Continental Resources sees 20% drop in profits in 2Q

Oklahoma City-based Continental Resources’ second quarter earnings came in short of estimates as the company reported net income of $236.6 million or 63 cents a diluted share. Quarterly adjusted profit was down 19.7% because of weaker crude and natural gas prices that offset an increase in the company’s overall production.

U.S. light crude prices averaged $59.91 per barrel in the company’s second quarter, 11.8% lower than a year earlier.

However led by owner Harold Hamm, the company also raised its full-year production outlook while reducing guidance for production costs.

Adjusted net income for the quarter was $219.1 million or 59 cents per diluted share. Net cash provided by operating activities for second quarter 2019 was $783.4 million and EBITDAX was $858.0 million (non-GAAP).

“Continental is performing at a high level with significant net income driven by solid corporate returns and production. Additionally, we continue to realize strong free cash flow and have commenced our share-repurchase program, which we believe will further enhance shareholder value,” said John Hart, Chief Financial Officer.

Second quarter 2019 oil production increased 23% over second quarter 2018, averaging 193,586 barrels of oil per day (Bopd). Second quarter 2019 total production increased 17% over second quarter 2018, averaging 331,414 Boe per day (Boepd). Second quarter 2019 natural gas production increased 9% over second quarter 2018, averaging 827.0 million cubic feet per day (MMcfpd).

The company saw a 22% jump in Bakken output to 149.1K bbl/day and natural gas production grew 9% to 827Mcf/day.

Continental’s largest oil production in Oklahoma was in the SCOOP where it totaled 71,471 Boepd compared to 67,659 in the first quarter and 64,786 in the second quarter of 2018.

In the STACK, Continental had production of 57,209 Boepd, slightly more than the 56,513 Boepd in the first quarter of 2019 and 51,722 Boepd in the second quarter of 2018.

The Company improved 2019 annual oil production guidance to 195,000 to 200,000 Bopd, versus previous guidance of 190,000 to 200,000 Bopd. The Company also increased natural gas production guidance to 820,000 to 840,000 MMcfpd, versus previous guidance of 790,000 to 810,000 Mcfpd. In addition, the Company is releasing 7 rigs in the South by year-end 2019 due to Springer & Woodford efficiency gains.

The Company is also lowering its 2019 guidance for production expense per Boe to $3.50 to $4.00 per Boe for the year, a reduction from the previous guidance of $3.75 to $4.25.

The Company is guiding natural gas differentials wider based on lower NGL realizations and expects natural gas differentials to be in a range of ($0.50) to ($1.00) per Mcf in 2019, a change from the previous guidance of $0.00 to ($0.50). The Company is also guiding production tax to approximately 8.5% due to the higher level of production in North Dakota.

 

As previously announced, the Company’s Board of Directors authorized an initial share-repurchase program of up to $1 billion. The share-repurchase program commenced in the second quarter 2019 and is expected to continue through 2020. Share repurchases will be made at times and levels deemed appropriate by Company management. The Company intends to purchase shares under the program opportunistically using available funds while maintaining sufficient liquidity to fund operating needs, capital program, and dividend payments. As of August 2, 2019, the Company has executed $92 million of share repurchases for 2.4 million shares.

As also previously announced as part of the Company’s total shareholder return strategy, the Company’s Board of Directors approved the initiation of a quarterly dividend of $0.05 per share on the Company’s outstanding common stock, payable on November 21, 2019 to stockholders of record on November 7, 2019.

The Company is developing the Long Creek Bakken Unit, which covers 10-square miles and includes approximately 6,400 gross (5,600 net) contiguous acres. The Company anticipates up to 56 wells will be drilled in Long Creek, with 5 existing producers. The Company will operate these wells with an average working interest of approximately 87%. First production is expected in third quarter 2020, with oil production expected to peak in the second half of 2021 at up to 20,000 Bopd. Pipeline infrastructure is currently being constructed to handle all produced volumes.

“The Long Creek Bakken Unit is another high impact oil project for Continental, much like our Project SpringBoard in Oklahoma. Forming this large unit allows Continental to maximize the value of these assets by capitalizing on the efficiencies that come with row development,” said Jack Stark, President.

South: 36,337 Average Daily 2Q19 Oil Production; Up 35% over 2Q18  

In second quarter 2019, average daily South oil production increased 35% over second quarter 2018, averaging 36,337 Bopd. This increase was driven by the strategic shift to oil-weighted assets and commencing Project SpringBoard in 2018. The Company’s second quarter 2019 total South production increased 10% over second quarter 2018, averaging 128,777 Boepd. In second quarter 2019, the Company completed 22 gross (16 net) operated wells with first production in the South.

The Company is on track to achieve its SpringBoard oil production growth target of 18,000 Bopd in third quarter 2019. The Company’s SpringBoard oil production averaged approximately 19,000 Bopd in July 2019. The Company is targeting 22,000 Bopd from SpringBoard in fourth quarter 2019. The Company expects to bring approximately 30 additional SpringBoard wells on line in the second half of 2019.

As of June 30, 2019, the Company’s balance sheet included approximately $206.5 million in cash and cash equivalents, $5.77 billion in total debt and $5.56 billion in net debt (non-GAAP).

In second quarter 2019, the Company’s average net sales prices excluding the effects of derivative positions were $54.66per barrel of oil and $1.66 per Mcf of gas, or $36.03 per Boe. Production expense per Boe was $3.74 for second quarter 2019. Total G&A expenses per Boe were $1.57 for second quarter 2019.

The Company’s second quarter 2019 crude oil differential was $5.11 per barrel below the NYMEX daily average for the period. The wellhead natural gas price for second quarter 2019 was $0.98 per Mcf below the average NYMEX Henry Hub benchmark price.

As of August 2, 2019, the Company has realized approximately $43 million of cash gains from its natural gas hedges. For the balance of 2019, natural gas is hedged 577,000 MMBtus per day at an average NYMEX Henry Hub price of $2.80. As of August 2, 2019, the Company’s unrealized non-cash mark-to-market gain on its natural gas hedges totaled approximately $41 million.

Non-acquisition capital expenditures for second quarter 2019 totaled approximately $688.8 million, including $569.7 million in exploration and development drilling and completion, $22.6 million in leasehold, $43.8 million in minerals, of which 80% was recouped from Franco-Nevada, and $52.7 million in workovers, recompletions and other.