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Why Oasis Midstream Units Plunged 15% at the Open Today

By Reuben Gregg Brewer - Jun 25, 2021 at 11:00AM

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Shares of this midstream company, tied to parent Oasis Petroleum, took a hit following an after-the-close news release.

What happened

Shares of Oasis Midstream (OMP) sold off sharply at the open on June 25, losing 15% of their value in the first few minutes of Wall Street trading. The big event driving that drop was an after-the-market news release on June 24. Here's a quick look at what the company said that has investors so upset.

So what

Put simply, Oasis Midstream is going to sell just over 3.6 million common units with the underwriter having the option to add another 500,000 or so units to the total. So, effectively, there are more than 4.1 million units being sold. But, here's an important fact: According to the news release, "The Partnership will not receive any proceeds from the sale of the common units in this offering." And "the number of common units outstanding immediately following the offering will remain unchanged." 

A person in protective gear working on an energy pipeline.

Image source: Getty Images.

Normally, investors might be worried about dilution with a unit sale, which could lead to price declines. That's not the case here because this isn't a simple unit sale. What really appears to be happening is that Oasis Midstream is redeeming units that parent Oasis Petroleum (OAS) owns so the energy driller can raise some cash. Oasis Petroleum's ownership interest in Oasis Midstream is expected to drop from 77.1% to 68.5%, assuming the underwriter exercises its right to sell additional units. 

Now what

Ultimately, with more shares floating freely investors may be worried that support for Oasis Midstream won't be quite as strong in the market. While not unreasonable, Oasis Petroleum still owns a massive stake in Oasis Midstream. So there's a chance that the early negative sentiment today is a bit overdone. That said, conservative investors might want to tread with caution here given the close ties between these two energy names. Today is just an example of the price volatility that can take place as the relationship evolves.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Oasis Midstream Partners LP Stock Quote
Oasis Midstream Partners LP
OMP
Oasis Petroleum Inc. Stock Quote
Oasis Petroleum Inc.
OAS

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