Q3 2019 Earnings Call

I'd like to welcome everyone to the third quarter 2019 earnings release in operations update for Oasis petroleum.

All participants will be in listen only mode should you need assistance. Please ignore conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then too.

Please note this event is being recorded.

I would now like to turn the call over to Michael Lou Oasis Petroleum <unk> CFO to begin the conference. Please go ahead Sir.

Thank you Chad good morning, everyone.

Today, we are reporting our third quarter 2019 financial and operational results.

We're delighted to have you on our call.

I'm joined today by common news from data read as well other members of the team.

Please be advised that our remarks on both away petroleum and away from the metric partners, including the answers to your question include statements that we believed to be forward looking statements within the meaning of the private Securities Litigation Reform Act.

These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings releases.

The conference calls.

Those risks include among others matters that we've described in our earnings releases as well as in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K , and our quarterly reports on Form 10-Q .

We disclaim any obligation to update these forward looking statements. During this conference call, we will make reference to non-GAAP financial non-GAAP measures and reconciliation to the applicable GAAP measures can be found in our earning releases and on our website.

We walk the reference our current Investor presentation, which you can find on the website.

With that I'll turn the call over to Tommy.

Good morning, and thanks for joining our call. The Oasis team delivered a strong third quarter exceeding our production guidance in spending below our capex projections.

We also made progress lowering our cost structure in reducing debt.

The organization continues to focus on Pershare value drivers of cash flow cash margins return on investment and capital efficiency, all of which should drive attractive returns whether at the well project or corporate level.

Taylor will get into more operational detail in a minute, but I want to highlight a few key points are about our performance in strategy Birch <unk>.

Well, it's just continues to execute its measured development program in 2019 and is generating strong free cash flow at the M.P. level, we reduced debt by 125 million Anoro. What are always this credit facility driven by that free cash flow along with cash from divestitures.

Okay and the lowest then we executed well across the board I'll, let Taylor and Michael give more color a bit, but we've made material progress in reducing our well cost.

What should help drive capital lower in 2020 separately in a tough Indian market, we were able to divest a small portion of Willis then assets during the quarter, bringing in about $41 million on proceeds.

Third in the Delaware, it's been a little shy of two years since we announced the Borgia acquisition and we've made tremendous progress.

The teams have been able to secure a services and drive operational efficiencies.

Get visibility on take away capacity and we continue to make significant progress delineating our position in understanding the subsurface across that position.

During 2019, we brought on wells across the Wolfcamp, a b and C intervals.

Additionally, we've been able to do multiple small bolt on acquisitions at attractive prices, allowing us to increase ownership in block up D.S. used for longer laterals drilling times, and well costs have come down significantly, which should help drive efficiencies and lower cost going forward in 2020.

We will essentially shift towards the development mode, focusing on multi well pads, primarily in the bone springs and the Wolfcamp a.

For our midstream assets continue to provide a competitive advantage as seen in our cost structure netbacks flow assurance and gas capture.

Where where we're currently running about 93, 95% capture versus a north Dakota average of 81%.

As you know we've made significant investments in this segment over the last several years and our midstream business has been a critical asset for managing business risk, especially as other midstream companies are delaying and best have been the delaying investment in the Williston basin.

On the heels of our IPO of O M P and the fall of 2017, our Premier midstream assets generated approximately 160 million to be of EBITDA in 2018 on an eight age basis.

Just a year later in 2019, we expect to generate between 260 and 270 million.

We continue to look at ways to enhance the value of our ownership in these assets.

Yeah in August and September we took steps to optimize our DNA cost structure.

Better fit our business on a go forward basis as part of this initiative, we reduced our workforce by approximately 13%, including the elimination of one of our two OTA B S. A frac crews. While these types of decisions are always difficult we need to continuously look at ways to be as efficient as we can.

Throughout our organization the team has done a great job and <unk> as a result were trending below our DNA guidance for the year and these third quarter actions are expected to lower the annualized run rate by about $10 million based on where we are today.

We'll continue to look for efficiency options to meet investor expectations as we move through the structural transition that the entire industry is experiencing today.

That includes developing creative solutions and doing things differently than we've done in the past.

Lastly, looking forward to 2020 or anticipated activity levels are essentially unchanged since our August call. We're currently planning to run two rigs in the Williston and two rigs in the Delaware for most of the year, we would expect fourth quarter 2020 volumes to be up modestly from our fourth quarter 2000.

19 average this puts us on a path to maintain modest growth.

Reduce debt and generate free cash flow when a 50 to 55 dollar world or below.

