Q2 2020 Oasis Petroleum Inc Earnings Call

Good morning, My name is Jason and that will be the beer operator conference operator today at this time I'd like to welcome everyone to the second quarter 2020 earnings release and operations update for Oasis Petroleum today Oasis management will discuss second quarter 2020 results and the current environment. Please.

No. This event is being recorded I will now turn the call ever to Michael Oasis Petroleum CFL to begin the conference. Thank you.

Thank you Jason good morning, everyone.

Today, we are reporting our second quarter 2020 financial and operational results.

We're delighted to have you on our call I'm joined today by Tommy News dealer Reid.

As well as other members from our team. Please be advised that our remarks on both a waste petroleum and Oasis Midstream partners 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 and 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 measures and reconciliations to the applicable GAAP measures can be found in our earnings releases and on our website.

We will not be hosting accudate session during today's call, but our team will be available after our call as needed with that I'll turn the call over to Tom.

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Thanks, Michael Good morning, Thanks for joining our call as you all know the second quarter was one of the most volatile quarters, we've ever witnessed in the industry, given the unprecedented and dramatic changes in supply and demand.

Brought about by various factors, including the code at 19 pandemic [laughter] I'm very proud of our team how our team has responded and what has been a continues to be very challenging circumstances, while remaining focused on the health and safety of our employees contractors and our communities.

In the face with rapid change in macro conditions, we were able to power down a couple activity in an orderly manner with minimal cancellation penalties similar to what we did in 2015.

Similar to 2015 or cash flow was protected through our proactive hedging program.

Coming into the year, we had about 70% of our 2020 volumes hedged basically with a floor a $54 and you will see that at our EBITDA.

Additionally, we took aggressive steps the lower capital spend at our cost structure, including both operating and administrative cost with the full benefit on the administrative side to be recognized in subsequent quarters.

On the operating side this quarter, we quickly and effectively managed to could trade curtailment and shut in program to protect cash flow.

Then the fair value in what was a sharply contango market.

Again here the team did a great.

Job thoughtfully, managing our shut in process, including well protection and bringing production back online in an orderly fashion with minimum minimal.

Mechanical upsets or costs and Taylor will provide more color on that.

Importantly, we were free cash flow positive in the second quarter and expect to be free cash flow positive through the remainder of 2020.

Before passing the called along the Taylor I'll touch briefly on some highlights this quarter and the Willis then in response to weak pricing, we implemented a volume management strategy that saved cost and preserve the value our resource.

Because of the teams incredible effort, we were able to keep our unit l., we at low levels. Despite having about one third of the volumes shut down throughout the quarter. Our marketing team also did a phenomenal job delivering tight yes during the quarter.

When you take advantage to Oasis is our integration with midstream assets, which gives our marketing team market visibility and additional tools to access different markets in order to maximize netbacks.

And that also plays into our ability to to manage any potential take away dislocation.

[noise] in the Delaware, while we shut down activity early in the quarter, we continued to advance our subsurface knowledge by analyzing the multiple variables.

Which impact well performance in both Oasis and third party data.

On the investment side, our most recent completed wells were over several million dollars cheaper than than they were a when we first acquired the asset and we expect to build on that success.

That we've had over the past several quarters and continue to enhance returns.

Oh racist midstream continues to be an accretive business to both oasis and our customers. While this business has required meaningful resources and time in investment.

And that's continues to provide flow assurance attractive pricing.

And market flexibility and provides a differential service as it pertains to our goals of minimizing the emission footprint of our operation.

Basis captured 96% of its Williston gas production in the second quarter, which compares favorably to the broader industry average of 89%.

Said another way, we flared only 4% of our gas with just two thirds less than the base in peer average.

As a result of what our team has accomplished on capital cost efficiency, coupled with the current market environment. We now expect oasis to spend 54% to 58% below our original 2020 capital program expectations.

We expect volumes to rebound a bit in a third quarter and hold steady throughout the year end, while prices have improved considerably in a relatively short period of time. We can expect you can expect us to continue to take it thoughtful and measured approach to capital deployment capital activity will be very limited in the second half of this year.

With that was just being on free cash flow generation capital efficiency in asset optimization.

Going forward, we expect to capitalize on our recent successes and lowering well costs, which should drive capital efficiency and lower breakevens, providing even more resiliency to product price moves Alicia. This will continue to focus on what we can control, including improving liquidity and getting back to the plumbing business.

Optimizing our asset base with a relentless focus on cost structure of value creation.

Similar to the financial and operational <unk> operating model of the 19 eighties in Ninetys with that I'll turn the call over to Taylor.

Thanks Connie.

I want to reemphasize Tommy comments on prioritizing the health and safety is our employees.

Team has done a tremendous job adjusting to the remote work environment brought on by covert 19.

We have executed successfully while maintaining the safety of our employees.

Field operations have performed exceptionally well with or incident rate at or near record lows.

As we have slowed down our capital program.

On the operations from activity was fairly limited in the second quarter responded quickly to the macro issues discussed earlier.

As of May all rigs and completion crews had been dropped.

While we finished drilling multiple wells in both will send in Delaware. There were seven net completions very early in the second quarter and ERP capital was 25% below our plans for two Q.

On the production from.

In the March to May timeframe, we elected to defer production on a number of recently completed wells tour retained value when pricing improved.

In addition to these wells, we began voluntarily shutting in existing production in April.

Curtail approximately 25% of our production in the Williston Basin.

Pricing eroded as we got further into April with Wi Fi declining rapidly in Williston spot differentials widen.

