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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission file number: 1-34776
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|
Oasis Petroleum Inc.
(Exact name of registrant as specified in its charter)
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|
Delaware |
|
80-0554627 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
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1001 Fannin Street, Suite 1500
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Houston, Texas
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77002 |
|
(Address of principal executive offices) |
|
(Zip Code) |
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(281) 404-9500
(Registrant’s telephone number, including area code)
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|
Securities registered pursuant to Section 12(b) of the
Act:
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|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
Common Stock |
|
OAS |
|
The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90
days. Yes ☒ No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated filer |
☒ |
Accelerated filer |
☐ |
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|
Non-accelerated filer |
☐
|
Smaller reporting company |
☐ |
|
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|
Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No ☒
Number of shares of the registrant’s common stock outstanding at
July 31, 2020: 320,975,203 shares.
OASIS PETROLEUM INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2020
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
Item 1. — Financial Statements (Unaudited)
Oasis Petroleum Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
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|
June 30, 2020 |
|
December 31, 2019 |
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|
(In thousands, except share data) |
|
|
|
ASSETS |
|
|
|
|
Current assets |
|
|
|
|
Cash and cash equivalents |
$ |
77,408 |
|
|
$ |
20,019 |
|
|
Accounts receivable, net |
201,514 |
|
|
371,181 |
|
|
Inventory |
36,920 |
|
|
35,259 |
|
|
Prepaid expenses |
15,901 |
|
|
10,011 |
|
|
|
|
|
|
Derivative instruments |
85,425 |
|
|
535 |
|
|
|
|
|
|
Other current assets |
1,667 |
|
|
346 |
|
|
Total current assets |
418,835 |
|
|
437,351 |
|
|
Property, plant and equipment |
|
|
|
|
Oil and gas properties (successful efforts method) |
9,358,710 |
|
|
9,463,038 |
|
|
Other property and equipment |
1,314,870 |
|
|
1,279,653 |
|
|
Less: accumulated depreciation, depletion, amortization and
impairment |
(8,521,390) |
|
|
(3,764,915) |
|
|
Total property, plant and equipment, net |
2,152,190 |
|
|
6,977,776 |
|
|
Assets held for sale, net |
1,380 |
|
|
21,628 |
|
|
Derivative instruments |
— |
|
|
639 |
|
|
Long-term inventory |
14,173 |
|
|
13,924 |
|
|
Operating right-of-use assets |
15,232 |
|
|
18,497 |
|
|
Other assets |
23,816 |
|
|
29,438 |
|
|
Total assets |
$ |
2,625,626 |
|
|
$ |
7,499,253 |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
Current liabilities |
|
|
|
|
Accounts payable |
$ |
5,131 |
|
|
$ |
17,948 |
|
|
Revenues and production taxes payable |
110,791 |
|
|
233,090 |
|
|
Accrued liabilities |
143,263 |
|
|
281,079 |
|
|
Accrued interest payable |
92,963 |
|
|
37,388 |
|
|
Derivative instruments |
— |
|
|
19,695 |
|
|
|
|
|
|
Advances from joint interest partners |
4,284 |
|
|
4,598 |
|
|
Current operating lease liabilities |
3,435 |
|
|
6,182 |
|
|
Other current liabilities |
1,486 |
|
|
2,903 |
|
|
Total current liabilities |
361,353 |
|
|
602,883 |
|
|
Long-term debt |
2,761,673 |
|
|
2,711,573 |
|
|
Deferred income taxes |
10,042 |
|
|
267,357 |
|
|
Asset retirement obligations |
58,294 |
|
|
56,305 |
|
|
|
|
|
|
Derivative instruments |
— |
|
|
120 |
|
|
Operating lease liabilities |
17,109 |
|
|
17,915 |
|
|
Other liabilities |
7,066 |
|
|
6,019 |
|
|
Total liabilities |
3,215,537 |
|
|
3,662,172 |
|
|
Commitments and contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit) |
|
|
|
|
Common stock, $0.01 par value: 900,000,000 shares authorized;
325,144,949 shares issued and 320,984,071 shares outstanding at
June 30, 2020 and 324,198,057 shares issued and 321,231,319 shares
outstanding at December 31, 2019
|
4,239 |
|
|
3,189 |
|
|
Treasury stock, at cost: 4,160,878 and 2,966,738 shares at June 30,
2020 and December 31, 2019, respectively
|
(36,507) |
|
|
(33,881) |
|
|
Additional paid-in capital |
3,122,912 |
|
|
3,112,384 |
|
|
Retained earnings (accumulated deficit) |
(3,849,768) |
|
|
554,446 |
|
|
Oasis share of stockholders’ equity (deficit) |
(759,124) |
|
|
3,636,138 |
|
|
Non-controlling interests |
169,213 |
|
|
200,943 |
|
|
Total stockholders’ equity (deficit) |
(589,911) |
|
|
3,837,081 |
|
|
Total liabilities and stockholders’ equity (deficit) |
$ |
2,625,626 |
|
|
$ |
7,499,253 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Oasis Petroleum Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
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|
|
|
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|
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Three Months Ended June 30, |
|
|
|
Six Months Ended June 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
Oil and gas revenues |
$ |
93,830 |
|
|
$ |
357,004 |
|
|
$ |
332,958 |
|
|
$ |
725,786 |
|
|
Purchased oil and gas sales |
37,352 |
|
|
109,389 |
|
|
123,630 |
|
|
257,860 |
|
|
Midstream revenues |
34,774 |
|
|
51,573 |
|
|
91,185 |
|
|
99,594 |
|
|
Other services revenues |
396 |
|
|
11,439 |
|
|
6,377 |
|
|
21,897 |
|
|
Total revenues |
166,352 |
|
|
529,405 |
|
|
554,150 |
|
|
1,105,137 |
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Lease operating expenses |
29,608 |
|
|
56,228 |
|
|
79,377 |
|
|
114,672 |
|
|
Midstream expenses |
8,161 |
|
|
17,368 |
|
|
21,245 |
|
|
34,097 |
|
|
Other services expenses |
729 |
|
|
8,474 |
|
|
5,660 |
|
|
15,444 |
|
|
Marketing, transportation and gathering expenses |
23,765 |
|
|
28,488 |
|
|
53,229 |
|
|
63,438 |
|
|
Purchased oil and gas expenses |
33,180 |
|
|
109,662 |
|
|
118,383 |
|
|
259,566 |
|
|
Production taxes |
6,764 |
|
|
28,142 |
|
|
26,090 |
|
|
57,760 |
|
|
Depreciation, depletion and amortization |
33,130 |
|
|
177,358 |
|
|
236,885 |
|
|
367,191 |
|
|
Exploration expenses |
1,430 |
|
|
887 |
|
|
2,598 |
|
|
1,717 |
|
|
|
|
|
|
|
|
|
|
Impairment |
2,319 |
|
|
24 |
|
|
4,825,997 |
|
|
653 |
|
|
General and administrative expenses |
37,443 |
|
|
30,926 |
|
|
68,617 |
|
|
65,385 |
|
|
Total operating expenses |
176,529 |
|
|
457,557 |
|
|
5,438,081 |
|
|
979,923 |
|
|
Gain (loss) on sale of properties |
(1,047) |
|
|
(276) |
|
|
10,179 |
|
|
(3,198) |
|
|
Operating income (loss) |
(11,224) |
|
|
71,572 |
|
|
(4,873,752) |
|
|
122,016 |
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Net gain (loss) on derivative instruments |
(37,187) |
|
|
34,749 |
|
|
248,135 |
|
|
(82,862) |
|
|
Interest expense, net of capitalized interest |
(44,388) |
|
|
(43,186) |
|
|
(140,145) |
|
|
(87,654) |
|
|
Gain on extinguishment of debt |
— |
|
|
— |
|
|
83,887 |
|
|
— |
|
|
Other income |
837 |
|
|
279 |
|
|
900 |
|
|
233 |
|
|
Total other income (expense), net |
(80,738) |
|
|
(8,158) |
|
|
192,777 |
|
|
(170,283) |
|
|
Income (loss) before income taxes |
(91,962) |
|
|
63,414 |
|
|
(4,680,975) |
|
|
(48,267) |
|
|
Income tax benefit (expense) |
2,613 |
|
|
(12,240) |
|
|
257,351 |
|
|
(8,537) |
|
|
Net income (loss) including non-controlling interests |
(89,349) |
|
|
51,174 |
|
|
(4,423,624) |
|
|
(56,804) |
|
|
Less: Net income (loss) attributable to non-controlling
interests |
3,594 |
|
|
8,417 |
|
|
(19,820) |
|
|
15,321 |
|
|
Net income (loss) attributable to Oasis |
$ |
(92,943) |
|
|
$ |
42,757 |
|
|
$ |
(4,403,804) |
|
|
$ |
(72,125) |
|
|
Earnings (loss) attributable to Oasis per share: |
|
|
|
|
|
|
|
|
Basic (Note 14)
|
$ |
(0.29) |
|
|
$ |
0.14 |
|
|
$ |
(13.90) |
|
|
$ |
(0.23) |
|
|
Diluted (Note 14)
|
(0.29) |
|
|
0.14 |
|
|
(13.90) |
|
|
(0.23) |
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic (Note 14)
|
317,629 |
|
|
314,982 |
|
|
316,899 |
|
|
314,724 |
|
|
Diluted (Note 14)
|
317,629 |
|
|
314,982 |
|
|
316,899 |
|
|
314,724 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Oasis Petroleum Inc.
