Welcome to the Oasis Second Quarter Earnings Results Conference Call. All participants are currently in a listen-only mode. [Operator Instructions.] Please also note, today's event is being recorded. At this time, I like to turn the conference call over to Michael Lou, CFO. Sir, please go ahead..

Thank you, Jamie. Good morning, everyone. Today, we are reporting our second quarter 2021 financial and operational results. We're delighted to have you on our call. I'm joined today by Danny Brown, Taylor Reid as well as other members of the team.

Please be advised that our remarks on both Oasis Petroleum and Oasis Petroleum Partners, including the answers to your questions, include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings releases and conference calls.

Those risks include among others matters that we have described in our earnings release as well as in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. We disclaim any obligation to update these forward-looking statements.

During this conference call, we will make reference to non-GAAP measures and reconciliations to the applicable GAAP measures can be found in our earnings releases and on our website. We may also reference our current investor presentation which you can find on our website. With that I'll turn the call over to Danny..

Thank you, Michael. Good morning to all, and thanks for joining our call. We sincerely appreciate your interest today. Before I get started, I'd also like to thank the entire Oasis team for their continued hard work and dedication to our organization.

I've got to know the company and our people better over the past few months and I couldn’t be more impressed. I know we've all been very busy executing on our operational and strategic objectives and we should all be very proud about we accomplished. We are in a great position to succeed going forward. So, turning back to our call.

As I joined Oasis in mid-April, I have the opportunity to reacquaint myself with many of your in the investment community and enjoyed our conversations and want to emphasize that your feedback is valued and it's been influential and how we thought about setting strategy, priorities and plans. I look forward to continuing the dialogue.

Now before I hand it over to Taylor to discuss our operational highlights, let me give a few high-level thoughts. First, Oasis delivered another solid quarter with volumes exceeding expectations and costs below plan.

Even with all the strategic activity we announced during the second quarter, our second-half plan is essentially unchanged other than the great news that our full-year capital is expected to be below our original expectations.

Also during the quarter, the company determined as eligible under Section 382 of the Internal Revenue Code to use its net operating loss position to offset taxable income in 2021 and beyond. Michael will spend more time discussing this later in the call but the main takeaway is we expect significant cash tax savings versus our prior expectations.

Second, we closed the Permian divestiture at the end of June and expect our Williston acquisition that we announced in May to close sometimes sometime late in the third quarter. While this is a little later than we originally modelled, the delay is just due to scheduling challenges early in the approval process.

All parties are aligned, we don’t see any issues with the close and the purchase price would be adjusted downwards with the cash flow generated by the asset since the effective date. Third, we continue to adhere to our strategic objectives that we think differentiate the Oasis story and are beneficial to all stakeholders.

Because I spoke about these at length last quarter and your significant detail included in our IR material. I'll keep my comments brief. So in summary, we are focused on maintaining a strong balance sheet returns on in our capital aligned with management and shareholders, ESG leadership, effective risk management and enhancing the value of our assets.

And speaking of ESG, we've mentioned before that Oasis have dedicated to producing a cleaner low cost barrel while being engaged with local communities and conscious of stakeholder interest. Importantly, we're also committed to providing increased transparency on our efforts.

And to that in, I'm pleased to announce that we have completed our first sustainability report. We expect to have a formal press release soon and report will be available on our website.

I will encourage everyone to read through it as it does a really nice job presenting Oasis' core values, our history of being a responsible corporate citizen and different initiatives we have in place to improve our performance going forward.

While Oasis has always been dedicated to environmental, social, and governance issues, we aim to be more proactive in providing disclosure around these topics going forward. I also wanted touch briefly on our midstream ownership in light of the strategic actions we've taken year-to-date.

Oasis remains differentiated versus many of our peers given the large ownership in our midstream company Oasis Midstream Partners. In March, Oasis took the important step of simplifying our midstream ownership which was accretive to both Oasis and OMP, increased transparency of our midstream ownership and strengthen Oasis' balance sheet.

