Tuesday, December 12, 2017

Not Ready For Prime Time -- December 12, 2017

Updates

December 27, 2017: why Oasis paid "big" for the Permian -- Mike Filloon.

December 24, 2017: for the record, today Yahoo!Finance reports that OAS has 269.31 million shares outstanding. 

December 22, 2017: Reuters has an article today -- "Oasis looks to expand oil ambitions beyond North Dakota's Bakken."
Oasis Petroleum Inc, the last major oil producer operating exclusively in North Dakota's Bakken shale formation, is heading south to the nation's largest oilfield, pursuing a pricey expansion as investors worry about maturing shale fields.
Oasis shares have tumbled 21 percent following last week's disclosure, pointing to growing tension between oil producers looking to invest in their future and investors demanding better returns.
Oasis said the $946 million cash-and-stock investment secures a premier foothold in the Delaware basin area of the Permian, the nation's fastest-growing oil field, while spreading its costs over a wider drilling footprint.
The Bakken, one of the first U.S. shale fields to be tapped, is maturing, oil analysts say, noting that by some measures it has just five or six years of sweet-spot drilling sites left in its core.
December 13, 2017: earnings analysis, dated December 13, 2017.

Later, 6:01 p.m. Central Time, from SeekingAlpha on the Oasis-Permian deal:
  • OAS agreed to buy 20.3K acres in the Delaware Basin for $946M, consisting of $483M in cash and 46M common shares of common stock, meaning the company is issuing 78M new shares - substantial dilution to existing investors considering it had ~233M shares outstanding as of the end of Q3
  • the deal also is viewed as a departure from its Bakken-focused strategy, and its per acre price of $46,660 looks like a hefty premium; Motley Fool's Matthew DiLallo notes two deals in the same region by Marathon Oil in March, one in which MRO paid $1.1B for 70K net acres (~$15K/acre) and the second  in which it spent $700M for 21K net acres (~$33,333/acre).
  • SunTrust Robinson Humphrey downgrades shares to Hold from Buy with an $11 price target, cut from $14, citing the "hefty price" OAS paid to enter the Delaware Basin.
As a reminder, this is the first paragraph of the Oasis press release (link here, which is likely to be temporary):
Oasis Petroleum Inc.announced today that it has commenced an underwritten public offering of 32,000,000 shares of common stock. Oasis expects to grant the underwriters a 30-day option to purchase up to 4,800,000 additional shares of common stock.
The Company intends to use the net proceeds from this offering to fund a portion of the previously announced acquisition of assets in the Permian Basin from Forge Energy, LLC.
The offering is not conditioned on the consummation of the Acquisition, and if the Acquisition does not occur, the net proceeds will be used for general corporate purposes, which may include funding a portion of the Company's 2018 capital budget.

Original

Disclaimer: in a long note like this, there will be typographical and factual errors. I already found a huge error after posting; that error has been corrected. There are probably several others. I will correct them when I find them. 

Disclaimer: this is not an investment site. Do not make any investment, financial, job, travel, or relationship decisions based on anything you read here or think you may have read here.

Disclaimer: I own no shares in Oasis or any company directly related to Oasis. I never have (as far as I can recall, but it's possible in the early days of the boom I did, but I don't think so). I have no plans to invest in Oasis in the next several weeks and/or perhaps never.

Disclaimer: these are simply some random thoughts in line with the original "purpose" of the blog.

1. When I first saw the news that Oasis had bought any acreage in the Permian I was disappointed.

2. When I saw the price they paid I was not only disappointed but also incredulous. Almost a billion dollars for 20,000 net acres.

3. I just went through their slide presentation, previously posted

4. After looking at the slides, it made me re-think my position (thoughts) on Oasis. There are a lot of things that one can take away from that slide presentation.

