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Oasis Petroleum's Stock Continues to Rise After Earnings

By Tyler Crowe - Feb 26, 2016 at 3:50PM

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Oasis Petroleum shares are climbing for the second straight day as oil prices jump and the company plans to be net cash flow neutral in 2016.

Image source: Oasis Petroleum investor presentation.

What: Shares of Oasis Petroleum (OAS) were up more 17% as of 12:30 p.m. ET today. This is the second day in a row that Oasis has posted strong gains after posting earnings yesterday and offering guidance that showed a company drastically cutting costs to survive in a lower oil price environment.

So what: Unlike so many other oil and gas producers as of late, Oasis Petroleum was able to produce net income of $0.03 per share in the quarter, largely as a result of its cost-cutting efforts. In 2015, it cut its drilling and completion costs by 70% and its lease operating costs by 23%. These cost reductions should allow the company to be cash flow neutral at $35 per barrel oil. 

It also helps that oil prices are up today as well. With average Brent oil climbing over $35 per barrel, investors are a little likely to take a bite of these leveraged oil and gas producers, regardless of whether those oil prices are fleeting or not. 

 

Now what: Considering Oasis' debt levels and the drastic cuts to its capital budget in 2016, investing in the company today isn't that far off from a bet on the direction of oil prices. Its hedging position and capital plans suggest that it can get by at $35 per barrel, but not much better than getting by. If oil prices were to slip again, Oasis could find itself in trouble once more. So, until it starts to clean up the balance sheet and there are some signals that the oil market is a little healthier, it's probably best to shy away from this stock despite a few days of strong results.

Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.com or on Twitter @TylerCroweFool.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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