Following the simplification transaction in June, we sold down approximately a 3.6 million units and to clear its special dividend of $4 per share to Oasis' shareholders. Our midstream ownership is now represented by our holding of approximately 33.8 million OMP units.

Importantly, we continue to evaluate additional actions we can take to unlock what we see is track value for the Oasis' shareholder. Finally, we have some new slides on our investor deck that highlight our inventory and capital plan through 2025. I'll ask Taylor to speak in more detail on these items.

But at a high-level, I want to emphasize the strength of our inventory position which supports a low reinvestment rate and a compelling amount of free cash flow for years to come. As we evaluate possible uses for this free cash flow, we will continue to take shareholder-friendly approaches.

So far this year, you've seen Oasis institute our first fixed dividend and announce our intention to increase it 33% upon closing the Williston acquisition. Additionally, we paid a special dividend mentioned above and instituted the share repurchase program.

And we'll continue to be active on that front provided we see a good connect between share price and intrinsic value. So, with that I'm going to turn it over to Taylor to give some operational color.

Taylor?.

Thanks, Danny. Oasis saw a strong performance across volumes, capital and operating cost. In the second quarter, we completed 18 gross wells with 11 in the Williston and 07 in the Delaware.

Our focus on cost reductions, well-designed in operating efficiencies has resulted in strong base and capital performance and sustainable free cash flow for years to come. On the well cost side, we have made tremendous progress over the past couple of years.

In the Bakken, we have recently seen wells in the low $6 million range down about 20% from early 2020. While we're seeing inflationary pressure in select areas such as steel, we've been finding offsets in other areas which has kept overall well costs in check. For example, during the second quarter, we had record frac efficiencies in Wild Basin.

We set a record for pump time in a day. On steel, as a reminder, we have locked in pricing for most of the remainder of the year. Overall cost returning more budget which allowed us to cut our capital expenditure guidance by 7% for 2021. Let me touch in a recent Williston acquisition.

During the second quarter, the operator brought on four new wells on the DevCo pad in the Fort Berthold area. Results were strong and validate our view of over 40 top tier locations of similar quality across the acquired assets. We expect the acquisition to close late in the third quarter.

As a reminder, our third quarter volume guidance does not include any acquisition volumes. We plan to let the acquired assets decline in the second half of the year and into early 2022 before stabilizing overall company volumes at maintenance capital levels.

Our fourth quarter average production guidance of 76,000 barrels equivalent per day includes the full quarter of the acquisition. I will like to reiterate our excitement with this accretive acquisition.

We continue to be focused on the communities in which we operate and then dedicate the resources for the new assets that we operate in a sustainable manner. We are especially excited about establishing operations on the Fort Berthold Indian Reservation and look forward to working with the tree affiliated tribes.

We recently received tribal approvals and are now working with The Bureau of Indian Affairs to complete the approval process and expect to close by the end of the third quarter.

Our operations group has been engaged with the various teams on the new assets and we look forward to integrating the properties and we will welcome our new employees later this year. We are currently running run rate and can expect to complete between a 11 and 13 wells in the back half of the year, most of which will come online in October.

To set this up for a strong fourth quarter average of 76,000 equivalents per day. As we look to 2022, we would expect a similar volume trajectory as compared with 2021, with production expected to decline from the fourth quarter into the beginning of the year before increasing in the second half of the year as we step-up completions.

Full year average production for 2022 is expected to approximately -- approximate 72,000 equivalents per day. About 2/3rds oil with E&P capital of about $300 million. As a reminder, we will be taking up our second rig in South Indian Hills in the fourth quarter and plan to keep it running along with the first rig for all of 2022.

I like to pivot now to a discussion of our inventory. We've expanded our disclosure in our investor presentation to better illuminate the quality of our assets in a free cash flow generation at the assets and our organization can support on a sustained basis.

We've identified approximately 670 locations as support strong returns that oil price is below $50 per barrel and most of that substantially below that number. Of these locations, about a 140 are three-mile laterals and our team is working on increasing that number over time.

In 2022, the current plan calls for approximately $300 million on E&P CapEx to support volume levels of about 72,000 equivalents per day. We would expect to generate approximately $250 million to $300 million of after tax free cash flow in 2022 at $55 oil and $2.75 gas, including the impact of our current hedge book.

