Chord Energy (CHRD) - 2021 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. — Financial Statements (Unaudited) This section presents Oasis Petroleum Inc.'s unaudited condensed consolidated financial statements and detailed notes for Q3 2021 Condensed Consolidated Balance Sheets Balance sheets show significant increases in total assets, liabilities, cash, and derivative liabilities from December 2020 to September 2021 Condensed Consolidated Balance Sheets (In thousands) | Metric | September 30, 2021 (In thousands) | December 31, 2020 (In thousands) | | :----- | :-------------------------------- | :------------------------------- | | Total Assets | $2,999,512 | $2,159,037 | | Total Liabilities | $1,906,181 | $1,146,298 | | Total Stockholders' Equity | $1,093,331 | $1,012,739 | | Cash and cash equivalents | $448,608 | $15,856 | | Restricted cash (current & non-current) | $400,000 | $4,370 | | Derivative instruments (current & non-current liabilities) | $408,853 | $94,558 | Condensed Consolidated Statements of Operations Net income improved significantly in 2021 (Successor) from net losses in 2020 (Predecessor), driven by higher revenues and reduced impairment Condensed Consolidated Statements of Operations (In thousands) | Metric (In thousands) | Three Months Ended Sep 30, 2021 (Successor) | Three Months Ended Sep 30, 2020 (Predecessor) | Nine Months Ended Sep 30, 2021 (Successor) | Nine Months Ended Sep 30, 2020 (Predecessor) | | :-------------------- | :------------------------------------------ | :-------------------------------------------- | :----------------------------------------- | :------------------------------------------- | | Total Revenues | $402,039 | $271,059 | $1,150,558 | $825,209 | | Operating Income (Loss) | $203,590 | $38,524 | $729,998 | $(4,835,228) | | Net Gain (Loss) on Derivative Instruments | $(101,790) | $(5,071) | $(550,342) | $243,064 | | Net Income (Loss) Attributable to Oasis | $71,950 | $(55,699) | $101,722 | $(4,459,503) | | Basic EPS | $3.63 | $(0.17) | $5.11 | $(14.05) | | Diluted EPS | $3.46 | $(0.17) | $4.96 | $(14.05) | Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) Total stockholders' equity increased in the Successor period (2021) due to net income and non-controlling interests, despite share repurchases and dividends Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) (In thousands) | Metric (In thousands) | Balance as of Dec 31, 2020 (Successor) | Balance as of Sep 30, 2021 (Successor) | | :-------------------- | :------------------------------------- | :------------------------------------- | | Total Stockholders' Equity | $1,012,739 | $1,093,331 | | Net Income (Loss) Attributable to Oasis | N/A | $101,722 (9M 2021) | | Dividends to shareholders | N/A | $(102,123) (9M 2021) | | Repurchase of common stock | N/A | $(14,560) (9M 2021) | | Metric (In thousands) | Balance as of Dec 31, 2019 (Predecessor) | Balance as of Sep 30, 2020 (Predecessor) | | :-------------------- | :--------------------------------------- | :--------------------------------------- | | Total Stockholders' Equity (Deficit) | $3,837,081 | $(638,151) | | Net Loss Attributable to Oasis | N/A | $(4,459,503) (9M 2020) | Condensed Consolidated Statements of Cash Flows Cash flows from operating and financing activities significantly increased in 2021 (Successor), leading to a substantial rise in cash and restricted cash Condensed Consolidated Statements of Cash Flows (In thousands) | Metric (In thousands) | Nine Months Ended Sep 30, 2021 (Successor) | Nine Months Ended Sep 30, 2020 (Predecessor) | | :-------------------- | :----------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities | $644,746 | $154,905 | | Net cash used in investing activities | $(89,031) | $(52,365) | | Net cash provided by (used in) financing activities | $272,667 | $(38,294) | | Increase in cash, cash equivalents and restricted cash | $828,382 | $64,246 | | End of period cash, cash equivalents and restricted cash | $848,608 | $84,265 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering critical accounting policies and significant transactions 1. Organization and Operations of the Company Oasis is an independent E&P company in the Williston Basin, operating a midstream segment through OMP and divesting Permian assets - Oasis Petroleum Inc. is an independent E&P company focused on onshore, unconventional crude oil and natural gas resources in the Williston Basin (North Dakota and Montana)[24] - The company operates a midstream business segment through Oasis Midstream Partners LP (OMP), a gathering and processing master limited partnership, and owns approximately 70% of OMP[24][25] - During the second quarter of 2021, the Company sold its E&P assets in the Texas region of the Permian Basin[24] 2. Summary of Significant Accounting Policies This section outlines the basis of presentation, fresh start accounting impact, OMP consolidation, Midstream Simplification, and commodity price risk exposure - The company adopted fresh start accounting on November 19, 2020 (Emergence Date) following bankruptcy, making financial statements post-Emergence Date ('Successor') not comparable to prior periods ('Predecessor')[27] - The company completed the Midstream Simplification on March 30, 2021, contributing