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EX-32.2 - EXHIBIT 32.2 - Oasis Petroleum Inc.oas-ex322x3312017xq1.htm
EX-32.1 - EXHIBIT 32.1 - Oasis Petroleum Inc.oas-ex321x3312017xq1.htm
EX-31.2 - EXHIBIT 31.2 - Oasis Petroleum Inc.oas-ex312x3312017xq1.htm
EX-31.1 - EXHIBIT 31.1 - Oasis Petroleum Inc.oas-ex311x3312017xq1.htm

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission file number: 1-34776

Oasis Petroleum Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
Delaware
 
80-0554627
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
1001 Fannin Street, Suite 1500
Houston, Texas
 
77002
(Address of principal executive offices)
 
(Zip Code)

(281) 404-9500
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý   No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ý  No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
 
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨ No ý
Number of shares of the registrant’s common stock outstanding at May 4, 2017: 237,432,612 shares.
 
 
 
 
 




OASIS PETROLEUM INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2017
TABLE OF CONTENTS
 
 
Page



PART I — FINANCIAL INFORMATION
Item 1. — Financial Statements (Unaudited)
Oasis Petroleum Inc.
Condensed Consolidated Balance Sheet
(Unaudited)
 
March 31, 2017
 
December 31, 2016
 
(In thousands, except share data)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
13,785

 
$
11,226

Accounts receivable, net
226,427

 
204,335

Inventory
14,327

 
10,648

Prepaid expenses
7,176

 
7,623

Derivative instruments
3,026

 
362

Other current assets
4,452

 
4,355

Total current assets
269,193

 
238,549

Property, plant and equipment
 
 
 
Oil and gas properties (successful efforts method)
7,390,299

 
7,296,568

Other property and equipment
632,318

 
618,790

Less: accumulated depreciation, depletion, amortization and impairment
(2,126,136
)
 
(1,995,791
)
Total property, plant and equipment, net
5,896,481

 
5,919,567

Derivative instruments
3,815

 

Other assets
20,139

 
20,516

Total assets
$
6,189,628

 
$
6,178,632

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
8,837

 
$
4,645

Revenues and production taxes payable
160,265

 
139,737

Accrued liabilities
128,241

 
119,173

Accrued interest payable
20,268

 
39,004

Derivative instruments
14,627

 
60,469

Advances from joint interest partners
6,838

 
7,597

Other current liabilities
13,435

 
10,490

Total current liabilities
352,511

 
381,115

Long-term debt
2,305,879

 
2,297,214

Deferred income taxes
524,842

 
513,529

Asset retirement obligations
50,088

 
48,985

Derivative instruments

 
11,714

Other liabilities
2,834

 
2,918

Total liabilities
3,236,154

 
3,255,475

Commitments and contingencies (Note 13)

 

Stockholders’ equity
 
 
 
Common stock, $0.01 par value: 450,000,000 shares authorized; 238,691,038 shares issued and 237,461,470 shares outstanding at March 31, 2017 and 237,201,064 shares issued and 236,344,172 shares outstanding at December 31, 2016
2,344

 
2,331

Treasury stock, at cost: 1,229,568 and 856,892 shares at March 31, 2017 and December 31, 2016, respectively
(21,369
)
 
(15,950
)
Additional paid-in capital
2,354,485

 
2,345,271

Retained earnings
618,014

 
591,505

Total stockholders’ equity
2,953,474

 
2,923,157

Total liabilities and stockholders’ equity
$
6,189,628

 
$
6,178,632

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


Oasis Petroleum Inc.
Condensed Consolidated Statement of Operations
(Unaudited)
 
Three Months Ended March 31,
 
2017
 
2016
 
(In thousands, except per share data)
Revenues
 
 
 
Oil and gas revenues
$
237,252

 
$
117,315

Bulk oil sales
27,631

 

Midstream revenues
14,606

 
6,983

Well services revenues
5,627

 
5,985

Total revenues
285,116

 
130,283

Operating expenses
 
 
 
Lease operating expenses
43,872

 
31,064

Midstream operating expenses
3,327

 
1,738

Well services operating expenses
3,902

 
2,651

Marketing, transportation and gathering expenses
10,951

 
8,552

Bulk oil purchases
28,002

 

Production taxes
20,299

 
10,753

Depreciation, depletion and amortization
126,666

 
122,449

Exploration expenses
1,489

 
363

Impairment
2,682

 
3,562

General and administrative expenses
23,834

 
24,366

Total operating expenses
265,024

 
205,498

Operating income (loss)
20,092

 
(75,215
)
Other income (expense)
 
 
 
Net gain on derivative instruments
56,075

 
14,375

Interest expense, net of capitalized interest
(36,321
)
 
(38,739
)
Gain on extinguishment of debt

 
7,016

Other income
16

 
479

Total other income (expense)
19,770

 
(16,869
)
Income (loss) before income taxes
39,862

 
(92,084
)
Income tax benefit (expense)
(16,037
)
 
27,629

Net income (loss)
$
23,825

 
$
(64,455
)
Earnings (loss) per share:
 
 
 
Basic (Note 11)
$
0.10

 
$
(0.40
)
Diluted (Note 11)
0.10

 
(0.40
)
Weighted average shares outstanding:
 
 
 
Basic (Note 11)
233,068

 
162,922

Diluted (Note 11)
237,900

 
162,922

The accompanying notes are an integral part of these condensed consolidated financial statements.


2


Oasis Petroleum Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
(Unaudited)
 
Common Stock
 
Treasury Stock
 
Additional
Paid-in Capital
 
Retained Earnings
 
Total
Stockholders’
Equity
Shares
 
Amount
 
Shares
 
Amount
 
 
(In thousands)
Balance at December 31, 2016
236,344

 
$
2,331

 
857

 
$
(15,950
)
 
$
2,345,271

 
$
591,505

 
$
2,923,157

Cumulative-effect adjustment for adoption of ASU 2016-09 (Note 2)

 

 

 

 
2,040

 
2,684

 
4,724

Fees (2016 issuance of common stock)

 

 

 

 
(55
)
 

 
(55
)
Stock-based compensation
1,490

 
13

 

 

 
7,229

 

 
7,242

Treasury stock – tax withholdings
(373
)
 

 
373

 
(5,419
)
 

 

 
(5,419
)
Net income

 

 

 

 

 
23,825

 
23,825

Balance at March 31, 2017
237,461

 
$
2,344

 
1,230

 
$
(21,369
)
 
$
2,354,485

 
$
618,014

 
$
2,953,474

The accompanying notes are an integral part of these condensed consolidated financial statements.


