Continental Resources Earnings
Estimates: Analysts expect Continental Resources earnings to soar 800% to 81 cents per share with revenue up 66.7% to $1.21 billion.
Results: EPS of 90 cents with revenue up 76% to $1.28 billion. Crude production jumped 17% year-over-year to 164,605 barrels of oil per day. Production from its Bakken operations hit a new quarterly record of 167,643 barrels of oil equivalent per day, up 23% year-over-year.
The net sale price, excluding the effects of derivative positions, was $65.78 per barrel of oil, down from $63.35 in Q2 but up from $43.27 a year ago.
Outlook: Continental currently has 8 rigs drilling in the Bakken, up by 2 rigs from Q2, with that number expected to swell to up to 70 wells to be completed by year end 2018.
“With up to 70 of our forecasted 2018 Bakken wells and up to 18 SpringBoard wells scheduled to be completed by year-end, Continental anticipates a strong wave of oil-weighted production growth as we approach year-end,” said Chairm and an CEO Harold
$215 Million in Proceeds Received in October from Minerals Venture Closing
On October 23, 2018, the Company closed its strategic minerals agreement with Franco-Nevada. The Company received approximately $215 million in net proceeds at closing, which offset previously incurred Capex for acquired minerals. Moving forward, the minerals relationship will capitalize on the Company’s land and exploration expertise and will focus predominantly on acquiring minerals under the Company’s drill plan. To grow the minerals portfolio, Franco-Nevada has committed up to $300 million over the next three years, while the Company has committed up to $75 million (or 20% of the total investment) over the next three years, subject to achieving agreed upon development thresholds. With a carry structure in place, the Company will earn 25-50% of total revenue from the minerals venture, based on achieving certain predetermined targets.
Production Update
Third quarter 2018 production totaled 27.3 million barrels of oil equivalent (Boe), or 296,904 Boe per day, up 22% from third quarter 2017. Total production for third quarter included 164,605 barrels of oil (Bo) per day, as well as 793.8 million cubic feet (MMcf) of natural gas per day. The following table provides the Company’s average daily production by region for the periods presented.
Bakken: 167,643 Boepd Average Daily 3Q18 Production; up 23% over 3Q17
The Company’s Bakken production hit an all-time quarterly record, averaging 167,643 Boe per day in third quarter 2018, up 23% versus third quarter 2017. During the quarter, the Company completed 42 gross (26 net) operated wells flowing at an average initial 24-hour rate of 2,013 Boe per day. Two of the wells ranked as top ten 30-day rate Bakken wells for the Company, including the Wiley 8-25H (2,289 Boe per day) and Mountain Gap 3-10H (2,094 Boe per day). All Company top ten 30-day rate Bakken wells have been completed in the past twelve months.
The Company currently has 8 rigs drilling in the Bakken, up 2 rigs from last quarter to facilitate continued oil growth in 2019. In fourth quarter 2018, production is expected to ramp significantly with up to 70 wells forecasted to be completed by year end 2018.
“The performance and returns from the Bakken have been exceptional,” said Jack Stark, President. “Our entire 2017 Bakken program, which included 133 operated wells, paid out by the end of third quarter 2018. Now that’s capital efficiency.”
STACK: 3 Meramec Units Flow at Combined Initial Rate of 74,260 Boepd (24-Hr. IP)
The Company’s STACK production increased 58% to 56,129 Boe per day in third quarter 2018, compared to third quarter 2017. During the quarter, the Company completed 15 gross (7 net) operated wells with first production. The Company currently has 5 operated drilling rigs in STACK.
The Company recently completed three outstanding Meramec units in the over-pressured oil and condensate windows of STACK. All three units were developed with the equivalent of six, two-mile wells. In the oil window, the Jalou unit flowed at a combined initial 24-hour rate of 25,404 Boe per day, averaging 2,470 Bo per day per well and 10,587 Mcf per day per well. At an average 24-hour rate of 4,234 Boe per day, the Jalou wells set an industry record for fully developed units in the STACK over-pressured oil window. Additionally, in the oil window, the Homsey unit flowed at a combined initial 24-hour rate of 21,127 Boe per day, averaging 2,071 Bo per day per well and 8,701 Mcf per day per well. In the condensate window, the Simba unit flowed at a combined initial 24-hour rate of 27,729 Boe per day, averaging 621 Bo per day per well and 24,001 Mcf per day per well.