And we will continue to protect these cash flows with an active hedging program on the capital side. We noted last quarter that the consolidated 2020 Capex was anticipated to be.

Shy of 800 million at this point, we expect to deliver essentially same plan.

With much lower capex.

Stepping back to 2019 volume outlook is unchanged adjusting for the impact of the divestitures and we're currently keeping our capital plan in line with our August expectations.

Additionally, we lowered our operating expense guidance yet again.

As we're beating expectations for the year Elisa CMP produced approximately 47 million a free cash flow in the third quarter and 68 million year to date remaining on track to deliver strong free cash flow for this year or.

Our core business remains strong and we continue to advance our strategic objectives, which include size and scale portfolio diversity asset quality and financial strength with that I'll turn the call over to Taylor.

Thanks Tommy.

Since our last call we've made considerable progress in or 29 T program remains on track.

Our priorities remain running an official core Wilson program harvesting free cash flow to fund the Delaware, while paying down debt.

In the Williston, we continue to be encouraged by delineation results from step out areas.

Our VP investor presentation has been updated to reflect the latest data from select emerging areas in the Williston.

As shown on page eight we and other operators continue to see results in painted woods.

North Alger South Cottonwood.

And Red Bank, which demonstrates the quality of the inventory versus the rest of the basin.

Well the waste this will be focused on the heart of the Wilson for quite some time.

We're impressed by the result observed in the step out areas.

As a reminder, substantially all of our 414000 acre Wilson position is held by production and with the benefit of our position being dominated by fee acreage. We have significant optionality on the pace of development can speed a permitting.

With only about 3% of our acreage all federal lands, we have limited exposure to longer permitting cycle tough.

Turning to the Delaware, we continue to observe strong well productivity across the column, including the third bone Springs in Wolfcamp, a b and C.

Stepping back and looking at Delaware, well performance as a whole on average performance has been above our expert expectations and we've been pleasantly surprised by performance in the lower benches.

Oh basis has essentially shifted into development mode with her next completions focused on the big Horn and Arrowhead pads in early 2020.

These units, where we focus on the Wolfcamp a third bone spring.

[noise] transitioning to our drilling and completions are cycle times have improved sharply over the past 12 months.

Our last two mile lateral wells had spud to rig or leasing 23 to 27 day range versus our first wells on the based on that one the 40 plus day range.

Drilling time should continue to improve as we optimize well designs and increased focus on multi well pad development.

We're currently targeting well cost of $9.4 million for a four well pad, which compares to approximately 11 and a half million dollars in 2018.

We see this trending to below $9 million and 2020.

Through a combination of service cost improvements and increased efficiencies along with continued optimization of drilling and completion design.

Our tenant a 2020 plan includes two rigs in approximately 20 to 25 completions.

In the Williston as we spoke about last quarter, we're focused on reducing well cost to design changes in pricing concessions.

We've made progress on both these front since we last spoke.

And on track to achieve a 7.2 million dollar well costs by year end versus $7.6 million that are August update.

We see this potentially turning down another 5% in 2020.

Or tentative 2020 plan would have us running two rigs during the year.

Completing approximately 45 to 55 wells.

To close we continue to execute on our 2019 plan focused around inefficient Wellington program and preparing the Delaware for full field development.

Oh, it's it benefits from our inventory debt.

Surface, an operational expertise as well as the top notch marketing group.

I want to congratulate the team for significant improvements and well cost and capital efficiency cost control across the business combined with a keen focus on production optimization and midstream run times.

The strides that we have made since the last quarter had been oppressive <unk>.

I challenged the team to maintain their relentless focus as we move forward.

With that I'll now turn the call.

Thanks Taylor.

Operationally Oasis is executing well and remains focused on delivering our 2019 program, we're driving well cost lower reducing operating costs gionee and are generating significant free cash flow, which was supplemented by asset sales to further reduce debt.

On the operating cost side.

We executed well in the third quarter as a combination of great cost control and higher volumes, let us to beat our Ela we guidance.

The team has made great strides minimizing downtime and being proactive and well maintenance, we lowered our low cost guidance range for the year.

On DNA were trending materially below our original for your guidance and the third quarter. We took a charge of approximately $2.4 million related to a reduction in force, which is expected to lower the G.N. a run rate by approximately $10 million.

Adjusting for nonrecurring charges DNA is on pace to be 7% below original guidance.

As Tommy mentioned, we were able to divest various asset packages and the will extend for approximately $41 million, which contributed to our overall significant debt reduction during the quarter wells associated with these divestments came online very recently.

