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at Investor's Business Daily (Jan 12, 2015)
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Kinder Morgan Buys Harold Hamm's Hiland Partners - Should Continental Have Benefited?
- Kinder Morgan is buying Hiland Partners for $3 Billion from Harold Hamm.
- Harold Hamm is the Chairman and CEO of Continental Resources.
- Continental is a major customer of Hiland Partners.
- Should Continental have owned Hiland? Did shareholders lose out? What about fiduciary duty?
Continental Resources: 2015 Cash Burn Of $749 Million Expected At Current Oil And Natural Gas Prices
- Continental Resources is on track to burn $749 million in 2015 if prices follow the futures forward curve.
- This would leave it at around $6.6 billion in debt at the end of 2015, with a significant risk of a credit rating downgrade.
- However, 2016 cash flow looks good if Continental is willing to rein in its growth.
- Positive cash flow in 2016 can be achieved with WTI oil above $51 per barrel, while maintaining 2015 exit rate production.
- $50 to $60 per barrel WTI oil would likely mean that Continental would be looking at low-single digit production growth if it wants to avoid increasing debt levels.
Proven Reserves And Production Rates Show Continental Resources Is Undervalued
- Continental Resources is currently undervalued by 50% to 80% based on historic valuations assigned to proven reserves and daily production rates.
- The recent price decline in WTI offers an entry point for long term investors. The price drop in WTI has happened before, each time recovering over the coming years.
- Continental Resources debt levels appear to be appropriate when comparing the cost to service the debt related to production rate.
- Continental Resources is trading at the same value as it was in 2012. The company has doubled the proven reserves as well as production rate since 2012.
2015 Will Be A Tough Year For Continental Resources
- Continental Resources made a mistake in liquidating its hedge positions, because the price of oil may remain low for much longer.
- At current oil price level, it will spend significantly more money than it will make this year.
- Continental may come out of this with more debt and perhaps with fewer assets, as well as lower quality reserves.
Continental Resources: How CapEx Affects Future Production Levels
- Cost per well has fallen in conjunction with oil prices, mitigating some of the impact of reduced CapEx.
- Around $2.5 billion in CapEx (at current costs) should maintain production at 2014's targeted exit rate of 200,000 BOE per day.
- $1.6 billion to $1.7 billion should maintain production at 2014's estimated average production level of 173,800 BOE per day, although 2015's exit rate would be lower in that case.
- The average well started in 2014 will have nearly as much production in 2015 as in 2014.
- The reduction in new wells in 2015 will have more of an impact on 2016's growth numbers than 2015.
Bakken Update: Continental Resources' Well Results Around 2 Major Well Pads Not Currently Economic
- Burke County well results have been very poor outside of the Nesson Anticline, with most areas not economic at $100/bbl WTI and 18 month payback.
- Two of CLR's largest well pads were located on Burke's Nesson Anticline. Excluding a couple of monster wells, these locations require much higher oil prices.
- Economics improve significantly the further south locations are down the Nesson Anticline. Well pressures are much lower in Burke.
- We continue to believe rigs will move out of Burke, Divide, Billings and Stark counties.
- Better locations can be found in SE Williams, NE McKenzie, SW Mountrial and NW Dunn counties.
Continental - Low Cost Production And Prudent Capital Budgeting Should Be Applauded
- Continental Resources has cut its 2015 capex budget by 48%, still expects decent production growth.
- The decision is to be applauded, as the company aims for cash flow neutrality at some point next year.
- Given these measures, the low cost production base and the long term debt maturity profile, Continental will likely survive the current storm.
Continental Resources: Budget Cut In Half, Production Still Growing
- At $2.7 billion, Continental’s budget appears to be fully funded under a $60 per barrel WTI and $3.50 per MMBtu Henry Hub scenario.
- Under the new operating plan, I anticipate the company’s production to grow at a significant rate during the first half of 2015, flattening thereafter.
- In the event commodity prices decline further, Continental would face difficult decisions, as drilling economics would be severely challenged.