Condensed Consolidated Statements of Changes in Stockholders’
Equity (Deficit)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to Oasis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Treasury Stock |
|
|
|
Additional
Paid-in Capital |
|
Retained Earnings (Accumulated Deficit) |
|
Non-controlling Interests |
|
Total
Stockholders’
Equity (Deficit) |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019 |
321,231 |
|
|
$ |
3,189 |
|
|
2,967 |
|
|
$ |
(33,881) |
|
|
$ |
3,112,384 |
|
|
$ |
554,446 |
|
|
$ |
200,943 |
|
|
$ |
3,837,081 |
|
|
Cumulative-effect adjustment for adoption of ASU 2016-13 (Note
2) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(410) |
|
|
— |
|
|
(410) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation |
3,836 |
|
|
32 |
|
|
— |
|
|
— |
|
|
7,007 |
|
|
— |
|
|
66 |
|
|
7,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to non-controlling interest owners |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(6,028) |
|
|
(6,028) |
|
|
Equity component of senior unsecured convertible notes,
net |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(337) |
|
|
— |
|
|
— |
|
|
(337) |
|
|
Treasury stock - tax withholdings |
(942) |
|
|
— |
|
|
942 |
|
|
(2,308) |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,308) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(4,310,861) |
|
|
(23,414) |
|
|
(4,334,275) |
|
|
Balance as of March 31, 2020 |
324,125 |
|
|
3,221 |
|
|
3,909 |
|
|
(36,189) |
|
|
3,119,054 |
|
|
(3,756,825) |
|
|
171,567 |
|
|
(499,172) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation |
(2,889) |
|
|
1,018 |
|
|
— |
|
|
— |
|
|
3,858 |
|
|
— |
|
|
66 |
|
|
4,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to non-controlling interest owners |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(6,014) |
|
|
(6,014) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock - tax withholdings |
(252) |
|
|
— |
|
|
252 |
|
|
(318) |
|
|
— |
|
|
— |
|
|
— |
|
|
(318) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(92,943) |
|
|
3,594 |
|
|
(89,349) |
|
|
Balance as of June 30, 2020 |
320,984 |
|
|
$ |
4,239 |
|
|
4,161 |
|
|
$ |
(36,507) |
|
|
$ |
3,122,912 |
|
|
$ |
(3,849,768) |
|
|
$ |
169,213 |
|
|
$ |
(589,911) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to Oasis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Treasury Stock |
|
|
|
Additional
Paid-in Capital |
|
Retained Earnings |
|
Non-controlling Interests |
|
Total
Stockholders’
Equity |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018 |
318,377 |
|
|
$ |
3,157 |
|
|
2,092 |
|
|
$ |
(29,025) |
|
|
$ |
3,077,755 |
|
|
$ |
682,689 |
|
|
$ |
184,304 |
|
|
$ |
3,918,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation |
4,360 |
|
|
25 |
|
|
— |
|
|
— |
|
|
9,462 |
|
|
— |
|
|
119 |
|
|
9,606 |
|
|
Distributions to non-controlling interest owners |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(4,937) |
|
|
(4,937) |
|
|
Treasury stock - tax withholdings |
(686) |
|
|
— |
|
|
686 |
|
|
(4,261) |
|
|
— |
|
|
— |
|
|
— |
|
|
(4,261) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(134) |
|
|
— |
|
|
(41) |
|
|
(175) |
|
|
Net income (loss) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(114,882) |
|
|
6,904 |
|
|
(107,978) |
|
|
Balance as of March 31, 2019 |
322,051 |
|
|
3,182 |
|
|
2,778 |
|
|
(33,286) |
|
|
3,087,083 |
|
|
567,807 |
|
|
186,349 |
|
|
3,811,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation |
(149) |
|
|
1 |
|
|
— |
|
|
— |
|
|
9,465 |
|
|
— |
|
|
100 |
|
|
9,566 |
|
|
Distributions to non-controlling interest owners |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(5,156) |
|
|
(5,156) |
|
|
Treasury stock - tax withholdings |
(8) |
|
|
— |
|
|
8 |
|
|
(44) |
|
|
— |
|
|
— |
|
|
— |
|
|
(44) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(193) |
|
|
— |
|
|
(24) |
|
|
(217) |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
42,757 |
|
|
8,417 |
|
|
51,174 |
|
|
Balance as of June 30, 2019 |
321,894 |
|
|
$ |
3,183 |
|
|
2,786 |
|
|
$ |
(33,330) |
|
|
$ |
3,096,355 |
|
|
$ |
610,564 |
|
|
$ |
189,686 |
|
|
$ |
3,866,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Oasis Petroleum Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
2020 |
|
2019 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
Cash flows from operating activities: |
|
|
|
|
Net loss including non-controlling interests |
$ |
(4,423,624) |
|
|
$ |
(56,804) |
|
|
Adjustments to reconcile net loss including non-controlling
interests to net cash provided by operating activities: |
|
|
|
|
Depreciation, depletion and amortization |
236,885 |
|
|
367,191 |
|
|
Gain on extinguishment of debt |
(83,887) |
|
|
— |
|
|
(Gain) loss on sale of properties |
(10,179) |
|
|
3,198 |
|
|
Impairment |
4,825,997 |
|
|
653 |
|
|
Deferred income taxes |
(257,315) |
|
|
8,617 |
|
|
Derivative instruments |
(248,135) |
|
|
82,862 |
|
|
Equity-based compensation expenses |
11,697 |
|
|
17,924 |
|
|
Deferred financing costs amortization and other |
16,755 |
|
|
12,245 |
|
|
Working capital and other changes: |
|
|
|
|
Change in accounts receivable, net |
167,871 |
|
|
(12,914) |
|
|
Change in inventory |
(8,739) |
|
|
3,029 |
|
|
Change in prepaid expenses |
(7,465) |
|
|
3,918 |
|
|
|
|
|
|
|
|
|
|
Change in accounts payable, interest payable and accrued
liabilities |
(156,668) |
|
|
(36,514) |
|
|
|
|
|
|
|
|
|
|
Change in other assets and liabilities, net |
(3,298) |
|
|
(4,473) |
|
|
Net cash provided by operating activities |
59,895 |
|
|
388,932 |
|
|
Cash flows from investing activities: |
|
|
|
|
Capital expenditures |
(270,283) |
|
|
(525,501) |
|
|
Acquisitions |
— |
|
|
(5,781) |
|
|
Proceeds from sale of properties |
13,780 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Derivative settlements |
144,069 |
|
|
3,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
(112,434) |
|
|
(527,653) |
|
|
Cash flows from financing activities: |
|
|
|
|
Proceeds from Revolving Credit Facilities |
577,000 |
|
|
1,178,000 |
|
|
Principal payments on Revolving Credit Facilities |
(383,000) |
|
|
(1,025,000) |
|
|
Repurchase of senior unsecured notes |
(68,040) |
|
|
— |
|
|
|
|
|
|
Deferred financing costs |
(102) |
|
|
(482) |
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
(2,626) |
|
|
(4,305) |
|
|
Distributions to non-controlling interests |
(12,042) |
|
|
(10,093) |
|
|
Payments on finance lease liabilities |
(1,262) |
|
|
(941) |
|
|
Other |
— |
|
|
(390) |
|
|
Net cash provided by financing activities |
109,928 |
|
|
136,789 |
|
|
Increase (decrease) in cash and cash equivalents |
