Oasis Petroleum started the year with two rigs in the Williston Basin and two in its new acreage in the Delaware. It completed 18 wells in the first quarter of 2020, and brought six online, all at lower than expected well costs.
That helped it trim first quarter spending levels below expectations and deliver a strong first quarter, company officials said during Oasis Petroleum’s first-quarter earnings call. But, in a market that has so quickly turned upside down, amid demand destruction wrought by the global coronavirus pandemic and with the international price war as sort of the cherry on top, the company has had to to take even more drastic measures to not only curtail costs, but preserve the future value of its assets.
Oasis officials said they shut in 25 percent of their Williston Basin production in April, and they expect to make even more production cuts in May.
The company can quickly bring these volumes back online once conditions warrant, but, at this point, that decision will not be triggered by a single WTI event.
“While we have a deep inventory of projects that would be supported by economics in a $30 to $40 WTI world, the answer is just not that simple,” Oasis Petroleum Chairman and CEO Tommy Nusz said.
Market conditions will dictate when the company returns production volumes, but that means not only oil price, but cost structure, operating and capital expenses, access to economic services, and the ability to move product at reasonable differentials for acceptable overall margins.
Nusz said the company has spent well below original estimates for capital expenditures. It’s reduced its original $575 to $595 million capex guidance by 50 to 60 percent.
“We have also worked together to reduce our capital spending plan for the remainder of 2020 to put us in a position to be free cash flow positive, assuming strip pricing and the support of our strong hedge position,” he said.
Oasis had built flexibility into its contracts, Nusz added. That allowed the company to rapidly power down with essentially no contract exposure.
Oasis Petroleum President and Chief Operating Officer Taylor Reid said the company has deferred completions and cleanouts in both March and April to preserve capital for improved pricing, and that the team is working to further reduce operating costs.
“We have already seen prices on equipment, supplies and services decline around 15 to 20 percent versus early 2020 levels,” he added. “Oasis built 20 DUCs so far this year in the core of both Williston and Delaware. When combined with the 16 wells that have ben completed but not brought onto production, that gives us a robust set of quick response production for when conditions improve.”
Oasis is hedged for the remainder of 2020.
Whether the cost-cutting measures and the robust hedges will be enough to sustain the company remains to be seen.
Moody’s, for one, downgraded the company’s ratings in April, pointing out that its cash flow is deteriorating due to low commodity prices, and it faces rising debt refinancing risks.
“Oasis is faced with a sizeable unsecured notes maturity in 2022, which could prompt a springing forward of its revolver maturity to December 2021 if the 2022 unsecured notes maturity is not addressed,” Moody’s wrote in its decision. “While this low commodity price environment leads to deteriorating cash flow and leverage metrics, it could also lead to a downward redetermination of the company’s revolver borrowing base and rising debt refinancing risk. These risks resulted in the downgrade of the company’s rating to B3 CFR with a negative outlook.”
The company’s nearest debt maturity is $72 million in November 2021. It also has $891 million of unsecured notes that will mature in March 2022.
Its $1.3 billion revolver comes due in October 2023, but it could also come due earlier if the unsecured notes due in 2022 remain outstanding.