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Edited Transcript of OMP.OQ earnings conference call or presentation 18-May-20 4:00pm GMT

Q1 2020 Oasis Midstream Partners LP Earnings Call

HOUSTON Jun 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Oasis Midstream Partners LP earnings conference call or presentation Monday, May 18, 2020 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michael H. Lou

Oasis Midstream Partners LP - President & Director of OMP GP LLC

* Richard N. Robuck

Oasis Midstream Partners LP - Senior VP & CFO of OMP GP LLC

* Taylor L. Reid

Oasis Midstream Partners LP - CEO & Director of OMP GP LLC

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Presentation

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Operator [1]

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Good morning. My name is Kate, and I will be your conference operator today. At this time, I'd like to welcome everyone to the First Quarter 2020 Earnings Release and Operations Update for Oasis Midstream Partners. Today, Oasis management will discuss first quarter 2020 results and the current environment. Please note, this event is being recorded.

I would now like to turn the call over to Richard Robuck, Oasis Midstream's CFO to begin the conference. Thank you. You may begin the conference.

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Richard N. Robuck, Oasis Midstream Partners LP - Senior VP & CFO of OMP GP LLC [2]

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Thank you, Kate. Good morning, everyone. This is Richard Robuck. Today, we're reporting our first quarter 2020 financial and operational results. We're delighted to have you on our call today. I'm joined by Taylor Reid and Michael Lou. Please be advised that our remarks on both Oasis Petroleum and Oasis Midstream Partners 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 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 also make references to certain non-GAAP financial measures and reconciliations to the applicable GAAP measures can be found on our earnings release and on our website. We will not be hosting a Q&A session on our call today, but the team will be available after the end of the call as needed. With that, I'll turn the call over to Taylor.

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Taylor L. Reid, Oasis Midstream Partners LP - CEO & Director of OMP GP LLC [3]

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Good morning, everyone, and thanks for joining our call. We are experiencing an environment that is causing massive disruption in dislocation to the energy sector in the U.S. We are doing everything in our power to adjust to the challenges that are coming our way. And I feel strongly that we have the right team and a solid balance sheet to manage through these tumultuous times. We entered this environment with 2 of the best quarters in our history, built on assets positioned in 2 of the best oil basins in the U.S.

In the first quarter, throughput was above the high end of guidance across most commodity strengths. EBITDA exceeded our guidance once again as both volumes and costs were better than expected. We continue to do an excellent job on third-party opportunities. During the first quarter, we commenced another third-party produced water gathering and disposal agreement in the Williston. We have a high-quality, diversified customer base that contributed approximately 19% to our first quarter EBITDA. While the macro environment is uncertain, we continue to have numerous discussions with various third parties, so we are in a good position to win additional business when conditions improve. In light of this macroeconomic uncertainty, OMP is reducing its 2020 capital spending levels approximately 65% to 70%, taking a prudent approach to the current environment, and these actions reflect expected activity reductions by both our sponsor and third parties. Additionally, the significant spending reductions helped preserve the balance sheet and maintain OMP's flexibility.

Our gas complex in North Dakota had another excellent quarter operating at high capacity. This strong performance allowed our sponsor to capture approximately 98% of its wild Basin gas, which compares to only 83% for North Dakota. North Dakota mandates 88% capture, which is scheduled to increase to 91% in November of this year.

In the first quarter, third-party volumes approximated 30% of Bighorn's total volumes. In addition to natural gas, OMP executed well across both oil and water in the first quarter. Beartooth water volumes increased approximately 6% from the fourth quarter average, driven by new third-party volume agreement. OMP's extensive water infrastructure puts us in a strong position to capitalize on additional opportunities in a more normalized environment.

I just want to say great job to the team for executing exceptionally well this quarter. Keep up the good work. I'll now turn the call over to Michael to get into a little more operational detail.

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Michael H. Lou, Oasis Midstream Partners LP - President & Director of OMP GP LLC [4]

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Thanks, Taylor. In these uncertain times, OMP remains focused on what it can control, executing our plan, minimizing costs and protecting value for its partners. At Bighorn, during the quarter, gas volumes exceeded the top end of guidance while oil volumes matched the high end. This strong performance reflects a combination of solid volumes from our sponsor and third parties, along with high utilization at our gas complex.

At the Bobcat DevCo, volumes exceeded guidance across oil, gas and water. And at Beartooth, water volumes exceeded the high end of guidance, in part, aided by a new third party contract. Looking to the remainder of 2020, while our sponsor originally planned a 2-rig programs in both the Williston and the Delaware, at this juncture, drilling and completion activity is being deferred.

Additionally, our sponsor shut-in approximately 25% of April volumes, with May expected to result in additional curtailments. However, our sponsor has indicated significant flexibility to bring volumes back online quickly by bringing back shut-in volumes.

Additionally, our sponsor has a combination of DUCs and completed wells, which have not yet flowed, which, together, approximate 36 wells that can be brought online rapidly to boost volumes. It's important to note that both Williston and Delaware pricing has materially improved from early April levels. Separately, we continue to engage with third parties to get a sense of their programs.

Given the dynamic environment resulting in a high level of uncertainty, OMP is suspending volume and EBITDA guidance for the time being. While we believe this environment is transitory and, ultimately, prices and industry activity will improve, the timing of such a recovery is uncertain, and we will continue to manage the business prudently to conserve capital and preserve the balance sheet.

With that, I'll hand the call over to Richard.

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Richard N. Robuck, Oasis Midstream Partners LP - Senior VP & CFO of OMP GP LLC [5]

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Thanks, Michael. We declared a distribution of $0.54 per unit for the first quarter of 2020, reflecting the strong cash generated over the first quarter, as well, a solid coverage of 2.1x adjusted for the additional interest related to the waiver that was described in our press release. This exceeding guidance of 1.6 to 1.7x, had we grown our distribution in the first quarter at historical growth rate, as originally included in our guidance, we still would have delivered adjusted coverage of 2x.

As we look forward, financial performance is more uncertain given the macro volatility and the lack of visibility into the exact production curtailments across our asset base as well as the U.S. We will continue to evaluate the distribution on an ongoing basis and make an appropriate decision based on each quarter's financial performance and our assessment of the future outlook.

OMP's financial position remains strong. Net debt, the first quarter annualized EBITDA, was 2.5x with $488 million drawn on our revolver and $24 million of cash at March 31. This juncture, given OMP's reduced capital budget, we would expect to generate free cash flow during the back half of 2020.

In closing, it was a strong quarter for OMP as the team, once again, exceeded expectations across the board. The world has changed pretty dramatically over the past few months, but we are adapting and taking steps to reduce spending and preserve our financial health.

I'll now hand the call back over to Taylor for closing remarks.

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Taylor L. Reid, Oasis Midstream Partners LP - CEO & Director of OMP GP LLC [6]

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Thanks, Richard. In closing, first quarter results marked another strong quarter for Oasis Midstream Partners. We continued to deliver on our promises and exceed expectations.

Thanks again for joining the call today.

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Operator [7]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.