Continental Resources founder Harold Hamm says the company’s efficiency at drilling wells is so efficient, the firm intends to reduce the number of drilling rigs in Oklahoma’s STACK and SCOOP plays.
In a conference call this week, CEO Hamm told analysts and investors that crude oil production growth is running ahead of schedule
“We have also achieved the efficiencies throughout the first-half of 2019 that will allow the reduction of drilling rigs from 19 rigs in SCOOP STACK to 12 rigs on early fourth quarter of 2019,” said Hamm. “This 37% reduction in our southern rig fleet was made possible by the step change in performance from our Springer and Woodford rig fleets in Project SpringBoard.”
He said the company intends to continue running six rigs in North Dakota’s Bakken shale where it is the top producer.
There are “probably 100 rigs more in the U.S. than is needed today,” Hamm noted, as U.S. shale production has climbed to record highs even as the number of active U.S. drilling rigs has fallen by 102 to 942 in the past year.
Hamm said things are going so well for the company that it is firmly on track to execute the 2019 plan to enhance shareholder value. And its share buyback plan announced in June is moving strongly ahead. He said the company’s repurchases have amounted to $92 million so far or nearly 10% of the company’s initial target.
” We do not think our current share price is a fair indicator of the value of our company, and we are determined to capture value for our shareholders. As a reminder, our first dividend payment is scheduled for November. Our multiyear free cash flow projection will leave room to include this dividend in the future,” he said.
Hamm told investors that Continental’s mineral acquisitions program is progressing so well that a majority of its annual spend estimate has already been transacted in the first half of the year.
” For example, we own approximately 19% of the mineral royalties underlining Continental’s lease hold positions in SpringBoard. And as we announced last week, from another embedded asset, our teams have monetized a portion of our water recycling and gathering infrastructure in STACK,” explained the company leader. “We estimate that our remaining water assets are valued at approximately $1 billion, and generate an EBITDAX of approximately $100 million annually. Our water infrastructure assets represent more shareholder value that is not currently being recognized by the market.”
Continental President Jack Stark said second quarter oil production in the Bakken was up 23% from a year ago.
” During the quarter, we completed another 35 wells that flowed at an average initial rate of 2,300 BOE per day. One of the wells at Carson Peak 835-H in Dunn County, flowed at an impressive initial rate of 4,870 BOE per day,” said Stark.
He said the company received approval from North Dakota regulators to begin development of a 10-square-mile Long Creek Bakken unit in Williams County.
” This is another high impact oil project, much like our SpringBoard project, that is expected to add up to 20,000 net barrels of oil per day. Continental plans to drill up to 56 additional wells in the unit with an average working interest of 87%,” he added. “Production is projected to begin in the third quarter of 2020, and should reach peak production in the second-half of 2021.”
Continental’s Oklahoma oil production was up 35% from a year ago and the production averaged 36,300 barrels of oil a day.
” Oil growth in Project SpringBoard is on track, and we fully expect to meet or exceed our updated target of 18,000 barrels of oil per day in the third quarter,” Stark said. “For the fourth quarter, we are targeting 22,000 barrels of oil per day and are well on the way to achieving this July production average approximately 19,000 barrels of oil per day. To date, we have brought on 60 wells in SpringBoard, of which, 46 are Springer and 14 are Woodford.”
The company expects to bring another 30 SpringBoard wells by the end of the year. Twenty-three of the 46 Springer producers were brought on board in recent weeks.
“Over half of these wells have been producing for just two weeks but are already hitting the high range of expectations. For example, The Nancy J two and three wells are both flowing approximately 1400 barrels of oil and 2.8 million cubic feet of gas per day with impressing flowing, impressive full and casing pressures of approximately 2800 PSI. This is right in line with expectations given the increased reservoir thickness in rows 2 and 3,” said Stark.