The production impact from those divestitures or was approximately 330 B O east per day in third quarter <unk> is expected to be 1.7, M.B.L., we per day in the fourth quarter.

Our updated fourth quarter production guidance is unchanged from the August update when adjusting for the divestiture impact.

For full year 2020, we would expect the divestiture impact to be about 1.1 MB always per day.

Volumes for 2020 are still expected to be a higher than our fourth quarter average.

On 2020 capital last quarter, we had discussed a consolidated number of about $800 million.

And given the progress that we've made in reducing costs. We now believe consolidated capex could be approximately $750 million.

This reduction would be a combination of lower well costs on the M.P. side and optimization of capital on the midstream side.

And given the trends of well costs this number could.

Could could continue to be biased downward.

Clearly the team has been focused on the capital and operating cost side and are doing an incredible job.

On the revenue side Williston crude differentials remains strong in third quarter as our marketing team consistently delivers superior realizations.

In the Delaware crude differentials generally are at parity or premium to WT by several new long haul pipes came online this year.

Looking into the fourth quarter differentials are expected to widen modestly from the strong levels seen year to date, but it looks like our full year deaths will be better than our full year guidance.

As we've discussed we generated significant free cash flow.

Which allowed us to repay a $125 million under our waste this credit facility.

We are further securing our future free cash flow generation with over 80% of the remainder of 2019 estimated oil production hedged at a weighted average for price of $56 per barrel.

For 2020, we've added additional collars and swaps the details of which can be found in then in the appendix of our investor presentation.

Turning to midstream we're excited to report Oasis executed final agreements for the dedication of certain Delaware acreage to own P via the Panther Devco.

Additionally, Oasis continues to move closer to towards a long term agreement for gas gathering and processing in the Delaware and we will likely be in a position to elaborate more early next year.

Total midstream Capex was $37 million in the third quarter, and we're trending below our previous full year guidance range.

Net capex to Oasis attributable to its retained interest is expected to range between 14 and $15 million. This excludes Delaware spending which will be in reimbursed by on P. in the fourth quarter.

Well be talking in more detail on the LMP call shortly and I would also directly to our own P. press release for more color on our continued success on the midstream front.

To sum things up a waste is has a laser focus on increasing operational efficiency, reducing costs and maximizing profitability.

The team continues to execute well and we're in a strong position to deliver repeatable long term growth significant free cash flow generation and continued reduction of debt.

With that I'll turn the call back over to Chad to open line for questions.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're using speakerphone. Please pick up your hand said before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.

At this time, we'll pause momentarily to assemble a roster.

The first question comes from Derrick Whitfield with Stifel. Please go ahead.

Thanks, Good morning, all and congrats on a strong update.

Thanks there.

Perhaps for Tommy or Taylor could you speak to some of the drivers behind your targeted well cost improvements in the Bakken in Delaware.

And perhaps split out the structural versus cyclical element.

Yes, so really.

Derek its you know it's been a combination has talked about a both.

Service cost certainly.

Getting better on the efficiency and cycle time in the business as well.

And also a bit of design I don't have known exact breakout for.

What the components are we did talk about early in the year you saw about.

You know a 10% move on on the stimulation side.

Drilling contracts in the first half.

Really didn't move move quite as much in the seven second half the year, you've seen a little bit more acceleration.

On.

The service cost side of the business, but.

Truly been a big move.

On a like said both the efficiency side of the business and cycle time, so roughly maybe it's.

It's 50, 50, and an improvement something like that.

Great and as my follow up perhaps for Michael.

What is the RFP all reduction expected secondly, as we look out to the 2020 spring Redetermination.

What's your level of confidence that you can retain your current commitments assuming similar macro conditions.

Yeah there.

What I'd say is that not.

Not unexpected yeah, I think we've we've talked about some other things on the reserves side from previous years and spacing that we had I'm not surprised on that side and then the banks certainly had come down pretty considerably on their price deck that there.

<unk>.

I don't expect that to continue I think they've they've taken some conservatism, but we'll see where that goes and the good thing for US is that we've been able to reduce significant amount of debt under that revolver, where our reliance upon the revolver is getting less and less and we'll continue to as we continue to generate free cash.

Hello.

So our percentage utilizes continuing to go down.

So we're not we're not as worried about it.

Makes sense thanks for your time.

Thank you.

The next question comes from Michael Hall, with H E. Please go ahead.

Thanks, maybe just quickly following up on that line of thought any commentary or maybe targets around line of sight on additional debt reduction and 2020.

Yeah, we don't we don't have a specific number right now Michael obviously, we haven't given kind of full guidance, we're still working through.

