Oasis Petroleum has been undergoing a transformation under the leadership of its new CEO Danny Brown. One of the key elements that’s giving that transformation economic teeth has been the increasing use of three-mile laterals. Not only is that spacing wells further apart, but it’s resulting in shallower production declines over the life of the well.
The costs are 25 percent greater upfront — but boosts EUR (estimated ultimate recovery) by 50 percent. This is going to be a key metric in achieving the company’s five-year plan.
Brown is set to speak during the North Dakota Petroleum Council’s annual meeting in Watford City, where he plans to share more details about Oasis transformation as a pure play Bakken company.
Oasis has sold off its Permian assets, used that sale to fund the purchase of what used to be QEP assets in the Williston Basin, as a way to get the company to economic scale. Once the QEP purchase closes, they plan to further increase their dividend by 33 percent to 50 cents per share per quarter. It’s $100 million share repurchase program is also still in place. To date, the company has repurchased about $14.5 million of common stock.
During the company’s most recent earnings call, Brown told investors the company’s Bakken economics are strong, even at a $45 deck.
Wild Basin, South Nesson, Indian Hills, Fort Berthold, Williston, Painted Woods and North Alger are among assets the company can look to in a $45 oil world. Moving to the $55 deck, the company can add assets in Painted Woods West, Montana, Red Bank in Dublin, Fort Berthold to the south and east, and South Cottonwood.
“The average well in our roughly 670 locations deliver IRR of 46 percent at $55 (oil) and $2.75 (gas),” Oasis Petroleum President and Chief Operating Officer Taylor Reid said, during the same call adding, “Low declines support free cash generation, and the capital intensity to keep volumes flat is much lower than when volumes were growing quickly.”
Oasis well costs, meanwhile, have continued to fall thanks not only to service cost concessions, but better efficiencies and cycle times, better well design, and cost structure savings across the business.
“We’ve got a super resilient set of inventory that goes out 12 years at the pace of drilling we’ll be doing next year,” Brown said.
During the third quarter of this year, Oasis plans to continue its a one-rig program through the third quarter. They will complete 11 to 13 wells in the back half of the year, most of them coming online in October.
They will add a second rig in the fourth quarter. That’s going to push some completions out into 2022, and the company expects a slight production drop in early 2022. The plan, though, is to hold production fairly flat, at 72,000 barrels of oil equivalent per day, for 2022.
“We’ve identified approximately 670 locations that support strong returns at oil prices below $50 per barrel, and most of that’s substantially below that number,” Reid said. “Of these locations, about 140 or 3-mile laterals and our team is working on increasing that number over time.”
Activity in 2022 will focus around Wild Basin South Nesson, and North Indian Hills. After that, there will be activity in Painted Woods, South Indian Hills, Williston, Alger, Fort Berthold, and Hebron.
Oasis 2022 Capex plan calls for about $300 million in exploration and production, to support the 72,000 barrel per day production. They expect to generate between $250 to $300 million after-tax free cash flow in 2022, at $55 oil and $2.75 gas, which should fuel further debt reductions and potentially better dividends.