Easing current prices, free cash flow would be substantially higher. In terms of specific projects, we'll finish up drilling Wild Basin, South Nesson, and North Indian Hills in 2022 and see the program in 2023 and beyond.

Will include a substantial contribution from Painted Woods, South Indian Hills, the city of Williston, Alger, the Fort Berthold Indian Reservation, and Hebron. Economics were strong across the program with the average well in our roughly 670 locations delivered an IRR of 46%, a 55 and 275.

As you can see on Slide 14, our decline rates have become quite shallow relative to recent history and given that our program is fairly modest, we expect the PDP decline profiles to remain relatively flat.

This is important as low decline support free cash generation and the capital intensity to keep volumes flat is much lower than when volumes were growing quickly. Also, as I noted earlier, our well costs have come down substantially over the past few years.

Some of the decrease relates to service costs concessions while others are more structural in nature, resulting from high efficiencies in cycle times, improved well-designed, and savings gained from our intense focus on cost structure across our business this year. Well spacing has increased as well.

We're now planning five to six wells per DSU versus eight to 10 in the recent years. Plus the wider spacing has improved capital efficiency and should result in shallower declines over the life of a well. Additionally, approximately 20% of our 670 well inventory is expected to be three-mile laterals.

For a near-term program over the next four years, that number increases to 40%. The basin has seen a steady increase in three-mile laterals over the past several years and there are extensive analog to evaluate as we engineer our program.

The improved results are compelling as the three-mile lateral allows for an approximate 50% increase in oil EOR with only 25% more capital. Our blocky acreage position works well for respacing from two-mile to three-mile lateral laterals and should yield increasing number of opportunities to add more of these to the inventory as we move forward.

To close, operationally we executed well in the second quarter. Our legacy asset base is performing well and we're on track to close the Williston acquisition in the third quarter.

The team has done a tremendous job across the board, leading to an impressive performance in project inventory, project returns, and free cash generation, all of which allows to return significant cash back to our shareholders. With that, I'll now turn the call over to Michael to discuss some financial highlights..

Thanks, Taylor. As Taylor mentioned, we're expecting to close the Williston acquisition at the end of the third quarter. We've provided a third quarter guidance update which excludes any impact from the acquisition while fourth quarter guidance includes a full quarter of performance from the acquired assets.

Operationally guidance implied volumes are in line with what we expected in May, while cost in this are a bit better and capital spending is less than expected. As a reminder, the effective date of the transaction was April 1st, so the purchase consideration will be reduced by free cash flow generated from the asset from April 1st through closing.

Additionally in the second quarter, Oasis put down a deposit approximately $75 million with the original purchase price of $745 million. As of June 30th, Oasis have had approximately $779 million in cash and $400 million of debt outstanding related to the high-yield offering in May.

Currently, Oasis has zero drawn under the borrowing base with elected commitments of $450 million and upon closing of the acquisition our borrowing base is expected to increase to $650 million with our elected commitment staying at $450 million. Oasis continued to do a good job managing LOE and minimizing downtime.

E&P LOE averaged $10.21 per BOE for the second quarter below the low end of our guidance. And we expect per unit LOE to decrease into the back half of the year as volumes increase. E&P cash G&A expense was $11 million including a $3 million of expected but nonrecurring items.

E&P cash G&A per BOE guidance for the fourth quarter of '21 remains unchanged. Both crude and gas realizations were strong in the quarter as our marketing team continues to do a fabulous job. Oil realizations were particularly strong as market conditions were quite tight in the quarter.

E&P CapEx was approximately $52.4 million in the second quarter below expectations. As Taylor noted, we had record frac efficiency during the quarter. The remainder of the difference versus guidance can be explained by timing, higher partner interest into which wells and other items. We lowered our full-year capital spending guidance by 7%.

The reduction in CapEx expectations is unrelated to acquisition closure timing. On the volume side, Oasis remains on track to meet the fourth quarter volume guidance outlined in May which includes our first full quarter of the acquired asset base.