Update: Continental Resources Seeks Elusive Cash Flow Neutrality
- 2015 capex budget is slashed by 41%.
- The company expects to grow average production 16-20%.
- Cash flow neutrality is achieved at $65 WTI oil price.
- At $57 WTI, much of the company's Bakken acreage is marginal at best.
- Continental has $2 billion in maintenance capex needs and over $200 million in interest expenses.
- With hedging protection removed, Continental is highly exposed to the downward volatility in oil prices as of late.
Bakken Crude Trading At $41.75/Bbl Is Continental Resources' Quandary
- Realized wellhead prices for Bakken crude were recently trading at a $16 discount (27%) to WTI.
- The NDIC's latest report showed Bakken November production dropped month-over-month.
- Lower prices, rail transportation costs, new flaring and stabilization regulations are all negatively affecting Bakken producers.
- As a result, it appears much of Continental Resources' (unhedged) production is unprofitable at the current price.
- Should CLR keep growing production, or stop drilling and completions until the price rises?
Continental Resources Cannot Grow At 25% With Oil At $65
- Richard Zeits leaves unanswered his own question of whether Continental can grow 25% with oil at $65.
- Simply presenting company data without doing a cash flow analysis is not enough to prove a thesis.
- If the premise is to maintain current production levels by being cash-flow neutral Continental fails to do so at $65 oil.
- Continental’s current 2015 budget implies 23%-29% year-on-year production growth.
- The company has sufficient drilling inventory that remains economic even at $65 per barrel.
- Assuming no change in the price of oil, credit considerations will likely cause spending reductions throughout the year.
- However, even assuming significant budget cuts, the company’s production will still likely grow in 2015.
- The recent decline in WTI price does not align with global GDP growth, creating an opportunity for investors with a long term view.
- Continental Resources recently closed out futures contracts and realized a profit of $433 million dollars, effectively making a strong bet on a recovery in the price of oil.
- Continental Resources stock has dropped over 30% since June while the company is seeing greater than 25% production growth.
- China, India and the US will continue to increase demand for oil heading into 2015 and beyond.
Continental Resources: More Big Wells And 9 Rigs Running In The Springer Shale
- Continental emphasizes shallow declines observed in its Springer early production data.
- Given high oil yields (70% of current production) and prolific wells, the Springer may beat other formations in the stack in terms of drilling economics.
- Expect quick delineation as the Springer is mapped out and held by production by existing Woodford wells.
Continental Resources' Recent Share Price Dip Creates A Buying Opportunity
- Continental Resources’ share price has fallen due to the company’s announcement of an increase in drilling costs.
- Continental’s unrisked resource potential in the Bakken region is approximately 4.1 billion BOE (barrels of oil equivalent) in addition to the company’s proved developed reserves of 240 million BOE.
- The company has announced a new oil discovery, the Springer Shale, in the heart of the SCOOP region.
- The CEO of Continental Resources bought 72,000 of the company’s shares for a total of more than $4.85 million.
Continental Resources: Why Is The Stock Down After An Impressive Analyst Day?
- Continental’s Analyst Day vividly demonstrated that the company’s opportunity set is vast and growing, even in the context of the stock’s large market capitalization.
- Results of the company’s density pilots and lower Three Forks evaluation bring a sense of reality with regard to what is technically possible.
- Continued density and completion optimization may redefine drilling returns in the Bakken.
Continental Resources: Sell-On-The-News Or Buy-On-The-Dip?
- The shares of Continental Resources slumped last week.
- The company announced an uptake in drilling costs, cut the top end of its production guidance.
- The increase in its core Bakken reserve base was also not that great.
- That said, Continental Resources is not the same E&P company as two years ago.
Thu, Jan. 22, 6:49 PM
- Analysts generally are modestly positive on Kinder Morgan's (NYSE:KMI) $3B deal for Harold Hamm's Hiland Partners pipeline network, as "the accretion should support a slight acceleration to KMI's prior dividend forecast despite what otherwise looks like an expensive transaction."