As a result, we elected to go into May with the majority of our world in production shut in.

However conditions improved significantly throughout the month of May.

We began bringing volumes back online.

May curtailments averaged approximately 50%.

Can you to bring bought bring on volumes over the course in June and July.

Josh we have most of our shut in wells back online, including the deferred completions I mentioned earlier with only about 15% to 20% of our Williston volumes being curtailed.

Our shut in process reflected or well thought out systematic plan, which combined with top notch execution highlights oasis ability to be nimble and effective in difficult times.

Great job to the team for their efforts on effective shut in practices and overall reduction in expenses.

We have asked a lot in a challenging time the team that certainly rose to the occasion.

We continue to work hard towards driving well costs, lower and optimizing designed to enhance return.

We expect prices of equipment supplies and services to decline of around 15% to 20% versus early 2020 levels.

Additionally, as a reminder, we've been in development mode in the Wilson for years and a 2020 reached this milestone in the Delaware.

This means when oasis resumes activity drilling and completions will be almost exclusively on a path basis.

Allowing for maximum capital efficiency.

And it will often well design has evolved over the course of several years with the general trend toward optimizing sand water perf clusters and stages on completions all without sacrificing the issue to be a few recovery.

We continue to make tweaks to well design and expect economics to continue to improve noises resumes activity.

In the Delaware activity was minimal during the quarter, but as I mentioned, we are in good shape to resume activity when can tissue conditions are appropriate.

Progress has been significant over the past two years and in the second quarter, we continue to deliver record drilling cycle times.

Our last well was drilled and 22 day.

This compares to low to mid Thirtys a year ago.

We expect continued progress in both well design can pricing what potential to push well costs.

$7 million are less than when we restart the program.

As Tommy mentioned, the Delaware team as mining Oasis and fear data.

Continue to enhance well design and optimized spacing.

Additionally.

Despite dropping both rigs in May we don't expect any meaningful acreage loss. This year and continue to work with our mineral owners on developing an appropriate planned for 2021.

As a reminder, oasis exited the quarter 20 duck from the combined core of the World and Delaware.

During the remainder of 2020, we plan to complete a portion of these ducs with the remainder to be completed in the first half of 2021.

Our current outlook imply BNP another capex.

60 to 75 million in the second half of 2020 or 248 to 263 million for the four year.

Down 54% to 58% from our original budget.

We expect to manage total company oil volumes to average approximately 40 to 42000 barrels oil per day do the remainder of the year.

To close Oasis executed well in an extremely challenging quarter significantly lowering operating costs, reducing capital and preparing the company for the recovery.

Macro environment will remain challenging and we continue to adjust the business to improve returns in this environment.

The whole company have demonstrated ability to quickly adjust and deliver outstanding results under a variety of condition.

I commend OAS and it won't be employees for their outstanding.

That I'll now turn the call over to Michael.

Thanks Taylor.

Waste operations team continues its relentless focus on cost control across our entire organization.

We not only significantly reduced our MP capex plan, but we also reduced our midstream capital plan by over 60% to $36 million to $40 million.

On Ela, we always had said per performance in the second quarter consolidated Ellow, we averaged $6 in one cents per BOE leave for the second quarter lower than the first quarter and surpassing expectations. Despite approximately a third of our volumes.

Being shut in.

Hats off to the team as this is quite an accomplishment.

And looking towards the third and fourth quarter, we would expect Ela, we did trend a bit higher as we recommend some workover spending.

Oil differentials averaged $2, a 90 cents per barrel office WT I in the second quarter, Despite Wilson and Permian differentials approaching 10 to $15 per barrel at times.

Our marketing team did an exceptional job, both proactively and reactively, putting oasis in a position to generate strong realizations in what was the historically difficult market.

Our teams thoughtful approach tight coordination with the operations team.

And knowledge and experience in the markets allowed the company to maintain incredible value for the organization.

While differential still have some uncertainty going forward. Our team is poised to minimize the short term blow out risks and uniquely experience to manage through both short and long term impacts of transportation considerations.

Importantly, our midstream providers, including LMP give a significant flexibility and unparalleled access to move our barrels to the best price within their respective.

Wages generated $93 million of S&P free cash flow in the quarter, including $25 million at proceeds from selling certain three way hedges.

We continue to expect to pay down the revolver in the second half of 2020 with free cash flow.

Concerning the three way hedge proceeds in the second quarter, we took the opportunity to monetize the majority of our three way collars.

Collars for $25 million as the value of these instruments were close to peak levels.

We continue to have that the majority of our crude hedged in the second half the year details can be found in our press release.

To sum things up the environment is improving but remains volatile.

The latest continues to work diligently to aggressively reduce our cost structure and improve development economics.

With that I'll hand, the call back over to Tommy for some closing remarks.

Thanks, Michael.

As we've emphasized delicious is taking a prudent and measured approach to how we're managing our business and continuing to focus on free cash flow generation in a volatile oil price environment, we continue to leverage technology and management practices to improve our cost structure capital efficiency in associated value creation loss.

Strengthening our already leading emissions profile and managing our environmental footprint.

I'd encourage you to check out our website for more details on Oasis is sustainability initiatives.

It's been a very difficult environments. So far this year to say, the least and in many ways unprecedented but while this round is unique in a number of ways. This is not the first time that we've experienced and work through downturns in our business I want to thank our team again for being so flexible and resilient and rising to whatever challenges come our way that example.

Hi, guys, the oasis value system and reflects positively on our culture.

On the culture of our organization thanks for joining our call.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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