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Morningstar | Oasis Oil Volumes Beat Guidance in Third Quarter

Oasis Petroleum delivered oil volumes of 66 mboe/d in the third quarter, exceeding the midpoint of guidance by about 1%. But overall output was slightly lower than expected at 85 mboe/d. The disappointment was attributed to a 12-day shutdown at an Oasis Midstream Partners gas plant, which has since been fully resolved (without this curtailment, management believes volumes would have hit the midpoint of guidance). As a result, full-year guidance was lowered slightly to 82-83 mboe/d, though there was no change to the completion schedule or projected exit rate. In any case, due to better-than-expected realized prices the firm’s financial results were in line with Street forecasts anyway (adjusted EBITDA and adjusted earnings per share were $270 million and $0.08, respectively).

Management also highlighted the 17% year-over-year reduction in lease operating expenses, accompanied by a slight reduction in full-year guidance for this item. However, we note that this item increased sequentially (albeit very modestly). Other expenses crept higher in the period as well, especially gathering and marketing. In fact, total upstream costs were 24% higher sequentially and 29% higher year on year. Incorporating these changes erased the benefit of stronger realized prices in our model and weighed on our firmwide valuation (our updated fair value estimate is $8 per share, down from $9). That still puts the stock in slightly overvalued territory, even after the recent sell-off.