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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.
The Fall On The COO Leaving Has Created A Buying Opportunity For Continental Resources
- CLR's President and COO Rick Bott abruptly decided to leave.
- Oil prices have been going downward for the last month or more.
- With oil prices seemingly stabilizing, now may be a good time to buy CLR, which has been a blue chip in unconventional oil & gas E&Ps.
Continental Natural Resources - Unexpected Cost Increase Triggers Anxiety Among Investors
- Investors in Continental finally witness a meaningful correction following multi-year momentum.
- A recent correction in oil prices, higher well costs and management turnover results in some uncertainty with investors.
- I like the long term prospects, but remain cautious at the moment.
Continental Resources: The Big Promise Of The Anadarko Basin
- Continental substantially increased resource estimates for its Anadarko Basin asset.
- The announcement of the Springer Shale discovery is important, given that the play will add to the “core of the core” drilling inventory.
- The positive read-across is to Newfield, Cimarex, Marathon and Devon.
- The company has been pursuing a disciplined growth strategy aimed at tripling the production and reserves.
- To do so, Continental Resources has been focusing on two leading oil weighted plays: Bakken Field and SCOOP.
- The company has allocated $4 billion of the capital spending budget to carry on with the enhanced completion program.
- The company was also able to increase the proved reserves by approximately 31 percent which signifies the company’s potential to secure higher production for years to come.
Continental Resources Is Set To Take Back Its Crown And To Double Its Reserves
- Continental Resources was recently supplanted as the biggest oil producer in the Bakken by the combination of KOG and WLL.
- CLR is growing faster than the combined companies of KOG and WLL by drilling alone. Plus, it is already the bigger overall producer, including other areas such as the SCOOP.
- In addition, CLR is testing new well density drilling strategies and new well completion techniques that will lead to much more production and proved reserves.
- Read the article for more details. They make CLR look like a huge buy.
Continental Resources' Catalyst: Continued Production Growth
- Shares of CLR have struggled due to declining oil prices globally.
- CLR's 2nd quarter was decent.
- The main catalyst for CLR at this point is continued strong performance.
- However, higher oil prices or a lifting of the export ban could send shares higher quickly.
Continental Resources Has Additional Near-Term Upside
- CLR is up 38% year-to-date, and roughly the same since I recommended them in November 2013.
- Higher WTI looks like the next positive catalyst.
- Shares are getting expensive, but the firm's fair value should grow considerably.
- I'm holding the stock right now, but I'm struggling to find better opportunities.
Tue, Dec. 23, 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).
Mon, Dec. 22, 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.
Tue, Dec. 9, 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.
Tue, Dec. 9, 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.
Fri, Dec. 5, 7:05 PM
- The ex-wife of Continental Resources (NYSE:CLR) oil magnate Harold Hamm has formally appealed the November divorce ruling that awarded her nearly $1B, citing 78 alleged errors and missteps that caused a judge to grossly undervalue her stake in one of America's greatest oil fortunes.
- The court ruling was considered a victory for Hamm, who was allowed to retain all of his 68% ownership of CLR in part because witnesses testified he was the driving force behind the company.
- Sue Ann Arnall's lawyers during the trial valued the marital estate at ~$18B, and say the judge never explained how only $1.4B of the $14B rise in the value of Hamm's CLR shares during the marriage was divided by the court.
Mon, Dec. 1, 6:42 PM
- Lower oil prices will continue for at least several more quarters, meaning that shares of many U.S. oil producers also will remain under pressure, CLSA research analyst Eric Otto tells CNBC, while noting there are haves and have-nots within the group.
- Among Bakken shale plays, Otto is still a buyer of Cimarex Energy (NYSE:XEC) because it is barely outspending its internally generated cash flow of a very strong balance sheet, and half of its production comes from gas; he also likes gas producers Cabot Oil & Gas (NYSE:COG) and EQT.
- He remains negative on Continental Resources (NYSE:CLR) after the company's "wrong-headed move" to monetize its hedges in order to participate in what it saw as a near-term oil price recovery, as well as Laredo Petroleum (NYSE:LPI) as it continues to far outspend internally generated cash flow.
Mon, Dec. 1, 12:56 PM
- It's been a bad three months or so for Continental Resources (CLR -3.5%) CEO and founder Harold Hamm, whose personal fortune has been cut in half thanks to a 51% drop in the price of CLR shares - including a 30% drop in the past week alone - and a relatively favorable ruling to pay his ex-wife nearly $1B in a divorce judgment.
- Since the end of August, Hamm has seen the value of his shares in the company fall from $20B in late August to slightly more than $10B on Friday.
- Hamm is hardly a pauper, of course, even though he's down to his last $8B-$10B.
Fri, Nov. 28, 9:17 AM| 13 Comments
Thu, Nov. 20, 11:59 AM
- With crude at $75/bbl - the price Goldman Sachs says will be the average in next year's Q1 - 19 U.S. shale regions including parts of the Eaglebine and Eagle Ford in Texas are no longer profitable, according to data compiled by Bloomberg.
- At least a dozen companies including Continental Resources (NYSE:CLR) and SandRidge (NYSE:SD) said on conference calls in the past month that they would reduce capital spending plans because of lower prices; Apache (NYSE:APA) said today it would cut spending in North America by 25% while still increasing production 8%-12% vs. an annual average of 29% since 2009.