remaining interests in Bobcat DevCo and Beartooth DevCo to OMP and cancelling OMP's incentive distribution rights for $512.5 million (cash and OMP common units)[25] - The company's revenue, profitability, and future growth are substantially dependent on volatile crude oil and natural gas prices, which are subject to economic, political, and regulatory factors beyond its control[28] 3. Revenue Recognition Revenue recognition policies for E&P and midstream segments are detailed, with E&P revenues from oil/gas sales and midstream from fee-based services Revenue by Type (In thousands) | Revenue Type (In thousands) | Three Months Ended Sep 30, 2021 (Successor) | Nine Months Ended Sep 30, 2021 (Successor) | | :-------------------------- | :------------------------------------------ | :----------------------------------------- | | Crude oil revenues | $205,731 | $598,278 | | Natural gas revenues | $75,905 | $184,046 | | Total E&P revenues | $335,327 | $947,013 | | Total midstream revenues | $66,712 | $203,545 | - Contract liabilities increased from $3.966 million at December 31, 2020, to $6.921 million at September 30, 2021, primarily due to cash received for aid in construction payments[38] Remaining Performance Obligations (In thousands) | Year | Remaining Performance Obligations (In thousands) | | :--- | :--------------------------------------------- | | 2021 (excluding 9M) | $3,709 | | 2022 | $17,175 | | 2023 | $10,896 | | 2024 | $11,089 | | 2025 | $2,768 | | Total | $45,637 | 4. Inventory Total inventory decreased slightly from $48.451 million at December 31, 2020, to $45.819 million at September 30, 2021, with no material write-downs in Q3 2021 Inventory (In thousands) | Inventory Type (In thousands) | September 30, 2021 (Successor) | December 31, 2020 (Successor) | | :---------------------------- | :----------------------------- | :---------------------------- | | Equipment and materials | $19,563 | $25,103 | | Crude oil inventory | $8,746 | $8,826 | | Total inventory (current) | $28,309 | $33,929 | | Long-term inventory (linefill) | $17,510 | $14,522 | | Total | $45,819 | $48,451 | - No material write-downs of inventory or long-term inventory were recorded during the three or nine months ended September 30, 2021[43] - During the nine months ended September 30, 2020 (Predecessor), the Company recorded impairment losses of $7.2 million for crude oil inventory and $1.3 million for long-term linefill due to lower commodity prices[43] 5. Additional Balance Sheet Information Accounts receivable, net, increased to $269.7 million, and accrued liabilities increased to $129.0 million at September 30, 2021 Accounts Receivable and Accrued Liabilities (In thousands) | Metric (In thousands) | September 30, 2021 (Successor) | December 31, 2020 (Successor) | | :-------------------- | :----------------------------- | :---------------------------- | | Total accounts receivable, net | $269,740 | $206,539 | | Trade accounts | $200,301 | $161,519 | | Joint interest accounts | $39,291 | $31,920 | | Other accounts | $31,560 | $13,206 | | Less: allowance for credit losses | $(1,412) | $(106) | | Total accrued liabilities | $129,000 | $126,284 | | Accrued capital costs | $51,086 | $39,380 | | Accrued midstream operating expenses | $21,933 | $15,051 | 6. Fair Value Measurements The company measures financial assets and liabilities at fair value, primarily using Level 2 inputs for commodity derivatives and contingent consideration - The company's financial assets and liabilities are measured at fair value on a recurring basis, primarily using Level 2 inputs for commodity derivative instruments and the Permian Basin Sale Contingent Consideration[47][48][51] Fair Value Measurements (In thousands) | Metric (In thousands) | September 30, 2021 (Successor) | | :-------------------- | :----------------------------- | | Total Assets (Fair Value) | $39,717 | | Permian Basin Sale Contingent Consideration | $39,717 | | Total Liabilities (Fair Value) | $408,853 | | Commodity derivative instruments | $408,853 | - The fair value of commodity derivative instruments is based on third-party calculations using mark-to-market valuation reports, incorporating credit adjustments for non-performance risk[50] 7. Derivative Instruments Oasis uses derivative instruments to manage commodity price risks, recording them at fair value, and modified certain hedge contracts in May 2021 - The company uses derivative financial instruments (fixed price swaps and collars) to manage crude oil and natural gas price risks, not for speculative trading, with all derivatives recorded at fair value[53] - In May 2021, the company paid $82.4 million to modify certain commodity hedge contracts, adjusting swap prices for 2022-2024 crude oil volumes to $50.00 per barrel[55] Derivative Instruments (In thousands) | Derivative Instrument | Balance Sheet Location | Gross Amount (In thousands) | Net Amount (In thousands) | | :-------------------- | :--------------------- | :-------------------------- | :------------------------ | | Contingent consideration | Derivative instruments — non-current assets | $39,717 | $39,717 | | Commodity contracts | Derivative instruments — current liabilities | $271,077 | $266,337 | | Commodity contracts | Derivative instruments — non-current liabilities | $164,614 | $142,516 | | Total derivatives liabilities | | $435,691 | $408,853 | 8. Property, Plant and Equipment Net property, plant and equipment decreased to $1,582.844 million at September 30, 2021, primarily due to a reduction in net proved oil and gas properties Property, Plant and Equipment (In thousands) | Metric (In thousands) | September 30, 2021 (Successor) | December 31, 2020 (Successor) | | :-------------------- | :----------------------------- | :---------------------------- | | Proved oil and gas properties, net | $660,949 | $757,714 | | Unproved oil and gas properties | $2,293 | $40,211 | | Other property and equipment, net | $919,602 | $930,862 | | Total property, plant and equipment, net | $1,582,844 | $1,728,787 | 9. Acquisitions Oasis completed the Williston Basin Acquisition on October 21, 2021, acquiring 95,000 net acres for $585.8 million, funded by cash and senior notes - On October 21, 2021, the company completed the Williston Basin Acquisition, acquiring approximately 95,000 net acres from QEP Energy Company for an adjusted purchase price of $585.8 million[62] - The acquisition was funded with cash on hand, including proceeds from the Permian Basin Sale and the issuance of $400.0 million in Oasis Senior Notes[62] 10. Divestitures Oasis completed the Permian Basin Sale on June 29, 2021, divesting assets for $450.0 million, including cash and earn-out payments - On June 29, 2021, the company completed the Primary Permian Basin Sale, divesting its remaining upstream assets in the Texas region of the Permian Basin for an aggregate purchase price of $450.0 million[64] - The purchase price included $375.0 million cash at closing and up to three $25.0 million earn-out payments for 2023, 2024, and 2025, contingent on NYMEX WTI crude oil prices exceeding $60 per barrel[64] - The company also sold certain well services equipment and inventory for $5.5 million, consisting of cash proceeds of $2.6 million and a $2.9 million promissory note[66] 11. Long-Term Debt Total long-term debt increased to $1,041.895 million at September 30, 2021, due to new Oasis and OMP Senior Notes issuances Long-Term Debt (In thousands) | Debt Type (In thousands) | September 30, 2021 (Successor) | December 31, 2020 (Successor) | | :----------------------- | :----------------------------- | :---------------------------- | | Oasis Senior Notes | $391,505 | — | | OMP Credit Facility | $210,000 | $450,000 | | OMP Senior Notes | $440,390 | — | | Total long-term debt, net | $1,041,895 | $710,000 | - The Oasis Credit Facility's borrowing base increased to $900.0 million on October 21, 2021, and the company had no borrowings outstanding at September 30, 2021[69][71] - OMP issued $450.0 million of 8.00% senior unsecured notes due April 1, 2029, using proceeds for a distribution to Oasis and to repay OMP Credit Facility borrowings[76] 12. Asset Retirement Obligations Asset Retirement Obligations (ARO) decreased slightly to $47.047 million at September 30, 2021, reflecting new liabilities, accretion, revisions, and settlements Asset Retirement Obligations (In thousands) | Metric (In thousands) | Amount | | :-------------------- | :----- | | Balance at December 31, 2020 (Successor) | $48,594 | | Liabilities incurred during period | $409 | | Liabilities settled during period | $(322) | | Accretion expense during period | $3,016 | | Revisions to estimates | $194 | | Liabilities settled through divestitures | $(4,844) | | Balance at September 30, 2021 (Successor) | $47,047 | 13. Income Taxes The company's effective tax rate was 0.0% for Q3 and 9M 2021 due to a valuation allowance, expecting no cash taxes for FY 2021 - The company's effective tax rate for the three and nine months ended September 30, 2021, was 0.0%, primarily due to a valuation allowance against deferred tax assets[79] - The estimated valuation allowance decreased by $35.6 million to $529.8 million at September 30, 2021, from $565.4 million at December 31, 2020[79] - The company expects to owe no cash taxes for the 2021 tax year after qualifying for the Section 382(l)(5) exception, and anticipates a $20.0 million refund from an estimated income tax payment[79] 14. Equity-Based Compensation Oasis granted various equity-classified awards under its 2020 LTIP, with total equity-based compensation expense of $11.187 million for 9M 2021 - The company granted 443,836 RSUs, 183,915 PSUs, and 262,406 LSUs during the nine months ended September 30, 2021, under its 2020 LTIP[82] - Equity-based compensation expense for the nine months ended September 30, 2021, totaled $3.5 million for RSUs, $2.2 million for PSUs, $4.0 million for LSUs, and $0.9 million for restricted stock awards[82] - All outstanding unvested restricted stock awards and PSUs granted under the Predecessor 2010 LTIP vested upon the company's emergence from bankruptcy on November 19, 2020[86] 15. Stockholders' Equity Oasis declared significant dividends and repurchased shares in 2021, while adopting a Tax Benefits Preservation Plan to protect NOLs - The company declared quarterly dividends of $0.375 per share and a special dividend of $4.00 per share in 2021, totaling $102.5 million[87] - Under a $100.0 million share-repurchase program, the company repurchased 190,783 shares