- KMI shares ended barely above unchanged as the broader stock market roared higher, as investors may have thought that Richard Kinder was not conservative enough in assessing the deal; "It doesn’t look especially cheap on the up-front numbers," a Tudor Pickering analyst said, but "they’re trying to take advantage of what they view as a down market in the Bakken."
- For Continental Resources (NYSE:CLR) head man Hamm, selling off his personally owned pipelines gives him lots of dry powder in case he decides to buy any troubled smaller oil companies, plus the personal cash losses from his nasty divorce are well documented.
- But Hamm may have gained a better deal than anyone realizes: A judge in the divorce proceedings valued Hamm's 62% stake in Hiland at just $248M.
Wed, Jan. 21, 2:03 PM
- “Companies will start to sell off the family silver” amid sustained low oil prices, and Halcon Resources (NYSE:HK) and Goodrich Petroleum (NYSE:GDP) are among energy companies that need to keep an eye on their liquidity the most and are thus the most likely candidates to sell assets, analysts say.
- HK has the most debt relative to its market value among similar-sized North American peers, according to Bloomberg data, and its plan to cut 2015 drilling to just three rigs vs. earlier plans for as many as 11 opens up the possibility that it could try to sell some of the acreage where it is not currently drilling, SunTrust's Neal Dingmann says.
- Analysts also tab Clayton Williams Energy (NYSE:CWEI), Denbury Resources (NYSE:DNR) and Penn West Petroleum (NYSE:PWE) as energy companies most likely to sell assets.
- Also, Dingmann names top Bakken producers Continental Resources (NYSE:CLR) and Whiting Petroleum (NYSE:WLL) as potential targets of takeover interest as producers with stronger balance sheets that have become more affordable with oil’s plunge; other analysts mention Carrizo Oil & Gas (NASDAQ:CRZO) and PDC Energy (NASDAQ:PDCE) as potential candidates.
Thu, Jan. 15, 10:25 AM
- North Dakota oil production rose to a new record even as energy companies drilled fewer wells and the rig count dropped to a near five-year low.
- The state's oil output hit a record 1.19M bbl/day in November, the most recent month available, according to data released yesterday by North Dakota’s Department of Mineral Resources.
- Despite the new record, the head of the department warned the state’s crude production will peak and decline later this year if oil prices don’t rebound; the current price of North Dakota sweet crude is ~$29.25/bbl, the lowest since Dec. 2008.
- The latest drilling rig count is 158, the lowest in nearly five years and down from a high of 218 rigs in 2012, but the department says production may not start to drop until the rig count falls to 130 or lower.
- Gregor McDonald argues that the North Dakota data confirming that Bakken drilling activity has slowed meaningfully has sparked the snapback rally in crude oil prices.
- Top Bakken producers: CLR, EOG, WLL, HES, XOM, OAS, NOG, EOX, MRO
- ETFs: USO, OIL, UCO, SCO, BNO, DTO, DBO, UWTI, USL, DWTI, DNO, SZO, OLO, TWTI, OLEM
Wed, Jan. 14, 4:59 PM
- Harold Hamm has pledged 68.7M Continental Resources (NYSE:CLR) shares he owns, ~27% of his total CLR holdings or ~18.5% of all the company's outstanding shares, as collateral for a personal loan, according to an SEC filing.
- The filing does not state the purpose of the loan, but Hamm's divorce lawyers recently said he took out a loan to fund a divorce settlement with ex-wife Sue Ann Arnall; under the terms of the loan, Hamm could be required to put up more shares if the value of the company’s stock drops.
- CLR has 372.2M shares outstanding, with 86.1M in the hands of public investors and available to trade.
Wed, Jan. 14, 2:35 PM
- Barclays downgrades the large-cap E&P sector to Negative from Neutral and the small- and mid-cap E&P group to Negative from Positive, arguing that downside risk outweigh potential gains even if oil prices recover.
- Equity investors are pricing in WTI crude assumptions of close to $75/bbl in 2016 compared to current strip prices of ~$57, Barclays says, also noting that an abundance of relatively cheap oil supply from U.S. producers could further delay a price recovery.
