Current OAS Stock Info

OAS snags 20,300 acres in Loving, Ward and Winkler counties – plans $100 million for Permian development, but ~$800 million  Williston program still dominates

Oasis Petroleum (ticker: OAS) has joined much of the industry in riding the surge into the Permian basin.

Oasis will purchase 20,300 net acres in Loving, Ward and Winkler counties from privately-held Forge Energy for a total of $946 million. The acreage is located near the core of modern Delaware activity, as Loving County has the highest density of rigs of any county. Current production from the assets totals 3.5 MBOEPD, 78% of which is oil.

Oasis Dives into Permian with $946 Million Acreage Buy

Source: Oasis Investor Presentation

Oasis reports that the acreage adds 507 net drilling locations to its inventory, with significant upside potential. Current plans call for targeting the 3rd Bone Spring, upper and lower Wolfcamp A and B, and the Wolfcamp C. Additional drilling may target the 1st and 2nd Bone Spring, if economics prove favorable.

Oasis Dives into Permian with $946 Million Acreage Buy

Source: Oasis Investor Presentation

Oasis reports the wells on its acreage are outperforming the average offset operator, and are currently producing above the 1 MMBO type curve. These wells were mostly stimulated using 1,600 pounds of proppant per lateral foot, but recent offset results suggest 2,000 lb/ft may be more optimal, so additional upside on well performance is available.

Development plans: 1-2 rig, 16-well Permian development will proceed gradually, compared to OAS’s 5-rig, 100-well Williston program

Oasis plans to be conservative in developing its asset in 2018. The company expects to drill 16 to 20 wells in the year and complete 6 to 8 wells. The company will operate one rig initially, with the potential to add a second in the second half of 2018. This development plan will cost about $100 million.

In its more mature Williston Basin properties, by contrast, Oasis plans to drill and complete 100 to 120 wells using five rigs.

Cash and stock

The $946 million transaction will be split almost evenly between cash and stock, as Oasis will pay $483 million in cash and 46 million shares to Forge. Oasis will pay for most of the cash portion of the deal using an equity raise, which it announced simultaneously.

OAS offer of 32 million shares of common, plans to sell $500 million in non-core Bakken assets in 2018

The company will sell 32 million shares of common stock for just over $300 million in proceeds. The rest of the cash portion of the deal will come from Oasis’ revolving credit facility. Oasis also plans to sell around $500 million in non-core Bakken assets next year.

Acreage valuation: OAS deal similar to prices in early 2017

With a purchase price of $946 million, this acreage is valued at an unadjusted $46,600/acre, or $40,600/acre after adjusting for production. This price is similar to that paid by many other companies in the beginning of the year. Prices have fallen since then, though, and recent transactions have averaged around $26,500/acre.

Tommy Nusz, Oasis’s Chairman and Chief Executive Officer, commented that the transaction more than doubles Oasis’s core net inventory.

“Our new Permian Assets deliver a consolidated position in the deepest and highest pressured part of the Delaware in the heart of the oil window. The seller and offset operators have materially de-risked this position with recent well performance across the Wolfcamp and Bone Spring formations.”

Nusz said the company “also remains committed to our current capital-disciplined and returns-focused execution plan in the Williston Basin.  As we execute our combined program in 2018, we expect to be free cash flow positive on our E&P business running a $55 WTI oil price.”

Conference call Q&A

Q: I do agree with you guys, I think the acreage is a great acreage there, but given the all-in price, why run just one rig initially for the early part of the year, given the number of core locations, and for running a DCF, kind of what you’re running at times zero to try to obviously recoup that that cash out the door?

OAS: As you’ve heard us talk before, we try to approach things from one direction. This is a move into a new basin and we want to be diligent and prudent about that and along with integration to run out there and pick up another rig right away, we don’t think is the best idea. So we’re going to run one, our plan is to add a second. So we’ve got a run rate at two in the second half of the year, and that doesn’t mean that we don’t in the first half of the year maybe picking one up for one or two wells, but – depending on how our integration activity is going, but initial phase is the integration of the project and having a solid plan in place makes more sense to us than going out and picking up a bunch of rigs.

OAS: One thing I’d add to that is, if you just look back at well basin for example, and we did that acquisition in 2013. We had a similar approach and we took the time to do the testing, understand the productivity on the wells and with the look like in spacing and then get up far enough in front to get all the infrastructure in place, so that we can efficiently produce the asset.

Q: Kind of big picture one, if you kind of step back and look out a few years, how do you guys envision Oasis in the Delaware Basin, just trying to get a sense for kind of how big you plan to get, and how big of a component of the overall corporate profile you really see this being over a decent timeframe?

OAS: What I would say is that if you’re looking for the road map, look at the last 10 years, and it’s all in our presentation, I wouldn’t expect it to be wildly different than what we did in the Williston. You continue to evaluate things, you pick your spot, you’re hanging around the hoop, and it’s as much about timing and execution as it is about deals. But you can look at what we did in the Williston, and it kind of provides you a map to how we think about things.

Now that being said, when you start looking at 3,800 feet of section versus 300 feet of section, that looks – the footprint looks a little bit different.

OAS: So – and it’s not which you’re seeing with some of the players in the Permian, where I mean they’ve captured enough to where you start, I mean, having a lot of inventory is a good thing, but if it’s out 60 years or 70 years from now then it’s – you can’t pay a whole lot of money for it. So, I think we’ll continue to look for opportunities to build on this. And like I said, I would kind of look at the Williston as a road map.

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