OAS Reports Beat on Volumes … Onward, Upward

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OAS Reports Better Than Expected Quarter With Volumes Based Beat; Acquisition and Strong Finish To 2010. 


  • 3Q production came in well above guidance of 4.2 to 5.0 MBOEpd
  • Costs were were on the low end of guidance. 
  • Guidance:
    • 4Q Guidance rises from a prior range of 5.5 to 6.5 MBOEpd to a new range of 6.0 to 7.3 MBOEpd. Note that 300 BOEpd of this addition comes from an acquisition detailed below
    • Cost guidance for 4Q is in line with prior 
    • No 2011 yet. 
  • 5 rigs running - 4 west of the Nesson, 1 east of it, up from 4 rigs total as of the 2Q call and in line with previously disclosed plans. 
  • Acquisition:
    • 16,700 acres and 300 BOEpd acquired for $48 mm
    • Without the production this would still be a pretty good deal at only $2,875 / acre. Take into account the production and picking a reasonable point on a flowing barrels basis and the acquisition comes in just over $1,000 per acre which is where the likes of both KOG and NOG have recently disclosed acreage additions. 
    • This results in a boost to 2010 capex of $58.5 mm or 22% to a new target of $328.5 mm. Note that the capex raise is solely based on the acquisition price + plus cash needed to drill a well there.
    • Where? In their Hebron area which is in Roosevelt County, Montana. 
    • This brings OAS' total Williston acreage to 308,700.
    • On a Market Valuation (TEV/Ac) this puts OAS at $5,800 / acre, which is the low end of the range amongst the Bakken players list (CLR, WLL, BEXP, NOG, KOG, OAS) (see next section).
    • Well highlights: none but we did note a number of nice wells in recent NOG results including one that came off the Confidential list on Monday, east of the Nesson, the Berry 5493 well, with an IP of 2,410 BOEpd on Monday. 
  • Balance Sheet:
    • Still no debt
    • $270 mm in cash


Nutshell: Great quarter, based on better than expected/guided volumes at the top line and lower than expected costs. Going into the quarter I was hesitant to add an options position as I'm still getting used to management's guidance style. My concern was that the top end of their guidance would generate a slight short fall in my model relative to Street estimates. Given that they completely bagged the Street on guidance, besting the top end of their range by 10%, I now have a better idea of what kind of guys we're dealing with. Notably they did not provide 2011 guidance now, as is practice with many E&Ps for their 3Q numbers. I expect them to provide guidance between December and the year end call and am looking for triple digit growth at that time. I continue to hold a half sized position in the ZLT after scaling back twice, and may add an options position and/or a trading shares position to this cheapish looking Bakken player name.  OAS currently trades at 27.4x,  12.2x, and 7.4x current Street CFPS estimates for 2010, 2011 and 2012 respectively and I expect all three of the denominators here to migrate northward in the next few weeks.    

Conference Call: Today, 10:30 am EST

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