57,389 |
|
|
(1,932) |
|
|
Cash and cash equivalents: |
|
|
|
|
Beginning of period |
20,019 |
|
|
22,190 |
|
|
End of period |
$ |
77,408 |
|
|
$ |
20,258 |
|
|
Supplemental non-cash transactions: |
|
|
|
|
Change in accrued capital expenditures |
$ |
(60,655) |
|
|
$ |
(30,598) |
|
|
Change in asset retirement obligations |
2,039 |
|
|
3,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
OASIS PETROLEUM INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Operations of the Company
Oasis Petroleum Inc. (together with its consolidated subsidiaries,
“Oasis” or the “Company”) is an independent exploration and
production company focused on the acquisition and development of
onshore, unconventional crude oil and natural gas resources in the
United States. Oasis Petroleum North America LLC (“OPNA”) and Oasis
Petroleum Permian LLC (“OP Permian”) conduct the Company’s
exploration and production activities and own its crude oil and
natural gas properties located in the Williston Basin and the
Delaware Basin, respectively. In addition to its exploration and
production segment, the Company also operates a midstream business
segment through Oasis Midstream Partners LP (“OMP”) and Oasis
Midstream Services LLC (“OMS”). OMP is a growth-oriented, fee-based
master limited partnership that develops and operates a diversified
portfolio of midstream assets.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of the Company have not been audited by the Company’s
independent registered public accounting firm, except that the
Condensed Consolidated Balance Sheet at December 31, 2019 is
derived from audited financial statements. Certain
reclassifications of prior year balances have been made to conform
amounts to current year classifications. These reclassifications
have no impact on net income. In the opinion of management, all
adjustments, consisting of normal recurring adjustments necessary
for the fair statement of the Company’s financial position, have
been included. Management has made certain estimates and
assumptions that affect reported amounts in the unaudited condensed
consolidated financial statements and disclosures of contingencies.
Actual results may differ from those estimates. The results for
interim periods are not necessarily indicative of annual
results.
These interim financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission
(“SEC”) regarding interim financial reporting. Certain disclosures
have been condensed or omitted from these financial statements.
Accordingly, they do not include all of the information and notes
required by accounting principles generally accepted in the United
States of America (“GAAP”) for complete consolidated financial
statements and should be read in conjunction with the Company’s
audited consolidated financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2019 (“2019 Annual Report”).
Consolidation. The
accompanying unaudited condensed consolidated financial statements
of the Company include the accounts of Oasis, the accounts of
wholly-owned subsidiaries and the accounts of OMP and its general
partner, OMP GP LLC (“OMP GP”). The Company has determined that the
partners with equity at risk in OMP lack the authority, through
voting rights or similar rights, to direct the activities that most
significantly impact OMP’s economic performance. Therefore, as the
limited partners of OMP do not have substantive kick-out or
substantive participating rights over OMP GP, OMP is a variable
interest entity. Through the Company’s ownership interest in OMP
GP, the Company has the authority to direct the activities that
most significantly affect economic performance and the right to
receive benefits that could be potentially significant to OMP.
Therefore, the Company is considered the primary beneficiary and
consolidates OMP and records a non-controlling interest for the
interest owned by the public. All intercompany balances and
transactions have been eliminated upon consolidation.
Risks and Uncertainties
As a crude oil and natural gas producer, the Company’s revenue,
profitability and future growth are substantially dependent upon
the prevailing and future prices for crude oil and natural gas,
which are dependent upon numerous factors beyond its control such
as economic, political and regulatory developments and competition
from other energy sources. The energy markets have historically
been very volatile, and there can be no assurance that crude oil
and natural gas prices will not be subject to wide fluctuations in
the future. If prices for crude oil, natural gas and natural gas
liquids (“NGLs”) continue to decline or for an extended period of
time remain at depressed levels, such commodity price environment
could have a material adverse effect on the Company’s financial
position, results of operations, cash flows, the quantities of
crude oil and natural gas reserves that may be economically
produced and the Company’s access to capital.
The Company considered the impact of the novel coronavirus 2019
(“COVID-19”) pandemic on the assumptions and estimates used by
management in the unaudited condensed consolidated financial
statements for the reporting periods presented. As a result of the
significant decline in current and expected future commodity
prices, the Company recognized material asset impairment charges
during the six months ended June 30, 2020 (see Note 8 — Property,
Plant and Equipment). Management’s estimates and assumptions were
based on historical data and consideration of future market
conditions. Given the uncertainty inherent in any projection, which
is heightened by the possibility of unforeseen additional impacts
from the COVID-19 pandemic, actual results may differ from the
estimates and assumptions used, and conditions may change, which
could materially affect amounts reported in the unaudited condensed
consolidated financial statements in the near term.
Going Concern
Based on the current commodity price environment, the Company
currently expects it will be unable to comply with the covenants
under its revolving credit facility (the “Oasis Credit Facility”),
as amended in April 2020, within the next twelve months, which
raises substantial doubt about the Company’s ability to continue as
a going concern within one year after the accompanying financial
statements are issued. Failure to comply with a covenant, if not
waived, would result in an event of default under the Oasis Credit
Facility, the potential acceleration of outstanding debt thereunder
and the potential liquidation of the collateral securing such debt.
