Why Continental Resources Is the Oil Stock to Buy

Continental Resources (CLR) announced first quarter ended March 31, 2016 total revenue of $453.2 million, down 28 percent year-over-year from $625.6 million in the first quarter of 2015.

Continental declared first quarter of 2016 adjusted net loss of $150.5 million or $0.41 per adjusted diluted share as against adjusted net loss of $86.6 million or $0.23 per adjusted diluted share in fourth quarter of 2015 and adjusted net loss of $33.8 million or $0.09 per adjusted diluted share in first quarter of 2015.

The upstream energy company reported continued year-over-year decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment coupled with the rising drilling and exploration expenditures, eating into margins of the energy company.

Assets are delivering growth  

Continental Resources has attractive set of strongly performing assets in the US that adds to 2.0 million net reservoir acres including, approximately 1,030,000 net acres at Bakken, nearly 171,000 net acres at Stack Meramec/Osage, about 430,000 net acres at Scoop Woodford, approximately 214,000 net acres at Scoop Springer and nearly 155,000 net acres at Stack Woodford.
The strategically-positioned high-performing assets of Continental Resources continue to deliver solid rates of return and closely following the previously mentioned production guidance.

The natural resources mining company is expected to be having a superior low cash cost position that places it competitively against the key rivals in the energy sector. During the first quarter of 2016, Continental Resources reported $10.20 per Boe of total cash cost, 17% smaller than the fiscal year 2015 level.

In addition, the attractive financial metrics of the company comprises of significant liquidity with about $2.75 billion of revolving credit facility that further has capability to get upgraded to $4.0 billion, approximately $1.88 billion accessible on revolving facility with no redetermination of the borrowing base and a notable 2-year postponement option much beyond 2019. Also, Continental Resources has no near-term debt maturities with nearest being $500 million during November 2018 and an average interest rate of 4.3%.

The well-positioned and superior-performing strategic assets of Continental Resources continues to deliver attractive rates of return which when coupled with the company’s strong financial position makes it a striking stock for the investors.

The industry-leading recycle ratio of Continental Resources highlights the company’s superior operational performance targeted towards delivering attractive operating margins while minimizing the energy exploration costs. Importantly, Continental Resources has continued to optimize its financial position by 63% year-over-year reduction in capital expenditures and $920 million of consolidated and well-planned non-acquisition spending.

Growing impressively  

Continental Resources has impressively delivered past organic growth at a CAGR of 38% since the fiscal year 2010 and targets on generating average growth rate in the range of 205,000 to 215,000 Boe per Day during 2016. The combined proved reserves for Continental Resources reduced 9% year-over-year with about 47% decline witnessed in WTI rates. Moreover, Continental Resources has attractive acreage positions across all the key plays, totaling about 970,000 net reservoir acres.

The attractive growth strategy of Continental Resources focused on minimizing the non-core and major capital expenditures while growing the much-needed cash flows for sustaining the daily operations profitably is expected to encourage the company to continue to explore top-tier resource plays while maintaining superior long-term growth rate.

Continental Resources has strategically completed three new stacks that confirms its solid growth potential at Meramec in Oklahoma. The energy company has also raised its full-year 2016 production guidance in the range of 205,000 to 215,000 Boe per Day with greater year-end exit rates in the range of 190,000 to 200,000 Boe per Day and no changes in capital budget program for 2016. Importantly, CLR sold non-performing, non-core Wyoming assets for nearly $110 Million during April and used the proceeds from the transaction to lessen debt.

Conclusion

Overall, the investors are advised to “Hold” their position in Continental Resources, Inc. considering the company’s notable long-term growth prospects but currently weaker financial position with significant total debt of $7.21 billion against weaker total cash position of $12.93 million only, restricting the company to continue with its daily operations profitably. The profit margin of -17.32% is disappointing and indicates no profit but loss. The PEG ratio of 0.58 signifies weak company growth.
Published on Jul 19, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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