for $14.6 million during the nine months ended September 30, 2021[87] - A Tax Benefits Preservation Plan was adopted on August 3, 2021, to protect the availability of the company's net operating loss carryforwards and other tax attributes[89] 16. Earnings (Loss) Per Share Basic EPS for Oasis was $3.63 for Q3 2021 and $5.11 for 9M 2021, a significant improvement from losses in the Predecessor period Earnings (Loss) Per Share (In thousands, except per share data) | Metric (In thousands) | Three Months Ended Sep 30, 2021 (Successor) | Nine Months Ended Sep 30, 2021 (Successor) | | :-------------------- | :------------------------------------------ | :----------------------------------------- | | Basic EPS | $3.63 | $5.11 | | Diluted EPS | $3.46 | $4.96 | | Basic Weighted Average Shares Outstanding | 19,812 | 19,905 | | Diluted Weighted Average Shares Outstanding | 20,786 | 20,508 | | Metric (In thousands) | Three Months Ended Sep 30, 2020 (Predecessor) | Nine Months Ended Sep 30, 2020 (Predecessor) | | :-------------------- | :-------------------------------------------- | :------------------------------------------- | | Basic EPS | $(0.17) | $(14.05) | | Diluted EPS | $(0.17) | $(14.05) | | Basic Weighted Average Shares Outstanding | 318,287 | 317,365 | | Diluted Weighted Average Shares Outstanding | 318,287 | 317,365 | - For the Successor period, potentially dilutive shares include unvested restricted stock awards, warrants, and contingently issuable shares related to RSUs, PSUs, and LSUs[90] - For the Predecessor period, all potentially dilutive shares were excluded from the diluted loss per share calculation due to the net loss incurred, making them anti-dilutive[90] 17. Business Segment Information Oasis operates two reportable segments, E&P and midstream, with E&P generating $947.0 million in revenues and $593.5 million in operating income for 9M 2021 - The company has two reportable segments: E&P (acquisition and development of oil and gas properties) and midstream (gathering, compression, processing, and transportation services)[91][94] Business Segment Performance (9M 2021, In thousands) | Metric (In thousands) | E&P (9M 2021) | Midstream (9M 2021) | Consolidated (9M 2021) | | :-------------------- | :------------ | :------------------ | :--------------------- | | Revenues from non-affiliates | $947,013 | $203,545 | $1,150,558 | | Operating income (loss) | $593,493 | $139,946 | $729,998 | | Property, plant and equipment, net | $692,271 | $893,333 | $1,582,844 | | Total assets | $1,939,695 | $1,062,577 | $2,999,512 | - Intercompany revenues and expenses between segments are eliminated in consolidation, with only non-affiliated and third-party revenues/expenses included in the consolidated statements[94] 18. Commitments and Contingencies Oasis had $6.7 million in outstanding letters of credit and $10.2 million in net surety bond exposure, with a new $258.6 million crude oil transportation commitment - As of September 30, 2021, the company had $6.7 million in outstanding letters of credit and $10.2 million in net surety bond exposure[97] - Volume commitment agreements related to properties divested in the Primary Permian Basin Sale were assigned to Percussion, eliminating the company's future obligations[98] - A new estimable future commitment of $258.6 million for crude oil transportation in the Williston Basin became effective in August 2021, with a remaining term of approximately 7 years[100] - The company paid $22.8 million in May 2021 to settle the Mirada litigation, with no remaining settlement payments outstanding[101] 19. Subsequent Events OMP entered a Merger Agreement with Crestwood Equity Partners LP, where Oasis will receive $160.0 million cash and 21.0 million Crestwood common units - On October 25, 2021, OMP and OMP GP entered into a Merger Agreement with Crestwood Equity Partners LP[102] - Oasis, as an OMP unitholder, will receive $160.0 million in cash and approximately 21.0 million Crestwood common units in exchange for its OMP ownership[102][104] - Upon completion of the mergers, Oasis is expected to own approximately 22% of the Crestwood Common Units[102] - The mergers were unanimously approved by the Boards of Directors of Oasis and Crestwood, and OMP GP, and are expected to close in the first quarter of 2022[102] Item 2. — Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Oasis Petroleum Inc.'s financial condition and results of operations, highlighting the impact of fresh start accounting and market conditions CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section advises that the report contains forward-looking statements subject to various risks and uncertainties, and actual results may differ materially - The report contains forward-looking statements regarding strategic tactics, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans, and objectives[108] - Key risks include crude oil, natural gas, and NGL realized prices, global economic developments, the COVID-19 pandemic (including new strains and vaccine administration), actions of foreign oil producers, and the timing/pace of economic recovery[108] - The company disclaims any obligation to update or revise these statements unless required by securities law, and actual results may vary due to factors