An acceleration under the Oasis Credit Facility could result in an
event of default and an acceleration under the indentures for the
Company’s senior unsecured notes and senior unsecured convertible
notes (collectively, the “Notes”).
The Company is actively pursuing, with support from its Board of
Directors, a variety of transactions and cost-cutting measures,
including but not limited to, reduction in corporate discretionary
expenditures, refinancing transactions, capital exchange
transactions, asset divestitures, operational efficiencies and a
reduction in 2020 capital expenditures by approximately 58% from
the initial 2020 total capital expenditure plan announced in
February 2020. Furthermore, the Company has engaged advisors to
assist with the evaluation of strategic alternatives, including a
recapitalization transaction with a third-party capital provider;
restructuring of the Company’s existing debt either through an
out-of-court process or under Chapter 11 of the Bankruptcy Code; or
other strategic transaction. However, the Company cannot predict
the extent to which any of these measures will be successful, if at
all, and there can be no assurances that the Company will be able
to successfully restructure its indebtedness, improve its financial
position or complete any strategic transactions. The Company’s
unaudited condensed consolidated financial statements have been
prepared on a going concern basis and do not reflect any
adjustments that might result if the Company is unable to continue
as a going concern.
As a result of the foregoing liquidity concerns and the Company’s
reduction in planned capital expenditures in 2020 in response to
the depressed commodity price environment, the Company’s estimated
quantity of proved reserves has decreased significantly from the
previous estimate disclosed in its 2019 Annual Report. This
decrease is primarily due to the removal of proved undeveloped
reserves in contemplation of the ongoing market downturn and
uncertainty regarding the Company’s ability to finance the
development of such reserves within five years.
Dividends
The Company has not paid any cash dividends since its inception.
Covenants contained in the Oasis Credit Facility and the indentures
governing the Company’s senior notes restrict the payment of cash
dividends on its common stock. The Company currently intends to
retain all earnings for the development of its business and for
repayment of outstanding debt, and the Company does not anticipate
declaring or paying any cash dividends to holders of its common
stock.
Significant Accounting Policies
There have been no material changes to the Company’s critical
accounting policies and estimates from those disclosed in the 2019
Annual Report, other than as noted below.
Fair value measurement.
In the first quarter of 2020, the Company adopted Accounting
Standards Update No. 2018-13, Fair
Value Measurement (Topic 820): Disclosure Framework — Changes to
the Disclosure Requirements for Fair Value
Measurement (“ASU
2018-13”), which improves the effectiveness of the disclosure
requirements for fair value measurements. The adoption of ASU
2018-13 did not result in a material impact to the Company’s
financial position, cash flows or results of operations. See Note 6
— Fair Value Measurements for disclosures in accordance with ASU
2018-03.
Accounts receivable — credit losses.
In the first quarter of 2020, the Company adopted Accounting
Standards Update No. 2016-13,
Financial Instruments — Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments
(“ASU 2016-13”), which replaces the incurred loss impairment
methodology with a methodology that reflects expected credit losses
and requires consideration of a broader range of reasonable and
supportable information, including forecasts, to develop credit
loss estimates. The Company’s exposure to credit losses is
primarily related to its accounts receivable from crude oil and
natural gas purchasers and joint interest owners on properties it
operates. In accordance with ASU 2016-13, the Company estimates
expected credit losses on its accounts receivable at each reporting
date, which may result in earlier recognition of credit losses than
under previous GAAP. These estimates are based on historical data,
current and future economic and market conditions to determine
expected collectability. Historically, the Company’s credit losses
on joint interest and crude oil and natural gas sales receivables
have been immaterial. The Company continually monitors the
creditworthiness of its counterparties by reviewing credit ratings,
financial statements and payment history. The adoption of ASU
2016-13 was applied using a modified retrospective approach by
recognizing a cumulative-effect adjustment to retained earnings,
and prior periods were not retrospectively adjusted. The adoption
of ASU 2016-13 did not result in a material impact to the Company’s
financial position, cash flows or results of operations (see Note 5
— Accounts Receivable).
Recent Accounting Pronouncements
Income taxes.
In December 2019, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update No. 2019-12,
Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes (“ASU
2019-12”), which simplifies the accounting for income taxes by
removing certain exceptions to the general principles and also
simplification of areas such as separate entity financial
statements and interim recognition of enactment of tax laws or rate
changes. ASU 2019-12 is effective for fiscal years beginning after
December 15, 2020, including interim reporting periods within those
years. The Company is currently evaluating the effect of ASU
2019-12, but does not expect the adoption of this guidance to have
a material impact on its financial position, cash flows or result
of operations.
Reference rate reform.
In March 2020, the FASB issued Accounting Standards Update
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting
(“ASU 2020-04”). The amendments provide optional guidance for a
limited time to ease the potential burden in accounting for
reference rate reform. The new guidance provides optional
expedients and exceptions for applying GAAP to contracts, hedging
relationships and other transactions affected by reference rate
reform if certain criteria are met. The amendments apply only to
contracts and hedging relationships that reference the London
Interbank Offered Rate or another reference rate expected to be
discontinued due to reference rate reform. These amendments are
effective immediately and may be applied prospectively to contract
modifications made and hedging relationships entered into or
evaluated on or before December 31, 2022. The Company is currently
evaluating its contracts and the optional expedients provided by
ASU 2020-04 and the impact the new standard will have on its
condensed consolidated financial statements and related
disclosures.
3. Revenue Recognition
Exploration and Production Revenues
Revenues associated with contracts with customers for crude oil,
natural gas and NGL sales and other services were as follows for
the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and Production Revenues |
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
Six Months Ended June 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
Crude oil revenues |
$ |
81,059 |
|
|
$ |
327,977 |
|
|
$ |
293,852 |
|
|
$ |
646,098 |
|
|
Purchased crude oil sales |
23,519 |
|
|
106,441 |
|
|
109,276 |
|
|
253,577 |
|
|
Natural gas and NGL revenues |
12,771 |
|
|
29,027 |
|
|
39,106 |
|
|
79,688 |
|
|
Purchased natural gas sales |
4,081 |
|
|
2,920 |
|
|
4,602 |
|
|
4,255 |
|
|
Other services revenues(1)
|
396 |
|
|
11,439 |
|
|
6,377 |
|
|
21,897 |
|
|
Total exploration and production revenues |
$ |
121,826 |
|
|
$ |
477,804 |
|
|
$ |
453,213 |
|
|
$ |
1,005,515 |
|
__________________
(1)Represents
revenues for equipment rentals and well services provided by the
Company’s wholly-owned subsidiary, Oasis Well Services LLC (“OWS”),
excluding intercompany revenues for services performed for the
Company’s ownership interests, which are eliminated in
consolidation and are therefore not included in consolidated
exploration and production revenues.
Prior period performance obligations.
For sales of commodities, the Company records revenue in the month
production is delivered to the purchaser. However, settlement
statements and payments are typically not received
for 20 to 60 days after the date production is
delivered, and as a result, the Company is required to estimate the
amount of production that was delivered to the purchaser and the
price that will be received for the sale of the product. The
Company records the differences between estimates and the actual
amounts received for product sales once payment is received from
the purchaser. Such differences have historically not been
significant. The Company uses knowledge of its properties, its
properties’ historical performance, spot market prices and other
factors as the basis for these estimates. For the three and six
months ended June 30, 2020 and 2019, revenue recognized related to
performance obligations satisfied in prior reporting periods was
not material.
