Continental Resources: Bet Big on This Oil Company

Continental Resources (CLR) announced fourth quarter ended December 31, 2015 total revenue of $575.5 million, down 56 percent year-over-year from $1.3 billion during the same period last year.

Continental declared fourth quarter of 2015 adjusted net loss of $86.6 million or $0.23 of adjusted diluted loss per share compared to adjusted net income of $420.8 million or $1.14 of adjusted diluted net income per share in fourth quarter of 2014.

The upstream energy mining company reported a continued decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment coupled with the rising exploration expenses, eating into the company’s key margins.

Impressive liquidity

Continental is believed to have robust liquidity position with an attractive $2.75 billion of revolver credit facility and further having notable capacity to enhance to nearly $4.0 billion.
The company has a total of nearly $1.9 billion accessible on revolver with no borrowing limit redetermination and a strategic 2-year extension alternative past 2019. Continental has significant financial strength with no short-term debt maturities and first debt maturity is approximately $500 million by November 2018 and with an average interest rate of 4.3%. Moreover, the natural resources company has an impressively low cash expense of just $11.47 per BOE, which is 35% lower compared to the fiscal year 2014.

Continental’s consolidated production for complete-year 2015 was nearly 80.9 million barrels of oil equivalent (MMBoe), or 221,700 Boe per day, up 27% over the complete-year 2014.  Crude oil comprised 66% of net production for 2015, or nearly 53.5 million barrels of oil. The production of natural gas for the year was recorded at 164.5 billion cubic feet. The company has also provided production guidance for the complete fiscal year 2016 and projects total production for the year to be about 200,000 Boe per day.

The attractive cost-minimization and cash-maximization strategy of Continental is believed to help the company successfully traverse through the continuing global economic recession characterized by weaker commodity pricing and demand, which is expected to soon come to an end.

Optimizing its capital    

Continental is focused on optimizing its capital budget allotment for the complete fiscal year 2016 and expects 63% of strategic year-over-year decline in capital expenditure for the year, primarily driven by significant reduction in the rig count across Bakken, SCOOP, STACK, NW Cana JDA and other core resource plays. Moving ahead, the energy company forecast approximately $920 million of strategic non-acquisition capital expenditure for the full-year 2016.

Although, Continental has continued to grow its historical oil and natural gas production organically over the years since 2010 at a CAGR of 39% but, now the company is targeting to cut down average production for full-year 2016 to 200,000 BOE per day along with combined proved reserves declining by 9% year-over-year in addition to 47% lowering of WTI prices.

The superior cost-control efforts of Continental as visible from the company’s capital allocation program for the complete fiscal year 2016 in addition to minimizing production exploration expenditures is estimated to somewhat support the company emerge strongly from the ongoing global weaker commodity demand and pricing environment and place it on the growth trajectory, going forward.

Harold Hamm, CEO and chairman of Continental Resources increasingly agrees with the CEO of Lukoil Vagit Alekperov about the latter’s estimate for crude oil prices to sustain a level between $40 and $50 a barrel during 2016, given significant expansion in market demand for its key supply as it is up approximately 3% on a yearly basis.

According to the latest Baker Hughes report, the US oil rig count fell by additional 13 for this week and thus, making total rig count to 400 which is believed to be the minimum possible since the year ending 2009 and a decline from 986 rigs last year. According to EIA latest estimate, the consolidated oil production from major US shale areas are expected to decline by 92,000 barrels per day during March to nearly 4.924 million barrels per day.

The steadily improving global energy demand and pricing scenario is forecasted to drive sustainable long-term company growth, being further benefited by continuing fall in rig count in the US.


Overall, the investors are advised to “Sell” any equity held in Continental Resources, Inc. considering the company’s weak financial position with significant total debt of $7.12 billion against weaker total cash position of $11.46 million only, restricting the company to continue with its daily operations profitably. The profit margin of -13.66% signifies no profit but loss. The PEG ratio of 0.34 suggests only weak company growth and marginally better than the industry’s growth average of 0.01.
Published on May 10, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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