Seeking Alpha
Long only, deep value, growth at reasonable price
Profile| Send Message|
( followers)  

Summary

  • The ability of the company to replace its reserves should allow it to continue growth in its revenues as well as earnings.
  • Oasis has been able to decrease the cost per well, which should result in increased gross margins.
  • Growing sales and earnings should result in continued upward momentum in the stock price over the next few months.

Oasis Petroleum (NYSE:OAS) is mainly operating in the Bakken and Three Forks formations. The company is also focused on the acquisition and development of unconventional oil and natural gas resources in Montana and North Dakota regions of the Williston Basin. Oasis Petroleum has been one of the best performing stocks in the sector with a gain of over 33% during the last twelve months. However, the fellow Bakken drillers such as Enerplus (NYSE:EFR) and Kodiak Oil and Gas (NYSE:KOG) has outperformed Oasis over the same period with ERF gaining over 38% and KOG gaining over 41%. We have covered Enerplus and Kodiak in our previous articles - however, the trend in the sector shows that all the major players in this region are doing exceptionally well. In this article, however, we will be focusing on Oasis Petroleum and its prospects.

Strong Reserves Position

The future growth and earnings sustainability of energy companies usually comes from the asset base they acquire. Similarly, Oasis has strong future growth prospects from the Williston Basin due to its liquid heavy portfolio and substantial resource potential. As of the details provided in the annual statement of 2013, the company has total proved and developed oil reserves of 106.8 MMBoe in the region. In addition, the company has 91.8 MMBoe of proved but undeveloped reserves. Furthermore, Oasis has 92.2 Bcf of proved and developed natural gas reserves and 83.8 Bcf of proved but undeveloped reserves. During the last year, the company sold 11,133 MBbls in total - the company nearly doubled its sales in both oil and natural gas segments during the last year. Oil and gas sales during the last year were 12,375 MBoe, compared to 8,224 MBoe a year ago, showing a 50% increase in total net production. The image shows the asset mix produced and sold over the last three years.

(click to enlarge)

Source: SEC Filings

Moreover, Oasis has a distinct advantage; the company has oil-heavy reserves portfolio. Currently, the company has 87% of its reserves in the form of oil and 13% in the form of natural gas. The oil prices will remain strong in the coming quarters which should allow the company to experience less volatility in commodity prices. Further, the natural gas market is also stabilizing and has shown substantial recovery, which should also result in stable returns from the natural gas portfolio.

(click to enlarge)

Source: SEC Filings

The growth in the estimated proved reserves has been extremely impressive for the company, and the oil reserves have almost tripled over the last three years. Furthermore, the natural gas reserves have in fact more than tripled during the last three years, showing that the company has been able to effectively replace its production.

Further Development of Assets

The capital expenditure for the last year was $2.51 billion, including the $1.55 billion spent on acquisitions in West Williston and East Nesson. The capital expenditure excluding acquisitions was close to $1 billion. During the current year, the company plans to spend $1.425 billion-$1.367 billion of the CapEx budget will be spent on exploration and production [E&P] activities and $58 million for non-E&P activities. The increased budget for drilling and exploration activities in the current year allows the company to further grow its production.

The average daily production increased in the first quarter showing an improvement of 9% from previous quarter and 42% year-over-year. Moreover, the company reported impressive first-quarter results with decreased well costs in the period. Despite the poor weather conditions, Oasis managed to reduce its well costs by roughly $0.4 million in the first quarter. The company is also using different drilling techniques such as multi-well pad drilling and slickwater approach, to increase its operational throughput. The slickwater approach has resulted in an increase of 25% in production. The company received impressive results from slickwater tests and intends to complete almost 60% of its wells using the technology, expected to produce 43,000-46,000 barrels of oil equivalent per day by the second half of 2014.

Conclusion

The ability of the company to replace its depleting reserves and grow sales is extremely impressive. Furthermore, the decrease in cost per well will allow it to enhance its gross margins. Oasis Petroleum has had a strong trend in the stock price over the last twelve months. However, we believe there is still a considerable room for this stock to grow. We expect the strong operational performance to continue and the revenues and the earnings of the company to grow over the next few quarters. We believe Oasis is a solid long-term investment.

Source: Is Oasis Petroleum A Good Investment?