Midstream Revenues
Revenues associated with contracts with customers for midstream
services under fee-based arrangements and midstream product sales
from purchase arrangements were as follows for the three and six
months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midstream Revenues(1)
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
Six Months Ended June 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
Midstream service revenues |
|
|
|
|
|
|
|
|
Crude oil, natural gas and NGL revenues |
$ |
22,898 |
|
|
$ |
22,875 |
|
|
$ |
49,584 |
|
|
$ |
47,538 |
|
|
Produced and flowback water revenues |
7,247 |
|
|
9,473 |
|
|
18,499 |
|
|
18,506 |
|
|
Total midstream service revenues |
$ |
30,145 |
|
|
$ |
32,348 |
|
|
$ |
68,083 |
|
|
$ |
66,044 |
|
|
Midstream product revenues |
|
|
|
|
|
|
|
|
Purchased crude oil sales |
$ |
9,752 |
|
|
$ |
28 |
|
|
$ |
9,752 |
|
|
$ |
28 |
|
|
Crude oil, natural gas and NGL revenues |
4,335 |
|
|
17,319 |
|
|
20,608 |
|
|
30,116 |
|
|
Freshwater revenues |
294 |
|
|
1,906 |
|
|
2,494 |
|
|
3,434 |
|
|
Total midstream product revenues |
$ |
14,381 |
|
|
$ |
19,253 |
|
|
$ |
32,854 |
|
|
$ |
33,578 |
|
|
Total midstream revenues |
$ |
44,526 |
|
|
$ |
51,601 |
|
|
$ |
100,937 |
|
|
$ |
99,622 |
|
__________________
(1)Represents
midstream revenues, excluding intercompany revenues for work
performed by the midstream business segment for the Company’s
ownership interests, which are eliminated in consolidation and are
therefore not included in consolidated midstream
revenues.
Prior period performance obligations.
The Company records revenue for midstream services or product sales
when the performance obligations under the terms of its customer
contracts are satisfied. The Company measures the satisfaction of
its performance obligations using the output method based upon the
volume of crude oil, natural gas or water that flows through its
systems. In certain cases, the Company is required to estimate
these volumes during a reporting period and record any differences
between the estimated volumes and actual volumes in the following
reporting period. Such differences have historically not been
significant. For the three and six months ended June 30, 2020 and
2019, revenue recognized related to performance obligations
satisfied in prior reporting periods was not material.
Contract Balances
Contract balances are the result of timing differences between
revenue recognition, billings and cash collections. Contract assets
relate to revenue recognized for accrued deficiency fees associated
with minimum volume commitments where the Company believes it is
probable there will be a shortfall payment and that a significant
reversal of revenue recognized will not occur once the related
performance period is completed and the customer is billed. Revenue
recognized for accrued deficiency fees associated with minimum
volume commitments is included in midstream revenues on the
Company’s Condensed Consolidated Statements of Operations. Contract
liabilities relate to aid in construction payments received from
customers which are recognized as revenue over the expected period
of future benefit. The Company does not recognize contract assets
or contract liabilities under its customer contracts for which
invoicing occurs once the Company’s performance obligations have
been satisfied and payment is unconditional. Contract balances are
classified as current or long-term based on the timing of when the
Company expects to receive cash for contract assets or recognize
revenue for contract liabilities. Contract assets are included in
other current assets on the Company’s Condensed Consolidated
Balance Sheets, and contract liabilities are included in other
current liabilities and other liabilities on the Company’s
Condensed Consolidated Balance Sheets.
The following table summarizes the changes in the Company’s
contract assets for the six months ended June 30,
2020:
|
|
|
|
|
|
|
|
(In thousands) |
|
Balance as of December 31, 2019
|
$ |
— |
|
|
|
|
Revenues recognized |
1,538 |
|
|
Balance as of June 30, 2020
|
$ |
1,538 |
|
The following table summarizes the changes in the Company’s
contract liabilities for the six months ended June 30,
2020:
|
|
|
|
|
|
|
|
(In thousands) |
|
Balance as of December 31, 2019
|
$ |
2,105 |
|
|
Cash received |
1,769 |
|
|
Revenues recognized |
(234) |
|
|
Balance as of June 30, 2020
|
$ |
3,640 |
|
Remaining Performance Obligations
The following table presents estimated revenue allocated to
remaining performance obligations for contracted revenues that are
unsatisfied (or partially satisfied) as of June 30,
2020:
|
|
|
|
|
|
|
|
(In thousands) |
|
2020 (excluding the six months ended June 30, 2020) |
$ |
10,084 |
|
|
2021 |
17,731 |
|
|
2022 |
17,862 |
|
|
2023 |
12,366 |
|
|
2024 |
11,874 |
|
|
Thereafter |
2,768 |
|
|
Total |
$ |
72,685 |
|
The partially and wholly unsatisfied performance obligations
presented in the table above are generally limited to customer
contracts which have fixed pricing and fixed volume terms and
conditions, which generally include customer contracts with minimum
volume commitment payment obligations.
The Company has elected practical expedients, pursuant to
Accounting Standards Codification 606,
Revenue from Contracts with Customers,
to exclude from the presentation of remaining performance
obligations: (i) contracts with index-based pricing or variable
volume attributes in which such variable consideration is allocated
entirely to a wholly unsatisfied performance obligation or to a
wholly unsatisfied promise to transfer a distinct service that
forms part of a series of distinct services and (ii) contracts with
an original expected duration of one year or less.
4. Inventory
Crude oil inventory includes crude oil in tanks and linefill.
Linefill that represents the minimum volume of product in a
pipeline system that enables the system to operate is generally not
available to be withdrawn from the pipeline system until the
expiration of the transportation contract. Crude oil in tanks and
linefill in third party pipelines that is expected to be withdrawn
within one year is included in inventory on the Company’s Condensed
Consolidated Balance Sheets, and crude oil linefill in third party
pipelines that is not expected to be withdrawn within one year is
included in long-term inventory on the Company’s Condensed
Consolidated Balance Sheets.
Equipment and materials consist primarily of well equipment, tanks
and tubular goods to be used in the Company’s exploration and
production activities and spare parts and equipment for the
Company’s midstream assets. Equipment and materials are included in
inventory on the Company’s Condensed Consolidated Balance
Sheets.
Inventory, including long-term inventory, is stated at the lower of
cost and net realizable value with cost determined on an average
cost method. The Company assesses the carrying value of inventory
and uses estimates and judgment when making any adjustments
necessary to reduce the carrying value to net realizable value.
Among the uncertainties that impact the Company’s estimates are the
applicable quality and location differentials to include in the
Company’s net realizable value analysis as well as the liquidation
timing of the inventory. Changes in assumptions made as to the
timing of a sale can materially impact net realizable value. Due to
lower commodity and market prices, the Company recorded impairment
losses for the Company’s crude oil inventory, long-term linefill
inventory and equipment and materials inventory of
$7.2 million, $1.3 million and $1.0 million,
respectively, to adjust the carrying values of the inventory to
their estimated net realizable values during the six months ended
June 30, 2020.
