Why Oasis Petroleum Is a Buy Right Now

With oil prices trading near multi-year lows, I think investors should start betting on a recovery and accumulate stocks that are nicely positioned to benefit from this trend. I have already recommended Suncor (SU) in my previous article, in this piece I will be focusing on Oasis Petroleum (OAS). Like Suncor, Oasis has been performing relatively well and this fact is evident by the company’s latest quarterly report.

In Q3FY15, Oasis petroleum reported earnings per share of $0.09, $0.03 more than the consensus estimate of $0.06.
The company shared revenue of $197.2 million compared to analyst estimate of $238.74 million.

Healthy free Cash Flow Generation

Oasis delivered an incredible quarter once again as its E&P, Midstream and Well Services businesses all posted notable results. The company is discovering avenues to monetize a quota of OMS and pursue to bring in external capital to fund their 2016 infrastructure program of around $150 million.

An additional great drift this year has been company’s oil differentials, which dropped from around $8 per barrel in the first quarter to below $5 in the third quarter.

While oil prices are down coarsely 50% over the prior year, almost all oil companies are just trying to survive and are cutting-costs by slashing dividends. Whereas, there’s another group that’s just trying to stay in the game by reducing costs to stable its cash flow with losses for dividends and capex. However, Oasis Petroleum comes in the group of leading class oil companies because they are generating free cash flow along with increasing its production.

The main reason behind company’s healthy free cash flow is its lower costs because of its robust hedge collection and its specific vertical integration. The hedge portfolio helps isolate some of the company’s cash flow from frail oil rates, considerably as Suncor’s refining resources do for its cash flow.

The company comprises of midstream services and well services division which work together in an organized manner to enhance financial and operational performance by cutting out key middlemen. This benefit allowed company to decrease its operating costs and well costs by 35% and 30% respectively on a y-o-y basis.

Despite its smaller size, the exciting combination of free cash flow generation and manufacture growth makes it capable for surviving in the weak oil price market.


In my opinion, both Oasis Petroleum and Suncor are great stocks to buy if oil has bottomed. Oasis is nicely positioned to survive the oil crash and benefit from a recovery. Although oil prices are unlikely to reach last year’s level, a gradual increase will push the shares of Oasis Petroleum much higher from the present levels.
Published on Nov 30, 2015
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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