Why does CLR lead the pack?

[dan_s]

Continental Resources (CLR) is up ~30% YTD, leading the Sweet 16 pack by a wide margin. Why?

This will help you understand why:

"The Bakken Shale holds an estimated 30 billion to 40 billion barrels of recoverable oil reserves according to an estimate by leading driller Continental Resources (NYSE: CLR). "It's a big number but I think it's a technically sound and a technically well-founded number," said company president Jack Stark at a recent industry conference. If it holds true, that number puts the Bakken up there with some of the largest oil fields in the world.

Given the field's oil-rich resources, the industry believes it can continue growing output, with many now estimating that oil production could eventually top 2 million BPD. That's because the industry should be able to drill another 50,000 wells in North Dakota, which currently has 15,000 producing wells.

In addition to the oil-rich nature of the rocks, another factor fueling the industry's bullishness in the Bakken is the dramatic improvement in costs and well productivity, which has driven drilling returns through the roof. It used to cost $10 million and take 33 days to drill a well in the region. However, that's fallen to an average of $8.5 million and now only takes 11 days. Meanwhile, production rates per well have also increased as the industry has figured out the best formula for fracking wells to unlock a larger portion of the oil trapped underground, which has improved recovery rates from 3% to 5% of the oil in place up to 14% to 16%. Because of those improvements, Continental's rate of return has rocketed from less than 20% at $70 oil in 2011 up to a jaw-dropping 175% this year."


Full article: https://finance.yahoo.com/news/bakken-s ... 00142.html

[dan_s]

In a recent report on large-cap E&P companies, Morgan Stanley's price target on CLR was $92/share. < My valuation of CLR is $90.

[mattreue]

But CLR still has the least amount of hedges (if any) of oil producers, right? Isn't this helping them as a bet on oil prices increasing?

[dan_s]

As of the date of our recent profile on CLR (August 9) none of their oil was hedged.

At the bottom of each forecast/valuation model (the Excel version) I show how much of each company's production is hedged. CLR has about 80% of their natural gas hedged at $2.88/MMBtu for Q3 and Q4. Note that CLR reports natural gas and NGLs on a combined basis, which explains why their realized gas price is so high ($3.41/mcf in Q2).

The oil, gas and NGL prices used to estimate top line revenues in each forecast model is net of cash settlements on hedges.

I am looking at my forecast model of CLR right now and the oil price that I am using in the model for Q4 and 2019 is probably way too low.

Once I am confident that we are in Phase 5 of this cycle, I will increase the oil price that I am using in the forecasts. As of today, all forecasts assume $65/bbl WTI for all future periods.

If WTI settles in at $75/bbl, CLR will be a "Screaming Buy" under $90/share.

[dan_s]

All of the forecast models housed on the EPG website are "macro driven". You can download them to Excel and change the oil, gas and NGL prices at the bottom and the spreadsheets will "magically" update EPS, CFPS and share price valuation.

Assuming $75/bbl for oil in 2019 takes CLR's stock valuation over $99/share.

[dan_s]

From Reuters: "28 Wall Street Analysts included in the consensus." < 8 of them are dated in 2017.