Morningstar | Continental Reports Strong Start to 2019. See Updated Analyst Note from 30 Apr 2019
Our fair value estimate and narrow moat rating are unchanged after a first look at Continental’s first-quarter financial and operating results. The firm delivered production of 332 mboe/d in the first quarter, which was 3% higher sequentially and 16% higher year over year. This was slightly higher than expected, and puts the firm on track to hit the higher end of full-year guidance in our model. Extrapolating production for the year is difficult with only quarter of data, especially when lumpy pad completion schedules are factored in. However, it is encouraging that the firm’s Project SpringBoard is running ahead of schedule, even if this development only accounts for a relatively small chunk of the firm’s production. Oil production from the project averaged 14 mbbls/d in April, and management has raised the target for third quarter output to 18.0 mbbls/d (from 16.5 mbbls/d previously). In the release, management reiterated prior estimates for 2019 production, capital spending, and operating costs.The healthy production result, combined with markedly better firmwide basis differentials for crude oil, pushed the firm’s financial results above Street estimates. The firm reported adjusted EBITDA and adjusted earnings per share coming in at $855 million and $0.58, respectively, (consensus estimates were $789 million and $0.48).
Though we usually take cherry-picked well results with a healthy grain of salt it is significant that management highlighted three Bakken wells located outside of the core portion of Continental’s acreage. By applying modern completion techniques to three new wells in Montana, southern Billings county, and eastern Williams County respectively, the firm was able to deliver a volume uplift of 80%-100% versus legacy wells in the first 60 days of production. Anecdotally, this supports our view that Continental is not running out of “tier 1†acreage and still has a lengthy runway of potential drilling opportunities in the Bakken.
Continental Resources is an independent crude oil and natural gas company engaged in the exploration, development, and production of crude oil and natural gas mainly in the North, South and East regions of the U.S. The North region consists of properties north of Kansas and west of the Mississippi River and includes North Dakota Bakken, Montana Bakken, and the Red River units. The South region includes all properties south of Nebraska and west of the Mississippi River including various plays in the South Central Oklahoma Oil Province and Sooner Trend Anadarko Canadian Kingfisher areas of Oklahoma. The East region is comprised of undeveloped leasehold acreage east of the Mississippi River.
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