Good morning, and welcome. Oasis announces OMP to merge with Crestwood Equity Partners. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there'll be an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the call over to Mr. Michael Lou, Chief Financial Officer. Please go ahead.
Thank you, Nick. Good morning, everyone. Today, we are providing a business update along with certain third quarter 2021 preliminary operating and financial metrics. We're delighted to have you on our call. I'm joined today by Danny Brown, Taylor Reid, as well as other members of the team. Please be advised that our remarks on both Oasis Petroleum and Oasis Midstream Partners, 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 releases and conference calls.
Those risks include, among others, matters that we have described in our earnings releases, as well as in 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 make reference to non-GAAP measures and reconciliations to applicable GAAP measures can be found in our earnings releases and on our websites. We may also reference our current investor presentation, which you can find on our website. With that, I'll turn the call over to Danny.
Thank you, Michael. Good morning, all, and thank you for joining our call to discuss the merging of OMP into Crestwood Equity Partners, as well as our preliminary third quarter results. I'd like to start by thanking the entire Oasis team for their amazing work this year, which will transform Oasis into a focused E&P operator with a best-in-class balance sheet and enviable top-tier inventory position. Importantly, I'd also like to thank all of our OMP dedicated employees. Your efforts helped build a phenomenal midstream organization, one which you should be very proud of. It's because of your success and dedication that we're able to enter into this transaction, which we view as a fantastic outcome for all parties, including OMP. Thank you also to the OMP customers who have trusted Oasis Midstream Partners with their operations and helped OMP grow into a highly valued and respected midstream organization.
We believe you will be in good hands with Crestwood, as we're confident in their ability to operate as a key midstream provider for our volumes as well. Our announcement marks the latest and one of the most important action in a series of strategic actions the board and management have taken over the past year. We believe the sale of Oasis's ownership stake in OMP at an attractive valuation of $160 million in cash and 21.7% of Crestwood Equity, combined with the resultant deconsolidation of our financial statements, which will highlight our strong E&P business to investors, will better position Oasis to unlock the discounted value of OMP embedded in our share price. The strategic merits of the transaction are compelling. First, the merger accelerates value to Oasis shareholders.
Oasis is receiving approximately $160 million in cash or about $8 per share. In addition, Oasis is receiving 21 million units in Crestwood. Second, the transaction increases transparency around our valuation. After close, Oasis will no longer report financial results consolidated with OMP. Therefore, reporting after the merger closes will be aligned with Oasis's E&P operations with no midstream impacts other than accounting for our ownership of Crestwood with the equity method. This will mean no midstream debt will be consolidated on our balance sheet. We believe this will eliminate the historical confusion about how to calculate E&P EBITDA versus consolidated EBITDA, which should help everyone properly value Oasis. Third, the transaction further reduces Oasis's pro forma leverage. Pro forma for the Williston acquisition and the Crestwood transaction as of September 30th, Oasis will be completely unlevered.
We believe our strong balance sheet gives us plenty of optionality to enhance shareholder value and participate in industry consolidation. Fourth, upon close of the transaction, Oasis expects to utilize its NOL position. This action should allow the company to subsequently eliminate the tax benefits preservation plan that it put in place in August 2021, thus permitting shareholders to build a position greater than 5% of shares outstanding. Fifth, with the conclusion of this process and the pre-release of material 3Q earnings information, Oasis is no longer in possession of material non-public information, allowing us to once again purchase shares of Oasis in the open market. Sixth and finally, the transaction aligns with Oasis's ESG objectives and allows us to work with an entity that has been on the leading edge as it relates to ESG initiatives.
Crestwood and OMP together have an extensive infrastructure network that will help limit methane flaring as well as the trucking of oil and water. We believe Crestwood will continue to progress its three-year sustainability strategy focused on diversity and inclusion, emissions reductions, biodiversity, supply chain, and ESG disclosure. We are excited about Crestwood becoming our largest midstream provider. They are a highly regarded, diversified midstream operator with a large footprint in the Williston Basin. The announced merger with OMP creates an even stronger entity and is beneficial for all equity holders and customers. Oasis feels confident Crestwood is the right midstream partner and provider to handle a large portion of Oasis's hydrocarbons and produced water and looks forward to a long relationship. I'll now turn it over to Michael to touch briefly on our preliminary third quarter operational performance before turning it over to Q&A.
