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Continental Resources: Data Suggests Beginning Of The End Of Prime Acreage Honeymoon

Nov. 15, 2019 11:09 AM ETContinental Resources, Inc. (CLR)16 Comments
Zoltan Ban profile picture
Zoltan Ban


  • With oil prices declining from $70/barrel to $56/barrel from Q3 2018 to Q3 2019, Continental's profits were cut in half, confirming that Bakken's best acreage needs about $50/barrel for viability.
  • Continental's well data suggests that wells drilled and completed this year are slightly under performing wells drilled last year, which suggests beginning of end of prime acreage drilling.
  • Wells seem to be underperforming despite evidence that Continental further consolidated drilling into core areas, meaning that well interference is playing increased role, signaling over saturation.

While I never took a great deal of interest in the shale patch as an investment opportunity, I have been paying very close attention to the industry as a way to gauge where the overall global oil market is headed. I found that one of the best ways to gain a clearer picture is to focus on certain companies which can serve as a gauge with regard to shale profitability in certain parts of specific fields. For instance, for Eagle Ford's second tier areas, I mostly followed the now bankrupt Sanchez Energy, given that its acreage was mostly located in Dimmit County, where well results were overall inferior. The fact that it went bust is a clear indication in my view with regard to where things stand when it comes to profitability in Eagle Ford's second tier acreage. When it comes to Bakken's first tier acreage I have been mostly following the financial results posted by Continental Resources (NYSE:CLR). It's not a perfect gauge, given that it also operates in other fields, but currently about 57% of its total production volume comes from Bakken's first tier acreage. In terms of revenue, the ratio is much higher, given that most of its oil production comes from Bakken. Based on the latest quarterly numbers, it seems that we are getting close to the point where oil prices may be just high enough to sustainably produce oil from Bakken's best acreage, but this is definitely close to the point where it becomes uneconomical. This is potentially bad news for the longer term, because there's also evidence emerging that its first tier acreage may be getting saturated.

Lower oil prices cut Continental's profits in half

In the third quarter of 2018, the average price of WTI was just under $70/barrel, which is when Continental achieved a net

This article was written by

Zoltan Ban profile picture
My name is Zoltan Ban,  I have a BA in economics. I am a personal investor with over a decade and a half of active trading experience.

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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