John Freeman Edges Down Price Target on Oasis Petroleum Inc. (OAS) But Still Angles for Substantial Upside

Even with slightly lower expectations, Raymond James' John Freeman spotlights 66% upside potential for OAS shares.


Oasis Petroleum Inc. (NYSE:OAS) has unveiled a $946 million Permian step-out deal, where the oil and gas producer will make its presence more known in the leading domestic oil field. In deciding to purchase more acreage in the Delaware Basin from Forge Energy, the transaction will hike up the energy player’s core inventory to the tune of roughly 37%.

Raymond James analyst John Freeman is thrilled that this acquisition has lifted his expectations on the company’s core inventory life by potentially adding five years of leeway for Oasis. However, given that this inventory boost came at a steep price and taking under account challenges that could hit Oasis in operations of the Delaware Basin, Freeman in turn is shedding $1 from his target expectations.

The huge positive takeaway for the analyst is a worthwhile one: “Whereas we previously estimated that Oasis’ core inventory life was approximately 10 years under a six rig program, the acquisition has boosted this number to ~15 years of high quality inventory.”

Freeman contends, “In a surprising move, Oasis pulled the trigger on a meaningful step-out acquisition into the Delaware Basin. While we have always appreciated the pure-play Bakken focus, this transaction does meaningfully boost inventory, which had been one of the primary concerns among investors pre-deal. That being said, the market will likely take some time to come to grips with the transaction given the price tag paid and the perceived growing pains the company may face operating in a new basin. Given the dilutive impact of the acquisition on our full company NAV, we are lowering our target price from $15/share to $14/share.”

Yet, considering the analyst nonetheless stands by “meaningful upside in the name,” Freeman reiterates a Strong Buy rating on OAS stock while trimming the price target from $15 to $14, which implies a 66% upside potential from current levels. (To watch Freeman’s track record, click here)

TipRanks reveals cautious optimism circling Oasis, as 5 analysts in the last 3 months are bullish on Oasis, with 4 choosing it wiser to play it safe from the sidelines. With a return potential of nearly 43%, the stock’s consensus target price stands at $11.89.