Shares of Oasis Petroleum (OAS) fell in April, ending the month down nearly 16% due to sagging oil prices and some mixed commentary from analysts.
Crude oil prices initially got off to a solid start last month, rising to the mid-$50s before rolling over and falling nearly 8% from the peak and closing below $50 per barrel by the end of the month. That slump in the oil market is a bit of a concern for Oasis because its plan is to ramp up its drilling activities this year and boost output so it can take advantage of improving oil prices. In fact, Oasis is in the process of doubling its rig count in the Bakken, which should fuel a 16% increase in output by year-end. However, with crude prices slumping, it could force the company to tap the brakes on that growth plan.
In addition to the pressure from sinking oil prices, the other factors weighing on Oasis last month were some mixed reports by analysts. In early April, for example, BMO upgraded the stock from market perform to outperform, citing the company's improving fundamentals, which had it on pace to be cash flow positive in 2018. However, later on in the month, Stifel initiated coverage on the stock but gave it a hold rating. Stifel thought that Oasis was trading at a fair value given where oil prices were. Furthermore, Stifel noted that the Bakken had become a second-tier shale play because the returns and growth opportunities aren't as good as places like the Permian. Because of that, investors aren't willing to pay a premium for drillers focused on that play in the current market environment.
Oasis Petroleum needs higher oil prices to fuel its long-term growth plan. So, with crude sliding, it's causing investors and analysts to question the company's ability to grow value. It's a concern that won't go away until oil prices stop dropping.