like commodity price changes, weather, capital expenditures, and regulatory developments[112] Overview Oasis Petroleum Inc. is an independent E&P company focused on unconventional crude oil and natural gas in the Williston Basin, operating a midstream business through OMP - Oasis Petroleum Inc. is an independent E&P company focused on onshore, unconventional crude oil and natural gas resources in the Williston Basin[114] - The company operates a midstream business through OMP, owning approximately 70% of OMP, and derives significant cash flows from OMP distributions[114] - During the second quarter of 2021, the company sold its E&P assets in the Texas region of the Permian Basin[114] Recent Developments Recent developments include the Williston Basin Acquisition, Permian Basin Sale, CEO change, DAPL review, Midstream Simplification, and the OMP Merger with Crestwood - Completed the Williston Basin Acquisition on October 21, 2021, for an adjusted purchase price of $585.8 million[115] - Completed the Permian Basin Sale on June 29, 2021, for an aggregate purchase price of $450.0 million, including cash and earn-out payments contingent on crude oil prices[116] - Announced the OMP Merger with Crestwood Equity Partners LP on October 25, 2021, where Oasis will receive $160.0 million in cash and approximately 21.0 million Crestwood common units, expecting to own about 22% of Crestwood[123][124] Market Conditions and COVID-19 The COVID-19 pandemic continues to pose unpredictable impacts despite improved global economic activity and higher energy demand, necessitating ongoing monitoring and safety protocols - COVID-19 and its variants continue to create considerable uncertainty, despite improvements in global economic activity and higher energy demand[126] - The company reduced its workforce in Q1 2021 and deployed additional safety protocols in response to the pandemic[126] - Commodity prices have improved from historic lows in 2020, but further negative impacts from COVID-19 may necessitate business plan adjustments[126] Commodity Prices Oasis's revenue and profitability are highly dependent on volatile crude oil, natural gas, and NGL prices, managed through in-house marketing and derivative instruments - Revenue and profitability are substantially dependent on volatile crude oil, natural gas, and NGL prices, which are influenced by economic, political, and regulatory factors[127] - The company manages commodity price risk through in-house marketing, derivative financial instruments, and physical delivery contracts[127] - In Q3 2021, crude oil price differentials averaged a $0.43 per barrel discount to NYMEX WTI, and 93% of gross operated crude oil production and substantially all natural gas production were connected to gathering systems[127] Recent Highlights Key highlights for Q3 2021 include a $0.50 per share dividend, average production of 51,804 Boepd, and net cash from operating activities of $294.4 million - Declared a dividend for Q3 2021 of $0.50 per share of common stock[129] Recent Highlights (Q3 2021) | Metric | Q3 2021 | | :----- | :------ | | Production volumes | 51,804 Boepd (62% oil) | | E&P capital expenditures | $41.9 million | | E&P lease operating expense (LOE) | $9.42 per Boe | | Crude oil differentials | $0.43 to NYMEX WTI (discount) | | Net cash provided by operating activities | $294.4 million | | Adjusted EBITDA attributable to Oasis | $116.2 million | Results of Operations This section analyzes the company's financial performance, noting the impact of fresh start accounting, increased commodity prices, and significant derivative losses Comparability Due to fresh start accounting adoption on November 19, 2020, financial statements for 'Successor' periods are not comparable to 'Predecessor' periods - The company adopted fresh start accounting on November 19, 2020 (Emergence Date), making 'Successor' financial statements not comparable to 'Predecessor' statements[130] - Assets and liabilities were recorded at their estimated fair values as of the Emergence Date, primarily impacting comparability in oil and gas and other properties[130] Revenues Total revenues increased significantly for Q3 and 9M 2021 (Successor) due to higher crude oil and natural gas prices, despite lower production volumes Revenues (In thousands) | Revenue Type (In thousands) | Q3 2021 (Successor) | Q3 2020 (Predecessor) | 9M 2021 (Successor) | 9M 2020 (Predecessor) | | :-------------------------- | :------------------ | :-------------------- | :------------------ | :-------------------- | | Crude oil revenues | $205,731 | N/A | $598,278 | $448,904 | | Natural gas revenues | $75,905 | N/A | $184,046 | $63,631 | | Midstream revenues | $66,712 | N/A | $183,807 | $138,164 | | Total revenues | $402,039 | $271,059 | $1,150,558 | $825,209 | | Average daily production (Boepd) | 51,804 | 66,581 | 54,407 | 66,581 | | Average crude oil sales price (per Bbl) | $70.12 | $36.61 | $63.63 | $36.61 | | Average natural gas sales price (per Mcf) | $6.91 | $1.77 | $5.63 | $1.77 | - Crude oil and natural gas revenues increased by $26.4 million quarter-over-quarter (Q3 2021 vs. Q2 2021) due to higher realized prices, despite lower production volumes from the Permian Basin Sale[135] - Midstream revenues increased by $10.9 million