While the industry knew about the oil trapped in the Bakken shale since 1953, it wasn't until crude prices touched triple digits and new technologies were developed that oil companies could economically extract that oil. Because of the economic challenges, it was thought that the basin wouldn't survive if crude ever crashed. Surprisingly, that hasn't been the case. That was abundantly clear on Oasis Petroleum's (OAS) third-quarter conference call where the Bakken-focused company trumpeted its strong performance during the weak oil price environment.

1. We performed well, despite weak oil prices
CEO Tommy Nusz started off his prepared remarks by boasting:

We delivered a beat on production, differentials, LOE, G&A, EBITDA, well costs and cash flow. And that is with WTI averaging $46.43 for the quarter.

In other words, the company produced more oil than projected, and at a lower than expected cost, enabling it to deliver better cash flow even after the price of oil was more than 20% below the prior quarter. Overall, there were three keys to Oasis' success:

  1. It's drilling better-performing wells by using newer enhanced completion techniques, which are driving higher production.
  2. It pushed it costs lower by becoming more efficient, which has it drilling more wells with fewer rigs.
  3. It was well-hedged during the quarter, enabling it to capture more than $60 per barrel, instead of the market price closer to $40.

2. We've lowered our cash flow break-even point
Thanks to the combination of cost reductions and better well performance, Oasis significantly reduced its cash flow break-even point. Nusz pointed out:

Earlier this year, we felt like that we were positioned to be free cash flow positive in 2016 with WTI at $60 per barrel. And now we're setting up to be free cash flow positive at $50 a barrel WTI.

One of the big drivers of this is that it no longer needs as many rigs as it thought to accomplish its goals. Nusz said:

We intended to run five rigs throughout 2015 to complete our program, but our drilling team has knocked down the drilling days such that we were able to ramp down to three rigs midyear and still execute on our original plan.

3. We're investing to drill better wells
Because its enhanced completions are working so well, the company plans to complete more wells with this technique than previously planned. Nusz noted:

We originally set a plan in 2015 to complete about 60% of our wells with either slickwater or high intensity stimulation and that has now progressed to north of 70% in the second half of the year. Results from our high intensity completions continue to exceed our expectations and have led us to move more of the program in 2016, in fact greater than 80% high intensity.

While it does cost 10% more money to complete these wells, the slide below notes that the production uplift of between 20% and 50% makes it well worth the additional investment.

Source: Oasis Petroleum Investor Presentation. 

4. We're looking for a midstream partner
While Oasis' core oil operations are running at or above cash flow breakeven, the company as a whole is not because it is making substantial investments to build critical midstream infrastructure. Because of this CFO Michael Lou noted:

We're exploring avenues to monetize a portion of Oasis Midstream Services and we seek to bring in external capital to fund our 2016 infrastructure program of approximately $150 million...We have significant interest in the Midstream assets and given the outperformance of the business this year coupled with the progress in the Wild Basin assets, we believe we're in a significantly stronger position to maximize the value of this rapidly growing business, while maintaining control.

This form of monetization is something that Bakken rival Hess (HES 0.47%) did earlier this year to great success. It formed a Bakken Midstream joint venture with an infrastructure investor valuing its midstream business at $5.35 billion. Hess was able to monetize a 50% interest in its assets for $2.7 billion in cash while also maintaining operational control. While Hess' midstream business is currently about four times that of Oasis, this transaction does show the potential value the company could create by monetizing a portion of this business.

5. Here's our outlook for 2016
In wrapping up, Nusz provided his initial outlook for what the company plans to do in 2016, assuming oil prices remain weak. He said:

So volumes exiting 2016 are expected to top volumes exiting 2015 as the plan is currently laid out, with the year being relatively flat to a bit up if everything goes as planned. With similar production levels year-over-year, coupled with both lower operating costs and low well costs, we're well-positioned in 2016 for $50 oil. Project level economics in the quarter range from 25% to 40% at $50 WTI.

The goal for 2016 will be to remain conservative. That means it will focus on drilling very economic wells aiming just to keep its production roughly flat. 

Investor takeaway
No one ever thought a pure-play Bakken producer would be able to survive an oil price crash. Oasis, however, isn't just surviving but is actually doing quite well, evidenced by the fact that it is generating free cash flow in its oil business. Because of this the company remains well positioned for 2016, with plans to cash in on its midstream assets while earning a decent living producing oil, even if prices hover around the $50 per barrel range next year.