CLR Update

[dan_s]

2017 Preliminary Results:

Production of 286,985 barrels of oil equivalent (Boe) per day in fourth quarter 2017, up 37% year-over-year from fourth quarter 2016 < compares to my Q4 forecast of 275,000 boepd.
Oil represented 59% of production in fourth quarter 2017, compared to 55% in fourth quarter 2016 < higher percentage of oil than my forecast.
Production of 242,637 Boe per day for full-year 2017, up 12% from full-year 2016
Lowered debt by $261 million in fourth quarter 2017 and by an additional $95 million in January 2018

2018 Projected Capital Budget and Guidance:

$2.3 billion capital expenditures
Estimate $3.0 to $3.2 billion of cash flow from operations and $800 to $900 million of free cash flow (non-GAAP) at $60 per barrel WTI and $3.00 per Mcf Henry Hub
Budget expected to be cash neutral in the low-to-mid-$40's WTI
17% to 24% year-over-year production growth to 285,000 to 300,000 Boe per day
10% to 15% projected return on capital employed (ROCE)
Continued Improvement in 2018 Differentials and Operating Expenses Expected:

($3.50) to ($4.50) per Bo oil differential
$0.00 to +$0.50 per Mcf natural gas premium
$3.00 to $3.50 per Boe production expense
$1.70 to $2.30 per Boe total G&A

Continental Resources, Inc. (CLR) (the "Company") today announced a 2018 capital expenditures budget of $2.3 billion, which is focused on both strong free cash flow generation and strong annual production growth to approximately 285,000 to 300,000 Boe per day, with a 2018 exit rate of 305,000 to 315,000 Boe per day. Crude oil is projected to range between 57% and 60% of production throughout 2018, varying through the year due to the timing of large pad projects coming online.

The 2018 capital budget is projected to generate $3.0 to $3.2 billion of cash flow from operations and $800 to $900 million of free cash flow for full-year 2018 at $60 WTI and $3.00 Henry Hub. There are currently no oil hedges in place, allowing the Company to fully participate in the upside of oil prices. Natural gas is hedged in excess of 80% of production for the remainder of the year at an average price of $2.88. Continental also noted that the capital budget is expected to be cash neutral at a WTI price in the low-to-mid-$40's. A $5 change in WTI is estimated to impact annual cash flow by $250 to $300 million, and a $0.10 change in Henry Hub is estimated to impact annual cash flow by $5 to $10 million.

Of the total $2.3 billion budget, the Company is allocating approximately $2.0 billion to drilling and completion (D&C) activities, with approximately 78% of the D&C budget focusing on the oil-weighted Bakken and SCOOP Springer assets. Approximately $500 million of the 2018 D&C capital reflects activities that will generate first production in 2019. The non-D&C capital is planned to be primarily focused on leasehold, workovers and facilities.

The Company experienced improved differentials and lower production expenses on a per Boe basis in fourth quarter 2017. These trends are projected to continue in 2018. Oil differentials are expected to be in a range of ($3.50) to ($4.50) per Bo, and natural gas differentials are expected to be $0.00 to a positive $0.50 per Mcf. Production expense is expected to be between $3.00 and $3.50 per Boe, and total G&A is expected to be between $1.70 and $2.30 per Boe.

"This year Continental expects to set itself apart by generating up to $900 million of free cash flow while delivering top-tier production growth," said Harold Hamm, Chairman and Chief Executive Officer. "We plan to use the majority of this excess cash to continue paying down debt, further strengthening our balance sheet and increasing shareholder value. We are focused on returns and expect, at a WTI price of $60, that our ROCE will be 10% to 15%, which is expected to be among the industry's best."

Financial results for Q4 will be released next week.

[dan_s]

There are currently no oil hedges in place, allowing the Company to fully participate in the upside of oil prices.
Natural gas is hedged in excess of 80% of production for the remainder of the year at an average price of $2.88.

[dan_s]

In the Bakken, the Company plans to average six operated drilling rigs throughout 2018 and drill approximately 142 gross operated wells. The Company has six stimulation crews working currently and plans to average 6.5 crews in 2018, while completing 187 gross (113 net) operated wells.

During the year the Company plans to work down its inventory of drilled but not producing wells, and at year-end 2018, the Company expects to have 120 gross operated Bakken wells in progress in various stages of completion, of which 44 gross wells will have been completed but waiting on first sales. This compares to 165 gross operated wells in progress at year-end 2017. With six drilling rigs and an average pad size of six to seven wells, the projected 2018 year-end level of 120 gross operated wells in progress is considered a normal working backlog.

In Oklahoma, Continental plans to operate an average of 15 drilling rigs during 2018, of which eight rigs will be in STACK targeting the Meramec and Woodford formations, and seven rigs will be in the SCOOP play primarily targeting the Springer and Woodford formations. Five of the SCOOP rigs will be focused on the Springer as the Company begins full-field development of this oil reservoir. The Company expects to complete 118 gross (69 net) operated wells in Oklahoma with first production in 2018, including 72 gross (33 net) operated wells in STACK and other, 31 (26 net) operated wells in SCOOP Springer and 15 gross (10 net) operated wells in SCOOP Woodford/Sycamore. The Company plans to average four to five completion crews in Oklahoma during 2018.

[dan_s]

Since CLR's 2/15 update, five Wall Street Firms have updated their forecast/valuations for CLR. Price targets range from $57 to $78 with the average being $65.80. My valuation will be at the high end of that range because I believe a bidding war for just what the company owns in Oklahoma is worth more than the current market cap of the entire company.

At a realized price of $55/bbl for their oil, CLR should generate over $8.00/share of cash flow from operations in 2018. A multiple of 10X CFPS is reasonable for a company with this much running room.