Thanks, Danny. Concurrent with the merger announcement, Oasis provided preliminary third quarter results for certain operational and financial items. An abbreviated third quarter results press release will be published on November 3rd, but we're replacing the regularly scheduled earnings call with this call. Results across the board were strong, with total production, cash flow, capital, and free cash flow exceeding both internal and external expectations. Third quarter production of 51,800 BOE/d exceeded the top end of our guidance, and oil volumes of 31,900 bpd were essentially in line with the midpoint of our guidance. Oasis benefited from strong pricing and differentials for both oil and gas in the third quarter. The marketing team continues to do a great job capturing value in both commodities.
Lease operating expense and gathering, processing, and transportation both fell below the midpoint of our guidance. The midpoint of E&P cash G&A of $10.5 million was above our preliminary guidance, but includes multiple items related to the announced transaction and other costs related to consulting services. Adjusting for these items, E&P cash G&A is expected to be approximately $8.2 million at the midpoint. Capital is expected to range between $40 million-$44 million in the third quarter, below original guidance of $50 million-$60 million. Oasis again lowered its capital expenditure guidance by 9% this quarter, following the 7% reduction at the end of the second quarter. The reduction in spending reflects a series of factors, primarily driven by strong efficiencies, schedule timing, and lower working interest than expected in certain wells.
We provided updated fourth quarter guidance, production guidance in our press release, which reflects the delayed timing of the recently closed Williston acquisition, as well as impacts of lower working interest that I just noted. Additionally, the seller of the Williston asset managed some recently completed wells aggressively during the third quarter, and those wells outproduced our expectations during the third quarter. This helped drive the lower than anticipated final price paid for the asset to $511 million. That well population is now expected to produce at slightly lower levels than planned, previously planned in the fourth quarter. Adjusting for this, we remain on track in the fourth quarter to meet our original expectations. These updates are now reflected in our guidance.
For 2022, we continue to expect full year average volumes of approximately 72,000 BOE/d , with a capital budget of about $300 million, which reflects the current service pricing environment. We are expecting inflation to accelerate through the end of the year and into next year, and we'll update our thoughts on the impact when we formalize our 2022 capital plan. Consistent with prior indications, Oasis increased its fixed dividend 33% to $0.50 per share per quarter, or $2 per share annualized. We expect to generate significant free cash flow through the rest of 2021, as well as 2022 and beyond. We continue to evaluate the best use of cash and will pursue a balanced approach as you've seen from us year- to- date.
I'll touch briefly on our share repurchase program before handing it over for Q&A. We've got approximately $85 million remaining on our $100 million share repurchase program authorization. In summary, it was a very strong quarter, both operationally and financially, and Oasis is focused on delivering substantial, sustainable free cash flow, and today's announcement further bolsters its competitive position. With that, I'll turn it back over to Nick for questions.
We'll now begin the question- and- answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please take up your handset before pressing the keys. To withdraw your question, please press star then two. This time, we'll pause momentarily to assemble the roster. First question comes from Derrick Whitfield of Stifel. Please go ahead.
Members in general over the last year.
Hey, Derrick, we missed most of your first part of that question. Can you repeat that?
Sure. I was just gonna say good morning, all, and congrats on your update and progress really over the last year. With my first question, I wanted to ask a question regarding about Oasis' enhanced liquidity and ability to participate in industry consolidation. Perhaps could you help frame the current market in the Williston for value enhancing opportunities?
Sure, Derrick. This is Danny. I think you broke up a little bit there during the question, but I think I got the gist of it. As we look across the landscape within the basin, we continue to see opportunities, I'd say, including private opportunities, you know, perhaps larger publics, where, as they look at their portfolio, the position of Williston may be less competitive relative to other opportunities that they have, and then obviously other publics. We think there is an opportunity around industry consolidation in all of those, with all those aspects, that would help us enhance our scale, our size, increase our relevance to investors, and be value additive for the organization.
We're looking across the landscape and see opportunities in multiple different areas.
Thanks, Danny. Shifting over to the QEP assets. Now that you've closed on the acquisition, could you share your latest thoughts on how you might integrate this asset into your 2022 capital plan and where you'd likely direct your first activity?