The Company’s total inventory consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
December 31, 2019 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
Inventory |
|
|
|
|
Crude oil inventory |
$ |
8,400 |
|
|
$ |
18,296 |
|
|
Equipment and materials |
28,520 |
|
|
16,963 |
|
|
Total inventory |
$ |
36,920 |
|
|
$ |
35,259 |
|
|
|
|
|
|
|
Long-term inventory |
|
|
|
|
Linefill in third party pipelines |
$ |
14,173 |
|
|
$ |
13,924 |
|
|
Total long-term inventory |
$ |
14,173 |
|
|
$ |
13,924 |
|
|
|
|
|
|
|
Total |
$ |
51,093 |
|
|
$ |
49,183 |
|
5. Accounts Receivable
The following table sets forth the Company’s accounts receivable,
net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
December 31, 2019 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
Trade accounts |
$ |
125,147 |
|
|
$ |
276,629 |
|
|
Joint interest accounts |
65,222 |
|
|
82,112 |
|
|
Other accounts |
13,238 |
|
|
13,699 |
|
|
Total |
203,607 |
|
|
372,440 |
|
|
Allowance for credit losses(1)
|
(2,093) |
|
|
(1,259) |
|
|
Total accounts receivable, net |
$ |
201,514 |
|
|
$ |
371,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
__________________
(1)Upon
adoption of ASU 2016-13, the Company recognized a cumulative-effect
adjustment to retained earnings (accumulated deficit) of
$0.4 million to increase its allowance for expected credit
losses. Prior period amounts are not adjusted and continue to be
reported in accordance with the previous guidance.
6. Fair Value Measurements
In accordance with the FASB’s authoritative guidance on fair value
measurements, the Company’s financial assets and liabilities are
measured at fair value on a recurring basis. The Company’s
financial instruments, including certain cash and cash equivalents,
accounts receivable, accounts payable and other payables, are
carried at cost, which approximates their respective fair market
values due to their short-term maturities. The Company recognizes
its non-financial assets and liabilities, such as asset retirement
obligations (“ARO”) and oil and gas and other properties, at fair
value on a non-recurring basis.
As defined in the authoritative guidance, fair value is the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date (exit price). To estimate fair value, the
Company utilizes market data or assumptions that market
participants would use in pricing the asset or liability, including
assumptions about risk and the risks inherent in the inputs to the
valuation technique. These inputs can be readily observable, market
corroborated or generally unobservable.
The authoritative guidance establishes a fair value hierarchy that
prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (“Level 1”
measurements) and the lowest priority to unobservable inputs
(“Level 3” measurements). The three levels of the fair value
hierarchy are as follows:
Level 1 —
Unadjusted quoted prices are available in active markets for
identical assets or liabilities as of the reporting date. Active
markets are those in which transactions for the asset or liability
occur in sufficient frequency and volume to provide pricing
information on an ongoing basis.
Level 2 —
Pricing inputs, other than unadjusted quoted prices in active
markets included in Level 1, are either directly or indirectly
observable as of the reporting date. Level 2 includes those
financial instruments that are valued using models or other
valuation methodologies. These models are primarily
industry-standard models that consider various assumptions,
including quoted forward prices for commodities, time value,
volatility factors and current market and contractual prices for
the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in
the marketplace throughout the full term of the instrument and can
be derived from observable data or are supported by observable
levels at which transactions are executed in the
marketplace.
Level 3 —
Pricing inputs are generally unobservable from objective sources,
requiring internally developed valuation methodologies that result
in management’s best estimate of fair value.
Financial Assets and Liabilities
Financial assets and liabilities are classified in their entirety
based on the lowest level of input that is significant to the fair
value measurement. The Company’s assessment of the significance of
a particular input requires judgment and may affect the valuation
of fair value assets and liabilities and their placement within the
fair value hierarchy levels. The following tables set forth by
level, within the fair value hierarchy, the Company’s financial
assets and liabilities that were accounted for at fair value on a
recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at June 30, 2020 |
|
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Money market funds |
$ |
35,014 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
35,014 |
|
|
Commodity derivative instruments (see Note 7)
|
— |
|
|
85,425 |
|
|
— |
|
|
85,425 |
|
|
Total assets |
$ |
35,014 |
|
|
$ |
85,425 |
|
|
$ |
— |
|
|
$ |
120,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at December 31, 2019 |
|
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Money market funds |
$ |
146 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
146 |
|
|
Commodity derivative instruments (see Note 7)
|
— |
|
|
1,174 |
|
|
— |
|
|
1,174 |
|
|
Total assets |
$ |
146 |
|
|
$ |
1,174 |
|
|
$ |
— |
|
|
$ |
1,320 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Commodity derivative instruments (see Note 7)
|
$ |
— |
|
|
$ |
19,815 |
|
|
$ |
— |
|
|
$ |
19,815 |
|
|
Total liabilities |
$ |
— |
|
|
$ |
19,815 |
|
|
$ |
— |
|
|
$ |
19,815 |
|
The Level 1 instruments presented in the tables above consist
of money market funds included in cash and cash equivalents on the
Company’s Condensed Consolidated Balance Sheets at June 30, 2020
and December 31, 2019. The Company’s money market funds represent
cash equivalents backed by the assets of high-quality major banks
and financial institutions. The Company identifies the money market
funds as Level 1 instruments because the money market funds
have daily liquidity, quoted prices for the underlying investments
can be obtained, and there are active markets for the underlying
investments.
The Level 2 instruments presented in the tables above consist
of commodity derivative instruments, which include crude oil and
natural gas swaps and collars. The fair values of the Company’s
commodity derivative instruments are based upon a third-party
preparer’s calculation using mark-to-market valuation reports
provided by the Company’s counterparties for monthly settlement
purposes to determine the valuation of its derivative instruments.
The Company has the third-party preparer evaluate other readily
available market prices for its derivative contracts, as there is
an active market for these contracts. The third-party preparer
performs its independent valuation using a moment matching method
similar to Turnbull-Wakeman for Asian options. The significant
inputs used are crude oil and natural gas prices, volatility, skew,
discount rate and the contract terms of the derivative instruments.
The Company does not have access to the specific proprietary
valuation models or inputs used by its counterparties or
third-party preparer. The Company compares the third-party
preparer’s valuation to counterparty valuation statements,
investigating any significant differences, and analyzes monthly
valuation changes in relation to movements in crude oil and natural
gas forward price curves. The determination of the fair value for
derivative instruments also incorporates a credit adjustment for
non-performance risk, as required by GAAP. The Company calculates
the credit adjustment for derivatives in a net asset position using
current credit default swap values for each counterparty. The
credit adjustment for derivatives in a net liability position is
based on the market credit spread of the Company or similarly rated
public issuers. Based on these calculations, the Company recorded
an adjustment to reduce the fair value of its net derivative asset
by $0.1 million at June 30, 2020 and its net derivative liability
by $0.5 million at December 31, 2019.
Non-Financial Assets and Liabilities
The fair value of the Company’s non-financial assets measured at
fair value on a non-recurring basis is determined using valuation
techniques that include Level 3 inputs.
Asset retirement obligations.
The Company records the fair value of its ARO liability in the
period in which the liability is incurred. Fair value is determined
by calculating the present value of estimated future cash flows
related to the liability. Estimating the future ARO requires
management to make estimates and judgments regarding the timing and
existence of a liability, as well as what constitutes adequate
restoration when considering current regulatory requirements.
Inherent in the fair value calculation are numerous assumptions and
judgments, including the ultimate costs, inflation factors,
credit-adjusted discount rates, timing of settlement and changes in
the legal, regulatory, environmental and political environments.
The fair value for ARO liabilities incurred as of June 30, 2020 was
determined using an inflation factor of 2.5% and a credit-adjusted
discount rate of 7.9% (see Note 11 — Asset Retirement
Obligations).
