Midnight at the Oasis - A New Day for Oasis Petroleum As It Delevers, Focuses on Free Cash Flow

With the market dislocations brought on in 2020-21, many if not most E&Ps have been reexamining their strategies and making changes. A common result has been a deemphasis on capex and expansion and a renewed focus on increasing free cash flow — and with that excess cash reducing or eliminating debt and rewarding shareholders through dividends and stock buybacks. A prime example of a producer taking this approach is Oasis Petroleum, a Bakken-focused E&P that a year ago this week emerged from COVID-induced bankruptcy filing and has since taken a number of additional steps to position itself as a reliable money-maker, even if crude oil prices were to slide to significantly lower levels. In today’s RBN blog, we discuss the ongoing trend among producers to rethink and rework their strategies as energy markets recover.

For more than a year and a half now, we’ve been chronicling the often harrowing roller-coaster ride upon which producers, midstreamers, and refineries alike have found themselves. We’ve blogged about the big pullbacks in capital spending, the acquisitions and divestitures, the production shut-ins, and the cash hoarding.

It can be dangerous to generalize, but it wouldn’t be an overreach to say that the oil and gas industry is very different than it was just a couple of years ago — that the combination of the COVID shock and the ESG movement have prompted what might be called a “Great Reassessment” among investors and industry executives. No doubt, the energy world has experienced major challenges and transformations before — the energy crises of the 1970s, the Shale Revolution, and the 2014-15 oil price crash come to mind — but this one feels different, partly because of the dim view that many investors and lenders now hold regarding “traditional” energy companies.

That doesn’t mean that oil, gas, and NGL production will stop rebounding from pandemic lows or that E&Ps are doomed to fail. Quite the opposite, in fact. What we’re saying is that, given the new and emerging realities, producers of every shape and size have been taking hard, honest looks at their long-standing strategies of grow-grow-grow, diversification, and — too often the case — borrow-borrow-borrow and, after that self-reflection, deciding to make some very significant changes in how they do business.