(EDGAR Online via COMTEX) -- Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the year ended December 31, 2018 ("2018 Annual Report"), as well as the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition or provide forecasts of future events. Words such as "may," "assume," "forecast," "position," "predict," "strategy," "expect," "intend," "plan," "estimate," "anticipate," "believe," "project," "budget," "potential," "continue" and other similar expressions are used to identify forward-looking statements. Forward-looking statements can be affected by the assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements discussed below and detailed under Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q. Actual results may vary materially. Although forward-looking statements reflect our good faith beliefs at the time they are made, you are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and you should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include but are not limited to: an inability of Oasis Petroleum or our other future customers to meet their operational and development plans on a timely basis or at all; the execution of our business strategies; the demand for and price of crude oil and natural gas, on an absolute basis and in comparison to the price of alternative and competing fuels; the fees we charge, and the margins we realize, from our midstream services; the cost of achieving organic growth in current and new markets; our ability to make acquisitions of other midstream infrastructure assets or other assets that complement or diversify our operations; our ability to make acquisitions of other assets on economically acceptable terms from Oasis Petroleum; the lack of asset and geographic diversification; the suspension, reduction or termination of our commercial agreements with Oasis Petroleum; labor relations and government regulations; competition and actions taken by third party producers, operators, processors and transporters; outcomes of litigation and regulatory investigations, proceedings or inquiries; the demand for, and the costs of developing and conducting, our midstream infrastructure services; general economic conditions, including the risk of a prolonged economic slowdown or decline, or the risk of delay in a recovery, which can affect the long-term demand for natural gas and crude oil and related services; the price and availability of equity and debt financing; operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control; potential effects arising from cyber threats, terrorist attacks and any consequential or other hostilities; interruption of our operations due to social, civil or political events or unrest; changes in environmental, safety and other laws and regulations; the effects of accounting pronouncements issued periodically during the periods covered by forward-looking statements; changes in our tax status; Table of Contents uncertainty regarding our future operating results; and certain factors discussed elsewhere in this Quarterly Report on Form 10-Q. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to update or revise these statements unless required by securities law. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. Some of the key factors which could cause actual results to vary from our expectations include, but are not limited to, commodity price volatility, inflation, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in projecting future throughput volumes, cash flow and access to capital, the timing of development expenditures and the other risks described under Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q. Overview We are a growth-oriented, fee-based master limited partnership formed by our sponsor, Oasis Petroleum Inc. ("Oasis Petroleum") /zigman2/quotes/207530975/composite OAS +17.87% , to own, develop, operate and acquire a diversified portfolio of midstream assets in North America that are integral to the crude oil and natural gas operations of Oasis Petroleum and are strategically positioned to capture volumes from other producers. Our current midstream operations are performed within the Williston Basin, one of the most prolific crude oil producing basins in North America, and we have recently executed agreements with Oasis Petroleum to expand our operations to the Delaware Basin. We generate the majority of our revenues through 15-year, fixed-fee contracts pursuant to which we provide crude oil, natural gas and water-related midstream services for Oasis Petroleum. We expect to grow acquisitively through accretive, dropdown acquisitions, organically as Oasis Petroleum continues to develop its acreage and through capital contributions to our DevCos that increase our percentage interest ownership in our DevCos. Additionally, we expect to grow by offering our services to third parties and through acquisitions of midstream assets from third parties. We conduct our business through our ownership of our DevCos, two of which are jointly-owned with Oasis Petroleum, Bobcat DevCo LLC ("Bobcat DevCo") and Beartooth DevCo LLC ("Beartooth DevCo"). As of September 30, 2019, we own a 100% equity interest in Bighorn DevCo LLC ("Bighorn DevCo"), 34.4% equity interest in Bobcat DevCo and 