Yeah, Derrick. You know, we're looking at our first capital activity that will operate on the new assets in 2022. There's actually a group of wells that were drilled and completed by QEP, Diamondback earlier this year, the Disco, the Disco pad, and there's additional locations that are permitted, ready to drill on that location. So somewhere between probably six to eight wells that we would most likely drill and complete next year. So that'll be our, you know, our first additional drilling activity. From an operations standpoint, we have closed, as you guys know, integrating the assets, really looking at applying some of the same practices that we apply on our assets. I think we'll have the opportunity to drive some costs down on that front as well.
That's terrific, Taylor. Very helpful, guys. Thanks for your time.
Thanks, Derrick.
Thank you. Next question is from Neal Dingmann, Truist Securities. Please go ahead.
Morning, all. You know, maybe Michael for you or Danny, my question a little bit on what Derrick asked, and that's on consolidation. You talked about the shareholder return, and you guys have been doing a good job of kind of combining that mix, obviously, notable dividends and the shareholder return. I'm just wondering, how do you all see sort of tying that together with potential, you know, you mentioned, obviously, Danny, the potential for consolidation. If you see deals, I'm just wondering, how do you sort of, you know, blend all those things together when you think about the shareholder return as well as the consolidation?
Yeah, I think, as we think about it, Neal, I think we're committed, and we've, as we've indicated, to both return on and return of capital. That return of piece is something that's really important to us, and we've, you know, hopefully, we've been demonstrating that over time with the dividend, it's increased, the special we paid out and the share buyback program we've got. We're committed to continuing to do that, and we'll continue to evaluate opportunities to do that, as we move forward. I think it's important that we also recognize industry consolidation broadly, is something that needs to continue to happen, and we ought to be participants in that.
I think as we see opportunities that are value enhancing to shareholders, either by directly returning capital to them or by doing accretive actions and value enhancing actions that we think benefit shareholders, we'll look to take both of those approaches. I think we'll continue to be balanced from that standpoint, but the return of capital is a very key component of our strategy.
Good. Great comments. Just one follow-on. Like you mentioned about the service cost, I'm just wondering what you're seeing already today that you're maybe seeing, you know, incrementally than what you saw just at the end of 2Q. I'm just wondering how much change we've seen in kind of what you are thinking, you know, let's just say now into 2022.
Yeah, Neal. From a service cost perspective, definitely seeing some pressure, and it's, you know, it's not universal, but across different segments. Good news is, so far this year, we've been able to offset those service cost increases with efficiency, both in frack operations, drilling operations, kind of across the board. As we look to really we think we can maintain that through the end of the year. As we look into 2022, really think you're gonna start seeing more pressure that's gonna show up, you know, kind of across the board. Labor is definitely seeing it. Trucking has been a bit of a challenge. Like I said, we've been able to offset that so far.
Think you're gonna see increases as we get into 2022, and then, you know, likely through the end of the year.
A great color. Thanks, Taylor. Thanks, guys.
All right, Neal. Thanks.
Thank you. Next question is from Phillips Johnston, Capital One. Please go ahead.
Hey, guys. Thanks and congrats. I was hoping you could address the plan for the 21 million units of Crestwood that you guys will own going forward. It seems like there's obviously some option value there, but is this an asset that we should expect you guys to hold over the long term, or would you like to either sell down those units over the next several quarters or possibly distribute those units directly to Oasis shareholders via some sort of a dividend?
Sure, Phillips. Appreciate the comments. Good question. I think the way we think about the deal is a couple things. One, you know, we think this is an incredible deal for really for all parties. From a Crestwood perspective, you know, build size and scale, it's an accretive deal. OMP, kind of the same thing. From an Oasis perspective, you know, we've been looking for ways to get kind of that full read-through value, and we think this goes a long ways to do that. We'll be deconsolidated. We'll have a much more kind of liquid, larger company kind of stock, lower position in that. I think with that, we have a lot of options there, right?
We have a fully unlevered balance sheet with this deal. You know, we'll basically be in a zero net debt type position after the deal, which is fantastic. We don't have any real needs right away. It still provides a nice dividend and cash flow off of it, but it provides us some optionality. You know, we see that as a great investment, a great partnership with Crestwood. We actually see that as a great place to be. That being said, you know, we also have flexibility to do things with those shares if the opportunity comes up and we think that's a better use. We're gonna be very strong capital stewards.
