Continental Resources (CLR) Update - Nov 8

[dan_s]

None of CLR's oil is hedged, but they are still going to generate lots of free cash flow in 2021 even if WTI stays in the low $40s. If you believe WTI is going a lot higher (as I do), then CLR should be one of your core holdings.
TipRanks: "In the last 3 months, 13 ranked analysts set 12-month price targets for CLR that range from $10.50 to $22.00. The average price target among the analysts is $15.88."

Preliminary 2021 Outlook

"As a continuation of Continental's historic track record of sustainable cash flow and debt reduction, we are projecting a 65% to 75% cash flow from operations reinvestment rate for 2021, with free cash flow projections of approximately $400 million at $40 WTI and $650 million at $45 WTI. Additionally, Continental is prioritizing debt paydown and expects to significantly reduce total debt to $5 billion or below by year end 2021, and down to $4 billion or below by year end 2022 or 2023," said Bill Berry, Chief Executive Officer.

In anticipation of stronger gas fundamentals in 2021, the Company shifted Oklahoma rigs to gassier areas in the second quarter 2020. To date, approximately 202 MMcfpd of the Company's 2021 natural gas is hedged, with two-thirds of the hedges representing collars with a weighted average floor price of $2.67 and a weighted average ceiling price of $3.44. The Company expects to continue an active and ongoing hedging program in 2021 and 2022. In Oklahoma, condensate wells are delivering strong early time results, with 20 recently completed SCOOP condensate wells performing in line with or better than expectations and are expected to deliver over 50% rates of return at $3.00 Henry Hub. With oil and gas inventory depth and direct access to multiple premium oil and gas markets in Oklahoma, the Company has the flexibility to capitalize on both oil and gas commodity prices.

The Company is projecting a 65% to 75% cash flow from operations (CFFO) reinvestment rate for 2021. At the midpoint of projected 2021 Capex, the Company is projecting annual cash flow from operations of $1.6 billion and annual free cash flow (FCF) of approximately $400 million at $40 WTI. The Company is projecting annual cash flow from operations of $1.85 billion and annual FCF of approximately $650 million at $45 WTI. The Company is projecting approximately 8.0% to 14.0% free cash flow yield at $40 to $45 WTI. Free cash flow yield is estimated by dividing the 2021 annual FCF estimate range by the Company's current market capitalization, as of November 5, 2020. Additionally, the Company is projecting total debt below $5.0 billion at year-end 2021 and $4.0 billion or below by year-end 2022 and 2023.

In 2021, the Company is projecting $1.2 to $1.3 billion of Capex at $40 to $45 WTI and $3 Henry Hub. The Company is projecting a low single digit production growth year-over-year in 2021 and expects a cash flow breakeven price of $32 WTI in 2021.

The Company will provide its full 2021 guidance, capital expenditures budget and operating details during its historical timeframe of early next year.

[dan_s]

I have updated my forecast/valuation model for CLR. It will be posted to the EPG website later today.
My valuations is reduced by $1 to $22.00 (the same as Stifel's updated price target)