70% equity interest in Beartooth DevCo. As of September 30, 2019, Oasis Petroleum owns a 65.6% and 30% non-controlling equity interest in Bobcat DevCo and Beartooth DevCo, respectively. We generate the majority of our revenues through long-term, fee-based contractual arrangements, which minimize our direct exposure to commodity prices. In connection with our initial public offering, we entered into 15-year, fixed-fee contracts with wholly-owned subsidiaries of Oasis Petroleum for natural gas services (gathering, compression, processing, gas lift and natural gas liquids ("NGL") storage services), crude oil services (gathering, stabilization, blending and storage services), produced and flowback water services (gathering and disposal services) and freshwater services (fracwater and flushwater supply and distribution services). At the same time, we became a party to the long-term, FERC-regulated transportation services agreement governing the transportation of crude oil via pipeline from the Wild Basin area to Johnson's Corner. Our operations are supported by significant acreage dedications from Oasis Petroleum. In addition, we have increased customer diversification by entering into numerous agreements and transactions with third parties to provide our full suite of midstream services. We believe our contractual arrangements provide us with stable and predictable cash flows over the long-term. Oasis Petroleum has also granted us a right of first offer, which converts into a right of first refusal from any successor upon a change of control of Oasis Petroleum, with respect to its retained interests in two of our DevCos and any other midstream assets that Oasis Petroleum or any Oasis Petroleum successor builds with respect to its current acreage and elects to sell in the future. Effective November l, 2019, Oasis Petroleum agreed to assign to Panther DevCo LLC ("Panther DevCo"), an indirect wholly-owned subsidiary of the Partnership, certain crude oil gathering and produced water gathering and disposal assets (the "Delaware Midstream Assets") under development to support Oasis Petroleum's production in the Delaware Basin. We have agreed to reimburse Oasis Petroleum for all capital expenditures previously made with respect to the Delaware Midstream Assets, which we expect to fund with borrowings under our revolving credit facility. Also effective November 1, 2019, Panther DevCo entered into long-term commercial agreements with Oasis Petroleum, including a Crude Oil Gathering Agreement and a Produced Water Gathering and Disposal Agreement (collectively, the "Delaware Basin Commercial Agreements"), for crude oil and produced water midstream services in the Delaware Basin, which generally contain terms similar to those contained in the existing commercial agreements between the Partnership and Oasis Petroleum for midstream services in the Williston Basin. The Delaware Basin Commercial Agreements additionally provide Oasis Petroleum with certain purchase rights with respect to the Delaware Midstream Assets, and provide Panther DevCo with certain sale rights with respect to the Delaware Midstream Assets, in the event of a change of control of the Partnership or Panther DevCo, which purchase and sale rights will expire after two years. The Delaware Basin Commercial Agreements are described in more detail in Part II, Item 5 "Other Information" of this Quarterly Report on Form 10-Q.
Table of Contents
(1) Non-GAAP measure. See "Non-GAAP Financial Measures" below for definitions of all non-GAAP measures included herein and reconciliations to the most directly comparable financial measures under United States generally accepted accounting principles ("GAAP"). Table of Contents
Three Months Ended September Nine Months Ended 30, September 30, 2019 2018 2019 2018 (In thousands, except throughput volumes) Bighorn DevCo Crude oil services volumes (MBopd) 47.0 42.5 49.8 43.0 Natural gas services volumes (MMscfpd) 236.0 96.0 210.4 99.4 Operating income $ 17,145 $ 5,345 $ 40,843 $ 16,184 Depreciation and amortization 3,099 2,845 9,793 8,086 Capital expenditures 2,071 6,602 14,860 55,786 Bobcat DevCo Crude oil services volumes (MBopd) 36.9 35.8 40.2 35.7 Natural gas services volumes (MMscfpd) 277.7 141.2 253.6 141.2 Water services volumes (MBowpd) 54.5 54.3 52.7 48.0 Operating income $ 29,449 $ 18,973 $ 79,360 $ 54,383 Depreciation and amortization 3,484 2,247 9,655 6,332 Capital expenditures 22,946 42,952 121,250 118,226 Beartooth DevCo Water services volumes (MBowpd) 143.9 151.3 140.3 133.1 Operating income $ 14,078 $ 15,639 $ 42,552 $ 40,217 Depreciation and amortization 2,400 2,097 7,026 5,794 Capital expenditures 4,065 11,138 20,009 36,031 Oasis Midstream Partners LP DevCo operating income $ 60,672 $ 39,957 $ 162,755 $ 110,784 Public company expenses 858 959 2,606 2,327 Partnership operating income 59,814 39,013 160,149 108,472 Depreciation and amortization 8,983 7,189 26,474 20,212 Equity-based compensation expense 84 114 303 280 Capitalized interest 235 1,708 423 3,905 Total CapEx 29,317 62,400 156,542 213,948 Maintenance CapEx 2,703 805 14,314 5,347 Expansion CapEx 26,614 61,595 142,228 208,601
How We Evaluate Our Operations
Nov 06, 2019
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