Through plans, but it's a balance of all the things that we've talked about how do you overtime generate kind of.

Moderate growth in candidates repeatable over a long period of time, but generate significant free cash flow and and repay that does so.

It's going to a combination of things we haven't come up with exact numbers I'm quite yet, but that will be over the coming months.

Okay and there are there any similar transactions to what we saw a third quarter that that maybe have.

And then your sites.

Yeah right now we don't we don't have additional.

Sites on kind of additional sell down that that's what you're referring to.

No. We don't we don't have anymore right now okay.

And then I was also curious just on the.

The kind of cadence of activity I guess through 2020.

That's helpful.

Yeah, just close around the expected, yes still expects its been growth forecast for Q4 Q.

Well, what's the timing of the Delaware Basin completion, specifically and the 2020 plan currently.

So the Delaware completions.

Now we'll get on.

Those wells and Star Frac, and then first quarter and pride kind of January timeframe.

And we've got a couple of.

Units, the Arrowhead and the big one that will be Frac and those are all multi well.

Units, so you're probably not going to see production on those until really.

You know second quarter timeframe.

Okay.

And then from the second quarter is it kinda.

Even cadence from there I guess.

Just kind of spread the.

Targeted collections for the rest of year.

Yeah, you're gonna have.

No fair amount of activity in a from a.

Stimulation perspective in the first half of the year.

A lot of those wells coming on a second quarter and maybe some third and then.

You're likely to have a bit of a gap.

And until completing some additional pads and three and in Fourq you.

Okay, and just as we've talked about in the past doing.

Really going to development and.

Getting to the benefits of.

Well cost perspective of doing more wells when these units at a time you just get.

Groupings of wells coming on.

So it's not perfectly spread through the year, but you don't.

Second quarter third quarter, you may have a bit of a gap and then one third third and fourth.

Okay.

Well Michael from a production profile standpoint, I don't think where we've changed anything from our last quarter. I think we said you know a fourth quarter exit rate I think at that time as implied it 46 pre pre these divestments that we'd be I'm, sorry, 86, and we'd be kind of a little bit higher not.

For next year, and what I would say is that.

You would expect kind of the first half of the there'd be a little bit lower and it kind of ramps to the back half of the year.

The fourth quarter 2020 over 19 should.

It should be increasing a little bit more.

Okay. That's helpful. Appreciate it Michael and then I.

I guess on the as we just kind of think big picture about the 2020 Williston program as it.

It's pretty similar program as it relates to kind of a different areas, where we see completions over the course of.

Of 2020 relative to 2019 or the mix across the basin I guess I'm getting them.

Yeah. The program next year is really focused.

It's primarily a wild basin in Indian Hills.

And you know as we talked about will have a couple of rigs running.

And in one one frac crews so.

You know, it's it's probably relative to this year maybe.

We had.

A few more wells and Red Bank.

Then what you may see next year, but not not a big difference in overall waiting early.

Okay.

Thanks, guys appreciate it a national Park.

Thanks.

Our next question will be from David Deckelbaum with Cowen. Please go ahead.

Thanks, guys good morning, Tommy Taylor.

Michael just wanted to follow up on.

Conversation around Delaware.

Previous exit rate guidance, you basically hit three Q I just wanted to confirm where you see Delaware volumes fell in the fourth quarter.

And then announce ask a follow up on that.

Yes, absolutely.

So were we averaged for the quarter 80, 8500, and we hit our.

9000, plus during the quarter that we were kind of targeted.

And.

Got the benefit of get more work work done early cycle times, if it really come down and so we're able to.

He was earlier than we originally thought earlier in the year.

That's good news now along with that we're not going to have a anymore completions and in Fourq you. So you're going to see the the volumes come down a bit through.

A fourq you and then even once you have of next year, and then and then rebounded yard to Twoq and Threeq you.

That's helpful. Thank you.

I guess, if we're running this two rig program in the Williston.

This is sort of steady state keeping the Bakken flattish.

Maybe plus or minus <unk> percent here and there.

Should we always be thinking about the first half of the year, just declining seasonally and then picking back up and the back half of the year.

Yeah, we think that the.

Yeah.

Generally.

With consistent activity.

That.

You are generally going to see that.

Just get less work done in the winter.

We've had never had this dip in a bit of Backloading for.

A number of years I think that's a good way to think about it.

Okay.

If I could just a quick follow up the and the press release, you talked about the DNA rate, increasing I get that that's an accounting number.