During the quarter we determined that Oasis qualifies for an exception to the limitation on its NOL carry forwards under IRC Section 382, which reduces our cash taxes to zero in the second quarter and for the full-year of 2021. A savings of over $15 million versus our original guidance.

By year-end '21, Oasis estimates an NOL balance ranging from $400 million to $500 million which could be used to reduce the company's future income tax obligations. Additionally, we implemented a tax benefits preservation plan which is designed to protect the availability of our NOLs and other tax attributes.

This plan will go away upon the earlier of three years or when the NOL is used and we will also be putting this up for shareholder vote at our next shareholder meeting. Also during the second quarter, Oasis sold down approximately 3.6 million OMP units for $24 per unit. This transaction is not expected to be taxable given the NOL's I just discussed.

Proceeds from the unit sale were used to fund a $4 special dividend paid in July 21st. separately, Oasis declared its second quarter dividend of $0.375 per share, the third fixed dividend we declared this year.

Upon closing of our Williston acquisition, the company continued to expect to raise its normal fixed quarterly dividend from $0.375 to $0.50 per share per quarter or a 33% increase. Additionally, our $100 million share repurchase program remains in place, we've repurchased 14.6 million of common stock to-date.

In closing, we look forward -- as we look forward, the businesses in an enviable position to generate substantial and sustainable free cash flow for the foreseeable future and we'll continue to take a balanced approach to invest in capital and returning cash to shareholders.

I'd also like to thank the team for its hard work on the offering side as well as the significant progress on the key corporate strategic objectives. With that, I'll hand the call back over to Jamie for questions..

[Operator Instructions] Our first question today comes from Scott Hanold from RBC Capital Markets. Please go ahead with your question..

Good morning, guys. Congrats on the quarter. I think I want to start out maybe Taylor you obviously talked a little bit about the shape of activity in the next year. And obviously it sounds like you're thinking about and obviously when the acquired assets declined a little bit before you reinvested.

So, as we kind of think about big picture or weigh this together, you're adding the second rig and I would assume all those rigs are going to be on legacy Oasis assets.

So, is the structural shape of this you're going to kind of dip down one and maybe in the first quarter second quarter and then bounce above that 72 average for the year? Is that sort of the right way to think about sort of the shape? And how many well completions does that contemplate?.

Yes, Scott. So, yes good question. Adding the second rig in October just because of cycle times is naturally going to push those completions out a bit into 2022. Same because of the we're going to be generating South Nesson and start drilling there. And in Indian Hills right now we're going to start fracking those and in October as well.

So, there at the South Nesson is going to start up about when the new rig comes in and starts drilling at South Indian Hills. So, both of those in depth getting pushed in terms of completions kind of 3Q you like you talked about. So, a dip in the 1Q probably a bit into 2Q and then rebound from there.

And then, in terms of overall well completion, it's kind of internal timing kind of 40 or so completions, could be a little above that. But obviously a pickup from what we did this year just based on that increased activity. And with that, well we as you said we'll let the QEP assets come down a bit, we're going from 76,000 equivalent today.

4th quarter this year was to combine the assets and then we'll level off more around 72,000 next year..

Okay.

And just to clarify those 40+ completions, those are all in legacy Oasis properties, is that right?.

Correct, yes..

Got it, okay. And then, I guess my next question is a little bit on how you think about like shareholder return strategy's going forward. Obviously you guys have used a pretty good portfolio of things and you've been pretty assertive about giving money back in different forms.

And where does things like variable dividends play into the equation, is that something that's also a consideration or at this point-in-time do you all feel comfortable with kind of continuing to increase of fixed dividend and using the buyer backs and maybe opportunistic shares special dividends?.

Thanks for the question, Scott this is Danny. So, I think sort of our guiding principle on these things. It's really going to be around creating value for shareholders. So, back at the end of the day that's what we're trying to accomplish but we recognize that returning cash is a big component of that.

So, hopefully our actions to-date where we've done that several different forms or sort of demonstrate our commitment to that concept. I think we're all we'll be balanced in our approach. You've seen us sort of taken all of the above approach so far with a fixed with a special with a share repurchase program.

