Continental Resources (CLR) Update - Nov 5

[dan_s]

CLR is trading for ~$45 at the time of this post.

I have updated my forecast/valuation model for CLR and it will be posted to the EPG website later this afternoon. It assumes that the PXD acquisition closes by mid-December. Let me add here that CLR has an outstanding exploration team and they did extensive due diligence on a deal of this size before approaching PXD. They also have an outstanding operating team that knows how to drill and complete horizontal shale wells. They are one of the top upstream operating companies in the world.

My valuation increases by $1 to $68 per share, primarily because I am now giving equal weight to 2021 and 2022 operating cash flow per share ($11.28 in 2021 and $15.92 in 2022). I was using a multiple of 5.5 X CFPS to value it, but I have reduce the multiple to 5X. It will go back up once the deal closes and their detailed guidance for 2022 confirms my 2022 model assumptions. If WTI oil does average more than $80/bbl in 2022, CLR's balance sheet will be in great shape a year from now and a valuation of 6X operating CFPS will be reasonable.

Four highly respected energy sector analysts have updated their price targets since CLR announced Q3 results and the PXD acquisition.
> $53 by JP Morgan
> $55 by Siebert Williams Shank
> $56 by MKM Partners
> $62 by Mizuho Securities
Keep in mind that I am using higher oil and gas prices for 2022 than all of the above. CLR only has a small amount of gas hedged after Q1 2022. None of their oil is hedged. Also, CLR reports natural gas and NGLs on a combined basis, which is why their realized gas prices are so high $4.71/mcfe in Q3 and likely to be much higher during the next two quarters. The PXD assets being acquired produce a lot of high value NGLs.

[Fraser921]

Good summary, I anxiously await the new model.

CLR is picking itself off the mat and is at 45.73 at 1:33 est up 1.09

Best Sweet 16 today is CPE up 7 % followed by EOG 4.8%. 14 out of 16 names are up.

CPE at 60 today was 25 , 3 months ago, after an acquisition. Looks like they were right.

[Fraser921]

Clr up 6 % today moving back to 50 ish.

They said they will be paying cash for the Delaware Basin Acquisition.

They had about 700 m in checking account at 9/30
Credit Line available is 1.7 b
q4 cash flow is 800 m (Oil $ 5 better in q 4 is worth 75 m, NG .50 c better is worth 45 m)
q4 cash flow from new Delaware Basin is 125 m

Add it all up 3,325 > need 3250

I dont think they use 100 % of the credit line. So they need to borrow 1.0 b bridge loan from the banks or have a bond offering. That 1.0 b will be paid off in 4 months

Risk is oil price as they don't hedge it.

[Fraser921]

Continental Resources, Inc. (NYSE: CLR) ("Continental" or the "Company") announced today the pricing of its private placement of $800 million of 2.268% senior notes due 2026 and $800 million of 2.875% senior notes due 2032.

2.26 %!!!! Are you kidding me?? WOW 2.87 for 10 year money!!!

These guys should lever up more

So they only borrowed half of the purchase price

Debt 1.6 b
Cash on hand .7
Cash made Oct/Nov .8

total 3.1

Boom, we are there. Credit line untapped

[Fraser921]

I think the name goes to $ 60 by year end