Can you give a little bit of color. There on just some of the reserve assumptions for the back in the Delaware that resulted in a higher rate.

Yeah David.

So on that that eating DDNA cow.

See some of that's driven around.

Kind of the reserves side and I think we talked about in our August call a that that.

The the reserves some of the reserves that we had seen from well spacing test that we'd seen a previous years back kept come down a bit.

And so that's affecting the DNA rate and we do DNA rates twice, a year and so you're seeing the impact in the third quarter.

Thanks, Michael.

Sure thing.

The next question will come from Gregg Brody with be away. Please go ahead.

Good morning, guys.

Morning.

Just.

If you could provide an update on.

Sort of midstream.

Mission exercise that you were talking about last quarter.

Thats fans.

Sure.

Yeah. The short answer is we don't have an update today.

Yeah, we still I.

I think you've heard we were performing at a great level on on that midstream assets continues to be.

Incredibly strategic as you have heard a number of operators had some weather issues, having strategic midstream Mike. This is super beneficial for us is it.

As an operator.

So performance had been been really strong we continue to think that.

The midstream is undervalued and so we're committed to kind of eliminating that value.

And we'll come out with more when when we're able to.

Got it.

The two more for the first one.

Just your commitments on your revolver voluntarily that looks like she explained the rationale for that.

Yeah, you'll borrowing base did did come down you know a combination of reserves that we just talked about as well as like I said previously bank price decks of come down.

Quite a bit both on the oil side and the gas side.

Little more conservatism from the bank so on that front. So no surprise. So the our borrowing base number came down we decided to take elected commitment is down a one because there's less of a need for us to have.

That that high revolver number and we do pay fees on what's unused and so as you can as you can see our revolver balance came down pretty significantly in and.

We basically took elected commitment down to level, where it was.

Pretty even with where we were at the end of the second quarter in terms of how what percentage was drawn.

We think thats a good level for us and as we continue to repay debt well will be less and less reliant upon our revolver going forward.

That makes sense and then there was a $20 million charge you took for for litigation accrual.

What what does that relate to.

Is that how far along as that is that process.

Yes, so the.

The limited litigation accrual is associated with.

Few lawsuits out there and we've got a.

With respect to lawsuits, we got a process where.

Assess the lawsuits and then what the potential impact of those could be and based on that assessment.

We no established reserves that represents what what that impact could be if you look.

We've got really extensive disclosure on those suit so.

One of the one of them is a lawsuit filed by marotta and.

I'm looking to disclosure again and read all about that what.

What what it will tell you is that we think the claims really are without merit.

But it really is fully laid out and all the disclosures.

And that's that's is there a timing when you expect that to be cool that process to conclude.

You know it's hard to predict.

Timing on suits goes.

You know court dates and all the things that that move around so hard to give a definitive.

Date at this point.

Right.

That's that's helpful. I appreciate the time guys.

You bet bags.

The next question comes from done Mackintosh with Johnson Rice. Please go ahead.

Please go ahead done perhaps your line is muted on your end sorry.

Good morning, guys.

Alright, a quick question on the fourth quarter pricing widens out a little bit and I'm. Just wondering if you see improvement kind of getting back more towards your historical realizations next year.

Some of the drivers there what.

And if it is going to come back end weighted toward either at least color.

Yeah.

Yes, I think this is that a bit but a transient thing we have seen a your early in the fourth quarter things why not a bad or some of that due to kind of Brent Ti I'd differentials.

And some other factors, but what we've seen in as we're starting to look at selling.

Kind of December barrels now.

You're actually starting to see that that kind of come back to more historical levels.

Okay great.

And then on the M&A front you commented on yeah nothing.

The pipeline in terms of.

Further sales for me on the Wilson.

Yeah, you've had some success this year with bolt ons and the Delaware out just wondering what that environment looks like.

Oh opportunities there for swaps.

Kind of caught up deposition and what obviously, maybe not from a larger standpoint.

Bits and pieces here and there how's that deal flow.

That we.

Good news is we really been able to to optimize the position set it up for.

More two mile laterals backup more of the acreage doing these.

Yeah, both the smaller deals and and trades and we think there's there's more opportunities to do that so we'll continue to.

The work that front.

All right that's it for me. Thank you all right. Thanks.

Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to told me news for any closing remarks.

Thanks, Chad.

Closing places continues to lower costs and drive efficiency.

Putting us in a strong position to generate free cash flow MPC you'd be free cash flow and reduce debt or deep low cost resource base with a strong team behind it puts us in a position to succeed if we look forward to delivering for our shareholders again, thanks for joining our call.

And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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