“The outstanding results from these units confirm both our unit development model and the exceptional quality of our Meramec reservoirs, which are some of the thickest and most over-pressured in STACK,” said Tony Barrett, Vice President, Exploration. “These results demonstrate the potential of our operated STACK inventory with up to 65 units remaining to develop in the oil and condensate windows.”
The following table provides the average initial 24-hour rates per well for recent STACK units:
SCOOP: Project SpringBoard Proceeding on Schedule with 14 Rigs Drilling
The Company’s SCOOP production averaged 63,270 Boe per day in third quarter 2018, up 10% versus third quarter 2017. The Company’s SCOOP crude oil production in third quarter 2018 increased 33% over third quarter 2017. The Company completed 9 gross (7 net) operated wells with first production in third quarter 2018. The Company currently has 16 operated drilling rigs in SCOOP, ramping up to 18 by year-end.
Project SpringBoard is proceeding on schedule with 14 rigs drilling, 8 of which are targeting the Springer reservoir and 6 of which are targeting the Woodford and Sycamore reservoirs. In the Springer, the Company has finished drilling 17 of the 18 wells planned for row 1 and has begun drilling row 2. Of the 17 Springer wells drilled, 9 are flowing-back and 8 are in various stages of completions. In the Woodford and Sycamore, the Company has finished drilling 9 wells to date.
“Project SpringBoard is a massive oil project where we are concurrently developing three reservoirs,” said Gary Gould, Senior Vice President of Production & Resource Development. “As expected, we are already realizing operational efficiencies that will translate to significant additional value for our shareholders.”
Financial Update
“Continental’s strong third quarter and early fourth quarter results reflect our strategic decision to focus operations on oil-weighted production growth,” said John Hart, Chief Financial Officer. “Continental is poised to deliver a strong exit rate, increase our oil production growth and continue to use significant free cash flow to further reduce debt toward our long-term target of $5 billion or below.”
As of September 30, 2018, the Company’s balance sheet included approximately $13 million in cash and cash equivalents and $5.96 billion in total debt. On September 30, 2018, net debt (non-GAAP) was $5.94 billion. Net debt is projected to be between $5.4 and $5.6 billion at year end 2018, driven by strong cash flow. The Company’s third quarter annualized net-debt-to-EBITDAX ratio was 1.49x and has now reached levels seen prior to the three-year commodity down cycle.
In third quarter 2018, the Company’s average net sales price excluding the effects of derivative positions was $65.78 per barrel of oil and $3.12 per Mcf of gas, or $44.85 per Boe. The Company remains unhedged on oil. Production expense per Boe was $3.77 for third quarter 2018.
Non-acquisition capital expenditures for third quarter 2018 totaled approximately $790.8 million, including $633.5 million in exploration and development drilling, $105.5 million in leasehold, and $51.8 million in workovers, recompletions and other. Non-acquisition capital expenditures for third quarter were slightly higher than projected due to timing of completions that will see first production in fourth quarter 2018 or in 2019.
About Continental Resources
Continental Resources (NYSE: CLR) is a top 10 independent oil producer in the U.S. Lower 48 and a leader in America’s energy renaissance. Based in Oklahoma City, Continental is the largest leaseholder and the largest producer in the nation’s premier oil field, the Bakken play of North Dakota and Montana. The Company also has significant positions in Oklahoma, including its SCOOP Woodford and SCOOP Springer discoveries and the STACK plays. With a focus on the exploration and production of oil, Continental has unlocked the technology and resources vital to American energy independence and our nation’s leadership in the new world oil market. In 2018, the Company will celebrate 51 years of operations. For more information, please visit www.CLR.com.
