With oil prices down roughly 50% over the past year, some oil producers are simply trying to survive. Then there's a second group that's just trying to tread water by focusing on pushing costs down to balance cash flow with outflows for capex and dividends. Finally, a third group has emerged in what's really an elite class of oil companies that are thriving in the current environment because they're generating free cash flow while still managing to grow their production. Topping that list are Suncor Energy, Oasis Petroleum, and ExxonMobil. Here are the secrets to their success.
The Bakken gem
Oasis Petroleum is generating free cash flow during the current environment even after investing to grow production, and it expects those trends to continue next year, even a $50 oil price. Its secret sauce is lower costs, thanks in part to its own vertical integration and its strong hedge portfolio.
That hedge portfolio helps insulate some of Oasis' cash flow from weak oil prices, much as Suncor's refining assets do for its cash flow. However, it's when this strong cash flow shield is added to Oasis Petroleum's vertical integration that we see the real key to its success. Oasis has a midstream services segment and a well services segment, which work together to improve operational and financial performance by cutting out key middlemen. This advantage enabled Oasis to reduce its well costs and operating costs by 30% and 35%, respectively, year over year. So despite its smaller size, the compelling combination of production growth and free cash flow generation really puts Oasis in an elite class.Disclaimer: this is not an investment site. Do not make any investment or financial decisions based on what you read here or thought you may have read here. This information is posted only to help me better understand the Bakken. If this information is important to you, go to the source.