Oasis Petroleum Management Discusses Q3 2012 Results - Earnings Call Transcript
November 8, 2012 4:01 PM ET
Oasis Petroleum (OAS)
Q3 2012 Earnings Call
November 08, 2012 11:00 am ET
Michael H. Lou - Chief Financial Officer and Executive Vice President
Thomas B. Nusz - Chairman, Chief Executive Officer and President
Taylor L. Reid - Chief Operating Officer, Executive Vice President and Director
William B. D. Butler - Stephens Inc., Research Division
Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division
Michael A. Hall - Robert W. Baird & Co. Incorporated, Research Division
Marshall H. Carver - Capital One Southcoast, Inc., Research Division
David R. Tameron - Wells Fargo Securities, LLC, Research Division
David W. Kistler - Simmons & Company International, Research Division
Gail A. Nicholson - KLR Group Holdings, LLC, Research Division
Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division
Ryan Oatman - SunTrust Robinson Humphrey, Inc., Research Division
Peter Mahon - Dougherty & Company LLC, Research Division
Good morning. My name is Brandace, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2012 Earnings Release and Operations Update for Oasis Petroleum. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Michael Lou, Oasis Petroleum's CFO, to begin the conference. Thank you. Mr. Lou, you may begin your conference.
Michael H. Lou
Thank you, Brandace. Good morning, everyone. This is Michael Lou. We're reporting our third quarter 2012 results, and we're delighted to have you on our call. I'm joined today by Tommy Nusz and Taylor Reid, as well as other members of the team.
Please be advised that our remarks, 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 release and conference call. Those risks include, among others, matters that we have described in our earnings release, as well as in our filings with the Securities & 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.
Please note that we expect to file our third quarter 10-Q today. During this conference call, we will also make references to adjusted EBITDA, which is a non-GAAP financial measure. Reconciliations of adjusted EBITDA to the applicable GAAP measures can be found in our earnings release or on our website.
I'll now turn the call over to Tommy.
Thomas B. Nusz
Good morning. We'll follow a similar format to what we've done in the past, where I'll cover some introductory comments, Taylor follows with more operational color and Michael will finish with a few financial highlights.
We've had a tremendous year thus far. When we entered the year, our senior leadership team sat down to identify strategic risks and opportunities that we would be facing in the near term and over the long term. We had a broad dialogue covering extremely important topics like safety, attracting the right people, building our culture as we grow, capital discipline, oil price and movement and cost control. I'm going to highlight a couple of key accomplishments that are tied, in some measure, to this strategic process. At the same time, understand we approached all of these topics with a focus on safety, and we continue to emphasize this with our employees, contractors and partners to maintain safe worksites across the basin.
First, drilling and completion cost had increased dramatically throughout 2011, and we knew it was time to proactively find ways to cut costs or consider slowing down our drilling activity. Even in early 2012, well cost continued to increase, largely due to continued service costs -- service cost creep and, in part, due to some proactive regulatory changes enacted by the NDIC. Average well cost plateaued in the first half of the year at approximately $10.5 million per well, which was approaching a critical threshold that you've heard us talk about, at about $11 million per well.
With the initial focus that the team placed on controlling costs, we were one of the first players in the basin to force our costs to roll over and started heading down. On our last call in August, we spoke about driving our cost down to $8.8 million by the end of the year, while our operations team over-delivered and has already met the year-end target. Our wells now, on average, cost $8.8 million to drill and complete, and that's not including the benefit of Oasis Well Services.
Just looking at our operated, drilling and completion capital in the third quarter, OWS was able to reduce our average well cost across our entire operating program by about $300,000 per well, driving our weighted average well cost to $9 million for the quarter.
Going forward, we do not believe that $8.8 million is the floor, as the team continue to find ways to be more efficient and optimize well completion designs.
Just adding the incremental 5% to 10% savings for multiple wells drilled on pads next year, we believe we can get cost to $8.5 million or less. Great job by our entire team coming up with such an impactful plan and then, executing on it. Saving $2 million per well from $10.5 million down to $8.5 million is massively accretive to our NAV and our cash flows.
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