- Among specific names, the firm downgrades CHK, SD, REN and HK to Underweight; DVN, CLR, KOS, MRO, RSPP and WLL are cut to equal weight.
- At the same time, Barclays picked a few favorites, upgrading Range Resources (NYSE:RRC) to Overweight from Equal Weight, and maintained Overweight ratings on large-cap E&P companies CNQ, EOG and NBL; among small- and mid-cap E&P names, the firm favors AR, CXO and XEC.
- ETFs: XOP, IEO, PXE
Mon, Jan. 12, 7:22 PM
- The number of drilling rigs operating in North Dakota's oil fields has dropped to 159, the lowest level since November 2010.
- The state lost eight rigs overnight, according to state data, a steep one-day drop not seen for years in the second-ranked U.S. oil producer.
- The drop comes after Continental Resources (NYSE:CLR), Oasis Petroleum (NYSE:OAS) and other companies announced capital spending cuts for 2015, admitting they planned to use fewer rigs this year.
- Other major North Dakota producers include EOG, WLL, HES, XOM, NOG, EOX and MRO.
Mon, Jan. 12, 3:57 PM
- Sue Ann Arnall, the ex-wife of Continental Resources (CLR -4.4%) oil magnate Harold Hamm, is vowing to continue with an appeal of her divorce case even after she cashed a $975M check from Hamm.
- "I will not dismiss my appeal and do not feel that my right to appeal should be denied because I have accepted, in the interim, a small portion of the estate that we built over more than two decades," Arnall says through her lawyers.
- If she continues an appeal, Hamm would try to have it dismissed on grounds she has already accepted the benefits of the earlier ruling.
Fri, Jan. 9, 10:56 AM
- North Dakota needs an oil price of $55/bbl and a fleet of at least 140 rigs to sustain production at the current level of 1.2M bbl/day, according to a presentation from the state's chief mineral resources regulator.
- Breakeven rates for new wells range from $29 in Dunn county and $30 in McKenzie to $36 in Williams and $41 in Mountrail; these four counties account for 90% of drilling in the state.
- The number of rigs operating in the state already has fallen to 165, down from 191 in October.
- The projections confirm North Dakota's oil output will start to fall by year's end unless prices rise from current depressed levels.
- Top Bakken producers: CLR, EOG, WLL, HES, XOM, OAS, NOG, EOX, MRO
Thu, Jan. 8, 6:53 PM
- Sue Ann Arnall, the ex-wife of Continental Resources (NYSE:CLR) oil magnate Harold Hamm, decides $975M isn't so bad after all, and reportedly has cashed the hand-written check just days after rejecting the payment which had ordered by a court.
- It's not clear whether the check's cashing will end the bitter divorce proceedings, but accepting the benefits of the settlement should at least end the appeal process.
Thu, Jan. 8, 3:29 PM
- News reports about crude oil futures prices plunging through $50/bbl have been plentiful but many U.S. physical crude producers are receiving far less and would be thrilled if they could get $50, Reuters' John Kemp writes.
- Case in point: Prices received by oil producers in North Dakota's Williston Basin have averaged less than $34/bbl so far this month, according to Plains Marketing, falling by almost two-thirds since June when Plains posted an average price of nearly $92/bbl for Williston Sweet.
- The recent decline has been almost as rapid and brutal as 2008-09 when Williston prices crashed from $116 to less than $17.
- Kemp says past experience suggests extreme prices tend be relatively short-lived phenomena and followed by at least a partial correction, and thinks some sort of rebound is likely this time around in the next 2-3 months.
- Top Bakken producers: CLR, EOG, WLL, HES, XOM, OAS, NOG, EOX, MRO.
Tue, Jan. 6, 5:19 PM
- Continental Resources (NYSE:CLR) CEO Harold Hamm, embroiled in a bitter divorce, sent his former wife a hand-written check for $974.8M but she rejected it, his lawyer said today.
- Sue Ann Arnall, who was married to Hamm for 26 years, contends that her nearly $1B divorce award was inadequate and allowed Hamm to keep the vast majority of a fortune her lawyers valued as high as $18B.