quarter-over-quarter (Q3 2021 vs. Q2 2021), driven by increased natural gas sales and produced/flowback water revenues[135] Expenses and other income (expenses) Total operating expenses decreased significantly for 9M 2021 (Successor) due to the absence of large impairment charges, despite substantial net losses on derivative instruments Expenses and Other Income (Expenses) (In thousands) | Expense Type (In thousands) | Q3 2021 (Successor) | Q3 2020 (Predecessor) | 9M 2021 (Successor) | 9M 2020 (Predecessor) | | :-------------------------- | :------------------ | :-------------------- | :------------------ | :-------------------- | | Total operating expenses | $203,854 | $234,008 | $649,033 | $5,672,089 | | Lease operating expenses | $29,307 | $29,353 | $98,888 | $108,730 | | Midstream expenses | $32,396 | $11,110 | $83,841 | $32,355 | | Gathering, processing and transportation expenses | $16,400 | $20,328 | $52,596 | $73,557 | | Depreciation, depletion and amortization | $33,623 | $36,000 | $112,581 | $272,885 | | Impairment | — | $2,578 | $5 | $4,828,575 | | Net gain (loss) on Derivative Instruments | $(101,790) | $(5,071) | $(550,342) | $243,064 | | Interest expense, net | $(18,153) | $(37,389) | $(49,421) | $(177,534) | - LOE decreased by $5.0 million quarter-over-quarter (Q3 2021 vs. Q2 2021) primarily due to the Permian Basin Sale, while midstream expenses increased by $8.9 million due to higher natural gas purchases[140] - Impairment expense decreased by $4.8 billion for 9M 2021 compared to 9M 2020, which included significant charges on proved and unproved oil and gas properties, midstream assets, and inventory due to commodity price declines[150] Liquidity and Capital Resources Oasis's liquidity is primarily driven by cash flows from operations, Permian Basin Sale proceeds, and the issuance of Oasis and OMP Senior Notes - Primary liquidity sources include cash flows from operations, Permian Basin Sale proceeds, and the issuance of Oasis Senior Notes and OMP Senior Notes[155] - As of September 30, 2021, the company had $1,481.8 million of liquidity, comprising $448.6 million in cash and cash equivalents and $633.2 million in aggregate unused borrowing capacity[159] - The Oasis Credit Facility's borrowing base increased to $900.0 million on October 21, 2021, and the company had no outstanding borrowings at September 30, 2021[160][161] - The company has a $100.0 million share-repurchase program authorized until December 31, 2022, and adopted a Tax Benefits Preservation Plan to protect its net operating loss carryforwards[172][173] Cash flows Net cash provided by operating activities significantly increased to $644.7 million for 9M 2021 (Successor), leading to a substantial increase in overall cash Cash Flows (In thousands) | Cash Flow Type (In thousands) | 9M 2021 (Successor) | 9M 2020 (Predecessor) | | :---------------------------- | :------------------ | :-------------------- | | Net cash provided by operating activities | $644,746 | $154,905 | | Net cash used in investing activities | $(89,031) | $(52,365) | | Net cash provided by (used in) financing activities | $272,667 | $(38,294) | | Increase in cash, cash equivalents and restricted cash | $828,382 | $64,246 | - The increase in operating cash flows was primarily due to higher crude oil and natural gas revenues and lower interest, G&A, GPT, and LOE expenses[166] - Working capital shifted from a deficit of $69.6 million at December 31, 2020, to a surplus of $88.2 million at September 30, 2021, due to higher cash and accounts receivable, offset by increased derivative liabilities and payables[166] Capital expenditures Total capital expenditures for the nine months ended September 30, 2021, were $154.4 million, with E&P and other capital expenditures totaling $124.6 million Capital Expenditures (In thousands) | Capital Expenditure Type (In thousands) | 9M 2021 (Successor) | | :------------------------------------ | :------------------ | | E&P | $122,895 | | Other capital expenditures | $1,680 | | Total E&P and other capital expenditures | $124,575 | | Midstream | $29,786 | | Total capital expenditures | $154,361 | | Capitalized interest | $1,539 | Dividends Oasis paid quarterly cash dividends totaling $22.5 million and a special dividend of $80.0 million in 2021, with future dividends subject to board discretion - The company paid quarterly cash dividends totaling $22.5 million and a special dividend of $80.0 million during 2021[171] - A dividend of $0.50 per share of common stock was declared on October 26, 2021, payable on November 29, 2021[171] - Future dividend payments depend on the company's earnings, financial condition, capital requirements, indebtedness, and statutory/contractual restrictions[171] Share Repurchase Program The Board authorized a $100.0 million share-repurchase program, under which 190,783 shares were repurchased for $14.6 million by September 30, 2021 - A $100.0 million share-repurchase program was authorized in March 2021, expiring on December 31, 2022[172] - During the nine months ended September 30, 2021, 190,783 shares were repurchased for $14.6 million at a weighted average price of $76.30 per share[172] - An additional 156,519 shares were repurchased for $19.0 million between October 28 and November 2, 