Continental Resources (CLR) Q4 Results - Feb 16

[dan_s]

Continental Resources Announces Full-Year 2020 And 4Q20 Results; 2021 Capital Budget And Guidance with my comments in blue.
Tue, February 16, 2021, 3:15 PM

OKLAHOMA CITY, Feb. 16, 2021 /PRNewswire/ --

FY20: $1.4 B Cash Flow from Operations & $275 MM Free Cash Flow (Non-GAAP) < My operating cash flow forecast was $1,387 million for FY 2020.

• 4Q20: $488 MM Cash Flow from Operations & $332 MM Free Cash Flow (FCF) < My operating cash flow forecast for Q4 was $469.5 million.
o $168 MM in Non-Acquisition Capex
o 176.6 MBopd & 976 MMcfpd Average Daily Production < Compares to my forecast of 180,000 BOPD and 870,000 Mcfpd.
o $2.80 Production Expense per Boe < Compares to my forecast of $3.00 per Boe.

• FY20: Fifth Consecutive Year of Generating Positive FCF
o $1.16 B in Non-Acquisition Capex ($1.2 B Guidance)
o 160.5 MBopd & 837.5 MMcfpd Avg. Daily Production (155-165 MBopd & 800-820 MMcfpd
Guidance)
o $3.27 Production Expense per Boe ($3.50-$3.75 Guidance)

FY21: Projecting Sixth Consecutive Year of Generating Positive FCF

• In Excess of 40% of Cash Flow from Operations Projected toward Shareholder Capital Returns through Debt Reduction and Future Dividends
o Targeting Approx. $4.5 B Total Debt by YE21; <$4.0 B by YE22

• Approx. $2.4 B of Cash Flow from Operations; $1.0 B of FCF; 12% FCF Yield2 (non-GAAP)
o 58% Reinvestment Rate; 3-4% Total Production Growth; Budgeted at $52 WTI & $2.75 HH
o $5 Increase in WTI = Approx. $250 MM Increase in Cash Flow

• Expanding Operations into the Oil-Weighted Wyoming Powder River Basin in March 2021
o Adds 130,000 Net Acres & 400 MMBoe Net Unrisked Resource Potential to CLR Portfolio

Continental Resources, Inc. (NYSE: CLR) (the "Company") today announced its full-year 2020 and fourth quarter 2020 operating and financial results, as well as its 2021 capital expenditures budget and operating plan.

"In 2020, Continental demonstrated our commitment to delivering sustainable free cash flow by generating $275 million of free cash flow in arguably one of the most challenging years of our over 50 years of operations. Delivering our fifth consecutive year of free cash flow in spite of unprecedented market volatility validates our durable approach to managing our business. We are well-positioned to sustainably deliver significant shareholder returns from strong free cash flow in 2021 and beyond," said Bill Berry, Chief Executive Officer.

The Company reported a full-year 2020 net loss of $596.9 million, or $1.65 per diluted share. For full-year 2020, typically excluded items in aggregate represented $172.9 million, or $0.48 per diluted share, of Continental's reported net loss. Adjusted net loss for full-year 2020 was $424.0 million, or $1.17 per diluted share (non-GAAP). Net cash provided by operating activities for full-year 2020 was $1.42 billion and EBITDAX was $1.68 billion (non-GAAP).

The Company reported a net loss of $92.5 million, or $0.26 per diluted share, for the quarter ended December 31, 2020. In fourth quarter 2020, typically excluded items in aggregate represented $10.6 million, or $0.03 per diluted share, of Continental's reported net loss. Adjusted net loss for fourth quarter 2020 was $81.9 million, or $0.23 per diluted share (non-GAAP). Net cash provided by operating activities for fourth quarter 2020 was $487.5 million and EBITDAX was $572.0 million (non-GAAP). < It is important to note that the "impaired" assets have not been abandoned. CLR still owns them, but GAAP accounting doesn't let companies reverse impairment no matter how high oil & gas prices go (very misleading accounting rule IMO).

Production & Operations Update

Full-year 2020 total production averaged 300,090 Boepd. < Compares to my of forecast of 296,414 Boepd, but more "gassy".
Full-year 2020 oil production averaged 160,505 Bopd. Full-year 2020 natural gas production averaged 837.5 MMcfpd. Fourth quarter 2020 total production averaged 339,307 Boepd. Fourth quarter 2020 oil production averaged 176,639 Bopd. Fourth quarter 2020 natural gas production averaged 976.0 MMcfpd.

The Company achieved its 2020 completed well cost targets in both the Bakken and Oklahoma, with go forward well costs in the Bakken of approximately $690 per lateral foot, at a 10,000' lateral length, and in Oklahoma of approximately $1,070 per lateral foot, at an 8,200' lateral length. These all-in well costs include drilling and completion (D&C), full facilities and artificial lift. Cost savings are 70% to 80% structural and are being driven by a reduction in drilling cycle times, stage counts, proppant volumes and stimulation days, as well as the optimization of artificial lift.

Financial Update

"As part of our commitment to operational excellence and capital discipline, Continental spent approximately 3% less non-acquisition Capex than budgeted while delivering oil production in line with the midpoint of our guidance. Our strong cost performance continues to underpin and drive our ability to generate significant free cash flow historically and prospectively," said John Hart, Chief Financial Officer.

