CLR - Embedded Expectations Analysis - 2019 05 22
Continental Resources, Inc. (CLR:USA) currently trades near historical lows relative to UAFRS-based (Uniform) Assets, with a 1.3x Uniform P/B. At these levels, the market has muted expectations for the firm, and management has concerns about oil extraction, maintenance and G&A costs, and their well expansion.Specifically, management may lack confidence in their ability to sustain oil production output, continue oil differential improvements, and meet free cash flow guidance. Furthermore, they may be downplaying concerns about surpassing their budgeted capex spend, concerns about headwinds related to Montana infrastructure costs, and their ability to decrease liability and refinement costs through efficiency gains. In addition, they may be concerned about the potential of ventures into the Northeast, and may lack confidence in their ability to maintain proper well density.
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.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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