2021, at a weighted average price of $121.22 per share[172] Tax Benefits Preservation Plan Oasis adopted a Tax Benefits Preservation Plan to protect its net operating loss carryforwards, expecting zero cash taxes for FY 2021 - The company qualifies for a Section 382(l)(5) exception, allowing utilization of NOLs and other tax attributes, resulting in zero cash taxes for 9M 2021 and expected for FY 2021[173] - A Tax Benefits Preservation Plan was adopted to protect these Tax Benefits from potential limitations due to future 'ownership changes' as defined by Section 382 of the Code[173] - The plan includes a dividend of one preferred share purchase right per common share, exercisable if a person or group acquires 4.95% or more of the company's outstanding common stock[175] Non-GAAP Financial Measures This section defines and reconciles several non-GAAP financial measures used to evaluate the company's performance, providing insights into operational costs and cash generation E&P Adjusted Gas Revenue E&P Adjusted Gas Revenue is a non-GAAP measure representing total natural gas revenues less benefits from the midstream segment for gathering and processing services - E&P Adjusted Gas Revenue is a non-GAAP measure representing total natural gas revenues less midstream benefits for gathering and processing services[177] E&P Adjusted Gas Revenue (In thousands) | Metric (In thousands) | Q3 2021 (Successor) | 9M 2021 (Successor) | | :-------------------- | :------------------ | :------------------ | | Natural gas revenues | $75,905 | $184,046 | | Intercompany impacts from midstream segment | $(11,773) | $(32,869) | | E&P Adjusted Gas Revenue | $64,132 | $151,177 | Cash GPT and E&P GPT Cash GPT is total GPT expenses less non-cash valuation charges, while E&P GPT further subtracts midstream benefits for crude oil gathering and transportation services - Cash GPT is total GPT expenses less non-cash valuation charges on pipeline imbalances, while E&P GPT further excludes midstream benefits for crude oil gathering and transportation services[178] Cash GPT and E&P GPT (In thousands) | Metric (In thousands) | Q3 2021 (Successor) | 9M 2021 (Successor) | | :-------------------- | :------------------ | :------------------ | | GPT expenses | $16,400 | $52,596 | | Pipeline imbalances | $547 | $1,656 | | Cash GPT | $16,947 | $54,252 | | Intercompany impacts from midstream segment | $1,856 | $5,455 | | E&P GPT | $18,803 | $59,707 | E&P Cash G&A E&P Cash G&A is a non-GAAP measure representing total G&A expenses less non-cash equity-based compensation, other non-cash charges, and midstream-attributable G&A - E&P Cash G&A is total G&A expenses less non-cash equity-based compensation, other non-cash charges, and G&A expenses attributable to the midstream segment[181] E&P Cash G&A (In thousands) | Metric (In thousands) | Q3 2021 (Successor) | 9M 2021 (Successor) | | :-------------------- | :------------------ | :------------------ | | General and administrative expenses | $19,514 | $60,461 | | Equity-based compensation expenses | $(4,287) | $(11,187) | | G&A expenses attributable to midstream segment | $(3,670) | $(12,709) | | Other non-cash adjustments | $(1,025) | $(675) | | E&P Cash G&A | $10,532 | $35,890 | Cash Interest and E&P Cash Interest Cash Interest is interest expense adjusted for capitalized interest and non-cash amortization, while E&P Cash Interest further deducts OMP-attributable cash interest - Cash Interest is interest expense plus capitalized interest, less amortization and write-offs of deferred financing costs and debt discounts[182] - E&P Cash Interest is total Cash Interest less Cash Interest attributable to OMP, providing insight into E&P financing costs[182] Cash Interest and E&P Cash Interest (In thousands) | Metric (In thousands) | Q3 2021 (Successor) | 9M 2021 (Successor) | | :-------------------- | :------------------ | :------------------ | | Interest expense | $18,153 | $49,421 | | Capitalized interest | $578 | $1,539 | | Amortization of deferred financing costs | $(1,216) | $(14,677) | | Cash Interest | $17,515 | $36,283 | | Cash Interest attributable to OMP | $(10,606) | $(24,091) | | E&P Cash Interest | $6,909 | $12,192 | Adjusted EBITDA and Adjusted EBITDA attributable to Oasis Adjusted EBITDA represents earnings before interest, taxes, DD&A, and other non-cash charges, with Adjusted EBITDA attributable to Oasis further adjusting for OMP's EBITDA and distributions - Adjusted EBITDA is earnings (loss) before interest expense, income taxes, DD&A, exploration expenses, and other similar non-cash or non-recurring charges[185] - Adjusted EBITDA attributable to Oasis adjusts for OMP's Adjusted EBITDA and includes distributions from OMP, providing insight into the company's ability to maintain debt covenant compliance[185] Adjusted EBITDA and Adjusted EBITDA attributable to Oasis (In thousands) | Metric (In thousands) | Q3 2021 (Successor) | 9M 2021 (Successor) | | :-------------------- | :------------------ | :------------------ | | Net income (loss) including non-controlling interests | $83,332 | $129,376 | | Adjusted EBITDA | $155,416 | $466,521 | | Adjusted EBITDA attributable to OMP | $(58,178) | $(170,456) | | Cash distributions from OMP to Oasis | $18,954 | $52,828 | | Adjusted EBITDA