EUR 850.00 For Business Accounts Only

Morningstar | Oasis Signals Margin Improvement in 2019

Oasis delivered production of 88.3 mboe/d in the fourth quarter, which was 3% higher sequentially, 21% higher year over year, and within guidance. The firm also reported sequential improvements in realized natural gas prices and unit cash costs. But like other Williston Basin operators, it had to contend with a temporary slump in realized crude prices, which came in almost $7/bbl below the WTI benchmark. As a result, the firm’s financial results were lower than expected, with adjusted EBITDA and adjusted earnings per share coming in at $214 million and negative $0.02, respectively (consensus estimates were $231 million and $0.04).

The pricing weakness was caused by an unusually high level of refinery maintenance in the region, which has now subsided. In 2019, management expects an average discount of $1.50-$3.50/bbl, which is about $0.50 lower at the midpoint than the 2018 average. Unit cash costs are also expected to improve by about $0.50 year over year, and well cost guidance was set at $6.9 million-$7.7 million per completed well (we were previously modeling $7.7 million on average). That sets up Oasis for higher profitability but slower growth, given that the company has dramatically cut its 2019 spending plans in response to lower crude prices. The updated plan includes 4-5 operated rigs, down from 6-8, and should enable the firm to live within cash flows as long as WTI exceeds $50/bbl. Production guidance is currently 86-91 mboe/d (up 7% year over year).

We plan to incorporate these operating and financial results in our model shortly, but after this first look our fair value estimate and no-moat rating remain unchanged.