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Oasis Sets Lower Capex, Less Drilling in Bakken For 2015

Oasis Petroleum Inc. plans to cut capital expenditures (capex) by 44% in 2015 and slash the number of rigs deployed in its core area of the Bakken Shale. However, it still expects to boost production in the coming year by 5-10%.

In its preliminary capex budget issued on Wednesday, Houston-based Oasis said it plans to spend $750-850 million on total capex next year, down from the $1.43 billion it spent in 2014 (see Shale Daily, Feb. 6). The figure for 2015 includes $650-750 million for drilling and completion costs.

The company said it also plans to move to a 10-rig drilling program -- primarily focused on the Indian Hills -- by the end of January, then drop to a six-rig program by the end of March. Oasis currently has 16 rigs running in Indian Hills.

"We plan to focus our development program in Indian Hills during 2015 to capitalize on both existing infrastructure and the success that we have delivered with high intensity completions in this area," said CEO Thomas Nusz. "We have over eight years of remaining inventory specifically in Indian Hills and South Cottonwood, which perform in the upper end or above our type curve ranges.

"We also have the ability to move rigs, if needed, to areas outside of Indian Hills and South Cottonwood and still deliver wells with very attractive economics even in an environment with $60/bbl WTI [West Texas Intermediate].

“The team has successfully optimized well costs to levels that make drilling across our operated drilling spacing units economic at low oil prices, even before accounting for expected service cost reductions. To the extent market conditions change, we maintain the ability to adjust our plan as circumstances dictate."

Nusz said flexibility with its rig contracts allowed Oasis to go down to six rigs. "We plan on delaying a number of completions during winter months to later in the year. In addition to prudently managing our development program, we also have a strong hedge position in 2015 with over 53% of 2015 oil volumes hedged with an average floor of $89.13."

Oasis said under its hedge position in 2015, if crude oil pricing at WTI is $70/bbl, the company will have $164 million of value. By comparison, Oasis will have $249 million of value if WTI falls to $60/bbl.

The company said it expects year/year (y/y) production growth of 5-10% in 2015. Meanwhile, Oasis anticipated producing 47,000-49,000 boe/d in 4Q20214, which would result in aggregate y/y growth of about 35%.

Oasis said that as of Monday, it had approximately $1.6 million in liquidity, including its $2.0 billion borrowing base. The company had drawn $500 million under its base and had $82 million in cash and cash equivalents on hand.

Analysts reacted favorably to the news. Wells Fargo Securities LLC put Oasis stock at “outperform,” while Topeka Capital Markets gave the company's stock a “buy” rating with a price target of $25/share, down from $38/share.

"With the precipitous drop in oil prices, Oasis has made the prudent move to hunker down and spend more in line with cash flow," said Topeka analyst Gabriele Sorbara. "We calculate the 10% break even [point for Indian Hills at] around $50/bbl WTI. We believe management has ample core inventory, flexibility and liquidity to manage through the current down cycle. We reaffirm our buy [rating], but believe shares could be depressed until oil prices stabilize or improve."

Wells Fargo analyst David Tameron concurred. "Overall, decisions [were] made to right-size activity to current reality," he said.

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