OASIS MIDSTREAM PARTNERS LP (OMP) Q3 2020 Earnings Call Transcript

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OASIS MIDSTREAM PARTNERS LP (OMP)
Q3 2020 Earnings Call
Nov 04, 2020, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

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

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

Richard Robuck -- Chief Financial Officer

Thank you, Kate. Good morning, everyone. This is Richard Robuck. Today, we're reporting our third-quarter 2020 financial and operational results.

We're delighted to have you on our call. I'm joined today by Taylor Reid and Michael Lou, as well as other members of the team. 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 release as well in our filing 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 call, we'll 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 at the end of our call, but feel free to reach out directly to us after we wrap up.

After Oasis Petroleum emerges from its highly efficient restructuring process, we expect to resume our practice of hosting Q&A sessions at the end of our calls. We posted an updated presentation to our website this morning. So, please take a look at it in the meantime to learn more about OMP. With that, I'll turn the call over to Taylor.

Taylor Reid -- Chief Executive Officer and Director

Thanks, Richard. Good morning, everyone, and thanks for joining our call. While conditions were relatively stable in the third quarter, the COVID-19 pandemic continues to weigh heavily on the oil and gas industry. We remain focused on the health and safety of our employees, contractors and communities.

Third-quarter financial performance improved materially from the second quarter as we saw an increase in previously curtailed volumes, as well as continued cost control. On that last point, I want to recognize the OMP team for their strong contributions. This has been a difficult year, but the team has remained focused and was successful in aggressively lowering both capital and operating costs. I'll begin by discussing the restructuring announcement of our largest customer, Oasis Petroleum.

I'll reiterate what Oasis noted in its September 30th announcement. Oasis Midstream Partners and all its subsidiaries are not included in the Chapter 11 filing. Operations have not been affected and continue as normal, and our contracts and dedications with Oasis remain in place. When we IPO-ed OMP in 2017, we deliberately structured the entity to stand on its own and be resilient to customer and market fluctuations.

OMP's financial leverage was maintained at relatively modest levels compared to many G&P peers. This gave us flexibility in terms of uses of cash flow. There is no immediate need to reduce our distribution and reduce debt. Through 2020, we have kept our distribution flat with fourth-quarter 2019 levels and leverage remains in check at around three times.

Additionally, there are no cross-default provisions on OMP's debt that is the defaults at Oasis did not trigger a default at OMP. OMP has strong relationships with its bank group, and its current $575 million credit facility remains in place. Looking forward, assuming Oasis' restructuring is consummated according to the terms set out in the restructuring support agreement, the outcome is decidedly positive for OMP. First, Oasis is expected to emerge in a stronger financial position with lower leverage and a leaner cost structure.

This will give Oasis the ability to run a steady, resilient development program, less likely to shift significantly with lower prices. Second, because Oasis' improved position benefits OMP's financial outlook, we now have a stronger hand in negotiating and capturing third-party opportunities. The team has done a great job building an extensive, diverse portfolio of third-party business. We are currently evaluating multiple projects which could expand it even further.

Third, Oasis' deep development inventory in two premier basins remains intact. Through years of developing its inventory, Oasis has a strong track record of involving OMP through mutually beneficial arrangements, and we expect that to continue in the future. Additionally, Oasis' strong operating team, clean balance sheet and lean cost structure make it a natural consolidator of assets, which could ultimately benefit OMP. Fourth, as part of the RSA, Oasis reached an agreement, settlement agreement, with Mirada.

Importantly, this is expected to be fully funded by Oasis as expected under the indemnity agreement that was put in place between Oasis and OMP at our IPO. And finally, as part of the restructuring, $28 million of interest associated with the technical default in the second quarter is expected to be permanently waived. As we noted last quarter, shut-ins were pervasive across the Williston earlier this year, as operators responded to exceptionally weak benchmark pricing and differentials. Volumes recovered steadily through the spring and summer, and at this juncture, the vast majority of shut-in production is back on.

OMP's third quarter performance benefited from these higher volumes, as well as strong cost control. OMP declared a third quarter distribution of $0.54 per unit with coverage of approximately 1.8 times. We will continue to monitor the environment and OMP's operational and financial outlook to inform decisions on future distributions. We lowered the range on our 2020 capital guidance, now expecting this year's spending levels to fall about 70% below the original budget to 21 to 24 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. I'll now turn the call over to Michael to get into a little more operational detail.

Michael Lou -- President and Director

Thanks, Taylor. Operating performance remains strong at OMP. Capture rates remain at very high levels as OMP's system 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, while basin gas capture was about 98% in the third quarter, which compares to approximately 91 to 92% across North Dakota. I commend the operating team for strong performance in both cost control and product capture, and I challenge them to keep up the good work.

OMP remains focused on keeping costs low and was successful on that front in the third quarter. During the third quarter, EBITDA margins improved significantly across all commodity streams as revenues increased substantially, and we were able to control costs. Looking to the fourth quarter, EBITDA is expected to decline modestly from the third quarter as basin activity remains limited, and the resumption of shut-in volumes was accelerated from the second quarter. Third-party volumes are expected to hold steady or slightly increase from the third quarter.

We expect OMP's full-year 2020 EBITDA to exceed the top end of our prior 130 to $140 million range. Our new 2020 view calls for EBITDA to range from 140 to $144 million, implying a fourth-quarter range of 30 to $34 million. OMP is anchored by assets situated in two of the best oil basins in the US and has had a strong track record of making accretive investments and leveraging our scale to -- by securing a diverse portfolio of third-party customers. We continue to believe this environment is transitory.

However, 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 with net debt to trailing 12-month EBITDA of 2.8 times. We expect leverage to remain at similar levels through the end of the year. We had 488 million drawn on our $570 million revolver and 35 million of cash at the end of the quarter.

In closing, the team did an impressive job transitioning from the second quarter to the third quarter as conditions improved considerably. I've been so impressed with the team's ability to pivot in order to both drive down cost and make sure we capture oil, gas and water across our position from both Oasis Petroleum and our third-party customers. We see this reflected in our volume performance and our great EBITDA margins delivered during the quarter. Again, hats off to the team for providing great, uninterrupted service in the quarter and during Oasis Petroleum's restructuring process.

I'll now hand the call back over to Taylor for closing remarks.

Taylor Reid -- Chief Executive Officer and Director

Thanks, Richard. In closing, third-quarter results were solid as volumes increased and cost control remained strong. The team is focused on controlling what it can control in managing through this cycle. As always, we will make ourselves available for follow-up questions in the coming days.

Thanks again for joining the call.

Questions & Answers:

Operator

[Operator signoff]

Duration: 12 minutes

Call participants:

Richard Robuck -- Chief Financial Officer

Taylor Reid -- Chief Executive Officer and Director

Michael Lou -- President and Director

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