- Hamm, for his part, has asked the trial judge to reduce the award due to the impact that plunging oil prices have had on his net worth; CLR shares have lost nearly 60% of their value since Sept. 1.
Tue, Jan. 6, 11:19 AM
- Craig Hodges, co-portfolio manager of the Hodges Blue Chip 25 Fund, says he is going bargain hunting in the beaten-down energy sector because he sees oil eventually rebounding toward $80-$90/bbl.
- Hodges particularly likes Continental Resources (NYSE:CLR), which has dropped from $60 to the low $30s because it is a big driller in the relatively higher-priced Bakken Shale, but he expects a significant rebound when the energy sector normalizes; Helmerich & Payne (NYSE:HP) has lost 40%-45% of its value in recent weeks, but it is a very longstanding, high-quality maker of flex rigs for drillers.
- The Hodges fund's top holding is U.S. Steel (NYSE:X), whose cost cuts since 2008 have the company structured so that its stock will surge when it enjoys a resurgence in demand; other stocks he likes for the long term include TRN, TCBI, BA.
Dec. 23, 2014, 2:27 PM
- Continental Resources (CLR +4%) shares are up nicely after the company announced plans to cut 2015 capital spending by 40% while increasing production by as much as 20%.
- Even though Harold Hamm is pulling in his horns a bit after monetizing all of CLR's crude oil price hedges in late October and early November - only to see crude prices continue to fall - the CEO remains calm and confident about the future of the oil business: "I’ve seen this six or seven times,” he says.
- Guggenheim analysts raise their share price target to $48 from $44, as CLR's growth rate guidance is higher than expected considering the lower capex; the firm says expectations for SCOOP drilling and cost efficiency improvements are notable.
- Stifel maintains its Buy rating but cuts its target to $50 from $55, as the firm estimates oil would have to average $70/bbl for CLR to achieve cash flow neutrality in 2015 (Briefing.com).
Dec. 22, 2014, 5:45 PM
- Continental Resources (NYSE:CLR) continues to cut its 2015 capital budget in response to falling oil prices, now forecasting 2015 capex of $2.7B after announcing a $4.6B budget last month, which itself was a cut from its original $5.2B target.
- CLR also lowers its outlook for next year's production growth to a 16%-20% increase after telling investors last month to expect 23%-29% growth in 2015.
- CLR reduces its expected average rig count for the year to 31 from earlier expectations of 50.
- CLR's 2014 capital budget was $4.05B.
Dec. 9, 2014, 6:20 PM
- North Dakota issues strict new oil standards that will require energy companies operating in the state to strip explosive gases from crude oil that shows a high vapor pressure reading, in an effort to make crude-by-rail transport safer.
- Under the new mandate, North Dakota oil can’t be transported unless it has a vapor pressure reading of 13.7 lbs./sq. in. or lower.
- The rule, which will take effect on April 1, 2015, is the first major move by regulators to address the role of gaseous, volatile crude oil in railroad accidents which have been linked to several fiery explosions, including one last year in Quebec that killed 47 people.
- Top Bakken producers: CLR, EOG, KOG, WLL, HES, XOM, OAS, NOG, EOX, MRO.
Dec. 9, 2014, 5:45 PM
- Harold Hamm’s willingness to make risky bets helped him build Continental Resources (NYSE:CLR) into the one of the biggest oil producers in North Dakota’s Bakken Shale, but his latest gamble that counts on a quick rebound in crude prices is rubbing some observers the wrong way.
- Hamm's move last month to cash in nearly all of CLR's financial hedges is coming in for some second-guessing; if CLR had kept the contracts that insured it against lower crude prices, it could have reaped $52M more for its oil last month and possibly another $74M this month - and those projections would continue to rise in the coming months if oil prices remain below $96/bbl - according to a WSJ review.
- “It was a bad move with terrible timing,” says Caymus Capital's Gregg Jacobson; though he thinks the hedging sale will prompt some investors to view CLR as unusually risky, Jacobson says he remains a supporter because of its executives’ skill in finding and drilling for oil.
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