- By contrast, the biggest-producing fields - North Dakota's Bakken and the Permian and Eagle Ford in Texas - pump a combined 4.7M bbl/day, and those regions remain economic at $55-$65/bbl.
- ETFs: XLE, ERX, VDE, OIH, XOP, FCG, ERY, DIG, GASL, DUG, XES, IYE, IEO, IEZ, GASX, PXE, FENY, PXJ, RYE, FXN, DDG
Thu, Nov. 13, 7:23 PM
- North Dakota regulators today proposed standards for requiring energy companies to treat the crude they pump from the Bakken Shale to make it less volatile before shipment by pipeline or train.
- "Our crude oil leaving North Dakota will behave like the gasoline you put in your car," says the head of the state's Department of Mineral Resources, which came up with the recommendations.
- The new rules would require every barrel of oil produced in the state to undergo some kind of treatment, with the goal that all oil-producing Bakken Shale wells ship crude with a vapor pressure below 13.7 psi, similar to 13.5 psi for most automobile gasoline.
- Top Bakken producers: CLR, EOG, KOG, WLL, HES, XOM, OAS, NOG, EOX, MRO.
Thu, Nov. 13, 6:10 PM
- The nearly $1B divorce settlement apparently is not enough for Sue Ann Hamm, the ex-wife of Continental Resources (NYSE:CLR) CEO and chairman Harold Hamm, as an attorney says Sue Ann will appeal the judgment.
- The $995M award - less than some observers had expected - was “not equitable,” says the attorney, pointing out that Harold Hamm would keep most of his $18B fortune, which includes 68% of CLR's shares.
- The judge ruled that $1.4B of the growth in Harold's CLR shares during the 25-year marriage marriage was "marital capital" to be split with Sue Ann, while the rest was awarded to Harold as “separate property.”
Thu, Nov. 13, 11:59 AM
- Regulators set to decide on rules for shipping crude oil via railroad are relying on testing methods that may understate the explosive risk of North Dakota crude, according to a WSJ report citing industry and Canadian officials.
- The testing controversy centers on how to determine vapor pressure, a measure of how quickly a liquid fuel evaporates and emits gases; the industry has long relied on a decades-old methodology that does not require sealed or pressurized containers to collect or test crude samples.
- The North Dakota Industrial Commission is set to rule on what steps, if any, producers must take to strip volatile gases out of crude oil before loading it into railroad tank cars.
- Top Bakken producers include CLR, EOG, KOG, WLL, HES, XOM, OAS, NOG, EOX, MRO.
Wed, Nov. 12, 6:45 PM
- Whether or not there is an oil "price war," the U.S. shale industry is flinching only a little, essentially committing to concentrate their efforts where they will be most effective rather than admit defeat, according to an FT report.
- To be sure, activity is starting to slow: Continental Resources (NYSE:CLR), Rosetta Resources (NASDAQ:ROSE) and ConocoPhillips (NYSE:COP) are among leading shale oil companies that have announced reductions in their capital spending plans, and EOG suggested as much last week when it said it would make sure its capital spending plus dividend payments were in line with the cash flow it has coming in.
- If statements from shale industry leaders are even broadly accurate, oil prices may have to go much lower before U.S. oil production starts to fall; EOG CEO William Thomas says that even if oil fell to $40, his company could still earn a 10% return in some areas, such as the Bakken and Eagle Ford.
- Although they may be drilling less than they had expected, oil companies also will focus on maximizing production from the rigs they are already using, which encourages continued expectations for output growth from the likes of Devon Energy (NYSE:DVN), EOG, CLR and Pioneer Natural (NYSE:PXD).
Mon, Nov. 10, 2:27 PM
- An Oklahoma judge orders Continental Resources (CLR -0.6%) CEO Harold Hamm to pay $995M in a divorce settlement, with about a third of the funds to be paid by the end of this year.
- To secure the judgment, the judge placed a lien on 20M shares of CLR stock.
- The ruling, which is subject to appeal, comes after a nine-week divorce trial that ended last month.
Fri, Nov. 7, 5:55 PM
- Signs are building that falling oil prices are curtailing record drilling in the U.S., as oil rigs fell by 14 to 1,568 this week, the lowest level since Aug. 22, according to Baker Hughes' (NYSE:BHI) latest monthly tally.
- The oil rig count will drop to 1,325 by the middle of next year after reaching a peak of 1,609 on Oct. 10, energy data company Genscape forecasts, as drillers from Apache (NYSE:APA) to Continental Resources (NYSE:CLR) have said this week they are reducing rigs in some oil plays.
Fri, Nov. 7, 2:38 PM
- "If you want to play oil prices at this point, why not play Continental?" Wunderlich analyst Jason Wangler writes on Continental Resources' (CLR +3.6%) "gutsy move" to cash in its oil hedges through 2016.
- Wangler's expectations are aligned with CLR, so he likes the move in agreeing with the thesis that oil prices at current levels are unsustainable and will move back into the $90/bbl area.
- Meanwhile, Reuters reports unusual actions in the courtroom by CLR's attorney in CEO Harold Hamm's divorce case, which at least one attorney following the case says "all but guarantees that the verdict will be appealed and could be thrown out."
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