3


Oasis Petroleum Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
 
Three Months Ended March 31,
 
2017
 
2016
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
23,825

 
$
(64,455
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation, depletion and amortization
126,666

 
122,449

Gain on extinguishment of debt

 
(7,016
)
Impairment
2,682

 
3,562

Deferred income taxes
16,037

 
(27,629
)
Derivative instruments
(56,075
)
 
(14,375
)
Stock-based compensation expenses
6,708

 
6,730

Deferred financing costs amortization and other
4,940

 
5,066

Working capital and other changes:
 
 
 
Change in accounts receivable
(22,478
)
 
(995
)
Change in inventory
(3,679
)
 
349

Change in prepaid expenses
282

 
241

Change in other current assets
(110
)
 
4

Change in other assets
(4
)
 
77

Change in accounts payable, interest payable and accrued liabilities
6,060

 
(64,056
)
Change in other current liabilities
2,945

 
(6,000
)
Change in other liabilities

 
(3
)
Net cash provided by (used in) operating activities
107,799

 
(46,051
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(96,047
)
 
(103,411
)
Derivative settlements
(7,960
)
 
73,313

Advances from joint interest partners
(759
)
 
(257
)
Net cash used in investing activities
(104,766
)
 
(30,355
)
Cash flows from financing activities:
 
 
 
Proceeds from revolving credit facility
246,000

 
214,000

Principal payments on revolving credit facility
(241,000
)
 
(287,000
)
Repurchase of senior unsecured notes

 
(22,308
)
Deferred financing costs

 
(751
)
Proceeds from sale of common stock

 
183,164

Purchases of treasury stock
(5,419
)
 
(1,032
)
Other
(55
)
 

Net cash provided by (used in) financing activities
(474
)
 
86,073

Increase in cash and cash equivalents
2,559

 
9,667

Cash and cash equivalents:
 
 
 
Beginning of period
11,226

 
9,730

End of period
$
13,785

 
$
19,397

Supplemental non-cash transactions:
 
 
 
Change in accrued capital expenditures
$
8,396

 
$
(19,230
)
Change in asset retirement obligations
787

 
1,212

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


OASIS PETROLEUM INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Organization and Operations of the Company
Oasis Petroleum Inc. (together with its consolidated subsidiaries, “Oasis” or the “Company”) was originally formed in 2007 and was incorporated pursuant to the laws of the State of Delaware in 2010. The Company is an independent exploration and production company focused on the acquisition and development of unconventional oil and natural gas resources in the North Dakota and Montana regions of the Williston Basin. Oasis Petroleum North America LLC (“OPNA”) conducts the Company’s exploration and production activities and owns its proved and unproved oil and natural gas properties. The Company also operates a midstream services business through Oasis Midstream Services LLC (“OMS”) and a well services business through Oasis Well Services LLC (“OWS”), both of which are separate reportable business segments that are complementary to its primary development and production activities.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company include the accounts of Oasis and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements of the Company have not been audited by the Company’s independent registered public accounting firm, except that the Condensed Consolidated Balance Sheet at December 31, 2016 is derived from audited financial statements. Certain reclassifications of prior year balances have been made to conform such amounts to current year classifications. These reclassifications have no impact on net income. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for the fair statement, have been included. Management has made certain estimates and assumptions that affect reported amounts in the condensed consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.
These interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain disclosures have been condensed or omitted from these financial statements. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (“2016 Annual Report”).
Risks and Uncertainties
As an oil and natural gas producer, the Company’s revenue, profitability and future growth are substantially dependent upon the prevailing and future prices for oil and natural gas, which are dependent upon numerous factors beyond its control such as economic, political and regulatory developments and competition from other energy sources. The energy markets have historically been very volatile, and there can be no assurance that oil and natural gas prices will not be subject to wide fluctuations in the future. An extended period of low prices for oil and, to a lesser extent, natural gas could have a material adverse effect on the Company’s financial position, results of operations, cash flows and quantities of oil and natural gas reserves that may be economically produced.
Significant Accounting Policies
There have been no material changes to the Company’s critical accounting policies and estimates from those disclosed in the 2016 Annual Report, other than as noted below.
Stock-based compensation. In the first quarter of 2017, the Company adopted Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which updates several aspects of the accounting for share-based payment transactions, including recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. In accordance with the new guidance, the Company recorded a $2.7 million cumulative-effect adjustment to retained earnings on the Company’s Condensed Consolidated Balance Sheet as of March 31, 2017, which included recognition of excess tax benefits and deficiencies and the removal of the estimated forfeiture rate. ASU 2016-09 was applied on a modified retrospective basis and prior periods were not retrospectively adjusted.
Inventory. In the first quarter of 2017, the Company adopted Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”), which changes the inventory measurement principle from lower of cost or market to lower of cost and net realizable value for entities using the first-in, first-out or average cost methods. ASU 2015-11 was

5


applied on a prospective basis and prior periods were not retrospectively adjusted. There was no material impact as a result of adoption as of March 31, 2017.
Recent Accounting Pronouncements
Revenue recognition. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The objective of ASU 2014-09 is greater consistency and comparability across industries by using a five-step model to recognize revenue from customer contracts. ASU 2014-09 also contains some new disclosure requirements under GAAP. In August 2015, the FASB issued Accounting Standards Update No. 2015-14, Deferral of the Effective Date (“ASU 2015-14”). ASU 2015-14 defers the effective date of the new revenue standard by one year, making it effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In 2016, the FASB issued additional accounting standards updates to clarify the implementation guidance of ASU 2014-09. The Company is currently evaluating the effect that adopting this guidance will have on its financial position, cash flows and results of operations.
Financial instruments. In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires that most equity instruments be measured at fair value with subsequent changes in fair value recognized in net income. ASU 2016-01 also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. ASU 2016-01 does not apply to equity method investments or investments in consolidated subsidiaries. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company is currently evaluating the effect that adopting this guidance will have on its financial position, cash flows and results of operations.
Leases. In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”), which requires a lessee to recognize lease payment obligations and a corresponding right-of-use asset to be measured at fair value on the balance sheet. ASU 2016-02 also requires certain qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. The Company is currently evaluating the effect that adopting this guidance will have on its financial position, cash flows and results of operations.
Statement of cash flows. In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (“ASU 2016-15”), which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The adoption of this guidance will not impact the Company’s financial position or results of operations, but could result in presentation changes on the Company’s statement of cash flows.
Business combinations. In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business (“ASU 2017-01”), which provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 requires entities to use a screen test to determine when an integrated set of assets and activities is not a business or if the integrated set of assets and activities needs to be further evaluated against the framework. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company is currently evaluating the effect that adopting this guidance will have on its financial position, cash flows and results of operations.
3. Inventory
Crude oil inventory includes oil in tank and linefill. Equipment and materials consist primarily of proppant, chemicals, tubular goods, well equipment to be used in future drilling or repair operations and well fracturing equipment. Inventory is stated at the lower of cost and net realizable value with cost determined on an average cost method. Inventory consists of the following:
 
