production/cost, its 2014 guidance and the sale of its Sanish
assets in March, we are lowering our CFPS estimates for 4Q, 2013 and 2014 to $1.98,
$7.71 and $8.61 respectively (from $2.11, $7.84 and $9.90).
Oasis Petroleum Inc.
Sell-off offers buying opportunity; Drillbit execution the key
Key Takeaway:
Oasis significantly underperformed its peer group, closing down 5.2% versus the
EPX being up 2.8% and the rest of the Bakken group being flat-to-up on the day.
Commentary around the Three Forks attracted the most attention, with investor
perception being Oasis lowered the Three Forks EURs on the call; however, we
would point out management re-iterated its prior commentary that it expected Three
Forks EURs to represent ~85% of its expected Bakken EURs. As a result, our
modeling assumptions remain unchanged and, if anything, would be biased higher
due to tighter spacing driving the increased drilling inventory. Adjusting its 2014
production guidance for the sale of its Sanish assets, our prior estimate (52.0
mboe/d) would have been within the guidance range (48.3-52.3 mboe/d) and its '14
capex budget ($1.425 billion) was in-line with our model ($1.37 billion). With 90%
of its '14 drilling activity being conducted from pads, its production growth will be
back-end weighted, though improving efficiencies/well costs should offset some of
the lumpiness. Consensus numbers were too high heading into the release and
estimates will be re-calibrated; however, the stock's relative underperformance since
November appears to have priced a lot of that move in. Over the coming quarters,
we would expect drillbit execution to once again play a major role in driving the stock
price higher and we recommend investors take advantage of the price weakness and
buy the stock, despite the lack of near-term catalysts.
• Well inventory grows/remains conservative – Oasis strategically increased its
acreage position in the Bakken through four main transactions in 2013, increasing
its acreage position to 515,314 net acres, and increasing its operated DSU count
to 403 (from 280). The Company has completed several downspacing and Three
Forks tests, which have allowed it to increase its average number of wells per
DSU to 10 (up from 8). Management remains conservative in its assumptions with
credit only given for the Middle Bakken and Upper Three Forks in the majority of
its areas, with the second bench of the Three Forks only included in its Indian Hills
and South Cottonwood areas. As a result it believes that 26% of its DSUs hold 15
locations (5 Bakken, 5 Upper bench TFS, 5 2nd Bench TFS), with 40% holding 10
wells per DSU (5 Bakken and Upper TFS) and 37% holding at least 7 locations (4
Bakken and 3 TFS). There looks to be significant upside to its inventory as recent
3rd bench wells have started to de-risk that formation near its acreage and the
Company will test the lower benches of the Three Forks in previously unexplored
areas in 2014. In total, the Company believes that it holds 3,590 remaining gross
operated locations (358 PUDs), an increase of 78% year-over-year and a ~17 year
inventory at current activity levels.
• Drilling to shift to pad drilling/Three Forks – During 2014, Oasis will shift its activity
to a more development mode with 80-90% of its wells drilled on pads (up from ~60%
in 2013). The majority of its rigs will remain in its Indian Hills (4 rigs), Red Bank (4 rigs)
and Cottonwood (4-5 rigs) areas with two rigs expected to test its Montana and other
West Williston acreage. In addition, the Company will significantly expand its Three Forks
drilling, with ~60% of its wells expected to target the Three Forks, including ~30 lower
bench tests. The majority of its pads will be 3 or more wells with several pads testing
multiple benches of the Three Forks in addition to the Bakken. Based on data gathered
to-date from its Three Forks drilling, Oasis continues to believe the EURs from the Three
Forks will be ~85% of the Bakken EURs, as it has stated for quite some time.
• 2014 Capex/Production guidance – With a ramp up to 16 rigs (from 14) during the
second half of 2014, Oasis intends to spend $1.425 billion ($1.367 billion E&P) to drill 205
gross (155.5 net) wells. While the majority of its capex is going to drilling ($1.25 billion),
$60 million is earmarked to expand its SWD system with an additional $25 million to be
spent on leasehold expenses, facilities ($19) and micro-seismic ($13). Capex to add a
second frac spread to OWS is expected to be $35 million with an additional $23 million
for non-E&P capital (G&A and capitalized interest). After adjusting its 1Q:14 and FY:14
production guidance for the sale of its Sanish assets, our prior estimates would have been
at the high-end of its guidance, albeit with the growth being back-end weighted due to
both weather impacts and the shift to greater pad development.
• Drilling efficiencies improve further; To test slickwater fracs – Oasis completed 47
gross (36.4 net) wells during 4Q and exited the year with a backlog of 41 gross operated
wells awaiting completion with an additional 18 wells in the process of drilling/completing.
For the full year, Oasis drilled 114.2 net wells, 8.6 more net wells than in 2012, despite
spending $40 million less capital than expected. On a per well basis, including the impact
of OWS, costs have been reduced by 12% year-over-year to $7.5 million, with a further
reduction expected in 2014 (to $7.3 million) as a further shift to pad drilling is expected.
So far, the Company has completed its wells with mostly cross-link gels, but testing is
under way to test slickwater fracs in several areas, especially at Indian Hills, given recent
industry success. While slickwater fracs can cost up to $1.5-$2 million more per well,
the Company (and industry) has seen a proportionate increase in EURs to justify the
additional cost. In 2014, the Company will perform several additional slickwater tests to
gain additional data.
• 4Q production – Production during 4Q increased to 42.1 mboe/d, in-line with our model
(42 mboe/d) and at the low-end of guidance (42-46 mboe/d), despite abnormally severe
winter weather in the Williston Basin during December. The winter weather has persisted
throughout some of 1Q, but Oasis has been able to limit its affects with 1Q production
expected to be 41-45 mboe/d despite the sale of its Sanish assets expected in March
(2,691 boe/d). The Company has 75% of its oil and 93% of its gas flowing through
pipelines, which helped insulate it from disruptions in shipping its oil experienced by other
operators in the basin.
• Sanish assets sold for $333 million – Oasis has agreed to sell its non-operated Sanish
assets to an undisclosed buyer for $333 million. The assets consist of 8,354 net acres
with recent production of 2,691 boe/d and proved reserves of 8.6 mmboe with a PV-10
of $252 million. The proceeds of this transaction will be used to repay a portion of its
revolver balance (~$340 million at year-end).
• Year-end reserves – Year-end reserves grew to 227.9 mmboe (87% oil, 54% developed)
in 2013, an increase of 59% year-over-year. The PV-10 value of its reserves increased
to ~$5.5 billion in 2013 (up from $3.2 billion in 2012) based on prices of $96.96/bbl and
$3.66/mcf. The Company anticipates its E&P expenditures to come in at ~$920 million
which would result in a F&D cost of ~$19.95/bbl.
• Adjusting estimates – While our prior estimates were within the high-end of its
production guidance, we are lowering our production to account for both the timing of pad
drilling hook-ups and flowing through the impact of the Sanish sale. In addition, we are
adjusting our cost estimates higher as the recently acquired properties had a higher cost
structure, which should be aligned with Oasis' cost structure by year-end. After adjusting
our model for expected 4Q production/cost, its 2014 guidance and the sale of its Sanish
assets in March, we are lowering our CFPS estimates for 4Q, 2013 and 2014 to $1.98,
$7.71 and $8.61 respectively (from $2.11, $7.84 and $9.90).
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group