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.
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."
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.
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.