Value Line has initiated coverage of Oasis Petroleum Inc. (OAS) in its flagship product, The Value Line Investment Survey. The exploration and production company focuses on the acquisition and development of oil and natural gas properties. It sells its products to refineries, marketers, and other purchasers that have access to the appropriate facilities. Oasis was founded in 2007, incorporated in 2010, and employs 405 workers. Its stock is listed on the New York Stock Exchange and has traded between $40 and $46 for most of the past six months.
Oasis’ corporate offices are in Houston, Texas, where industry presence is highly concentrated, but its business derives from the exploration of natural resources deep underneath the Great Plains. Williston Basin possesses a massive trove of oil and natural gases, in addition to potash and coal. The area, which spans several states and stretches into several Canadian provinces, is host to a hotbed of drilling activity, which has spiked in the past decade following the advent and application of horizontal drilling.
Oasis, for its part, primarily explores in three areas around Williston Basin: West Williston, East Nesson, and Sanish. With a total leasehold position of 515-plus acres, the company is constantly poring over every square foot of unexplored land. Last year, Oasis improved its estimated net proved reserves by 59% on a yearly basis, and boasted approximately 106 million barrels of oil equivalent of proved undeveloped reserves. Of the three operating regions, West Williston produces the biggest share. With more-than 360 acres, this location bore 67% cumulative proved reserves in 2013. The second largest, East Nesson, produced about 29%, and Sanish covered the remaining 4%.
The drilling market in and around Williston Basin is highly competitive and heavily scrutinized by regulatory bodies. From the acquisition of leases to the development of said leaseholds, Oasis encounters competition at every phase of its business. Working against the company is the size and market position of many of its competitors. These behemoths boast more substantial workforces and capital resources than the mid-cap Oasis. Local and individual competitors further crowd the field.
In every aspect of its oil and natural gas drilling, Oasis is subject to strict federal, state, and local laws and regulations. Statutory provisions related to drilling permits, locations, and the drilling methods often muddy and slowdown the exploration process. Failure to comply with any of these regulations spells for harsh and swift penalties. This scrutiny increases the costs of doing business, and any infraction could severely impede profitability and cash flows. Furthermore, while sales of crude oil are not currently federally regulated, heightened pressure for a more active approach could inevitably force the hand of the government. Public outcry has increased in recent years over the wide implementation of hydraulic fracturing and, thus, stricter requirements regarding chemicals in this process are likely to be dialed up as well.
All told, investors interested in owning a piece of this mid-cap oil and gas exploration and production company are advised to consult Value Line’s quarterly reports for Oasis Petroleum, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.