5. Missing from the slide presentation: which Bakken acreage will be sold. Oasis shows a map of their core, their extended core, and their fairway. I don't think Oasis provided it in this presentation, but it looks like, visual approximation:
  • core: 25% of total Bakken holdings
  • extended core: 25% extended core holdings
  • fairway: 50% of their core holdings
  • one could argue: 30 - 30 - 40


6. Selling scenarios: total holdings in the Bakken: 520,000 net acres (rounded)
By definition, it is clear that the "fairway" will be sold. The question is whether any of the "extended core" will be sold. Oasis hopes to sell "non-core assets" for $500 million.
  • Let's run some scenarios:
    • A: sell only the fairway, 50% of total holdings:
      • 260,000 net acres; $500 million / 260K acres = $1,900/acre
    • B: sell only the fairway, 40% of total holdings: 
      • 200,000 net acres: $500 million / 200K acres = $2,500/acre
    • C: sell the fairway (50%) and half of the extended core (15% of total holdings):
      • 260,000 + 80,000 acres: $500 million  / 340K acres = $1,500/acre
    • D: sell the fairway (40%) and half of the extended core (15% of total holdings):
      • 200,000 +80,000 acres: $500 million / 280K acres = $1,800/acre
6. Not a lot of difference between $1,500/acre and $2,500/acre. It will be interesting to see how many Bakken acres Oasis sells. I'm looking at scenario D.

7. Positive: Oasis has learned about very deep drilling in the Bakken. Their newly acquired acreage is in the deepest part of the Permian.

8. Positive: Their newly acquired acreage in the Permian is predominantly oil. One of the criticisms I have had of the Permian is that a lot of it is "gassy." The Permian acreage Oasis bought is nowhere near the gas condensate portion of the basin.

9. Positive: surface location outstanding: I know nothing about the Permian but when I do hear about the Permian, there are three or four counties that keep coming up in conversation: Reeves, Loving, Winkler, and one or two others. Their newly acquired acreage in the Permian is smack dab in the middle of the aforementioned Texas counties. This would be like buying into the Bakken acreage right around Watford City, ND. During the boom.


10. Positive: their acreage is contiguous and compact; a lot of the infrastructure is already there. They are surrounded by the "big boys": ExxonMobil; Shell; Anadarko; Devon.

11. Positive. Very little of their own cash is being used to buy this property in the Permian.


12. Wow, this is so cool. I don't recall the original press release from Oasis stating who the seller was. I may have missed it. But looking at the map, it appears it might be Forge Energy. Doing a google search this popped up: it was Forge Energy. Whoo-hoo.

13. Negative? Financials: I can't do the financials. I can only assume very smart people know what they are doing. But $50,000 / acre is ... well, a bit more money than I have. LOL.

14. One-half of E&P is "E." Everyone pretty much knows what Oasis will produce in the Bakken. Oasis is in the manufacturing stage in the Bakken. If Oasis doesn't doesn't look at the other half of the equation, exploration, the company will stagnate. It may make a lot of money in the Bakken but from an oilman's (or oilwoman's) perspective, that gets boring awful fast. Oilmen and oilwomen are always looking for a deal, always looking for that next big gusher. I have to think that is part of what is going on here. One can argue that the Permian is simply in the production phase now and that this really doesn't qualify as exploration. Be that as it may. But if nothing else, Oasis is in a new tier among US oil companies.

15. Faith. There have been a number of stories recently that investors and bankers (bankrolling the US shale industry) are losing their patience. Investors and bankers want to see some return on their investments. My first thought, along with a reader who has skin in the game with regard to Oasis, felt that Oasis was finally "getting their ship righted (financially)" and now they go and do this. We already know that Oasis' banker is willing to go along with this. I doubt the 30 million stock offering will fail (investor trust).

16. Investors? Buying opportunity. OAS is down almost 14% today, down from $10 to almost $8.50/share.

17. Insiders: it would be interesting to know what insiders thought would happen to the share price once this deal was announced. Here is what did happen.

18. What else? I'm sure there are some more things that will come to mind later, but this is a start.

19. Bottom line: my initial reaction to this announcement was disappointment and incredible surprise. After going through the presentation, I am really, really excited for Oasis. I think they did the right thing for the company. For investors? I don't know. Maybe another buying opportunity?

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