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Continental Resources Still Has Some Decent Acreage But It Comes With An Unsustainable Debt Load

Jul. 13, 2020 2:24 PM ETContinental Resources, Inc. (CLR)EOG5 Comments
Zoltan Ban profile picture
Zoltan Ban


  • Less than a year ago Continental Resources was expecting to see a continued decline in its debt. The current crisis threatens to wipe out all the progress made and more.
  • While it is still sitting on, decent acreage, Continental's main project, the Bakken is starting to show signs that the average acreage it is drilling is of diminishing quality.
  • If oil prices will recover soon Continental can still preserve itself.  If however oil prices will not recover soon, it is likely to be forced to sell some assets.

As I pointed out in a recent article in which I covered EOG (EOG), the current economic crisis may leave many shale producers with no choice but to either declare bankruptcy or sell off some of their best assets. A few may be left standing and they may even be in a position to pick off some of the better assets left on the carcass of the industry. EOG looks like a good bet to be among those few. Continental Resources (NYSE:CLR) on the other hand is a big question mark. It does have some strengths, but all the negatives may outweigh the positives at this point. In the absence of a timely increase in oil prices to a much higher level compared with the current price environment, it may find itself struggling. It may survive this difficult period, but not without having to resort to selling some of its better, more profitable assets.

Continental's Q1 results paint a worrying picture.

While the net earnings numbers showing a loss of $186 million in the first quarter of 2020 shows an ugly picture, it is not the entire picture. Accounting rules tend to often distort the true profitability picture by including items such as depreciation and impairments in the costs and expenses section of the income statement. This tends to have a distortive effect, especially on commodity producers which tend to be volatile. The increase in long term debt tends to be a better indicator in regards to what is going on in regards to profitability. in the absence of major investments or divestments, it tends to reflect a mismatch between money spent on all operations and the money derived from operations. In the case of Continental, its long term debt increased from $5.3 billion in the first quarter of 2019, to just under $6 billion in the latest quarter. At the end of

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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Comments (5)

I thought you might focus a little more on CLR shutting in a large percentage of its North Dakota Bakken production.

Check out the recent blog post on shaleprofile.com regarding CLR produced in ND in April and May, 2020.

November, 2019 gross oil production was 203K BOPD. April, 2020 was 147K BOPD. May, 2020 was 73K BOPD.

April 2020 WTI averaged $16.55. May 2020 $28.56. June 2020 $38.31.

WTI seems stuck around $40.
They do have too much debt agreed. But I'm not seeing any strong evidence for wells getting worse. Those lines are on top of each other.
Fractalman profile picture
If oil gets back to $60, they should be okay. There are plausible scenarios whereby oil goes higher (some have it much higher). In the latter event, they'll be able to eliminate debt if they marshall their funds correctly.
These guys will be BK in 24 months.
Zoltan Ban profile picture
If the price of oil does not recover within a year or so, it could happen. The way I see it, Continental as well as many others need about $80/barrel oil to make ends meet in the longer run.
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