Oasis Petroleum (OAS) provides a strong outlook for 2011:
Q4 Guidance Boosted:
The old range of 6,000 to 7,300 BOEpd [barrels of oil equivalent per day] in early November has now been updated to a new range of 7,200 to 7,600 BOEpd (note the low end of the range just under the old top end).This takes the 2010 average to 5,100 BOEpd (on the mid). This is equal to a 166% year-over-year growth for 2010 vs 2009. Sounds like a better than expected well performance to me. This should mean the company is set for an easy beat of the Q4 numbers.
But more importantly... 2011 guidance means a 132% volume growth. The company guides to a 2011 production range of 11,000 to 12,500 BOEpd, up 132% on the mid. I was guesstimating 100% growth to about 10,100. Note that Q3'10 production was at 5,500 BOEpd.
2011 Capital Budget:
The company's 2011 capital budget has been set at $490 million, a 40% step up from its 2010 spending plan. Some $441 mm of this pays for drilling and completing 53.1 net wells ($8.3 per well which is conservative.) OAS's current cash balance should be about $190 mm following the closing of two acreage deals since the end of the third quarter. Its line of credit remains undrawn with a $120 mm borrowing base. This line should be revised higher soon. So while OAS could fund 2011 out of cash, borrowing, and cash flow, I think an equity offering is likely soon.
In a nutshell:
OAS, showing rapid sequential growth and boosting volumes due to better than expected well performance, is likely to find continued favor with analysts and investors.
Q4 will easily beat current Street estimates.
I've taken a fairly conservative run at the numbers and get EBITDA for 2011 of $250 mm vs. the current Street forecast of $197 mm (see model below). I don't look at EPS or CFPS in OAS's case as the deferred tax situation is still jelling following the IPO, and EPS doesn't matter with my names anyway- its all about cash flow.
In its press release, OAS mentions examining all avenues of financing to meet its capital budget. I think this is probably a nod to an equity deal in the near future. I think an equity offering from the company would be well received as it has been for many Bakken players of late.
Based on my 2011 estimate, OAS is trading at 8.9x TEV/EBITDA. This isn't cheap until you consider the growth and start to think that analysts and investors will be looking to 2012 estimates more and more. I don't have a 2012 number but the Street's 2012 EBITDA figure is $326 mm and that is going to be, in all likelihood, too low. Held flat at my Q4'11 level for 2012 (something the company won't do) it would generate 2012 EBITDA of $360 mm.
One Last Thing: These guys are "under promise and over deliver" types through and through.
At mid year OAS was looking for Q3 production of 4.5 to 5.5 MBOEpd and LOE per BOE of $7.75 to $9.50. The company did 5.507 MBOEpd and LOE came in at $6.33 per BOE. OAS was also looking for Q4 volumes of 5.5 to 6.5 MBOEpd. As mentioned above, Wednesday's release puts them at 7.2 to 7.6 MBOEpd. If there is one thing analysts love it is upward revisions to guidance that lead to quarter after quarter of estimate beats. I continue to hold the shares of OAS in the ZLT.