Strategic Acquisition and Entrance into the Wyoming Powder River Basin

The Company announced it has executed definitive documents to acquire approximately 130,000 net acres and approximately 9,000 Boepd of production in the Powder River Basin for $215 million, subject to customary closing conditions. This acquisition included 96 approved federal drilling permits and is expected to close in March 2021. The Company intends to begin delineating and developing the Shannon, Frontier and Niobrara reservoirs with 2 rigs in second quarter 2021.

"These Powder River Basin assets provide Continental another oil-weighted platform, adding over 400 MMBoe of net unrisked resource potential to our portfolio," said Jack Stark, President and Chief Operating Officer. "We especially like the fact that the basin is in the very early stages of development with solid economics even before applying our low cost efficient operations."

2021 Capital Budget & Guidance

The Company is projecting a $1.4 billion capital expenditures budget, net of Franco Nevada's share of mineral costs, which approximates to a 58% cash flow from operations (CFFO) reinvestment rate for 2021. The 2021 capital budget is projected to generate approximately $2.4 billion of cash flow from operations and $1.0 billion of free cash flow (non-GAAP) for full-year 2021 at $52 per barrel WTI and $2.75 per Mcf Henry Hub. A $5 increase per barrel WTI is estimated to increase cash flow by approximately $250 million. < My 2021 forecast/valuation model is using $57/bbl WTI and $2.75 HH gas price.

The Company is projecting approximately 12% free cash flow yield (non-GAAP) at $52 WTI. Free cash flow yield is estimated by dividing the 2021 annual FCF estimate by the Company's current market capitalization, as of February 16, 2021. The Company is targeting shareholder capital returns in excess of 40% of cash flow from operations through debt reduction and future dividends. All future dividends require Board approval. Additionally, the Company is projecting total debt of approximately $4.5 billion at year-end 2021 and $4.0 billion or below by year-end 2022.

Annual crude oil production is projected to range between 160,000 to 165,000 Bopd. Annual natural gas production is projected to range between 880,000 to 920,000 Mcfpd. < My forecast will is based on the high end of CLR's guidance because I believe higher oil & gas prices will allow CLR to add a few more rigs in 2H 2021.

The Company is allocating approximately $1.1 billion to D&C activities, of which approximately 60% is allocated to the Bakken and approximately 35% to Oklahoma, with the remaining capital being allocated to the Powder River Basin asset. An additional $300 million is being allocated to non-D&C capital and is planned to be primarily for leasehold, mineral acquisitions, workovers and facilities.

At year-end 2021, the Company expects to have a working backlog of approximately 135 gross operated wells in progress in various stages of completion.

As an update on the previously disclosed water monetization process, the Company has made the decision not to further pursue this transaction. Ultimately, the Company has elected to maintain full operational flexibility to maximize the long-term value of these assets and enhance cash flow.

"Our 58% reinvestment rate at $52 WTI in 2021 highlights our commitment to generating significant and sustainable free cash flow. With expectations to deliver a strong free cash flow yield and shareholder capital returns in excess of 40% of cash flow from operations through debt reduction and future dividends, Continental will continue to drive shareholder value," said Bill Berry, Chief Executive Officer.

[dan_s]

I have updated my forecast/valuation model for CLR and it will be on the EPG website in the morning. Now that I have detailed guidance for 2021 and I am raising my oil & gas prices in all forecast models, my valuation of CLR increases by $5.00 t0 $32.50. It closed today at $24.29.

NONE of CLR's oil is hedged, so it has more commodity price risk. However, if oil prices keep rising, then it also has more upside.
> The Company's production will be down in Q1 2021 because of the weather related shut-ins, but production should bounce back in March.
> I also think that CLR's production guidance is very conservative for 2021 because the Wall Street Gang values "financial discipline" and "free cash flow" more than they do growth.
> I am using a multiple of just 4.5 X operating cash flow to value the company, but an upstream company with this much running room will draw a lot of attention if oil & gas prices rise.
> My forecast for 2021 is EPS of $1.46 and operating cash flow of $8.02

CLR is one of the "Elite Eight" and a Core Holding stock if you think oil prices are going up.

[dan_s]

Stifel's Opinion

Continental Resources, Inc. (CLR, $24.29, Buy; Target $26.00) -
CLR ends 2020 with a positive quarter, enters 2021 with a strong FCF outlook - Derrick Whitfield
We view this release as neutral. The positives include: i) a total equivalent beat (6.3% above consensus) on lower than expected capex (15.2% below consensus), ii) an adjusted EBITDAX beat (12.1% below consensus) driven by lower than expected cash costs (13.9% below Stifel), iii) continual improvement in CWCs in both the Bakken and Oklahoma, iv) a 2021 plan that features a lower reinvestment rate, strong FCF generation (12% FCF yield) and debt reduction and v) the strategic decision not to pursue the water monetization. The negatives include: i) 2021 guidance that featured lower than expected oil production guidance (3.9% below consensus) and higher than expected capex (8.2% above consensus) and ii) the acquisition of PRB assets (with federal exposure) at a time when return of capital is the investor focus. Net-net, FCF is king, and Continental plans to offer investors a 12% FCF yield in 2021 at $52/bbl WTI.

MY TAKE: CLR's production target is extremely conservative, based on much lower oil price than we have today. None of their production is hedged, so higher oil prices will wipe out all of the negative stuff.