OASIS MIDSTREAM PARTNERS LP (OMP) Q2 2020 Earnings Call Transcript

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OASIS MIDSTREAM PARTNERS LP (OMP)
Q2 2020 Earnings Call
Aug 05, 2020, 12:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Nick, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the second-quarter 2020 earnings release and operations update for Oasis Midstream Partners. Today, Oasis management will discuss second-quarter 2020 results in the current environment.

Please note that this event is being recorded. I'd now like to turn the conference over to Mr. Richard Robuck, Oasis Midstream CFO, to begin the conference. Thank you.

Richard Robuck -- Chief Financial Officer

Thanks, Nick. Good morning, everyone. This is Richard Robuck. Today, we're reporting our second-quarter 2020 financial and operational results.

We're delighted to have you on our call. I'm joined on the call today 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 releases 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 in 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 call, as needed.

With that, I'll turn the call over to Taylor.

Taylor Reid -- Chief Executive Officer

Good morning, everyone, and thanks for joining our call. We continue to live in extraordinary times and remain focused on the health and safety of our employees, contractors, and communities. The second quarter was one of the most challenging I've seen in almost four decades in the industry. And the OMP team performed exceptionally well given the circumstances, doing everything in their power to adjust, including lowering capital and reducing costs.

Importantly, OMP entered this period with lower leverage than many gathering and processing peers, which gives us significant flexibility to manage through weaker periods. Also, operationally, OMP has been executing well, performing preventative maintenance, minimizing turnarounds, and maximizing uptime, all of which contribute to the bottom line and gives us confidence in our ability to manage through these difficult times. OMP is anchored by assets situated in two of the best oil basins in the U.S. and has had a strong track record in making accretive investments and leveraging our scale by securing third-party customers, now numbering in the double digits.

I should note, the team recently added another third-party crude gathering deal in the Delaware. Second-quarter results were impacted by shut-ins, which most of you know, were pervasive across the Williston. The basin hit a low point on volumes in May as global supply and demand disruptions were compounded by regional impacts, which led to very weak pricing in the Bakken. However, in mid- to late May, the situation improved, considerably among -- allowing many operators, including our sponsor to partially resume shut-in production and volumes recovered steadily through June and July.

On that note, second-quarter performance was stronger than our original expectations, largely reflecting the resumption of shut-in volumes I just alluded to. In addition, operational performance was solid as operating costs and maintenance capital were kept in check. This performance allowed OMP to declare a second-quarter distribution of $0.54 per unit, with approximately -- coverage of approximately 1.2 times when adjusting for onetime interest charges. We will continue to monitor the environment and evaluate operational and financial performance to inform decisions on future distributions.

We tightened the range on our 2020 capital guidance, still expecting this year's spending levels to fall about two-thirds below the original budget to $25 million to $30 million net to OMP. We continue to take a prudent approach to the current environment in an effort to preserve the balance sheet and maintain OMP's flexibility. Capture rates were strong this quarter as OMP's systems experienced little downtime and allowed our sponsor to maintain its peer-leading performance in gas capture as well as oil and water captured on pipeline as opposed to trucking. While basin gas capture was about 99% in the second quarter, which compares to approximately 89% across North Dakota.

I commend the operating team for strong performance in both cost control in product capture and I challenge them to keep up the good work. I'll now turn the call over to Michael to get into a little more operational detail.

Michael Lou -- President and Director

Thanks, Taylor. OMP remains focused on what it can control, executing operationally, cost reduction, and protecting value for its customers. During the second quarter, direct operating and maintenance costs fell 34% sequentially while total net capital expenditures fell 86%. Volumetrically, as Taylor mentioned, conditions were challenged versus the prior quarter.

However, operationally, performance was strong, letting our customers to capture almost 100% of their gas. Additionally, approximately 95% of water volumes were captured on pipeline and almost 100% of oil. At Panther, performance benefited from bringing on multiple wells in OMP-dedicated acreage, bringing volumes to record levels for Panther. Looking to the remainder of 2020, our sponsors indicated most of shut-in volumes were back online as of July and third-quarter production levels should average higher than the second.

Their volumes are expected to be steady through the remainder of 2020. And separately, we have engaged with third parties to get a sense of their programs as well. Given our current outlook, we expect OMP's 2020 EBITDA to range between $130 million to $140 million. While we believe this environment is transitory and ultimately, prices and the 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.

Richard Robuck -- Chief Financial Officer

Thanks, Michael. OMP's financial position remains strong. Net debt to trailing 12-month EBITDA was 2.8 times with $486 million drawn on our revolver and $27 million of cash at June 30th. We currently expect leverage to remain at similar levels through the end of the year.

In closing, it's a challenging quarter for us and the industry, but OMP rose to the challenge and once again executed exceptionally well given the circumstances. Conditions have improved over the past several months, but volatility remains high and OMP will manage the business prudently by keeping a laser focus on cost and maintaining flexibility. I'll now hand the call back over to Taylor for his closing remarks.

Taylor Reid -- Chief Executive Officer

Thanks, Richard. In closing, second-quarter results were solid, especially considering the unprecedented conditions the team was forced to work through. As always, we will make ourselves available for any follow-up questions. Thanks again for joining the call today.

Questions & Answers:

Operator

[Operator signoff]

Duration: 9 minutes

Call participants:

Richard Robuck -- Chief Financial Officer

Taylor Reid -- Chief Executive Officer

Michael Lou -- President and Director

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