Oil and gas and other properties.
The Company records its oil and gas and other properties at fair
value when acquired in a business combination or upon impairment
for proved oil and gas properties and other properties. Fair value
is determined using a discounted cash flow model. The inputs used
are subject to management’s judgment and expertise and include, but
are not limited to, estimates of crude oil and natural gas proved
reserves, future commodity pricing, future rates of production,
estimates of operating and development costs, risk-adjusted
discount rates and estimates of throughput volumes for the
Company’s midstream assets. These inputs are classified as Level 3
inputs, except the underlying commodity price assumptions are based
on NYMEX forward strip prices (Level 1) and adjusted for price
differentials. As a result of the significant decline in expected
future commodity prices in the first quarter of 2020, the Company
reviewed its proved oil and gas properties in both the Williston
Basin and the Delaware Basin for impairment. At March 31, 2020, the
underlying future commodity prices included in the Company’s
estimated future cash flows of its proved oil and gas properties
were determined using NYMEX forward strip prices for five years,
escalating 2.5% per year thereafter. The estimated future cash
flows also included a 2.5% inflation factor applied to the future
operating and development costs after five years and every year
thereafter. The estimated future cash flows for the Company’s
proved oil and gas properties and midstream assets were discounted
at market-based weighted average costs of capital of 12.7% and
10.4%, respectively (see Note 8 — Property, Plant and
Equipment).
7. Derivative Instruments
The Company utilizes derivative financial instruments to manage
risks related to changes in crude oil and natural gas prices. The
Company’s crude oil contracts will settle monthly based on the
average NYMEX West Texas Intermediate crude oil index price (“NYMEX
WTI”), and its natural gas contracts will settle monthly based on
the average NYMEX Henry Hub natural gas index price (“NYMEX
HH”).
At June 30, 2020, the Company utilized fixed price swaps and
two-way and three-way costless collars to reduce the volatility of
crude oil prices on a significant portion of its future expected
crude oil production. The Company’s fixed price swaps are comprised
of a sold call and a purchased put established at the same price
(both ceiling and floor), which the Company will receive for the
volumes under contract. A two-way collar is a combination of
options: a sold call and a purchased put. The purchased put
establishes a minimum price (floor) and the sold call establishes a
maximum price (ceiling) the Company will receive for the volumes
under contract. A three-way collar is a combination of options: a
sold call, a purchased put and a sold put. The purchased put
establishes a minimum price (floor), unless the market price falls
below the sold put (sub-floor), at which point the minimum price
would be the index price plus the difference between the purchased
put and the sold put strike price. The sold call establishes a
maximum price (ceiling) the Company will receive for the volumes
under contract.
All derivative instruments are recorded on the Company’s Condensed
Consolidated Balance Sheets as either assets or liabilities
measured at their fair value (see Note 6 — Fair Value
Measurements). The Company has not designated any derivative
instruments as hedges for accounting purposes and does not enter
into such instruments for speculative trading purposes. If a
derivative does not qualify as a hedge or is not designated as a
hedge, the changes in fair value are recognized in the other income
(expense) section of the Company’s Condensed Consolidated
Statements of Operations as a net gain or loss on derivative
instruments. The Company’s cash flow is only impacted when cash
settlements on matured or liquidated derivative contracts result in
making a payment to or receiving a payment from a counterparty.
These cash settlements represent the cumulative gains and losses on
the Company’s derivative instruments and do not include a recovery
of costs that were paid to acquire or modify the derivative
instruments that were settled. Cash settlements are reflected as
investing activities in the Company’s Condensed Consolidated
Statements of Cash Flows.
During the three months ended June 30, 2020, following a decrease
in crude oil commodity prices and the related increase in the fair
value of derivative assets, the Company liquidated a portion of its
crude oil three-way costless collar contracts prior to the
expiration of their contractual maturities, resulting in cash
proceeds of $25.3 million, which are reflected as investing
activities in the Company’s Condensed Consolidated Statements of
Cash Flows.
At June 30, 2020, the Company had the following outstanding
commodity derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity |
|
Settlement
Period |
|
Derivative
Instrument |
|
|
|
Volumes |
|
|
Weighted Average Prices |
|
|
|
|
|
Fair Value Assets |
|
|
|
|
|
|
|
|
|
|
|
Fixed Price Swaps |
|
Sub-Floor |
Floor |
Ceiling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Crude oil |
|
2020 |
|
Fixed price swaps |
|
|
|
2,464,000 |
|
Bbl |
|
$ |
56.66 |
|
|
|
|
|
|
$ |
43,135 |
|
|
Crude oil |
|
2020 |
|
Two-way collar |
|
|
|
1,494,000 |
|
Bbl |
|
|
|
|
$ |
51.28 |
|
$ |
59.50 |
|
|
18,194 |
|
|
Crude oil |
|
2020 |
|
Three-way collar |
|
|
|
1,278,000 |
|
Bbl |
|
|
|
$ |
40.70 |
|
$ |
53.98 |
|
$ |
63.22 |
|
|
14,393 |
|
|
Crude oil |
|
2021 |
|
Fixed price swaps |
|
|
|
310,000 |
|
Bbl |
|
$ |
56.01 |
|
|
|
|
|
|
5,004 |
|
|
Crude oil |
|
2021 |
|
Two-way collar |
|
|
|
248,000 |
|
Bbl |
|
|
|
|
$ |
51.38 |
|
$ |
59.33 |
|
|
3,030 |
|
|
Crude oil |
|
2021 |
|
Three-way collar |
|
|
|
186,000 |
|
Bbl |
|
|
|
$ |
40.00 |
|
$ |
53.29 |
|
$ |
62.71 |
|
|
1,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
85,425 |
|
The following table summarizes the location and amounts of gains
and losses from the Company’s commodity derivative instruments
recorded in the Company’s Condensed Consolidated Statements of
Operations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
Six Months Ended June 30, |
|
|
|
Statements of Operations Location |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
Net gain (loss) on derivative instruments |
|
$ |
(37,187) |
|
|
$ |
34,749 |
|
|
$ |
248,135 |
|
|
$ |
(82,862) |
|
In accordance with the FASB’s authoritative guidance on disclosures
about offsetting assets and liabilities, the Company is required to
disclose both gross and net information about instruments and
transactions eligible for offset in the statement of financial
position as well as instruments and transactions subject to an
agreement similar to a master netting agreement. The Company’s
derivative instruments are presented as assets and liabilities on a
net basis by counterparty, as all counterparty contracts provide
for net settlement. No margin or collateral balances are deposited
with counterparties, and as such, gross amounts are offset to
determine the net amounts presented in the Company’s Condensed
Consolidated Balance Sheets.
