Continental Resources (CLR) Update - Nov 5
Posted: Fri Nov 05, 2021 12:16 pm
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.
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.