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Continental Resources, Inc. (NYSE:CLR)

Capital One Southcoast December Energy Conference 2013

December 12, 2013 8:45 a.m. ET


Richard E. Muncrief – Senior Vice President, Operations


So Continental Resources are going to be the next presenter and Rick Muncrief is the Senior VP of Operations. So Rick, I’ll hand it over to you to run through a little bit of what’s going at Continental.

Richard Muncrief

Thank you very much for the introduction. It’s great to be here today and I look forward to telling the Continental story. Many of you probably know it, but I’ll give you a quick update on where we’re at as an organization and how 2013 has played out and looking ahead to 2014.

2013 I think we’ve done a great job with execution this year. Really pleased with our organization. We hit nearly 142,000 barrels a day was our third quarter average. Remind everyone we’re over 70% crude oil, the big drivers there in the Bakken. We continue to be a major player there and then our SCOOP play. In the third quarter we had EBITDAX of nearly $800 million. So it puts us on track to really hit a lot of our targets for 2013. We continue to be very disciplined with our capital exposure. We like to be a peer leading in metrics around CapEx. We like to be the low cost provider up there. We’re on track to deliver our $3.6 billion capital budget. I’ll be really surprised if we don’t get within about a 1% variance of that $3.6 billion.

So real pleased with how our teams have executed this year. And then obviously I think the company has done a very nice job marketing our commodities, primarily crude oil and we’ll talk a little more about that here in a few moments, but you can see what our cash margins are and percentage to the bottom line that we’re able to achieve very attractive. From a reserve standpoint, midyear of 2013 we estimated that total crude reserves of the company have grown to 922 million barrels equivalent. You can see the profile since 2009 of what that look like, once again 70% crude oil. So we’re in a very, very enviable position.

In the Bakken, from a basin perspective, our rig count has stabilized about 185 rigs. Once again the Bakken is over 80% crude oil and then gas, very rich gas. A lot of the issues around flaring are being addressed up there. Continental plays less than 10% of its gas. We’re very pleased to be that industry leader there as well. But obviously you could see that we’re on our way to be in the million barrels of crude oil production out of the basin and really pleased to be the primary operator up in the Bakken.

As I mentioned, we’ve got 1.2 million acres under lease. Majority of that is HBP. So we’ll talk about a lower bench testing that we’re doing in the Three Forks, really exciting news there. But we’re just on the cusp of truly going to full scale development. Have a little more time to understand our density, understand the contribution of the lower benches of Three Forks. And then we’re going to be doing some additional testing with various stimulation techniques throughout 2014 just to fine tune how best to develop this world class resource. We feel lucky that the Bakken is very unique. If you’re an operator up there you probably feel the same way when you see the consistent quality of crude oil in the low 40s. The refiners love it. It helps in a lot of ways. It’s very consistent. You don’t worry about a lot of blending. So we think that the Bakken just continues to grow. It’s going to get bigger and better. We talk about our exploration and delineation programs. Even though we’re several years into drilling in the Bakken, we’re still exploring. There’s a lot of opportunities up there.

In 2014 we’ll drill -- Continental will drill 300 net wells. We’ve got four density projects. We’ll have three additional density projects. I’ll talk about those in a moment. The density projects that we’ve undertaken this year, we have -- of the four we’ve already announced the results of Hawkinson and what we have is the Hawkinson, Tangsrud, Rollefstad projects. As you can see it’s noted here all 1320 feet pilot where you can have inter-well distance. The Wahpeton is a 660 inter well distance. We’ll be trying to ascertain what kind of productivity we see from lower benches. We’re going to see what kind of communication or interference we may have during completion techniques. The thing about the Hawkinson that’s something unique is that we ran some micro seismic which we think that told us some things that we’re able to tweak in future projects and really excited about what we’re seeing. Thus we’ve decided to go ahead and embark on the three additional projects.

As we mentioned on our last conference call that we got the Hawkinson we think was a very, very successful project. You can see the listed production numbers there. We had 1450 barrels a day from the existing three wells. And then we have combined IPs of the new wells, 13,400 from those 11 new wells and you can see what the corresponding cumulative production out of that -- total production out of the spacing unit was. And we really take a lot of pride in being industry leaders in the Three Fork development. There’s a lot of discussion about the contribution of the lower benches. And we remind folks that there was a lot of discussion four or five years ago about whether the Three Forks One was going to be anything that really contributed. And I think that what not only Continental has done, but other industry players have proven is that Three Forks One is quite prolific. And so we think it’s just another milestone. We’re going to continue to be leaders in understanding what this resource truly has. And I think it will set the stage for not only how Continental hopefully develops the Bakken, but how the other folks as well.

We talk about the about the Antelope area and this is -- I know our CEO Harold Hamm used the term years back and that’s where we’re going to truly drop the flag and go into full scale development later 2014. We’ve got a lot of potential. This is a very highly productive area and we talk about moving four rigs into this area. It’s taking us a while to get our working interest exactly how we wanted it. We’ve done some trades. And so we had to be very patient. It’s hard to be patient when you’ve got this productive of an area, but we’ve done just that and I think it really set us up quite well for some development that we want to have in 2014 into ’15. And we talk about potentially having 50,000 barrels a day of growth production coming out of this area pretty soon.