The following table summarizes the location and fair value of all
outstanding commodity derivative instruments recorded in the
Company’s Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
|
|
|
|
Commodity |
|
Balance Sheet Location |
|
Gross Recognized Assets |
|
Gross Amount Offset |
|
Net Recognized Fair Value Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Derivatives assets: |
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Derivative instruments — current assets |
|
$ |
91,361 |
|
|
$ |
(5,936) |
|
|
$ |
85,425 |
|
|
|
|
|
|
|
|
|
|
|
Total derivatives assets |
|
|
|
$ |
91,361 |
|
|
$ |
(5,936) |
|
|
$ |
85,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
Commodity |
|
Balance Sheet Location |
|
Gross Recognized Assets/Liabilities |
|
Gross Amount Offset |
|
Net Recognized Fair Value Assets/Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Derivatives assets: |
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Derivative instruments — current assets |
|
$ |
633 |
|
|
$ |
(98) |
|
|
$ |
535 |
|
|
Commodity contracts |
|
Derivative instruments — non-current assets |
|
3,295 |
|
|
(2,656) |
|
|
639 |
|
|
Total derivatives assets |
|
|
|
$ |
3,928 |
|
|
$ |
(2,754) |
|
|
$ |
1,174 |
|
|
Derivatives liabilities: |
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Derivative instruments — current liabilities |
|
$ |
33,812 |
|
|
$ |
(14,117) |
|
|
$ |
19,695 |
|
|
Commodity contracts |
|
Derivative instruments — non-current liabilities |
|
686 |
|
|
(566) |
|
|
120 |
|
|
Total derivatives liabilities |
|
|
|
$ |
34,498 |
|
|
$ |
(14,683) |
|
|
$ |
19,815 |
|
8. Property, Plant and Equipment
The following table sets forth the Company’s property, plant and
equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
December 31, 2019 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
Proved oil and gas properties(1)
|
$ |
9,015,068 |
|
|
$ |
8,724,376 |
|
|
Less: Accumulated depreciation, depletion, amortization and
impairment |
(8,217,194) |
|
|
(3,601,019) |
|
|
Proved oil and gas properties, net |
797,874 |
|
|
5,123,357 |
|
|
Unproved oil and gas properties |
343,642 |
|
|
738,662 |
|
|
Other property and equipment(2)
|
1,314,870 |
|
|
1,279,653 |
|
|
Less: Accumulated depreciation and impairment |
(304,196) |
|
|
(163,896) |
|
|
Other property and equipment, net |
1,010,674 |
|
|
1,115,757 |
|
|
Total property, plant and equipment, net |
$ |
2,152,190 |
|
|
$ |
6,977,776 |
|
__________________
(1)Included
in the Company’s proved oil and gas properties are estimates of
future asset retirement costs of $42.3 million at both June 30,
2020 and December 31, 2019.
(2)Included
in the Company’s other property and equipment are estimates of
future asset retirement costs of $1.4 million at both June 30, 2020
and December 31, 2019.
Impairment
The Company reviews its long-lived assets for impairment by asset
group whenever events and circumstances indicate that a decline in
the recoverability of their carrying value may have
occurred.
Proved oil and gas properties.
As a result of the significant decline in expected future commodity
prices coupled with liquidity concerns due to the Company’s current
expectation that it will be unable to comply with the covenants
under the Oasis Credit Facility within the next twelve months, and
the resulting decrease in estimated proved reserves, the Company
reviewed its proved oil and gas properties in both the Williston
Basin and the Delaware Basin for impairment in the first quarter of
2020. During the six months ended June 30, 2020, the Company
recorded impairment charges of $4.4 billion, including $3.8 billion
related to the Williston Basin and $637.3 million related to
the Delaware Basin, to reduce the carrying values of its proved oil
and gas properties to their estimated fair values (see Note
6 — Fair Value Measurements). During the three and six months
ended June 30, 2019, the Company did not record impairment charges
on its proved oil and gas properties.
Unproved oil and gas properties.
The Company assessed its unproved oil and gas properties for
impairment and recorded impairment charges on its unproved oil and
gas properties of $0.8 million and $292.1 million during
the three and six months ended June 30, 2020, respectively, and
$0.7 million during the six months ended June 30, 2019 as a
result of leases expiring or expected to expire as well as drilling
plan uncertainty on certain acreage of unproved properties. There
were de minimis impairment charges on unproved oil and gas
properties recorded during the three months ended June 30,
2019.
Other property and equipment.
Due to the significant decline in expected future commodity prices
during the first quarter of 2020, the Company and other crude oil
and natural gas producers changed their development plans, which
resulted in lower forecasted throughput volumes for the Company’s
midstream assets. As a result, the Company reviewed its midstream
assets, grouped by commodity for each basin, for impairment as of
March 31, 2020. The carrying amounts exceeded the estimated
undiscounted future cash flows for certain midstream asset groups
in the Williston Basin and the Delaware Basin, and as a result, the
Company recorded impairment charges of $108.3 million during
the six months ended June 30, 2020 to reduce the carrying values of
its midstream assets to the estimated fair values. In addition, the
Company recorded an impairment charge of $0.6 million on
prepaid midstream equipment during the three and six months ended
June 30, 2020.
No impairment charges were recorded on the Company’s midstream
assets during the three and six months ended June 30,
2019.
9. Divestitures and Assets Held for Sale
Divestitures
The Company reviews portfolio opportunities on an ongoing basis and
has engaged in various divestiture transactions over recent years.
In January 2020, the Company completed the initial closing for the
sale of certain oil and gas properties located in the Williston
Basin for total cash proceeds of $10.4 million. The
transaction had an effective date of October 1, 2019, and the final
closing statement for the transaction will be completed in August
2020. During the three and six months ended June 30, 2020, the
Company recognized a $0.2 million and $11.4 million net
gain on sale of properties, respectively, which includes, and is
subject to further, customary post-close adjustments, in its
Condensed Consolidated Statements of Operations. The divested
properties were included in the Company’s exploration and
production segment.
Assets Held for Sale
During the fourth quarter of 2019, the Company decided to pursue an
exit from the well services business (the “Well Services Exit”) and
began an active program to locate buyers for certain well services
inventory and equipment included within the Company’s well services
business segment. The assets expected to be sold related to the
Well Services Exit met the criteria for assets held for sale at
December 31, 2019 and were classified as such.
During the three months ended March 31, 2020, the Company recorded
an impairment charge of $14.5 million to write-off the net
book value of certain well services equipment held for sale as of
December 31, 2019 for which a sale was no longer probable to be
completed within one year. In addition, the Company recorded an
impairment charge of $1.4 million to adjust the carrying value
of the remaining equipment held for sale to its estimated fair
value less costs to sell. These impairment charges are included in
impairment on the Company’s Condensed Consolidated Statements of
Operations for the six months ended June 30, 2020. During the three
months ended June 30, 2020, the Company recorded a non-cash
adjustment of $1.5 million to adjust the carrying value of
inventory held for sale to its net realizable value, which was
included in other services expenses on the Company’s Condensed
Consolidated Statements of Operations for the three and six months
ended June 30, 2020.
During the three months ended June 30, 2020, the Company completed
various sale agreements for total cash proceeds of
$1.4 million for the sales of certain well services equipment
related to the Well Services Exit, recognizing a net loss on sale
of properties of $0.5 million. In June 2020, the Company
signed a purchase and sale agreement to sell certain well services
inventory and equipment for total cash proceeds of
$5.5 million and classified the book value of these assets of
$1.4 million as held for sale as of June 30, 2020. The final
closing for the transaction is expected to be completed in August
2020. The sale of assets related to the Well Services Exit does not
represent a strategic shift that will have a major effect on the
Company’s operations and financial results, and therefore, is not
reported as discontinued operations.
The following table presents balance sheet data related to the
assets held for sale related to the Well Services Exit as of June
30, 2020:
|
|
|
|
|
|
|
|
June 30, 2020 |
|
|
(In thousands) |
|
Inventory |
$ |
580 |
|
|
Other property and equipment |
67,617 |
|
|
|