March 31, 2017
 
December 31, 2016
 
(In thousands)
Crude oil inventory
$
10,302

 
$
7,086

Equipment and materials
4,025

 
3,562

Total inventory
$
14,327

 
$
10,648


6


4. Fair Value Measurements
In accordance with the FASB’s authoritative guidance on fair value measurements, the Company’s financial assets and liabilities are measured at fair value on a recurring basis. The Company’s financial instruments, including certain cash and cash equivalents, accounts receivable, accounts payable and other payables, are carried at cost, which approximates their respective fair market values due to their short-term maturities. The Company recognizes its non-financial assets and liabilities, such as asset retirement obligations (“ARO”) and proved oil and natural gas properties upon impairment, at fair value on a non-recurring basis.
As defined in the authoritative guidance, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). To estimate fair value, the Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable.
The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (“Level 1” measurements) and the lowest priority to unobservable inputs (“Level 3” measurements). The three levels of the fair value hierarchy are as follows:
Level 1 — Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 — Pricing inputs, other than unadjusted quoted prices in active markets included in Level 1, are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 — Pricing inputs are generally less observable from objective sources, requiring internally developed valuation methodologies that result in management’s best estimate of fair value.
Financial Assets and Liabilities
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The following tables set forth by level, within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis:
 
Fair value at March 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Money market funds
$
141

 
$

 
$

 
$
141

Commodity derivative instruments (see Note 5)

 
6,841

 

 
6,841

Total assets
$
141

 
$
6,841

 
$

 
$
6,982

Liabilities:
 
 
 
 
 
 
 
Commodity derivative instruments (see Note 5)
$

 
$
14,627

 
$

 
$
14,627

Total liabilities
$

 
$
14,627

 
$

 
$
14,627


7


 
Fair value at December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Money market funds
$
141

 
$

 
$

 
$
141

Commodity derivative instruments (see Note 5)

 
362

 

 
362

Total assets
$
141

 
$
362

 
$

 
$
503

Liabilities:
 
 
 
 
 
 
 
Commodity derivative instruments (see Note 5)
$

 
$
72,183

 
$

 
$
72,183

Total liabilities
$

 
$
72,183

 
$

 
$
72,183

The Level 1 instruments presented in the tables above consist of money market funds included in cash and cash equivalents on the Company’s Condensed Consolidated Balance Sheet at March 31, 2017 and December 31, 2016. The Company’s money market funds represent cash equivalents backed by the assets of high-quality major banks and financial institutions. The Company identifies the money market funds as Level 1 instruments because the money market funds have daily liquidity, quoted prices for the underlying investments can be obtained, and there are active markets for the underlying investments.
The Level 2 instruments presented in the tables above consist of commodity derivative instruments, which include oil and natural gas swaps and collars. The fair values of the Company’s commodity derivative instruments are based upon a third-party preparer’s calculation using mark-to-market valuation reports provided by the Company’s counterparties for monthly settlement purposes to determine the valuation of its derivative instruments. The Company has the third-party preparer evaluate other readily available market prices for its derivative contracts, as there is an active market for these contracts. The third-party preparer performs its independent valuation using a moment matching method similar to Turnbull-Wakeman for Asian options. The significant inputs used are crude oil prices, volatility, skew, discount rate and the contract terms of the derivative instruments. However, the Company does not have access to the specific proprietary valuation models or inputs used by its counterparties or third-party preparer. The Company compares the third-party preparer’s valuation to counterparty valuation statements, investigating any significant differences, and analyzes monthly valuation changes in relation to movements in crude oil and natural gas forward price curves. The determination of the fair value for derivative instruments also incorporates a credit adjustment for non-performance risk, as required by GAAP. The Company calculates the credit adjustment for derivatives in a net asset position using current credit default swap values for each counterparty. The credit adjustment for derivatives in a net liability position is based on the Company’s market credit spread. Based on these calculations, the Company recorded an adjustment to reduce the fair value of its net derivative liability by $0.2 million and $2.0 million at March 31, 2017 and December 31, 2016, respectively.
There were no transfers between fair value levels during the three months ended March 31, 2017 and 2016.
5. Derivative Instruments
The Company utilizes derivative financial instruments to manage risks related to changes in oil and natural gas prices. The Company’s crude oil and natural gas contracts will settle monthly based on the average NYMEX West Texas Intermediate crude oil index price (“WTI”) and the average NYMEX Henry Hub natural gas index price (“Henry Hub”), respectively. At March 31, 2017, the Company utilized swaps and two-way and three-way costless collar options to reduce the volatility of oil and natural gas prices on a significant portion of its future expected oil and natural gas production. A swap is a sold call and a purchased put established at the same price (both ceiling and floor). A two-way collar is a combination of options: a sold call and a purchased put. The purchased put establishes a minimum price (floor) and the sold call establishes a maximum price (ceiling) the Company will receive for the volumes under contract. A three-way collar is a combination of options: a sold call, a purchased put and a sold put. The purchased put establishes a minimum price (floor), unless the market price falls below the sold put (sub-floor), at which point the minimum price would be the NYMEX index price plus the difference between the purchased put and the sold put strike price. The sold call establishes a maximum price (ceiling) the Company will receive for the volumes under contract.
All derivative instruments are recorded on the Company’s Condensed Consolidated Balance Sheet as either assets or liabilities measured at fair value (see Note 4 – Fair Value Measurements). The Company has not designated any derivative instruments as hedges for accounting purposes and does not enter into such instruments for speculative trading purposes. If a derivative does not qualify as a hedge or is not designated as a hedge, the changes in fair value are recognized in the other income (expense) section of the Company’s Condensed Consolidated Statement of Operations as a net gain or loss on derivative instruments. The Company’s cash flow is only impacted when the actual settlements under the derivative contracts result in making a payment to or receiving a payment from the counterparty. These cash settlements represent the cumulative gains and losses on the Company’s derivative instruments and do not include a recovery of costs that were paid to acquire or

8


modify the derivative instruments that were settled. Cash settlements are reflected as investing activities in the Company’s Condensed Consolidated Statement of Cash Flows.
At March 31, 2017, the Company had the following outstanding commodity derivative instruments:
Commodity

Settlement
Period

Derivative
Instrument

Volumes

Weighted Average Prices

Fair Value
Asset (Liability)




Swap

Sub-Floor

Floor

Ceiling



 

 






(In thousands)
Crude oil

2017

Swaps

5,225,000

Bbl

$
49.60

 
 
 
 
 
 

$
(9,309
)
Crude oil

2017

Two-way collar

2,200,000

Bbl

 
 
 
 
