Oasis Petroleum Inc. (NYSE: OAS) struggled to meet analysts’ expectations after a massive $1.6 billion acquisition in the Williston Basin grew its position by nearly 50% in 2013.
After Oasis posted its fourth-quarter 2013 results on Feb. 26, some analysts questioned whether the Houston-based company overextended itself.
In 2013, Oasis spent more than double its capital expenditures compared to 2012. It was hit by an increase in operations and employee expenses as it worked 492,000 net acres in the Williston. If that wasn’t enough, severe winter weather slammed the region during the quarter.
Curtis Trimble, senior analyst at Global Hunter Securities LLC, said Oasis’ fourth-quarter 2013 results didn’t deliver. The company’s earnings per share were $0.53 compared to GHS’ estimate of $0.68.
“Severe winter weather in North Dakota drove production lower, while higher per unit lease operating expense and depreciation, depletion and amortization (DD&A) figures from the integration of acquired assets cut into the bottom line,” Trimble said in a Feb. 26 analyst report.
Oasis reported net income of $54.5 million in the fourth quarter of 2013 compared with $42.6 million in the fourth quarter of 2012. For 2013, the company reported net income of $228 million compared to $153.4 million for the full-year 2012.
Most capital expenditures were in the fourth quarter, with $1.7 billion spent compared to $2.5 billion for the year. Oasis reported a capex of $1.1 billion for 2012.
The company plans to scale back in 2014, with a capex of $1.43 billion.
Expenses v. Income($MM) | |||||
1Q13 | 2Q13 | 3Q13 | 4Q13 | FY13 | |
Lease Operating Costs | $19.5 | $18.3 | $21.8 | $35 | $94.6 |
Production Taxes | $22.1 | $21.4 | $26.8 | $30.2 | $100.5 |
DD&A Expense | $66.3 | $66.8 | $72.7 | $101.3 | $307.1 |
G&A Expense | $13.9 | $16.7 | $16.7 | $28.1 | $75.3 |
Total Expense | $130.4 | $141.1 | $154.6 | $211.5 | $637.6 |
Operating Income | $118 | $113.5 | $150.9 | $122.1 | $504.4 |
Source: GHS LLC |
Oasis acknowledged a number of expenses tied to its acquisition in North Dakota’s West Williston Basin and the region’s weather.
"In the fourth quarter of 2013, weather in the Williston Basin was more severe than what we would call a normal winter, and our production for the quarter reflected the impact of the operational challenges caused by such conditions," Taylor Reid, Oasis president and chief operating officer, said in a Feb. 4 release.
The increase in general and administrative (G&A) expenses was primarily due to the impact of the company's organizational growth on employee compensation, additional end-of-year compensation expenses and acquisition-related costs, the company said.
The G&A increases were also coupled with lower Oasis well services (OWS) activity caused by inclement weather, which led employee compensation and other costs to climb $3 million higher than the third quarter of 2013.
Higher production taxes in North Dakota were also to blame, Oasis said.
Despite the weak quarter, production grew by 27% quarter over quarter. Average daily production increased to 33,904 barrels of oil equivalent per day (BOE/d) in 2013, up from 22,468 BOE/d in 2012.
However, DD&A in fourth-quarter 2013 was $26.14 per BOE compared to $23.91 in the third quarter. The increase was primarily related to the cost of acquisitions in the West Williston project area.
With Oasis' ability to realize rapid efficiency gains, Trimble expects the company to pick up in 2014. Trimble rates the stock “neutral” with a price target of $54.
"With reserves growing in 2013 by an estimated 59% over 2012 levels, to approximately 227.9 MMBOE, and the company's solid operating history and cash generating potential, our longerterm outlook on OAS shares remains fundamentally unchanged in spite of the nearer-term hit to earnings estimates," Trimble said.
Thomas B. Nusz, Oasis CEO and chairman, sees 2013 as a transformational year for the company.
In addition to its acreage acquisitions, inventory additions and production growth, Oasis is making progress with infill density potential and the lower benches of the Three Forks formation, Nusz said in a Feb. 4 release.
“In 2014 we will initiate full spacing unit development, including wells targeting the middle Bakken and multiple benches of the Three Forks," he said.
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