We're discussing the possibility of how does how would a variable dividend, should we want to do that, how would that look. And so, we'll continue to think through all these different concepts. But at the end of the day what's going to guide our action is how do we create the most value for our shareholders..

I appreciate it, thank you..

[Operator Instructions] Our next question comes from Derrick Whitfield from Stifel..

Good morning all, and congrats on your update..

Thank you, Derrick..

Thank you, Derrick..

With my first question, I wanted to focus on the tax roll-in and more specifically does the roll-in change your strategic view on how best to crystallize value that is inherent in your portfolio but really not reflected in your stock price today?.

Yes Derrick, it's a great question. Look, there was -- there is a lot of work was done around kind of the tax -- the tax roll-in and how we think about that. Obviously with the sales of Permian asset had created a large tax loss for us as well. So, that's kind of an update from the beginning of the year.

There we kind the higher oil prices, the simplification work along with own key unit sale, we had over $200 million of kind of taxable income this year that with this election we can actually shield which is fantastic, just about over a $50 million of cash taxes that we'll save this year.

And on top of that, we'll continue to hold a large NOL position going forward in that $400 million to $500 million range.

And as you mentioned, that's a considerable asset that can be used in shielding kind of future taxable transactions whether its additional monetization's of assets or just was strong kind of pricing in and cash flow coming back to the company, taxable income from that perspective.

So, it's a great position to be in for the company to continue to drive higher pre-cash flow. And as Danny mentioned kind of gives us a lot of decisions to make in terms of returning that capital to shareholders in the best way to create shareholder value..

Makes sense. And perhaps from my follow-up, I'll focus the question with Taylor. Referencing the Painted Woods case study on page 15, wondering if you could offer any commentary on how this area was three more laterals competes in your portfolio when you plan to pursue this first three-mile lateral well.

And would you think there is an opportunity to improving the well performance beyond the NOL offset you've evaluated?.

Yes. So, Derrick the question you know as you look across I'd say Painted Woods and then really in general the whole set of inventory especially as we look forward over this next four year plan we've been talking about. Some important factors here.

One, up spacing, we went from eight to 10 wells to five to six wells and that's improving capital efficiencies of per well EORs. Talked a lot about being able to bring down capital costs, so nice capital efficiency improvements. And then along with that the decline profiles we expect to be shallower as these wells brings over time.

So, all of those things helped the overall profile. In terms of when we drill the first three-mile laterals? We're actually going to drill eight wells and later this year in South Indian Hills. And then, the first three-mile wells in Painted Woods will happen next year.

And we -- those well be preferentially done as we move into the Painted Woods position. And just for note, over 40% of our wells in Painted Woods is close to 45, will be three-mile laterals. And when you look at the program over the next four years, about 40% of that are all three-mile lateral.

So, nice increase in economics, you're only spending about a 25% increase in capital but seen up to a 50% uplift in reserves. And so, we'll really nice increase in economics and doing those projects..

Great, very helpful. Thanks for your time..

Okay..

And our next question is a follow-up from Scott Hanold from RBC Capital Markets. Please go ahead with your follow-up..

Thanks. I'm just kind of curious if you could elaborate a little bit more on how you think about OMP going forward. You guys have done a pretty good job of really simplifying that in a quick manner. But I think there's probably more work to be done.

But can you give us your thoughts on the various options available for you all and is there a timeframe you guys are targeting at kind of bringing that to flourish into to get it to the final kind of position you wanted in?.

This is Danny. I appreciate the question, Scott. I think when we look at Oasis' shares and how we trade. We continue to see is some other parts discount and the Oasis shares and so. We are evaluating as you know our options on how do we -- how we go about illuminating that value for the Oasis shareholder.

I'd say we're doing that with haste, we're doing that with diligence and I wouldn’t expect that we have more share on this in the near future. I think whatever path we decide to go down, it's going to impact our timing a little bit. And so, I don’t want to commit a specific timing on it.

But do know that we're actively looking at that internally and we expect to share more with you in the future..

Yes.

