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Continental Resources Rises From The Downturn

Callum Turcan profile picture
Callum Turcan


  • Continental Resources rises from the downturn and posts positive FCF in 2017.
  • Debt reduction on tap.
  • Where Continental Resource is headed this year and next.
  • Production growth driven by D&C program focused on profitable barrels.

Continental Resources, Inc. (NYSE:NYSE:CLR) is a staple of America's unconventional industry with major positions in North Dakota's Bakken/Three-Fork oil play and Oklahoma's SCOOP/STACK region that is loaded with liquids-rich opportunities. Led by Harold Hamm, a well-known industry veteran, Continental Resources has withstood the downturn better than most (particularly those with a large Bakken/TF position) and is ready to pounce on $60+ WTI. Let's dig in.

Better cash flow position leads to a better B/S

By scaling back its capital expenditures when oil prices were low, Continental Resources was able to live within its organic cash flow generation last year. Continental generated $2.08 billion in operating cash flow before negligible negative net working capital effects (reduced net operating cash flow by $1.4 million), which exceeded the $1.953 billion it spent on capital expenditures and minor acquisitions (including small bolt-on acreage purchases and other PP&E additions).

Due to its favorable cash flow position, Continental was able to reduce its debt load by $226.2 million by the end of 2017 versus year ago levels as it paid down debt in Q4. Management paid down another $95 million of Continental’s debt in January 2018, bringing the company's gross debt load down to $6.26 billion. The long term goal is to have that below $5 billion on a gross basis.

From its conference call;

"As of January 31, we [Continental Resources Inc] further decreased total debt by $95 million, improving to $6.26 billion. We're targeting further – targeting free cash flow to further debt reduction, therefore creating additional shareholder value.

You saw last week that we were raised back to investment-grade by S&P. We remain in regular communication with the other rating agencies, and we are focused on returning to investment-grade status there as well. We are well on our way to getting to our short-term debt goal

This article was written by

Callum Turcan profile picture
Worked as an equity analyst for several years in the USA and have been writing financial articles and analyzing publicly traded companies for more than a decade.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (12)

I'm with SRSrocco on fundamentals...shale oil is NOT that good-ole Spindletop gusher.
It's basically "bottom of the barrel" operations that will suck dry much sooner than Arabian pools of liquid oil. So the longterm trend for the Fracker is negative..and for the oil industry, with solar/wind competition rising much faster than had been projected, there'll be no future bailout of companies debt from further rise in WTI quote.
People said the same thing about shale gas in 2010. And it has basically crushed conventional gas production in the US.

Don't be a buggywhip defender. Grandpa towncomes in the iron horse! (New things happen in business and change markets.)
SRSrocco profile picture

I have a splendid idea. Let's wait around for 2025 and see what unfolds. If I was wrong, you can tell me... I TOLD YOU SO. However, I have a pretty good knowledge that the Bakken and Eagle Ford are already dead. While production is supposedly increasing in these two shale fields, most of the companies MUST DRILL & PRODUCE OIL or they will not be able to service their debt. Thus, Bakken & Eagle Ford oil production is not being done for good economics, but rather, because these companies are forced to drill and produce oil at barely breakeven or a loss.

The Permian is the last shale oil field with a decent amount of reserves, but it won't last long. I see U.S. shale oil production falling from 5+ mbd to below 1 mbd within the next 8 years.
Again you offer no proof of your position just simply saying what you "think".

We won't be back down to 5 million bpd by 2025.

Are companies drilling in some cases to service debt? Yes that's true, they are boosting production/reserves at any cost but the market is souring on this approach, capital flight is a real thing and it is happening.
Where's your evidence production will collapse in 8 years? That's possible but that would require industry laying down the vast majority of their rigs..

When rigs get laid down and production falls despite rising global demand what do you think happens to prices? They GO UP prompting investment...

While we could certainly see a pull back if the market crashes or we go into recession, you seem to be ignoring fundamentals of how markets work in order to reach your preferred conclusion of shale production and prices collapsing, as if in a vacuum...

As for shale producers not making any money, across the industry as a whole? I can't really dispute that, full cycle returns in this business have always been very tough, even before shale. You're selling a commodity that you produce but have no control over what it sells for.

I also agree with you (at least I think you agree with this) that lower or no debt is generally better, especially in this business, but it's also somewhat unrealistic given what history has shown.

We can agree that we'd both like to see debt in the sector paid down substantially...will that happen I don't know?

Will US oil production fall back to 5 million bpd by 2025? Seems unlikely...
SRSrocco profile picture

I have been following the U.S. Shale Oil Industry for nearly a decade, ever since the Barnett Shale Gas Field took off in 2007. While the U.S. Shale Energy Industry has brought on quite a bit of oil and gas production, the industry as a whole hasn't made any money.

To produce this low EROI, high-cost shale oil and gas, the bag holders became the investor. The U.S. Shale Oil Industry has racked up over $220 billion in debt.

Unfortunately, the shale oil companies cannot pay back their debt, so they issue new debt to pay back old debt... just like Continental did with its new $1 billion in Senior Notes. When a company continues to borrow more money to pay back old debt, then we have a typical PONZI SCHEME in the making.

The U.S. Shale Energy Industry will leave a trail of tears as production collapses when investors realize they will not get their money back. I forecast U.S. oil production to decline back below 5 mbd by 2025, maybe much sooner.

Lastly, watch for shale energy companies to start going belly-up when the oil price falls back towards $40 and possibly $30 during the next market crash-correction over the next two years.
SRSrocco profile picture
The likelihood of CLR paying down 10%-20% of its debt is NIL. Continental Resources is the Poster Child of what's wrong with the U.S. Shale Oil Industry. Even though U.S. oil production has doubled in the past 8 years, due to shale, it will collapse just as quickly..... probably even faster than 8 years.

Anyone investing in most shale oil companies... you have my sympathies.
Nice post full of hyperbole, do you have anything at all to back it up? Or do you just prefer to spew BS and walk away?
CLR is a solid outfit, they've done a good job managing through the downturn in my estimation. Their fiscal discipline and reduction of debt should continue. Debt is going to become more expensive the next year or two and with Wall Street actually asking for discipline out of the energy space it will require some adjustment across the sector. I would hope that CLR will pay down the debt over the next several years to be well less than their 5B target.
Callum Turcan profile picture
@TreyT I could see Continental cutting its debt load down further, the past few years should leave a bigger mark than previous downturns in oil prices (save for the 1986 bust).
I approve of paying down the debt. We could have another downturn and the company needs some protection as a going concern.

Don't like the talk about hedging oil though. Rather have them exposed to up/down side by being unhedged but with some protection by not having much debt. Think that is right balance of risk. Also, I just don't like the attitude of thinking they can guess the oil price and know when to hedge/unhedge. Just pick a strategy and stick with it (I prefer unhedged).

Overall good work. Very solid information gained on the STACK and Bakken.

It is a small shame the situation with STACK having a bit less runway than some hoped. But it is what it is and better for them to analyze it and then share it. It's still good acreage. Just not as stunning in terms of infills as originally hoped.

Looking forward to continued development of Bakken and Springer. Heck, who knows maybe they find something else eventually.
Callum Turcan profile picture
@217 The Bakken is starting to looking more interesting now that the WTI-Bakken differential has come down and new well completion methods are bringing some monster wells oil-heavy wells.
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