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Oasis to Ramp Up Production, Sell Sanish Assets in 2014

Oasis Petroleum Inc. plans to spend $1.43 billion on capital expenditures (capex) and ramp up production in the Bakken Shale and Three Forks formation in 2014, but it will sell more than 8,000 net acres both in and adjacent to its Sanish operating area for $333 million by March.

The Houston-based company said Tuesday that it plans to increase its average daily production to 46,000-50,000 boe/d in 2014, excluding Sanish production, to a mark 42% above where production was at the midpoint of 2013. It will allocate about 90% of its capex toward drilling and completion costs, and deploy two additional rigs during the second half of 2014, for a total of 16 operated rigs.

Oasis said it plans to complete about 205 gross (147.8 net) operated wells in 2014, along with 7.7 net non-operated wells.

During a conference call to discuss 2013 results on Tuesday, COO Taylor Reid said Oasis expects to spud about 90% of its wells from the 2014 drilling program from multi-well pads, compared to 60-70% achieved during 2013.

"With larger pad sizes, we can generate further efficiencies and cost reductions that should drive our well cost to $7.3 million, including the impact of OWS [Oasis Well Services] by the end of 2014," Reid said. "Finally, we'll be focused on improving our well economics through both cost reductions and completion techniques."

Reid added that on the west side of Oasis' acreage in the Bakken/Three Forks, early production results from slickwater hydraulic fracturing (fracking) operations performed in the top quartile of wells in certain areas.

"Remember that there is an offset to this well performance and well cost as slickwater completions cost $1.5 million to $2 million more than our typical wells," Reid said. "Given the results, we will perform 15 to 20 more slickwater fracks in 2014.

"There is still a lot of work to understand the EUR [estimated ultimate recovery] impacts associated with the fracs, but we are cautiously optimistic that it will result in an increase to well economics. In addition to slickwater, we continue to test a number of other variants with respect to our stimulation techniques."

Oasis said it has entered into a purchase and sale agreement with an undisclosed buyer for certain non-operated properties in its Sanish operating area and certain other non-operated leases adjacent to the Sanish position. The company said that as of Dec. 31, the properties to be divested totaled 8,354 net acres and had production of about 2,691 boe/d during 4Q2013. The deal is subject to customary closing conditions, but Oasis expects to close by early March.

Oasis' Sanish position totaled 8,343 net acres at the end of 2013. By comparison, it also held 361,626 net acres in the West Williston project area and 145,345 net acres in the East Nesson project area.

"The divestiture helps de-lever our balance sheet and will provide additional liquidity for our operated drilling program," said CFO Michael Lou during Tuesday's conference call.

COO Taylor Reid conceded that severe winter weather impacted production during the fourth quarter of 2013. Oasis reported average daily production of 42,106 boe/d during 4Q2013, with 89% weighted toward oil.

"Weather in the Williston Basin was more severe than what we would call a normal winter, and our production for [4Q2013] reflected the impact of the operational challenges caused by such conditions," Reid said. "In spite of that, the team was able to deliver production inside of our range, growing volumes 27% quarter-over-quarter."

Reid said that at the end of 2013, Oasis had about 93% of its wells connected to natural gas infrastructure. He added that about 75% of the company's gross operated oil volumes were connected to a third party gathering system, which includes pipelines and rail access points. "This system provided us the flexibility to shift volumes between rail and pipe throughout the year to maximize price realizations," he said.

Net proved reserves grew 59% to 227.9 million boe at the end of 2013, up from 143.3 million boe at the end of 2012. The reserves at the end of 2013 included 198.6 million bbl of oil and 176.0 Bcf of natural gas.

In a note Wednesday, Wunderlich Securities said it was raising its net asset value (NAV) and price target for Oasis from $60 to $63. It justified the increase from the company's "year-end proved reserves, a more aggressive rig count and higher EUR for the Bakken/Three Forks

"Our new NAV and price target of $63 can be broken down into these pieces: $45 for proved reserves, $41 for probable reserves, and $5 for possible assets, and roughly $27 for debt," Wunderlich said. "Our price target of $63 is equivalent to 4.8 times our 2015 estimated cash flow per share of $13.14. We reiterate our ‘buy’ rating."

Oasis nearly doubled its position in the Williston Basin last fall, after acquiring 161,000 net acres for nearly $1.52 billion (see Shale Daily, Sept. 6, 2013).

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