A round of applause for Oasis Petroleum (OAS), which once again hit it out of the park with earnings. Oasis Petroleum beat both top and bottom line expectations, posting revenue of $305.5 million and adjusted EBITDA of $219.6 million. Net income grew to $54.5 million versus $18.3 million last year in the same quarter. 

To achieve revenue growth of 65% and a ~300% gain in net income, Oasis increased its operated rig count by two to 14 to bring more wells online.

More wells, more growth
Oasis brought 27.7 net wells online in the third quarter, which is a substantial increase over the 14 net wells it brought online last quarter. The additional wells resulted in Oasis' production growing 10% quarter over quarter and 36% year over year.

Oasis' daily average production stood at 33,064 barrels of oil equivalent per day in the third quarter (not including the acquisition), with a production mix that was 89.3% oil. One thing to note is that natural gas production, while a small part of Oasis Petroleum's production mix, has been slowly increasing as a percentage of production.

A small but noteworthy catalyst
Back in the third quarter of 2012 crude oil made up 93% of Oasis' production mix, and natural gas was $5 million of Oasis' revenue. Now step ahead one year and Oasis is producing more natural gas, and revenue from gas goes up to $13.3 million for the quarter.

The reason why natural gas is worth looking at is the chance for higher natural gas prices in the future. Right now natural gas is a sickness for most E&P players as it carries low to non-existent profit margins. But if natural gas prices rise in the U.S. to $5 mmBtu due to higher domestic demand and LNG exports, then gas margins will see a complete turnaround.

How to drill more wells
As I said before, Oasis Petroleum is adding more rigs to its fleet to increase well completions. It also plans on utilizing its very effective Oasis Well Service subsidiary.

OWS saves Oasis $500,000 per well, which is huge. Oasis' management had previously said it wants to reduce well completion costs to $8 million by the end of 2013, not including OWS savings. In Oasis' last quarter it did just that, three months ahead of schedule. Now Oasis can better utilize its capex to bring more well online.

Due to the tremendous success of OWS and Oasis' ambitious growth plans, Oasis is going to add another frac fleet, which will be up and running in 2014. Oasis has already purchased the necessary equipment, it just needs to work out the details.

Future guidance
Oasis is guiding for fourth quarter production to range from 42,000-46,000, which is going to be aided by the two rigs it gained in its recent $1.5 billion acquisition and the additional 9,300 boe/d in production. Currently Oasis is producing 43,000 boe/d including the acquisition, so in order to hit the high range of its guidance it would only need to grow output by a lousy 7% quarter over quarter.

Due to Oasis' acquisition, it grew its gross drilling inventory by 42% to 2,874 potential locations. With an additional frac team and more rigs, Oasis is now fully prepared to carry on strong double digit production growth over the next few years. With ~492,000 net acres to drill on, Oasis Petroleum has a bright future ahead of it.

To further enhance its future, Oasis is drilling down deeper into the play so it can get into the second and third benches of the Three-Forks play. Oasis is reporting that its wells are successfully extracting crude from those benches, which means Oasis may be able to see higher reserve recovery rates and reduce the need to purchase more land.

Final thoughts
Oasis Petroleum is a pure Bakken player with strong growth potential and a plan to maximize shareholder value. It's worth looking into if you want exposure to a fast growing E&P player.