$
46.25

 
$
54.37


(1,707
)
Crude oil

2017

Three-way collar

1,650,000

Bbl

 
 
$
31.67

 
$
45.83

 
$
59.94


562

Crude oil

2018

Swaps

2,440,000

Bbl

$
52.93

 
 
 
 
 
 

2,375

Crude oil

2018

Two-way collar

582,000

Bbl

 
 
 
 
$
48.40

 
$
55.13


28

Crude oil

2018

Three-way collar

186,000

Bbl

 
 
$
31.67

 
$
45.83

 
$
59.94


58

Crude oil

2019

Swaps

155,000

Bbl

$
53.88

 
 
 
 
 
 

351

Crude oil

2019

Two-way collar

31,000

Bbl

 
 
 
 
$
50.00

 
$
55.70


32

Natural gas
 
2017
 
Swaps
 
4,675,000

MMBtu
 
$
3.30

 
 
 
 
 
 
 
(55
)
Natural gas
 
2018
 
Swaps
 
3,650,000

MMBtu
 
$
3.00

 
 
 
 
 
 
 
(121
)












 

 


$
(7,786
)
The following table summarizes the location and amounts of gains and losses from the Company’s commodity derivative instruments recorded in the Company’s Condensed Consolidated Statement of Operations for the periods presented:
 
 
Three Months Ended March 31,
Statement of Operations Location
 
2017
 
2016
 
 
(In thousands)
Net gain on derivative instruments
 
$
56,075

 
$
14,375

In accordance with the FASB’s authoritative guidance on disclosures about offsetting assets and liabilities, the Company is required to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting agreement. The Company’s derivative instruments are presented as assets and liabilities on a net basis by counterparty, as all counterparty contracts provide for net settlement. No margin or collateral balances are deposited with counterparties, and as such, gross amounts are offset to determine the net amounts presented in the Company’s Condensed Consolidated Balance Sheet.

9


The following table summarizes the location and fair value of all outstanding commodity derivative instruments recorded in the Company’s Condensed Consolidated Balance Sheet: 
 
 
 
 
March 31, 2017
Commodity
 
Balance Sheet Location
 
Gross Recognized Asset/Liabilities
 
Gross Amount Offset
 
Net Recognized Fair Value Asset/Liability
 
 
 
 
(In thousands)
Derivatives assets:
 
 
 
 
 
 
 
 
Commodity contracts
 
Derivative instruments — current assets
 
$
5,178

 
$
(2,152
)
 
$
3,026

Commodity contracts
 
Derivative instruments — non-current assets
 
5,148

 
(1,333
)
 
3,815

Total derivatives assets
 
 
 
$
10,326

 
$
(3,485
)
 
$
6,841

Derivatives liabilities:
 
 
 
 
 
 
 
 
Commodity contracts
 
Derivative instruments — current liabilities
 
$
21,480

 
$
(6,853
)
 
$
14,627

Total derivatives liabilities
 
$
21,480

 
$
(6,853
)
 
$
14,627

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
Commodity
 
Balance Sheet Location
 
Gross Recognized Asset/Liabilities
 
Gross Amount Offset
 
Net Recognized Fair Value Asset/Liability
 
 
 
 
(In thousands)
Derivatives assets:
 
 
 
 
 
 
 
 
Commodity contracts
 
Derivative instruments — current assets
 
$
482

 
$
(120
)
 
$
362

Total derivatives assets
 
 
 
$
482

 
$
(120
)
 
$
362

Derivatives liabilities:
 
 
 
 
 
 
 
 
Commodity contracts
 
Derivative instruments — current liabilities
 
$
66,838

 
$
(6,369
)
 
$
60,469

Commodity contracts
 
Derivative instruments — non-current liabilities
 
14,164

 
(2,450
)
 
11,714

Total derivatives liabilities
 
$
81,002

 
$
(8,819
)
 
$
72,183

6. Property, Plant and Equipment
The following table sets forth the Company’s property, plant and equipment:
 
March 31, 2017
 
December 31, 2016
 
(In thousands)
Proved oil and gas properties(1)
$
6,570,588

 
$
6,476,833

Less: accumulated depreciation, depletion, amortization and impairment
(2,009,356
)
 
(1,886,732
)
Proved oil and gas properties, net
4,561,232

 
4,590,101

Unproved oil and gas properties
819,711

 
819,735

Other property and equipment
632,318

 
618,790

Less: accumulated depreciation
(116,780
)
 
(109,059
)
Other property and equipment, net
515,538

 
509,731

Total property, plant and equipment, net
$
5,896,481

 
$
5,919,567

__________________
(1)
Included in the Company’s proved oil and gas properties are estimates of future asset retirement costs of $43.0 million and $42.9 million at March 31, 2017 and December 31, 2016, respectively.


10


7. Long-Term Debt
The Company’s long-term debt consists of the following:
 
March 31, 2017
 
December 31, 2016
 
(In thousands)
Senior secured revolving line of credit
$
368,000

 
$
363,000

Senior unsecured notes
 
 
 
7.25% senior unsecured notes due February 1, 2019
54,275

 
54,275

6.5% senior unsecured notes due November 1, 2021
395,501

 
395,501

6.875% senior unsecured notes due March 15, 2022
937,080

 
937,080

6.875% senior unsecured notes due January 15, 2023
366,094

 
366,094

2.625% senior unsecured convertible notes due September 15, 2023
300,000

 
300,000

Total principal of senior unsecured notes
2,052,950

 
2,052,950

Less: unamortized deferred financing costs on senior unsecured notes
(26,958
)
 
(28,268
)
Less: unamortized debt discount on senior unsecured convertible notes
(88,113
)
 
