Continental Resources (CLR)

[dan_s]

CLR's 4th quarter production beat my forecast.

Comments below from Stifel:

4Q15 Production Beat, Debt Flattish Sequentially: CLR reported FY15
production averaged 221.7 MBoe/d, up 27.3% y/y and above the high-end of
guidance (24%-26% y/y). The annual guidance implies 4Q15 production averaged
224.9 MBoe/d, down 1.5% sequentially but 6% above our estimate and 5% above
consensus.

YE15 debt is expected to have increased only $7mn sequentially,
$70mn below our prior estimate.

Pulling the Reigns in 2016 - Significant Cutbacks Driving Lower Production:
CLR announced a 2016 capital budget of $920 million, down 34% from our prior
$1.4B estimate and down 66% from the company's $2.5B budget in 2015.
Management estimates that under the current plan, the company will be cash flow
neutral at $37/bl and for every $5/bl move it's FY16 cash flow has a delta of
$150-$200 million.

Due to its lower capital spend, FY16 production is expected to average 200,000
MBoe/d, down 8.5% y/y. Management released 1Q16 production guidance of
210-220 MBoe/d (down 4.4% sequentially at the midpoint) and a 2016 exit rate
estimate of 180-190 (down 16%-20% versus 4Q15). After incorporating
management's new capital, production, and cost guidance, we are adjusting our
FY16/FY17 production and CFPS estimates +1.3%/-3.7% and -2.4%/+1.4%,
respectively.

Bakken DUCs Increasing, Backlog Provides Efficient Future Growth
Potential: In North Dakota, CLR expects to spend 41% of its total '16 D&C budget
running four rigs and drilling approximately 62 net (105 gross) wells, but plans to
complete only 26 net (45 gross) wells. As such, the company's Bakken DUC
inventory is expected to increase from 135 gross wells at YE15 to 195 gross wells
at YE16. Assuming CLR maintains a four rig program, completes 26 net wells in
2H16, and aggressively works off its Bakken inventory during 2017, we estimate
the company's Bakken production has the potential to return to 4Q15 levels by
YE17.

CLR plans to split the remaining 59% of its D&C budget between the SCOOP
(33%, 25 net completions), STACK (18%, 15 net completions), and NW Cana (8%,
11 net completions). CLR's YE16 Oklahoma DUC inventory is expected to
modestly increase to 50 gross wells, up 15 y/y.

Reiterate Buy on Long-Term Potential: Factoring in CLR's borrowing capacity
(approximately $1.9B available on its $2.75B unsecured credit facility), high-quality
DUC backlog, an improving balance sheet in 2H16-2017 based on strip prices
(Exhibit 2, 3), a quality asset base (Exhibit 4), and the ability to return to growth
mode once oil rebounds to $50+/bl (Exhibit 5), we reiterate our Buy rating.

[dan_s]

I have updated my forecast model for CLR and it will be posted to the EPG website this afternoon (1/27).

My valuations increased $0.30 to $38.50/share, compared to First Call's price target of $34.10.