Oasis Petroleum Drops 8% After Deferring Interest Payments

Shares of Oasis Petroleum fell 7.8% on Friday after the energy company deferred interest payments on its unsecured notes and entered a 30-day grace period.

Oasis Petroleum (OAS) said that it is “elected to enter into a 30-day grace period and defer making the interest payments due September 15, 2020 on its 6.875% Senior Unsecured Notes due 2022 and 2.625% Senior Unsecured Convertible Notes due 2023.” The move comes as the company continues discussions with its lenders and a group of noteholders on a “comprehensive financial restructuring to strengthen Oasis Petroleum’s balance sheet and financial position.”

The company added that it has enough liquidity and its business operations will continue to operate in the normal course.

On Sept. 11, Moody’s rating agency assigned a B3 Corporate Family Rating, citing its “moderate scale in its two basin asset portfolio.” However, Moody’s said that OAS’ rating is “challenged by high leverage relative to production and proved developed reserves, while the company requires significant capital to develop its exploration & production assets and its midstream subsidiary, Oasis Midstream Partners LP’s gathering infrastructure.” (See OAS stock analysis on TipRanks).

On Aug. 6, MKM Partners analyst John Gerdes downgraded Oasis Petroleum to Hold from Buy and maintained a price target of $1 (102.8% upside potential), citing “increasingly uncertain” viability of the company’s capital structure. He expects the company’s net debt to EBITDA to be approximately 4.1-times at the end of 2020 and 4.6-times at the end of 2021, which will remain above the 4-times bank line covenant threshold until 2025, even with a recovery in crude oil prices to $55 by 2022.

Currently, the Street has a cautiously bearish outlook on the stock. The Moderate Sell analyst consensus is based on 3 Holds and 3 Sells. With a shares down about 85% year-to-date, the average price target of $0.61 implies upside potential of about 23.7% to current levels.