(90,468
)
Total long-term debt
$
2,305,879

 
$
2,297,214

The carrying amount of the Company’s long-term debt reported in the Condensed Consolidated Balance Sheet at March 31, 2017 was $2,305.9 million, which included $2,053.0 million of senior unsecured notes, a reduction for the unamortized debt discount related to the equity component of the senior unsecured convertible notes and a reduction for the unamortized deferred financing costs on the senior unsecured notes of $88.1 million and $27.0 million, respectively, and $368.0 million of borrowings under the revolving credit facility. The Company’s revolving credit facility is recorded at a value that approximates its fair value since its variable interest rate is tied to current market rates. The fair value of the Company’s senior unsecured notes, which are publicly traded and therefore categorized as Level 1 liabilities, was $2,187.1 million at March 31, 2017.
Senior secured revolving line of credit. The Company has a senior secured revolving line of credit (the “Credit Facility”) of $2,500.0 million as of March 31, 2017, which has a maturity date of April 13, 2020, provided that the 7.25% senior unsecured notes due February 1, 2019 (the “2019 Notes”), of which $54.3 million is outstanding, are retired or refinanced 90 days prior to their maturity. The Credit Facility is restricted to a borrowing base, which is reserve-based and subject to semi-annual redeterminations on April 1 and October 1 of each year.
As of March 31, 2017, the Company had $368.0 million of LIBOR loans and $10.0 million of outstanding letters of credit issued under the Credit Facility, resulting in an unused borrowing base committed capacity of $772.0 million. The weighted average interest rate on borrowings outstanding under the Credit Facility was 2.5% as of March 31, 2017. On a quarterly basis, the Company also pays a 0.375% (as of March 31, 2017) annualized commitment fee on the average amount of borrowing base capacity not utilized during the quarter and fees calculated on the average amount of letter of credit balances outstanding during the quarter.
The Company was in compliance with the financial covenants of the Credit Facility as of March 31, 2017.
Senior unsecured notes. At March 31, 2017, the Company had $1,753.0 million principal amount of senior unsecured notes outstanding with maturities ranging from February 2019 to January 2023 and coupons ranging from 6.50% to 7.25% (the “Senior Notes”). Prior to certain dates, the Company has the option to redeem some or all of the Senior Notes for cash at certain redemption prices equal to a certain percentage of their principal amount plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. The 2019 Notes are currently redeemable for cash at a redemption price equal to par. The Company estimates that the fair value of these redemption options is immaterial at March 31, 2017 and December 31, 2016.
Senior unsecured convertible notes. In September 2016, the Company issued $300.0 million of 2.625% senior unsecured convertible notes due September 2023 (the “Senior Convertible Notes”). The Company has the option to settle conversions of these notes with cash, shares of common stock or a combination of cash and common stock at its election. The Company’s intent is to settle the principal amount of the Senior Convertible Notes in cash upon conversion. Prior to March 15, 2023, the Senior Convertible Notes will be convertible only under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the Senior Convertible Notes for each trading day of the measurement period is less than

11


98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events, including certain distributions or a fundamental change. On or after March 15, 2023, the Senior Convertible Notes will be convertible at any time until the second scheduled trading day immediately preceding their September 15, 2023 maturity date. The Senior Convertible Notes will be convertible at an initial conversion rate of 76.3650 shares of the Company’s common stock per $1,000 principal amount of the Senior Convertible Notes, which is equivalent to an initial conversion price of approximately $13.10. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its Senior Convertible Notes in connection with such corporate event or redemption in certain circumstances. As of March 31, 2017, none of the contingent conditions allowing holders of the Senior Convertible Notes to convert these notes had been met.
Upon issuance, the Company separately accounted for the liability and equity components of the Senior Convertible Notes in accordance with Accounting Standards Codification 470-20. The liability component was recorded at the estimated fair value of a similar debt instrument without the conversion feature. The difference between the principal amount of the Senior Convertible Notes and the estimated fair value of the liability component was recorded as a debt discount and will be amortized to interest expense over the term of the notes using the effective interest method, with an effective interest rate of 8.97% per annum. The fair value of the Senior Convertible Notes as of the issuance date was estimated at $206.8 million, resulting in a debt discount at inception of $93.2 million. The equity component, representing the value of the conversion option, was computed by deducting the fair value of the liability component from the initial proceeds of the Senior Convertible Notes issuance. This equity component was recorded, net of deferred taxes and issuance costs, in additional paid-in capital and will not be remeasured as long as it continues to meet the conditions for equity classification. 
Interest on the Senior Notes and the Senior Convertible Notes (collectively, the “Notes”) is payable semi-annually in arrears. The Notes are guaranteed on a senior unsecured basis by the Company, along with its material subsidiaries (the “Guarantors”), which are 100% owned by the Company. These guarantees are full and unconditional and joint and several among the Guarantors, subject to certain customary release provisions. The indentures governing the Notes contain customary events of default as well as covenants that place restrictions on the Company and certain of its subsidiaries.
8. Asset Retirement Obligations
The following table reflects the changes in the Company’s ARO during the three months ended March 31, 2017:
 
(In thousands)
Balance at December 31, 2016
$
49,687

Liabilities incurred during period
351

Liabilities settled during period
(89
)
Accretion expense during period(1)
655

Revisions to estimates
(215
)
Balance at March 31, 2017
$
50,389

___________________
(1) Included in depreciation, depletion and amortization on the Company’s Condensed Consolidated Statement of Operations.
At March 31, 2017, the current portion of the total ARO balance was approximately $0.3 million and was included in accrued liabilities on the Company’s Condensed Consolidated Balance Sheet.
9. Income Taxes
The Company’s effective tax rate for the three months ended March 31, 2017 and 2016 was 40.2% and 30.0%, respectively. The effective tax rate for the three months ended March 31, 2017 was higher than the combined federal statutory rate and the statutory rates for the states in which the Company conducts business due to the impact of permanent differences on pre-tax income for the period, while the effective tax rate for the three months ended March 31, 2016 was lower than the combined federal statutory rate and the statutory rates for the states in which the Company conducts business due to the impact of permanent differences on pre-tax loss for the period. During both the three months ended March 31, 2017 and 2016, the permanent differences were primarily between amounts expensed for book purposes versus the amounts deductible for income tax purposes related to compensation, including stock-based compensation vesting at different prices than the grant date values.

12


10. Stock-Based Compensation
Restricted stock awards. The Company has granted restricted stock awards to employees and directors under its Amended and Restated 2010 Long Term Incentive Plan, the majority of which vest over a three-year period. The fair value of restricted stock grants is based on the closing sales price of the Company’s common stock on the date of grant. Compensation expense is recognized ratably over the requisite service period.
During the three months ended March 31, 2017, employees and non-employee directors of the Company were granted restricted stock awards equal to 1,551,560 shares of common stock with a $15.35 weighted average grant date per share value. Stock-based compensation expense recorded for restricted stock awards for the three months ended March 31, 2017 and 2016 was $5.4 million and $5.8 million, respectively. Stock-based compensation expense is included in general and administrative expenses on the Company’s Condensed Consolidated Statement of Operations.
Performance share units. The Company has granted performance share units (“PSUs”) to officers of the Company under its Amended and Restated 2010 Long Term Incentive Plan. The PSUs are awards of restricted stock units, and each PSU that is earned represents the right to receive one share of the Company’s common stock.
During the three months ended March 31, 2017, officers of the Company were granted 509,800 PSUs with a $16.89 weighted average grant date per share value. Stock-based compensation expense recorded for PSUs for the three months ended March 31, 2017 and 2016 was $1.3 million and $0.9 million, respectively. Stock-based compensation expense is included in general and administrative expenses on the Company’s Condensed Consolidated Statement of Operations.
The Company accounted for these PSUs as equity awards pursuant to the FASB’s authoritative guidance for share-based payments. The number of PSUs to be earned is subject to a market condition, which is based on a comparison of the total shareholder return (“TSR”) achieved with respect to shares of the Company’s common stock against the TSR achieved by a defined peer group at the end of the performance periods. Depending on the Company’s TSR performance relative to the defined peer group, award recipients will earn between 0% and 200% of the initial PSUs granted. All compensation expense related to the PSUs will be recognized if the requisite performance period is fulfilled, even if the market condition is not achieved.
The aggregate grant date fair value of the market-based awards was determined using a Monte Carlo simulation model. The Monte Carlo simulation model uses assumptions regarding random projections and must be repeated numerous times to achieve a probabilistic assessment. The key valuation assumptions for the Monte Carlo model are the forecast period, initial value, risk-free interest rate, volatility and correlation coefficients. The risk-free interest rates are the U.S. Treasury bond rates on the date of grant that correspond to each performance period. The initial value is the average of the volume weighted average prices for the 30 trading days prior to the start of the performance cycle for the Company and each of its peers. Volatility was calculated from the daily historical returns of 30-day volume weighted average stock prices over a historical period for the Company and each of its peers. The correlation coefficients are measures of the strength of the linear relationship between and amongst the Company and its peers estimated based on historical stock price data.
The following assumptions were used for the Monte Carlo model to determine the grant date fair value and associated stock-based compensation expense of the PSUs granted during the three months ended March 31, 2017:
Risk-free interest rate
1.18% - 1.66%

