Continental Resources: Buy This Oil Stock

Shares of Continental Resources (NYSE) rose around 38% on the back of mixed fourth-quarterly numbers and some positive movements in the crude oil prices of late. As a result, its shares are up about 8% since year-to-date. However, the dilemma is that if this momentum in its share price could sustain this year for Continental? Yes or no to this question largely depends upon the crude oil prices this year, which are not expected to recover until late 2017.

Better placed

Not surprisingly, this continued downturn in the oil prices has done a lot of damages to Continental Resources financials this year.
Although, its revenue of $575 million for the fourth-quarter 2015 was better than analysts’ estimates, it dropped approximately 56% year-on-year basis. In addition, its losses for the quarter expanded to $0.23 per share from loss of $0.12 per share in the third-quarter of 2015. In effect, Continental Resources had reported net earnings of $1.14 per share in the fourth-quarter of 2014.

However, the important thing is that Continental Resources is better placed during this downturn as compared to its peers such as Whiting Petroleum Corporation (WLL) and Marathon Oil Corporation (MRO) that reported their results of late. These peers experienced wider losses of $0.43 and $0.48 per shares year-on-year basis for the fourth-quarter 2015 respectively.

This superior bottom line performance evidently differentiates the company from its peers and reflects the ability to perform well during the downturn. In effect, Continental Resources remains grounded to moderate the effect of low crude oil and gas prices through a variety of moves such as reduction in costs & expenses, capital expenditure, improving recoveries and efficiencies for its assets through investments in the new technologies. Let us have a look at these moves that should possibly assist the company surviving this downturn efficiently.

Limiting capital expenditure to generate neutral cash flow

Continental Resources apart from these operational and capital efficiencies is lowering its capital budget for fiscal year 2016. The oil & gas producer curtails its capital expenditure by 66% to $920 million this year from $2.7 billion in 2015. This is a good move as it expects its cash flow to become neutral at an average WTI price of $37 for the year. The important thing is that even at this reduced capital budget the company expects the exit rate to be close to 180,000 Boe per day, which is slightly lower from 2015 but relatively higher from its exit rate in 2014.

Strong balance sheet to support this downturn

Shareholders at Continental Resources should be pleased with its balance sheet position that has no maturity until 2018. This means that the company has low interest to be paid at present and has no debt refinancing issues to deal with. Moreover, it has debt to total capitalization ratio of $0.65 that makes it attractive in the current conditions though it is at slightly higher side. On the other side, CLR’s has $830 million of borrowings against the revolver, providing approximately $1.9 billion in available borrowing capacity under the facility.

Conclusion

Looking at the current scenario, Continental Resources is well placed with its operational as well as financial results. Its capital efficiencies, costs reduction, and operational efficiency initiatives should help the company to survive this downturn with ease. In fact, Continental counts on these initiatives to make its dividend sustained during this oil carnage and create value for its shareholders.
Published on Mar 9, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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