attributable to Oasis | $116,192 | $348,893 | E&P Adjusted EBITDA and E&P Free Cash Flow E&P Adjusted EBITDA is derived from the E&P segment's income before taxes, adjusted for non-cash items, while E&P Free Cash Flow further subtracts cash interest and capital expenditures - E&P Adjusted EBITDA is derived from the E&P segment's income (loss) before income taxes, adjusted for items like gain/loss on sale of properties, derivative instruments, interest expense, DD&A, and impairment[189] - E&P Free Cash Flow is E&P Adjusted EBITDA plus distributions from OMP, less E&P Cash Interest and E&P/other capital expenditures[189] E&P Adjusted EBITDA and E&P Free Cash Flow (In thousands) | Metric (In thousands) | Q3 2021 (Successor) | 9M 2021 (Successor) | | :-------------------- | :------------------ | :------------------ | | Income (loss) before income taxes including non-controlling interests (E&P segment) | $44,040 | $18,910 | | E&P Adjusted EBITDA | $95,341 | $295,795 | | Distributions to Oasis from OMP and DevCo Interests | $18,954 | $52,828 | | E&P Cash Interest | $(6,909) | $(12,192) | | E&P and other capital expenditures | $(42,551) | $(124,575) | | E&P Free Cash Flow | $65,413 | $213,395 | Fair Value of Financial Instruments This section refers to Note 6 for details on fair value measurements of derivative instruments and other financial instruments, and Note 7 for additional derivative information - Refer to Note 6 for discussion of derivative instruments and their fair value measurements[191] - Refer to Note 7 for additional information regarding derivative instruments[195] Critical Accounting Policies and Estimates There have been no material changes to the company's critical accounting policies and estimates from those disclosed in its 2020 Annual Report - No material changes to critical accounting policies and estimates from the 2020 Annual Report[192] Item 3. — Quantitative and Qualitative Disclosures About Market Risk Oasis is exposed to market risks from commodity price fluctuations, interest rate changes, and counterparty credit risk, mitigated by derivatives and high credit-quality institutions - The company is exposed to market risks including commodity price risk, interest rate risk, and counterparty and customer credit risk[193] - To reduce commodity price risk, the company uses derivative contracts, with a net derivative liability position of $408.9 million at September 30, 2021[193][195] - Interest rate risk is managed through fixed-rate Oasis Senior Notes ($400.0 million at 6.375%) and OMP Senior Notes ($450.0 million at 8.00%), and variable-rate Oasis and OMP Credit Facilities[196] - Counterparty credit risk for derivative arrangements is mitigated by engaging high credit-quality financial institutions and utilizing netting provisions[198] Item 4. — Controls and Procedures The company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control over financial reporting - The company's disclosure controls and procedures were effective as of September 30, 2021, as evaluated by management, including the CEO and CFO[199] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2021[200] PART II — OTHER INFORMATION Item 1. — Legal Proceedings This section refers to Note 18 of the financial statements for a discussion of material legal proceedings, including the MHA Nation Title Dispute and Mirada litigation settlement - Material legal proceedings are discussed in Note 18 — Commitments and Contingencies[203] Item 1A. — Risk Factors The company's business faces various risks, and there have been no material changes to the risk factors previously described in its 2020 Annual Report - No material changes in risk factors from those described in the 2020 Annual Report and subsequent SEC filings[204] Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period, and no shares were repurchased under the program in Q3 2021, though it remains active - No sales of unregistered equity securities occurred during the period[206] - No shares were purchased under the publicly announced share-repurchase program during the three months ended September 30, 2021[206] - The share-repurchase program, authorized for up to $100.0 million, expires on December 31, 2022, with 85,443,582 shares remaining available for repurchase[206] Item 6. — Exhibits This section lists the exhibits filed with the Form 10-Q, including the OMP Merger Agreement, Tax Benefits Preservation Plan, and Sarbanes-Oxley certifications - Key exhibits include the Merger Agreement with Crestwood Equity Partners LP, Certificate of Designations of Series A Junior Participating Preferred Stock, Tax Benefits Preservation Plan, and Support Agreement[208] - Sarbanes-Oxley Section 302 and 906 certifications from the Principal Executive Officer and Principal Financial Officer are furnished[208] - XBRL Instance, Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase, and Cover Page Interactive Data Files are filed[208] SIGNATURES The report is duly signed on November 4, 2021, by Daniel E. Brown, Chief Executive Officer, and Michael H. Lou, Executive Vice President and Chief Financial Officer - The report was signed on November 4, 2021, by Daniel E. Brown, Chief Executive Officer, and Michael H. Lou, Executive Vice President and Chief Financial Officer[213]