Oasis volatility
17.16
%

13


11. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing the earnings (loss) attributable to common stockholders by the weighted average number of shares outstanding for the periods presented. The calculation of diluted earnings (loss) per share includes the potential dilutive impact of non-vested restricted shares, PSUs outstanding, and contingently issuable shares of convertible notes during the periods presented, unless their effect is anti-dilutive. There are no adjustments made to the income (loss) available to common stockholders in the calculation of diluted earnings (loss) per share.
The following is a calculation of the basic and diluted weighted average shares outstanding for the three months ended March 31, 2017 and 2016: 
 
Three Months Ended March 31,
 
2017
 
2016
 
(In thousands)
Basic weighted average common shares outstanding
233,068

 
162,922

Dilution effect of stock awards at end of period
3,238

 

Dilution effect of senior convertible notes at end of period(1)
1,594

 

Diluted weighted average common shares outstanding
237,900

 
162,922

__________________ 
(1)
The Company issued its Senior Convertible Notes in September 2016 (see Note 7 – Long-Term Debt).
The following is a calculation of weighted average common shares excluded from diluted earnings (loss) per share due to the anti-dilutive effect:
 
Three Months Ended March 31,
 
2017
 
2016
 
(In thousands)
Anti-dilutive effect of stock awards excluded from diluted earnings (loss) per share due to net loss

 
4,668

Anti-dilutive effect of stock awards excluded from diluted earnings (loss) per share calculated using the treasury stock method
2,884

 

12. Business Segment Information
The Company’s exploration and production segment is engaged in the acquisition and development of oil and natural gas properties. Revenues for the exploration and production segment are derived from the sale of oil and natural gas production. The Company’s midstream services business segment (OMS) performs salt water gathering and disposal services, fresh water services, natural gas gathering and processing and crude oil gathering and transportation and other midstream services for the Company’s oil and natural gas wells operated by OPNA. Revenues for the midstream segment are primarily derived from salt water pipeline transport, salt water disposal, fresh water sales, natural gas gathering and processing and crude oil gathering, blending, stabilization and transportation. The Company’s well services business segment (OWS) performs completion services for the Company’s oil and natural gas wells operated by OPNA. Revenues for the well services segment are derived from providing well services, product sales and equipment rentals. The revenues and expenses related to work performed by OMS and OWS for OPNA’s working interests are eliminated in consolidation, and only the revenues and expenses related to non-affiliated working interest owners are included in the Company’s Condensed Consolidated Statement of Operations. These segments represent the Company’s three operating units, each offering different products and services. The Company’s corporate activities have been allocated to the supported business segments accordingly.
Management evaluates the performance of the Company’s business segments based on operating income, which is defined as segment operating revenues less operating expenses, including depreciation, depletion and amortization. The following table summarizes financial information for the Company’s three business segments for the periods presented:

14


 
 
Exploration and
Production
 
Midstream Services
 
Well Services
 
Eliminations
 
Consolidated
 
(In thousands)
Three months ended March 31, 2017:
 
Revenues from non-affiliates
$
264,883

 
$
14,606

 
$
5,627

 
$

 
$
285,116

Inter-segment revenues

 
23,035

 
15,352

 
(38,387
)
 

Total revenues
264,883

 
37,641

 
20,979

 
(38,387
)
 
285,116

Operating income (loss)
968

 
20,763

 
(3,592
)
 
1,953

 
20,092

Other income (expense)
19,768

 
(2
)
 
4

 

 
19,770

Income (loss) before income taxes
$
20,736

 
$
20,761

 
$
(3,588
)
 
$
1,953

 
$
39,862

 
 
Three months ended March 31, 2016:
 
 
 
 
 
 
 
 
 
Revenues from non-affiliates
$
117,315

 
$
6,983

 
$
5,985

 
$

 
$
130,283

Inter-segment revenues

 
22,835

 
24,903

 
(47,738
)
 

Total revenues
117,315

 
29,818

 
30,888

 
(47,738
)
 
130,283

Operating income (loss)
(88,877
)
 
15,144

 
4,006

 
(5,488
)
 
(75,215
)
Other income (expense)
(16,887
)
 
13

 
5

 

 
(16,869
)
Income (loss) before income taxes
$
(105,764
)
 
$
15,157

 
$
4,011

 
$
(5,488
)
 
$
(92,084
)
 
 
At March 31, 2017:
 
Property, plant and equipment, net
$
5,589,014

 
$
433,867

 
$
44,025

 
$
(170,425
)
 
$
5,896,481

Total assets(1)
5,871,573

 
440,548

 
47,932

 
(170,425
)
 
6,189,628

At December 31, 2016:
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
$
5,620,558

 
$
424,197

 
$
47,189

 
$
(172,377
)
 
$
5,919,567

Total assets(1)
5,868,747

 
431,095

 
51,167

 
(172,377
)
 
6,178,632

___________________
(1)
Intercompany receivables (payables) for all segments were reclassified to capital contributions from (distributions to) parent and not included in total assets.

