Tuesday, August 8, 2017

Highlights From CLR's Investor Update, August, 2017 -- Will Curtail Some Growth/Lucatrive Opportunities To Rein In Debt

Updates

August 12, 2017: from the Reuters link below --
Continental Resources Inc, one of the largest U.S. shale oil producers, will fund future wells from cash flow and not take on any new debt, Chief Executive Harold Hamm said on Wednesday.

The vow from one of the shale industry's leaders and strongest advocates comes as prices mostly below $50 a barrel this year pressure oil companies to live within their means after overspending for years.
Heavy debt loads nearly decimated U.S. shale producers when oil prices started to tumble in 2014. The number of bankruptcies in the U.S. shale patch from 2014 through 2016 eclipsed the depths of the telecom bust of 2002 and 2003, a previous high-water mark.
Continental, which operates in North Dakota and Oklahoma, famously stopped hedging in late 2014, expecting oil prices to rebound. They didn't, and the company's debt load has jumped 15 percent to $6.54 billion.
But that appears to be at an end.
August 12, 2017: more from the conference call sent in by a reader -
One interesting discussion from the conference call was the discount that Bakken crude sells to WTI, and the discount WTI sells to Brent.

First, WTI discount to Brent. Here’s the transcript of Hamm’s conference call:

"[T]he market is in the process of correcting as is the disparity between WTI and Brent. The new light oil refining capacity comes online and increased export shipment of light crude take place, this differential will be eradicated to return to dort norms of WTI dominance over Brent."

https://seekingalpha.com/article/4097204-continental-resources-clr-ceo-harold-hamm-q2-2017-results-earnings-call-transcript

Here's how Reuters explained it:

"Hamm also said he sees the U.S. West Texas Intermediate (WTI) crude oil contract regaining price 'dominance' over Brent, the global benchmark. He cited rising U.S. crude exports and refiners’ increasing ability to process the type of crude produced from shale.

WTI has traded at a slight discount to Brent for years, but if that dynamic were to flip, it would be a boon for Continental and its peers."

http://www.rigzone.com/news/article.asp?a_id=151354
August 11, 2017:  a reader provided this from CLR's conference call, 2Q17 earnings:
Don't know if you listened to Continental's conference call Wednesday, but if one wants to look at proven demonstrated performance, as opposed to Berman's fact-free nonsense and goofball predictions, this is it:
"Consequently, we have elevated our 2017 production growth guidance raising the expected range for exit rate to 24% to 31% above fourth quarter 2016 production. And even more significant we expect to accomplish this within the same capital expenditure budget or less ....

Continental has reset it's priorities and recalibrated its growth strategy to pluck the new era of U.S. energy technology. Having ownership of Tier-1 quality rock assets and multi-decades of highest quality drilling inventory, we're now capable of growing production at the industry leading and much lower level of capital investment compared with any time in our 50-year history ....

In the face of low oil prices we have recently released three grown rigs and four completion crews. This is a 20% reduction in rigs and cruise while increasing our production outlook ....

The second key factors are optimized completions which are improving performance in all of our assets
In the Bakken, our optimized completions are bringing on company record wells over a broad cross-section of a play. Rates of return for typical Bakken wells have been doubled to 82% generating over $2 million of added revenue during the first six months
We also increased the EUR type curves for Bakken wells by 12% to 1.1 million boe for 9,800 foot lateral well....

It's a challenge to estimate what those EURs are going forward. But again, when we’re talking about an extra $2 million per well in revenue in the first six months, so that's big. You’re tackling, accomplishing, increasing the economics up front in these wells and so the economics will actually prove quicker than EUR in time....

And so, I mean we're talking about getting this outcome over a broad area and it's … and we're not done. I mean we're continuing to push the extent of where this is for replying optimized completions. So, there's a lot of questions about the inventory and how much of the 1.1 million boe will ride now. The footprint continues to grow and we couldn’t be more pleased with what we’re seeing here. I mean here we’ve been in this play really we started out in 2003 and I remember having some conference calls with you just to talk about the Bakken way back when we first got into it....

It's amazing and so this is where technology has taken us....

[A]nd as far as the infill wells again this this particular this type curve is based on all wells. HPP, wells as well as those wells that we develop out from grass roots and that's 90% of what we have left to develop. There are not very many units we have out there at this point that still need development with pure infill wells."
Original Post
2017 guidance "improved":
  • full-year production: up 10% yoy
  • CAPEX revised: range of $1.75 billion to $1.95 billion
  • cash neutral at annual average of $45 to $51 WTI
non-strategic asset sales of $148 million:
  • non-core STACK leasehold, $72.5 millilon for 6,590 acres ($11,000 / acre)
  • non-core Arkoma Woodford leasehold, $68 million for 26,000 acres ($2,600 / acre)
  • apparently nothing in the Bakken sold
EURs:
  • EUR per operated well (does not break out Bakken vs non-Bakken)
  • EUR per operated well up over 200% since 2012
  • from 470K EUR (2012) to 1.4 million bbls EUR (2016)
Bakken:
  • Bakken: 806,000 net reservoir acres
  • Bakken: 80% oil; estimated total % liquids -- 90%
  • compare with 70% (STACK Meramec oil) and 55% (SCOOP Woodford condensate)
Bakken type curve improves:
  • from 980K EUR to 1.1 million EUR base on first six months production
  • doubled ROR to 82% compared to 980K boe type curve
2Q17, 19 completions:
  • average 24-hour IP rate of 1,606 boepd (82% oil)
Wells highlighted:
  • Holstein Federal 8-25H
  • Akron Federal 7-27H
  • Garfield Federal 4-5H
  • Radermecher 2-22H1
  • Brangus North 1-2H2
  • Holstein Federal 4-25H
  • Garfield Federal 6-5H
  • Holstein Federal 13-25H
  • Holstein Federal 6-25H
  • Radermecher 4-22H2
These top ten record wells in three different formations:
  • 7 in middle Bakekn
  • 1 Three Forks, 1st bench
  • 2 in Three Forks, 2nd bench
Takeaway capacity: exceeds current production (pipeline, CBR)

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