As we're looking at ways that we can invest and different things that we can do that'll be online. Now, that being said, we also have a nice structured program with Crestwood. They're gonna be generating a ton of free cash flow, and they have their own share buyback program. We have the ability to work with them in that nature if that benefits both companies. Once again, we're looking for win-wins for both sides. We have no pressure. We love the stock. We love the company and what they're doing. They're gonna be a great long-term provider for us.
Okay, great. On those 21 million units, are there any restrictions or lockups or anything like that?
There is a three-month lockup on it.
Okay, great. Thanks, Michael. Just one more for me on the return of capital front. I think you said there's $85 million left on a $100 million buyback program. If I'm not mistaken, that's unchanged from early August. Just wondering what's kind of prevented you from being more active on the buyback front.
Great question. Obviously, you know that if we've got kind of material non-public and with the two transactions that you know the QEP Diamondback one that just closed, as well as this Crestwood deal that just got announced, as you'd imagine, you know, we didn't have as many open windows to be able to do that. I think what we're noted here is that, you know, we're getting quarterly information out. We've got obviously those transactions announced. We don't have those restrictions anymore going forward.
Okay. Yeah, I was assuming something like that. Thanks, Michael.
Absolutely. Great question. Thank you.
Again, if you have a question, please press star then one. Next question is from David Petros, RBC Capital Markets. Please go ahead.
Morning, guys. Thanks for taking the question. Just a quick one. I know back at 2Q, y'all were guiding kind of $400 million-$500 million of NOLs kind of starting 2022. I'm just wondering, kind of what the update is post this deal, and kind of where the strips move since. Any color on that front?
Great question, David. I think that we're still expecting kind of, let's say, you know, before this deal, 500 million-ish of NOLs at the end of the year. Obviously, with this transaction, you know, the cash that comes across with the transactions will be going against that NOL position. It kind of depends on timing of is it a year-end close, is it right after the new year, et cetera. We'll be using substantially most of that NOL. We're looking at kind of the best way to use that. What we are talking about is that tax plan that is protecting the NOL will likely go away with the closing of the Crestwood transaction.
That means that we'll be substantially using that NOL in whichever way is kind of the best from a tax position for Oasis.
Got it. Okay. Just a quick follow-up. Is there any change to kind of your midstream contracts, or kind of your operating costs with this deal or any kind of drill carries that you've struck with, you know, Crestwood that maybe you're gonna have to move some activity around next year?
No real changes. It's a good question, but no real changes and no kind of additional things. We, you know, we did strike a deal on the Painted Woods area. You'll know that we had a right of first refusal in that area through the simplification process. You know, great area. Happy to be working with them on that side of things. Other than that, you know, nothing. It doesn't really change kind of what we've talked about. We've been very intentional about showing E&P cost, E&P capital, E&P G&A. None of that changes with this deal. You-
Perfect.
You should have great visibility on that front.
Perfect. Appreciate it.
This concludes our question- and- answer session. Now I'd like to turn the call back over to Mr. Danny Brown, Chief Executive Officer, for closing remarks. Please go ahead.
Thank you, Nick. Again, I want to thank all of our employees for their hard work and dedication. Today's announcement marks an important milestone in restructuring the business to be highly competitive and opportunistic moving forward. As I said before, in many ways, Oasis is accomplishing in months what it would normally take years to do. Year- to- date, Oasis restructured its midstream business, which was quickly followed by a partial sell-down, and now today's merger announcement. Operationally, we significantly reduced our cost structure, which drives efficiency and supports sustainable free cash flow generation. From a portfolio perspective, we increased our Williston production base 50% through a highly accretive scale-enhancing merger while divesting our Permian position for attractive proceeds. We also implemented a top-tier governance program with a progressive incentive compensation program, aligning management with shareholders.
We enhanced our ESG transparency and published our first sustainability report in August. The transformed Oasis of today is a focused organization in an enviable position with a bias towards value-enhancing action, and our future looks exciting. With that, thank you very much for joining our call.
Our conference is now concluded. Thank you for attending today's presentation. You may now disconnect.