15


13. Commitments and Contingencies
The Company has various contractual obligations in the normal course of its operations. As of March 31, 2017, there have been no material changes to the Company’s future commitments described under “Lease obligations” and “Volume commitment agreements” as disclosed in Note 16 in the Company’s 2016 Annual Report.
Litigation. The Company is party to various legal and/or regulatory proceedings from time to time arising in the ordinary course of business. When the Company determines that a loss is probable of occurring and is reasonably estimable, the Company accrues an undiscounted liability for such contingencies based on its best estimate using information available at the time. The Company discloses contingencies where an adverse outcome may be material, or in the judgment of management, the matter should otherwise be disclosed.
Mirada litigation. On March 23, 2017, Mirada Energy, LLC, Mirada Wild Basin Holding Company, LLC and Mirada Energy Fund I, LLC (collectively, “Mirada”) filed a lawsuit against Oasis, OPNA and OMS, seeking monetary damages in excess of $100 million, declaratory relief, attorneys’ fees and costs (Mirada Energy, LLC, et al. v. Oasis Petroleum North America LLC, et al.; in the 334th Judicial District Court of Harris County, Texas; Case Number 2017-19911). Mirada asserts that it is a working interest owner in certain acreage owned and operated by the Company in Wild Basin. Specifically, Mirada asserts that the Company has breached certain agreements by: (1) failing to allow Mirada to participate in the Company’s midstream operations in Wild Basin; (2) refusing to provide Mirada with information that Mirada contends is required under certain agreements and failing to provide information in a timely fashion; (3) failing to consult with Mirada and failing to obtain Mirada’s consent prior to drilling more than one well at a time in Wild Basin; and (4) by overstating the estimated costs of proposed well operations in Wild Basin. Mirada seeks a declaratory judgment that the Company be removed as operator in Wild Basin at Mirada’s election and that Mirada be allowed to elect a new operator; certain agreements apply to the Company and Mirada and Wild Basin with respect to this dispute; the Company be required to provide all information within its possession regarding proposed or ongoing operations in Wild Basin; and the Company not be permitted to drill, or propose to drill, more than one well at a time in Wild Basin without obtaining Mirada’s consent. Mirada also seeks a declaratory judgment with respect to the Company’s current midstream operations in Wild Basin. Specifically, Mirada seeks a declaratory judgment that Mirada has a right to participate in the Company’s Wild Basin midstream operations, consisting of produced water disposal, crude oil gathering and gas gathering and processing; that, upon Mirada’s election to participate, Mirada is obligated to pay its proportionate costs of the Company’s midstream operations in Wild Basin; and that Mirada would then be entitled to receive a share of revenues from the midstream operations and would not be charged any amount for its use of these facilities for production from the “Contract Area.”
The Company believes that Mirada’s claims are without merit, that the Company has complied with its obligations under the applicable agreements and that some of Mirada’s claims are grounded in agreements which do not apply to the Company. The Company filed an answer denying Mirada’s claims on April 21, 2017, and intends to vigorously defend against Mirada’s claims. Discovery is ongoing. Trial is currently scheduled for July 2018. However, the Company cannot predict or guarantee the ultimate outcome or resolution of such matter. If such matter were to be determined adversely to the Company’s interests, or if the Company were forced to settle such matter for a significant amount, such resolution or settlement could have a material adverse effect on the Company’s business, results of operations and financial condition. Such an adverse determination could materially impact the Company’s ability to operate its properties in Wild Basin or develop its identified drilling locations in Wild Basin on its current development schedule. A determination that Mirada has a right to participate in the Company’s midstream operations could materially reduce the interests of the Company in their current assets and future midstream opportunities and related revenues in Wild Basin.
14. Condensed Consolidating Financial Information
The Notes (see Note 7 – Long-Term Debt) are guaranteed on a senior unsecured basis by the Guarantors, which are 100% owned by the Company. These guarantees are full and unconditional and joint and several among the Guarantors. Certain of the Company’s immaterial wholly-owned subsidiaries do not guarantee the Notes (“Non-Guarantor Subsidiaries”).
The following financial information reflects consolidating financial information of the parent company, Oasis Petroleum Inc. (“Issuer”), and its Guarantors on a combined basis, prepared on the equity basis of accounting. The Non-Guarantor Subsidiaries are immaterial and, therefore, not presented separately. The information is presented in accordance with the requirements of Rule 3-10 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the Guarantors operated as independent entities. The Company has not presented separate financial and narrative information for each of the Guarantors because it believes such financial and narrative information would not provide any additional information that would be material in evaluating the sufficiency of the Guarantors.


16


Condensed Consolidating Balance Sheet
 
March 31, 2017
 
Parent/
Issuer
 
Combined
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
177

 
$
13,608

 
$

 
$
13,785

Accounts receivable, net

 
226,427

 

 
226,427

Accounts receivable – affiliates
200,770

 
33,093

 
(233,863
)
 

Inventory

 
14,327

 

 
14,327

Prepaid expenses
334

 
6,842

 

 
7,176

Derivative instruments

 
3,026

 

 
3,026

Other current assets
2

 
4,450

 

 
4,452

Total current assets
201,283

 
301,773

 
(233,863
)
 
269,193

Property, plant and equipment
 
 
 
 
 
 
 
Oil and gas properties (successful efforts method)

 
7,390,299

 

 
7,390,299

Other property and equipment

 
632,318

 

 
632,318

Less: accumulated depreciation, depletion, amortization and impairment

 
(2,126,136
)
 

 
(2,126,136
)
Total property, plant and equipment, net

 
5,896,481

 

 
5,896,481

Investments in and advances to subsidiaries
4,503,650

 

 
(4,503,650
)
 

Derivative instruments

 
3,815

 

 
3,815

Deferred income taxes
239,419

 

 
(239,419
)
 

Other assets

 
20,139

 

 
20,139

Total assets
$
4,944,352

 
$
6,222,208

 
$
(4,976,932
)
 
$
6,189,628

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Accounts payable
$

 
$
8,837

 
$

 
$
8,837

Accounts payable – affiliates
33,093

 
200,770

 
(233,863
)
 

Revenues and production taxes payable

 
160,265

 

 
160,265

Accrued liabilities
34

 
128,207

 

 
128,241

Accrued interest payable
19,872

 
396

 

 
20,268

Derivative instruments

 
14,627

 

 
14,627

Advances from joint interest partners

 
6,838

 

 
6,838

Other current liabilities

 
13,435

 

 
13,435

Total current liabilities
52,999

 
533,375

 
(233,863
)
 
352,511

Long-term debt
1,937,879

 
368,000

 

 
2,305,879

Deferred income taxes

 
764,261

 
(239,419
)
 
524,842

Asset retirement obligations

 
50,088

 

 
50,088

Other liabilities

 
2,834

 

 
2,834

Total liabilities
1,990,878

 
1,718,558

 
(473,282
)
 
3,236,154

Stockholders’ equity
 
 
 
 
 
 
 
Capital contributions from affiliates

 
3,392,248

 
(3,392,248
)
 

Common stock, $0.01 par value: 450,000,000 shares authorized; 238,691,038 shares issued and 237,461,470 shares outstanding
2,344