We talk about cost. We’re real proud of the cost profile that we currently have, but also the fact that we’ve always been what we feel as a cost leader in the basin. We have a pretty good idea of what people really spend because of our exposure to other people’s operations. So when they talk about what their AFE’s are versus the real cost, when they talk about what their EUR’s are versus other IPs, we get a pretty good idea what people are really doing. And so I think this slide just depicts where we’re at. We’re very pleased as I mentioned earlier on 2013 execution and in 2014 we’ve set an internal goal out there to be at $7.5 million for a completed well cost by yearend 2014.

I’m going to move south now into our SCOOP play. This play continues to meet our expectations, in some cases exceed our expectation. We’re really pleased with our activity level. We’re ramping up here. As we sit here today we’re at 12 rigs. We’re moving our 13th rig. We’ll have two more rigs in operation by the first of January. So in other words we’re going to add three rigs in the next three weeks. To remind everyone the Woodford down in SCOOP was a source for a lot of the traditional oil and gas production in South Central Oklahoma. It’s a world-class resource shale, up to 400 feet thick in a lot of areas. We see two distinct lobes if you will, a high and a low in a big part of it. So we’re trying to do some work there to understand the relationships between the higher and the lower. But it’s very highly siliceous and fractured and productivity is very exciting.

So when you look at our production in 2013, the third quarter, we grew sequentially 14% over Q2 and year-over-year we’re at nearly 300% of volume growth. We’ve given guidance we’ll be at 18 rigs on average for 2014. I’m going to guess we’ll probably be at 18 rigs by middle of the first quarter. So we’re ramping up there. We’ve got some examples of some recent completions. We’re currently 320,000 net acres under lease. We’re still leasing. So we’re on that walking the fine line if you will about talking a lot about it when we’re still out there in hand-to-hand combat on leasing. But one of the exciting developments as well as we’re drilling more and more of the two mile laterals we’re calling the cross units in Oklahoma. The typical spacing is 640. We’ve completed three cross unit wells. We have seven of our current rigs drilling the two well laterals. And so in essence what you’re going to get is you’re going to get about double the production, double the reserve impact at a 50% incremental cost. So it’s going to truly juice our economics. So we’re excited about that.

From a total unrisked resource potential -- I won't belabor this slide a lot, but you've got some staggering numbers. We’ve got some great exposure to the Bakken which we think is the premier basin to be in right now. We’re extremely excited about our SCOOP play. And so you can see what we have on inventory standpoint. We have a lot of work to do over the next several decades.

So when you step back and look at our five year plan that we laid out a little over a year ago, we wanted to triple organically production, triple reserves from a five-year perspective. We’re right on track. Year one of that plan, 2013 has gone extremely well. We’re running a little ahead on production of what we had forecasted. But we’re really in quite good shape. So the attributes there of exploration, we still want to confirm the lower Three Forks, the commerciality of those various benches. We want to continue to step out, expand and derisk some of the outlying Bakken areas. We need to HBP and expand, derisk our SCOOP play. And we’re going to continue to be very flexible from both a financial perspective and an operational perspective to take on whatever opportunities we have coming our way.

We have a clear vision for growth. I mentioned our tripling slides. So when you start thinking about having excellence in operations, we really do that. We focus a lot on safety and continued cost management and efficiency. We have a great growth portfolio in our existing assets and we are an exploration company. So we’re still exploring. We’re not satisfied yet. We do a very good job with our marketing capabilities and reaching premier markets. We’re currently railing about 70% of our crude currently out of the Bakken. That’s helping us especially as you access the east and west coast. And we’re going to continue to manage the company from a very conservative perspective financially and aggressively take advantages of opportunities as I mentioned.

We were one of the first companies to go ahead and prelease our 2014 plans. We had a lot of confidence based on how 2013 was going. We’re increasing our budget from $3.6 billion to $4 billion for next year. When you look at that, what that really means is about a 12% increase in CapEx from a net well standpoint. We’ll drill about 22% more wells. So I think we’re being very efficient with our capital there. So on the heels of 2013, we’re going to be growing up to 40% this year. We’re going to follow that with a 26% to 32% growth. To refresh everyone’s memory, we grew between 58% and 59% in 2012. So Continental continued to be on an extremely growth curve. We’ve got the right commodity mix and we’ve got the right assets. We’ve got the right operational capabilities.

At the end of the day this is what it’s all about is to continue to grow value of the company and Continental has got a long track record of not diluting shareholders, being very judicious and borrowing money when we needed it. We’re going to manage our growth. Our capital outspend is decreasing. So we have a lot of things going our way. We’re going to continue to make those financial metrics be the thing that sets us up for how we set our capital budgets. Our capital budgets will be what drives our activity. So as we continue to decrease well cost that’s going to provide some CapEx to work with. We’ll increase our activity level. That should accelerate our growth and certainly pull as much of our deep inventory forward as we can and enhance the value for shareholders.

So with that, it concludes our presentation and we will see you in the breakout session. Thank you very much.


[There was no Q&A for this presentation].

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