Is it ultimately the goal to effectively find a way to deconsolidate, is it too -- is that the plan and so you'd be -- would you be one still own some of our own P in some structure as long as you're able to deconsolidate, is that sort of the end-goal?.

I think deconsolidation is a I don’t know if I would say deconsolidation is the end-goal. The end-goal was to make sure there is read through value of the Oasis shareholder on the value we've got within OMP.

And so, we think one of the steps toward that is likely deconsolidation where we don’t sort of confuse the issue with those holdings for our share base. So, I think that's part of it but not necessarily the end-goal. The end-goal is really about getting the value seen by the Oasis' shareholder..

Okay, understood. And also another question to you. Operationally, you guys have obviously identified the greater inventory certainly at a new price that's kind of closer to where commodities are right now.

In your development plan over the next few years, are those incremental locations in what I'm referring to is the difference between what you guys have valuated, $40 versus the $60 or $65.

Are any of those in the inventory or that one of those things more for demonstration purposes of that with the size of the assets holistically?.

Yes. So, really if you look at the inventory in this plan period, it's the same sort of inventory we're talking about previously. And so, we're focused early on on not a much lower price environment, we're talking about a $45 deck and what's economic at that level.

And just as a reminder that included Wild Basin, South Nesson, Indian Hills, Fort Berthold, city of Williston and Painted Woods and in North Alger. So, the incremental inventory to get to the 670 that we're talking about.

Currently, very -- we're here being at $70 oil, we've got -- look, and it's -- let's go from $45 to $55 and talk about this robust set of inventory. And the additions there were Painted Woods, West Montana, Red Bank and Dublin a bit of our Fort Berthold to the South and East and then South Cottonwood.

And robust economics in those areas, same and we really did the same things as what we did in the other area is up spaced. Really it pushed capital cost down and then an emphasis on three-mile laterals, big chunk of those. And so, we're not going to get to those projects until you get four five year's out.

But just thought it was important to highlight those and let people know look we've got a super resilient set of inventory that goes out 12 years at the pace of drilling we'll be doing next year..

Understood. Thanks, for that..

Our next question comes from Phillips Johnston from Capital One. Please go ahead with your question..

Hi guys, thank you. Just one question from me and it's really just a follow-up on Scott's earlier question regarding in terms of capital. So, if we had around $45 oil and $2.50 gas, kind of have thought forever in our model. We showed that leverage ratio remains well below half returns sort of indefinitely.

And free cash flow yield but still be somewhere and sort of in the 5% to 10% range on the next several years. You guys have been fairly aggressive so far without returning cash to shareholders.

But my question is given that backdrop, is there any reason you wouldn't gravitate towards a more formalized fixed cost variable dividend policy or taken even more aggressive approach around issuing the buybacks. I guess my question is do you guys see any drawbacks or downside in either of those options that might give you guys false..

Thanks for the question. Phillips, this is Danny. I think as we think about return of capital, again I appreciate the comments. And we have been pretty forward leaning in this and try to make sure that we've so they taxed us from multiple different projects.

We're continuing to discuss that most as a management group and with our board on what does how do we best structural return of capital program. What world make variable dividends play with in and such a -- within such a grain work. And so, I would say that our thoughts around this are ongoing.

We are the guiding principle although is really about creating the most value we can from shareholders. And again, we think the returning capital as a big component of that and we're continuinjg to we believe that firmly and we're going to continue to evaluate those programs. And our action's around this as our thoughts develop..

Good. Thank you, Danny..

And ladies and gentlemen, at this time we'll end today's question and answer session. I'd like to turn the floor back over to management for any closing remarks..

Thanks, Jamie. And thanks everyone for your time today. I'm proud of the accomplishments we've made this year but continue to believe the enterprises on value. And we're going to be working hard to drive our strategic initiatives, and operational performance for the benefit of our shareholders.

Simultaneously as you will see in our sustainability report. We intend to remain through more values and continue to operate responsibly for the benefit of all our stakeholders. Thank you very much for joining the call..

Ladies and gentleman, with that will conclude today's conference. We do thank you for attending. You may now disconnect your lines..