 

 

 
2,344

Treasury stock, at cost: 1,229,568 shares
(21,369
)
 

 

 
(21,369
)
Additional paid-in-capital
2,354,485

 
8,743

 
(8,743
)
 
2,354,485

Retained earnings
618,014

 
1,102,659

 
(1,102,659
)
 
618,014

Total stockholders’ equity
2,953,474

 
4,503,650

 
(4,503,650
)
 
2,953,474

Total liabilities and stockholders’ equity
$
4,944,352

 
$
6,222,208

 
$
(4,976,932
)
 
$
6,189,628


17


Condensed Consolidating Balance Sheet
 
December 31, 2016
 
Parent/
Issuer
 
Combined
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
166

 
$
11,060

 
$

 
$
11,226

Accounts receivable, net

 
204,335

 

 
204,335

Accounts receivable – affiliates
252,000

 
27,619

 
(279,619
)
 

Inventory

 
10,648

 

 
10,648

Prepaid expenses
275

 
7,348

 

 
7,623

Derivative instruments

 
362

 

 
362

Other current assets

 
4,355

 

 
4,355

Total current assets
252,441

 
265,727

 
(279,619
)
 
238,549

Property, plant and equipment
 
 
 
 
 
 
 
Oil and gas properties (successful efforts method)

 
7,296,568

 

 
7,296,568

Other property and equipment

 
618,790

 

 
618,790

Less: accumulated depreciation, depletion, amortization and impairment

 
(1,995,791
)
 

 
(1,995,791
)
Total property, plant and equipment, net

 
5,919,567

 

 
5,919,567

Investments in and advances to subsidiaries
4,451,192

 

 
(4,451,192
)
 

Deferred income taxes
220,058

 

 
(220,058
)
 

Other assets

 
20,516

 

 
20,516

Total assets
$
4,923,691

 
$
6,205,810

 
$
(4,950,869
)
 
$
6,178,632

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Accounts payable
$

 
$
4,645

 
$

 
$
4,645

Accounts payable – affiliates
27,619

 
252,000

 
(279,619
)
 

Revenue and production taxes payable

 
139,737

 

 
139,737

Accrued liabilities
12

 
119,161

 

 
119,173

Accrued interest payable
38,689

 
315

 

 
39,004

Derivative instruments

 
60,469

 

 
60,469

Advances from joint interest partners

 
7,597

 

 
7,597

Other current liabilities

 
10,490

 

 
10,490

Total current liabilities
66,320

 
594,414

 
(279,619
)
 
381,115

Long-term debt
1,934,214

 
363,000

 

 
2,297,214

Deferred income taxes

 
733,587

 
(220,058
)
 
513,529

Asset retirement obligations

 
48,985

 

 
48,985

Derivative instruments

 
11,714

 

 
11,714

Other liabilities

 
2,918

 

 
2,918

Total liabilities
2,000,534

 
1,754,618

 
(499,677
)
 
3,255,475

Stockholders’ equity
 
 
 
 
 
 
 
Capital contributions from affiliates

 
3,388,893

 
(3,388,893
)
 

Common stock, $0.01 par value: 450,000,000 shares authorized; 237,201,064 shares issued and 236,344,172 shares outstanding
2,331

 

 

 
2,331

Treasury stock, at cost: 856,892 shares
(15,950
)
 

 

 
(15,950
)
Additional paid-in-capital
2,345,271

 
8,743

 
(8,743
)
 
2,345,271

Retained earnings
591,505

 
1,053,556

 
(1,053,556
)
 
591,505

Total stockholders’ equity
2,923,157

 
4,451,192

 
(4,451,192
)
 
2,923,157

Total liabilities and stockholders’ equity
$
4,923,691

 
$
6,205,810

 
$
(4,950,869
)
 
$
6,178,632


18



Condensed Consolidating Statement of Operations
 
Three Months Ended March 31, 2017
 
Parent/
Issuer
 
Combined
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(In thousands)
Revenues
 
 
 
 
 
 
 
Oil and gas revenues
$

 
$
237,252

 
$

 
$
237,252

Bulk oil sales

 
27,631

 

 
27,631

Midstream revenues

 
14,606

 

 
14,606

Well services revenues

 
5,627

 

 
5,627

Total revenues

 
285,116

 

 
285,116

Operating expenses
 
 
 
 
 
 
 
Lease operating expenses

 
43,872

 

 
43,872

Midstream operating expenses

 
3,327

 

 
3,327

Well services operating expenses

 
3,902

 

 
3,902

Marketing, transportation and gathering expenses

 
10,951

 

 
10,951

Bulk oil purchases

 
28,002

 

 
28,002

Production taxes

 
20,299

 

 
20,299

Depreciation, depletion and amortization

 
126,666

 

 
126,666

Exploration expenses

 
1,489

 

 
1,489

Impairment

 
2,682

 

 
2,682

General and administrative expenses
7,065

 
16,769

 

 
23,834

Total operating expenses
7,065

 
257,959

 

 
265,024

Operating income (loss)
(7,065
)
 
27,157

 

 
20,092

Other income (expense)
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
49,103

 

 
(49,103
)
 

Net gain on derivative instruments

 
56,075

 

 
56,075

Interest expense, net of capitalized interest
(32,851
)
 
(3,470
)
 

 
(36,321
)
Other income

 
16

 

 
16

Total other income (expense)
16,252

 
52,621

 
(49,103
)
 
19,770

Income before income taxes
9,187

 
79,778

 
(49,103
)
 
39,862

Income tax benefit (expense)
14,638

 
(30,675
)
 

 
(16,037
)
Net income
$
23,825

 
$
49,103

 
$
(49,103
)
 
$
23,825





19


Condensed Consolidating Statement of Operations
 
Three Months Ended March 31, 2016
 
Parent/
Issuer
 
Combined
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(In thousands)
Revenues
 
 
 
 
 
 
 
Oil and gas revenues
$

 
$
117,315

 
$

 
$
117,315

Midstream revenues

 
6,983

 

 
6,983

Well services revenues

 
5,985

 

 
5,985

Total revenues

 
130,283

 

 
130,283

Operating expenses
 
 
 
 
 
 
 
Lease operating expenses

 
31,064

 

 
31,064

Midstream operating expenses

 
1,738

 

 
1,738

Well services operating expenses

 
2,651

 

 
2,651

Marketing, transportation and gathering expenses

 
8,552

 

 
8,552

Production taxes

 
10,753

 

 
10,753

Depreciation, depletion and amortization

 
122,449

 

 
122,449

Exploration expenses

 
363

 

 
363

Impairment

 
3,562

 

 
3,562

General and administrative expenses
7,451

 
16,915

 

 
24,366
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